<PAGE>
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, 1997
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: 812-464-9677
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 STATED 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. ( )
1
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Based on the closing sales price of February 27, 1998, the aggregate market
value of the voting stock held by non-affiliates of the registrant was
$409,019,391.
The number of shares outstanding of the registrant's common stock was
10,745,060 at February 27, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for
the year ended December 31, 1997. (Part I, Part II, and Part
IV)
(2) Portions of the Registrant's Proxy Statement for the Annual
Shareholders' Meeting to be held May 20, 1998. (Part III)
2
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NATIONAL CITY BANCSHARES, INC.
1997 FORM 10-K ANNUAL REPORT
Table of contents
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters . . . . . . . . . . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation . . . . . . . . . . 13
Item 7A. Quantitative and Qualitative Disclosures about
Market Risk . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data . . . . . 13
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . 13
PART III
Item 10. Directors and Executive Officers of the Registrant . . 14
Item 11. Executive Compensation . . . . . . . . . . . . . . . . 14
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . 14
Item 13. Certain Relationships and Related Transactions . . . . 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
3
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FORM 10-K
NATIONAL CITY BANCSHARES, INC.
December 31, 1997
PART I
ITEM 1. BUSINESS
National City Bancshares, Inc., (the "Corporation"), is an Indiana
corporation organized in 1985 to engage in the business of a bank holding
company. Based in Evansville, Indiana, as of December 31, 1997, the
Corporation had fourteen wholly-owned subsidiaries, including eleven
commercial banks and one savings bank (each, a "Bank" and, collectively, the
"Banks") serving thirty-two communities from a total of forty-one banking
centers, one leasing corporation, one property management company, and one
financial services company (which is a subsidiary of a Bank). Each
subsidiary, its locations, number of offices, year founded, and date of
affiliation with the Corporation is shown below.
<TABLE>
<CAPTION>
Number
Subsidiary and of Year Date of
Principal Cities Served Offices Founded Affiliation
- ------------------------------------ ------- ------- -----------
<S> <C> <C> <C>
The National City Bank of Evansville 11 1850 May 6, 1985
Evansville, Newburgh, Fort Branch
Princeton, and Mount Vernon, IN
The Peoples National Bank of Grayville 1 1937 May 16, 1988
Grayville, IL
First Kentucky Bank 5 1916 November 30, 1990
Sturgis, Morganfield, Poole,
Uniontown, KY
Lincolnland Bank 5 1904 December 17, 1993
Dale, Chrisney, Grandview,
Hatfield, and Rockport, IN
The Bank of Mitchell 4 1882 December 17, 1993
Mitchell, Bedford, and
Paoli, IN
Pike County Bank 3 1900 December 17, 1993
Petersburg, Arthur, and
Spurgeon, IN
Alliance Bank 3 1910 December 17, 1993
Vincennes, Washington and Odon, IN
White County Bank 1 1904 June 30, 1995
Carmi, IL
The First National Bank of Wayne City 1 1902 August 31, 1996
Wayne City, IL
First Federal Savings Bank of 2 1961 March 1, 1997
Leitchfield
Leitchfield and Hardinsburg, KY
First National Bank of Bridgeport 1 1906 August 1, 1997
Bridgeport, IL
</TABLE>
4
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<TABLE>
<CAPTION>
Number
Subsidiary and of Year Date of
Principal Cities Served Offices Founded Affiliation
- ------------------------------------ ------- ------- -----------
<S> <C> <C> <C>
First Bank of Huntingburg 3 1907 December 31, 1997
Huntingburg and Ferninand, IN
NCBE Leasing Corp. 1 1994 November 1, 1994
Evansville, IN
Twenty-One Southeast Third Corporation 1 1996 May 22, 1996
Evansville, IN
UniFed, Inc. 1 1980 August 31,1995
Vincennes, IN
</TABLE>
The 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
deposits are insured by the Federal Deposit Insurance Corporation.
The Corporation's nonbank subsidiary, NCBE Leasing Corp., operates as a full
service equipment and real property leasing company offering its services to
all commercial clients of the Corporation's subsidiary banks.
Twenty-One Southeast Third Corporation ("TSTC") is the Corporation's real
estate property management subsidiary. TSTC is the entity through which the
Corporation constructed a nine story addition to the main office of The
National City Bank of Evansville ("NCB"). NCB and the Corporation occupy
three floors of the building with the remaining floors sold as condominiums.
TSTC serves in a property management capacity for this facility.
UniFed, Inc., a wholly-owned nonbank subsidiary of Alliance Bank (which is a
wholly-owned subsidiary of the Corporation), offers its customers a wide
variety of mutual fund and annuity products as well as discount brokerage
services.
At December 31, 1997, the Corporation and its subsidiaries had 510 full-time
equivalent employees. The subsidiaries provide a wide range of employee
benefits and consider employee relations to be excellent.
5
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COMPETITION
The Corporation has active competition in all areas in which it presently
engages in business. Each Bank competes for commercial and individual
deposits and loans with commercial banks, thrift institutions, credit unions
connected with local businesses, and other non-banking institutions. The
Corporation's leasing company competes with bank and nonbank leasing
companies as well as finance subsidiaries of major equipment vendors.
FOREIGN OPERATIONS
The Corporation and its subsidiaries have no foreign branches or significant
business with foreign obligors or depositors.
REGULATION AND SUPERVISION
General
The Corporation is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHCA"), and as such is subject to
regulation by the Board of Governors of the Federal Reserve Board ("FRB").
The Corporation files periodic reports with the FRB regarding the business
operations of the Corporation and its subsidiaries, and is subject to
examination by the FRB.
The Corporation's four national bank subsidiaries are supervised and
regulated primarily by the Comptroller of the Currency ("OCC"). They are
also members of the Federal Reserve System and subject to the applicable
provisions of the Federal Reserve Act. The Corporation's federal thrift
subsidiary is supervised and regulated primarily by the Office of Thrift
Supervision ("OTS"). The Corporation's remaining depository institution
subsidiaries are supervised and regulated primarily by their state banking
supervisor and the Federal Deposit Insurance Corporation ("FDIC"). All of
the Banks' deposits are federally insured; accordingly, the Banks are subject
to the provisions of the Federal Deposit Insurance Act.
The federal banking agencies have broad enforcement powers, including the
power to terminate deposit insurance, impose substantial fines and other
civil and criminal penalties, and appoint a conservator or receiver. Failure
to comply with applicable laws, regulations, and supervisory agreements could
subject the Corporation, the Banks, as well as their officers, directors, and
other institution-affiliated parties, to administrative sanctions and
potentially substantial civil money penalties. In addition to the measures
discussed under "Deposit Insurance", the appropriate federal banking agency
may appoint the FDIC as conservator or receiver for a banking institution (or
the FDIC may appoint itself, under certain circumstances) if any one or more
of a number of circumstances exist, including, without limitation, the fact
that the banking institution is undercapitalized and has no reasonable
prospect of becoming adequately capitalized, it fails to become adequately
capitalized when required to do so, it fails to submit a timely and
acceptable
6
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capital restoration plan, or it materially fails to implement an accepted
capital restoration plan.
Supervision and regulation of bank holding companies and their subsidiaries
is intended primarily for the protection of depositors, the deposit insurance
funds of the FDIC, and the banking system as a whole, not for the protection
of bank holding company shareholders or creditors.
Acquisitions and Changes in Control
Under the BHCA, without the prior approval of the FRB, the Corporation may
not acquire direct or indirect control of more than 5% of the voting stock or
substantially all of the assets of any company, including a bank, and may not
merge or consolidate with another bank holding company. In addition, the
BHCA generally prohibits the Corporation from engaging in any nonbanking
business unless such business is determined by the FRB to be so closely
related to banking as to be a proper incident thereto. Under the BHCA, the
FRB has the authority to require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the FRB's determination that such activity or
control constitutes a serious risk to the financial soundness and stability
of any bank subsidiary of the bank holding company.
Federal and state laws and regulations limit geographic expansion by the
Corporation and the Banks. Under the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, subject to certain conditions, (i) bank
holding companies may acquire banks located in states outside their home
state, (ii) the interstate merger of banks is allowed, subject to the right
of individual states to "opt out" of this authority, and (iii) banks may
establish new branches on an interstate basis, provided that such action is
specifically authorized by the law of the host state.
The Change in Bank Control Act (the "CBCA") prohibits a person or group of
persons from acquiring "control" of a bank holding company unless the FRB has
been notified and has not objected to the transaction. Under a rebuttable
presumption established by the FRB, the acquisition of 10% or more of a class
of voting stock of a bank holding company with a class of securities
registered under Section 12 of the Securities Exchange Act of 1934, as
amended, such as the Corporation, would, under the circumstances set forth in
the presumption, constitute acquisition of control of the Corporation. In
addition, any company is required to obtain the approval of the FRB under the
BHCA before acquiring 25% (5% in the case of an acquiror that is a bank
holding company) or more of the outstanding common stock of the Corporation,
or otherwise obtaining control or a "controlling influence" over the
Corporation.
7
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Dividends and Other Relationships with Affiliates
The Corporation is a legal entity separate and distinct from its
subsidiaries. The source of the Corporation's cash flow, including cash flow
to pay dividends on the Corporation's Common Stock, is the payment of
dividends to the Corporation by the Banks. Generally, such dividends are
limited to the lesser of (i) undivided profits (less bad debts in excess of
the allowance for credit losses) and (ii) absent regulatory approval, the net
profits for the current year combined with retained net profits for the
preceding two years. Further, a depository institution may not pay a
dividend if (i) it would thereafter be "undercapitalized" as determined by
federal banking regulatory agencies or (ii) if, in the opinion of the
appropriate banking regulator, the payment of dividends would constitute an
unsafe or unsound practice.
The Banks are subject to additional restrictions on their transactions with
affiliates, including the Corporation. State and federal statutes limit
credit transactions with affiliates, prescribing forms and conditions deemed
consistent with sound banking practices, and imposing limits on permitted
collateral for credit extended.
Under FRB policy, the Corporation is expected to serve as a source of
financial and managerial strength to the Banks. The FRB requires the
Corporation to stand ready to use its resources to provide adequate capital
funds during periods of financial stress or adversity. This support may be
required by the FRB at times when the Corporation may not have the resources
to provide it or, for other reasons, would not be inclined to provide it.
Additionally, under the Federal Deposit Insurance Corporation Improvements
Act of 1991 ("FDICIA"), the Corporation may be required to provide limited
guarantee of compliance of any insured depository institution subsidiary that
may become "undercapitalized" (as defined in the statute) with the terms of
any capital restoration plan filed by such subsidiary with its appropriate
federal banking agency.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") imposes additional "cross guarantee" obligations. FIRREA provides
generally that, upon the default of any bank of a multi-unit holding company,
the FDIC may assess an affiliated insured depository institution for the
estimated losses incurred by the FDIC, even if this renders the affiliate
insolvent. Any obligation of a subsidiary to its holding company is
subordinate to cross-guarantee liabilities and the rights of depositors.
Regulatory Capital Requirements
The Corporation and the Banks are subject to risk-based and leverage capital
requirements imposed by the appropriate primary bank regulator. All complied
with applicable minimums as of December 31, 1997, and each Bank qualified as
well capitalized under the regulatory framework for prompt corrective action.
See footnote 14 to the consolidated financial statements.
8
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Failure to meet capital requirements could result in a variety of enforcement
remedies, including the termination of deposit insurance or measures by
banking regulators to correct the deficiency in the manner least costly to
the deposit insurance fund.
Deposit Insurance
The Banks are subject to federal deposit insurance assessments by either the
Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF"). The assessment rate is based on classification of a depository
institution into a risk assessment category. Such classification is based
upon the institution's capital level and certain supervisory evaluations of
the institution by its primary regulator. Each of the Corporation's
subsidiaries is assessed at the lowest premium rate charged.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of
insurance if the institution has no tangible capital. Management of the
Corporation is not aware of any activity or condition that could result in
termination of the deposit insurance of any of the Banks.
Community Reinvestment Act
The Community Reinvestment Act of 1977 ("CRA") requires financial
institutions to meet the credit needs of their entire communities, including
low-income and moderate-income areas. CRA regulations impose a
performance-based evaluation system, which bases the CRA rating on an
institution's actual lending, service, and investment performance. Federal
banking agencies may take CRA compliance into account when regulating a bank
or bank holding company's activities; for example, CRA performance may be
considered in approving proposed bank acquisitions. None of the Banks
received a rating less than satisfactory on its most recent CRA examination.
Additional Regulation, Government Policies, and Legislation
In addition to the restrictions discussed above, the activities and
operations of the Corporation and the Banks are subject to a number of
additional detailed, complex, and sometimes overlapping laws and regulations.
These include state usury and consumer credit laws, state laws relating to
fiduciaries, the Federal Truth-in-Lending Act, the Federal Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Truth in Savings Act,
anti-redlining legislation, and antitrust laws.
The actions and policies of banking regulatory authorities have had a
significant effect on the operating results of the Corporation and the Banks
in the past and are expected to do so in the future.
9
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Various additional legislation, including proposals to overhaul the bank
regulatory system, expand the powers of banking institutions and bank holding
companies and limit the investments that a depository institution may make
with insured funds, is from time to time introduced in Congress. Such
legislation may change banking statutes and the operating environment for the
Corporation and its subsidiaries in substantial and unpredictable ways. The
Corporation cannot determine the ultimate effect that potential legislation,
if enacted, or implementing regulations would have upon the financial
condition or results of operations of the Corporation or its subsidiaries.
Finally, the earnings of the Banks are strongly affected by the attempts of
the FRB to regulate aggregate national credit and the money supply through
such means as open market dealings in securities, establishment of the
discount rate on member bank borrowings, and changes in reserve requirements
against member bank deposits. The FRB's policies may be influenced by many
factors, including inflation, unemployment, short-term and long-term changes
in the international trade balance and fiscal policies of the United States
government. The effects of various FRB actions on future performance cannot
be predicted.
STATISTICAL DISCLOSURE
The statistical disclosure on the Corporation and its subsidiaries, on a
consolidated basis, included on pages 1, 6 through 18, and inside back cover
of the Corporation's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, is hereby incorporated by reference herein.
10
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EXECUTIVE OFFICERS OF THE CORPORATION
Certain information concerning the Executive Officers of the Corporation as
of February 28, 1998, is set forth in the following table.
NAME AGE OFFICE AND BUSINESS EXPERIENCE
- ------------------- ---- ------------------------------------------------
Michael F. Elliott 46 Chairman of the Board and Chief
Executive Officer of the Corporation
since 1998. Executive Vice President
of the Corporation from 1993 to 1998.
Director of the Corporation since 1994.
Chairman of the Board of NCB since
1996. President of NCB from 1994 to
1996. Chief Executive Officer and
Director of NCB since 1994. Director
of United Federal Savings Bank from
1995 to December 1996. Chairman of the
Board of The State Bank of Washington
from 1989 to 1996; Chief Executive
Officer of The State Bank of Washington
from 1982 to 1994. Chairman of the
Board from 1990 to December 1993 and
President and Chief Executive Officer
from 1988 to 1993 of Sure Financial
Corporation.
Robert A. Keil 54 President and Director of the
Corporation since 1993. Executive Vice
President of the Corporation from 1991
to 1993. Assistant Secretary and
Assistant Treasurer of the Corporation
from 1985 to 1993. Executive Vice
President of NCB from 1991 to 1993.
Curtis D. Ritterling 41 Executive Vice President since 1997.
Chairman of the Board, President, and
Chief Executive Officer of Boatman's
Bank of South Central Illinois from
1995 to 1997. Chairman of the Board,
President, and Chief Executive Officer
of Boatmen's Bank of Marshall,
Missouri, from 1990 to 1995.
11
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ITEM 2. PROPERTIES
The net investment of the Corporation and its subsidiaries in real estate and
equipment at December 31, 1997, was $30,959,000. The Corporation's offices
are located at 227 Main Street in downtown Evansville, Indiana, in a building
owned in fee by NCB. The Banks, all branches, the leasing company, and the
insurance company are located on premises either owned or leased. None of
the property is subject to any major encumbrance. NCB committed in 1995 to
build an addition to its main office to be completed in the second quarter of
1998. The approximate cost of the addition and renovation of the building is
$18,000,000. NCB and the Corporation will occupy three floors of the
building with the other six floors being sold as condominiums. Four of these
six floors have been sold to entities outside of the Corporation. The
Corporation's share of the building cost will be approximately $10,000,000.
The Corporation, through its subsidiary, TSTC, is funding the project with
the proceeds of a $15,000,000 term loan with the excess being funded
internally. Payments from the purchasers will be used to repay the term
loan. There are no other material commitments for capital expenditures.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are involved in legal proceedings from
time to time arising in the ordinary course of business. None of such legal
proceedings are, in the opinion of management, expected to have a materially
adverse effect on the Corporation's consolidated financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
Pages 1 and inside back cover of the Corporation's Annual Report to
Shareholders for the fiscal year ended December 31, 1997, are hereby
incorporated by reference herein. Dividends are restricted by regulatory
limitations, 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, 1997, is hereby incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Pages 1, 6 through 18, and inside back cover of the Corporation's Annual
Report to Shareholders for the fiscal year ended December 31, 1997, are
incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pages 14 and 15 of the Corporation's Annual Report to Shareholders for the
fiscal year ended December 31, 1997, is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 19 through 37 of the Corporation's Annual Report to Shareholders for
the fiscal year ended December 31, 1997, are incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
13
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the heading "Election of Directors and Information with
Respect to Directors and Officers" and also the information under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance" in the
Corporation's Proxy Statement for its 1998 Annual Meeting of Shareholders, is
hereby incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Compensation of Executive Officers" in the
Corporation's Proxy Statement for its 1998 Annual Meeting of Shareholders, is
hereby incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information under the heading "Voting Securities" in the Corporation's
Proxy Statement for its 1998 Annual Meeting of Shareholders, is hereby
incorporated by reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Transactions with Management" in the
Corporation's Proxy Statement for its 1998 Annual Meeting of Shareholders, is
hereby incorporated by reference herein.
14
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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 19 through 37 of the Corporation's Annual
Report to Shareholders for the fiscal year ended December 31, 1997, are
hereby incorporated by reference:
Independent Auditor's Report
Consolidated Statements of Financial Position, at
December 31, 1997 and 1996
Consolidated Statements of Income, for years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows, for years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity,
for years ended December 31, 1997, 1996 and 1995
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 list of exhibits is incorporated by reference to the Exhibit Index.
15
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REPORTS ON FORM 8-K
A CURRENT REPORT dated October 21, 1997, for event of October 16, 1997, was
filed reporting under Item 5 a news release announcing earnings for the
quarter ended September 30, 1997.
A CURRENT REPORT dated October 29, 1997, for event of October 22, 1997, was
filed reporting under Item 5 the declaration of a five percent (5%) stock
dividend to be issued no later than December 8, 1997 to shareholders of
record at the close of business on November 24, 1997. The Board of directors
also declared a cash dividend of eighteen cents ($.18) per share payable
January 7, 1998 to shareholders of record at the close of business on
December 23, 1997.
A CURRENT REPORT dated December 5, 1997, for event of December 5, 1997, was
filed reporting under Item 5 the restructuring of the Corporation's benefit
program by replacing one of its retirement plans with an incentive cash-bonus
plan for all employees. The change became effective January 1, 1998.
16
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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/ MICHAEL F. ELLIOTT 3/9/98
--------------------------- -------
Michael F. Elliott Date
Chairman of the Board and
Chief Executive Officer
By /s/ ROBERT A. KEIL 3/9/98
--------------------------- -------
Robert A. Keil Date
President and
Chief Financial Officer
By /s/ STEPHEN C. BYELICK 3/9/98
--------------------------- -------
Stephen C. Byelick, Jr. Date
Secretary and Treasurer
(Chief Accounting Officer)
17
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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.
--------------------------- -------
Janice L. Beesley Date
Director
/s/ MICHAEL F. ELLIOTT 3/9/98
--------------------------- -------
Michael F. Elliott Date
Director
/s/ SUSANNE R. EMGE 3/9/98
--------------------------- -------
Susanne R. Emge Date
Director
--------------------------- -------
Donald G. Harris Date
Director
/s/ H. RAY HOOPS 3/9/98
--------------------------- -------
Dr. H. Ray Hoops Date
Director
/s/ ROBERT A. KEIL 3/9/98
--------------------------- -------
Robert A. Keil Date
Director
/s/ JOHN D. LIPPERT 3/9/98
--------------------------- -------
John D. Lippert Date
Director
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/s/ RONALD G. REHERMAN 3/9/98
--------------------------- -------
Ronald G. Reherman Date
Director
/s/ LAURENCE R. STEENBERG 3/9/98
--------------------------- -------
Laurence R. Steenberg Date
Director
--------------------------- -------
Richard F. Welp Date
Director
19
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- --------------------------------------------------------
<S> <C>
3(i) Articles of Incorporation (incorporated by reference to
Exhibit 3A to the Annual Report on Form 10-K for the
fiscal year ended December 31, 1996)
3(ii) By-Laws
10(a) Term Loan Agreement, dated as of June 26, 1996 between
Twenty-One Southeast Third Corporation, National City
Bancshares, Inc. and The Northern Trust Company
(incorporated by reference to Exhibit 10(a) to Quarterly
Report on Form 10-Q for the period ending June 30, 1996)
10(b) Incentive Stock Option Plan (incorporated by reference to
Exhibit 10(b) to Quarterly Report on Form 10-Q for the
period ending June 30, 1996)
10(c) Incentive Stock Option Plan, First Amendment, dated as of
December 18, 1996 (incorporated by reference to Exhibit
10(c) to Annual Report on Form 10-K for the fiscal year
ended December 31, 1996)
10(d) Incentive Stock Option Plan, Second Amendment, dated as of
March 19, 1997 (incorporated by reference to Exhibit 10(d)
to Annual Report on Form 10-K for the fiscal year ended
December 31, 1996)
10(e) Supplemental Retirement Benefit Agreement between John D.
Lippert and National City Bancshares, Inc. (incorporated by
reference to Exhibit 10(e) to Annual Report on Form 10-K
for the fiscal year ended December 31, 1996)
10(f) Term Loan Agreement, First Amendment, dated as of January
31, 1997 (incorporated by reference to Exhibit 10(f) to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996)
10(g) Credit Agreement dated December 22, 1997 between National
City Bancshares, Inc. and NBD Bank
10(h) Amendment to Credit Agreement dated January 22, 1998
13 Annual Report to Shareholders for the year ended December
31, 1997 (Except as expressly incorporated into this
report, such report is furnished for the information of
the Commission and is not to be deemed "filed" for
purposes of The Securities Exchange Act of 1934.)
21 Subsidiaries of the Registrant
23 Consent of McGladrey & Pullen, LLP
27.1 Financial Data Schedule, period end 12/31/97
(Electronic Filing Only)
27.2 Financial Data Schedule, period end 12/31/96
(Electronic Filing Only)
27.3 Financial Data Schedule, period end 12/31/95
(Electronic Filing Only)
</TABLE>
20
<PAGE>
BY-LAWS
OF
NATIONAL CITY BANCSHARES, INC.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the corporation
shall be at such place in the City of Evansville, Indiana, as may be designated
from time to time by the Board of Directors.
Section 2. OTHER OFFICES. The corporation shall also have offices at such
other places without, as well as within, the State of Indiana, as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the shareholders of this
corporation shall be held at such time as may be designated by resolution of the
Board of Directors, but not later than June 30th of each year.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the Chairman of the Board of Directors, President, or a
majority of the Board of Directors acting with or without a meeting, or the
holder or holders of one-fourth of all shares outstanding and entitled to vote
thereat.
Section 3. PLACE OF MEETINGS. Meetings of shareholders shall be held at
the office of the corporation in the City of Evansville, Indiana, unless the
Board of Directors decides that a meeting shall be held at some other place
within or without the State of Indiana and causes the notice thereof to so
state.
Section 4. NOTICE OF MEETINGS. Unless waived, a written, printed, or
typewritten notice of each annual or special meeting stating the date, hour, and
place and the purpose or purposes thereof shall be served upon or mailed to each
shareholder of record (a) as of the day next preceding the date on which notice
is given or (b) if a record date therefor is duly fixed, as of said date. Such
notice shall be given not more than thirty (30) days, nor less than ten (10)
days before any such meeting. If mailed, it shall be directed to a shareholder
at his address as the name appears upon the records of the corporation.
<PAGE>
All notices with respect to any shares of record in the names of two or
more persons may be given to whichever of such persons is named first on the
books of the corporation and notice so given shall be effective as to all the
holders of record of such shares.
Every person who by operation of law, transfer, or otherwise shall become
entitled to any share or right or interest therein, shall be bound by every
notice in respect of such share which, prior to his name and address being
entered upon the books of the corporation as the registered holder of such
share, shall have been given to the person in whose name such share appeared of
record.
Section 5. WAIVER OF NOTICE. Any shareholder, either before or after any
meeting, may waive any notice required to be given by law or under these
By-Laws; and whenever all of the shareholders entitled to vote shall meet in
person or by proxy and consent to holding a meeting, it shall be valid for all
purposes without call or notice, and at such meeting any action may be taken.
Section 6. QUORUM. At any meeting for the determination of the number of
directors, or the election of directors, or for the consideration and action
upon reports, required to be laid before such meeting, provided that at least
one-third of the voting power of the corporation is present in person or
represented by proxy, then the shareholders present in person or by proxy shall
constitute a quorum.
At any meeting called for any other purpose, the holders of shares
entitling them to exercise a majority of the voting power of the corporation,
present in person or represented by proxy, shall constitute a quorum, except
when a greater proportion is required by law, the Articles of Incorporation or
these By-Laws.
At any meeting at which a quorum is present, all questions and business
which shall come before the meeting shall be determined by the vote of the
holders of a majority of such voting shares as are represented in person or by
proxy, except when a greater proportion is required by law or the Articles of
Incorporation.
At any meeting, whether a quorum is present or not, the holders of a
majority of the voting shares represented by shareholders present in person or
by proxy may adjourn from time to time and from place to place without notice
other than by announcement at the meeting. At any such adjourned meeting at
which a quorum is present, any business may be transacted which might be
transacted at the meeting as originally notified or held.
Section 7. PROXIES. Any shareholder of record who is entitled to attend a
shareholders' meeting, or to vote thereat or to assent or give consents in
writing, shall be entitled to be represented at such meetings or to vote thereat
or to assent or give consents in writing, as the case may be, or to exercise any
other of his rights, by proxy or proxies appointed by a writing signed by such
shareholder, which need not be sealed, witnessed or acknowledged.
<PAGE>
A telegram, cablegram, wireless message or photogram appearing to have been
transmitted by a shareholder, or a photograph, photostatic or equivalent
reproduction of a writing appointing a proxy or proxies shall be a sufficient
writing.
No appointment of a proxy shall be valid after the expiration of eleven
(11) months after it is made, unless the writing specifies the date on which it
is to expire or the length of time it is to continue in force.
Unless the writing appointing a proxy or proxies otherwise provides:
(1) Each and every proxy shall have the power of substitution, and when
three (3) or more persons are appointed, a majority of them or their respective
substitutes may appoint a substitute or substitutes to act for all;
(2) if more than one proxy is appointed, then (a) with respect to voting
or giving consents at a shareholders' meeting, a majority of such proxies as
attend the meeting, or if only one attends then that one may exercise all the
voting and consenting authority thereat; and if an even number attend and a
majority do not agree on any particular issue, each proxy so attending shall be
entitled to exercise such authority with respect to an equal number of shares;
(b) with respect to exercising any other authority, a majority may act for all;
(3) A writing appointing a proxy shall not be revoked by the death or
incapacity of the maker unless before the vote is taken or the authority granted
is otherwise exercised, written notice of such death or incapacity is given to
the corporation by the executor or the administrator of the estate of such maker
or by the fiduciary having control of the shares in respect of which the proxy
was appointed;
(4) The presence of a shareholder at a meeting shall not operate to revoke
a writing appointing a proxy. A shareholder, without affecting any vote
previously taken, may revoke such writing not otherwise revoked by giving notice
to the corporation in writing or in open meeting.
Section 8. VOTING. At any meeting of shareholders, each shareholder of
the corporation shall, except as otherwise provided by law or by the Articles of
Incorporation or by these By-Laws be entitled to one vote in person or by proxy
for each share of the corporation registered in his name on the books of the
corporation (1) on the date fixed by the Board of Directors as the record date
of ownership, or (2) if no such record date shall have been fixed, then at the
time of such meeting.
<PAGE>
Section 9. FINANCIAL REPORTS. At the annual meeting of shareholders, or
the meeting held in lieu thereof, there shall be laid before the shareholders a
financial statement consisting of: (1) a balance sheet containing a summary of
the assets, liabilities, stated capital, and surplus (showing separately any
capital surplus arising from unrealized appreciation of assets, other capital
surplus, and earned surplus) of the corporation as of a date not more than four
(4) months before such meeting; if such meeting is an adjourned meeting, said
balance sheet may be as of a date not more than four (4) months before the date
of the meeting as originally convened; and (2) a statement of profit and loss of
surplus, including a summary of profits, dividends paid, and other changes in
the surplus accounts of the corporation for the period commencing with the date
marking the end of the period for which the last preceding statement of profit
and loss under this section was made and ending with the date of said balance
sheet.
