<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, 1998
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, No 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 1, 1999: $59,888,857.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of March 1, 1999.
Common Stock, No Par Value: 2,255,035
Documents Incorporated by Reference:
- - Portions of the registrant's Proxy Statement dated March 22,1999 and
previously filed March 18, 1999, are incorporated by reference into Part III.
- - Portions of the registrant's Annual Report to Shareholders, December 31, 1998
are incorporated by reference in Parts I, II, IV.
PAGE 1
<PAGE> 2
Form 10-K Cross Reference Index Page
Part I
Item 1 - Business
Description of Business 4
Financial Ratios - Note 1 A20
Daily Average Balance Sheets, Interest and Rates - Note 1 A19
Volume and Rate Variance Analysis 6
Investment Portfolio 7
Loan Portfolio 8
Summary of Loan Loss Experience 9
Deposits 10
Short-term borrowings - None required
Item 2 - Properties 4
Item 3 - Legal Proceedings 4
Item 4 - Submission of Matters to a Vote of Security Holders - None
Part II
Item 5 - Market for the Registrant's Common Equity
and Related Stockholder Matters - Note 1 A7
Number of shareholders of common stock 4
Item 6 - Selected Financial Data - Note 1 A20
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation - Note 1 A2-6
Item 7A - Quantitative and Qualitative Disclosures About
Market Risk A5
Item 8 - Financial Statements - Note 1 A8-18
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure - Note 2 B7
Part III
Item 10- Directors of the Registrant - Note 2 B3
Executive Officers of the Registrant 5
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 B6
Part IV
Item 14- Exhibits, Financial Statement Schedules and Reports on Form 8-K
Report of Crowe, Chizek and Company LLP,
Independent Auditors A18
Financial Statements: - Note 1
Consolidated Balance Sheets as of December 31, 1998 and 1997 A8
Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 A9
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996 A11
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1998, 1997 and 1996 A10
Notes to Financial Statements - Note 1 A12-18
Reports on Form 8-K filed in fourth quarter of 1998: None
Exhibit Table 13
Signatures 11-12
Appendix A - National Bancshares 1998 Annual Report to A
Shareholders
PAGE 2
<PAGE> 3
Note 1 - Incorporated by reference from the registrant's Annual Report to
Shareholders for the year ended December 31, 1998 -- Appendix A
Note 2 - Incorporated by reference from the registrant's proxy
statement dated March 22, 1999 previously filed with the SEC on
March 18, 1999
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. While the Company's
chief decision-makers monitor the revenue streams of the various products and
services, operations are managed and financial performance is evaluated on a
Company-wide basis. Accordingly, all of the Company's banking operations are
considered by management to be aggregated in one reportable operating segment.
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 15 other banking and thrift organizations in the immediate market
area. The Bank also competes with insurance companies, consumer finance
companies, credit unions, mortgage banking companies, and commercial finance and
leasing companies. In addition, money market mutual funds and brokerage houses
provide many of the financial services offered by the Bank. The principal
methods of competition are the rates of interest charged and paid for loans and
deposits, fees charged for services, the quality of services provided and the
convenience of banking hours and branch locations. No major elimination of
services presently offered is anticipated in the immediate future.
Lending policies of the Bank follow the guidelines set forth in the Bank's
Credit Policy, which is approved by the Board of Directors on an annual basis.
The Credit Policy designates lending authority for the Chief Executive Officer,
Senior Vice President, Chief Loan Officer and all loan officers. The Credit
Policy also sets forth the maximum aggregate amount that may be loaned to any
one customer. Guidelines are established for credit types, loan mix,
concentration of credit and credit standards. Collateral is generally obtained
on loans and an appraisal is required to determine the value of the collateral.
Loan decisions are based on the five C's of credit: capacity, character,
capital, collateral and conditions. For real estate loans, guidelines have been
established for maximum loan-to-value ratios. Guidelines are also established
for the term of the loan, which must coincide with the credit purpose and life
of the collateral. In addition to the Credit Policy, the Bank has established a
series of control procedures to monitor the overall credit quality of the loan
portfolio. These controls include checklists, loan diaries, annual loan reviews
of all loans over $75,000 (excluding first mortgage loans), monthly board
reports of problem loans, and a monthly review and determination of the adequacy
of the allowance for loan losses.
Management estimates the allowance for loan loss balance required using past
loss experience, known and inherent risks in the nature and volume of the
portfolio, information about specific borrower situations and estimated
collateral values, economic conditions, and other factors.
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. During 1998, the Company purchased a facility in Wooster
and plans to open a full-service branch at this location in the spring of 1999.
Item 3 - Legal Proceedings
There were no legal proceedings during 1998 other than ordinary routine
litigation incidental to business which was not material.
Item 5 - Number of shareholders of common stock
The Company had 940 shareholders of common stock as of March 10, 1999.
PAGE 4
<PAGE> 5
Item 10 - Executive Officers
The Executive Officers of the Company are as follows:
Name Age Position
Charles J. Dolezal 45 President
President of First National Bank
Kenneth R. VanSickle 51 Senior V.P., Secretary
Senior V.P., Chief Loan Officer of
First National Bank
Lawrence M. Cardinal, Jr. 47 Vice President, Treasurer
Vice President & Controller of
First National Bank
There is no family relationship between any of the above executive officers. Mr.
Dolezal has been an executive officer of the Company since its formation in 1986
and the President of the Bank since 1981. Mr. VanSickle was appointed Senior
V.P., Secretary of the Company on April 24, 1997 and has been a senior loan
officer of the Bank since 1986. 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 from 1995 to 1997 and as Senior Vice President and
Controller for The First National Bank of Ohio from 1993 to 1995.
PAGE 5
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VOLUME AND RATE VARIANCE ANALYSIS
The following table represents a summary analysis of changes in interest income,
interest expense and the resulting net interest income on a tax equivalent basis
for the periods presented each, as compared with the preceding period. Volume is
based on daily average balances.
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 versus 1997 1997 versus 1996
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 ($315) ($170) ($485) $71 ($56) $15
Nontaxable 220 (74) 146 181 (17) 164
(tax equivalent basis)*
Federal funds sold 103 (21) 82 46 15 61
Loans (including
Nonaccrual loans) 510 (127) 383 310 (66) 244
------------------------------- ------------------------------
Total interest Income
(tax equivalent basis)* $518 ($392) $126 $608 ($124) $484
=============================== ==============================
Interest Expense
Deposits
Interest bearing checking ($20) ($92) ($112) ($18) ($16) ($34)
Savings (10) 2 (8) 24 (1) 23
Time, $100,000
And over 76 (28) 48 160 (9) 151
Time, other (4) (12) (16) 35 (13) 22
Other funds purchased 32 (17) 15 52 (2) 50
------------------------------- ------------------------------
Total interest
Expense $74 ($147) ($73) $253 ($41) $212
=============================== ==============================
Changes in net
Interest income (tax
Equivalent basis)* $444 ($245) $199 $355 ($83) $272
=============================== ==============================
</TABLE>
* Tax equivalence based on highest statutory tax rates of 34%.
PAGE 6
<PAGE> 7
INVESTMENT PORTFOLIO
The carrying amounts and distribution of the Company's investment securities
held are summarized in the Annual Report to Shareholders (Appendix A, Page 13,
Note 2). The carrying amount, maturities and approximate weighted average yields
(on a tax equivalent basis) of debt securities at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
December 31, 1998
(Dollars in thousands)
Total 0 to 1 Year 1 to 5 Years 5 to 10 Years Over 10 years
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale:
US Agencies $ 5,055 6.8% $ 1,000 6.3% $ 4,055 6.9%
State & political
Subdivisions 2,887 8.3% $2,887 8.3%
Other securities 3,821 6.3% 1,437 6.4% 2,384 6.2%
----------------------------------------------------------------------------------------------------
TOTAL $11,763 7.0% $ 2,437 6.4% $ 6,439 6.6% $2,887 8.3%
====================================================================================================
Held to Maturity:
US Treasury $ 6,250 7.1% $4,013 6.7% $ 1,010 7.2% $ 1,227 8.5%
US Agencies 20,134 6.6% 211 5.7% 4,093 5.8% 15,700 6.8% $ 130 10.2%
State & political
Subdivisions 18,569 8.6% 1,773 8.8% 9,147 8.6% 2,741 9.1% 4,908 8.3%
Other securities 11,826 6.8% 2,528 6.7% 7,554 6.9% 1,437 6.5% 307 6.4%
----------------------------------------------------------------------------------------------------
TOTAL $56,779 7.4% $8,525 7.1% $21,804 7.4% $21,105 7.2% $5,345 8.2%
====================================================================================================
</TABLE>
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 14, Note 3).
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, 1998.
<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 $15,251 $1,326 $16,577
Real Estate Construction $ 242 $ 667 $303 $ 1,212
Above loans due beyond 1 year
with:
Predetermined interest rates $ 597
Adjustable interest rates $ 1,699
</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 non-accrual loans
is recorded when received. The difference between interest income recognized on
such loans and income that would have been recognized at original contractual
rates is immaterial. The bank generally places loans on a non-accrual status
when a default of principal or interest has existed for 90 days or more. The
bank generally does not renegotiate loans due to deterioration in the financial
position of the borrower. The amounts of renegotiated loans are not considered
material.
(Dollars in Thousands) 12/31/98 12/31/97
90 Days Past Due and Accruing $141 $126
Nonaccruing Loans $168 $427
POTENTIAL LOAN PROBLEMS
Management reviews the loan portfolio for potential loan problems on a monthly
basis. The following loans were classified by management, which excludes the
above non-accrual loan totals. The amount shown below is the outstanding loan
balance, which has not been reduced by collateral values.
(Dollars in Thousands) 12/31/98 12/31/97
Loss $ 0 $ 0
Doubtful 64 45
Substandard 1,232 1,083
OAEM 180 585
Watch 0 0
------------ -----------
Total $1,476 $1,713
============ ===========
LOAN CONCENTRATIONS
Due to the nature of our market area, 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 14, Note 3).
