-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UD6Wq7WNBWyYftZzYqHejxCvkAeZaf55M+idACkoCeXkVu5QItr1WvZneMkl9b4U cEQf8PugGTHKvYC7yXZiTA== 0000950152-96-001316.txt : 19960402 0000950152-96-001316.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950152-96-001316 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL BANCSHARES CORP /OH/ CENTRAL INDEX KEY: 0000790362 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 341518564 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-14773 FILM NUMBER: 96542897 BUSINESS ADDRESS: STREET 1: 112 W MARKET ST CITY: ORRVILLE STATE: OH ZIP: 44667 BUSINESS PHONE: 2166821010 MAIL ADDRESS: STREET 1: PO BOX 57 CITY: ORRVILLE STATE: OH ZIP: 44667 10-K405 1 FIRST NATIONAL BANK 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Dec. 31, 1995 Commission File Number 0-14773 NATIONAL BANCSHARES CORPORATION Ohio 34-1518564 State of incorporation I.R.S. Employer Identification No. 112 West Market Street, Orrville, Ohio 44667 Address of principal executive offices Registrant's telephone number: (330) 682-1010 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $10.00 Par Value Title of Class 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X ----- State the aggregate market value of the voting stock held by non-affiliates of the registrant as of March 15, 1996: $32,505,611. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 15, 1996. Common Stock, $10.00 Par Value: 915,651 Documents Incorporated by Reference: - - Portions of the registrant's Proxy Statement dated March 29,1996 and previously filed March 26, 1996, are incorporated by reference into Part III. - - Portions of the registrant's Annual Report to Shareholders, December 31, 1995 are incorporated by reference in Parts I, II, IV. PAGE 1 2
Form 10-K Cross Reference Index Page Part I Item 1 - Business Description of Business 4 Financial Ratios - Note 1 A23 Daily Average Balance Sheets, Interest and Rates - Note 1 A22 Volume and Rate Variance Analysis 5 Rate Sensitivity Analysis 6 Investment Portfolio 7 Loan Portfolio 8 Summary of Loan Loss Experience 9 Deposits 10 Item 2 - Properties 4 Item 3 - Legal Proceedings 4 Item 4 - Submission of Matters to a Vote of Security Holders - None Part II Item 5 - Market for the Registrant's Common Equity and Related Stockholder Matters - Note 1 A9 Item 6 - Selected Financial Data - Note 1 A1 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operation - Note 1 A2-7 Item 8 - Financial Statements - Note 1 A10-21 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None Part III Item 10- Directors of the Registrant - Note 2 B3 Executive Officers of the Registrant 4 Item 11- Executive Compensation - Note 2 B5 Item 12- Security Ownership of Certain Beneficial Owners and Management - Note 2 B3 Item 13- Certain Relationships and Related Transactions Note 2 B7 Part IV Item 14- Exhibits, Financial Statement Schedules and Reports on Form 8-K Report of Deloitte & Touche, Independent Auditors A21 Financial Statements: - Note 1 Consolidated Balance Sheets as of December 31, 1995 and 1994 A10 Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993 A11 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 A13 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 A12 Notes to Financial Statements - Note 1 A14-21 Reports on Form 8-K filed in fourth quarter of 1995: None Exhibit Table 12 Signatures 11 Appendix A - National Bancshares 1995 Annual Report to A Shareholders
PAGE 2 3 Note 1 - Incorporated by reference from the registrant's Annual Report to Shareholders for the year ended December 31, 1995 -- Appendix A Note 2 - Incorporated by reference from the registrant's proxy statement dated March 29, 1996 previously filed with the SEC on March 26, 1996 PAGE 3 4 Item 1 - Business: National Bancshares Corporation (the "Company"), incorporated in 1985, is a one bank holding company for First National Bank, Orrville, Ohio (the "Bank"). The formation was approved by shareholders on April 24, 1986 and consummated on June 2, 1986. The Bank offers a full line of services usually found in any commercial bank operation, including checking accounts, savings accounts, certificates of deposit, personal loans, loans to business and industry, installment loans, safety deposit boxes and credit cards. The Bank does not have trust powers and, therefore, does not offer trust services. The Bank operates nine full service offices and one limited service office in a market area comprising most of Wayne County, portions of western Stark County, northeastern Holmes County and southern Medina County. There are approximately 17 other banking and thrift organizations in the immediate market area. No major elimination of services presently offered is anticipated in the immediate future. The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. It is subject to supervision, examination and regulation by the Comptroller of the Currency. The Company is also subject to supervision, examination and regulation by the Federal Reserve System. Management is not currently aware of any regulatory recommendations which if were to be implemented would have a material effect on the registrant. Item 2 - Properties: The headquarters of the Company and the Bank are located in Orrville, Ohio. The Bank has a total of ten banking office buildings which are located in Orrville, Dalton, Kidron, Smithville, Mt. Eaton, Apple Creek, Lodi and Seville, Ohio. All buildings are owned by the Bank with the exception of the Seville Office which is a leased facility. Item 3 - Legal Proceedings There were no legal proceedings other than ordinary routine litigation incidental to business during 1995. Item 10 - Executive Officers The Executive Officers of the Company are as follows: Name Age Position Charles J. Dolezal 43 President President of First National Bank Michael D. Hofstetter 43 Sr. Vice President & Secretary-Treasurer Sr. Vice President & Controller of First National Bank There is no family relationship between any of the above executive officers. Mr. Dolezal has been an executive officer of the Company since its formation in 1986 and the Bank during the past 5 years. Mr. Hofstetter was appointed Sr. Vice President and Secretary-Treasurer of the Company on January 1, 1990 and has been an executive officer of the Bank during the past 5 years. PAGE 4 5 VOLUME AND RATE VARIANCE ANALYSIS The following table represents a summary analysis of changes in interest income, interest expense and the resulting net interest income on a tax equivalent basis for the periods presented each, as compared with the preceding period. Volume is based on daily average balances.
(Dollars in thousands) 1995 versus 1994 1994 versus 1993 Increase (Decreases) Increase (Decreases) Due to Changes In Due to Changes In --------------------------- -------------------------- Net Net Volume Rate Change Volume Rate Change --------------------------- -------------------------- Interest Income Investment securities: Taxable $61 $65 $126 $310 ($373) ($63) Nontaxable (20) (24) (44) 85 (31) 54 (tax equivalent basis)* Federal funds sold 91 135 226 (81) 98 17 Loans (including nonaccrual loans) 823 700 1,523 259 (116) 143 --------------------------- -------------------------- Total interest Income (tax equivalent basis)* $955 $876 $1,831 $573 ($422) $151 =========================== ========================== Interest Expense Deposits Interest bearing checking $61 $86 $147 $34 ($29) $5 Savings (74) 1 (73) 114 (133) (19) Time, $100,000 and over 90 107 197 (4) 47 43 Time, other 236 413 649 (74) (36) (110) Other funds purchased 84 63 147 (13) 20 7 --------------------------- -------------------------- Total interest expense $397 $670 $1,067 $57 ($131) ($74) =========================== ========================== Changes in net interest income (tax equivalent basis)* $558 $206 $764 $516 ($291) $225 =========================== ==========================
* Tax equivalence based on highest statutory tax rates of 34%. PAGE 5 6 RATE SENSITIVITY ANALYSIS The following table summarizes the repricing opportunities of interest bearing assets and liabilities
Gap Report December 31, 1995 (Millions of dollars) 3 Months 6 Months 12 Months 1-5 Years 5+ Years Period Accum. Period Accum. Period Accum. Period Accum. Period Accum. Rate sensitive assets: Fed funds sold $9.3 $9.3 $0.0 $9.3 $0.0 $9.3 $0.0 $9.3 $0.0 $9.3 Securities 1.5 1.5 4.2 5.7 8.8 14.5 40.2 54.7 23.8 78.5 Net loans 24.1 24.1 8.6 32.7 18.2 50.9 19.5 70.4 5.6 76 ------------------------------------------------------------------------------------- TOTAL $34.9 $34.9 $12.8 $47.7 $27.0 $74.7 $59.7 $134.4 $29.4 $163.8 ===================================================================================== Rate sensitive liabilities: Checking (1) $33.4 $33.4 $0.0 $33.4 $0.0 $33.4 $0.0 $33.4 $0.0 $33.4 Savings (2) 0.0 0.0 0.0 0.0 0.0 0.0 39.8 39.8 0.0 39.8 Time 18.7 18.7 8.1 26.8 8.7 35.5 13.1 48.6 0.1 48.7 Money market borrow 3.3 3.3 0.0 3.3 0.0 3.3 0.0 3.3 0.0 3.3 TT&L note account 0.4 0.4 0.0 0.4 0.0 0.4 0.0 0.4 0.0 0.4 ------------------------------------------------------------------------------------- TOTAL $55.8 $55.8 $8.1 $63.9 $8.7 $72.6 $52.9 $125.5 $0.1 $125.6 ===================================================================================== Rate sensitivity gap -$20.9 -$20.9 $4.7 -$16.2 $18.3 $2.1 $6.8 $8.9 $29.3 $38.2 Gap percentage 63% 63% 158% 75% 310% 103% 113% 107% 29400% 130% Gap/total assets -12% -12% 3% -9% 10% 1% 4% 5% 17% 22% Gap/capital -89% -89% 20% -69% 78% 9% 29% 38% 125% 163%
(1) Checking includes NOW and MMDA (2) Savings includes passbook and statement savings which do not have a preset repricing date and have been included in the 1-5 years due to the relative interest rate insensitivity. The potential impact on the net interest margin from modestly rising interest would be relatively insignificant due to the short duration of mismatch within the first 12 months. If interest rates were to immediately increase by 200 basis points, this could cause an increase interest expense greater than interest income. The potential impact would equate to lowering the current net interest income by approximately 2.7% over the first 12 months. PAGE 6 7 INVESTMENT PORTFOLIO The carrying amounts and distribution of the Company's investment securities held are summarized in the Annual Report to Shareholders (Appendix A, Page 15, Note 3). The carrying amount, maturities and approximate weighted average yields (on a tax equivalent basis) at December 31, 1995 are as follows: INVESTMENT PORTFOLIO
December 31, 1995 (Dollars in thousands) Total 0 to 1 Year 1 to 5 Years 5 Years and Over Amount Yield Amount Yield Amount Yield Amount Yield US Treasury $ 22,054 7.3% $ 6,906 7.9% $ 13,171 6.9% $ 1,977 8.1% US Agencies 11,291 7.3% 1,566 9.4% 5,795 6.8% 3,930 7.2% State & political subdivisions 17,171 9.2% 380 14.4% 4,531 8.8% 12,260 9.2% Other securities 28,171 7.1% 5,586 7.0% 16,682 7.3% 5,903 6.7% -------------------------------------------------------------------------------------------- TOTAL $78,687 7.6% $ 14,438 7.9% $ 40,179 7.3% $24,070 8.2% ============================================================================================
$2.8 million of investment securities have a remaining maturity more than 10 years. There was no single issuer of securities where the total book value of such securities exceeded 10% of shareholders' equity except for US government obligations. PAGE 7 8 LOAN PORTFOLIO The detail of the loan portfolio balances are included in the Annual Report to Shareholders (Appendix A, Page 16, Note 4). MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES The following are approximate maturities and sensitivity to changes in interest rates of certain loans exclusive of real estate mortgages and consumer loans as of December 31, 1995.
