Item 1 - Business: National Bancshares Corporation (the "Company"), incorporated in 1985, is a one bank holding company for First National Bank, Orrville, Ohio (the "Bank"). The formation was approved by shareholders on April 24, 1986 and consummated on June 2, 1986. The Bank offers a full line of services usually found in any commercial bank operation, including checking accounts, savings accounts, certificates of deposit, personal loans, loans to business and industry, installment loans, safety deposit boxes and credit cards. The Bank does not have trust powers and, therefore, does not offer trust services. The Bank operates nine full service offices and one limited service office in a market area comprising most of Wayne County, portions of western Stark County, northeastern Holmes County and southern Medina County. There are approximately 17 other banking and thrift organizations in the immediate market area. No major elimination of services presently offered is anticipated in the immediate future.
The Bank is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation. It is subject to supervision, examination and regulation by the Comptroller of the Currency. The Company is also subject to supervision, examination and regulation by the Federal Reserve System. Management is not currently aware of any regulatory recommendations which if were to be implemented would have a material effect on the registrant.
Item 2
Item 2 - Properties: The headquarters of the Company and the Bank are located in Orrville, Ohio. The Bank has a total of ten banking office buildings which are located in Orrville, Dalton, Kidron, Smithville, Mt. Eaton, Apple Creek, Lodi and Seville, Ohio. All buildings are owned by the Bank with the exception of the Seville Office which is a leased facility.
Item 3
Item 3 - Legal Proceedings There were no legal proceedings other than ordinary routine litigation incidental to business during 1995.
Item 10
Item 10 - Executive Officers The Executive Officers of the Company are as follows:
Name Age Position Charles J. Dolezal 43 President President of First National Bank
Michael D. Hofstetter 43 Sr. Vice President & Secretary-Treasurer Sr. Vice President & Controller of First National Bank
There is no family relationship between any of the above executive officers. Mr. Dolezal has been an executive officer of the Company since its formation in 1986 and the Bank during the past 5 years. Mr. Hofstetter was appointed Sr. Vice President and Secretary-Treasurer of the Company on January 1, 1990 and has been an executive officer of the Bank during the past 5 years.
PAGE 4 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.
* Tax equivalence based on highest statutory tax rates of 34%.
PAGE 5 RATE SENSITIVITY ANALYSIS
The following table summarizes the repricing opportunities of interest bearing assets and liabilities
(1) Checking includes NOW and MMDA (2) Savings includes passbook and statement savings which do not have a preset repricing date and have been included in the 1-5 years due to the relative interest rate insensitivity.
The potential impact on the net interest margin from modestly rising interest would be relatively insignificant due to the short duration of mismatch within the first 12 months. If interest rates were to immediately increase by 200 basis points, this could cause an increase interest expense greater than interest income. The potential impact would equate to lowering the current net interest income by approximately 2.7% over the first 12 months.
PAGE 6 INVESTMENT PORTFOLIO
The carrying amounts and distribution of the Company's investment securities held are summarized in the Annual Report to Shareholders (Appendix A, Page 15, Note 3). The carrying amount, maturities and approximate weighted average yields (on a tax equivalent basis) at December 31, 1995 are as follows:
INVESTMENT PORTFOLIO
$2.8 million of investment securities have a remaining maturity more than 10 years. There was no single issuer of securities where the total book value of such securities exceeded 10% of shareholders' equity except for US government obligations.
PAGE 7 LOAN PORTFOLIO
The detail of the loan portfolio balances are included in the Annual Report to Shareholders (Appendix A, Page 16, Note 4).
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES The following are approximate maturities and sensitivity to changes in interest rates of certain loans exclusive of real estate mortgages and consumer loans as of December 31, 1995.
NONACCRUAL AND PAST DUE LOANS Generally, recognition of interest income is discontinued where reasonable doubt exists as to the collectability of the interest. Income from nonaccrual loans is recorded when received. The difference between interest income recognized on such loans and income that would have been recognized at original contractual rates is immaterial. The bank generally places loans on a non-accrual status when a default of principal or interest has existed for 90 days or more. The bank generally does not renegotiate loans due to deterioration in the financial position of the borrower. The amounts of renegotiated loans are not considered material.
