Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
National City Bancshares, Inc., (hereinafter referred to as the "Corporation"), is an Indiana Corporation organized in 1985 to engage in the business of a bank holding company. Based in Evansville, Indiana, the Corporation has ten wholly owned subsidiaries, nine commercial banks serving nineteen towns and cities with a total of twenty-eight banking centers and a leasing corporation. Each subsidiary, its locations, number of offices, year founded, and date of merger is shown below.
The Corporation's subsidiary banks provide a wide range of financial services to the communities they serve in Southwestern Indiana, Western Kentucky and Southeastern Illinois. These services include various types of deposit accounts; safe deposit boxes; safekeeping of securities; automated teller machines; consumer, mortgage, and commercial loans; mortgage loan sales and servicing; letters of credit; accounts receivable management (financing, accounting, billing and collecting); and complete personal and corporate trust services. All banks are members of the Federal Deposit Insurance Corporation.
The Corporation's nonbank subsidiary, NCBE Leasing Corp., operates as a full service equipment and real property leasing company offering its services to all commercial clients of the Corporation's subsidiary banks.
At December 31, 1994, the Corporation and its subsidiaries had 374 full-time equivalent employees. The subsidiaries provide a wide range of employee benefits and consider employee relations to be excellent.
COMPETITION
The Corporation has active competition in all areas in which it presently engages in business. Each subsidiary bank competes for commercial and individual deposits and loans with commercial banks, savings and loan associations, credit unions connected with local businesses and other non-banking institutions. The Corporation's leasing company competes with bank and nonbank leasing companies as well as finance subsidiaries of major equipment vendors.
FOREIGN OPERATIONS
The Corporation and its subsidiaries have no foreign branches or significant business with foreign obligers or depositors.
REGULATION AND SUPERVISION
The Corporation, as a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("Act"), is subject to regulation by the Board of Governors of the Federal Reserve System ("Board"). Under the Act, the Corporation is required to obtain the prior approval of the Board before acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank which is not already majority owned. In addition, the Corporation is prohibited under the Act, with certain exceptions, from acquiring direct or indirect ownership or control of 5% or more of the voting shares of any company which is not a bank. The Corporation may engage in, and may own shares of companies engaged in, certain activities found by the Board to be so closely related to banking as to be a proper incident thereto. The Act prohibits the acquisition by a bank holding company of shares of a bank located outside the state in which the operations of its banking subsidiaries are principally conducted, unless such an acquisition is specifically authorized by statute of
the state in which the bank to be acquired is located. The Corporation is required by the Act to file annual reports of its operations with the Board and such additional information as they may require pursuant to the Act, and the Corporation and its subsidiaries are subject to examination by the Board. Further, under the Act and the regulations of the Board, the Corporation and its subsidiaries are prohibited from engaging in certain tie-in arrangements with respect to any extension of credit or provision of property or services. The Board has adopted "capital adequacy guidelines" for its use in examining and supervising bank holding companies. A bank holding company's ability to pay dividends and expand its business through the acquisition of additional subsidiaries can be restricted if its capital falls below levels established by these guidelines.
The primary supervisory authority of The National City Bank of Evansville and The Peoples National Bank of Grayville is the Comptroller of the Currency, who regularly examines such areas as reserves, loans, investments, management practices, and other aspects of bank operations. The Comptroller of the Currency has the authority to prevent a national bank from engaging in an unsafe or an unsound practice in conducting its business. The payment of dividends, depending upon the financial condition of a bank, could be deemed such a practice. In addition, both banks are members of, and subject to regulation by, the Federal Deposit Insurance Corporation.
As a state bank, First Kentucky Bank is supervised and regulated by the Commonwealth of Kentucky Department of Financial Institutions. The Farmers and Merchants Bank, Lincolnland Bank, The Bank of Mitchell, Pike County Bank, The Spurgeon State Bank, and The State Bank of Washington are supervised and regulated by the State of Indiana Department of Financial Institutions. In addition, all seven banks are members of, and subject to regulation by, the Federal Deposit Insurance Corporation.
Federal and state banking laws and regulations govern, among other things, the scope of the bank's business, the investments it may make, the reserves against deposits it must maintain, loans the bank makes and collateral it takes, activities with respect to mergers and consolidations and the establishment of branches.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") was enacted on August 9, 1989, primarily in an attempt to address problems in the savings and loan industry. However, the Act has had a substantial effect on the environment in which commercial banks operate. The annual assessment rates for banks insured by the Federal Deposit Insurance Corporation were to increase from .083% of deposits to .12% in 1990, and to .15% in 1991. However, such rates were increased by the FDIC to .195% effective January 1, 1991 and .23% effective July 1, 1991.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal bank regulatory authorities to take "prompt corrective action" with respect to banks that do not meet minimum capital requirements. For these purposes, FDICIA established five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. The Corporation and each of the Corporation's Banks currently exceed the regulatory definition of a "well capitalized" financial institution.
NCBE Leasing Corp. is regulated by the Board of Governors of the Federal Reserve System.
STATISTICAL DISCLOSURE
The statistical disclosure on the Corporation and its subsidiaries, on a consolidated basis, included on pages 1, 3 through 13 and 32 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1994, is hereby incorporated by reference herein.
ITEM 2.



