AMERICAN BANCORPORATION
1996 ANNUAL REPORT
American Bancorporation and Subsidiaries
FINANCIAL HIGHLIGHTS
(In thousands, except per share) 1996 1995 1994
Statement of Operations:
Net Income. . . . . . . . . $ 3,666 $ 3,052 $ 1,696
Net Income per share. . . . 2.34 1.95 1.13
Balance Sheet:
Assets. . . . . . . . . . . $461,632 $353,995 $338,116
Deposits. . . . . . . . . . 319,811 292,665 292,341
Loans - net . . . . . . . . 267,886 246,518 225,129
Stockholders' equity. . . . 30,423 28,012 26,193
Book Value per share. . . . 19.44 17.90 16.74
QUARTERLY STOCK PRICE RANGES
1996: High Low
Fourth. . . . . . . . . . . 26 3/4 23 3/4
Third . . . . . . . . . . . 25 1/2 19 3/4
Second. . . . . . . . . . . 24 1/2 19 1/4
First . . . . . . . . . . . 25 21 1/2
1995: High Low
Fourth. . . . . . . . . . . 23 1/2 20 1/2
Third . . . . . . . . . . . 23 1/2 19 1/2
Second. . . . . . . . . . . 21 1/2 14 3/4
First . . . . . . . . . . . 15 1/2 13 1/2
American Bancorporation is traded on the Nasdaq Stock Market under the ticker
symbol AMBC.
CORPORATE PROFILE
American Bancorporation (the "Company"), is a registered Ohio bank holding
company headquartered in Wheeling, West Virginia. The Company was organized
in 1966. During 1996 the Company merged its two affiliate banks. Columbus
National Bank was merged into Wheeling National Bank ("WNB") which serves its
customers through twenty full service offices located in Ohio County, Hancock
County and Wetzel County, West Virginia and Belmont County, Harrison County,
Guernsey County, Jefferson County and Franklin County, Ohio.
In addition to the banking offices, the Company operates three non-bank
subsidiaries: American Mortgages, Inc. which originates and services mortgage
loans, American Bancdata Corporation which provides electronic data processing
services to the Company and WNB and American Bancservices, Inc., which
provides the Company's transfer agent services.
The approximate number of common stockholders of record was 2,670 on
January 31, 1997.
CONTENTS
Financial Highlights. . . . . . . . See above
Quarterly Stock Price Ranges. . . . See above
Corporate Profile . . . . . . . . . See above
Chairman's Letter . . . . . . . . . 1
Financial Statements. . . . . . . . 2 - 26
Independent Auditors' Report . . 27
Five Year Selected Financial Data . 28
Management's Discussion and Analysis . . 29 - 42
THE CHAIRMAN'S LETTER
TO OUR SHAREHOLDERS:
For the year 1996 American Bancorporation recognized net income of $3,666,000
or $2.34 per share, compared to net income of $3,052,000 or $1.95 per share
in 1995.
Total assets at December 31, 1996 were $462 million, compared to $354 million
at December 31, 1995.
At December 31, 1996 total capital was $30,423,000, compared to $28,012,000 at
December 31, 1995 and book value per common share at year end 1996 was
$19.44, compared to $17.90 at year end 1995.
At December 31, 1996 the allowance for loan losses to loans outstanding
was 1.3%, compared to 1.5% at December 31, 1995.
At December 31, 1996 total nonperforming loans as a percentage of total loans
stood at 0.7%, compared to 0.8% at December 31, 1995.
1996 was again a year of growth and accomplishment.
On February 9, 1996 we closed the purchase of the Bank One deposits at
Flushing and the Ohio Valley Mall.
On March 29, 1996 the merger of Columbus National Bank into Wheeling National
Bank was completed.
On September 25, 1996 our wholly owned subsidiary, American Mortgages, Inc.
("AMI") became the owner of 51% of Premier Mortgage Limited, dba On-Line
Financial Services ("On-Line"). The other 49% is owned by subsidiaries of
H.E.R. Realtors of Columbus, Ohio ("HER").
HER is one of the largest independent real estate operations in the State of
Ohio and is nationally ranked.
Under this joint venture, AMI is now purchasing conforming mortgage loans for
sale into the market on either a service retained or a service released basis
and Wheeling National Bank is now purchasing non conforming portfolio loans.
In the 3rd quarter our regularly quarterly dividend was raised from $0.20 per
quarter to $0.25 per quarter.
We deeply appreciate your continued strong support.
Sincerely,
/s/ Jeremy C. McCamic
Jeremy C. McCamic
Chairman and Chief Executive Officer
CONSOLIDATED BALANCE SHEET American Bancorporation and Subsidiaries
December 31, 1996 and 1995
ASSETS 1996 1995
Cash and due from banks. . . . . . . . . . . . $ 11,550,133 $ 10,887,718
Federal funds sold . . . . . . . . . . . . . . 17,870,000 11,469,000
Investment securities available for sale . . . 143,473,608 68,014,533
Loans
Commercial, financial and agricultural. . . 84,608,068 64,951,306
Real estate mortgage. . . . . . . . . . . . 136,488,358 128,709,317
Installment . . . . . . . . . . . . . . . . 50,353,407 56,711,400
271,449,833 250,372,023
Less allowance for loan losses. . . . . . . 3,563,774 3,853,633
267,886,059 246,518,390
Premises and equipment - net . . . . . . . . . 9,730,880 8,947,284
Accrued interest receivable. . . . . . . . . . 2,985,322 2,065,832
Excess of cost over net assets acquired. . . . 2,304,416 1,830,170
Other assets . . . . . . . . . . . . . . . . . 5,832,008 4,261,848
TOTAL ASSETS. . . . . . . . . . . . . . $461,632,426 $353,994,775
LIABILITIES
Deposits
Demand - non-interest bearing . . . . . . . $ 36,744,316 $ 31,792,609
Demand - interest bearing . . . . . . . . . 27,568,710 27,286,771
Savings . . . . . . . . . . . . . . . . . . 101,823,009 98,977,637
Time - under $100,000 . . . . . . . . . . . 126,726,720 116,370,529
Time - over $100,000. . . . . . . . . . . . 26,948,063 18,237,061
TOTAL DEPOSITS. . . . . . . . . . . . . 319,810,818 292,664,607
Short-term borrowings. . . . . . . . . . . . . 104,096,043 27,522,666
Accrued interest payable . . . . . . . . . . . 1,488,999 1,033,315
Other liabilities. . . . . . . . . . . . . . . 4,876,191 3,714,641
Notes payable and other long term debt . . . . 937,681 1,047,124
TOTAL LIABILITIES . . . . . . . . . . . 431,209,732 325,982,353
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock. . . . . . . . . . . . . . - -
Common stock without par value, stated value $5 a
share, authorized 6,500,000 shares, issued and
outstanding 1,564,837 in 1996 and 1995. . 7,824,185 7,824,185
Additional paid-in capital . . . . . . . . 10,301,982 10,301,982
Retained earnings. . . . . . . . . . . . . 12,021,258 9,763,633
Unrealized gain on securities available
for sale, net. . . . . . . . . . . . . . . 275,269 122,622
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . 30,422,694 28,012,422
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $461,632,426 $353,994,775
The accompanying notes are an integral part of these financial statements.
American Bancorporation and Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
INTEREST INCOME
Loans . . . . . . . . . . . . . . . $22,500,530 $21,929,265 $14,902,482
Investment securities
Taxable interest income . . . . . 6,377,858 3,844,393 4,410,109
Non-taxable interest income . . . 127,880 144,316 163,039
Dividends . . . . . . . . . . . . 461,557 207,773 148,027
6,967,295 4,196,482 4,721,175
Short-term investments. . . . . . . 417,703 370,332 511,494
Total interest income. . . . . 29,885,528 26,496,079 20,135,151
INTEREST EXPENSE
Deposits
Interest bearing demand . . . . . 630,275 618,035 586,563
Savings . . . . . . . . . . . . . 2,783,607 2,872,553 2,690,109
Time - under $100,000 . . . . . . 6,269,821 5,303,309 3,368,774
Time - over $100,000. . . . . . . 1,247,259 1,003,706 384,872
10,930,962 9,797,603 7,030,318
Borrowings
Short-term borrowings . . . . . . . 2,782,434 1,275,187 145,622
Notes payable and other
long-term debt . . . . . . . . . . 88,714 97,872 13,059
Total interest expense. . . . . 13,802,110 11,170,662 7,188,999
NET INTEREST INCOME . . . . . . . . 16,083,418 15,325,417 12,946,152
PROVISION FOR LOAN LOSSES. . . . . . . - 105,000 215,000
Net interest income after provision
for loan losses . . . . . . . . . . 16,083,418 15,220,417 12,731,152
OTHER INCOME
Service charges on
deposit accounts. . . . . . . . 864,557 735,514 661,492
Insurance commissions . . . . . . 106,990 119,017 113,619
Net gains (losses) on
sale of loans . . . . . . . . . 511,171 93,118 (2,848)
Net securities gains (losses) . . (922) 3,261 2,634
Other income. . . . . . . . . . 910,302 729,349 286,970
Total other income . . . . . . 2,392,098 1,680,259 1,061,867
OTHER EXPENSE
Salaries and employee benefits. . 5,589,526 5,318,929 4,932,526
Occupancy expense . . . . . . . . 1,137,334 1,048,541 843,095
Furniture and equipment expense . 1,117,577 1,067,046 1,032,268
Other expenses. . . . . . . . . . 4,862,734 4,656,170 4,407,160
Total other expense. . . . . . 12,707,171 12,090,686 11,215,049
INCOME BEFORE INCOME TAXES . . . . . . 5,768,345 4,809,990 2,577,970
PROVISION FOR INCOME TAXES . . . . . . 2,102,367 1,757,823 881,651
NET INCOME . . . . . . . . . . . . . . $ 3,665,978 $ 3,052,167 $ 1,696,319
Per Share:
NET INCOME. . . . . . . . . . . $ 2.34 $ 1.95 $ 1.13
The accompanying notes are an integral part of these financial statements.