(Dollars in Thousands) 12/31/95 12/31/94
90 Days Past Due and Accruing $138 $59 Nonaccruing Loans $68 $111
POTENTIAL LOAN PROBLEMS Management reviews the loan portfolio for potential loan problems on a monthly basis. The following loans were classified by management and include in the above nonaccrual and past due loan totals. The amount shown below is the outstanding loan balance which has not been reduced by collateral values.
(Dollars in Thousands) 12/31/95 12/31/94 Loss $0 $0 Doubtful 80 104 Substandard 623 750 OAEM 1,036 957 Watch 9 7 -------------------- Total $1,748 $1,818 ====================
LOAN CONCENTRATIONS Due to the nature of our market area, it is management's opinion that there are no significant loan concentrations of 10% of total loans to borrowers engaged in similar activities other than noted in the loan categories disclosed in the Annual Report to Shareholders (Appendix A, Page 16, Note 4).
PAGE 8 SUMMARY OF LOAN LOSS EXPERIENCE The determination of the balance of the allowance for loan losses historically has been based on an overall analysis of the loan portfolio and reflects an amount, which, in management's judgment, is adequate to provide for potential loan losses. This analysis considers, among other things, the Company's loan loss experience, present and potential risks of the loan portfolio and general economic conditions. In addition, management considers the examinations of the loan portfolio by federal regulatory agencies and internal reviews and evaluations. The Company's allocation of the allowance for loan losses by category represents only an estimate for each category of loans based upon a detailed review of the loan portfolio by management.
Transactions in the allowance for loan losses are maintained by three major loan categories and the summary of such transactions for periods indicated follows:
CHANGES IN ALLOWANCE FOR LOAN LOSSES (Dollars in Thousands) 1995 1994
Balance at the beginning of period $891 $606 Loans charged off: Commercial & industrial 3 20 Real estate 0 15 Consumer 38 14 ---------------------- Total loans charged off 41 49 ----------------------
Recoveries of loans charged off: Commercial & industrial 0 30 Real estate 3 18 Consumer 13 106 ---------------------- Total recoveries 16 154 ---------------------- Net loans charged off 25 -105 ---------------------- Provision charged to operating expense 180 180 ---------------------- Balance at end of period $1,046 $891 ======================
Net charge-offs to average loans 0.03 -0.18 ======================
DISTRIBUTION OF ALLOWANCE FOR
LOAN LOSSES BY CATEGORY (Dollars in thousands) December 31, 1995 December 31, 1994
% of % of Amount Total Loans Amount Total Loans
Commercial & industrial $113 17% $97 16% Real estate construction 0 2% 0 1% Real estate mortgages 10 61% 5 69% Consumer loans 20 20% 10 14% Unallocated 903 N/A 779 N/A ---------------------------------------- TOTAL $1,046 100% $891 100% ========================================
PAGE 9 DEPOSITS
The classification of average deposits and the average rate paid on such deposits for periods ending December 31, 1995, 1994 and 1993 is included in Analysis of Net Interest Earnings included in the Annual Report to Shareholders (Appendix A, Page 22).
The summary of maturities of time deposits of $100,000 or more is included in the Annual Report to Shareholders (Appendix A, Page 17, Note 7).
PAGE 10 SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NATIONAL BANCSHARES CORPORATION
DATE: 3-19-96 /s/ Charles J. Dolezal ----------------- ------------------------------------------- Charles J. Dolezal, President
DATE: 3-19-96 /s/ Michael D. Hofstetter ----------------- ------------------------------------------- Michael D. Hofstetter, Secretary-Treasurer (Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
DATE: 3-19-96 /s/ Charles J. Dolezal ----------------- ------------------------------------------- Charles J. Dolezal, Chairman
DATE: 3-19-96 /s/ James F. Woolley ----------------- ------------------------------------------- James F. Woolley, Director
DATE: 3-19-96 /s/ James L. Gerber ----------------- ------------------------------------------- James L. Gerber, Director
DATE: 3-19-96 /s/ John E. Sprunger ----------------- ------------------------------------------- John E. Sprunger, Director
DATE: 3-19-96 /s/ Sara E. Balzarini ----------------- ------------------------------------------- Sara E. Balzarini, Director
DATE: 3-19-96 /s/ John W. Kropf ----------------- ------------------------------------------- John W. Kropf, Director
PAGE 11
No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K.
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