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