SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_______________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________
Date of Report (Date of Earliest Event Reported): August 10, 1996
NATIONAL BANKSHARES, INC.
- -------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Virginia 0-15204 54-1375874
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
P.O. Box 90002
Blacksburg, Virginia 24062-9002
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (540) 552-2011
Page 1 of 42 Pages
Item 2
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On May 31, 1996, at 11:59 P.M., National Bankshares, Inc. (NBI) of
Blacksburg, Virginia, parent company of The National Bank of Blacksburg,
consummated a transaction with the Bank of Tazewell County (BTC) of
Tazewell, Virginia, in which NBI Interim Bank (a bank organized for the
sole purpose of the transaction and a wholly owned subsidiary of NBI) was
merged into BTC and BTC as the surviving entity became a wholly owned
subsidiary of NBI. BTC is a Virginia state bank headquartered in Tazewell,
Virginia with seven offices.
Pursuant to the Agreement and Plan of Merger dated August 28, 1995,
between NBI and BTC (Plan), each share of the 1,888,209 shares of the
common stock ($1.10 par value) of BTC outstanding immediately prior to the
merger was converted into the right to receive one share of the common
stock ($2.50 par value) of NBI (NBI Common Stock). The merger met the
requirements for a tax-free transaction under the Internal Revenue Code of
1986, as amended, and will be accounted for as a pooling-of-interest. As
provided in the Plan, NBI effected a stock split in the form of a stock
dividend aggregating 190,768 shares of NBI Common Stock for stockholders of
record at the closing of business on May 30, 1996, payable on June 14,
1996. The exchange ratio provided for in the plan took into consideration
the NBI stock split.
-2-
INDEX
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Page
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Item 7. Financial Statements
-----------------------------
(7a) Financial Statements of Businesses Acquired
Bank of Tazewell County:
Interim Financial Statements (Unaudited):
Balance Sheet - March 31, 1996
and March 31, 1995 (unaudited) 4-5
Statements of Income - Three Months Ended
March 31, 1996 and 1995 (unaudited) 6
Statements of Changes in Stockholder's
Equity - Three Months Ended March 31,
1996 and 1995 (unaudited) 7
Statements of Cash Flows - Three Months
Ended March 31, 1996 and 1995 (unaudited) 8-9
Notes to Financial Statements - March 31,
1996 and 1995 (unaudited) 10-13
Annual Financial Statements:
Independent Auditors' Report 14
Balance Sheets - December 31, 1995 and 1994 15-16
Statements of Income - Years Ended December
31, 1995 and 1994 17
Statements of Cash Flows - Years Ended
December 31, 1995 and 1994 18-19
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995 and 1994 20
Notes to Financial Statements - Years Ended
December 31, 1995 and 1994 21-33
Annual Financial Statements for the Year
Ended December 31, 1993 are incorporated
herein by reference to Form S-4 filed
December 13, 1995 and as amended February
29, 1996
(7b) Pro Forma Financial Information:
Pro Forma Combined Condensed Balance
Sheet - March 31, 1996 34-35
Pro Forma Combined Condensed Statements of
Income before Cumulative Effect of Change
in Accounting Principle and nonrecurring
charges related to the merger Three Months
Ended March 31, 1996 and 1995 (unaudited)
and Year Ended December 31, 1995 (unaudited) 36-38
Pro Forma Financial Information of National
Bankshares, Inc. (NBI) and Bank of
Tazewell County (BTC) (unaudited) 39-40
Pro Forma information for the Years Ended
December 31, 1994 and 1993 are incorporated
herein by reference to Form S-4 filed
December 13, 1996 and as amended February
29, 1996
-3-
BALANCE SHEETS
BANK OF TAZEWELL COUNTY
MARCH 31, 1996 AND 1995
(UNAUDITED)
MARCH 31, MARCH 31,
($000's) 1996 1995
========= ========
ASSETS
Cash and due from banks $ 4,617 5,379
Federal funds sold 7,825 5,200
Securities available for sale, at fair value 48,625 24,835
Securities held to maturity (fair value
$69,714 in 1996 and $90,507 in 1995) 70,408 92,160
Mortgage loans held for sale --- ---
Loans:
Real estate construction loans --- ---
Real estate mortgage loans 13,239 13,902
Commercial and industrial loans 23,784 22,146
Loans to individuals 6,677 7,083
-------- --------
Total loans 43,700 43,131
Less unearned income on loans (754) (730)
-------- --------
Loans, net of unearned income 42,946 42,401
Less allowance for loan losses (546) (549)
-------- --------
Loans, net 42,400 41,852
-------- --------
Bank premises and equipment, net 2,014 1,999
Accrued interest receivable 1,916 1,960
Other real estate owned, net 22 65
Other assets 643 915
-------- --------
Total assets $178,470 174,365
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits $ 16,317 15,692
Interest-bearing demand deposits 20,507 20,185
Savings deposits 36,032 40,087
Time deposits 78,235 73,403
-------- --------
Total deposits 151,091 149,367
-------- --------
Short-term borrowings 1,127 558
Accrued interest payable 484 376
Other liabilities 154 349
-------- --------
Total liabilities 152,856 150,650
-------- --------
-4-
Stockholders' equity:
Common stock of $1.10 par value in 1996 and
$1.00 par value in 1995. Authorized
6,000,000 shares; issued and outstanding
1,888,209 2,077 1,888
Surplus 1,811 2,000
Undivided profits 21,998 20,993
Net unrealized gains (losses) on
securities available for sale (272) (1,166)
-------- --------
Total stockholders' equity 25,614 23,715
Commitments and contingent liabilities --- ---
-------- --------
Total liabilities and
stockholders' equity $178,470 174,365
======== ========
-5-
STATEMENTS OF INCOME
BANK OF TAZEWELL COUNTY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
MARCH 31, MARCH 31,
($000's) 1996 1995
========= =========
INTEREST INCOME
Interest and fees on loans $ 933 1,114
Interest on federal funds sold 112 138
Interest on securities-taxable 1,723 1,724
Interest on securities-nontaxable 119 154
------ ------
Total interest income 2,887 3,130
------ ------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 309 257
Interest on other deposits 1,242 1,144
Interest on short-term borrowings 5 6
------ ------
Total interest expense 1,556 1,407
------ ------
Net interest income 1,331 1,723
Provision for loan losses --- ---
------ ------
Net interest income after provision
for loan losses 1,331 1,723
------ ------
NONINTEREST INCOME
Service charges on deposit accounts 78 66
Other service charges and fees 10 12
Trust income 16 12
Other income 4 ---
Realized securities gains (losses), net 2 45
------ ------
Total noninterest income 110 45