PAGE 8
<PAGE> 9
SUMMARY OF LOAN LOSS EXPERIENCE
The determination of the balance of the allowance for loan losses historically
has been based on an overall analysis of the loan portfolio and reflects an
amount, which, in management's judgment, is adequate to provide for potential
loan losses. This analysis considers, among other things, the Company's loan
loss experience, present and potential risks of the loan portfolio and general
economic conditions. In addition, management considers the examinations of the
loan portfolio by federal regulatory agencies and internal reviews and
evaluations. The Company's allocation of the allowance for loan losses by
category represents only an estimate for each category of loans based upon a
detailed review of the loan portfolio by management.
Transactions in the allowance for loan losses are maintained by three major loan
categories and the summary of such transactions for periods indicated follows:
CHANGES IN ALLOWANCE
FOR LOAN LOSSES
(Dollars in Thousands) 1998 1997
Balance at the beginning of period $1,232 $1,151
Loans charged off:
Commercial & industrial 34 34
Real estate 11 19
Consumer 90 38
-------------------------------
Total loans charged off 135 91
-------------------------------
Recoveries of loans charged off:
Commercial & industrial 7 1
Real estate 45 30
Consumer 28 21
-------------------------------
Total recoveries 80 52
-------------------------------
Net loans charged off 55 39
-------------------------------
Provision charged to
operating expense 120 120
-------------------------------
Balance at end of period $1,297 $1,232
===============================
Net charge-offs to
average loans 0.07% 0.05%
===============================
<TABLE>
<CAPTION>
DISTRIBUTION OF ALLOWANCE FOR
LOAN LOSSES BY CATEGORY
(Dollars in thousands) December 31, 1998 December 31, 1997
% of % of
Amount Total Loans Amount Total Loans
<S> <C> <C> <C> <C>
Commercial & industrial $ 345 20% $ 91 16%
Real estate construction 12 1% 0 2%
Real estate mortgages 222 68% 18 70%
Consumer loans 152 11% 11 12%
Unallocated 566 N/A 1,112 N/A
-------------------------------------------------------------
TOTAL $1,297 100% $1,232 100%
=============================================================
</TABLE>
PAGE 9
<PAGE> 10
DEPOSITS
The classification of average deposits and the average rate paid on such
deposits for periods ending December 31, 1998, 1997 and 1996 is included in
Analysis of Net Interest Earnings included in the Annual Report to Shareholders
(Appendix A, Page 19).
A summary of maturities of time deposits of $100,000 or more is as follows.
12/31/98
Three months or less $10,131,596
Over 3 months through 6 months 991,930
Over 6 months through 12 months 315,596
Over 12 months 546,490
---------------------
$11,985,612
=====================
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: 3-16-99 /s/ Charles J. Dolezal
----------------- --------------------------------
Charles J. Dolezal, President
DATE: 3-16-99 /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: 3-16-99 /s/ Charles J. Dolezal
----------------- --------------------------------
Charles J. Dolezal, Chairman
DATE: 3-16-99 /s/ Sara Balzarini
----------------- --------------------------------
Sara Balzarini, Director
DATE: 3-16-99 /s/ Bobbi Douglas
----------------- --------------------------------
Bobbi Douglas, Director
DATE: 3-16-99 /s/ John W. Kropf
----------------- --------------------------------
John W. Kropf, Director
DATE: 3-16-99 /s/ Steve Schmid
----------------- --------------------------------
Steve Schmid, Director
DATE: 3-16-99 /s/ John E. Sprunger
----------------- --------------------------------
John E. Sprunger, Director
PAGE 11
<PAGE> 12
DATE: 3-16-99 /s/ Howard J. Wenger
----------------- --------------------------------
Howard J. Wenger, Director
DATE: 3-16-99 /s/ James F. Woolley
------------------ --------------------------------
James F. Woolley, Director
DATE: 3-16-99 /s/Albert Yeagley
------------------ ---------------------------------
Albert Yeagley, Director
PAGE 12
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C> <C>
Exhibit No. If incorporated by Reference,
Under Reg. Form 10-K Documents with Which Exhibit
S-K, Item 601 Exhibit No. Description of Exhibits was Previously Filed with SEC
(3)(i) Amended Articles of Incorporation Registration Statement S-4 filed
3/31/86 File No. 33-03711
(3)(ii) Code of Regulations Registration Statement S-4 filed
3/31/86 File No. 33-03711
(11) A20 Computation of Earnings per Share Incorporated by reference
(12) A20 Computation of Ratios Incorporated by reference
(13) A 1998 Annual Report to Shareholders
(21) A1 Subsidiaries of the registrant Incorporated by reference
(23.1) Consent of Deloitte & Touche, LLP
(23.2) Consent of Crowe, Chizek and Co. LLP
(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
[LOGO] NATIONAL
BANCSHARES
CORPORATION
1998 ANNUAL REPORT
[GRAPHIC]
DIVIDENDS
ASSETS
DEPOSITS
LOANS
EQUITY
INTEREST
<PAGE> 2
FINANCIAL HIGHLIGHTS
FINANCIAL POSITION
<TABLE>
<CAPTION>
PERCENTAGE
(YEAR END BALANCES) 1998 1997 CHANGE
<S> <C> <C> <C>
Total Assets $190,203,604 $182,982,332 3.95%
Deposits 157,714,551 151,081,856 4.39%
Loans-Net 92,037,075 78,257,778 17.61%
Investment Securities 69,808,933 80,940,781 -13.75%
Shareholders' Equity 27,192,882 26,177,793 3.88%
SUMMARY OF OPERATIONS
Net Interest Income 8,235,686 8,086,035 1.85%
Net Income 2,344,645 2,349,587 -0.21%
Regular Cash Dividends 1,001,743 948,651 5.60%
Net Income Per Share 1.03 1.03 0.00%
Cash Dividends Per Share 0.44 0.42 6.02%
Book Value Per Share $ 11.93 $ 11.48 3.92%
</TABLE>
National Bancshares Corporation is a one-bank holding company with assets
totaling over $190 million. First National Bank, its subsidiary, is
headquartered in Orrville, Ohio. Serving Wayne County, southern Medina County,
and parts of Stark and Holmes counties through ten banking offices, First
National Bank offers a variety of personal and commercial deposit and lending
services.
<PAGE> 3
DEAR SHAREHOLDERS
[PHOTO OF CHARLES J. DOLEZAL]
Year end balance sheet results posted respectable financial gains for 1998.
Total assets reached an all time high of over $190 million, increasing over year
end 1997 by $7.2 million, almost a 4% growth. Total loans increased by $13.8
million, or approximately 17.6% over December 31, 1997. Investment securities
decreased by $11 million or 13.8% as maturing bonds were redeployed to fund
increasing loan demand. Total deposits increased by over $6.6 million or 4.4%
over the end of the previous year. Deposit growth was primarily in core
deposits.
Net income from operations finished the year nearly flat with that from the
previous year. Net interest income was up 1.9%, or approximately $150 thousand.
Noninterest income increased by $129 thousand, or 17.3% over 1997. A portion of
this increase included a gain from the sale of mortgage loans to the secondary
market. We will continue to receive servicing income from these loans since we
service loans that are sold. Total noninterest expenses increased by $371
thousand dollars, or 6.5%. This increase stemmed partially from a one time cost
associated with converting all main data processing systems to a new service
bureau in August of 1998.
Cash dividends declared during 1998 totaled 44 cents per share. This was a
6% increase over 1997's total declared cash dividends. This continues the
long-term trend of increasing annual cash dividends. We have experienced this
increase for more than the past 30 consecutive years.
On May 29, 1998, a 2 for 1 stock split was issued to shareholders of record
as of May 15, 1998. The market value of our stock continued to climb through
1998. The locally quoted bid price increased by over 22% during the past 12
months. When coupled with the total declared cash dividends, the total return
for the year equates to approximately 24%. The annualized compounded rate of
return on our stock for the past five years was 25.4% per year. We hope you will
continue to hold National Bancshares Corporation stock as an important part of
your investment portfolio.
After many years of service, two of our directors, Jim Gerber and Ray Gill,
retired on October 31, 1998. Jim and Ray have assisted our organization in its
growth during the past number of years. Jim has served on the boards of National
Bancshares Corporation and First National Bank for the past 19 years while Ray
has served both boards for six years. During their tenure, they assisted in the
growth of our organization through branch acquisition and market expansion. We
thank them for their many years of service and wish them all the best in their
retirement.
Two new directors were appointed by the board of directors to fill the
vacancies created by the retiring board members. Howard Wenger of Dalton and
Bobbi Douglas of Wooster have joined the bank and holding company Board of
Directors. Howard is President of Wenger Excavating, Inc., Lake Region Oil, Inc.
and Northstar Asphalt, Inc. Bobbi is Executive Director of Wayne County
Alcoholism Services and Every Woman's House. Howard and Bobbi have both been
very active in various community affairs. We welcome them to our organization
and look forward to working with them.
We were saddened in December with the passing of Paul Smucker. Paul had
served on the Board of Directors of First National Bank since 1955 and National
Bancshares Corporation since its inception in 1986. He retired from both boards
on December 31, 1996. Upon his retirement he was appointed Director Emeritus in
recognition of his extensive service to our organization. During the 41 years
that Paul served our organization, he assisted the growth of our institution and
helped oversee numerous mergers and branch acquisitions as well as the formation
of our holding company. We will greatly miss him.
In the near future, we will be facing the coming of a new millennium. With
this new century comes the challenge of making sure all computer systems will
operate appropriately. Certain computer hardware and software was designed to
read the year in two digits rather than four. Under this design, moving from the
year 1999 (read as 99 in a two digit system) to the year 2000 (read as 00) would
be read by the computer as the year 1900. This could create significant problems
in systems that perform calculations using dates. We began addressing this
situation in our organization quite some time ago. We established a schedule for
testing and remediating all our internal computer hardware and software programs
to determine compatibility with the year 2000. Systems that did not pass the
testing have been upgraded or replaced with compliant systems. Outside computer
vendors that provide service have been actively testing and upgrading their
systems as well. In August, we converted to new mainframe computer software with
Computer Services, Inc. of Paducah, Kentucky. These systems have been tested and
passed for year 2000 compliance. They will take us into the new millennium and
will also enable us to offer more services to our customers.
