<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, 1997 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 4, 1998: $54,518,658.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of March 4, 1998.
Common Stock, $10.00 Par Value: 1,141,752
Documents Incorporated by Reference:
- - Portions of the registrant's Proxy Statement dated March 23,1998 and
previously filed March 18, 1998, are incorporated by reference into Part III.
- - Portions of the registrant's Annual Report to Shareholders, December 31, 1997
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
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 A2-8
Item 7A - Quantitative and Qualitative Disclosures About
Market Risk 6-7
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 L.L.P., Independent Auditors A21
Financial Statements: - Note 1
Consolidated Balance Sheets as of December 31,
1997 and 1996 A10
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 A11
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995 A13
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1997,
1996 and 1995 A12
Notes to Financial Statements - Note 1 A14-21
Reports on Form 8-K filed in fourth quarter of 1997: None
Exhibit Table 13
Signatures 11-12
Appendix A - National Bancshares 1997 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, 1997 -- Appendix A
Note 2 - Incorporated by reference from the registrant's proxy
statement dated March 23, 1998 previously filed with the SEC on
March 18, 1998
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 1997.
Item 10 - Executive Officers
The Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Charles J. Dolezal 45 President
President of First National Bank
Kenneth R. VanSickle 50 Senior V.P., Secretary
Senior V.P., Chief Loan Officer of
First National Bank
Lawrence M. Cardinal, Jr. 46 Vice President, Treasurer
Vice President & Controller of
First National Bank
</TABLE>
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. VanSickle was appointed Senior V.P.,
Secretary of the Company on April 24, 1997 and has been an executive officer of
the Bank during the past 5 years. Mr. Cardinal was appointed Vice President,
Treasurer of the Company and Vice President & Controller of the Bank on April
24, 1997. Mr. Cardinal previously worked as an audit manager for the CPA firm of
Reinhard, Kopko and Keller and as Senior Vice President and Controller for The
First National Bank of Ohio 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) 1997 versus 1996 1996 versus 1995
Increase (Decreases) Increase (Decreases)
Due to Changes In Due to Changes In
------------------------------- ------------------------------
Net Net
Volume Rate Change Volume Rate Change
------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Investment securities:
Taxable $71 ($56) $15 ($591) ($135) ($726)
Nontaxable 181 (17) 164 (41) (4) (45)
(tax equivalent basis)*
Federal funds sold 46 15 61 (15) (47) (62)
Loans (including
nonaccrual loans) 310 (66) 244 1,090 (154) 936
------------------------------- ------------------------------
Total interest Income
(tax equivalent basis)* $608 ($124) $484 $443 ($340) $103
=============================== ==============================
Interest Expense
Deposits
Interest bearing checking ($18) ($16) ($34) ($32) ($42) ($74)
Savings 24 (1) 23 11 6 17
Time, $100,000
and over 160 (9) 151 27 44 71
Time, other 35 (13) 22 194 3 197
Other funds purchased 52 (2) 50 (106) (7) (113)
------------------------------- ------------------------------
Total interest
expense $253 ($41) $212 $94 $4 $98
=============================== ==============================
Changes in net
interest income (tax
equivalent basis)* $355 ($83) $272 $349 ($344) $5
=============================== ==============================
<FN>
* Tax equivalence based on highest statutory tax rates of 34%.
</TABLE>
PAGE 5
<PAGE> 6
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following table summarizes the repricing opportunities of interest bearing
assets and liabilities:
Gap Report
December 31, 1997
(Millions of dollars)
<TABLE>
<CAPTION>
3 Months 6 Months 12 Months 1-5 Years 5+ Years
Period Accum. Period Accum. Period Accum. Period Accum. Period Accum.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rate sensitive assets:
Fed funds sold $8.5 $8.5 $0.0 $8.5 $0.0 $8.5 $0.0 $8.5 $0.0 $8.5
Securities 3.5 3.5 4.2 7.7 2.7 10.4 33.2 43.6 38.1 81.7
Net loans 21.9 21.9 10.4 32.3 19.7 52.0 19.7 71.7 6.6 78.3
--------------------------------------------------------------------------------------------
TOTAL $33.9 $33.9 $14.6 $48.5 $22.4 $70.9 $52.9 $123.8 $44.7 $168.5
============================================================================================
Rate sensitive
liabilities:
Checking (1) $29.6 $29.6 $0.0 $29.6 $0.0 $29.6 $0.0 $29.6 $0.0 $29.6
Savings (2) 0.0 0.0 0.0 0.0 0.0 0.0 42.2 42.2 0.0 42.2
Time 20.1 20.1 9.5 29.6 9.8 39.4 12.4 51.8 0.0 51.8
Money market borrow 3.6 3.6 0.0 3.6 0.0 3.6 0.0 3.6 0.0 3.6
TT&L note account 1.0 1.0 0.0 1.0 0.0 1.0 0.0 1.0 0.0 1.0
--------------------------------------------------------------------------------------------
TOTAL $54.3 $54.3 $9.5 $63.8 $9.8 $73.6 $54.6 $128.2 $0.0 $128.2
============================================================================================
Rate sensitivity gap -$20.4 -$20.4 $5.1 -$15.3 $12.6 -$2.7 -$1.7 -$4.4 $44.7 $40.3
Gap percentage 62% 62% 154% 76% 229% 96% 97% 97% NA 131%
Gap/total assets -11% -11% 3% -8% 7% -1% -1% -2% 24% 22%
Gap/capital -78% -78% 19% -58% 48% -10% -6% -17% 171% 154%
<FN>
(1) Checking includes NOW and MMDA
(2) Savings includes passbook and statement savings which do not have a preset
repricing date and have been included in the 1-5 years due to the relative
interest rate insensitivity.
</TABLE>
Management considers interest rate risk to be the Company's most significant
market risk. Management focuses on maintaining consistent growth in net interest
income, while managing interest rate risk within Board-approved policy limits.
The Company's Asset/Liability Management Committee, which consists of the
Company's Executive Officers and reports directly to the Board of Directors,
monitors and manages interest rate risk in order to maintain an acceptable level
of possible change in net interest income as a result of changes in interest
rates. The Company does not own any trading assets and is not subject to foreign
currency exchange or commodity price risk.
The Company uses a static gap analysis model as its primary method to identify
and manage its interest rate risk. The model measures the difference between the
assets and liabilities repricing or maturing within specific time periods. An
asset-sensitive position indicates that there are more rate-sensitive assets
than rate-sensitive liabilities repricing or maturing within specific time
horizons, which would generally imply a favorable impact on net interest income
in periods of rising interest rates and a negative impact in periods of falling
rates. A liability-sensitive position would generally imply a negative impact on
net interest income in periods of rising rates and a positive impact in periods
of falling rates.
PAGE 6
<PAGE> 7
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (cont.)
Gap analysis has limitations because it cannot measure the effect of interest
rate movements and competitive pressures on the repricing and maturity
characteristics of interest-earning assets and interest-bearing liabilities. The
model assumes that certain assets and liabilities of similar maturity or
repricing opportunities will react the same to changes in interest rates.
However, certain types of financial instruments may react in advance to changes
in market rates, while other types of financial instruments may lag behind the
change in general market rates.
The estimated impact on the net interest margin from modestly rising or falling
interest would be relatively insignificant due to the short duration of mismatch
within the first 12 months. The following table shows the estimated change in
net interest income over 12 months if interest rates were to immediately
increase or decrease by 200 basis points.
<TABLE>
<CAPTION>
Change in Percentage Change in
Interest Rates Net Interest Income
(basis points) Over 12 Months
---------------------------------------------------------------------
<S> <C>
+200 -2.8%
-200 2.8%
</TABLE>
Management's goal is to manage the Company's interest rate risk by maintaining
the gap between interest-earning assets and interest-bearing liabilities
repricing in a one-year period within a range of plus or minus 10% of total
assets.
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, 1997 are as follows:
INVESTMENT PORTFOLIO
December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
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 $ 9,180 6.8% $ 3,011 6.1% $ 5,040 6.8% $ 1,129 8.5%
US Agencies 30,099 6.8% 1,532 5.2% 9,899 6.7% 18,668 7.0%
State & political
subdivisions 22,057 8.8% 1,092 8.8% 8,427 8.5% 12,538 8.9%
Other securities 20,448 6.5% 4,891 7.3% 9,819 6.8% 5,738 5.5%
---------------------------------------------------------------------------------------------------
TOTAL $ 81,784 7.3% $ 10,526 6.8% $ 33,185 7.2% $ 38,073 7.4%
===================================================================================================
</TABLE>
$7.5 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, 1997.
<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 $10,112 $732 $10,844
Real Estate Construction $383 $1,030 $505 $1,918
Above loans due beyond 1 year with:
Predetermined interest rates $550
Adjustable interest rates $1,717
</TABLE>
NONACCRUAL AND PAST DUE LOANS
Generally, recognition of interest income is discontinued where reasonable doubt
exists as to the collectability of the interest. Income from nonaccrual loans is
recorded when received. The difference between interest income recognized on
such loans and income that would have been recognized at original contractual
rates is immaterial. The bank generally places loans on a non-accrual status
when a default of principal or interest has existed for 90 days or more. The
bank generally does not renegotiate loans due to deterioration in the financial
position of the borrower. The amounts of renegotiated loans are not considered
material.
