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 March 31, 2010
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 has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files.)
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. See definition of
`large accelerated filer`, `accelerated filer` and `smaller reporting
company` 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 May 14, 2010.
Common Stock, Without Par Value: 2,205,973 Shares Outstanding
NATIONAL BANCSHARES CORPORATION
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets 2
as of March 31, 2010
and December 31, 2009
Consolidated Statements of Income 3
and Comprehensive Income for the
three months ended
March 31, 2010 and 2009
Condensed Consolidated Statement of Changes 5
in Shareholders` Equity for the three months
ended March 31, 2010 and 2009
Condensed Consolidated Statements of 6
Cash Flows for the three months ended
March 31, 2010 and 2009
Notes to Consolidated Financial 7~14
Statements (Unaudited)
Item 2 Management`s Discussion and Analysis 14~19
of Financial Condition and
Results of Operations
Item 3 Quantitative and Qualitative Disclosures About 20
Market Risk
Item 4 Controls and Procedures 21
Part II. Other Information 22
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. Removed and Reserved
Item 5. Other Information ~ None
Item 6. Exhibits
Signatures 23
Exhibits 25~26
Item 1. Financial Statements
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in thousands)
March 31, December 31,
2010 2009
ASSETS
Cash and due from banks $ 28,832 $ 8,124
Time deposits with other financial institutions 12,540 13,580
Securities available for sale 123,539 130,241
Restricted equity securities 3,218 3,218
Loans held for sale 209 316
Loans, net of allowance for loan losses:
March 31, 2010~$3,394;
December 31, 2009~$2,906 191,483 194,071
Premises and equipment, net 9,388 9,033
Goodwill 4,723 4,723
Identified intangible assets 175 197
Accrued interest receivable 1,447 1,334
Cash surrender value of life insurance 2,795 2,771
Other assets 2,976 2,620
Total assets $381,325 $370,228
LIABILITIES AND SHAREHOLDERS` EQUITY
Deposits
Noninterest bearing $ 50,384 $ 54,290
Interest bearing 255,622 237,083
Total deposits 306,006 291,373
Repurchase agreements 6,893 6,105
Federal funds purchased - 3,300
Federal Reserve note account 198 315
Federal Home Loan Bank advances 25,000 27,000
Accrued interest payable 380 408
Accrued expenses and other liabilities 3,182 2,824
Total liabilities $341,659 $331,325
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 4,756 4,752
Retained earnings 21,973 21,856
Treasury stock, at cost (83,555 shares) (1,639) (1,639)
Accumulated other comprehensive income 3,129 2,487
Total shareholders` equity 39,666 38,903
Total liabilities and
shareholders` equity $381,325 $370,228
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
March 31, March 31,
2010 2009
Interest and dividend income
Loans, including fees $2,602 $2,582
Securities:
Taxable 1,029 1,464
Nontaxable 271 162
Federal funds sold and other 56 -
Total interest and dividend income 3,958 4,208
Interest expense
Deposits 572 937
Short-term borrowings 13 14
Federal Home Loan Bank advances 261 264
Total interest expense 846 1,215
Net interest income 3,112 2,993
Provision for loan losses 507 123
Net interest income after provision for loan losses 2,605 2,870
Noninterest income
Checking account fees 262 247
Visa check card interchange fees 98 78
Deposit and miscellaneous service fees 36 22
Mortgage banking activities 51 20
Securities gains (losses), net 76 152
Loss on sale of other real estate owned (11) -
Other 113 126
Total noninterest income 625 645
Noninterest expense
Salaries and employee benefits 1,378 1,334
Data processing 241 216
Net occupancy 294 265
FDIC assessment 121 117
Professional and consulting fees 108 110
Franchise tax 90 84
Maintenance and repairs 70 63
Amortization of intangibles 22 57
Telephone 58 47
Marketing 65 48
Director fees and pension 72 53
Other 410 341
Total noninterest expense 2,929 2,735
Income before income tax expense 301 780
Income tax expense 8 207
Net income $ 293 $ 573
NATIONAL BANCSHARES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
(Continued) Three months ended
March 31, March 31,
2010 2009
Other comprehensive income:
Unrealized appreciation in fair
value of securities available for sale,
net of taxes of $356 and $297 $ 692 $ 576
Reclassification adjustment for realized gains
included in earnings, net of taxes of
$26 and $52 (50) (100)
Total other comprehensive income, net of taxes 642 476
Comprehensive income $ 935 $ 1,049
Weighted average basic and diluted common shares
outstanding 2,205,973 2,202,368
Basic and diluted earnings per common share $ 0.13 $ 0.26
Dividends declared per common share $ 0.08 $ 0.08
See accompanying notes to consolidated financial statements.
