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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-13585
NATIONAL CITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1632155
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
227 Main Street, P.O. Box 868, Evansville, Indiana 47705-0868
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 812-464-9800
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $3.33 1/3 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)
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Based on the closing sales price of March 11, 1994, the aggregate market value
of the voting stock held by non-affiliates of the registrant was $123,330,215.
The number of shares outstanding of the registrant's common stock, $3.33 1/3
par value was 3,741,227 at March 11, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for
the year ended December 31, 1993. (Part I, Part II, and Part IV)
(2) Portions of the Registrant's Proxy Statement for the Annual
Shareholders' Meeting to be held April 19, 1994. (Part III)
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NATIONAL CITY BANCSHARES, INC.
1993 FORM 10-K ANNUAL REPORT
Table of contents
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . 9
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . . . . 9
Item 8. Financial Statements and Supplementary Data . . . . . 9
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . 9
PART III
Item 10. Directors and Executive Officers of the Registrant . . 10
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 11
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . 11
Item 13. Certain Relationships and Related Transactions . . . . 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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FORM 10-K
NATIONAL CITY BANCSHARES, INC.
December 31, 1993
PART I
ITEM 1. BUSINESS
National City Bancshares, Inc., (hereinafter referred to as the Corporation),
is an Indiana Corporation organized in 1985 to engage in the business of a bank
holding company. Based in Evansville, Indiana, the Corporation has eleven
wholly owned subsidiaries, ten commercial banks serving twenty towns and cities
with a total of thirty banking centers and an insurance agency. Each
subsidiary, its locations, number of offices, year founded and date of merger
is shown below. In addition to these mergers, Chandler State Bank was acquired
by the Corporation in August 1986 and merged into The National City Bank of
Evansville in June 1987.
<TABLE>
<CAPTION>
Subsidiary Number of Year Date of
Principal and Other Cities Offices Founded Merger
<S> <C> <C> <C>
The National City Bank of Evansville 11 1850 May 6, 1985
Evansville, Chandler and Newburgh,
Indiana
Poole Deposit Bank 1 1902 November 30, 1986
Poole, Kentucky
The Peoples National Bank of Grayville 1 1937 May 16, 1988
Grayville, Illinois
The Farmers and Merchants Bank 1 1896 January 30, 1989
Fort Branch, Indiana
Farmers State Bank 2 1916 November 30, 1990
Sturgis, Kentucky
Lincolnland Bank 6 1904 December 17, 1993
Dale, Chrisney, Grandview,
Hatfield, Reo and Rockport, Indiana
The Bank of Mitchell 3 1882 December 17, 1993
Mitchell and Bedford, Indiana
Pike County Bank 1 1900 December 17, 1993
Petersburg, Indiana
The Spurgeon State Bank 2 1921 December 17, 1993
Spurgeon and Arthur, Indiana
The State Bank of Washington 2 1910 December 17, 1993
Washington and Odon, Indiana
Ayer-Wagoner-Deal Insurance Agency, Inc. 1 1989 December 17, 1993
Rockport, Indiana
</TABLE>
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The Corporation's subsidiary banks provide a wide range of financial services
to the communities they serve in southwestern Indiana, western Kentucky and
southeastern Illinois. These services include various types of deposit
accounts; safe deposit boxes; safekeeping of securities; automated teller
machines; consumer, mortgage and commercial loans; mortgage loan sales and
servicing; letters of credit; accounts receivable management (financing,
accounting, billing and collecting); and complete personal and corporate trust
services. All banks are members of the Federal Deposit Insurance Corporation.
The Corporation's nonbank subsidiary, Ayer-Wagoner-Deal Insurance Agency, Inc.,
operates as an insurance agency offering various insurance products through
several insurance companies or underwriters and sells the following types of
insurance: life, casualty, property, homeowners, business, disability and
automobile.
At December 31, 1993, the Corporation and its subsidiaries had 388 full-time
equivalent employees. The subsidiaries provide a wide range of employee
benefits and consider employee relations to be excellent.
COMPETITION
The Corporation has active competition in all areas in which it presently
engages in business. Each subsidiary bank competes for commercial and
individual deposits and loans with commercial banks, savings and loan
associations, credit unions connected with local businesses and other
non-banking institutions. The Corporation's insurance agency competes with
several other insurance agencies in Rockport, Indiana, and neighboring
communities.
FOREIGN OPERATIONS
The Corporation and its subsidiaries have no foreign branches or significant
business with foreign obligers or depositors.
REGULATION AND SUPERVISION
The Corporation, as a bank holding company registered under the Bank Holding
Company Act of 1956, as amended ("Act"), is subject to regulation by the Board
of Governors of the Federal Reserve System ("Board"). Under the Act, the
Corporation is required to obtain the prior approval of the Board before
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any bank which is not already majority owned. In addition, the
Corporation is prohibited under the Act, with certain exceptions, from
acquiring direct or indirect ownership or control of 5% or more of the voting
shares of any company which is not a bank. The Corporation may engage in, and
may own shares of companies engaged in, certain activities found by the Board
to be so closely related to banking as to be a proper incident thereto. The
Act prohibits the acquisition by a bank holding company of shares of a bank
located outside the state in which the operations of its banking subsidiaries
are principally conducted,
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unless such an acquisition is specifically authorized by statute of the state
in which the bank to be acquired is located. The Corporation is required by
the Act to file annual reports of its operations with the Board and such
additional information as they may require pursuant to the Act, and the
Corporation and its subsidiaries are subject to examination by the Board.
Further, under the Act and the regulations of the Board, the Corporation and
its subsidiaries are prohibited from engaging in certain tie-in arrangements
with respect to any extension of credit or provision of property or services.
The Board has adopted "capital adequacy guidelines" for its use in examining
and supervising bank holding companies. A bank holding company's ability to
pay dividends and expand its business through the acquisition of additional
subsidiaries can be restricted if its capital falls below levels established by
these guidelines.
The primary supervisory authority of The National City Bank of Evansville and
The Peoples National Bank of Grayville is the Comptroller of the Currency, who
regularly examines such areas as reserves, loans, investments, management
practices and other aspects of bank operations. The Comptroller of the
Currency has the authority to prevent a national bank from engaging in an
unsafe or an unsound practice in conducting its business. The payment of
dividends, depending upon the financial condition of a bank, could be deemed
such a practice. In addition, both banks are members of, and subject to
regulation by, the Federal Deposit Insurance Corporation.
As state banks, Poole Deposit Bank and Farmers State Bank are supervised and
regulated by the Commonwealth of Kentucky Department of Financial Institutions.
The Farmers and Merchants Bank, Lincolnland Bank, The Bank of Mitchell, Pike
County Bank, The Spurgeon State Bank and The State Bank of Washington are
supervised and regulated by the State of Indiana Department of Financial
Institutions. In addition, all eight banks are members of, and subject to
regulation by, the Federal Deposit Insurance Corporation.
Federal and state banking laws and regulations govern, among other things, the
scope of the bank's business, the investments it may make, the reserves against
deposits it must maintain, loans the bank makes and collateral it takes,
activities with respect to mergers and consolidations and the establishment of
branches.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") was enacted on August 9, 1989, primarily in an attempt to address
problems in the savings and loan industry. However, the Act has had a
substantial effect on the environment in which commercial banks operate. The
annual assessment rates for banks insured by the Federal Deposit Insurance
Corporation were to increase from .083% of deposits to .12% in 1990, and to
.15% in 1991. However, such rates were increased by the FDIC to .195%
effective January 1, 1991 and .23% effective July 1, 1991.
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The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
was enacted in 1991. Among other things, FDICIA, requires federal bank
regulatory authorities to take "prompt corrective action" with respect to banks
that do not meet minimum capital requirements. For these purposes, FDICIA
established five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. The Corporation and each of the Corporation's Banks
currently exceed the regulatory definition of a "well capitalized" financial
institution.
The Ayer-Wagoner-Deal Insurance Agency, Inc. is regulated by the Indiana
Department of Insurance.
STATISTICAL DISCLOSURE
The statistical disclosure on the Corporation and its subsidiaries, on a
consolidated basis, included on pages 1, 3 through 13 and 33 of the
Corporation's Annual Report to Shareholders for the fiscal year ended December
31, 1993, is hereby incorporated by reference herein.
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ITEM 2. PROPERTIES
The net investment of the Corporation and its subsidiaries in real estate and
equipment at December 31, 1993, was $10,439,166. The Corporation's offices are
located in a building owned by The National City Bank of Evansville
(hereinafter referred to as the Bank), in which the Bank's main office is
located. The main office of the Bank is located at 227 Main Street in downtown
Evansville, Indiana. This building is owned in fee by the Bank. The other
subsidiary banks, all branches and the insurance agency are located on premises
either owned or leased. None of the property is subject to any major
encumbrance.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1993, two matters were submitted to a vote of
shareholders. On December 14, 1993, a special meeting of the shareholders was
held to consider and take action on proposals to approve and adopt two Merger
Agreements. The first Merger Agreement dated July 1, 1993, by and between the
Corporation and Lincolnland Bancorp, Inc. ("Lincolnland") provided for, among
other things, the merger of Lincolnland with and into the Corporation. This
proposal was approved with 2,003,763.1085 shares voted affirmatively,
3,614.0000 negatively and 31,460.8022 abstaining. The second Merger Agreement
dated June 25, 1993, by and between the Corporation and Sure Financial
Corporation, ("Sure") provided for, among other things, the merger of Sure with
and into the Corporation. This proposal was approved with 2,024,601.1085
shares voted affirmatively, 288,160.7531 negatively and 9,532.8022 abstaining.
Both mergers were consummated December 17, 1993.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
Pages 1 and 33 of the Corporation's Annual Report to Shareholders for the
fiscal year ended December 31, 1993, is hereby incorporated by reference
herein. Dividends are restricted by earnings and the need to maintain adequate
capital. Management intends to continue its current dividend policy subject to
these restrictions.
ITEM 6. SELECTED FINANCIAL DATA
Page 1 of the Corporation's Annual Report to Shareholders for the fiscal year
ended December 31, 1993, is hereby incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Pages 1, 3 through 13 and 33 of the Corporation's Annual Report to Shareholders
for the fiscal year ended December 31, 1993, are incorporated by reference
herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 15 through 30 of the Corporation's Annual Report to Shareholders for the
fiscal year ended December 31, 1993, are incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Board of Directors approved the appointment of McGladrey & Pullen,
Certified Public Accountants and Consultants, as independent accountants to
audit the financial statements of the Corporation and its subsidiaries for the
year 1993. Gaither Rutherford & Co., formerly Gaither Koewler Rohlfer Luckett
& Co., ("Gaither") audited the books and records of the Corporation and its
subsidiaries from 1985 through 1992. The Board of Directors had determined it
to be in the best interest of the Corporation to change independent accountants
for 1993. This change was ratified by the Corporation's shareholders at the
1993 annual meeting.
The financial statements provided by Gaither in 1992 and 1991 did not contain
any adverse opinions or any disclaimers of opinions, nor were they qualified or
modified as to uncertainty, audit scope or accounting reasons. Further, there
have been no disagreements between Gaither and the Corporation.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Corporation
This information under the heading "Election of Directors and Information with
Respect to Directors and Officers" on pages 3 to 6 of the Corporation's Proxy
Statement for its Annual Meeting of Shareholders to be held April 19, 1994, is
hereby incorporated by reference herein.
(b) Executive Officers of the Corporation
The Executive Officers of the Corporation, most of whom are also Executive
Officers of The National City Bank of Evansville (hereinafter referred to as
the Bank) are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
<S> <C> <C>
John D. Lippert 60 Chairman of the Board and Chief Executive Officer of the Corporation since 1992. President of the
Corporation from 1985 to June 1993. Director of the Corporation since 1985. Chairman of the Board
of the Bank since 1992 and Chief Executive Officer since 1989. President of the Bank from 1984 to
June 1993 and a Director since 1981.
Robert A. Keil 50 President of the Corporation since June 1993. Executive Vice President of the Corporation from
1991 to June 1993. Assistant Secretary and Assistant Treasurer of the Corporation from 1985 to
June 1993. Executive Vice President of the Bank from 1991 to June 1993 and Senior Vice President
from 1987 to 1991.
Benjamin W. Bloodworth 58 Executive Vice President and Assistant Secretary/Treasurer of the Corporation since June 1993.
Senior Vice President of the Corporation from 1989 to June 1993. Executive Vice President of the
Bank since 1991. Senior Vice President of the Bank from 1980 to 1991. Director of The Peoples
National Bank of Grayville from 1988 to January 1994. Director of The Farmers and Merchants Bank
from 1989 to January 1993. Director of Lincolnland Bank and The State Bank of Washington since
January 1994.
</TABLE>
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<TABLE>
<CAPTION>
NAME AGE OFFICE AND BUSINESS EXPERIENCE
<S> <C> <C>
Michael F. Elliott 42 Executive Vice President of the Corporation since December 1993. Chairman of the Board since 1989,
Chief Executive Officer and Director since 1982 of The State Bank of Washington. President of The
State Bank of Washington from 1982 to 1989. Chairman of the Board from 1990 to December 1993 and
President and Chief Executive Officer from 1988 to December 1993 of Sure Financial Corporation.
Harold A. Mann 55 Secretary and Treasurer of the Corporation since 1985. Senior Vice President and Controller of
the Bank since 1984. Director of Poole Deposit Bank from 1986 to 1990 and from January 1994 to
Present.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Compensation of Executive Officers" on pages
7 through 11 of the Corporation's Proxy Statement for its Annual Meeting of
Shareholders to be held April 19, 1994, is hereby incorporated by reference
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information under the heading "Voting Securities" on pages 1 through 3 of
the Corporation's Proxy Statement for its Annual Meeting of Shareholders to be
held April 19, 1994, is hereby incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Transactions with Management" on page 11 of
the Corporation's Proxy Statement for its Annual Meeting of Shareholders to be
held April 19, 1994, is hereby incorporated by reference herein.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following consolidated financial statements of the Corporation and its
subsidiaries, included on pages 15 through 30 of the Corporation's Annual
Report to Shareholders for the fiscal year ended December 31, 1993, are hereby
incorporated by reference:
Independent Auditor's Report
Consolidated Statements of Financial Position, at
December 31, 1993 and 1992
Consolidated Statements of Income, years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Shareholders' Equity,
years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows, years ended
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or not required or
because the required information is included in the consolidated financial
statements or related notes.
EXHIBITS
The following exhibits are submitted herewith:
3 - Articles of Incorporation, as amended
13 - Annual Report to Shareholders for the year ended
December 31, 1993 (Incorporated by Reference)
22 - Subsidiaries of the Registrant
28 - Proxy Statement for the Annual Meeting of
Shareholders to be held on April 19, 1994
(Incorporated by Reference)
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REPORTS ON FORM 8-K
Form 8-K dated December 29, 1993, reported that on December 17, 1993, the
Registrant completed its acquisition of Sure Financial Corporation ("Sure") and
Lincolnland Bancorp, Inc. ("Lincolnland"). The transactions were structured as
statutory mergers, pursuant to which each of Sure and Lincolnland were merged
with and into National City Bancshares, Inc. Sure was a multibank holding
company with approximately $130 million in assets and Lincolnland was a
one-bank holding company with approximately $108 million in total assets.
Shareholders of Lincolnland received shares of Registrant valued at $23.5
million and shareholders of Sure received shares of Registrant valued at $16
million in the transactions. The former subsidiaries of Lincolnland and Sure
will be operated as wholly owned subsidiaries of Registrant. The consolidated
entity will have approximately $711 million in total assets.
In other matters, Michael F. Elliott was appointed Executive Vice President of
the Registrant on December 21, 1993. Mr. Elliott was President of Sure.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the dates indicated.
NATIONAL CITY BANCSHARES, INC.
By /s/ JOHN D. LIPPERT 3/15/94
John D. Lippert Date
Chairman of the Board and
Chief Executive Officer
By /s/ ROBERT A. KEIL 3/15/94
Robert A. Keil Date
President and
Chief Financial Officer
By /s/ HAROLD A. MANN 3/15/94
Harold A. Mann Date
Secretary and Treasurer
(Chief Accounting Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Donald B. Cox Date
Director
/s/ SUSANNE R. EMGE 3/15/94
Mrs. N. Keith Emge Date
Director
/s/ MICHAEL D. GALLAGHER 3/15/94
Michael D. Gallagher Date
Director
/s/ DONALD G. HARRIS 3/15/94
Donald G. Harris Date
Director
/s/ ROBERT H. HARTMANN 3/15/94
Robert H. Hartmann Date
Director
/s/ C. MARK HUBBARD 3/15/94
C. Mark Hubbard Date
Director
/s/ EDGAR P. HUGHES 3/15/94
Edgar P. Hughes Date
Director
/s/ R. EUGENE JOHNSON 3/15/94
R. Eugene Johnson Date
Director
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/s/ EDWIN F. KARGES, JR. 3/15/94
Edwin F. Karges, Jr. Date
Director
/s/ ROBERT A. KEIL 3/15/94
Robert A. Keil Date
Director
/s/ JOHN D. LIPPERT 3/15/94
John D. Lippert Date
Director
/s/ JOHN LEE NEWMAN 3/15/94
John Lee Newman Date
Director
/s/ RONALD G. REHERMAN 3/15/94
Ronald G. Reherman Date
Director
Laurence R. Steenberg Date
Director
/s/ C. WAYNE WORTHINGTON 3/15/94
C. Wayne Worthington Date
Director
/s/ GEORGE A. WRIGHT 3/15/94
George A. Wright Date
Director
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EXHIBIT INDEX
Reg. S-K
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
3 Articles of Incorporation, as
amended
13 Annual Report to Shareholders for
the year ended December 31, 1993
22 Subisdiaries of the Registrant
28 Proxy Statement for the Annual
Meeting of Shareholders to be
held on April 19, 1994
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EXHIBIT 3
ARTICLES OF INCORPORATION
OF
NATIONAL CITY BANCSHARES, INC.
The undersigned incorporator or incorporators, desiring to form a
corporation (hereinafter referred to as the "Corporation") pursuant to the
provisions of:
(Indicate appropriate act)
<TABLE>
<S> <C>
/X/ INDIANA GENERAL CORPORATION ACT / / INDIANA PROFESSIONAL CORPORATION ACT OF 1983
</TABLE>
as amended (hereinafter referred to as the "Act"), execute the following
Articles of Incorporation:
ARTICLE I
NAME
The name of the Corporation is National City Bancshares, Inc.
(The name must contain the word "Corporation" or "Incorporated", or an
abbreviation of one of these words.)
ARTICLE II
PURPOSES
The purposes for which the Corporation is formed are:
To engage in any lawful act or activity for which corporations may be
formed under the Indiana General Corporation Act and The Bank Holding Company
Act of 1956, as amended, and to possess all other rights and powers authorized
by the laws of the State of Indiana, and the laws of the United States of
America applicable to bank holding companies and the regulations of the Board of
Governors of the Federal Reserve System.
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<TABLE>
<CAPTION>
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual
(perpetual or a stated period of time)
ARTICLE IV
RESIDENT AGENT AND PRINCIPAL OFFICE
Section 1. Resident Agent. The name and address of the Corporation's Resident Agent for service of process is
<S> <C> <C>
Mr. Harold A. Mann 227 Main Street
- ------------------ -------------------------------
(Name) (Number and Street or Building)
Evansville Indiana 47705
- ------------------ ------- ----------
(City) (State) (Zip Code)
<Caption.
Section 2. Principal Office. The post office address of the principal office of the Corporation is
<S> <C> <C> <C>
227 Main Street Evansville Indiana 47705
- ------------------------------- ----------- ------- ----------
(Number and Street or Building) (City) (State) (Zip Code)
</TABLE>
(THE RESIDENT AGENT AND PRINCIPAL OFFICE ADDRESS MUST BE LOCATED IN INDIANA.)
