<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Dec. 31, 1994 Commission File Number 33-3711
NATIONAL BANCSHARES CORPORATION
Ohio 34-1518564
State of incorporation I.R.S. Employer
Identification No.
112 West Market Street, Orrville, Ohio 44667
Address of principal executive offices
Registrant's telephone number: (216) 682-1010
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $10.00 Par Value
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__. No _____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 15, 1995: $26,357,616.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of March 15, 1995.
Common Stock, $10.00 Par Value: 732,156
Documents Incorporated by Reference:
- Portions of the registrant's Proxy Statement dated March 31, 1995, and
previously filed March 10, 1995, are incorporated by reference into Part III.
- Portions of the registrant's Annual Report to shareholders, December 31, 1994
are incorporated by reference in Parts I, II, IV.
PAGE 1
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<TABLE>
<CAPTION>
Form 10-K Cross Reference Index Page
<S> <C>
Part I
Item 1 - Business
Description of Business 4
Financial Ratios - Note 1 A18
Daily Average Balance Sheets, Interest and Rates - Note 1 A17
Volume and Rate Variance Analysis 5
Rate Sensitivity Analysis 6
Investment Portfolio 7
Loan Portfolio 8
Summary of Loan Loss Experience 9
Deposits 10
Item 2 - Properties 4
Item 3 - Legal Proceedings 4
Item 4 - Submission of Matters to a Vote of Security
Holders - None
Part II
Item 5 - Market for the Registrant's Common Equity
and Related Stockholder Matters - Note 1 A7
Item 6 - Selected Financial Data - Note 1 A1
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation - Note 1 A2-7
Item 8 - Financial Statements - Note 1 A8-17
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure - None
Part III
Item 10- Directors of the Registrant - Note 2 B3-4
Executive Officers of the Registrant 4
Item 11- Executive Compensation - Note 2 B8-9
Item 12- Security Ownership of Certain Beneficial
Owners and Management - Note 2 B3-4
Item 13- Certain Relationships and Related Transactions
Note 2 B10
Part IV
Item 14- Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Report of Deloitte & Touche, Independent Auditors A17
Financial Statements: - Note 1
Consolidated Balance Sheets as of December 31,
1994 and 1993 A8
Consolidated Statements of Income for the Years Ended
December 31, 1994, 1993 and 1992 A9
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1994, 1993 and 1992 A11
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1994,
1993 and 1992 A10
Notes to Financial Statements - Note 1 A12-16
Reports on Form 8-K filed in fourth quarter of 1994: None
Exhibit Table 12
Signatures 11
Appendix A - National Bancshares 1994 Annual Report to A
Shareholders
</TABLE>
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Note 1 - Incorporated by reference from the registrant's Annual Report
to Shareholders for the year ended December 31, 1994 -- Appendix A
Note 2 - Incorporated by reference from the registrant's proxy
statement dated March 31, 1995 previously filed with the SEC on March
10, 1995
PAGE 3
<PAGE> 4
Item 1 - Business:
National Bancshares Corporation (the "Company"), incorporated in 1985, is a one
bank holding company for First National Bank, Orrville, Ohio (the "Bank"). The
formation was approved by shareholders on April 24, 1986 and consummated on
June 2, 1986. The Bank offers a full line of services usually found in any
commercial bank operation, including checking accounts, savings accounts,
certificates of deposit, personal loans, loans to business and industry,
installment loans, safety deposit boxes and credit cards. The Bank does not
have trust powers and, therefore, does not offer trust services. The Bank
operates nine full service offices and one limited service office in a market
area comprising most of Wayne County, portions of western Stark County,
northeastern Holmes County and southern Medina County. There are approximately
17 other banking and thrift organizations in the immediate market area. No
major elimination of services presently offered is anticipated in the immediate
future.
The Bank is a member of the Federal Reserve System and its deposits are insured
by the Federal Deposit Insurance Corporation. It is subject to supervision,
examination and regulation by the Comptroller of the Currency. The Company is
subject to supervision, examination and regulation by the Federal Reserve
System. Management is not currently aware of any regulatory recommendations
which if were to be implemented would have a material effect on the registrant.
Item 2 - Properties:
The headquarters of the Company and the Bank are located in Orrville, Ohio.
The Bank has a total of nine banking office buildings which are located in
Orrville, Dalton, Kidron, Smithville, Mt. Eaton, Apple Creek, Lodi and Seville,
Ohio. All buildings are owned by the Bank with the exception of the Seville
Office which is a leased facility.
Item 3 - Legal Proceedings
There were no legal proceedings other than ordinary routine litigation
incidental to business during 1994.
Item 10 - Executive Officers
The Executive Officers of the Company are as follows:
Name Age Position
Charles J. Dolezal 42 President
President of First National Bank
Michael D. Hofstetter 42 Sr. Vice President & Secretary-Treasurer
Sr. Vice President & Controller of
First National Bank
There is no family relationship between any of the above executive officers.
Mr. Dolezal has been an executive officer of the Company since its formation in
1986 and the Bank during the past 5 years. Mr. Hofstetter was appointed Sr.
Vice President and Secretary-Treasurer of the Company on January 1, 1990 and
has been an executive officer of the Bank during the past 5 years.
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VOLUME AND RATE VARIANCE ANALYSIS
The following table represents a summary analysis of changes in interest
income, interest expense and the resulting net interest income on a tax
equivalent basis for the periods presented each, as compared with the preceding
period. Volume is based on daily average balances.
<TABLE>
<CAPTION>
(Dollars in thousands) 1994 versus 1993 1993 versus 1992
Increase (Decreases) Increase (Decreases)
Due to Changes In Due to Changes In
-----------------------------------------------------------
Net Net
Volume Rate Change Volume Rate Change
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Investment securities:
Taxable $310 ($373) ($63) $194 ($361) ($167)
Nontaxable 85 (31) 54 27 (142) (115)
(tax equivalent basis)*
Federal funds sold (81) 98 17 62 (53) 9
Loans (including
nonaccrual loans) 259 (116) 143 100 (356) (256)
-------------------------- --------------------------
Total interest Income
(tax equivalent basis)* $573 ($422) $151 $382 ($911) ($529)
========================== ==========================
Interest Expense
Deposits
Interest bearing checking $34 ($29) $5 $51 ($192) ($141)
Savings 114 (133) (19) 273 (271) 2
Time, $100,000
and over (4) 47 43 36 (48) (12)
Time, other (74) (36) (110) (337) (394) (731)
Other funds purchased (13) 20 7 5 (15) (10)
-------------------------- --------------------------
Total interest
expense $57 ($131) ($74) $28 ($920) ($892)
========================== ==========================
Changes in net
interest income (tax
equivalent basis)* $516 ($291) $225 $354 $9 $363
========================== ==========================
<FN>
* Tax equivalence based on highest statutory tax rates of 34%.
</TABLE>
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<TABLE>
RATE SENSITIVITY ANALYSIS
The following table summarizes the repricing opportunities of interest bearing assets and liabilities
Gap Report
December 31, 1994
(Millions of dollars)
<CAPTION>
3 Months 6 Months 12 Months 1-5 Years 5+ Years
Period Accum. Period Accum. Period Accum. Period Accum. Period Accum.
<S> <C> <C> <C> <C>
Rate Sensitive Assets:
Fed Funds Sold $11.9 $11.9 $0.0 $11.9 $0.0 $11.9 $0.0 $11.9 $0.0 $11.9
Securities 1.6 1.6 5.1 6.7 4.2 10.9 48.2 59.1 31.0 90.1
Net Loans 18.1 18.1 6.3 24.4 16.5 40.9 12.9 53.8 5.1 58.9
--------------------------------------------------------------------------------------------
Total Sensitive Assets $31.6 $31.6 $11.4 $43.0 $20.7 $63.7 $61.1 $124.8 $36.1 $160.9
============================================================================================
Rate Sensitive
Liabilities
Checking (1) $33.4 $33.4 $0.0 $33.4 $0.0 $33.4 $0.0 $33.4 $0.0 $33.4
Savings (2) 0.0 0.0 0.0 0.0 0.0 0.0 43.9 43.9 0.0 43.9
Time 18.8 18.8 6.8 25.6 7.0 32.6 11.5 44.1 0.3 44.4
Money Market 3.3 3.3 0.0 3.3 0.0 3.3 0.0 3.3 0.0 3.3
Borrow
TT&L Note Account 1.0 1.0 0.0 1.0 0.0 1.0 0.0 1.0 0.0 1.0
--------------------------------------------------------------------------------------------
Total Sensitive $56.5 $56.5 $6.8 $63.3 $7.0 $70.3 $55.4 $125.7 $0.3 $126.0
Liabilities
--------------------------------------------------------------------------------------------
Rate Sensitivity Gap ($24.9) ($24.9) $4.6 ($20.3) $13.7 ($6.6) $5.7 ($0.9) $35.8 $34.9
============================================================================================
Gap Percentage 56% 56% 168% 68% 296% 91% 110% 99% 12033% 128%
Gap/Total Assets -14% -14% 3% -12% 8% -4% 3% -1% 21% 20%
Gap/Capital -113% -113% 21% -92% 62% -30% 26% -4% 162% 158%
<FN>
(1) Checking includes NOW and MMDA
(2) Savings includes passbook and statement savings which do not have a preset repricing date and have been
included in the 1-5 years due to the relative interest rate insensitivity.
The potential impact on the net interest margin from modestly rising interest would be relatively insignificant due
to the short duration of mismatch within the first 12 months. If interest rates were to immediately increase by 50
basis points, this could cause an increase interest expense greater than interest income. The potential impact would
equate to lowering the current net interest margin by less than 5 basis points over the first 12 months.