Last fall, we purchased the former Giffin Prescription Center building
located at 1725 Cleveland Road in Wooster, Ohio. We are currently renovating
this building to establish a full service office at this location. Regulatory
approval has been received from the Office of the Comptroller of the Currency.
We are anticipating commencing operations at this new site on, or around, April
1, 1999. We look forward to serving the Wooster market.
The global economic scene during 1998 has been quite interesting. As
economic problems began in Asia and spread to Latin America and Russia, the
reverberation was felt worldwide. International stock markets, as well as those
in the United States, fell dramatically, only to regain some lost momentum
later. The stock markets continue to move rather erratically from day to day.
Interest rates declined during the course of the past year as well. Even though
numerous countries throughout the world are in difficult economic times, the
economy in the United States has been moving forward. Inflation is at historic
lows while employment has been at historic highs. Two very desirable, but at
times conflicting, realities for a country to experience. Hopefully, our
domestic economy will continue its positive move forward in the future, and we
may all benefit from these relatively good economic times.
/s/ Charles J. Dolezal
Charles J. Dolezal
President and Chairman
<PAGE> 4
FINANCIAL REVIEW
National Bancshares Corporation experienced continued success in 1998.
Total assets grew approximately $7.2 million ending 1998 at $190,203,604. This
represents a 3.9% increase over the previous year. Average assets also
experienced growth in 1998, increasing to approximately $184.7 million from
$179.1 million in 1997, or an increase of $5.6 million. Net income in 1998
totaled $2,344,645 compared to $2,349,587 in 1997. This represents a decrease of
$4,942 or 0.2%.
Cash and due from banks amounted to $7,675,122 and $8,068,623 at December
31, 1998 and 1997, respectively. This was a decrease of $394 thousand, or 4.9%.
Cash reserves are maintained at appropriate levels in order to meet customer
needs 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, which
represents checks deposited with us that were drawn on other banks.
- --------------------------------------------
INVESTMENT SECURITIES
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
69.8 80.9 76.7 78.4 90.0
</TABLE>
- --------------------------------------------
Total investment securities decreased approximately $11.1 million ending
1998 at $69,808,933 compared to $80,940,781 at the end of 1997. The average
balance of taxable investment securities decreased from $59.2 million in 1997 to
$54.6 million in 1998, while the average nontaxable investment securities
increased approximately $2.5 million in 1998 from 1997. The market or fair value
of the total portfolio was $71,614,775 and $82,611,495 as of December 31, 1998
and 1997, respectively.
U.S. treasury and agency obligations decreased approximately $6.4 million
or 18.0% with balances of $29,355,141 on December 31, 1998 compared to
$35,798,775 on December 31, 1997. The net market appreciation of this category
was approximately $607 thousand as of December 31, 1998.
Mortgage backed securities were $2,083,805 and $3,480,116 on December 31,
1998 and 1997, respectively. This was a decline of $1.4 million or 40.1%. The
net market appreciation of these securities was $31 thousand on December 31,
1998.
Obligations of states and political subdivisions ended 1998 at $21,456,109,
which was 2.7% lower than the $22,057,244 balance on December 31, 1997. The net
market appreciation was approximately $1.1 million as of December 31, 1998. 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 1998 at $16,913,878, which was 13.7% lower than the
December 31, 1997 balance of $19,604,646. This group of securities is primarily
comprised of high quality corporate bonds and notes. The net market depreciation
was approximately $164 thousand as of December 31, 1998, primarily resulting
from the decrease in market value of certain equity securities owned by the
Corporation.
Federal funds sold were $13,215,000 and $8,545,000 as of December 31, 1998
and 1997, respectively. Average balances increased during the year with 1998
averaging $11.7 million compared to $9.8 million during 1997. 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.
Net loans increased by approximately $13.8 million, or 17.6% during 1998.
Net loan balances were $92,037,075 and $78,257,778 on December 31, 1998 and
1997, respectively. Average net loans posted an increase of $5.4 million with a
yearly average of $84.6 million for 1998.
Loans collateralized by real estate totaled $64,714,431 on December 31,
1998, as compared to $56,562,774 as of December 31, 1997. All real estate
categories, except construction, posted increases in 1998. There was a $2.2
million increase in commercial real estate loans, $3.9 million increase in
residential mortgages, home equity loans increased $2.7 million while
construction loans declined by $706 thousand.
Consumer loans, totaling $8,842,643 on December 31, 1998, were 2.3% above
the 1997 ending total of $8,641,966. Commercial loans were $16,576,714 and
$11,923,679 as of December 31, 1998 and 1997, respectively. Credit card loans
increased 8.3% during the year with balances of $1,129,516 on December 31, 1998.
Other loans increased $675 thousand during 1998 ending the year at $2,402,317.
The allowance for loan losses was $1,296,513 and $1,232,464 as of December
31, 1998 and 1997, respectively. The allowance for loan losses to total loans
percentages were 1.39% and 1.55% and net charge-off to total loans percentages
were .06% and .05% for 1998 and 1997, respectively. As with any charge-off, the
bank continues to attempt recovery where feasible. The ratio of non-perform-
2
<PAGE> 5
ing loans to total loans was .18% for 1998 compared to .54% in 1997.
Non-performing loans consist of loans past due 90 days or more and loans that
have been placed on nonaccrual status. A substantial portion of the loan growth
during 1998 was in residential mortgages and home equity loans, which generally
carry less risk than other types of loans. Management reviews the allowance for
loan losses on a regular basis to determine the adequacy of the reserve.
Premises and equipment totaled $2,650,105 on December 31, 1998 as compared
to $2,477,058 on December 31, 1997. During 1998 capital expenditures exceeded
depreciation by $173 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. During 1998, the Corporation purchased a facility in Wooster and plans to
open a full-service branch at this location in the spring of 1999.
Total deposits posted a $6.6 million or 4.4% increase ending 1998 at
$157,714,551, as compared to $151,081,856 on December 31, 1997. Average deposits
increased from $149.0 million in 1997 to $152.3 million in 1998.
Demand deposits, which represent noninterest-bearing checking accounts,
ended 1998 at $31,486,957, which was a growth of 14.3% over the December 31,
1997 balance of $27,544,730. The average demand accounts for 1998 were $27.0
million as compared to $23.8 million in 1997.
Interest-bearing checking accounts finished 1998 at $31,128,562 compared to
$29,574,234 a year earlier. This was an increase of $1.6 million, or 5.3%.
Average balances declined by $0.7 million from $30.1 million in 1997 to $29.4
million in 1998. Interest bearing checking accounts include our Negotiable Order
of Withdrawal accounts and Money Market Deposit Accounts.
Savings accounts totaled $42,723,134 on December 31, 1998, approximately
$527 thousand above the end of the previous year. Average savings accounts
decreased from $42.0 million during 1997 to approximately $41.7 million in 1998.
First National offers both passbook and statement savings accounts.
- --------------------------------------------
LOANS - NET
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
92.0 78.3 78.1 73.1 56.2
</TABLE>
- ---------------------------------------------
- ---------------------------------------------
DEPOSITS
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
157.7 151.1 149.8 147.0 145.9
</TABLE>
- ---------------------------------------------
Time deposits of less than $100,000 amounted to $40,390,286 and $39,045,508
as of December 31, 1998 and 1997, respectively. This represents an increase of
$1.3 million or 3.4%. Average time balances of less than $100,000 decreased
approximately $77 thousand giving 1998 an average time deposit balance of $40.2
million as compared to approximately $40.3 million in 1997.
Time deposits of $100,000 and over decreased from $12,721,340 on December
31, 1997 to $11,985,612 on December 31, 1998. Average time deposits of $100,000
and over increased by $1.3 million over 1997 giving 1998 an average of $14.1
million.
Securities sold under agreements to repurchase were $3,956,501 on December
31, 1998 in comparison to $3,576,966 at the end of 1997, or approximately $380
thousand higher. The Federal Reserve note account balance was $87,358 and
$1,000,000 as of December 31, 1998 and 1997, respectively. The average of other
funds purchased increased in 1998 to $4.3 million from $3.7 million during 1997.
Shareholders' equity had an ending balance of $27,192,882 on December 31,
1998. This is an increase of $1.0 million or 3.9% above the 1997 ending balance
of $26,177,793. This growth translates to a $0.45 increase in book value per
share, raising the book value per share to $11.93 on December 31, 1998, as
compared to $11.48 on December 31, 1997. Under the federal risk-based capital
regulations, the Bank's total capital to risk based assets of 21.58% on December
31, 1998 was more than twice the 8% minimum required. The Bank remains in a very
favorable position when compared to its peer group in the area of
capitalization.
Shareholders' equity also reflects the change in accumulated other
comprehensive income. This represents the unrealized appreciation or
depreciation in the market value of investment securities (net of taxes) that
are available for sale. During 1998 accumulated other comprehensive income
decreased by $266,269, resulting in an unrealized
3
<PAGE> 6
depreciation balance of $174,514 at December 31, 1998. While the majority of the
debt securities in the available for sale portfolio show market appreciation,
the market value of equity securities reflects market depreciation at December
31, 1998.
In summary, the Corporation continued to experience balance sheet growth
highlighted by increases of approximately 17.6% in loans, 4.4% in deposits and
3.9% in shareholders' equity.
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 $20.9 million is composed of $7.7 million in cash and due from banks and
$13.2 million in federal funds sold. Management considers the Corporation to be
in a satisfactory liquidity position with the ability to meet the demands of its
customers and the local economy.
RESULTS OF OPERATIONS
Net income for 1998 was $2,344,645, or approximately 0.2% below 1997's net
income of $2,349,587. Net income for 1997 was approximately 5.1% over 1996's net
income of $2,236,452. This equates to net income per share of $1.03 for 1998 and
1997 and $0.98 for 1996. 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 $7,823,312 for 1998 was above 1997 by 5.2%,
or approximately $384 thousand. Interest and fees on loans also increased from
1996 to 1997, improving by 3.4%, or approximately $243 thousand. The improvement
in both years was primarily due to an increase in average loan volume. Average
interest yields on loans were 9.25%, 9.40% and 9.48% for 1998, 1997 and 1996,
respectively.