<TABLE>
<CAPTION>
(Dollars in Thousands) 12/31/97 12/31/96
<S> <C> <C>
90 Days Past Due and Accruing $126 $458
Nonaccruing Loans $427 $85
</TABLE>
POTENTIAL LOAN PROBLEMS
Management reviews the loan portfolio for potential loan problems on a monthly
basis. The following loans were classified by management and include the above
nonaccrual and past due loan totals. The amount shown below is the outstanding
loan balance which has not been reduced by collateral values.
<TABLE>
<CAPTION>
(Dollars in Thousands) 12/31/97 12/31/96
<S> <C> <C>
Loss $6 $0
Doubtful 54 95
Substandard 1,420 930
OAEM 660 742
Watch 0 0
------------------------
Total $2,140 $1,767
========================
</TABLE>
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
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996
<S> <C> <C>
Balance at the beginning of period $1,151 $1,046
Loans charged off:
Commercial & industrial 34 77
Real estate 19 5
Consumer 38 60
-------------------------------
Total loans charged off 91 142
-------------------------------
Recoveries of loans charged off:
Commercial & industrial 1 43
Real estate 30 0
Consumer 21 24
-------------------------------
Total recoveries 52 67
-------------------------------
Net loans charged off 39 75
-------------------------------
Provision charged to
operating expense 120 180
-------------------------------
Balance at end of period $1,232 $1,151
===============================
Net charge-offs to
average loans 0.05 0.10
===============================
</TABLE>
DISTRIBUTION OF ALLOWANCE FOR
LOAN LOSSES BY CATEGORY
<TABLE>
<CAPTION>
(Dollars in thousands) December 31, 1997 December 31, 1996
% of % of
Amount Total Loans Amount Total Loans
<S> <C> <C> <C> <C>
Commercial & industrial $91 16% $74 17%
Real estate construction 0 2% 0 2%
Real estate mortgages 18 70% 18 67%
Consumer loans 11 12% 19 14%
Unallocated 1,112 N/A 1,040 N/A
-------------------------------------------------------------
TOTAL $1,232 100% $1,151 100%
=============================================================
</TABLE>
PAGE 9
<PAGE> 10
DEPOSITS
The classification of average deposits and the average rate paid on such
deposits for periods ending December 31, 1997, 1996 and 1995 is included in
Analysis of Net Interest Earnings included in the Annual Report to Shareholders
(Appendix A, Page 22).
A summary of maturities of time deposits of $100,000 or more is as follows.
<TABLE>
<CAPTION>
12/31/97 12/31/96
<S> <C> <C>
Three months or less $ 10,652,218 $ 9,514,277
Over 3 months through 6 months 1,018,351 218,945
Over 6 months through 12 months 321,236 809,918
Over 12 months 729,535 1,026,845
------------------------------------------
$ 12,721,340 $ 11,569,985
==========================================
</TABLE>
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: 3-17-98 /s/ Charles J. Dolezal
----------------- --------------------------------
Charles J. Dolezal, President
DATE: 3-17-98 /s/ Lawrence M. Cardinal, Jr.
----------------- --------------------------------
Lawrence M. Cardinal, Jr., V.P.,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: 3-17-98 /s/ Charles J. Dolezal
----------------- --------------------------------
Charles J. Dolezal, Chairman
DATE: 3-17-98 /s/ Sara Balzarini
----------------- --------------------------------
Sara Balzarini, Director
DATE: 3-17-98 /s/ James L. Gerber
----------------- --------------------------------
James L. Gerber, Director
DATE: 3-17-98 /s/ Ray D. Gill
----------------- --------------------------------
Ray D. Gill, Director
DATE: 3-17-98 /s/ John W. Kropf
----------------- --------------------------------
John W. Kropf, Director
DATE: 3-17-98 /s/ Steve Schmid
----------------- --------------------------------
Steve Schmid, Director
PAGE 11
<PAGE> 12
DATE: 3-17-98 /s/ John E. Sprunger
----------------- --------------------------------
John E. Sprunger, Director
DATE: 3-17-98 /s/ James F. Woolley
------------------ --------------------------------
James F. Woolley, Director
DATE: 3-17-98 /s/Albert Yeagley
------------------ ---------------------------------
Albert Yeagley, Director
PAGE 12
<PAGE> 13
EXHIBIT INDEX
<TABLE>
<CAPTION>
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
<S> <C> <C> <C>
(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) A23 Computation of Earnings per Share Incorporated by reference
(12) A23 Computation of Ratios Incorporated by reference
(13) A 1997 Annual Report to Shareholders
(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 13
<PAGE> 1
EXHIBIT 13
[LOGO]
NATIONAL
BANCSHARES
CORPORATION
1997 ANNUAL REPORT
<PAGE> 2
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FINANCIAL POSITION
Percentage
(Year End Balances) 1997 1996 Change
<S> <C> <C> <C>
Total Assets $ 182,982,332 $ 180,631,014 1.30%
Deposits 151,081,856 149,824,321 0.84%
Loans-Net 78,257,778 78,149,995 0.14%
Investment Securities 80,940,781 76,719,305 5.50%
Shareholders' Equity 26,177,793 24,804,248 5.54%
- ---------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Net Interest Income 8,086,035 7,870,342 2.74%
Net Income 2,349,587 2,236,452 5.06%
-------------------------------------------------------------
Regular Cash Dividends 948,651 900,103 5.39%
Net Income Per Share 2.06 1.96 5.10%
Cash Dividends Per Share 0.83 0.79 5.06%
Book Value Per Share $ 22.96 $ 21.72 5.71%
-------------------------------------------------------------
</TABLE>
National Bancshares Corporation is a one-bank holding company with assets
totaling over $180 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
personal and commercial deposit and lending services.
<PAGE> 3
National Bancshares Corporation proudly helps our customers
take good care of their money. Through our subsidiary, First National Bank,
we provide a variety of sound, secure savings and investment products. Our
services help businesses and individuals manage money wisely.
But, unfortunately, money doesn't always receive such care.
In fact, "legal tender" usually isn't treated tenderly. Every day,
millions of dollars are folded, crumpled, clipped,dropped, stepped on, stuffed
into the pockets of dirty jeans, and even sent through washing machines.
What happens to all this worn-out money? The Federal Reserve collects it and
shreds it - about $50 billion every year. Much of it winds up in landfills.
But not all of it. Some shredded currency is recycled. In fact, this
1997 Annual Report is printed on recycled paper money.
It's our way of putting formerly unfit bills to good use.We've also
enclosed a small packet of shredded money with the report. And, in the margins
of the pages that follow, we've sprinkled a few interesting facts about the care
and making of money. What better way to remind our friends and
shareholders that there are good ways - and bad ways - to treat their money?
<PAGE> 4
DEAR SHAREHOLDERS
{PHOTO}
The year 1997 showed continued solid gains for our financial institution.
Income before taxes increased by 5.8% over the end of the previous year,
exceeding $3 million for the first time. Net income after tax also posted an all
time high, increasing by over $113 thousand, or 5.1% over the year ended
December 31, 1996. This increase in income was aided by growth in net interest
income, a reduction in the provision for loan losses and by keeping the growth
of noninterest expenses to a minimum.
Total assets reached a new all time high of approximately $183 million.
This was an increase of nearly $2.4 million, or 1.3% above that of December 31,
1996. Total loans were somewhat flat with the end of the previous year as a
large commercial loan refinanced into the bond market near year end. The overall
quality of the loan portfolio remains high, thus enabling the reduction in the
provision for loan losses.
Cash dividends declared during 1997 amounted to $948,651 or 83(cent) per
share. This is an increase of 4(cent) per share or 5% over the total declared
cash dividends in 1996. Cash dividends have increased each year consecutively
for more than the past 30 years!
The market value of our stock has performed very well over the past year.
The locally quoted bid price, as of December 31, 1997, was $47.50 per share.
This is an increase of 35.7% over the past year. When coupled with the cash
dividends for the year 1997, the total return for the year equates to
approximately 38%. The annualized compounded rate of return on our stock for the
past five years was 24.9% per year. For the past ten years, the annualized
compounded rate of return stands at 16.3% per year.
At this year's annual meeting, we are asking shareholders to eliminate the
par value of National Bancshares' common stock. Ohio law requires that any
company with a par value on their common stock must make an adjustment to the
balance sheet reducing retained earnings and increasing the capital stock each
time a stock dividend occurs. Although this adjustment is an accounting function
only, it currently has the effect of limiting the number of shares the Company
may issue through any stock dividend program. If shareholders vote to eliminate
the par value, then the issuance of stock dividends will not be restricted and
will not reduce retained earnings. To help facilitate future stock dividends,
the board of directors encourages shareholders to vote for Proposal 2 on their
proxy.