</TABLE>
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<TABLE>
INVESTMENT PORTFOLIO
The carrying amounts and distribution of the Company's investment securities held are summarized in the Annual
Report (Appendix A, Page 13, Note 3. Investment Securities). The carrying amount, maturities and approximate
weighted average yields (on a tax equivalent basis) at December 31, 1994 are as follows:
<CAPTION>
(Dollars in Total 0 to 1 yr 1 to 5 yrs 5 yrs and
Thousands) over
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury $24,807 7.3% $3,951 6.5% $18,952 7.4% $1,904 8.1%
US Agencies 14,962 8.0% 2,534 9.4% 6,670 7.9% 5,758 7.4%
State & political
subdivisions 17,699 9.5% 536 9.3% 2,961 11.7% 14,202 9.1%
Other securities $32,488 7.3% 3,766 8.5% 19,625 7.2% 9,097 7.0%
-----------------------------------------------------------------------------------------------
Total investment
securities $89,956 7.9% $10,787 8.0% $48,208 7.7% $30,961 8.1%
=============================================================================================
<FN>
$6.4 million of investment securities have a remaining maturity more than 10 years. There was no single issuer of
securities where the total book value of such securities exceeded 10% of shareholders' equity except for US
government obligations.
</TABLE>
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<TABLE>
LOAN PORTFOLIO
The detail of the loan portfolio balances are included in Note 4 of the Annual Report to Shareholders (Appendix A,
Page 13, Note 4).
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
The following are approximate maturities and sensitivity to changes in interest rates of certain loans exclusive of
real estate mortgages and consumer loans as of December 31, 1994.
<CAPTION>
Types of Loans 0 to 1 Year 1 to 5 Years 5 and Over Years Total
(Dollars in Thousands)
<S> <C> <C> <C>
Commercial $6,308 $653 $290 $7,251
Real Estate Construction $226 $109 $54 $389
Above loans due beyond 1 year
with:
Predetermined interest rates $288
Adjustable interest rates $818
</TABLE>
NONACCRUAL AND PAST DUE LOANS
Generally, recognition of interest income is discontinued where reasonable
doubt exists as to the collectability of the interest. Income from nonaccrual
loans is recorded when received. The difference between interest income
recognized on such loans and income that would have been recognized at original
contractual rates is immaterial. The bank generally places loans on a
non-accrual status when a default of principal or interest has existed for 90
days or more. The bank generally does not renegotiate loans due to
deterioration in the financial position of the borrower. The amounts of
renegotiated loans are not considered material.
<TABLE>
<CAPTION>
(Dollars in Thousands) 12/31/94 12/31/93
<S> <C> <C>
90 Days Past Due and Accruing $59 $109
Nonaccruing Loans $111 $373
</TABLE>
POTENTIAL LOAN PROBLEMS
Management reviews the loan portfolio for potential loan problems on a monthly
basis. The following loans were classified by management and include in the
above nonaccrual and past due loan totals. The amount shown below is the
outstanding loan balance which has not been reduced by collateral values.
<TABLE>
<CAPTION>
(Dollars in Thousands) 12/31/94 12/31/93
<S> <C> <C>
Loss $0 $11
Doubtful 104 299
Substandard 750 1,244
OAEM 957 462
Watch 7 85
Total $1,818 $2,101
</TABLE>
LOAN CONCENTRATIONS
Due to the nature of our market area, it is management's opinion there are no
significant loan concentrations of 10% of total loans to borrowers engaged in
similar activities other than noted in the loan categories disclosed in
Footnote 4 on Page 13 of the Annual Report to Shareholders.
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SUMMARY OF LOAN LOSS EXPERIENCE
The determination of the balance of the allowance for loan losses historically
has been based on an overall analysis of the loan portfolio and reflects an
amount, which, in management's judgment, is adequate to provide for potential
loan losses. This analysis considers, among other things, the Company's loan
loss experience, present and potential risks of the loan portfolio and general
economic conditions. In addition, management considers the examinations of the
loan portfolio by federal regulatory agencies and internal reviews and
evaluations. The Company's allocation of the allowance for loan losses by
category represents only an estimate for each category of loans based upon a
detailed review of the loan portfolio by management.
Transactions in the allowance for loan losses are maintained by three major
loan categories and the summary of such transactions for periods indicated
follows:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1994 1993
<S> <C> <C>
Balance at the beginning of period $606 $750
Loans charged off:
Commercial & industrial 20 40
Real estate 15 183
Consumer 14 121
---------------- ----------------
Total loans charged off 49 344
---------------- ----------------
Recoveries of loans charged off:
Commercial & industrial 30 4
Real estate 18 0
Consumer 106 16
---------------- ----------------
Total recoveries 154 20
---------------- ----------------
Net loans charged off -105 324
---------------- ----------------
Provision charged to operating 180 180
expense
---------------- ----------------
Balance at end of period $891 $606
================ ================
Ratio of net charge offs to average
loans outstanding during the period -0.18 0.60
================ ================
Distribution of allowance for Percent of loans Percent of loans
loan losses by category at in each category in each category
December 31. Amount to total loans Amount to total loans
<S> <C> <C> <C> <C>
Commercial & industrial $97 16% $144 19%
Real estate construction 0 1% 0 1%
Real estate mortgages 5 69% 7 67%
Consumer loans 10 14% 15 13%
Unallocated 779 N/A 440 N/A
-------- ---------------- -------- ----------------
$891 100% $606 100%
======== ================ ======== ================
</TABLE>
PAGE 9
<PAGE> 10
DEPOSITS
The classification of average deposits and the average rate paid on such
deposits for periods ending December 31, 1994, 1993 and 1992 is included in
Analysis of Net Interest Earnings included in the Annual Report to Shareholders
(Appendix A, Page 18).
The summary of maturities of time deposits of $100,000 or more is included in
footnote 7 of the financial statements included in the Annual Report to
Shareholders (Appendix A, Page 14, Note 7).
PAGE 10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL BANCSHARES CORPORATION
DATE: 3-21-95 /s/ Charles J. Dolezal
-------------------- -------------------------------------
Charles J. Dolezal, President
DATE: 3-21-95 /s/ Michael D. Hofstetter
-------------------- -------------------------------------
Michael D. Hofstetter, Secretary-
Treasurer (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
DATE: 3-21-95 /s/ Charles J. Dolezal
-------------------- -------------------------------------
Charles J. Dolezal, Chairman
DATE: 3-21-95 /s/ James L. Gerber
-------------------- -------------------------------------
James L. Gerber, Director
DATE: 3-21-95 /s/ Sara E. Balzarini
-------------------- -------------------------------------
Sara E. Balzarini, Director
DATE: 3-21-95 /s/ John E. Sprunger
-------------------- -------------------------------------
John E. Sprunger, Director
DATE: 3-21-95 /s/ James F. Woolley
-------------------- -------------------------------------
James F. Woolley, Director
DATE: 3-21-95 /s/ Paul H. Smucker
-------------------- -------------------------------------
Paul H. Smucker, Director
PAGE 11
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<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C> <C>
Exhibit No. If incorporated by Reference,
Under Reg. Form 10-K Documents with Which Exhibit
S-K, Item 601 Exhibit No. Description of Exhibits was Previously filed with SEC
(3)(i) Amended Articles of Incorporation Registration Statement S-4 filed
3/31/86 File No. 33-03711
(3)(ii) Code of Regulations Registration Statement S-4 filed
3/31/86 File No. 33-03711
(11) A18 Computation of Earnings per Share Incorporated by reference
(12) A18 Computation of Ratios Incorporated by reference
(13) A 1994 Annual Report to Shareholders Incorporated by reference
(21) A1 Subsidaries of the registrant Incorporated by reference
(27) Financial Data Schedule Incorporated by reference
No other Exhibits are required herewith pursuant Item 601 of Regulation S-K.
</TABLE>
PAGE 12
<PAGE> 1
CORPORATE PROFILE
National Bancshares Corporation is a one bank holding company
with assets totaling over $173 million. First National Bank, its
subsidiary, is headquartered in Orrville, Ohio. First National Bank
serves eastern Wayne County, southern Medina County and western Stark
County through ten banking offices, offering a variety of retail and
commercial deposit and lending services.
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
FINANCIAL POSITION
Percentage
(Year End Balances) 1994 1993 Change
<S> <C> <C> <C>
Total Assets $ 173,041,984 $ 157,825,715 9.64%
Deposits 145,862,240 132,446,096 10.13%
Loans - Net 56,215,091 53,200,635 5.67%
Investment Securities 90,237,648 80,175,588 12.55%
Shareholders' Equity 22,089,249 20,863,330 5.88%
-------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net Interest Income 7,071,263 6,862,832 3.04%
Net Income 2,018,235 2,000,053 0.91%
---------------------------------------------------
Regular Cash Dividends 736,730 689,162 6.90%
Net Income Per Share* 2.76 2.73 0.91%
Cash Dividends Per Share* 1.01 0.94 6.90%
Book Value Per Share* $ 30.17 $ 28.50 5.88%
---------------------------------------------------
<FN>
*Per share restated for a 5 for 4 stock split on October 15, 1994.
</TABLE>
ONE
<PAGE> 2
FELLOW SHAREHOLDERS:
[PICTURE OF CHARLES J. DOLEZAL]
We are pleased to bring you this report of financial
condition for the year ending 1994. Total assets reached an all
time high exceeding $173 million. This was an increase of $15.2
million or 9.6% over the previous year. While almost $25 million
in new loans were granted in 1994, net loans increased by over
$3 million or 5.7%. Total deposits increased approximately $13.4
million or 10.1%. Total shareholders' equity increased by $1.2
million or 5.9%. This increase was realized entirely through
retained earnings. Net income also hit an all time high
increasing by approximately 1% over last year's previous all
time high.
During this past year, we have continued to be recognized by
a number of independent bank analysis companies by receiving
their top ratings. Due to our financial strength and stability,
these ratings have placed us among the top banks in the country.
We have worked hard to achieve this level of recognition and
strive diligently to maintain our financial strength. This
offers our customers and shareholders peace of mind in dealing
with a fiscally sound financial institution.
The purchase of the Seville Office from Bank One, Akron NA
became final on December 16, 1994. As we entered the Seville
market, we acquired over $7 million in deposit business. No
loans were purchased in the transaction. The deposits were
deployed immediately in earning assets in the form of investment
securities. As we begin the process of developing additional
loan business in this market, these deposits will be redeployed
to meet our customer's borrowing needs. The existing full-time
staff and management of this office were hired to provide
continuity of service to the customers of the Seville area. We
are very pleased to expand our market area in southern Medina
County. We hope to increase our market penetration in this area
as opportunities are developed.