Types of Loans 0 to 1 Year 1 to 5 Years 5 and Over Years Total (Dollars in Thousands) Commercial $8,927 $1,488 $212 $10,627 Real Estate Construction $771 $273 $199 $1,243 Above loans due beyond 1 year with: Predetermined interest rates $565 Adjustable interest rates $1,607
NONACCRUAL AND PAST DUE LOANS Generally, recognition of interest income is discontinued where reasonable doubt exists as to the collectability of the interest. Income from nonaccrual loans is recorded when received. The difference between interest income recognized on such loans and income that would have been recognized at original contractual rates is immaterial. The bank generally places loans on a non-accrual status when a default of principal or interest has existed for 90 days or more. The bank generally does not renegotiate loans due to deterioration in the financial position of the borrower. The amounts of renegotiated loans are not considered material. (Dollars in Thousands) 12/31/95 12/31/94 90 Days Past Due and Accruing $138 $59 Nonaccruing Loans $68 $111 POTENTIAL LOAN PROBLEMS Management reviews the loan portfolio for potential loan problems on a monthly basis. The following loans were classified by management and include in the above nonaccrual and past due loan totals. The amount shown below is the outstanding loan balance which has not been reduced by collateral values. (Dollars in Thousands) 12/31/95 12/31/94 Loss $0 $0 Doubtful 80 104 Substandard 623 750 OAEM 1,036 957 Watch 9 7 -------------------- Total $1,748 $1,818 ==================== LOAN CONCENTRATIONS Due to the nature of our market area, it is management's opinion that there are no significant loan concentrations of 10% of total loans to borrowers engaged in similar activities other than noted in the loan categories disclosed in the Annual Report to Shareholders (Appendix A, Page 16, Note 4). PAGE 8 9 SUMMARY OF LOAN LOSS EXPERIENCE The determination of the balance of the allowance for loan losses historically has been based on an overall analysis of the loan portfolio and reflects an amount, which, in management's judgment, is adequate to provide for potential loan losses. This analysis considers, among other things, the Company's loan loss experience, present and potential risks of the loan portfolio and general economic conditions. In addition, management considers the examinations of the loan portfolio by federal regulatory agencies and internal reviews and evaluations. The Company's allocation of the allowance for loan losses by category represents only an estimate for each category of loans based upon a detailed review of the loan portfolio by management. Transactions in the allowance for loan losses are maintained by three major loan categories and the summary of such transactions for periods indicated follows: CHANGES IN ALLOWANCE FOR LOAN LOSSES (Dollars in Thousands) 1995 1994 Balance at the beginning of period $891 $606 Loans charged off: Commercial & industrial 3 20 Real estate 0 15 Consumer 38 14 ---------------------- Total loans charged off 41 49 ---------------------- Recoveries of loans charged off: Commercial & industrial 0 30 Real estate 3 18 Consumer 13 106 ---------------------- Total recoveries 16 154 ---------------------- Net loans charged off 25 -105 ---------------------- Provision charged to operating expense 180 180 ---------------------- Balance at end of period $1,046 $891 ====================== Net charge-offs to average loans 0.03 -0.18 ====================== DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES BY CATEGORY (Dollars in thousands) December 31, 1995 December 31, 1994 % of % of Amount Total Loans Amount Total Loans Commercial & industrial $113 17% $97 16% Real estate construction 0 2% 0 1% Real estate mortgages 10 61% 5 69% Consumer loans 20 20% 10 14% Unallocated 903 N/A 779 N/A ---------------------------------------- TOTAL $1,046 100% $891 100% ======================================== PAGE 9 10 DEPOSITS The classification of average deposits and the average rate paid on such deposits for periods ending December 31, 1995, 1994 and 1993 is included in Analysis of Net Interest Earnings included in the Annual Report to Shareholders (Appendix A, Page 22). The summary of maturities of time deposits of $100,000 or more is included in the Annual Report to Shareholders (Appendix A, Page 17, Note 7). PAGE 10 11 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: 3-19-96 /s/ Charles J. Dolezal ----------------- ------------------------------------------- Charles J. Dolezal, President DATE: 3-19-96 /s/ Michael D. Hofstetter ----------------- ------------------------------------------- Michael D. Hofstetter, Secretary-Treasurer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. DATE: 3-19-96 /s/ Charles J. Dolezal ----------------- ------------------------------------------- Charles J. Dolezal, Chairman DATE: 3-19-96 /s/ James F. Woolley ----------------- ------------------------------------------- James F. Woolley, Director DATE: 3-19-96 /s/ James L. Gerber ----------------- ------------------------------------------- James L. Gerber, Director DATE: 3-19-96 /s/ John E. Sprunger ----------------- ------------------------------------------- John E. Sprunger, Director DATE: 3-19-96 /s/ Sara E. Balzarini ----------------- ------------------------------------------- Sara E. Balzarini, Director DATE: 3-19-96 /s/ John W. Kropf ----------------- ------------------------------------------- John W. Kropf, Director PAGE 11 12
EXHIBIT INDEX Exhibit No. If incorporated by Reference, Under Reg. Form 10-K Documents with Which Exhibit S-K, Item 601 Exhibit No. Description of Exhibits was Previously Filed with SEC (3)(i) Amended Articles of Incorporation Registration Statement S-4 filed 3/31/86 File No. 33-03711 (3)(ii) Code of Regulations Registration Statement S-4 filed 3/31/86 File No. 33-03711 (11) A18 Computation of Earnings per Share Incorporated by reference (12) A18 Computation of Ratios Incorporated by reference (13) A 1995 Annual Report to Shareholders Incorporated by reference (21) A1 Subsidiaries of the registrant Incorporated by reference (23) Consent of Deloitte & Touche, L.L.P. (27) Financial Data Schedule
No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K. PAGE 12 EX-13 2 EXHIBIT 13 1 [photo George Washington] NATIONAL BANCSHARES CORPORATION STRONG FINANCIAL VALUE BASED ON SOLID HISTORY 1995 ANNUAL REPORT 2 CORPORATE PROFILE National Bancshares Corporation is a one-bank holding company with assets totaling over $175 million. First National Bank, its subsidiary, is headquartered in Orrville, Ohio. Serving most of Wayne County, portions of western Stark County, northeastern Holmes County and southern Medina County through its ten banking offices, First National Bank offers a variety of retail and commercial deposit and lending services. First National Bank has consistently been recognized by a number of independent bank analysis companies by receiving their top ratings. Due to First National Bank's financial strength and stability, these ratings have helped place First National among the top banks in the country. First National has earned Veribanc's prestigious Blue Ribbon Award for security and financial soundness for fifty-three consecutive quarters. First National is one of only eighteen banks in the nation to earn this distinction. Through strong customer service and superior financial soundness, National Bancshares Corporation strives diligently to continue the tradition of consecutive annual dividend increases. This has been our tradition for the past quarter century.