During the first quarter of 1997, we were notified by our stock transfer
agent, KeyCorp Shareholder Services, Inc., that they were closing their
business. Due to this, we converted to a new transfer agent, Registrar and
Transfer Company, on June 1, 1997. Located in Cranford, New Jersey, the
Registrar and Transfer Company has been an established transfer agent since
1899. They act as the stock transfer agent for many financial institutions
across the country. We hope their services will meet with your satisfaction.
In January of 1997, First National Bank went "global" with a Web site on
the Internet. Information about First National Bank and our products and
services can be accessed via the Internet at www.fnborrville.com. This Web site
offers an opportunity for our customers and
2
<PAGE> 5
potential customers to access the information 24-hours a day, seven days a
week.
During the third quarter of 1997, First National Bank installed two new
Automated Teller Machine (ATM) sites. These two sites (located at our Kidron and
Lodi offices), offer the convenience of a drive up ATM facility. These are in
addition to our existing walk up and drive up ATM locations. The existing drive
up locations at the Midway and West High offices received upgrades during this
past year. Soon, we will be opening a cash dispensing machine at The Amish Door
Restaurant in Wilmot, Ohio.
Another service we initiated during this past year was electronic banking
services for businesses. These services include direct deposit of payroll,
electronic tax payment, electronic funds transfer between commercial accounts
24-hours a day, and an accounts receivable program enabling a business to
collect their receivables electronically. These services can assist our business
customers in running their operations more efficiently and cost effectively.
With the upcoming change to the new millennium, concern is raised that
business and industry will have computer hardware and software programs ready to
accept the year 2000 date. Many systems were designed with a two-digit year.
Under this design, moving from the year 1999 (read by a two-digit system as 99)
to the year 2000 (00) would be read by the computer system as the year 1900.
Needless to say, this would create enormous problems in systems that perform
calculations using dates. We have been addressing this situation within our
organization. We have established a schedule for testing all computer hardware
and software programs to determine compatibility with the year 2000. Systems
that do not pass the tests will be upgraded or replaced. Outside computer
vendors that we are using are actively addressing this situation by testing and
reprogramming systems where necessary. We anticipate having all our systems
totally compliant with the upcoming date change by the end of 1998.
On September 5, 1997, we were saddened by the passing of Frank Seifried.
Frank served as a member of the Board of Directors of First National Bank and
National Bancshares Corporation from 1961 to 1992. He was appointed Director
Emeritus upon his retirement from the board on December 31, 1992. During his
31-year tenure as an active member of our Board of Directors, Frank was involved
with many changes in our organization and saw growth occur in virtually every
facet of our business. He will be missed by us and the rest of the community
that he had been so closely involved with throughout his life.
Looking ahead, 1998 will hold many challenges and opportunities for our
industry. Congress will be reviewing legislation that could potentially change
the competitive environment among banks, brokerage firms and insurance companies
allowing cross ownership of each business. The final outcome of any legislation
restructuring the financial industry will be the subject of much debate. We will
be following the progress of this legislation closely.
On the economic front, the U. S. economy continues to grow while inflation
remains in check at a relatively low level. The Federal Reserve has elected to
keep short term interest rates steady for the past number of months. With the
economic turbulence that is occurring in Asia, we have yet to see what long-term
affect it will have on our domestic economy. In any event, we are optimistic in
facing the challenges and opportunities the forthcoming year may hold for us.
/s/ Charles J. Dolezal
- ----------------------
Charles J. Dolezal
President and Chairman
A $1 bill lasts about 18 months in circulation before it becomes too worn to be
usable. No wonder that almost half of the 38 million notes produced daily by the
U.S. Bureau of Engraving and Printing are $1 notes. The "life expectancy" of
other bills varies with their denomination: $5 bill (two years), $10 bill (three
years), $20 bill (four years), and $50 and $100 bills (nine years).
3
<PAGE> 6
FINANCIAL REVIEW
National Bancshares Corporation succeeded in setting a number of new
records in 1997. Total assets grew approximately $2.4 million ending 1997 at
$182,982,332. This represents a 1.3% increase over the previous year. Average
assets also experienced growth in 1997, increasing to approximately $179.1
million from $172.0 million in 1996, or an increase of $7.1 million. Net income
in 1997 totaled $2,349,587 exceeding 1996 net income by approximately 5.1%.
Cash and due from banks amounted to $8,068,623 and $8,194,813 at December
31, 1997 and 1996, respectively. This was a decrease of $126 thousand, or 1.5%.
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 represents
the normal processing of outgoing cash letters.
Total investment securities increased approximately $4.2 million ending
1997 at $80,940,781 compared to $76,719,305 at the end of 1996. The average
balance of taxable investment securities grew from $58.1 million in 1996 to
$59.2 million in 1997, and average nontaxable investment securities increased
approximately $2.0 million in 1997 from 1996. The market or fair value of the
total portfolio was $82,611,496 and $78,133,247 as of December 31, 1997 and
1996, respectively.
U.S. treasury and agency obligations increased approximately $2.9 million
or 8.7% with balances of $35,798,775 on December 31, 1997 compared to
$32,936,205 on December 31, 1996. The net market appreciation of this category
was approximately $554 thousand as of December 31, 1997.
Mortgage backed securities were $3,480,116 and $4,167,210 on December 31,
1997 and 1996, respectively. This was a decline of $687 thousand or 16.5%. The
net market appreciation of these securities was $32 thousand on December 31,
1997.
Obligations of states and political subdivisions ended 1997 at
$22,057,244, which was 30.3% higher than the $16,922,788 balance on December 31,
1996. The net market appreciation was approximately $1.1 million as of December
31, 1997. 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 1997 at $19,604,646, which was 13.6% lower than the
December 31, 1996 balance of $22,693,102. This group of securities is primarily
comprised of high quality corporate bonds and notes. The net market appreciation
was approximately $162 thousand as of December 31, 1997.
Federal bank stock was $842,800 on December 31, 1997 as compared to
$546,600 on December 31, 1996. The increase was a result of stock dividends and
stock purchased for membership in the Federal Home Loan Bank of Cincinnati. This
membership will provide
<TABLE>
<CAPTION>
- --------------------------------------------
INVESTMENT SECURITIES
(Millions of Dollars)
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
79.9 90.0 78.4 76.7 80.9
- --------------------------------------------
</TABLE>
4
<PAGE> 7
specialized funding avenues in meeting our customers' borrowing needs.
Federal funds sold were $8,545,000 and $10,800,000 as of December 31, 1997
and 1996, respectively. Average balances increased during the year with 1997
averaging $9.8 million compared to $9.0 million during 1996. Federal funds sold
are overnight investments with our correspondent banks. This is an investment
tool that is used to maximize the earning assets of the Bank.
<TABLE>
<CAPTION>
- --------------------------------------------
LOANS-NET
(Millions of Dollars)
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
53.2 56.2 73.1 78.1 78.3
- --------------------------------------------
</TABLE>
Total net loans increased by approximately $108 thousand, or 0.1% during
1997. Net loan balances were $78,257,778 and $78,149,995 on December 31, 1997
and 1996, respectively. Average net loans posted an increase of $3.3 million
with a yearly average of $79.2 million for 1997.
Loans collateralized by real estate totaled $56,562,774 on December 31,
1997, as compared to $54,326,256 as of December 31, 1996. All real estate
categories, except commercial real estate, posted increases in 1997. There was a
$2.6 million decrease in commercial real estate loans, $3.0 million increase in
residential mortgages, home equity loans increased $1.4 million and construction
loans were higher by $455 thousand.
Consumer loans totaling $8,641,966 on December 31, 1997 were 20.9% below
the 1996 ending total of $10,923,506. This decrease was primarily due to the
highly competitive automobile financing market during 1997. Commercial loans
were $11,923,679 and $11,961,001 as of December 31, 1997 and 1996, respectively.
Credit card loans increased 24.2% during the year with balances of $1,043,101 on
December 31, 1997. Other loans decreased $8 thousand during 1997 ending the year
at $1,727,530.
The allowance for loan losses was $1,232,464 and $1,150,917 as of December
31, 1997 and 1996, respectively. The allowance for loan losses to total loans
percentages were 1.55% and 1.45% and net charge-off to total loans percentages
were .05% and .10% for 1997 and 1996, respectively. 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, totaling approximately $18.2 million as
of December 31, 1997, are to businesses and individuals for general credit, real
estate construction and letters of credit.
Accrued interest receivable ended 1997 at $1,574,829, a 0.4% decrease from
December 31, 1996. Accrued interest receivable represents interest income earned
on investment securities and loans, but not yet received.
Premises and equipment totaled $2,477,058 on December 31, 1997 as compared
to $2,517,654 on December 31, 1996. During 1997 depreciation exceeded capital
expenditures by $41 thousand. 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 $2,275,463 and $2,121,827 as of December 31, 1997
and 1996,
They don't call money "folding green" for nothing. A U.S. bill can be
double-folded (first forward, then backward) about 4,000 times before it will
tear. This toughness comes from paper composed of 25% linen and 75% cotton, with
red and blue synthetic fibers woven evenly throughout. Before World War I, the
fibers were made of silk.
5
<PAGE> 8
respectively. These assets mainly include intangible assets and prepaid
expenses.