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 314 398
Occupancy and furniture and fixtures 84 164
Data processing 4 6
Other operating expense 362 236
------ ------
Total noninterest expense 764 804
------ ------
Income before income tax expense 677 964
Income tax expense 224 229
------ ------
Net income $ 453 735
====== ======
Net income per share $ 0.24 0.39
====== ======
-6-
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
BANK OF TAZEWELL COUNTY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NET
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
COMMON UNDIVIDED AVAILABLE
($000's) STOCK SURPLUS PROFITS FOR SALE TOTAL
======= ======= ========= =========== =======
Balances, December 31,
1994 $1,888 2,000 20,258 (1,625) 22,521
Net income --- --- 735 --- 735
Cash dividends --- --- --- --- ---
Change in net unrealized
gains on securities
available for sale, net
of income taxes of $236 --- --- --- 459 459
------ ------ ------ ----- ------
Balances, March 31, 1995 $1,888 2,000 20,993 (1,166) 23,715
====== ====== ====== ===== ======
Balances, December 31,
1995 $1,888 2,000 21,545 167 25,600
Net income --- --- 453 --- 453
Increase in par value
from $1.00 to $1.10 189 (189) --- --- ---
Change in net unrealized
gains on securities
available for sale, net
of income taxes of $226 --- --- --- (439) (439)
------ ------ ------ ----- ------
Balances, March 31, 1996 $2,077 1,811 21,998 (272) 25,614
====== ====== ====== ===== ======
-7-
STATEMENTS OF CASH FLOWS
BANK OF TAZEWELL COUNTY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
MARCH 31, MARCH 31,
($000's) 1996 1995
========= =========
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 453 735
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses --- ---
Depreciation of bank premises and equipment 36 36
Provision for bond losses --- 45
Amortization of premiums and accretion of
discounts, net (22) (22)
Gains on maturities of securities available
for sale, net (2) ---
(Increase) decrease in:
Accrued interest receivable 38 53
Other assets (569) (90)
Increase (decrease) in:
Accrued interest payable (2) 27
Other liabilities (627) (354)
------ ------
Net cash provided by operating
activities (695) 430
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in federal funds sold (100) 1,025
Proceeds from calls and maturities of securities
available for sale 3,490 13
Proceeds from calls and maturities of securities
held to maturity 9,885 2,552
Purchases of securities available for sale (2,997) ---
Purchases of securities held to maturity (8,694) (4,134)
Net increase in loans made to customers (2,180) 719
Proceeds from disposal of other real estate owned 1 ---
Recoveries on loans charged-off 1 4
Bank premises and equipment expenditures (62) (75)
------ ------
Net cash used in investing
activities (656) 104
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in time deposits (1,097) 503
Net increase (decrease) in other deposits 1,548 (186)
Net increase (decrease) in short-term borrowings 966 (233)
------ ------
Net cash provided by financing
activities 1,417 84
------ ------
-8-
Net increase (decrease) in cash and due from
banks 66 618
Cash and due from banks at beginning of year 4,650 4,761
------ ------
Cash and due from banks at end of three months $4,716 5,379
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Unrealized gains/losses in securities available
for sale (gross) $ 412 1,767
Deferred taxes (140) (601)
------ ------
Net unrealized gains (losses) on securities
available for sale $ 272 1,166
====== ======
Interest paid $1,559 1,380
====== ======
-9-
BANK OF TAZEWELL COUNTY
SELECTED FINANCIAL DATA
(UNAUDITED)
MARCH 31,
(In $000's except for % data) 1996 1995
====== ======
Selected Ratios and Per Share Data:
----------------------------------
Net income $ 453 735
Return on average assets 1.00% 1.68%
Return on average equity 7.16% 12.60%
Net income per share $ .24 .39
Book value per share $ 13.56 12.56
Yield on earning assets 6.85% 7.71%
Cost to fund earning assets 3.62% 3.38%
Net interest margin 3.23% 4.33%
Cost of interest-bearing liabilities 4.54% 4.18%
Interest spread 2.31% 3.53%
Selected Balance Sheet Data:
---------------------------
Securities $119,033 116,995
Loans, net 42,400 41,852
Total assets 178,470 174,365
Total deposits 151,091 149,367
Stockholders' equity 25,614 23,715
-10-
BANK OF TAZEWELL COUNTY
SELECTED BALANCE SHEET
DAILY AVERAGES
(UNAUDITED)
MARCH 31, MARCH 31,
($000's) 1996 1995
=========== ===========
Federal funds sold $ 8,813 4,390
Securities 122,160 116,498
Loans, net of unearned income 41,170 40,741
Total assets 180,942 174,944
Noninterest-bearing deposits 16,972 16,214
Interest-bearing deposits 136,951 134,544
Stockholders' equity 25,302 23,326
-11-
NONPERFORMING ASSETS, PAST DUE AND IMPAIRED LOANS
(UNAUDITED)
MARCH 31, MARCH 31,
($000's except for % data) 1996 1995
========= =========
Nonperforming Assets
- -------------------
Nonaccrual loans $ 516 ---
Restructured loans --- ---
------ ------
Total nonperforming loans 516 ---
------ ------
Foreclosed property 22 65
Other repossessed property --- ---
------ ------
Total foreclosed and
repossessed properties 22 65
------ ------
Total Nonperforming assets $ 538 645
====== ======
Ratio of nonperforming assets to
loans net of unearned income and
foreclosed/repossessed assets 1.24% 0.15%
====== ======
Accruing Loans Past Due 90 Days or More
- ---------------------------------------
Past due 90 days or more and still accruing $ 352 335
====== ======
Ratio of loans past due 90 days or
more to loans, net of unearned income 0.81% 0.79%
====== ======
Impaired Loans
- --------------
Total impaired loans $ 731 586
====== ======
Impaired loans with a valuation allowance 586 586
Valuation allowance 371 371
------ ------
Impaired loans net of allowance $ 215 215
====== ======
Impaired loans with no valuation allowance $ 516 ---
====== ======
Average recorded investment in impaired
loans $ 514 215
====== ======
Income recognized on impaired loans $ --- ---
====== ======
Amount of income recognized on a cash basis $ --- ---
====== ======
-12-
LOAN LOSS DATA
(UNAUDITED)
For the periods ended
MARCH 31, MARCH 31,
($000's except for % data) 1996 1995
========= =========
Balance at beginning of period $ 545 545
Provision --- ---
Loans charged-off --- ---
Recoveries 1 4
------- ------
Balance at end of period $ 546 549
======= ======
Ratio of allowance for loan losses to
loans net of unearned income 1.27% 1.29%
======= ======
Ratio of net charge-offs to average
loans net of unearned income (1) (.01%) (.04%)
======= ======
Ratio of allowance for loan losses to
nonperforming loans (2) 105.8% ---%
======= ======
(1) Net charge-offs are on an annualized basis.