ARTICLE V
AUTHORIZED SHARES
Section 1. Number of Shares:
The total number of shares which the Corporation is to have authority to issue
is 5,000,000.
A. The number of authorized shares which the corporation designates as having
par value is 5,000,000 with par value of $3.33 1/3.
B. The number of authorized shares which the corporation designates as without
par value is zero.
Section 2. Terms of Shares (if any):
Shares of the corporation may be redeemed by the corporation at the direction of
a vote of a majority of the Board of Directors meeting at a regularly or
specially called meeting for said purpose.
Furthermore, the corporation, through its Board of Directors shall have the
power to purchase, hold, sell and transfer the shares of its own capital stock
provided that it does not use its funds or property for the purchase of its own
shares of capital stock when such use will cause any impairment of its capital,
except when otherwise permitted by law, and provided further that shares of its
own capital stock belonging to it are not voted upon directly, or indirectly.
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ARTICLE VI
REQUIREMENTS PRIOR TO DOING BUSINESS
The Corporation will not commence business until consideration of the
value of at least $1,000 (one thousand dollars) has been received for the
issuance of shares.
ARTICLE VII
DIRECTOR(S)
Section 1. Number of Directors: The initial Board of Directors is
composed of 14 member(s). The number of directors may be from time to time
fixed by the By-Laws of the Corporation at any number. In the absence of a
By-Law fixing the number of directors, the number shall be fourteen (14).
Section 2. Names and Post Office Addresses of the Director(s): The
name(s) and post office address(es) of the initial Board of Director(s) of the
Corporation is (are):
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
---- ----------------------------- ---- ----- --------
<S> <C> <C> <C> <C>
Gilbert E. Betulius Denzer Road, R.R. 13 Evansville IN 47712
Donald B. Cox 4029 Fairfax Road Evansville IN 47710
Wilfred O. Doerner 960 St. Michael Court Evansville IN 47715
Victor R. Gallagher 431 S. Rotherwood Avenue Evansville IN 47714
C. Mark Hubbard 3400 Robin Place Evansville IN 47712
Edgar P. Hughes Riverside 1, Apt. 505,
101 Court Street Evansville IN 47708
R. Eugene Johnson 6840 Arcadian Highway Evansville IN 47715
Edwin F. Karges, Jr. 1106 Harrelton Court Evansville IN 47715
John D. Lippert 3636 Elmridge Drive Evansville IN 47711
John Lee Newman 717 S. Boeke Road Evansville IN 47714
Laurence R. Steenberg 5688 Cliftmore Drive Newburgh IN 47630
C. Wayne Worthington 3023 Oak Hill Road Evansville IN 47711
George A. Wright 6001 Lincoln Avenue Evansville IN 47715
Mrs. N. Keith Emge 7108 E. Chestnut Street Evansville IN 47715
</TABLE>
Section 3. Qualifications of Directors (if any):
Directors of this corporation who serve as directors of any subsidiary
banking corporation may hold shares in this corporation as qualifying shares
entitling such director(s) to serve in the capacity as a director of such
subsidiary banking corporation.
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ARTICLE VIII
INCORPORATOR(S)
The name(s) and post office address(es) of the incorporator(s)
of the Corporation is (are):
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
---- ----------------------------- ---- ----- --------
<S> <C> <C> <C> <C>
Mr. Harold A. Mann 227 Main Street Evansville IN 47705
</TABLE>
ARTICLE IX
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
("Powers" of the Corporation, its directors or shareholders)
(Attach additional pages, if necessary)
Section 1. Capital Structure.
The Board of Directors of the corporation is hereby authorized to fix
and determine and to vary the amount of working capital of the corporation, to
determine whether any and, if any, what part of its surplus, however created or
arising, shall be used or disposed of or declared in dividends or paid to
shareholders, and, without action by the Shareholders, to use and apply such
surplus or any part thereof at any time or from time to time in the purchase or
acquisition of shares of any class, voting trust certificates for shares, bonds,
debentures, notes script, warrants, obligations, evidences of indebtedness of
the corporation or other securities of the corporation, to such extent or amount
and in such manner and upon such terms as the Board of Directors of the
corporation shall deem expedient to the extent not prohibited by law.
Section 2. Reliance on Books of the Corporation.
Each officer, director or member of any committee designated by the
Board of Directors of the corporation shall, in the performance of his duties,
be fully protected in relying in good faith upon the books of account or reports
made to the corporation by any of its officers or employees or by an independent
public accountant or by an appraiser selected with reasonable care by the Board
of Directors of the corporation or by any such committee or in relying in good
faith upon other records of the corporation.
4
<PAGE> 5
Section 3. Indemnification.
The corporation shall have the power to indemnify its present and past
directors, officers, employees, or agents, and such other persons as it shall
have the powers to indemnify, to the full extent permitted under, and subject
to the limitations of, Title 23 of the Indiana General Corporation Act.
The corporation may upon the affirmative vote of a majority of its
Board of Directors, purchase insurance for the purpose of indemnifying its
directors, officers, employees and agents to the extent that such
indemnification is allowed in the statute mentioned above.
Any indemnification as above provided (unless ordered by a court) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification is proper in the circumstances because it
meets the standard set out in the statute above mentioned. Such determination
shall be made (a) by the Board of Directors, by a majority vote of a quorum
consisting of directors who are not parties to such action, suit or
proceeding; or (b) if such a quorum is not obtainable, or even if obtainable,
if majority vote of disinterested directors so directs, by independent legal
counsel in a written opinion stating that such director, officer, employee or
agent has met such standards of conduct, or (c) by a majority vote of a quorum
of the shareholders of the corporation consisting of shareholders who are not
parties to such action, suit or proceeding.
Section 4. Voting Rights.
Each shareholder shall be entitled to one vote for each share of stock
standing in his name on the books of the corporation.
Each shareholder shall have the right to cumulate such voting power as
he possesses when electing directors, and to give one candidate as many votes
as the number of directors to be elected multiplied by the number of his votes
equals, or to distribute his votes on the same principle among two or more
candidates, as he sees fit.
Section 5. Classes of Directors.
The Bylaws of the Corporation may provide, that the Directors shall be
divided into two (2) or more classes whose terms of office shall expire at
different times, but no term shall continue longer than three (3) years.
5
<PAGE> 6
Section 6. Voting Rights on Business Combinations. Any merger,
consolidation, or acquisition of this Corporation by another corporation
without this Corporation's Board of Directors' approval, shall require
the affirmative approval of the holders of eighty percent (80%) of the issued
and outstanding common shares of stock of the Corporation and eighty percent
(80%) of the issued and outstanding preferred shares or other class of shares,
regardless of limitations or restrictions on the voting power thereof, entitled
to vote at a meeting duly called for such purpose. Irrespective of any other
provisions of these Articles, this Section 6 may be amended at any regular
meeting or at a Special Meeting called for that purpose by the affirmative vote
of the holders of receipt of shares entitling them to exercise eighty percent
(80%) of the voting power on such proposal.
Article X. Except as otherwise restricted in Article IX, these Articles
may be amended at any regular meeting or at a special meeting called for that
purpose by the affirmative vote of the holders of record of shares entitling
them to exercise a majority of the voting power on such proposal.
6
<PAGE> 1
EXHIBIT 13
1993
NATIONAL
CITY
BANCSHARES, INC.
ANNUAL
REPORT
<PAGE> 2
FINANCIAL REVIEW
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
As of and for the year ended December 31,
------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 28,974 $ 28,773 $ 27,724 $ 27,097 $ 24,919
Provision for loan losses 654 1,234 2,324 1,515 1,896
Noninterest income 5,532 5,229 4,728 4,164 4,136
Noninterest expense 21,522 20,841 20,439 19,721 19,700
--------- --------- --------- --------- ----------
Income before income taxes 12,330 11,927 9,689 10,025 7,459
Income taxes 3,956 3,727 2,659 3,003 1,289
--------- --------- --------- --------- ----------
Net income $ 8,374 $ 8,200 $ 7,030 $ 7,022 $ 6,170
---------- --------- --------- --------- ----------
---------- --------- --------- --------- ----------
PER COMMON SHARE
Net income $ 2.24 $ 2.19 $ 1.88 $ 1.87 $ 1.63
Book value 22.96 21.33 19.82 18.49 17.27
Cash dividends declared by
National City Bancshares, Inc. 0.88 0.84 0.78 0.73 0.72
TOTALS AT YEAR END
Loans $ 435,021 $ 416,503 $ 405,674 $ 411,066 $ 403,517
Allowance for loan losses 3,791 4,186 4,639 4,431 4,412
Investments 175,762 183,398 203,531 224,616 213,221
Total assets 717,139 731,080 765,451 789,595 771,086
Deposits 606,648 624,843 649,959 675,173 663,402
Shareholders' equity 85,901 79,772 74,139 69,175 65,141
SELECTED FINANCIAL RATIOS
Net income to average assets 1.18% 1.12% 0.93% 0.90% 0.80%
Net income to average equity 10.15 10.67 9.86 10.46 9.68
Cash dividend payout 34.57 32.12 32.52 27.36 30.87
Average equity to average assets 11.60 10.53 9.41 8.61 8.22
Tangible equity to total assets 11.78 10.68 9.42 8.46 8.09
Total capital to risk-weighted assets 19.37 18.61 16.68 15.86 -
OTHER DATA
Number of shares 3,741,257 3,740,678 3,740,476 3,741,342 3,771,482
Number of shareholders 1,556 1,541 1,462 1,476 1,442
Number of full-time equivalent employees 388 401 419 424 419
Weighted average number of common
shares outstanding 3,742,427 3,741,124 3,743,865 3,746,249 3,792,678
</TABLE>
<TABLE>
<CAPTION>
CONTENTS PAGE
<S> <C>
FINANCIAL REVIEW 1
MESSAGE TO SHAREHOLDERS 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3
REPORT ON MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS 14
INDEPENDENT AUDITOR'S REPORT 15
FINANCIAL STATEMENTS 16
NOTES TO FINANCIAL STATEMENTS 20
OFFICIAL ORGANIZATION 31
SHAREHOLDER INFORMATION 33
</TABLE>
1
<PAGE> 3
Message to Shareholders
March 14, 1994
Once again, your Corporation achieved record earnings and profits increased for
the eighth consecutive year. In 1993, per-share earnings were $2.24, compared
to $2.19 in 1992 on a restated basis. Additionally, the Corporation had
$372,000 of non-recurring merger expense during 1993. This gain continues to
reflect our strategy of sustained profit increases.
The most significant accomplishment for the Corporation during 1993 was the
acquisition of two area bank holding companies. These acquisitions have
increased our total assets by more than 43 percent. The geographic area we now
serve opens new markets previously unavailable to us. From inception, we
realized this task was ambitious; however, it was well planned and has proven
to be a prudent investment for shareholder enhancement. All accounting
schedules in this report reflect restated figures as a result of these mergers.
We began 1993 as a five-bank holding company and ended the year with ten banks
at locations in twenty cities and towns with thirty banking offices.
Equity capital, the ratio of shareholder equity to total corporate assets, was
an impressive 11.98 percent at year end. This ratio, accompanied with the
quality of our banks' loan and investment portfolios, makes apparent the
ability and strength of our officers and employees who are responsible for the
safety of corporate assets.
[PHOTO]
The marketplace continues to accept our common stock in a very positive manner.
Our stock began 1993 selling at $29.52 per share (restated to reflect the 5
percent stock dividend paid during January 1993) and ended the year at $37.00
per share, a very respectable 25 percent increase. Also, 240,000 shares of our
Corporate stock were traded on the Nasdaq exchange. Our multiple of market
value to book value at year end was 161 percent, compared to 138 percent at
year end 1992. All senior officers of the Corporation and subsidiary banks
consider stock price enhancement to be an important part of their duties and
will endeavor to increase the value of your stock again this year.
At the June Board of Directors' meeting, Robert A. Keil was named the
Corporation's President and Benjamin W. Bloodworth was promoted to Executive
Vice President. After completion of the acquisition of Sure Financial
Corporation, Michael F. Elliott was also elected Executive Vice President by
the Board of Directors. The Corporation's lead bank, The National City Bank of
Evansville, elevated Chris D. Melton to the position of President last June.
W. O. (Gus) Doerner retired from the Board of Directors in February 1994,
having reached the mandatory retirement age. Numerous other well- earned
promotions and retirements took place among our family of banks throughout the
year. We also experienced untimely deaths of fellow workers during the past
year, who are sorely missed.
[PHOTO]
As a management group, we are cognizant of the challenges we encounter.
Equally important, we are aware of the changes in our industry and realize we
must alter our method of operation from time to time in order to exploit these
changes. We believe you will see a host of new and perhaps better banking
products prior to the end of this century. We further believe we are poised
and ready to offer those products.
Strategic planning has continued to be a very important function of the
Corporation and its subsidiary banks; and we have accomplished our goals as
documented in two previous plans. Early this spring, we will once again begin
the process of preparing, and subsequently presenting to the Board of
Directors, Strategic Plan III. This will chart and direct the course the
Corporation will be taking for the near- term and long-term horizons.
To summarize this past year, earnings were good, growth by merger was
exceptional, quality of assets was well above average, shareholder equity
remains very strong and shareholder value has increased dramatically. All
together, 1993 was a good year. We remain optimistic about 1994 and believe,
with continued hard work, we will have a profitable, fulfilling year. We
encourage your comments and ask that you support your investment by taking
advantage of the many services your Corporation offers through its
subsidiaries.
John D. Lippert
Chairman of the Board and
Chief Executive Officer
Robert A. Keil
President, Chief Financial Officer
and Chief Administrative Officer
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar Amounts Other Than Share Data in Thousands)
INTRODUCTION
The discussion and analysis which follows is presented to assist in the
understanding and evaluation of the financial condition and results of
operations of National City Bancshares, Inc. and its subsidiaries as presented
in the following consolidated financial statements and related notes. The text
of this review is supplemented with various financial data and statistics. All
information has been retroactively restated to include bank acquisitions
accounted for using the pooling of interests method and to give effect to stock
dividends.
BUSINESS DESCRIPTION
National City Bancshares, Inc. (NCBE) is an Indiana corporation established in
1985 to engage in the business of a bank holding company. Based in Evansville,
Indiana, NCBE has eleven wholly owned subsidiaries, ten commercial banks
serving twenty towns and cities with a total of thirty banking centers and an
insurance agency. Each subsidiary, its locations, number of offices, year
founded, date of merger and size in assets and equity is shown below.
Acquisitions completed during 1993 are described in Note 2 to the financial
statements in this report. In addition to these mergers, Chandler State Bank
was acquired by the Corporation in April 1986 and merged into The National City
Bank of Evansville in June 1987.
<TABLE>
<CAPTION> 12/31/93 (millions)
SUBSIDIARY Number of Year -------------------
Principal and Other Cities Offices Founded Date of Merger Assets Equity
-------------------------- ------- ------- -------------- ------ ------
<S> <C> <C> <C> <C> <C>
THE NATIONAL CITY BANK OF EVANSVILLE 11 1850 May 5, 1985 $320 $36
Evansville, Chandler and Newburgh, Indiana
POOLE DEPOSIT BANK 1 1902 November 30, 1986 30 4
Poole, Kentucky
THE PEOPLES NATIONAL BANK OF GRAYVILLE 1 1937 May 16, 1988 45 5
Grayville, Illinois
THE FARMERS AND MERCHANTS BANK 1 1896 January 30, 1989 41 5
Fort Branch, Indiana
FARMERS STATE BANK 2 1916 November 30, 1990 62 8
Sturgis, Kentucky
LINCOLNLAND BANK 6 1904 December 17, 1993 105 14
Dale, Chrisney, Grandview,
Hatfield, Reo and Rockport, Indiana
THE BANK OF MITCHELL 3 1882 December 17, 1993 37 3
Mitchell and Bedford, Indiana
PIKE COUNTY BANK 1 1900 December 17, 1993 29 3
Petersburg, Indiana
THE SPURGEON STATE BANK 2 1921 December 17, 1993 20 2
Spurgeon and Arthur, Indiana
THE STATE BANK OF WASHINGTON 2 1910 December 17, 1993 40 4
Washington and Odon, Indiana
AYER-WAGONER-DEAL INSURANCE AGENCY, INC. 1 1989 December 17, 1993 - -
Rockport, Indiana
</TABLE>
The Corporation's subsidiary banks provide a wide range of financial services
to the communities they serve in southwestern Indiana, western Kentucky and
southeastern Illinois. These services include various types of deposit
accounts; safe deposit boxes; safekeeping of securities; automated teller
machines; consumer, mortgage and commercial loans; mortgage loan sales and
servicing; letters of credit; accounts receivable management (financing,
accounting, billing and collecting); and complete personal and corporate trust
services. All banks are members of the Federal Deposit Insurance Corporation.
The Corporation's nonbank subsidiary, Ayer-Wagoner-Deal Insurance Agency, Inc.,
operates as an insurance agency offering various insurance products through
several insurance companies or underwriters and sells the following types of
insurance: life, casualty, property, homeowners, business, disability and
automobile.
3
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
FINANCIAL CONDITION
Highlights for 1989 through 1993 are presented in the financial review on page
1. An average balance sheet and analysis of net interest income is provided on
page 13. Earnings per share have increased every year since the Corporation
was formed in 1985. A higher net interest margin and continued cost controls
contributed to the 1993 earnings per share of $2.24, an increase of $.05, or 2
percent. Sixty-five percent of 1993 earnings were retained, increasing the
book value per share $1.63 to $22.96 and resulting in a very strong ratio of
equity capital to assets of 11.6 percent. We are not aware of any current
recommendations by the regulatory authorities which, if they were to be
implemented, would have a material effect on our operations, capital resources
or liquidity.
Average earning assets and average assets decreased 2.8 percent and 2.6
percent, respectively, in 1993, compared to 3.9 percent and 3.7 percent
decreases in 1992. During 1993, average federal funds sold decreased $10,305,
or 25.3 percent, and interest-bearing deposits in banks decreased $11,541, or
34.3 percent. Average investment securities decreased $8,733, or 4.6 percent.
All types of investment securities decreased except state and municipal
securities. The largest decrease in average investment securities was in U. S.
Governments and agencies, which decreased $6,122, or 4.7 percent. Average
loans increased $11,706, or 2.8 percent. Commercial, consumer and mortgage
loans had significant increases, with the largest being $6,472, or 3.9 percent,
in mortgage loans. A strong loan demand and lower interest rates contributed
to the growth of the loan portfolio. The change in earning asset mix was
intended and resulted in improved earnings in 1993 and a continued strong
condition to begin 1994.
The decrease in average earning assets was offset primarily by a decrease of
$15,200, or 2.8 percent, in average interest-bearing deposits. An increase of
$15,050, or 9.1 percent, in savings and interest-bearing checking accounts was
more than offset by a decrease of $33,241, or 10.2 percent, in certificates of
deposit and other time deposits, caused by declining interest rates. Federal
funds purchased and securities sold under agreements to repurchase decreased
$9,300, also due to declining interest rates. Average noninterest-bearing
deposits increased $3,641, or 5 percent. It is the Corporation's philosophy to
only increase deposits if they are needed to fund loan growth.
INVESTMENT PORTFOLIO
Average investment securities comprised 27.4 percent of the 1993 average
earning assets compared to 27.9 percent and 29.7 percent in 1992 and 1991,
respectively. They represent the second largest component after loans. The
Corporation holds various types of investments, including mortgage-backed
securities, the components of which are shown in Note 5 of the financial
statements. Inherent in mortgage-backed securities is prepayment risk, which
occurs when borrowers prepay their obligations due to market fluctuations and
rates. In an effort to reduce this risk, management closely monitors the
amount of mortgage-backed securities contained in the portfolio. The
Corporation has no securities by any issuer, with the exception of the U. S.
Government, exceeding 10 percent of shareholders' equity.