Total deposits posted a $1.3 million or 0.8% increase ending 1997 at
$151,081,856, as compared to $149,824,321 on December 31, 1996. Average deposits
increased from $144.2 million in 1996 to $149.0 million in 1997.
Demand deposits, which represent non-interest bearing checking accounts,
ended 1997 at $27,544,730, which was a growth of 9.3% over the December 31, 1996
balance of $25,210,638. The average demand accounts for 1997 were $23.8 million
as compared to $22.6 million in 1996.
Interest bearing checking accounts finished 1997 at $29,574,234 in
comparison to $30,684,119 a year earlier. This was a decrease of $1.1 million,
or 3.6%. Average balances declined by $0.7 million from $30.8 million in 1996 to
$30.1 million in 1997. Interest bearing checking accounts include our Negotiable
Order of Withdrawal accounts and Money Market Deposit Accounts.
Savings accounts totaled $42,196,044 on December 31, 1997, approximately
$627 thousand below the end of the previous year. Average savings accounts
increased from $41.2 million during 1996 to approximately $42.0 million in 1997.
First National offers both passbook and statement savings accounts.
Time deposits of less than $100,000 amounted to $39,045,508 and $39,536,658
as of December 31, 1997 and 1996, respectively. This represents a decline of
$491 thousand or 1.2%. Average time balances increased approximately $652
thousand giving 1997 an average time deposit balance of $40.3 million as
compared to approximately $39.6 million in 1996.
Time deposits of $100,000 and over increased from $11,569,985 on December
31, 1996 to $12,721,340 on December 31, 1997. Average time deposits of $100,000
and over increased by $2.8 million over 1996 giving 1997 an average of $12.7
million.
Securities sold under agreements to repurchase were $3,576,966 on December
31, 1997 in comparison to $4,034,780 at the end of 1996, or approximately $458
thousand lower. The federal reserve note account balance was $1,000,000 and
$875,656 as of December 31, 1997 and 1996, respectively. The note account is
determined by the cash needs of the federal government. The average of other
funds purchased increased in 1997 to $3.7 million from $2.6 million during 1996.
Other liabilities, which include accrued interest payable, dividends
declared not yet payable and other accrued expenses, increased in 1997 with
balances of $1,145,717 and $1,092,009 as of December 31, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
- --------------------------------------------
DEPOSITS
(Millions of Dollars)
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
132.4 145.9 147.0 149.8 151.1
- --------------------------------------------
</TABLE>
Shareholders' equity exceeded $26 million during 1997 with an ending
balance of $26,177,793 on December 31, 1997. This is an increase of $1.4 million
or 5.5% above the 1996 ending balance of $24,804,248. This growth translates to
$1.24 per share raising the book value per share to $22.96 on December 31, 1997,
as compared to $21.72 on December 31, 1996. Under the federal risk based capital
regulations, the Bank's total capital to risk based assets of 23.53% on December
31, 1997 was almost triple the 8% minimum required. The
6
<PAGE> 9
Bank remains in a very favorable position when compared to its peer group in the
area of capitalization.
In summary, the Corporation experienced modest growth of approximately $108
thousand in loans, $1.3 million in deposits and $1.4 million in shareholders'
equity.
<TABLE>
<CAPTION>
- --------------------------------------------
SHAREHOLDERS' EQUITY
(Millions of Dollars)
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
20.9 22.1 23.4 24.8 26.2
- --------------------------------------------
</TABLE>
LIQUIDITY
Liquidity is the consideration of the Corporation's ability to
meet its necessary outgoing cash flow needs. Cash equivalents for the cash flow
statement of $16.6 million is composed of $8.1 million in cash and due from
banks and $8.5 million in federal funds sold. Management considers the
Corporation to be in a good liquidity position with the ability to meet the
demands of its customers and the local economy.
RESULTS OF OPERATIONS
Net income set a new record high of $2,349,587 in 1997, or approximately
5.1% over 1996 net income of $2,236,452. The primary source of income continues
to be interest on loans and other investments with additional revenues generated
from fees on non-interest related services.
Interest and fees on loans of $7,439,692 for 1997 was above 1996 by 3.4%,
or approximately $243 thousand. This improvement was primarily due to an
increase in average loan volume. Average interest yields on loans were 9.40% and
9.48% for 1997 and 1996, respectively.
Interest on federal funds sold was $540,056 and $479,248 for 1997 and
1996, respectively. This increase of $61 thousand was the result of higher
average interest yields and higher volume of average funds sold.
Interest on taxable investment securities increased by approximately $15
thousand ending 1997 at $4,054,927. This 0.4% increase in interest income was
due to an increase in average investment balances as average interest rates
declined from 6.95% to 6.85%.
Interest on obligations of states and political subdivisions totaled
$1,123,230 for 1997, which was $109 thousand or 10.7% above 1996. The average
balance of these investments increased $2 million while the average tax
equivalent yield declined from 9.03% in 1996 to 8.94% in 1997.
Total interest income of $13,157,905 was $427 thousand higher than 1996's
total of $12,730,539 as a result of the generally increasing volumes in loans,
investment securities and federal funds sold.
Interest on deposits totaled $4,896,074 in 1997 as compared to $4,734,194
in 1996. This $162 thousand increase, which equaled a 3.4% rise, was due to
higher average balances in savings deposits and time deposits.
Interest expense on other funds purchased was $175,796 or approximately
$50 thousand higher than 1996. This was the result of higher average balances.
Net interest income before provision for loan losses increased by 2.7% in
1997 totaling $8,086,035 as compared to $7,870,342 in 1996. The net interest
margin, which is calculated on a tax equivalent basis, decreased from 5.24% in
1996 to 5.18% in 1997 reflecting a slightly narrowing interest margin for the
company.
"Dead Presidents" is street slang for cash. But not all bills feature
Presidential portraits. Benjamin Franklin, whose picture graces the $100
bill, was an author, scientist, signer of the Declaration of Independence, and
ambassador to France - but not President. Neither was Alexander Hamilton, the
first Secretary of the Treasury, who is on the $10 bill.
7
<PAGE> 10
The Bank provides for potential loan losses throughout the year. In 1997
and 1996 the provision for loan losses was $120,000 and $180,000, respectively.
As previously mentioned, net charge-off to total loans was a net charge-off of
.05% in 1997 and .10% in 1996.
<TABLE>
<CAPTION>
- --------------------------------------------
NET INCOME
(Thousands of Dollars)
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
2,000 2,018 2,169 2,239 2,350
- --------------------------------------------
</TABLE>
Net interest income after provision for loan losses was $7,966,035 in 1997,
$276 thousand or 3.6% above 1996's total.
Noninterest income totaled $745,380 and $795,444 for 1997 and 1996,
respectively. Noninterest income is primarily comprised of checking account
fees, which were $497 thousand in 1997 as compared to $515 thousand in 1996.
Other noninterest income includes safety deposit box rents, net security
gains/losses, net gains/losses on loans sold and other miscellaneous fees and
collections.
Noninterest expenses were $5,680,885 for 1997 in comparison to $5,620,865
in 1996. This represents a $60 thousand or 1.1% increase over 1996. Increases in
net occupancy expenses, State of Ohio franchise tax, FDIC premium and
miscellaneous other expenses were partially offset by decreases in salaries and
employee benefits and data processing fees.
The income tax provision amounted to $680,943 and $628,469 in 1997 and
1996, respectively. The growth in taxable interest income was the main reason
for this increase.
Net income for 1997 set a new record at $2,349,587, or approximately 5.1%
higher than 1996's total of $2,236,452. This equates to net income per share in
1997 of $2.06 as compared to $1.96 per share in 1996. Cash dividends declared
during 1997 were $0.83 per share, or $.04 per share above 1996's dividend of
$0.79 per share. The dividend pay-out percentage for 1997 was 40.38% of net
income. Return on average equity was 9.23% and 9.24% for 1997 and 1996,
respectively. Return on average assets was a respectable 1.31% in 1997 and 1.30%
in 1996.
YEAR 2000 COMPLIANCE
The Corporation has established a team to evaluate and test all hardware
and software systems to identify potential Year 2000 compliance problems. The
team, which reports directly to the President, is also addressing the potential
impact on the Bank's customers. The Corporation believes all hardware and
software systems will be Year 2000 compliant by the end of 1998, either by
upgrading current hardware and software, or by purchasing new hardware and
software. Management believes the cost of addressing and correcting this issue
will not have a material effect on the financial position, results of
operations, or cash flows of the Corporation.
<TABLE>
<CAPTION>
- --------------------------------------------
CASH DIVIDENDS PER SHARE
(Dollars)
<S> <C> <C> <C> <C>
1993 1994 1995 1996 1997
$.60 $.65 $.72 $.79 $.83
- --------------------------------------------
</TABLE>
8
<PAGE> 11
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>
- ---------------------------------------------------------------------------------
1997 High Low Dividends Per Share
<S> <C> <C> <C>
First Quarter $ 37.00 $ 35.00 $ .170
Second Quarter 39.00 37.00 .170
Third Quarter 40.00 39.00 .170
Fourth Quarter 47.50 42.00 .320
- ---------------------------------------------------------------------------------
<CAPTION>
1996 High Low Dividends Per Share
<S> <C> <C> <C>
First Quarter $ 29.61 $ 28.41 $ .160
Second Quarter 31.21 29.61 .160
Third Quarter 32.81 31.21 .160
Fourth Quarter 35.00 32.81 .310
- ---------------------------------------------------------------------------------
</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 1997 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, Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016,
1-800-368-5948 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 savings accounts. This free service provides a convenient and
safe method of receiving dividend payments.