Total cash dividends declared in 1994 amounted to over $736
thousand or approximately $1 per share. This was an increase of
over 6 cents per share or approximately 7% higher than 1993's
cash dividends declared. Cash dividends to shareholders have
increased each year consecutively for more than the past
twenty-five years. We hope to continue this trend of increasing
annual cash dividends. In addition to the cash dividends that
were declared this past year, a 5 for 4 stock split payable in
the form of a 25% stock dividend was issued in October. Total
shareholders' equity peaked $22 million and equates to an
approximate book value of $30.17 per share. Market value
continued to increase with the market makers bid price at $35
per share at year end.
As was stated earlier this year, we have been working on the
formulation of a dividend reinvestment plan and a stock buyback
plan. Through these plans the company may purchase its own stock
in the open market, as availability lends itself, and will
enable shareholders to reinvest their cash dividends into
additional shares of common stock of National Bancshares
Corporation without incurring brokerage fees. The company would
utilize stock purchased from the open market to first satisfy
the dividend reinvestment demand. If there is not enough
available stock on the market to meet this need, we would then
issue stock from authorized but unissued shares. We will need
your approval to increase the number of authorized shares to
help facilitate this plan. More information about this is
contained in the proxy statement.
TWO
<PAGE> 3
Our commitment to the many communities we serve goes far
beyond providing high quality financial services. This
commitment extends to supporting many civic and charitable
organizations which improves the quality of life in our
communities. We embrace and support these many organizations
with thousands of dollars of financial support in the form of
contributions as well as countless hours of volunteer time by
our employees. They give of their free time and expertise in
leadership and volunteer positions in many community-oriented
organizations assisting in making our communities a better place
to live and work. Working shoulder to shoulder with community
members, to help assure the continuing economic, cultural and
social improvement of our communities, is our way of recognizing
our civic and business obligations to our market area.
During 1994 we experienced a significant change in the
interest rate environment. As the economy, nationally, became
rather heated, the Federal Reserve pushed short term interest
rates up on six different occasions. This resulted in short term
rates rising over 300 to 400 basis points in less than twelve
months. These interest rate increases were made to ward off an
increase of inflation which normally rises during periods of
strong economic activity. The annual rate of inflation remained
around 3% where it has been for some time with modest movements
from month to month. Since the Federal Reserve has shown its
resolve to control inflation, long term interest rates rose at a
slower pace than that of short term creating a flattening of the
yield curve. Economists are projecting that interest rates may
peak and the economy may begin slowing in 1995. Time will tell
if the Federal Reserve will be successful in slowing the economy
without it sliding into a recession.
With 1994 now behind us, we look toward 1995 with guarded
optimism. As interest rates have been on the rise, downward
pressure has been seen on net interest margins. Through careful
asset and liability management, however, we have thus far
minimized any significant negative effect to our net interest
margin. As the new Congress has vowed to ease government's
burden, we hope to see a reduction of the excessively expensive
regulatory environment that we have experienced during recent
years. The FDIC's bank insurance fund is estimated to reach its
regulated minimum level of bank deposits in the second half of
1995. The deposit insurance premiums that skyrocketed in the
early 90's should plummet back to lower levels at this time. We
anxiously await this change to occur. It will have a positive
impact to most commercial banks' bottom line. While we work
diligently to maximize revenues from earning assets, we also
strive to control operating costs on an ongoing basis.
While 1995 will present many challenges, we continue to be
optimistic about the future growth of both our company and
industry. We appreciate your support and confidence as
shareholders. We also endeavor to serve your financial needs as
customers. Your business is appreciated as it also helps improve
the value of your ownership.
"CASH DIVIDENDS TO SHAREHOLDERS HAVE INCREASED EACH
YEAR CONSECUTIVELY FOR MORE THAN THE PAST TWENTY-FIVE YEARS"
/s/ Charles J. Dolezal
Charles J. Dolezal
President and Chairman
THREE
<PAGE> 4
FINANCIAL REVIEW
1994 proved to be another strong year for National
Bancshares Corporation by setting a number of new records. Total
assets grew approximately $15.2 million ending 1994 at
$173,041,984. This represents a 9.6% increase over the previous
year. The acquisition of the Seville Office in December of 1994
accounted for approximately $7.2 million of the end of the year
growth. Average assets for 1994 increased to $155.9 million
from $150.1 million in 1993 or an increase of $5.8 million. Net
income for 1994 was $2,018,235 which exceeded 1993 net income by
approximately 1%.
Cash and due from banks was $8,261,107 and $8,242,624 for
December 31, 1994 and 1993, respectively. Cash reserves are
maintained at appropriate levels in order to meet customer needs
and provide stability to the local economy with consideration
given to security. Excess cash is prudently invested in order to
maximize a safe and profitable return on assets. A significant
portion of this account is in the normal processing of outgoing
cash letters.
Total investment securities grew approximately $10
million ending 1994 at $90,237,648 compared to $80,175,588 at
the end of 1993. This increase was primarily due to the cash
received through the acquisition of the Seville office. The
average balance of taxable investment securities grew from $61.4
million in 1993 to $65.5 million in 1994 and average nontaxable
investment securities were up approximately $909 thousand in
1994 over 1993. The market or fair value of the total portfolio
was $88,813,739 and $84,009,039 as of December 31, 1994 and
1993, respectively.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES 94 93 92 91 90
<S> <C> <C> <C> <C> <C>
90,237,648 80,175,588 74,894,150 74,278,941 64,634,657
</TABLE>
U.S. treasury and agency obligations increased by
approximately $7 million or 25.4% with balances of $34,408,100
on December 31, 1994 compared to $27,431,486 on December 31,
1993. The net market depreciation of this category was
approximately $522 thousand as of December 31, 1994.
Mortgage backed securities were $5,360,658 and $6,610,464 on
December 31, 1994 and 1993, respectively. This was a decline of
$1.2 million or 18.9%. The net market depreciation of these
securities was $223 thousand on December 31, 1994.
Obligations of states and political subdivisions ended 1994
at $17,698,561 which was .4% below the $17,767,156 balance on
December 31, 1993. The net market appreciation was approximately
$73 thousand as of December 31, 1994. The change in the federal
tax laws in 1986 has generally reduced the supply of bank
qualified tax free security issues. However, to assist in local
development, the bank actively purchases bonds issued by local
municipalities, school systems and other public entities when
opportunities present themselves.
Other securities ended 1994 at $32,770,329 which was
15.5% higher than the December 31, 1993 balance of $28,366,482.
This group of securities is primarily comprised of high quality
corporate bonds and notes. The market or fair value of these
securities were $32,018,002 or approximately $752 thousand below
the carrying amount as of December 31, 1994.
Federal funds sold were $11,885,000 and $11,780,000
as of December 31, 1994 and 1993, respectively. Average balances
decreased during the year with 1994 averaging $7.1 million
compared to $9.8 million during 1993. The lower average balances
were the result of growth in loans and investment securities.
Federal funds sold are overnight investments with our
correspondent banks. This is a significant investment tool that
is used to maximize the earning assets of the bank.
Total net loans increased by approximately $3 million or
5.7% during 1994. Net loan balances were $56,215,091 and
$53,200,635 on December 31, 1994 and 1993 respectively. Average
net loans posted an increase of $2.9 million with a yearly
average of $55.1 million for 1994.
Loans collateralized by real estate were $40,541,407 on
December 31, 1994 as compared to $37,130,453 as of December 31,
1993. There was a $2.5 million increase in commercial real
estate loans and a $1.1 million increase in residential
mortgages. However, home equity loans decreased
<TABLE>
<CAPTION>
LOANS 94 93 92 91 90
<S> <C> <C> <C> <C> <C>
56,215,091 53,200,635 54,766,115 47,080,705 47,631,633
</TABLE>
FOUR
<PAGE> 5
$42 thousand and construction loans declined by $170 thousand.
Consumer loans totaling $7,253,952 on December 31, 1994 were
10.4% above the 1993 ending total of $6,571,635. The unearned
income associated with these consumer loans continued to
decrease indicating the consumers demand for simple rate loans.
Commercial loans were $7,250,601 and $7,948,409 as of December
31, 1994 and 1993, respectively. Credit card loans increased
slightly during the year with balances of $812,737 on December
31, 1994. Other loans decreased $251 thousand during 1994 ending
the year at $1,965,743.
The allowance for loan losses was $890,666 and $605,792 as
of December 31, 1994 and 1993, respectively. The allowance for
loan losses to total loans percentages were 1.56% and 1.13% and
net charge-off to total loans percentages were (.18%) and .60%
for 1994 and 1993, respectively. The net recovery for 1994 was
primarily in the commercial loan area. As with any charge-off,
the bank continues to attempt recovery where feasible.
Management reviews the allowance for loan losses on a regular
basis to determine the adequacy of the reserve.
In the normal course of business, the bank makes commitments
to lend money to various customers. These commitments totaled
approximately $21.9 million as of December 31, 1994. They are
to businesses and individuals for general credit, real estate
construction and letters of credit.
Accrued interest receivable ended 1994 at $1,662,369
which was a 7.6% increase over December 31, 1993. Accrued
interest receivable is interest income earned on investment
securities and loans, but not yet received.
<TABLE>
<CAPTION>
DEPOSITS 94 93 92 91 90
<S> <C> <C> <C> <C> <C>
145,862,240 132,446,096 125,296,209 118,394,001 112,529,772
</TABLE>
Premises and equipment totaled $2,378,202 on December
31, 1994 as compared to $2,453,677 on December 31, 1993.
Improvements and repairs to bank buildings and equipment are
performed as needed to keep them in good working order in an
effort to provide convenient and pleasant banking offices to
meet our customers needs.
Other assets totaled $2,402,567 and $427,558 as of December
31, 1994 and 1993, respectively. These assets mainly include
intangible assets, prepaid expenses and other real estate owned.
The increase in 1994 was primarily a combination of the
acquisition premium for the Seville Office and the funding of
the directors' retirement plan.
The approximate $15.2 million increase in total assets was
fueled by a strong growth in deposits in existing markets and
the acquisition of the Seville Office. Total deposits posted a
$13.4 million or 10.1% increase ending 1994 at $145,862,240 as
compared to $132,446,096 on December 31, 1993. Approximately
$7.2 million of this increase was due to the acquisition of the
Seville Office on December 16, 1994. Average deposits
increased from $126.2 million in 1993 to $131.2 million during
1994.