As of December 31, 1993, the Corporation adopted Financial Accounting Standards
Board Statement No. 115 as disclosed in Note 4 and discussed in Note 1 of the
financial statements. For 1993, securities classified as held to maturity are
carried at amortized cost and those classified as available for sale are
carried at estimated fair market value. For 1992 and 1991, debt securities
were carried at amortized cost and equity securities were carried at the lower
of cost or market. During 1993, 1992 and 1991, as disclosed in Note 4 to the
financial statements, securities were sold to fund an increase in loan demand
and a decrease in deposits. The following is a three-year analysis of the
year-end balances in the investment portfolio, and an analysis of the
maturities and weighted average yields as of December 31, 1993. The weighted
average yields on obligations of state and political subdivisions that are
tax-exempt have been computed on a federal-tax-equivalent basis using a 34
percent tax rate.
4
<PAGE> 6
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
Outstanding Balances at December 31,
--------------------------------------------------------------------------------------------------
1993
----------------------------------------------
HELD TO AVAILABLE
MATURITY FOR SALE 1992 1991
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt Securities:
U. S. Treasury securities $ 9,101 $ 19,071 $ 36,110 $ 37,808
U. S. Government corporations
and agencies 9,099 63,500 82,020 93,688
Taxable municipals 1,646 - 696 797
Tax-exempt municipals 38,148 - 38,390 35,523
Corporate securities 10,769 1,122 6,144 11,317
Mortgage-backed securities 5,277 15,457 18,349 22,665
--------- --------- ---------- ---------
Total debt securities 74,040 99,150 181,709 201,798
Equity securities - 2,572 1,689 1,733
--------- --------- ---------- ---------
Total securities $ 74,040 $ 101,722 $ 183,398 $ 203,531
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
MATURITY ANALYSIS After 1 Year After 5 Years
DECEMBER 31, 1993 but but
Within 1 Year Within 5 Years Within 10 Years After 10 years Total
------------------ ----------------- ----------------- ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECURITIES CLASSIFIED AS
HELD TO MATURITY:
U. S. Treasury securities $ 5,599 5.66% $ 3,502 4.12% $ - - $ - - $ 9,101 5.07%
U. S. Government corporations
and agencies 5,999 5.73% 3,083 4.35% 12 6.50% 5 7.82% 9,099 5.26%
Taxable municipals - - 966 6.23% 680 7.19% - - 1,646 6.63%
Tax-exempt municipals 3,312 7.46% 10,396 7.70% 15,472 8.46% 8,968 7.90% 38,148 8.03%
Corporate securities 1,678 5.83% 9,084 4.45% 7 9.49% - - 10,769 4.67%
------- -------- -------- ------- --------
Total maturing securities $16,588 6.06% $ 27,031 5.71% $ 16,171 8.40% $ 8,973 7.90% 68,763 6.71%
------- -------- -------- -------
------- -------- -------- -------
Mortgage-backed securities 5,277 7.72%
--------
Total securities $ 74,040 6.78%
--------
--------
SECURITIES CLASSIFIED AS
AVAILABLE FOR SALE:
U. S. Treasury securities $12,631 4.94% $ 5,309 6.49% $ 1,131 7.72% $ - - $ 19,071 5.50%
U. S. Government corporations
and agencies 23,655 5.41% 39,845 4.67% - - - - 63,500 4.94%
Corporate securities - - 1,122 8.09% - - - - 1,122 8.09%
------- -------- -------- --------
Total maturing securities $36,286 5.25% $ 46,276 4.96% $ 1,131 7.72% $ - - 83,693 5.12%
------- -------- -------- -------
------- -------- -------- -------
Mortgage-backed securities 15,457 5.47%
Equity securities 2,572 6.66%
--------
Total securities $101,722 5.21%
--------
--------
</TABLE>
LOANS
Each subsidiary bank has competent lending officers who follow loan policies
approved by their boards of directors. These policies are compatible with the
Corporation's loan policy approved by its Board of Directors. The lending
policies address risks associated with each type of lending, collateralization,
loan-to-value ratios, loan concentrations, insider lending and other pertinent
matters. These functions are monitored by subsidiary and corporate loan review
personnel and by the loan committees of the boards of directors for compliance
and loan quality. Close loan administration and high credit standards minimize
credit risk, as evidenced by the ratio of underperforming loans to total loans.
Highly speculative loans are prohibited and the normal loan-to-value ratio is a
minimum of 80 percent for real estate loans. The loan portfolio contains no
foreign loans. All real estate loans and in excess of 95 percent of commercial
and consumer loans are secured.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
LOANS CONTINUED
The Corporation's loan portfolio is well diversified by type of loan, industry
and geographic location, which minimizes economic risk. The loan portfolio
contained 29 percent commercial loans, 54 percent real estate loans (primarily
residential) and 17 percent consumer loans at December 31, 1993. The
Corporation's affiliate banks lend to customers in various industries including
manufacturing, agricultural, health and other services, transportation, mining,
wholesale and retail. The only concentration to borrowers engaged in the same
or similar industries exceeding 10 percent of total loans is in loans directly
related to the agricultural sector, including loans secured by real estate.
These loans amounted to $45,395, or 10.4 percent of total loans as of December
31, 1993. This is in compliance with the Corporation's lending policy and does
not present undue risk. Geographic diversification is provided by the
Corporation's policy to extend credit only to customers in its geographic
market areas in and around its subsidiary banks' twenty cities located in
southwestern Indiana, southeastern Illinois and western Kentucky.
The following is a five-year summary of the loan portfolio and an analysis of
the loan maturities and rate sensitivities at December 31, 1993.
LOAN PORTFOLIO AT YEAR END, FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate loans $ 236,037 $ 222,606 $ 212,453 $ 204,873 $ 203,967
Loans to financial institutions 50 50 500 1,227 777
Loans for purchasing/carrying securities - 350 350 350 500
Agricultural loans 22,188 20,167 21,386 20,402 19,253
Commercial and industrial loans 95,254 92,313 78,819 80,252 72,174
Economic development loans and
other obligations of state
and political subdivisions 9,649 9,400 11,443 13,161 14,187
Consumer loans 72,822 74,808 81,351 94,438 95,401
All other loans 1,156 1,638 5,708 5,096 6,319
---------- ---------- ---------- ---------- ----------
Total loans - gross 437,156 421,332 412,010 419,799 412,578
Less: unearned income 2,135 4,829 6,336 8,733 9,061
---------- ---------- ---------- ---------- ----------
Total loans - net of unearned income 435,021 416,503 405,674 411,066 403,517
Less: allowance for loan losses 3,791 4,186 4,639 4,431 4,412
---------- ---------- ---------- ---------- ----------
Total loans - net $ 431,230 $ 412,317 $ 401,035 $ 406,635 $ 399,105
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
LOAN MATURITIES AND RATE SENSITIVITIES AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
After 1
Year But
Within Within Over 5
1 Year 5 Years Years Total
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Rate sensitivities:
Fixed rate loans $ 57,092 $ 101,346 $ 88,931 $ 247,369
Variable rate loans 172,369 12,838 487 185,694
---------- ---------- ---------- ----------
Subtotal $ 229,461 $ 114,184 $ 89,418 433,063
---------- ---------- ----------
---------- ---------- ----------
Percent of subtotal 52.98 % 26.37 % 20.65 %
Nonaccrual loans 1,958
-----
Total loans net of unearned discount $435,021
--------
--------
</TABLE>
6
<PAGE> 8
UNDERPERFORMING ASSETS
Underperforming assets consist of nonaccrual investment securities and loans,
restructured loans, 90 days past due loans, and other real estate held.
Nonaccrual investment securities are those which have defaulted on interest
payments. Nonaccrual loans are loans on which interest recognition has been
suspended because of doubts as to the borrower's ability to repay principal or
interest. Loans are generally placed on nonaccrual status after becoming 90
days past due if the ultimate collectibility of the loan is in question. Loans
which are current, but for which serious doubt exists about repayment ability,
may also be placed on nonaccrual status. Restructured loans are loans where
the terms have been changed to provide a reduction or deferral of principal or
interest because of the borrower's financial position. Past-due loans are
accruing loans that are contractually past due ninety days or more as to
interest or principal payments. Other real estate held represents properties
obtained for debts previously contracted. Management is not aware of any loans
which have not been disclosed that represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity or capital resources, or represent material
credits about which management is aware of any information which causes
management to have serious doubt as to the ability of such borrower to comply
with loan repayment terms. The following summarizes the underperforming assets
as of December 31:
UNDERPERFORMING ASSETS AT YEAR END, FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Underperforming loans:
Nonaccrual $ 1,958 $ 2,758 $ 3,832 $ 3,073 $ 3,742
Restructured 76 1,902 1,860 2,119 2,150
90 days past due 274 1,524 3,552 2,248 1,466
--------- --------- --------- --------- ---------
Total underperforming loans 2,308 6,184 9,244 7,440 7,358
Nonaccrual municipal securities 81 182 104 - -
Other real estate held 688 3,300 3,195 3,182 1,884
--------- --------- --------- --------- ---------
Total $ 3,077 $ 9,666 $ 12,543 $ 10,622 $ 9,242
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Past due 90 days or more, nonaccrual and restructured loans were 0.5 percent of
total loans at the end of 1993, compared to 1.5 percent at the end of 1992. Of
the loans in these categories, $1,460, or 63.3 percent, were secured by real
estate at the end of 1993, compared to $3,806, or 61.5 percent at the end of
1992. Additional interest income that would have been recorded, if nonaccrual
and restructured loans had been current and in accordance with their original
terms, was $145, $307 and $360 in 1993, 1992 and 1991, respectively. The
interest recognized on nonaccrual loans was approximately $13, $89 and $204 in
1993, 1992 and 1991, respectively. Included in other real estate held are
properties which were sold by The National City Bank of Evansville (valued at
approximately $2,011 in 1992) with The National City Bank of Evansville holding
the mortgages. No such loans existed at the end of 1993, 1991, 1990 or 1989.
In addition to those loans classified as underperforming, Management was
closely monitoring loans of approximately $15,923 and $15,984 as of the end of
1993 and 1992, respectively, for the borrowers' abilities to comply with
present loan repayment terms.
RISK MANAGEMENT
As of December 31, 1993, management considered the allowance for loan losses
adequate to provide for potential losses. Management reviews delinquent and
problem loans weekly. Loans which are judged uncollectible are charged off on
a timely basis. The allowance for loan losses is reviewed quarterly in order
to evaluate and maintain its adequacy based on a thorough analysis of the
entire loan portfolio. Some of the factors used in this review include current
economic conditions and forecasts, risk by type of loan, previous loan loss
experience, and evaluation of specific borrowers and collateral. The
Corporation and its banks closely monitor loan portfolios using models designed
in part by regulatory agencies.
The provision and allowance for loan losses were decreased for 1993 and 1992 as
a result of improved loan quality as evidenced by the significant reduction in
underperforming loans in both periods and in charge-offs in 1993. The ratio of
allowance for loan losses as a percent of underperforming loans increased
significantly in 1993 and 1992. The year-end allowance balance as a percent of
year-end and of average loans also decreased in both periods due to improved
loan portfolio quality.
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
RISK MANAGEMENT CONTINUED
The following is a five-year analysis of loan loss experience and allocation of
allowance for loan losses:
SUMMARY OF LOAN LOSS EXPERIENCE
Analysis of the Allowance for Loan Losses
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for loans losses, January 1 $ 4,186 $ 4,639 $ 4,431 $ 4,412 $ 3,820
Loans charged off:
Commercial 1,099 1,495 1,573 1,125 532
Real estate 27 551 343 188 189
Installment 275 367 498 490 940
---------- ---------- ---------- ---------- ----------
Total 1,401 2,413 2,414 1,803 1,661
---------- ---------- ---------- ---------- ----------
Recoveries on charged-off loans:
Commercial 210 428 181 93 251
Real estate 27 75 53 147 28
Installment 115 223 64 67 78
---------- ---------- ---------- ---------- ----------
Total 352 726 298 307 357
---------- ---------- ---------- ---------- ----------
Net charge-offs 1,049 1,687 2,116 1,496 1,304
Provision for loan losses 654 1,234 2,324 1,515 1,896
---------- ---------- ---------- ---------- ----------
Allowance for loans losses, December 31 $ 3,791 $ 4,186 $ 4,639 $ 4,431 $ 4,412
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total loans at year end $ 435,021 $ 416,503 $ 405,674 $ 411,066 $ 403,517
Average loans $ 426,888 $ 415,182 $ 407,489 $ 408,385 $ 395,562
As a percent of year-end loans:
Net charge-offs 0.24% 0.41% 0.52% 0.36% 0.32%
Provision for loans losses 0.15% 0.30% 0.57% 0.37% 0.47%
Year-end allowance balance 0.87% 1.01% 1.14% 1.08% 1.09%
As a percent of average loans:
Net charge-offs 0.25% 0.41% 0.52% 0.37% 0.33%
Provision for loan losses 0.15% 0.30% 0.57% 0.37% 0.48%
Year-end allowance balance 0.89% 1.01% 1.14% 1.09% 1.12%
Allowance for loan losses as a percent
of underperforming loans 164.25% 67.69% 50.18% 59.56% 59.96%
</TABLE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
As of December 31,
<TABLE>
<CAPTION>
Loan Type Allowance Applicable to Percent of Loans to Total Gross Loans
- --------- ------------------------------------------------- -----------------------------------------
1993 1992 1991 1990 1989 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 1,379 $ 1,754 $ 2,131 $ 1,727 $ 1,823 29% 29% 29% 29% 27%
Real estate 508 799 769 296 319 54 53 51 49 50
Consumer 502 452 416 505 547 17 18 20 22 23
--------- -------- -------- -------- -------- --- --- --- --- ---
Allocated 2,389 3,005 3,316 2,528 2,689 100% 100% 100% 100% 100%
--- --- --- --- ---
--- --- --- --- ---
Unallocated 1,402 1,181 1,323 1,903 1,723
--------- -------- -------- -------- --------
Total $ 3,791 $ 4,186 $ 4,639 $ 4,431 $ 4,412
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
</TABLE>
8
<PAGE> 10
DEPOSITS
The Corporation's Asset/Liability Committee manages the deposits of its banks
to best utilize short-term and long-term benefits of deposit growth. Average
deposits decreased $11,599, or 1.9 percent, during 1993. The only decrease was
in other time deposits of $36,436, or 13.4 percent. All other types of
deposits increased, with the largest increases being $7,950, or 7.5 percent, in
average interest-bearing demand deposits and $7,100, or 12.2 percent, in
average savings deposits. Average time deposits of $100,000 or more increased
$3,195, or 5.9 percent. Time deposits of $100,000 or more are from local
depositors and are not brokered deposits. They are not considered to present
an undue risk and their averages have remained at less than 10 percent of
average total assets during the past two years.
The following is a three-year summary of average deposit balances and rates.
Also presented is a comparative analysis of time deposits of $100,000 or more.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
1993 1992 1991
------------------------- -------------------------- ---------------------------
AMOUNT RATE Amount Rate Amount Rate
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $ 76,419 - $ 72,778 - $ 71,665 -
Money market accounts 56,983 2.75% 53,992 3.41% 51,390 4.71%
Interest-bearing demand 114,654 2.48% 106,704 3.16% 92,000 4.36%
Savings 65,298 2.80% 58,198 3.43% 51,785 4.72%
Time deposits of $100,000 or more 57,239 3.43% 54,044 4.71% 79,064 6.23%
Other time deposits 234,742 4.60% 271,178 5.38% 300,710 6.87%
--------- --------- ---------
Total $ 605,335 $ 616,894 $ 646,614
--------- --------- ---------
--------- --------- ---------
</TABLE>
TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Maturing:
3 months or less $ 20,662 $ 24,219 $ 49,579
Over 3 to 12 months 21,191 15,115 24,227
Over 12 months 11,639 7,943 7,190
--------- ---------- ----------
Total $ 53,492 $ 47,277 $ 80,996
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
CAPITAL RESOURCES
At the end of 1993, shareholders' equity totaled $85,901, an increase of
$6,129, or 7.7 percent, over 1992, after declared cash dividends of $2,895.
The equity to asset ratio on an average basis was 11.6 percent and 10.5 percent
for 1993 and 1992, respectively. The dividend payout ratio for 1993 was 34.6
percent. There are no material commitments for capital expenditures.
Guidelines for minimum capital levels have been established by the Federal
Reserve Board. Tier 1 (core) capital consists of shareholders' equity less
goodwill; and total capital includes allowance for loan loss. Regulatory
minimum capital levels are 3 percent for Tier 1 capital to average tangible
assets (leverage ratio); 4 percent for Tier 1 capital to risk-weighted assets;
and 8 percent for total capital to risk- weighted assets. The Corporation has,
by far, exceeded each of these levels. Its leverage ratio was 11.88 percent
and 10.77 percent; Tier 1 capital to risk-weighted assets was 18.53 percent and
17.66 percent; and total capital to risk-weighted assets was 19.37 percent and
18.61 percent at the end of 1993 and 1992, respectively. In addition, each of
its subsidiary banks has exceeded the capital guidelines established by bank
regulators.
SHORT-TERM BORROWINGS
Federal funds purchased are borrowings from other financial institutions
maturing daily. Repurchase agreements are secured transactions with customers.
Repurchase agreements generally mature within six months. Notes payable U.S.
Treasury are demand notes created by treasury tax and loan account funds
transfers. Short-term borrowings decreased $1,163, or 5.9 percent, during
1993. All types of short-term borrowings decreased during 1993, except notes
payable U.S. Treasury, with the largest decrease being in federal funds
purchased, which decreased $1,275, or 100 percent. A detailed analysis of
these three types of borrowings follows:
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
SHORT-TERM BORROWINGS AT DECEMBER 31
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Federal funds purchased $ - $ 1,275 $ 255
Securities sold under agreements to repurchase 13,173 14,179 22,373
Notes payable U. S. Treasury 5,393 4,275 9,033
---------- --------- ----------
Total $ 18,566 $ 19,729 $ 31,661
---------- --------- ----------
---------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
Securities
Federal Sold Under
Funds Agreements Notes Payable
Purchased to Repurchase U. S. Treasury
--------- ------------- --------------
<S> <C> <C> <C>
1993
AVERAGE AMOUNT OUTSTANDING $ 427 $ 12,497 $ 3,567
MAXIMUM AMOUNT AT ANY MONTH END 2,233 15,532 8,568
WEIGHTED AVERAGE INTEREST RATE:
DURING YEAR 3.48% 3.06% 2.82%
END OF YEAR - 2.93% 2.76%
1992
Average amount outstanding $ 1,141 $ 21,083 $ 3,755
Maximum amount at any month end 3,645 24,537 9,000
Weighted average interest rate:
During year 3.29% 3.86% 3.40%
End of year 3.02% 4.00% 2.81%
1991
Average amount outstanding $ 157 $ 22,520 $ 5,013
Maximum amount at any month end 700 26,243 8,997
Weighted average interest rate:
During year 5.65% 5.92% 5.51%
End of year 4.35% 7.18% 4.00%
</TABLE>
LIQUIDITY
The liquidity of a banking institution reflects the ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match maturities of specific categories
of short-term and long-term loans and investments with specific types of
deposits and borrowings. Bank liquidity is thus normally considered in terms
of the nature of mix of the banking institution's sources and uses of funds.
For National City Bancshares, Inc., the primary sources of short-term liquidity
have been federal funds sold, interest-bearing deposits in banks, and U.S.
Government securities. In addition to these sources, short-term liquidity is
provided by maturing loans and securities. The balance between these sources
and needs to fund loan demand and deposit withdrawals is closely monitored by
the Corporation's asset/liability management program and by each subsidiary
bank to provide liquidity without penalizing earnings. At December 31, 1993
and 1992, respectively, federal funds sold were $42,224 and $44,651,
interest-bearing deposits in banks were $13,578 and $29,529, and U.S.
Government securities were $100,771 and $118,130.
These sources and other liquid assets also provide long-term liquidity needs.