Sometimes "old money" is better than "new money." To meet customer demands,
First National and other banks buy cash from the 12 Federal Reserve Banks around
the country, which in turn get new bills as needed from the Bureau of Engraving
and Printing. Nowadays, many banks specifically request that the Federal Reserve
send old bills rather than new ones, because they work better in ATMs.
9
<PAGE> 12
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
<S> <C> <C>
Cash and due from banks (Note 2) $ 8,068,623 $ 8,194,813
Federal funds sold 8,545,000 10,800,000
Investment securities - available for sale (amortized cost
$10,426,921 and $6,465,603 - Note 3) 10,565,945 6,513,258
Investment securities - held to maturity (approximate
market or fair value $72,045,550 and $71,619,989 - Note 3) 70,374,836 70,206,047
Federal bank stock 842,800 546,600
Loans, less allowance for loan losses of $1,232,464
and $1,150,917 (Note 4) 78,257,778 78,149,995
Accrued interest receivable 1,574,829 1,580,820
Premises and equipment - net (Note 6) 2,477,058 2,517,654
Other assets 2,275,463 2,121,827
------------------------------------------
TOTAL $ 182,982,332 $ 180,631,014
==========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 7) $ 151,081,856 $ 149,824,321
Securities sold under repurchase agreements (Note 7) 3,576,966 4,034,780
Federal reserve note account 1,000,000 875,656
Accrued interest payable 556,827 549,430
Dividends payable 366,324 354,703
Other accrued expenses 222,566 187,876
------------------------------------------
Total liabilities 156,804,539 155,826,766
COMMITMENTS (Note 5)
SHAREHOLDERS' EQUITY (Note 13):
Common stock - $10 par value; 6,000,000 shares
authorized, 1,144,764 and 1,144,202 shares
issued in 1997 and 1996, respectively 11,447,640 11,442,020
Surplus 4,689,800 4,689,800
Net unrealized appreciation in the fair value
of securities available for sale (net of tax expense) 91,755 31,451
Retained earnings 10,137,118 8,700,927
Less 4,446 and 2,105 treasury shares - at cost (188,520) (59,950)
-------------------------------------------
Total shareholders' equity 26,177,793 24,804,248
-------------------------------------------
TOTAL $ 182,982,332 $ 180,631,014
===========================================
See notes to consolidated financial statements.
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
CONSOLIDATED
STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
INTEREST INCOME:
<S> <C> <C> <C>
Interest and fees on loans $ 7,439,692 $ 7,196,393 $ 6,259,570
Interest on federal funds sold 540,056 479,248 541,119
Interest and dividends on investment securities:
U.S. government obligations 2,535,542 2,293,405 2,578,060
Obligations of states and political
subdivisions - nontaxable 1,123,230 1,014,707 1,044,935
Other securities 1,519,385 1,746,786 2,188,028
----------------------------------------
Total interest income 13,157,905 12,730,539 12,611,712
INTEREST EXPENSE:
Time deposits, $100,000 and over 720,187 569,498 497,772
Other deposits 4,175,887 4,164,696 4,024,829
Short-term borrowings 175,796 126,003 239,539
----------------------------------------
Total interest expense 5,071,870 4,860,197 4,762,140
----------------------------------------
Net interest income 8,086,035 7,870,342 7,849,572
PROVISION FOR LOAN LOSSES (Note 4) 120,000 180,000 180,000
----------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,966,035 7,690,342 7,669,572
NONINTEREST INCOME (Note 10) 745,380 795,444 740,236
NONINTEREST EXPENSE (Note 10) 5,680,885 5,620,865 5,650,586
----------------------------------------
INCOME BEFORE INCOME TAXES 3,030,530 2,864,921 2,759,222
INCOME TAX EXPENSE (Note 9) 680,943 628,469 590,330
----------------------------------------
NET INCOME $ 2,349,587 $ 2,236,452 $ 2,168,892
========================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING
(Restated in 1995 for stock split in 1996) 1,142,906 1,140,353 1,140,353
========================================
EARNINGS PER COMMON SHARE $ 2.06 $ 1.96 $ 1.90
========================================
See notes to consolidated financial statements.
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED
STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
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, 1995 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,
$.72 Per Share(1) (822,014) (822,014)
Shares Issued Under Dividend
Reinvestment Plan 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
Net Income 2,236,452 2,236,452
Stock Split (5 for 4) 228,551 2,285,510 (2,285,510)
Cash Distribution in Lieu
of Shares in Stock Split (12,299) (12,299)
Cash Dividends Declared,
$.79 Per Share(1) (900,103) (900,103)
Shares Issued under Dividend
Reinvestment Plan 12,341 135,004 147,345
Net Unrealized Depreciation
in Fair Value of
Securities Available
for Sale (53,078) (53,078)
----------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,144,202 11,442,020 4,689,800 31,451 8,700,927 (59,950) 24,804,248
Net Income 2,349,587 2,349,587
Cash Dividends Declared,
$.83 Per Share (948,651) (948,651)
Shares Issued under Dividend
Reinvestment Plan 562 5,620 35,255 93,687 134,562
Purchase of Treasury Shares (222,257) (222,257)
Net Unrealized Appreciation
in Fair Value of
Securities Available for
Sale 60,304 60,304
----------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,144,764 $11,447,640 $ 4,689,800 $ 91,755 $10,137,118 $ (188,520) $26,177,793
==============================================================================================
<FN>
(1) Restated for stock split in 1996.
</FN>
See notes to consolidated financial statements.
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 2,349,587 $ 2,236,452 $ 2,168,892
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 620,882 723,906 741,862
Provision for loan losses 120,000 180,000 180,000
Net gain on sales of investments (21,097)
Changes in operating assets and liabilities 31,485 10,719 117,956
-----------------------------------------------------
Net cash provided by operating activities 3,121,954 3,129,980 3,208,710
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments 13,558,515 15,616,574 13,332,981
Proceeds from sales of available
for sale investments 1,000,000
Purchases of investments (18,295,998) (15,600,000) (2,000,000)
Capital expenditures (300,175) (575,847) (103,497)
Net increase in loans to customers (227,783) (5,188,709) (17,106,195)
Other - net (137,044) 13,232 245,835
-----------------------------------------------------
Net cash used in investing activities (5,402,485) (4,734,750) (5,630,876)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
and savings accounts 597,331 498,546 (3,115,852)
Net increase in time deposits 660,205 2,329,661 4,249,726
Net increase (decrease) in short-term borrowings~ (333,470) 1,279,671 (639,154)
Dividends paid (937,030) (896,489) (808,982)
Dividends reinvested 134,562 147,345 26,124
Purchase of treasury shares (222,257) (194,954)
-----------------------------------------------------
Net cash provided by (used in) financing activities (100,659) 3,358,734 (483,092)
-----------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,381,190) 1,753,964 (2,905,258)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 18,994,813 17,240,849 20,146,107
-----------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 16,613,623 $ 18,994,813 $ 17,240,849
=====================================================
See notes to consolidated financial statements.
</TABLE>
13
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
1. BUSINESS AND 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 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 - Investment securities are classified as
available-for-sale or held-to-maturity. Securities classified as
available-for-sale are carried at estimated fair value; however, the adjustment,
if any, would be reflected in shareholders' equity. Securities held-to-maturity
are carried at amortized cost.
LOANS - 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. 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, mix and various types
of loans, 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.
The Corporation adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure," effective January 1,
1995. This statement requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rates or the fair value of the underlying collateral. The statement
also specifies alternative methods for recognizing interest income on loans that
are impaired or for which there are credit concerns. A loan is considered
impaired when, based on current information and events, it is probable that a
creditor will be unable to collect all amounts due in accordance with
contractual terms of the loan agreement. The Bank performs a review of all
significant commercial loans to determine if the impairment criteria has 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. The
adoption of these statements did not have a material impact on the Corporation's
1995 consolidated financial statements.
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
14
<PAGE> 17
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 $199,908 and goodwill of
$352,500 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 COMMON SHARE are calculated based on the weighted average
number of shares outstanding during the period. During 1996, 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 1995 have been
restated to reflect the increased number of shares.
The Corporation adopted SFAS No. 128, "Earnings Per Share," effective
December 31, 1997. SFAS No. 128 did not impact the earnings per common share
calculation as the Corporation does not have any dillutive potential common
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 straight-line method. Fees received for
loan commitments that are expected, based on the Bank's experience with similar
commitments, to be drawn are deferred and amortized over the life of the loan
using the level yield method. Fees for other loan commitments are deferred and
amortized over the loan commitment period on a straight-line basis. Amortization
of net deferred loan fees is discontinued on non-performing loans.