American Bancorporation and Subsidiaries
CONSOLIDATED STATEMENT
OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized gain
Additional on securities
Common paid-in Retained available for
stock capital earnings sale, net Total
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 7,533,060 9,753,871 6,871,117 - 24,158,048
Net Income. . . . . . . . . . - - 1,696,319 - 1,696,319
Dividends ($0.50 per share) - - (760,584) - (760,584)
Proceeds from stockholder rights
offering (58,225 shares) 291,125 548,111 - - 839,236
Unrealized gain on securities
available for sale, net - - - 260,000 260,000
Balance at December 31, 1994 7,824,185 10,301,982 7,806,852 260,000 26,193,019
Net Income. . . . . . . . . . - - 3,052,167 - 3,052,167
Dividends ($0.70 per share) - - (1,095,386) - (1,095,386)
Change in unrealized gain on
securities available for sale, net - - - (137,378) (137,378)
Balance at December 31, 1995 7,824,185 10,301,982 9,763,633 122,622 28,012,422
Net Income. . . . . . . . . . - - 3,665,978 - 3,665,978
Dividends ($0.90 per share) - - (1,408,353) - (1,408,353)
Change in unrealized gain on
securities available for sale, net - - - 152,647 152,647
Balance at December 31, 1996 $7,824,185 $10,301,982 $12,021,258 $275,269 $30,422,694
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Bancorporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31, 1996, 1995 and 1994
Operating Activities: 1996 1995 1994
Net income. $ 3,665,978 $ 3,052,167 $ 1,696,319
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 658,103 603,798 555,372
Amortization of intangibles 327,130 315,490 128,300
Net amortization (accretion) of
investment securities 250,869 (74,137) 100,355
Provision for loan losses - 105,000 215,000
Gain on sale of premises
and equipment - - (2,975)
Net (gain) loss on sale of
investment securities 922 (3,261) (2,634)
Net (gain) loss on sale of loans (511,171) (93,118) 2,848
Change in assets and liabilities net
of effects from the purchase of branch assets:
Net increase in accrued
interest receivable (917,883) (47,054) (323,175)
Net increase in accrued
interest payable 335,941 21,992 45,159
Net increase in other assets (1,584,158) (472,525) (538,102)
Net increase in other liabilities 1,044,189 414,762 1,449,798
Net decrease from other
operating activities 255,996 106,740 346,907
Net cash provided by
operating activities 3,525,916 3,929,854 3,673,172
Investing Activities:
Purchase of branch assets,
net of cash acquired 14,171,001 - (4,487,905)
Investment securities held to maturity:
Proceeds from maturities
and repayments - 19,607,659 33,151,514
Purchases - (8,272,273) (22,380,352)
Investment securities available for sale:
Proceeds from maturities
and repayments 22,998,696 6,692,533 106,400
Proceeds from sales 16,474,939 8,088,052 3,017,375
Purchases (114,944,324) (12,555,150) (1,303,231)
Net increase in loans (20,606,716) (21,401,522) (15,037,260)
Purchase of loans - - (14,036,899)
Purchase of premises and equipment (1,686,300) (828,810) (1,323,607)
Proceeds from sale of
premises and equipment - - 290,468
Net cash used by
investing activities (83,592,704) (8,669,511) (22,003,497)
Financing Activities:
Net increase in non-interest
bearing demand deposits 3,974,744 583,696 2,038,122
Net decrease in interest bearing
demand and savings deposits (4,338,517) (16,462,117) (9,384,462)
Net increase in time deposits 12,360,154 16,202,371 4,596,371
Net increase in short-term
borrowings 76,573,377 14,124,485 11,789,434
Principal repayment of
long-term debt (109,442) (1,002,433) -
Proceeds from issuance of
long-term debt - - 2,000,000
Proceeds from stockholder
rights offering - - 839,236
Cash dividends paid (1,330,113) (978,023) (753,306)
Net cash provided by
financing activities 87,130,203 12,467,979 11,125,395
Net Increase (Decrease) in
Cash and Cash Equivalents 7,063,415 7,728,322 (7,204,930)
Cash and Cash Equivalents
Beginning Balance $ 22,356,718 $ 14,628,396 $ 21,833,326
Cash and Cash Equivalents
Ending Balance $ 29,420,133 $ 22,356,718 $ 14,628,396
Supplemental schedule of noncash
investing and financing activities:
Business Acquisitions:
Fair value of assets acquired $ 1,098,572 $ - $ 51,931,274
Cash received (paid)
in the acquisition 14,171,001 - (4,782,680)
Liabilities assumed $ 15,269,573 $ - $(47,148,594)
Cash paid during the year for:
Interest $ 13,346,426 $ 11,148,670 $ 7,046,161
Income taxes $ 1,883,000 $ 1,331,100 $ 1,228,000
Non-cash investing and financing
activities:
Loan foreclosures
and repossessions $ 324,539 $ 149,810 $ 281,603
Transfer of premises and
equipment to other real
estate owned $ 287,774 $ - $ 549,566
The accompanying notes are an integral part of these financial statements.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Note A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Bancorporation (the "Company"), which was organized in 1966, is a
registered Ohio bank holding company with its headquarters located in
Wheeling, West Virginia. The Company's wholly owned subsidiaries are Wheeling
National Bank, American Bancdata Corporation, American Bancservices, Inc. and
American Mortgages, Inc. The Company's subsidiaries primarily engage in
commercial banking and mortgage banking. The subsidiary bank branch offices
are primarily located in the northern panhandle of West Virginia, and central
and eastern Ohio.
The accounting and reporting policies of American Bancorporation and
Subsidiaries (the "Company") conform to generally accepted accounting
principles and with general practice within the banking industry. The
following is a description of the significant policies.
Principles of Consolidation
The consolidated financial statements include the accounts of American
Bancorporation and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Subsidiaries acquired in purchase
transactions are included in the consolidated financial statements from the
date of acquisition.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and federal funds sold. Generally, federal funds are sold
for one-day periods.
Investment Securities
The Company has adopted a methodology for the classification of securities at
the time of their purchase as either held to maturity or available for sale.
If it is management's intent and the Company has the ability to hold such
securities until their maturity, these securities are classified as held to
maturity and are carried on the Company's books at cost, adjusted for
amortization of premium and accretion of discount on a level yield basis.
Alternatively, if it is management's intent at the time of purchase to hold
securities for an indefinite period of time and/or to use such securities as
part of its asset/liability management strategy, the securities are classified
as available for sale and are carried at fair value, with net unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity, net of applicable income taxes. Investment securities
available for sale include securities which may be sold in response to changes
in interest rates, resultant prepayment risk and other factors related to
interest rate or prepayment risk. Gains and losses on sales of securities
are recognized using the specific identification method.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities" in
1994. On December 1, 1995, the Company reclassified $66,965,000 of investment
securities held to maturity to investment securities available for
sale. The reclassification was in accordance with the FASB's special report
"A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities" that permitted this one-time
reassessment.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Loans
Loans are reported at their principal amounts, net of any deferred origination
fees and costs and the allowance for loan losses. Interest on loans is computed
primarily on the principal balance outstanding. For loans not primarily
secured by real estate or in the process of collection, the Company
discontinues the accrual of interest when a loan is 90 days past due or
collection of the interest is doubtful. Real estate loans are placed on
nonaccrual status when, in management's judgement, collection is in doubt or
when foreclosure proceedings are initiated, which is generally 180 days past
the due date. Income on discounted loans is principally recognized on the
sum-of-the-months digits method, which approximates a level yield. Loan
origination and commitment fees, as well as certain direct loan origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans via a method which approximates a level yield.
The Company grants commercial and industrial loans, commercial and residential
mortgages and consumer loans to customers primarily in the northern panhandle
of West Virginia, southwestern Pennsylvania and central and eastern Ohio. The
Company's loan portfolio can be adversely impacted by downturns in the local
economic and real estate markets as well as employment conditions.
A loan is considered to be impaired, as defined by SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", when it is probable that the Company
will be unable to collect all principal and interest amounts due according to
the contractual terms of the loan agreement. All of the Company's nonaccrual
loans, excluding consumer and single family residential loans, are considered
to be impaired loans. Large groups of smaller homogenous loans, such as loans
secured by first and second liens on residential properties and other consumer
loans are evaluated collectively for impairment. Under SFAS No. 114, impaired
loans subject to the statement are required to be measured based upon the
present value of expected future cash flows, discounted at the loan's initial
effective interest rate, or at the loan's market price or fair value of the
collateral if the loan is collateral dependent. If the loan valuation is less
than the recorded value of the loan, an impairment reserve must be established
for the difference. The impairment reserve is established by either an
allocation of the reserve for credit losses or by a provision for credit
losses, depending on the adequacy of the reserve for credit losses. Interest
income on impaired loans is recognized using the cash basis method.
Allowance for Loan Losses
The determination of the balance in the allowance for loan losses is based on
an analysis of the portfolio and reflects an amount which, in management's
judgement, is adequate to provide for potential losses after giving
consideration to the character of the portfolio, current economic conditions,
past loss experience and such other factors that deserve current recognition.
The regulatory examiners may require the Company to recognize additions to the
allowances based upon their judgements about information available to them at
the time of their examinations. The provision for loan losses is charged to
current operations.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Mortgage Loan Servicing
On January 1, 1996 the Company adopted SFAS No. 122 "Accounting for Mortgage
Servicing Rights", which requires that a mortgage banking enterprise that
acquires mortgage servicing rights through either the purchase or origination
of mortgage loans recognize those rights as separate assets by allocating the
total costs of the mortgage loans to the mortgage servicing rights and the
loans (without the mortgage servicing rights) based on their relative fair
values. Purchased mortgage servicing rights are recorded at cost.
The Company measures the impairment of the mortgage servicing rights based on
their current fair value. Current fair value is determined through the
discounted present value of the estimated future net servicing cashflows using
a risk-based discount rate and assumption based upon market estimates for
future servicing revenues and expenses (including prepayment expectations,
servicing costs, default rates and interest earnings on escrows). For
impairment measurement purposes, servicing rights acquired after January 1,
1996 are stratified by loan type. If the carrying value of an individual
stratum were to exceed its fair value, a valuation allowance would be
established. Mortgage servicing rights acquired prior to January 1, 1996 are
stratified by acquisition and evaluated for possible impairment using fair
market values. The adoption of SFAS No. 122 resulted in an increase in income
and net income of $402,000 and $242,000, respectively, for the year ended
December 31, 1996.
Premises and Equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided on the straight-line method,
distributing the cost of premises over an estimated useful life of twenty to
fifty years and the cost of equipment over an estimated useful life of three
to fifteen years.
Excess of Cost over Net Assets Acquired
Excess of cost over net assets acquired include both goodwill and core deposit
intangibles. Goodwill is being amortized on a straight-line basis over a
period of twelve to thirty years. Core deposit intangibles are being
amortized over a period of five to twelve years. Such assets are periodically
evaluated for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
Other Real Estate Owned
Other real estate owned in connection with loan settlements, including real
estate acquired, is stated at the lower of estimated fair value less estimated
costs to sell, or the carrying amount of the loan. Decreases in fair value
between annual appraisals, net gains or losses on the sale of other real
estate owned, and net direct operating expense attributable to these assets
are included in other income/other expense. Other real estate owned is
included in other assets.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases using enacted tax laws and rates.
Pension Plan
Pension costs, based on actuarial computations, are charged to expense and
funded as required by minimum Internal Revenue Service standards.
(See Note R "Pension Plan and Profit Sharing 401(k) Savings Plan").
Per Share Data
Per share data is computed based upon the weighted average number of common
shares outstanding. The weighted average number of shares used in the
calculation was 1,564,837 for 1996 and 1995 and 1,506,771 in 1994.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from these estimates. Estimates are used when
accounting for allowance for loan losses, realization of deferred tax assets,
fair values of certain assets and liabilities, determination and carrying
value of impaired loans, carrying value of other real estate, carrying value
and amortization of intangibles, employee benefit plans and other areas.
Reclassifications
Certain prior year financial information has been reclassified to conform
to the presentation in 1996.
Note B-BRANCH ACQUISITIONS
On February 9, 1996, the Company acquired certain assets and assumed certain
liabilities of Bank One, Wheeling-Steubenville, N.A.
The Company acquired liabilities totalling $15.3 million, including deposits
totalling $15.1 million and purchased the equipment of the St. Clairsville and
Flushing, Ohio branch offices of Bank One. The Company paid a $801,000
premium based on core deposits which is being amortized over a period of eight
years.
On December 8, 1994, the Company acquired certain assets and assumed certain
liabilities of Buckeye Savings Bank ("Buckeye"), a wholly owned subsidiary of
Crown Bank, F.S.B., headquartered in Casselberry, Florida.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
The Company assumed liabilities totalling $46.5 million, including deposits
totalling $46.4 million, and purchased the premises and equipment of the St.
Clairsville and Steubenville, Ohio branch offices of Buckeye. The Company
also acquired assets with a fair value of $50.2 million, including loans
(primarily mortgage loans) totalling $47.9 million, including $0.4 million
allowance for loan losses. A premium of $916,000, based on core deposits, was
paid and is being amortized over a period of eight years.
The Company also acquired the mortgage servicing rights to loans totalling
$81.6 million for $570,000 and certain fixed assets totalling $210,000.
Note C-CASH AND DUE FROM BANKS
The Company's banking subsidiary is required to maintain with a Federal
Reserve bank reserve balances based principally on deposits outstanding.
Balances maintained are included in cash and due from banks. The required
reserves were approximately $150,000 at December 31, 1996 and $300,000
at December 31, 1995.
