<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999.
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. Employee
incorporation or organization) Identification No.)
PO BOX 868, EVANSVILLE, INDIANA 47705-0868
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 464-9677
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 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT November 11, 1999
(Common stock, $1.00 Stated Value) 16,861,640
<PAGE> 2
NATIONAL CITY BANCSHARES, INC.
INDEX
PART I - FINANCIAL INFORMATION
PAGE NO.
Item 1. Unaudited Financial Statements
Condensed consolidated statements of financial position-
September 30, 1999, December 31, 1998, and September 30, 1998 3
Condensed consolidated statements of income and
comprehensive income-three months and nine months
ended September 30, 1999 and 1998 4
Condensed consolidated statements of cash flows-
nine months ended September 30, 1999 and 1998 5
Notes to condensed consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. Unaudited Financial Statements
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Financial Position
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 49,070 $ 67,389 $ 63,492
Time deposits in banks - 142 1,200
Federal funds sold 1,466 10,431 11,079
Securities available for sale 326,314 346,514 381,875
Nonmarketable equity securities 18,559 19,327 18,010
Loans 1,680,965 1,648,296 1,624,288
Less: Allowance for loan losses (19,432) (18,443) (16,637)
- ---------------------------------------------------------------------------------------------------------------------------
Loans-net 1,661,533 1,629,853 1,607,651
Premises and equipment, net 45,272 46,399 46,224
Intangible assets 37,437 40,185 40,924
Other assets 33,868 34,984 33,482
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,173,519 $ 2,195,224 $ 2,203,937
===========================================================================================================================
LIABILITIES
Deposits:
Noninterest-bearing demand $ 197,005 $ 231,623 $ 229,559
Interest-bearing savings and time 1,446,481 1,502,962 1,478,053
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 1,643,486 1,734,585 1,707,612
Short-term borrowings 109,361 33,382 70,668
Other borrowings 130,798 139,545 137,659
Guaranteed preferred beneficial interests
in the Corporation's subordinated debenture 34,500 34,500 34,500
Dividends payable 3,381 3,368 2,447
Deferred income taxes 3,384 3,898 5,388
Other liabilities 12,532 17,623 17,478
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,937,442 1,966,901 1,975,752
COMMON STOCK OWNED BY ESOP(subject to put option) 3,214 10,043 9,285
SHAREHOLDERS' EQUITY
Preferred stock-1,000,000 shares authorized
None outstanding
Common stock - $1.00 stated value:
9/30/99 12/31/98 9/30/98
------- -------- -------
Shares authorized 29,000,000 29,000,000 29,000,000
Shares outstanding 16,907,240 16,842,456 16,826,906 16,907 16,842 16,830
Capital surplus 124,953 123,561 96,433
Retained earnings 95,007 83,536 109,362
Accumulated other comprehensive income (790) 4,436 5,674
Unearned employee stock ownership plan shares - (52) (114)
Common stock owned by ESOP(subject to put option) (3,214) (10,043) (9,285)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 232,863 218,280 218,900
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,173,519 $ 2,195,224 $ 2,203,937
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE> 4
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income and Comprehensive Income
(Dollar Amounts Other Than Share Data in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 36,144 $ 37,070 $ 107,113 $ 105,839
Interest and dividends on securities 4,815 5,793 14,749 18,594
Interest on federal funds sold 20 228 429 785
Interest on other investments 14 52 44 215
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 40,993 43,143 122,335 125,433
INTEREST EXPENSE
Interest on deposits 14,640 16,930 45,045 49,363
Interest on funds borrowed 3,711 3,551 10,089 9,645
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 18,351 20,481 55,134 59,008
NET INTEREST INCOME 22,642 22,662 67,201 66,425
Provision for loan losses 1,149 853 3,249 2,999
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 21,493 21,809 63,952 63,426
NONINTEREST INCOME
Trust income 625 562 1,776 1,584
Service charges on deposit accounts 1,976 2,067 5,766 5,799
Other service charges and fees 1,034 1,009 3,092 3,091
Securities gains (losses) 16 84 (622) 1,149
Other 397 376 1,069 1,178
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 4,048 4,098 11,081 12,801
NONINTEREST EXPENSE
Salaries, wages and other employee benefits 7,616 9,256 21,553 25,816
Occupancy expense 951 980 2,715 2,806
Furniture and equipment expense 1,178 1,231 3,191 3,323
Amortization of intangibles 913 837 2,739 2,320
Other 5,009 6,500 14,089 15,385
- ------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 15,667 18,804 44,287 49,650
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 9,874 7,103 30,746 26,577
Income taxes 2,456 1,911 9,147 7,686
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME 7,418 5,192 21,599 18,891
==============================================================================================================================
Proforma C Corporation provision for income taxes 2,456 2,183 9,147 8,401
- ------------------------------------------------------------------------------------------------------------------------------
PROFORMA NET INCOME 7,418 4,920 21,599 18,176
- ------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of income taxes:
Unrealized gain (loss) arising in period (1,472) 2,126 (5,596) 1,605
Reclassification for realized amount (9) (50) 370 (466)
- ------------------------------------------------------------------------------------------------------------------------------
Net unrealized loss recognized in other
comprehensive income (1,481) 2,076 (5,226) 1,139
- ------------------------------------------------------------------------------------------------------------------------------
PROFORMA COMPREHENSIVE INCOME $ 5,937 $ 6,996 $ 16,373 $ 19,315
==============================================================================================================================
Earnings per share:
Basic $ 0.44 $ 0.29 $ 1.28 $ 1.09
Diluted $ 0.44 $ 0.29 $ 1.27 $ 1.08
Weighted average shares outstanding:
Basic 16,900,119 16,767,443 16,875,248 16,737,400
Diluted 16,985,353 16,871,162 16,963,813 16,858,602
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(Dollars Amounts in Thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES $ 31,918 $ 28,215
- -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing time deposits in banks 142 2,493
Proceeds from matured securities available for sale 79,215 65,830
Proceeds from sales of securities available for sale 2,598 41,054
Proceeds from sales of nonmarketable securities 654 -
Proceeds from called investments 20,916 29,628
Purchases of securities available for sale (91,129) (68,924)
Purchases of nonmarketable equity securities (242) (149)
Decrease in federal funds sold 8,965 18,015
Increase in loans made to customers (34,909) (117,009)
(Increase) decrease in cash surrender value life insurance (61) 261
Increase in other investments (2,054) (1,442)
Capital expenditures (2,293) (6,325)
Proceeds from sale of premises and equipment 350 127
Proceeds from sale of other real estate owned 504 408
Purchase of subsidiary, net of cash and cash
equivalents acquired - 36,952
- -------------------------------------------------------------------------------
Net cash flows provided by (used in) investing activities (17,344) 919
- -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (91,099) (18,578)
Net increase (decrease) in short-term borrowings 75,979 (21,881)
Proceeds from other borrowings 10,090 93,449
Payments on other borrowings (18,837) (100,817)
Trust preferred securities - 32,986
Dividends paid (10,115) (9,350)
Repurchase of common stock - (1,359)
Sale of common stock - 1,108
Proceeds from exercise of stock options 1,089 1,605
- -------------------------------------------------------------------------------
Net cash flows used in financing activities (32,893) (22,837)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (18,319) 6,297
- -------------------------------------------------------------------------------
Cash and cash equivalents at beginning of period 67,389 57,195
- -------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 49,070 $ 63,492
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows (Continued)
(Dollars Amounts in Thousands)
Nine Months Ended
September 30,
- -------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCIAL ACTIVITIES
Change in allowance for unrealized
loss on securities available for sale $ (8,394) $ (5,290)
Decrease in deferred taxes attributable
to securities available for sale (514) 576
Other real estate acquired in settlement of loans 926 362
Purchase of subsidiaries and branches:
Purchase price $ - $ (32,354)
===============================================================================
Assets acquired:
Cash and cash equivalents $ - $ 4,598
Securities 39,223
Federal funds sold 8,080
Loans 106,536
Premises and equipment 2,856
Other assets 23,700
Liabilities assumed:
Deposits (193,386)
Short-term borrowings (10,510)
Other borrowings (11,100)
Deferred taxes payable (71)
Other liabilities (2,280)
- -------------------------------------------------------------------------------
$ - $ (32,354)
===============================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE> 7
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying unaudited condensed consolidated financial statements include
the accounts of National City Bancshares, Inc. and its subsidiaries
(collectively, the "Corporation"). At September 30, 1999, the Corporation had as
subsidiaries, twelve commercial banks, a leasing corporation, a property
management company, and a Delaware statutory business trust. All significant
intercompany transactions are eliminated in consolidation.
The financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). While the
financial statements are unaudited, they do reflect all adjustments which, in
the opinion of management, are necessary for a fair statement of the financial
position, results of operations, and cash flow for the interim periods. All such
adjustments are of a normal recurring nature. Pursuant to SEC rules, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted from these financial statements unless significant changes
have taken place since the end of the most recent fiscal year. The accompanying
financial statements and notes thereto should be read in conjunction with the
Corporation's financial statements and notes for the year ended December 31,
1998 included in the Corporation's Annual Report on Form 10-K filed with the
SEC.
Because the results from commercial banking operations are so closely related
and responsive to changes in economic conditions, the results for any interim
period are not necessarily indicative of the results that can be expected for
the entire year.
In October, 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage Backed
Securities Retained After the Securitization of Mortgage Loans Held For Sale By
a Banking Enterprise." SFAS 134 amends SFAS 65 and SFAS 115. SFAS 134 became
effective during the second quarter of 1999. The Corporation has not securitized
any mortgage loans held for sale and, therefore, SFAS 134 did not have any
impact on the accompanying financial statements.
NOTE 2
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.
In the normal course of business, there are outstanding various other
commitments and contingent liabilities which are not reflected in the
accompanying financial statements. The Corporation uses the same credit policies
in making commitments and conditional obligations as it does for other
instruments.
9/30/99 12/31/98
- --------------------------------------------------------------------------
Standby letters of credit $ 14,493,000 $ 18,011,000
Commitments to extend credit $ 268,574,000 $285,808,000
NOTE 3
A five percent stock dividend was paid December 7, 1998 to shareholders of
record November 21, 1998. All weighted average shares, shares, and per share
data presented herein have been restated for the effects of this stock dividend.