- --------------------------------------------
SHAREHOLDERS' EQUITY
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
27.2 26.2 24.8 23.4 22.1
</TABLE>
- ---------------------------------------------
Interest on federal funds sold was $621,579, $540,056 and $479,248 for
1998, 1997 and 1996, respectively. The increase of $82 thousand in 1998 was the
result of higher volume of average funds sold. The increase of $61 thousand in
1997 was the result of higher average interest yields and higher volume.
Interest on taxable investment securities decreased by approximately $485
thousand ending 1998 at $3,569,761. This 12.0% decrease in interest income was
due to decreases in both the average investment balances and average interest
rates. In 1997, interest on taxable investment securities increased by
approximately $15 thousand or 0.4% over 1996. This increase was due to an
increase in average investment balances.
Interest on obligations of states and political subdivisions totaled
$1,220,486 for 1998, which was $97 thousand or 8.7% above 1997. The average
balance of these investments increased $2.5 million while the average taxable
equivalent yield declined from 8.94% in 1997 to 8.60% in 1998. 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 balances increased $2
million in 1997 while the average taxable equivalent yield declined from 9.03%
to 8.94%.
Total interest income of $13,235,138 for 1998 was $77 thousand higher than
1997's total of $13,157,905 as a result of the generally increasing loan
volumes. 1997's total interest income exceeded 1996's by $427 thousand due to
higher volumes of loans, investments and federal funds sold.
Interest on deposits totaled $4,807,849 in 1998 as compared to $4,896,074
in 1997. This $88 thousand decrease, which equaled a 1.8% decline, was due to
lower average rates on deposits. Comparing 1997 to 1996, interest on deposits
increased $162 thousand or 3.4%. The increase was due to higher average balances
in savings and time deposits.
Interest expense on other funds purchased was $191,603, $175,796 and
$126,003 for 1998, 1997 and 1996, respectively. The increases in 1998 and 1997
were the result of higher average balances.
Net interest income before provision for loan losses was $8,235,686,
$8,086,035 and $7,870,342 for 1998, 1997 and 1996 respectively. This represents
an increase of 1.8% in 1998 and 2.7% in 1997. The net interest margin, which is
calculated on a tax equivalent basis was 5.14%, 5.18% and 5.24% for 1998, 1997
and 1996, respectively, reflecting a slightly narrowing interest margin for the
Corporation.
The Bank provides for potential loan losses throughout the year. In both
1998 and 1997 the provision for loan losses was $120,000. In 1996 the provision
for loan losses was $180,000. The provision for loan losses is based on 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
losses inherent in the current loan portfolio.
Net interest income after provision for loan losses was $8,115,686,
$7,966,035 and $7,690,342 in 1998, 1997 and 1996, respectively. This represents
an increase of 1.9% in 1998 and 3.6% in 1997.
4
<PAGE> 7
Noninterest income totaled $874,699, $745,380 and $795,444 for 1998, 1997
and 1996, respectively. Noninterest income is primarily comprised of checking
account fees, which were $545 thousand in 1998, $497 thousand in 1997 and $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 $6,051,569 for 1998, $5,680,885 in 1997 and
$5,620,865 in 1996. This represents a $371 thousand or 6.5% increase in 1998 and
a $60 thousand or 1.1% increase in 1997. The increase in 1998 was due to higher
salaries and employee benefits, data processing fees and miscellaneous other
expenses. The higher salaries and employee benefits were mainly due to normal
salary increases and increased medical insurance premiums. The increase in 1997
was due mainly to higher miscellaneous other expenses.
- ---------------------------------------------
NET INCOME
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
2,345 2,350 2,236 2,169 2,018
</TABLE>
- ----------------------------------------------
The income tax provision amounted to $594,171, $680,943 and $628,469 in
1998, 1997 and 1996, respectively. The growth in nontaxable interest income and
noninterest expenses was the main reason for this decrease in 1998. The income
tax provision increased in 1997 due to the growth in taxable interest income.
Cash dividends declared during 1998 were $0.44 per share, compared to $0.42
per share in 1997 and $0.40 per share in 1996. The dividend payout percentage
was 42.72%, 40.38% and 40.25% in 1998, 1997 and 1996, respectively. Return on
average equity was 8.71%, 9.23% and 9.24% for 1998, 1997 and 1996, respectively.
Return on average assets was a respectable 1.27%, 1.31% and 1.30% in 1998, 1997
and 1996, respectively.
ASSET AND LIABILITY MANAGEMENT
Management considers interest rate risk to be the Corporation'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 Corporation's Asset/Liability Management Committee, which
consists of the Corporation'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 Corporation does own a limited amount of equity
securities, which have more price volatility compared to debt securities. This
does subject the Corporation to some equity risk. The Corporation does not own
any trading assets and is not subject to foreign currency exchange or commodity
price risk.
The Corporation 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. The model also considers prepayment assumptions and estimated paydowns
in the loan and investment portfolios. 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.
Management's goal is to manage the Corporation'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.
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.
At December 31, 1998 the Corporation was relatively balanced with a one
year cumulative gap of .37% of total assets, indicating a slightly higher
balance of rate sensitive assets than rate sensitive liabilities. 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 -2.2%
-200 0.6%
</TABLE>
5
<PAGE> 8
FORWARD-LOOKING STATEMENTS
The Corporation is not aware of any trend, events or uncertainties that
will have or are reasonably likely to have a material affect on the liquidity,
capital resources or operations except as discussed herein. Also, the
Corporation is not aware of any current recommendations by regulatory
authorities which would have such an affect if implemented. The Corporation
cautions that any forward-looking statements contained in this report, in a
report incorporated by reference to this report or made by management of the
Corporation involves risk and uncertainties and are subject to change based on
various important factors. Actual results could differ materially from those
expressed or implied. Additionally, the Corporation claims no notification
responsibilities should their opinions change from those expressed herein.
YEAR 2000 COMPLIANCE
The Corporation uses an outside data processing center which also provides
processing services to other financial institutions. The Corporation's lending
and deposit activities are almost entirely dependent upon computer systems which
process and record transactions, although the Corporation can effectively
operate with manual systems for brief periods when its electronic systems
malfunction or cannot be accessed. In addition to its basic operating
activities, the Corporation's facilities and infrastructure, such as security
systems and communications equipment, are dependent, to varying degrees, upon
computer systems.
- ---------------------------------------------
CASH DIVIDENDS PER SHARE
(Millions of Dollars)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C>
$.44 $.42 $.40 $.36 $.33
</TABLE>
- ----------------------------------------------
The Corporation is aware of the potential Year 2000 related problems that
may affect the computers which control or operate the Corporation's operating
systems, facilities and infrastructure. In 1997, the Corporation began a process
of identifying any Year 2000 related problems that may be experienced by its
computer-operated or computer-dependent systems. Each application has been
identified as "Mission Critical" or "Non-Mission Critical." The Corporation has
contacted the companies that supply or service the Corporation's
computer-operated or computer-dependent systems to obtain confirmation that each
system material to the operations of the Corporation is either Year 2000
compliant or is expected to be Year 2000 compliant. The Corporation believes all
Mission Critical hardware and software systems are Year 2000 compliant. With
respect to systems that cannot presently be confirmed as Year 2000 compliant,
the Corporation will continue to work with the appropriate supplier or servicer
to ensure all such systems will be rendered compliant in a timely manner, with
minimal expense to the Corporation or disruption of the Corporation's
operations. System testing, renovation, validation and implementation will
continue through 1999. As a contingency plan, however, the Corporation has
determined that if the Corporation's systems fail, the Corporation would
implement manual systems until such systems could be re-established. The
Corporation does not anticipate that such short-term manual systems would have a
material adverse effect on the Corporation's operations. At this time, however,
the expense that may be incurred by the Corporation in connection with system
failure related to the Year 2000 issue cannot be determined.
In addition to the possible expense related to its own systems, the
Corporation could incur losses if loan payments are delayed due to Year 2000
problems affecting any of the Corporation's significant borrowers or impairing
the payroll systems of large employers in the Corporation's primary market area.
Because the Corporation's loan portfolio is highly diversified with regard to
individual borrowers and types of businesses and the Corporation's primary
market area is not significantly dependent on one employer or industry, the
Corporation does not expect any significant or prolonged Year 2000 related
difficulties will affect net earnings or cash flow. At this time, however, the
expense that may be incurred by the Corporation in connection with Year 2000
issues cannot be determined.
IMPACT OF NEW ACCOUNTING STANDARD
A new standard requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. The standard does not allow hedging of a security which is
classified as held to maturity. Accordingly, companies may reclassify any
security from held to maturity to available for sale upon adoption of the
pronouncement if they wish to be able to hedge the security in the future. The
standard is effective for the Corporation in 2000. Management does not expect
the adoption of this standard to have a significant impact on the Corporation's
financial statements.
6
<PAGE> 9
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>
1998 HIGH LOW DIVIDENDS PER SHARE
<S> <C> <C> <C>
First Quarter $ 26.00 $ 23.87 $ .090
Second Quarter 28.00 26.00 .090
Third Quarter 29.00 28.00 .090
Fourth Quarter 29.00 29.00 .170
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 HIGH LOW DIVIDENDS PER SHARE
<S> <C> <C> <C>
First Quarter $ 18.50 $ 17.50 $ .085
Second Quarter 19.50 18.50 .085
Third Quarter 20.00 19.50 .085
Fourth Quarter 23.75 21.00 .160
</TABLE>
- --------------------------------------------------------------------------------
Per share information restated for a 2 for 1 stock split on May 29, 1998.
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 1998 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.