Note D-INVESTMENT SECURITIES
Securities Available for Sale
The amortized cost and approximate market value of investment securities
available for sale at December 31, 1996 and 1995 is summarized as follows:
1996
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
United States Treasury . . . . . $ 8,243,186 $ - $ 44,237 $ 8,198,949
United States Federal agencies . 105,135,857 616,973 423,583 105,329,247
United States agency
mortgage-backed securities. . . . 17,105,590 9,296 144,517 16,970,369
States and political subdivisions. 1,125,926 109,070 53 1,234,943
Other. . . . . . . . . . . . . . 5,000 - - 5,000
Total Debt Securities . . . . 31,615,559 735,339 612,390 131,738,508
Equity securities. . . . . . . . 11,533,600 201,500 - 11,735,100
Total Securities
Available for Sale . . . . $143,149,159 $936,839 $612,390 $143,473,608
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
1995
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
United States Treasury . . . . . . $18,405,901 $ 37,418 $ 73,818 $18,369,501
United States Federal agencies . . 16,800,763 66,736 88,762 16,778,737
United States agency
mortgage-backed securities. . . . 25,891,941 21,305 356,091 25,557,155
States and political subdivisions. 1,882,261 276,089 141 2,158,209
Other. . . . . . . . . . . . . . . 10,000 - - 10,000
Total Debt Securities . . . . . 62,990,866 401,548 518,812 62,873,602
Equity securities. . . . . . . . . 4,939,431 201,500 - 5,140,931
Total Securities
Available for Sale . . . . . $67,930,297 $603,048 $518,812 $68,014,533
Included in equity securities at December 31, 1996 are Federal Home Loan Bank
and Federal Reserve Bank stock of $9,434,000 and $279,600, respectively. At
December 31, 1995 these stock investments were $2,839,500 and $279,931,
respectively.
The amortized cost and approximate market value of debt securities at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Market
Cost Value
Due in one year or less . . . $ 6,174,577 $ 6,148,988
Due after one year
through five years . . . . . 15,207,479 15,254,904
Due after five years
through ten years. . . . . . 97,546,014 97,824,640
Due after ten years . . . . . 12,687,489 12,509,976
$131,615,559 $131,738,508
Proceeds from the sale of securities available for sale for the years ended
December 31, 1996, 1995 and 1994 were $16,474,939, $8,088,052 and $3,017,375,
respectively. Gross realized gains on the sale of securities available for
sale were $41,070 in 1996, $33,171 in 1995 and $6,915 in 1994. Gross realized
losses on the sale of securities available for sale were $41,992 in 1996,
$29,910 in 1995 and $4,281 in 1994.
There were no sales of investment securities held to maturity in 1996, 1995
and 1994.
At December 31, 1996 the book value of securities pledged to secure public
deposits or for other purposes required or permitted by law aggregated
$26,696,000.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note E-NONPERFORMING ASSETS
Nonperforming assets consist of nonaccrual loans, restructured loans, past due
loans and other real estate owned. Nonaccrual loans are loans on which
interest recognition has been suspended until realized because of doubts as to
the borrowers' ability to repay principal or interest. Restructured loans are
loans where the terms have been altered to provide a reduction or deferral of
interest or principal because of a deterioration in the financial position of
the borrower. Past due loans are accruing loans which are contractually past
due 90 days or more as to interest or principal payments. The following
summarizes the nonperforming assets at December 31:
1996 1995 1994
Nonperforming loans
Nonaccrual. . . . . . . . $ 547,000 $ 790,000 $1,214,000
90 days past due. . . . . 744,000 609,000 766,000
Restructured. . . . . . . 672,000 666,000 610,000
$1,963,000 $2,065,000 $2,590,000
Other real estate owned. . 607,000 575,000 682,000
Total. . . . . . . . . . $2,570,000 $2,640,000 $3,272,000
There were no commitments to advance additional funds to such borrowers at
December 31, 1996. Gross interest income that would have been recorded if
nonaccrual loans and restructured loans had been current and in accordance
with their original terms approximated $49,000, $85,000 and $140,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. Interest
recognized on such loans approximated $6,000, $21,000 and $8,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Impaired loans totalled $547,000 and $790,000 at December 31, 1996 and 1995,
respectively. Impaired loans totalling $341,000 and $489,000 at the end of
1996 and 1995, respectively, had a corresponding specific allowance for credit
losses of $148,000 and $172,000. The average balance of impaired loans was
$691,000 in 1996 and $818,000 in 1995. Interest income recognized on impaired
loans totalled $6,000 and $21,000 in 1996 and 1995, respectively.
Note F-RELATED PARTY TRANSACTIONS
At December 31, 1996, receivables, both direct and indirect, from persons
related to the Company and subsidiaries as directors, executive officers or
principal shareholders, exclusive of loans to such persons which in the
aggregate do not exceed $60,000, approximated $1,577,000. Other changes
reflect loans to persons which no longer exceed $60,000. The following is an
analysis of the activity with respect to such loans for the year ended
December 31, 1996:
Aggregate outstanding balance at January 1, 1996 $ 1,750,000
Additions . . . . . . . . . . . . . . . . 210,000
Retirements . . . . . . . . . . . . . . . (295,000)
Other changes . . . . . . . . . . . . . . (88,000)
Aggregate outstanding balance at December 31, 1996 $ 1,577,000
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note G-ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses follows:
Years ended December 31, 1996 1995 1994
Balance at beginning of year. . . . . . $3,853,633 $3,736,994 $3,543,743
Allowance acquired in loan
purchase (see Note B) . . . . . . . - - 410,763
Provision for loan losses. . . . . . . - 105,000 215,000
Loans charged-off. . . . . . . . . . . (427,602) (363,381) (837,667)
Less recoveries. . . . . . . . . . . . 137,743 375,020 405,155
Net loans (charged-off) recovered . . (289,859) 11,639 (432,512)
Balance at end of year. . . . . . . . . $3,563,774 $3,853,633 $3,736,994
Note H-MORTGAGE LOAN SERVICING
At December 31, 1996 and 1995, the Company was servicing approximately 1,600
and 1,500 mortgage loans for various investors with aggregate balances of
approximately $92,228,000 and $74,586,000, respectively.
Originated mortgage servicing rights capitalized during 1996 totalled $427,000.
At December 31, 1996, the Company had capitalized mortgage servicing rights of
$816,000 which related to approximately $89 million of the aggregate $92
million in loans serviced. The mortgage servicing rights associated with the
remaining $3 million in loans serviced are not subject to capitalization
because the loans were originated and sold prior to the Company's adoption of
SFAS No. 122 on January 1, 1996 (See Note A "Summary of Significant Accounting
Policies"). At December 31, 1995 the Company had capitalized purchased
mortgage servicing rights of $490,000.
In connection with these loans serviced for others, the Company held advances
by borrowers for taxes and insurance in the amount of $1,294,000 at December
31, 1996 and $1,311,000 at December 31, 1995.
The fair value of the capitalized mortgage servicing rights approximated
$1,042,000 at December 31, 1996. The fair value of the mortgage servicing
rights not subject to capitalization due to the loans being originated or sold
prior to the adoption of SFAS No. 122 approximated $42,000 at December 31,
1996. Based on management's estimate of the fair value of the designated
strata, no impairment valuation allowance is necessary.
The Company amortizes the capitalized mortgage servicing rights in proportion
to, and over the period of, the estimated net servicing income. The
amortization for the years ending December 31, 1996 and 1995 was $101,000 and
$80,000, respectively.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note I-PREMISES AND EQUIPMENT
A summary of premises and equipment and accumulated depreciation and
amortization follows:
December 31, 1996 1995
Premises and Equipment
Buildings . . . . . . . . . . . . $ 6,412,998 $ 6,664,298
Equipment . . . . . . . . . . . . 5,753,211 4,681,706
Leasehold improvements. . . . . . 830,397 743,464
12,996,606 12,089,468
Less accumulated depreciation
and amortization . . . . . . . 6,106,753 5,779,089
6,889,853 6,310,379
Land. . . . . . . . . . . . . . . 2,841,027 2,636,905
$ 9,730,880 8,947,284
Depreciation and amortization of premises and equipment charged to expense for
the years ended December 31, 1996, 1995 and 1994 was $658,000, $604,000 and
$555,000 respectively.
At December 31, 1996 the Company and certain subsidiaries were obligated under
various noncancellable operating leases for premises and equipment. The leases,
expiring at various dates to 2005, generally provide options to renew and to
purchase at fair value and require payment of taxes, insurance and maintenance
costs. Total rental expense for all operating leases for the years ended
December 31, 1996, 1995 and 1994 was $709,000, $643,000 and $477,000
respectively. Future minimum payments under operating leases were as follows
at December 31, 1996:
1997. . . . . . . . . . . . . . . . . $ 506,000
1998. . . . . . . . . . . . . . . . . 348,000
1999. . . . . . . . . . . . . . . . . 220,000
2000. . . . . . . . . . . . . . . . . 170,000
2001. . . . . . . . . . . . . . . . . 115,000
After 2001. . . . . . . . . . . . . . 607,000
Total minimum lease payments . . . . $1,966,000
Note J-DEPOSITS
At December 31, 1996, the scheduled maturity of time deposits for the years
1997 through 2001 and thereafter are as follows: $102,273,000, $26,045,000,
$14,765,000, $7,543,000 and $3,409,000, repectively.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note K-NOTE PAYABLE, SHORT TERM AND LONG TERM BORROWINGS
Short Term Borrowings
The following summarizes the short term borrowings at December 31:
1996 1995
Securities sold under repurchase agreements . . $ 2,609,535 $ 2,355,000
Treasury tax and loan notes . . . . . . . . . . 1,486,508 167,666
Federal Home Loan Bank advances . . . . . . . . 100,000,000 25,000,000
Total short term borrowings . . . . . . . . . $104,096,043 $27,522,666
Securities sold under repurchase agreements are retained by the Company's
custodian under written agreements that recognize the customer's interests in
the securities. The subsidiary bank has an agreement with its Federal Reserve
district bank to be an authorized treasury tax and loan depository. The
subsidiary bank, Wheeling National Bank ("WNB") is a member of the Federal Home
Loan Bank (the "FHLB") in the Pittsburgh district. The FHLB advances mature
in 1997.
The advances payable to the FHLB of Pittsburgh are secured by the WNB's stock
in the FHLB of Pittsburgh, qualifying residential mortgage loans and other
mortgage-backed securities to the extent that the fair market value of such
pledged collateral must be at least equal to the notes payable outstanding.
Interest expense on FHLB advances was $2,606,000, $1,233,000 and $120,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The following table summarizes information regarding the Federal Home Loan
Bank advances at December 31:
1996 1995
Balance, end of year. . . . . . . . . . . . . . .$100,000,000 $25,000,000
Weighted average interest rate, end of year . . . 5.50% 5.76%
Average amount outstanding during the year. . . . 47,356,557 20,277,006
Weighted average interest rate during the year. . 5.53% 6.08%
Maximum amount outstanding at any month end . . . 100,000,000 25,000,000
Notes Payable and Other Long Term Borrowings
The following summarizes notes payable and other long term borrowings at
December 31:
1996 1995
Variable rate note, due December 1997 . . . $ 900,000 $ 1,000,000
Capitalized lease obligations . . . . . . . 37,681 47,124
$ 937,681 $ 1,047,124
The variable rate term note had an interest rate of 8.31% and 7.76% at
December 31, 1996 and 1995, respectively.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note L-FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business the Company enters into contractual
commitments involving financial instruments with off-balance-sheet risk.
These financial instruments include commitments to extend credit, commercial
letters of credit and standby letters of credit. These instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit,
commercial letters of credit and standby letters of credit is represented by
the contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for on-
balance-sheet instruments.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with off-balance-sheet risk.