A five percent stock dividend was declared October 20, 1999, payable December 7,
1999, to shareholders of record November 21, 1999. Weighted average shares,
shares, and per share data will be restated for the effects of this stock
dividend effective November 21, 1999.
Earnings per share restated for the 1999 five percent stock dividend would have
been $0.42 and $0.28 for the three months ended September 30, 1999 and 1998,
respectively. For the nine months ended earnings per share would have been $1.22
and $1.03 for the 1999 and 1998, respectively.
7
<PAGE> 8
NOTE 3 (continued)
Earnings per share, on a dilutive basis, restated for the 1999 five percent
stock dividend would have been $0.42 and $0.28 for the three months ended
September 30, 1999 and 1998, respectively. For the nine months ended earnings
per share, on a dilutive basis, would have been $1.21 and $1.03 for the 1999 and
1998, respectively.
NOTE 4
The calculation of net earnings per share as of September 30 is summarized as
follows:
<TABLE>
<CAPTION>
Quarter-to-Date Year-to-Date
---------------------------- --------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 7,418,000 $ 4,920,000 $ 21,599,000 $ 18,176,000
Basic earnings per share:
Weighted average shares outstanding 16,900,119 16,767,443 16,875,248 16,737,400
Basic earnings per share $ 0.44 $ 0.29 $ 1.28 $ 1.09
Diluted earnings per share:
Weighted average shares outstanding 16,900,119 16,767,443 16,875,248 16,737,400
Common stock equivalents due to stock options 85,234 103,719 88,565 121,202
Adjusted shares outstanding 16,985,353 16,871,162 16,963,813 16,858,602
Diluted earnings per share $ 0.44 $ 0.29 $ 1.27 $ 1.08
</TABLE>
NOTE 5
The following table shows the schedule of dividends declared for the nine months
ending September 30, 1999 and 1998, respectively:
DATE RECORD DATE DIVIDEND
1999 DECLARED DATE PAID PAID
- --------------------------------------------------------------------------------
August 19 September 21 October 7 $0.20
May 19 June 21 July 7 $0.20
February 17 March 21 April 7 $0.20
DATE RECORD DATE DIVIDEND
1998 DECLARED DATE PAID PAID
- --------------------------------------------------------------------------------
August 19 September 21 October 7 $0.17125
May 20 June 23 July 7 $0.17125
February 18 March 23 April 7 $0.17125
8
<PAGE> 9
NOTE 6
The Corporation has identified its reportable segments on the basis of the
geographic areas served by the Corporation. Banking services offered are similar
in each geographic area served. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies in the
Corporation's annual report for the year ended December 31, 1998. The
Corporation evaluates performance based on profit or loss from operations before
income taxes not including nonrecurring gains and losses. Operating statistics
for each reporting segment are as follows:
<TABLE>
<CAPTION>
Southwest Western Southern Northern
September 30, 1999 Indiana Kentucky Illinois Kentucky Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 58,498 $ 18,223 $ 21,141 $ 25,525 $ 123,387
Interest expense 26,260 8,760 9,457 10,589 55,066
- ---------------------------------------------------------------------------------------------------
Net interest income 32,238 9,463 11,684 14,936 68,321
Provision for loan losses 1,644 646 261 636 3,187
Other income 6,417 1,334 1,912 1,976 11,639
Other expense 17,537 5,879 8,159 7,705 39,280
- ---------------------------------------------------------------------------------------------------
Net income before tax 19,474 4,272 5,176 8,571 37,493
Income tax 6,514 1,195 1,756 2,923 12,388
- ---------------------------------------------------------------------------------------------------
Net income $ 12,960 $ 3,077 $ 3,420 $ 5,648 $ 25,105
===================================================================================================
Other segment information:
Depreciation and
amortization $ 1,536 $ 894 $ 2,154 $ 683 $ 5,267
Segment assets 1,070,324 316,264 416,137 417,606 2,220,331
Expenditures for
segment assets 1,228 414 50 162 1,854
<CAPTION>
Southwest Western Southern Northern
September 30, 1998 Indiana Kentucky Illinois Kentucky Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 59,074 $ 18,780 $ 21,914 $ 26,430 $ 126,198
Interest expense 27,086 9,919 10,083 11,544 58,632
- ---------------------------------------------------------------------------------------------------
Net interest income 31,988 8,861 11,831 14,886 67,566
Provision for loan losses 2,320 246 (50) 429 2,945
Other income 7,628 1,290 1,883 2,022 12,823
Other expense 19,156 6,399 8,689 8,638 42,882
- ---------------------------------------------------------------------------------------------------
Net income before tax 18,140 3,506 5,075 7,841 34,562
Income tax 5,889 976 1,596 2,534 10,995
- ---------------------------------------------------------------------------------------------------
Net income $ 12,251 $ 2,530 $ 3,479 $ 5,307 $ 23,567
===================================================================================================
Other segment information:
Depreciation and
amortization $ 1,410 $ 840 $ 1,778 $ 631 $ 4,659
Segment assets 1,019,950 330,782 440,921 414,451 2,206,104
Expenditures for
segment assets 4,236 163 212 314 4,925
</TABLE>
9
<PAGE> 10
NOTE 6 (continued)
A reconciliation of revenues, net income, and assets of the reported segments to
the consolidated financial statements is as follows:
1999 1998
- --------------------------------------------------------------------------------
Net interest income:
Total net interest income for reportable segments $ 68,321 $ 67,566
Non-bank entities (1,119) (1,140)
Eliminations (1) (1)
- --------------------------------------------------------------------------------
Total consolidated net interest income $ 67,201 $ 66,425
================================================================================
Net income:
Total net income for reportable segments $ 25,105 $ 23,567
Non-bank entities (3,506) (5,391)
Eliminations - -
- --------------------------------------------------------------------------------
Total consolidated net income $ 21,599 $ 18,176
================================================================================
Assets:
Total assets for reportable segments $2,220,331 $2,206,104
Non-bank entities 97,540 94,215
Eliminations (144,352) (96,382)
- --------------------------------------------------------------------------------
Total consolidated assets $2,173,519 $2,203,937
================================================================================
NOTE 7
On March 30, 1998, the Corporation issued $34.5 million of trust preferred
securities through NCBE Capital Trust I, a Delaware statutory business trust
created and controlled by the Corporation. The trust preferred securities have a
liquidation amount of $25 per share with a cumulative annual distribution rate
of 8.25%, payable quarterly, and mature on March 31, 2028.
The principal asset of NCBE Capital Trust I is a subordinated debenture of the
Corporation in the principal amount of $35.6 million with an interest rate and
maturity date substantially identical to those of the trust preferred
securities. The Corporation owns all of the common securities of NCBE Capital
Trust I. The back-up obligations of the Corporation with respect to the trust
preferred securities constitute, in the aggregate, a full and unconditional
guarantee by the Corporation of the obligations of NCBE Capital Trust I under
the trust preferred securities. The Corporation may redeem the subordinated
debenture and thereby cause a redemption of the trust preferred securities in
whole (or in part from time to time) on or after March 31, 2003, or in whole
(but not in part) within 180 days following the occurrence and continuance of
certain adverse federal income tax or capital treatment events.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements to be materially different from the results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: management's ability to improve
the profitability of acquired institutions and to realize expected operational
synergies from acquisitions; general, regional and local economic conditions
which may affect interest rates and net interest income; credit risks and risks
from concentrations (geographic and by industry) within the loan portfolio;
changes in regulations affecting financial institutions; competition; and risks
created by the "year 2000 problem."
Through 1998 the Corporation grew rapidly by acquiring community banks. The
financial results of 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
were restated to include the results of the acquiree. From January 1, 1998
through December 1998, the Corporation acquired assets of $692.9 million
(measured at the time of each acquisition) in nine transactions accounted for as
poolings of interests.
From January 1, 1998 through December 1998, the Corporation also acquired $244.8
million (measured at the time of each acquisition) in assets in two 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 the acquired entity following acquisition.
Transactions accounted for as purchases typically result in recording intangible
assets, including goodwill, which the Corporation amortizes on a straight-line
basis. The Corporation has recorded $21.1 million (measured at the time of each
acquisition) in intangible assets as the direct result of purchases consummated
between January 1, 1998 and December 31, 1998.
The Corporation has not made any acquisitions since January 1, 1999; however
management evaluates acquisition opportunities as they arise. The Corporation
has devoted significant resources in 1999 to integrating recently acquired
institutions and completing consolidation of back office operations.
NET INCOME
Net income for the quarter ended September 30, 1999 was $7.4 million compared to
$4.9 million in the third quarter of 1998, an increase of $2.5 million, or
50.8%. Basic earnings per share for the third quarter were $0.44 in 1999
compared to $0.29 in 1998. Earnings per share, on a diluted basis were $0.44 for
1999 compared to $0.29 in 1998.
For the nine months ended September 30, 1999, net income was $21.6 million
compared to $18.2 million a year ago, an increase of $3.4 million, or 18.8%.
Basic earnings per share for the nine months ended were $1.28 in 1999 compared
to $1.09 in 1998. Earnings per share, on a diluted basis were $1.27 for 1999
compared to $1.08 in 1998.
The weighted average number of shares outstanding was 16,900,119 and 16,875,248
for the three and nine months, respectively, ended September 30, 1999, compared
to 16,767,443 and 16,737,400 during the same periods last year. The weighted
average number of shares outstanding, assuming dilution, was 16,985,353 and
16,963,813 for the three and nine months ended September 30, 1999, respectively,
compared to 16,871,162 and 16,858,602 during the like periods for the prior
year.
NET INTEREST INCOME
Net interest income, on a taxable equivalent basis, for the quarter ended
September 30, 1999 was $24.1 million, reflecting a decrease of $76,000 or 0.3%
over the same period in 1998. Average earning assets decreased $50.0 million, or
2.4% for the quarter ended September 30, 1999. Gross loans increased an average
of $45.4 million, or 2.8%; average securities decreased $79.2 million, or 18.9%;
and average federal funds sold decreased $14.9 million, or 83.1%.