(2) Tazewell defines nonperforming loans as total nonaccrual and restructured
loans. Excluded are loans 90 days past due and still accruing.
-13-
Item 7a
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INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Bank of Tazewell County
Tazewell, Virginia
We have audited the accompanying balance sheets of Bank of Tazewell County
as of December 31, 1995 and 1994, and the related statements of income, changes
in stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bank of Tazewell County as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 and 11 to the financial statements, Bank of
Tazewell County adopted the provisions of Statement of Financial Accounting
Standards No.'s 114 and 118, "Accounting by Creditors for Impairment of a Loan"
as of January 1, 1995.
Cook Associates, LLP
February 27, 1996
-14-
BALANCE SHEETS
BANK OF TAZEWELL COUNTY
DECEMBER 31, 1995 AND 1994
DECEMBER DECEMBER
($000's) 31, 1995 31, 1994
========= ========
ASSETS
Cash and due from banks (note 2) $ 4,650 4,761
Federal funds sold 7,725 6,225
Securities available for sale, at fair value 49,299 24,105
Securities held to maturity (fair value
$71,912 in 1995 and $87,584 in 1994) (note 3) 71,599 90,623
Loans:
Real estate construction loans --- 100
Real estate mortgage loans 28,051 28,920
Commercial and industrial loans 4,600 8,272
Loans to individuals 8,788 6,545
-------- --------
Total loans 41,439 43,837
Less unearned income on loans (674) (721)
-------- --------
Loans, net of unearned income 40,765 43,116
Less allowance for loan losses (note 4) (545) (545)
-------- --------
Loans, net 40,220 42,571
-------- --------
Bank premises and equipment, net (note 5) 1,994 1,960
Accrued interest receivable 1,954 2,011
Other real estate owned, net 23 67
Other assets (note 6) 204 1,082
-------- --------
Total assets $177,668 173,405
======== ========
LIABILITIES' AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 16,955 15,518
Interest-bearing deposits 18,958 13,669
Savings deposits 35,395 46,963
Time deposits (note 16) 79,332 72,900
-------- --------
Total deposits 150,640 149,050
-------- --------
Accrued interest payable 486 349
Other liabilities (note 7) 942 1,485
-------- --------
Total liabilities 152,068 150,884
-------- --------
-15-
Stockholders' equity:
Common stock of $1.00 par value. Authorized
6,000,000 shares; issued and outstanding
1,888,209 1,888 1,888
Surplus 2,000 2,000
Undivided profits 21,545 20,258
Net unrealized gains (losses) on
securities available for sale 167 (1,625)
-------- --------
Total stockholders' equity 25,600 22,521
Total liabilities and
stockholders' equity $177,668 173,405
======== ========
See accompanying notes to financial statements
-16-
STATEMENTS OF INCOME
BANK OF TAZEWELL COUNTY
YEARS ENDED DECEMBER 31, 1995 AND 1994
DECEMBER DECEMBER
($000's) 31, 1995 31, 1994
========= =========
INTEREST INCOME
Interest and fees on loans $3,930 3,557
Interest on federal funds sold 454 295
Interest on securities-taxable 7,067 7,005
Interest on securities-nontaxable 572 643
------ ------
Total interest income 12,023 11,500
------ ------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 1,153 778
Interest on other deposits 4,854 4,251
------ ------
Total interest expense 6,007 5,029
------ ------
Net interest income 6,016 6,471
Provision for loan losses (note 4) 7 13
------ ------
Net interest income after provision
for loan losses 6,009 6,458
------ ------
NONINTEREST INCOME
Service charges on deposit accounts 274 244
Other service charges and fees 65 77
Trust income 75 98
Other income 10 15
Realized securities gains (losses), net 181 6
------ ------
Total noninterest income 605 440
------ ------
NONINTEREST EXPENSE
Salaries and employee benefits 1,960 1,818
Occupancy and furniture and fixtures 589 378
Other operating expense 897 1,371
------ ------
Total noninterest expense 3,446 3,567
------ ------
Income before income tax expense 3,168 3,331
Income tax expense (note 9) 899 944
------ ------
Net income $2,269 2,387
====== ======
Net income per share $ 1.20 1.26
====== ======
Average shares (in thousands) 1,888 1,888
====== ======
See accompanying notes to financial statements
-17-
STATEMENTS OF CASH FLOWS
BANK OF TAZEWELL COUNTY
YEARS ENDED DECEMBER 31, 1995 AND 1994
DECEMBER DECEMBER
($000's) 31, 1995 31, 1994
========= =========
CASH FLOWS FROM OPERATING ACTIVITIES (note 17)
Net Income $ 2,269 2,387
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of bank premises and equipment 174 144
Amortization of premiums and accretion of
discounts, net (99) (89)
Gains on maturities of securities available
for sale, net (181) (6)
Provision for loan losses 22 13
(Increase) decrease in:
Accrued interest receivable (57) (119)
Other assets 878 (915)
Increase (decrease) in:
Accrued interest payable 137 6
Other liabilities 543 (255)
------ ------
Net cash provided by operating
activities 3,686 1,166
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES (note 17)
Net (increase) decrease in money market
investments (1,500) 5,050
Proceeds from calls and maturities of securities
available for sale 2,000 ---
Proceeds from calls and maturities of securities
held to maturity 12,089 27,435
Purchases of securities available for sale (3,724) (12,792)
Purchases of securities held to maturity (14,842) (18,014)
Net (decrease) increase in loans made to customers 2,351 (2,632)
Proceeds from disposal of other real estate owned 44 ---
Recoveries on loans charged-off 15 ---
Bank premises and equipment expenditures (208) (637)
------ ------
Net cash used in investing
activities (3,775) (1,590)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES (note 17)
Net increase in time deposits 153 4,600
Net increase (decrease) in other deposits 1,437 (1,849)
Net increase (decrease) in short-term borrowings (630) (397)
Cash dividends paid (982) (975)
------ ------
Net cash provided by financing
activities (22) 1,379
------ ------
-18-
Net (decrease) increase in cash and due from