Long-term liquidity is managed in the same way, only with longer maturities, to
provide for future needs while maintaining interest margins. In excess of
$7,750 was available to the Corporation at December 31, 1993, from dividends by
subsidiaries without prior regulatory approval. Note 13 to the financial
statements in this report provides more detail about restrictions on dividends
from subsidiaries. These dividends provide liquidity for the Corporation. The
Corporation has no material long-term commitments.
10
<PAGE> 12
INTEREST RATE SENSITIVITY
The following "Interest Rate Sensitivity Analysis" schedule shows (as of
December 31, 1993) assets and liabilities which are maturing at various periods
in time and which will be subject to repricing. All savings and checking
accounts are shown in the earliest period presented. Variable rate
interest-earning assets and interest-bearing liabilities are distributed based
on repricing opportunities while fixed rate interest-earning assets and
interest-bearing liabilities are distributed based on contractual maturity. No
adjustments were made for projected prepayment assumptions or for projected
response to changes in market interest rates. Liabilities to be repriced in
three months or less and on a cumulative basis through five years exceed assets
to be repriced in the same time periods. In times of rising interest rates,
this will reduce net interest margin and thus the earnings of the banks, as
liabilities will be repriced at higher rates while matching assets remain at
their old lower rates until maturity. In times of falling interest rates, this
will increase net interest margin and thus the earnings of the banks. Interest
rate levels cannot be predicted at any future point in time; therefore, it is
in our best interest to match maturities of assets and liabilities so that the
gap will be as close to zero as possible. This can be accomplished by
shortening maturities of investment purchases and/or purchasing investments
where the rates adjust every thirty to ninety days. While more liabilities
than assets are subject to repricing within three months, we believe our
asset/liability management program allows adequate reaction time for changes in
rates as they occur, maximizing the potential positive effect of an increase in
interest rates.
INTEREST RATE SENSITIVITY ANALYSIS
As of December 31, 1993
<TABLE>
<CAPTION>
Over Over
3 Months 1 Year
3 Months through through Over
or Less 1 Year 5 Years 5 Years Total
----------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
EARNINGS ASSETS:
Loans - net of unearned income
(excluding nonaccrual) $ 142,314 $ 87,146 $ 114,185 $ 89,418 $ 433,063
Investment securities
(excluding nonaccrual) 24,725 40,947 72,832 37,177 175,681
Interest-bearing
deposits in banks 3,362 5,790 4,426 - 13,578
Federal funds sold 42,224 - - - 42,224
------------ ----------- ---------- ---------- -----------
Total earning assets 212,625 133,883 191,443 126,595 664,546
------------ ----------- ---------- ---------- -----------
RATE-SENSITIVE LIABILITIES:
Interest-bearing liabilities:
Savings, time and interest-bearing demand 308,252 82,904 72,361 8,254 471,771
Time deposits $100,000 or more 20,662 21,191 10,774 865 53,492
Borrowed funds 16,497 2,069 - - 18,566
------------ ----------- ---------- ---------- -----------
Total interest-bearing liabilities 345,411 106,164 83,135 9,119 543,829
Noninterest-bearing demand 81,385 - - - 81,385
------------ ----------- ---------- ---------- -----------
Total rate-sensitive liabilities 426,796 106,164 83,135 9,119 625,214
------------ ----------- ---------- ---------- -----------
INTEREST SENSITIVITY GAP (214,171) 27,719 108,308 117,476
CUMULATIVE GAP (214,171) (186,452) (78,144) 39,332
</TABLE>
CHANGES IN NET INTEREST INCOME
(Interest on a Federal-Tax-Equivalent Basis)
<TABLE>
<CAPTION>
1993 COMPARED TO 1992 1992 Compared to 1991
------------------------------------- ------------------------------------
CHANGE DUE TO A Change Due to a
CHANGE IN Change in
--------------------- ---------------------
VOLUME RATE TOTAL CHANGE Volume Rate Total Change
-------- ---------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income increase (decrease)
Loans $ 1,004 $ (2,649) $ (1,645) $ 709 $ (4,727) $ (4,018)
Investment securities (550 ) (2,193) (2,743) (1,485) (1,999) (3,484)
Other short-term investments (797 ) (623) (1,420) (696) (1,656) (2,352)
----------- ---------- ----------- ---------- ----------- ----------
Total interest income (343 ) (5,465) (5,808) (1,472) (8,382) (9,854)
----------- ---------- ----------- ---------- ----------- ----------
Interest expense increase (decrease)
Deposits (546 ) (4,800) (5,346) (1,380) (8,729) (10,109)
Borrowings (361 ) (259) (620) (98) (709) (807)
----------- ---------- ----------- ---------- ----------- ----------
Total interest expense (907 ) (5,059) (5,966) (1,478) (9,438) (10,916)
----------- ---------- ----------- ---------- ----------- ----------
NET INTEREST INCOME
INCREASE (DECREASE) $ 564 $ (406) $ 158 $ 6 $ 1,056 $ 1,062
----------- ---------- ----------- ---------- ----------- ----------
----------- ---------- ----------- ---------- ----------- ----------
</TABLE>
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
RESULTS OF OPERATIONS
Net income increased $174, or 2.1 percent, in 1993 and increased $1,170, or
16.6 percent, in 1992. Income also increased during both years on a per-share
basis. Due to increased net interest margins, net interest income increased
$201, or 0.7 percent, in 1993 and increased $1,049, or 3.8 percent in 1992.
The provision for loan losses has decreased during both years due to high loan
quality.
Changes in net interest income for the last two years are presented in the
preceding schedule with dollar changes allocated to rate and volume variances.
The combined rate-volume variances are included in the total volume variances.
In addition to this schedule, on page 13 is a three-year balance sheet analysis
on an average basis and an analysis of net interest income, setting forth (i)
average assets, liabilities and shareholders' equity; (ii) interest income
earned on interest-earning assets and interest expense incurred on
interest-bearing liabilities; (iii) average yields earned on interest-earning
assets and average rates incurred on interest-bearing liabilities; (iv) the net
interest margin (i.e. the average yield earned on interest-earning assets less
the average rate incurred on interest-bearing liabilities); and (v) the net
yield on interest-earning assets (i.e. net interest income divided by average
interest-earning assets). Nonaccrual loans are included in the average
balances shown on the three-year balance sheet analysis and in the average
balances used to compute the volume variances in the changes in net interest
income.
A summary analysis of operations and return on equity and assets is provided in
a five-year financial review on page 1. The following discussion of results of
operations is on a federal-tax-equivalent basis. Average loans increased 2.8
percent during 1993, compared to an increase of 1.9 percent during 1992. The
average yield on these loans decreased slightly from 10.38 percent in 1991 to
9.21 percent in 1992 and 8.58 percent in 1993, a direct result of lower
interest rates. Investment securities income decreased during 1993 and 1992,
with the decrease due to rate being larger than the decrease due to volume.
Income from average total earning assets decreased due to volume and rate
during 1993 and 1992. The average yield on total earning assets decreased due
to falling interest rates from 9.30 percent in 1991 to 8.20 percent in 1992 and
7.56 percent in 1993.
Average total interest-bearing deposits decreased during both 1993 and 1992.
The average cost of interest-bearing deposits decreased from 5.99 percent in
1991 to 4.48 percent in 1992 and 3.59 percent in 1993. Rate was the stronger
factor during 1993 and 1992, and the larger changes were recorded in 1992.
In 1993, the increase in net interest income due to volume was stronger than
the decrease due to rate, resulting in a $158 increase in net interest income
from 1992. While net interest income increased during 1992 due to both volume
and rate, the increase due to rate was the stronger factor. This resulted in
an increase in net interest income of $1,062 from 1991.
As reported in the financial statements, noninterest income increased during
both 1993 and 1992. Noninterest expenses also increased during both years.
These changes are discussed in detail in the next two sections.
NONINTEREST INCOME
Noninterest income for 1993 increased $303, or 5.8 percent, from 1992, compared
to an increase of $501, or 10.6 percent, for 1992 over 1991. Service charges
on deposit accounts, the largest item in this category, increased $14, or 0.7
percent, during 1993, and increased $184, or 10.3 percent, during 1992. Trust
income decreased $74, or 5.4 percent, during 1993, compared to a $174, or 14.6
percent, increase during 1992. These changes are due to fluctuations in the
number of estates each year. Other service charges and fees increased $167, or
17.9 percent, during 1993 and decreased $67, or 6.7 percent, during 1992.
Included in security gains and losses were write-downs of $54, $100 and $340
during 1993, 1992 and 1991, respectively, to reflect a decline in value of
certain municipal securities deemed to be other than temporary under regulatory
guidelines. During 1993, some of these securities were sold for a $303
recovery. Gains were realized through the sale of securities to fund increased
loan demand and decreased deposits. The other types of noninterest income
increased $80 during 1993 and decreased $347 during 1992. Included in other
noninterest income in 1991 was $158 in tax refunds.
NONINTEREST EXPENSE
Noninterest expense increased $681, or 3.3 percent, during 1993, compared to an
increase of $402, or 2.0 percent, during 1992. The expense of salaries and
other employee benefits increased $410, or 3.8 percent, in 1993 and increased
$138, or 1.3 percent, in 1992. Occupancy expense of bank premises increased
$58, or 3.7 percent, during 1993 compared to an increase of $77, or 5.2
percent, during 1992. Furniture and equipment expense increased $83, and $7
during 1993 and 1992, respectively. The FDIC assessment decreased $59, or 4.1
percent, during 1993 due to a decrease in deposits and increased $45, or 3.3
percent, during 1992 due to an increase in the FDIC assessment rate. Other
types of noninterest expenses increased $189 and $135 during 1993 and 1992,
respectively. Included in 1993 was $372 in merger and acquisition expense,
which was offset by a decrease in write-downs in other real estate owned.
12
<PAGE> 14
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
<TABLE>
<CAPTION>
1993 1992 1991
----------------------------- --------------------------- -----------------------------
AVERAGE INTEREST YIELD/ Average Interest Yield/ Average Interest Yield/
BALANCES & FEES COST Balances & Fees Cost Balances & Fees Cost
-------- ------- ------ -------- ------ ----- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Interest-bearing deposits in banks $ 22,078 $ 1,003 4.54% $ 33,619 $ 1,915 5.70% $ 38,782 $ 2,793 7.20%
Federal funds sold 30,488 915 3.00% 40,793 1,423 3.49% 51,135 2,897 5.66%
Investments securities:
U. S. Government and
federal agency 124,797 6,763 5.42% 130,919 9,017 6.89% 151,299 12,323 8.14%
State and municipal - taxable 1,095 79 7.23% 752 46 6.16% 1,230 78 6.31%
State and municipal - nontaxable 38,500 3,604 9.36% 37,492 3,622 9.66% 33,077 3,316 10.38%
Other 16,758 962 5.74% 20,720 1,466 7.08% 24,207 1,918 7.92%
--------- -------- -------- -------- -------- -----
Total investment securities 181,150 11,408 6.30% 189,883 14,151 7.45% 209,813 17,635 8.46%
Loans:
Commercial 170,187 13,207 7.76% 166,850 14,181 8.50% 159,775 15,824 9.90%
Consumer 72,485 7,433 10.25% 69,544 7,940 11.42% 76,879 9,289 12.08%
Real estate mortgage 174,567 15,076 8.64% 168,095 15,090 8.98% 157,606 15,734 9.98%
Economic development and
other municipal loans 9,649 889 9.23% 10,553 1,029 9.75% 12,112 1,338 11.45%
Bankers' acceptances and
term federal funds sold - - - 140 10 6.91% 1,117 83 7.47%
--------- -------- -------- -------- -------- --------
Total loans 426,888 36,605 8.58% 415,182 38,250 9.21% 407,489 42,268 10.38%
--------- -------- -------- -------- -------- --------
Total earning assets 660,604 $ 49,931 7.56% 679,477 $ 55,739 8.20% 707,219 $ 65,593 9.30%
-------- -------- --------
-------- -------- --------
NON-EARNING ASSETS:
Allowance for possible loan losses (4,194) (4,403) (4,488)
Cash and due from banks 28,895 26,568 26,587
Premises and equipment 10,166 10,207 10,438
Other assets 15,557 18,034 18,021
--------- -------- --------
TOTAL ASSETS $ 711,028 $729,883 $757,777
--------- -------- --------
--------- -------- --------
INTEREST-BEARING LIABILITIES:
Savings and
interest-bearing demand $ 179,952 $ 4,672 2.60% $164,902 $ 5,362 3.25% $143,785$ 6,463 4.49%
Money market accounts 56,983 1,568 2.75% 53,992 1,840 3.41% 51,390 2,418 4.71%
Certificates of deposit and
other time 291,981 12,769 4.37% 325,222 17,153 5.27% 379,774 25,583 6.74%
--------- -------- -------- -------- ------- -------- ------
Total interest-bearing deposits 528,916 19,009 3.59% 544,116 24,355 4.48% 574,949 34,464 5.99%
Federal funds purchased and
securities sold under
agreements to repurchase 12,924 397 3.07% 22,224 851 3.83% 22,677 1,343 5.92%
Other borrowings 3,701 108 2.91% 6,270 274 4.38% 8,302 589 7.09%
--------- -------- -------- -------- -------- -------
Total interest-bearing
liabilities 545,541 $ 19,514 3.58% 572,610 $ 25,480 4.45% 605,928 $36,396 6.01%
-------- -------- -------
-------- -------- -------
NONINTEREST-BEARING
LIABILITIES AND CAPITAL:
Noninterest-bearing demand deposits 76,419 72,778 71,665
Other liabilities 6,606 7,622 8,867
Shareholders' equity 82,462 76,873 71,317
--------- -------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 711,028 $729,883 $757,777
--------- -------- ---------
--------- -------- ---------
Interest income/earning assets $ 49,931 7.56% $ 55,739 8.20% $ 65,593 9.30%
Interest expense/earning assets 19,514 2.95% 25,480 3.75% 36,396 5.15%
-------- -------- ---------
Net interest income/earning assets $ 30,417 4.60% $ 30,259 4.45% $ 29,197 4.13%
-------- -------- ----------
-------- -------- ----------
</TABLE>
Note: Average volume includes nonaccrual loans.
Income is on a federal-tax-equivalent basis using a 34% tax rate.
Loans are classified by department.
13
<PAGE> 15
Report on Management's Responsibility for
Financial Statements
March 14, 1994
The Management of National City Bancshares, Inc. is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
and other financial information presented in this Annual Report. The financial
reports have been prepared in accordance with generally accepted accounting
principles and properly reflect the effects of amounts that are based on the
best judgments and estimates made by Management.
The Corporation maintains a system of internal controls which, in the opinion
of Management, provides reasonable assurance that its financial records can be
relied on in the preparation of financial statements and that its assets are
safeguarded against loss or unauthorized use. The careful selection and
training of qualified personnel, the use of written policies and procedures and
an audit program carried out by a professional staff of internal auditors
contribute to the effectiveness of this system.
The 1993 consolidated financial statements of the Corporation have been audited
by McGladrey & Pullen, independent certified public accountants. Prior years
were audited by other independent certified public accountants. These audits
were conducted in accordance with generally accepted auditing standards and
included a review of the financial controls and such other procedures and tests
of the accounting records as they considered necessary under the circumstances.
The Audit Committee of the Board of Directors, composed solely of directors who
are not officers or employees of the Corporation, meets regularly with the
internal auditor and with the independent certified public accountants and
Management, when appropriate, to review auditing, accounting, reporting and
internal control matters. Both the internal and external auditors have direct
and private access to the Audit Committee.
<TABLE>
<S> <C>
/S/ JOHN D. LIPPERT /S/ ROBERT A. KEIL
John D. Lippert Robert A. Keil
Chairman of the Board and President, Chief Financial Officer
Chief Executive Officer and Chief Administrative Officer
</TABLE>
14
<PAGE> 16
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
National City Bancshares, Inc.
Evansville, Indiana
We have audited the accompanying consolidated statements of financial position
of National City Bancshares, Inc. and subsidiaries as of December 31, 1993, and
the related consolidated statements of income, shareholders' equity and cash
flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
National City Bancshares, Inc. and subsidiaries as of December 31, 1993, and
the results of their operations and their cash flows for the year then ended,
in conformity with generally accepted accounting principles.
The consolidated financial statements of National City Bancshares, Inc., for
the years ended December 31, 1991 and 1992, prior to the restatement for the
1993 pooling of interests, and the separate financial statements of the other
companies included in the 1991 and 1992 restated consolidated financial
statements were audited by other auditors whose reports expressed unqualified
opinions on those statements. We audited the combination of the accompanying
consolidated statements of financial position as of December 31, 1992, and the
consolidated statements of income, shareholders' equity and cash flows for the
years ended December 31, 1991 and 1992, after restatement for the 1993 pooling
of interests; in our opinion, such consolidated financial statements have been
properly combined on the basis described in Note 2 to the financial statements.