7
<PAGE> 10
CONSOLIDATED
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
<S> <C> <C>
Cash and due from banks $ 7,675,122 $ 8,068,623
Federal funds sold 13,215,000 8,545,000
-------------------------------
Total cash and cash equivalents 20,890,122 16,613,623
Securities available for sale 13,030,285 10,565,945
Securities held to maturity (fair value 1998 - $58,584,490;
1997 - $72,045,550) 56,778,648 70,374,836
Federal bank stock 884,500 842,800
Loans, net of allowance for loan losses 1998 - $1,296,513;
1997 - $1,232,464 92,037,075 78,257,778
Accrued interest receivable 1,351,375 1,574,829
Premises and equipment - net 2,650,105 2,477,058
Other assets 2,581,494 2,275,463
-------------------------------
TOTAL $ 190,203,604 $ 182,982,332
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits $ 157,714,551 $ 151,081,856
Securities sold under repurchase agreements 3,956,501 3,576,966
Federal reserve note account 87,358 1,000,000
Accrued expenses and other liabilities 1,252,312 1,145,717
-------------------------------
Total liabilities 163,010,722 156,804,539
SHAREHOLDERS' EQUITY:
Common stock, 1998 - no par value; 1997 - $10 par value;
6,000,000 shares authorized, 2,289,528 and
1,144,764 shares issued in 1998 and 1997 11,447,640 11,447,640
Additional paid-in-capital 4,689,800 4,689,800
Accumulated other comprehensive income (174,514) 91,755
Retained earnings 11,523,005 10,137,118
Less 10,588 and 4,446 treasury shares - at cost (293,049) (188,520)
-------------------------------
Total shareholders' equity 27,192,882 26,177,793
-------------------------------
TOTAL $ 190,203,604 $ 182,982,332
===============================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 11
CONSOLIDATED
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 7,823,312 $ 7,439,692 $ 7,196,393
Federal funds sold 621,579 540,056 479,248
Securities:
Taxable 3,569,761 4,054,927 4,040,191
Nontaxable 1,220,486 1,123,230 1,014,707
-----------------------------------------
Total interest income 13,235,138 13,157,905 12,730,539
INTEREST EXPENSE:
Deposits 4,807,849 4,896,074 4,734,194
Short-term borrowings 191,603 175,796 126,003
-----------------------------------------
Total interest expense 4,999,452 5,071,870 4,860,197
-----------------------------------------
Net interest income 8,235,686 8,086,035 7,870,342
PROVISIONS FOR LOAN LOSSES 120,000 120,000 180,000
-----------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,115,686 7,966,035 7,690,342
-----------------------------------------
NONINTEREST INCOME
Checking account fees 545,212 496,523 514,511
Securities gains -- -- 21,097
Other 329,487 248,857 259,836
-----------------------------------------
Total noninterest income 874,699 745,380 795,444
-----------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 2,959,396 2,774,583 2,776,429
Data processing fees 761,320 717,417 734,680
Net occupancy expense 403,066 421,772 417,719
Franchise taxes 352,211 355,500 332,287
Maintenance and repairs 157,232 156,682 157,262
Other 1,418,344 1,254,931 1,202,488
-----------------------------------------
Total noninterest expense 6,051,569 5,680,885 5,620,865
-----------------------------------------
INCOME BEFORE INCOME TAXES 2,938,816 3,030,530 2,864,921
INCOME TAX EXPENSE 594,171 680,943 628,469
-----------------------------------------
NET INCOME $ 2,344,645 $ 2,349,587 $ 2,236,452
=========================================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 2,281,166 2,285,812 2,280,706
=========================================
BASIC EARNINGS PER COMMON SHARE $ 1.03 $ 1.03 $ .98
=========================================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 12
CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS)
ADDITIONAL OF SECURITIES TOTAL
COMMON COMMON PAID-IN AVAILABLE RETAINED TREASURY SHAREHOLDERS'
SHARES STOCK CAPITAL FOR SALE EARNINGS SHARES EQUITY
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 915,651 $ 9,156,510 $ 4,689,800 $ 84,529 $ 9,650,046 $(194,954) $23,385,931
Comprehensive income:
Net income 2,236,452 2,236,452
Change in unrealized
securities gain (loss), net (53,078) (53,078)
-----------
Total comprehensive income 2,183,374
Stock split (5 for 4) 228,551 2,285,510 (2,285,510)
Cash distribution in lieu paid
for fractional shares (12,299) (12,299)
Cash dividends declared,
$.40 Per Share (900,103) (900,103)
Shares issued under dividend
reinvestment plan (9,480 shares) 12,341 135,004 147,345
-------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,144,202 11,442,020 4,689,800 31,451 8,700,927 (59,950) 24,804,248
Comprehensive income:
Net income 2,349,587 2,349,587
Change in unrealized
securities gain (loss), net 60,304 60,304
-----------
Total comprehensive income 2,409,891
Cash dividends declared,
$.42 Per Share (948,651) (948,651)
Shares issued under dividend
reinvestment plan (7,042 shares) 562 5,620 35,255 93,687 134,562
Purchase of 10,601 treasury shares (222,257) (222,257)
-------------------------------------------------------------------------------------------
Balance, December 31, 1997 1,144,764 11,447,640 4,689,800 91,755 10,137,118 (188,520) 26,177,793
Comprehensive income:
Net income 2,344,645 2,344,645
Change in unrealized
securities gain (loss), net (266,269) (266,269)
-----------
Total comprehensive income
2,078,376
Stock split (2 for 1) 1,144,764
Cash dividends declared,
$.44 Per Share (1,001,743) (1,001,743)
Shares issued under dividend
reinvestment plan (6,867 shares) 42,985 139,921 182,906
Purchase of 8,563 treasury shares (244,450) (244,450)
-------------------------------------------------------------------------------------------
Balance, December 31, 1998 2,289,528 $11,447,640 $ 4,689,800 $ (174,514) $11,523,005 $(293,049) $27,192,882
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 13
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,344,645 $ 2,349,587 $ 2,236,452
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 120,000 120,000 180,000
Depreciation and amortization 539,665 723,928 840,396
Federal Home Loan Bank stock dividend (41,700) (25,900) (2,400)
Securities gains -- -- (21,097)
Gain on sale of loans (43,395) (7,285) --
Change in deferred taxes (132,022) (45,278) (89,938)
Changes in other assets and liabilities 178,974 (163,327) (2,601)
-----------------------------------------------
Net cash from operating activities 2,966,167 2,951,725 3,140,812
CASH FLOWS FROM INVESTING ACTIVITIES:
Securities held to maturity
Proceeds from maturities and repayments 20,015,915 13,258,515 14,606,026
Purchases of investments (6,462,252) (13,395,743) (11,239,312)
Securities available for sale
Proceeds from maturities and repayments 1,860,000 300,000 1,010,548
Proceeds from sales -- -- 1,000,000
Purchases (4,761,674) (4,874,355) (4,358,288)
Capital expenditures (543,152) (300,175) (575,847)
Net increase in loans to customers (13,855,902) (220,498) (5,188,709)
-----------------------------------------------
Net cash from investing activities (3,747,065) (5,232,256) (4,745,582)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings accounts 6,023,645 597,331 498,546
Net increase in time deposits 609,050 660,205 2,329,661
Net increase (decrease) in short-term borrowings (533,107) (333,470) 1,279,671
Dividends paid (980,647) (937,030) (896,489)
Dividends reinvested 182,906 134,562 147,345
Purchase of treasury shares (244,450) (222,257) --
-----------------------------------------------
Net cash from financing activities 5,057,397 (100,659) 3,358,734
-----------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 4,276,499 (2,381,190) 1,753,964
BEGINNING CASH AND CASH EQUIVALENTS 16,613,623 18,994,813 17,240,849
-----------------------------------------------
ENDING CASH AND CASH EQUIVALENTS $ 20,890,122 $ 16,613,623 $ 18,994,813
===============================================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 5,010,902 $ 5,064,473 $ 4,869,056
Cash paid for income taxes 632,762 703,935 787,342
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Years Ended December 31, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION: The consolidated
financial statements include National Bancshares Corporation and its
wholly-owned subsidiary, First National Bank, Orrville, Ohio, together referred
to as "the Corporation." Intercompany transactions and balances are eliminated
in consolidation.
The Corporation provides financial services through its offices in
Orrville, Ohio, and surrounding communities. Its primary deposit products are
checking, savings, and term certificate accounts, and its primary lending
products are residential mortgage, commercial, and installment loans. Most loans
are secured by specific items of collateral including business assets, consumer
assets and real estate. Commercial loans are expected to be repaid from cash
flow from operations of businesses. Real estate loans are secured by both
residential and commercial real estate. Other financial instruments, which
potentially represent concentrations of credit risk, include deposit accounts in
other financial institutions and federal funds sold.
SEGMENTS: As noted above, the Corporation provides a broad range of
financial services to individuals and companies in northern Ohio. While the
Corporation's chief decision makers monitor the revenue streams of the various
products and services, operations are managed and financial performance is
evaluated on a Corporation-wide basis. Accordingly, all of the Corporation's
banking operations are considered by management to be aggregated in one
reportable operating segment.
USE OF ESTIMATES: To prepare financial statements in conformity with
generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. The allowance for loan losses, fair
values of financial instruments and fair values of certain securities are
particularly subject to change.
CASH FLOWS: Cash and cash equivalents includes cash, deposits with
other financial institutions with original maturities under 90 days, and federal
funds sold. Net cash flows are reported for loan and deposit transactions.
SECURITIES: Securities are classified as held to maturity and carried
at amortized cost when management has the positive intent and ability to hold
them to maturity. Securities are classified as available for sale when they
might be sold before maturity. Securities available for sale are carried at fair
value, with unrealized holding gains and losses reported in other comprehensive
income. Other securities such as Federal Home Loan Bank stock are carried at
cost.
Interest income includes amortization of purchase premium or discount.
Gains and losses on sales are based on the amortized cost of the security sold.
Securities are written down to fair value when a decline in fair value is not
temporary.
LOANS: Loans are reported at the principal balance outstanding, net of
unearned interest, deferred loan fees and costs, and an allowance for loan
losses. Loans held for sale are reported at the lower of cost or market, on an
aggregate basis.