11
<PAGE> 12
NET INTEREST INCOME (continued)
For the nine months ended September 30, 1999, net interest income, on a taxable
equivalent basis, increased $701,000 or 1.0%, from a year ago. Average earning
assets decreased $3.4 million, or 0.2% over the same period last year. Gross
loans increased an average of $99.9 million, or 6.5%; average securities
decreased $92.4 million, or 21.1%; and average federal funds sold decreased $8.1
million, or 33.2%.
For the third quarter of 1999 average interest bearing deposits decreased $56.0
million, or 3.8%; and average total borrowings increased $18.6 million, or 8.2%,
compared to the same period last year. For the nine months ended September 30,
1999 average interest bearing deposits decreased $14.1 million, or 1.0%; and
average total borrowings increased $9.2 million, or 4.3%, compared to the same
period last year.
The net interest margin increased 10 basis points from 4.70% in the third
quarter of 1998 to 4.80% in the third quarter of 1999. Through the third quarter
of 1999, rates earned on loans, the largest component of earning assets,
remained below those earned in the same period of 1998. This is mainly because
prime rate remained 8.50% for all of 1998 and decreased to 7.75% in the first
quarter of 1999 before rising to 8.00% at the end of the second quarter of 1999.
UNDERPERFORMING ASSETS
Listed below is a two-year comparison of underperforming assets.
9/30/99 12/31/98 9/30/98
- -----------------------------------------------------------------------------
Nonaccrual loans $ 14,452,000 $ 9,782,000 $ 9,046,000
Restructured loans 1,262,000 374,000 480,000
90 days past due loans 1,425,000 1,610,000 2,156,000
- -----------------------------------------------------------------------------
Total underperforming loans 17,139,000 11,766,000 11,682,000
Other real estate held 749,000 715,000 218,000
- -----------------------------------------------------------------------------
Total underperforming assets $ 17,888,000 $ 12,481,000 $ 11,900,000
=============================================================================
For the first nine months of 1999 total underperforming loans increased $5.4
million, or 45.7%. This is due mainly to the renegotiating of loans to a single
borrower totaling $1.1 million during the first quarter and placing a $3.7
million loan on nonaccrual status during the third quarter. Past due 90 days or
more, nonaccrual, and restructured loans were 1.0%, 0.7% and 0.7% of total gross
loans at September 30, 1999, December 31, 1998, and September 30, 1998,
respectively. Of the loans in this category, 62.2%, 65.9%, and 60.4% were
secured by real estate at September 30, 1999, December 31, 1998, and September
30, 1998, respectively. Potential problem loans, other than underperforming
loans, amounted to $57.8 million at September 30, 1999.
PROVISION FOR LOAN LOSSES
Net charge-offs amounted to $2.3 million through nine months of 1999, compared
to $1.3 million in the corresponding period in the prior year.
The provision for loan losses for the third quarter was $1.1 million in 1999
compared to $852,000 for the same period in 1998, an increase of $297,000, or
34.9%. For the nine months of 1999 and 1998 provision for loan losses was $3.2
million and $3.0 million, respectively. The provision for loan losses is
determined based on a quarterly review of the allowance for loan losses.
Management of each subsidiary bank evaluates large credits, and loans identified
as problem loans on an individual basis to identify the risk profile and
probable losses of such loans. All other loans are evaluated as homogeneous
pools based on historical loss experience and the provision is allocated
accordingly. During the third quarter there were no significant changes in loan
concentrations, quality, or terms. Management is closely monitoring trends in
the nonperforming assets to determine the effect of these trends on the
allowance for loan and lease losses. There were no material changes in
estimation methods or assumptions affecting the allowance, or reallocations of
the allowance among the various parts of the portfolio during the third quarter
of 1999. As of September 30, 1999, management considered the allowance for loan
losses adequate for probable loan losses.
12
<PAGE> 13
NONINTEREST INCOME
Noninterest income for the third quarter of 1999 decreased $50,000, or 1.2%,
from the same period a year-ago. Trust income increased $63,000, or 11.2%;
service charges on deposit accounts decreased $91,000, or 4.4%; other service
charges and fees increased $25,000, or 2.5%; other noninterest income increased
$35,000 or 9.3%; and securities gains (losses) decreased $68,000, or 81.0%
compared to the third quarter in 1998.
For the nine months ended September 30, 1999 noninterest income decreased $1.7
million, or 13.4%, from the same period a year ago. Trust income increased
$192,000, or 12.1%; service charges on deposit accounts decreased $33,000, or
0.6%; other noninterest income decreased $109,000 or 9.3%; and securities gains
(losses) decreased $1.8 million, or 154.1%. In 1998 securities were sold at a
gain of $1.1 million through the first nine months. Through the first nine
months of 1999 securities were sold at a loss of $622,000.
NONINTEREST EXPENSE
Noninterest expense decreased $3.1 million, or 16.7%, in the third quarter of
1999 compared to the third quarter of 1998. Salaries and employee benefits
decreased $1.6 million, or 17.7%; occupancy expense decreased $29,000, or 3.0%;
expenses of furniture and equipment decreased $53,000, or 4.3%; amortization of
intangibles increased $76,000, or 9.1%; and other noninterest expense decreased
$1.5 million, or 23.0%, over the year-ago period.
The decrease in salaries and employee benefits during the quarter is due, in
part, to $871,000 in severance pay accruals in 1998, and $363,000 reduced ESOP
expense due to the reduction of ESOP expense on acquired institutions. In
addition, staff reductions resulting from the consolidation of back office
operations which was started in the third quarter of 1998 helped reduce related
costs. In 1999, $336,000 was incurred during the process to identify and hire a
new CEO.
The decrease in other noninterest expense during the quarter is attributable, in
part, to $669,000 of acquisition-related costs; $993,000 of back office
consolidation consulting costs; and $125,000 accrual of data processing contract
buyout costs for 1998. In addition, based upon current information, the
Corporation revised its estimate of revenues and expenses associated with its
investments in low income housing projects (LIHPs). Noninterest expense for the
third quarter of 1999 includes $813,000 of pretax operating losses from these
LIHPs and income tax expense includes the related income tax benefit and tax
credits from the LIHPs totaling $1.0 million.
For the first nine months of 1999 noninterest expense decreased $5.4 million, or
10.8%, compared to the same period a year ago. Salaries and employee benefits
decreased $4.3 million, or 16.5%; occupancy expense decreased $91,000, or 3.2%;
expenses of furniture and equipment decreased $132,000, or 4.0%; amortization of
intangibles increased $419,000, or 18.1%; and other noninterest expense
increased $1.3 million, or 8.4%, over the year ago period.
The decrease in salaries and employee benefits during the nine month period is
due, in part, to $871,000 in severance pay accruals in 1998, $877,000 pension
plan settlement gain in 1999, and $756,000 reduced ESOP expense due to the
reduction of ESOP expense on acquired institutions. In addition, staff
reductions resulting from the consolidation of back office operations which was
started in the third quarter of 1998 helped reduce related costs. In 1999,
$508,000 was incurred during the process to identify and hire a new CEO.
The decrease in other noninterest expense during the nine month period is
attributable, in part, to a decrease of $952,000 of acquisition-related costs;
$863,000 of back office consolidation consulting costs; and $125,000 accrual of
data processing contract buyout costs for 1998. The first nine months of 1999
includes $813,000 of operating losses attributable to the LIHPs mentioned above.
The increase in amortization of intangibles during the nine month period is
attributable mainly to the acquisition of Vernois Bancshares, Inc. accounted for
using the purchase method of accounting in 1998.
13
<PAGE> 14
FINANCIAL POSITION
During the first nine months of 1999, cash and cash equivalents decreased $18.3
million, or 27.2%. Time deposits in banks decreased $142,000, or 100.0%, and
federal funds sold decreased $8.9 million, or 85.9%, during the past year.
Total investment securities decreased $21.0 million, or 5.7%, from the year
ended 1998, with the largest decrease of $16.1 million, or 24.6% in
mortgage-backed securities. U.S. Government and agency securities increased $6.6
million, or 9.7%; taxable municipals decreased $92,000, or 2.9%; tax-exempt
municipal securities decreased $8.9 million, or 4.5%; corporate securities
increased $530,000, or 6.0%; and marketable equity securities decreased
$384,000, or 17.7%. Nonmarketable equity securities decreased $768,000, or 4.0%.
The market value adjustment on total securities available for sale at September
30, 1999, was an unrealized loss of $1.2 million, reflecting a decrease of $8.4
million, from an unrealized gain of $7.2 million at December 31, 1998.
Amortized cost and fair values of securities at September 30, 1999, with dollar
amounts in thousands are as follows:
Securities available for sale:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 75,307 $ 71 $ 358 $ 75,020
Taxable municipals 3,049 33 16 3,066
Tax-exempt municipals 187,371 2,036 1,962 187,445
Corporate securities 9,356 116 71 9,401
Mortgage-backed securities 49,977 212 596 49,593
Marketable equity securities 2,452 663 1,789
- --------------------------------------------------------------------------------------------
Total available for sale $ 327,512 $ 2,468 $ 3,666 $ 326,314
============================================================================================
</TABLE>
LOANS
Total loans at September 30, 1999, were $1.662 billion compared to $1.630
billion at December 31, 1998, reflecting an increase of $31.7 million or 1.9%.
DEPOSITS
Total deposits decreased $91.1 million or 5.3% to $1.643 billion at September
30, 1999, from $1.735 billion at December 31, 1998. Total noninterest bearing
deposits decreased $36.4 million or 15.7% and interest-bearing deposits
decreased $54.7 million, or 3.6% during the nine months ended September 30,
1999.
SHAREHOLDERS' EQUITY
The Corporation, and each subsidiary bank, have capital ratios which
substantially exceed all regulatory requirements. The Corporation's regulatory
capital ratios are shown below.
Minimum
Requirements 9/30/99 12/31/98 9/30/98
- --------------------------------------------------------------------------------
Tier 1 capital to risk-based assets 4.00% 14.31% 13.51% 13.52%
Total capital to risk-based assets 8.00% 15.50% 14.65% 14.56%
Tangible equity to tangible assets 3.00% 9.15% 8.23% 8.23%
14
<PAGE> 15
YEAR 2000 COMPLIANCE
The year 2000 poses 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.