An opinion signed by the Chairman of the Board of Directors, or the
President and the Treasurer or an Assistant Treasurer, or by a public accountant
or firm of public accountants, shall be appended to such financial statement,
stating that the financial statement presents fairly the corporation's financial
position and the results of its operations in conformity with generally accepted
accounting principles applied on a basis consistent with that of the preceding
period, or such other opinion as in accordance with sound accounting practice.
Section 10. ACTION WITHOUT MEETING. Any action which may be authorized
or taken at any meeting of shareholders may be authorized or taken without a
meeting in a writing or writings signed by all of the holders of shares who
would be entitled to notice of a meeting of the shareholders held for such
purpose. Such writing or writings shall be filed with or entered upon the
records of the corporation.
ARTICLE III
DIRECTORS
Section 1. NUMBER OF DIRECTORS. The number of Directors of the
corporation shall be no less than five (5) and no more than twenty-five (25).
The number of Directors to be elected shall be fixed at the annual meeting of
shareholders.
In any year between annual meetings of shareholders, the Board of Directors
may by vote of a majority of the full Board choose to increase the number of the
members of the Board of Directors and appoint Directors to fill the vacancies so
created, but such an increase in members of the Board of Directors shall not
exceed the creation of four (4) seats.
<PAGE>
Section 2. ELECTION AND TERM OF DIRECTORS. All Directors of the
corporation shall be elected as a group at the 1985 Annual Shareholders'
Meeting. Directors elected at the 1985 Annual Shareholders' Meeting will serve
until the corporation's Annual Shareholders' Meeting in 1986. At the 1986
Annual Shareholders' Meeting the Directors shall be divided into three classes:
Class I, Class II, and Class III, Classes I and II being comprised of five (5)
members of the Board of Directors, and Class III being comprised of four (4)
members of the Board of Directors. The term of office of the initial Class I
Directors shall expire at the annual meeting of shareholders in 1987, the term
of office of the initial Class II Directors shall expire at the annual meeting
of shareholders in 1988, and the term of office of the initial Class III
Directors shall expire at the annual meeting of shareholders in 1989, or
thereafter in each case when their respective successors are elected and have
qualified. At each annual election held after classification of Directors, the
Directors chosen to succeed those whose terms then expire shall be identified as
being of the same Class as the Directors they succeed and shall be elected for a
term expiring at the third succeeding annual meeting or thereafter when their
respective successors in each case are elected and have qualified. If the
number of Directors is changed, any increase or decrease in Directors shall be
apportioned among the Classes so as to maintain all Classes as nearly equal in
number as possible, and any additional Director to any Class shall hold office
for a term which shall coincide with the terms of such Class. Upon the
effectiveness of this provision, the Board of Directors is authorized to take
such steps as are necessary to implement these provisions.
Section 3. VACANCIES. Vacancies in the Board of Directors, including a
vacancy resulting from an increase in the number of directors, may be filled by
the remaining members of the Board of Directors, whether or not such remaining
directors constitute a quorum of the Board. A vacancy that will occur at a
specific later date by reason of a resignation effective at a later date may be
filled before the vacancy occurs but the new director may not take office until
the vacancy occurs.
Section 4. MEETINGS OF THE BOARD. A meeting of the Board of Directors
shall be held immediately following the adjournment of each shareholder's
meeting at which Directors are elected, and notice of such meeting need not be
given.
The Board of Directors may, by By-Laws or resolution, provide for other
meetings of the Board.
Special meetings of the Board of Directors may be held at any time upon
call of the Chairman of the Board of Directors, the President, or 25% or greater
of the members of the Board of Directors.
<PAGE>
Notice of any special meeting of the Board of Directors shall be mailed to
each Director, addressed to him at his residence or usual place of business, at
least five (5) days before the date on which the meeting is to be held, or shall
be sent to him at such place by telegraph, cable, radio or wireless, or be given
personally or by telephone, not later than the date before the day on which the
meeting is to be held. Every such notice shall state the time and place of the
meeting but need not state the purposes thereof. Notice of any meeting of the
Board need not be given to any director, however, if waived by him in writing or
by telegraph, cable, radio, wireless, or telephonic communication whether before
or after such meeting is held, or if he shall be present at such meeting; and
any meeting of the Board shall be a legal meeting without any notice thereof
having been given, if all the Directors shall be present thereat.
Meetings of the Board shall be held at the principal office of the
corporation or at such other place, within or without the State of Indiana, as
the Board may determine from time to time and as may be specified in the notice
thereof. Meetings of the Board of Directors may also be held by the utilization
of simultaneous telephonic communications linking all directors present at such
meetings, and all such business conducted via such telephonic communication
shall be considered legally enforceable by the corporation.
Section 5. QUORUM. A majority of the Board of Directors shall constitute
a quorum for the transaction of business, provided that whenever less than a
quorum is present at the time and place appointed for any meeting of the Board,
a majority of those present may adjourn the meeting from time to time, without
notice other than by announcement at the meeting, until a quorum shall be
present.
Section 6. ACTION WITHOUT MEETING. Any action which may be authorized or
taken at a meeting of the Directors may be authorized or taken without a meeting
in a writing or writings signed by all the Directors, which writing or writings
shall be filed with or entered upon the records of the corporation.
Section 7. COMPENSATION. The Directors, as such, shall not receive any
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board; provided that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of the executive
committee or of any standing or special committee may by resolution of the Board
be allowed such compensation for their services as the Board may deem
reasonable, and additional compensation may be allowed to Directors for special
services rendered.
Section 8. RETIREMENT. Members of the Board of Directors shall be
required to retire from service on the Board of Directors at the end of the
month in which he or she reaches the age of 70 years.
<PAGE>
Section 9. NOMINATIONS. Nominations for the election of Directors may be
made by the Board of Directors or by any shareholder entitled to vote in the
election of Directors. However, any shareholder entitled to vote in the
election of Directors at a meeting may nominate a Director only if written
notice of such shareholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary of the Corporation not later than (a) with respect to
an election to be held at an Annual Meeting of Shareholders, ninety (90) days in
advance of the date in the current year, corresponding to the date of the
previous year's annual meeting at which Directors were elected, and (b) with
respect to an election to be held at a Special Meeting of Shareholders for the
election of Directors, the close of business on the seventh (7th) day following
the date on which notice of such meeting is first given to shareholders. Each
such notice shall set forth (a) the name and address of the shareholder who
intends to make the nomination and of the person or persons to be nominated, (b)
a representation that the shareholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or person specified in the
notice, (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder, (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board of Directors,
and (e) the consent of each nominee to serve as a Director of the Corporation if
so elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.
ARTICLE IV
COMMITTEES
Section 1. COMMITTEES. The Board of Directors may by resolution provide
for such standing or special committees as it deems desirable, and discontinue
the same at pleasure. Each such committee shall have such powers and perform
such duties, not inconsistent with law, as may be delegated to it by the Board
of Directors. Vacancies in such committees shall be filled by the Board of
Directors or as it may provide.
Section 2. EX-OFFICIO MEMBER. The Chief Executive Officer of the Company
shall be a member ex-officio, of all Committees appointed by the Board of
Directors, excepting the Audit Committee, Committees that shall consist solely
of outside directors, and such other Committees as the Board of Directors may
designate by resolution from time to time.
<PAGE>
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The Board of Directors shall elect a
Chairman of the Board of Directors, a President, such number of Vice Presidents
as the Board may from time to time determine, a Secretary, and a Treasurer. The
Board of Directors may from time to time create such officers as it may
determine. The President and the Chairman of the Board shall be, but the other
officers need not be, chosen from among the members of the Board of Directors.
Any two or more of such offices, other than that of President and Vice
President, Secretary and Assistant Secretary, or Treasurer and Assistant
Treasurer, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity.
Section 2. TERM OF OFFICE. The officers of the corporation shall hold
office during the pleasure of the Board of Directors, and unless sooner removed
by the Board of Directors, until the reorganization meeting of the Board of
Directors following the date of their election and until their successors are
chosen and qualified.
The Board of Directors may remove any officer at any time, with or without
cause, by a majority vote.
A vacancy in any office, however created, shall be filled by the Board of
Directors.
Section 3. COMPULSORY RETIREMENT OF EXECUTIVE OFFICERS. "Executive
Officer" of the corporation means a person who participates or has authority to
participate (other than in the capacity of a director) in major policymaking
functions of the corporation. Such Executive Officers shall be designated by
the Board of Directors on a yearly basis. All such Executive Officers shall
retire no later than the end of the calendar month in which he/she attains
sixty-five (65) years of age; provided however that this mandatory retirement
shall not be required if such compulsory retirement is in violation of any
federal law regarding age discrimination in employment (Title 12, U.S. Code,
Section 621, et. Seq.) or any other law or regulation. Upon affirmative vote of
at least two-thirds (2/3rds) of the members of the Board of Directors, the
compulsory retirement of an Executive Officer may be waived on a year-to-year
basis.
<PAGE>
ARTICLE VI
DUTIES OF OFFICERS
Section 1. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside
at all meetings of the shareholders and Board of Directors. The Chairman of the
Board shall serve as Chief Executive Officer and shall have such other powers
and duties as may be prescribed by the Board of Directors or prescribed by the
General Corporation Act.
Section 2. PRESIDENT. The President shall be the Chief Administrative
Officer of the corporation, and in the absence of the Chairman of the Board, he
shall preside at meetings of the shareholders and Board of Directors, and shall
carry out the general executive powers conferred upon the Chairman. He shall
have authority to sign all certificates for shares and all deeds, mortgages,
bonds, contracts, notes and other instruments requiring his signature, and shall
have all the powers and duties prescribed by the General Corporation Act and
such others as the Board of Directors may from time to time assign to him.
Section 3. VICE PRESIDENTS. The Vice Presidents shall perform such duties
as are conferred upon them by these By-Laws or as may from time to time be
assigned to them by the Board of Directors, the Chairman of the Board or the
President. At the request of the President, or in his absence or disability,
the Vice President, designated by the President (or in the absence of such
designation, the Vice President designated by the Board), shall perform all the
duties of the President, and when so acting, shall have all the powers of the
President. The authority of Vice Presidents to sign in the name of the
corporation all certificates for shares and authorized deeds, mortgages, bonds,
contracts, notes and other instruments, shall be coordinate with like authority
of the President. Any one or more of the Vice Presidents may be designated as
an "Executive Vice President".
Section 4. SECRETARY. The Secretary shall keep minutes of all the
proceedings of the shareholders and Board of Directors, and shall make proper
record of the same, which shall be attested by him; sign all certificates for
shares, and all deeds, mortgages, bonds, contracts, notes and other instruments
executed by the corporation requiring his signature; give notice of meetings of
shareholders and Directors; produce on request at each meeting of shareholders
for the election of Directors a certified list of shareholders arranged in
alphabetical order; keep such books as may be required by the Board of
Directors, and file all reports to States, to the Federal Government, and to
foreign countries; and perform such other and further duties as may from time to
time be assigned to him by the Board of Directors, the Chairman of the Board or
by the President.
<PAGE>
Section 5. TREASURER. The Treasurer shall have general supervision of all
finances; he shall receive and have in charge all money, bills, notes, deeds,
leases, mortgages and similar property belonging to the corporation, and shall
do with the same as may from time to time be required by the Board of Directors.
He shall cause to be kept adequate and correct accounts of the business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, stated capital, and shares, together
with such other accounts as may be required, and, upon the expiration of his
term of office, shall turn over to his successor or to the Board of Directors
all property, books, papers and money of the corporation in his hands; and he
shall perform such other duties as from time to time may be assigned to him by
the Board of Directors.
Section 6. ASSISTANT AND SUBORDINATE OFFICERS. The Board of Directors may
appoint such assistant and subordinate officers as it may deem desirable. Each
such officer shall hold office during the pleasure of the Board of Directors,
and perform such duties as the Board of Directors may prescribe.
The Board of Directors may, from time to time, authorize any officer to
appoint and remove assistant and subordinate officers, to prescribe their
authority and duties, and to fix their compensation.
Section 7. DUTIES OF OFFICERS MAY BE DELEGATED. In the absence of any
officer of the corporation, or for any other reason the Board of Directors may
deem sufficient, the Board of Directors may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer, or to
any Director.
ARTICLE VII
STOCK AND STOCK CERTIFICATES
Section 1. STOCK CERTIFICATES. Issued shares of the corporation may be
represented by certificates or be uncertificated as determined from time to time
by the Board of Directors. Certificates for shares shall be in such form as
shall be approved by the Board of Directors. Such certificates shall be signed
by the Chairman of the Board of Directors or the President or a Vice President
or by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer of the corporation, which certificates shall certify the number and
class of shares held by the shareholder in the corporation, but no certificate
for shares shall be delivered until such shares are fully paid. When such
certificate is countersigned by an incorporated transfer agent or registrar, the
signature of any of said officers of the corporation may be facsimile, engraved,
stamped or printed. Although any officer of the corporation whose manual or
facsimile signature is affixed to a share certificate shall cease to be such
officer before the certificate is delivered, such certificate, nevertheless,
shall be effective in all respects when delivered.
<PAGE>
Such certificate for shares shall be transferable in person or by attorney,
but, except as hereinafter provided in the case of lost, mutilated or destroyed
certificates, no transfer of shares shall be entered upon the records of the
corporation until the previous certificate, if any, given for the same shall
have been surrendered and cancelled.
Section 2. REPLACEMENT OF LOST, DESTROYED, AND STOLEN CERTIFICATES.
(a) Where the holder of a share certificate claims that the
certificate has been lost, destroyed or wrongfully taken, the corporation
shall issue a new certificate in place of the original certificate if the
owner so requests before the corporation has notice that the share has been
acquired by a bona fide purchaser; and if the owner files with the
corporation a sufficient indemnity bond; and if the owner satisfies any
other reasonable requirements imposed by the Board of Directors.
(b) TRANSFER OF CERTIFICATED SHARES BEFORE REPLACEMENT. When a share
certificate has been lost, apparently destroyed or wrongfully taken and the
owner fails to notify the corporation of the fact within a reasonable time
after he has notice of it, and the corporation registers a transfer of the
share represented by the security before receiving such a notification, the
owner is precluded from asserting against the corporation any claim for
registering the transfer or any claim to a new security.
(c) TRANSFER OF CERTIFICATED SHARES AFTER REPLACEMENT. If, after the
issue of a new certificate as a replacement for a lost, destroyed or
wrongfully taken certificate, a bona fide purchaser of the original
certificate presents it for registration of transfer, the corporation must
register the transfer unless registration would result in over-issue. In
addition to any rights on the indemnity bond, the corporation may recover
the new share certificate from the person to whom it was issued or any
person taking under him except a bona fide purchaser.
Section 3. UNCERTIFICATED SHARES.
(a) With regard to uncertificated shares, within a reasonable time
after shares are purchased, a written statement shall be given by the
corporation stating the name of the person to whom issued, the number of
shares purchased, and the total number of shares being held uncertificated.
<PAGE>
(b) Upon receipt of a transfer instruction originated by the
registered owner or other appropriate person, the uncertificated stock
shall be cancelled and an equivalent certificated evidence of ownership of
such shares of stock shall be issued. All transfers of uncertificated
shares of stock on the transfer books of the corporation shall be in
accordance with the provisions of IC 26-1-8 as it pertains to
uncertificated securities.
(c) The transfer instruction shall be an order to the corporation
requesting the transfer of the uncertificated shares of stock and must
include the name and address of the Transferee, the number of shares to be
transferred and the social security number or federal taxpayer
identification number of the Transferee.
Section 4. REGISTERED STOCKHOLDERS. A person in whose name shares are of
record on the books of the corporation shall conclusively be deemed the
qualified owner thereof for all purposes and to have capacity to exercise all
rights of ownership. Neither the corporation nor any transfer agent of the
corporation shall be bound to recognize any equitable interest in or claim to
such shares on the part of any other person, whether disclosed upon such
certificate or otherwise, nor shall they be obliged to see to the execution of
any trust or obligation.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall end on the 31st day of December in
each year, or on such other day as may be fixed from time to time by the Board
of Directors.
ARTICLE IX
SEAL
The Board of Directors may, in its discretion, provide a suitable seal
containing the name of the corporation. If deemed advisable by the Board of
Directors, duplicate seals may be provided and kept for the purposes of the
corporation.
ARTICLE X
AMENDMENTS
These By-Laws may be amended, altered or repealed, at any regular meeting
of the Board of Directors, by a vote of a majority of the full Board of
Directors.
<PAGE>
CREDIT AGREEMENT
This Credit Agreement, dated as of the Effective Date set forth below
(the "Agreement"), is by and between National City Bancshares, Inc., an
Indiana corporation, (the "Borrower"), and NBD BANK, a Michigan banking
corporation (the "Bank").
RECITALS:
(A) The Bank and the Borrower wish to provide for a revolving credit in a
principal amount not to exceed $10,000,000, as provided herein.
AGREEMENT:
THEREFORE, in consideration of the Recitals and the mutual promises
contained in this Agreement, the parties agree as follows:
ARTICLE I -- DEFINITIONS
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of either (a) the Prime Rate for such day or (b) the
Federal Funds Effective Rate for such day plus 1/2% per annum.
"Authorized Officer" means any of the Chairman, President, Executive Vice
President or Secretary-Treasurer, acting singly.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Rate Loans, a day other than Saturday or Sunday on
which banks are open for business in Detroit and New York and on which
dealings in United States dollars are carried on in the London interbank
market, and (ii) for all other purposes, a day other than Saturday or Sunday
on which banks are open for business in Detroit.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Commitments" means the obligation of the Bank to make Loans not
exceeding $10,000,000, as such amount may be modified or reduced from time to
time pursuant to the terms hereof.
"Consolidated Interest Expense" means, for any period, the interest
expense of the Borrower and its Subsidiaries calculated on a consolidated
basis for such period.
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"Consolidated Net Income" means, for any period, the consolidated net
income or loss of the Borrower and its Subsidiaries for such period,
determined in accordance with GAAP.
"Consolidated Net Worth" means, at any date, the consolidated net worth
of the Borrower and its Subsidiaries at such date, determined in accordance
with GAAP.
"Consolidated Return on Average Assets" of the Borrower means the ratio
of Consolidated Net Income to Consolidated Average Assets, expressed as a
percentage.
"Consolidated Tangible Net Worth" means, at any date, Consolidated Net
Worth after subtracting therefrom the aggregate amount of all intangible
assets of the Borrower and its Subsidiaries, including, without limitation,
goodwill, franchises, licenses, patents, trademarks, trade names, copyrights,
service marks, brand names and operating rights, all determined in accordance
with GAAP.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes
or is contingently liable upon, the obligation or liability of any other
Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person, or otherwise assures any creditor of
such other Person against loss, including, without limitation, any comfort
letter, operating agreement or take-or-pay contract.
"Consolidated Average Assets" means, for any period, the consolidated
average assets for such period, determined in accordance with GAAP.
"Credit Facility" means the Revolving Credit.
"Current Assets" shall mean current assets as determined in accordance
with GAAP.
"Current Liabilities" shall mean current liabilities as determined in
accordance with GAAP.
"Default" means an event described in Section 7.
"EBIT" means, with respect to the Borrower and its Subsidiaries and for
any period of its determination, the Consolidated Net Income of the Borrower
and its Subsidiaries for such period, plus the consolidated interest expense
and taxes, all determined in accordance with GAAP consistently applied.
"EBITDA" means, with respect to the Borrower and its Subsidiaries for
any period of determination, EBIT of the Borrower and its Subsidiaries for
such period, plus depreciation and amortization of the Borrower and its
Subsidiaries for such period, all determined in accordance with GAAP.
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"Effective Date" shall mean the date set forth in the last paragraph of
this Agreement described as the effective date of this Agreement.
"Eurodollar Base Rate" means the rate determined by the Bank to be the
rate at which deposits in U.S. dollars are offered to the Bank by first-class
banks in the London interbank market at approximately 11 a.m. (London time)
two Business Days prior to the first day of that Eurodollar Interest Period,
in the approximate amount of the relevant Eurodollar Rate Loan and having a
maturity approximately equal to that Eurodollar Interest Period.
"Eurodollar Interest Period" means a period of one, two, three or six
months commencing on a Business Day selected by the Borrower pursuant to this
Agreement. The Eurodollar Interest Period ends on the day which corresponds
numerically to that date one, two, three or six months thereafter. If there
is no numerically corresponding day in the next, second, third or sixth
succeeding month, that Eurodollar Interest Period ends on the last Business
Day of the relevant month. If a Eurodollar Interest Period would otherwise
end on a day which is not a Business Day, that Eurodollar Interest Period
ends on the next succeeding Business Day, unless that Business Day falls in a
new month in which case that Eurodollar Interest Period ends on the
immediately preceding Business Day.
"Eurodollar Rate" means the sum of (i) the quotient of (a) the
Eurodollar Base Rate applicable to that Eurodollar Interest Period divided by
(b) one minus the Reserve Requirement (expressed as a decimal) applicable to
that Eurodollar Interest Period plus (ii) 3/4%. The Eurodollar Rate will be
rounded, if necessary, to the next higher 1/16 of 1%.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not
a Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations at approximately 10
a.m. (Detroit time) on such day on such transactions received by the Bank
from three Federal funds brokers of recognized standing selected by the Bank
in its sole discretion.
"Fixed Rate" means the Eurodollar Rate and the Negotiated Rate.
"Fixed Rate Loan" means a Loan which bears interest at the Fixed Rate.
"Floating Rate" means a rate per annum equal to the Alternate Base Rate,
changing when and as the Alternate Base Rate changes.
"GAAP" means, as of the date of determination, generally accepted
accounting principles, consistently applied.
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"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary
course of such Person's business payable on terms customary in the trade),
(iii) obligations, whether or not assumed, secured by Liens or payable out of
the proceeds or production from property now or hereafter owned or acquired
by such Person, (iv) obligations which are evidenced by notes, acceptances,
or other instruments, (v) Capitalized Lease Obligations, (vi) net liabilities
under interest rate swap, exchange or cap agreements, and (vii) Contingent
Obligations.
"Intangible Assets" means goodwill, licenses, patents, copyrights,
franchises, mailing lists, catalogs, trademarks, bond discount, underwriting
expense, organizational expense and other similar intangible assets.
"Interest Period" means a Eurodollar Interest Period and a Negotiated
Rate Interest Period.
"Investments" in any Person shall mean: (a) the acquisition of capital
stock, bonds, notes, debentures, partnership or other ownership interests,
other securities or Indebtedness of such Person; (b) any deposit with, or
loan or other extension of credit to, such Person; (c) any guarantee of
Indebtedness or other liabilities of such Person; and (d) any amount
committed to be lent to such Person.
"Lending Installation" means any office, branch, subsidiary or affiliate
of the Bank.
"Lien" means any security interest, mortgage, pledge, lien, claim,
charge, encumbrance, title retention agreement, lessor's interest under a
capitalized lease or analogous instrument, in, of or on any Person's assets
or properties in favor of any other Person.
"Loan" means a loan under the Credit Facility.
"Loan Documents" shall mean this Agreement, the Note, and any other
documents executed in connection with the Credit Facility.
"Material Adverse Effect" means an event or action that (i) could
reasonably be expected to materially and adversely affect the business,
properties, prospects, condition (financial or otherwise), or results of
operations of the Borrower and its Subsidiaries taken as a whole, or (ii) has
been brought by or before any court or arbitrator or any governmental body,
agency or official, and draws into question the validity or enforceability of
any material provision of this Agreement.
"Negotiated Rate" means with respect to a Negotiated Rate Loan for the
relevant Negotiated Rate Interest Period, a rate of interest established by
the Bank in its sole and absolute discretion.
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"Negotiated Rate Interest Period" means with respect to a Negotiated
Rate Loan, a period of not less than one day and not more than 180 days,
commencing on a Business Day selected by the Borrower pursuant to this
agreement. If such Negotiated Rate Interest Period would end on a day which
is not a Business Day, such Negotiated Rate Interest Period shall end on the
next succeeding Business Day, unless such next succeeding Business Day is
after the Revolving Credit Termination Date, in which case such Negotiated
Rate Interest Period shall end on the next preceding Business Day. No
Negotiated Rate Interest Period may end after the Revolving Credit
Termination Date.
"Negotiated Rate Loan" means a Loan which bears interest at the
Negotiated Rate.
"Nonperforming Loans" shall have the meaning attributed thereto in
Section 6.18.
"Note" means the Revolving Credit Note.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Note, all accrued and unpaid facility fees, and all other
obligations of the Borrower to the Bank arising under this Agreement, and the
Note.
"Person" means any corporation, natural person, firm, limited liability
company, joint venture, partnership, trust, unincorporated organization,
enterprise, government or any department or agency of any government.
"Prime Rate" means a rate per annum equal to the "prime rate" of
interest announced by the Bank from time to time, changing when and as the
prime rate changes, which shall not necessarily be the lowest rate charged by
the Bank to any of its customers.
"Rate Option" means the Eurodollar Rate, the Floating Rate or the
Negotiated Rate.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and includes any successor
or other regulation or official interpretation of the Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulation Y" means Regulation Y of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or
other regulation or official interpretation of said Board of Governors
relating thereto.
"Reserve Requirement" means with respect to a Eurodollar Interest
Period, the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves) which is imposed under Regulation
D on Eurocurrency liabilities (in the case of Eurodollar Rate Loans).
"Revolving Credit" means the revolving credit facility established by
Section 2.1.
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"Revolving Credit Commitment" means the obligation of the Bank to make
Loans under the Revolving Credit not exceeding $10,000,000, as such amount
may be modified or reduced from time to time pursuant to the terms hereof.
"Revolving Credit Note" means the Revolving Credit Note of the Borrower
in the form of Exhibit A evidencing Loans under the Revolving Credit.
"Revolving Credit Termination Date" means October 31, 1998.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Subordinated Debt" means all debt, obligations and liabilities of the
Borrower to any Person other than the Bank which has been subordinated to the
Obligations pursuant to a subordination agreement satisfactory in form and
content to the Bank.
"Subsidiary" means any corporation more than 50% of the outstanding
voting securities of which are at the time owned or controlled, directly or
indirectly, by the Borrower or by one or more Subsidiaries or by the Borrower
and one or more Subsidiaries, or any similar business organization which is
so owned or controlled, or any Subsidiary Bank.
"Subsidiary Bank" shall mean any person which is an "insured depository
institution" within the meaning of 12 U.S.C. Section 1831(c), as amended, and
which is "controlled" by the Borrower within the meaning of 12 U.S.C. Section
1841(a), as amended.
"Tier 1 Capital" shall mean the Tier 1 capital of the Borrower and its
Subsidiaries, determined in accordance with Appendix A to Regulation Y.
"Total Capital" means, for any period, the consolidated total capital of
the Borrower and its Subsidiaries for such period determined in accordance
with GAAP.
"UCC" shall mean the Uniform Commercial Code as adopted in the State of
Michigan and amended from time to time.
"Unmatured Default" means an event which but for the lapse of time or
the giving of notice, or both, would constitute a Default.
The foregoing definitions are applicable to both the singular and plural
forms of the defined terms. Any accounting terms used but not otherwise
defined have the meanings given them under GAAP.
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ARTICLE II -- THE LOANS
2.1. COMMITMENT. From and including the Effective Date of this
Agreement and prior to the Revolving Credit Termination Date, the Bank
agrees, on the terms of this Agreement to make Loans to the Borrower for the
Borrower's account from time to time in amounts not exceeding, in the
aggregate at any one time outstanding, the Revolving Credit Commitment. Loans
under the Revolving Credit shall be evidenced by, and accrue interest and be
payable as provided in, the Revolving Credit Note. Subject to the terms of
this Agreement, the Borrower may borrow, repay and reborrow at any time prior
to the Revolving Credit Termination Date. The Commitment to lend hereunder
shall expire on the Revolving Credit Termination Date.
2.2. CLOSING FEE AND REDUCTION OF REVOLVING CREDIT COMMITMENT. The
Borrower agrees to pay to the Bank a closing fee equal to $2,500 concurrently
with the execution of this Agreement. The Borrower acknowledges that that
fee has been earned by the Bank and that it is nonrefundable upon payment.
The Borrower may permanently reduce the Revolving Credit Commitment in whole,
or in part in integral multiples of $100,000, upon at least ten Business
Days' written notice to the Bank, which must specify the amount of the any
reduction, but the amount of the Revolving Credit Commitment may not be
reduced below the outstanding principal amount of the Loans.
2.3. THE LOANS. The Loans may be Floating Rate Loans, Eurodollar Rate
Loans, Negotiated Rate Loans or a combination of them, selected by the
Borrower in accordance with Section 2.4. The Loans made under the Credit
Facility must be repaid in full on the Revolving Credit Termination Date.