NATIONAL BANCSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS` EQUITY (Unaudited)
(dollars in thousands, except per share data) Three months ended,
March 31, March 31,
2010 2009
Balance at beginning of period $ 38,903 $ 36,881
Comprehensive income
Net income 293 573
Other comprehensive (loss) 642 476
Total comprehensive income 935 1,049
Stock-based compensation 4 12
Cash dividends declared ($0.08 per share in 2010
and 2009) (176) (176)
Balance at end of period $ 39,666 $ 37,766
See accompanying notes to consolidated financial statements.
NATIONAL BANCSHARES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands, except per share data)
Three months ended
March 31, March 31,
2010 2009
Net cash from operating activities $ 647 $ 273
Cash flows from investing activities
Purchases of time deposits with other financial
institutions (2,460) -
Proceeds from time deposits with other financial
institutions 3,500 -
Securities available for sale
Proceeds from maturities and repayments 11,160 5,747
Proceeds from sales 1,988 3,304
Purchases (5,531) (8,515)
Purchases of property and equipment (525) (669)
Proceeds on the sale of other real estate owned 35 -
Purchase of loans - (1,151)
Net change in loans 2,066 1,159
Net cash from investing activities 10,233 (125)
Cash flows from financing activities
Net change in deposits 14,633 1,418
Net change in short-term borrowings (2,629) (4,875)
Proceeds from Federal Home Loan Bank advances - 4,000
Repayments of Federal Home Loan Bank advances (2,000) -
Dividends paid (176) (352)
Net cash from financing activities 9,828 191
Net change in cash and cash equivalents 20,708 339
Beginning cash and cash equivalents 8,124 11,001
Ending cash and cash equivalents $ 28,832 $ 11,340
Supplemental Disclosures
Cash paid for interest $ 874 $ 1,310
Cash paid for income taxes $ 100 $ -
Supplemental noncash disclosures:
Transfer from loans to other real estate owned $ 41 $ -
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, Summit 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 March 31, 2010, the consolidated
statements of income and comprehensive income for the three month periods
ended March 31, 2010 and 2009, and the condensed consolidated statements of
changes in shareholders` equity and the condensed consolidated statements
of cash flows for the three month periods ended March 31, 2010 and 2009,
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, 2009. Operating results for the three months
ended March 31, 2010 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2010.
The Company believes that the disclosures are adequate to make the
information presented not misleading; however, the results of operations
and other data presented for the periods presented are not necessarily
indicative of results to be expected for the entire fiscal year.
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 instruments and carrying value of intangible assets
are particularly subject to change.
Cash Flows
Cash and cash equivalents include cash, deposits with other banks with
original maturities under 90 days, and federal funds sold. Net cash flows
are reported for customer loan and deposit transactions, interest bearing
deposits with other banks, repurchase agreements and other short-term
borrowings.
Earnings Per Common Share
Earnings per common share is net income divided by the weighted average
number of shares outstanding during the period. Diluted earnings per
share includes the dilutive effect of additional potential common
shares issuable under stock options. 53,000 and 58,000 stock options
were not considered in computing diluted earnings per common share for
the periods ending March 31, 2010 and 2009, respectively, because they
were antidilutive.
Note 2 ~ Securities
(dollars in thousands)
Securities consist of the following at March 31, 2010 and December 31, 2009:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 2010
U.S. Government and federal agency $ 2,801 $ - $ - $ 2,801
State and municipal 28,069 1,157 (39) 29,187
Corporate bonds and notes 3,856 71 - 3,927
Mortgage backed: residential 84,049 3,590 (34) 87,605
Equity securities 23 - (4) 19
Total $118,798 $ 4,818 $ (77) $123,539
December 31, 2009
U.S. Government and federal agency $ 819 $ - $ - $ 819
State and municipal 28,019 763 (99) 28,683
Corporate bonds and notes 7,640 137 - 7,777
Mortgage-backed: residential 89,972 3,058 (87) 92,943
Equity securities 23 - (4) 19
Total $126,473 $ 3,958 $ (190) $130,241
Sales of available for sale securities were as follows:
For the three months ended
March 31, March 31,
2010 2009
Proceeds $1,988 $3,304
Gross gains 76 152
Gross losses - -
The tax provision related to these net realized gains and losses was $26
and $52, respectively for the three months ended March 31, 2010 and 2009.