FINANCIAL HIGHLIGHTS FINANCIAL POSITION Percentage (Year End Balances) 1995 1994 Change Total Assets $ 175,144,085 $ 173,041,984 1.21% Deposits 146,996,114 145,862,240 0.78% Loans-Net 73,141,286 56,215,091 30.11% Investment Securities 78,687,704 90,237,648 -12.80% Shareholders' Equity 23,385,931 22,089,249 5.87% - ------------------------------------------------------------------------------------------------------------------------ SUMMARY OF OPERATIONS Net Interest Income 7,849,572 7,071,263 11.01% Net Income 2,168,892 2,018,235 7.46% - ------------------------------------------------------------------------------------------------------------------------ Regular Cash Dividends 822,014 736,730 11.58% Net Income Per Share* 2.37 2.20 7.46% Cash Dividends Per Share* 0.90 0.80 11.58% Book Value Per Share* $ 25.54 $ 24.12 5.87% - ------------------------------------------------------------------------------------------------------------------------
1 3 DEAR SHAREHOLDERS The year 1995 proved to be an excellent year for our financial institution. Income before taxes increased by over $280 thousand, or 11.3%, over 1994. This increase is attributable to growth in net interest income of approximately $778 thousand, or 11%, over the previous year. With this growth coming entirely from taxable income, income taxes rose by over $129 thousand, or 28.1%. This left net income after taxes up by approximately $151 thousand, or 7.5%, over year end 1994. Total assets grew modestly over 1994 showing a year end increase of $2.1 million. The major change in assets occurred in the growth of our loan portfolio. Total loans (net of allowance for loan losses) increased over $16.9 million, or 30.1%, over 1994. The growth in loans was primarily funded through a redeployment of maturing bonds from the security portfolio. Total cash dividends declared in 1995 amounted to $822,014, or approximately 89.8 cents per share, based on the current number of outstanding shares. This is an 11.6% increase over the total cash dividends declared in 1994. This increase in cash dividends continues the tradition of consecutive annual dividend increases over the past quarter century. In addition to the cash dividends declared this past year, a 5 for 4 stock split, payable in the form of a 25% stock dividend, was issued in December 1995. Total shareholders' equity exceeded $23.3 million, increasing by approximately $1.3 million, or 5.9% over the end of the previous year. This equates to an approximate book value of $25.54 per share. Market value continues to increase with the market makers bid price at $35.50 per share at year end. The bid price has increased by over 25% during 1995. During the past year we implemented a dividend reinvestment plan and stock buy back plan. The dividend reinvestment plan allows you, as a shareholder, to reinvest your cash dividends in additional shares of the company's common stock without incurring any brokerage fees or commissions. We have had very positive responses from shareholders to this plan. The availability of our stock on the open market is somewhat limited. If we are unable to purchase stock during a dividend reinvestment period, we can issue treasury shares that the company may have been able to purchase previously, or issue authorized but unissued shares. The stock buy back plan enables the company to purchase its own stock on the open market when it may be advantageous to do so. This plan also offers additional liquidity to larger blocks of stock, such as estates, that may need to liquidate in short order. Stock purchased under the stock buy back plan is placed in treasury shares for possible use in the dividend reinvestment plan. The FDIC premium that all insured commercial banks must pay for deposit insurance coverage fell dramatically in the latter part of the year. This reduction was long awaited since the premiums skyrocketed in the late 1980's as numerous bank failures put a burden on the insurance fund. 2 4 Today the fund is well capitalized which has enabled the reduction in premiums. We are also undergoing a transition in our employee pension plan, moving from a defined benefit plan to a 401(K) plan. We will experience a pre-tax charge to earnings to settle the bank's obligation to the defined benefit plan. This charge should be offset by the savings that will be realized in the reduction of the FDIC premiums, thus having a negligible effect on earnings. The economic scene in this country has done an about face during this past year. While interest rates were on the rise through most of 1994, they were on the decline through a good part of 1995. As the Federal Reserve noted a slowing of economic conditions during this past year, they began to slowly lower short term interest rates. With the annual rate of inflation falling below that of the previous year, the bond market accepted lower long term interest rates as well. This enabled real estate mortgage rates to fall. The Federal Reserve is continuing to follow their resolve to keep inflation at bay, while keeping a watchful eye on general economic conditions. They have the delicate job of adjusting short term interest rates to encourage economic growth, while at the same time keeping inflation down. If inflation continues to remain at bay, and the economy grows slowly, we may see a reduction of interest rates as we move through the new year. We look ahead to 1996 as another year of many challenges. In addition to a changing interest rate environment, a changing competitive environment poses many challenges to us as well. With many "non-bank" institutions, such as insurance companies and brokerage houses, offering products that compete directly with us, we find the competitive arena going far beyond other commercial banks and savings and loans. This offers new challenges to the marketing of our services. To meet these challenges and assure high quality of customer service, we recently created a new executive officer position at First National Bank, Vice President of Customer Services. This position was filled with the appointment of Harold Berkey. In this capacity, Harold will be responsible for overseeing all customer service, marketing and sales functions for First National Bank. In support of the many products and services we offer, we will be undergoing a complete upgrade of computer system hardware and software during 1996. These new systems will offer the latest applications of customer support for our financial products and services. We look forward to meeting the many challenges 1996 holds for us. We appreciate your support and confidence as we endeavor to keep you as shareholders in a growing and profitable financial institution. /s/ Charles J. Dolezal Charles J. Dolezal President and Chairman "We look forward to meeting the many challenges 1996 holds for us." 3 5 FINANCIAL REVIEW National Bancshares Corporation succeeded in setting a number of new records in 1995. Total assets grew approximately $2.1 million ending 1995 at $175,144,085. This represents a 1.2% increase over the previous year. Average assets experienced strong growth for 1995 increasing to $169.8 million from $155.9 million in 1994 or an increase of $13.9 million. Net income for 1995 was $2,168,892 which exceeded 1994 net income by approximately 7.5%. ASSETS Cash and due from banks was $7,946,503 and $8,261,107 at December 31, 1995 and 1994, respectively. This was a decrease of $315 thousand or 3.8%. Cash reserves are maintained at appropriate levels in order to meet customer needs and provide stability to the local economy with consideration given to security. Excess cash is prudently invested in order to maximize a safe and profitable return on assets. A significant portion of this account is in the normal processing of outgoing cash letters. Total investment securities decreased approximately $11.5 million ending 1995 at $78,687,704 compared to $90,237,648 at the end of 1994. The average balance of taxable investment securities grew from $65.5 million in 1994 to $66.4 million in 1995, while average nontaxable investment securities declined approximately $213 thousand in 1995 from 1994. The market or fair value of the total portfolio was $81,159,725 and $88,813,739 as of December 31, 1995 and 1994, respectively. U.S. treasury and agency obligations decreased by approximately $5.8 million or 17% with balances of $28,566,474 on December 31, 1995 compared to $34,408,100 on December 31, 1994. The net market appreciation of this category was approximately $880 thousand as of December 31, 1995. Mortgage backed securities were $4,777,573 and $5,360,658 on December 31, 1995 and 1994, respectively. This was a decline of $583 thousand or 10.9%. The net market appreciation of these securities was $50 thousand on December 31, 1995. Obligations of states and political subdivisions ended 1995 at $17,171,409 which was 3% below the $17,698,561 balance on December 31, 1994. The net market appreciation was approximately $1.1 million as of December 31, 1995. The change in the federal tax laws in 1986 has generally reduced the supply of bank qualified tax free security issues. However, to assist in local development, the bank actively purchases bonds issued by local municipalities, school systems and other public entities when opportunities present themselves. Other securities ended 1995 at $28,172,248 which was 14.0% lower than the December 31, 1994 balance of $32,770,329. This group of securities is primarily comprised of high quality corporate bonds and notes. The net market appreciation was approximately $587 thousand as of December 31, 1995. Federal funds sold were $9,294,346 and $11,885,000 as of December 31, 1995 and 1994, respectively. Average balances increased during the year with 1995 averaging $9.2 million compared to $7.1 million during 1994. Federal funds sold are over night investments with our correspondent banks. This is a significant investment tool that is used to maximize the earning assets of the bank. Total net loans increased by approximately $16.9 million or 30.1% during 1995. Net loan balances were $73,141,286 and $56,215,091 on December 31, 1995 and 1994, respectively. Average net loans posted an increase of $9.6 million with a yearly average of $64.7 million for 1995. Loans collateralized by real estate were $47,070,211 on December 31, 1995 as compared to $40,541,407 as of December 31, 1994. All real [photo Abraham Lincoln] 4 6 estate categories posted an increase in 1995. There was a $2.2 million increase in commercial real estate loans, $3.4 million increase in residential mortgages, home equity loans increased $113 thousand and construction loans were higher by $854 thousand. Consumer loans totaling $14,460,752 on December 31, 1995 were 99.3% above the 1994 ending total of $7,253,952. This increase was primarily the result of additional automobile financing. The unearned income associated with these consumer loans continued to decrease indicating the consumers demand for simple rate loans. Commercial loans were $10,627,112 and $7,250,601 as of December 31, 1995 and 1994, respectively. Credit card loans increased slightly during the year with balances of $837,132 on December 31, 1995. Other loans decreased $237 thousand during 1995 ending the year at $1,728,407. The allowance for loan losses was $1,046,542 and $890,666 as of December 31, 1995 and 1994, respectively. The allowance for loan losses to total loans percentages were 1.41% and 1.56% and net charge-off to total loans percentages were .03% and -.18% for 1995 and 1994, respectively. The net recovery for 1994 was primarily in the commercial loan area. As with any charge-off, the bank continues to attempt recovery where feasible. Management reviews the allowance for loan losses on a regular basis to determine the adequacy of the reserve. In the normal course of business, the bank makes commitments to lend money to various customers. These commitments totaled approximately $21.1 million as of December 31, 1995. They are to businesses and individuals for general credit, real estate construction and letters of credit. Accrued interest receivable ended 1995 at $1,637,600 which was a 1.5% decrease from December 31, 1994. Accrued interest receivable is interest income earned on investment securities and loans, but not yet received. Premises and equipment totaled $2,220,358 on December 31, 1995 as compared to $2,378,202 on December 31, 1994. Improvements and repairs to bank buildings and equipment are performed as needed to keep them in good working order in an effort to provide convenient and pleasant banking offices to meet our customers