To address the potential adverse year 2000-related consequences, the banking
regulatory authorities, working cooperatively through the Federal Financial
Institutions Examination Council (FFIEC), have issued a number of specific
guidelines designed to guide financial institutions in their year 2000
compliance efforts. The Corporation has developed a year 2000 compliance program
that it believes is consistent with these guidelines.
The Corporation and its banking subsidiaries are subject to examination with
respect to their year 2000 compliance by various state and federal agencies,
including the Federal Reserve Board, the Comptroller of the Currency, the Office
of Thrift Supervision, the Federal Deposit Insurance Corporation, and state
banking agencies. If a regulatory agency issues a rating of less than
"satisfactory" with respect to an organization's year 2000 compliance efforts,
the organization's ability to obtain regulatory approval of certain actions,
such as proposed acquisitions, may be adversely affected.
The Corporation has established a year 2000 team to monitor progress with
achieving year 2000 compliance. The team reports its progress to the
Corporation's Board of Directors on a monthly basis. In addition, the
Corporation utilized an external consulting firm to assist with its year 2000
compliance.
The Corporation's year 2000 project involves five phases; 1. Awareness; 2.
Assessment; 3. Renovation; 4. Validation; and 5. Implementation. The Corporation
completed all five phases by September 30, 1999, and the test results are now
being evaluated.
The Corporation has implemented its Year 2000 events planning. This includes the
training of staff on the Corporation's contingency plans and working with
customers and the communities on awareness and preparedness.
The Corporation prepared its contingency and business resumption plans following
FFIEC guidelines. The Corporation completed contingency planning before the
FFIEC deadline of December 31, 1998.
Management expects total additional out-of-pocket expenditures incurred in year
2000 compliance to be approximately $500,000. This includes fees to outside
consulting firms, costs to upgrade equipment specifically for the purpose of
year 2000 compliance, and certain administrative expenditures. Some amounts are
being expensed as incurred and are not expected to be material to the
Corporation's financial condition or results of operations. Since the
implementation of the year 2000 project, the Corporation has spent approximately
$353,000.
Management believes that the Corporation has an effective corporate year 2000
compliance program in place and that additional expenditures required to bring
its systems into compliance will not have a materially adverse effect on the
Corporation's operations, cash flow, or financial condition. 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.
15
<PAGE> 16
IMPACT OF ACCOUNTING PRONOUNCEMENTS
In October, 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage Backed
Securities Retained After the Securitization of Mortgage Loans Held For Sale By
a Banking Enterprise." SFAS 134 amends SFAS 65 and SFAS 115. SFAS 134 became
effective during the second quarter of 1999. The Corporation has not securitized
any mortgage loans held for sale, therefore, SFAS 134 did not have any impact on
the accompanying financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest rate risk management focuses on maintaining consistent growth in net
interest income within Board-approved policy limits. The Corporation uses an
earnings simulation model to analyze net interest income sensitivity to
movements in interest rates. Given an immediate, sustained 200 basis point
upward shock to the yield curve used in the simulation model, it is estimated
net interest income for the Corporation would increase by 4.76% over one year
and 6.95% over two years, respectively. A 200 basis point immediate, sustained
downward shock in the yield curve would decrease net interest income by 4.82%
over one year and 7.01% over two years, respectively. All of these estimated
changes in net interest income are within the policy guidelines established by
the Corporation's Board of Directors.
16
<PAGE> 17
NATIONAL CITY BANCSHARES, INC. and Subsidiaries
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
The following exhibits are submitted herewith:
10.1 Contract of Employment dated August 23, 1999, between National City
Bancshares, Inc. and Michael T. Vea.
10.2 Nonqualified Stock Option Agreement dated September 7, 1999 between
National City Bancshares, Inc. and Michael T. Vea.
10.3 Nonqualified Stock Option Agreement (Non Plan) dated September 7,
1999 between National City Bancshares, Inc. and Michael T. Vea.
27 Financial Data Schedule (Electronic Filing Only)
REPORTS ON FORM 8-K
A CURRENT REPORT dated October 27, 1999, for the events of October 20, 1999, was
filed reporting under Item 5 news releases announcing the declaration of a 5%
stock dividend and an increased quarterly cash dividend.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL CITY BANCSHARES, INC.
(Corporation)
By /s/ STEPHEN C. BYELICK, JR.
--------------------------------
Stephen C. Byelick, Jr.
Secretary and Treasurer
(On behalf of the Corporation
and in his capacity as Chief
Accounting Officer.)
November 12, 1999
17
<PAGE> 18
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------------------------
10.1* Contract of Employment dated August 23, 1999, between
National City Bancshares, Inc. and Michael T. Vea.
10.2* Nonqualified Stock Option Agreement dated September 7, 1999
between National City Bancshares, Inc. and Michael T. Vea.
10.3* Nonqualified Stock Option Agreement (Non Plan) dated
September 7, 1999 between National City Bancshares, Inc.
and Michael T. Vea.
27 Financial Data Schedule (Electronic Filing Only)
- --------------------------------------------------------------------------------
* The indicated exhibit is a management contract, compensatory plan or
arrangement required to be filed by Item 601 of Regulation S-K.
18
<PAGE> 1
EXHIBIT 10.1
CONTRACT OF EMPLOYMENT
This Contract of Employment, duly made and entered into effective as of
the 23rd day of August, 1999 (the "Effective Date") in Evansville, Indiana, by
and between National City Bancshares, Inc., herein referred to as "NCBE", and
Michael T. Vea, herein referred to as "VEA."
WITNESSETH THAT:
WHEREAS, VEA seeks to be employed as the Chief Executive Officer of NCBE;
and,
WHEREAS, NCBE seeks to employ VEA as its Chief Executive Officer; and,
WHEREAS, NCBE and VEA believe that it would be mutually beneficial if VEA
is a Director and serves as Chairman of the Board of Directors of NCBE; and,
Whereas, NCBE and VEA have agreed upon the terms of a Contract of
Employment governing the terms and conditions of VEA's employment by NCBE,
NOW,THEREFORE, for and in consideration of the mutual promises, covenants
and agreements contained in this Contract of Employment and agreed to be kept
and performed by VEA and NCBE, they mutually agree and understand as follows:
1. EMPLOYMENT AND BOARD OF DIRECTORS POSITION[S]. NCBE hereby employs VEA
as Chief Executive Officer of NCBE and VEA hereby accepts such employment upon
the terms and conditions set forth in this Contract of Employment. VEA shall
commence his service as Chief Executive Officer on September 7, 1999 (the
"Commencement Date"). NCBE and VEA agree that VEA will be elected or appointed
to and serve as a Director of the NCBE Board of Directors and will be further
elected to and serve as Chairman of the NCBE Board of Directors as soon as
reasonably possible after the execution of this Agreement, but in any event not
later than the Commencement Date. NCBE and VEA further agree that such
appointment or election and continued service as a Director and/or Chairman of
the NCBE Board of Directors are subject to the terms and conditions of the
By-laws of NCBE and this Contract of Employment; NCBE and VEA agree that
termination of this Contract of Employment as provided in Paragraph 12 will
operate as a resignation by VEA from the position of Director and/or Chairman of
the Board of NCBE.
2. TERM. Subject to the provisions of Paragraph 12, the initial term of
this Contract of Employment shall begin on the Effective Date and shall
terminate on the third anniversary of the Commencement Date (the "Initial
Term"). This Contract of Employment shall automatically renew for successive one
(1) year terms (each such one year period is called a "Renewal Term"; the
Initial Term and the Renewal Terms are sometimes collectively referred to as the
"term of this Contract of Employment") unless terminated as provided in
Paragraph 12 or unless either NCBE or VEA gives to the other written notice of
intent to cancel this Contract of Employment at least sixty (60) calendar days
before the expiration of the Initial Term or the expiration of the then current
Renewal Term. For the purposes of this Contract of Employment, a "year" means
(i) the period that begins on the Effective Date and ends at midnight on the day
before the first anniversary of the Commencement Date (the "first year" of the
term of this Contract of Employment), and, thereafter, (ii) the period that
begins on the first and each succeeding anniversary of the Commencement Date and
ends at midnight on the day before the next anniversary of the Commencement
Date.
19
<PAGE> 2
3. CASH COMPENSATION. VEA's cash compensation for all services rendered
to NCBE shall consist of a base salary and a performance bonus of up to one
hundred percent (100%) of base salary, which will be determined and payable at
the time or times and in the amounts as follows:
(a) BASE SALARY. NCBE shall pay VEA a base salary of Three Hundred Fifty
Thousand and 00/100 Dollars ($350,000.00), less all applicable deductions
for federal, state, FICA, Medicare and local taxes and any other allowable
deductions authorized in writing by VEA, for each year of the term of this
Contract of Employment in equal installments based on the regular payroll
cycle and on the payroll payment dates of NCBE. During the 60 day period
preceding the anniversary of each year during the term of this Contract of
Employment, the Compensation Committee of the Board of Directors of NCBE
shall conduct a review of VEA's performance, using the factors described
in Paragraph 3(b), to determine the base salary that will apply for the
immediately succeeding year. However, VEA's base salary for any year
during the term of this Contract of Employment will not be reduced below
$350,000, except for across-the-board salary reductions similarly
affecting all employees of NCBE whose job positions and responsibilities
are substantially the same as the Executive.
(b) PERFORMANCE BONUS. NCBE and VEA agree to enter into good faith
negotiations to negotiate the criteria, manner of calculation, and payment
terms of a performance bonus plan pursuant to which VEA shall receive a
monetary bonus as additional compensation based on the following or
additional factors:
1. Return on NCBE assets;
2. Return on equity;
3. Credit quality of loans; and
4. An increase in earnings per share of NCBE common stock.
If no agreement is reached within a period of ninety [90] days after the
commencement of VEA's employment hereunder, or sooner if NCBE and VEA agree, but
in any event within an expedited time after the end of the ninety [90] day
period provided in this Paragraph; NCBE and VEA may mutually select an
individual or firm qualified by experience and/or education to determine the
criteria, manner of calculation and payment terms of the Performance Bonus based
on the factors set out in this Contract of Employment and based on the
prevailing practice on performance bonuses in the banking industry for an
executive performing the duties and with the business responsibilities of VEA.