NEW ACCOUNTING PRONOUNCEMENTS - The Corporation has not completed the
process of evaluating the effects of adopting Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures About Segments of Enterprise and Related Information," both of
which are effective for periods beginning after December 15, 1997. The adoption
of such statements is not expected to have a material effect on the
Corporation's financial position or results of operations.
RECLASSIFICATION - Certain prior period amounts have been reclassified to
conform with current presentation.
2. CASH
Regulations of the Federal Reserve require depository institutions to
maintain reserves which are not available for investment purposes. Cash reserves
of approximately $1,233,000 and $1,160,000 were maintained at December 31, 1997
and 1996, 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, 1997 December 31, 1996
-------------------------------------------------------------------------------------------------------
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>
AVAILABLE FOR SALE:
U.S. treasury and agency
obligations $ 4,030,144 $ 45,792 $ 4,075,936 $ 4,030,048 $ 18,702 $ 4,048,750
Obligations of states and
political subdivisions 2,824,568 75,682 $ (14,591) 2,885,659 497,840 62,160 560,000
Corporate bonds and notes 2,287,412 15,122 (5,184) 2,297,350 1,937,715 6,965 $ (40,172) 1,904,508
Equity securities 1,284,797 27,000 (4,797) 1,307,000
-------------------------------------------------------------------------------------------------------
Total $10,426,921 $ 163,596 $ (24,572) $ 10,565,945 $ 6,465,603 $ 87,827 $ (40,172) $ 6,513,258
=======================================================================================================
HELD TO MATURITY:
U.S. treasury and agency
obligations $31,722,839 $ 530,561 $ (22,623) $ 32,230,777 $28,887,455 $ 398,750 $ (50,195) $29,236,010
Mortgage backed securities 3,480,116 44,731 (12,380) 3,512,467 4,167,210 61,933 (31,812) 4,197,331
Obligations of states and
political subdivisions 19,171,585 1,009,614 (8,871) 20,172,328 16,362,788 874,238 (20,664) 17,216,362
Corporate bonds and notes 16,000,296 220,609 (90,927) 16,129,978 20,788,594 321,471 (139,779) 20,970,286
-------------------------------------------------------------------------------------------------------
Total $70,374,836 $1,805,515 $(134,801) $ 72,045,550 $70,206,047 $1,656,392 $(242,450) $71,619,989
=======================================================================================================
</TABLE>
15
<PAGE> 18
The amortized cost and market or fair value of debt securities at December
31, 1997, by contractual maturity, is as follows:
<TABLE>
<CAPTION>
Amortized Market or
Cost Fair Value
AVAILABLE FOR SALE:
<S> <C> <C>
Due in one year or less $ 859,171 $ 864,475
Due after one year
through five years 2,113,519 2,118,937
Due after five years
through ten years 3,344,867 3,389,875
Due after ten years 2,824,567 2,885,658
-----------------------
$9,142,124 $9,258,945
=======================
<CAPTION>
Amortized Market or
Cost Fair Value
HELD TO MATURITY:
<S> <C> <C>
Due in one year or less $ 9,549,875 $ 9,566,270
Due after one year
through five years 31,071,014 31,614,524
Due after five years
through ten years 25,107,379 26,006,406
Due after ten years 4,646,568 4,858,350
-------------------------
$70,374,836 $72,045,550
=========================
</TABLE>
For purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.
The mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
Investment securities having a carrying amount and a market or fair value
of approximately $27,664,277 and $28,173,564, respectively, at December 31, 1997
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,
1997 1996
Collateralized by real estate:
<S> <C> <C>
Commercial $ 22,935,097 $ 25,514,488
Residential mortgages 29,173,322 26,207,601
Home equity 2,536,760 1,141,597
Construction 1,917,595 1,462,570
----------------------------
56,562,774 54,326,256
Consumer 8,641,966 10,923,506
Commercial 11,923,679 11,961,001
Credit cards - unsecured 1,043,101 839,890
Other 1,727,530 1,735,601
----------------------------
79,899,050 79,786,254
Unearned income (195,968) (218,856)
Unamortized discount
on purchased loans (212,840) (266,486)
----------------------------
79,490,242 79,300,912
Allowance for loan losses (1,232,464) (1,150,917)
----------------------------
$ 78,257,778 $ 78,149,995
============================
</TABLE>
The Bank grants commercial, mortgage and installment loans to its customers
who are primarily located in its market area. The Bank has a diversified loan
portfolio and the area has a diversified industrial base. The majority of the
commercial loans are collateralized. Collateral varies and may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties. The consumer loans are primarily collateralized by
vehicles.
Impaired loans, as defined in SFAS No. 114, and related allowances are
summarized below:
<TABLE>
<CAPTION>
December 31,
1997 1996
Gross impaired loans which
<S> <C> <C>
have allowances $ 20,000 $ 51,489
Less: Related allowances
for loan losses (4,000) (9,565)
-----------------------
Net impaired loans with
related allowances 16,000 41,924
Impaired loans with no
related allowances 262,611 377,531
-----------------------
Total $ 278,611 $ 419,455
=======================
</TABLE>
The average recorded investment in impaired loans during 1997, 1996 and
1995 was $358,961, $147,984 and $63,099, respectively. Interest income
recognized on impaired loans during 1997, 1996 and 1995 was $6,950, $7,767 and
$16,786, respectively.
Activity within the allowance for loan losses is as follows:
Years Ended December 31,
1997 1996 1995
Balance, beginning
of year $ 1,150,917 $ 1,046,542 $ 890,666
Provision for
loan losses 120,000 180,000 180,000
Recoveries 52,442 66,683 16,533
Chargeoffs (90,895) (142,308) (40,657)
------------------------------------------
Balance, end of year $ 1,232,464 $ 1,150,917 $ 1,046,542
=========================================
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, 1997, the commitments include the following:
<TABLE>
<CAPTION>
Unused lines of credit:
<S> <C>
Commercial $ 8,315,161
Home equity 3,330,287
Credit cards - unsecured 4,080,561
--------------
15,726,009
Real estate construction loans 644,773
Letters of credit 1,802,798
--------------
$ 18,173,580
==============
</TABLE>
16
<PAGE> 19
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.
6. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Land~ $ 285,592 $ 287,592
Buildings and improvements 2,989,708 2,930,822
Furniture and fixtures 2,836,724 2,650,316
----------------------------
6,112,024 5,868,730
Less accumulated
depreciation 3,634,966 3,351,076
----------------------------
$ 2,477,058 $ 2,517,654
============================
</TABLE>
Depreciation expense recognized as noninterest expense in 1997, 1996 and
1995 was $340,771, $278,548 and $261,241, respectively.
7. DEPOSITS AND OTHER BORROWINGS
A summary of deposits is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Demand, noninterest
bearing $ 27,544,730 $ 25,210,638
Demand, interest
bearing (NOW) 29,574,234 30,684,119
Savings 42,196,044 42,822,921
Time, $100,000 and
over 12,721,340 11,569,985
Time, other 39,045,508 39,536,658
--------------------------------
$ 151,081,856 $ 149,824,321
================================
</TABLE>
A summary of time deposits by maturity follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Within 12 months $ 39,388,126 $ 37,015,256
12 months to 24 months 7,618,060 7,766,092
24 months to 60 months 4,757,365 6,293,982
Over 60 months 3,297 31,313
--------------------------------
$ 51,766,848 $ 51,106,643
================================
</TABLE>
Securities sold under agreements to repurchase generally mature within
thirty days from the transaction date. Information concerning agreements to
repurchase is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Average balance
during the year $3,094,542 $1,892,744
Average interest rate
during the year 4.70% 4.70%
Maximum month-end
balance during the year $4,621,601 $4,034,780
</TABLE>
8. BENEFIT PLANS
The Bank had a defined benefit pension plan which covered substantially all
employees. The plan benefit formulas generally based 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
was to contribute annually an amount necessary to satisfy ERISA funding
standards. Plan assets were held by Principal Mutual Life Insurance Company and
were 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. Regulatory
approval and settlement of all benefits under this Plan occurred during 1996.
The settlement of benefits under this Plan did not have a significant impact on
the Corporation's financial condition or results of operations. Net pension
expense was $58,913 in 1996 and $161,142 in 1995.
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 1997, 1996 and
1995 amounted to $103,642, $99,949, and $74,986, respectively.