needs. Other assets totaled $2,216,288 and $2,402,567 as of December 31, 1995 and 1994, respectively. These assets mainly include intangible assets, prepaid expenses and other real estate owned. LIABILITIES Total deposits posted a $1.1 million or .8% increase ending 1995 at $146,996,114 as compared to $145,862,240 on December 31, 1994. Average deposits increased from $131.2 million in 1994 to $141.4 million during 1995. Demand deposits which represent non-interest bearing checking accounts ended 1995 at $25,013,104 which was a growth of 4.1% over the December 31, 1994 balance of $24,036,115. The average demand accounts for 1995 were $23.2 million as compared to $20.8 million in 1994. Interest bearing checking accounts finished 1995 at $33,353,418 in comparison to $33,430,545 a year earlier. This was a decrease of $77 thousand or .2%. Average balances grew $2.4 million from $29.5 million in 1994 to $31.9 million in 1995. Interest bearing checking accounts include our Negotiable Order of Withdrawal accounts and Money Market Deposit Accounts. Savings accounts totaled $39,852,700 on December 31, 1995 or $4.0 million below the end of the previous year. Average savings accounts decreased from $43.3 million during 1994 to approximately $40.8 million in 1995. Generally, this decrease was the result of customers moving their investments into time deposits to improve their yield. First National offers both passbook and statement savings accounts. [photo Alexander Hamilton] 5 7 Time deposits of less than $100,000 were $37,824,538 and $31,874,755 as of December 31, 1995 and 1994, respectively. This $5.9 million growth equaled an 18.7% increase. Average time balances increased approximately $5.7 million giving 1995 an average time deposit balance of approximately $36 million as compared to $30.3 million in 1994. Time deposits of $100,000 and over decreased from $12,652,502 on December 31, 1994 to $10,952,444 on December 31, 1995. However, average time deposits of $100,000 and over increased by $2.2 million over 1994 giving 1995 an average of $9.4 million. Securities sold under agreements to repurchase were $3,279,655 on December 31, 1995 in comparison to $3,269,919 at the end of 1994 or approximately $10 thousand higher. Federal reserve note account balance was $351,110 and $1,000,000 as of December 31, 1995 and 1994, respectively. The note account is determined by the cash needs of the federal government. The average of other funds purchased increased in 1995 to $4.7 million from $2.4 million during 1994. Other liabilities which include accrued interest payable, dividends declared not yet payable and other accrued expenses increased in 1995 with balances of $1,131,275 and $820,576 as of December 31, 1995 and 1994, respectively. SHAREHOLDERS' EQUITY Shareholder's equity exceeded $23 million during 1995 with an ending balance of $23,385,931 on December 31, 1995. This is an increase of $1.3 million or 5.9% above the 1994 ending balance of $22,089,249. This growth equaled $1.42 per share raising the book value per share to $25.54 on December 31, 1995 as compared to $24.12 on December 31, 1994. Under the risk based capital regulations with a 8% minimum, the total capital to risk based assets of 20.67% on December 31, 1995 was more than twice the minimum required by federal regulations. The bank has remained in a very favorable position when compared to its peer group in the area of capitalization. In summary, the corporation experienced growth of approximately 30% in loans, 1% in deposits and 6% in shareholders' equity. LIQUIDITY Liquidity is the consideration of the corporation's ability to meet its necessary out-going cash flow needs. Cash equivalents for the cash flow statement is composed of $7.9 million in cash and due from banks and $9.3 million in federal funds sold with a combined total in excess of $17 million. Therefore, management considers that the corporation is in a good liquidity position to meet the demands of its customers and the local economy. RESULTS OF OPERATIONS Net income set a new record high of $2,168,892 in 1995 or approximately 7.5% over 1994 net income of $2,018,235 The primary source of income continues to be interest on loans and other investments with additional revenues generated from fees on non-interest rated services. Interest and fees on loans of $6,259,570 for 1995 was above 1994 by 32.1% or approximately $1.5 million. This improvement was provided by increases both in average loan volume and average interest yields. Interest on federal funds sold was $541,119 and $314,568 for 1995 and 1994, respectively. This increase of $227 thousand was the result of higher average interest yields and higher volume of average funds sold. Interest on taxable investment securities increased by approximately $126 thousand ending 1995 at $4,766,088. This 2.7% increase in interest income was due to the greater average interest rates and increased average investment balances. [photo Andrew Jackson] 6 8 Interest on obligations of states and political subdivisions totaled $1,044,935 for 1995 which was $29 thousand or 2.7% below 1994. The average balance of these investments decreased $213 thousand and the average tax equivalent yield declined from 9.20% in 1994 to 9.06% in 1995. Total interest income of $12,611,712 was $1.8 million higher than 1994's total of $10,766,011 as a result of the generally increasing balance volumes and higher average yields in loans, taxable investment securities and federal funds sold. Interest on deposits totaled $4,522,601 in 1995 as compared to $3,603,025 in 1994. This $920 thousand increase which equaled a 25.5% rise reflected both higher average rates and average balances increased in demand deposit and time deposits. Interest expense on other funds purchased was $239,539 or approximately $148 thousand more than 1994. This was the result of higher average balances and higher rates. Net interest income before provision for loan losses increased by 11% in 1995 totaling $7,849,572 as compared to $7,071,263 in 1994. The net interest margin which is calculated on a tax equivalent basis increased from 5.24% in 1994 to 5.32% in 1995 reflecting a slightly improved interest margin for the company. The bank provides for potential loan losses throughout the year. In both 1995 and 1994 the provision for loan losses was $180,000. As previously mentioned, net charge-off to total loans was a net charge-off of .03% in 1995 and a net recovery of .18% in 1994. Net interest income after provision for loan losses was $7,669,572 in 1995 which was $778 thousand or 11.3% above 1994's total. Noninterest income totaled $740,236 and $740,183 for 1995 and 1994, respectively. Noninterest income is primarily comprised of checking account fees which were $496 thousand in 1995 as compared to $487 thousand in 1994. Other noninterest income includes safety deposit box rents, net security gains/losses and other miscellaneous fees and collections. Noninterest expenses were $5,650,586 for 1995 in comparison to $5,152,378 in 1994. This was a $498 thousand or 9.7% increase over 1994. Generally, there were increases in all categories of noninterest expense which include salaries and employee benefits, data processing fees, net occupancy expenses, State of Ohio franchise tax and miscellaneous other expenses. FDIC premium rates were reduced in 1995 which caused a reduction of premium expense as compared to 1994. The bank has been assigned the lowest premium rate for the first half of 1996 due to its high capitalization level and favorable regulatory evaluations. The income tax provision was $590,330 and $460,833 in 1995 and 1994, respectively. The growth in taxable interest income was the main reason for this increase. Net income for 1995 set a new record at $2,168,892 or approximately 7.5% higher than 1994's total of $2,018, 235. This equates to net income per share in 1995 of $2.37 as compared to $2.20 per share in 1994. Cash dividends declared during 1995 were approximately $0.90 per share or $.10 per share above 1994's dividend of $0.80 per share. The dividend pay-out percentage for 1995 was 37.9% of net income. After dividends declared, $1.3 million was added to shareholder equity from retained net income. Return on average equity was 9.49% and 9.37% for 1995 and 1994, respectively. Return on average assets was a respectable 1.28% in 1995 and 1.29% in 1994. [photo Ben Franklin] 7 9 SELECTED FINANCIAL DATA
INVESTMENT SECURITIES (MILLIONS OF DOLLARS) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 78.7 90.2 80.2 74.9 74.3 LOANS - NET (MILLIONS OF DOLLARS) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 73.1 56.2 53.2 54.8 47.1 DEPOSITS (MILLIONS OF DOLLARS) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 147.0 145.9 132.4 125.3 118.4 SHAREHOLDERS' EQUITY (MILLIONS OF DOLLARS) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 23.4 22.1 20.9 19.6 18.4 NET INCOME (MILLIONS OF DOLLARS) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- 2.2 2.0 2.0 1.8 1.7 CASH DIVIDENDS PER SHARE* (DOLLARS) 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- .90 .80 .75 .69 .65 * Per share data restated for a 5 for 4 stock split on December 15, 1995.
8 10 PRICE RANGES OF COMMON STOCK The stock prices below reflect inter-dealer bid prices, without adjustments for retail markups, markdowns or commissions and may not represent actual transactions.
------------------------------------------------------------------------------- 1995 High Low Dividends Per Share First Quarter $ 28.79 $ 27.99 $ .176 Second Quarter 30.78 28.79 .176 Third Quarter 32.78 30.78 .176 Fourth Quarter 35.50 32.78 .370 -------------------------------------------------------------------------------
--------------------------------------------------------------------------------- 1994 High Low Dividends Per Share First Quarter $ 25.60 $ 24.96 $ .153 Second Quarter 26.23 25.60 .153 Third Quarter 26.23 26.23 .153 Fourth Quarter 27.99 26.23 .344 --------------------------------------------------------------------------------- Per share information restated for a 5 for 4 stock split on December 15, 1995.
SHAREHOLDER INFORMATION CORPORATE OFFICE National Bancshares Corporation 112 West Market Street P.O. Box 57 Orrville, Ohio 44667 (330)682-1010 STOCK TRADING INFORMATION The shares of common stock of National Bancshares Corporation are traded on the local over-the-counter market primarily with brokers in the Corporation's service area. FORM 10-K A copy of the Corporation's 1995 Annual Report on Form 10-K as filed with the SEC will be furnished free of charge to shareholders upon written request to the company. SHAREHOLDER ASSISTANCE AND TRANSFER AGENT Shareholders with questions are invited to write or call the Transfer Agent, KeyCorp Shareholder Services, Inc., P.O. Box 6477, Cleveland, Ohio 44101, 1-800-542-7792 or National Bancshares Corporation, Shareholder Services Department, at (330)682-1030. DIVIDEND REINVESTMENT PLAN This plan makes available an opportunity to increase ownership of National Bancshares Corporation common stock through the automatic reinvestment of all or part of the dividends paid to shareholders without paying brokerage commissions or service charges. DIVIDEND DIRECT DEPOSIT PLAN This plan permits shareholders to electronically deposit cash dividends to their checking or saving accounts. This free service provides a convenient and safe method of receiving dividend payments. 9 11 CONSOLIDATED BALANCE SHEETS December 31, 1995 and 1994
ASSETS 1995 1994 Cash and due from banks (Note 2) $ 7,946,503 $ 8,261,107 Federal funds sold 9,294,346 11,885,000 Investment securities - held to maturity (approximate market or fair value $77,242,490 and $84,126,129 - Note 3) 74,770,469 85,550,038 Investment securities - available for sale (amortized cost $3,789,160 and $4,755,846 - Note 3) 3,917,235 4,687,610 Loans, less allowance for loan losses of $1,046,542 and $890,666 (Note 4) 73,141,286 56,215,091 Accrued interest receivable 1,637,600 1,662,369 Premises and equipment - net (Note 6) 2,220,358 2,378,202 Other assets 2,216,288 2,402,567 ----------------- ---------------------- TOTAL $ 175,144,085 $ 173,041,984 ================= ====================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Deposits (Note 7) $ 146,996,114 $ 145,862,240 Securities sold under repurchase agreements 3,279,655 3,269,919 Federal reserve note account 351,110 1,000,000 Accrued interest payable 558,289 374,890 Dividends payable 338,790 314,827 Other accrued expenses 234,196 130,859 ----------------- ---------------------- Total liabilities 151,758,154 150,952,735 COMMITMENTS (Note 5) SHAREHOLDERS' EQUITY (Note 13): Common stock - $10 par value; 6,000,000 and 750,720 shares authorized in 1995 and 1994, respectively; 915,651 and 732,156 shares issued and outstanding in 1995 and 1994, respectively 9,156,510 7,321,560 Surplus 4,689,800 4,689,800 Net unrealized appreciation (depreciation) in the fair value of securities available for sale 84,529 (45,036) Retained earnings 9,650,046 10,122,925 Less treasury shares (194,954) ----------------- ---------------------- Total shareholders' equity 23,385,931 22,089,249 ----------------- ---------------------- TOTAL $ 175,144,085 $ 173,041,984 ================= ======================