If an individual or firm is not selected by mutual agreement, NCBE and VEA will,
within ten [10] working days after failure to select such individual, submit
this Performance Bonus issue to an arbitrator subject to the Resolution of
Employment Disputes rules and regulations of the American Arbitration
Association to determine applying the above noted factors and prevailing
practice the criteria, manner of calculation and payment terms of the
Performance Bonus. NCBE will pay the cost of either a mutually selected
individual or firm or an arbitrator. The decision of the arbitrator will be
given within thirty [30] days after presentation and will be final and binding
on NCBE and VEA.
20
<PAGE> 3
4. CASH, STOCK AND STOCK OPTION AMOUNTS. As additional incentive to VEA,
NCBE agrees to provide him with the following:
(a) CASH AMOUNTS. NCBE shall pay VEA cash, less all applicable deductions
for federal, state, FICA, Medicare and local taxes, the following amounts
at the stated times: (i) Forty Thousand Dollars ($40,000.00) on the
Commencement Date; (ii) Twelve Thousand Dollars ($12,000.00) per month for
eight [8] months starting on October 1, 1999 through and including May 1,
2000; and (iii) Fourteen Thousand Dollars ($14,000.00) on June 1, 2000.
Provided, however, if NCBE terminates VEA's employment under the
provisions of Section 12(a) or if VEA terminates his employment under the
provisions of Section 12(g), then any of the foregoing payments which are
not due and payable as of the date of termination of employment shall be
forfeited.
(b) NCBE STOCK. On the Commencement Date, NCBE will issue to VEA Eight
Thousand Seven Hundred Fifty (8,750) shares of NCBE common stock.
(c) NCBE STOCK OPTIONS. NCBE agrees to issue VEA a non-qualified stock
option for Thirty Thousand (30,000) shares of NCBE common stock with the
exercise price equal to the last sale price of the NCBE common stock on
the Commencement Date. Subject to the provisions of Paragraph 13, this
option will vest and become may be exercised as follows: (i) one half
[1/2] of the shares of NCBE common stock subject to the option become
exercisable on the last day of the first year of the term of this Contract
of Employment, and (ii) the remaining one half [1/2] of the shares of NCBE
common stock subject to the option on the last day of the second year of
the term of this Contract of Employment. This option shall not be issued
subject to, and is not under the terms of and is not controlled by, the
terms of "THE 1999 STOCK OPTION AND INCENTIVE PLAN" of NCBE.
5. ADDITIONAL STOCK OPTIONS. NCBE shall issue VEA a non-qualified stock
option for an additional 75,000 shares of common stock of NCBE on the
Commencement Date. One third [1/3] of the shares of NCBE common stock subject to
this option will vest and become exercisable on September 6, 2000; an additional
one third [1/3] of the shares of NCBE common stock subject to this option will
vest and become exercisable on September 6, 2001; the final one third [1/3] of
the shares of NCBE common stock subject to this option will vest and become
exercisable on September 6, 2002. The exercise price of each share subject to
this option is equal to the last sale price of the NCBE common stock on the
Commencement Date. This stock option will be issued subject to, under the terms
of and be controlled by the terms of "THE 1999 STOCK OPTION AND INCENTIVE PLAN"
of NCBE, but not as Incentive Stock Options thereunder. The stock option
agreement issued under the terms of "THE 1999 STOCK OPTION AND INCENTIVE PLAN"
of NCBE shall contain terms that are consistent with, and shall not expand VEA's
obligations beyond those set forth in, the terms of this Contract of Employment.
6. ADDITIONAL PROVISIONS REGARDING NCBE COMMON STOCK. VEA acknowledges
that the NCBE common stock to be issued to him under Paragraph 4(b) and 4(c)
(the "Unregistered Shares") will not be issued pursuant to a registration
statement under the Securities Act of 1933, as amended (the "Act"), but will
instead be issued in reliance upon the exemption from registration set forth in
Section 4(2) of the Act and Regulation D promulgated under the Act. VEA is aware
the Unregistered Shares cannot be resold in the public market unless an
exemption from registration is available. VEA is also aware that the provisions
of Rule 144 promulgated under the Act will permit the resale of the Unregistered
Shares in the public market subject to certain conditions after such shares have
been held for at least one year. In the event that this Contract of Employment
is terminated prior to the time that VEA is able to sell the Unregistered Shares
pursuant to Rule 144 and upon written request from VEA of his intention to sell
the Unregistered Shares, NCBE agrees to prepare and file with the Securities and
Exchange Commission as soon as possible and in any event within thirty (30)
days, a registration statement on Form S-3 (the "Registration Statement")
covering the resale of the Unregistered Shares. NCBE agrees to use its best
efforts to cause the Registration Statement to be declared effective by the SEC
as soon as possible after filing and to keep the Registration Statement
continuously effective until all of the Unregistered Shares have been sold. NCBE
shall pay all costs incurred in connection with the Registration Statement other
than the fees of VEA's counsel, if any, and any underwriting discounts or
brokerage commissions incurred in connection with the sale of the Unregistered
Shares. NCBE and VEA agree to execute indemnification agreements, custody
agreements and other customary documents required in connection with the
registration and resale of the Unregistered Shares.
21
<PAGE> 4
7. DUTIES. VEA is engaged and employed as the Chief Executive Officer of
NCBE and shall be responsible for the day to day management of the business of
NCBE in consultation with the Board of Directors of NCBE. Precise services or
duties of VEA may be detailed, extended or curtailed, from time to time, at the
direction of the Board of Directors of NCBE. VEA agrees to perform his services
honestly and conscientiously and to conduct himself in a personal and business
manner which will enhance the reputation, goodwill, and business of NCBE and
further agrees to not conduct himself in a personal or business manner which
will reflect or operate adversely on the reputation and goodwill of NCBE or any
of its subsidiaries.
8. EXTENT OF SERVICES. VEA shall devote his entire business day,
attention, and energies to the business of NCBE and shall not, during the term
of this Contract of Employment, be engaged in any other business activity
whether or not such business activity is pursued for gain, profit, or other
pecuniary advantage without the prior written consent of the Board of Directors
of NCBE; provided, however, that nothing herein contained shall be construed as
preventing VEA from investing his assets in such form or manner as will not
require any services on the part of VEA in the operation of the affairs of the
companies or business entities in which such investments are made so long as (i)
such investments are not in companies with businesses similar to the type of
business conducted by NCBE unless such companies are publicly traded companies
or (ii) NCBE has given written consent to such investments, which will not be
unreasonably withheld after VEA has made full disclosure to NCBE of the nature
of such investments and demonstrated that he will not be involved in the
operation of the affairs of the companies in which such investments are made or
that if involved, his involvement in the operation of the affairs of the
companies in which such investments are made will not adversely affect his
ability to perform his obligations under this Contract of Employment.
9. CONFIDENTIALITY. VEA acknowledges and agrees that VEA has and will
have access to certain information with respect to NCBE and its customers and
the subsidiaries of NCBE and their customers as Chairman of the Board and Chief
Executive Officer of NCBE which is of actual and potential economic value to
NCBE and its subsidiaries, successors and assigns, because it is information
neither generally known to any company other than NCBE or its subsidiaries, nor
is such information readily ascertainable by proper means by anyone or any
company other than NCBE or its subsidiaries. This information of NCBE and its
subsidiaries includes, but is not limited to, marketing and operational plans,
strategic plans, computer systems and processes, prospective and present
customers and lists, customer files, customer credit information and credit
decisions on customer applications, all collectively referred to as
"Confidential Information." VEA recognizes that disclosing Confidential
Information would give an economic value to others to the serious detriment of
NCBE and its subsidiaries, its successors and assigns, and VEA further
acknowledges that he could not have obtained or would not have had the
opportunity to obtain the Confidential Information except as Chairman of the
Board and Chief Executive Officer.
10. FRINGE BENEFITS. NCBE shall provide the following fringe benefits to
VEA:
(a) EXPENSES. VEA is authorized to incur reasonable expenses for
promoting the business of NCBE, including expenses for entertainment,
travel, and similar items and NCBE will issue to VEA a credit card or
cards for all such expenses.
(b) AUTOMOBILE. As it is necessary for VEA to have an automobile for
necessary and reasonable business-related travel and entertainment, NCBE
will purchase or lease an automobile for his use.
22
<PAGE> 5
(c) RELOCATION, MOVING AND INTERIM EXPENSES. NCBE will reimburse VEA for
the reasonable cost of his expenses in moving his household to Evansville,
Indiana, and the realtor fee applicable to the sale of his present
residence. NCBE will reimburse VEA for the closing costs of the purchase
of his new residence in Evansville, Indiana. NCBE will reimburse VEA for
the reasonable cost of living and travel expenses during the period of
time his family is not located in Evansville, IN. If the fringe benefits
described in this subparagraph (c) create taxable income to VEA, the
fringe benefits will be appropriately increased monetarily to accommodate
federal, state and local income taxes and FICA and Medicare taxes.
(d) NCBE FRINGE BENEFITS. VEA will receive all other fringe benefits
provided by NCBE to its other full time employees.
(e) EVANSVILLE COUNTRY CLUB. NCBE will apply and pay the initiation fee,
assessments and the monthly fee for the Full Company Resident Golf
Membership at the Evansville Country Club with VEA designated as the
member.
(f) ADDITIONAL COMPENSATION TO DEFRAY COSTS. NCBE will pay additional
compensation to VEA in an amount necessary to enable VEA to pay all taxes
to which VEA may become subject as a result of (i) the receipt of fringe
benefits described in Paragraph 10(c) and (ii) the additional compensation
amounts described in clause (i). These payments shall be made at least ten
days prior to the earliest date such taxes (or estimated tax payments
attributable to such taxes) are due.
11. DISABILITY. If during the term of this Contract of Employment, VEA is
unable to perform the duties otherwise required of him by this Contract of
Employment because of a disability, NCBE shall continue to pay VEA's base salary
then in effect and continue to provide the fringe benefits described in and
under the terms of Paragraph 10 for up to 270 days from the date of the
occurrence or commencement of the injury or illness giving rise to the
disability. For this purpose, the term, "disability" has the meaning ascribed to
it in Paragraph 12.