/S/ MCGLADREY & PULLEN
Champaign, Illinois
January 14, 1994
15
<PAGE> 17
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
December 31
----------------------------
ASSETS 1993 1992
---------- ----------
<S> <C> <C>
Cash and due from banks $ 29,885 $ 33,546
Interest-bearing deposits in banks 13,578 29,529
Securities held to maturity (market value: 1993 - $76,945; 1992 - $185,446) 74,040 181,709
Securities available for sale 101,722 1,689
Federal funds sold 42,224 44,651
Loans - net of allowance for loan losses of $3,791 in 1993 and $4,186 in 1992 431,230 412,317
Premises and equipment 10,439 10,472
Other real estate owned 688 3,300
Income earned but not collected 7,242 7,967
Income taxes receivable 80 -
Other assets 6,011 5,900
--------- ---------
TOTAL ASSETS $ 717,139 $ 731,080
--------- ---------
--------- ---------
LIABILITIES
Deposits:
Noninterest-bearing demand $ 81,385 $ 85,295
Interest-bearing:
Savings, daily interest checking and money market accounts 244,292 237,494
Time deposits of $100,000 or more 53,492 47,277
Other time 227,479 254,777
--------- ---------
Total deposits 606,648 624,843
Federal funds purchased and securities sold under agreements to repurchase 13,173 15,454
Notes issued to the U.S. Treasury 5,393 4,275
Note payable - 512
Guaranteed bank loan of Employee Stock Ownership Plan 541 649
Dividends payable 823 557
Accrued interest payable 2,324 2,806
Income taxes payable 95 696
Deferred income taxes 1,379 621
Other liabilities 862 895
--------- ---------
Total liabilities 631,238 651,308
--------- ---------
Commitments, contingencies and credit risk
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
Common stock - $3.33 1/3 par value:
<S> <C> <C> <C> <C>
1993 1992
---------- ----------
Shares authorized 5,000,000 5,000,000
Shares outstanding 3,741,257 3,740,678 12,471 12,469
Capital surplus 36,128 36,139
Retained earnings 37,375 31,896
Unrealized gain (loss) on
securities available for sale 468 (83)
Employee Stock Ownership Plan
obligation guaranty (541) (649)
--------- ---------
Total shareholders' equity 85,901 79,772
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 717,139 $ 731,080
--------- ---------
--------- ---------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
16
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31
---------------------------------------------
INTEREST INCOME 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Interest and fees on loans:
Taxable $ 35,715 $ 37,221 $ 40,930
Nontaxable 605 701 915
Interest on federal funds sold 915 1,423 2,897
Interest and dividends on securities:
Taxable 7,803 10,529 14,318
Nontaxable 2,447 2,464 2,267
Interest on deposits in banks 1,003 1,915 2,793
--------- --------- ----------
Total interest income 48,488 54,253 64,120
--------- --------- ----------
INTEREST EXPENSE
Interest on time deposits of $100,000 or more 1,965 2,513 4,926
Interest on other deposits 17,044 21,842 29,538
Interest on federal funds purchased and
securities sold under agreements to repurchase 397 851 1,343
Interest on funds borrowed 108 274 589
--------- --------- ----------
Total interest expense 19,514 25,480 36,396
--------- --------- ----------
NET INTEREST INCOME 28,974 28,773 27,724
Provision for loan losses 654 1,234 2,324
--------- --------- ----------
Net interest income after provision for loan losses 28,320 27,539 25,400
--------- --------- ----------
NONINTEREST INCOME
Trust income 1,292 1,366 1,192
Service charges on deposit accounts 1,988 1,974 1,790
Other service charges and fees 1,099 932 999
Security gains (losses) 657 541 (16)
Other income 496 416 763
--------- --------- ----------
Total noninterest income 5,532 5,229 4,728
--------- --------- ----------
NONINTEREST EXPENSE
Salaries, wages and other employee benefits 11,282 10,872 10,734
Occupancy expense of bank premises 1,613 1,555 1,478
Furniture and equipment expense 1,587 1,504 1,497
Assessments of the Federal Deposit Insurance Corporation 1,363 1,422 1,377
Other expenses 5,677 5,488 5,353
--------- --------- ----------
Total noninterest expense 21,522 20,841 20,439
--------- --------- ----------
Income before income taxes 12,330 11,927 9,689
Income taxes 3,956 3,727 2,659
--------- --------- ----------
NET INCOME $ 8,374 $ 8,200 $ 7,030
--------- --------- ----------
--------- --------- ----------
EARNINGS PER SHARE $ 2.24 $ 2.19 $ 1.88
--------- --------- ----------
--------- --------- ----------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
17
<PAGE> 19
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollar Amounts Other Than Share Data in Thousands)
For the Years Ended
December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Employee
Unrealized Stock
Gain (Loss) Ownership
on Securities Plan
Common Common Capital Retained Available Obligation
Shares Stock Surplus Earnings For Sale Guaranty
---------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1990,
AS PREVIOUSLY REPORTED 2,530,213 $ 8,434 $ 24,343 $ 17,695 $ (34) $ -
Adjusted for pooling of interests 1,084,618 3,615 8,292 7,815 (119) (866)
--------- --------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1990,
AS RESTATED 3,614,831 12,049 32,635 25,510 (153) (866)
Net income - - - 7,030 - -
Cash dividends declared - - - (2,286) - -
Repurchase of outstanding shares (20,177) (67) (397) - - -
Shares issued in Dividend
Reinvestment Program 19,353 65 397 - - -
Change in unrealized gain (loss) on
securities - - - - 114 -
Employee Stock Ownership Plan note payment - - - - - 108
--------- --------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1991 3,614,007 12,047 32,635 30,254 (39) (758)
Net income - - - 8,200 - -
Cash dividends declared - - - (2,634) - -
Stock dividend of 5% declared 126,587 422 3,502 (3,924) - -
Repurchase of outstanding shares (20,050) (67) (499) - - -
Shares issued in Dividend
Reinvestment Program 20,134 67 501 - - -
Change in unrealized gain (loss) on
securities - - - - (44) -
Employee Stock Ownership Plan note payment - - - - - 109
--------- --------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1992 3,740,678 12,469 36,139 31,896 (83) (649)
Net income - - - 8,374 - -
Cash dividends declared - - - (2,895) - -
Payment for fractional shares for merger
and stock dividends (355) (1) (14) - - -
Repurchase of outstanding shares (18,333) (61) (589) - - -
Shares issued in Dividend
Reinvestment Program 19,267 64 592 - - -
Change in unrealized gain (loss) on
securities - - - - 551 -
Employee Stock Ownership Plan note payment - - - - - 108
--------- --------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1993 3,741,257 $ 12,471 $ 36,128 $ 37,375 $ 468 $ (541)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
18
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31
---------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Net income $ 8,374 $ 8,200 $ 7,030
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,378 1,261 1,212
Amortization 2,411 1,803 744
Provision for loan losses 654 1,234 2,324
Write-down of securities and other assets 147 535 637
Securities losses (gains) (711) (641) (324)
(Gain) on sale of premises and equipment (30) (74) (27)
Loss on sale of other real estate owned 48 184 9
Increase (decrease) in deferred taxes 218 (126) (481)
Changes in assets and liabilities:
(Increase) decrease in income earned but not collected 725 1,431 83
(Increase) decrease in other assets (241) (388) (25)
Increase (decrease) in accrued interest payable (482) (1,630) (1,108)
Increase (decrease) in other liabilities (634) 579 (126)
--------- ---------- ----------
Net cash flows provided by operating activities 11,857 12,368 9,948
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in banks 15,899 12,551 (11,456)
Proceeds from maturities of securities 66,761 90,066 68,330
Proceeds from sales of securities 14,087 28,021 25,559
Purchases of securities (73,790) (98,849) (72,578)
(Increase) decrease in federal funds sold 2,427 9,725 3,820
(Increase) decrease in loans made to customers (18,039) (14,174) 2,011
Capital expenditures (1,344) (1,361) (553)
Proceeds from sale of other real estate owned 960 933 943
Proceeds from sale of premises and equipment 29 84 35
Purchase of subsidiary, net of cash acquired - - (299)
--------- ---------- ----------
Net cash flows provided by investing activities 6,990 26,996 15,812
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (18,195) (25,116) (25,214)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (2,281) (7,174) (912)
Net proceeds (payments) on notes issued to the U.S. Treasury 1,118 (4,758) 1,993
Payments on other borrowings (512) (1,618) (3,142)
Dividends paid (2,629) (2,634) (2,235)
Repurchase of common stock (650) (566) (464)
Sale of common stock 641 568 462
--------- ---------- ----------
Net cash flows (used in) financing activities (22,508) (41,298) (29,512)
--------- ---------- ----------
Net (increase) decrease in cash and due from banks (3,661) (1,934) (3,752)
Cash and due from banks at beginning of year 33,546 35,480 39,232
--------- ---------- ----------
Cash and due from banks at end of year $ 29,885 $ 33,546 $ 35,480
--------- ---------- ----------
--------- ---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 19,996 $ 27,107 $ 37,526
Income taxes 4,108 424 3,466
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING & FINANCING ACTIVITIES
Change in allowance for unrealized gain (loss)
on securities available for sale $ 551 $ (44) $ 114
Employee Stock Ownership Plan obligation guaranty
note payment 108 109 108
Increase in deferred taxes attributable to
securities available for sale 312 - -
Other real estate acquired in settlement of loans 484 1,693 701
Transfer to loans from other real estate owned 2,011 - -
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar Amounts Other Than Share Data in Thousands)
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
National City Bancshares, Inc. (Corporation) is a holding company whose
subsidiaries operate in the commercial banking industry. The accounting and
reporting policies of the Corporation conform to generally accepted accounting
principles and to general practices within the banking industry. The following
is a description of the more significant of these policies.
BASIS OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of the Corporation and its wholly-owned subsidiaries: The
National City Bank of Evansville (NCB), Poole Deposit Bank (PDB), The Peoples
National Bank of Grayville (PNB), The Farmers and Merchants Bank (FMB), Farmers
State Bank (FSB), Lincolnland Bank (LLB), The State Bank of Washington (SBW),
The Bank of Mitchell (BOM), Pike County Bank (PCB), The Spurgeon State Bank
(SSB) and Ayer-Wagoner-Deal Insurance Agency, Inc. (AWD). All significant
intercompany transactions and balances have been eliminated.
CASH FLOWS - For purposes of reporting cash flows, cash and due from banks
includes cash on hand and amounts due from banks. Interest-bearing deposits in
banks, regardless of maturity, are considered short-term investments.
TRUST ASSETS - Property held for customers in fiduciary or agency capacities,
other than trust cash on deposit at the bank, is not included in the
accompanying consolidated financial statements since such items are not assets
of the Corporation or its subsidiaries.
SECURITIES - Securities classified as held to maturity are those debt
securities the banks have both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by the interest
method over their contractual lives.
Securities classified as available for sale are those debt or equity securities
that the banks intend to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Bank's assets
and liabilities, liquidity needs, regulatory capital considerations and other
similar factors. Securities available for sale are carried at estimated fair
market value. Unrealized gains or losses are reported as increases or
decreases in shareholders' equity, net of the related deferred tax effect.
Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included as a component of net income.
LOANS - Loans are stated at the principal amount outstanding, less unearned
interest income and an allowance for loan losses. Unearned income on
installment loans is recognized as income based on the sum-of-the-months digits
method which approximates the interest method. Interest income on
substantially all other loans is credited to income based on the principal
balances of loans outstanding.
The Corporation's policy is to discontinue the accrual of interest income on
any loan when, in the opinion of management, there is reasonable doubt as to
the timely collectibility of interest or principal. Nonaccrual loans are
returned to accrual status when, in the opinion of management, the financial
position of the borrower indicates there is no longer any reasonable doubt as
to the timely collectibility of interest and principal.
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at a
level believed adequate by management to provide for known and inherent risks
in the loan portfolio. The allowance is based upon a continuing evaluation of
the risk characteristics of the loan portfolios, past loan loss experience and
current economic conditions. The continuing review considers such factors as
the financial condition of the borrower, fair market value of the collateral,
and other considerations which, in management's opinion, deserve current
recognition in estimating loan losses. Loans which are deemed to be
uncollectible are charged to the allowance. The provision for loan losses and
recoveries are credited to the allowance.
PREMISES AND EQUIPMENT - Premises and equipment are carried at cost less
accumulated depreciation. Provisions for depreciation are charged to operating
expense over the useful lives of the assets, computed principally by the
straight-line method.
OTHER REAL ESTATE OWNED - Property acquired in settlement of loans is recorded
at the lower of the current estimated fair value less estimated costs to sell
or the fair value at the time of foreclosure. Management periodically reviews
each property for changes in market conditions or other developments which may
result in a reduction of the carrying value of the property. Reductions of the
carrying values and costs associated with holding the properties are charged to
operating expenses.
INCOME TAXES - The Corporation and its subsidiaries file a consolidated Federal
income tax return with each organization computing its taxes on a separate
company basis. The provision for income taxes is based on income as reported
in the financial statements, with deferred income taxes provided on the
differences between the basis of assets and liabilities for financial and
income tax purposes.
20
<PAGE> 22
EARNINGS PER SHARE - Earnings per share is computed by dividing net income by
the weighted average number of shares outstanding giving effect to stock
dividends. The weighted average number of shares used in computing earnings
per share are as follows:
<TABLE>
<S> <C> <C>
1993 1992 1991
---------- ---------- ----------
3,742,427 3,741,124 3,743,865
</TABLE>
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSION - Effective January
1, 1993, the Corporation adopted Financial Accounting Standards Board Statement
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," to account for the costs of providing these benefits. This
statement states that the amount to be accrued periodically shall result in an
accrued amount at the full eligibility date equal to the then present value of
all of the future benefits expected to be paid.
The Corporation has chosen to recognize the transition obligation under
Statement 106 using the straight line method over the plan participants'
average future service period of 20 years. The effect on 1993 income is a
decrease of $85. As of December 31, 1993, the remaining transition obligation
to be recognized is $536.
PENSION BENEFITS - The Corporation maintains a noncontributory pension plan in
which substantially all employees are eligible to participate upon the
completion of one year of service.
ACCOUNTING BY CREDITORS FOR THE IMPAIRMENT OF A LOAN -
Financial Accounting Standards Board Statement No. 114, Accounting by Creditors
for the Impairment of a Loan, defines a loan as impaired if, based on current
information and events, it is probable that the bank will not be able to
collect all amounts (principal and interest) due in accordance with the terms
of the agreement. The statement requires financial institutions to take into
account the expected loss of interest income when valuing nonperforming loans.
When a loan is considered impaired, this rule involves the discounting of a
loan's future cash flows by using the loan's contractual interest rate
adjusted for any deferred loan fees or costs, premiums or discounts. The bank
will be required to adopt Statement 114 for the year ending December 31, 1995,
with earlier application encouraged.
The Corporation believes the adoption of FAS 114 will not have a material
impact on the consolidated financial statements.
AUTHORIZED SHARES - Data for 1992 has been restated to reflect the increase
from 3,500,000 to 5,000,000 in authorized shares approved at the Corporation's
1993 annual meeting of shareholders.
Note 2. BUSINESS COMBINATIONS
On December 17, 1993, the Corporation issued 645,285 shares of its common stock
in exchange for all of the outstanding common stock of Lincolnland Bancorp,
Inc., the parent company of Lincolnland Bank, Dale, Indiana and
Ayer-Wagoner-Deal Insurance Agency, Inc., Rockport, Indiana. At consummation
of the merger, Lincolnland Bancorp, Inc. was merged with the Corporation.
On December 17, 1993, the Corporation also issued 439,333 shares of its common
stock in exchange for all of the outstanding common stock of Sure Financial
Corporation, the parent company of The State Bank of Washington, Washington,
Indiana; The Bank of Mitchell, Mitchell, Indiana; Pike County Bank, Petersburg,
Indiana; and The Spurgeon State Bank, Spurgeon, Indiana. At consummation of
the merger, Sure Financial Corporation was merged with the Corporation.
These acquisitions were accounted for using the pooling of interests method.
Accordingly, the Corporation's financial statements and financial data have
been retroactively restated to include the accounts and operations of
Lincolnland Bancorp, Inc. and Sure Financial Corporation for all periods
presented. Certain reclassifications have been made to Lincolnland Bancorp,
Inc.'s and Sure Financial Corporation's historical financial statements to
conform to the Corporation's presentation.
Assets, loans, deposits, interest income, net interest income and net income of
the Corporation (NCBE), Lincolnland Bancorp, Inc. (LBI) and Sure Financial
Corporation (SFC) for the periods prior to the acquisition are shown in the
following table. Due to the elimination of intercompany transactions, the
historical data may not aggregate to the combined amounts.
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
NOTE 2. BUSINESS COMBINATIONS CONTINUED
<TABLE>
<CAPTION>
NCBE
NCBE LBI SFC Combined
---- --- --- --------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993:
LOANS, NET OF
UNEARNED INCOME $ 290,837 $ 70,911 $ 73,274 $ 435,021
DEPOSITS 404,986 90,908 112,563 606,648
ASSETS 489,719 106,407 125,446 717,139
December 31, 1992:
Loans, net of
unearned income $ 273,920 $ 68,511 $ 76,075 $ 416,503
Deposits 413,765 92,647 119,764 624,843
Assets 497,757 107,628 132,323 731,080
YEAR ENDED DECEMBER 31, 1993:
INTEREST INCOME $ 31,765 $ 7,491 $ 9,463 $ 48,488
INTEREST EXPENSE 13,199 3,007 3,513 19,514
NET INTEREST INCOME 18,566 4,484 5,950 28,974
PROVISION FOR LOAN
LOSSES 274 90 290 654
NET INCOME 5,508 1,215 1,652 8,374
EARNINGS PER SHARE 2.07 4.81 57.68 2.24
Year ended December 31, 1992:
Interest income $ 35,246 $ 8,209 $ 10,992 $ 54,253
Interest expense 16,949 3,801 4,920 25,480
Net interest income 18,297 4,408 6,072 28,773
Provision for loan
losses 403 271 560 1,234
Net income 5,575 1,067 1,558 8,200
Earnings per share 2.10 4.22 54.41 2.19
Year ended December 31, 1991:
Interest income $ 42,609 $ 9,472 $ 12,384 $ 64,120
Interest expense 24,267 5,486 6,988 36,396
Net interest income 18,342 3,986 5,396 27,724
Provision for loan
losses 855 221 1,248 2,324
Net income 5,518 805 707 7,030
Earnings per share 2.08 3.19 24.69 1.88
</TABLE>
Note 3. CASH AND DUE FROM BANKS
Aggregate cash and due from bank balances of $9,279 and $10,075 as of December
31, 1993 and 1992, respectively, were maintained in satisfaction of statutory
reserve requirements of the Federal Reserve Bank.
Note 4. SECURITIES
Effective December 31, 1993, the Company adopted Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The adoption and cumulative effect of adopting FAS 115 had the
net effect of an increase of $565 on shareholders' equity.
Amortized cost and estimated market values of debt securities classified as
held to maturity are as follows:
<TABLE>
<CAPTION>
As of December 31, 1993
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury
securities and
U.S. Government
corporations and
agency obligations $ 18,200 $ 49 $ 84 $ 18,165
Obligations of
states and political
subdivisions
Taxable 1,646 68 - 1,714
Nontaxable 38,148 2,702 30 40,820
Corporate securities 10,769 47 37 10,779
Mortgage-backed
securities 5,277 243 53 5,467
-------- -------- -------- --------
Total debt
securities $ 74,040 $ 3,109 $ 204 $ 76,945
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The amortized cost and estimated market value of securities classified as
available for sale are as follows:
<TABLE>
<CAPTION>
As of December 31, 1993
---------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Debt securities:
U.S. Treasury
securities and
U.S. Government
corporations and
agency obligations $ 81,495 $ 1,152 $ 76 $ 82,571
Corporate securities 1,115 7 - 1,122
Mortgage-backed
securities 15,663 73 279 15,457
-------- -------- -------- --------
Total debt
securities 98,273 1,232 355 99,150
Equity securities 2,668 - 96 2,572
-------- -------- -------- --------
Total securities $100,941 $ 1,232 $ 451 $101,722
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
--------------------------------------
Unrealized Market
Cost Losses Value
-------- -------- -------
<S> <C> <C> <C>
Equity securities $ 1,772 $ 83 $ 1,689
-------- -------- -------
-------- -------- -------
</TABLE>
22
<PAGE> 24
Investment securities carried at amortized cost are as follows:
<TABLE>
<CAPTION>
As of December 31, 1992
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury
securities and
U.S. Government
corporations and
agency obligations $118,130 $ 1,596 $ 207 $119,519
Obligations of
states and political
subdivisions
Taxable 696 154 - 850
Nontaxable 38,390 1,814 44 40,160
Corporate securities 6,144 56 52 6,148
Mortgage-backed
securities 18,349 454 34 18,769
-------- -------- -------- --------
Total debt
securities $181,709 $4,074 $ 337 $185,446
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The amortized cost and estimated market value of the investment securities as
of December 31, 1993, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because certain securities
may be called or prepaid without penalties.
MATURITY SCHEDULE OF DEBT SECURITIES HELD TO MATURITY:
<TABLE>
<CAPTION>
Estimated
December 31, 1993 Amortized Cost Market Value
- ----------------- -------------- ------------
<S> <C> <C>
Less than 1 year $ 16,588 $ 16,668
1 year to 5 years 27,031 27,542
5 years to 10 years 16,171 17,648
Over 10 years 8,973 9,620
Mortgage-backed
securities 5,277 5,467
--------------- -------------
Total $ 74,040 $ 76,945
--------------- -------------
--------------- -------------
</TABLE>
MATURITY SCHEDULE OF DEBT SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
Estimated
December 31, 1993 Amortized Cost Market Value
- ----------------- -------------- ------------
<S> <C> <C>
Less than 1 year $ 35,918 $ 36,286
1 year to 5 years 45,687 46,276
5 years to 10 years 1,005 1,131
Mortgage-backed
securities 15,663 15,457
--------------- -------------
Total $ 98,273 $ 99,150
--------------- -------------
--------------- -------------
</TABLE>
Proceeds from sales of investments in debt securities were $14,087, $28,021 and
$25,559 in 1993, 1992 and 1991, respectively.