See notes to consolidated financial statements. 10 12 CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 INTEREST INCOME: Interest and fees on loans $ 6,259,570 $ 4,737,318 4,593,539 Interest on federal funds sold 541,119 314,568 297,814 Interest and dividends on investment securities: U.S. government obligations 2,578,060 2,522,549 2,744,288 Obligations of states and political subdivisions - nontaxable 1,044,935 1,073,839 1,038,187 Other securities 2,188,028 2,117,737 1,958,415 ------------------------------------------------------------ Total interest income 12,611,712 10,766,011 10,632,243 INTEREST EXPENSE: Time deposits, $100,000 and over 497,772 301,414 258,008 Other deposits 4,024,829 3,301,611 3,426,735 Short-term borrowings 239,539 91,723 84,668 ------------------------------------------------------------- Total interest expense 4,762,140 3,694,748 3,769,411 -------------------------------------------------------------- Net interest income 7,849,572 7,071,263 6,862,832 PROVISION FOR LOAN LOSSES (Note 4) 180,000 180,000 180,000 ------------------------------------------------------------- Net interest income after provision for loan losses 7,669,572 6,891,263 6,682,832 NONINTEREST INCOME (Note 10) 740,236 740,183 702,636 NONINTEREST EXPENSE (Note 10) 5,650,586 5,152,378 4,924,868 ------------------------------------------------------------- INCOME BEFORE INCOME TAXES 2,759,222 2,479,068 2,460,600 INCOME TAX EXPENSE (Note 9) 590,330 460,833 460,547 ------------------------------------------------------------- NET INCOME $ 2,168,892 $ 2,018,235 $ 2,000,053 ============================================================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (Restated in 1994 and 1993 for stock split in 1995) 915,651 915,651 915,651 ============================================================= EARNINGS PER COMMON SHARE 2.37 2.20 2.18 =============================================================
See notes to consolidated financial statements. 11 13 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Years Ended December 31, 1995, 1994 and 1993
Net Unrealized Appreciation/ Common Stock (Depreciation) Total -------------------- in Fair Value Retained Treasury Shareholders' Shares Amount Surplus of Securities Earnings Shares Equity Balance, January 1, 1993 468,980 $ 4,689,800 $ 4,689,800 $ 10,181,204 $ 19,560,804 Net Income 2,000,053 2,000,053 Stock Split (5 for 4) 116,996 1,169,960 (1,169,960) Cash Distribution in Lieu of Shares in Stock Split (8,365) (8,365) Cash Dividends Declared, $.75 Per Share (689,162) (689,162) -------------------------------------------------------------------------------------------- Balance, December 31, 1993 585,976 5,859,760 4,689,800 10,313,770 20,863,330 Change in Accounting for Investments $ 60,643 60,643 Net Income 2,018,235 2,018,235 Stock Split (5 for 4) 146,180 1,461,800 (1,461,800) Cash Distribution in Lieu of Shares in Stock Split (10,550) (10,550) Cash Dividends Declared, $.80 Per Share (736,730) (736,730) Net Unrealized Depreciation in Fair Value of Securities Available for Sale (105,679) (105,679) -------------------------------------------------------------------------------------------- Balance, December 31, 1994 732,156 7,321,560 4,689,800 (45,036) 10,122,925 22,089,249 Net Income 2,168,892 2,168,892 Stock Split (5 for 4) 182,873 1,828,730 (1,828,730) Cash Distribution in Lieu of Shares in Stock Split (10,931) (10,931) Cash Dividends Declared, $.90 Per Share (822,014) (822,014) Shares Issued under Dividend Reinvestment Plan, $42 Per Share 622 6,220 19,904 26,124 Purchase of Treasury Shares $ (194,954) (194,954) Net Unrealized Appreciation in Fair Value of Securities Available for Sale 129,565 129,565 -------------------------------------------------------------------------------------------- Balance, December 31, 1995 915,651 $9,156,510 $4,689,800 $ 84,529 $9,650,046 $ (194,954) $ 23,385,931 ============================================================================================
See notes to consolidated financial statements. 12 14 CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,168,892 $ 2,018,235 $ 2,000,053 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 741,862 642,522 537,205 Provision for loan losses 180,000 180,000 180,000 Net gain on sales of investments (20,790) (51,017) Changes in operating assets and liabilities 117,956 25,805 (230,259) --------------------------------------------------------- Net cash provided by operating activities 3,208,710 2,845,772 2,435,982 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of investments 13,332,981 7,043,000 10,022,000 Proceeds from sales of investments 2,000,000 3,000,000 Purchases of investments (2,000,000) (19,509,397) (18,549,111) Capital expenditures (103,497) (143,828) (806,213) Net (increase) decrease in loans to customers (17,106,195) (3,194,456) 1,385,480 Net cash and cash equivalents received in connection with acquisitions 6,679,846 Other - net 245,835 (1,289,508) 258,541 -------------------------------------------------------- Net cash used in investing activities (5,630,876) (8,414,343) (4,689,303) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in demand and savings accounts (3,115,852) 4,791,771 6,193,281 Net increase in time deposits 4,249,726 3,298,563 956,606 Net increase (decrease) in short-term borrowings (639,154) (1,661,119) 520,548 Dividends paid (808,982) (737,161) (669,517) Dividends reinvested 26,124 Purchase of treasury shares (194,954) -------------------------------------------------------- Net cash provided by (used in) financing activities (483,092) 5,692,054 7,000,918 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,905,258) 123,483 4,747,597 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 20,146,107 20,022,624 15,275,027 -------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $17,240,849 $20,146,107 $20,022,624 ========================================================
See notes to consolidated financial statements. 13 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1995, 1994 and 1993 1.) BUSINESS & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AND CUSTOMER CONCENTRATION - National Bancshares Corporation (the "Corporation") is the bank holding company for First National Bank, Orrville, Ohio (the "Bank"). The Bank offers a full line of services usually found in any commercial bank operation, including checking accounts, savings accounts, certificates of deposit, personal loans, loans to business and industry, installment loans, safety deposit boxes and credit cards. The Bank does not have trust powers and, therefore, does not offer trust services. The Bank operates nine full service offices and one limited service office in a market area comprising most of Wayne County, portions of western Stark County, northeastern Holmes County and southern Medina County. The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. It is subject to supervision, examination and regulation by the Comptroller of the Currency. The Company is also subject to supervision, examination and regulation by the Federal Reserve System. Management is not currently aware of any regulatory recommendation which if were to be implemented would have a material effect on the business. CONSOLIDATION - The financial statements include the accounts of National Bancshares Corporation and its wholly-owned subsidiary, First National Bank (the Bank). All intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of the Bank reflect banking industry practices and conform to generally accepted accounting principles. USE OF ESTIMATES - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENT SECURITIES - The Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of January 1, 1994. The Statement requires that securities be classified as held for trading, available-for-sale or held-to-maturity. Securities held for trading are to be carried at estimated fair value with the adjustment, if any, reflected in the statement of income. Securities classified as available-for-sale are also to be carried at estimated fair value; however, the adjustment, if any, would be reflected in shareholders' equity. Securities held-to-maturity are to continue to be carried at amortized cost. At January 1, 1994, the Company classified investment securities as held to maturity having a carrying value of $78,980,325 and a fair value of $82,721,892, and available for sale having amortized cost of $1,195,263 and a fair value of $1,287,147. Accordingly, the $91,884 adjustment to estimated fair value, net of deferred income taxes of $31,241, was recorded as a separate component of shareholders' equity. LOANS are stated at the amount of unpaid principal, reduced by unearned income, unamortized discount on purchased loans and an allowance for loan losses. Interest on commercial and real estate mortgage loans is recognized in income on a daily basis based upon the simple interest method and the principal amount outstanding. Generally, interest on consumer installment loans is computed using the simple interest method. Loans cease accruing interest when management determines such interest is uncollectible. ALLOWANCE FOR LOAN LOSSES - The provision for loan losses is based upon the Bank's past loan loss experience, current delinquencies, nature of the loan, general economic conditions and trends, and an evaluation of the potential losses in the current loan portfolio and is stated in accordance with generally accepted accounting principles. In management's opinion the allowance for loan losses is adequate. However, changes in this estimate and evaluation might be required depending on changing economic conditions and the economic prospects of borrowers. Effective January 1, 1995, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - - Income Recognition and Disclosures," which impose certain requirements on the measurement of impaired loans. The Company has previously measured such loans in accordance with the methods prescribed in SFAS No. 114. Consequently, no additional loss provisions were required by the adoption of these statements. SFAS No. 114 also requires that impaired loans for which foreclosure is probable should be accounted for as loans. The amounts of impaired loans, as defined in SFAS No. 114, and impaired loans for which foreclosure is probable are not significant. Thus, neither the initial adoption of SFAS No. 114 and SFAS No. 118, nor the on-going effect of these statements, has had, or is expected to have, a material effect on the financial condition or results of operations of the Corporation. The Corporation's policy for recognition of interest on impaired loans including how cash receipts are recorded is essentially unchanged as a result of the 14 16 adoption of SFAS Nos. 114 and 118. A loan (including a loan impaired under SFAS No. 114) is classified as non-accrual when collectibility is in doubt (this is generally when the borrower is 90 days past due on contractual principal or interest payments). Income is subsequently recognized only to the extent that cash payments are received. Loans are returned to accrual status when, in management's judgment, the borrower has the ability and intent to make periodic principal and interest payments (this generally requires that the loan be brought current in accordance with its original contractual terms). PREMISES AND EQUIPMENT are stated at cost, less accumulated depreciation. The provision for depreciation is computed using the straight-line method over the useful lives of the assets, generally ranging from 5 to 40 years. INTANGIBLE ASSETS - Core deposit premiums of $352,000 and goodwill of $416,000 which resulted from branch purchases are included in other assets, and are being amortized over the estimated average remaining life of the existing customer base acquired using the level-yield method. EARNINGS PER SHARE are calculated based on the weighted average number of shares outstanding during the period. During 1995, the Corporation declared a 5 for 4 stock split, effected in the form of a 25% stock dividend and, accordingly, earnings per share and dividends per share for 1994 and 1993 have been restated to reflect the increased number of shares. Statement of Cash Flows - For purposes of this statement, the Corporation considers all cash and due from banks and federal funds sold to be cash equivalents. LOAN FEES - Loan origination fees received for loans, net of direct origination costs, are deferred and amortized to interest income over the contractual life of the loan using the level yield method. Fees received for loan commitments that are expected, based on the Bank's experience with similar commitments, to be drawn are deferred and amortized over the life of the loan using the level yield method. Fees for other loan commitments are deferred and amortized over the loan commitment period on a straight-line basis. Amortization of net deferred loan fees is discontinued on non-performing loans. 2.) CASH Regulations of the Federal Reserve require depository institutions to maintain reserves which are not available for investment purposes. Cash reserves of approximately $1,171,000 and $1,209,000 were maintained at December 31, 1995 and 1994, respectively. 3.) INVESTMENT SECURITIES The carrying amounts and approximate market or fair values of the investment securities are summarized as follows: -----------------------------------------------------------------