A summary of off-balance-sheet financial instruments at December 31, 1996 and
1995 is as follows:
Financial instruments whose contract amounts represent credit risk:
Contract Amounts
1996 1995
Commitments to extend credit. . . $36,106,000 $30,721,000
Standby letters of credit . . . . - 96,000
Commercial letters of credit. . . 736,000 778,000
Commitments to extend credit, approximately $626,000 at December 31, 1996 and
$453,000 at December 31, 1995, of which are dealer floor plan lines, are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments, except dealer floor plan lines, are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates
each customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the counterparty. A
majority of the commitments extended by the Company have either variable
interest rates or are revolving credit card commitments which have a fixed
interest rate. An adverse movement in market interest rates is not deemed
to be a significant risk on the outstanding commitments at December 31, 1996.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Commercial letters
of credit are issued by the Company specifically to facilitate trade or
commerce. The credit risk involved in issuing letters of credit is essentially
the same as that in extending loan facilities to customers.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note M-FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", requires
that the Company disclose estimated fair values for its financial instruments.
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments.
Securities and Federal Funds Sold
The carrying amounts for federal funds sold approximate fair value as they
mature in 90 days or less. The fair value of investment and mortgage-backed
securities is based on quotations from an independent investment portfolio
accounting service.
Loans
Fair values are estimates for portfolios of loans with similar financial
characteristics. Loans are segregated by type and include commercial, real
estate mortgage and installment loans. Each loan category is further
segmented into fixed and adjustable rate terms, for purposes of estimating
their fair value.
The carrying values approximate fair value for variable rate loans which
reprice frequently, provided there has been no change in credit quality since
origination. Book value also approximates fair value for loans with a
relatively short term to maturity, provided there is little or no risk of
default before maturity and the disparity between the current rate and market
rate is small. Any mark-to-market adjustment for these short-term loans would
be insignificant. This estimation methodology is applied to the Company's
demand loans, lines of credit and credit card portfolios.
The fair value of all other performing loans is calculated by discounting
scheduled cash flows through the estimated maturity using the rates currently
offered for loans of similar remaining maturities. The estimate of maturity
is based on the Company's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of current
economic and lending conditions. The fair value reflects market prepayment
estimates.
The fair value of nonperforming loans is calculated by discounting carrying
values adjusted for specific reserve allocations through anticipated maturity
using estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan.
The installment loan portfolio includes credit card loans. The fair value
estimate of credit card loans is based on the value of existing loans at
December 31, 1996 and 1995. This estimate does not include the value
that relates to estimated cash flows from new loans generated from existing
cardholders over the remaining life of the portfolio.
Deposits and Other Liabilities
Under SFAS No. 107, the fair value of deposits with no stated maturity, such
as demand and savings accounts, is equal to the amount payable on demand as of
December 31, 1996 and 1995. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining maturities.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Borrowings
The Company's short-term and long-term borrowings are variable rate, thus fair
values are based on carrying amounts since these borrowings reprice frequently
as market rates change.
Off-Balance-Sheet Financial Instruments
The Company's off-balance-sheet financial instruments are comprised of
commitments to extend credit, 66% of which are lines of credit and credit
cards. These commitments to extend credit generally are not sold or traded
and estimated fair values are not readily available. The fair value of
commitments to extend credit can be estimated by discounting the remaining
contractual fees over the term of the commitment using the fees currently
charged to enter into similar agreements. Considering the current economic
environment and the creditworthiness of the counterparties in the portfolio,
the Company believes that such a calculation would not indicate a material
calculated fair value.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market data and information about each financial instrument. These estimates
do not reflect any premium or discount that could result from offering for
sale at one time the Company's entire holdings of a particular instrument.
Because no market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial instruments. Other
significant assets that are not considered financial assets include property,
plant and equipment. The following table represents carrying values and
estimated fair values of the Company's financial instruments as of December
31, 1996 and 1995:
1996 1995
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
FINANCIAL ASSETS
Federal Funds Sold . . .$ 17,870,000 $ 17,870,000 $ 11,469,000 $ 11,469,000
Investment Securities
available for sale. . . 143,474,000 143,474,000 68,015,000 68,015,000
Loans Receivable,
net of allowance . . . 267,886,000 267,710,000 246,517,000 248,525,000
FINANCIAL LIABILITIES
Fixed Maturity Deposits (1)
Time Deposits. . . . . 153,675,000 153,530,000 134,608,000 135,643,000
Short-term Borrowings. .104,096,000 104,096,000 27,523,000 27,523,000
Long-term Borrowings . . . 938,000 938,000 1,047,000 1,047,000
(1) SFAS No. 107 defines the estimated fair value of deposits with no
stated maturity, which includes demand deposits, money market and
other savings accounts, to be equal to the amount payable on demand.
Therefore, the balances of the Company's $166.1 million and $158.1
million of such deposits at December 31, 1996 and 1995, respectively,
are not included in this table.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note N-STOCKHOLDERS' EQUITY
The Company has authorized 200,000 shares of $100 par value preferred stock
issuable in series. No shares of preferred stock were issued or outstanding
at December 31, 1996 and 1995.
On December 31, 1994, the Company issued 58,225 shares of common stock through
a stockholder rights offering with net proceeds to the Company of $839,000.
Note O-DIVIDEND RESTRICTIONS
Dividends declared by the Company may be substantially provided from
subsidiary bank dividends. The payment of dividends by bank subsidiaries is
subject to various restrictions imposed under banking regulations. For national
banks, surplus in an amount equal to capital stock is not available for
dividends and prior approval of the Comptroller of the Currency is required if
total dividends declared exceed the total (defined) net profits from the
beginning of the current year to the date of declaration, combined with the
retained net profits of the preceding two years.
Note P-INCOME TAXES
Total income tax provision (benefit) for the three years ended December 31,
1996 was allocated as follows:
1996 1995 1994
Income from operations. . . . . . $2,102,367 $1,757,823 $ 881,651
Shareholders' equity for
the tax effect of net unrealized
gain (loss) on securities
available for sale . . . . . . . 80,090 (38,349) -
$2,182,457 $1,719,474 $ 881,651
The composition of the provision for income taxes from operations for the
three years ended December 31, 1996 follows:
1996 1995 1994
Federal Income Taxes
Current . . . . . . . . . . . . $1,777,004 $1,216,425 $1,023,837
Deferred. . . . . . . . . . 67,382 301,680 (302,380)
Provision for federal income taxes. . 1,844,386 1,518,105 721,457
State. . . . . . . . . . . . . . . 257,981 239,718 160,194
Provision for income taxes $2,102,367 $1,757,823 $ 881,651
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
The following is a reconciliation of federal income tax expense to the amount
computed at the statutory rate:
1996 1995 1994
Pre-tax income at statutory rate . . . . $1,961,237 $1,635,397 $ 876,510
Increase (decrease) resulting from:
Tax exempt income. . . . . . . . . . . (38,784) (45,476) (51,385)
Dividends received deduction . . . . . (30,940) (30,940) (30,940)
Amortization of goodwill and
other intangibles. . . . . . . . . 40,586 40,627 41,161
State tax provision (net of
federal tax benefit) . . . . . . . (87,713) (81,503) (54,466)
Other. . . . . . . . . . . . . . . . . - - (59,423)
Provision for federal income taxes . . $1,844,386 $ 721,457 $ 721,457
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1996, 1995
and 1994 consist of the following:
1996 1995 1994
Deferred tax assets:
Loan loss reserves. . . . . . . . . . $ 764,711 $ 772,573 $ 822,621
Equity securities . . . . . . . . . . 236,980 236,980 217,090
Investment securities . . . . . . . . - 38,349 -
Pension plan. . . . . . . . . . . . . 239,369 242,799 207,599
Cash basis accounting . . . . . . . . - - 55,157
Real estate owned . . . . . . . . . . 7,818 6,967 83,842
Other . . . . . . . . . . . . . . . . 40,914 - -
1,289,792 1,297,668 1,386,309
Deferred tax liabilities:
Fixed assets. . . . . . . . . . . . . 201,467 169,040 174,513
Cash basis accounting . . . . . . . . 99,623 125,640 -
Mortgage servicing rights . . . . . . 134,644 - -
Investment securities . . . . . . . . 41,741 - -
Other . . . . . . . . . . . . . . . . - 43,199 8,566
477,475 337,879 183,079
Net deferred tax asset before
valuation allowance. . . . . . . . . 812,317 959,789 1,023,230
Valuation allowance. . . . . . . . . . 236,980 236,980 217,090
Net deferred tax asset . . . . . . . . $ 575,337 $ 722,809 $ 986,140
The deferred tax assets recorded under SFAS No. 109 are expected to be realized
through carryback to taxable income in prior years, future reversals of
existing taxable temporary differences, and, to a lesser extent, future
taxable income. The valuation allowance increased in 1995 by $19,890 as a
result of the decrease in equity securities market value. In 1994, the
valuation allowance decreased by $88,400 as a result of the increase in equity
securities market value. Since no net deferred tax benefit was recorded on
the initial writedown of the asset, due to its capital nature, no tax expense
or benefit was recorded in 1995 or 1994 on its recovery.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note Q-OTHER EXPENSES
Amounts included in other expenses are as follows for the years ended December
31, 1996, 1995 and 1994:
1996 1995 1994
Advertising . . . . . . $ 398,101 $ 245,096 $ 186,913
Credit card expenses. . 320,868 315,340 281,433
Data processing . . . . 362,593 389,533 246,397
FDIC assessment . . . . 428,724 429,066 615,326
Other real estate - 4,497 387,797
Postage . . . . . . . . 340,696 312,186 261,615
Professional fees . . . 588,320 640,832 556,158
Stationery and supplies 519,435 380,237 309,588
Taxes other than on income 405,673 356,259 266,140
Telephone . . . . . . . 251,569 272,546 225,583
Other (each less than
1% of income). . . 1,246,755 1,310,578 1,070,210
$4,862,734 $4,656,170 $4,407,160
Note R-PENSION PLAN AND PROFIT SHARING 401(K) SAVINGS PLAN
Effective January 1, 1989, the Company established the American Bancorporation
Pension Plan (the "Plan"). This non-contributory defined benefit plan covers
all eligible employees of the Company and its banking and non-banking
subsidiaries. Benefits are based on employees' years of service and
compensation. The following table sets forth the Plan's funded status as of
December 31, 1996 and 1995:
1996 1995
Actuarial present value of accumulated
benefits obligation:
Vested. . . . . . . . . . . . . . . . $1,051,701 $1,476,327
Non-vested. . . . . . . . . . . . . . - -
$1,051,701 $1,476,327
Plan assets at fair value;
primarily marketable securities . . . . . $ 802,224 $1,078,502
Projected benefit obligation . . . . . . . 1,051,701 1,476,327
Projected benefit obligation in
excess of plan assets . . . . . . . . . . (249,477) (397,825)
Unrecognized net transition asset. . . . . - -
Prior service cost not yet recognized
in net periodic pension cost . . . . . . - -
Unrecognized net loss. . . . . . . . . . . - -
Accrued pension costs. . . . . . . . . $ (249,477) $ (397,825)
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Net pension costs, for the three years ended December 31, 1996, included the
following components:
1996 1995 1994
Service cost - benefits earned
during the period . . $ - $ - $ -
Interest cost on projected
benefit obligation. 65,620 66,253 65,832
Actual return on plan assets . . . . (44,141) (41,162) 821
Net amortization and deferral. . . . (47,068) (39,854) (83,867)
Net periodic pension benefit . . . . $(25,609) $(14,763) $(17,214)
The discount rate used in determining the projected benefit obligation in 1996,
1995 and 1994 was 7.25%, 6.25% and 5.75%, respectively. The expected long-term
rate of return on plan assets for each of the years ending in 1996, 1995 and
1994 was 7.00%.