The Bank may book the Loans at any Lending Installation. The Borrower may
from time to time pay outstanding Floating Rate Loans in whole, or in part in
integral multiples of $50,000, to the Bank without penalty or premium. A
Fixed Rate Loan may not be paid prior to the last day of the applicable
Interest Period.
2.4. METHOD OF SELECTING RATE OPTIONS AND INTEREST PERIODS. The
Borrower may select the Rate Option and Interest Period applicable to each
Loan from time to time. The Borrower must give the Bank an irrevocable
borrowing notice not later than 10:00 a.m. Detroit time at least one (1)
Business Date before the borrowing date of each Floating Rate Loan or
Negotiated Rate Loan, and three (3) Business Days before the borrowing date
for each Eurodollar Rate Loan, specifying:
(i) the borrowing date of that Loan, which must be a Business Day,
(ii) the aggregate amount of that Loan,
(iii) the Rate Option selected for that Loan, and
(iv) in the case of each Fixed Rate Loan, the Interest Period
applicable to it.
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Each Fixed Rate Loan will bear interest on the outstanding principal amount
for each day during the Interest Period applicable to it from and including
the first day of that Interest Period to (but not including) the last day of
that Interest Period at the interest rate determined as applicable to that
Fixed Rate Loan. If at the end of an Interest Period for an outstanding
Fixed Rate Loan, the Borrower has failed to select a new Rate Option or to
pay that Loan, then that Loan will be converted to a Floating Rate Loan on
and after the last day of the Interest Period until paid or until the
effective date of a new Rate Option with respect to it is selected by the
Borrower. An outstanding Floating Rate Loan may be converted to a Fixed Rate
Loan at any time subject to the notice provisions applicable to the type of
Loan selected. The Borrower may not select a Fixed Rate for a Loan if there
exists a Default or Unmatured Default. The Borrower may not select an
Interest Period for the Loans under the Revolving Credit which would end
after the Revolving Credit Termination Date. Each Fixed Rate Loan must be in
the minimum amount of $500,000 (and in multiples of $50,000 if in excess of
the minimum). Each Floating Rate Loan must be in a minimum amount of $50,000.
2.5. RATES APPLICABLE AFTER DEFAULT. If any Loan is not paid at
maturity, whether by acceleration or otherwise, (i) each Fixed Rate Loan will
bear interest for the remainder of the applicable Interest Period at the rate
otherwise applicable to that Interest Period plus 3% per annum, and (ii) each
Floating Rate Loan will bear interest at a rate per annum equal to the
Floating Rate otherwise applicable to the Floating Rate Loan plus 3% per
annum. During the continuance of any other Default, the Bank may, at its
option, by notice to the Borrower, declare that (y) each Fixed Rate Loan will
bear interest for the remainder of the applicable Interest Period at the rate
otherwise applicable to that Interest Period plus 3% per annum, and (z) each
Floating Rate Loan will bear interest at a rate per annum equal to the
Floating Rate otherwise applicable to the Floating Rate Loan plus 3% per
annum.
2.6. METHOD OF PAYMENT. All payments of principal, interest, and fees
must be made in immediately available funds to the Bank at the Bank's address
specified pursuant to Section 10.5, or at any other Lending Installation of
the Bank specified in writing by the Bank to the Borrower, by noon (local
time) on the date when due. The Bank is authorized to charge the account of
the Borrower maintained with it for each payment of principal, interest and
fees as it becomes due.
2.7. NO SETOFF OR DEDUCTION. All payments of principal and interest
shall be made by the Borrower without setoff or counterclaim, and free and
clear of, and without deduction or withholding for, or on account of, any
present or future taxes, levies, imposts, duties, fees, assessments, or other
charges of whatever nature, imposed by any governmental authority, or by any
department, agency or other political subdivision or taxing authority unless
any such deduction is required by law. If any such deduction is made, as
required by such law, the Borrower shall make additional payments sufficient
to assure that the Bank receives all amounts contemplated by this Agreement.
2.8. THE NOTES; TELEPHONIC NOTICES. The Bank is authorized to record on
its books the date, amount, Rate Option and Interest Period of each Loan, and
the date and amount of each principal payment made under the Notes. These
records govern absent manifest error, provided
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that neither the failure to record nor any error in that record affects the
Borrower's obligations under the Notes. The Borrower authorizes the Bank to
extend Loans and effect Rate Option selections based on telephonic notices
made by any person or persons the Bank in good faith believes to be acting on
behalf of the Borrower. The Borrower agrees to deliver promptly to the Bank
a written confirmation, if that confirmation is requested by the Bank, of
each telephonic notice, signed by an authorized officer of the Borrower. If
the written confirmation differs in any material respect from the action
taken by the Bank, the records of the Bank govern, absent manifest error.
2.9. INTEREST PAYMENT DATES; INTEREST BASIS. Interest accrued on the
Loans is payable (i) for Floating Rate Loans, on the last day of each
quarter, (ii) for Fixed Rate Loans, on the last day of its applicable
Interest Period and (iii) for all Loans, on any date on which the Loan is
paid or prepaid, whether due to acceleration or otherwise. Interest accrued
on each Fixed Rate Loan having an Interest Period longer than three months is
also payable on the last day of each three-month interval during that
Interest Period. Interest and commitment fees are calculated for actual days
elapsed on the basis of a 360-day year. Interest is payable for the day a
Loan is made but not for the day of any payment on the amount paid if payment
is received prior to noon (local time) at the place of payment. If any
payment of principal of or interest on a Loan becomes due on a day which is
not a Business Day, that payment must be made on the next succeeding Business
Day and, in the case of a principal payment, that extension of time is
included in computing interest.
ARTICLE III -- CHANGE IN CIRCUMSTANCES
3.1. YIELD PROTECTION. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether
or not having the force of law), or any interpretation of them, or compliance
by the Bank with them,
(i) subjects the Bank or any applicable Lending Installation to
any tax, duty, charge or withholding on or from payments due from the
Borrower (excluding taxation of the overall net income of the Bank or
applicable Lending Installation), or changes the basis of taxation of
payments to the Bank in respect of its Loans or other amounts due to it under
this Agreement, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, the
Bank or any applicable Lending Installation (other than reserves and
assessments taken into account in determining the interest rate applicable to
Fixed Rate Loans), or
(iii) imposes any other condition the result of which is to
increase the cost to the Bank or any applicable Lending Installation of
making, funding or maintaining loans or reduces any amount receivable by the
Bank or any applicable Lending Installation in connection with loans, or
requires the Bank or any applicable Lending Installation to make any payment
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calculated by reference to the amount of loans held or interest received by
it, by an amount deemed material by the Bank, or
(iv) affects the amount of capital required or expected to be
maintained by the Bank or any Lending Installation or any corporation
controlling the Bank, and the Bank determines the amount of capital required
is increased by or based on the existence of this Agreement or its obligation
to make Loans under this Agreement or of commitments of this type, then,
within 15 days of the Bank's demand, the Borrower must pay the Bank that
portion of the increased expense incurred (including, in the case of Section
3.1(iv), any reduction in the rate of return on capital to an amount below
that which it could have achieved but for the law, rule, regulation, policy,
guideline or directive, and after taking into account the Bank's policies as
to capital adequacy) or reduction in amounts received which the Bank
determines is attributable to making, funding and maintaining its Loans and
its commitments hereunder.
3.2. AVAILABILITY OF RATE OPTIONS. If the Bank determines that
maintenance of its Fixed Rate Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation or directive, whether or not
having the force of law, or if the Bank determines that (i) deposits of a
type and maturity appropriate to match fund Fixed Rate Loans are not
available to it, or (ii) a Rate Option does not accurately reflect the cost
of making or maintaining a Loan at that Rate Option, then the Bank may
suspend the availability of the affected Rate Option and require any Fixed
Rate Loans outstanding under an affected Rate Option to be repaid or
converted to an unaffected Rate Option.
3.3. FUNDING INDEMNIFICATION. If any payment of a Fixed Rate Loan
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Fixed Rate
Loan is not made on the date specified by the Borrower for any reason other
than default by the Bank, the Borrower indemnifies the Bank for any loss or
cost incurred by it resulting from these facts, including without limitation
any loss or cost in liquidating or employing deposits acquired to fund or
maintain the Fixed Rate Loan.
3.4. BANK STATEMENTS; SURVIVAL OF INDEMNITY. To the extent reasonably
possible, the Bank will designate an alternate Lending Installation with
respect to Fixed Rate Loans to reduce any liability of the Borrower to the
Bank under Section 3.1 or to avoid the unavailability of a Rate Option under
Section 3.2, so long as that designation is not disadvantageous to the Bank.
The Bank will deliver a written statement as to the amount due, if any, under
Section 3.1 or 3.3. That written statement will set forth in reasonable
detail the calculations upon which the Bank determined the amount, and is
final, conclusive and binding on the Borrower in the absence of manifest
error. Determination of amounts payable under those Sections in connection
with a Fixed Rate Loan will be calculated as though the Bank funded its Fixed
Rate Loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the Fixed
Rate applicable to that Loan, whether in fact that is the case or not.
Unless otherwise provided in this Agreement, the amount specified in the
written statement is payable on demand after receipt by the Borrower of the
written statement. The obligations of the
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Borrower under Sections 3.1 and 3.3 survive payment of the Obligations and
termination of this Agreement.
ARTICLE IV -- CONDITIONS PRECEDENT
4.1. CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT. The Bank
shall not be obligated to make the initial extension of credit under this
Agreement, unless prior to or simultaneously with the extension of credit,
the Bank shall have first received the following documents in form and
substance satisfactory to it and its counsel:
(A) This Agreement, duly executed by the Borrower;
(B) The Note applicable to the initial extension of credit, duly
executed by the Borrower;
(C) Copies of such organizational documents of the Borrower as the
Bank shall reasonably request, including Articles of Incorporation, Bylaws, a
Certificate of Good Standing and documents evidencing necessary corporate
action with respect to this Agreement, the Loan Documents, and the
transactions contemplated by them.
(D) A written opinion of the Borrower's counsel, addressed to the
Bank in substantially the form of Exhibit "B" hereto.
4.2. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The Bank shall
not be obligated to make any extension of credit under this Agreement unless:
(A) The representations and warranties contained in Article V
shall be true on the date of the extension of credit with the same effect as
if made on and as of that date, and shall be deemed to be restated on and as
of that date.
(B) No Default shall have occurred and be continuing or will exist
upon the extension of the credit.
ARTICLE V -- WARRANTIES
The Borrower warrants to the Bank that:
5.1. CORPORATE EXISTENCE AND STANDING. Each of the Borrower and the
Subsidiaries (including without limitation, each Subsidiary Bank) is a
corporation, partnership, limited liability company, or a national or state
banking association duly and properly incorporated or organized, as the case
may be, validly existing and (to the extent such concept applies to such
entity) in good standing under the laws of its jurisdiction of incorporation
or organization and has all requisite authority to conduct its business in
each jurisdiction in which its business is conducted.
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5.2. AUTHORIZATION AND VALIDITY. The Borrower has the power and
authority and legal right to execute and deliver the Loan Documents and to
perform its obligations under them. The execution and delivery by the
Borrower of the Loan Documents and the performance of its obligations under
them have been duly authorized by proper corporate or organizational
proceedings, and this Agreement and the Note each constitute legal, valid and
binding obligations of the Borrower enforceable against the Borrower in
accordance with their terms.
5.3. NO CONFLICT; GOVERNMENT CONSENT. Neither the execution and
delivery by the Borrower of this Agreement and the Note, nor the consummation
of the transactions described in them, nor compliance with their provisions
will violate any law, rule, regulation, order, writ, judgment, injunction,
decree or award binding on the Borrower or any Subsidiary, or the Borrower's
or any Subsidiary's articles of incorporation or by-laws, or the provisions
of any indenture, instrument or agreement to which the Borrower or any
Subsidiary is a party or is subject, or by which it or its property is bound,
or conflict with or constitute a default under any indenture, instrument or
agreement, or result in the creation or imposition of any Lien in, of or on
the property of the Borrower or a Subsidiary pursuant to the terms of any
indenture, instrument or agreement. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with,
or exemption by, or other action in respect of, any governmental or public
body or authority, or any subdivision of them, is required to authorize, or
is required in connection with the execution, delivery and performance of, or
the legality, validity, binding effect or enforceability of, this Agreement
or the Note.
5.4. FINANCIAL STATEMENTS. The June 30, 1997 consolidated financial
statements of the Borrower and its Subsidiaries heretofore delivered to the
Bank were prepared in accordance with GAAP in effect on the date such
statements were prepared and fairly present the consolidated financial
condition and operations of the Borrower and the Subsidiaries at that date
and the consolidated results of their operations for the period then ended.
5.5. MATERIAL ADVERSE CHANGE. Since June 30, 1997 there has been no
material adverse change in the business, properties, condition (financial or
otherwise), prospects or results of operations of the Borrower and its
Subsidiaries.
5.6. LITIGATION AND CONTINGENT OBLIGATIONS. Except as set forth on
Schedule 1, there is no litigation, arbitration, governmental investigation,
proceeding or inquiry pending or, to the knowledge of any of their officers,
threatened against or affecting the Borrower or any Subsidiary which might
have a Material Adverse Effect. Other than any liability incident to that
litigation, arbitration or proceedings, the Borrower has no material
contingent obligations not provided for or disclosed in the financial
statements referred to in Section 5.4.
5.8. COMPLIANCE WITH LAWS. The Borrower and its Subsidiaries have
complied in all material respects with all applicable statutes, rules,
regulations, orders and restrictions of any domestic or foreign government or
any instrumentality or agency of them, having jurisdiction over the conduct
of their respective businesses or the ownership of their respective
properties.
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5.9 REGULATION U. The Borrower is not engaged principally in, nor is
one of the Borrower's important activities, the business of extending credit
for the purpose of purchasing or carrying "margin stock" within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System as
now and from time to time hereinafter in effect.
5.10. BANK HOLDING COMPANY. The Borrower has complied in all
respects with all federal, state and local laws pertaining to bank holding
companies, including without limitation the Bank Holding Company Act of 1956,
as amended, and there are no conditions precedent or subsequent to its
engaging in the business of being a registered bank holding company.
ARTICLE VI -- COVENANTS
During the term of this Agreement, unless the Bank otherwise consents in
writing:
6.1. FINANCIAL REPORTING. The Borrower will maintain, for themselves
and each Subsidiary, a system of accounting established and administered in
accordance with GAAP, and furnish to the Bank:
(i) Within 120 days after the close of each of the Borrower's
fiscal years, an unqualified (except for qualifications relating to changes
in accounting principles or practices reflecting changes in GAAP and required
or approved by the Guarantor's independent certified public accountants)
audit report certified by independent certified public accountants,
acceptable to the Bank, prepared in accordance with GAAP on a consolidating
basis for itself and the Subsidiaries, including balance sheets as of the end
of that period, related profit and loss and reconciliation of surplus
statements, and a statement of cash flows.
(ii) Within 45 days after the close of the first three quarterly
periods of each of its fiscal years, for the Borrower and the Subsidiaries,
unaudited balance sheets as at the close of each that period and profit and
loss and reconciliation of surplus statements and statements of cash flows
for the period from the beginning of that fiscal year to the end of that
quarter, all certified by an officer of the Borrower.
(iii) Together with the financial statements required
hereunder, a compliance certificate in substantially the form of Exhibit "C"
hereto signed by an Authorized Officer of the Borrower, showing the
calculations necessary to determine compliance with this Agreement and
stating that no Default or Unmatured Default exists, or if any Default or
Unmatured Default exists, stating the nature and status thereof.
(iv) Promptly upon furnishing it to its shareholders, copies of all
financial statements and proxy statements so furnished.
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(v) Promptly upon filing them, copies of all registration
statements and annual, quarterly, monthly or other regular reports which the
Borrower or any Subsidiary files with the Securities and Exchange Commission.
(vi) Any other information (including non-financial information)
which the Bank or any Bank Installation from time to time reasonably requests.
(vii) Within 45 days after the close of each quarter of each
fiscal year of the Borrower and each Subsidiary Bank, a copy of the Call
Report furnished to the Federal Deposit Insurance Corporation or any other
regulatory authority with respect to such quarter by such Subsidiary Bank.
6.2. USE OF PROCEEDS. The Borrower will, and will cause each Subsidiary
to, use the proceeds of the Loans for working capital. The Borrower may not,
nor may it permit any Subsidiary to, use any of the proceeds of the Loans to
purchase or carry any "margin stock" (as defined in Regulation U).
6.3. CONDUCT OF BUSINESS. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted, and do all things necessary to remain duly incorporated, validly
existing and in good standing as a domestic corporation in its jurisdiction
of incorporation and maintain all requisite authority to conduct its business
in each jurisdiction in which its business is conducted, except that the
Borrower may dissolve a Subsidiary if that dissolution would not have a
Material Adverse Effect.
6.4. TAXES. The Borrower will, and will cause each Subsidiary to,
timely file complete and correct United States federal and applicable
foreign, state and local tax returns required by law, and pay when due all
taxes, assessments and governmental charges and levies on it or its income,
profits or property, except those which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves have been
set aside.
6.5. COMPLIANCE WITH LAWS. The Borrower will, and will cause each
Subsidiary to, comply in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to
which it may be subject.
6.6. MERGER. The Borrower will not merge or consolidate with or into
any other Person unless the Borrower is the legally surviving corporation
and, after giving effect to the merger or consolidation, no Default or
Unmatured Default exists.
6.7. LIENS. The Borrower will not, nor will it permit any Subsidiary
to, create, incur, or suffer to exist any Lien in, of or on the property of
the Borrower or any Subsidiary, except:
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(i) Liens for taxes, assessments or governmental charges or levies
on its property if they are not at the time delinquent or if they can be paid
later without penalty, or are being contested in good faith and by
appropriate proceedings.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due
or which are being contested in good faith by appropriate proceedings and for
which adequate reserves have been set aside on its books.
(iii) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation.
(iv) Utility easements, building restrictions and any other
encumbrances or charges against real property which are of a nature generally
existing with respect to properties of a similar character and which do not
in any material way affect their marketability or interfere with their use in
the business of the Borrower or the Subsidiaries.
(v) Liens existing on the date of this Agreement, and described in
Schedule "2" hereof.
6.8. WELL CAPITALIZED. The Borrower will, and will cause each
Subsidiary to, remain at all times at least "well capitalized" for purposes
of 12 U.S.C. Section 1831(o) and any regulations issued thereunder (including
12 C.F.R. Section 565.4), as amended.
6.9. NOTICE OF DEFAULT. The Borrower will, and will cause each
Subsidiary to, give prompt notice in writing to the Bank of the occurrence of
any Default or Unmatured Default and of any other development, financial or
otherwise, which might have a Material Adverse Effect or might materially
adversely affect the ability of the Borrower to repay the Obligations.
6.10. DIVIDENDS. The Borrower will not, nor will it permit any
Subsidiary to, declare or pay any dividends or make any distributions on its
capital stock (other than dividends payable in its own capital stock) or
redeem, repurchase or otherwise acquire or retire any of its capital stock at
any time outstanding.
6.11. DEBT. The Borrower will not, nor will it permit any Subsidiary
to, incur or permit to remain outstanding, debt for borrowed money or
installment obligations, except debt reflected in the latest financial
statement of the Borrower furnished to the Bank prior to execution of this
Agreement and not to be paid with proceeds of borrowings under the Credit
Facilities. For purposes of this covenant, the sale of any accounts
receivable is deemed the incurring of debt for borrowed money.
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6.12. GUARANTIES. The Borrower will not, nor will it permit any
Subsidiary to, guarantee or otherwise become or remain secondarily liable on
the undertaking of another, except for endorsement of drafts for deposit and
collection in the ordinary course of business.
6.13. INVESTMENTS. The Borrower will not make any Investments,
except that Borrower may:
(a) purchase or otherwise acquire and own short-term money market items
(specifically including but not limited to preferred stock mutual funds);
(b) make Investments in Subsidiaries or any other bank or banks (other
than guarantees of Indebtedness of Subsidiaries, except as permitted by
Section 6.12), and upon the Borrower's purchase or other acquisition of 50%
or more of the voting stock of any bank, such bank shall thereupon become a
Subsidiary for all purposes under this Agreement;
(c) make Investments in Subsidiaries other than banks (other than
guarantees of Indebtedness of Subsidiaries, except as permitted by Section
6.12).
(d) make any other Investment permitted by applicable governmental laws
and regulations (other than guarantees of Indebtedness of Subsidiaries,
except as permitted by Section 6.12).
(e) make Investments in economic development bonds issued by
governmental authorities.
Nothing in this Section 6.13 shall prohibit the Borrower or any Subsidiary
from making loans, advances, or other extensions of credit in the ordinary
course of business upon substantially the same terms as heretofore extended
by them in such business or upon such terms as may at the time be customary
in the Borrower's or such Subsidiary's business.
6.14. MINIMUM NET WORTH. The Borrower will maintain at all times a
Consolidated Tangible Net Worth of not less than $100,000,000.
6.15. RETURN ON AVERAGE ASSETS. The Borrower will not, on any date
permit Consolidated Return on Average Assets to be less than 1.00% (measured
at the end of each fiscal quarter for the then-most recently ended four
fiscal quarters).
6.16. TIER 1 CAPITAL TO TOTAL ASSETS. The Borrower will not at any
time permit the ratio of its Tier 1 Capital to Consolidated Total Assets to
be greater than 8%.
6.17. INDEBTEDNESS TO TOTAL CAPITAL. The Borrower will not at any
time permit the ratio of its Indebtedness to Total Capital to be greater than
50%.
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6.18. RATE OF NONPERFORMING LOANS TO ASSETS. The Borrower will, and
will require each Subsidiary to, cause all loans classified as
"non-performing" (which shall include all loans in non-accrual status, more
than ninety (90) days past due in principal or interest, restructured or
renegotiated, or listed as "other restructured" or "other real estate owned"
and (without duplication) property acquired through in-substance foreclosure)
on the Federal Deposit Insurance Corporation or other regulatory agency call
report ("NONPERFORMING LOANS") not to exceed 3.00% of the Consolidated
Average Assets of the Borrower and its Subsidiaries.
6.19. LOAN LOSS RESERVE RATIO. The Borrower will, and will cause
each Subsidiary to, maintain on a consolidated basis as at the last day of
each fiscal quarter of each fiscal year a ratio of loan loss reserves to
Nonperforming Loans of at least 100%.
ARTICLE VII -- DEFAULTS
The occurrence of any one or more of the following events constitutes a
Default:
7.1. Any warranty made or deemed made by or on behalf of the Borrower or
any Subsidiary to the Bank under or in connection with this Agreement, any
Loan, or any certificate or information delivered in connection with this
Agreement or the Note is materially false on the date as of which it is made.
7.2. The principal of the Note is not paid when due, or any interest or
any facility fee or other obligations under this Agreement or the Note are
not paid within five days after they become due.
7.3. The Borrower breaches any of the terms of Section 6.2, 6.3, 6.5,
6.6, 6.7, 6.8, 6.9, 6.10, 6.13, 6.14, 6.15, 6.16, 6.17, 6.18 and 6.19.
7.4. The Borrower breaches (other than a breach which constitutes a
Default under Section 7.1, 7.2 or 7.3) any of the terms of this Agreement
which is not remedied within thirty days after written notice from the Bank.
7.5. The Borrower or any Subsidiary fails to pay any debt for borrowed
money equal to or exceeding $100,000 in the aggregate when due; or the
Borrower or any Subsidiary defaults in the performance of any term contained
in any agreement under which that debt was created or is governed, the effect
of which is to cause, or to permit the holder or holders of that debt to
cause, that debt to become due prior to its stated maturity; or any debt of
the Borrower or any Subsidiary is declared to be due and payable or required
to be prepaid or repurchased (other than by a regularly scheduled payment)
prior to its stated maturity; or the Borrower or any Subsidiary does not pay,
or admits in writing its inability to pay, its debts generally as they become
due.
7.6. The Borrower or any Subsidiary (i) has an order for relief entered
with respect to it under present or future Federal bankruptcy laws, (ii)
makes an assignment for the benefit of creditors, (iii) applies for, seeks,
consents to, or acquiesces in, the appointment of a receiver,
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custodian, trustee, examiner, liquidator or similar official for it or any
substantial part of its property, (iv) institutes any proceeding seeking an
order for relief under present or future Federal bankruptcy laws, or seeking
to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it or
its debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or fails to file an answer or other pleading denying
the material allegations of any such proceeding filed against it, (v) takes
any corporate action to authorize or effect any of the foregoing actions set
forth in this Section 7.6 or (vi) fails to contest in good faith any
appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or any
Subsidiary, a receiver, trustee, examiner, liquidator or similar official is
appointed for the Borrower or any Subsidiary or any substantial part of its
property, or a proceeding described in Section 7.6(iv) is instituted against
the Borrower or any Subsidiary and that appointment continues undischarged or
those proceedings continue undismissed or unstayed for a period of 30
consecutive days.
7.8. Any reportable event (as defined in Section 4043 of ERISA) occurs
in connection with any plan (as defined in ERISA).
ARTICLE VIII - ACCELERATION; REMEDIES; AND AMENDMENTS
8.1. ACCELERATION. If any Default described in Section 7.6 or 7.7
occurs with respect to the Borrower, the obligations of the Bank to make
Loans automatically terminates and the Obligations are immediately due and
payable without any election or action on the part of the Bank. If any other
Default occurs, the Bank may terminate or suspend its obligation to make
Loans, or declare the Obligations due and payable, or both, whereupon the
Obligations are immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which the Borrower expressly waives.
8.2. PRESERVATION OF RIGHTS. No delay or omission of the Bank to
exercise any right under this Agreement or the Note impairs that right nor
can it be construed to waive any Default or acquiesce in any Default, and the
making of a Loan notwithstanding the existence of a Default or the inability
of the Borrower to satisfy the conditions precedent to that Loan does not
constitute a waiver or acquiescence. Any single or partial exercise of any
right does not preclude any other or further exercise of it or the exercise
of any other right, and no waiver, amendment or other variation of the terms
of this Agreement or the Note is valid unless in writing signed by the Bank
and then only to the extent that writing specifies. All remedies contained
in this Agreement and the Note or by law afforded are cumulative and all are
available to the Bank until the Obligations have been paid in full.
8.3. AMENDMENTS. Subject to the provisions of this Article VIII, the
Bank and the Borrower may enter into agreements supplementing this Agreement
for the purpose of adding or modifying this Agreement or the Note or changing
in any manner the rights of the Bank or the Borrower or waiving any Default.
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8.4. SETOFF. In addition to and without limiting any rights of the Bank
under applicable law, if the Borrower becomes insolvent, howsoever evidenced,
or any Default or Unmatured Default occurs, any and all deposits (including
all account balances, whether provisional or final and whether or not
collected or available) and any other debt at any time held or owing by the
Bank to or for the credit or account of the Borrower may be offset and
applied toward the payment of the Obligations owing to the Bank, whether or
all or any part of the Obligations are then due.
ARTICLE IX -- GENERAL PROVISIONS
9.1. SURVIVAL OF WARRANTIES. All warranties of the Borrower contained
in this Agreement survive the delivery of the Note and the making of the
Loans.
9.2. TAXES. Any taxes (excluding income taxes) or other similar
assessments or charges payable or ruled payable by any governmental authority
in respect of this Agreement and the Note must be paid by the Borrower,
together with interest and penalties, if any.
9.3. EXPENSES; INDEMNIFICATION. The Borrower must reimburse the Bank
for any costs, internal charges and out-of-pocket expenses (including
attorneys' fees and time charges of attorneys for the Bank, who may be
employees of the Bank) paid or incurred by the Bank in connection with the
preparation, review, execution, delivery, amendment, modification,
administration, collection and enforcement of this Agreement and the Note.
The Borrower further indemnifies the Bank, its directors, officers and
employees against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including without limitation all expenses of
litigation or preparation for litigation whether or not the Bank is a party)
which any of them pay or incur arising out of or relating to this Agreement,
the Note, the transactions described in this Agreement or the direct or
indirect application or proposed application of the proceeds of any Loan. The
obligations of the Borrower under this Section survive the termination of
this Agreement.
9.4. SUCCESSORS AND ASSIGNS. The terms of this Agreement and the Note
bind and benefit the Borrower and the Bank and their respective successors
and assigns, except that the Borrower has no right to assign its rights or
obligations under this Agreement or the Note. The Bank may, in the ordinary
course of its commercial banking business and in accordance with applicable
law, at any time sell to one or more banks or other entities participating
interests in any Loan, the Note or the commitments hereunder. The Bank may,
with the consent of the Borrower, which consent may not be unreasonably
withheld, assign to one or more banks or other entities all or any part of
its rights and obligations under this Agreement or the Note, and the Borrower
releases the Bank for the amount so assigned.