December 31, 1995 December 31, 1994 ------------------------------------------------------------------------------------------------------ Gross Gross Gross Gross Amortized Unrealized Unrealized Market or Amortized Unrealized Unrealized Market or Cost Gains Losses Fair Value Cost Gains Losses Fair Value Held to Maturity: U.S. treasury and agency obligations $26,534,599 $ 867,826 $ (34,322) $27,368,103 $31,459,350 $ 235,011 $ (757,104) $30,937,257 Mortgage backed securities 4,777,573 72,746 (22,293) 4,828,026 5,360,658 60,665 (283,575) 5,137,748 Obligations of states and political subdivisions 16,600,109 1,064,719 (55,047) 17,609,781 17,152,511 435,412 (361,991) 17,225,932 Corporate bonds and notes 26,576,788 670,967 (92,575) 27,155,180 31,296,119 337,922 (1,090,249) 30,543,792 Federal Reserve Bank stock 281,400 281,400 281,400 281,400 ----------------------------------------------------------------------------------------------------- Total $74,770,469 $ 2,676,258 $(204,237) $77,242,490 $85,550,038 $1,069,010 $(2,492,919) $84,126,129 ===================================================================================================== Available for Sale: U.S. treasury and agency obligations $ 1,985,687 $ 46,188 $ 2,031,875 $ 2,948,458 $ 903 $ (611) $ 2,948,750 Obligations of states and political subdivisions 497,782 73,518 571,300 497,728 48,322 546,050 Corporate bonds and notes 1,305,691 21,169 $ (12,800) 1,314,060 1,309,660 4,882 (121,732) 1,192,810 ----------------------------------------------------------------------------------------------------- Total $ 3,789,160 $ 140,875 $ (12,800) $ 3,917,235 $ 4,755,846 $ 54,107 $ (122,343) $ 4,687,610 =====================================================================================================
15 17 The amortized cost and market or fair value at December 31, 1995, by contractual maturity, is as follows:
Amortized Market or Cost Fair Value HELD TO MATURITY: Due in one year or less $ 13,425,867 $ 13,711,399 Due after one year through five years 37,845,159 38,907,662 Due after five years through ten years 21,274,115 22,321,524 Due after ten years 2,225,328 2,301,905 ------------------------------- $ 74,770,469 $77,242,490 =============================== Amortized Market or Cost Fair Value AVAILABLE FOR SALE: Due in one year or less $ 996,220 $ 1,012,188 Due after one year through five years 2,295,158 2,333,747 Due after five years through ten years Due after ten years 497,782 571,300 ------------------------------- $ 3,789,160 $ 3,917,235 ===============================
Investment securities having a carrying amount and a market or fair value of approximately $23,603,046 and $22,892,178, respectively, at December 31, 1995 were pledged to secure deposits of public funds and for other purposes required or permitted by law. 4.) LOANS The composition of the loan portfolio is as follows:
December 31, 1995 1994 Collateralized by real estate: Commercial $ 22,233,532 $ 20,026,651 Residential mortgages 22,377,936 19,022,536 Home equity 1,216,177 1,103,677 Construction 1,242,566 388,543 ------------------------------ 47,070,211 40,541,407 Consumer 14,460,752 7,253,952 Commercial 10,627,112 7,250,601 Credit cards - unsecured 837,132 812,737 Other 1,728,407 1,965,743 ------------------------------ 74,723,614 57,824,440 Unearned income (218,646) (256,092) Unamortized discount on purchased loans (317,140) (462,591) ------------------------------ 74,187,828 57,105,757 Allowance for loan losses (1,046,542) (890,666) ------------------------------ $73,141,286 $ 56,215,091 ==============================
The Bank grants commercial, mortgage and installment loans to its customers who are primarily located in its market area. has a diversified loan portfolio and the area has a diversified industrial base. The majority of the commercial loans are collateralized. Collateral varies and may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. The consumer loans are primarily collateralized by vehicles. As discussed in Note 1 to the financial statements, the Corporation adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." See Note 1 for additional information regarding this adoption. A loan is considered to be impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank performs a review of all significant commercial loans to determine if the impairment criteria have been met. If the impairment criteria has been met, a reserve is calculated according to the provisions of SFAS No. 114. For loans which are individually not significant and represent a homogeneous population, the Bank evaluates impairment based on the level and extent of delinquencies in the portfolio and the Bank's prior charge-off experience with those delinquencies. The Bank charges principal off at the earlier of (1) when a total loss of principal has been deemed to have occurred or (2) when collection efforts have ceased. Impaired loans and related allowances are summarized below:
December 31, 1995 1994 Gross impaired loans which have allowances $ 56,124 $ 62,548 Less: Related allowances for loan losses (14,200) (25,000) ------------------------- Net impaired loans with related allowances 41,924 37,548 Impaired loans with no related allowances 31,419 ------------------------- Total $ 41,924 $ 68,967 =========================
The average recorded investment in impaired loans during 1995, 1994 and 1993 was $63,099, $184,142 and $313,176, respectively. Interest income recognized on impaired loans during 1995, 1994 and 1993 was $16,786, $3,093 and $13,028, respectively. Activity within the allowance for loan losses is as follows:
Years Ended December 31, 1995 1994 1993 Balance, beginning of year $ 890,666 $ 605,792 $ 750,134 Provision for loan losses 180,000 180,000 180,000 Recoveries 16,533 154,279 20,058 Chargeoffs (40,657) (49,405) (344,400) ------------------------------------- Balance, end of year $ 1,046,542 $ 890,666 $ 605,792 =====================================
16 18 5.) COMMITMENTS In the normal course of business, the Bank makes various commitments to fund loans that are not presented in the accompanying financial statements. At December 31, 1995, the commitments include the following:
Unused lines of credit: Commercial $ 13,554,508 Home equity 1,190,572 Credit cards - unsecured 3,005,303 -------------- 17,750,383 Real estate construction loans 480,643 Letters of credit 2,854,308 -------------- $ 21,085,334 ==============
The unused commercial and home equity lines of credit and real estate construction loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial or residential properties. The letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral for nearly all letters of credit. Collateral includes certificates of deposit, other deposits, or lines of credit, which may or may not be collateralized. 6.) PREMISES & EQUIPMENT A summary of premises and equipment is as follows:
December 31, 1995 1994 Land $ 287,592 $ 287,592 Buildings and improvements 2,934,275 2,919,002 Furniture and fixtures 2,216,929 2,138,596 ---------------------------- 5,438,796 5,345,190 Less accumulated depreciation 3,218,438 2,966,988 ---------------------------- $ 2,220,358 $ 2,378,202 ============================
Depreciation expense recognized as noninterest expense in 1995, 1994 and 1993 was $261,241, $262,431 and $240,515, respectively. 7.) DEPOSITS A summary of deposits is as follows:
December 31, 1995 1994 Demand, noninterest bearing $ 25,013,014 $ 24,036,115 Demand, interest bearing (NOW) 33,353,418 33,430,545 Savings 39,852,700 43,868,323 Time, $100,000 and over 10,952,444 12,652,502 Time, other 37,824,538 31,874,755 -------------------------------- $ 146,996,114 $ 145,862,240 ================================
A summary of the maturities of time deposits of $100,000 or more is as follows:
1995 1994 Three months or less $ 9,629,509 $ 11,323,000 Over 3 months through 6 months 416,409 Over 6 months through 12 months 100,000 733,494 Over 12 months 806,526 596,008 --------------------------------- $ 10,952,444 $ 12,652,502 =================================
8.) BENEFIT PLANS The Bank has a defined benefit pension plan which covers substantially all employees. The plan benefit formulas generally base payments to retired employees upon their length of service and a percentage of qualifying compensation during their final years of employment. The Bank's funding policy is to contribute annually an amount necessary to satisfy ERISA funding standards. Plan assets are held by Principal Mutual Life Insurance Company and are in an unallocated insurance contract. In January 1995, the Board of Directors approved the termination of the Bank's defined benefit pension plan effective March 31, 1995. The Bank submitted its termination request to the Department of Labor (DOL) in 1995. Regulatory approval and termination of the plan is expected to occur during 1996. The Bank does not expect the settlement of benefits under this plan to have a significant impact on its financial condition or results of operations. 17 19 Net pension expense included the following components:
Years Ended December 31, 1995 1994 1993 Service cost - benefits earned during the period $ 47,937 $ 85,837 $ 73,875 Interest cost on projected benefit obligation 112,318 108,004 105,496 Actual return on plan assets (218,541) 68,282 (168,591) Net amortization and deferral: Amortization of unrecognized net asset existing at January 1, 1989 (1,827) (1,827) (1,827) Amortization of unrecognized prior service cost 2,522 5,057 5,057 Amortization of unrecognized net loss 3,289 Asset gain (loss) deferred 215,444 (196,994) 46,000 ------------------------------- Net pension expense $ 161,142 $ 68,359 $ 60,010 ===============================
The following table sets forth the plan's funded status:
December 31, 1995 1994 Plan assets at fair market value $ 1,846,697 $ 1,717,045 Projected benefit obligation 1,510,570 1,802,232 -------------------------- Plan assets in excess (less than) projected benefit obligation 336,127 (85,187) Unrecognized net (gain) loss (266,376) 273,709 Unrecognized prior service cost 44,198 Unrecognized net asset being amortized over 13 years from January 1, 1989 (10,838) (12,665) -------------------------- Prepaid pension cost included in other assets $ 58,913 $ 220,055 ==========================
The accumulated benefit obligation at December 31, 1995 and 1994 was $1,510,570 and $1,368,812, respectively, which includes vested benefits of $1,484,290 and $1,344,441 on the respective dates. Assumptions used in computing pension expense were as follows:
Years Ended December 31, 1995 1994 1993 Weighted average discount rate 7.0% 7.0% 7.0% Rates of increased future compensation levels N/A 5.4% 5.5% Expected long-term rate of return on assets 7.5% 7.5% 7.5%