Securities gains and losses can be summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Gross realized gains $ 865 $ 683 $ 359
Gross realized losses (154) (42) (35)
Recognized losses
not yet realized (54) (100) (340)
----- ------ ------
Total $ 657 $ 541 $ (16)
----- ------ ------
----- ------ ------
</TABLE>
Investment securities pledged as collateral for public deposits and for other
purposes as required or permitted by law are as follows:
<TABLE>
<CAPTION>
As of December 31,
--------------------------
1993 1992
-------- --------
<S> <C> <C>
Estimated market value $ 50,901 $ 60,239
Amortized cost 50,300 59,567
</TABLE>
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
Note 5. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed securities
are as follows:
<TABLE>
<CAPTION>
Estimated
Principal Unamortized Unearned Amortized Market
Balance Premium Discount Cost Value
------- ------- -------- ---------- ---------
SECURITIES CLASSIFIED AS HELD TO MATURITY
AS OF DECEMBER 31, 1993:
<S> <C> <C> <C> <C> <C>
GNMA certificates $ 897 $ - $ 26 $ 871 $ 955
FNMA certificates 562 2 4 560 600
Collateralized
mortgage obligations 357 - 1 356 358
REMIC 250 - - 250 250
SBA's 612 51 - 663 612
FHLMC certificates 2,593 15 31 2,577 2,692
--------- --------- ---------- ---------- ----------
Total $ 5,271 $ 68 $ 62 $ 5,277 $ 5,467
--------- --------- ---------- ---------- ----------
--------- --------- ---------- ---------- ----------
SECURITIES CLASSIFIED AS AVAILABLE FOR SALE
AS OF DECEMBER 31, 1993:
GNMA certificates $ 3,375 $ 118 $ 5 $ 3,488 $ 3,484
FNMA certificates 2,042 56 1 2,097 2,105
Collateralized
mortgage obligations 1,318 10 1 1,327 1,328
Interest only
securities 239 - - 239 81
FHLMC certificates 8,426 96 10 8,512 8,459
--------- --------- ---------- ---------- ----------
Total $ 15,400 $ 280 $ 17 $ 15,663 $ 15,457
---------- --------- ---------- ----------- -----------
---------- --------- ---------- ----------- -----------
SECURITIES CARRIED AT AMORTIZED COST
AS OF DECEMBER 31, 1992:
GNMA certificates $ 1,196 $ - $ 29 $ 1,167 $ 1,260
FNMA certificates 3,770 80 8 3,842 3,925
Collateralized
mortgage obligations 7,286 64 1 7,349 7,438
SBA's 691 54 - 745 753
Interest only
securities 314 - - 314 315
FHLMC certificates 4,922 55 45 4,932 5,078
--------- --------- ---------- ---------- ----------
Total $ 18,179 $ 253 $ 83 $ 18,349 $ 18,769
---------- --------- ---------- ----------- -----------
---------- --------- ---------- ----------- -----------
</TABLE>
Note 6. LOANS
A summary of loans follows:
<TABLE>
<CAPTION>
December 31
-----------------------
1993 1992
---------- ----------
<S> <C> <C>
Real estate loans $ 236,037 $ 222,606
Agricultural loans 22,188 20,167
Commercial and industrial loans 95,254 92,313
Economic development loans and
other obligations of state and
political subdivisions 9,649 9,400
Consumer loans 72,822 74,808
All other loans 1,206 2,038
---------- ----------
Total loans - gross 437,156 421,332
Unearned income on loans (2,135) (4,829)
---------- ----------
Total loans - net of
unearned income 435,021 416,503
Allowance for loan losses (3,791) (4,186)
---------- ----------
Total loans - net $ 431,230 $ 412,317
---------- ----------
---------- ----------
</TABLE>
As of December 31, 1993 and 1992, the accrual of interest was discontinued or
renegotiated on loans in the amount of $2,034 and $4,660, respectively. If
these loans had been current according to original loan terms, additional gross
income in the amount of $145, $307 and $360 would have been recorded in 1993,
1992 and 1991, respectively.
In the normal course of business, the banks make loans to their executive
officers and directors, and to companies and individuals affiliated with
officers and directors of the banks and the Corporation. In the opinion of
management, these loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties. The activity in these loans during 1993
is as follows:
<TABLE>
<S> <C>
Balance as of January 1, 1993 $ 9,221
New loans 11,981
Repayments (10,069)
-------
Balance as of December 31, 1993 $11,133
-------
-------
</TABLE>
24
<PAGE> 26
Note 7. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows during the three years
ended December 31:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning
of year $ 4,186 $ 4,639 $ 4,431
Provision charged
to operations 654 1,234 2,324
Recoveries credited
to allowance 352 726 298
Loans charged to allowance (1,401) (2,413) (2,414)
------------ --------- --------
Balance at end of year $ 3,791 $ 4,186 $ 4,639
------------- --------- --------
------------- --------- --------
</TABLE>
Note 8. PREMISES AND EQUIPMENT
Premises and equipment consist of:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1993 1992
---------- ----------
<S> <C> <C>
Land $ 1,052 $ 1,349
Buildings 11,698 11,081
Equipment 9,169 8,681
Leasehold improvements 1,342 1,332
------------ -----------
Total cost 23,261 22,443
Less accumulated depreciation 12,822 11,971
------------ ------------
Net premises and equipment $ 10,439 $ 10,472
------------- -------------
------------- -------------
</TABLE>
Note 9. INCOME TAXES
Effective January 1, 1993, the Corporation adopted Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes," which
requires an asset and liability approach to financial accounting and reporting
for income taxes. Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible amounts in the
future. The deferred assets and liabilities are computed based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred assets to an amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities. For years
prior to 1993, deferred income taxes were recognized for timing differences
between financial statement and taxable income.
The adoption of FAS 109 did not have a material effect on the 1993 financial
statements.
The components of income tax expense follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current $ 2,830 $3,000 $2,529
Deferred 60 (90) (396)
----------- ------ ------
Total 2,890 2,910 2,133
----------- ------ ------
State:
Current 908 853 611
Deferred 158 (36) (85)
----------- ------- ------
Total 1,066 817 526
----------- ------ ------
Total income
tax expense $ 3,956 $3,727 $2,659
------------ ------ ------
------------ ------ ------
</TABLE>
A reconciliation of income tax in the statement of income, with the amount
computed by applying the statutory rate to income before income tax, is as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Federal income tax
computed at
the statutory rates $ 4,192 $ 4,055 $ 3,294
Adjusted for effect of:
Nontaxable
municipal interest (1,043) (981) (969)
Nondeductible
expenses 233 66 69
Investment tax
credit - (11) (31)
State income taxes, net
of federal benefit 704 539 347
Other differences (130) 59 (51)
------- ------- --------
Total income
tax provision $ 3,956 $ 3,727 $ 2,659
------- ------- --------
------- ------- --------
</TABLE>
The portion of the tax provision relating to security gains and losses amounted
to $245, $212 and $6 for 1993, 1992 and 1991, respectively.
The net deferred tax liability in the accompanying balance sheet includes the
following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Deferred tax liability $(2,254)
Deferred tax asset 946
Valuation allowance for
deferred tax assets (71)
-------
Net deferred tax liability $(1,379)
-------
-------
</TABLE>
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
NOTE 9. INCOME TAXES CONTINUED
The tax effects of principal temporary differences are shown in the following
table:
<TABLE>
<CAPTION>
1993
--------
<S> <C>
Allowance for loan losses $ 778
Property acquired in settlement of loans 50
Direct financing and leveraged leases (90)
Prepaid pension cost (1,253)
Fixed assets (586)
Securities (312)
State net operating loss carryforwards 71
Other 34
---------
Net temporary differences (1,308)
Valuation allowance (71)
---------
Net deferred tax liability $ (1,379)
---------
---------
</TABLE>
Note 10. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table reflects a comparison of the carrying amounts and fair
values of financial instruments of the Corporation and its subsidiary banks:
<TABLE>
<CAPTION>
1993 1992
----------------------- ----------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
----- ------ -------- -------
<S> <C> <C> <C> <C>
Assets:
Cash and
short-term
investments $ 85,687 $ 85,687 $ 107,726 $ 107,726
Securities 175,762 178,667 183,398 187,135
Loans - net of
allowance 430,727 449,364 411,342 425,533
Liabilities:
Deposits 606,648 607,935 624,843 626,627
Short-term debt 18,566 18,566 19,729 19,729
Long-term debt - - 512 512
</TABLE>
The above fair value information was derived using the information described
below for the groups of instruments listed. It should be noted the fair values
disclosed in this table do not represent market values of all assets and
liabilities of the Corporation and, thus, should not be interpreted to
represent a market or liquidation value for the Corporation. In addition, the
carrying value for loans above differs from that reported elsewhere due to the
exclusion of capital leases receivable of $503 and $975 in 1993 and 1992,
respectively.
CASH AND SHORT-TERM INVESTMENTS - Cash and short-term investments include cash
and due from banks, interest-bearing deposits in banks and federal funds sold.
For cash and short-term investments, the carrying amount is a reasonable
estimate of fair value.
SECURITIES - For 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 certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSITS - The fair value of demand deposits, savings accounts, money market
deposits and variable rate certificates of deposit is the amount payable on
demand at the reporting date. The fair value of other time deposits is
estimated using the rates currently offered for deposits of similar remaining
maturities.
SHORT-TERM AND LONG-TERM DEBT - Rates currently available to the Bank for debt
with similar terms and remaining maturities are used to estimate fair value of
existing debt. These instruments adjust on a periodic basis, and thus, the
carrying amount represents fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The fair value of
commitments is estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair value of guarantees and
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date. Because all commitments and
standby letters of credit reflect current fees and interest rates, no
unrealized gains or losses are reflected in the summary of fair values.
Note 11. COMMITMENTS, CONTINGENCIES AND CREDIT RISK
Most of the business activity of the Corporation and its subsidiaries
(Corporation) is conducted with customers located in the immediate geographical
area of their offices. These areas, comprised of Southwestern Indiana, Western
Kentucky and Southeastern Illinois, are dependent on the agribusiness, and to a
lesser degree, energy economic sectors. While the Corporation maintains a
diversified loan portfolio, approximately $45,395 and $43,362 of the
Corporation's loans were directly related to the agricultural sector as of
December 31, 1993 and 1992, respectively.
26
<PAGE> 28
The Corporation and its subsidiaries evaluate each credit request of their
customers in accordance with established lending policies. Based on these
evaluations and the underlying policies, the amount of required collateral (if
any) is established. Collateral held varies but may include negotiable
instruments, accounts receivable, inventory, property, plant and equipment,
income producing properties, residential real estate and vehicles. The
lenders' access to these collateral items is generally established through the
maintenance of recorded liens or, in the case of negotiable instruments,
possession.
The Corporation and its subsidiaries are parties to legal action which arise in
the normal course of their business activities. In the opinion of management,
the ultimate resolution of these matters is not expected to have a material
effect on the financial position on the results of operations of the
Corporation and its subsidiaries.
The Corporation is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The
contract or notional amounts of those instruments reflect the extent of
involvement the Corporation has in particular classes of financial instruments.
The Corporation's exposure to credit loss, in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit, is represented by the contractual notional
amount of those instruments. The Corporation uses the same credit policies in
making commitments and conditional obligations as it does for other on-balance
sheet instruments.
<TABLE>
<CAPTION>
Contract Amount
--------------------------
1993 1992
-------- ---------
<S> <C> <C>
Financial instruments
whose contract
amounts represent
credit risk:
Commitments to
extend credit $ 73,031 $ 81,143
Standby letters
of credit 2,511 3,403
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
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.
Standby letters of credit written are conditional commitments issued by the
banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, 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 extent of collateral held for these commitments as of December 31, 1993,
varies from zero to 100 percent with the average amount collateralized being 12
percent in 1993 and 18 percent in 1992.
Note 12. DIVIDEND REINVESTMENT PLAN
The Corporation established a Dividend Reinvestment Plan for its shareholders
in 1989. The Plan permits the issuance of previously authorized and unissued
shares or the repurchase of outstanding shares for reissuance. As of December
31, 1993, 139,719 shares of authorized but unissued common stock were reserved
for Plan requirements.
Note 13. RESTRICTIONS ON DIVIDENDS FROM SUBSIDIARIES
The principal source of income for the Corporation is dividends from its
subsidiary banks. Banking regulations impose restrictions on the ability of
subsidiaries to pay dividends to the Corporation. The limitation is generally
based on net income less dividends paid for the three years in the period ended
December 31, 1993. At December 31, 1993, regulatory approval would have been
required for aggregate dividends in excess of approximately $7,792. The amount
of dividends that could be paid is further restricted by the limitations of
sound and prudent banking principles.
Note 14. EMPLOYEE RETIREMENT PLANS
The Corporation maintains a noncontributory pension plan in which substantially
all employees are eligible to participate upon the completion of one year of
service. No company contribution or funding was required in any of the years
reported here. The assets of the pension plan primarily consist of corporate
obligations and equity securities. The plan does not hold any equity
securities of the Corporation.
In establishing the amounts reflected in the financial statements, a discount
rate of 7.5 percent and a 5 percent average rate of increase in future
compensation were assumed. In addition, an expected long-term rate of return
on plan assets of 9 percent was utilized. The following summary reflects the
plan's funded status and the amounts reflected on the Corporation's financial
statements.
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
NOTE 14. EMPLOYEE RETIREMENT PLANS CONTINUED
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
December 31
-------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Accumulated benefit obligation
including vested benefits
of $4,214, $5,063 and $4,681
in 1993, 1992 and 1991 $ (4,466) $(5,259) $(4,854)
Effects of projected future
compensation levels (2,433) (2,026) (1,994)
-------- -------- --------
Projected benefit obligation
for service rendered to date (6,899) (7,285) (6,848)
Plan assets at fair value 12,182 11,699 12,692
-------- -------- --------
Plan assets in excess of
projected benefit obligation 5,283 4,414 5,844
Unrecognized net loss (gain)
from past experience
different from that assumed
and effects of changes in
assumptions (1,189) (512) (2,280)
Prior service cost not yet
recognized in net periodic
pension cost 22 25 28
Unrecognized net asset at
January 1, 1987, being
recognized over 11.11
years from that date (962) (1,195) (1,429)
-------- -------- --------
Prepaid pension cost
included in other assets $ 3,154 $2,732 $ 2,163
-------- -------- --------
-------- -------- --------
</TABLE>
Net periodic pension cost (credit) included the
following components:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 425 $ 407 $ 357
Interest cost on projected
benefit obligation 483 513 485
Return on assets (693) (681) (2,652)
Net amortization and deferral (637) (808) 1,427
------ ------- -------
Net periodic pension
cost (credit) $ (422) $ (569) $ (383)
------ ------- -------
------ ------- -------
</TABLE>
The Corporation also maintains a savings and profit-sharing plan for
substantially all employees who have completed one year of service. Employees
may voluntarily contribute to the plan. The company's contribution to the plan
is an amount equal to 7 percent of the net income before income taxes at the
discretion of the Board of Directors. Company contributions were $628, $617
and $510 during 1993, 1992 and 1991, respectively.
As the result of previous mergers and subsequent amendment of the Corporation's
pension and profit-sharing plans to include employees of the other subsidiary
banks, retirement plans previously maintained by those banks have been
terminated or frozen.
The plans have been amended to comply with requirements of the Employee
Retirement Income Security Act of 1974 and the Tax Reform Act of 1986.
Sure Financial Corporation maintained a profit-sharing 401(k) plan for
substantially all employees of its subsidiaries. Contributions to the plan
were $116, $123 and $117 during 1993, 1992 and 1991, respectively. This plan
will be merged into the Corporation's savings and profit- sharing plan during
1994.
Lincolnland Bancorp, Inc. maintained an Employee Stock Ownership Plan in which
substantially all employees were eligible to participate. Contributions to the
plan were made at the discretion of the Board of Directors and amounted to $88,
$175 and $196 for 1993, 1992 and 1991, respectively. This plan will be
terminated during 1994. The Employee Stock Ownership Trust obligation, which
is guaranteed by the Corporation, has been reflected as a liability and
shareholders' equity has been reduced by the same amount. The obligation was
reduced by $108, $109 and $108 in principal repayments in 1993, 1992 and 1991,
respectively. In addition, the plan paid interest amounting to $31, $38 and
$58 during 1993, 1992 and 1991, respectively.
Note 15. GUARANTEED BANK LOAN OF EMPLOYEE STOCK OWNERSHIP PLAN
In accordance with the consensus reached on issue number 89-10 of the Financial
Accounting Standards Board's Emerging Issues Task Force, the Corporation has
recorded the debt of the Employee Stock Ownership Plan as an increase in
liabilities and a reduction of shareholders' equity. This debt, with Citizens
National Bank, Evansville, Indiana, is guaranteed by the Corporation and
matures December 1998. The interest rate is 80 percent of prime. The balance
was $541 and $649 at the end of 1993 and 1992, respectively.
28
<PAGE> 30
Note 16. UNAUDITED INTERIM FINANCIAL DATA
The following table reflects summarized quarterly data for the periods
described (unaudited):
<TABLE>
<CAPTION>
1993
-------------------------------------------------
December September June March
31 30 30 31
------------ --------- -------- ---------
<S> <C> <C> <C> <C>
Interest income $ 11,998 $ 12,010 $ 12,328 $ 12,152
Interest expense 4,670 4,784 4,899 5,161
---------- --------- -------- ---------
Net interest income 7,328 7,226 7,429 6,991
Provision for
loan losses 88 128 243 195
Noninterest income 1,551 1,266 1,262 1,453
Noninterest expense 5,639 5,168 5,412 5,303
---------- --------- -------- ---------
Income before
income taxes 3,152 3,196 3,036 2,946
Provision for
income tax 1,078 1,064 936 878
---------- --------- -------- --------
Net income $ 2,074 $ 2,132 $ 2,100 $ 2,068
---------- --------- -------- ---------
---------- --------- -------- ---------
Earnings per share $ .56 $ .57 $ .56 $ .55
</TABLE>
<TABLE>
<CAPTION>
1992
--------------------------------------------------
December September June March
31 30 30 31
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Interest income $ 12,784 $ 13,318 $ 13,732 $ 14,419
Interest expense 5,588 6,094 6,587 7,211
---------- --------- -------- ---------
Net interest income 7,196 7,224 7,145 7,208
Provision for
loan losses 369 402 190 273
Noninterest income 1,570 1,184 1,111 1,364
Noninterest expense 5,333 5,111 5,017 5,380
---------- --------- -------- ---------
Income before
income taxes 3,064 2,895 3,049 2,919
Provision for
income tax 995 897 951 884
-------- -------- -------- --------
Net income $ 2,069 $ 1,998 $ 2,098 $ 2,035
---------- --------- -------- ---------
---------- --------- -------- ---------
Earnings per share $ .55 $ .54 $ .56 $ .54
</TABLE>
Note 17. FINANCIAL INFORMATION OF PARENT COMPANY
Condensed financial data for National City Bancshares, Inc. (parent company
only) are as follows:
CONDENSED STATEMENTS OF
FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31,
---------------------
1993 1992
---------- ----------
<S> <C> <C>
ASSETS
Cash on hand and in banks $ 1,157 $ 776
Investment in bank subsidiaries 83,542 80,294
Property and equipment 694 566
Income taxes receivable 83 54
Other assets 1,873 1,915
--------- ---------
TOTAL ASSETS $ 87,349 $83,605
--------- ---------
--------- ---------
LIABILITIES
Notes payable $ 541 $ 3,164
Dividends payable 823 557
Deferred income taxes 81 79
Other liabilities 3 33
--------- --
Total liabilities 1,448 3,833
--------- -----
SHAREHOLDERS' EQUITY
Common stock 12,471 12,469
Capital surplus 36,128 36,139
Retained earnings 37,375 31,896
Unrealized gain (loss) on securities
available for sale 468 (83)
Employee Stock Ownership
Plan obligation guaranty (541) (649)
--------- ---------
Total shareholders' equity 85,901 79,772
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 87,349 $ 83,605
--------- ---------
--------- ---------
</TABLE>
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(Dollar Amounts Other Than Share Data in Thousands)
NOTE 17. FINANCIAL INFORMATION OF PARENT COMPANY CONTINUED
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years
Ended December 31,
--------------------------
- -
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Dividends from subsidiaries $ 6,530 $ 4,882 $ 6,146
Other income 474 371 349
----------- ----------- -----------
Total income 7,004 5,253 6,495
----------- ----------- -----------
Interest expense 152 289 558
Other expenses 1,451 911 923
----------- ----------- -----------
Total expenses 1,603 1,200 1,481
----------- ----------- -----------
Income before income taxes
and equity in undistributed
earnings of subsidiaries 5,401 4,053 5,014
Income tax benefit (230) (181) (349)
----------- ----------- -----------
Income before equity in
undistributed earnings of
subsidiaries 5,631 4,234 5,363
Equity in undistributed
earnings of subsidiaries 2,743 3,966 1,667
----------- ----------- -----------
Net income $ 8,374 $ 8,200 $ 7,030
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years
Ended December 31,
--------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 8,374 $ 8,200 $ 7,030
Adjustments to
reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 525 493 516
Undistributed earnings of
subsidiaries (2,743) (3,966) (1,667)
Increase (decrease) in
deferred taxes 2 (9) 18
Changes in assets and liabilities:
(Increase) decrease in
other assets (291) 100 (106)
Increase (decrease) in
other liabilities 16 (33) (64)
------- ---- -----
Net cash flows provided
by operating activities 5,883 4,785 5,727
---------- ------ ------
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of premises
and equipment (349) (134) (19)
Proceeds from sale of premises
and equipment - - 36
Purchase of subsidiary,
net of cash acquired - - (299)
------ ---- -----
Net cash flows provided by
(used in) investing activities (349) (134) (282)
------- ------ ------
CASH FLOWS FROM
FINANCING ACTIVITIES
Dividends paid (2,629) (2,634) (2,235)
Payments on notes payable (2,515) (2,001) (3,345)
Repurchase of common stock (650) (566) (464)
Sale of common stock 641 568 462
------- ------ ------
Net cash flows (used in)
financing activities (5,153) (4,633) (5,582)
---------- ------ ------
Net increase (decrease) in
cash and due from banks 381 18 (137)
Cash and due from banks
at beginning of year 776 758 895
------ ---- ------
Cash and due from banks
at end of year $ 1,157 $ 776 $ 758
------- ------ --------
------- ------ --------
</TABLE>
30
<PAGE> 32
OFFICIAL ORGANIZATION
NATIONAL CITY BANCSHARES, INC. AND SUBSIDIARIES
NATIONAL CITY
BANCSHARES, INC.