banks (111) 955
Cash and due from banks at beginning of year 4,761 3,806
------ ------
Cash and due from banks at end of year $4,650 4,761
====== ======
See accompanying notes to financial statements
-19-
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
BANK OF TAZEWELL COUNTY
YEARS ENDED DECEMBER 31, 1995 AND 1994
NET
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
COMMON UNDIVIDED AVAILABLE
($000's) STOCK SURPLUS PROFITS FOR SALE TOTAL
======= ======= ========= =========== =======
Balances, December 31,
1993 $ 629 2,000 20,106 (38) 22,697
Net income --- --- 2,387 --- 2,387
Cash dividends --- --- (976) --- (976)
Change in net unrealized
(losses) on securities
available for sale, net
of income taxes of $606 --- --- --- (1,587) (1,587)
200% stock dividend 1,259 --- (1,259) --- ---
------ ------ ------ ----- ------
Balances, December 31,
1994 $1,888 2,000 20,258 (1,625) 22,521
====== ====== ====== ====== ======
Balances, January 1,
1994 $1,888 2,000 20,258 (1,625) 22,521
Net income --- --- 2,269 --- 2,269
Cash dividends --- --- (982) --- (982)
Change in net unrealized
gains on securities
available for sale, net
of income taxes of $600 --- --- --- 1,792 1,792
------ ------ ------ ------ ------
Balances, December 31,
1995 $1,888 2,000 21,545 167 25,600
====== ====== ====== ====== ======
See accompanying notes to financial statements.
-20-
BANK OF TAZEWELL COUNTY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
($ in thousands)
1. The significant accounting policies of Bank of Tazewell County are as
follows: (Continued)
Organization
============
The Bank of Tazewell County is a state bank located in Tazewell, Virginia
with branches in Bluefield, Virginia. The majority of the Bank's
operations are conducted within Tazewell County.
Investments in Securities
The Bank's investments in securities are classified in two categories and
accounted for as follows.
Securities to be Held to Maturity
---------------------------------
Bonds, notes and debentures for which the bank has the positive intent
and ability to hold to maturity are reported at cost, adjusted for
amortization of premiums, and accretion of discounts which are recognized
in interest income using the interest method over the period to maturity.
Securities Available for Sale
-----------------------------
Securities available for sale consist of bonds, notes, debentures, and
certain equity securities not classified as securities to be held to
maturity.
Declines in the fair value of individual held-to-maturity and available
for sale securities below their cost that are other than temporary have
resulted in write-downs of the individual securities to their fair value.
The related write-downs have been included in earnings as realized losses.
Unrealized holding gains and losses, net of tax, on securities available
for sale are reported as a net amount in a separate component of
shareholders' equity until realized.
Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
Loans
=====
Loans are stated at the amount of unpaid principal, reduced by any
unearned discount included and an allowance for credit losses. Interest
income on commercial and real estate loans is credited to operations based
upon the principal amount outstanding. Interest income on installment
loans is accrued and credited to operating income on the sum-of-the-digits
method over the life of each loan. Accrual of interest is discontinued on
-21-
a loan when management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition
is such that collection of interest is doubtful.
Allowance for Loan Losses
=========================
The allowance is maintained at a level adequate to absorb probable losses.
Management determines the adequacy of the allowance based upon reviews of
individual credits, recent loss experience, current economic conditions,
the risk characteristics of the various categories of loans, and other
pertinent factors. Credits deemed uncollectible are charged to the
allowance. Provisions for credit losses and recoveries on loans
previously charged off are added to the allowance.
Bank Premises and Equipment
===========================
Land is stated at cost. Bank premises and equipment are stated at cost,
less accumulated depreciation. Depreciation is computed on the straight
line and declining balance methods over the useful lives of the assets,
which range from five to forty years. The costs of major improvements are
capitalized. The expenditures for maintenance and repairs are charged to
expense as incurred. Gains or losses on assets sold are included in other
operating income and appropriate adjustments are made to the accumulated
depreciation account.
Income Taxes
============
Provisions for income taxes are based on amounts reported in the statement
of income (after exclusion of non-taxable income such as interest on state
and municipal securities) and include deferred taxes on temporary
differences in the recognition of income and expense for tax and financial
statement purposes. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates applicable
to the period in which the deferred tax assets and liabilities are
expected to be realized or settled as prescribed in SFAS No. 109,
Accounting for Income Taxes. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision for
income taxes.
Pension Costs
=============
The Bank maintains a noncontributory, trusteed pension plan for the
benefit of eligible employees meeting certain service and age
requirements. It is the Bank's policy to fund accrued pension cost.
Prior service costs are being amortized over ten years.
Trust Assets and Income
=======================
Assets held by Bank of Tazewell County in a fiduciary or agency capacity
for its customers are not included in the Balance Sheets since such items
are not assets of the Bank. Trust Department income is recognized on the
cash basis of accounting which in this instance is not materially
different from reporting on the accrual basis of accounting.