The Bank implemented a 401(k) plan effective January 1, 1995 which covers substantially all employees. The plan allows employees to contribute up to 15% of their pay with the Bank matching 50% of contributions up to 6% of an employee's pay. Discretionary contributions may also be made to the plan. Total matching and discretionary contributions made by the Bank during 1995 amounted to $74,986. The Bank has an Employee Stock Purchase Incentive Plan for full-time Bank employees. Under the Plan each employee will be entitled to receive a cash payment from the Bank equal to 20% of the purchase price of Corporation common stock acquired by the employee on the open market up to a maximum of 100 shares per calendar year. The Bank has implemented a director retirement benefit and death benefit plan for the benefit of all members of the Board of Directors of the Bank. The plan is called the Director Defined Benefit Plan and is designed to provide an annual retirement benefit, to be paid to each director upon retirement from the board. The retirement benefit provided to each director is an annual benefit equal to $1,000 for each year of service on the board from and after August 24, 1994. In addition, each director shall have the option of deferring any portion or all of his or her director's fees to a maximum of $1,000 per month until retirement. Pension expense recognized in 1995 for this plan was $27,001. 9.) INCOME TAXES The Corporation adopted SFAS No. 109, "Accounting for Income Taxes", effective January 1, 1993. This statement supersedes Accounting Principles Board Opinion No. 11 which had been followed by the Corporation. The effect on net income for the year ended December 31, 1993 of adopting SFAS No. 109 was not significant. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes, and (b) tax credit carryforwards. Significant components of the Corporation's deferred tax assets and liabilities were as follows:
December 31, 1995 1994 Deferred tax liabilities: Accretion income $ 117,757 $ 105,561 Pension 20,031 74,818 Depreciation 60,991 59,915 Mark-to-market accounting 43,546 ------------------------ 242,325 240,294 Deferred tax assets: Bad debts 160,037 107,039 Deferred loan fees 54,324 54,962 Core deposit premium amortization 48,144 42,734 Mark-to-market accounting 23,200 Other 2,429 ------------------------ 262,505 230,364 ------------------------ Net deferred tax liability (asset) $ (20,180) $ 9,930 ========================
18 20 The components of income tax expense is as follows:
Years Ended December 31, 1995 1994 1993 Currently payable $ 687,186 $ 479,048 $ 414,547 Deferred (96,856) (18,215) 46,000 ------------------------------------- $ 590,330 $ 460,833 $ 460,547 =====================================
The following is a reconciliation of income tax at the federal statutory rate to the effective rate of tax on the financial statements:
Years Ended December 31, 1995 1994 1993 Rate Amount Rate Amount Rate Amount Tax at federal statutory rate 34% $ 938,135 34% $842,883 34% $836,604 Tax-exempt interest (13) (350,363) (14) (365,270) (14) (345,740) Unrecognized/ (recognized) capital losses (2,428) (1) (16,780) (1) (31,140) Other 4,986 823 ---------------------------------------------- Income tax expense 21% $ 590,330 19% $460,833 19% $460,547 ==============================================
The Corporation has unused capital loss carry-forwards of approximately $12,789 at December 31, 1995, which can be used to offset future capital gains. 10.) NONINTEREST INCOME & EXPENSE Noninterest income consists of the following:
Years Ended December 31, 1995 1994 1993 Checking account fees $ 495,558 $ 487,097 $ 484,659 Other 244,678 253,086 217,977 ----------------------------------- $ 740,236 $ 740,183 $ 702,636 ===================================
Noninterest expense consists of the following: Years Ended December 31, 1995 1994 1993 Salaries and employee benefits $ 2,678,307 $ 2,296,701 $2,229,393 Data processing fees 703,645 659,311 646,239 Net occupancy expenses 416,409 389,490 368,899 Franchise taxes 309,000 300,660 279,732 FDIC premiums 160,588 291,065 274,717 Other 1,382,637 1,215,151 1,125,888 ------------------------------------ $ 5,650,586 $ 5,152,378 $4,924,868 ====================================
11.) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
1995 1994 1993 Cash paid during the year for: Interest $ 4,578,741 $ 3,628,171 $3,830,278 Income taxes 563,254 432,514 628,518
On December 16, 1994, the Bank acquired a branch office in Seville, Ohio and the related assets and deposit accounts from Bank One, Akron, N.A. The transaction has been accounted for as a purchase of assets. The assets acquired and the liabilities assumed are summarized below at estimated fair values:
Assets: Cash $ 6,679,846 Premises and equipment 43,128 Cost in excess of fair value of net assets acquired 759,338 Other assets 10,407 ------------ $ 7,492,719 ------------ Liabilities: Demand and savings deposits $ 3,934,758 Time deposits 1,391,052 Securities sold under repurchase agreements 2,166,034 Other liabilities 875 ------------ $ 7,492,719 ============
12.) RELATED PARTY TRANSACTIONS Certain directors and officers of the Corporation, their families and certain entities in which they have an ownership interest, were customers of the Bank in 1995, 1994 and 1993. Any transactions with such parties, including loans and commitments, were in the ordinary course of business at normal terms, including interest rates and collateralization, prevailing at the time and did not represent more than normal risks. At December 31, 1995 and 1994, such loans amounted to $4,802,000 and $3,315,000, respectively. New loans to related parties totaled $2,874,000, $820,000 and $1,802,000 for 1995, 1994 and 1993, respectively, and repayments aggregated $1,387,000, $902,000 and $2,922,000 for the respective years. At December 31, 1995 unused commitments to related parties totaled $4,981,000. 13.) REGULATORY MATTERS Federal regulations require banks to maintain minimum ratios of Tier 1 capital and total capital to risk-weighted assets of 4.00% and 8.00%, respectively. In addition, banks must maintain a minimum leverage ratio of Tier 1 capital to total assets of 3.00% for the strongest banks and not less than 4.00% to 5.00% for other banks. Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by banking regulators that could have a direct material effect on the Bank's financial statements. The regulations also require the regulators to make qualitative judgments that could result in higher minimum capital requirements for certain institutions. At December 31, 1995, the Bank's ratios of Tier 1 capital and total capital to risk-weighted assets were 19.74% and 20.67%, respectively. At December 31, 1995 the Bank's leverage ratio was 12.77%. 19 21 In 1995, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve Board issued a final rule that amends risk-based capital standards to explicitly identify interest-rate risk as a qualitative factor to be considered in assessing the bank's overall capital adequacy, but did not prescribe a specific capital charge. In addition, the agencies issued a joint policy statement which addresses how interest-rate risk exposure will be assessed for supervisory/regulatory purposes. The agencies view this final rule as the first in a two-step process. The second step will be to establish an explicit minimum capital charge based upon the measured interest rate risk exposure of a given bank. The impact of this new rule and policy statement is not expected to have a significant impact on the financial condition or results of operations of the Bank. The Bank is subject to certain dividend restrictions set forth by the OCC. Under such restrictions, the Bank may not, without the prior approval of the OCC, declare dividends in excess of the sum of current year earnings (as defined) plus the retained earnings (as defined) from the prior two years. The dividends, as of December 31, 1995, that the Bank could declare without the approval of the OCC, amounted to $5,674,608. 14.) FAIR VALUE OF FINANCIAL INSTRUMENTS The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, SFAS No. 107 excludes all non-financial instruments from disclosure requirements; therefore, the aggregate fair value amounts presented do not represent, and should not be construed to represent, the full underlying value of the Corporation. The following table presents the estimates of fair value of financial instruments:
December 31, 1995 December 31, 1994 Carrying Fair Carrying Fair Amount Value Amount Value Assets: Cash and cash equivalents $17,240,849 $17,240,849 $20,146,107 $20,146,107 Investment securities 78,687,704 81,159,725 90,237,648 88,813,739 Loans 73,141,286 75,621,887 56,215,091 55,624,207 Liabilities: Demand deposits 98,219,132 98,219,132 101,334,983 101,334,983 Time deposits 48,776,982 48,849,267 44,527,257 44,123,979 Short-term borrowings 3,630,765 3,630,765 4,269,919 4,269,919
Cash and cash equivalents - For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value. Investment securities - Fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans - For variable rate loans that reprice based on the prime rate, fair values are based on carrying values. The fair values of other loans are estimated using discounted cash flow analyses and employ interest rates currently being offered for loans with similar terms. The fair value of loans is reduced by an estimate of losses inherent in the loan portfolio. Demand deposits and time deposits - The fair value of demand deposits, which includes passbook accounts, money market accounts, and NOW accounts, is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Short-term borrowings - The fair value of short-term borrowings, including securities sold under repurchase agreements and the federal reserve note account, is estimated using rates currently available to the Bank for debt with similar terms and remaining maturities. The carrying amount is a reasonable estimate of fair value. Off-Balance Sheet Financial Instruments - The fair value of the off-balance sheet financial instruments, including commitments to originate loans and standby letters of credit, is considered to be equivalent to the value of the current fees charged to enter into the commitments. These fees are not significant at December 31, 1995 and 1994. 20 22 15.) PARENT ONLY FINANCIAL STATEMENTS Balance sheets as of December 31, 1995 and 1994 and statements of income and cash flows for the three years in the period ended December 31, 1995 for National Bancshares Corporation (parent only) are as follows:
December 31, 1995 1994 BALANCE SHEETS Assets: Cash $ 398,901 $ 646,148 Dividend receivable 337,666 314,217 Investment in Bank 22,988,154 21,443,711 ------------------------------- $ 23,724,721 $ 22,404,076 =============================== Liability: Dividends payable $ 338,790 $ 314,827 Shareholders' Equity 23,385,931 22,089,249 ------------------------------- $ 22,724,721 $ 22,404,076 =============================== Years Ended December 31 1995 1994 1993 STATEMENTS OF INCOME Income: Dividends $ 816,025 $ 736,299 $ 656,571 Expenses: Misc. expense 62,011 18,006 6,432 Undistributed equity in net income of Bank 1,414,878 1,299,942 1,349,914 -------------------------------------- Net income $2,168,892 $2,018,235 $ 2,000,053 ====================================== STATEMENTS OF CASH FLOWS Cash Flows from Operating Activities: Net income $2,168,892 $2,018,235 $ 2,000,053 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings of Bank (1,414,878) (1,299,942) (1,349,914) Change in dividends receivable (23,449) (9,380) (28,139) Change in prepaid expenses 207 (207) -------------------------------------- Net cash provided by operating activities 730,565 709,120 621,793 Cash Flows from Financing Activities: Dividends paid (808,982) (737,161) (669,517) Dividends reinvested 26,124 Purchase of treasury shares (194,954) -------------------------------------- Net cash used by financing activities (977,812) (737,161) (669,517) -------------------------------------- Net Decrease in Cash (247,247) (28,041) (47,724) Cash, Beginning of Year 646,148 674,189 721,913 -------------------------------------- Cash, End of Year $ 398,901 $ 646,148 $ 674,189 ======================================
DELOITTE & TOUCHE LLP INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders National Bancshares Corporation Orrville, Ohio We have audited the accompanying consolidated balance sheets of National Bancshares Corporation and Subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Corporation'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 audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of National Bancshares Corporation and Subsidiary at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Cleveland, Ohio January 26, 1996 21 23 ANALYSIS OF NET INTEREST EARNINGS Rate spread and effective rate differential (on a tax equivalent basis). The following table presents an analysis of net interest earning assets and interest bearing liabilities.