BOARD OF DIRECTORS
Donald B. Cox
Mrs. N. Keith Emge
Michael D. Gallagher
Donald G. Harris
Robert H. Hartmann
C. Mark Hubbard
Edgar P. Hughes
R. Eugene Johnson, Esq.
Edwin F. Karges, Jr.
Robert A. Keil
John D. Lippert
John Lee Newman
Ronald G. Reherman
Laurence R. Steenberg
C. Wayne Worthington
George A. Wright
SENIOR OFFICERS
John D. Lippert
Robert A. Keil
Benjamin W. Bloodworth
Michael F. Elliott
Harold A. Mann
THE BANK OF MITCHELL
MITCHELL, INDIANA
BOARD OF DIRECTORS
Robert J. Burton
Dana J. Dunbar
Michael F. Elliott
C. Wayne Hatfield
Dr. James F. King
E. Joseph Kremp
Stephen A. Ralston
John A. Yager, Jr.
SENIOR OFFICER
Stephen A. Ralston
THE FARMERS AND
MERCHANTS BANK
FORT BRANCH, INDIANA
BOARD OF DIRECTORS
Thomas L. Austerman
Robert H. Elpers
Harvey J. Hirsch
Barbara A. Massey
Marlene A. Obert
Cletus M. Oing
James A. Pfister
SENIOR OFFICERS
James A. Pfister
Barbara A. Massey
FARMERS STATE BANK
STURGIS, KENTUCKY
BOARD OF DIRECTORS
Garland Certain
Chris D. Melton
Charles L. Pryor
Joseph Sprague
Slaton Sprague
William R. Sprague
James D. Syers
I. Dix Winston, Jr.
Joe Woodring
SENIOR OFFICER
Garland Certain
LINCOLNLAND BANK
DALE, INDIANA
BOARD OF DIRECTORS
Eric Ayer, Esq.
Kenneth Ayer
Benjamin W. Bloodworth
Narl Conner
Joe Dan Elliott
Donald Kirkland
Edgar Mulzer
Joe C. Neff
Albert Raven
Wm. Stephen Schroer
C. W. Wedeking
Lon Youngblood
SENIOR OFFICERS
Edgar Mulzer
Joe C. Neff
Kenneth Ayer
Wm. Stephen Schroer
Don Kirkland
Al Raven
Scott K. Neff
Joan L. Trinkel
THE NATIONAL CITY
BANK OF EVANSVILLE
EVANSVILLE, INDIANA
BOARD OF DIRECTORS
Donald B. Cox
Mrs. N. Keith Emge
Michael D. Gallagher
Donald G. Harris
Robert H. Hartmann
C. Mark Hubbard
Edgar P. Hughes
R. Eugene Johnson, Esq.
Edwin F. Karges, Jr.
John D. Lippert
Chris D. Melton
John Lee Newman
Ronald G. Reherman
Laurence R. Steenberg
C. Wayne Worthington
George A. Wright
SENIOR OFFICERS
John D. Lippert
Chris D. Melton
Thomas L. Austerman
Benjamin W. Bloodworth
Paul N. Hocking
Thomas R. Lampkins
Harold A. Mann
[PHOTO]
31
<PAGE> 33
OFFICIAL ORGANIZATION CONTINUED
NATIONAL CITY BANCSHARES, INC. AND SUBSIDIARIES
THE PEOPLES NATIONAL
BANK OF GRAYVILLE
GRAYVILLE, ILLINOIS
BOARD OF DIRECTORS
Lyndle Barnes, Jr.
John C. Blood, Jr.
Sam Broster
Richard L. Elliott
Victor R. Gallagher, Jr.
William H. Mitchell
James A. Pfister
Joseph M. Siegert
Herbert W. Sutter
SENIOR OFFICER
Lyndle Barnes, Jr.
PIKE COUNTY BANK
PETERSBURG, INDIANA
BOARD OF DIRECTORS
Max D. Elliott
Michael F. Elliott
Denver Gladish
John L. Hayes
Karl O. Schafer
John E. Yager, Jr.
SENIOR OFFICER
Max D. Elliott
POOLE DEPOSIT BANK
POOLE, KENTUCKY
BOARD OF DIRECTORS
Eugene R. Bradley
Harold A. Mann
William B. Norment, Jr., Esq.
James B. Vaughn
Wayne Willson
SENIOR OFFICER
James B. Vaughn
THE SPURGEON
STATE BANK
SPURGEON, INDIANA
BOARD OF DIRECTORS
Roger M. Duncan
Max D. Elliott
Michael F. Elliott
Anthony P. Uebelhor
John E. Yager, Jr.
SENIOR OFFICER
Roger M. Duncan
THE STATE BANK OF WASHINGTON
WASHINGTON, INDIANA
BOARD OF DIRECTORS
Benjamin W. Bloodworth
John P. Cavanaugh
Max D. Elliott
Michael F. Elliott
Harry W. Hanson, Esq.
John L. Hayes
E. Joseph Kremp
Dr. Jerry D. McClarren
Harvey W. Pinney
SENIOR OFFICERS
Michael F. Elliott
Harvey W. Pinney
Patricia A. Paul
AYER-WAGONER-DEAL
INSURANCE AGENCY, INC.
ROCKPORT, INDIANA
BOARD OF DIRECTORS
Kenneth Ayer
Edgar Mulzer
Joe C. Neff
AGENT
William Deal
[PHOTO]
32
<PAGE> 34
SHAREHOLDER INFORMATION
STOCK AND DIVIDEND INFORMATION
The common stock of the corporation is traded in the over-the-counter market on
the NASDAQ national market system under the symbol NCBE.
The following table lists the stock price for the past two years and dividend
information for the corporation's common stock. Stock prices and dividends
have been retroactively adjusted to reflect the 5% stock dividend declared in
November 1992.
<TABLE>
<CAPTION>
RANGE OF STOCK PRICE
------------------------ DIVIDEND
QUARTER LOW HIGH DECLARED
------- ----- ------ --------
<S> <C> <C> <C>
1992
1ST $22.875 $29.500 $0.21
2ND 26.625 30.000 0.21
3RD 27.625 30.500 0.21
4TH 27.625 30.500 0.21
1993
1ST $29.000 $34.000 $0.22
2ND 32.500 37.250 0.22
3RD 35.000 37.500 0.22
4TH 35.000 37.500 0.22
</TABLE>
MARKET MAKERS
THE FOLLOWING FIRMS MAKE A MARKET IN THE STOCK OF NATIONAL CITY BANCSHARES,
INC.:
The Ohio Company
Smith Barney Shearson Inc.
J. J. B. Hilliard, W. L. Lyons, Inc.
Raffensperger, Hughes & Co.
Herzog, Heine, Geduld, Inc.
FOR FURTHER INFORMATION
For further information, contact Jaylene Kiefer, Administrative Assistant, At:
(812) 464-9606
National City Bancshares, Inc.
P.O. Box 868
Evansville, Indiana 47705-0868
Nasdaq Symbol: NCBE
All subsidiary banks of National City Bancshares, Inc.
are members of the Federal Deposit Insurance Corporation.
This report is printed entirely on recycled paper.
[LOGO]
33
<PAGE> 1
EXHIBIT 22 - SUBSIDIARIES OF THE REGISTRANT
NAME JURISDICTION OF INCORPORATION
The National City Bank United States
of Evansville
Evansville, Indiana
Poole Deposit Bank Commonwealth of Kentucky
Poole, Kentucky
The Peoples National Bank United States
of Grayville
Grayville, Illinois
The Farmers and Merchants Bank State of Indiana
Fort Branch, Indiana
Farmers State Bank Commonwealth of Kentucky
Sturgis, Kentucky
Lincolnland Bank State of Indiana
Dale, Indiana
The Bank of Mitchell State of Indiana
Mitchell, Indiana
Pike County Bank State of Indiana
Petersburg, Indiana
The Spurgeon State Bank State of Indiana
Spurgeon, Indiana
The State Bank of Washington State of Indiana
Washington, Indiana
Ayer-Wagoner-Deal Insurance State of Indiana
Agency, Inc.
Rockport, Indiana
18
<PAGE> 1
EXHIBIT 28
NATIONAL CITY BANCSHARES, INC.
227 MAIN STREET
EVANSVILLE, INDIANA 47708
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 19, 1994
TO THE HOLDERS OF SHARES OF COMMON STOCK:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of NATIONAL
CITY BANCSHARES, INC. (the "Corporation") will be held at The National City
Bank of Evansville, 227 Main Street in Evansville, Indiana, on Tuesday, April
19, 1994, at 9:30 a.m., C.S.T., for the purpose of considering and voting upon
the following matters:
1. The election of six (6) directors (to comprise Class II of the
Corporation's staggered Board of Directors), each to serve a term of three
years, until mandatory retirement or until their successors shall have
been duly elected and qualified.
2. To ratify the appointment of McGladrey & Pullen as the independent
certified public accountants for the Corporation and its subsidiaries for
the fiscal year ending December 31, 1994.
3. Whatever other business that may be brought before the meeting or any
adjournment thereof. The Board of Directors at present knows of no other
business to be presented by or on behalf of the Corporation.
Shareholders of record at the close of business on March 11, 1994, are the only
shareholders entitled to notice of and to vote at the Annual Shareholders
Meeting.
By Order of the Board of Directors,
HAROLD A. MANN, Secretary
March 18, 1994
IMPORTANT
WHETHER YOU EXPECT TO ATTEND THE MEETING OR NOT, PLEASE MARK, SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED SELF-ADDRESSED ENVELOPE AS
PROMPTLY AS POSSIBLE. NO POSTAGE IS REQUIRED.
<PAGE> 2
NATIONAL CITY BANCSHARES, INC.
EVANSVILLE, INDIANA
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of National City Bancshares, Inc. (the "Corporation") of
proxies to be voted at the Annual Meeting of Shareholders to be held on
Tuesday, April 19, 1994, in accordance with the foregoing notice.
The Corporation is a multi-bank holding company consisting of the following ten
banks and an insurance agency, all of which are wholly owned subsidiaries:
<TABLE>
<S> <C>
The Bank of Mitchell, Mitchell, Indiana Pike County Bank, Petersburg, Indiana
The Farmers and Merchants Bank, Fort Branch, Indiana Poole Deposit Bank, Poole, Kentucky
Farmers State Bank, Sturgis, Kentucky The Spurgeon State Bank, Spurgeon, Indiana
Lincolnland Bank, Dale, Indiana The State Bank of Washington, Washington, Indiana
The National City Bank of Evansville, Evansville, Indiana Ayer-Wagoner-Deal Insurance Agency, Inc.
The Peoples National Bank of Grayville, Grayville, Illinois
</TABLE>
The solicitation of proxies on the enclosed form is made on behalf of the Board
of Directors of the Corporation. All cost associated with the solicitation
will be borne by the Corporation. The Corporation does not intend to solicit
proxies other than by use of the mails, but certain officers and employees of
the Corporation or its subsidiaries, without additional compensation, may use
their personal efforts by telephone or otherwise, to obtain proxies. The proxy
materials are first being mailed to shareholders on March 18, 1994.
Any shareholder executing a proxy has the right to revoke it by the execution
of a subsequently dated proxy, by written notice delivered to the Secretary of
the Corporation prior to the exercise of the proxy or in person by voting at
the meeting. The shares will be voted in accordance with the direction of the
shareholder as specified on the proxy. In the absence of instructions, the
proxy will be voted "FOR" the election of the six (6) persons listed in this
Proxy Statement, and "FOR" the ratification of the Corporation's accountants
described in the Proxy Statement.
VOTING SECURITIES
Only shareholders of record at the close of business on March 11, 1994, will be
eligible to vote at the Annual Meeting or any adjournment thereof. As of March
11, 1994, the Corporation had outstanding 3,741,227 shares of Common Stock, par
value $3.33 1/3 per share. Shareholders are entitled to one (1) vote for each
share of common stock owned as of the record date, and shall have the right to
cumulate votes in the election of directors, in accordance with Article IX,
Section 4 of the Corporation's Amended Articles of Incorporation. Cumulative
voting permits a shareholder to multiply the number of shares held by the
number of directors to be elected, and cast those votes for one candidate or
spread those votes among several candidates as he or she deems appropriate.
As of March 11, 1994, The National City Bank of Evansville held 360,210 shares
of the Corporation's outstanding shares in their Trust Department in regular or
nominee accounts. This total represents 9.63% of the outstanding shares. Any
shares voted by the Trustee are voted only in accordance with directions
received from beneficial owners.
1
<PAGE> 3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Listed in the following tables are the only beneficial owner known by the
Corporation as of March 11, 1994, of more than 5% of the Corporation's
outstanding common stock and the number of shares owned by all directors and
executive officers as a group:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
TITLE OF NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS (2)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Edgar Mulzer 218,428 5.84%
401 10th Street
Tell City, IN 47586
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
TITLE OF AMOUNT AND NATURE OF PERCENT OF
CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS (2)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Benjamin W. Bloodworth 835 (3) 0.02%
Common Stock Donald B. Cox 5,334 0.14%
Common Stock Michael F. Elliott 109,039 (4) 2.91%
Common Stock Mrs. N. Keith Emge 8,417 (5) 0.22%
Common Stock Michael D. Gallagher 365 0.01%
Common Stock Donald G. Harris 4,773 0.13%
Common Stock Robert H. Hartmann 8,244 0.22%
Common Stock C. Mark Hubbard 2,131 0.06%
Common Stock Edgar P. Hughes 7,114 0.19%
Common Stock R. Eugene Johnson 9,979 (6) 0.27%
Common Stock Edwin F. Karges, Jr. 7,657 0.20%
Common Stock Robert A. Keil 1,946 (7) 0.05%
Common Stock John D. Lippert 14,286 (8) 0.38%
Common Stock Harold A. Mann 930 (9) 0.02%
Common Stock John Lee Newman 74,949 (10) 2.00%
Common Stock Ronald G. Reherman 2,854 (11) 0.08%
Common Stock Laurence R. Steenberg 11,798 0.32%
Common Stock C. Wayne Worthington 81,350 (12) 2.17%
Common Stock George A. Wright 10,316 (13) 0.28%
Common Stock All Directors and Executive 362,317 9.68%
Officers as a Group (19 persons)
</TABLE>
(1) Beneficial Ownership includes those shares over which an individual has
sole or shared voting, or investment powers, such as beneficial interest
of the spouse, minor children, and other relatives living in the home of
the named person. The nature of beneficial ownership, unless otherwise
noted, represents sole voting and investment power.
(2) The calculations of percent of class is based on the number of shares of
Common Stock outstanding as of March 11, 1994.
(3) All shares with shared voting and investment power with spouse.
2
<PAGE> 4
(4) Includes 106,416 shares with sole voting and investment power and 2,623
shares held by a trust with shared voting and investment power.
(5) Includes 618 shares with sole voting and investment power; 5,203 shares
with shared voting and investment power with spouse; and 2,596 shares with
sole voting and investment power by spouse.
(6) Includes 5,512 shares with sole voting and investment power; 1,331 shares
with shared voting and investment power with spouse; and 3,136 shares with
voting power only.
(7) All shares with shared voting and investment power with spouse.
(8) Includes 363 shares with sole voting and investment power and 13,923
shares with shared voting and investment power with spouse.
(9) Includes 82 shares with sole voting and investment power and 848 shares
with shared voting and investment power with spouse.
(10) Includes 53,154 shares with sole voting and investment power and 21,795
shares held by a charitable foundation of which Mr. Newman is a director,
thereby sharing voting and investment power.
(11) Includes 884 shares with sole voting and investment power; 1,537 shares
with shared voting and investment power with spouse; and 433 shares with
investment power only.
(12) Includes 34,040 shares with sole voting and investment power; 38,201
shares with shared voting and investment power with spouse; and 9,109
shares with sole voting and investment power by spouse.
(13) Includes 8,836 shares with sole voting and investment power and 1,480
shares with sole voting and investment power by spouse.
ITEM 1. ELECTION OF DIRECTORS AND
INFORMATION WITH RESPECT TO DIRECTORS AND OFFICERS
The following information is provided with respect to each nominee for director
and each present continuing director whose term of office extends beyond the
Meeting of the Corporation's Shareholders. The affirmative vote of the holders
of at least a majority of the outstanding shares of Common Stock voted is
required for the election of any director.
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF
NAME AND PRINCIPAL OCCUPATION NATIONAL CITY CORPORATION
(PAST FIVE YEARS) AGE BANK SINCE SINCE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS II
The following are nominees for directorship in Class II of the Board of
Directors, whose terms shall expire at the Annual Meeting of Shareholders in
1997 (except for Edgar P. Hughes, who will reach mandatory retirement January
31, 1996).
Mrs. N. Keith Emge 52 1979 1985
Vice President for Corporate and Community Services,
Deaconess Hospital, Inc. (1990 to Present)
President, Deaconess Hospital Foundation, Inc. (1984 to 1990)
Treasurer, Emge Realty Company, Inc.
Permanent Director, United Way of Southwestern Indiana
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF
NAME AND PRINCIPAL OCCUPATION NATIONAL CITY CORPORATION
(PAST FIVE YEARS) AGE BANK SINCE SINCE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert H. Hartmann 66 1987 1987
Owner, Hartmann Publications, Inc.