Demand deposits which represent non-interest bearing
checking accounts ended 1994 at $24,036,115 which was a growth
of 10.6% over the December 31, 1993 balance of $21,729,520. The
average demand accounts for 1994 were $20.8 million as compared
to $18.7 million in 1993.
Interest bearing checking accounts finished 1994 at
$33,430,545 in comparison to $28,367,021 a year earlier. This
was an increase of $5.1 million or 17.9%. Average balances grew
$1.2 million from $28.3 million in 1993 to $29.5 million in
1994. Interest bearing checking accounts include our Negotiable
Order of Withdrawal accounts and Money Market Deposit Accounts.
Savings accounts totaled $43,868,324 on December 31, 1994 or
$1.4 million above the end of the previous year. Average savings
accounts increased from $39.9 million during 1993 to
approximately $43.3 million in 1994. First National offers both
passbook and statement savings accounts.
Total time deposits were $44,527,257 and $39,837,641 as of
December 31, 1994 and 1993, respectively. This 11.8% growth in
total time deposits was a combination of increases in both
deposits less than $100,000 and deposits of $100,000 and
greater. Average time balances dropped approximately $1.8
million giving 1994 an average time deposit balance of $37.6
million as compared to $39.4 million in 1993.
<TABLE>
<CAPTION>
NET INCOME 94 93 92 91 90
<S> <C> <C> <C> <C> <C>
2,018,235 2,000,053 1,823,340 1,696,972 1,605,336
</TABLE>
FIVE
<PAGE> 6
Securities sold under agreements to repurchase were
$3,269,919 on December 31, 1994 in comparison to $2,765,004 at
the end of 1993 or approximately $505 thousand higher. Federal
reserve note account ended both 1994 and 1993 at $1 million. The
note account is determined by the cash needs of the federal
government. The average of other funds purchased decreased in
1994 to $2.4 million from $2.9 million during 1993.
Other liabilities which include accrued interest payable,
dividends declared not yet payable and other accrued expenses
increased in 1994 with balances of $820,576 and $751,285 as of
December 31, 1994 and 1993, respectively.
Shareholders' equity exceeded $22 million during 1994 with
an ending balance of $22,089,249 on December 31, 1994. This is
an increase of $1.2 million or 5.9% above the 1993 ending
balance of $20,863,330. This growth was through retained
earnings which equaled $1.67 per share raising the book value
per share to $30.17 on December 31, 1994 as compared to $28.50
on December 31, 1993. Under the risk based capital regulations
with an 8% minimum, the total capital to risk based assets of
20.45% on December 31, 1994 was more than twice the minimum
required by federal regulations. The bank has remained in a very
favorable position when compared to its peer group in the area
of capitalization.
In summary, the corporation generally grew in most major
areas of the balance sheet through 1994 noting specifically
increases in total investments, total deposits and shareholders'
equity with the total assets ending 1994 at $173,041,984 or
9.6% above 1993 final balances.
<TABLE>
<CAPTION>
DIVIDENDS PER SHARE 94 93 92 91 90
<S> <C> <C> <C> <C> <C>
1.01 0.94 0.86 0.81 0.79
</TABLE>
LIQUIDITY
Liquidity is the consideration of the corporation's ability
to meet the necessary outgoing cash flow needs. Cash equivalents
for the cash flow statement is composed of $8.3 million in cash
and due from banks and $11.9 million in federal funds sold with
a combined total in excess of $20 million. Therefore, management
considers that the corporation is in a good liquidity position
to meet the demands of its customers and the local economy.
RESULTS OF OPERATIONS
1994 concluded with net income setting a new record high of
$2,018,235 or approximately 1% over 1993 net income of
$2,000,053. The primary source of income continues to be
interest on loans and other investments with additional revenues
generated from fees on non-interest rated services.
Interest and fees on loans of $4,737,318 for 1994 was above
1993 by 3.1% or approximately $144 thousand. The increase in
average loan volume more than offset the decrease in average
interest yields.
Interest on federal funds sold was $314,566 and
$297,814 for 1994 and 1993 respectively. This slight increase of
$17 thousand was the result of higher average interest yields
during 1994 even though the volume of average funds sold dropped
from $9.8 million in 1993 to $7.1 million in 1994.
Interest on taxable investment securities declined by
approximately $63 thousand ending 1994 at $4,640,286. This 1.3%
drop in interest income was due to the greater effect of lower
average interest rates as compared to increased average
investment balances.
Interest on obligations of states and political
subdivisions totaled $1,073,839 for 1994 which was $36 thousand
or 3.4% above 1993. The average balances increased $909 thousand
which was enough to offset the decline in average tax equivalent
yield from 9.37% in 1993 to 9.20% in 1994.
Total interest income of $10,766,011 was $134 thousand
higher than 1993's total of $10,632,243 as a result of the
increasing balance volumes more than offsetting the decreasing
average yields in loans and investments.
Interest on deposits totaled $3,603,025 in 1994 as compared
to $3,684,743 in 1993. This $82 thousand decrease which equaled
a 2.2% drop reflected the greater impact of lower average rates
than the increasing balances. Average balances increased in
demand deposit and savings accounts and declined in time
certificates of deposits.
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY 94 93 92 91 90
<S> <C> <C> <C> <C> <C>
22,089,249 20,863,330 19,560,804 18,365,897 17,259,840
</TABLE>
SIX
<PAGE> 7
Interest expense on other funds purchased was $91,723 or
approximately $7 thousand more than 1993. This was the result of
rising average interest rates more than offset the slightly
lower average balances.
Net interest income before provision for loan losses
increased by 3% in 1994 totaling $7,071,263 as compared to
$6,862,832 in 1993. The net interest margin which is calculated
on a tax equivalent basis decreased from 5.28% in 1993 to 5.24%
in 1994 reflecting a slightly lowering interest margin for the
company.
The bank provides for potential loan losses throughout the
year. In 1994 and 1993 this provision expense was $180,000. As
previously mentioned, net charge-off to total loans was a net
recovery of .18% in 1994 and a net charge-off of .60% in 1993.
Net interest income after loan losses provision was
$6,891,263 in 1994 which was $208 thousand or 3.1% above 1993's
total.
Noninterest income totaled $740,183 and $702,636 for
1994 and 1993, respectively. Noninterest income is primarily
comprised of checking account fees which were $487 thousand in
1994 as compared to $485 thousand in 1993. Other noninterest
income includes safety deposit box rents, net security
gains/losses and other miscellaneous fees and collections.
<TABLE>
<CAPTION>
AVERAGE ASSETS 94 93 92 91 90
<S> <C> <C> <C> <C> <C>
155,897,232 150,090,260 143,942,597 134,508,201 126,449,736
</TABLE>
Noninterest expenses were $5,152,378 for 1994 in
comparison to $4,924,868 in 1993. This was a $228 thousand or
4.6% increase over 1993. Generally there were increases in all
categories of non-interest expense which include salaries and
employee benefits, data processing fees, net occupancy expenses,
State of Ohio franchise tax, FDIC insurance premiums and
miscellaneous other expenses. FDIC premium rates remained
constant for 1994 and the bank has been assigned the lowest
premium rate for the first half of 1995 due to its high
capitalization level and favorable regulatory evaluations.
Income tax provision was $460,833 and $460,547 for 1994 and
1993, respectively.
Net income for 1994 set a new record at $2,018,235 or
approximately 1% higher than 1993's total of $2,000,053.
This equates to be $2.76 per share as compared to $2.73 per
share in 1993. Cash dividends declared during 1994 were
approximately $1.01 per share or $.07 per share above 1993's
dividend of $0.94 per share. The dividend payout percentage for
1994 was 36.5% of net income. After dividends declared, $1.2
million was added to shareholder equity through retained
earnings. Return on average equity was 9.37% and 9.88% for 1994
and 1993, respectively. Return on average assets was a
respectable 1.29% in 1994 and 1.33% in 1993.
PRICE RANGES OF COMMON STOCK
The Shares of common stock of National Bancshares
Corporation are traded on the local over-the-counter market
primarily with brokers in the Corporation's service area.
The stock prices below reflect inter-dealer bid prices,
without adjustment for retail markups, markdowns or commissions
and may not represent actual transactions.
<TABLE>
------------------------------------------------------------------------------
1994 High Low Dividends per Share
<S> <C> <C> <C>
First Quarter 32.01 31.21 .19
Second Quarter 32.81 32.01 .19
Third Quarter 32.81 32.81 .19
Fourth Quarter 35.00 32.81 .43
------------------------------------------------------------------------------
1993 High Low Dividends per Share
First Quarter 26.26 26.26 .18
Second Quarter 28.81 26.26 .18
Third Quarter 29.61 28.81 .18
Fourth Quarter 31.21 29.61 .42
------------------------------------------------------------------------------
</TABLE>
Per share information restated for a 5 for 4 stock split on
October 15, 1994.
A copy of the Corporation's 1994 Annual Report on Form 10-K as
filed with the SEC will be furnished free of charge to
shareholders upon written request to the Corporation.
SEVEN
<PAGE> 8
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
ASSETS 1994 1993
<S> <C> <C>
Cash and due from banks (Note 2) $ 8,261,107 $ 8,242,624
Federal funds sold 11,885,000 11,780,000
Investment securities - held to maturity
(approximate market or fair value
$84,126,129 and $84,009,039 - Note 3) 85,550,038 80,175,588
Investment securities - available for sale
(amortized cost $4,755,846 - Note 3) 4,687,610
Loans, less allowance for loan losses
of $890,666 and $605,792 (Note 4) 56,215,091 53,200,635
Accrued interest receivable 1,662,369 1,545,633
Premises and equipment - net (Note 6) 2,378,202 2,453,677
Other assets 2,402,567 427,558
------------------------------------
TOTAL $ 173,041,984 $ 157,825,715
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 7) $ 145,862,240 $ 132,446,096
Securities sold under repurchase agreements 3,269,919 2,765,004
Federal reserve note account 1,000,000 1,000,000
Accrued interest payable 374,890 308,313
Dividends payable 314,827 304,708
Other accrued expenses 130,859 138,264
------------------------------------
Total liabilities 150,952,735 136,962,385
COMMITMENTS (Note 5)
SHAREHOLDERS' EQUITY (Note 13):
Common stock - $10 par value;
750,720 shares authorized, 732,156 and
585,976 shares issued and outstanding
in 1994 and 1993, respectively 7,321,560 5,859,760
Surplus 4,689,800 4,689,800
Net unrealized depreciation in the
fair value of securities available for sale (45,036)
Retained earnings 10,122,925 10,313,770
------------------------------------
Total shareholders' equity 22,089,249 20,863,330
------------------------------------
TOTAL $ 173,041,984 $ 157,825,715
====================================
<FN>
See notes to consolidated financial statements.