12. TERMINATION. Notwithstanding anything contained hereunto to the
contrary, this Contract of Employment and VEA's employment shall terminate upon
the occurrence of any of the following events:
(a) TERMINATION BY NCBE FOR CAUSE. NCBE may at any time, upon the giving
of written notice, immediately terminate this Contract of Employment and
VEA's employment for Cause. For the purposes of this Contract of
Employment, "Cause" means (i) a material breach by VEA of the terms of
this Contract of Employment which VEA does not remedy within a reasonable
period of time after receiving notice of the breach, (ii) the commission
by VEA any act which the Board of Directors determines is, in accordance
with the terms of NCBE's published personnel policies, contrary to the
best interests of NCBE and otherwise grounds for termination of
employment, and (iii) insubordination, embezzlement, dishonesty, fraud,
conviction of a felony and behavior outside the acceptable norms of
business and personal conduct expected of the Chairman of the Board and
Chief Executive Officer of NCBE. Notwithstanding the foregoing, VEA shall
not be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the entire membership
of NCBE's Board of Directors at a meeting called and held for the purpose
(after reasonable notice to him and an opportunity for him, together with
his counsel, to be heard before such Board), finding that, in the good
faith opinion of such Board, VEA was guilty of conduct enumerated above as
constituting "Cause" and specifying the particulars thereof in detail.
(b) MUTUAL AGREEMENT. This Contract of Employment may be terminated at
any time by the mutual agreement in writing of NCBE and VEA.
(c) DISABILITY. This Contract of Employment shall terminate in the event
of VEA's disability for a period of 270 days or more. "Disability" shall
mean a physical illness or other disability which incapacitates VEA and
prevents him from performing and fulfilling his duties pursuant to this
Contract of Employment. This determination shall be made by NCBE, and
shall be based upon an opinion of an independent qualified physician
mutually acceptable to NCBE and VEA that such a disability exists.
(d) BOARD OF DIRECTOR POSITIONS. This Contract of Employment shall
terminate if after election to a position as Director or to the position
as Chairman of the Board of Directors, VEA is not re-elected, is removed
or resigns from either Board position for reasons other than the failure
or inability of the Board of Directors to maintain directors liability
insurance with coverage amounts and terms at least with coverage amounts
and terms at least as much and as favorable as those maintained by
entities comparable to NCBE.
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<PAGE> 6
(e) DEATH. This Contract of Employment shall automatically terminate upon
the death of VEA.
(f) TERMINATION BY VEA FOR GOOD REASON. VEA may terminate this Contract
of Employment at any time, upon the giving of written notice, immediately
terminate this Contract of Employment and VEA's employment for Good
Reason. For the purposes of this Contract of Employment, "Good Reason"
means (i) VEA's election under this subparagraph to terminate this
Contract of Employment within thirty [30] days after not being either
re-elected or removed from either a Director or Chairman of the Board
position for reasons other than Cause or because VEA resigns from either
such position because of the failure or inability of the Board of
Directors to maintain directors and/or officers liability insurance with
coverage amounts and terms at least as much and as favorable as those
maintained by entities comparable to NCBE; (ii) the occurrence of a Change
in Control; (iii) any material breach of this Contract of Employment by
NCBE which is not cured by the Company within ten days of receipt by NCBE
of notice from VEA specifying the existence and nature of the breach; or
(iv) any one of the following events occurs within six (6) months prior to
or within two (2) years following a Change in Control:
(1) Without VEA's express written consent, the assignment of VEA
to any duties which, in VEA's reasonable judgment, are materially
inconsistent with his positions, duties, responsibilities or status
with NCBE immediately prior to the earlier of termination of
employment or the Change in Control or a substantial reduction of his
duties or responsibilities which, in VEA's reasonable opinion, does
not represent a promotion from his position, duties or
responsibilities immediately prior to the earlier of termination of
employment or the Change in Control.
(2) A reduction by NCBE in VEA's salary from the level of such
salary immediately prior to the earlier of termination of employment
or the Change in Control or NCBE's failure to increase (within twelve
(12) months of VEA's last increase in base salary) VEA's base salary
after a Change in Control in an amount which at least equals, on a
percentage basis, the average percentage increase in base salary for
all executive and senior officers of NCBE effected in the preceding
twelve (12) months.
(3) The failure by NCBE to continue in effect any incentive, bonus
or other compensation plan in which VEA participates, including but
not limited to NCBE's stock option plans, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan),
with which VEA has consented, has been made with respect to such plan
in connection with the Change in Control, or the failure by NCBE to
continue VEA's participation therein, or any action by NCBE which
would directly or indirectly materially reduce VEA's participation
therein.
(4) The failure by NCBE to continue to provide VEA with benefits
substantially similar to those enjoyed by VEA or to which VEA was
entitled under any of NCBE's principal pension, profit sharing, life
insurance, medical, dental, health and accident, or disability plans
in which VEA was participating immediately prior to the earlier of
the termination of employment or the Change in Control, the taking of
any action by NCBE which would directly or indirectly materially
reduce any of such benefits or deprive VEA of any material fringe
benefit enjoyed by VEA or to which VEA was entitled immediately prior
to the earlier of the termination of employment or the Change in
Control, or the failure by NCBE to provide VEA with the number of
paid vacation and sick leave days to which VEA is entitled on the
basis of years of service or position with NCBE in accordance with
NCBE's normal vacation policy in effect on the date hereof.
(5) NCBE's requiring VEA to be based anywhere other than the
metropolitan area where NCBE office at which he was based immediately
prior to the earlier of the termination of employment or the Change
in Control was located, except for required travel on NCBE's business
in accordance with NCBE's past management practices.
(6) Any failure of NCBE to obtain the assumption of the obligation
to perform this Agreement by any successor as contemplated in
Paragraph 16.
(7) Any failure by NCBE or its shareholders, as the case may be,
to reappoint or reelect VEA to a corporate office held by him
immediately prior to the earlier of the termination of employment or
the Change in Control or his removal from any such office including
any seat held at such time on NCBE's Board of Directors.
(8) The effectiveness of a resignation, tendered at any time,
either before or after a Change in Control and regardless of whether
formally characterized as voluntary or otherwise, by VEA of any
corporate
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<PAGE> 7
office held by him immediately prior to the Change in Control or of
any seat held at such time on NCBE's Board of Directors, at the the
request of NCBE or at the request of the person obtaining control
NCBE in such Change in Control.
(9) Any purported termination of VEA's employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Paragraph 12(h) (and, if applicable, Paragraph
12(a)); and for purposes of this Agreement, no such purported
termination shall be effective.
(10) Any request by NCBE that VEA participate in an unlawful act or
take any action constituting a breach of VEA's professional standard
of conduct.
(11) Any breach by NCBE of any of the provisions of this Contract
of Employment or any failure by NCBE to carry out any of its
obligations hereunder. Notwithstanding anything in this Contract of
Employment to the contrary, VEA's right to terminate VEA's employment
pursuant to this Contract of Employment shall not be affected by
VEA's incapacity due to physical or mental illness.
(g) TERMINATION BY VEA WITHOUT GOOD REASON. VEA may terminate this
Contract of Employment at any time for reasons other than Good Reason or
for no reason by giving NCBE at least thirty [30] days prior written
notice.
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<PAGE> 8
(h) NOTICE OF TERMINATION. Any termination of VEA's employment by NCBE as
contemplated in Paragraph 10(a) or by VEA as contemplated by Paragraph
10(f) shall be communicated by written "Notice of Termination" to the
other party. Any such "Notice of Termination" shall indicate the specific
provisions of this Contract of Employment relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a
basis for such termination.
(i) DEFINITION OF "CHANGE IN CONTROL." For the purposes of this Contract
of Employment, "Change in Control" means:
(1) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act as in effect from time to time) of twenty-
five percent (25%) or more of either (i) the then outstanding shares
of common stock of NCBE or (ii) the combined voting power of the then
outstanding voting securities of NCBE entitled to vote generally in
the election of directors; provided, however, that the following
acquisitions shall not constitute an acquisition of control: (i) any
acquisition directly from NCBE (excluding an acquisition by virtue of
the exercise of a conversion privilege), (ii) any acquisition by
NCBE, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by NCBE or any corporation controlled
by NCBE, or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subparagaph (3) of Paragraph 12(i) are
satisfied;
(2) Individuals who, as of the date hereof, constitute the Board
of Directors of NCBE (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of NCBE (the
"Board"); provided, however, that any individual becoming a director
subsequent to the Effective Date whose election, or nomination for
election by NCBE's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
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<PAGE> 9
(3) Approval by the shareholders of NCBE of a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than sixty percent
(60%) of, respectively, the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
outstanding NCBE common stock and outstanding NCBE voting securities
immediately prior to such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation, of the
outstanding NCBE stock and outstanding NCBE voting securities, as the
case may be, (ii) no Person (excluding NCBE, any employee benefit
plan or related trust of NCBE or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially
owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, twenty-five percent (25%) or
more of the outstanding NCBE common stock or outstanding voting
securities, as the case may be) beneficially owns, directly or
indirectly, twenty-five percent (25%) or more of, respectively, the
then outstanding shares of common stock of NCBE resulting from such
reorganization, merger or consolidation or the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors and (iii) at
least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(4) Approval by the shareholders of NCBE of (i) a complete
liquidation or dissolution of NCBE or (ii) the sale or other
disposition of all or substantially all of the assets of NCBE, other
than to a corporation with respect to which following such sale or
other disposition (a) more than sixty percent (60%) of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding NCBE common stock
and outstanding NCBE voting securities immediately prior to such sale
or other disposition in substantially the same proportion as their
ownership, immediately prior to such sale or other disposition, of
the outstanding NCBE common stock and outstanding NCBE voting
securities, as the case may be, (b) no Person (excluding NCBE and any
employee benefit plan or related trust of NCBE or such corporation
and any Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, twenty-five percent (25%)
or more of the outstanding NCBE common stock or outstanding NCBE
voting securities, as the case may be) beneficially owns, directly or
indirectly, twenty-five percent (25%) or more of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors and (c) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at
the time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of NCBE.
