-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QMtMqzrTtJNZlSvyPmfJc59cpWmuy78vlqc5hrrkep+0QC8IiYpURKNVKBwmhqVo iuJeHIpD9RW07PM16hz62w== 0000004570-00-000003.txt : 20000331 0000004570-00-000003.hdr.sgml : 20000331 ACCESSION NUMBER: 0000004570-00-000003 CONFORMED SUBMISSION TYPE: ARS PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BANCORPORATION /WV/ CENTRAL INDEX KEY: 0000004570 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 310724349 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: ARS SEC ACT: SEC FILE NUMBER: 000-05893 FILM NUMBER: 585273 BUSINESS ADDRESS: STREET 1: 1025 MAIN ST STE 800 CITY: WHEELING STATE: WV ZIP: 26003 BUSINESS PHONE: 3042335006 MAIL ADDRESS: STREET 1: 1025 MAIN STREET STREET 2: SUITE 800 CITY: WHEELING STATE: WV ZIP: 26003 ARS 1 1999 ANNUAL REPORT AMERICAN BANCORPORATION 1999 ANNUAL REPORT
American Bancorporation and Subsidiaries FINANCIAL HIGHLIGHTS (In thousands, except per share) 1999 1998 1997 1996 1995 Statement of Income: Net Income .................... $ 5,354 $ 5,202 $ 4,509 $ 3,666 $3,052 Basic Earnings Per Share ...... 1.71 1.66 1.44 1.17 0.98 Balance Sheet: Assets ........................ $711,291 $611,405 $484,606 $461,632 $353,995 Loans - net ................... 368,143 297,580 283,407 267,886 246,518 Deposits ...................... 449,277 431,240 355,734 319,811 292,665 Stockholders' equity .......... 28,179 36,447 33,694 30,423 28,012 Book Value per share .......... 9.00 11.65 10.77 9.72 8.95 QUARTERLY PRICE RANGES AND DIVIDENDS Common Shares Trust Preferred 1999: High Low Dividends High Low Fourth..................... 19 1/4 13 1/8 $ 0.15 10 1/4 7 1/4 Third...................... 22 1/2 17 0.15 10 1/2 9 1/4 Second..................... 22 3/4 16 7/8 0.15 10 1/2 9 3/4 First...................... 23 16 1/2 0.15 10 1/2 9 7/8 1998: High Low Dividends High Low Fourth.................... 27 1/2 18 7/8 $ 0.15 10 1/2 9 7/8 Third..................... 25 7/8 21 0.14 10 1/2 10 Second.................... 27 1/2 22 0.14 10 1/2 10 First..................... 30 1/2 25 0.125 N/A N/A
American Bancorporation's common stock is traded on the Nasdaq Stock Market under the ticker symbol AMBC. Per share data, stock prices and dividends have been retroactively restated to reflect a two for one stock split which became effective October 23, 1997. American Bancorporation's Capital Trust I preferred securities are traded on the Nasdaq Stock Market under the ticker symbol AMBCP. Prior to April 21, 1998 no trust preferred securities were issued. Interest, rather than dividends, is paid on trust preferred securities. CORPORATE PROFILE American Bancorporation (the "Company"), is a registered Ohio bank holding company headquartered in Wheeling, West Virginia. The Company was organized in 1966. At December 31, 1999, the Company owned one affiliate bank, Wheeling National Bank, 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, and a Loan Production Office located in Washington County, Pennsylvania. In addition to the banking offices, the Company operates four 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 Wheeling National Bank, American Bancservices, Inc., which provides the Company's transfer agent services, and American Bancorporation Capital Trust I, a Delaware statutory business trust. The approximate number of common stockholders of record was 2,479 on January 31, 2000. CONTENTS Financial Highlights.............................................. See above Quarterly Stock Price Ranges...................................... See above Corporate Profile......................... ....................... See above Chairman's Letter........................... ..................... 1 - 2 Financial Statements.............................................. 3 - 29 Independent Auditors' Report ................................... 30 Five Year Selected Financial Data................................. 31 Management's Discussion and Analysis of Financial Condition and Results of Operations................. 