9.5. GIVING NOTICE. Except as otherwise permitted by Section 2.8 with
respect to borrowing notices, all notices, requests and other communications
to any party must be in writing (including bank wire, telex, facsimile
transmission or similar writing) and must be given
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to a party: (y) in the case of the Borrower or the Bank, at its address,
facsimile number or telex number set forth on the signature page below, or
(z) in the case of any party, whatever other address, facsimile number or
telex number that party specifies for the purpose, by notice to the other.
Each notice, request or other communication is effective (i) if given by
telex, when it is transmitted to the telex number specified in this Section
and the appropriate answerback is received, (ii) if given by facsimile
transmission, when transmitted to the facsimile number specified in this
Section and confirmation of receipt is received, (iii) if given by mail, 72
hours after that communication is deposited in the mails with first class
postage prepaid, addressed as required, or (iv) if given by any other means,
when delivered at the address specified in this Section. However, notices to
the Bank under Article II are not effective until received.
ARTICLE X -- GOVERNING LAW; JURISDICTION; JURY TRIAL WAIVER
10.1. CHOICE OF LAW. This Agreement and the Notes are to be
construed in accordance with the internal laws (but not the law of conflicts)
of Michigan.
10.2. CONSENT TO JURISDICTION. The Borrower irrevocably submits to
the non-exclusive jurisdiction of any United States federal or Michigan state
court sitting in Michigan in any action or proceeding arising out of or
relating to any Loan, and the Borrower irrevocably agrees that all such
claims may be heard and determined in any such court and irrevocably waives
any present and future objection it may have as to the venue of any action or
proceeding brought in that court, or that that court is an inconvenient
forum. Nothing in this Section limits the right of the Bank to bring any
action or proceeding against the Borrower in the courts of any other
jurisdiction. Any judicial proceeding by the Borrower against the Bank or
any affiliate of the Bank involving, directly or indirectly, any matter in
any way arising out of, related to, or connected with any Loan must be
brought only in a court in Michigan.
10.3. WAIVER OF JURY TRIAL. The Bank and the Borrower knowingly,
voluntarily and intelligently waive any right either of them have to a trial
by jury in any proceeding (whether sounding in contract or tort) which
relates to, arises out of, or is connected with this or any related
agreement, or the relationship they purport to create. This provision may
only be modified in a written instrument executed by the Bank and the
Borrower.
[Signatures of following page]
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EXECUTED ON: December 22, 1997 which shall be the Effective Date of this
Agreement.
NATIONAL CITY BANCSHARES, INC. NBD BANK
By: /s/ Michael F. Elliott By: /s/ David P. Lamb
----------------------------- ---------------------------------
Michael F. Elliott David P. Lamb
Its: Vice Chairman Its: Vice President
ADDRESS FOR NOTICES:
227 Main Street, P.O. Box 868 611 Woodward Avenue
Evansville, Indiana 47705-0868 Detroit, Michigan 48226
Phone: (812) 464-9800 Phone: (313) (225-2796)
Fax: (812) 464-9825 Fax: (313) (225-1141)
Attention: Michael F. Elliott
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EXHIBIT A
REVOLVING CREDIT NOTE
$10,000,000 Detroit, Michigan
December 22, 1997
For value received, on or before the Revolving Credit Termination Date,
or at such other maturity or maturities as are set forth in the Bank's
records, National City Bancshares, Inc. (the "Borrower ") promises to pay to
the order of NBD Bank (the "Bank"), at the Bank's principal office in the
State of Michigan, in lawful money of the United States of America and in
immediately available funds, the principal sum of TEN MILLION AND 00/100
DOLLARS ($10,000,000), or such lesser amount as is indicated on the Bank's
records, together with interest computed on the balance from time to time
unpaid on the basis of the actual number of days elapsed in a year of 360
days at the rate(s) per annum determined from time to time pursuant to the
"Credit Agreement" as defined below and reflected on the Bank's records.
Interest on the unpaid principal amount is payable in accordance with the
terms of the Credit Agreement. The Borrower agrees to pay interest on
overdue principal from the date of demand or default until paid at the rate
which is three percent (3%) per annum in excess of the rate announced from
time to time by the Bank as its prime rate.
In no event may the interest rate exceed the maximum rate allowed by
law. Any interest which would for any reason be unlawful under applicable law
will be applied to principal.
Waiver: The Borrower and each endorser of this note and any other party
liable for the debt evidenced by this note severally waives demand,
presentment, notice of dishonor and protest of this note, and consents to any
extension or postponement of time of its payment without limit as to number
or period, to any substitution, exchange or release of all or any part of any
collateral securing this note, to the addition of any party, and to the
release, discharge, or suspension of any rights and remedies against any
person who is liable for the payment of this note. No delay on the part of
the holder in the exercise of any right or remedy waives that right or
remedy. No single or partial exercise by the holder of any right or remedy
precludes any future exercise of that right or remedy or the exercise of any
other right or remedy. No waiver or indulgence by the holder of any default
is effective unless it is in writing and signed by the holder, and a waiver
on one occasion does not bar or waive any right on any future occasion.
This note evidences a debt under the terms of a certain Credit Agreement
between the Bank and the Borrower contemporaneously dated, and any
amendments, (the "Credit Agreement"), which is incorporated by reference for
additional terms, including default and acceleration provisions.
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WAIVER OF JURY TRIAL: The Borrower and the Bank waive trial by jury
in any judicial proceeding involving, directly or indirectly, any matter
(whether sounding in tort, contract or otherwise) in any way arising out of,
related to, or connected with any Loan or the relationship established under
it.
Address:
227 Main Street, P.O. Box 868 NATIONAL CITY BANCSHARES, INC.
Evansville, Indiana 47705-0868
By:____________________________
Michael F. Elliott
Its: Vice Chairman
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EXHIBIT B
FORM OF OPINION
_________________________, ____
NBD Bank:
We are counsel for National City Bancshares, Inc. (the "Borrower"), and
have represented the Borrower in connection with its execution and delivery
of a Credit Agreement dated as of ______________ (the "Agreement") among the
Borrower and NBD Bank, and providing for Loans in an aggregate principal
amount not exceeding $10,000,000 at any one time outstanding. All
capitalized terms used in this opinion and not otherwise defined herein shall
have the meanings attributed to them in the Agreement.
We have examined the Borrower's [described constitutive documents of
Borrower and appropriate evidence of authority to enter into the
transaction], the Loan Documents and such other matters of fact and law which
we deem necessary in order to render this opinion. Based upon the foregoing,
it is our opinion that:
1. Each of the Borrower and its Subsidiaries is a corporation,
partnership or limited liability company duly and properly incorporated or
organized, as the case may be, validly existing and (to the extent such
concept applies to such entity) in good standing under the laws of its
jurisdiction of incorporation or organization and has all requisite authority
to conduct its business in each jurisdiction in which its business is
conducted.
2. The execution and delivery by the Borrower of the Loan Documents
and the performance by the Borrower of its obligations thereunder have been
duly authorized by proper corporate proceedings on the part of the Borrower
and will not:
(a) require any consent of the Borrower's shareholders or members
(other than any such consent as has already been given and remains in full
force and effect);
(b) violate (i) any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or any of its
Subsidiaries or (ii) the Borrower's or any Subsidiary's articles or
certificate of incorporation, partnership agreement, certificate of
partnership, articles or certificate of organization, by-laws, or operating
or other management agreement, as the case may be, or (iii) the provisions of
any indenture, instrument or agreement to which the Borrower or any of its
Subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder; or
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(c) result in, or require, the creation or imposition of any Lien
in, of or on the Property of the Borrower or a Subsidiary pursuant to the
terms of any indenture, instrument or agreement binding upon the Borrower or
any of its Subsidiaries.
3. The Loan Documents have been duly executed and delivered by the
Borrower and constitute legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their terms except to the
extent the enforcement thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
subject also to the availability of equitable remedies if equitable remedies
are sought.
[NOTE: If there are Loan Documents executed by related entities other than
the Borrower, separate provisions of the opinion or additional opinions
should cover those documents and their enforceability against such parties.]
4. There is no litigation, arbitration, governmental investigation,
proceeding or inquiry pending or, to the best of our knowledge after due
inquiry, threatened against the Borrower or any of its Subsidiaries which, if
adversely determined, could reasonably be expected to have a Material Adverse
Effect.
5. No order, consent, adjudication, approval, license, authorization,
or validation of, or filing, recording or registration with, or exemption by,
or other action in respect of any governmental or public body or authority,
or any subdivision thereof, which has not been obtained by the Borrower or
any of its Subsidiaries, is required to be obtained by the Borrower or any of
its Subsidiaries in connection with the execution and delivery of the Loan
Documents, the borrowings under the Agreement, the payment and performance by
the Borrower of the Obligations, or the legality, validity, binding effect or
enforceability of any of the Loan Documents.
This opinion may be relied upon by NBD Bank and its participants,
assignees and other transferees.
Very truly yours,
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EXHIBIT C
COMPLIANCE CERTIFICATE
To: NBD Bank
611 Woodward Avenue
Detroit, Michigan 48226
This Compliance Certificate is furnished pursuant to that certain Credit
Agreement dated as of _________________, ____ (as amended, modified, renewed
or extended from time to time, the "Agreement") among National City
Bancshares, Inc. (the "Borrower"), and NBD Bank. Unless otherwise defined
herein, capitalized terms used in this Compliance Certificate have the
meanings ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ________________________ of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Borrower and its Subsidiaries during the accounting
period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which
constitute a Default or Unmatured Default during or at the end of the
accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and
computations evidencing the Borrower's compliance with certain covenants of
the Agreement, all of which data and computations are true, complete and
correct.
Described below are the exceptions, if any, to paragraph 3 by listing,
in detail, the nature of the condition or event, the period during which it
has existed and the action which the Borrower has taken, is taking, or
proposes to take with respect to each such condition or event:
______________________________________________________
______________________________________________________
______________________________________________________
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The foregoing certifications, together with the computations set forth
in Schedule I hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this ____, day of
________________, ____________.
______________________________
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AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT, dated effective as of January 22,
1998 (this "Amendment"), is by and between NATIONAL CITY BANCSHARES, INC.
(the "Borrower"), and NBD BANK ("NBD").
W I T N E S S E T H:
WHEREAS, the Borrower and NBD entered into that certain Credit
Agreement, dated as of December 22, 1997, as amended (as so amended, the
"Agreement");
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises herein contained, and
for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings attributed to such terms in
the Agreement.
2. AMENDMENTS TO THE AGREEMENT.
2.1. The definition of "Revolving Credit Commitment" is hereby amended
to read in its entirety as follows:
"Revolving Credit Commitment" means the obligation of the Bank to make
Loans under the Revolving Credit not exceeding $45,000,000, as such
amount shall be reduced pursuant to Section 2.2.
2.2. Section 2.2 of the Agreement is hereby amended and restated in
its entirety as follows:
2.2 CLOSING FEE AND REDUCTION OF REVOLVING CREDIT COMMITMENT. (a)
The Borrower agrees to pay to the Bank an amendment fee equal to $5,000
concurrently with the execution of this Amendment. The Borrower acknowledges
that that fee has been earned by the Bank and that it is nonrefundable upon
payment. The Borrower may permanently reduce the Revolving Credit Commitment
in whole, or in part in integral multiples of $100,000, upon at least ten
Business Days' written notice to the Bank, which must specify the amount of
the reduction, but the amount of the Revolving Credit Commitment may not be
reduced below the outstanding principal amount of the Loans.
(b) The Revolving Credit Commitment shall be reduced to the
obligation of the Bank to make Loans under the Revolving Credit not exceeding
<PAGE>
$10,000,000 no later than June 30, 1998. The Borrower shall prepay the Loans in
such amounts as shall be necessary so that the outstanding Obligations shall not
be in excess of the aggregate Revolving Credit Commitment, as reduced pursuant
to this Section 2.2(b).
3. CONDITIONS PRECEDENT. This Amendment shall become effective
as of the date first above written (the "Amendment Effective Date") upon the
receipt by the Bank of the following:
(i) Counterparts of this Amendment duly executed by the Borrower and
NBD Bank.
(ii) The Borrower shall have delivered to the Bank, in exchange for
the Revolving Credit Note heretofore delivered to the Bank
pursuant to Section 2.1 of the Agreement, a new Revolving Credit
Note, dated the date of the Note being exchanged, payable to the
Bank in a principal amount equal to the amount of the Revolving
Credit Commitment and otherwise duly completed, and such Note
shall constitute a Revolving Credit Note under the Agreement as
amended hereby. Such Note shall be in the form attached hereto
as exhibit A-1.
(iii) Such other documents as any Bank shall reasonably request.
(iv) Payment of the amendment fee set forth in Section 2.2(a).
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this Amendment, the Borrower represents and warrants that:
4.1. The execution, delivery and performance by the Borrower of
this Amendment are within its corporate powers, have been duly authorized by
all necessary corporate action and are not in contravention of any law, rule
or regulation, or any judgment, decree, writ, injunction, order or award of
any arbitrator, court or governmental authority, or of the terms of the
Borrower's charter or by-laws, or of any contract or undertaking to which the
Borrower is a party or by which the Borrower or its property is or may be
bound or affected.
4.2. This Amendment is the legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its terms.
4.3. No consent, approval or authorization of or declaration,
registration or filing with any governmental authority or any nongovernmental
person or entity, including, without limitation, any creditor or stockholder
of the Borrower, is required on the part of the Borrower in connection with
the execution, delivery and performance of this Amendment or the transactions
contemplated hereby or as a condition to the legality, validity or
enforceability of this Amendment.
2
<PAGE>
4.4. After giving effect to the amendments contained herein, the
representations and warranties contained in Article V of the Agreement are
true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
5. RATIFICATION. The Agreement, as respectively amended hereby,
shall remain in full force and effect and is hereby ratified, approved and
confirmed in all respects by the Borrower.
6. REFERENCE TO AGREEMENT. From and after the Amendment
Effective Date, each reference in the Agreement to "this Agreement",
"hereof", or "hereunder" or words of like import, and all references to the
Agreement in any and all agreements, instruments, documents, notes,
certificates and other writings of every kind and nature shall be deemed to
mean the Agreement, as the case may be, as respectively amended by this
Amendment.
7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered as of the date first above written.
NATIONAL CITY BANCSHARES, INC.
By: /s/ Michael F. Elliott
--------------------------------
Michael F. Elliott
Its: Chairman
NBD BANK
By: /s/ David P. Lamb
--------------------------------
David P. Lamb
Its: Vice President
3
<PAGE>
EXHIBIT A-1
REVOLVING CREDIT NOTE
$45,000,000 Detroit, Michigan
January 22, 1998
For value received, on or before the Revolving Credit Termination
Date, or at such other maturity or maturities as are set forth in the Bank's
records, National City Bancshares, Inc. (the "Borrower ") promises to pay to
the order of NBD Bank (the "Bank"), at the Bank's principal office in the
State of Michigan, in lawful money of the United States of America and in
immediately available funds, the principal sum of FORTY FIVE MILLION AND
00/100 DOLLARS ($45,000,000), or such lesser amount as is indicated on the
Bank's records, together with interest computed on the balance from time to
time unpaid on the basis of the actual number of days elapsed in a year of
360 days at the rate(s) per annum determined from time to time pursuant to
the "Credit Agreement" as defined below and reflected on the Bank's records.
Interest on the unpaid principal amount is payable in accordance with the
terms of the Credit Agreement. The Borrower agrees to pay interest on
overdue principal from the date of demand or default until paid at the rate
which is three percent (3%) per annum in excess of the rate announced from
time to time by the Bank as its prime rate.
In no event may the interest rate exceed the maximum rate allowed by
law. Any interest which would for any reason be unlawful under applicable law
will be applied to principal.
Waiver: The Borrower and each endorser of this note and any other
party liable for the debt evidenced by this note severally waives demand,
presentment, notice of dishonor and protest of this note, and consents to any
extension or postponement of time of its payment without limit as to number
or period, to any substitution, exchange or release of all or any part of any
collateral securing this note, to the addition of any party, and to the
release, discharge, or suspension of any rights and remedies against any
person who is liable for the payment of this note. No delay on the part of
the holder in the exercise of any right or remedy waives that right or
remedy. No single or partial exercise by the holder of any right or remedy
precludes any future exercise of that right or remedy or the exercise of any
other right or remedy. No waiver or indulgence by the holder of any default
is effective unless it is in writing and signed by the holder, and a waiver
on one occasion does not bar or waive any right on any future occasion.
This note evidences a debt under the terms of a certain Credit
Agreement between the Bank and the Borrower contemporaneously dated, and any
amendments, (the "Credit
4
<PAGE>
Agreement"), which is incorporated by reference for additional terms,
including default and acceleration provisions.
WAIVER OF JURY TRIAL: The Borrower and the Bank waive trial by jury in
any judicial proceeding involving, directly or indirectly, any matter
(whether sounding in tort, contract or otherwise) in any way arising out of,
related to, or connected with any Loan or the relationship established under
it.
Address:
227 Main Street, P.O. Box 868 NATIONAL CITY BANCSHARES, INC.
Evansville, Indiana 47705-0868
By:____________________________
Michael F. Elliott
Its: Chairman
5
<PAGE>
1 9 9 7 A n n u a l R e p o r t
[PHOTOS]
[LOGO]
N a t i o n a l C i t y B a n c s h a r e s, I n c .
BUILDING FOR TOMORROW IN ALL WE DO TODAY.
<PAGE>
[INSIDE FRONT COVER]
CORPORATE PROFILE
NATIONAL CITY BANCSHARES, INC. (NASDAQ: NCBE), HEADQUARTERED IN EVANSVILLE,
INDIANA, HAS BEEN RANKED AS ONE OF THE MOST SOUND FINANCIAL ORGANIZATIONS IN
THE NATION. IN THE JUNE 1997 ISSUE OF USBANKER, NATIONAL CITY WAS RANKED
TENTH NATIONALLY AMONG MID-SIZED BANKING COMPANIES. WITH ASSETS OF
APPROXIMATELY $1.5 BILLION, AS OF MARCH 9, 1998, NATIONAL CITY OWNS THIRTEEN
FULL-SERVICE FINANCIAL INSTITUTIONS IN THIRTY-THREE COMMUNITIES AND FORTY-FOUR
LOCATIONS THROUGHOUT SOUTHWESTERN INDIANA, WESTERN KENTUCKY, AND SOUTHEASTERN
ILLINOIS. NATIONAL CITY'S NON-BANKING SUBSIDIARIES INCLUDE NCBE LEASING
CORP., TWENTY-ONE SOUTHEAST THIRD CORPORATION, AND UNIFED, INC.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Financial Review 1
Message to Shareholders 2
Year in Review 4
Management's Discussion 6
Management's Report 18
Independent Auditor's Report 19
Statements of Financial Position 20
Statements of Income 21
Statements of Cash Flows 22
Statements of Shareholders' Equity 24
Notes to Financial Statements 25
Official Organization 38
Subsidiaries 38
National City Bancshares, Inc. 40
Shareholder Information INSIDE BACK COVER
</TABLE>
<PAGE>
FINANCIAL REVIEW
<TABLE>
<CAPTION>
As Of And For The Year Ended December 31
(Dollar Amounts Other Than
Share Data in Thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 51,995 $ 48,606 $ 44,433 $ 39,933 $ 38,010
Provision for loan losses 1,891 2,704 399 78 736
Noninterest income 10,088 8,606 7,117 5,209 6,707
Noninterest expense 34,390 29,966 28,968 28,644 28,343
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 25,802 24,542 22,183 16,420 15,638
Income taxes 7,451 8,046 7,784 5,668 4,861
- ------------------------------------------------------------------------------------------------------------------------------------
Net income $ 18,351 $ 16,496 $14,399 $10,752 $ 10,777
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE*
Earnings - Basic $ 1.72 $ 1.52 $ 1.30 $ 0.97 $ 0.97
Earnings - Diluted 1.69 1.52 1.30 0.97 0.97
Book value 13.69 12.12 11.71 10.47 10.23
Cash dividends declared by
National City Bancshares,Inc. 0.64 0.55 0.40 0.40 0.38
TOTALS AT YEAR-END
Loans $ 916,356 $ 800,622 $ 736,997 $ 645,235 $ 579,556
Allowance for loan losses 7,969 7,189 6,176 5,750 5,528
Securities 279,328 282,894 258,895 268,103 269,098
Total assets 1,298,260 1,172,057 1,081,921 1,004,160 993,468
Deposits 964,046 913,350 864,136 849,306 844,808
Shareholders' equity 146,803 129,694 130,606 114,750 113,975
SELECTED FINANCIAL RATIOS
Net income to average assets 1.47% 1.48% 1.40% 1.09% 1.09%
Net income to average equity 13.42 12.89 11.74 9.39 9.76
Cash dividend payout 36.74 37.05 30.05 36.77 31.65
Average equity to average assets 10.98 11.48 11.93 11.59 11.17
Tangible equity to tangible assets 9.95 10.46 11.85 11.32 11.35
Total capital to risk-weighted assets 14.25 15.84 17.99 17.92 19.09
OTHER DATA
Number of shares* 10,727,247 10,702,198 11,152,316 10,960,405 11,143,701
Number of shareholders 2,541 2,396 2,239 2,238 2,174
Number of full-time equivalent employees 510 490 490 489 511
Weighted average number of common
shares outstanding:*
Basic 10,679,448 10,843,295 11,095,116 11,040,906 11,146,280
Diluted 10,832,943 10,843,295 11,095,116 11,040,906 11,146,280
</TABLE>
*RESTATED TO REFLECT ALL STOCK DIVIDENDS AND THE TWO-FOR-ONE STOCK SPLIT ISSUED
IN 1996.
[THREE BAR GRAPHS]
<TABLE>
<CAPTION>
NET INCOME
<S> <C>
1993 $10,777
1994 $10,752
1995 $14,399
1996 $16,496
1997 $18,351
</TABLE>
<TABLE>
<CAPTION>
LOANS
<S> <C>
1993 $579,556
1994 $645,235
1995 $736,997
1996 $800,622
1997 $916,356
</TABLE>
<TABLE>
<CAPTION>
RETURN ON EQUITY
<S> <C>
1993 9.76%
1994 9.39%
1995 11.74%
1996 12.89%
1997 13.42%
</TABLE>
1
<PAGE>
MESSAGE TO SHAREHOLDERS
March 9, 1998
By almost any measure, 1997 marked an extraordinary year for National City
Bancshares, Inc. Record earnings, the near completion of our new downtown
Evansville headquarters, and the new affiliates joining us, put the Corporation
in an excellent position to continue to excel in the future.
I am pleased to report that for the year ended December 31, 1997, the
Corporation completed its most profitable year. The Corporation earned a
record $18.4 million in 1997, an increase of $1.9 million over the prior
year. Basic earnings per share grew from $1.52 in 1996 to $1.72 in 1997. This
13% increase in earnings per share was the result of an increase in net
interest income, non-interest income, and our continued efforts to control
expenses.
[PHOTO]
MICHAEL F .ELLIOTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Corporation's assets grew in 1997 to $1,298,260,000 at year-end, compared
with $1,172,057,000 in 1996. In addition, deposits increased from
$913,350,000 in 1996 to $964,046,000 in 1997. The loan portfolio increased
from $800,622,000 to $916,356,000 for the same periods.
Our plan to improve shareholder value continues to show results. Return on
shareholder equity improved from 12.89% in 1996 to 13.42% in 1997, and return
on average assets remained steady. Management is pleased with these ratios;
however, we believe we can improve both measurements. We believe that a
consistently sustained, high earnings performance and earnings growth rate
remain the key elements in delivering shareholder value over time.
The Corporation's stock continues to be well received by the market. We
experienced marked improvement over the year, as our year-end stock price
increased from $27.86 in 1996 to $44.75 in 1997. Total cash dividends declared
in 1997 increased to $.64 per share, compared to $.55 per share in 1996. We
experienced an 11% increase in participants in the Corporation's dividend
reinvestment plan. As always, we encourage eligible shareholders to
participate in the plan.
During the year, we completed the purchase of First Federal Savings Bank of
Leitchfield, Kentucky,and First National Bank of Bridgeport, Illinois. Both
transactions were accounted for as purchases on the Corporation's books. The
third transaction of 1997 was completed with the acquisition of First Bank of
Huntingburg, Indiana. This transaction was accounted for as a pooling of
interests.
2
<PAGE>
Since the end of 1997, the Corporation has completed two additional purchases
and we currently have three more mergers pending. In January, our subsidiary
First Kentucky Bank acquired a branch office in Mayfield, Kentucky, which
included $66 million in deposits. In March, we completed the purchase of the
Bank of Illinois in Mt. Vernon, which has assets of approximately $163
million. Definitive agreements have been signed with Illinois One Bancorp,
Inc., Trigg Bancorp, Inc. and Community First Financial, Inc. If these
transactions are completed, the Corporation will have approximately $1.9
billion in assets.
Management is continuing to aggressively pursue acquisition opportunities.
Each transaction must fit with the Corporation's long range strategic plan
and must be in the best interests of the Corporation and the institution that
is acquired. Our ability to acquire and improve the operating performance of
community banks is the key to our continued success and growth.
At year-end, we saw the retirements of Chairman John D. Lippert and Executive
Vice President Benjamin W. Bloodworth. And in June of this year, Harold A.
Mann, Senior Vice President and former Secretary and Treasurer, will retire
after 42 years with the organization. Their knowledge and leadership were a
cornerstone in building the Corporation as we know it today. We wish them a
long, healthy retirement. We are pleased that we will continue to benefit
from John's counsel as he continues to serve on the Corporation's Board of
Directors.
Prior to their retirements, our planned succession of key management
positions offered us the opportunity to hire Curtis D. Ritterling as
Executive Vice President. Curtis joined us with over 20 years of financial
management experience and a track record of improving performance. His
experience as Chairman, President and CEO of Boatmen's Bank of South Central
Illinois, will fit with the responsibilities he will undertake with
affiliate operations and acquisitions. Stephen C. Byelick, Jr., who joined us
in 1996, was named Secretary and Treasurer of the Corporation in January.
[PHOTO]
EXECUTIVE OFFICERS
ROBERT A. KEIL, PRESIDENT, AND CURTIS D. RITTERLING, EXECUTIVE VICE PRESIDENT
National City Bancshares,Inc. is one of the nation's premier banking
organizations, staffed by dedicated and talented employees. The Corporation
is in excellent financial health and remains committed to delivering
increased earnings growth and shareholder returns.
On behalf of the Board of Directors, I would like to thank you, our
shareholders, customers, and employees, for your continued confidence and
support.
[SIGNATURE]
Michael F. Elliott
Chairman of the Board and
Chief Executive Officer
3
<PAGE>
1997 YEAR IN REVIEW
(ALL NUMBERS ARE PRESENTED AS ORIGINALLY STATED.)
JANUARY
JANUARY 23
The restructuring of four NCBE affiliates was announced. This move allowed
The National City Bank of Evansville to expand into Gibson County by merging
with The Farmers and Merchants Bank, Ft. Branch and acquiring United Federal
Savings Bank's Princeton office. United Federal Savings Bank and State Bank
of Washington merged to form Alliance Bank with offices in
Vincennes, Washington, and Odon, Indiana.
[LOGO] ALLIANCE BANK
WORKING TOGETHER FOR YOU
JANUARY 27
NCBE announced its highest annual earnings in a news release reporting 1996
figures. Earning more than $15 million for the year, NCBE reported income of
$1.59 per share for the year. This was an increase of 19% from the previous
year. Total assets were approximately $1.1 billion.
FEBRUARY
FEBRUARY 19
A quarterly cash dividend in the amount of sixteen cents per share payable
April 7, 1997, was announced.
MARCH
MARCH 1
NCBE completed the acquisition of First Federal Savings Bank of Leitchfield.
First Federal, with assets of $43 million as of December 31, 1996, has two
offices in Leitchfield and Hardinsburg, Kentucky.
[PHOTO]
APRIL
APRIL 14
NCBE announced record earnings of $4.37 million for the first quarter of the
year. Total assets increased to approximately $1.12 billion.
APRIL 21
NCBE agreed to acquire Bridgeport Bancorp, Inc., a one-bank holding company for
the First National Bank of Bridgeport. First National, with one office in
Bridgeport, Illinois, had total assets of $39.9 million at March 31, 1997.
MAY
MAY 21
A quarterly cash dividend in the amount of sixteen cents per share payable
July 7, 1997, was announced.
JUNE
JUNE 3
NCBE announced that it had reached an agreement to acquire Fourth First
Bancorp, a one-bank holding company for the First Bank of Huntingburg,
Indiana. First Bank, with two offices in Huntingburg and one in Ferdinand,
Indiana, had total assets of $105 million as of March 31, 1997.
[PHOTO]
[PICTURE]
JUNE 26
As published in U.S. Banker's June 1997 issue, NCBE was ranked tenth in the
top 200 banking companies listed according to five areas of
performance-driven criteria. This was an improvement over the eleventh place
ranking from the prior year.
<PAGE>
JULY
JULY 16
NCBE announced record second quarter earnings of $4.58 million. Total assets
increased to approximately $1.14 billion.