The fair value of securities at March 31, 2010 by contractual maturity were
as follows. Securities not due at a single maturity date, primarily
mortgage-backed securities, are shown separately.
Amortized Cost Fair Value
Due in one year or less $ 3,169 $ 3,203
Due from one to five years 5,258 5,391
Due from five to ten years 15,046 15,673
Due after ten years 11,253 11,648
Mortgage backed: residential 84,049 87,605
Equity securities 23 19
Total $118,798 $123,539
Securities pledged at March 31, 2010 and December 31, 2009 had a carrying
amount of $76,478 and $45,882 and were pledged to secure public deposits
and repurchase agreements.
At March 31, 2010 and December 31, 2009, there were no holdings of
securities of any one issuer, other than the U.S. Government and its
agencies, in an amount greater than 10% of shareholders` equity.
Securities with unrealized losses at March 31, 2010 and December 31, 2009,
aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position, are as follows:
Less Than 12 Months 12 Months or More Total
Fair Unrealized Fair Unrealized Fair Unrealized
March 31, 2010 Value Loss Value Loss Value Loss
State and municipal $ 1,102 $ (8) $ 463 $ (31) $ 1,565 $ (39)
Mortgage-backed: residential 4,692 (34) - - 4,692 (34)
Equity securities 19 (4) - - 19 (4)
Total temporarily impaired $ 5,813 $ (46) $ 463 $ (31) $ 6,276 $ (77)
Less Than 12 Months 12 Months or More Total
Fair Unrealized Fair Unrealized Fair Unrealized
December 31, 2009 Value Loss Value Loss Value Loss
State and municipal $ 4,375 $ (60) $ 455 $ (39) $ 4,830 $ (99)
Mortgage-backed: residential 11,761 (87) - - 11,761 (87)
Equity securities 19 (4) - - 19 (4)
Total temporarily impaired $16,155 $ (151) $ 455 $ (39) $ 8,595 $ (190)
Management believes that all of its securities that were reported net of an
unrealized loss at March 31, 2010 are the result of fluctuations in
interest rates and do not reflect deterioration in the credit quality of
the securities. Accordingly management considers these unrealized losses to
be temporary in nature. The Company does not have the intent to sell and
does not believe it is more likely than not the Company will be required
to sell these securities before their recovery.
Unrealized losses have not been recognized into income because the
securities are of high credit quality, management has the intent and
ability to hold for the foreseeable future, and the decline in fair
value is largely due to changes in market interest rates or normally
expected market pricing fluctuations. The fair value of debt securities
is expected to recover as the securities approach their maturity date.
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 three months ended
March 31,
2010 2009
Beginning balance $2,906 $1,718
Provision for loan losses 507 123
Loans charged-off (20) (48)
Recoveries 1 1
Ending balance $3,394 $1,794
Individually impaired loans were as follows: March 31, December 31,
2009 2008
Loans with no allocated allowance for loan losses $ 84 $2,069
Loans with allocated allowance for loan losses 5,413 3,692
Amount of the allowance for loan losses allocated 1,439 916
The impact on interest income of impaired loans was not significant to the
consolidated statements of income.
Impaired loans are generally measured for impairment using the fair value
of the collateral supporting the loan. Evaluating impaired loan collateral
is based on level 3 inputs utilizing outside appraisals adjusted by
management for sales costs and other assumptions regarding market
conditions to arrive at fair value.
Nonaccrual loans and loans past due 90 days still on accrual were as follows:
March 31, December 31,
2010 2009
Loans past due over 90 days still on accrual $ 471 $ 458
Nonaccrual loans 5,937 4,716
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 ~ Interest-Rate Swaps
(dollars in thousands)
The Company utilizes interest-rate swap agreements as part of its asset
liability management strategy to help manage its interest rate risk
position, not for speculation. The notional amount of the interest-rate
swaps does not represent amounts exchanged by the parties. The amount
exchanged is determined by reference to the notional amount and the
other terms of the individual interest-rate swap agreements.