In 1993, due to the continuation of a claim discussed below, the Company
notified the Plan participants that the planned termination of the Plan was
rescinded; however, an amendment to freeze all benefit accruals and fully vest
all participants in the benefits accrued to them as of December 31, 1992
remains in effect at December 31, 1996 due to an additional claim made against
the Plan during 1996.
A claim was made against the Plan during 1992 by a former employee (the
"Claimant"), alleging additional benefits due him under the Plan and
litigation between the parties ensued. Prior to the Court's final ruling, all
parties agreed as to the method of computing the benefit due the claimant.
The Court found that the computation was made pursuant to the pertinent Plan
provisions and approved a joint motion by the parties to dismiss the action.
As a result, the Plan Administrator disbursed $141,135 to the Claimant during
1995 to settle the claim and approximately $215,000 in 1996 to other affected
Plan participants as determined based on the application of the Court's final
ruling. No amount of the disbursements were recognized in the 1996 or 1995
statement of operations as the Company recorded a reserve of $500,000 in 1994
to recognize the liability for additional benefits due to Plan participants
as determined based on the application of the Court's decision regarding the
method of computing benefits to affected Plan participants. Management
believes appropriate liabilities have been established to recognize the
application of the Court's decision and expects to incur no further expense
for this situation.
An additional claim was made against the Plan during 1996 by former employees
alleging further additional benefits due them under the Plan. The Administrator
of the Plan has denied the claim and believes it has meritorious defenses to
this claim and intends to oppose it vigorously. As the former employees have
certain rights to appeal the denial of the claim, it is not possible to predict
the resolution of the claim. The Company does not expect any additional
provision need be made in the consolidated financial statements for this
matter.
The Company sponsors a profit sharing 401(k) savings plan to which eligible
employees are permitted to contribute up to fifteen percent of their salary to
the plan each year. The plan provides for matching contributions of the
Company equal to 50% of employee contributions up to the first 6% of
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
compensation. The Company may, at its discretion, make profit sharing
contributions to the plan. Plan participants are fully and immediately vested
in Company matching contributions and fully vested in Company profit sharing
contributions after 5 years of service. Company matching contributions for .
the years ended December 31, 1996, 1995 and 1994 amounted to $68,000, $67,000
and $49,000, respectively.
Note S - REGULATORY CAPITAL REQUIREMENTS
The Company and WNB are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the entities must meet specific capital guidelines that
involve quantitative measures of their assets, liabilities and certain off-
balance sheet items as calculated under regulatory accounting practices. The
entities capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
Tier I and Total capital are expressed as a percentage of risk-adjusted assets
which include various credit risk-weighted percentages of on-balance sheet
exposures. The Leverage capital ratio evaluates capital adequacy on the basis
of the ratio of Tier I capital to quarterly average total assets as reported
on the Company's regulatory financial statements, net of the loan loss reserve,
goodwill and certain other intangibles. To be categorized well-capitalized,
the Company's banking subsidiary must maintain minimum Tier I, Total and
Leverage capital ratios of 6%, 10% and 5%, respectively. At December 31, 1996,
the Company and its subsidiary bank, WNB, exceeded the regulatory minimums and
met the regulatory definition of well capitalized.
<TABLE>
The following table summarizes the Company's and WNB's actual consolidated capital amounts and
ratios as of December 31, 1996 and 1995.
<CAPTION>
Company WNB
Well- December 31,
Minimum Capitalized 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Tier I Capital $ 27,872 $ 26,059 $ 26,885 $ 24,840
Total Qualifying Capital $ 31,190 $ 28,866 $ 30,188 $ 27,639
Risk-Adjusted Assets $265,159 $223,552 $263,986 $222,877
Capital Basis
Ratios
Tier I Capital Ratio 4.00% 6.00% 10.51% 11.66% 10.18% 11.15%
Total Capital Ratio 8.00 10.00 11.76 12.91 11.44 12.40
Leverage Capital Ratio 3.00 5.00 6.49 7.47 6.32 7.22
</TABLE>
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
Note T-PARENT COMPANY CONDENSED FINANCIAL INFORMATION
AMERICAN BANCORPORATION (Parent Company Only)
BALANCE SHEET
December 31, 1996 and 1995 1996 1995
ASSETS
Cash and short-term investments . . $ 1,275,791 $ 1,528,487
Due from subsidiaries . . . . . . . 70,795 56,428
Investment in subsidiaries
Banking. . . . . . . . . . . . . . 29,405,758 26,732,262
Non-banking. . . . . . . . . . . . 1,207,863 1,191,487
30,613,621 27,923,749
Premises and equipment - net. . . . 17,205 19,483
Other assets. . . . . . . . . . . . 180,220 152,855
Total Assets. . . . . . . . . . . $32,157,632 $29,681,002
LIABILITIES
Due to subsidiaries. . . . . . . . $ 392,689 $ 339,251
Other liabilities. . . . . . . . . 442,249 329,329
Notes payable . . . . . . . . . . 900,000 1,000,000
Total Liabilities. . . . . . . . 1,734,938 1,668,580
STOCKHOLDERS' EQUITY. . . . . . . . 30,422,694 28,012,422
Total Liabilities and
Stockholders' Equity. . . . . $32,157,632 $29,681,002
STATEMENT OF OPERATIONS (Parent Company)
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
INCOME
Dividends from banking subsidiaries. . . . $1,250,000 $2,000,000 $ -
Dividends from non-banking subsidiaries. . 100,000 - -
Reimbursement from subsidiaries . . . . 324,000 357,984 354,000
Interest income . . . . . . . . . . . . . 45,464 25,028 40,481
Other income . . . . . . . . . . . . . . 814 443 326
Total income. . . . . . . . . . . . . . 1,720,278 2,383,455 394,807
EXPENSE
Interest expense . . . . . . . . . . . . . 82,386 96,363 13,059
Other expenses . . . . . . . . . . . . . . 690,164 589,176 682,508
Total expense . . . . . . . . . . . . . 772,550 685,539 695,567
947,728 1,697,916 (300,760)
Credit for income taxes . . . . . . . . . (135,797) (86,863) (81,443)
1,083,525 1,784,779 (219,317)
Equity in undistributed net income
of subsidiaries. . . . . . . . . . 2,582,453 1,267,388 1,915,636
NET INCOME . . . . . . . . . . . . . . . . $3,665,978 $3,052,167 $1,696,319
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS-CONTINUED
December 31, 1996, 1995 and 1994
STATEMENT OF CASH FLOWS (Parent Company)
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Operating Activities:
Net income. . . . . . . . . . . . . . .$ 3,665,978 $ 3,052,167 $ 1,696,319
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization. . . . . 51,455 51,803 52,305
Equity in undistributed net income
of subsidiaries . . . . . . . . . . . (2,582,453) (1,267,388) (1,915,636)
Net (increase) decrease in
due from subsidiaries . . . . . . . . (14,367) 50,827 (69,219)
Net change in other assets and
other liabilities.. . . . . . . . . . 60,753 106,762 24,874
Net cash provided (used) by
operating activities . . . . . 1,181,366 1,994,171 (211,357)
Investing Activities:
Purchase of premises and equipment. . (3,949) (10,439) (4,266)
Net change in investment. . . . . . .
in subsidiaries . . . . . . . . . . - 432,000 (2,570,000)
Net cash provided (used) by
investing activities. . . . . (3,949) 421,561 (2,574,266)
Financing Activities:
Cash dividends paid . . . . . . . . . (1,330,113) (978,023) (753,306)
Proceeds from stockholder
rights offering . . . . . . . . . - - 839,236
Net increase (decrease) in
notes payable . . . . . . . . . . (100,000) (1,000,000) 2,000,000
Net cash provided by (applied
to) financing activities. . . (1,430,113) (1,978,023) 2,085,930
Net increase (decrease) in Cash
and Cash Equivalents . . . . . . . . . (252,696) 437,709 (699,693)
Cash and Cash Equivalents
Beginning Balance. . . . . . . . . . . 1,528,487 1,090,778 1,790,471
Cash and Cash Equivalents
Ending Balance . . . . . . . . . . . $ 1,275,791 $ 1,528,487 $ 1,090,778
Cash paid during the year for:
Interest. . . . . . . . . . . . . . $ 82,386 $ 96,363 $ 13,059
The Parent Company paid no income taxes during 1996, 1995 or 1994.
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries
FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Note U-SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarters Ended (In thousands, except per share)
Mar 31 June 30 Sept 30 Dec 31 Year
1996
Interest income. . . . . . . . .$ 6,875 $ 7,104 $ 7,890 $ 8,016 $ 29,885
Interest expense . . . . . . . . 3,018 3,256 3,694 3,834 13,802
Net interest income . . . . . . 3,857 3,848 4,196 4,182 16,083
Provision for loan losses. . - - - - -
Net interest income after
provision for loan losses. . . 3,857 3,848 4,196 4,182 16,083
Other operating income . . . . . 499 639 683 571 2,392
Other operating expense. . . . . 2,982 3,085 3,394 3,246 12,707
Income before income taxes. . . 1,374 1,402 1,485 1,507 5,768
Provision for income taxes . . 503 511 552 536 2,102
Net income. . . . . . . . . .$ 871 $ 891 $ 933 $ 971 $ 3,666
Per common share
Net income . . . . . . . . .$ 0.55 $ 0.57 $ 0.60 $ 0.62 $ 2.34
1995
Interest income. . . . . . . . .$ 6,425 $ 6,679 $ 6,660 $ 6,732 $ 26,496
Interest expense . . . . . . . . 2,621 2,801 2,855 2,894 11,171
Net interest income . . . . . . 3,804 3,878 3,805 3,838 15,325
Provision for loan losses. . . 45 45 15 - 105
Net interest income after
provision for loan losses. . . 3,759 3,833 3,790 3,838 15,220
Other operating income . . . . . 381 420 441 438 1,680
Other operating expense. . . . . 3,082 3,052 2,925 3,031 12,090
Income before income taxes. . . 1,058 1,201 1,306 1,245 4,810
Provision for income taxes . . 388 439 478 453 1,758
Net income. . . . . . . . . .$ 670 $ 762 $ 828 $ 792 $ 3,052
Per common share
Net income . . . . . . . . .$ 0.43 $ 0.49 $ 0.53 $ 0.50 $ 1.95
KPMG Peat Marwick LLP
One Mellon Bank Center Telephone 412 391 9710 Telefax 412 391 8963
Pittsburgh, PA 15219 Telex 7106642199 PMM & CO PGH
Independent Auditors' Report
To the Board of Directors and Shareholders of
American Bancorporation:
We have audited the accompanying consolidated balance sheets of American
Bancorporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American
Bancorporation and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights", effective January 1, 1996 and Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," in 1994.