JULY 31
The acquisition of Bridgeport Bancorp, Inc. was completed.
AUGUST
AUGUST 20
A quarterly cash dividend in the amount of sixteen cents per share payable
July 7, 1997, was announced.
[PHOTO]
AUGUST 28
First Kentucky Bank agrees to purchase the Mayfield, Kentucky banking center and
its $65 million in deposits from Republic Bank and Trust Company.
The National City Bank of Evansville agrees to purchase the Mount Vernon,
Indiana banking center of First Federal Savings Bank.
SEPTEMBER
OCTOBER
OCTOBER 16
NCBE announced record third quarter earnings. NCBE had income of $4.43
million, an increase of 16% over the the third quarter in 1996. Total assets
increased to approximately $1.18 billion.
OCTOBER 23
The NCBE Board of Directors declared a five percent stock dividend. In
addition, the board announced a two cent per share (12.5 percent) increase in
its regular quarterly cash dividend.
NOVEMBER
NOVEMBER 5
Illinois One Bancorp, Inc., a one-bank holding company for Illinois One Bank,
National Association, agrees to join NCBE. Illinois One Bank, with offices in
Shawneetown, Elizabethtown, and Golconda, Illinois, had assets of $79 million
as of June 30, 1997.
DECEMBER
DECEMBER 2
Vernois Bancshares, Inc. agreed to affiliate with NCBE. The one-bank holding
company for Bank of Illinois in Mt. Vernon had assets of $163 million as of
September 30, 1997.
DECEMBER 31
After 46 years in banking, and 18 years with the National City organization,
NCBE Chairman John D. Lippert retired. Michael F. Elliott was appointed as
Chairman and CEO.
[PHOTO]
DECEMBER 31
[MAP OF AFFILIATES]
NCBE completed the acquisition of Fourth First Bancorp. This increased total
assets for NCBE to $1.3 billion.
As of year-end, NCBE owned 11 commercial banks and one savings bank with 40
banking offices in 31 communities.
<PAGE>
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 restated to include bank
acquisitions accounted for using the pooling of interests method and to give
effect to all stock dividends and the two-for-one stock split issued in 1996.
BUSINESS DESCRIPTION
National City Bancshares, Inc. (Corporation) is an Indiana corporation based
in Evansville, Indiana, which was established in 1985 to engage in the
business of a bank holding company. As of March 9, 1998, the Corporation had
fifteen wholly-owned subsidiaries, including twelve commercial banks and one
savings bank with a total of forty-four banking centers serving thirty-three
communities, a leasing corporation, a property management company, and a
financial services company (which is a subsidiary of a subsidiary bank). Each
subsidiary, its location, number of offices, year founded, date of
affiliation with the Corporation, and size in assets and equity is shown
below. On June 17, 1997, The Farmers and Merchants Bank, which was acquired
by the Corporation January 30, 1989, was merged into The National City Bank
of Evansville. On June 30, 1997, United
<TABLE>
<CAPTION>
SUBSIDIARY
12/31/97 (millions)
Number of Year Date of Affiliation ------------------
Home Office and Other Cities Offices Founded with the Corporation Assets Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THE NATIONAL CITY BANK OF EVANSVILLE 11 1850 May 6, 1985 $487 $43
EVANSVILLE, NEWBURGH, FORT BRANCH,
PRINCETON, AND MOUNT VERNON, IN
THE PEOPLES NATIONAL BANK OF GRAYVILLE 1 1937 May 16, 1988 38 3
GRAYVILLE, IL
FIRST KENTUCKY BANK 6 1916 November 30, 1990 99 9
STURGIS, MORGANFIELD, POOLE, MAYFIELD, AND
UNIONTOWN, KY
LINCOLNLAND BANK 5 1904 December 17, 1993 128 11
DALE, CHRISNEY, GRANDVIEW, HATFIELD,
AND ROCKPORT, IN
THE BANK OF MITCHELL 4 1882 December 17, 1993 66 7
MITCHELL, BEDFORD, AND PAOLI, IN
PIKE COUNTY BANK 3 1900 December 17, 1993 54 5
PETERSBURG, ARTHUR, AND SPURGEON, IN
ALLIANCE BANK 3 1910 December 17, 1993 126 11
VINCENNES, WASHINGTON, AND ODON, IN
WHITE COUNTY BANK 1 1904 June 30, 1995 59 5
CARMI, IL
THE FIRST NATIONAL BANK OF WAYNE CITY 1 1902 August 31, 1996 50 10
WAYNE CITY, IL
FIRST FEDERAL SAVINGS BANK OF LEITCHFIELD 2 1961 March 1, 1997 49 7
LEITCHFIELD AND HARDINSBURG, KY
FIRST NATIONAL BANK OF BRIDGEPORT 1 1906 August 1, 1997 48 15
BRIDGEPORT,IL
FIRST BANK OF HUNTINGBURG 3 1907 December 31, 1997 108 13
HUNTINGBURG AND FERDINAND,IN
BANK OF ILLINOIS IN MT.VERNON 3 1965 March 6, 1998 163 13
MT. VERNON, IL
NCBE LEASING CORP. 1 1994 November 1, 1994 15 1
EVANSVILLE, IN
TWENTY-ONE SOUTHEAST THIRD CORPORATION 1 1996 May 22, 1996 16 2
EVANSVILLE, IN
UNIFED, INC. 1 1980 August 31, 1995 - -
VINCENNES, IN
</TABLE>
6
<PAGE>
Federal Savings Bank, which was acquired by the Corporation August 31, 1995,
was merged into The State Bank of Washington with the name changed to
Alliance Bank.
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; safe keeping 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 deposits are insured by the Federal Deposit Insurance
Corporation.
The Corporation continues to grow rapidly by acquiring community banks. The
financial results of the acquisitions can best be assessed from the
Corporation's financial statements on a quarterly, as-reported basis. After
each acquisition accounted for as a pooling of interests, the Corporation's
financial statements are restated to include the results of the acquiree.
From the beginning of 1995 to the end of 1997, the Corporation acquired
assets of $278,209 (measured at the time of each acquisition) in 3
transactions accounted for as poolings of interests.
Since the beginning of 1995, the Corporation has also acquired $172,581
(measured at the time of each acquisition) in assets through transactions
accounted for as purchases. Financial statements are not restated following a
transaction accounted for as a purchase; instead, the Corporation's financial
statements include the results of each acquiree following acquisition.
Transactions accounted for as purchases typically result in the Corporation's
recording intangible assets, including goodwill, which the Corporation
amortizes on a straight-line basis. The Corporation has recorded $19,716
(measured at the time of each acquisition) in intangible assets as the direct
result of purchases consummated between the beginning of 1995 and the end of
1997.
In 1997, First Federal Savings Bank of Leitchfield and First National Bank of
Bridgeport became subsidiaries of the Corporation in transactions accounted
for as purchases. As a result of the purchases, the Corporation's assets
increased $97,335 and it recorded intangible assets of $12,142. First Bank of
Huntingburg also became a subsidiary of the Corporation in 1997. This
acquisition was accounted for as a pooling of interests; accordingly,
financial results for periods prior to the acquisition reported in the
following sections and in the financial statements have been restated to
include the results of First Bank of Huntingburg, including $108,109 in
assets. Footnote 2 to the financial statements includes additional
information about each transaction.
Since the end of 1997, the Corporation has acquired Bank of Illinois in Mt.
Vernon and a subsidiary of the Corporation has acquired a branch office in
Mayfield, Kentucky. Both transactions were accounted for as purchases. Bank
of Illinois in Mt. Vernon had assets at December 31, 1997 of $163,450. The
branch purchase increased the Corporation's deposits by $65,639. The
Corporation will record approximately $19,601 in intangible assets as a
result of both transactions.
As of March 9, 1998, the Corporation had entered into definitive merger
agreements with Illinois One Bancorp, Inc., Trigg Bancorp,Inc., and Community
First Financial, Inc. Together, the potential acquirees have assets of
approximately $315,000. The acquisitions remain subject, among other things,
to regulatory approval, shareholder approval of the acquirees, and other
customary conditions. The Corporation intends to account for these
transactions as poolings of interests; however, any or all may be accounted
for as purchases if they fail to qualify for pooling treatment. Footnote 21
to the financial statements provides additional information about these
pending acquisitions.
Management expects to continue to pursue acquisition opportunities as they
arise. Management believes other community banks located in the Corporation's
general geographic area (which may extend beyond the tri-state region
currently served) will find the Corporation an attractive partner because the
Corporation shares a commitment to local communities and provides the
opportunity to retain much of the operational decision making in those
communities while recognizing the efficiencies of affiliation with a larger
organization.
FINANCIAL CONDITION
Basic earnings per share for 1997 were $1.72, representing a 13% increase over
the 1996 results. The increase in earnings per share was the result of a
combination of increased net interest income, improved non-interest income, and
continued cost control. During 1997, book value per share increased by $1.57 to
$13.69 and resulted in a ratio of average equity capital to average assets of
10.98%.
Average earning assets increased $112,207, or 10.7%, and $78,141, or 8.1%, in
l997 and 1996, respectively. Growth in average assets in 1997 was $130,254,
or 11.7%, compared to $87,238, or 8.5%, in 1996. During 1997, average
interest bearing deposits in banks decreased $925, or 19.7%, and average
federal funds sold decreased $1,401, or 26.0%. Average securities increased
$24,124, or 9.1%, with the largest
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
FINANCIAL CONDITION, CONTINUED
increase being in tax-exempt municipals which increased by $63,042, or 71.4%.
Taxable municipals increased $355, or 11.8%. U.S. Government and agencies
decreased $33,674, or 22.8%, and all other types of securities decreased
$7,249, or 28.3%. The average market value adjustment on securities available
for sale increased to an unrealized gain of $1,227 from an unrealized loss of
$423 in 1996. Average loans increased $90,409, or 11.7%. All types of loans
increased during the year. Average commercial loans increased $36,820, or
13.5%; average consumer loans increased $4,879, or 3.2%; and average mortgage
loans increased $45,253, or 13.5%. All other types of loans increased $3,457,
or 31.2%. The growth in the loan portfolio was due mainly to purchase
acquisitions in which average loans increased by $41,784. The remaining
growth in the loan portfolio was attributable to a strong loan demand. The
change in the earning asset mix was intended to and did result in improved
earnings in 1995, 1996, and 1997.
Average certificate of deposit and other time deposit balances increased by
$62,192, or 12.9%, in 1997. Average balances of money market accounts
decreased $361, or 0.5%. Savings and interest bearing checking accounts
increased $3,540, or 1.6%. Average federal funds purchased and securities
sold under agreements to repurchase increased $14,735, or 33.7%. Average
other borrowings increased $32,510, or 76.9%. Average noninterest-bearing
deposits increased $7,548, or 7.1%.
SECURITIES PORTFOLIO
Securities comprised 24.9% of the 1997 average earning assets compared to
25.2% and 26.1% in 1996 and 1995, respectively. They represent the second
largest earning asset component after loans. The Corporation holds various
types of securities, including mortgage-backed securities. 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 monitors the amount of mortgage-backed
securities contained in the portfolio. The Corporation has no securities of
any single
SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
Carrying Value at December 31
-----------------------------------------------------------------------------------------
1997 1996 1995
------------- ------------------------------- ---------------------------------
AVAILABLE Held to Available Held to Available
FOR SALE Maturity For Sale Maturity For Sale
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury securities $ 9,915 $ - $13,598 $ 500 $ 33,880
U.S. Government agencies 29,067 21,877 38,662 5,448 61,568
Taxable municipals 3,473 2,775 - 3,120 -
Tax-exempt municipals 170,301 120,805 - 64,250 -
Corporate securities 5,986 11,161 3,056 17,165 4,638
Mortgage-backed securities 47,860 7,985 56,082 6,459 56,096
- ----------------------------------------------------------------------------------------------------------------------------------
Total debt securities 266,602 164,603 111,398 96,942 156,182
Equity securities 1,355 - 1,402 - 1,500
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities $ 267,957 $ 164,603 $112,800 $ 96,942 $ 157,682
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY ANALYSIS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
After 1 Year After 5 Years
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
AVAILABLE FOR SALE:
U.S. Treasury securities $ 5,314 6.60% $ 4,601 6.84% $ - - $ - - $ 9,915 6.71%
U.S. Government agencies 14,078 5.88% 11,272 6.32% 3,455 8.09% 262 9.38% 29,067 6.34%
Taxable municipals 970 5.60% 2,098 6.93% 405 7.80% - - 3,473 6.66%
Tax-exempt municipals 9,725 7.43% 28,406 8.17% 45,075 8.30% 87,095 8.62% 170,301 8.39%
Corporate securities 5,687 7.42% 299 5.76% - - - - 5,986 7.34%
- ------------------------------------------------------------------------------------------------------------------------------------
Total maturing securities $ 35,774 6.64% $ 46,676 7.52% $ 48,935 8.28% $ 87,357 8.62% 218,742 7.99%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 47,860 6.32%
Equity securities 1,355 6.69%
--------- -------
Total securities $267,957 7.69%
--------- -------
--------- -------
</TABLE>
8
<PAGE>
issuer, with the exception of the U. S. Government, exceeding 10% of
shareholders' equity. The Corporation manages the quality and risk of
securities through its Asset/Liability Committee, which recommends and
monitors the composition of the overall security portfolio as approved by the
Corporation's Board of Directors. Among other things, the investment policy
establishes guidelines for the level, type, quality, and mix of securities
appropriate for the portfolio. The securities portfolio at December 31, 1997,
included $1,748 in structured notes, which were comprised of $1,000 in an
indexed amortizing note, $500 in a delevered floating note, and $248 in a
capped floating rate note. These securities have risk characteristics which
are well within the constraints of the non-structured securities held in the
securities portfolio.
Securities classified as held to maturity are carried at amortized cost,
and those classified as available for sale are carried at fair value. The
available-for-sale securities included unrealized gains of approximately
$6,283 and unrealized losses of $540 at December 31, 1997. At December
31, 1997, available-for-sale securities included $47,860 in
mortgage-backed securities, or 17.9% of the available-for-sale portfolio. The
weighted average maturity of the available-for-sale portfolio at December 31,
1997, was 9.3 years. The weighted average maturity of the available-for-sale
and the held-to-maturity portfolios at December 31, 1996 was 7.3 years and
7.9 years, respectively. The weighted average yields on municipal securities
that are tax-exempt have been computed on a federal-tax-equivalent basis
using a 35.0% tax rate.
LOANS
Each subsidiary bank follows loan policies approved by its board 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 subsidiaries' boards of directors
for compliance and loan quality. Management believes that careful loan
administration and high credit standards minimize credit risk, as evidenced
by the ratio of underperforming loans to total loans. Speculative loans are
prohibited and the loan portfolio contains no foreign loans.
The Corporation's loan portfolio is diversified by type of loan and industry,
and, within its market area, by geographic location, which minimizes economic
risk. The loan portfolio contained 29% commercial loans, 55% real estate
loans (primarily residential), and 16% consumer loans at December 31, 1997.
The Corporation's subsidiary banks lend to customers in various industries
including manufacturing, agricultural, health and other services,
transportation, mining, wholesale, and retail.
Commercial and industrial loans increased $24,830, of which approximately 30%
was due to acquisitions accounted for under the purchase method. The
remaining increase was due to a general increase in business among the
communities the Corporation's banks serve. Growth in consumer lending was
primarily due to acquisitions accounted for under the purchase method.
LOAN PORTFOLIO AT YEAR END, FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans $501,882 $425,507 $393,082 $368,989 $342,616
Agricultural loans 31,788 31,154 30,345 29,297 28,112
Commercial and industrial loans 201,402 176,572 165,217 127,389 109,880
Economic development loans and
other obligations of state and
political subdivisions 13,997 11,214 9,887 13,138 10,011
Consumer loans 149,505 143,485 131,477 105,812 89,387
Direct lease financing 13,146 12,331 6,960 518 503
Leveraged leases 4,661 - - - -
All other loans 415 582 344 396 1,398
- -------------------------------------------------------------------------------------------------------------------------------
Total loans - gross 916,796 800,845 737,312 645,539 581,907
Less: unearned income 440 223 315 304 2,351
- -------------------------------------------------------------------------------------------------------------------------------
Total loans - net of unearned income 916,356 800,622 736,997 645,235 579,556
Less: allowance for loan losses 7,969 7,189 6,176 5,750 5,528
- -------------------------------------------------------------------------------------------------------------------------------
Total loans - net $908,387 $793,433 $730,821 $639,485 $574,028
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
LOANS, CONTINUED
LOAN MATURITIES AND RATE SENSITIVITIES AT DECEMBER 31, 1997 ON AGRICULTURAL,
COMMERCIAL, AND TAX-EXEMPT LOANS
<TABLE>
<CAPTION>
After
1 Year But
Within Within Over
1 Year 5 Years 5 Years Total
<S> <C> <C> <C> <C>
Rate sensitivities:
- ---------------------------------------------------------------------------------------------------------
Fixed rate loans $ 38,128 $41,572 $20,596 $100,296
Variable rate loans 141,161 4,090 770 146,021
- ---------------------------------------------------------------------------------------------------------
Subtotal $179,289 $45,662 $21,366 246,317
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Percent of subtotal 72.79% 18.54% 8.67%
Nonaccrual loans 870
--------
Total loans net of unearned income $247,187
--------
--------
</TABLE>
Real estate loans increased $76,375, of which approximately 40% was due to
purchase acquisitions. The remaining increase was a direct result of strong
loan demand in the markets served by the Corporation's banks supported by a
favorable interest rate environment. This portfolio primarily consists of
single-family, owner-occupied housing. The Corporation's guidelines for
residential mortgage lending were followed and advances normally did not
exceed 80% of appraised value.
At December 31, 1997, there was no concentration of credit risk from borrowers
engaged in the same or similar industries exceeding 10% of total loans.
Geographic diversification is provided by the Corporation's policy to extend
credit to customers in its geographic market areas in and around the
subsidiary banks' banking offices in Southwestern Indiana, Southeastern
Illinois, and Western Kentucky.
UNDERPERFORMING ASSETS
Underperforming assets consist of nonaccrual securities and loans,
restructured loans, loans past due 90 days or more, and other real estate
held. Nonaccrual 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 place on nonaccrual status after becoming 90
days past due if the ultimate collectibility of the loan is in question.
Loans which are current, but as to 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 loans that are continuing to accrue interest but are contractually
past due ninety days or more as to interest or principal payments. Other real
estate owned represents properties obtained for debts previously contracted.
Management is not aware of any loans which have not been disclosed as
underperforming assets that represent or result from unfavorable trends or
uncertainties which management reasonably believes will materially adversely
affect future operating results, liquidity, or capital resources, or
represent material credits as to which management has serious doubt as to the
ability of such borrower to comply with loan repayment terms.
Past due 90 days or more, nonaccrual, and restructured loans were 0.5% of
total loans at the end of 1997 and 1996. Of the loans in these categories,
$2,102, or 46.3%, were secured by real estate at the end of 1997, compared to
$1,977, or 53.3%, at the end of 1996. Additional interest income that would
have been recorded, if nonaccrual and restructured loans had been
UNDERPERFORMING ASSETS AT YEAR END, FIVE-YEAR SUMMARY
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Underperforming loans:
Nonaccrual $3,672 $2,438 $1,049 $1,274 $2,441
Restructured 75 114 143 223 222
90 days past due 794 1,155 1,001 783 340
- ----------------------------------------------------------------------------------------------------------------------------
Total underperforming loans 4,541 3,707 2,193 2,280 3,003
Nonaccrual municipal securities 61 31 - - 81
Other real estate owned 79 66 383 671 1,148
- ----------------------------------------------------------------------------------------------------------------------------
Total $4,681 $3,804 $2,576 $2,951 $4,232
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
current in accordance with their original terms, was $324, $218, and $134 in
1997, 1996, and 1995, respectively. The interest recognized on nonaccrual
loans was approximately $56, $23, and $58 in 1997, 1996, and 1995,
respectively.
In addition to those loans classified as underperforming, management was
monitoring loans of approximately $38,460 and $46,386 as of the end of 1997
and 1996, respectively, for the borrowers' abilities to comply with present
loan repayment terms. All impaired loans discussed in Note 6 to the financial
statements in this report are included in underperforming or closely monitored
loans.
The Corporation monitors credit quality through a periodic review and
analysis of each subsidiary bank's loan portfolio. On a quarterly basis, each
subsidiary bank performs an evaluation of the adequacy of its allowance for
loan losses. The evaluation includes an analysis of past due loans, loans
criticized during regulatory examinations, internally classified loans,
delinquency trends, and other relevant factors. The results of these
evaluations are used by the Corporation to determine the adequacy of the
consolidated allowance for loan losses.
RISK MANAGEMENT
As of December 31, 1997, management considered the allowance for loan losses
adequate to provide for potential losses in the loan portfolio. 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 an 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 monitor loan
portfolios using models designed in part by regulatory agencies.
Total loans charged off during 1997 decreased $119, or 4.6%,
<TABLE>
<CAPTION>
SUMMARY OF LOAN LOSS EXPERIENCE (ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES)
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, January 1 $7,189 $6,176 $5,750 $5,528 $5,986
Allowance associated with purchase acquisitions 516 379 140 - -
Loans charged off:
Commercial 624 879 263 239 1,345
Real estate mortgage 355 483 88 267 248
Consumer 1,486 1,155 393 222 308
Direct lease financing - 67 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total 2,465 2,584 744 728 1,901
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries on charged-off loans:
Commercial 255 115 320 215 393
Real estate mortgage 327 229 197 227 188
Consumer 256 165 114 430 126
Direct lease financing - 5 - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Total 838 514 631 872 707
- ------------------------------------------------------------------------------------------------------------------------------------
Net charge-offs 1,627 2,070 113 (144) 1,194
Provision for loan losses 1,891 2,704 399 78 736
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses, December 31 $7,969 $7,189 $6,176 $5,750 $5,528
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Total loans at year end $916,356 $800,622 $736,997 $645,235 $579,556
Average loans 861,778 771,369 689,514 606,206 569,313
As a percent of year-end loans:
Net charge-offs 0.18% 0.26% 0.02% -0.02% 0.21%
Provision for loan losses 0.21 0.34 0.05 0.01 0.13
Year-end allowance balance 0.87 0.90 0.84 0.89 0.95
As a percent of average loans:
Net charge-offs 0.19% 0.27% 0.02% -0.02% 0.21%
Provision for loan losses 0.22 0.35 0.06 0.01 0.13
Year-end allowance balance 0.92 0.93 0.90 0.95 0.97
Allowance for loan losses as a percent
of underperforming loans 175.49% 193.93% 281.62% 252.19% 184.08%
</TABLE>
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
RISK MANAGEMENT, CONTINUED
and recoveries were $324, or 63.0%, higher than in 1996. The provision for
loan losses for 1997 was decreased based on the Corporation's periodic
analysis of the subsidiary banks' loan portfolios. The provision for loan
losses for 1996 was increased as a result of the increase in net charge-offs
and growth of the loan portfolio. In 1995, the provision for loan losses was
increased due to increased loan volume. In 1994, the provision for loan
losses was decreased as a result of significant reductions in underperforming
loans and net charge-offs.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31
<TABLE>
<CAPTION>
Allowance Applicable to Percent of Loans to Total Gross Loans
- ------------------------------------------------------------------------------------------------------------------------------
Loan Type 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- ------------------------------------------------------------------ ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $2,599 $2,189 $2,395 $2,006 $1,670 29% 29% 29% 27% 26%
Real estate mortgage 1,576 1,622 1,571 1,579 1,511 55% 53% 53% 57% 59%
Consumer 1,887 1,444 986 635 668 16% 18% 18% 16% 15%
- ------------------------------------------------------------------ ----------------------------------------------------
Allocated 6,062 5,255 4,952 4,220 3,849 100% 100% 100% 100% 100%
Unallocated 1,907 1,934 1,224 1,530 1,679 ----------------------------------------------------
- ------------------------------------------------------------------ ----------------------------------------------------
Total $7,969 $7,189 $6,176 $5,750 $5,528
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
DEPOSITS
The Corporation's Asset/Liability Committee manages the deposits of its banks
to achieve short-term and long-term benefits of deposit growth. Average
deposits increased $72,919, or 8.2%, during 1997, compared to $31,129, or
3.6%, in 1996. Of the increase in 1997, $43,549 was due to purchase
acquisitions. Average time deposits of $100,000 or more increased $20,683, or
16.3%, compared to $24,653, or 24.2%, in 1996. The increase in time deposits
of $100,000 or more in 1996 included $13,000 in brokered deposits. As of
December 31, 1997, the Corporation had no brokered deposits. Management uses
brokered deposits to supplement local deposits under guidelines and limits
established by the Corporation's Asset/Liability Committee. Time deposits of
$100,000 or more are not considered to present an undue risk.
AVERAGE DEPOSITS
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- -----------------
AMOUNT RATE Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $113,616 - $106,068 - $ 98,109 -
Money market accounts 79,397 3.62% 79,758 3.55% 74,079 3.79%
Interest-bearing demand 142,063 1.65% 140,183 1.86% 145,107 2.30%
Savings 80,119 2.29% 78,459 2.45% 83,525 2.61%
Time deposits of $100,000 or more 147,339 5.14% 126,656 5.38% 102,003 5.71%
Other time deposits 397,827 5.40% 356,318 5.30% 353,490 5.13%
- ------------------------------------------------------------------------------------------------------
Total $960,361 $887,442 $856,313
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
TIME DEPOSITS OF $100,000 OR MORE AT DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maturing:
3 months or less $60,652 $60,705 $34,892
Over 3 to 6 months 29,239 29,358 45,968
Over 6 to 12 months 20,029 20,599 15,210
Over 12 months 19,469 18,872 5,057
- ------------------------------------------------------------------------------------------
Total $129,389 $129,534 $101,127
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
CAPITAL RESOURCES
At the end of 1997, shareholders' equity totaled $146,803, an increase of
$17,109, or 13.2%, from 1996. The average equity to average asset ratio was
10.98% and 11.48% for 1997 and 1996, respectively. The decrease is
attributable to the Corporation's repurchase of 426,508 shares of its common
stock for approximately $16,200, during 1997. The dividend payout ratio for
1997 was 36.74%, compared to 37.05% in 1996.
12
<PAGE>
In 1995, The National City Bank of Evansville committed to build an addition
to its main office to be completed in the second quarter of 1998. The
approximate cost of the addition and renovation of the main office of The
National City Bank of Evansville is $18,000. The National City Bank of
Evansville and the Corporation will occupy three floors of the facility, at a
cost of approximately $10,000, with the other six floors being sold as
condominiums. Four of these six floors have been sold to non-affiliated
entities. The Corporation, through its subsidiary Twenty-One Southeast Third
Corporation, funded the project, including financing for the purchasers of
the condominiums, through the proceeds of a $15,000 term loan. Payments from
the purchasers will be used to repay the term loan. As of December 31, 1997,
there were no other material commitments for capital expenditures.
Guidelines for minimum capital levels have been established for the
Corporation by the Federal Reserve Board. Tier I (core) capital consists of
shareholders' equity less goodwill, other identifiable intangible assets, and
unrealized losses on marketable equity securities. Total capital consists of
Tier I capital plus allowance for loan losses. Minimum capital levels are 4%
for the leverage ratio which is defined as Tier I capital as a percentage of
total assets less goodwill and other identifiable intangible assets; 4% for
Tier I capital to risk-weighted assets; and 8% for total capital to
risk-weighted assets. The Corporation has exceeded each of these levels. Its
leverage ratio was 9.74% and 10.52%; Tier I capital to risk-weighted assets
was 13.39% and 14.96%; and total capital to risk-weighted assets was 14.25%
and 15.84% at the end of 1997 and 1996, respectively. In addition, each
subsidiary bank has exceeded minimum regulatory capital guidelines.
SHORT-TERM BORROWINGS
Federal funds purchased are borrowings from other financial institutions
maturing daily. Securities sold under agreements to repurchase are secured
transactions with customers. Securities sold under agreements to repurchase
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 increased $9,552, or 14.2%, during 1997. At December 31, 1997,
federal funds purchased were $55,000, reflecting an $825, or 1.5%, increase
over 1996. Securities sold under agreements to repurchase and notes payable
U.S. Treasury increased during 1997 by $4,532, or 39.5%, and $4,195, or
243.8%, respectively.
SHORT-TERM BORROWINGS AT DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased $55,000 $54,175 $34,500
Securities sold under agreements to repurchase 16,001 11,469 18,329
Notes payable U.S. Treasury 5,916 1,721 2,769
- --------------------------------------------------------------------------------------------------
Total $76,917 $67,365 $55,598
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<CAPTION>
Securities
Sold Under Notes
Federal Agreements Payable
Funds to U.S.