</TABLE>
EIGHT
<PAGE> 9
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 4,737,318 $ 4,593,539 $ 4,850,346
Interest on federal funds sold 314,568 297,814 288,590
Interest and dividends on
investment securities:
U.S. government obligations 2,522,549 2,744,288 2,885,598
Obligations of states and political
subdivisions - nontaxable 1,073,839 1,038,187 1,114,342
Other securities 2,117,737 1,958,415 1,984,108
-----------------------------------------------------
Total interest income 10,766,011 10,632,243 11,122,984
INTEREST EXPENSE:
Time deposits, $100,000 and over 301,414 258,008 269,762
Other deposits 3,301,611 3,426,735 4,296,073
Short-term borrowings 91,723 84,668 95,441
-----------------------------------------------------
Total interest expense 3,694,748 3,769,411 4,661,276
-----------------------------------------------------
Net interest income 7,071,263 6,862,832 6,461,708
Provision for Loan Losses (Note 4) 180,000 180,000 120,000
-----------------------------------------------------
Net interest income after
provision for loan losses 6,891,263 6,682,832 6,341,708
Noninterest Income (Note 10) 740,183 702,636 618,304
Noninterest Expense (Note 10) 5,152,378 4,924,868 4,655,878
-----------------------------------------------------
Income Before Income Taxes 2,479,068 2,460,600 2,304,134
Income Tax Expense (Note 9) 460,833 460,547 480,794
-----------------------------------------------------
Net Income $ 2,018,235 $ 2,000,053 $ 1,823,340
=====================================================
Weighted Average Number of
Shares Outstanding (Restated in 1993
and 1992 for stock split in 1994) 732,156 732,156 732,156
=====================================================
Earnings Per Common Share 2.76 2.73 2.49
=====================================================
<FN>
See notes to consolidated financial statements.
</TABLE>
NINE
<PAGE> 10
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1994, 1993 and 1992
Net Unrealized
Appreciation/
Common Stock (Depreciation) Total
-------------------- in Fair Value Retained Shareholders'
Shares Amount Surplus of Securities Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 468,980 $4,689,800 $4,689,800 -- $ 8,986,297 $18,365,897
Net Income 1,823,340 1,823,340
Cash Dividends Declared,
$.86 Per Share (628,433) (628,433)
--------------------------------------------------------------------------
Balance, December 31, 1992 468,980 4,689,800 4,689,800 -- 10,181,204 19,560,804
Net Income 2,000,053 2,000,053
Stock Split (5 for 4) 116,996 1,169,960 (1,169,960)
Cash Distribution in Lieu of
Shares in Stock Split (8,365) (8,365)
Cash Dividends Declared,
$.94 Per Share (689,162) (689,162)
--------------------------------------------------------------------------
Balance, December 31, 1993 585,976 5,859,760 4,689,800 -- 10,313,770 20,863,330
Change in Accounting
for Investments $ 60,643 60,643
Net Income 2,018,235 2,018,235
Stock Split (5 for 4) 146,180 1,461,800 (1,461,800)
Cash Distribution in Lieu of
Shares in Stock Split (10,550) (10,550)
Cash Dividends Declared,
$1.01 Per Share (736,730) (736,730)
Net Unrealized Depreciation
in Fair Value of Securities
Available for Sale (105,679) (105,679)
--------------------------------------------------------------------------
Balance, December 31, 1994 732,156 $7,321,560 $4,689,800 $(45,036) $10,122,925 $22,089,249
==========================================================================
<FN>
See notes to consolidated financial statements.
</TABLE>
TEN
<PAGE> 11
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994, 1993 and 1992
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 2,018,235 $ 2,000,053 $ 1,823,340
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 642,522 537,205 385,999
Provision for loan losses 180,000 180,000 120,000
Net (gain) loss on sales of investments (20,790) (51,017) 28,052
Changes in operating assets and liabilities 25,805 (230,259) (130,785)
------------------------------------------------------
Net cash provided by operating activities 2,845,772 2,435,982 2,226,606
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments 7,043,000 10,022,000 10,867,500
Proceeds from sales of investments 2,000,000 3,000,000 7,895,048
Purchases of investments (19,509,397) (18,549,111) (19,593,801)
Capital expenditures (143,828) (806,213) (526,704)
Net (increase) decrease in loans to customers (3,194,456) 1,385,480 (7,805,410)
Net cash and cash equivalents received
in connection with acquisitions 6,679,846
Other - net (1,289,508) 258,541 (127,360)
------------------------------------------------------
Net cash used in investing activities (8,414,343) (4,689,303) (9,290,727)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings accounts 4,791,771 6,193,281 14,300,529
Net increase (decrease) in time deposits 3,298,563 956,606 (7,398,320)
Net increase (decrease) in short-term borrowings (1,661,119) 520,548 (1,001,122)
Dividends paid (737,161) (669,517) (619,054)
------------------------------------------------------
Net cash provided by financing activities 5,692,054 7,000,918 5,282,033
------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 123,483 4,747,597 (1,782,088)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 20,022,624 15,275,027 17,057,115
CASH AND CASH EQUIVALENTS, ------------------------------------------------------
END OF YEAR $ 20,146,107 $ 20,022,624 $ 15,275,027
======================================================
<FN>
See notes to consolidated financial statements.
</TABLE>
ELEVEN
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1994, 1993 and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The financial statements include the accounts of National
Bancshares Corporation (the Corporation) and its wholly-owned subsidiary, First
National Bank (the Bank). All intercompany accounts and transactions have been
eliminated in consolidation. The accounting and reporting policies of the Bank
reflect banking industry practices and conform to generally accepted accounting
principles. The Bank has its main office in Orrville, Ohio and nine branches in
eastern Wayne and southwestern Medina counties to serve its market area.
INVESTMENT SECURITIES - The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," as of January 1, 1994. The Statement requires that
securities be classified as held for trading, available-for-sale or
held-to-maturity. Securities held for trading are to be carried at estimated
market value with the adjustment, if any, reflected in the statement of
operations. Securities classified as available-for-sale also to be carried at
estimated market value; however, the adjustment, if any, would be relected in
shareholders' equity. Securities held-to-maturity are to continue to be carried
at amortized cost. At January 1, 1994, the Company classified investment
securities held to maturity having a carrying value of $78,980,325 and a fair
value of $82,721,892, and avialable for sale have amortized cost of $1,195,263
and a fair value of $1,287,147. Accordingly, the $91,884 adjustment to
estimated market value, net of deferred income taxes of $31,241, was recorded
as a separate component of shareholders' equity.
In the prior year, securities were classified as held for investment based
on management's intent and ability to hold these securities to maturity. These
securities were accounted for at cost adjusted for amortization of premiums
and/or accretion of discounts, which were recognized as adjustments to interest
income.
LOANS - are stated at the amount of unpaid principal, reduced by unearned
income for installment loans, unamortized discount on purchased loans and an
allowance for loan losses. Interest on commercial and real estate mortgage
loans is recognized in income on a daily basis based upon the simple interest
method and the principal amount outstanding. Generally, interest on
consumer installment loans is credited to operations based upon a method which
approximates the effective interest method. Loans cease accruing interest when
management determines such interest is uncollectible.
ALLOWANCE FOR LOAN LOSSES - The provision for loan losses is based upon the
Bank's past loan loss experience, current delinquencies, nature of the loan,
general economic conditions and trends, and an evaluation of the potential
losses in the current loan portfolio and is stated in accordance with
generally accepted accounting principles. In management's opinion the allowance
for loan losses is adequate. However, changes in this estimate and evaluation
might be required depending on changing economic conditions and the economic
prospects of borrowers.
PREMISES AND EQUIPMENT are stated at cost, less accumulated depreciation.
The provision for depreciation is computed using the straight-line method over
the useful lives of the assets, generally ranging from 5 to 40 years.
INTANGIBLE ASSETS - Core deposit premiums of $452,626 and goodwill of
$448,971 which resulted from branch purchases are included in other assets, and
are being amortized over the estimated average remaining life of the existing
customer base acquired using the level-yield method.
INCOME TAXES - The Corporation and the Bank file a consolidated federal
income tax return. The Bank implemented Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," effective January 1,
1993. Prior to January 1, 1993 income taxes were computed in accordance with
Accounting Principles Board Opinion No. 11, which has been superseded by SFAS
No. 109. Refer to Note 9 - Income Taxes.
EARNINGS PER SHARE are calculated based on the weighted average number of
shares outstanding during the period. During 1994, the Corporation declared a 5
for 4 stock split, effected in the form of a 25% stock dividend and,
accordingly, earnings per share and dividends per share for 1993 and 1992 have
been restated to reflect the increased number of shares.
STATEMENT OF CASH FLOWS - For purposes of this statement, the Corporation
considers all cash and due from banks and federal funds sold to be cash
equivalents.
LOAN FEES - Loan origination fees received for loans, net of direct
origination costs, are deferred and amortized to interest income over the
contractual life of the loan using the level yield method. Fees received for
loan commitments that are expected, based on the Bank's experience with similar
commitments, to be drawn are deferred and amortized over the life of the loan
using the level yield method. Fees for other loan commitments are deferred and
amortized over the loan commitment period on a straight-line basis.
Amortization of net deferred loan fees is discontinued on non-performing loans.
NEW ACCOUNTING STANDARDS - In May 1993, the FASB issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", and in October 1994, issued
Statement No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures", an amendment of FASB Statement No. 114. Statement
No. 114 requires that certain impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective interest
rate. Statement No. 118 amends Statement No. 114 to allow a creditor to use
existing methods for recognizing interest income on an impaired loan. These
Statements apply to financial statements for years beginning after December 15,
1994. Management does not expect these statements will have a significant
impact on the financial condition or results of operations of the Bank.