-22-
Cash Equivalents
================
For purposes of the Statements of Cash Flows, the Bank considers all
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
Fair Values of Financial Instruments
====================================
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
Cash and Cash Equivalents
-------------------------
The carrying amounts of cash and short-term instruments approximate their
fair value.
Securities to be Held to Maturity and Securities Available for Sale
-------------------------------------------------------------------
Fair values for investment securities, excluding restricted equity
securities, are based on quoted market prices. The carrying values of
restricted equity securities approximate fair values.
Loans Receivable
----------------
For variable rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. Fair
values for real estate and commercial loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrower of similar credit
quality. Fair values for impaired loans are estimated using discounted
cash flow analyses or underlying collateral values, where applicable.
Deposit Liabilities
-------------------
The fair values disclosed for demand deposits are, by definition, equal
to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed-rate certificates of
deposit are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly securities on time deposits.
2. Restrictions on Cash and Due from Bank Accounts:
The Bank is required to maintain an average reserve balance with the
Federal Reserve Bank. The average amount of the reserve balance was
approximately $148 at December 31, 1995 and 1994.
-23-
3. Investment Securities:
The carrying amounts of investment securities as shown in the balance
sheets of the Bank and their approximate fair values at December 31, were
as follows:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
Securities available for sale:
December 31, 1995:
U.S. Government and
agency securities $48,376 616 369 48,623
Equity securities 15 7 --- 22
Other securities 654 --- --- 654
------- ------ ------ ------
$49,045 623 369 49,299
======= ====== ====== ======
December 31, 1994:
U.S. Government and
agency securities $26,473 10 2,479 24,004
Equity securities 15 7 --- 22
Other securities 79 --- --- 79
------- ------ ------ ------
$26,567 17 2,479 24,105
======= ====== ====== ======
Securities to be held to maturity:
December 31, 1995:
U.S. Government and
agency securities $61,831 157 45 61,943
State and municipal
securities 9,768 321 120 9,969
------- ------ ------ ------
$71,599 478 165 71,912
======= ====== ====== ======
December 31, 1994:
U.S. Government and
agency securities $77,714 104 2,479 75,339
State and municipal
securities 12,409 203 864 11,748
Corporate securities 500 --- 3 497
------- ------ ------ ------
$90,623 307 3,346 87,584
======= ====== ====== ======
Assets, principally securities carried at approximately $10,601 at
December 31, 1995 and $11,545 at December 31, 1994, were pledged to secure
public deposits and for other purposes required or permitted by law.
-24-
The scheduled maturities of securities to be held to maturity and
securities available for sale at December 31, 1995 and 1994 were as
follows:
1995 1995
Securities to be Securities
held to maturity available for sale
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
Due in one year or less $14,745 14,366 8,920 9,069
Due from one year to five years 46,822 47,484 20,510 20,475
Due from five years to ten years 9,832 9,841 14,534 14,777
Due after ten years 200 221 5,081 4,978
------- ------ ------ ------
$71,599 71,912 49,045 49,299
======= ====== ====== ======
1994 1994
Securities to be Securities
held to maturity available for sale
----------------- ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
Due in one year or less $ 5,701 5,735 595 590
Due from one year to five years 67,208 65,075 16,904 15,430
Due from five years to ten years 17,331 16,364 4,972 4,352
Due after ten years 383 410 4,096 3,733
------- ------ ------ ------
$90,623 87,584 26,567 24,105
======= ====== ====== ======
4. Loans and Allowance for Credit Losses:
Major classifications of loans are as follows:
1995 1994
------ ------
Commercial $ 4,600 8,272
Mortgage 28,051 29,020
Consumer 8,788 6,545
------- ------
$41,439 43,837
Unearned discount 674 721
------- ------
$40,765 43,116
Allowance for credit losses 545 545
------- ------
Loans, Net $40,220 42,571
======= ======
-25-
Changes in the allowance for credit losses are summarized as follows:
1995 1994
------ ------
Balance, beginning of year $ 545 545
Provision for loan losses 7 13
Recoveries of loans previously
charged off 15 2
Loans charged to allowance (22) (15)
------- ------
Balance, end of year $ 545 545
======= ======
5. Bank Premises and Equipment:
The major categories of these assets are summarized as follows:
1995 1994
------ ------
Land $ 357 357
Building and improvements 1,823 1,816
Furniture, Fixtures and Equipment 1,382 1,318
------- ------
$ 3,562 3,491
Less: Accumulated Depreciation 1,568 1,531
------- ------
$ 1,994 1,960
======= ======
Depreciation charged to operating expense amounted to $174 and $144 in
1995 and 1994 respectively.
6. Other Assets:
The components of the Bank's other assets were as follows:
1995 1994
------ ------
Prepaid Expenses $ 189 158
Repossessions 3 4
Buckhorn Coal Company 4 4
Prepaid Income Tax 8 83
Deferred Tax Credits --- 833
------- ------
Total Other Assets $ 204 1,082
======= ======
-26-
7. Other Liabilities:
The components of the Bank's other liabilities were as follows:
1995 1994
------ ------
Dividends payable $ 510 504
Deferred income taxes 103 ---
Notes payable, U.S. Treasury 161 791
Taxes 122 ---
Other 46 190
------ -----
Total Other Liabilities $ 942 1,485
====== =====
8. Pension Plan:
The Bank has a defined benefit pension plan covering substantially all of
its employees. The plan provides normal, early, late, death and
disability retirement benefits based on an average of qualifying
compensation for the highest five consecutive calendar years, excluding
the year of determination. The Bank's policy is to contribute annually
the maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date but, also for those expected to be earned. Actuarially
determined contributions of the Pension Plan were $225 and $203 in 1995
and 1994 respectively.
The Bank accounts for pension costs by use of Financial Accounting
Standard No. 87, "Employers' Accounting for Pensions" and No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits."
Pension expense for 1995 and 1994 included the following components:
1995 1994
------ ------
(a) Service cost for benefits
earned during year $ 112 126
(b) Interest cost on projected
benefit obligations 196 192
(c) Actual investment income
earned on plan's assets 180 21
(d) Amortization of unrecognized
transition obligation - Net of
asset gain or loss deferred (10) (150)
------- ------
(e) Net pension expense: (a+b+c+d) $ 118 147
======= ======
The discount rate used was 8% for 1995 and 7% for 1994 and the rate of
increase in future compensation levels used was 5% in each year in
determining the actuarial present value of the projected benefit
obligation. The expected long-term rate of return on the Plan's assets
was 8% for 1995, and 7.5% for 1994.