Purchased Repurchase Treasury
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
Average amount outstanding $42,588 $15,924 $2,064
Maximum amount at any month end 69,400 26,146 5,916
Weighted average interest rate:
During year 5.67% 4.00% 5.36%
End of year 6.74% 3.48% 5.25%
1996
Average amount outstanding $26,329 $17,448 $1,378
Maximum amount at any month end 54,175 28,153 3,270
Weighted average interest rate:
During year 5.50% 4.35% 5.17%
End of year 6.65% 3.66% 5.15%
1995
Average amount outstanding $ 4,665 $17,064 $2,655
Maximum amount at any month end 34,500 20,649 6,647
Weighted average interest rate:
During year 5.90% 4.64% 5.67%
End of year 5.90% 4.10% 5.15%
</TABLE>
LIQUIDITY
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 loan requests,
providing for liability outflows, and managing 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 the Corporation, the primary sources of short-term liquidity have been
federal funds sold, interest-bearing deposits in banks, and U.S. Government
and agency securities available for sale.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
LIQUIDITY, CONTINUED
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 monitored by the Corporation's
asset/liability management program and by each subsidiary bank to provide
liquidity without penalizing earnings. When these sources are not adequate,
the Corporation utilizes federal funds purchased, brokered deposits, and its
lines with Federal Home Loan Banks as alternative sources of liquidity. The
increased loan demand throughout the year was funded by an increase in
deposits and other borrowings. Additionally, the Corporation's underwriting
standards for its mortgage loan portfolio comply with standards established
by government housing agencies; as a result, a portion of the mortgage loan
portfolio could be sold to provide additional liquidity. At December 31, 1997
and 1996, respectively, federal funds sold were $1,500 and $600,
interest-bearing deposits in banks were $2,485 and $2,983, and U.S.
Government and agency securities available for sale were $38,982 and $52,260.
These sources and other liquid assets also satisfy 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.
The Corporation (parent company) maintains credit lines to provide an
alternative source of liquidity. At December 31, 1997, the Corporation had a
$10,000, unsecured, revolving credit agreement with a bank. On January 22,
1998, the line was increased to $45,000. The Corporation intends to use the
line to provide short-term funding for acquisitions and other corporate
purposes.
The ability of the Corporation to pay cash dividends to its shareholders is
dependent on the receipt of cash from its subsidiary banks. Banking
regulations impose restrictions on the ability of subsidiaries to pay
dividends to the Corporation. The amount of dividends that could be paid is
further restricted by management to maintain prudent capital levels.
INTEREST RATE SENSITIVITY
The Corporation's exposure to market risk is reviewed on a regular basis by
the Asset/Liability Committee. Interest rate risk is the most significant
market risk affecting the Corporation. Other types of market risk do not
arise in the normal course of the Corporation's business activities. Interest
rate risk is the potential economic loss due to future interest rate changes.
This economic loss can be reflected as a loss of future net interest income
and/or a loss of current fair market values.
The Corporation's net income is dependent, to a significant degree, on its
net interest income. Net interest income is susceptible to interest rate risk
to the degree that interest-bearing liabilities reprice or mature on a
different basis than interest-earning assets. When interest-bearing
liabilities reprice or mature more quickly than interest-earning assets, an
increase in market rates could adversely affect net interest income.
Similarly, if interest-earning assets reprice or mature more quickly than
interest-bearing liabilities, a decrease in market rates could adversely
affect net interest income. Changes in market rates can also cause losses in
the current fair values of financial instruments.
In order to manage its exposure to changes in interest rates, the Corporation
monitors interest rate risk through analysis of standard gap reports and
interest rate shock simulation reports on the effect of changes in interest
rates on net interest income and on the economic value of equity (the present
value of expected cash flows from existing assets minus the present value of
expected cash flows from existing liabilities). The following table sets
forth, at December 31, 1997, an analysis of the Corporation's interest rate
risk as measured by the estimated change in economic value of equity (EVE)
following parallel shifts in the yield curve.
<TABLE>
<CAPTION>
Estimated Increase
(Decrease) in EVE
Change in Estimated -------------------
Interest Rates EVE Amount Amount Percent
- -----------------------------------------------------------
<S> <C> <C> <C>
(Basis Points)
+200 $176,695 $(6,479) (3.54)%
- 183,174 - -
-200 186,814 3,640 1.99
</TABLE>
Certain assumptions were employed in preparing data in the preceding table.
These assumptions relate to interest rates, loan prepayment rates, deposit
decay rates, and the market values of certain assets under the various
interest rate scenarios. Even if interest rates change in the designated
amounts, there can be no assurance that the Corporation's assets and
liabilities would perform as set forth. In addition, a change in U.S.
Treasury rates in the designated amounts accompanied by a change in the shape
of the Treasury yield curve would cause significantly different changes to
the EVE than indicated above.
Derivative financial instruments include futures, forwards, interest rate
swaps, option contracts, and other financial instruments with similar
characteristics. The Corporation does not enter into futures, forwards,
swaps, or options. In the normal course of business, however, the Corporation
is a party to financial instruments with off-balance-sheet risk to meet the
14
<PAGE>
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 contractual or notional amounts of those
instruments reflect the extent of involvement the Corporation has in
particular classes of financial instruments. Financial instruments with
off-balance-sheet risk at December 31, 1997 are discussed more throughly in
Note 17 of the Financial Statements.
Corporate asset liability gap positions are targeted at plus or minus 15% at
the six-month and one-year horizons. At December 31, 1997, all subsidiary
banks were within, or close to, their targeted spreads. The cumulative gap
position through one year of negative $133,852 at the end of 1997 was 10.3%
of total assets, which management believes is a relatively balanced position.
RESULTS OF OPERATIONS
Net income for 1997 was $18,351, reflecting a $1,855, or 11.2%, increase over
1996. Net income for 1996 increased $2,097, or 14.6%, over 1995. Basic
earnings per share in 1997 were $1.72, compared to $1.52 in 1996 and $1.30 in
1995. Increases in both rates and volumes of earning assets resulted in
growth in net interest income of $3,389, or 7.0%, in 1997 and $4,173, or
9.4%, in 1996. Noninterest income increased $1,482, or 17.2%, in 1997 and
$1,489, or 20.9%, in 1996. Noninterest expense increased $4,424, or 14.8%, in
1997 and $998, or 3.4%, in 1996. The provision for loan losses decreased $813
in 1997 due to lower net charge-offs, and increased $2,305 in 1996 due to
higher net charge-offs and loan growth.
Changes in net interest income for the last two years are presented in the
following 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, at the end of Management's
Discussion is a three-year balance sheet analysis on an average basis and an
analysis of net interest income.
The following discussion of results of operations is on a
federal-tax-equivalent basis. Average loans increased 11.7% during 1997
compared to an increase of 11.9% during 1996. Approximately 46% of the growth
in average loan balances was attributable to acquisitions accounted for as
purchases. Loan income increased 11.6% in 1997 and 12.4% in 1996, principally
due to increased loan volumes. The average yield on loans decreased slightly
from 9.13% in 1996 to 9.12% in 1997.
Average securities before market value adjustments increased 8.5% in 1997 and
4.1% in 1996. Approximately 33% of the increase in average securities
balances in 1997 was due to two purchase acquisitions. Securities income
increased 14.7% and 11.0% in 1997 and 1996, respectively. The yield on
securities increased from 6.91% in 1996 to 7.30% in 1997. During 1997,61.2%
of the increase in interest income on securities was due to volume increases
and 38.8% was attributable to rate increases, while in 1996, 60.1% of the
increase was due to rate and 39.9% was due to volume. Average earning assets
increased $112,207, or 10.7%, in 1997 and $78,141, or 8.1%, in 1996. Purchase
acquisitions accounted for 44.4% of the increase in 1997 and 20.9% in 1996.
The average yield on total earning assets increased from 8.53% in 1996 to
8.63% in 1997, due principally to increased in yields on securities in 1997.
Increase in volumes of earning assets accounted for 90.6% and 85.4% of the
growth in interest income in 1997 and 1996, respectively.
Average total interest-bearing deposits increased 8.4% during 1997 and 3.1%
during 1996. Internal growth of average deposits accounted for 35.9% of the
increase, while 64.1% was due to purchase acquisitions. The average cost of
interest bearing deposits decreased from 4.26% to 4.23% in 1996 and increased
from 4.23% to 4.27% in 1997. Interest expense on deposits increased $3,077,
or 9.3%, in 1997 and $750, or 2.3%, in 1996. In 1997, 90.6% of the increase
in interest expense on deposits was due to volume increases. In 1996,
interest expense on deposits increased due to volume increases which were
partially offset by rate decreases. Interest expense on federal funds
purchased and
CHANGES IN NET INTEREST INCOME
(INTEREST ON A FEDERAL-TAX-EQUIVALENT BASIS)
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 Compared to 1995
-------------------------------- --------------------------------
CHANGE DUE TO Change Due to
A CHANGE IN a Change in
--------------- ---------------
VOLUME RATE TOTAL CHANGE Volume Rate Total Change
-------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income increase (decrease)
Loans $8,243 $ (66) $8,177 $7,470 $ 285 $7,755
Securities 1,641 1,040 2,681 721 1,086 1,807
Other short-term investments (129) 35 (94) (811) (114) (925)
- ----------------------------------------------------------------------------------------------------------------------
Total interest income 9,755 1,009 10,764 7,380 1,257 8,637
- ----------------------------------------------------------------------------------------------------------------------
Interest expense increase (decrease)
Deposits 2,788 289 3,077 980 (230) 750
Borrowings 2,663 (50) 2,613 2,744 38 2,782
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense 5,451 239 5,690 3,724 (192) 3,532
- ----------------------------------------------------------------------------------------------------------------------
Net interest income increase (decrease) $4,304 $770 $5,074 $3,656 $1,449 $5,105
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
RESULTS OF OPERATIONS, CONTINUED
other borrowings increased $2,613 in 1997 and $2,782 in 1996. The increases
were principally due to increases in volumes. The Corporation uses federal
funds purchased and Federal Home Loan Bank advances, selectively, as
alternative funding sources to meet short and intermediate-term funding needs.
In 1997 and 1996, net interest income increased $5,074 and $5,105,
respectively. Increases in volumes accounted for 84.8% of the increase in
1997 and 71.6% in 1996. The net interest income of purchase acquisitions
accounted for $2,137, or 42.5%, of the increase in net interest income in
1997 and $693, or 13.6%, in 1996.
NONINTEREST INCOME
Noninterest income increased $1,482, or 17.2%, during 1997 and $1,489, or
20.9%, during 1996. Service charges on deposit accounts, the largest item in
this category, increased $331, or 9.1%, during 1997 and $691, or 23.4%,
during 1996. Other service charges and fees increased $273, or 11.6%, in 1997
and $544, or 30.0%, in 1996. Trust fees increased $179, or 10.2%, during 1997
and $245, or 16.3%, during 1996. Trust fees fluctuate with changes in the
number of estates managed each year and with changes in the market value of
assets under management. Security gains increased from $42 in 1996 to $794 in
1997. Other types of noninterest income decreased $53, or 6.6%, during 1997
and $7, or 0.9%, during 1996.
NONINTEREST EXPENSE
Noninterest expense increased $4,424, or 14.8%, during 1997 and $998, or
3.4%, in 1996. Salaries and other employee benefits increased $2,785, or
16.7%, during 1997 and $117, or 0.7%, in 1996. Occupancy expense of bank
premises increased $121, or 6.1%, during 1997 and $13, or 0.7%, during 1996.
Furniture and equipment expense increased $152, or 6.5%, during 1997 and
$263, or 12.6%, in 1996. The FDIC assessment decreased $623, or 78.1%, during
1997 and $284, or 26.2%, during 1996 due to lower premium requirements. The
1996 FDIC expense included $595 representing the cost of a special assessment
on Savings Association Insurance Fund (SAIF) insured deposits to recapitalize
the SAIF. Other types of noninterest expense increased $1,989, or 24.4%,
during 1997 and $889, or 12.3%, during 1996.
YEAR 2000 COMPLIANCE
The year 2000 has posed a unique set of challenges to those industries
reliant on information technology. As a result of methods employed by early
programmers, many software applications and operational programs may be
unable to distinguish the year 2000 from the year 1900. If not effectively
addressed, this problem could result in the production of inaccurate data,
or, in the worst cases, the inability of the systems to continue to function
altogether. Financial institutions are particularly vulnerable due to the
industry's dependence on electronic data processing systems.
In 1996, the Corporation started the process of identifying the hardware and
software issues required to be addressed to assure year 2000 compliance. The
Corporation began by assessing the issues related to the year 2000 and the
potential for those issues to adversely affect the Corporation's own
operations and those of its subsidiaries.
Since that time, the Corporation has established a Year 2000 Compliance Team
(the Team) composed of representatives from key areas throughout the
organization. It is the mission of this Team to identify areas subject to
complications related to the year 2000 and to initiate remedial measures
designed to eliminate any adverse effects on the Corporation's operations.
The Team has identified all mission-critical software and hardware that may
be adversely affected by the year 2000 and has required vendors to represent
that the systems and products provided are or will be year 2000 compliant.
The Corporation expects that all mission critical software will be upgraded
to achieve year 2000 compliance and tested by December 31, 1998. In addition,
the Team is developing contingency plans to address systems which do not
become year 2000 compliant by December 31, 1998.
The Corporation is committed to a plan for achieving compliance, focusing not
only on its own data processing systems, but also on its customers. The Team
has taken steps to educate and assist its customers with identifying their
year 2000 compliance problems. In addition, the Team has proposed policy and
procedure changes to help identify potential risks to the Corporation and to
gain an understanding of how customers are managing the risks associated with
the year 2000.
Management believes that the expenditures required to bring systems into
compliance will not have a materially adverse effect on the Corporation's
performance. However, the year 2000 problem is pervasive and complex and can
potentially affect any computer process. Accordingly, no assurance can be
given that year 2000 compliance can be achieved without additional
unanticipated expenditures and uncertainties that might affect future
financial results.
16
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME
1997 1996 1995
---------------------------- --------------------------- ---------------------------
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 $ 3,780 $ 214 5.66% $ 4,705 $ 273 5.80% $ 9,533 $ 509 5.34%
Short-term money market investments - - - - - - 1,317 87 6.61%
Federal funds sold 3,985 218 5.47% 5,386 253 4.70% 14,807 855 5.77%
Securities:
U.S. Government and agency 113,748 7,267 6.39% 147,422 9,276 6.29% 173,960 10,312 5.93%
Taxable municipals 3,359 222 6.61% 3,004 203 6.76% 2,806 182 6.49%
Tax-exempt municipals 151,316 12,174 8.05% 88,274 7,199 8.16% 48,018 4,235 8.82%
Other 18,393 1,286 6.99% 25,642 1,590 6.20% 29,127 1,732 5.95%
- ---------------------------------------------------------------------------------------------------------------------------------
Securities before market value
adjustment 286,816 20,949 7.30% 264,342 18,268 6.91% 253,911 16,461 6.48%
Market value adjustment on
securities available for sale 1,227 (423) (1,844)
- ---------------------------------------------------------------------------------------------------------------------------------
Total securities 288,043 263,919 252,067
Loans:
Commercial 308,803 28,341 9.18% 271,983 25,378 9.33% 234,167 21,864 9.34%
Consumer 157,924 16,251 10.29% 153,045 15,147 9.90% 124,877 12,392 9.92%
Real estate mortgage 380,512 32,623 8.57% 335,259 28,847 8.60% 320,315 27,359 8.54%
Economic development and
other municipal loans 14,539 1,358 9.34% 11,082 1,024 9.24% 10,155 1,026 10.10%
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans 861,778 78,573 9.12% 771,369 70,396 9.13% 689,514 62,641 9.08%
- ---------------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,157,586 $99,954 8.63% 1,045,379 $89,190 8.53% 967,238 $80,553 8.33%
------- ------- -------
------- ------- -------
NON-EARNING ASSETS:
Allowance for loan losses (7,621) (6,516) (5,939)
Cash and due from banks 32,423 32,822 31,089
Premises and equipment 28,420 19,178 15,550
Other assets 34,469 24,160 19,847
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,245,277 $1,115,023 $1,027,785
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Savings and interest-bearing demand $ 222,182 $ 4,182 1.88% $ 218,642 $ 4,533 2.07% $ 228,632 $ 5,517 2.41%
Money market accounts 79,397 2,875 3.62% 79,758 2,831 3.55% 74,079 2,809 3.79%
Certificates of deposit and other time 545,166 29,061 5.33% 482,974 25,677 5.32% 455,493 23,965 5.26%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 846,745 36,118 4.27% 781,374 33,041 4.23% 758,204 32,291 4.26%
Federal funds purchased and securities
sold under agreements to repurchase 58,512 3,054 5.22% 43,777 2,206 5.04% 21,729 1,067 4.91%
Other borrowings 74,790 4,461 5.96% 42,280 2,696 6.38% 16,155 1,053 6.52%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 980,047 $43,633 4.45% 867,431 $37,943 4.37% 796,088 $34,411 4.32%
------- ------- -------
------- ------- -------
NONINTEREST-BEARING LIABILITIES
AND SHAREHOLDERS' EQUITY:
Noninterest-bearing demand deposits 113,616 106,068 98,109
Other liabilities 14,866 13,508 10,971
Shareholders' equity 136,748 128,016 122,617
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,245,277 $1,115,023 $1,027,785
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets $99,954 8.63% $89,190 8.53% $80,553 8.33%
Interest expense/earning assets 43,633 3.77% 37,943 3.63% 34,411 3.56%
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets $56,321 4.87% $51,247 4.90% $46,142 4.77%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Income is on a federal-tax-equivalent basis using a 35% tax rate.
Average volume includes nonaccrual loans.
Loans are classified by department.
17
<PAGE>
REPORT ON MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
[LOGO] NATIONAL CITY BANCSHARES, INC.
----------------------------------------------------------------------
227 Main Street, P.O. Box 868, Evansville, Indiana 47705-0868
(812) 464-9800 - Fax (812) 464-9825
March 9,1998
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 consolidated financial statements of the Corporation have been audited by
McGladrey & Pullen, LLP, 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.
/s/ MICHAEL F. ELLIOTT /s/ ROBERT A KEIL
Michael F. Elliott Robert A. Keil
Chairman of the Board President, Chief Financial Officer,
and Chief Executive Officer and Chief Administrative Officer
18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
[LOGO]
McGLADREY & PULLEN, LLP
--------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS
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, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, 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, 1997
and 1996, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ McGLADREY & PULLEN LLP
Champaign, Illinois
February 5, 1998 except for Note 21 as to which the date is March 9, 1998
19
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS) DECEMBER 31
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 36,329 $ 40,884
Time deposits in banks 2,485 2,983
Federal funds sold 1,500 600
Securities held to maturity (fair value: $166,745 in 1996) - 164,603
Securities available for sale 267,957 112,800
Nonmarketable equity securities 11,371 5,491
Loans - net of allowance for loan losses of $7,969 in
1997 and $7,189 in 1996 908,387 793,433
Premises and equipment 30,959 23,692
Intangible assets 19,590 7,913
Other assets 19,682 19,658
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $1,298,260 $1,172,057
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing demand $ 123,719 $ 124,489
Interest-bearing:
Savings, daily interest checking, and money market accounts 313,269 293,520
Time deposits of $100,000 or more 129,389 129,534
Other time 397,669 365,807
- ---------------------------------------------------------------------------------------------
Total deposits 964,046 913,350
Short-term borrowings 76,917 67,365
Other borrowings 95,185 50,694
Dividends payable 1,931 1,698
Deferred income taxes 4,349 1,159
Other liabilities 9,029 8,097
- ---------------------------------------------------------------------------------------------
Total liabilities 1,151,457 1,042,363
- ---------------------------------------------------------------------------------------------
COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
SHAREHOLDERS' EQUITY
Common Stock - $1.00 stated value:
1997 1996
---------- ----------
Shares authorized 20,000,000 20,000,000
Shares outstanding 10,727,247 10,230,426 10,727 10,230
Capital surplus 79,725 57,631
Retained earnings 52,858 61,819
Unrealized gain (loss) on securities available for sale 3,493 14
- ---------------------------------------------------------------------------------------------
Total shareholders' equity 146,803 129,694
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,298,260 $1,172,057
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS) YEAR ENDED DECEMBER 31
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans:
Taxable $77,215 $69,372 $61,615
Tax-exempt 924 695 693
Interest and dividends on securities:
Taxable 8,775 11,069 12,226
Tax-exempt 8,282 4,887 2,859
Interest on federal funds sold 218 253 855
Interest on other investments 214 273 596
- --------------------------------------------------------------------------------------------------
Total interest income 95,628 86,549 78,844
- --------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits 36,118 33,041 32,291
Interest on short-term borrowings 3,165 2,277 1,218
Interest on other borrowings 4,350 2,625 902
- --------------------------------------------------------------------------------------------------
Total interest expense 43,633 37,943 34,411
- --------------------------------------------------------------------------------------------------
NET INTEREST INCOME 51,995 48,606 44,433
Provision for loan losses 1,891 2,704 399
- --------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 50,104 45,902 44,034
- --------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Trust income 1,927 1,748 1,503
Service charges on deposit accounts 3,981 3,650 2,959
Other service charges and fees 2,631 2,358 1,814
Securities gains (losses) 794 42 26
Other 755 808 815
- --------------------------------------------------------------------------------------------------
Total noninterest income 10,088 8,606 7,117
- --------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries, wages, and other employee benefits 19,479 16,694 16,577
Occupancy expense 2,114 1,993 1,980
Furniture and equipment expense 2,497 2,345 2,082
Assessments of the Federal Deposit Insurance Corporation 175 798 1,082
Other 10,125 8,136 7,247
- --------------------------------------------------------------------------------------------------
Total noninterest expense 34,390 29,966 28,968
- --------------------------------------------------------------------------------------------------
Income before income taxes 25,802 24,542 22,183
Income taxes 7,451 8,046 7,784
- --------------------------------------------------------------------------------------------------
NET INCOME $18,351 $16,496 $14,399
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
EARNINGS PER SHARE - BASIC $ 1.72 $ 1.52 $ 1.30
EARNINGS PER SHARE - DILUTED $ 1.69 $ 1.52 $ 1.30
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS) YEAR ENDED DECEMBER 31
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 18,351 $ 16,496 $ 14,399
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization 690 518 1,311
Depreciation 2,034 1,953 1,777
Provision for loan losses 1,891 2,704 399
Write-down of other real estate owned 99 61 69
Securities (gains) losses (794) (42) (26)
Originations of loans held for sale (31,691) (26,346) (15,489)
Proceeds from sales of loans held for sale 32,139 26,580 15,604
(Gain) loss on sale of loans held for sale (448) (234) (115)
(Gain) loss on sale of premises and equipment 20 (21) (15)
(Gain) loss on sale of other real estate owned - 31 39
(Gain) loss on sale of subsidiary - - (206)
Increase (decrease) in deferred taxes 1,029 387 (31)
Changes in assets and liabilities:
(Increase) decrease in other assets 162 (1,823) (651)
Increase (decrease) in other liabilities 138 (410) 1,528
- -----------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by operating activities 23,620 19,854 18,593
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in banks 1,892 5,525 7,585
Proceeds from maturities of securities held to maturity 6,990 15,097 25,681
Proceeds from maturities of securities available for sale 63,841 64,248 45,631
Proceeds from sales of securities held to maturity 3,509 - -
Proceeds from sales of securities available for sale 22,257 7,355 118
Proceeds from sales of nonmarketable equity securities 804 - -
Purchases of securities held to maturity (26,321) (61,180) (33,607)
Purchases of securities available for sale (38,783) (26,684) (19,108)
Purchases of nonmarketable equity securities (5,910) (1,162) (1,661)
(Increase) decrease in federal funds sold 2,200 4,945 (420)
(Increase) decrease in loans made to customers (57,970) (41,137) (81,054)
Capital expenditures (10,417) (8,589) (3,755)
Proceeds from sale of premises and equipment 2,022 26 63
Proceeds from sale of other real estate owned 338 260 577
Purchase of subsidiaries, net of cash and due from banks acquired (5,191) (10,808) (309)
Cash transferred to buyer in sale of subsidiary - - (10,370)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities (40,739) (52,104) (70,629)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (16,715) 5,935 8,944
Net proceeds (payments) on short-term borrowings 9,352 11,767 26,895
Proceeds from other borrowings 165,234 31,184 17,434
Payments on other borrowings (124,870) (2,041) (195)
Dividends paid (6,509) (5,589) (3,957)
Repurchase of common stock (16,198) (12,890) (863)
Sale of common stock 1,705 1,653 1,036
Proceeds from exercise of stock options 565 213 -
- -----------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by (used in) financing activities 12,564 30,232 49,294
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,555) (2,018) (2,742)
Cash and cash equivalents at beginning of year 40,884 42,902 45,644
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 36,329 $ 40,884 $ 42,902
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS ARE CONTINUED ON THE FOLLOWING PAGE
22
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 43,715 $ 37,481 $ 30,294
Income taxes 6,791 8,139 6,640
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Change in allowance for unrealized gain (loss) on securities available for sale $5,721 $ (445) $ 5,090
Change in deferred taxes attributable to securities available for sale (2,242) 173 (1,935)
Transfer of securities held to maturity to available for sale 180,696 - 34,987
Other real estate acquired in settlement of loans 425 35 363
Transfer from other real estate owned to other assets - - 7
Transfer from premises and equipment to other real estate owned - - 41
Purchase of subsidiaries:
Purchase price $ 6,797 $ 12,038 $ 896
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Assets acquired:
Cash and cash equivalents $1,606 $ 1,230 $ 587
Interest-bearing deposits in banks 1,394 1,488 399
Securities 16,066 22,187 3,753
Federal funds sold 3,100 100 1,975
Loans 59,300 24,214 11,069
Premises and equipment 930 364 355
Deferred taxes 81 - -
Other assets 12,801 6,331 2,108
Liabilities assumed:
Deposits (67,411) (43,279) (16,742)
Short-term borrowings (200) - -
Other borrowings (4,127) - -
Deferred taxes payable - - (25)
Other liabilities (794) (597) (141)
Common stock issued (15,949) - (2,442)
- -------------------------------------------------------------------------------------------------------------------------------
$ 6,797 $ 12,038 $ 896
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Sale of branch:
Cash paid - - $ 10,244
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Assets disposed:
Cash - - $ (126)
Loans - - (25)
Premises and equipment - - (33)
Other assets - - (265)
Liabilities assumed by buyer:
Deposits - - 10,856
Other liabilities - - 43
Gain on sale of branch - - (206)
- -------------------------------------------------------------------------------------------------------------------------------
- - $ 10,244
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
For the Years Ended Unrealized
December 31, 1997, 1996, and 1995 Gain (Loss)
on Securities
Common Common Capital Retained Available
Shares Stock Surplus Earnings For Sale
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994,
as previously reported 8,781,264 $ 8,781 $ 42,815 $ 55,633 $(2,594)
Adjusted for pooling of interests 794,994 795 1,174 8,421 (275)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 9,576,258 9,576 43,989 64,054 (2,869)
- ----------------------------------------------------------------------------------------------------------------------------
Net income - - - 14,399 -
Cash dividends declared - - - (4,327) -
Repurchase of outstanding shares (39,000) (39) (824) - -
Shares issued in Dividend
Reinvestment Program 37,684 37 766 - -
Change in unrealized gain (loss) on securities - - - - 3,155
Issuance of common stock related to
acquisition of subsidiary 111,018 111 2,331 - -
Payment for fractional shares for merger - - (9) - -
Stock dividend 447,722 448 9,514 (9,962) -
Payment for fractional shares for stock dividend (1,052) (1) (24) - -
Issuance of stock under United Financial
Bancorp, Inc. Stock Option Plan 56,760 57 210 - -
Amortization of stock award program - - 14 - -
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 10,189,390 10,189 55,967 64,164 286
- ----------------------------------------------------------------------------------------------------------------------------
Net income - - - 16,496 -
Cash dividends declared - - - (6,112) -
Repurchase of outstanding shares (480,207) (480) (12,410) - -
Shares issued in Dividend
Reinvestment Program 60,404 60 1,606 - -
Change in unrealized gain (loss) on securities - - - - (272)
Stock dividend 450,656 450 12,279 (12,729) -
Payment of fractional shares for stock dividend (450) - (13) - -
Exercise of stock options 10,633 11 202 - -
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 10,230,426 10,230 57,631 61,819 14
- ----------------------------------------------------------------------------------------------------------------------------
Net income - - - 18,351 -
Cash dividends declared - - - (6,742) -
Repurchase of outstanding shares (426,508) (427) (15,768) - -
Shares issued in Dividend
Reinvestment Program 47,781 48 1,678 - -
Change in unrealized gain (loss) on securities - - - - 3,479
Issuance of common stock related to
acquisition of subsidiary 375,000 375 15,574 - -
Payment for fractional shares for merger (84) - (3) - -
Stock dividend 472,866 473 20,097 (20,570) -
Payment of fractional shares for stock dividend (458) - (21) - -
Exercise of stock options 28,224 28 537 - -
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 10,727,247 $10,727 $ 79,725 $ 52,858 $ 3,493
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
National City Bancshares, Inc. (Corporation) is a bank holding company whose
subsidiaries provide a full range of banking services to individual and
corporate customers through its wholly-owned bank subsidiaries located in
Southwestern Indiana, Southeastern Illinois, and Western Kentucky. The
subsidiary banks are subject to competition from other financial institutions
and nonfinancial institutions providing financial products. Additionally, the
Corporation and its subsidiaries are subject to the regulations of certain
regulatory agencies and undergo periodic examinations by those regulatory
agencies.