/s/ KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
March 18, 1997
Member Firm of
Klynveld Peat Marwick Goerdeler
American Bancorporation and Subsidiaries
Five Year Selected Financial Data
($ in thousands, except per share data)
Consolidated Statement of Operations
For the years ended 1996 1995 1994 1993 1992
Interest income
Interest and fees on loans. . . . $ 22,500 $ 21,929 $ 14,902 $ 14,590 $ 16,903
Interest on securities. . . . . . 6,967 4,197 4,721 5,513 6,034
Interest on other short-term
investments. . . . . . . . . . . 418 370 512 467 578
29,885 26,496 20,135 20,570 23,515
Interest expense
Interest on deposits and
borrowed funds. . . . . . . . . . 13,802 11,171 7,189 8,009 11,370
Net interest income . . . . . . 16,083 15,325 12,946 12,561 12,145
Provision for loan losses. . . . . . - 105 215 844 3,159
Net interest income
after provision for
loan losses. . . . . . . . . . 16,083 15,220 12,731 11,717 8,986
Service charges and other income . . 2,392 1,680 1,062 1,449 1,124
Other expenses
Salaries and employee benefits. . . 5,590 5,319 4,933 4,428 4,368
Other operating expenses. . . . . . 7,117 6,771 6,282 5,969 6,452
12,707 12,090 11,215 10,397 10,820
Income (loss) before income taxes. . 5,768 4,810 2,578 2,769 (710)
Provision (credit) for income taxes 2,102 1,758 882 999 (269)
Net income (loss) . . . . . . $ 3,666 $ 3,052 $ 1,696 $ 1,770 $ (441)
Per common share*:
Net income (loss) . . . . . . $ 2.34 $ 1.95 $ 1.13 $ 1.18 $ (0.29)
Dividends . . . . . . . . . . $ 0.90 $ 0.70 $ 0.50 $ 0.50 $ 0.50
Average common shares
outstanding (000's). . . . . . 1,565 1,565 1,507 1,507 1,507
Consolidated Balance Sheet Data
Balance at year end
Total Assets. . . . . . . . . . . $461,632 $353,995 $338,116 $276,390 $288,962
Earning Assets. . . . . . . . . . 432,793 330,136 314,463 256,967 266,748
Loans, net of unearned income . . 271,450 250,372 228,866 150,523 158,978
Deposits. . . . . . . . . . . . . 319,811 292,665 292,341 248,040 261,001
Notes payable and other
long-term debt. . . . . . . . . 938 1,047 2,000 - -
Stockholders' equity. . . . . . . 30,423 28,012 26,193 24,158 23,141
Average Balances for years ended
Total Assets. . . . . . . . . . . 400,866 348,655 284,845 278,669 293,383
Earning Assets. . . . . . . . . . 373,874 323,750 263,178 257,455 270,008
Loans, net of unearned income . . 254,397 243,043 164,405 153,277 165,024
Deposits. . . . . . . . . . . . . 310,746 293,415 252,916 250,504 262,957
Long-term debt. . . . . . . . . . 1,033 1,091 167 - 800
Stockholders' equity. . . . . . . 29,045 27,248 25,188 23,778 24,127
Consolidated Financial Ratios (as a Percent)
Net income to average assets. . . 0.91% 0.88% 0.60% 0.64% N/A
Net income to average equity. . . 12.62 11.20 6.73 7.44 N/A
Dividends to net income . . . . . 38.42 35.89 44.84 42.57 N/A
Average equity to average assets. 7.25 7.82 8.84 8.53 8.22%
Average debt to average equity. . 3.56 4.00 0.66 0.00 3.32
*(Per share data has been retroactively restated for a two for one stock split
which became effective March 16, 1994.)
<TABLE>
Average Balances, Income and Expense, Yields and Rates
<CAPTION>
($ in thousands) 1996 1995 1994
Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
INTEREST EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans
Commercial . . . . . . $ 73,366 $ 6,723 9.16% $ 59,497 $ 5,839 9.81% $ 48,161 $ 4,052 8.41%
Real estate. . . . . . 128,361 10,533 8.21 127,107 10,457 8.23 64,114 5,416 8.45
Installment-net. . . . 52,670 4,734 8.99 56,439 5,215 9.24 52,130 4,880 9.36
Fees . . . . . . . . . - 510 - - 418 - - 554 -
Total loans . . . . . 254,397 22,500 8.84 243,043 21,929 9.02 164,405 14,902 9.06
Investment securities
Taxable. . . . . . . . 111,530 6,839 6.13 73,644 4,052 5.50 85,509 4,558 5.33
Tax-exempt . . . . . . 1,903 128 6.72 1,979 145 7.29 2,246 163 7.26
Total investment
securities. . . . . 113,433 6,967 6.14 75,623 4,197 5.55 87,755 4,721 5.38
Other short-term
investments. . . . 6,044 418 6.91 5,084 370 7.28 11,018 512 4.64
Total earning assets. 373,874 29,885 7.99 323,750 26,496 8.18 263,178 20,135 7.65
Non-interest Earning Assets
Cash and due from banks. 10,592 10,823 11,024
Premises and
equipment - net. . . . 9,091 8,752 7,992
Other assets. . . . . . . 7,309 5,330 2,651
26,992 24,905 21,667
TOTAL ASSETS . . . . $400,866 $348,655 $284,845
INTEREST BEARING LIABILITIES
Deposits
NOW, Savings and MMDA . $129,408 $ 3,414 2.64% $130,741 $ 3,491 2.67% $127,626 $ 3,277 2.57%
Time. . . . . . . . . . 148,545 7,517 5.06 130,742 6,307 4.82 96,392 3,753 3.89
Total deposits. . . . 277,953 10,931 3.93 261,483 9,798 3.75 224,018 7,030 3.14
Short-term borrowings . 54,644 2,782 5.09 21,736 1,275 5.87 3,942 146 3.69
Notes payable and
other long-term debt. 1,033 89 8.59 1,091 98 8.97 167 13 7.84
Total interest
bearing liabilities . 333,630 13,802 4.14 284,310 11,171 3.93 228,127 7,189 3.15
Non-interest bearing
Demand non-interest
bearing. . . . . . . 32,793 31,932 28,898
Other liabilities. . . 5,398 5,165 2,632
38,191 37,097 31,530
Stockholders' Equity . . 29,045 27,248 25,188
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . $400,866 $348,655 $284,845
Net interest income $16,083 $15,325 $12,946
Interest rate spread 3.85% 4.25% 4.50%
MARGIN ANALYSIS
(as a % of Earning Assets)
Interest income . . . . . 7.99% 8.18% 7.65%
Interest expense. . . . . 3.69 3.45 2.73
Net interest income . . . 4.30% 4.73% 4.92%
</TABLE>
Averages stated are month end average balances. Installment loans are stated
net of unearned income. Average loans include nonaccrual loans. Yields do not
reflect tax equivalent adjustments.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
December 31, 1996, 1995 and 1994
Introduction
The discussion and analysis, when read in conjunction with the consolidated
financial statements and accompanying notes, is designed to provide
information relevant to an assessment of financial performance and management's
perception of significant events.
Summary
American Bancorporation recognized net income of $3,666,000 ($2.34 per share)
in 1996, compared to net income of $3,052,000 ($1.95 per share) in 1995.
The increase was the result of increases in net interest income and other
income and a decrease in the provision for loan losses, which were partially
offset by an increase in other expenses.
At year end, the Company's assets totalled $461,632,000. Deposits totalled
$319,811,000 at year end. Stockholders equity aggregated $30,423,000.
On February 9, 1996, the Company acquired certain assets and assumed certain
liabilities of Bank One, Wheeling-Steubenville, N.A. On December 8, 1994 the
Company acquired certain assets and assumed certain liabilities of Buckeye
Savings Bank, a wholly owned subsidiary of Crown Bank, F.S.B., headquartered
in Casselberry, Florida. (See Note B "Branch Acquisition").
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
December 31, 1996, 1995 and 1994
<TABLE>
RESULTS OF OPERATIONS
The discussion and analysis of the results of operations is focused on the
three years ended December 31, 1996 and uses a format of consecutive year
comparisons. Volume and rate variances contributing to change in net interest
income are analyzed using adjusted month end average balances. Tax equivalency
is not imputed in the calculation of yields.
<CAPTION>
($ in thousands)
Years ended December 31 Change
1996 1995 1994 1996 - 1995 1995 - 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Amount % Amount %
Interest income $ 29,885 $ 26,496 $ 20,135 $ 3,389 12.79% $ 6,361 31.59%
Interest expense 13,802 11,171 7,189 2,631 23.55 3,982 55.39
Net interest income 16,083 15,325 12,946 758 4.95 2,379 18.38
Provision for loan losses - 105 215 (105) (100.00) (110) (51.16)
Net interest income after
provision for loan losses 16,083 15,220 12,731 863 5.67 2,489 19.55
Other operating income 2,392 1,680 1,062 712 42.38 618 58.24
Other operating expense 12,707 12,090 11,215 617 5.10 875 7.81
Income before income taxes $ 5,768 $ 4,810 $ 2,578 $ 958 19.92% $ 2,232 86.58%
Average Volume
Earning Assets $373,874 $323,750 $263,178 $50,124 15.48% $60,572 23.02%
Interest Bearing Liabilities 333,630 284,310 228,127 49,320 17.35 56,183 24.63
Yield/Rate
Earning Assets 7.99% 8.18% 7.65%
Interest Bearing Liabilities 4.14 3.93 3.15
Spread 3.85 4.25 4.50
Net Interest Margins 4.30 4.73 4.92
</TABLE>
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
December 31, 1996, 1995 and 1994
VOLUME AND RATE VARIANCES
1996 - 1995 1995 - 1994
Increase/ (decrease) due to Increase/ (decrease) due to
($ in thousands) Volume Rate Net Volume Rate Net
Interest Income
Loans $1,010 $(439) $ 571 $7,096 $ (69) $7,027
Investment securities
Taxable 2,280 507 2,787 (649) 143 (506)
Tax-exempt (6) (11) (17) (19) 1 (18)
Other short-term
investments 67 (19) 48 (352) 210 (142)
Total interest income 3,351 38 3,389 6,076 285 6,361
Interest Expense
NOW, Savings and MMDA (36) (41) (77) 81 133 214
Time 890 320 1,210 1,529 1,024 2,553
Short-term borrowings 1,696 (189) 1,507 999 131 1,130
Long-term debt (5) 2 85 83 2 85
Total interest expense 2,545 86 2,631 2,692 1,290 3,982
Net Interest Income $ 806 $ (48) $ 758 $3,384 $(1,005) $2,379
The rate-volume variance has been allocated in proportion to the absolute value
attributed to each change.
Year ended December 31, 1996
Compared to Year Ended December 31, 1995
Net Income. Net income for the year ended December 31, 1996 amounted to
$3,666,000, compared to net income of $3,052,000 for the year ended December
31, 1995. The increase was the result of increases in net interest income and
other income and a decrease in the provision for loan losses which were
partially offset by an increase in other expenses.
Net Interest Income. Net interest income before provision for loan losses for
the year ended December 31, 1996 amounted to $16,083,000, an increase of
$758,000 or 4.9%, as compared to the year ended December 31, 1995. The
increase resulted primarily from a $50,124,000 or 15.5% increase in average
interest earning assets, which was partially offset by a 43 basis point
decrease in the Company's margin.
Interest Income. Total interest income for the year ended December 31, 1996
amounted to $29,885,000, an increase of $3,389,000 or 12.8% as compared to the
year ended December 31, 1995. The increase resulted primarily from a
$50,124,000 increase in the average volume of earning assets which was
partially offset by a 19 basis point decrease in the average yield on earning
assets. Average loans outstanding increased $11,354,000 or 4.7% with average
commercial loans increasing $13,869,000 or 23.3% and average real estate loans
increased $1,254,000 or 9.9% while average consumer installment loans decreased
$3,769,000 or 6.7%. The average yield on loans decreased from 9.02% in 1995 to
8.84% in 1996. Average investment securities and other short-term investments
outstanding increased $38,770,000 or 48.0% and the average yield increased
from 5.66% in 1995 to 6.18% in 1996.
Interest Expense. Total interest expense for the year ended December 31, 1996
amounted to $13,802,000, an increase of $2,631,000 or 23.6%, as compared to
the year ended December 31, 1995. The increase resulted primarily from a
$49,320,000 or 17.3% increase in the average volume of interest bearing
liabilities and a 21 basis point increase in interest rates paid on such
liabilities. Average NOW, money market and savings accounts decreased
$1,333,000 or 1.0%. Average time deposits increased $17,803,000 or 13.6%.
Average non-interest bearing accounts increased $861,000 or 2.7% and
represented 10.6% of average total deposits for the year ended December 31,
1996. Average borrowings increased $32,850,000 or 143.9% while the average
rate paid on borrowings decreased from 6.02% in 1995 to 5.16% in 1996.
Provision for Loan Losses. There was no loan loss provision for the year
ended December 31, 1996. Net loans charged-off were $290,000 in 1996,
compared to net loans recovered of $12,000 in 1995.