-27-
The funded status of the Pension Plan and the accrued pension cost
recognized at December 31, 1995 and 1994 is as follows:
1995 1994
------ ------
Accumulated benefit obligations,
including vested benefits of
$2,229, and $1,853 at December
31, 1995 and 1994 respectively $ 2,240 1,861
======= ======
Projected benefit obligations for
participants service rendered to
date $ 3,349 2,668
Plan assets at fair market value 2,506 2,501
------- ------
Unfunded projected benefit
obligation $ 843 167
Unrecognized prior service cost (283) (299)
Unrecognized net gain loss (879) (183)
Unrecognized net transition asset 190 224
------- ------
Prepaid pension cost included in (91)
other assets $ (129) ======
=======
The Plan's assets are invested as follows: About 26% in Certificates of
Deposit, 15% Corporate Debt, 43% in U.S. Government Securities and 16% in
Government Agencies at October 20, 1995. For 1995 and 1994, pension costs
for the Pension Plan were determined by the Frozen Entry Age Actuarial
Cost Method.
9. Provision for Income Taxes:
The provisions for income taxes consists of:
1995 1994
------ ------
Income taxes currently payable $ 887 917
Deferred income taxes arising from
timing differences 12 27
------- ------
$ 899 944
======= ======
Effective tax rate 28.4% 28.4%
Nontaxable interest on municipal
obligations 5.4% 6.5%
Other .2% (.9%)
------- ------
Statutory Federal Rate 34.0% 34.0%
======= ======
-28-
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:
1995 1994
------ ------
Deferred tax assets:
Loans, principally due to
allowance for loan losses $ 26 26
Net unrealized losses on
securities available for sale --- 837
------- ------
Net deferred tax assets $ 26 863
Deferred tax liabilities:
Pension costs $ (43) (31)
Net unrealized gain on securities
available for sale (86) ---
------- ------
Total gross deferred liabilities $ (129) (31)
------- ------
Net deferred (liability) asset
included in other liabilities or
assets $ (103) 832
======= ======
The Bank has determined that a valuation allowance for the gross deferred
tax assets is not necessary at December 31, 1994 due to the fact that the
realization of the entire gross deferred tax assets can be supported by
the amount of taxes paid during the carryback period available under
current tax laws.
Total income taxes were allocated as follows:
1995 1994
------ ------
Income $ 899 944
Stockholders' equity, for net
unrealized gains (losses) on
securities available for sale
recognized for financial
reporting purposes 923 (837)
------- ------
Total income taxes $ 1,822 107
======= ======
10. Related Party Transactions:
Officers and directors are loan customers in the ordinary course of
business. These loans are made on substantially the same terms as those
prevailing at the time for comparable loans with other persons and do not
involve more than normal risk of collectibility or present other
unfavorable features. These loans amounted to $2,283 and $2,115 at
December 31, 1995 and 1994 respectively.
-29-
11. Impaired Loans and Nonperforming Assets:
As of December 31, 1995, the recorded investment in impaired loans was
$298 and there was no related amount of interest income recognized during
the time within that period that the loans were impaired.
The following table represents information concerning nonperforming
assets:
1995 1994
------ ------
Nonaccrual loans $ 298 ---
Restructured loans --- ---
------- ------
Total nonperforming loans $ 298 ---
Other real estate owned, net 23 67
Nonaccrual investment 42 ---
------- ------
Total nonperforming assets $ 363 67
======= ======
Loans contractually past due 90
days or more (excludes nonaccrual
loans) $ 364 271
======= ======
Bank of Tazewell County does not have a written nonacrual policy.
Management continually reviews loans past due and places a loan on
nonaccrual when, in the judgment of management, it is doubtful that full
principal and interest will be collected. Management consider's the
situation of the borrower, the loans collateral and secured status and
other pertinent matters.
At December 31, 1995, the recorded investment in loans which have been
identified as impaired loans, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 114, totaled $298. Of this amount, $43
related to loans with no valuation allowance, and $255 related to loans
with a corresponding valuation allowance of $100. The initial adoption to
SFAS No. 114 did not require an increase to the Bank's allowance for loan
losses.
The following table shows the interest that would have been earned on
nonaccrual and restructured loans if they had been current in accordance
with their original terms and the recorded interest that was earned and
included in income on these loans:
1995 1994
------ ------
Scheduled interest:
Nonaccrual loans $ 17 ---
Restructured loans --- ---
------- ------
Total scheduled interest $ 17 ---
Recorded interest:
Nonaccrual loans --- ---
Restructured loans --- ---
------- ------
Total recorded interest $ --- ---
======= ======
-30-
Other real estate, acquired through foreclosure or deed in lieu of
foreclosure, is carried at the lower of the recorded investment or its
fair value, less estimated costs to sell (net realized value.) When the
property is acquired, any excess of the loan balance over net realizable
value is charged to the allowance for loan losses. Increases or decreases
in the net realizable value of such properties are credited or charged to
income by adjusting the valuation allowance for other real estate owned.
Net costs of maintaining or operating foreclosed properties are expensed
as incurred.
12. Contingent Liabilities and Commitments:
The Bank's financial statements do not reflect various commitments and
contingent liabilities that arise in the normal course of business and
that involve elements of credit risk, interest rate risk and liquidity
risk. These commitments and contingent liabilities are commitments to
extend credit, commercial letters of credit, and standby letters of
credit. A summary of the Bank's commitments and contingent liabilities at
December 31, 1995, is as follows:
Notional
Amount
--------
Commitments to extend credit $4,094
Standby letters of credit 35
Commitments to extend credit, commercial letters of credit, and standby
letters of credit all include exposure to some credit loss in the event of
nonperformance of the customer. The Bank's credit policies and procedures
for credit commitments and financial guarantees are the same as those for
extension of credit that are recorded on the balance sheets. Because
these instruments have fixed maturity dates, and because many of them
expire without being drawn upon, they do not generally present any
significant liquidity risk to the Bank. The Bank has not incurred any
losses on its commitments in either 1995 or 1994.