The consolidated financial statements of the Corporation have been prepared
in conformity with generally accepted accounting principles and conform to
predominate practice within the banking industry.
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, The Peoples National Bank of Grayville, First Kentucky Bank,
Lincolnland Bank, The Bank of Mitchell, Pike County Bank, White County Bank,
Alliance Bank, The First National Bank of Wayne City, First Federal Savings
Bank of Leitchfield, First National Bank of Bridgeport, First Bank of
Huntingburg, NCBE Leasing Corp., and Twenty-One Southeast Third Corporation.
All significant intercompany transactions and balances have been eliminated.
The Corporation and its subsidiaries utilize the accrual basis of accounting for
major items.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions which significantly affect the amounts
reported in the consolidated financial statements. Significant estimates
which are particularly susceptible to change in a short period of time
include the determination of the allowance for loan losses and valuation of
real estate and other properties acquired in connection with foreclosures or
in satisfaction of amounts due from borrowers on loans. Actual results could
differ from those estimates.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents includes cash
on hand, amounts due from banks, and short-term money market investments.
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 banks, 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 securities the
Corporation has 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 securities that the
Corporation intends to hold for an indefinite period of time, but not
necessarily to maturity, and marketable equity securities. 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 assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available for sale are
carried at fair 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.
Nonmarketable equity securities are carried at cost as there is no readily
determinable fair value.
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. Upon discontinuance of
interest accrual, unpaid accrued interest is reversed. Interest income on
these loans is recognized to the extent interest payments are received and
the principal is considered fully collectible. 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
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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.
Loans are considered impaired when, based on current information and events,
it is probable the Corporation will not be able to collect all amounts due.
The portion of the allowance for loan losses applicable to impaired loans has
been computed based on the present value of the estimated future cash flows
of interest and principal discounted at the loan's effective interest rate or
on the fair value of the collateral for collateral dependent loans. The
entire change in present value of expected cash flows of impaired loans or of
collateral value is reported as bad debt expense in the same manner in which
impairment initially was recognized or as a reduction in the amount of bad
debt expense that otherwise would be reported.
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.
INTANGIBLE ASSETS
Costs in excess of fair value of net assets acquired consist primarily of
goodwill and core deposit intangibles. Goodwill is amortized to expense over
varying periods up to 25 years using the straight-line method. Core deposit
intangibles are amortized over 7 years using the straight-line method.
Amortization for the years ended December 31, 1997, 1996, and 1995, was $932,
$410, and $292, respectively. Intangible assets are reviewed for possible
impairment when events or changed circumstances may affect the underlying
basis of the assets.
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. 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 tax 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 tax 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.
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSION
The Corporation is recognizing the transition obligation using the
straight-line method over the plan participants' average future service
period of twenty years. Management does not expect this obligation to
increase.
REPORTING COMPREHENSIVE INCOME
Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive
Income" (FAS 130), was issued in June 1997 by the Financial Accounting
Standards Board. The standard establishes reporting of comprehensive income
for general purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period and all other
events and circumstances from nonowner sources. The Standard is effective for
financial statement periods beginning after December 15, 1997. The Corporation
does not believe the adoption of the Standard will have a material impact on
the consolidated financial statements.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Statement of Financial Accounting Standard No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (FAS 131), was issued in
June 1997 by the Financial Accounting Standards Board. The standard requires
the Corporation to disclose the factors used to identify reportable segments
including the basis of organization, differences in products and services,
geographic areas, and regulatory environments. FAS 131 additionally requires
financial results to be reported in the financial statements for each
reportable segment. The Standard is effective for financial statement periods
beginning after December 15, 1997. The Corporation does not believe the
adoption of the Standard will have a material impact on the consolidated
financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the balances as of and for the
years ended December 31, 1996 and 1995, to be consistent with classifications
adopted for 1997.
NOTE 2. BUSINESS COMBINATIONS
On March 1, 1997, the Corporation acquired First Federal Savings Bank of
Leitchfield, a $43,000 savings bank located in Leitchfield, Kentucky. This
acquisition was accounted for as a purchase, and results of operations of
First Federal Savings Bank of Leitchfield since the acquisition have been
included in the financial statements. The excess of the acquisition cost over
the fair value of net assets acquired in the amount of $2,807 will be
amortized over 25 years using the straight-line method.
On August 1, 1997, the Corporation acquired Bridgeport Bancorp, Inc., the
parent company of First National Bank of Bridgeport, with total assets of
$39,382 located in Bridgeport, Illinois. This acquisition was accounted for
as a purchase, and the results of operations since the acquisition have been
included in the financial statements. The excess of the acquisition cost over
fair value of net assets acquired in the amount of $9,377 will be amortized
over 25 years using the straight-line method.
26
<PAGE>
The table below presents pro forma combined results of operations for the
Corporation, First Federal Savings Bank of Leitchfield, and First National Bank
of Bridgeport, for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Net interest income $97,858 $92,790
Net income 18,517 16,734
Earnings per share - Basic 1.73 1.54
Earnings per share - Diluted 1.71 1.54
</TABLE>
On December 31, 1997, the Corporation issued 794,994 shares of common stock for
all of the common stock of First Fourth Bancorp, the parent company of First
Bank of Huntingburg, Huntingburg, Indiana, with total assets of $108,077 and
total equity of $12,917. The combination was accounted for as a pooling of
interests. Accordingly, the Corporation's financial statements have been
retroactively restated to include the accounts and operations of First Fourth
Bancorp for all periods presented. Certain reclassifications have been made to
First Fourth Bancorp'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) and First Fourth Bancorp (FFB) for the periods prior to
the acquisition are shown in the table below. Due to elimination of intercompany
transactions, the historical data may not aggregate to the consolidated amounts.
<TABLE>
<CAPTION>
NCBE
NCBE FFB Consolidated
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1997:
LOANS, NET OF UNEARNED INCOME $ 832,701 $ 83,655 $ 916,356
DEPOSITS 870,825 93,485 964,046
ASSETS 1,193,697 108,109 1,298,260
December 31, 1996:
Loans, net of unearned income $ 723,308 $ 77,314 $ 800,622
Deposits 825,371 87,995 913,350
Assets 1,069,086 103,239 1,172,057
YEAR ENDED DECEMBER 31, 1997:
INTEREST INCOME $ 87,253 $ 8,392 $ 95,628
INTEREST EXPENSE 39,977 3,673 43,633
NET INTEREST INCOME 47,276 4,719 51,995
PROVISION FOR LOAN LOSSES 1,711 180 1,891
NET INCOME 17,119 1,232 18,351
EARNINGS PER SHARE-BASIC 1.73 8.63 1.72
EARNINGS PER SHARE-DILUTED 1.71 8.63 1.69
Year ended December 31, 1996:
Interest income $ 78,640 $ 7,909 $ 86,549
Interest expense 34,499 3,444 37,943
Net interest income 44,141 4,465 48,606
Provision for loan losses 2,491 213 2,704
Net income 15,246 1,250 16,496
Earnings per share-Basic 1.59 8.76 1.52
Earnings per share-Diluted 1.59 8.76 1.52
Year ended December 31, 1995:
Interest income $ 71,215 $ 7,629 $ 78,844
Interest expense 31,048 3,363 34,411
Net interest income 40,167 4,266 44,433
Provision for loan losses 294 105 399
Net income 13,115 1,284 14,399
Earnings per share-Basic 1.34 9.00 1.30
Earnings per share-Diluted 1.34 9.00 1.30
</TABLE>
NOTE 3. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options,warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
Basic earnings per share is computed by dividing net income for the year by the
weighted average number of shares outstanding.
Diluted earnings per share is determined by dividing net income for the year by
the weighted average number of shares of common stock and common stock
equivalents outstanding. Common stock equivalents assume exercise of stock
options and use of proceeds to purchase treasury stock at the average market
price for the period.
The following provides a reconciliation of basic and diluted earnings per share.
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 18,351 $ 16,496 $ 14,399
Weighted average shares outstanding
Basic 10,679,448 10,843,295 11,095,116
Diluted 10,832,943 10,843,295 11,095,116
EARNINGS PER SHARE-BASIC $1.72 $1.52 $1.30
Effect of stock options (0.03) - -
- --------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED $ 1.69 $ 1.52 $ 1.30
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE 4. CASH AND DUE FROM BANKS
Aggregate cash and due from bank balances of $10,401 and $8,677 as of December
31, 1997 and 1996, respectively, were maintained in satisfaction of statutory
reserve requirements of the Federal Reserve Bank of St. Louis.
NOTE 5. SECURITIES
Amortized cost and fair value of debt securities classified as held to maturity
are as follows:
<TABLE>
<CAPTION>
As of December 31, 1997
- -----------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $ 21,877 $ 221 $ - $ 22,098
Taxable municipals 2,775 56 17 2,814
Tax-exempt municipals 120,805 2,387 751 122,441
Corporate securities 11,161 87 13 11,235
Mortgage-backed securities 7,985 192 20 8,157
- -----------------------------------------------------------------------------------------------------------
Total $164,603 $2,943 $ 801 $166,745
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
NOTE 5. SECURITIES, CONTINUED
Amortized cost and fair value of securities classified as available for sale are
as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $ 38,792 $ 238 $ 48 $ 38,982
Taxable municipals 3,411 63 1 3,473
Tax-exempt municipals 164,784 5,640 123 170,301
Corporate securities 5,975 13 2 5,986
Mortgage-backed securities 47,816 263 219 47,860
- -----------------------------------------------------------------------------------------------------------
Subtotal 260,778 6,217 393 266,602
Equity Securities 1,436 66 147 1,355
- ----------------------------------------------------------------------------------------------------------
Total $262,214 $6,283 $ 540 $267,957
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1996
- -----------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and
agency securities $ 52,052 $ 369 $ 161 $ 52,260
Taxable municipals - - - -
Tax-exempt municipals - - - -
Corporate securities 3,049 7 - 3,056
Mortgage-backed securities 56,052 344 314 56,082
- -----------------------------------------------------------------------------------------------------------
Subtotal 111,153 720 475 111,398
Equity Securities 1,625 1 224 1,402
- ----------------------------------------------------------------------------------------------------------
Total $112,778 $ 721 $ 699 $112,800
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of the securities as of December 31, 1997, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities in mortgage-backed securities, because certain mortgages
may be called or prepaid without penalties. Therefore, these securities are not
included in the maturity categories in the following maturity schedules:
MATURITY SCHEDULE OF DEBT SECURITIES AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
December 31, 1997 Amortized Cost Fair Value
- ---------------------------------------------------------------------------
<S> <C> <C>
Less than 1 year $ 35,702 $ 35,774
1 year to 5 years 45,822 46,676
5 years to 10 years 47,215 48,935
Over 10 years 84,223 87,357
Mortgage-backed securities 47,816 47,860
- --------------------------------------------------------------------------
Total $260,778 $266,602
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
Securities gains and(losses) are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross realized gains $835 $44 $31
Gross realized losses (41) (2) (5)
- --------------------------------------------------------------------------------
Total $794 $42 $26
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
As of December 31, 1997 and 1996, the carrying value of securities pledged as
collateral for public deposits and for other purposes as required or permitted
by law were $78,236 and $56,940, respectively.
During 1995, the Financial Accounting Standards Board decided to allow all
enterprises to make a one-time reassessment of the classification of
securities made under FAS 115, "Accounting for Certain Investments in Debt and
Equity Securities". The Corporation transferred debt securities with an
amortized cost of $34,987 from held-to-maturity classification to the
available-for-sale classification and recorded, as a component of equity, an
unrealized gain of $205, net of $128 of deferred taxes.
On March 31, 1997, the Corporation transferred $180,696 of securities classified
as held to maturity to the available for sale category and recorded, as a
component of equity, an unrealized gain of $71, net of $38 of deferred taxes. In
accordance with the requirements of Statement of Financial Accounting Standards
No. 115, these securities are now accounted for at fair value, and any
unrealized gain or loss net of deferred tax effect is reflected as a separate
component of shareholders' equity.
NOTE 6. LOANS
A summary of loans as of December 31 follows:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Real estate loans $501,882 $425,507
Agricultural loans 31,788 31,154
Commericial and industrial loans 201,402 176,572
Economic development loans and
other obligations of state and
political subdivisions 13,997 11,214
Consumer loans 149,505 143,485
Direct lease financing 13,146 12,331
Leveraged leases 4,661 -
All other loans 415 582
- ----------------------------------------------------------------------------------------
Total loans - gross 916,796 800,845
Unearned income on loans (440) (223)
- ----------------------------------------------------------------------------------------
Total loans - net of
unearned income 916,356 800,622
Allowance for loan losses (7,969) (7,189)
- ----------------------------------------------------------------------------------------
Total loans - net $908,387 $793,433
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
The following table presents data on impaired loans at December 31, 1997, 1996,
and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Impaired loans for which there is a
related allowance for loan losses $1,727 $2,139 $2,772
Impaired loans for which there is no
related allowance for loan losses 102 141 20
- ---------------------------------------------------------------------------------------------
Total impaired loans $1,829 $2,280 $2,792
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Allowance for loan losses for
impaired loans included in the
allowance for loan losses $ 639 $ 437 $ 584
Average recorded investment in
impaired loans 2,013 3,303 2,634
Interest income recognized from
impaired loans 177 323 150
Cash basis interest income
recognized from impaired loans 62 7 8
</TABLE>
The amount of loans serviced by the Corporation for the benefit of others is not
included in the accompanying Consolidated Statements of Financial Position. The
amount of unpaid principal balances of these loans were $113,907 and $97,990 as
of December 31, 1997 and 1996, respectively.
28
<PAGE>
The Corporation has granted a blanket collateral agreement on qualified mortgage
loans to secure advances from Federal Home Loan Banks.
In the normal course of business, the subsidiary 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 1997 is
as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance as of January 1, 1997 $24,541
New loans 47,411
Repayments (45,176)
- ----------------------------------------------------------------------------
Balance as of December 31,1997 $26,776
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
NOTE 7. LEASE FINANCING
The Corporation's leasing operations include both direct financing and leveraged
leasing. The direct financing leasing activity involves the leasing of various
types of office, data processing, and transportation equipment. These equipment
leases have lives of three to seven years.
Under the direct financing method of accounting for leases, the total net
rentals receivable under the lease contracts, initial direct costs (net of
fees), and the estimated guaranteed residual value of the leased equipment,
net of unearned income, are recorded as a net investment in direct financing
leases, and the unearned income on each lease is recognized each month at a
constant periodic rate of return on the unrecovered investment.
The composition of the net investment in direct lease financing at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Total minimum lease payments to be received $16,050
Less: estimated executory costs (property taxes, insurance,
and maintenance), including profit thereon, included in
the total minimum lease payments -
- --------------------------------------------------------------------------
Minimum lease payments receivable 16,050
Add estimated residual values of leased equipment 2,800
Add initial direct costs 63
(Deduct) unearned lease income (5,767)
- ---------------------------------------------------------------------------
Net investment in direct lease financing $13,146
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the minimum future lease payments due under the direct
financing leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,661
1998 2,413
1999 1,961
2000 1,597
2001 1,315
Thereafter 6,103
- ------------------------------------------------------------------
Total minimum future lease payments $16,050
- ------------------------------------------------------------------
- ------------------------------------------------------------------
</TABLE>
In 1997, the Corporation's leasing subsidiary, entered into two leveraged leases
with a regional air carrier for aircraft, which have an estimated economic life
of 23 years, were leased for a term of 16.5 years. The equity investment in
the aircraft represented 22% of the purchase price; the remaining 88% was
furnished by third-party financing in the form of long-term debt with no
recourse against the lessor and is secured by a first lien on the aircraft. At
the end of the lease term, the aircraft will be turned back to the lessor. The
residual value at that time is estimated to be 32% of the cost. For federal
income tax purposes, the lessor receives the benefit of tax deductions for
depreciation on the entire leased asset and for the interest on the long-term
debt. Since during the early years of the lease those deductions exceed the
lease rental income, excess deductions are available to offset other taxable
income. In the later years of the lease, rental income will exceed the
deductions which will increase taxable income. Deferred taxes are provided to
reflect this reversal of tax deductions. The net investment in leveraged leases
at December 31, 1997, are composed of the following elements:
<TABLE>
<CAPTION>
<S> <C>
Rentals receivable (net of principal and interest
on nonrecourse debt) $1,841
Estimated residual value of leased assets 5,722
Less: unearned and deferred income 2,902
- ---------------------------------------------------------------------------
Investment in leveraged lease 4,661
Less: deferred taxes arising from leveraged leases 1,011
- ---------------------------------------------------------------------------
Net investment in leveraged leases $3,650
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
NOTE 8. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows during the three years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $7,189 $6,176 $5,750
Allowance associated with
acquisitions 516 379 140
Provision charged to operations 1,891 2,704 399
Recoveries credited to allowance 838 514 631
Loans charged to allowance (2,465) (2,584) (744)
- ----------------------------------------------------------------------------------------
Balance at end of year $7,969 $7,189 $6,176
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
NOTE 9. PREMISES AND EQUIPMENT
Premises and equipment as of December 31 consist of:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,535 $ 2,401
Buildings 22,401 19,395
Equipment 15,234 13,946
Leasehold improvements 2,081 1,216
Construction in progress 8,169 5,372
- ----------------------------------------------------------------------------------
Total cost 50,420 42,330
Less accumulated depreciation 19,461 18,638
- ----------------------------------------------------------------------------------
Net premises and equipment $30,959 $23,692
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
Construction in progress included capitalized interest of $371 and $105 as of
December 31, 1997 and 1996, respectively.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
NOTE 10. DEPOSITS
As of December 31, 1997, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1998 $385,919
1999 84,353
2000 30,919
2001 7,855
2002 and thereafter 18,012
- ---------------------------------------------------------------------------
Total $527,058
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
NOTE 11. INCOME TAXES
The components of income tax expense for the years ended December 31
follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $5,001 $6,080 $6,222
Deferred 705 225 (62)
- --------------------------------------------------------------------------------
Total 5,706 6,305 6,160
- --------------------------------------------------------------------------------
State:
Current 1,502 1,579 1,593
Deferred 243 162 31
- --------------------------------------------------------------------------------
Total 1,745 1,741 1,624
- --------------------------------------------------------------------------------
Total income taxes $7,451 $8,046 $7,784
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The portion of the tax provision relating to realized security gains
and losses amounted to $278, $15, and $9 for 1997, 1996, and 1995,
respectively.
A reconciliation of income taxes in the statement of income, with the
amount computed by applying the statutory rate of 35%, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax computed
at the statutory rates $9,031 $8,590 $7,764
Adjusted for effect of:
Nontaxable municipal interest (2,819) (1,937) (1,244)
Nondeductible expenses 273 362 280
State income taxes, net of
federal tax benefit 1,134 1,133 1,058
Benefit of income taxed at
lower rates (100) (100) (100)
Change in deferred tax asset
valuation allowance (80) 52 (25)
Other differences 12 (54) 51
- --------------------------------------------------------------------------------
Total income taxes $7,451 $8,046 $7,784
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The net deferred tax asset (liability) in the accompanying balance
sheet includes the following amounts of deferred tax assets and
liabilities:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liability $(7,378) $(3,448)
Deferred tax asset 3,477 2,817
Valuation allowance for deferred
tax assets (448) (528)
- --------------------------------------------------------------------------------
Net deferred tax asset (liability) $(4,349) $(1,159)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The tax effects of principal temporary differences are shown in the
following table:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Allowance for loan losses $ 2,568 $ 2,105
Property acquired in settlement of loans - 35
Direct financing and leveraged leases 364 55
Prepaid pension costs (892) (1,375)
Premises and equipment (4,237) (2,066)
Unrealized gain (loss) on securities
available for sale (2,249) (7)
State net operating loss carryforwards 448 528
Other 97 94
- --------------------------------------------------------------------------------
Net temporary differences (3,901) (631)
Valuation allowance (448) (528)
- --------------------------------------------------------------------------------
Net deferred tax asset(liability) $(4,349) $(1,159)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
NOTE 12. SHORT-TERM BORROWINGS
Information concerning short-term borrowings as of the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased:
Average amount outstanding $42,588 $26,329
Maximum amount at any month end 69,400 54,175
Weighted average interest rate:
During year 5.67% 5.50%
End of year 6.74% 6.65%
Securities sold under agreements
to repurchase:
Average amount outstanding $15,924 $17,448
Maximum amount at any month end 26,146 28,153
Weighted average interest rate:
During year 4.00% 4.35%
End of year 3.48% 3.66%
Notes payable U.S. Treasury:
Average amount outstanding $2,064 $1,378
Maximum amount at any month end 5,916 3,270
Weighted average interest rate:
During year 5.36% 5.17%
End of year 5.25% 5.15%
</TABLE>
30
<PAGE>
NOTE 13. OTHER BORROWINGS
Other borrowings at December 31 consist of the following:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank advances:
Due January 2, 1997, 7.15% $ - $1,500
Due May 25, 1997, 6.33% - 3,000
Due January 2, 1998, 6.37% 21,200 -
Due January 7, 1998, 5.76% 5,000 -
Due January 20, 1998, 5.16% 5,000 5,000
Due February 20, 1998, 5.80% 250 -
Due June 1, 1998, 6.02% 10,000 10,000
Due February 1, 1999, 5.23% 5,000 5,000
Due August 6, 1999, 6.03% 4,000 -
Due November 1, 1999, 5.96% 6,000 -
Due July 25, 2000, 7.64% 3,000 -
Due February 4, 2002, 7.64% 2,000 2,000
Due October 30, 2002, 6.14% 6,000 -
Fixed and amortizing advances at various
rates with final maturities ranging from
July 2003 to March 2012. 1,866 988
Notes payable:
Northern Trust Co., monthly interest
payments through May 1997, monthly
principal payments of $83 plus interest
beginning June 30, 1997 through
April 30, 2003 with a final balloon
payment of $9,083 due May 30, 2003,
8.10%. 14,417 15,000
Norlease, Inc., quarterly interest payments
of $68 through July 27, 1997, quarterly
principal and interest payments of $111
through July 27, 2002, final balloon
payment due July 27, 2002, 7.74%,
collateralized by equipment. 3,457 3,500
Norlease, Inc., monthly principal and
interest payments of $16 through
June 30, 2003, final balloon payment
due June 30, 2003, 8.61%,
collateralized by equipment. 1,196 1,285
Norlease, Inc., installment notes maturing
on various dates through 2003 at
interest rates ranging from 6.29% to
8.16%, collateralized by equipment. 3,171 3,184
Norlease, Inc., quarterly principal and
interest beginning June 30, 1997,
payments through March 30, 2003,
7.87%, collateralized by an investment
in a leveraged lease. 1,756 -
Norlease, Inc., monthly principal
payments beginning January 30, 1997
through January 30, 2003, 7.94%,
collateralized by an investment
in a leveraged lease. 1,722 -
Other 150 237
- --------------------------------------------------------------------------------
$95,185 $50,694
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
The Federal Home Loan Bank advances are collateralized by a blanket
collateral agreement on qualified mortgage loans.
The terms of the loan agreement with Northern Trust Company require
the Corporation to maintain certain financial ratios and comply with
certain restrictions. These include, maintenance of minimum
consolidated capital levels, limits on debt and guarantees of debt by
the Corporation, restrictions on the ratio of consolidated
non-performing assets to total loans and of the consolidated allowance
for loan and lease losses to total non-performing loans, and certain
other restrictions. Management believes the Corporation has complied
with all of the covenants of this loan agreement.
Aggregate maturities required on other borrowings at December 31, 1997
are due in future years as follows:
<TABLE>
<S> <C>
1998 $44,978
1999 18,294
2000 5,757
2001 2,127
2002 12,581
Later years 11,448
- ---------------------------------------------------------------------------
$95,185
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
NOTE 14. CAPITAL RATIOS
The Corporation and its subsidiary banks are subject to various regulatory
capital requirements administered by federal and state banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary actions by regulators
that, if undertaken, could have a materially adverse effect on the
Corporation's financial condition. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, a bank must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and subsidiary banks to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and of
Tier I capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1997, that the Corporation and its subsidiary
banks met all capital adequacy requirements to which they were subject.
As of December 31, 1997, the most recent notification from the federal and
state regulatory agencies categorized each of the subsidiary banks as well
capitalized under the regulatory framework for prompt corrective action.
The banks must maintain the minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the categorization of any of the subsidiary banks.
The following table presents the actual capital amounts and ratios for the
Corporation and its bank subsidiaries which have assets in excess of ten
percent of consolidated assets:
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
NOTE 14. CAPITAL RATIOS, CONTINUED
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM RATIOS CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk Weighted
Assets)
Consolidated $131,600 14.25% $73,874 8.0% N/A N/A
National City Bank 41,916 11.28% 29,720 8.0% $37,150 10.0%
Tier I Capital (to Risk Weighted
Assets)
Consolidated $123,631 13.39% $36,937 4.0% N/A N/A
National City Bank 40,244 10.83% 14,860 4.0% $22,290 6.0%
Tier I Capital (to Average Assets)
Consolidated $123,631 9.74% $50,798 4.0% N/A N/A
National City Bank 40,244 8.22% 19,590 4.0% $24,489 5.0%
</TABLE>
<TABLE>
<CAPTION>
TO BE WELL
MINIMUM RATIOS CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION PROVISIONS:
- -----------------------------------------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted
Assets)
Consolidated $128,833 15.84% $65,065 8.0% N/A N/A
National City Bank 36,519 11.88% 24,597 8.0% $30,747 10.0%
Lincolnland Bank 11,836 13.33% 7,101 8.0% 8,876 10.0%
Tier I Capital (to Risk Weighted
Assets)
Consolidated $121,644 14.96% $32,533 4.0% N/A N/A
National City Bank 35,235 11.46% 12,299 4.0% $18,448 6.0%
Lincolnland Bank 10,726 12.08% 3,551 4.0% 5,326 6.0%
Tier I Capital (to Average Assets)
Consolidated $121,644 10.52% $46,248 4.0% N/A N/A
National City Bank 35,235 8.55% 16,484 4.0% $20,605 5.0%
Lincolnland Bank 10,726 8.98% 4,776 4.0% 5,970 5.0%
</TABLE>
NOTE 15. INCENTIVE STOCK OPTION PLAN
In 1995, the Corporation's board of directors approved a fixed Incentive
Stock Option Plan (Plan) which was approved by shareholders in 1996. The
Plan currently reserves 554,523 shares of common stock for issuance upon
the exercise of options granted as incentive awards to key employees of the
Corporation. Awards may be incentive stock options or non-qualified stock
options. All options granted under the Plan are required to be exercised
within ten years of the date granted. The exercise price of options granted
under the Plan cannot be less than the fair market value of the common
stock on the date of grant.
Grants under the Plan are accounted for following APB Opinion No. 25 and
related Interpretations. Accordingly, no compensation cost has been
recognized for grants under the Plan. Compensation expense of $234, $54,
and $0 was recognized for tax purposes in 1997, 1996, and 1995,
respectively. Had compensation cost for the Plan been determined based on
the grant date fair values of awards (the method described in FASB
Statement No. 123), reported net income and earnings per common share would
have been reduced to the pro forma amounts shown below.
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $18,351 $16,496 $14,399
Pro forma 17,334 15,736 14,278
Earnings per share:
Basic
As reported $1.72 $1.52 $1.30
Pro forma 1.62 1.45 1.29
Diluted
As reported $1.69 $1.52 $1.30
Pro forma 1.60 1.45 1.29
</TABLE>
32
<PAGE>
A summary of the status of the Plan, adjusted for all stock dividends and the
stock split issued in 1996, as of December 31, 1997 and 1996, and changes
during the years ending on those dates is presented below:
<TABLE>
Caption
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE Weighted Average Weighted Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, beginning of the year 375,261 $20.79 289,406 $19.11 - -
Options granted 112,350 41.90 97,020 25.62 289,406 $19.11
Options exercised 29,635 19.11 11,165 19.11 - -
Options forfeited 6,615 25.62 - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Options outstanding, end of year 451,361 $26.09 375,261 $20.79 289,406 $19.11
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Options exercisable 285,005 $21.17 170,229 $19.11 - -
Weighted-average fair value of options
granted during the year $14.72 $7.94 $5.65
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------
Weighted Average
Exercise Number Remaining Number
Price Outstanding Contractual Life Exercisable
- ----------------------------------------------------------------
<S> <C> <C> <C>
$19.11 248,606 7.8 194,600
25.62 90,405 8.8 90,405
41.90 112,350 9.8 -
- ----------------------------------------------------------------
451,361 8.5 285,005
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
Generally accepted accounting principles provide for the use of the
Black-Scholes option pricing model to estimate the fair value of options
which have no vesting restrictions. This model requires the use of subjective
assumptions, including expected stock price volatility. As a result,
management believes the Black-Scholes valuation model may not necessarily
provide the best single measure of option value.