The FASB also issued SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments" in October 1994. This
statement requires disclosures about amounts, nature, and terms of derivative
financial instruments. The Bank does not issue or hold any instruments covered
by this statement except for fixed and variable rate loan commitments as
described in Note 5 and Note 14.
2. CASH
Regulations of the Federal Reserve require depository institutions to
maintain reserves which are not available for investment purposes. Cash
reserves of approximately $1,209,000 and $1,000,000 were maintained at December
31, 1994 and 1993, respectively.
TWELVE
<PAGE> 13
<TABLE>
<CAPTION>
3. INVESTMENT SECURITIES
The carrying amounts and approximate market or fair values of the investment securities are summarized as follows:
December 31, 1994 December 31, 1993
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market or Amortized Unrealized Unrealized Market or
HELD TO MATURITY: Cost Gains Losses Fair Value Cost Gains Losses Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. treasury and agency
obligations $31,459,350 $ 235,011 $ (757,104) $30,937,257 $27,431,486 $1,875,822 $ (8,452) $29,298,856
Mortgage backed securities 5,360,658 60,665 (283,575) 5,137,748 6,610,464 164,188 (20,689) 6,753,963
Obligations of states and
political subdivisions 17,152,511 435,412 (361,991) 17,225,932 17,767,156 1,384,018 (77,255) 19,073,919
Corporate bonds and notes 31,296,119 337,922 (1,090,249) 30,543,792 28,085,082 845,778 (329,959) 28,600,901
Federal Reserve Bank stock 281,400 281,400 281,400 281,400
-----------------------------------------------------------------------------------------------------
Total $85,550,038 $1,069,010 $(2,492,919) $84,126,129 $80,175,588 $4,269,806 $(436,355) $84,009,039
=====================================================================================================
AVAILABLE FOR SALE:
U.S. treasury and agency
obligations $2,948,458 $ 903 $ (611) $2,948,750
Obligations of states and
political subdivisions 497,728 48,322 546,050
Corporate bonds and notes 1,309,660 4,882 (121,732) 1,192,810
-------------------------------------------------
Total $4,755,846 $ 54,107 $ (122,343) $4,687,610
=================================================
</TABLE>
============================================================================
<TABLE>
The amortized cost and market or fair value at December 31, 1994, by
contractual maturity, is as follows:
<CAPTION>
Amortized Market or
HELD TO MATURITY: Cost Fair Value
<S> <C> <C>
Due in one year or less $ 9,894,792 $ 9,956,360
Due after one year through five years 45,459,842 44,809,985
Due after five years through ten years 24,291,243 23,565,778
Due after ten years 5,904,161 5,794,006
---------------------------------
$ 85,550,038 $ 84,126,129
=================================
AVAILABLE FOR SALE:
Due in one year or less $ 974,765 $ 974,375
Due after one year
through five years 2,488,508 2,455,085
Due after five years
through ten years 794,846 712,100
Due after ten years 497,727 546,050
---------------------------------
$ 4,755,846 $ 4,687,610
=================================
</TABLE>
Investment securities having a carrying amount and a market or fair value of
approximately $21,800,000 and $21,500,000, respectively, at December 31, 1994
were pledged to secure deposits of public funds and for other purposes required
or permitted by law.
<TABLE>
4. LOANS
The composition of the loan portfolio is as follows:
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Collateralized by real estate:
Commercial $ 20,026,651 $ 17,479,401
Residential mortgages 19,022,536 17,946,189
Home equity 1,103,677 1,145,736
Construction 388,543 559,127
-------------------------------
$ 40,541,407 $ 37,130,453
Consumer 7,253,952 6,571,635
Commercial 7,250,601 7,948,409
Credit cards - unsecured 812,737 775,149
Other 1,965,743 2,217,063
-------------------------------
57,824,440 54,642,709
Unearned income (256,092) (328,113)
Unamortized discount
on purchased loans (462,591) (508,169)
-------------------------------
57,105,757 53,806,427
Allowance for loan losses (890,666) (605,792)
-------------------------------
$ 56,215,091 $ 53,200,635
===============================
</TABLE>
The Bank grants commercial, mortgage and installment loans to its customers
who are primarily located in its market area. The Bank has a diversified loan
portfolio and the area has a diversified industrial base. The majority of the
commercial loans are collateralized. Collateral varies and may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties. The consumer loans are primarily collateralized by
vehicles.
<TABLE>
<CAPTION>
Activity within the allowance for loan losses is as follows:
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Balance, beginning of year $ 605,792 $ 750,134 $ 747,711
Provision for loan losses 180,000 180,000 120,000
Recoveries 154,279 20,058 59,918
Chargeoffs (49,405) (344,400) (177,495)
----------------------------------------
Balance, end of year $ 890,666 $ 605,792 $ 750,134
========================================
</TABLE>
5. COMMITMENTS
In the normal course of business, the Bank makes various commitments to fund
loans that are not presented in the accompanying financial statements. At
December 31, 1994, the commitments include the following:
THIRTEEN
<PAGE> 14
<TABLE>
<CAPTION>
<S> <C>
Unused lines of credit:
Commercial $ 14,598,821
Home equity 1,445,627
Credit cards - unsecured 2,929,324
------------
18,973,772
Real estate construction loans 542,241
Letters of credit 2,353,491
------------
$ 21,869,504
============
</TABLE>
The unused commercial and home equity lines of credit and real estate
construction loans are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. These commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial or residential properties.
The letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements,
including bond financing and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Bank holds collateral for nearly all letters
of credit. Collateral includes certificates of deposit, other deposits, or
lines of credit, which may or may not be collateralized.
<TABLE>
6. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Land $ 287,592 $ 287,592
Buildings and improvements 2,919,002 2,859,050
Furniture and fixtures 2,138,596 2,038,372
-------------------------------
5,345,190 5,185,014
Less accumulated depreciation 2,966,988 2,731,337
-------------------------------
$ 2,378,202 $ 2,453,677
===============================
</TABLE>
Depreciation expense recognized as noninterest expense in 1994, 1993 and
1992 was $262,431, $240,515 and $198,006, respectively.
<TABLE>
7. DEPOSITS
A summary of deposits is as follows:
<CAPTION>
<S> <C> <C>
December 31
1994 1993
Demand, noninterest bearing $ 24,036,115 $ 21,729,520
Demand, interest bearing (NOW) 33,430,545 28,367,021
Savings 43,868,323 42,511,914
Time, $100,000 and over 12,652,502 10,393,029
Time, other 31,874,755 29,444,612
-------------------------------
$ 145,862,240 $ 132,446,096
================================
</TABLE>
<TABLE>
A summary of the maturities of time deposits of $100,000 or more is as
follows:
<CAPTION>
<S> <C> <C>
December 31
1994 1993
Three months or less $ 11,323,000 $ 9,290,000
Over 3 months through 6 months --- ---
Over 6 months through 12 months 733,494 540,954
Over 12 months 596,008 562,075
--------------------------------
$ 12,652,502 $ 10,393,029
================================
</TABLE>
8. BENEFIT PLANS
The Bank has a defined benefit pension plan which covers substantially all
employees. The plan benefit formulas generally base payments to retired
employees upon their length of service and a percentage of qualifying
compensation during their final years of employment. The Bank's funding policy
is to contribute annually an amount necessary to satisfy ERISA funding
standards. Plan assets are held by Principal Mutual Life Insurance Company.
<TABLE>
Net pension expense included the following components:
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Service cost - benefits
earned during the period $ 85,837 $ 73,875 $ 66,918
Interest cost on projected
benefit obligation 108,004 105,496 96,357
Actual return on plan assets 68,282 (168,591) (182,334)
Net amortization and deferral:
Amortization of
unrecognized net asset
existing at January 1, 1989 (1,827) (1,827) (1,827)
Amortization of
unrecognized
prior service cost 5,057 5,057 5,057
Asset gain (loss) deferred (196,994) 46,000 77,151
---------------------------------
Net pension expense $ 68,359 $ 60,010 $ 61,322
=================================
</TABLE>
<TABLE>
The following table sets forth the plan's funded status:
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Plan assets at fair market value $ 1,717,045 $ 1,748,388
Projected benefit obligation 1,802,232 1,579,733
-------------------------------
Plan assets in excess (less than)
projected benefit obligation (85,187) 168,655
Unrecognized net (gain) loss 273,709 (26,108)
Unrecognized prior service cost 44,198 49,255
Unrecognized net asset being
amortized over 13 years from
January 1, 1989 (12,665) (14,492)
-------------------------------
Prepaid pension cost included
in other assets $ 220,055 $ 177,310
===============================
</TABLE>
The accumulated benefit obligation at December 31, 1994 and 1993 was
$1,368,812 and $1,202,401, respectively, which includes vested benefits of
$1,344,441 and $1,183,990 on the respective dates.
Assumptions used in computing pension expense were as follows:
FOURTEEN
<PAGE> 15
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Weighted average discount rate 7.0% 7.0% 8.0%
Rates of increased future
compensation levels 5.4% 5.5% 6.5%
Expected long-term rate
of return on assets 7.5% 7.5% 8.0%
</TABLE>
In January 1995, the Board of Directors approved the termination of the
Bank's defined benefit pension plan effective March 31, 1995. The Bank will
submit its termination request to the Department of Labor (DOL) in 1995.
Regulatory approval and termination of the plan is expected to occur during
1996. The Bank expects to recognize a pre-tax charge of $200,000 - $300,000 in
connection with the curtailment and settlement of benefits under this plan.
Additionally, the Board approved the implementation of a 401(k) plan
effective in 1995 which will cover substantially all employees.
The Bank has an Employee Stock Purchase Incentive Plan for full-time Bank
employees. Under the Plan each employee will be entitled to receive a cash
payment from the Bank equal to 20% of the purchase price of Corporation common
stock acquired by the employee on the open market up to a maximum of 100 shares
per calendar year.
The Bank has implemented a director retirement benefit and death benefit
plan for the benefit of all members of the Board of Directors of the Bank. The
plan is called the Director Defined Benefit Plan and is designed to provide an
annual retirement benefit, to be paid to each director upon retirement from the
board. The retirement benefit provided to each director is an annual benefit
equal to $1,000 for each year of service on the board from and after August 24,
1994. In addition, each director shall have the option of deferring any portion
or all of his or her director's fees to a maximum of $1,000 per month until
retirement.