Publisher and Owner, The Evansville Press
Chairman of Management Committee,
The Evansville Newspapers (1986 to 1989)
Edgar P. Hughes 70 1975 1985
Retired President, The National City Bank of Evansville
Consultant, The National City Bank of Evansville (1984 to 1992)
First Vice President of Corporation (1985 to 1989)
First Vice President, The National City Bank of Evansville (1984 to 1990)
Robert A. Keil 50 N/A 1993
President of the Corporation (June 1993 to Present)
Executive Vice President, The National City Bank of
Evansville and the Corporation (1991 to June 1993)
Senior Vice President, The National City Bank
of Evansville (1987 to 1991)
Assistant Secretary and Assistant Treasurer (1985 to June 1993)
John Lee Newman 65 1984 1985
Real Estate and Investments
Laurence R. Steenberg 55 1983 1985
President, BST Incorporated (Oil Production)
Assistant Professor, University of Evansville
Treasurer, Rickrich Surgical Supplies, Inc. (1988 to 1991)
</TABLE>
The following Directors shall continue to serve as Directors until their
respective terms expire, and are not up for election at this Annual Meeting of
Shareholders:
<TABLE>
<CAPTION>
CLASS III
(Continuing Directors with Term to Expire 1995)
<S> <C> <C> <C>
Michael D. Gallagher 42 1990 1990
Vice President, Gallagher Drilling, Inc.
(Oil Producer and Drilling Contractor)
C. Mark Hubbard 47 1983 1985
President and Treasurer, Evansville Sheet Metal Works, Inc.
(Manufacturer)
</TABLE>
4
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF
NAME AND PRINCIPAL OCCUPATION NATIONAL CITY CORPORATION
(PAST FIVE YEARS) AGE BANK SINCE SINCE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John D. Lippert 60 1981 1985
Chairman of the Board and Chief Executive Officer of
the Corporation and The National City Bank of Evansville
(June 1993 to Present)
Chairman of the Board, President and Chief Executive Officer
of the Corporation and The National City Bank of Evansville
(1992 to June 1993)
President of the Corporation (1985 to 1992)
President and Chief Executive Officer, The National City
Bank of Evansville (1989 to 1992)
President, The National City Bank of Evansville (1984 to 1989)
Ronald G. Reherman 57 1985 1985
Chairman of the Board, President and Chief Executive
Officer, Southern Indiana Gas and Electric Company (SIGECO)
(1992 to Present) (Public Utility)
President and Chief Executive Officer, SIGECO (1990 to 1992)
President, SIGECO (1988 to 1990)
<CAPTION>
CLASS I
(Continuing Directors with Term to Expire 1996, except
Edwin F. Karges, Jr. who will reach mandatory retirement September 30, 1994,
and C. Wayne Worthington, who will reach mandatory retirement March 31, 1995)
<S> <C> <C> <C>
Donald B. Cox 65 1979 1985
Owner, Don Cox and Associates
(Corporate Consultant 1994 to Present)
(Governmental Consultant 1991 to Present)
(Realtor Prior to 1991)
Donald G. Harris 61 1986 1986
Retired President, Mead Johnson Worldwide Nutritional Group
President, Mead Johnson Worldwide Nutritional Group
(1989 to January 1993)
President, Bristol-Myers, U.S. Nutritional Group (1987 to 1989)
R. Eugene Johnson 64 1963 1985
Attorney, Statham, Johnson and McCray (1989 to Present)
Merrill, Johnson and Kimpel (Prior to 1989)
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
DIRECTOR OF DIRECTOR OF
NAME AND PRINCIPAL OCCUPATION NATIONAL CITY CORPORATION
(PAST FIVE YEARS) AGE BANK SINCE SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Edwin F. Karges, Jr. 71 1972 1985
Chairman of the Board and President, The Karges Furniture
Company, Inc. (1990 to Present) (Furniture Manufacturers)
Chairman of the Board, The Karges Furniture Company, Inc.
(1987 to 1990)
C. Wayne Worthington 71 1966 1985
Retired Chairman of the Board of the Corporation and
The National City Bank of Evansville
Chairman of the Board and Chief Executive Officer of the
Corporation and Chairman of the Board of The National City
Bank of Evansville (Prior to March 1992)
Consultant, The National City Bank of Evansville
(July 1992 to December 1992)
George A. Wright 67 1963 1985
President, Wright Motors, Inc. (Automobile Dealer)
</TABLE>
The business experience of each of the above-listed nominees and directors
during the past five years was that typical to a person engaged in the
principal occupation listed. Unless otherwise indicated, each of the nominees
and directors has had the same position or another executive position with the
same employer during the past five years.
The following director of National City Bancshares, Inc. held a directorship in
a company with a Class of Securities registered pursuant to Section 12 or
Section 15(d) of the Securities Exchange Act of 1934:
<TABLE>
<CAPTION>
NAME REGISTERED COMPANY
<S> <C>
Ronald G. Reherman Southern Indiana Gas and Electric Company
Evansville, Indiana
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Corporation has standing executive, compensation and audit committees, but
does not have a nominating committee. The Corporation's nominating function is
performed by the Executive Committee for recommendation to the Board of
Directors. The subsidiaries have their own committees which perform these
functions.
In addition to the regular monthly meetings of the Board of Directors, some of
the directors also serve on one or more of the various Board committees.
During 1993, the Board of Directors met 11 times. All of the directors
attended at least 75% of the regular board and committee meetings with the
exception of Robert H. Hartmann, who attended 73%.
The Compensation Committee is explained later under "Compensation of Executive
Officers". Following is a brief explanation of the executive and audit
committees:
6
<PAGE> 8
The Executive Committee formulates and recommends to the Board of Directors,
for its approval, general policies and plans regarding the long-range
operations, growth, and business of the Corporation. The Executive Committee
is further responsible for the nominations of directors for the ensuing term.
Shareholders are entitled to nominate any candidate for election by notifying
the Corporation no less than forty-five days prior to the Annual Meeting date
following the procedure outlined in the Corporation's bylaws requiring advance
notice to the Corporation of such nomination and certain information regarding
the proposed nominee, and provided that such shareholder is the owner of shares
of the Corporation as of the date such nomination is made. The Executive
Committee met 11 times during 1993. Members of the Committee are:
C. Wayne Worthington, Chairman, Mrs. N. Keith Emge, R. Eugene Johnson,
Robert A. Keil, John D. Lippert, Ronald G. Reherman, Laurence R. Steenberg,
and George A. Wright.
The Audit Committee approves and reviews the internal audit programs of the
Corporation and its subsidiaries. The committee reviews the results of the
independent accountant's audit and reports to the Board of Directors. The
Audit Committee met 11 times during 1993. The committee is comprised of six
outside directors and the members are:
Edwin F. Karges, Jr., Chairman, Donald B. Cox, Donald G. Harris, Robert
Hartmann, John Lee Newman, and George A. Wright.
Directors of the Corporation, other than those who also serve as a corporate or
subsidiary officer, receive for their services an annual retainer of $2,500,
plus $150 for each Board of Directors meeting attended from the Corporation and
a like retainer and meeting fee plus $125 for each committee meeting attended
from The National City Bank of Evansville.
COMPENSATION OF EXECUTIVE OFFICERS
The President of the Corporation is its only employee. The Corporation does
not directly compensate any of its other officers and has no other employees.
Its wholly owned subsidiaries, The National City Bank of Evansville, Poole
Deposit Bank, The Peoples National Bank of Grayville, The Farmers and Merchants
Bank, Farmers State Bank, Lincolnland Bank, The Bank of Mitchell, Pike County
Bank, The Spurgeon State Bank, The State Bank of Washington and
Ayer-Wagoner-Deal Insurance Agency, Inc. do separately compensate their
officers, who include the same individuals as the other Executive Officers of
the Corporation.
The following table sets forth the compensation for the Chief Executive Officer
of the Corporation and the Corporation's and its subsidiaries' Executive
Officers, whose compensation in 1993 exceeded $100,000.
7
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------
Name and Principal Position Year Salary Bonus All Other Compensation
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John D. Lippert 1993 $200,000 $ ----- $23,646 (2)
Chairman of the Board and 1992 193,750 ----- 23,549 (2)
Chief Executive Officer 1991 175,000 ----- 18,752 (2)
Michael F. Elliott (1) 1993 156,000 45,000 16,964 (3)
Executive Vice President 1992 150,700 35,000 18,616 (3)
1991 143,200 20,000 16,111 (3)
Max D. Elliott 1993 93,726 25,000 9,032 (3)
President and Chief Executive Officer, 1992 92,806 25,000 10,312 (3)
The Pike County Bank 1991 86,118 10,000 7,627 (3)
</TABLE>
(1) Michael F. Elliott was President and Chief Executive Officer
of Sure Financial Corporation during the periods presented.
Sure Financial Corporation was acquired by the Corporation on
December 17, 1993.
(2) Amounts shown represent amounts contributed to the profit
sharing plan provided for all employees of the Corporation and
its subsidiaries who complete one year of service.
(3) Amounts shown represent amounts contributed to the profit
sharing 401(k) plan provided for all employees of Sure
Financial Corporation and its subsidiaries.
PENSION PLAN
The following table shows the estimated annual pension benefit payable to a
covered participant at normal retirement age (age 60) under the qualified
defined benefit pension plan covering the Corporation and all subsidiary banks,
based on remuneration that is covered under the plan and years of service with
the Corporation and its subsidiaries:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$125,000 $37,500 $ 50,000 $ 62,500 $ 75,000 $ 87,500
150,000 45,000 60,000 75,000 90,000 105,000
175,000 52,500 70,000 87,500 105,000 122,500
200,000 60,000 80,000 100,000 120,000 140,000
225,000 67,500 90,000 112,500 135,000 157,500
250,000 75,000 100,000 125,000 150,000 175,000
</TABLE>
(The benefits shown above may be limited by law.)
8
<PAGE> 10
Each employee who completes one year of eligible service is an eligible
participant under the Plan. The Plan generally provides for a prospective
benefit calculated as follows: 2% of the average annual base salary (annual
salary excluding bonuses and other annual compensation) of the five highest
consecutive years within the last ten calendar years of credited service for
each year of credited service up to 40 years maximum. The Plan provides for
early retirement at age 55 with reduced benefits or normal retirement with full
benefits starting at age 60. Employees who participate in the Plan become
fully vested with the completion of 5 years of eligible service. The normal
form of pension payment is in the form of a life annuity. For a married
participant, the payment is in the form of a qualified joint and survivor
annuity benefit. Participants may elect to receive their accrued retirement
benefit in a single lump sum. The annual pension benefit is not subject to any
deduction for social security.
Covered compensation for John D. Lippert, as of the end of the last calendar
year, was $200,000; and his years of service were fourteen (14) years. Michael
F. Elliott and Max D. Elliott will complete their year of eligible service and
enter the Pension Plan January 1, 1995.
REPORT OF THE COMPENSATION COMMITTEE
In compliance with the Securities and Exchange Commission Regulation S-K, the
Corporation is required to provide certain data and information regarding
compensation and benefits provided to the Corporation's Chief Executive Officer
and each of the four most highly paid executive officers whose compensation
exceeded $100,000. The disclosure requirements as applied to the Corporation
include John D. Lippert, Chairman of the Board and Chief Executive Officer;
Michael F. Elliott, Chairman of the Board and Chief Executive Officer of The
State Bank of Washington and Executive Vice President of National City
Bancshares, Inc.; and Max D. Elliott, President and Chief Executive Officer of
Pike County Bank.
The Corporation had no named executive officers as defined in Regulation S-K,
retire or leave the Corporation for other reasons during 1993.
Compensation Committee Structure and Philosophy
Early in 1993, the Corporation's Board of Directors appointed a standing
Compensation Committee for the purpose of setting executive salaries and
benefits. The Committee is comprised of six outside directors including Edgar
P. Hughes (retired President of The National City Bank of Evansville) who acts
as Committee Chairman. The Committee directors do not share any for-profit
Board positions with any inside director or executive officer, except that all
members are also directors of The National City Bank of Evansville. The
Committee met six times during the year to establish, among other actions, the
compensation of John D. Lippert, the Corporation's Chairman and Chief Executive
Officer.
Essentially, the executive compensation program of the Corporation has been
designed to:
- Support a pay-for-performance policy that awards executive officers for
corporate performance.
- Motivate key senior officers to achieve strategic goals.
- Provide compensation opportunities which are comparable to those offered
by other banking companies, thus allowing the Corporation to compete for
and retain talented executives who are critical to the Corporation's
long-term success.
Salary
In December 1993, two regional bank holding companies were acquired by the
Corporation, Sure Financial Corporation (with four subsidiaries: The Bank of
Mitchell, Pike County Bank, The Spurgeon State Bank and The State Bank of
Washington) and Lincolnland Bancorp, Inc. (with two subsidiaries: Lincolnland
Bank and Ayer-Wagoner-Deal Insurance Agency, Inc.). Compensation of executive
officers of these two named corporations was the responsibility of the Boards
of Directors of those corporations during 1993 and for 1994 base salary.
Future compensation will be determined by the Compensation Committee of
National City Bancshares, Inc. for all chief executive officers of the
Corporation's ten banks, in addition to all Corporate executive officers.
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The Compensation Committee retained the services of McGladrey & Pullen,
Certified Public Accountants and Consultants, to assist in the process of
establishing adequate, fair compensation and benefits for the Corporation's and
its member banks' executive officers. The consultant provided, among other
information, current recognized compensation studies. The data gave the
Committee comparisons of compensation and benefits for like positions among
various peer groups. The Committee did not increase Chief Executive Lippert's
salary for 1993. It was determined Chairman Lippert's base compensation was
within an acceptable percentile of competitive base compensation from available
data. The Committee, with the assistance of their consultant, reviewed the
following published compensation surveys to establish competitive compensation
data: Illinois Banker's Association Midwest Bank Holding Company Compensation
Survey, Cole Survey (National), Wyatt Data Services (National), Indiana Bankers
Association Survey, Illinois Bankers Association Survey, Kentucky Bankers
Association Survey, Bank Administration Institute (Regional) Compensation
Survey and the Community Bankers Association of Illinois Survey.
Management Incentive Compensation Plan
Additionally, the Committee, with the further assistance from McGladrey &
Pullen, designed a management incentive compensation plan. The plan was
subsequently approved by the full Board of Directors for implementation in 1994
with the first possible payout to be in 1995 based on 1994 performance. A
brief summary of the Plan follows:
In 1994, the Corporation implemented an annual management incentive plan
(the plan) covering certain key Corporate and member bank executives.
The purpose of the plan is to help improve overall Corporate performance
by providing executives with variable award opportunities in return for
outstanding measured performance.
The plan provides incentive opportunities based on the achievement of a
combination of Corporation, member bank and individual executive goals.
Specific measurable performance goals are established at the beginning of
each year, and approved by the Compensation Committee of the Board of
Directors. At the end of the year, actual performance relative to the
predetermined goals determine earned incentive awards. The Corporation
must exceed a threshold return on assets percentage to provide an
incentive. The plan is designed to pass the majority of incremental
income to shareholders' equity. The Compensation Committee approves all
incentive payouts.
Employment and Severance Agreements
The Corporation does not have any employment or severance agreements with
executive officers.
Compensation Committee Members
The above report on compensation was submitted by the Compensation Committee,
whose members are:
Edgar P. Hughes, Chairman, Donald G. Harris, C. Mark Hubbard, Ronald G.
Reherman, Laurence R. Steenberg, and George A. Wright.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Director Edgar P. Hughes is Chairman of the Compensation Committee and is a
retired President of The National City Bank of Evansville.
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STOCK PERFORMANCE GRAPH
The following is a line graph comparing the cumulative total shareholder return
among National City Bancshares, Inc. (NCBE); the Center for Research in
Securities Prices (CRSP), at the University of Chicago, Total Return Index for
Nasdaq Bank Stocks (NASDAQ BANKS); and the CRSP Total Return Index for The
Nasdaq Stock Market, U.S. Companies only, (NASDAQ STOCK MARKET). It assumes
that $100 is invested December 31, 1988, and all dividends are reinvested.
Fiscal year ending December 31 data is used.
PERFORMANCE GRAPH DATA POINTS
<TABLE>
<CAPTION>
NASDAQ
NASDAQ STOCK
YEAR NCBE BANKS MARKET
<S> <C> <C> <C>
1988 100.00 100.00 100.00
1989 81.35 111.15 121.24
1990 78.26 81.40 102.96
1991 74.93 133.57 165.21
1992 101.97 194.19 192.10
1993 131.09 221.32 219.21
</TABLE>
TRANSACTIONS WITH MANAGEMENT
Directors and principal officers of The National City Bank of Evansville, Poole
Deposit Bank, The Peoples National Bank of Grayville, The Farmers and Merchants
Bank, Farmers State Bank, Lincolnland Bank, The Bank of Mitchell, Pike County
Bank, The Spurgeon State Bank, The State Bank of Washington and
Ayer-Wagoner-Deal Insurance Agency, Inc. and the Corporation and their
associates were customers of, and have had transactions with, the Banks in the
ordinary course of business during 1993.
These transactions consisted of extensions of credit by the banks in the
ordinary course of business and were made on substantially the same terms as
those prevailing at the time for comparable transactions with other persons.
In the opinion of the management of the banks, those transactions do not
involve more than a normal risk of being collectible or present other
unfavorable features. The banks expect to have, in the future, banking
transactions in the ordinary course of its business with directors and their
associates on the same terms, including interest rates and collateral on loans,
as those prevailing at the time on comparable transactions with others.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Corporation's
officers and directors, and persons who own more than ten percent of a
registered class of the Corporation's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the Nasdaq National Market. Officers, directors, and greater than
ten-percent shareholders are required by SEC regulation to furnish the
Corporation with copies of all Section 16(a) forms they file.
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Based solely on review of the copies of such forms furnished to the
Corporation, or written representations that no Forms 5 were required, the
Corporation believes that during 1993 all Section 16(a) filing requirements
applicable to its officers, directors, and greater than ten-percent beneficial
owners were complied with, except for the failure to timely file a required
Form 5 by Michael D. Gallagher.
ITEM 2. SELECTION OF AUDITORS
The Board of Directors proposes for the approval by the shareholders at the
Annual Meeting the appointment of McGladrey & Pullen, Certified Public
Accountants and Consultants as independent accountants to audit the financial
statements of the Corporation and its subsidiaries for the year 1994. Although
approval of the shareholders of the Corporation's independent accountants is
not required, the Corporation deems it desirable to submit such selection to
the shareholders. McGladrey & Pullen audited the books and records of the
Corporation and its subsidiaries for the year 1993. Gaither Rutherford & Co.,
formerly Gaither Koewler Rohlfer Luckett & Co., ("Gaither") audited the books
and records of the Corporation and its subsidiaries from 1985 through 1992.
The Board of Directors had determined it to be in the best interest of the
Corporation to change independent accountants for 1993. This change was
ratified by the Corporation's shareholders at last year's annual meeting. In
the event that the shareholders do not approve the selection of McGladrey &
Pullen, the Board of Directors will reconsider the selection of such accounting
firm to act as the Corporation's independent accountants. Representatives of
both firms are expected to be present at the Annual Meeting and will have the
opportunity to make statements if desired and to respond to appropriate
questions from shareholders.
The financial statements provided by Gaither in 1991 and 1992 did not contain
any adverse opinions or any disclaimers of opinions, nor were they qualified or
modified as to uncertainty, audit scope or accounting reasons.
Further, there have been no disagreements between Gaither and the Corporation.
ITEM 3. OTHER MATTERS
The Board of Directors of the Corporation is not aware of any other matters
that may come before the meeting. However, the enclosed Proxy will confer
discretionary authority with respect to matters which are not known to the
Board of Directors at the time of printing hereof and which may properly come
before the meeting. A copy of the Corporation's 1993 report filed with the
Securities and Exchange Commission, on Form 10-K, will be available without
charge to shareholders upon request on or after March 31, 1994. Address all
requests, in writing, for this document to Harold A. Mann, Secretary, National
City Bancshares, Inc., P. O. Box 868, Evansville, Indiana 47705-0868.
SHAREHOLDER PROPOSALS
Any proposals to be considered for inclusion in the proxy material to be
provided to shareholders of the Corporation for its next annual meeting to be
held in 1995 must be made by a qualified shareholder and must be received by
the Corporation no later than November 24, 1994.
By Order of the Board of Directors,
HAROLD A. MANN
Secretary
March 18, 1994
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