The Company implemented a program whereby it lends to its borrowers at
a fixed rate with the loan agreement containing a two-way yield
maintenance provision in the first quarter of 2009. If the borrower
prepays the loan, the yield maintenance provision will result in a
prepayment penalty or benefit depending on the interest rate environment
at the time of the prepayment. This provision represents an embedded
derivative which is required to be bifurcated from the host loan
contract. As a result of bifurcating the embedded derivative, the
Company records the transaction with the borrower as a floating rate
loan and a pay floating / receive fixed interest-rate swap. To offset
the risk of the interest-rate swap with the borrower, the Company
enters interest-rate swaps with outside counterparties that mirror
the terms of the interest-rate swap between the Company and the borrower.
Both interest-rate swaps are carried as freestanding derivatives with
their changes in fair value reported in current earnings. The interest-rate
swaps are not designated as hedges. The change in the fair value of the
interest-rate swap between the Company and its borrower was an increase
of $7 for the first three months ended March 31, 2010, which was offset
by an equal decrease in value during the first three months ended
March 31, 2010 on the interest-rate swaps with outside parties, with the
result that there was no impact on income as of March 31, 2010.
Summary information about the interest-rate swaps between the Company and
its borrower as of March 31, 2010 is as follows:
Notional amount $1,529
Weighted average receive rate 5.33%
Weighted average pay rate 3.25%
Weighted average maturity (years) 3.7
Fair value of interest-rate swaps 11
Summary information about the interest-rate swaps between the Company and
outside parties as of March 31, 2010 is as follows:
Notional amount $1,529
Weighted average pay rate 5.33%
Weighted average receive rate 3.25%
Weighted average maturity (years) 3.7
Fair value of interest-rate swaps (11)
The fair value of the interest-rate swaps at March 31, 2010 is reflected in
other assets and other liabilities with a corresponding offset to
noninterest income.
Note 5 ~ Stock-Based Compensation
(dollars in thousands, except per share information)
The Corporation`s 2008 Equity Incentive Plan (`the Plan`), which is
shareholder-approved, permits the grant of stock options or restricted
stock awards, 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 Corporation`s common stock at the date of grant; those option awards
have vesting periods determined by the Corporation`s compensation committee
and have terms that shall not exceed 10 years.
On May 20, 2008, the Corporation granted options to purchase 58,000 shares
of stock to directors and certain key officers, all of which remained
outstanding at March 31, 2010. 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. 5,000 options were forfeited during
2009 leaving 53,000 outstanding at March 31, 2010. All remaining options
are expected to vest.
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 of $1.83 per option 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 $4 and $12 for the quarters ended March 31, 2010 and 2009. The
total income tax benefit was $1 and $4 for the same period. As of
March 31, 2010, there was $34 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 3.1 years.
At March 31, 2010, 10,600 options are vested and the outstanding options
have no intrinsic value. The weighted average remaining contractual term
is 8.1 years.
Note 5 ~ Fair Value
(dollars in thousands)
Statement 157 establishes a fair value hierarchy which requires an entity
to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities
in active markets that the entity has the ability to access as of the
measurement date.
Level 2: Significant other observable inputs other than Level 1 prices
such as quoted prices for similar assets or liabilities; quoted prices
in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity`s
own assumptions about the assumptions that market participants would
use in pricing an asset or liability.
The fair values of securities available for sale are determined by
obtaining quoted prices on nationally recognized securities exchanges
(Level 1 inputs) or matrix pricing, which is a mathematical technique
widely used in the industry to value debt securities without relying
exclusively on quoted prices for the specific securities but rather
by relying on the relationship to other benchmark quoted securities
(Level 2 inputs).
The fair value of servicing rights is based on market prices for comparable
mortgage servicing contracts, when available, or alternatively based on
a valuation model that calculates the present value of estimated net
servicing income. The valuation model incorporates assumptions that market
participants would use in estimating future net servicing income. The
Corporation is able to compare the valuation model inputs and results to
widely available published industry data for reasonableness (Level 2 inputs).
The fair value of derivatives is based on valuation models using observable
market data as of the measurement date (Level 2 inputs).
The fair value of impaired loans with specific allocations of the allowance
for loan losses is generally based on recent real estate appraisals.
These appraisals may utilize a single valuation approach or a combination
of approaches including comparable sales and the income approach.
Adjustments are routinely made in the appraisal process by the appraisers
to adjust for differences between the comparable sales and income data
available. Such adjustments are typically significant and result in a
Level 3 classification of the inputs for determining fair value.