Interest income is reported on the interest method and includes
amortization of net deferred loan fees and costs over the loan term. Interest
income is not reported when full loan repayment is in doubt, typically when the
loan is impaired or payments are past due over 90 days. Payments received on
such loans are reported as principal reductions.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is a valuation
allowance for probable credit losses, increased by the provision for loan losses
and decreased by charge-offs less recoveries. Management estimates the allowance
balance required using past loan loss experience, known and inherent risks in
the nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in management's judgment,
should be charged-off.
A loan is impaired when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer, and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral.
FORECLOSED ASSETS: Assets acquired through or instead of loan
foreclosure are initially recorded at fair value when acquired, establishing a
new cost basis. If fair value declines, a valuation allowance is recorded
through expense. Costs after acquisition are expensed.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed over the asset useful lives
on the straight-line basis.
INTANGIBLES: Purchased intangibles, including goodwill of $321,000 and
core deposit value of $141,000 at year-end 1998, are recorded at cost and
amortized over the estimated life. Goodwill amortization is straight-line and
core deposit amortization is accelerated.
LONG-TERM ASSETS: These assets are reviewed for impairment when events
indicate their carrying amount may
12
<PAGE> 15
not be recoverable from future undiscounted cash flows. If impaired, the assets
are recorded at discounted amounts.
REPURCHASE AGREEMENTS: Substantially all repurchase agreement
liabilities represent amounts advanced by various customers. Securities are
pledged to cover these liabilities, which are not covered by federal deposit
insurance.
BENEFIT PLANS: Retirement plan expense is the amount of required
matching contributions plus any discretionary contributions as determined by
Board decision. Deferred compensation plan expense allocates the benefits over
years of service.
INCOME TAXES: Income tax expense is the total of the current-year
income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future tax
amounts for the temporary differences between carrying amounts and tax bases of
assets and liabilities, computed using enacted tax rates. A valuation allowance,
if needed, reduces deferred tax assets to the amount expected to be realized.
FINANCIAL INSTRUMENTS: Financial instruments include credit
instruments, such as commitments to make loans and standby letters of credit,
issued to meet customer-financing needs. The face amount for these items
represents the exposure to loss, before considering customer collateral or
ability to repay.
EARNINGS PER COMMON SHARE: Earnings per common share are calculated
based on the weighted average number of shares outstanding during the period.
During 1998, the Corporation declared a 2 for 1 stock split, effected in the
form of a 100% stock dividend. Accordingly, earnings per share and dividends per
share for 1997 and 1996 have been restated to reflect the increased number of
shares.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and
other comprehensive income. Other comprehensive income includes unrealized gains
and losses on securities available for sale, which is also recognized as a
separate component of equity. The accounting standard that requires reporting
comprehensive income first applies for 1998, with prior information restated to
be comparable.
NEW ACCOUNTING PRONOUNCEMENTS: Beginning January 1, 2000, a new
accounting standard will require all derivatives to be recorded at fair value.
Unless designated as hedges, changes in these fair values will be recorded in
the income statement. Fair value changes involving hedges will generally be
recorded by offsetting gains and losses on the hedge and on the hedged item,
even if the fair value of the hedged item is not otherwise recorded. This is not
expected to have a material effect since the Corporation currently has no
derivative holdings.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal
actions arising in the ordinary course of business, are recorded as liabilities
when the likelihood of loss is probable and an amount or range of loss can be
reasonably estimated. Management does not believe there now are such matters
that will have a material effect on the financial statements.
DIVIDEND RESTRICTION: Banking regulations require maintaining certain
capital levels and limit the dividends paid by the bank to the holding company
or by the holding company to shareholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Fair values of financial
instruments are estimated using relevant market information and other
assumptions, as more fully disclosed in a separate note. Fair value estimates
involve uncertainties and matters of significant judgment regarding interest
rates, credit risk, prepayments, and other factors, especially in the absence of
broad markets for particular items. Changes in assumptions or in market
conditions could significantly affect the estimates.
2. SECURITIES
Year-end securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government
and federal agency $ 5,008,958 $ 46,665 $ -- $ 5,055,623
State and municipal 2,815,131 80,994 (9,431) 2,886,694
Corporate bond and notes 3,750,813 70,030 -- 3,820,843
------------------------------------------------------
Total debt securities 11,574,902 197,689 (9,431) 11,763,160
Equity securities 1,719,797 13,125 (465,797) 1,267,125
------------------------------------------------------
Total $13,294,699 $ 210,814 $ (475,228) $13,030,285
======================================================
HELD TO MATURITY:
U.S. Government
and federal agency $24,299,518 $ 595,272 $ (34,766) $24,860,024
State and municipal 18,569,415 998,443 (2,550) 19,565,308
Mortgage-backed 2,083,805 38,523 (7,667) 2,114,661
Corporate bond and notes 11,825,910 225,074 (6,487) 12,044,497
------------------------------------------------------
Total $56,778,648 $ 1,857,312 $ (51,470) $58,584,490
======================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government
and federal agency $ 4,030,144 $ 45,792 $ -- $ 4,075,936
State and municipal 2,824,568 75,682 (14,591) 2,885,659
Corporate bond and notes 2,287,412 15,122 (5,184) 2,297,350
------------------------------------------------------
Total debt securities 9,142,124 136,596 (19,775) 9,258,945
Equity securities 1,284,797 27,000 (4,797) 1,307,000
------------------------------------------------------
Total $10,426,921 $ 163,596 $ (24,572) $10,565,945
======================================================
HELD TO MATURITY:
U.S. Government
and federal agency $31,722,839 $ 530,561 $ (22,623) $32,230,777
State and municipal 3,480,116 44,731 (12,380) 3,512,467
Mortgage-backed 19,171,585 1,009,614 (8,871) 20,172,328
Corporate bond and notes 16,000,296 220,609 (90,927) 16,129,978
------------------------------------------------------
Total $70,374,836 $ 1,805,515 $ (134,801) $72,045,550
======================================================
</TABLE>
13
<PAGE> 16
The Corporation received proceeds of $1,000,000 for the sale of
securities in 1996, resulting in a gain of $21,097. There were no sales of
securities in 1997 or 1998.
Contractual maturities of debt securities at year-end 1998 were as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
AVAILABLE FOR SALE:
Due in one year or less $ -- $ --
Due from one
to five years 2,421,105 2,437,624
Due from five to
fifteen years 6,547,619 6,653,406
Due after fifteen years 2,606,178 2,672,130
-------------------------
Total $11,574,902 $11,763,160
=========================
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
<S> <C> <C>
HELD TO MATURITY:
Due in one year or less $ 8,382,921 $ 8,478,002
Due from one
to five years 23,122,471 23,794,426
Due from five to
fifteen years 23,374,897 24,295,526
Due after fifteen years 1,898,359 2,016,536
-------------------------
Total $56,778,648 $58,584,490
=========================
</TABLE>
Securities pledged at year-end 1998 and 1997 had carrying values of
$31,459,000 and $27,664,000, and were pledged to secure public deposits and
repurchase agreements.
3. LOANS
Loans at year-end were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Collateralized by real estate:
Commercial $ 25,173,356 $ 22,935,097
Residential 33,045,472 29,173,322
Home equity 5,283,968 2,536,760
Construction 1,211,635 1,917,595
----------------------------
64,714,431 56,562,774
Consumer 8,842,643 8,641,966
Commercial 16,576,714 11,923,679
Credit cards - unsecured 1,129,516 1,043,101
Other 2,402,317 1,727,530
----------------------------
93,665,621 79,899,050
Unearned and deferred
income (160,627) (195,968)
Unamortized discount
on purchased loans (171,406) (212,840)
----------------------------
93,333,588 79,490,242
Allowance for loan losses (1,296,513) (1,232,464)
----------------------------
$ 92,037,075 $ 78,257,778
============================
</TABLE>
Activity in the allowance for loan losses for the year was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Beginning balance $ 1,232,464 $ 1,150,917 $ 1,046,542
Provision for
loan losses 120,000 120,000 180,000
Loans charged-off (135,408) (90,895) (142,308)
Recoveries 79,457 52,442 66,683
-----------------------------------------
Ending balance $ 1,296,513 $ 1,232,464 $ 1,150,917
=========================================
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Year-end loans with no
allocated allowance
for loan losses $ -- $262,611
Year-end loans with
allocated allowance
for loan losses 83,504 20,000
Amount of the allowance
for loan losses allocated 43,913 4,000
Average of impaired loans
during the year $196,250 $358,961
Interest income recognized
during impairment 5,543 6,950
Cash-basis interest
income recognized 5,543 6,950
</TABLE>
4. PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Land $ 285,592 $ 285,592
Buildings 3,312,352 2,989,708
Furniture, fixtures
and equipment 2,991,777 2,836,724
-----------------------
6,589,721 6,112,024
Less: Accumulated
depreciation 3,939,616 3,634,966
-----------------------
$2,650,105 $2,477,058
=======================
</TABLE>
Depreciation included in noninterest expense was $370,105, $340,771 and
$278,548 in 1998, 1997 and 1996.
5. DEPOSITS
Year-end deposits were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Demand, noninterest
bearing $ 31,486,957 $ 27,544,730
Demand, interest
bearing 31,128,562 29,574,234
Savings 42,723,134 42,196,044
Time, $100,000 and
over 11,985,612 12,721,340
Time, other 40,390,286 39,045,508
---------------------------
$157,714,551 $151,081,856
===========================
</TABLE>
14
<PAGE> 17
A summary of time deposits at year-end by maturity follows:
<TABLE>
<CAPTION>
1998
<S> <C>
Within 12 months $39,360,568
12 months to 24 months 6,911,971
24 to 60 months 6,067,762
Over 60 months 35,597
-----------
$52,375,898
===========
</TABLE>
6. SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
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>
1998 1997
<S> <C> <C>
Average balance
during the year $3,825,286 $3,094,542
Average interest rate
during the year 4.27% 4.70%
Maximum month-end
balance during the year $5,963,258 $4,621,601
</TABLE>
7. BENEFIT PLANS
The Corporation has a 401(k) retirement plan that covers substantially
all employees. The plan allows employees to contribute up to 15% of their pay
with the Corporation 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 Corporation during 1998, 1997 and
1996 amount to $102,269, $103,642 and $99,949, respectively.