9. INCOME TAXES
The Corporation adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993. This
statement supersedes Accounting Principles Board Opinion No. 11 which had been
followed by the Corporation. The effect on net income for the year ended
December 31, 1993 of adopting SFAS No. 109 was not significant.
<TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial and income tax reporting purposes, and (b) tax credit carryforwards.
Significant components of the Corporation's deferred tax assets and liabilities
were as follows:
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Deferred tax liabilities:
Accretion income $ 105,561 $ 99,408
Pension 74,818 60,285
Depreciation 59,915 48,868
---------------------------
240,294 208,561
Deferred tax assets:
Bad debts 107,039 45,839
Deferred loan fees 54,962 53,270
Core deposit premium amortization 42,734 45,967
Market-to-market accounting 23,200
Other 2,429 12,140
---------------------------
230,364 157,216
---------------------------
Net deferred tax liability $ 9,930 $ 51,345
============================
</TABLE>
<TABLE>
The components of income tax expense is as follows:
<CAPTION>
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Currently payable $ 479,048 $ 414,547 $ 475,794
Deferred (18,215) 46,000 5,000
-----------------------------------
$ 460,833 $ 460,547 $ 480,794
===================================
</TABLE>
<TABLE>
The following is a reconciliation of income tax at the federal statutory
rate to the effective rate of tax on the financial statements:
<CAPTION>
Years Ended December 31
1994 1993 1992
Rate Amount Rate Amount Rate Amount
<S> <C> <C> <C> <C> <C> <C>
Tax at federal
statutory rate 34% $842,883 34% $836,604 34% $783,406
Tax-exempt
interest (14) (365,270) (14) (345,740) (15) (358,171)
Unrecognized/
(recognized)
capital losses (1) (16,780) (1) (31,140) 2% 54,697
Other 823 862
--------------------------------------------------------
Income tax
expense 19% $460,833 19% $460,547 21% $480,794
</TABLE>
The Corporation has unused capital loss carryforwards of approximately
$20,000 at December 31, 1994, which can be used to offset future capital gains.
<TABLE>
10. NONINTEREST INCOME AND EXPENSE
Noninterest income consists of the following:
<CAPTION>
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Checking account fees $ 487,097 $ 484,659 $ 475,268
Other 253,086 217,977 143,036
---------------------------------
$ 740,183 $ 702,636 $ 618,304
=================================
</TABLE>
<TABLE>
Noninterest expense consists of the following:
<CAPTION>
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Salaries and employee benefits $2,296,701 $2,229,393 $2,082,108
Data processing fees 659,311 646,239 638,094
Net occupancy expenses 389,490 368,899 346,396
Franchise taxes 300,660 279,732 272,055
FDIC premiums 291,065 274,717 267,888
Other 1,215,151 1,125,888 1,049,337
----------------------------------
$5,152,378 $4,924,868 $4,655,878
==================================
</TABLE>
FIFTEEN
<PAGE> 16
<TABLE>
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Cash paid during
the year for:
Interest $3,628,171 $3,830,278 $4,917,478
Income taxes 432,514 628,518 357,180
</TABLE>
On December 16, 1994, the Bank acquired a branch office in Seville, Ohio and
the related assets and deposit accounts from Bank One, Akron, N.A. The
transaction has been accounted for as a purchase of assets.
The assets acquired and the liabilities assumed are summarized below at
estimated fair values:
<TABLE>
<S> <C>
ASSETS:
Cash $ 6,679,846
Premises and equipment 43,128
Cost in excess of fair value of net assets acquired 759,338
Other assets 10,407
------------
$ 7,492,719
============
LIABILITIES:
Demand and savings deposits $ 3,934,758
Time deposits 1,391,052
Securities sold under repurchase agreements 2,166,034
Other liabilities 875
------------
$ 7,492,719
============
</TABLE>
12. RELATED PARTY TRANSACTIONS
Certain directors and officers of the Corporation, their families and
certain entities in which they have an ownership interest, were customers of the
Bank in 1994, 1993 and 1992. Any transactions with such parties, including loans
and commitments, were in the ordinary course of business at normal terms,
including interest rates and collateralization, prevailing at the time and did
not represent more than normal risks. At December 31, 1994 and 1993, such loans
amounted to $3,315,000 and $3,397,000, respectively. New loans to related
parties totaled $820,000, $1,802,000 and $3,226,000 for 1994, 1993 and 1992,
respectively, and repayments aggregated $902,000, $2,922,000 and $696,000 for
the respective years. At December 31, 1994 unused commitments to related
parties totaled $4,200,000.
13. REGULATORY MATTERS
Federal regulations require banks to maintain minimum ratios of Tier 1
capital and total capital to risk-weighted assets of 4.00% and 8.00%,
respectively. In addition, banks must maintain a minimum leverage ratio of Tier
1 capital to total assets of 3.00% for the strongest banks and not less than
4.00% to 5.00% for other banks. Failure to meet these minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by banking regulators that could have a direct material
effect on the Bank's financial statements. The regulations also require the
regulators to make qualitative judgments that could result in higher minimum
capital requirements for certain institutions. At December 31, 1994, the Bank's
ratios of Tier 1 capital and total capital to risk-weighted assets were 19.60%
and 20.45%, respectively. At December 31, 1994 the Bank's leverage ratio was
11.9%.
In September 1993 the Officer of the Comptroller of the Currency (OCC)
published a notice of proposed rulemaking, "Risk-Based Capital Standards:
Interest Rate Risk". The proposed rule would require a bank to determine its
exposure to interest rate risk which would be measured as the effect that a
specified change in interest rates would have on the net economic value of a
bank. A bank would be required to maintain risk-based capital for the amount
that the measured interest rate risk exposure exceeds 1% of total assets. The
impact of this notice of proposed rulemaking on the Bank is not expected to
have a significant impact on the financial condition or results of operations
of the Bank.
The Bank is subject to certain dividend restrictions set forth by the OCC.
Under such restrictions, the Bank may not, without the prior approval of the
OCC, declare dividends in excess of the sum of current year earnings (as
defined) plus the retained earnings (as defined) from the prior two years. The
dividends, as of December 31, 1994, that the Bank could declare without the
approval of the OCC, amounted to $5,237,303.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Corporation could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
In addition, SFAS No. 107 excludes all non-financial instruments from
disclosure requirements; therefore, the aggregate fair value amounts presented
do not represent, and should not be construed to represent, the full underlying
value of the Corporation.
The following table presents the estimates of fair value of financial
instruments:
<TABLE>
December 31, 1994 December 31, 1993
-----------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $20,146,107 $20,146,107 $20,022,624 $20,022,624
Investment
securities 90,237,648 88,813,739 80,175,588 84,009,039
Loans 56,215,091 55,624,207 53,200,635 53,931,863
Liabilities:
Demand
deposits 101,334,983 101,334,983 92,608,455 92,608,455
Time deposits 44,527,257 44,123,979 39,837,641 39,922,089
Short-term
borrowings 4,269,919 4,269,919 3,765,004 3,765,004
</TABLE>
CASH AND CASH EQUIVALENTS - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - Fair value equals quoted market price, if available.
If a quoted market price is not available, fair value
SIXTEEN
<PAGE> 17
is estimated using quoted market prices for similar securities.
LOANS - For variable rate loans that reprice based on the prime rate, fair
values are based on carrying values. The fair values of other loans are
estimated using discounted cash flow analyses and employ interest rates
currently being offered for loans with similar terms. The fair value of loans
is reduced by an estimate of losses inherent in the loan portfolio.
DEMAND DEPOSITS AND TIME DEPOSITS - The fair value of demand deposits, which
includes passbook accounts, money market accounts, and NOW accounts, is the
amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS - The fair value of short-term borrowings, including
securities sold under repurchase agreements and the federal reserve note
account, is estimated using rates currently available to the bank for debt with
similar terms and remaining maturities. The carrying amount is a reasonable
estimate of fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The fair value of the off-balance
sheet financial instruments, including commitments to originate loans and
standby letters of credit, is considered to be equivalent to the value of the
current fees charged to enter into the commitments. These fees are not
significant at December 31, 1994 and 1993.
<TABLE>
15. PARENT ONLY FINANCIAL STATEMENTS
Balance sheets as of December 31, 1994 and 1993 and statements of income and
cash flows for the three years in the period ended December 31, 1994 for
National Bancshares Corporation (parent only) are as follows:
<CAPTION>
December 31,
BALANCE SHEETS: 1994 1993
<S> <C> <C>
Assets:
Cash $ 646,148 $ 674,189
Dividend receivable 314,217 304,837
Prepaid expenses 207
Investment in Bank 21,443,711 20,188,805
---------------------------
$22,404,076 $21,168,038
===========================
Liability:
Dividends payable $ 314,827 $ 304,708
Shareholders' Equity 22,089,249 20,863,330
---------------------------
$22,404,076 $21,168,038
===========================
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF INCOME:
Income:
Dividends $ 736,299 $ 656,571 $1,214,658
Expenses:
Misc. expense 18,006 6,432 2,894
Undistributed equity in
net income of Bank 1,299,942 1,349,914 611,576
-------------------------------------
Net income $2,018,235 $2,000,053 $1,823,340
=====================================
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS:
Cash Flows from
Operating Activities:
Net income $2,018,235 $2,000,053 $1,823,340
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Undistributed earnings
of Bank (1,299,942) (1,349,914) (611,576)
Change of dividends
receivable (9,380) (28,139) (9,379)
Change in prepaid expenses 207 (207)
--------------------------------------
Net cash provided by
operating activities 709,120 621,793 1,202,385
Cash Flows from
Financing Activities:
Dividends paid (737,161) (669,517) (619,054)
-------------------------------------
Net Increase (Decrease)
in Cash (28,041) (47,724) 583,331
Cash, Beginning of Year 674,189 721,913 138,582
-------------------------------------
Cash, End of Year $ 646,148 $ 674,189 $ 721,913
=====================================
</TABLE>
___________________________________________________________________
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
National Bancshares Corporation, Orrville, Ohio
We have audited the accompanying consolidated balance sheets of National
Bancshares Corporation and Subsidiary as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of National Bancshares Corporation and
Subsidiary at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Akron, Ohio
February 28, 1995
SEVENTEEN
<PAGE> 18
<TABLE>
ANALYSIS OF NET INTEREST EARNINGS
Rate spread and effective rate differential (on a tax equivalent basis). The following table presents an analysis of net interest
earning assets and interest bearing liabilities.