1995 1994 1993 Daily Daily Daily Average Average Average Average Average Average (Dollars in Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate ASSETS Interest earning assets: Investment securities: Taxable $ 66,356 $ 4,766 7.18% $ 65,500 $ 4,640 7.08% $ 61,445 $ 4,703 7.65% Nontaxable (tax equivalent basis)* 17,480 1,583 9.06% 17,693 1,627 9.20% 16,784 1,573 9.37% Federal funds sold 9,221 541 5.87% 7,147 315 4.41% 9,837 298 3.03% Net loans (including nonaccrual loans) 64,662 6,260 9.68% 55,091 4,737 8.60% 52,152 4,594 8.81% ---------------------------------------------------------------------------------------------- Total interest earning assets 157,719 13,150 8.34% 145,431 11,319 7.78% 140,218 11,168 7.96% ---------------------------------------------------------------------------------------------- All other assets 12,092 10,466 9,875 ---------------------------------------------------------------------------------------------- Total Assets $ 169,811 $ 155,897 $ 150,093 ============================================================================================== LIABILITIES & SHAREHOLDERS' EQUITY Interest bearing liabilities Deposits: Interest bearing checking $ 31,942 $ 896 2.81% $ 29,524 $ 749 2.54% $ 28,251 $ 744 2.63% Savings 40,841 1,213 2.97% 43,347 1,286 2.97% 39,858 1,305 3.27% Time, $100,000 and over 9,430 498 5.28% 7,256 301 4.15% 7,371 258 3.50% Time, other 35,976 1,916 5.33% 30,326 1,267 4.18% 32,049 1,377 4.30% Other funds purchased 4,687 239 5.10% 2,445 92 3.76% 2,891 85 2.94% ---------------------------------------------------------------------------------------------- Total interest bearing liabilities 122,876 4,762 3.88% 112,898 3,695 3.27% 110,420 3,769 3.41% ---------------------------------------------------------------------------------------------- Demand deposits 23,233 20,804 18,705 Other liabilities 850 650 761 Shareholders' equity 22,852 21,545 20,207 ---------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 169,811 $ 155,897 $ 150,093 ============================================================================================== Net interest income (tax equivalent basis)* $ 8,388 $ 7,624 $ 7,399 ---------------------------------------------------------------------------------------------- Net interest spread 4.46% 4.51% 4.55% ---------------------------------------------------------------------------------------------- Net yield on total earning assets* 5.32% 5.24% 5.28% ---------------------------------------------------------------------------------------------- *Tax equivalence based on highest statutory tax rate of 34%.
22 24 HISTORICAL FINANCIAL SUMMARY FINANCIAL POSITION
(Year End Balances) 1995 1994 1993 1992 1991 Total Assets $ 175,144,085 $ 173,041,984 $ 157,825,715 $ 149,027,311 $ 142,050,986 Cash and Due from Banks 7,946,503 8,261,107 8,242,624 7,895,027 6,667,115 Investment Securities 78,687,704 90,237,648 80,175,588 74,894,150 74,278,941 Loans-Net 73,141,286 56,215,091 53,200,635 54,766,115 47,080,705 Deposits 146,996,114 145,862,240 132,446,096 125,296,209 118,394,001 Shareholders' Equity 23,385,931 22,089,249 20,863,330 19,560,804 18,365,897 Book Value Per Share(1) $ 25.54 $ 24.12 $ 22.79 $ 21.36 $ 20.06 --------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Total Interest Income $ 12,611,712 $ 10,766,011 $10,632,243 $ 11,122,984 $11,626,717 Total Interest Expense 4,762,140 3,694,748 3,769,411 4,661,276 5,768,868 --------------------------------------------------------------------------------------- Net Interest Income 7,849,572 7,071,263 6,862,832 6,461,708 5,857,849 Provision for Loan Losses 180,000 180,000 180,000 120,000 65,000 --------------------------------------------------------------------------------------- Net Interest Income After Provision for Loan Losses 7,669,572 6,891,263 6,682,832 6,341,708 5,792,849 Total Noninterest Income 740,236 740,183 702,636 618,304 669,843 Total Noninterest Expense 5,650,586 5,152,378 4,924,868 4,655,878 4,344,468 --------------------------------------------------------------------------------------- Income Before Income Taxes 2,759,222 2,479,068 2,460,600 2,304,134 2,118,224 Income Taxes Expense 590,330 460,833 460,547 480,794 421,252 --------------------------------------------------------------------------------------- Net Income $ 2,168,892 $ 2,018,235 $ 2,000,053 $ 1,823,340 $ 1,696,972 ======================================================================================= Net Income Per Share(1) $ 2.37 $ 2.20 $ 2.18 $ 1.99 $ 1.85 Cash Dividends $ 822,014 $ 736,730 $ 689,162 $ 628,433 $ 590,915 Cash Dividends Per Share(1) $ 0.90 $ 0.80 $ 0.75 $ 0.69 $ 0.65 Dividend Payout Percentage 37.90% 36.50% 34.46% 34.47% 34.82% Weighted Average Number of Shares Outstanding(1) 915,651 915,651 915,651 915,651 915,651 Return on Average Assets 1.28% 1.29% 1.33% 1.27% 1.26% Return on Average Equity 9.49% 9.37% 9.88% 9.57% 9.52% Average Equity to Total Assets 13.46% 13.82% 13.46% 13.15% 13.20% Risk-Based Capital Percentage 20.67% 20.45% 22.40% 22.53% 22.26% Full Time Equivalent Staff 94 92 92 90 90 Average Total Assets to Full Time Equivalent Staff $ 1,806,496 $ 1,694,535 $ 1,631,416 $ 1,599,362 $ 1,494,536 =======================================================================================
(1) All share and per share data is restated for a 5 for 4 stock split on December 15, 1995. 23 25 DIRECTORS CHARLES J. DOLEZAL Chairman, President, Chief Executive Officer SARA BALZARINI Vice President of Finance Contours, Inc. JAMES L. GERBER Retired RAY D. GILL President ORRCO Incorporated JOHN W. KROPF Attorney Kropf, Wagner, & Hohenberger STEVE SCHMID President Smith Dairy Products, Inc. PAUL H. SMUCKER Chairman of the Executive Committee J.M. Smucker Company JOHN E. SPRUNGER President Kidron Auction, Inc. JAMES F. WOOLLEY Chief Executive Officer R.W.Screw Products, Inc. ROBERT F. GUMZ Director Emeritus FRANK J.SEIFRIED Director Emeritus OFFICERS NATIONAL BANCSHARES CORPORATION Charles J. Dolezal Michael D. Hofstetter President Senior V.P., Secretary/Treasurer ----------------------------------------------------------------- FIRST NATIONAL BANK Charles J. Dolezal President Michael D. Hofstetter Senior V.P. & Controller Kenneth R. VanSickle V.P., Senior Loan Officer Robert Woodruff V.P. & Cashier Harold Berkey V.P. of Customer Services Ron Armentrout Asst. V.P., Security Officer, Compliance Officer Jackie Samsa Asst. V.P., Manager of Human Resources Scott Holmes Asst. V.P., Manager of Loan Department Jim Huntsberger Auditor Carolyn Forrer Administrative Officer, Manager Main Office Lobby Angela Smith Assistant Controller Rob Hunter Loan Officer Dean Karhan Loan Officer Sara Martin Loan Officer Jan Zacharias Operations Officer BRANCH ADMINISTRATION James Kuschmeader Asst. V.P., Manager Dalton Office Rita Tyrrell Administrative Officer Dalton Office Ruth Harding Administrative Officer, Manager West High Office Valerie Stein Asst. V.P., Manager Kidron Office Karen Hicks Asst. V.P., Manager Smithville Office David Chapman Asst. V.P., Manager Mt. Eaton Office Betty Wyant Asst. V.P., Manager Midway Office Larry Kytta Asst. V.P., Manager Lodi Office David Beard Asst. V.P., Manager Seville Office 24 This annual report was printed entirely on recycled paper, using environmentally safe inks. 26 [LOGO] NATIONAL BANCSHARES CORPORATION 112 West Market Street Orrville, Ohio 44667 330/682-1010 EX-23 3 EXHIBIT 23 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT National Bancshares Corporation We consent to the incorporation by reference in Registration Statement No. 33-63005 of National Bancshares Corporation on Form S-3 of our report dated January 26, 1996, which is incorporated by reference in this Annual Report on Form 10-K of National Bancshares Corporation for the year ended December 31, 1995. /s/ Deliotte & Touche LLP Cleveland, Ohio March 25, 1996 EX-27 4 EXHIBIT 27
9 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 7,946,503 0 9,294,346 0 3,917,235 74,770,469 77,242,490 74,187,828 1,046,542 175,144,085 146,996,114 3,630,765 1,131,275 0 9,156,510 0 0 14,229,421 175,144,085 6,259,570 5,811,023 541,119 12,611,712 4,522,601 4,762,140 7,849,572 180,000 0 5,650,586 2,759,222 2,759,222 0 0 2,168,892 2.37 2.37 5.32 68,167 138,154 0 1,747,621 890,666 40,657 16,533 1,046,542 142,503 0 904,039
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