ITEM 2. PROPERTIES
The net investment of the Corporation and its subsidiaries in real estate and equipment at December 31, 1994, was $10,504,126. The Corporation's offices are located in a building owned by The National City Bank of Evansville (hereinafter referred to as the Bank), in which the Bank's main office is located. The main office of the Bank is located at 227 Main Street in downtown Evansville, Indiana. This building is owned in fee by the Bank. The other subsidiary banks, all branches and the leasing company are located on premises either owned or leased. None of the property is subject to any major encumbrance.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Pages 1 and 32 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1994, is hereby incorporated by reference herein. Dividends are restricted by earnings and the need to maintain adequate capital. Management intends to continue its current dividend policy subject to these restrictions.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Page 1 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1994, is hereby incorporated by reference herein.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Pages 1, 3 through 13 and 32 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1994, are incorporated by reference herein.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pages 15 through 29 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1994, are incorporated by reference herein.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Board of Directors approved the appointment of McGladrey & Pullen, LLP, as independent auditors to audit the financial statements of the Corporation and its subsidiaries beginning with the year 1993. Gaither Rutherford & Co., LLP, formerly Gaither Koewler Rohlfer Luckett & Co., ("Gaither") audited the books and records of the Corporation and its subsidiaries from 1985 through 1992. The Board of Directors had determined it to be in the best interest of the Corporation to change independent accountants for 1993. This change was ratified by the Corporation's shareholders at the 1993 annual meeting.
The report on the financial statements audited by Gaither in 1992 did not contain any adverse opinions or any disclaimers of opinions, nor were they qualified or modified as to uncertainty, audit scope or accounting reasons. Further, there have been no disagreements between Gaither and the Corporation.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors of the Corporation
This information under the heading "Election of Directors and Information with Respect to Directors and Officers" on pages 3 to 5 of the Corporation's Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1995, is hereby incorporated by reference herein.
(b) Executive Officers of the Corporation
The Executive Officers of the Corporation, some of whom are also Executive Officers of The National City Bank of Evansville (hereinafter referred to as the "Bank") are as follows:
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Compensation of Executive Officers" on pages 6 through 10 of the Corporation's Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1995, is hereby incorporated by reference herein.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the heading "Voting Securities" on pages 1 through 3 of the Corporation's Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1995, is hereby incorporated by reference herein.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Transactions with Management" on page 11 of the Corporation's Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1995, is hereby incorporated by reference herein.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following consolidated financial statements of the Corporation and its subsidiaries, included on pages 15 through 29 of the Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1994, are hereby incorporated by reference:
Independent Auditor's Report Consolidated Statements of Financial Position, at December 31, 1994 and 1993 Consolidated Statements of Income, for years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Shareholders' Equity, for years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows, for years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or related notes.
EXHIBITS
The following exhibits are submitted herewith or incorporated by reference:
2(i) Plan of Reorganization and Merger Agreement by and between Registrant and White County Bank dated December 12, 1994 2(ii) Merger Agreement by and between Registrant and United Financial Bancorp, Inc. dated December 28, 1994 3 Articles of Incorporation and By-Laws (i) A copy of the Amended Articles of Incorporation (as amended through March 21, 1995) of the Registrant was filed with the Commission as an exhibit to the Annual Report on Form 10-K for year ended December 31, 1993, and is herein incorporated by reference (ii) By-laws, as amended 13 Annual Report to Shareholders for the year ended December 31, 1994 21 Subsidiaries of the Registrant 23 Consent of Experts and Counsel A Consent of McGladrey & Pullen, LLP B Consent of Gaither Rutherford & Co., LLP C Consent of Geo S. Olive & Co., LLC
REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the dates indicated.
NATIONAL CITY BANCSHARES, INC.
By /s/ JOHN D. LIPPERT 3/21/95 John D. Lippert Date Chairman of the Board and Chief Executive Officer
By /s/ ROBERT A. KEIL 3/21/95 Robert A. Keil Date President and Chief Financial Officer
By /s/ HAROLD A. MANN 3/21/95 Harold A. Mann Date Secretary and Treasurer (Chief Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ DONALD B. COX 3/21/95 Donald B. Cox Date Director
/s/ MICHAEL F. ELLIOTT 3/21/95 Michael F. Elliott Date Director
/s/ SUSANNE R. EMGE 3/22/95 Mrs. N. Keith Emge Date Director
/s/ MICHAEL D. GALLAGHER 3/21/95 Michael D. Gallagher Date Director
/s/ DONALD G. HARRIS 3/22/95 Donald G. Harris Date Director
/s/ EDGAR P. HUGHES 3/21/95 Edgar P. Hughes Date Director
/s/ R. EUGENE JOHNSON 3/21/95 R. Eugene Johnson Date Director
/s/ ROBERT A. KEIL 3/21/95 Robert A. Keil Date Director
/s/ JOHN D. LIPPERT 3/21/95 John D. Lippert Date Director
/s/ JOHN LEE NEWMAN 3/21/95 John Lee Newman Date Director
/s/ RONALD G. REHERMAN 3/22/95 Ronald G. Reherman Date Director
/s/ LAURENCE R. STEENBERG 3/21/95 Laurence R. Steenberg Date Director
/s/ C. WAYNE WORTHINGTON 3/21/95 C. Wayne Worthington Date Director
/s/ GEORGE A. WRIGHT 3/21/95 George A. Wright Date Director
EXHIBIT INDEX