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<PAGE> 10
13. SEVERANCE.
(a) If this Contract of Employment and VEA's employment is terminated (i)
by NCBE as otherwise permitted under the terms of this Contract of
Employment for any reason other than those listed in Paragraphs 12(c) or
(e), or (ii) by VEA for either of the Good Reasons listed in Paragraphs
12(f)(i) or (iii), then VEA shall be paid and receive severance as
follows:
(1) VEA shall receive a lump sum payment within five days after
the termination of employment equal to the balance of his unpaid BASE
SALARY and any payments not yet paid under Paragraph 4(a) for the
remaining portion of the Initial Term (if the date of VEA's
termination of employment occurs during the Initial Term) or Renewal
Term (if the date of VEA's termination of employment occurs during a
Renewal Term), but in no event will the period upon which the lump
sum payment is calculated be less than one (1) year. Provided
however, if the termination of employment occurs for the reasons
described in Paragraph 12(a), then VEA's lump sum payment calculated
in accordance with the first sentence of this subparagraph (1) shall
be based upon a one (1) year period; and
(2) The FRINGE BENEFITS provided in Paragraph 10 (other than
Paragraph 10(c)) shall continue throughout the calculation period
described in Paragraph 13(a), either in accordance with the terms of
the benefit plan document to which those benefits are subject or, if
the terms of any such plan would not otherwise provide the benefits
in question in these circumstances or for the period specified, by
NCBE on the same terms and conditions as provided for in the benefit
plan document in question and without regard to such limiting
provisions; and
(3) The STOCK OPTIONS provided in this Contract of Employment (and
any other options that VEA may then possess or to which VEA may then
be entitled), if not vested, shall vest in VEA and become immediately
exercisable.
(b) If this Contract of Employment and VEA's employment is terminated
after the occurrence of the events described in Paragraphs 12(f)(ii) or
(iv), then VEA shall be paid and receive severance equal to (i) the
benefits described in Paragraph 12(a), but calculating the lump sum
payment described in Paragraph 12(a)(1) based upon a three [3] year
period; plus (ii) a lump sum payment within five days after the
termination of employment equal to the larger of VEA's PERFORMANCE BONUS
for the year immediately preceding the event described in Paragraphs
12(f)(ii) or (iv) or the average of the PERFORMANCE BONUSES awarded VEA
for the three (3) year period immediately preceding the event described in
Paragraphs 12(f)(ii) or (iv). VEA agrees and understands that VEA is
exclusively responsible for the payment of the tax, if any, described in
Section 4999(a) of the Internal Revenue Code of 1986, as amended, on any
portion of the payments described in this Paragraph 13(b).
(c) If, prior to the occurrence of any of the events that constitute a
Change in Control, a resolution specifically approving the occurrence
shall not have been adopted by at least a majority of the Board, or in the
event this Contract of Employment terminates for the reasons described in
Paragraph 12(f)(iv) after the effective date of a Change in Control, in
addition to the payments described in Paragraph 13(b), VEA shall receive
cash payments in the amounts necessary to enable VEA to pay all taxes to
which VEA may become subject as a result of (i) the receipt of the
severance payments described in Paragraph 13(a)(1) or Paragraph 13(b) and
(ii) the exercise of any stock option or sale of any stock acquired as the
result of the exercise of any stock option described in this Contract of
Employment or which may be granted under the terms of "THE 1999 STOCK
OPTION AND INCENTIVE PLAN" of NCBE. These payments shall be made at least
ten days prior to the earliest date such taxes (or estimated tax payments
attributable to such taxes) are due.
(d) VEA is not required to mitigate the amount of benefit payments to be
made by NCBE pursuant to this Paragraph 13 by seeking other employment or
otherwise, nor shall the amount of any benefit payments provided for in
this Paragraph 13 be reduced by any compensation earned by VEA as a result
of employment by another employer or which might have been earned by VEA
had VEA sought such employment, after the date of termination of his
employment with NCBE or otherwise.
14. RESTRICTIVE COVENANT. As a further material inducement to NCBE to
enter into this Contract of Employment, for the benefit of its subsidiaries,
successors and assigns, and in consideration of the mutual promises contained in
this Contract of Employment, in the event VEA's employment terminates as a
result of a termination of this Contract of Employment for the reasons described
in Paragraphs 12(a) or (g),VEA agrees as follows:
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(a) that for a period of one (1) year after any such termination, VEA
will not conduct, directly or indirectly, any personal solicitation for
banking or any related purpose any customer of NCBE or of any of its
subsidiaries; and
(b) that for a period of one (1) year after any such termination, VEA
will not, directly or indirectly, in any capacity, including but not
limited to as an employee, agent, consultant, officer, director,
shareholder or investor, engage in or participate in any way in any
business like or competitive to the business of NCBE or any of its
subsidiaries in any of the counties in which the present subsidiaries or
future acquisitions (including actual or potential acquisitions known or
disclosed to VEA during his employment by NCBE) are located or in any
county contiguous to a county in which the present subsidiaries or future
acquisitions are located.
It is understood and agreed that the consideration for this restrictive
covenant is a portion of the cash compensation described hereinabove. VEA
understands and agrees that NCBE; its subsidiaries, successors and assigns have
a valid interest to protect with this restrictive covenant and agrees that the
term and limitations of this restrictive covenant are reasonable. VEA hereby
represents to NCBE that VEA's experience and capabilities are such that the
provisions of this restrictive covenant will not prevent VEA from earning a
livelihood.
In the event of any breach or threatened breach of this provision by VEA,
VEA agrees that NCBE may obtain specific performance or other equitable relief
for such breach or threatened breach. Nothing herein contained shall be
construed as prohibiting NCBE from pursuing any other remedies available to it
for such breach or threatened breach, including the recovery of damages from
VEA.
15. WAIVER OF BREACH. The waiver by NCBE of a breach of any provision of
this Contract of Employment by VEA shall not operate or be construed as a waiver
of any subsequent breach by VEA.
16. ASSIGNMENT. The rights and obligations of NCBE under this Contract of
Employment shall inure to the benefit of and be binding upon the successors and
assigns of NCBE and, in the event of the death of VEA, to the benefit of and be
enforceable by VEA's executors, administrators, heirs, distributees, devisees
and legatees and all amounts payable hereunder shall be paid in accordance with
the terms of this Contract of Employment to VEA's devisee, legatee or other
designee or if there be no such designee, to his estate.
17. ENTIRE AGREEMENT. This instrument contains the entire agreement of
NCBE and VEA. It may not be changed orally but only by an agreement in writing
signed by both of the parties hereto.
18. GOVERNING LAW. This Contract of Employment is made and entered into
in the State of Indiana, and shall in all respects be interpreted, enforced and
governed under the laws of said state.
19. SEVERABILITY. Each and every paragraph, term and/or provision of this
Contract of Employment shall be considered severable, and if, for any reason,
any paragraph, term, or provision hereof is determined to be invalid, contrary
to, or in conflict with any existing or future law of the State of Indiana, the
invalidity thereof shall not impair the operation or affect the remaining
paragraphs, terms, or provisions of this Contract of Employment, and the latter
shall continue in full force and effect.
20. TAXES. Each of the parties has received advice regarding the tax
implications of this Contract of Employment. Neither party has relied on the
representations of the other party regarding tax treatment as dictated and
created by the terms of this Contract of Employment with respect to the grants
of stock and issuance of stock options provided in this Contract of Employment
and, except as otherwise specifically provided for in this Contract of
Employment, VEA will be responsible for any tax obligations arising from such
grants and options.
21. NOTICES. Any notice which may be required to be given hereunder by
either party shall be in writing and either delivered personally to the other
party, sent by United States certified mail or sent by a private delivery
service which provides receipts of delivery to the last known legal address of
the party to whom such notice is directed.
22. COOPERATION. It is the intent of the parties to cooperate under this
Contract of Employment to perform in a beneficial and reasonable manner. All
provisions will be so interpreted. VEA and NCBE each agree to use their
reasonably best efforts to discharge their obligations under this Agreement in a
prompt fashion. Each party agrees that he or it will not unreasonably withhold
or delay providing his or its consent whenever that consent is required under
this Agreement; the parties agree that they will be deemed to have consented if
they do not respond to a request for consent within ten days of receipt of
notice requesting consent.
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<PAGE> 12
23. COUNTERPARTS. This Agreement may be executed in one or more
counterparts for the convenience of the parties, all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused the execution of this Contract
of Employment the day and year first hereinabove set forth.
National City Bancshares, Inc.
By: /s/ Robert D. Vance
------------------------------
Robert D. Vance, Chairman & Chief Executive Officer
By: /s/ Ronald G. Reherman
--------------------------------
Ronald G. Reherman, Director & Chairman of the Search
Committee of the Board of Directors
By: /s/ Laurence R. Steenberg
--------------------------------
Laurence R. Steenberg, Director & Chairman of the
Compensation Committee
"NCBE"
/s/ Michael T. Vea
------------------------------------
Michael T. Vea
"VEA"
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<PAGE> 1
EXHIBIT 10.2
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement ("Agreement") has been entered
into as of the 7th day of September, 1999, between National City Bancshares,
Inc., an Indiana corporation (the "Company"), and Michael T. Vea, an employee of
the Company or one of the Company's subsidiaries ("Participant"), pursuant to
the Company's 1999 Stock Option and Incentive Plan (the "Plan").
WHEREAS, the committee of the Board of Directors of the Company appointed
to administer the Plan (the "Committee") has granted to Participant an option to
purchase shares of the Company's common stock pursuant to the terms and
conditions as provided in the Plan and this Agreement; and
WHEREAS, the Company and Participant desire to set forth the terms and
conditions of the option;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, the Company and the Participant agree as follows:
1. Grant of Option and Exercise Price. Subject to the terms and conditions
stated in the Plan and this Agreement on September 7, 1999 (the "Date of
Grant"), the Committee granted to Participant an option (the "Option") to
purchase 75,000 shares of the Company's common stock (the "Shares") at an
exercise price per Share equal to $27.125 (the "Exercise Price").
2. Nonqualified Stock Option. The Option is not intended to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended.
3. Exercise of Option. The Option shall become exercisable as follows or
on such earlier date as provided in the Plan: One-third (1/3) of the Shares
subject to this Option shall become exercisable on September 6, 2000; one-third
(1/3) of the Shares subject to this Option shall become exercisable on September
6, 2001; and one-third (1/3) of the Shares shall become exercisable on September
6, 2002; provided, however, that the Option shall also become immediately
exercisable in full earlier as provided by Section 13(a) of the Contract of
Employment dated August 23, 1999 between the Company and the Participant (the
"Contract of Employment").