Other Income. Other income for the year ended December 31, 1996 amounted to
$2,392,000, an increase of $712,000 or 42.4%, as compared to the year ended
December 31, 1995. Net gains on sale of loans increased $418,000 or 448.9%,
primarily as a result of the implementation of SFAS No. 122 in 1996. Net
losses on sale of investment securities totalled $1,000 in 1996 compared to
net gains on sale of investment securities totalling $3,000 in 1995. Other
(miscellaneous) income increased by $181,000 or 24.8%.
Other Expense. Total other expense for the year ended December 31, 1996
amounted to $12,707,000, an increase of $616,000 or 5.1%, as compared to the
year ended December 31, 1995. Salaries and employee benefits increased
$271,000, or 5.1%. Occupancy and equipment expense increased $139,000 or
6.6%. Other (miscellaneous) expenses increased $206,000 or 4.4%, including a
one-time charge of $245,000 as a result of Federal legislation enacted to
recapitalize the Savings Association Insurance Fund. The one-time assessment
applied to approximately $46 million in thrift deposits the Company acquired
in recent years.
Provision for Income Taxes. The provision for income taxes for the year ended
December 31, 1996 was $2,102,000, compared to $1,758,000 for the year ended
1995. The increase was due to the increase in the Company's pre-tax income.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
December 31, 1996, 1995 and 1994
Year ended December 31, 1995
Compared to Year Ended December 31, 1994
Net Income. Net income for the year ended December 31, 1995 amounted to
$3,052,000, compared to net income of $1,696,000 for the year ended December
31, 1994. The increase was the result of increases in net interest income and
other income and a decrease in the provision for loan losses which were
partially offset by an increase in other expenses.
Net Interest Income. Net interest income before provision for loan losses for
the year ended December 31, 1995 amounted to $15,325,000, an increase of
$2,379,000 or 18.4%, as compared to the year ended December 31, 1994. The
increase resulted primarily from a $60,572,000 or 23.0% increase in average
interest earning assets, which was partially offset by a 19 basis point
decrease in the Company's margin. The increase in average interest earning
assets was primarily the result of assets acquired from Buckeye.
Interest Income. Total interest income for the year ended December 31, 1995
amounted to $26,496,000, an increase of $6,361,000 or 31.6% as compared to the
year ended December 31, 1994. The increase resulted primarily from a
$60,572,000 increase in the average volume of earning assets and a 53 basis
point increase in the average yield on earning assets. Average loans
outstanding increased $78,638,000 or 47.8% with average real estate loans
increasing $62,993,000 or 98.3%, average commercial loans increasing
$11,336,000 or 23.5% and average consumer installment loans increased
$4,309,000 or 8.3%. The average yield on loans decreased from 9.06% in 1994
to 9.02% in 1995. Average investment securities and other short-term
investments outstanding decreased $18,066,000 or 18.3% while the average yield
increased from 5.30% in 1994 to 5.66% in 1995.
Interest Expense. Total interest expense for the year ended December 31, 1995
amounted to $11,171,000, an increase of $3,982,000 or 55.4%, as compared to
the year ended December 31, 1994. The increase resulted primarily from a
$56,183,000 or 24.6% increase in the average volume of interest bearing
liabilities and a 78 basis point increase in interest rates paid on such
liabilities. The increase in average interest bearing liabilities was
primarily the result of liabilities acquired from Buckeye. Average NOW, money
market and savings accounts increased $3,116,000 or 2.4%. Average time
deposits increased $34,350,000 or 35.6%. Average non-interest bearing accounts
increased $3,034,000 or 10.5% and represented 10.9% of average total deposits
for the year ended December 31, 1995.
Provision for Loan Losses. The provision for loan losses for the year ended
December 31, 1995 was $105,000, compared to $215,000 for the year ended
December 31, 1994. Net loans recovered were $12,000 in 1995, compared to net
loans charged-off of $433,000 in 1994.
Other Income. Other income for the year ended December 31, 1995 amounted to
$1,680,000, an increase of $618,000 or 58.2%, as compared to the year ended
December 31, 1994. Net gains on sale of investment securities totalled
$3,000 in 1995 and 1994. Other (miscellaneous) income increased by
$442,000, primarily due to increases in customer service fees and fees from
mortgage loan servicing.
Other Expense. Total other expense for the year ended December 31, 1995
amounted to $12,091,000, an increase of $876,000 or 7.8%, as compared to the
year ended December 31, 1994. Salaries and employee benefits increased
$387,000, or 7.8%. Occupancy and equipment expense increased $240,000 or
12.8%. Other (miscellaneous) expenses increased $249,000 or 5.7%.
Provision for Income Taxes. The provision for income taxes for the year ended
December 31, 1995 was $1,758,000, compared to $882,000 for the year ended
1994. The increase was due to the increase in the Company's pre-tax income.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
December 31, 1996, 1995 and 1994
FINANCIAL CONDITION
Loans
The Company's primary earning assets are loans, representing 58.8% of the
total assets at December 31, 1996. Loans increased $21,078,000 or 8.4%
between 1995 and 1996 primarily due to improved demand in the commercial and
real estate lending segments of the portfolio. Loans increased $78,343,000 or
52.0% between 1993 and 1994, primarily due to loans acquired from Buckeye. At
December 31, 1996 there were no concentrations of loans in any particular
industry or in a group of related industries exceeding 10% of total loans.
It is the policy of the Company to review each prospective credit in order to
determine an adequate level of security or collateral to obtain prior to
making the loan. The type of collateral will vary and ranges from liquid
assets to real estate. Commercial business loans are made based on the
financial ability of the borrower to repay the obligation and the appraised
value of assets used as collateral. Real estate construction loans are made
with loan-to-value ratios generally below 75%. Real estate mortgage loans are
made with loan-to-value ratios generally below 80% of the appraised value. The
real estate is appraised at the time the loan is originated and is reappraised
if the loan is placed on a classified status. All consumer installment loan
requests are evaluated to determine the prospective borrowers ability and
willingness to repay the obligation and their stability as a borrower.
Ability to repay is determined by comparing an applicant's monthly debt
payment including the proposed loan payment with net monthly income. The
resulting debt service to income ratio generally must be below 40%. In
addition, for consumer installment loans which require collateral, the Company
will make advances up to 90% of the value on certain types of collateral.
The table below sets forth loans by category at December 31, 1992 through
1996.
TYPES OF LOANS
($ in thousands) 1996 1995 1994 1993 1992
Commercial . . . . . . . . . $ 82,792 $ 63,082 $ 51,818 $ 42,488 $ 44,697
Real estate construction . . 1,816 1,869 1,112 1,751 1,795
Real estate mortgage . . . . 136,488 128,709 119,629 53,417 49,524
Installment. . . . . . . . . 50,353 56,712 56,307 52,867 62,962
$271,449 $250,372 $228,866 $150,523 $158,978
Scheduled repayment and rate sensitivity of commercial loans and real estate
construction loans is indicated as follows at December 31, 1996:
($ in thousands) One Year One to Over
or Less Five Years Five Years Total
Commercial . . . . . . . . . $58,518 $4,961 $19,313 $82,792
Real estate construction . . 870 946 - 1,816
Total . . . . . . . . . . . $59,388 $5,907 $19,313 $84,608
For the commercial and real estate construction loans due after one year,
$20,974,000 have a predetermined interest rate and $4,246,000 have a floating
or adjustable interest rate.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
December 31, 1996, 1995 and 1994
Asset Quality
The following presents loans considered nonperforming and consequently
detracting from asset quality:
NONPERFORMING ASSETS
($ in thousands)
1996 1995 1994 1993 1992
Nonperforming loans
Nonaccrual. . . . . . . . . . $ 547 $ 790 $1,214 $2,188 $4,058
90 days past due. . . . . . . 744 609 766 601 886
Restructured. . . . . . . . . 672 666 610 709 509
Total nonperforming loans. . $1,963 $2,065 $2,590 $3,498 $5,453
Other nonperforming assets
Other real estate owned . . . 607 575 682 699 1,049
Total nonperforming assets . $2,570 $2,640 $3,272 $4,197 $6,502
Nonperforming loans as a
percent of loans . . . . . . 0.7% 0.8% 1.1% 2.3% 3.4%
Nonperforming assets as a
percent of total assets. . . 0.6% 0.7% 1.0% 1.5% 2.3%
The nonaccrual category represents loans on which interest recognition has
been suspended until realized because the borrower's ability to repay
principal or interest is in doubt. For loans not primarily secured by real
estate or in the process of collection, the Company discontinues accrual when
a loan is 90 days past due. Real estate loans are placed on nonaccrual status
when, in management's judgement, collection is in doubt or when foreclosure
proceedings are initiated, which is generally 180 days past the due date.
Although nominally performing, nonaccrual treatment may also be accorded on
loans when information becomes available which suggests that more than normal
risk of collection exists. Restructured loans are loans, the terms of which
have been altered, to provide a reduction or deferral of interest or principal
because of deterioration in the financial position of the borrower. Past due
loans are loans contractually past due 90 days or more and not included
elsewhere.
Total nonperforming loans were $1,963,000 at December 31, 1996, as compared to
$2,065,000 at December 31, 1995. Nonaccrual loans due decreased by $243,000
while loans 90 days past due increased $135,000, and restructured loans
increased by $6,000. The largest nonaccrual loan at December 31, 1996 was
$129,000. Of the $607,000 total other real estate owned, $576,000 represents
former banking facilities.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
December 31, 1996, 1995 and 1994
Allowance for Loan Losses
The Company's loan loss experience for the five years ended December 31, 1996
is summarized as follows:
SUMMARY OF LOAN LOSS EXPERIENCE
($ in thousands) 1996 1995 1994 1993 1992
Balance at beginning of year . . $ 3,854 $ 3,737 $ 3,544 $ 3,681 $ 2,463
Allowance acquired in loan
purchase (See Note B) . . . . - - 411 - -
Provision for loan losses . . . - 105 215 844 3,159
Loans charged-off
Commercial . . . . . . . . . . 54 63 205 110 798
Real estate mortgage . . . . . 66 21 141 283 288
Installment. . . . . . . . . . 308 279 491 941 1,093
Total loans charged-off . . . 428 363 837 1,334 2,179
Loans recovered
Commercial . . . . . . . . . . 3 101 93 39 43
Real estate mortgage . . . . . 16 108 25 44 12
Installment. . . . . . . . . . 119 166 286 270 183
Total loans recovered . . . . 138 375 404 353 238
Net loans charged-off
(recovered) . . . . . . . . 290 (12) 433 981 1,941
Balance at end of year . . . . . $ 3,564 $ 3,854 $ 3,737 $ 3,544 $ 3,681
Loans outstanding at
December 31, . . . . . . . . $271,450 $250,372 $228,866 $150,523 $158,978
Average loans for
the year ended . . . . . . . 254,397 243,043 164,405 153,277 165,024
Ratio of net charge-offs
to average loans . . . . . . 0.11% 0.00% 0.26% 0.64% 1.18%
Ratio of allowance to
loans outstanding. . . . . . 1.31% 1.54% 1.63% 2.35% 2.32%
Ratio of provision to
average loans. . . . . . . . 0.00% 0.04% 0.13% 0.55% 1.91%
The allowance for loan losses was equal to 1.31% of loans outstanding at year
end 1996 and in management's judgment is adequate to absorb potential loan
losses. While management's on-going analysis includes, among other factors,
the financial position of particular borrowers, results of internal loan
reviews, past due loans and the Company's historical loss experience, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, federal regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance
for loan losses. Such agencies may require the bank to recognize additions to
the allowance based on their judgments about information available to them at
the time of their examination.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
December 31, 1996, 1995 and 1994
Securities
The following table summarizes the carrying value and weighted average yield
of securities by type and maturity range at December 31, 1996:
<TABLE>
<CAPTION>
After After
One Year Five Years
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Securities Available for Sale
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities . $4,904 4.70% $ 3,295 5.47% $ - -% $ - -% $ 8,199 5.01%
Federal agency obligations . . . 1,106 5.29 11,187 5.67 97,825 7.24 12,182 5.54 122,300 6.90
State and Municipal securities 139 5.90 768 9.85 - - 328 8.13 1,235 8.87
Other. . . . . . . - - 5 5.50 - - 11,735 6.05 11,740 6.05
Total Carrying Value. . $6,149 4.83% $15,255 5.84% $97,825 7.24% $24,245 5.82% $143,474 6.74%
</TABLE>
The after ten year range of Federal agency obligations represents holdings of
certificates of participation in pools of residential mortgages. Principal
repayment prior to maturity has not been reflected. The after ten year range
of equity securities includes securities with no stated maturity. Yields
do not reflect tax equivalent adjustments.