Nonrecurring adjustments to certain commercial and residential real estate
properties classified as other real estate owned are measured at the lower
of carrying amount or fair value, less cost to sell. Fair Values are
generally based on third party appraisals of the property, resulting in a
Level 3 classification. In cases where the carrying amount exceeds the
fair value, less costs to sell, an impairment loss is recognized.
Loans held for sale are carried at the lower of cost or fair value, as
determined by outstanding commitments, from third party investors.
Assets and Liabilities Measured on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are
summarized below:
Fair Value Measurements
At March 31, 2010 Using
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency $ - $ 2,801 $ -
State and municipal - 29,187 -
Corporate bonds and notes - 3,927 -
Mortgage backed securities-residential - 87,605 -
Equity securities 19 - -
Interest rate swaps - 11 -
Fair Value Measurements
At March 31, 2010 Using
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
Liabilities:
Interest rate swaps $ - $ 11 $ -
Fair Value Measurements
At March 31, 2009 Using
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency $ - $ 819 $ -
State and municipal - 28,683 -
Corporate bonds and notes - 7,777 -
Mortgage backed securities-residential - 92,943 -
Equity securities 19 - -
Interest rate swaps - 4 -
Fair Value Measurements
At March 31, 2009 Using
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
Liabilities:
Interest rate swaps $ - $ 4 $ -
Assets and Liabilities Measured on a Non-Recurring Basis
Assets and liabilities measured at fair value on a non-recurring basis are
summarized below:
Fair Value Measurements
At March 31, 2010 Using
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
Assets:
Impaired loans $ - $ - $ 3,974
Other real estate owned - - 99
Fair Value Measurements
At March 31, 2009 Using
Quoted Prices in Significant
Active Markets Other Significant
for Identical Observable Unobservable
Assets Inputs Inputs
(Level 1) (Level 2) (Level 3)
Assets:
Impaired loans $ - $ - $ 3,626
Other real estate owned - - 58
Impaired loans, which are measured for impairment using the fair value of
the collateral for collateral dependent loans, had a principal amount of
$5,413, with a valuation allowance of $1,439, resulting in an additional
provision of $523 for loan loss in the quarter ended March 31, 2010.
Impaired loans had a principal amount of $4,542, with a valuation allowance
of $916, resulting in an additional provision of $1,091 for loan loss in
the year ended December 31, 2009.
Other real estate owned measured at fair value less costs to sell, had a
net carrying amount of $99, which is made up of the outstanding balance
of $174, net of a valuation allowance of $75 at March 31, 2010. There were
no write-downs of other real estate owned for the quarters ending
March 31, 2010 and 2009. Other real estate owned measured at fair value
less costs to sell, had a net carrying amount of $58, which is made up of
the outstanding balance of $133, net of a valuation allowance of $75 at
December 31, 2009, resulting in a write-down of $75 for the year ending
December 31, 2009.
Carrying amount and estimated fair values of financial instruments at
March 31, 2010 were as follows:
For the three months ended
March 31, December 31,
2010 2009
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial assets
Cash and cash equivalents $ 28,832 $ 28,832 $ 8,124 $ 8,124
Time deposits with other financial
institutions 12,540 12,540 13,580 13,580
Securities available for sale 123,539 123,539 130,241 130,241
Restricted equity securities 3,218 na 3,218 na
Loans held for sale 209 209 316 316
Loans, net 191,483 191,704 194,071 194,103
Accrued interest receivable 1,447 1,447 1,334 1,334
Interest rate swaps 11 11 4 4
Financial liabilities
Deposits $306,006 $306,773 $291,373 $292,045
Short-term borrowings 7,091 7,091 9,720 9,720
Federal Home Loan Bank advances 25,000 25,665 27,000 27,779
Accrued interest payable 380 380 408 408
Interest rate swaps 11 11 4 4
The methods and assumptions used to estimate fair value are described
as follows:
Carrying amount is the estimated fair value for cash and cash equivalents,
time deposits with other financial institutions, interest bearing deposits,
accrued interest receivable and payable, demand deposits, short term debt,
and variable rate loans or deposits that reprice frequently and fully.
Security fair values are determined as previously described. For fixed rate
loans or deposits and for variable rate loans or deposits with infrequent
repricing or repricing limits, fair value is based on discounted cash flows
using current market rates applied to the estimated life and credit risk.
Fair value of debt is based on current rates for similar financing. It was
not practicable to determine the fair value of restricted equity securities
due to restrictions placed on its transferability. The fair value of off
balance sheet items is not considered material.