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 and death benefit plan for
the benefit of all members of
17
<PAGE> 20
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
1997, 1996 and 1995 for this plan was $21,862, $27,721 and $27,001,
respectively.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial and income
tax reporting purposes. Significant components of the Corporation's deferred tax
assets and liabilities were as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Deferred tax assets:
Bad debts $ 248,964 $ 195,525
Deferred loan fees 54,640 56,469
Core deposit premium
amortization 45,339 49,583
Other 52,972 41,396
------------------------
401,915 342,973
========================
<CAPTION>
<S> <C> <C>
Deferred tax liabilities:
Accretion income 115,457 112,306
Depreciation 87,516 77,003
Mark-to-market accounting 47,268 16,203
------------------------
250,241 205,512
------------------------
Net deferred tax asset $ 151,674 $ 137,461
========================
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Currently payable $ 726,221 $ 718,407 $ 687,186
Deferred (45,278) (89,938) (96,856)
--------------------------------------
$ 680,943 $ 628,469 $ 590,330
======================================
</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,
1997 1996 1995
Rate Amount Rate Amount Rate Amount
<S> <C> <C> <C> <C> <C> <C>
Tax at federal
statutory rate 34% $1,030,380 34% $974,073 34% $938,135
Tax-exempt
interest (12) (370,979) (12) (339,466) (13) (350,363)
Other 21,542 (6,138) 2,558
-----------------------------------------------
Income tax
expense 22% $ 680,943 22% $628,469 21% $590,330
===============================================
</TABLE>
10. NONINTEREST INCOME AND EXPENSE
Noninterest income consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Checking account fees $ 496,523 $ 514,511 $ 495,558
Other 248,857 280,933 244,678
-----------------------------------
$ 745,380 $ 795,444 $ 740,236
===================================
</TABLE>
<TABLE>
<CAPTION>
Noninterest expense consists of the following:
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Salaries and employee
benefits $ 2,774,582 $ 2,776,429 $2,678,307
Data processing fees 717,417 734,680 703,645
Net occupancy expenses 421,772 417,719 416,409
Franchise taxes 355,500 332,287 309,000
FDIC premiums 17,889 2,000 160,588
Other 1,393,725 1,357,750 1,382,637
------------------------------------
$ 5,680,885 $ 5,620,865 $5,650,586
====================================
</TABLE>
11. SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash paid during
the year for:
Interest $ 5,064,473 $ 4,869,056 $4,578,741
Income taxes 703,935 787,342 563,254
</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 1997, 1996 and 1995. 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, 1997 and 1996, such loans
amounted to $6,850,000 and $6,655,000, respectively. New loans to related
parties totaled $1,460,000, $1,211,000 and $2,874,000 for 1997, 1996 and 1995,
respectively, and repayments aggregated $1,265,000, $642,000 and $1,387,000 for
the respective years. At December 31, 1997 unused commitments to related parties
totaled $2,587,000.
13. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary, actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. The regulations require the Bank to meet
specific capital adequacy guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet
18
<PAGE> 21
items as calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the tables
below) of tangible, core and total risk-based capital. Prompt corrective action
regulations require specific supervisory actions as capital levels decrease. To
be considered adequately capitalized under the regulatory framework for prompt
corrective action, the Bank must maintain minimum Tier 1 leverage, Tier 1
risk-based and total risk-based capital ratios as set forth in the tables below.
------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1997
----------------------------------------------------------------------------------
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $ 25,218 23.53% $ 8,574 _>*8.00% $ 10,718 _>*10.00%
Tier 1 capital (to risk-weighted assets) 23,986 22.38 4,287 _>*4.00 6,431 _>*6.00
Tier 1 capital (to adjusted tangible assets) 23,986 13.27 5,422 _>*3.00 9,037 _>*5.00
Tangible capital (to tangible assets) 23,986 13.27 3,615 _>*2.00 N/A N/A
<CAPTION>
As of December 31, 1996
----------------------------------------------------------------------------------
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $ 24,747 22.30% $ 8,878 _>*8.00% $ 11,097 _>*10.00%
Tier 1 capital (to risk-weighted assets) 23,596 21.26 4,439 _>*4.00 6,658 _>*6.00
Tier 1 capital (to adjusted tangible assets) 23,596 13.40 5,283 _>*3.00 8,804 _>*5.00
Tangible capital (to tangible assets) 23,596 13.40 3,522 _>*2.00 N/A N/A
<FN>
* _> - Equal to or greater than.
</FN>
</TABLE>
------------------------------------------------
As of December 31, 1997, the most recent notification from the Office of
Comptroller of the Currency (OCC) categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based
and Tier 1 leverage ratios as set forth in the table above. There are no
conditions or events since that notification that have changed the Bank's
category.
Management believes, as of December 31, 1997, that the Bank meets all
capital requirements to which it is subject. Events beyond management's control,
such as fluctuations in interest rates or a downturn in the economy in areas in
which the Bank's loans and securities are concentrated, could adversely affect
future earnings and, consequently, the Bank's ability to meet its future capital
requirements.
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 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, 1997, that the Bank could declare without the
approval of the OCC, amounted to $4,402,728.
19
<PAGE> 22
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, 1997 December 31, 1996
----------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $16,613,623 $16,613,623 $18,994,813 $18,994,813
Investment
securities 80,940,781 82,611,495 76,719,305 78,133,247
Loans 78,257,778 78,873,635 78,149,995 78,464,477
Federal bank
stock 842,800 842,800 546,600 546,600
Liabilities:
Demand and
savings
deposits 99,315,008 99,315,008 98,717,678 98,717,678
Time deposits 51,766,848 51,828,834 51,106,643 51,125,296
Short-term
borrowings 4,576,966 4,576,966 4,910,436 4,910,436
</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.
FEDERAL BANK STOCK - The fair value is estimated to be the carrying value
which is par. All transactions in the capital stock of the Federal Home Loan
Bank and the Federal Reserve Bank are executed at par.
DEMAND AND SAVINGS DEPOSITS AND TIME DEPOSITS - The fair value of demand
deposits, which includes statement savings, 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, 1997 and 1996.
15. PARENT ONLY FINANCIAL STATEMENTS
Balance sheets as of December 31, 1997 and 1996 and statements of income
and cash flows for the three years in the period ended December 31, 1997 for
National Bancshares Corporation (parent only) are as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996
BALANCE SHEETS
<S> <C> <C>
Assets:
Cash $ 29,435 $ 522,102
Dividend receivable 600,294 356,425
Investment in Bank 24,614,936 24,280,424
Other investments 1,307,000
-------------------------------
$ 26,551,665 $ 25,158,951
===============================
Liability:
Dividends payable $ 366,324 $ 354,703
Other liabilities 7,548
Shareholders' Equity 26,177,793 24,804,248
-------------------------------
$ 26,551,665 $ 25,158,951
===============================
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
<S> <C> <C> <C>
STATEMENTS
OF INCOME
Income:
Dividends $ 2,089,461 $ 919,201 $ 816,025
Expenses:
Misc. expense (28,736) (28,097) (62,011)
Undistributed equity in
net income of Bank 288,862 1,345,348 1,414,878
------------------------------------------
Net income $ 2,349,587 $ 2,236,452 $ 2,168,892
==========================================
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
Years Ended December 31
1997 1996 1995
<S> <C> <C> <C>
STATEMENTS
OF CASH FLOWS
Cash flows from
operating activities:
Net income $ 2,349,587 $ 2,236,452 $ 2,168,892
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Undistributed
earnings of Bank (288,862) (1,345,348) (1,414,878)
Change in dividends
receivable (243,869) (18,759) (23,449)
------------------------------------------
Net cash provided
by operating
activities 1,816,856 872,345 730,565
Cash flows from
investing activities:
Purchase of
investments (1,284,798)
------------------------------------------
Cash flows from
financing activities:
Dividends paid (937,030) (896,489) (808,982)
Dividends reinvested 134,562 147,345 26,124
Purchase of
treasury shares (222,257) (194,954)
------------------------------------------
Net cash used
by financing
activities (1,024,725) (749,144) (977,812)
------------------------------------------
Net increase (decrease)
in cash (492,667) 123,201 (247,247)
Cash, beginning of year 522,102 398,901 646,148
------------------------------------------
Cash, end of year $ 29,435 $ 522,102 $ 398,901
==========================================
</TABLE>
[DELOITTE &
TOUCHE LLP LOGO]
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 (the "Corporation") as of December 31,
1997 and 1996, 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, 1997. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of National Bancshares Corporation and
Subsidiary at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
/s/ Deloitte + Touche LLP
- -------------------------
Cleveland, Ohio
January 16, 1998
21
<PAGE> 24
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>
1997 1996 1995
-------------------------------------------------------------------------------------------------
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 $ 59,159 $ 4,055 6.85% $ 58,132 $ 4,040 6.95% $ 66,356 $ 4,766 7.18%
Nontaxable (tax
equivalent basis)* 19,028 1,702 8.94% 17,024 1,538 9.03% 17,480 1,583 9.06%
Federal funds sold 9,823 540 5.50% 8,962 479 5.34% 9,221 541 5.87%
Net loans (including
nonaccrual loans) 79,187 7,440 9.40% 75,917 7,196 9.48% 64,662 6,260 9.68%
-------------------------------------------------------------------------------------------------
Total interest
earning assets 167,197 13,737 8.22% 160,035 13,253 8.28% 157,719 13,150 8.34%
-------------------------------------------------------------------------------------------------
All other assets 11,942 11,933 12,092
-------------------------------------------------------------------------------------------------
Total Assets $ 179,139 $ 171,968 $ 169,811
=================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
Deposits:
Interest bearing
checking $ 30,139 $ 788 2.61% $ 30,801 $ 822 2.67% $ 31,942 $ 896 2.81%
Savings 42,003 1,253 2.98% 41,200 1,230 2.99% 40,841 1,213 2.97%
Time, $100,000
and over 12,737 720 5.65% 9,938 569 5.73% 9,430 498 5.28%
Time, other 40,273 2,135 5.30% 39,621 2,113 5.33% 35,976 1,916 5.33%
Other funds purchased 3,679 176 4.78% 2,600 126 4.85% 4,687 239 5.10%
-------------------------------------------------------------------------------------------------
Total interest
bearing liabilities 128,831 5,072 3.94% 124,160 4,860 3.91% 122,876 4,762 3.88%
-------------------------------------------------------------------------------------------------
Demand deposits 23,844 22,637 23,233
Other liabilities 1,017 962 850
Shareholders' equity 25,447 24,209 22,852
-------------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 179,139 $ 171,968 $ 169,811
=================================================================================================
Net interest income
(tax equivalent basis)* $ 8,665 $ 8,393 $8,388
-------------------------------------------------------------------------------------------------
Net interest spread 4.28% 4.37% 4.46%
-------------------------------------------------------------------------------------------------
Net yield on total
earning assets* 5.18% 5.24% 5.32%
-------------------------------------------------------------------------------------------------
<FN>
*Tax equivalence based on highest statutory tax rate of 34%.