The Corporation has an Employee Stock Purchase Incentive Plan for
full-time employees. Under the Plan, each employee will be entitled to receive a
cash payment 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 Corporation has a director retirement and death benefit plan for
the benefit of all members of the Board of Directors. The plan 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 after August 24,
1994. In addition, each director has the option of deferring any portion of
directors' fees to a maximum of $1,000 per month until retirement. Expense
recognized in 1998, 1997 and 1996 for this plan was $35,476, $21,862 and
$27,721.
8. INCOME TAXES
The components of deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Deferred tax assets:
Bad debts $280,685 $248,964
Deferred loan fees 51,950 54,640
Core deposit intangibles 37,228 45,339
Deferred compensation 83,813 52,972
Unrealized securities losses 89,901 --
-------------------
Total 543,577 401,915
-------------------
Deferred tax liabilities:
Securities accretion 28,133 115,457
Depreciation 87,219 87,516
Unrealized securities gains -- 47,268
Other 7,360 --
-------------------
Total 122,712 250,241
-------------------
Net deferred tax asset $420,865 $151,674
===================
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
Currently payable $ 726,193 $ 726,221 $ 718,407
Deferred (132,022) (45,278) (89,938)
-----------------------------------
Total $ 594,171 $ 680,943 $ 628,469
===================================
</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,
1998 1997 1996
RATE AMOUNT RATE AMOUNT RATE AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Tax at federal
statutory rate 34% $ 999,197 34% $1,030,380 34% $ 974,073
Tax-exempt
income (15) (428,371) (12) (370,979) (12) (339,466)
Other 1 23,345 21,542 (6,138)
----------------------------------------------------------
Income tax
expense 20% $ 594,171 22% $ 680,943 22% $ 628,469
==========================================================
</TABLE>
9. RELATED PARTY TRANSACTIONS
Loans to principal officers, directors, and their affiliates in 1998
were as follows:
<TABLE>
<S> <C>
Beginning balance $ 6,849,934
New loans 7,054,395
Effect of changes in
related parties (1,854,891)
Repayments (4,564,801)
-----------
Ending balance $ 7,484,637
===========
</TABLE>
Unused commitments to these related parties totaled $791,000 at
year-end 1998.
15
<PAGE> 18
10. CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS
The Company and the Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective-action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators. Failure to meet capital requirements can
initiate regulatory action.
Prompt corrective-action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and capital restoration plans are required.
Actual and required capital amounts and ratios are presented below at
year-end.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
Total capital to risk-weighted assets
Consolidated $27,904 23.80% $ 9,379 8.00% $11,724 10.00%
Bank 24,994 21.58 9,265 8.00 11,582 10.00
Tier 1 (core) capital to risk-weighted assets
Consolidated 26,607 22.69 4,690 4.00 7,034 6.00
Bank 23,697 20.46 4,633 4.00 6,949 6.00
Tier 1 (core) capital to average assets
Consolidated 26,607 14.40 7,390 4.00 9,237 5.00
Bank 23,697 12.92 7,374 4.00 9,167 5.00
1997
Total capital to risk-weighted assets
Consolidated 25,766 23.75 8,679 8.00 10,849 10.00
Bank 25,218 23.53 8,574 8.00 10,718 10.00
Tier 1 (core) capital to risk-weighted assets
Consolidated 25,534 23.54 4,340 4.00 6,509 6.00
Bank 23,986 22.38 4,287 4.00 6,431 6.00
Tier 1 (core) capital to average assets
Consolidated 25,534 14.25 7,166 4.00 8,957 5.00
Bank 23,986 13.43 7,146 4.00 8,933 5.00
</TABLE>
The Bank is restricted by regulation in the amount of dividends it may pay to
the holding company. Under the most restrictive dividend limitations, at
year-end approximately $1.25 million is available for the Bank to pay dividends
to the holding company.
11. COMMITMENTS, CONTINGENCIES AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK
Some financial instruments, such as loan commitments, credit lines,
letters of credit, and overdraft protection, are issued to meet
customer-financing needs. These are agreements to provide credit or to support
the credit of others, as long as conditions established in the contract are met.
These agreements usually have fixed expiration dates. Commitments may expire
without being used. Off-balance-sheet risk to credit loss exists up to the face
amount of these instruments, although material losses are not anticipated. The
same credit policies are used to make such commitments as are used for loans,
including obtaining collateral at exercise of the commitment.
Financial instruments with off-balance-sheet risk were as follows at
year-end.
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Unused lines of credit $ 18,317,000 $ 16,371,000
Letters of credit 1,575,000 1,803,000
</TABLE>
The Corporation was required to have approximately $1,328,000 and
$1,233,000 of cash on hand or on deposit with the Federal Reserve Bank at
year-end 1998 and 1997. These balances do not earn interest. The
16
<PAGE> 19
Corporation has also committed to invest up to $225,000 in a limited partnership
that purchases stock of financial companies.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
Carrying amount and estimated fair values of financial instruments were
as follows at year-end:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 20,890,122 $ 20,890,122 $ 16,613,623 $ 16,613,623
Securities
available
for sale 13,030,285 13,030,285 10,565,945 10,565,945
Securities
held to
maturity 56,778,648 58,584,490 70,374,836 72,045,550
Federal bank
stock 884,500 884,500 842,800 842,800
Loans, net 92,037,075 92,676,056 78,257,778 78,873,635
Accrued
interest
receivable 1,351,375 1,351,375 1,574,829 1,574,829
Financial liabilities:
Deposits (157,714,551) (157,910,772) (151,081,856) (151,143,842)
Short-term
borrowings (4,043,859) (4,043,859) (4,576,966) (4,576,966)
Accrued
interest
payable (545,377) (545,377) (556,827) (556,827)
</TABLE>
The methods and assumptions used to estimate fair value are described
as follows.
Carrying amount is the estimated fair value for cash and cash
equivalents, short-term borrowings, Federal bank stock, accrued interest
receivable and payable, demand and savings deposits, short-term debt, and
variable rate loans or deposits that reprice frequently and fully. Security fair
values are based on market prices or dealer quotes, and if no such information
is available, on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate loans or deposits
with infrequent repricing or repricing limits, fair value is based on discounted
cash flows using current market rates applied to the estimated life and credit
risk. Fair values for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of loans held for sale is
based on market quotes. Fair value of debt is based on current rates for similar
financing. The fair value of off-balance-sheet items, based on the current fees
or cost that would be charged to enter into or terminate such arrangements, is
not material.
13. OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as
follows.
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Unrealized holding gains
and losses on
available-for-sale
securities $(403,438) $ 91,369 $(101,516)
Less reclassification
adjustment for gains and
losses later recognized
in income -- -- 21,097
-----------------------------------
Net unrealized
gains and losses (403,438) 91,369 $ (80,419)
Tax effect 137,169 (31,065) 27,341
-----------------------------------
Other comprehensive
income $(266,269) $ 60,304 $ (53,078)
===================================
</TABLE>
14. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial statements for National Bancshares Corporation
(parent only) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
BALANCE SHEETS
Assets:
Cash $ 1,877,605 $ 29,435
Dividend receivable -- 600,294
Investment in Bank
subsidiary 24,281,663 24,614,936
Securities available
for sale 1,267,125 1,307,000
Other assets 153,909 --
-------------------------
Total assets $27,580,302 $26,551,665
=========================
Liability and
shareholders' equity:
Dividends payable $ 387,420 $ 366,324
Other liabilities -- 7,548
Shareholders' equity 27,192,882 26,177,793
-------------------------
Total liabilities and
shareholders' equity $27,580,302 $26,551,665
=========================
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
STATEMENTS
OF INCOME
Income:
Dividends from
Bank subsidiary $ 2,752,913 $ 2,086,961 $ 919,201
Other dividends 12,724 2,500 --
-----------------------------------------
Total income 2,765,637 2,089,461 919,201
Expenses:
Misc. expense (40,571) (28,736) (28,097)
Undistributed equity in
net income of Bank (380,421) 288,862 1,345,348
-----------------------------------------
Net income $ 2,344,645 $ 2,349,587 $ 2,236,452
=========================================
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
STATEMENTS
OF CASH FLOWS
Cash flows from
operating activities:
Net income $ 2,344,645 $ 2,349,587 $ 2,236,452
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Undistributed
earnings of Bank 380,421 (288,862) (1,345,348)
Change in dividends
receivable 600,294 (243,869) (18,759)
-----------------------------------------
Net cash from
operating
activities 3,325,360 1,816,856 872,345
Cash flows from
investing activities:
Purchase of
securities (434,999) (1,284,798) --
-----------------------------------------
Cash flows from
financing activities:
Dividends paid (980,647) (937,030) (896,489)
Dividends reinvested 182,906 134,562 147,345
Purchase of
treasury shares (244,450) (222,257) --
-----------------------------------------
Net cash from
financing
activities (1,042,191) (1,024,725) (749,144)
-----------------------------------------
Net increase (decrease)
in cash 1,848,170 (492,667) 123,201
Cash, beginning of year 29,435 522,102 398,901
-----------------------------------------
Cash, end of year $ 1,877,605 $ 29,435 $ 522,102
=========================================
</TABLE>
[CROWE CHIZEK LOGO]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
National Bancshares Corporation
Orrville, Ohio
We have audited the accompanying consolidated balance sheet of National
Bancshares Corporation as of December 31, 1998, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for the
year then ended. 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 audit. The Corporation's financial statements
as of December 31, 1997, and for each of the two years in the period then ended
were audited by other auditors, whose report dated January 16, 1998, expressed
an unqualified opinion thereon.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
Bancshares Corporation as of December 31, 1998, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Columbus, Ohio
January 29, 1999
18
<PAGE> 21
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>
1998 1997 1996
--------------------------------------------------------------------------------------------
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 $ 54,565 $ 3,570 6.54% $ 59,159 $ 4,055 6.85% $ 58,132 $ 4,040 6.95%
Nontaxable (tax
equivalent basis)* 21,493 1,848 8.60% 19,028 1,702 8.94% 17,024 1,538 9.03%
Federal funds sold 11,692 622 5.32% 9,823 540 5.50% 8,962 479 5.34%
Net loans (including
nonaccrual loans) 84,610 7,823 9.25% 79,187 7,440 9.40% 75,917 7,196 9.48%
--------------------------------------------------------------------------------------------
Total interest
earning assets 172,360 13,863 8.04% 167,197 13,737 8.22% 160,035 13,253 8.28%
--------------------------------------------------------------------------------------------
All other assets 12,389 11,942 11,933
--------------------------------------------------------------------------------------------
Total Assets $184,749 $179,139 $171,968
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities
Deposits:
Interest bearing
checking $ 29,376 $ 676 2.30% $ 30,139 $ 788 2.61% $ 30,801 $ 822 2.67%
Savings 41,657 1,245 2.99% 42,003 1,253 2.98% 41,200 1,230 2.99%
Time, $100,000
and over 14,082 768 5.45% 12,737 720 5.65% 9,938 569 5.73%
Time, other 40,196 2,119 5.27% 40,273 2,135 5.30% 39,621 2,113 5.33%
Other funds purchased 4,350 191 4.39% 3,679 176 4.78% 2,600 126 4.85%
--------------------------------------------------------------------------------------------
Total interest
bearing liabilities 129,661 4,999 3.86% 128,831 5,072 3.94% 124,160 4,860 3.91%
--------------------------------------------------------------------------------------------
Demand deposits 27,030 23,844 22,637
Other liabilities 1,132 1,017 962
Shareholders' equity 26,926 25,447 24,209
--------------------------------------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $184,749 $179,139 $171,968
=============================================================================================
Net interest income
(tax equivalent basis)* $ 8,864 $ 8,665 $ 8,393
--------------------------------------------------------------------------------------------
Net interest spread 4.18% 4.28% 4.37%
--------------------------------------------------------------------------------------------
Net yield on total
earning assets* 5.14% 5.18% 5.24%
--------------------------------------------------------------------------------------------
</TABLE>
*Tax equivalence based on highest statutory tax rate of 34%.