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, 2009. 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.
OVERVIEW
Total assets increased to $381.3 million as of March 31, 2010, from
$370.2 million at December 31, 2009.
Basic and diluted earnings per share for the first three months of 2010
totaled $0.13 per share. Net income for the first three months of 2010 was
$293 thousand compared to $573 thousand for the same period of 2009 or $0.13
and $0.26 basic and diluted per share, respectively. Net income was
positively impacted by an increase in net interest income and negatively
impacted by an increase in the provision for loan losses and noninterest
expense.
Net interest income for the three month period ended March 31, 2010
increased 4.0% compared to the same period in 2009 despite a declining
interest rate environment. The provision for loan losses increased to
$507 thousand for the three months ended March 31, 2010 compared to
$123 thousand for the same period in 2009. The increase in the provision
was primarily related to the specific loss allocation, attributable to
2010 loan deterioration, on three adversely classified loans. Noninterest
income for the first three months of 2010 decreased 3.1% compared to the
same period in 2009 primarily related to the decrease in net gains
recorded on the sale of securities from $152 thousand in 2009 to $76 thousand
in 2010.
Noninterest expense for the first three months of 2010 increased 7.1%
compared to the same period in 2009 due primarily to an increase in
salaries and benefit expense, data processing expense and occupancy
expense. The income tax expense decreased to $8 thousand for the three
months ended March 31, 2010 compared to $207 thousand for the same period
in 2009.
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
minimum to be well-capitalized at March 31, 2010 and December 31, 2009.
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.
FINANCIAL CONDITION ~ MARCH 31, 2010, COMPARED TO DECEMBER 31, 2009
Balance Sheet
Cash and cash equivalents increased $20.7 million to $28.8 million
at March 31, 2010.
Securities available for sale decreased $6.7 million due to the purchase
of $5.5 million of securities, offset by maturities and repayments of
$11.2 million and $2.0 million in sales. The net unrealized gains on
securities increased to $4.7 million as of March 31, 2010 compared to
$3.8 million net unrealized gains on securities as of December 31, 2009.
Loans decreased $2.1 million during the first three months of 2010. The
loan demand in the Bank`s primary market remains soft. However, the Bank
continues to focus on enhancing it`s ability to originate commercial loans.
The Bank opened a temporary full-service office in Fairlawn, Ohio in
May, 2009. The office is staffed by four business bankers and one
corporate services specialist, who are focused on the sale of Business
Financial Services in Summit and Cuyahoga counties. The Fairlawn office
has generated over $29.7 million in loans and over $3 million in deposits
since opening.
Loans at March 31, 2009 and December 31, 2008 were as follows:
(dollars in thousands)
March 31, December 31,
2010 2009
Collateralized by real estate:
Commercial $ 65,300 $ 65,139
Residential 48,592 50,390
Home Equity 27,185 26,526
Construction and land development 12,758 12,395
153,835 154,450
Other:
Consumer 11,187 12,343
Commercial 27,524 26,792
Other 2,784 3,830
195,330 197,415
Unearned and deferred income (453) (438)
Allowance for loan losses (3,394) (2,906)
Total $191,483 $194,071
Allowance for loan losses is a valuation allowance for probable incurred
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, impaired 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 incurred 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 incurred 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 1.74% as of
March 31, 2010, which is an increase from 1.48% at December 31, 2009. Net
charge-offs were $19 thousand for the three months ended March 31, 2010,
compared to $47 thousand for the same period in 2009.
The ratio of non-performing loans to total loans was 3.28% ($6.4 million)
for March 31, 2010 compared to 2.67% ($5.2 million) for December 31, 2009.
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. Loans
past due 30 through 89 days and still accruing increased from $1.7 million
as of December 31, 2009 to $1.9 million as of March 31, 2010.
Total classified loans decreased from $14.6 million at December 31, 2009 to
$14.5 million at March 31, 2010. The increase in the allowance for loan
losses and the increase in non performing loans is directly attributable to
the economic downturn which has negatively impacted the financial position
and ability of the Bank`s borrowers to service debt. The Bank`s
classification ratio was 37.92% as of March 31, 2010. The total
classification ratio (TCR) is calculated using total classified assets
divided by Tier 1 capital plus allowance for loan losses. Management
believes the allowance for loan losses is adequate as of March 31, 2010.