4. Term of Option. Unless sooner terminated as provided in the Plan or the
Contract of Employment, the Option shall expire on September 6, 2009.
5. Method of Exercise. The Participant may exercise the Option in the
manner stated in the Plan.
6. Delivery and Registration of the Shares. The Company shall not be
required to deliver any Shares upon exercise of the Option prior to (a) the
admission of the Shares for listing on any stock exchange or system on which the
Shares may then be listed, and (b) the completion of registration or other
qualification of the Shares under any state or federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
7. Plan Controlling. The Option and the terms and conditions set forth in
this Agreement are subject in all respects to the terms and conditions of the
Plan, which are controlling. All determinations and interpretations of the
Committee shall be binding and conclusive upon the Participant and his or her
legal representatives. Notwithstanding the foregoing, to the extent that the
Contract of Employment determines any of the rights, privileges, obligations or
liabilities created by this Agreement, the Contract of Employment shall govern.
8. Qualification of Rights. Neither this Agreement nor the existence of
the Option shall be construed as giving the Participant any right (a) to be
retained as a director or employee of the Company or any of its subsidiaries; or
(b) as a shareholder with respect to the Shares until the certificates for the
Shares have been issued and delivered to the Participant.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana.
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<PAGE> 2
10. Notices. All notices and other communications required or permitted
under this Agreement shall be written and shall be delivered personally or sent
by registered or certified first-class mail, postage prepaid and return receipt
required, addressed as follows: if to the Company, to the Company's executive
offices in Evansville, Indiana, and if to the Participant or his or her
successor, to the address last furnished by the Participant to the Company. Each
notice and communication shall be deemed to have been given when received by the
Company or the Participant.
11. Transferability. During the Participant's lifetime, the Option shall
be exercisable only by the Participant or any guardian or legal representative
of the Participant, and the Option shall not be transferable except: (a) in case
of the death of the Participant, by will or the laws of descent and
distribution, or (b) to (i) any members of the Participant's Immediate Family,
(ii) a trust for the exclusive benefit of the Participant's Immediate Family or
a trust for the exclusive benefit of the Participant's Immediate Family and an
entity, contributions to which qualify as "charitable contributions" under
Section 170(c) of the Internal Revenue Code of 1986, as amended (or any
successor provision or law) (a "Charitable Beneficiary"), or (iii) a partnership
or limited liability company, the sole owners of which are one or more members
of the Participant's Immediate Family. The term "Immediate Family" shall mean
the Participant's spouse, parents, children, stepchildren, adoptive
relationships, sisters, brothers and grandchildren (and for this purpose, shall
also include the Participant). The Option shall not be subject to attachment,
execution or similar process, and may not be transferred by any recipient
described in the preceding sentences except to any member of the Participant's
Immediate Family.
12. Representations and Warranties of Participant. The Participant
represents and warrants to the Company that he or she has received and reviewed
a copy of the Plan.
IN WITNESS WHEREOF, the Company and Participant have executed this
Agreement as of the date first written above.
NATIONAL CITY BANCSHARES, INC.
By: /s/ Robert A. Keil
-------------------------------
Robert A. Keil, President
/s/ Michael T. Vea
-------------------------------
Michael T. Vea
32
<PAGE> 1
EXHIBIT 10.3
NONQUALIFIED STOCK OPTION AGREEMENT
(Non-Plan)
This Nonqualified Stock Option Agreement, made and entered into as of
September 7, 1999, by and between National City Bancshares, Inc., an Indiana
corporation (the "Company") and Michael T. Vea (the "Optionee"),
WITNESSETH:
WHEREAS, pursuant to a Contract of Employment dated August 23, 1999 (the
"Employment Agreement") with the Optionee, the Board of Directors of the Company
has granted the Optionee an option to acquire shares of common stock of the
Company ("Shares") upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, the parties hereto make the following agreement, intending to
be legally bound hereby:
1. Grant of Option. The Company hereby grants to the Optionee an option
(the "Option") to purchase 30,000 Shares. The Option is intended and shall be
treated as a nonqualified stock option and not as an incentive stock option
under Section 422 of the Internal Revenue Code of 1986, as amended.
2. Option Price. The per share exercise price (the "Option Price") to be
paid by the Optionee upon the exercise of the Option shall be $27.125.
3. Exercise of Option. Subject to paragraph 4, the Option shall become
exercisable as follows: one-half of the Shares subject to this Option shall
become exercisable on September 6, 2000; and one-half shall become exercisable
on September 6, 2001; provided, however, that the Option shall become
immediately exercisable in full earlier as provided by Section 13(a) of the
Employment Agreement.
4. Termination of Option.
(a) Unless sooner terminated as provided in the following subparagraph
(b), the Option and all rights hereunder with respect thereto, to the extent
such rights shall not have been exercised within the exercise periods described
in paragraph 3, shall terminate and become null and void as of September 6,
2009.
(b) Upon the occurrence of the Optionee's ceasing for any reason to be
employed by the Company or any of its subsidiaries, the Option, to the extent
not previously exercised, shall terminate and become null and void three (3)
months after the date of termination of the Optionee's employment.
(c) A transfer of the Optionee's employment between the Company and any
subsidiary of the Company, or between any subsidiaries of the Company, shall not
be deemed to be a termination of the Optionee's employment.
5. Exercise of Options.
(a) The Optionee may exercise the Option with respect to all or any
part of the Shares then exercisable hereunder by giving the Secretary of the
Company written notice of intent to exercise. The notice of exercise shall
specify the number of Shares as to which the Option is to be exercised and the
date of exercise thereof, which date shall be at least five days after the
giving of such notice unless an earlier time shall have been mutually agreed
upon.
(b) The Optionee must make full payment (in U.S. dollars) of the Option
Price on or before the exercise date specified in the notice of exercise in cash
or, with the consent of the Company, in whole or in part through the surrender
of Shares of the Company the Optionee has owned for more than six months. On the
exercise date specified in the Optionee's notice or as soon thereafter as is
practicable, the Company shall cause to be delivered to the Optionee, a
certificate or certificates for the Shares then being purchased upon full
payment for such Common Shares.
33
<PAGE> 2
(c) If the Optionee fails to pay for any of the Shares specified in
such notice as provided in the foregoing subparagraph (b), or fails to accept
delivery thereof, the Optionee's rights to purchase such Shares may be
terminated by the Company. The date specified in the Optionee's notice as the
date of exercise shall be deemed the date of exercise of the Option provided
that payment in full for the Shares to be purchased upon such exercise shall
have been received by such date.
6. Adjustment of and Changes in Stock of the Company. In the event of a
reorganization, recapitalization, change of shares, stock split, spin-off, stock
dividend, reclassification, subdivision or combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or shares of capital stock of the Company, the Company shall make appropriate
adjustments to the number of Shares subject to the Option and the Option Price.
7. No Rights of Shareholder. Neither the Optionee nor any personal
representative shall be, or shall have any of the rights and privileges of, a
shareholder of the Company with respect to any of the Shares, in whole or in
part, prior to the date of exercise of the Option. No adjustment shall be made
for dividends or distributions or other rights for which the record date is
prior to the date payment is received by the Company.
8. Transferability. During the Optionee's lifetime, the Option shall be
exercisable only by the Optionee or any guardian or legal representative of the
Optionee, and the Option shall not be transferable except: (a) in case of the
death of the Optionee, by will or the laws of descent and distribution or (b) to
(i) any member of the Optionee's Immediate Family, (ii) a trust for the
exclusive benefit of the Optionee's Immediate Family or a trust for the
exclusive benefit of the Optionee's Immediate Family and an entity,
contributions to which qualify as "charitable contributions" under Section
170(c) of the Internal Revenue Code of 1986, as amended (or any successor
provision or law) (a "Charitable Beneficiary"), or (iii) a partnership or
limited liability company, the sole owners of which are one or more members of
the Optionee's Immediate Family. The term "Immediate Family" shall mean the
Optionee's spouse, parents, children, stepchildren, adoptive relationships,
sisters, brothers and grandchildren (and for this purpose, shall also include
the Optionee). The Option shall not be subject to attachment, execution or other
similar process. The Option shall not be subject to attachment, execution or
similar process and may not be transferred by any recipient described in the
preceding sentences except to any member of the Optionee's Immediate Family.
9. Notice. Any notice to the Company provided for in this instrument
shall be mailed to its Secretary of the Company at P.O. Box 868, Evansville,
Indiana 47705. Any notice to the Optionee shall be addressed to the Optionee at
the current address shown on the payroll records of the Company. Any notice
shall be deemed to be duly given if and when properly addressed and posted by
registered or certified mail, postage prepaid.
10. Representations of Optionee. The Optionee understands that the
Shares issuable upon exercise of the Option have not been registered under the
Securities Act of 1933, as amended, or any state securities laws and that the
Shares when issued pursuant to the exercise of the Option will be subject to
restrictions or transfer.
11. Governing Law. The validity, construction, interpretation and
effect of this instrument shall exclusively be governed by and determined in
accordance with the law of the State of Indiana, except to the extent preempted
by federal law, which shall to such extent govern.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
NATIONAL CITY BANCSHARES, INC.
By: /s/ Robert A. Keil /s/ Michael T. Vea
------------------------------ -----------------------
Robert A. Keil, President Michael T. Vea
34
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 49,070
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,466
<TRADING-ASSETS> 0
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<LOANS> 1,680,965
<ALLOWANCE> 19,432
<TOTAL-ASSETS> 2,173,519
<DEPOSITS> 1,643,486
<SHORT-TERM> 109,361
<LIABILITIES-OTHER> 19,297
<LONG-TERM> 165,298
0
0
<COMMON> 16,907
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<TOTAL-LIABILITIES-AND-EQUITY> 2,173,519
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<INTEREST-TOTAL> 122,335
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<INTEREST-EXPENSE> 55,134
<INTEREST-INCOME-NET> 67,201
<LOAN-LOSSES> 3,249
<SECURITIES-GAINS> (622)
<EXPENSE-OTHER> 44,287
<INCOME-PRETAX> 30,746
<INCOME-PRE-EXTRAORDINARY> 30,746
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,599
<EPS-BASIC> 1.28
<EPS-DILUTED> 1.27
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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</TABLE>