19
<PAGE> 22
HISTORICAL FINANCIAL SUMMARY
<TABLE>
<CAPTION>
FINANCIAL POSITION
(YEAR END BALANCES) 1998 1997* 1996* 1995* 1994*
<S> <C> <C> <C> <C> <C>
Total Assets $190,203,604 $182,982,332 $180,631,014 $175,144,085 $173,041,984
Cash and Due from Banks 7,675,122 8,068,623 8,194,813 7,946,503 8,261,107
Investment Securities 69,808,933 80,940,781 76,719,305 78,406,304 89,956,248
Loans-Net 92,037,075 78,257,778 78,149,995 73,141,286 56,215,091
Deposits 157,714,551 151,081,856 149,824,321 146,996,114 145,862,240
Shareholders' Equity 27,192,882 26,177,793 24,804,248 23,385,931 22,089,249
Book Value Per Share $ 11.93 $ 11.48 $ 10.86 $ 10.24 $ 9.67
----------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Total Interest Income $ 13,235,138 $ 13,157,905 $ 12,730,539 $ 12,611,712 $ 10,766,011
Total Interest Expense 4,999,452 5,071,870 4,860,197 4,762,140 3,694,748
----------------------------------------------------------------------------
Net Interest Income 8,235,686 8,086,035 7,870,342 7,849,572 7,071,263
Provision for Loan Losses 120,000 120,000 180,000 180,000 180,000
----------------------------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 8,115,686 7,966,035 7,690,342 7,669,572 6,891,263
Total Noninterest Income 874,699 745,380 795,444 740,236 740,183
Total Noninterest Expense 6,051,569 5,680,885 5,620,865 5,650,586 5,152,378
----------------------------------------------------------------------------
Income Before Income Taxes 2,938,816 3,030,530 2,864,921 2,759,222 2,479,068
Income Taxes Expense 594,171 680,943 628,469 590,330 460,833
----------------------------------------------------------------------------
Net Income $ 2,344,645 $ 2,349,587 $ 2,236,452 $ 2,168,892 $ 2,018,235
============================================================================
Net Income Per Share $ 1.03 $ 1.03 $ .98 $ .95 $ .88
Cash Dividends $ 1,001,743 $ 948,651 $ 900,103 $ 822,014 $ 736,730
Cash Dividends Per Share $ .44 $ .42 $ .40 $ .36 $ .33
Dividend Payout Percentage 42.72% 40.38% 40.25% 37.90% 36.50%
Weighted Average Number
of Shares Outstanding 2,281,166 2,285,812 2,280,706 2,280,706 2,280,706
Return on Average Assets 1.27% 1.31% 1.30% 1.28% 1.29%
Return on Average Equity 8.71% 9.23% 9.24% 9.49% 9.37%
Average Equity to
Total Assets 14.57% 14.21% 14.08% 13.46% 13.82%
Risk-Based Capital
Percentage 23.80% 23.75% 22.30% 20.67% 20.45%
Full Time Equivalent Staff 96 96 95 94 92
Average Total Assets to
Full Time Equivalent Staff $ 1,924,474 $ 1,866,035 $ 1,810,186 $ 1,806,496 $ 1,694,535
============================================================================
</TABLE>
* All share and per share data restated for a 2 for 1 stock split on May 29,
1998.
20
<PAGE> 23
DIRECTORS OFFICERS
NATIONAL BANCSHARES CORPORATION
Charles J. Dolezal
Chairman, President, Charles J. Dolezal
Chief Executive Officer President
Sara Balzarini Kenneth R. VanSickle
Member of Management Committee Senior Vice President,
Contours, Ltd. Secretary
Bobbi Douglas Lawrence Cardinal, Jr.
Executive Director Vice President, Treasurer
Wayne County Alcoholism Services
Every Woman's House
John W. Kropf
Attorney
Kropf, Wagner, & Hohenberger
Steve Schmid
President
Smith Dairy Products, Inc.
John E. Sprunger
President
Kidron Auction, Inc.
Howard J. Wenger
President
Wenger Excavating, Inc.
Lake Region Oil, Inc.
Northstar Asphalt, 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
- --------------------------------------------------------------------------------
FIRST NATIONAL BANK BRANCH ADMINISTRATION
Charles J. Dolezal David Chapman
President Assistant Vice President,
Manager Mt. Eaton Office
CONTROL Carolyn Forrer
Lawrence Cardinal, Jr. Administrative Officer,
Vice President & Controller Manager Main Office Lobby
Angela Smith Karen Hicks
Assistant Controller Assistant Vice President,
Manager Smithville Office
LENDING Michelle Kieffaber
Kenneth R. VanSickle Loan Officer,
Senior Vice President, Chief Loan Officer Dalton Office
Scott Holmes James Kuschmeader
Assistant Vice President, Assistant Vice President,
Manager of Loan Department Manager Dalton Office
Dean Karhan Susan Kutz
Loan Officer Administrative Officer,
Manager West High Office
Sara Martin
Loan Officer Larry Kytta
Assistant Vice President,
Carol Yoder Manager Lodi Office
Loan Officer
Steve Riddick
OPERATIONS Assistant Vice President,
Robert Woodruff Manager Seville Office
Vice President & Cashier
Valerie Stein
Jackie Samsa Assistant Vice President,
Assistant Vice President, Manager Kidron Office
Manager of Human Resources
Rita Tyrrell
Jan Zacharias Administrative Officer,
Operations Officer Dalton Office
SALES AND BUSINESS DEVELOPMENT Betty Wyant
Harold Berkey Assistant Vice President,
Vice President of Customer Services Manager Midway Office
SECURITY/COMPLIANCE
Ron Armentrout
Assistant Vice President,
Security Officer, Compliance Officer
AUDIT
Jim Huntsberger
Auditor
(Copyright) 1999 National Bancshares Corporation
<PAGE> 24
[GRAPHIC IN BACKGROUND]
[NATIONAL BANCSHARES CORPORATION LOGO]
112 West Market Street
Orrville, Ohio 44667
(330)682-1010
www.fnborrville.com
<PAGE> 1
Exhibit 23.1
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, which has been incorporated by reference in the Annual Report
on Form 10-K of National Bancshares Corporation for the year ended December 31,
1998.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
March 26, 1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in Registration Statement
No. 33-63005 on Form S-3 of National Bancshares Corporation of our report dated
January 29, 1999 on the consolidated balance sheets of National Bancshares
Corporation as of December 31, 1998 and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended; which
report is incorporated by reference into this Annual Report on Form 10-K.
/S/CROWE, CHIZEK AND COMPANY LLP
Crowe, Chizek and Company LLP
Columbus, Ohio
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,675,122
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,215,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,914,785
<INVESTMENTS-CARRYING> 56,778,648
<INVESTMENTS-MARKET> 58,584,490
<LOANS> 93,333,588
<ALLOWANCE> 1,296,513
<TOTAL-ASSETS> 190,203,604
<DEPOSITS> 157,714,551
<SHORT-TERM> 4,043,859
<LIABILITIES-OTHER> 1,252,312
<LONG-TERM> 0
0
0
<COMMON> 11,447,640
<OTHER-SE> 15,745,242
<TOTAL-LIABILITIES-AND-EQUITY> 190,203,604
<INTEREST-LOAN> 7,823,312
<INTEREST-INVEST> 4,790,247
<INTEREST-OTHER> 621,579
<INTEREST-TOTAL> 13,235,138
<INTEREST-DEPOSIT> 4,807,849
<INTEREST-EXPENSE> 4,999,452
<INTEREST-INCOME-NET> 8,235,686
<LOAN-LOSSES> 120,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,051,569
<INCOME-PRETAX> 2,938,816
<INCOME-PRE-EXTRAORDINARY> 2,344,645
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,344,645
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
<YIELD-ACTUAL> 5.14
<LOANS-NON> 168,095
<LOANS-PAST> 140,738
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,643,823
<ALLOWANCE-OPEN> 1,232,464
<CHARGE-OFFS> 135,408
<RECOVERIES> 79,457
<ALLOWANCE-CLOSE> 1,296,513
<ALLOWANCE-DOMESTIC> 731,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 565,513
</TABLE>