Total deposits increased $14.6 million as of March 31, 2010 compared to
December 31, 2009. Interest bearing demand deposits have increased $18.5
million due primarily to an increase in local governmental deposit accounts.
Historically noninterest-bearing demand accounts have fluctuated based upon
the liquidity needs of our customers.
Deposits at March 31, 2010 and December 31, 2009 were as follows:
(dollars in thousands)
March 31, December 31,
2010 2009
Demand, noninterest-bearing $ 50,384 $ 54,290
Demand, interest-bearing 134,809 117,862
Savings 47,231 46,371
Time, $100,000 and over 16,414 15,712
Time, other 57,168 57,138
$306,006 $291,373
Shareholders` Equity
Total shareholders` equity increased $763 thousand to $39.7 million as of
March 31, 2010 from $38.9 million as of December 31, 2009. Net income for
the three months ended March 31, 2010 was $293 thousand, while dividends
declared were $176 thousand. Accumulated other comprehensive income
increased from $2.5 million on December 31, 2009 to $3.1 million as of
March 31, 2010.
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
March 31, 2010 Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital to risk-weighted assets $30,192 12.98% $18,613 8.00% $23,266 10.00%
Tier 1 capital to risk-weighted assets 27,268 11.72% 9,307 4.00% 13,960 6.00%
Tier 1 capital to average assets 27,268 7.42% 14,699 4.00% 18,374 5.00%
To Be Well Capitalized
For Capital Under Prompt Corrective
December 31, 2009 Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital to risk-weighted assets $29,842 12.46% $19,161 8.00% $23,952 10.00%
Tier 1 capital to risk-weighted assets 26,936 11.25% 9,581 4.00% 14,371 6.00%
Tier 1 capital to average assets 26,936 7.40% 14,562 4.00% 18,202 5.00%
Statements of Cash Flows
Net cash from operating activities for the first three months of 2010 was
$647 thousand compared to $273 thousand for the same period of 2009. Net
cash from investing activities for the first three months of 2010 was
$10.2 million, compared to $(125) thousand for the first three months of
2009. Net cash from financing activities was $9.8 million for the first
three months of 2010 compared to $191 thousand for the first three months
of 2009. The increase in cash and cash equivalents was $20.7 million during
the first three months of 2010, primarily related to an increase in local
governmental deposit accounts. Total cash and cash equivalents was
$28.8 million as of March 31, 2010 compared to $8.1 million at
December 31, 2009.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED
MARCH 31, 2010 AND 2009
Net income for the first three months of 2010 was $293 thousand or $0.13 per
basic and diluted earnings per share compared to $573 thousand or $0.26 per
basic and diluted earnings per share for the same period in 2009. The
decrease was due primarily to an increase in the provision for loan losses
and an increase in noninterest expense, partially offset by an increase
in net interest income.
Annualized return on average equity (`ROAE`) and average assets (`ROAA`)
for the first three months of 2010 were 2.97% and 0.31%, respectively,
compared with 6.14% and 0.67% for the first three months of 2009.
Three months ended March 31,
2010 2009
(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 $100,990 $1,029 4.22% $115,099 $1,464 5.19%
Nontaxable 28,416 409 5.94% 16,658 245 5.95%
(tax equivalent basis) (2)
Federal funds sold - - 0.00% 410 - 0.00%
Interest bearing deposits 23,608 56 0.95% - - 0.00%
Net loans (including
nonaccrual loans) 194,004 2,602 5.36% 183,712 2,582 5.62%
Total interest-earning assets 347,018 4,096 4.72% 315,879 4,291 5.43%
All other assets 25,633 24,298
Total assets $372,651 $340,177
Liabilities and Shareholders` Equity
Interest-bearing liabilities:
Interest-bearing checking $119,619 172 0.58% $ 94,618 331 1.40%
Savings 46,586 17 0.15% 49,099 40 0.33%
Time, $100,000 and over 15,815 75 1.90% 13,235 90 2.72%
Time, other 56,743 305 2.15% 60,815 476 3.13%
Other funds purchased 38,739 277 2.86% 38,016 278 2.93%
Total interest-bearing liabilities 277,502 846 1.22% 255,783 1,215 1.90%
Demand deposits 52,337 43,478
Other liabilities 3,440 3,592
Shareholders` equity 39,372 37,324
Total liabilities and
shareholders` equity $372,651 $340,177
Net interest income
(tax equivalent basis) (2) $3,250 $3,076
Interest rate spread (3) 3.50% 3.53%
Net yield on interest-earning assets (4) 3.75% 3.90%
Ratio of average interest-earning assets
to average interest-bearing liabilities 125.05% 123.49%
(1) Average yields are computed using annualized interest income and
expense for the periods.