Deposits
Summarized below are average deposit balances by type for the years ended
December 31, 1996, 1995 and 1994. Also presented is the maturity distribution
of time deposits in excess of $100,000 at each year end.
<TABLE>
<CAPTION>
AVERAGE DEPOSITS 1996 1995 1994
($ in thousands) Amount % Rate Amount % Rate Amount % Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand noninterest bearing . $ 32,793 10.6% -% $ 31,932 10.9% -% $ 28,898 11.4% -%
Interest bearing deposits
NOW Accounts. . . . . . . . 26,615 8.5 2.37 26,409 9.0 2.34 24,849 9.8 2.36
MMDA and savings accounts . 102,793 33.1 2.71 104,332 35.6 2.75 102,777 40.7 2.62
Time . . . . . . . . . . . 148,545 47.8 5.06 130,742 44.5 4.82 96,392 38.1 3.89
277,953 89.4 3.93 261,483 89.1 3.75 224,018 88.6 3.14
Total. . . . . . . . . . . . $310,746 100.0% 3.52% $293,415 100.0% 3.34% $250,916 100.0% 2.78%
</TABLE>
MATURITY OF TIME DEPOSITS OVER $100,000 1996 1995 1994
($ in thousands)
Within three months. . . . . . . . $ 8,511 $ 2,814 $ 2,844
Three to six months. . . . . . . . 2,813 5,745 3,586
Six months to one year . . . . . . 7,656 5,625 3,461
After one year . . . . . . . . . . 7,968 4,053 4,211
Total . . . . . . . . . . . . . . $26,948 $18,237 $14,102
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
December 31, 1996, 1995 and 1994
Capital
Capital resources represent funds obtained externally through issuance of
securities and internally through the retention of earnings. Federal
regulatory authorities define core ("Tier 1") capital to include common
stockholders' equity and non-cumulative perpetual preferred stock, less
certain intangible assets. Supplementary ("Tier 2") capital includes core
capital, allowance for loan losses, perpetual preferred stock and qualifying
notes and debentures. Capital adequacy is determined after consideration
of a range of factors including organizational size, asset quality,
consistency of earnings, risk diversification, management expertise and
internal controls.
Banking organizations are required to meet capital adequacy guidelines
established by federal regulators. The Company and the Banks are subject to a
risk-based capital framework and a minimum leverage ratio. The regulatory
minimum risk-based capital ratio is 8.0% (of which at least 4.0% should
be a core component consisting of common stockholders' equity). In addition,
the Company and the Bank must meet a leverage capital ratio of 3.0% Tier I
capital to adjusted total assets. The percentages established are minimums
and most banks are required to maintain ratios at levels 100 to 200 basis
points above the minimum and under certain circumstances may be required by
federal regulators to maintain ratios at higher levels.
At December 31, 1996 the Company's total risk-based capital ratio was 11.8%
and its Tier I risk-based capital ratio was 10.5%, while the total risk-based
capital ratio for WNB was 11.4%, with Tier I risk-based capital of 10.2%. The
Company's leverage ratio at December 31, 1996 was 6.5%, while the leverage
ratio of WNB was 6.3%.
Liquidity
In banking, liquidity refers to the ability of an institution to procure or
generate cash in order to fund operations, satisfy commitments, provide credit
to customers and withstand contraction of deposits during varying economic
conditions without disruption of service capabilities.
Liquidity depends upon confidence of customers and financial intermediaries
and confidence is engendered by financial strength as demonstrated by
profitability, asset quality and capitalization. The primary source of funds
are deposits and to a lesser extent, amortization and prepayment of
outstanding loans, maturing investment securities and borrowings from the FHLB
of Pittsburgh and Cincinnati. At December 31, 1996, money market assets and
investment securities maturing in one year or less totalled $22.2 million.
Short-term borrowings outstanding at December 31, 1996 totalled $104.1 million
and certificates of deposit in excess of $100,000, which mature within one
year or less, totalled $19.0 million or 5.9% of total deposits.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-CONTINUED
December 31, 1996, 1995 and 1994
At December 31, 1996, the Parent Company had outstanding debt totalling
$900,000 and had $1.3 million in liquid assets. Dividends declared by the
Company and funds to support parent company operations may be substantially
provided from subsidiary bank dividends. Various legal restrictions
limit the ability of a bank subsidiary to finance or otherwise supply funds
to its parent or certain of its affiliates (See Note O "Dividend Restrictions"
to the consolidated financial statements). Management believes that liquidity
in banking and nonbanking operations is sufficient.
Asset/Liability Management (Interest Rate Sensitivity)
The objective of asset/liability management is to insulate an institution's
rate spread from changes in interest rates and thus enable the institution
to maintain satisfactory levels of net interest income in both rising and
falling interest rate environments. In order to meet this objective, the
Company actively monitors the maturity or repricing relationship between its
interest earning assets and interest bearing liabilities and endeavors to
control the difference between such assets and liabilities maturing or
repricing within one year to less than ten percent of its total assets.
The difference between rate sensitive assets and rate sensitive liabilities
that mature or reprice within a given time period is referred to as the
interest rate sensitivity gap. A positive gap exists when rate sensitive
assets exceed rate sensitive liabilities. This mismatch generally will enhance
earnings in a rising interest rate environment and inhibit earnings when rates
decline. Conversely, a negative gap exists when rate sensitive liabilities
exceed rate sensitive assets. In this case, a rising interest rate environment
generally will inhibit earnings and declining rates generally will enhance
earnings. The Company's interest rate sensitivity analysis at December 31,
1996, is presented in the following table. In evaluating the Company's
exposure to interest rate risk certain shortcomings inherent in this method of
analysis must be considered. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may
react in different degrees to change in market interest rates. Interest
bearing demand deposits and savings deposits are presented as repricing within
the earliest period as they are subject to immediate withdrawal and rate
change. However, these types of deposits have historically shown relatively
stable balances and rates have generally changed in lesser degrees than other
interest earning assets and interest bearing liabilities.
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - CONTINUED
December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
December 31, 1996 Days Total
INTEREST RATE SENSITIVITY 31 61 91 181 One Year Over
($ in thousands) 30 60 90 180 1 year or Less One Year Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Loans $ 84,488 $ 18,448 $ 4,034 $ 14,425 $ 27,188 $ 148,583 $122,867 $271,450
Investment securities - 499 - 25 5,625 6,149 137,325 143,474
Other short-term investments 17,870 - - - - 17,870 - 17,870
Total interest earning assets 102,358 18,947 4,034 14,450 32,813 172,602 260,192 432,794
INTEREST BEARING LIABILITIES
Deposits
Interest bearing demand 27,569 - - - - 27,569 - 27,569
Savings deposits 101,823 - - - - 101,823 - 101,823
Time deposits 14,497 10,872 9,971 25,309 41,624 102,273 51,402 153,675
Short-term borrowings 32,596 15,000 55,000 1,500 - 104,096 - 104,096
Long-term debt 900 - - - - 900 38 938
Total interest bearing liabilities 177,385 25,872 64,971 26,809 41,624 336,661 51,440 388,101
Non Interest Bearing Sources-net - - - - - - 44,693 44,693
Total Funding sources 177,385 25,872 64,971 26,809 41,624 336,661 96,133 432,794
INTEREST SENSITIVITY GAP $(75,027) $ (6,925) $ (60,937) $ (12,359) $ (8,811) $(164,059) $164,059 $ -
CUMULATIVE INTEREST
SENSITIVITY GAP $(75,027) $(81,952) $(142,889) $(155,248) $(164,059) $(164,059) $ - $ -
GAP/INTEREST EARNING ASSETS (17.34)% (1.60)% (14.08)% (2.85)% (2.04)% (37.91)% 37.91% -
CUMULATIVE GAP/INTEREST
EARNING ASSETS (17.34) (18.94) (33.02) (35.87) (37.91) (37.91) - -
</TABLE>
At December 31, 1996, there were no outstanding financial futures, options or
interest rate swap agreements.
Recently Issued Accounting Standards
In June, 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 establishes the criteria for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 supersedes several accounting standards
including SFAS No. 122, "Accounting for Mortgage Servicing Rights." This
standard is effective for transactions that occur after December 31, 1996.
Earlier implementation is not permitted. The Company is currently evaluating
the impact that this statement will have on its financial position and results
of operations, but it is not expected to be material.
On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 established guidelines for recognition of impairment losses
related to long-lived assets and certain intangibles and related goodwill
for both assets to be held and used as well as assets held for disposition.
This statement excludes financial instruments, long-term customer
relationships of financial institutions, mortgage and other servicing rights,
and deferred tax assets. Adoption of this statement was immaterial to the
Company's financial position and results of operations.
DIRECTORS
Jack O. Cartner, President
Motrim Inc., Cambridge, OH
Paul W. Donahie, President
American Bancorporation, Wheeling, WV
Jay T. McCamic, Attorney at Law
McCamic & McCamic, Wheeling, WV
Jeremy C. McCamic, Attorney at Law
McCamic & McCamic, Wheeling, WV
Jolyon W. McCamic, Attorney at Law
McCamic & McCamic, Wheeling, WV
Robert C. Mead, President
American Mortgages, Inc., Wheeling, WV
OFFICERS
Jeremy C. McCamic, Chairman & CEO
Jolyon W. McCamic, Vice Chairman/Administration
Paul W. Donahie, President
Robert C. Mead, Chief Operating Officer
Brent E. Richmond, Executive Vice President, Secretary/Treasurer
and Chief Financial Officer
Jeffrey A. Baran, CPA, Assistant Controller
Linda M. Woodfin, Assistant Secretary
Paul W. Donahie, President
Wheeling National Bank
Robert C. Mead, President
American Mortgages, Inc.
CORPORATE INFORMATION
Annual Meeting
The annual meeting of shareholders will be held in Wheeling, West Virginia at
the corporate offices, located at Suite 800, Mull Center, 1025 Main Street.
The meeting will convene at 10:00 A.M. (E.D.S.T.) May 21, 1997. All
shareholders are invited to attend.
Stock Transfer Agent
American Bancservices, Inc.
1025 Main Street - Suite 800
Wheeling, WV 26003
Stock Listing
NASDAQ Symbol: "AMBC"
Shares of American Bancorporation common stock are traded on the Nasdaq
Stock Market-National List.
Primary Market Makers
Legg Mason Wood Walker, Inc. Herzog, Heine, Geduld, Inc.
Wheat First Securities, Inc. Ferris Baker Watts, Inc.
F. J. Morrissey & Co., Inc.
Form 10K
Stockholders may receive a copy of American Bancorporation's 1996 Annual
Report on Form 10K as filed with the Securities and Exchange Commission
upon written request to Treasurer, American Bancorporation, 1025 Main
Street, Suite 800, Wheeling, WV 26003.
Independent Certified Public Accountants
KPMG Peat Marwick LLP
Pittsburgh, PA
Securities Counsel
Maloney & Knox
Washington, DC