13. Rental Expense:
The Bank leases its Westgate branch facility under a noncancellable
agreement which expires September 19, 2003, with an annual rental of $13.
The total minimum rental commitment at December 31, 1995, under this lease
is $101 which is due as follows:
Due in the year ending December 31,1996 $ 13
1997 13
1998 13
1999 13
2000 13
Due in remaining years of lease term 36
------
$ 101
======
-31-
14. Financial Instruments:
The estimated fair values of the Bank's financial instruments are as
follows:
1995
-----------
Carrying Fair
Amount Value
-------- -------
Financial assets:
Cash and short-term investments $ 12,375 12,375
Securities held to maturity 71,599 71,912
Securities available for sale 49,299 49,299
Loans 40,765 40,388
Less: Allowance for loan losses 545 545
-------- -------
$173,493 173,429
======== =======
Financial liabilities:
Deposits $150,640 151,161
======== =======
1994
------
Carrying Fair
Amount Value
-------- -------
Financial assets:
Cash and short-term investments $ 10,986 10,986
Securities held to maturity 90,623 87,584
Securities available for sale 24,105 24,105
Loans 43,116 42,851
Less: Allowance for loan losses 545 545
-------- -------
$168,285 164,981
======== =======
Financial liabilities:
Deposits $149,050 148,127
======== =======
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time Bank of Tazewell County's
entire holdings of a particular financial instrument. Because no market
exists for a significant portion of Bank of Tazewell County's financial
instruments, fair value estimates are based on judgements. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect these
estimates.
-32-
Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. A significant asset that is not
considered a financial asset is bank premises and equipment. In addition,
the tax ramifications related to the realization of the unrealized gains
and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
15. Concentrations of Credit:
All of the Bank's loans, commitments, and commercial and standby letters
of credit have been granted primarily to customers in the Bank's market
area. Essentially all such customers are depositors of the Bank. The
concentrations of credit by type of loan are set forth in Note 4. The
distribution of commitments to extend credit approximates the distribution
of loans outstanding. Commercial and standby letters of credit were
granted primarily to commercial borrowers. The Bank, as a matter of
policy, does not extend credit to any single borrower or group of related
borrowers in excess of the Bank's legal lending limit.
16. Time Deposits:
Included in time deposits are certificates of deposit and other time
deposits of $100,000 or more in the aggregate amounts of $21,769 and
$25,371 at December 31, 1995 and 1994 respectively.
17. Supplemental Cash Flow Information:
The Bank paid $5,870 and $5,023 for interest and $856 and $1,000 for
income taxes, net of refunds, at December 31, 1995 and 1994 respectively.
Noncash investing activities consisted of $7 and 13 of loans charged
against the allowance for loan losses for the periods ended December 31,
1995 and 1994 respectively, and $2,715 of net unrealized gains included in
securities available for sale for the period ended December 31, 1995 and
$2,462 net unrealized loss included in securities available for sale for
the period ended December 31, 1994. Noncash investing activities also did
not include any foreclosed loans transferred into other real estate owned
for the period ended December 31, 1995 as compared to $31 transferred for
the period ended December 31, 1994.
-33-
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET
OF NBI AND BTC
(UNAUDITED)
The following unaudited pro forma combined condensed balance sheet
combines the historical balance sheets of NBI and BTC on the assumption that
the Merger had been effective as of March 31, 1996 giving effect to the Merger
on a pooling-of-interests accounting basis.
NBI/BTC
PRO FORMA PRO FORMA
($ in thousands) NBI BTC ADJUSTMENTS COMBINED
----- ----- ----------- ---------
Assets
Cash and due from banks $ 4,707 4,617 9,324
Federal funds sold 7,745 7,825 15,570
Securities available for sale 26,859 48,625 75,484
Securities held to maturity 39,792 70,408 110,200
Mortgage loans held for sale 574 --- 574
Loans 126,730 43,700 170,430
Less unearned income on
loans (1,566) (754) (2,320)
-------- ------- -------
Loans, net of unearned
income 125,164 42,946 168,110
Less allowance for loan
losses (2,059) (546) (2,605)
-------- ------- -------
Loans, net 123,105 42,400 165,505
-------- ------- -------
Bank premises and equipment,
net 2,676 2,014 4,690
Accrued interest receivable 1,955 1,916 3,871
Other real estate owned, net 739 22 761
Other assets 2,414 643 3,057
-------- ------- -------
Total assets $210,566 178,470 389,036
======== ======= =======
Liabilities and Stockholders'
Equity
Noninterest-bearing deposits $ 24,754 16,317 41,071
Interest-bearing deposits 55,788 20,507 76,295
Savings deposits 15,192 36,032 51,224
Time deposits 90,261 78,235 168,496
-------- ------- -------
Total deposits 185,995 151,091 337,086
Accrued interest payable 267 484 751
Other liabilities 1,090 1,281 2,371
-------- ------- -------
Total liabilities 187,352 152,856 340,208
======== ======= =======
-34-
Stockholders' equity:
Preferred stock --- --- ---
Common stock (notes 3, 4 & 5) 4,285 2,077 477 (4) 9,482
4,720 (3)
(2,077)(3)
Surplus 1,187 1,811 (2,521)(3) ---
(477)(4)
Retained earnings 17,910 21,998 (122) 39,786
Net unrealized gains (losses)
on securities available for
sale (168) (272) (440)
-------- ------- -------
Total stockholders' equity 23,214 25,614 48,828
-------- ------- -------
Total liabilities and
stockholders' equity $210,566 178,470 389,036
======== ======= =======
See accompanying notes to pro forma financial information.
-35-
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE AND
NONRECURRING CHARGES RELATED TO THE MERGER
NBI AND BTC
(Unaudited)
The following unaudited pro forma combined condensed statements of income
before cumulative effect of change in accounting principle and nonrecurring
charges related to the merger present the combined statements of income before
cumulative effect of change in accounting principle and nonrecurring charges
related to the merger of NBI and BTC assuming the companies had been combined
for each period presented on a pooling-of-interests accounting basis.