(2) Tax equivalence based on highest statutory rate 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 $4.0 million, a decrease of $250
thousand for the three months ended March 31, 2010 compared to the same
period in 2009. Adjusted on a fully tax-equivalent (`FTE`) basis the yield
on earning assets in the first three months of 2010 was 4.72% compared to
5.43% in the first three months of 2009.
Interest expense totaled $846 thousand, a decrease of $369 thousand or
30.4% for the three months ended March 31, 2010 as compared to the same
period in 2009. The average cost for interest bearing liabilities was
1.22% compared to 1.90% for the first three months of 2009.
The decrease of 68 basis points from the first three months of 2010 is
the result of change in the average volume in the mix of interest bearing
liabilities and declining interest rates.
Net interest income increased $119 thousand, or 4.0% for the three month
period ended March 31, 2010 as compared to March 31, 2009. During the first
three months of 2010, the interest rate spread decreased 3 basis points on
a FTE basis when compared to the first three months of 2009.
Provision for loan losses totaled $507 thousand for the first three months
of 2010 compared to $123 thousand for the same period in 2009.
Non-performing loans were $6.4 million as of March 31, 2010 compared to
$5.2 million as of December 31, 2009. Adversely classified loans decreased
to $14.5 million at March 31, 2010 compared to $14.6 million as of
December 31, 2009. Adversely classified loans are credits that Bank
management has graded special mention, doubtful and substandard. Loans
past due 30 through 89 days and still accruing increased from $1.7 million
as of December 31, 2009 to $1.9 million as of March 31, 2010.
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
March 31, 2010.
Noninterest income for the three months ended March 31, 2010 decreased to
$625 thousand or 3.1%, from $645 thousand for the same period in 2009.
The change is primarily related to the decrease in net gains recorded on
the sale of securities from $152 thousand in 2009 to $76 thousand in 2010.
Income from mortgage banking activities more than doubled to $51 thousand
for the three months ended March 31, 2010 as Bank management continues to
focus on improving mortgage department products and services.
Noninterest expense for the three months ended March 31, 2010 was $2.9
million, an increase of 7.1% from $2.7 million for the same period in 2009.
The increase in noninterest expense was due primarily to slight increases
in salaries and employee benefits expense, data processing expense and
occupancy expense.
Income tax expense was $8 thousand for the three months ended March 31, 2010
which represents a decrease of $199 thousand compared to the same period in
2009. Lower pre-tax income and an increase in interest income from tax-exempt
securities for the three months ended March 31, 2010 compared to the same
period in 2009 is the primary factor causing the decrease in income tax
expense.
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.
The Board of Directors has established 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.
March 31, 2010
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in EVE (15.0)% (8.4)% (2.9)% (3.3)% nm nm
December 31, 2009
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in EVE (13.4)% (7.4)% (2.3)% (4.4)% (10.9)% (19.9)%
nm - not meaningful
The Bank is in compliance with the interest rate risk policy limits related
to EVE as of March 31, 2010 and December 31, 2009.
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.
March 31, 2010
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in Earnings (0.9)% (0.4)% (0.1)% (0.5)% nm nm
December 31, 2009
Basis Point Change in Rates +300 bp +200 bp +100 bp -100 bp -200 bp -300 bp
Increase (decrease) in Earnings (1.6)% (1.1)% (0.3)% (0.1)% (1.9)% (4.0)%
nm - not meaningful
The Bank is in compliance with the interest rate risk policy limits related
to EAR as of March 31, 2010 and December 31, 2009.
Item 4T. 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
March 31, 2010, 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 March 31, 2010, 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 March 31, 2010 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, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds ~ None
Item 3. Defaults Upon Senior Securities ~ None
Item 4. Removed and Reserved
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: May 14, 2010 /s/David C. Vernon
David C. Vernon, President and
Chief Executive Officer
Date: May 14, 2010 /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: May 14, 2010
/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: May 14, 2010
/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 MARCH 31, 2010
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 March 31, 2010.
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 May 14, 2010
/s/ David C. Vernon
David C. Vernon,
President and
Chief Executive
Officer
/s/ James R. VanSickle
James R. VanSickle,
Chief Financial
Officer