The fair value of the stock options granted under the Plan has been estimated
using the Black-Scholes option pricing model with the following weighted
average assumptions.
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Number of options granted 112,350 97,020 289,406
Risk-free interest rate 5.86% 6.42% 6.08
Expected life, in years 10 10 10
Expected volatility 21.50% 16.41% 14.65%
Expected dividend yield 1.71% 2.10% 1.99%
Estimated fair value per option $14.72 $7.94 $5.65
</TABLE>
NOTE 16. 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
at December 31:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and short-term $ 40,314 $ 40,314 $ 44,467 $ 44,467
investments
Securities 279,328 279,328 282,894 285,036
Loans - net of
allowance 890,580 912,721 781,102 790,803
Accrued interest
receivable 12,931 12,931 12,326 12,326
Liabilities:
Deposits 964,046 971,410 913,350 913,233
Short-term borrowings 76,917 76,917 67,365 67,365
Other borrowings 95,185 93,163 50,694 48,385
Accrued interest
payable 4,732 4,732 4,460 4,460
</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 leases receivable of $17,807 and $12,331 in 1997 and 1996, respectively.
CASH AND SHORT-TERM INVESTMENTS
Cash and short-term investments include cash and due from banks, short-term
money market investments, 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
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
NOTE 16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
estimated using quoted market prices for similar securities. Fair values for
nonmarketable equity securities are equal to cost as there is no readily
determinable fair value. Carrying amount of accrued interest receivable
approximates fair value.
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. Carrying amount of accrued
interest receivable approximates fair value.
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. Carrying
amount of accrued interest payable approximates fair value.
SHORT-TERM DEBT
Rates currently available to the Corporation 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. Carrying amount of accrued interest payable approximates fair value.
LONG-TERM DEBT
Rates currently available for debt with similar terms and maturities are used
to estimate fair value of existing debt. Carrying amount of accrued interest
payable approximates 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 17. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
Most of the business activity of the Corporation and its subsidiaries is
conducted with customers located in the immediate geographical area of their
offices. These areas are comprised of Southwestern Indiana, Western Kentucky,
and Southeastern Illinois. The Corporation maintains a diversified loan
portfolio which contains no concentration of credit risk from borrowers
engaged in the same or similar industries exceeding 10% of total loans.
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 actions 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 materially adverse effect on the financial position or 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 contractual 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. Financial instruments whose contract amounts represent credit risk
at December 31, 1997 follows:
<TABLE>
<CAPTION>
Range of Rates
Variable Rate Fixed Rate Total on Fixed Rate
Commitment Commitment Commitment Commitments
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commitments
to extend credit $109,131 $57,230 $166,361 5.40%-20.00%
Standby letters
of credit - - 13,258 -
</TABLE>
34
<PAGE>
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 Corporation does not engage in the use of interest rate swaps, futures,
forwards, or option contracts.
NOTE 18. DIVIDEND REINVESTMENT PLAN
The Corporation established a Dividend Reinvestment Plan for its shareholders
in 1989. The plan provides participating shareholders a method of investing
their cash dividends in the Corporation's common stock without payment of any
brokerage commission, service charge, or other expense. In addition,
participating shareholders may also invest up to $10,000 per calendar quarter
in the Corporation's common stock through the optional cash payment feature
of the plan.
The plan permits the issuance of previously authorized and unissued shares or
the repurchase of outstanding shares for reissuance. As of December 31, 1997,
48,925 shares of authorized but unissued common stock were reserved for plan
requirements.
NOTE 19. EMPLOYEE RETIREMENT PLANS
The Corporation maintained a noncontributory pension plan in which
substantially all full-time employees were eligible to participate upon the
completion of one year of service. No contribution or funding by the
Corporation 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.
The plan was curtailed effective December 31, 1997.
In establishing the amounts reflected in the financial statements, the following
significant assumption rates were used:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5%
Increase in compensation rate 5.0% 5.0% 5.0%
Expected long-term rate of return 9.0% 9.0% 9.0%
</TABLE>
The following summary reflects the plan's funded status and the amounts
reflected on the Corporation's financial statements. Actuarial present values
of benefit obligations at December 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated benefit obligation
including vested benefits of
$5,309, $3,899, and $11,350
in 1997, 1996, and 1995 $(11,350) $(6,005) $(4,420)
Effects of projected future
compensation levels N/A (2,647) (2,000)
- ------------------------------------------------------------------------
Projected benefit obligation
for service rendered to date (11,350) (8,652) (6,420)
Plan assets at fair value 13,550 12,400 10,856
- ------------------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 2,200 3,748 4,436
Unrecognized net loss (gain)
from past experience
different from that assumed
and effects of changes in
assumptions - 170 (494)
Prior service cost not yet
recognized in net periodic
pension cost - (261) (108)
Unrecognized net asset at
January 1, 1987, being
recognized over 11.11
years from that date - (259) (347)
- ------------------------------------------------------------------------
Prepaid pension cost
included in other assets $ 2,200 $ 3,398 $ 3,487
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
Net periodic pension cost (credit) included the following components for the
years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 836 $ 812 $ 618
Interest cost on projected
benefit obligation 633 590 456
Return on assets (1,911) (1,300) (2,789)
Net amortization and deferral 574 (13) 1,758
Curtailment effect 1,066 - -
- -----------------------------------------------------------
Net periodic pension
cost (credit) $ 1,198 $ 89 $ 43
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
The Corporation also maintains a savings and profit-sharing plan for
substantially all full-time employees who have completed one year of service.
Employees may voluntarily contribute to the plan. The Corporation's
contribution to the plan, which is subject to the discretion of the Board of
Directors, cannot exceed 7% of the net income before income taxes. Corporate
contributions were $1,531, $1,409, and $1,384 during 1997, 1996, and 1995,
respectively.
United Financial Bancorp, Inc. had a Stock Option Plan and a Management
Recognition and Retention Plan for its directors and officers. The cost of
the shares awarded under the retention plan was amortized using an
accelerated method over vesting periods. These plans were terminated when the
Corporation acquired this subsidiary.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLAR AMOUNTS OTHER THAN SHARE DATA IN THOUSANDS)
NOTE 19. EMPLOYEE RETIREMENT PLANS, CONTINUED
As the result of previous mergers and subsequent amendment of the Corporation's
pension and profit-sharing plans to include employees of the other subsidiaries,
retirement plans previously maintained by those subsidiaries 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.
NOTE 20. UNAUDITED INTERIM FINANCIAL DATA
The following table reflects summarized quarterly data for the periods described
(unaudited):
<TABLE>
<CAPTION>
1997
- ----------------------------------------------------------------
DECEMBER SEPTEMBER JUNE MARCH
31 30 30 31
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME $24,756 $24,663 $23,737 $22,472
INTEREST EXPENSE 11,460 11,451 10,778 9,944
- ----------------------------------------------------------------
NET INTEREST INCOME 13,296 13,212 12,959 12,528
PROVISION FOR LOAN LOSSES 611 686 228 366
NONINTEREST INCOME 2,649 2,547 2,358 2,534
NONINTEREST EXPENSE 10,213 8,227 8,050 7,900
- ----------------------------------------------------------------
INCOME BEFORE INCOME TAXES 5,121 6,846 7,039 6,796
PROVISION FOR INCOME TAXES 1,124 2,085 2,119 2,123
- ----------------------------------------------------------------
NET INCOME $ 3,997 $ 4,761 $ 4,920 $ 4,673
- ----------------------------------------------------------------
- ----------------------------------------------------------------
EARNINGS PER SHARE - BASIC $ 0.37 $ 0.45 $ 0.46 $ 0.44
EARNINGS PER SHARE - DILUTED $ 0.36 $ 0.44 $ 0.46 $ 0.43
</TABLE>
<TABLE>
<CAPTION>
1996
- ----------------------------------------------------------------
December September June March
31 30 30 31
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $22,468 $21,858 $21,153 $21,070
Interest expense 9,873 9,514 9,310 9,246
- ----------------------------------------------------------------
Net interest income 12,595 12,344 11,843 11,824
Provision for loan losses 1,766 342 242 354
Noninterest income 2,644 2,155 1,985 1,822
Noninterest expense 7,841 7,996 7,083 7,046
- ----------------------------------------------------------------
Income before income taxes 5,632 6,161 6,503 6,246
Provision for income taxes 1,625 2,056 2,190 2,175
- ----------------------------------------------------------------
Net income $ 4,007 $ 4,105 $ 4,313 $ 4,071
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Earnings per share - Basic $ 0.37 $ 0.38 $ 0.40 $ 0.37
Earnings per share - Diluted $ 0.37 $ 0.38 $ 0.40 $ 0.37
</TABLE>
NOTE 21. SUBSEQUENT EVENTS
The Corporation's subsidiary, First Kentucky Bank, purchased the former
Mayfield, Kentucky, Branch Office of Republic Bank & Trust Company on January 8,
1998. First Kentucky assumed $65,639 in deposit liabilities in consideration
of a deposit premium of $4,601. First Kentucky also purchased the office
facility and certain loans of the Branch.
On December 1, 1997, the Corporation entered into a definitive agreement to
purchase 100% of the common stock of Vernois Bancshares, Inc. in a cash
transaction. As of December 31, 1997, Vernois Bancshares, Inc.'s wholly-owned
subsidiary, Bank of Illinois in Mt. Vernon, had assets of $163,450 and equity
of $13,040. The transaction will be accounted for as a purchase, and the
excess of cost over the fair value of net assets acquired will be amortized
over 25 years using the straight-line method. The transaction was consummated
on March 6, 1998.
On December 15, 1997, the Corporation entered into a definitive agreement to
acquire Illinois One Bancorp, Inc. in a transaction to be accounted for as a
pooling of interests. The Corporation will issue, depending upon the market
price of its common stock, up to 577,417 shares of its common stock for all
outstanding shares of Illinois One Bancorp. Illinois One Bancorp is the parent
company of Illinois One Bank, National Association, Shawneetown, Illinois. As
of December 31, 1997, Illinois One Bank had assets of $88,069, deposits of
$76,388, and equity of $9,872. The transaction, which is subject to shareholder
and regulatory approval, is anticipated to close in the second of 1998.
On February 12, 1998, the Corporation entered into a definitive agreement to
acquire Trigg Bancorp, Inc. in a transaction to be accounted for as a pooling of
interests. The Corporation will issue 736,278 shares of its common stock for all
outstanding shares of Trigg Bancorp. Trigg Bancorp is the parent of the Trigg
County Farmers Bank, Cadiz, Kentucky. As of December 31, 1997, Trigg County
Farmers Bank had assets of $96,371, deposits of $72,296, and equity of $8,122.
The transaction, which is subject to shareholder and regulatory approval, is
expected to close in the second or third quarter of 1998.
On March 9, 1998, the Corporation entered into a definitive agreement to acquire
Community First Financial, Inc., Maysville, Kentucky, in a transaction to be
accounted for as a pooling of interests. The Corporation will issue 1,441,860
shares of its common stock for all outstanding shares of Community First
Financial, Inc. Community First Financial, Inc., is the parent of Community
First Bank, N.A., Maysville, Kentucky, and Community First Bank of Kentucky,
Warsaw, Kentucky. As of December 31, 1997, the two banks had total assets of
$130,226, total deposits of $114,420, and total equity of $12,781. The
transaction is subject to regulatory and shareholder approval.
36
<PAGE>
NOTE 22. FINANCIAL INFORMATION OF PARENT COMPANY
The principal source of income for National City Bancshares, Inc. is dividends
from its subsidiary banks. Banking regulations impose restrictions on the
ability of subsidiaries to pay dividends to the Corporation. The amount of
dividends that could be paid is further restricted by management to maintain
prudent capital levels.
Condensed financial data for National City Bancshares, Inc. (parent company
only) follows:
CONDENSED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,947 $ 13,260
Investment in subsidiaries 139,875 114,699
Securities available for sale 151 281
Nonmarketable equity securities 388 548
Note receivable 243 300
Property and equipment 1,021 955
Deferred income taxes - 37
Other assets 3,923 2,200
- -------------------------------------------------------------------------------------
TOTAL ASSETS $150,548 $132,280
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
LIABILITIES
Other borrowings $ 136 $ 215
Dividends payable 1,931 1,698
Deferred income taxes 859 -
Other liabilities 819 673
- -------------------------------------------------------------------------------------
Total liabilities 3,745 2,586
- -------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 10,727 10,230
Capital surplus 79,725 57,631
Retained earnings 52,858 61,819
Unrealized gain (loss) on securities
available for sale 3,493 14
- -------------------------------------------------------------------------------------
Total shareholders' equity 146,803 129,694
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $150,548 $132,280
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from subsidiaries $20,560 $ 32,900 $12,496
Other income 5,380 3,456 2,662
- -----------------------------------------------------------------------------------------
Total income 25,940 36,356 15,158
- -----------------------------------------------------------------------------------------
Interest expense 10 6 -
Other expenses 6,776 3,710 3,258
- -----------------------------------------------------------------------------------------
Total expenses 6,786 3,716 3,258
- -----------------------------------------------------------------------------------------
Income before income taxes
and equity in undistributed
earnings of subsidiaries 19,154 32,640 11,900
Income tax benefit (503) (20) (274)
- -----------------------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiaries 19,657 32,660 12,174
Equity in undistributed earnings
of subsidiaries (1,306) (16,164) 2,225
- -----------------------------------------------------------------------------------------
Net income $18,351 $ 16,496 $14,399
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 18,351 $ 16,496 $14,399
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 517 482 451
Undistributed earnings of
subsidiaries 1,306 16,164 (2,225)
Securities losses (gains) (479) 1 (18)
Increase (decrease) in deferred taxes 847 (38) (64)
Changes in assets and liabilities:
(Increase) decrease in other assets (2,045) (113) (207)
Increase (decrease) in other liabilities 146 (3) 191
- -----------------------------------------------------------------------------------------
Net cash flows provided by
operating activities 18,643 32,989 12,527
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from maturities of
securities available for sale - 434 250
Proceeds from sales of securities
available for sale 923 - 118
Proceeds from sales of
nonmarketable equity securities 804 - -
Purchase of securities
available for sale (650) - (340)
Purchase of nonmarketable
equity securities (185) (11) (537)
(Disbursements) and repayments
on notes receivable 57 381 (381)
Capital expenditures (459) (555) (446)
Proceeds from sale of premises
and equipment 17 - -
Investment in subsidiaries (6,947) (13,817) (1,002)
(Increase) decrease in securities
purchased under agreements to resell - 10,000 (6,900)
- -----------------------------------------------------------------------------------------
Net cash flows provided by
(used in) investing activities (6,440) (3,568) (9,238)
- -----------------------------------------------------------------------------------------
CASH FLOWS FROM
FINANCING ACTIVITIES
Dividends paid (6,509) (5,589) (3,957)
Proceeds from other borrowings - 244 -
Payments on other borrowings (79) (29) -
Repurchase of common stock (16,198) (12,890) (863)
Sale of common stock 1,705 1,653 1,036
Proceeds from exercise of stock options 565 213 -
- -----------------------------------------------------------------------------------------
Net cash flows (used in)
financing activities (20,516) (16,398) (3,784)
- -----------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents (8,313) 13,023 (495)
Cash and cash equivalents
at beginning of year 13,260 237 732
- -----------------------------------------------------------------------------------------
Cash and cash equivalents
at end of year $ 4,947 $ 13,260 $ 237
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE
OF NONCASH INVESTING
ACTIVITIES
Change in unrealized gain (loss) on
securities available for sale, net $ 3,479 $ (272) $ 3,155
Common stock issued in
acquisition of subsidiary 15,949 - 2,442
</TABLE>
37
<PAGE>
OFFICIAL ORGANIZATION
SUBSIDIARIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ALLIANCE BANK FIRST FEDERAL SAVINGS BANK
VINCENNES, INDIANA OF LEITCHFIELD
LEITCHFIELD, KENTUCKY
BOARD OF DIRECTORS
Janice L. Beesley BOARD OF DIRECTORS
John H. Bobe Howard T. Allgood
John N. Clauss Ellis Wendell Armes
[PHOTO] Horace A. Foncannon, Jr. [PHOTO] Janice L. Beesley
Dr. Ralph J. Jacqmain Dennis R. Buckles
Thomas R. Stephens Robert T. Crawford
Thomas C. Glasscock
JANICE L. BEESLEY ROBERT T. CRAWFORD Frank Wallace
CHAIRMAN & CEO PRESIDENT & CEO
FIRST KENTUCKY BANK
[PHOTO] STURGIS, KENTUCKY
BOARD OF DIRECTORS
JOHN N. CLAUSS Garland Certain
PRESIDENT Charles Hamilton Floyd
BANK OF ILLINOIS Charles L. Pryor
IN MT. VERNON [PHOTO] Joseph W. Sprague
MT. VERNON, ILLINOIS Slaton Sprague
William R. Sprague
BOARD OF DIRECTORS Joe Woodring
Gino Federici GARLAND CERTAIN
David Flota PRESIDENT & CEO
[PHOTO] Kenneth Martin FIRST NATIONAL BANK
Michael Mateer OF BRIDGEPORT
Sam Mateer BRIDGEPORT, ILLINOIS
Caroline Quinn
BOARD OF DIRECTORS
SAM S. MATEER Max D. Elliott
PRESIDENT & CEO Clifford C. Gray
[PHOTO] James M. Lannan
Daniel T. Wolfe
THE BANK OF MITCHELL Jeffrey R. Wolfe
MITCHELL, INDIANA JAMES M. LANNAN John R. Wolfe
CASHIER & CEO R. Tony Wolfe
BOARD OF DIRECTORS
Christopher W. Burton, Esq. THE FIRST NATIONAL BANK
John N. Clauss OF WAYNE CITY
Dana J. Dunbar WAYNE CITY, ILLINOIS
[PHOTO] Brooks Galloway
F. Wendell Gooch BOARD OF DIRECTORS
James F. King, D.D.S. Michael R. Beehn
Randall L. Young Noel E. Edmison
[PHOTO] Rick V. Huff
RANDALL L. YOUNG Larry D. Keil
PRESIDENT & CEO Rodney L. Legg
Lee A. Rubenacker
RICK V. HUFF
FIRST BANK OF HUNTINGBURG PRESIDENT & CEO
HUNTINGBURG, INDIANA
LINCOLNLAND BANK
BOARD OF DIRECTORS DALE, INDIANA
Ronald H. Cox
Edgar C. Mulzer BOARD OF DIRECTORS
Eric R. Olinger Robert M. Arnold
[PHOTO] Lee Ray Olinger Eric K. Ayer, Esq.
Max R. Olinger [PHOTO] Harvey W. Pinney
Norbert E. Olinger Kenneth R. Schaaf, CPA
ERIC R. OLINGER Glen L. Sakel M. Lon Youngblood
PRESIDENT & CEO Gene A. Thieman
Richard F. Welp HARVEY W. PINNEY
PRESIDENT & CEO
38
<PAGE>
THE NATIONAL CITY BANK WHITE COUNTY BANK
OF EVANSVILLE CARMI, ILLINOIS
EVANSVILLE, INDIANA
BOARD OF DIRECTORS
BOARD OF DIRECTORS Dr. Frank Barbre
Thomas L. Austerman Donald D. Drone
Michael F. Elliott Paul D. Hayse
Michael D. Gallagher [PHOTO] R. Keith Hoskins
[PHOTO] Eugene A. Hahn George H. Schanzle
Harvey J. Hirsch R. KEITH HOSKINS
John Lee Newman PRESIDENT & CEO
THOMAS L. AUSTERMAN Edward E. Peyronnin
PRESIDENT Peter L. Stevenson, M.D.
Richard M. Stivers NCBE LEASING CORP.
Joseph J. Vezzoso, Jr. EVANSVILLE, INDIANA
Robert B. Wright
BOARD OF DIRECTORS
Thomas L. Austerman
[PHOTO] Michael D. Gallagher
Dr. H. Ray Hoops
[PHOTO] Charles J. Kelly, Jr.
ROGER M. DUNCAN John Lee Newman
EXECUTIVE VICE Richard M. Stivers
PRESIDENT CHARLES J. KELLY, JR.
PRESIDENT & CEO
[PHOTO]
TWENTY-ONE SOUTHEAST
THIRD CORPORATION
STUART G. HARRINGTON EVANSVILLE, INDIANA
EXECUTIVE VICE
PRESIDENT BOARD OF DIRECTORS
Thomas L. Austerman
Stephen C. Byelick, Jr.
THE PEOPLES NATIONAL BANK Michael F. Elliott
OF GRAYVILLE Robert A. Keil
GRAYVILLE, ILLINOIS Curtis D. Ritterling
BOARD OF DIRECTORS
Sam Broster UNIFED, INC.
Richard L. Elliott VINCENNES, INDIANA
Victor R. Gallagher, Jr.
[PHOTO] Donald E. Kirkland BOARD OF DIRECTORS
Joseph M. Siegert Janice L. Beesley
Herbert W. Sutter Horace A. Foncannon, Jr.
DONALD F. KIRKLAND Patrick W. Lenahan
PRESIDENT & CEO G. Jeffrey Palmer
PIKE COUNTY BANK
PETERSBURG, INDIANA
BOARD OF DIRECTORS
Max D. Elliott
Denver Gladish
Terry L. Gladish
[PHOTO] Anthony P. Uebelhor
John E. Yager, Jr.
MAX D. ELLIOTT
PRESIDENT & CEO
</TABLE>
39
<PAGE>
OFFICIAL ORGANIZATION, CONTINUED
NATIONAL CITY BANCSHARES, INC.
BOARD OF DIRECTORS
JANICE L. BEESLEY CHAIRMAN AND CHIEF EXECUTIVE OFFICER, ALLIANCE BANK
MICHAEL F. ELLIOTT CHAIRMAN AND CHIEF EXECUTIVE OFFICER, THE NATIONAL CITY
BANK OF EVANSVILLE AND NATIONAL CITY BANCSHARES, INC.
SUSANNE R. EMGE EXECUTIVE DIRECTOR, ST. MARY'S MEDICAL CENTER
FOUNDATION
DONALD G. HARRIS RETIRED PRESIDENT, MEAD JOHNSON WORLDWIDE NUTRITIONAL
GROUP
DR. H. RAY HOOPS PRESIDENT, UNIVERSITY OF SOUTHERN INDIANA
ROBERT A. KEIL PRESIDENT, NATIONAL CITY BANCSHARES, INC.
JOHN D. LIPPERT RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER, NATIONAL
CITY BANCSHARES, INC.
RONALD G. REHERMAN CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER,
SIGCORP, INC.; CHAIRMAN, SOUTHERN INDIANA GAS AND
ELECTRIC COMPANY
LAURENCE R. STEENBERG PRESIDENT, BST CORPORATION AND LOT RESOURCES
RICHARD F. WELP SOUTH REGION MANAGER, COUNTRYMARK COOPERATIVE, INC.
EXECUTIVE OFFICERS
MICHAEL F. ELLIOTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ROBERT A. KEIL
PRESIDENT
CURTIS D. RITTERLING
EXECUTIVE VICE PRESIDENT
SENIOR OFFICERS
STEPHEN C. BYELICK, JR.
SECRETARY AND TREASURER
N. ANN CAVIS
SENIOR VICE PRESIDENT
NANCY G. EPPERSON
HUMAN RESOURCES DIRECTOR
BYRON W. JETT
SENIOR VICE PRESIDENT
HAROLD A. MANN
SENIOR VICE PRESIDENT
GREGORY A. PENCE
DIRECTOR OF MARKETING
[PHOTO]
SENIOR OFFICERS
(Front) Nancy G. Epperson and N. Ann Cavis
(Back) Harold A. Mann, Stephen C. Byelick, Jr., Byron W. Jett, and
Gregory A. Pence
<PAGE>
SHAREHOLDER INFORMATION
STOCK AND DIVIDEND INFORMATION
The Corporation's common stock trades on The Nasdaq Stock Market 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 all stock dividends and the two-for-one
stock split issued in 1996.
<TABLE>
<CAPTION>
QUARTER RANGE OF STOCK PRICE DIVIDEND
LOW HIGH DECLARED
<S> <C> <C> <C>
1996
1st $21.54 $27.10 $0.11
2nd 25.17 26.76 0.14 1/2
3rd 25.17 26.42 0.14 1/2
4th 25.40 28.57 0.15
1997
1ST $27.86 $32.26 $0.15 1/4
2ND 30.24 40.24 0.15 1/4
3RD 38.57 41.67 0.15 1/4
4TH 40.00 51.19 0.18
</TABLE>
DIVIDEND REINVESTMENT PLAN
As a service to its shareholders, the Corporation provides an easy way for
a shareholder to acquire additional shares of National City Bancshares,
Inc. common stock through its DIVIDEND REINVESTMENT PLAN. The plan allows
a shareholder to purchase this stock without brokerage fees using
dividends and additional voluntary cash investments. For information about
this plan, a shareholder can contact the Corporation's TRANSFER AGENT.
MARKET MAKERS
The following firms make a market in the common stock
of National City Bancshares, Inc.:
The Chicago Corporation
Herzog, Heine, Geduld, Inc.
J.J.B. Hilliard, W.L. Lyons, Inc.
Keefe, Bruyette & Woods, Inc.
McConnell, Budd & Downes, Inc.
NatCity Investments, Inc.
FOR FURTHER INFORMATION
The Corporation's TRANSFER AGENT
and REGISTRAR is
The National City Bank of Evansville
Trust Department
227 Main Street
P.O. Box 868
Evansville, IN 47705-0868
Telephone (812) 464-9665
The Corporation's HEADQUARTERS is located at
National City Bancshares, Inc.
227 Main Street
P.O. Box 868
Evansville, IN 47705-0868
Telephone (812) 464-9677
ALL SUBSIDIARY BANKS OF NATIONAL CITY BANCSHARES, INC.
ARE MEMBERS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION.
<PAGE>
[PHOTO]
[LOGO]
NATIONAL CITY BANCSHARES,INC.
227 MAIN STREET
EVANSVILLE, INDIANA 47708
WWW.NATIONALCITY.COM
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
NAME JURISDICTION OF INCORPORATION
- -------------------------- --------------------------------
The National City Bank United States
of Evansville
Evansville, Indiana
The Peoples National Bank United States
of Grayville
Grayville, Illinois
First Kentucky 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
White County Bank State of Illinois
Carmi, Illinois
Alliance Bank State of Indiana
Vincennes, Indiana
The First National Bank United States
of Wayne City
Wayne City, Illinois
First Federal Savings Bank United States
of Leitchfield
Leitchfield, Kentucky
First National Bank United States
of Bridgeport
Bridgeport, Illinois
First Bank of Huntingburg State of Indiana
Huntingburg, Indiana
Vernois Bancshares, Inc. State of Illinois
Mt. Vernon, Illinois
NCBE Leasing Corp. State of Indiana
Evansville, Indiana
Twenty-One Southeast Third State of Indiana
Corporation
Evansville, Indiana
<PAGE>
[McGLADREY & PULLEN, LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K into the Company's previously filed
Registration Statement File Nos. 333-10739 and 33-62183.
/s/ McGLADREY & PULLEN LLP
Champaign, Illinois
March 9, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 36329
<INT-BEARING-DEPOSITS> 2485
<FED-FUNDS-SOLD> 1500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 279328
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 916356
<ALLOWANCE> 7969
<TOTAL-ASSETS> 1298260
<DEPOSITS> 964046
<SHORT-TERM> 76917
<LIABILITIES-OTHER> 15309
<LONG-TERM> 95185
0
0
<COMMON> 10727
<OTHER-SE> 136076
<TOTAL-LIABILITIES-AND-EQUITY> 1298260
<INTEREST-LOAN> 78139
<INTEREST-INVEST> 17057
<INTEREST-OTHER> 432
<INTEREST-TOTAL> 95628
<INTEREST-DEPOSIT> 36118
<INTEREST-EXPENSE> 7515
<INTEREST-INCOME-NET> 51995
<LOAN-LOSSES> 1891
<SECURITIES-GAINS> 794
<EXPENSE-OTHER> 34390
<INCOME-PRETAX> 25802
<INCOME-PRE-EXTRAORDINARY> 25802
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18351
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.69
<YIELD-ACTUAL> 4.87
<LOANS-NON> 3672
<LOANS-PAST> 794
<LOANS-TROUBLED> 75
<LOANS-PROBLEM> 38460
<ALLOWANCE-OPEN> 7189
<CHARGE-OFFS> 2465
<RECOVERIES> 838
<ALLOWANCE-CLOSE> 7969
<ALLOWANCE-DOMESTIC> 6062
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1907
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 40884
<INT-BEARING-DEPOSITS> 2983
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