<CAPTION>
1994 1993 1992
-------------------------------------------------------------------------------------------------------
Daily Daily Daily
Average Average Average Average Average Average
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Investment securities:
Taxable $ 65,500 $ 4,640 7.08% $ 61,445 $ 4,703 7.65% $ 59,094 $ 4,870 8.24%
Nontaxable (tax
equivalent basis)* 17,693 1,627 9.20% 16,784 1,573 9.37% 16,521 1,688 10.22%
Federal funds sold 7,147 315 4.41% 9,837 298 3.03% 8,110 289 3.56%
Net loans (including
nonaccrual loans) 55,091 4,737 8.60% 52,152 4,594 8.81% 51,103 4,850 9.49%
-------------------------------------------------------------------------------------------------------
Total interest
earning assets 145,431 11,319 7.78% 140,218 11,168 7.96% 134,828 11,697 8.68%
-------------------------------------------------------------------------------------------------------
All other assets 10,466 9,875 9,115
-------------------------------------------------------------------------------------------------------
Total Assets $155,897 $150,093 $143,943
=======================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Interest bearing liabilities
Deposits:
Interest bearing
checking $ 29,524 $ 749 2.54% $ 28,251 $ 744 2.63% $ 26,710 $ 885 3.31%
Savings 43,347 1,286 2.97% 39,858 1,305 3.27% 32,952 1,303 3.95%
Time, $100,000
and over 7,256 301 4.15% 7,371 258 3.50% 6,503 270 4.15%
Time, other 30,326 1,267 4.18% 32,049 1,377 4.30% 38,153 2,108 5.53%
Other funds purchased 2,445 92 3.76% 2,891 85 2.94% 2,749 95 3.46%
-------------------------------------------------------------------------------------------------------
Total interest
bearing liabilities 112,898 3,695 3.27% 110,420 3,769 3.41% 107,067 4,661 4.35%
-------------------------------------------------------------------------------------------------------
Demand deposits 20,804 18,705 16,966
Other liabilities 650 761 984
Shareholders' equity 21,545 20,207 18,926
-------------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $155,897 $150,093 $143,943
=======================================================================================================
Net interest income
(tax equivalent basis)* $ 7,624 $ 7,399 $ 7,036
-------------------------------------------------------------------------------------------------------
Net interest spread 4.51% 4.55% 4.32%
-------------------------------------------------------------------------------------------------------
Net yield on total
earning assets* 5.24% 5.28% 5.22%
-------------------------------------------------------------------------------------------------------
<FN>
*Tax equivalence based on highest statutory tax rate of 34%.
</TABLE>
EIGHTEEN
<PAGE> 19
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL SUMMARY
FINANCIAL POSITION
(Year End Balances) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 173,041,984 $ 157,825,715 $ 149,027,311 $ 142,050,986 $ 134,177,176
Cash and Due
from Banks 8,261,107 8,242,624 7,895,027 6,667,115 7,764,321
Investment Securities 90,237,648 80,175,588 74,894,150 74,278,941 64,634,657
Loans-Net 56,215,091 53,200,635 54,766,115 47,080,705 47,631,633
Deposits 145,862,240 132,446,096 125,296,209 118,394,001 112,529,772
Shareholders' Equity 22,089,249 20,863,330 19,560,804 18,365,897 17,259,840
Book Value Per Share (1) $ 30.17 $ 28.50 $ 26.72 $ 25.08 $ 23.57
---------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Total Interest Income $ 10,766,011 $ 10,632,243 $ 11,122,984 $ 11,626,717 $ 11,552,381
Total Interest Expense 3,694,748 3,769,411 4,661,276 5,768,868 5,975,225
---------------------------------------------------------------------------------
Net Interest Income 7,071,263 6,862,832 6,461,708 5,857,849 5,577,156
Provision for Loan Losses 180,000 180,000 120,000 65,000 60,000
---------------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 6,891,263 6,682,832 6,341,708 5,792,849 5,517,156
Total Noninterest Income 740,183 702,636 618,304 669,843 577,279
Total Noninterest Expense 5,152,378 4,924,868 4,655,878 4,344,468 4,071,909
---------------------------------------------------------------------------------
Income Before Income Taxes 2,479,068 2,460,600 2,304,134 2,118,224 2,022,526
Income Taxes Expense 460,833 460,547 480,794 421,252 417,190
---------------------------------------------------------------------------------
Net Income $ 2,018,235 $ 2,000,053 $ 1,823,340 $ 1,696,972 $ 1,605,336
=================================================================================
Net Income Per Share (1) $ 2.76 $ 2.73 $ 2.49 $ 2.32 $ 2.19
Cash Dividends $ 736,730 $ 689,162 $ 628,433 $ 590,915 $ 581,535
Cash Dividends Per Share (1) $ 1.01 $ 0.94 $ 0.86 $ 0.81 $ 0.79
Dividend Payout Percentage 36.50% 34.46% 34.47% 34.82% 36.23%
Weighted Average Number
of Shares Outstanding (1) 732,156 732,156 732,156 732,156 732,156
Return on Average Assets 1.29% 1.33% 1.27% 1.26% 1.27%
Return on Average Equity 9.37% 9.88% 9.57% 9.52% 9.56%
Average Equity to
Total Assets 13.82% 13.48% 13.23% 13.26% 13.28%
Risk-Based Capital
Percentage 20.45% 22.40% 22.53% 22.26% 22.08%
Full Time Equivalent Staff 92 92 90 90 91
Total Assets to Full Time
Equivalent Staff $ 1,880,891 $ 1,715,497 $ 1,655,859 $ 1,578,344 $ 1,474,474
---------------------------------------------------------------------------------
<FN>
(1) All share and per share data is restated for a 5 for 4 stock split on
October 15, 1994.
</TABLE>
NINETEEN
<PAGE> 20
DIRECTORS
CHARLES J. DOLEZAL
Chairman, President,
Chief Executive Officer
SARA BALZARINI
Vice President of Finance
Contours, Inc.
JAMES L. GERBER
Retired
RAY D. GILL
President
Orrville Leather, Inc.
JOHN W. KROPF
Attorney
Kropf, Wagner, & Hohenberger
STEVE SCHMID
President
Smith Dairy Products, Inc.
PAUL H. SMUCKER
Chairman of the
Executive Committe,
J.M. Smucker Company
JOHN E. SPRUNGER
President
Kidron Auction, Inc.
JAMES F. WOOLLEY
Chief Executive Officer,
R.W.Screw Products, Inc.
ROBERT F. GUMZ
Director Emeritus
FRANK J. SEIFRIED
Director Emeritus
OFFICERS
NATIONAL BANCSHARES CORPORATION
Charles J. Dolezal Michael D. Hofstetter
President Sr. Vice President,
Secretary/Treasurer
____________________________________________________________________
FIRST NATIONAL BANK
Charles J. Dolezal
President
Michael D. Hofstetter
Senior Vice President & Controller
Kenneth R. VanSickle
Vice President, Senior Loan Officer
Robert Woodruff
Vice President & Cashier
Ron Armentrout
Assistant Vice President,
Security Officer, Compliance Officer
Jackie Samsa
Assistant Vice President,
Manager of Human Resources
Scott Holmes
Assistant Vice President,
Manager of Loan Department
Jim Huntsberger
Auditor
Carolyn Forrer
Administrative Officer,
Manager, Main Office Lobby
Angela Smith
Assistant Controller
Shannon Delaney
Director of Marketing
Karen Hicks
Loan Officer
Rob Hunter
Loan Officer
Dean Karhan
Loan Officer
William Mitchell
Administrative Officer, Purchasing
Sara Weeman
Loan Officer
Jan Zacharias
Operations Officer
____________________________________________________________________
BRANCH ADMINISTRATION
DALTON OFFICE:
James Kuschmeader
Assistant Vice President, Manager
Rita Tyrrell
Administrative Officer
WEST HIGH OFFICE:
Ruth Harding
Administrative Officer, Manager
KIDRON OFFICE:
Harold Berkey
Assistant Vice President, Manager
SMITHVILLE OFFICE:
Valerie Stein
Assistant Vice President, Manager
MT. EATON OFFICE:
David Chapman
Assistant Vice President, Manager
MIDWAY OFFICE:
Betty Wyant
Assistant Vice President, Manager
LODI OFFICE:
Larry Kytta
Assistant Vice President, Manager
SEVILLE OFFICE:
David Beard
Assistant Vice President, Manager
(C) 1995 National Bancshares Corporation
Printed on Recycled Paper
TWENTY
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 8,261,107
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,885,00
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,687,610
<INVESTMENTS-CARRYING> 85,550,038
<INVESTMENTS-MARKET> 84,126,129
<LOANS> 57,105,757
<ALLOWANCE> 890,666
<TOTAL-ASSETS> 173,041,984
<DEPOSITS> 145,862,240
<SHORT-TERM> 4,269,919
<LIABILITIES-OTHER> 820,576
<LONG-TERM> 0
<COMMON> 7,321,560
0
0
<OTHER-SE> 14,767,689
<TOTAL-LIABILITIES-AND-EQUITY> 173,041,984
<INTEREST-LOAN> 4,737,318
<INTEREST-INVEST> 5,714,125
<INTEREST-OTHER> 314,568
<INTEREST-TOTAL> 10,766,011
<INTEREST-DEPOSIT> 3,603,025
<INTEREST-EXPENSE> 3,694,748
<INTEREST-INCOME-NET> 7,071,263
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 20,790
<EXPENSE-OTHER> 5,152,378
<INCOME-PRETAX> 2,479,068
<INCOME-PRE-EXTRAORDINARY> 2,479,068
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,018,235
<EPS-PRIMARY> 2.76
<EPS-DILUTED> 2.76
<YIELD-ACTUAL> 5.24
<LOANS-NON> 111,000
<LOANS-PAST> 59,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,818,000
<ALLOWANCE-OPEN> 605,792
<CHARGE-OFFS> 49,405
<RECOVERIES> 154,279
<ALLOWANCE-CLOSE> 890,666
<ALLOWANCE-DOMESTIC> 112,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 779,000
</TABLE>