Three Months Ended Year Ended
($ in thousands except for per March 31, December 31,
share data) 1996 1995 1995
------ ------ ------------
Interest income $ 6,985 6,893 28,094
Interest expense 3,282 2,937 12,703
------- ------ ------
Net interest income 3,703 3,956 15,391
Provision for loan losses 45 65 282
------- ------ ------
Net interest income after
provision for loan losses 3,658 3,891 15,109
Noninterest income 557 460 2,382
Noninterest expense 2,236 2,425 9,765
------- ------ ------
Income before income taxes and
cumulative effect of change
in accounting principle and
nonrecurring charges related
to the merger 1,979 1,926 7,726
Income taxes 536 437 1,933
------- ------ ------
Income before cumulative
effect of change in
accounting principle and
nonrecurring charges
related to the merger $ 1,443 1,489 5,793
======= ====== ======
NBI historical income
before cumulative effect
of change in accounting
principle and non-
recurring charges $ 967 754 3,451
======= ====== ======
BTC historical income
before cumulative effect
of change in accounting
principle and non-
recurring charges $ 476 735 2,342
======= ====== ======
-36-
NBI nonrecurring merger
charges $ 24 --- 195
======= ====== ======
BTC nonrecurring merger
charges $ 23 --- 73
======= ====== ======
Pro forma per common share
data (note 6):
Income before cumulative
effect of change in
accounting principle and
nonrecurring charges
related to the merger $ 0.38 .39 1.53
======= ====== ======
Average common shares (in
thousands) 3,793 3,793 3,793
======= ====== ======
NBI historical income per
common share data adjusted
for stock split (note 7):
Income before cumulative
effect of change in
accounting principle and
nonrecurring charges
related to the merger $ 0.51 0.40 1.81
======= ====== ======
Average common shares (in
thousands) 1,905 1,905 1,905
======= ====== ======
NBI historical per common
share data:
Income before cumulative
effect of change in
accounting principle and
nonrecurring charges
related to the merger $ 0.56 0.44 2.01
======= ====== ======
Average common shares (in
thousands) 1,714 1,714 1,714
======= ====== ======
NBI historical per common
share:
Income before cumulative
effect of change in
accounting principle $ 0.55 .44 1.90
======= ====== ======
Average common shares (in
thousands) 1,714 1,714 1,714
======= ====== ======
-37-
BTC historical per common
share income before
cumulative effect of
change in accounting
principle and non-
recurring charges
related to the merger 0.25 0.39 1.24
======= ====== ======
Average common shares (in
thousands) 1,888 1,888 1,888
======= ====== ======
BTC historical per common
share income before
cumulative effect of
change in accounting
principle 0.24 0.39 1.20
======= ====== ======
Average common shares (in
thousands) 1,888 1,888 1,888
======= ====== ======
-38-
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the Merger been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the results of operations
in future periods or the future financial position of the combined
entities.
(2) It is assumed the Merger will be accounted for on a pooling-of-interests
accounting basis and, accordingly, the related pro forma adjustments
herein reflect the exchange of one share of common stock of NBI for one
share of common stock of BTC. It is also assumed that NBI will issue the
NBI shares resulting from the NBI Stock Split of 0.11129 per share
effected in the form of a stock dividend to the holders of NBI common
stock just prior to the Merger Effective Date to facilitate the one-for-
one Common Stock Exchange Ratio.
(3) Stockholders' equity was adjusted for the Merger by the (i) addition of
1,888,209 shares of NBI common stock of $2.50 par value amounting to
$4,720,522; (ii) elimination of 1,888,209 shares of BTC Common Stock of
$1.10 par value amounting to 2,077,029, and (iii) recordation of the
remaining amount of $2,643,493 as a decrease in surplus ($2,521,493) and
undivided profits ($122,000) at March 31, 1996.
(4) Stockholders' equity was also adjusted to reflect the NBI Stock Split of
0.11129 per share by (i) increasing NBI common stock $476,920; and (ii)
decreasing surplus $476,920 the par value of the stock ($2.50 per share)
at March 31, 1996.
(5) NBI Interim has been formed to facilitate the Merger. NBI has subscribed
to 2,000 shares of common stock ($1,000 par value) of NBI Interim for
$4,000,000 ($2,000,000 in common stock and $2,000,000 in surplus), and
this subscription is represented by a stock subscription receivable from
NBI (parent company only). The pro forma balance sheet adjustments do not
reflect the stock subscription receivable of $4,000,000 and the
simultaneous elimination of same to arrive at pro forma combined.
(6) Pro forma income per common share data has been computed based on the
combined historical income before cumulative effect of change in
accounting principle and nonrecurring changes related to the merger of NBI
and BTC using the historical weighted average shares outstanding of NBI
common stock giving effect to the 0.11129 per share NBI Stock Split (see
Note 7) and the historical weighted average outstanding shares of BTC
common stock, adjusted to equivalent shares of NBI common stock, as of the
earliest period presented.
(7) NBI historical income per common share data adjusted for stock split has
been computed giving effect to the NBI Stock Split of 0.11129 per share
effected in the form of a stock dividend to be declared and issued pro
rata to holders of NBI common stock just prior to the Merger Effective
Date to facilitate the one-for-one Common Stock Exchange Ratio.
(8) Certain reclassifications have been included herein to conform statement
presentations. There are no intercompany transactions between NBI and
BTC, and therefore no intercompany eliminations are required.
-39-
(9) For the three months ended March 31, 1996, and for the year ended December
31, 1995, nonrecurring merger expenses of $24,000 and $268,000,
respectively, have been included in the historical income statements of
NBI and BTC and these merger charges have not been included in the pro
forma combined condensed statements of income before cumulative effect of
change in accounting principle and nonrecurring charges related to the
merger. Additional expenses of $104,000 related to the merger are
expected to be incurred after March 31, 1996.
-40-
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 hereunto duly authorized.
NATIONAL BANKSHARES, INC.
By: ______________________________
James G. Rakes
President and
Chief Executive Officer
Date:______________________________
By: ______________________________
Joan C. Nelson
Treasurer
Date:______________________________
-41-