</FN>
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL SUMMARY
FINANCIAL POSITION
(YEAR END BALANCES) 1997 1996 1995* 1994* 1993*
<S> <C> <C> <C> <C> <C>
Total Assets $182,982,332 $180,631,014 $175,144,085 $173,041,984 $157,825,715
Cash and Due from Banks 8,068,623 8,194,813 7,946,503 8,261,107 8,242,624
Investment Securities 80,940,781 76,719,305 78,406,304 89,956,248 79,894,188
Loans-Net 78,257,778 78,149,995 73,141,286 56,215,091 53,200,635
Deposits 151,081,856 149,824,321 146,996,114 145,862,240 132,446,096
Shareholders' Equity 26,177,793 24,804,248 23,385,931 22,089,249 20,863,330
Book Value Per Share $ 22.96 $ 21.72 $ 20.48 $ 19.34 $ 18.27
----------------------------------------------------------------------------
Summary of Operations
Total Interest Income $ 13,157,905 $ 12,730,539 $ 12,611,712 $ 10,766,011 $ 10,632,243
Total Interest Expense 5,071,870 4,860,197 4,762,140 3,694,748 3,769,411
----------------------------------------------------------------------------
Net Interest Income 8,086,035 7,870,342 7,849,572 7,071,263 6,862,832
Provision for Loan Losses 120,000 180,000 180,000 180,000 180,000
----------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 7,966,035 7,690,342 7,669,572 6,891,263 6,682,832
Total Noninterest Income 745,380 795,444 740,236 740,183 702,636
Total Noninterest Expense 5,680,885 5,620,865 5,650,586 5,152,378 4,924,868
----------------------------------------------------------------------------
Income Before Income Taxes 3,030,530 2,864,921 2,759,222 2,479,068 2,460,600
Income Taxes Expense 680,943 628,469 590,330 460,833 460,547
----------------------------------------------------------------------------
Net Income $ 2,349,587 $ 2,236,452 $ 2,168,892 $ 2,018,235 $ 2,000,053
============================================================================
Net Income Per Share $ 2.06 $ 1.96 $ 1.90 $ 1.77 $ 1.75
Cash Dividends $ 948,651 $ 900,103 $ 822,014 $ 736,730 $ 689,162
Cash Dividends Per Share $ 0.83 $ 0.79 $ 0.72 $ 0.65 $ 0.60
Dividend Payout Percentage 40.38% 40.25% 37.90% 36.50% 34.46%
Weighted Average Number
of Shares Outstanding 1,142,906 1,140,343 1,140,343 1,140,343 1,140,343
Return on Average Assets 1.31% 1.30% 1.28% 1.29% 1.33%
Return on Average Equity 9.23% 9.24% 9.49% 9.37% 9.88%
Average Equity to
Total Assets 14.21% 14.08% 13.46% 13.82% 13.48%
Risk-Based Capital
Percentage 23.53% 22.30% 20.67% 20.45% 22.40%
Full Time Equivalent Staff 96 95 94 92 92
Average Total Assets to
Full Time Equivalent Staff $ 1,866,035 $ 1,810,186 $ 1,806,496 $ 1,694,535 $ 1,631,416
============================================================================
<FN>
* All share and per share data restated for a 5 for 4 stock split on November 15, 1996.
</FN>
</TABLE>
23
<PAGE> 26
DIRECTORS
Charles J. Dolezal
Chairman, President,
Chief Executive Officer
Sara Balzarini
Vice President of Finance
Contours, Inc.
James L. Gerber
Retired
Ray D. Gill
Retired
John W. Kropf
Attorney
Kropf, Wagner, & Hohenberger
Steve Schmid
President
Smith Dairy Products, Inc.
John E. Sprunger
President
Kidron Auction, Inc.
James F. Woolley
Chief Executive Officer
R.W.Screw Products, Inc.
Albert Yeagley
Plant Manager
J.M. Smucker Company
Robert F. Gumz
Director Emeritus
Paul H. Smucker
Director Emeritus
OFFICERS
NATIONAL BANCSHARES CORPORATION
Charles J. Dolezal
President
Kenneth R. VanSickle
Senior Vice President,
Secretary
Lawrence Cardinal, Jr.
Vice President,
Treasurer
- --------------------------------------------------------------
FIRST NATIONAL BANK
Charles J. Dolezal
President
CONTROL
Lawrence Cardinal, Jr.
Vice President & Controller
Angela Smith
Assistant Controller
LENDING
Kenneth R. VanSickle
Senior Vice President, Chief Loan Officer
Scott Holmes
Assistant Vice President,
Manager of Loan Department
Dean Karhan
Loan Officer
Sara Martin
Loan Officer
Carol Yoder
Loan Officer
OPERATIONS
Robert Woodruff
Vice President & Cashier
Jackie Samsa
Assistant Vice President,
Manager of Human Resources
Jan Zacharias
Operations Officer
SALES AND BUSINESS DEVELOPMENT
Harold Berkey
Vice President of Customer Services
SECURITY/COMPLIANCE
Ron Armentrout
Assistant Vice President,
Security Officer, Compliance Officer
AUDIT
Jim Huntsberger
Auditor
BRANCH ADMINISTRATION
David Chapman
Assistant Vice President,
Manager Mt. Eaton Office
Carolyn Forrer
Administrative Officer,
Manager Main Office Lobby
Ruth Harding
Administrative Officer,
Manager West High Office
Karen Hicks
Assistant Vice President,
Manager Smithville Office
Michelle Kieffaber
Loan Officer,
Dalton Office
James Kuschmeader
Assistant Vice President,
Manager Dalton Office
Larry Kytta
Assistant Vice President,
Manager Lodi Office
Steve Riddick
Assistant Vice President,
Manager Seville Office
Valerie Stein
Assistant Vice President,
Manager Kidron Office
Rita Tyrrell
Administrative Officer,
Dalton Office
Betty Wyant
Assistant Vice President,
Manager Midway Office
[RECYCLED PAPER LOGO]
This annual report was printed entirely on recycled paper, using environmentally
safe inks.
(C)1998 National Bancshares Corporation
<PAGE> 27
[LOGO]
NATIONAL
BANCSHARES
CORPORATION
112 West Market Street
Orrville, Ohio 44667
(330) 682-1010
www.fnborrville.com
<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 16, 1998, appearing in this Annual Report on Form 10-K of National
Bancshares Corporation for the year ended December 31, 1997.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
March 21, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,068,623
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,545,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,408,745
<INVESTMENTS-CARRYING> 70,374,836
<INVESTMENTS-MARKET> 72,045,550
<LOANS> 79,490,242
<ALLOWANCE> 1,232,464
<TOTAL-ASSETS> 182,982,332
<DEPOSITS> 151,081,856
<SHORT-TERM> 4,576,966
<LIABILITIES-OTHER> 1,145,717
<LONG-TERM> 0
0
0
<COMMON> 11,447,640
<OTHER-SE> 14,730,153
<TOTAL-LIABILITIES-AND-EQUITY> 182,982,332
<INTEREST-LOAN> 7,439,692
<INTEREST-INVEST> 5,178,157
<INTEREST-OTHER> 540,056
<INTEREST-TOTAL> 13,157,905
<INTEREST-DEPOSIT> 4,896,074
<INTEREST-EXPENSE> 5,071,870
<INTEREST-INCOME-NET> 8,086,035
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,680,885
<INCOME-PRETAX> 3,030,530
<INCOME-PRE-EXTRAORDINARY> 2,349,587
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,349,587
<EPS-PRIMARY> 2.06
<EPS-DILUTED> 2.06
<YIELD-ACTUAL> 5.18
<LOANS-NON> 426,522
<LOANS-PAST> 125,795
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,140,198
<ALLOWANCE-OPEN> 1,150,917
<CHARGE-OFFS> 90,895
<RECOVERIES> 52,442
<ALLOWANCE-CLOSE> 1,232,464
<ALLOWANCE-DOMESTIC> 120,290
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,112,174
</TABLE>