31 - 47 THE CHAIRMAN'S LETTER TO OUR SHAREHOLDERS: In 1999 American Bancorporation continued to carry out its basic strategy of prudent growth. Assets grew 16.3% from $611 million at year end 1998 to $711 million at year end 1999. Deposits grew 4.2% from $431 million at year end 1998 to $449 million at year end 1999. Earnings grew 2.9% from $5.2 million at year end 1998 to $5.4 million at year end 1999. This represents $1.71 basic earnings per share for 1999 compared to $1.66 basic earnings per share for 1998. Your Company grew its loan portfolio in 1999 23.5% from $301 million at year end 1998 to $371 million at year end 1999. This loan growth was across the board in consumer, mortgage, and particularly commercial, where our Columbus, Ohio cluster, consisting of branches at Reynoldsburg, Gahanna, Stone Ridge and 4th and Broad, now approaches $100 million in commercial loans outstanding. Our net charge-offs ratio of .11% compares very favorably to the national average of more than .20%. Our application for a branch at New Albany is in the works and we expect approval at any time. This addition to our Columbus cluster should put our deposits well over $100 million in that cluster in a short time. Coming east, in May we will close on approximately $13 million in deposits purchased from Sky Bank in Barnesville, Ohio. The Cambridge cluster, consisting of Cambridge, Barnesville, Flushing and Freeport, will then have over $100 million in deposits. Our application to make our new LPO at Washington, Pennsylvania a full service branch has been approved and our Washington-Weirton cluster of branches at Washington, Pennsylvania, Weirton, West Virginia, and Steubenville, Ohio should be over $100 million in deposits very shortly. 1 Our Wheeling-St. Clairsville cluster, consisting of Wheeling, New Martinsville and Pine Grove, West Virginia, and St. Clairsville and Shadyside, Ohio, has well over $200 million in deposits. Our strategy of making our excess deposits in our 3 eastern clusters available for lending in Columbus has been a great success. We have recently completed an exhaustive OCC examination successfully. As we predicted, Y2K was a non-event. We look forward to a year of slow but steady growth and intense concentration on improving every phase of our operation. We deeply appreciate your continued strong support. Sincerely, Jeremy C. McCamic Chairman and Chief Executive Officer 2
CONSOLIDATED BALANCE SHEETS American Bancorporation and Subsidiaries December 31, 1999 and 1998 ASSETS 1999 1998 Cash and due from banks ....................................... $ 11,774,610 $ 12,316,176 Federal funds sold ............................................ 4,823,000 17,747,025 Investment securities available for sale ...................... 298,153,127 263,827,239 Loans Commercial, financial and agricultural ..................... 147,701,968 113,622,577 Real estate mortgage ....................................... 158,127,638 138,050,626 Installment ................................................ 65,393,468 48,948,681 ------------- ------------- 371,223,074 300,621,884 Less allowance for loan losses ............................. 3,079,796 3,042,269 ------------- ------------- 368,143,278 297,579,615 Premises and equipment - net .................................. 10,214,208 9,735,582 Accrued interest receivable ................................... 4,469,869 3,393,337 Excess of cost over net assets acquired ....................... 1,355,659 1,633,464 Other assets .................................................. 12,357,245 5,173,024 ------------- ------------- TOTAL ASSETS ........................................... $ 711,290,996 $ 611,405,462 ============= ============= LIABILITIES Deposits Demand - non-interest bearing .............................. $ 37,959,587 $ 39,497,617 Demand - interest bearing .................................. 23,965,759 26,291,654 Savings .................................................... 120,976,630 93,605,716 Time - under $100,000 ...................................... 203,924,631 216,310,149 Time - over $100,000 ....................................... 62,450,886 55,535,059 ------------- ------------- TOTAL DEPOSITS ......................................... 449,277,493 431,240,195 Borrowed funds ................................................ 214,593,201 123,891,183 Accrued interest payable ...................................... 2,511,496 2,306,854 Other liabilities ............................................. 4,079,845 4,869,737 Company obligated mandatorily redeemable trust preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company ....................... 12,650,000 12,650,000 ------------- ------------- TOTAL LIABILITIES ...................................... 683,112,035 574,957,969 STOCKHOLDERS' EQUITY Preferred stock ........................................... -- -- Common stock without par value, stated value $2.50 a share, authorized 6,500,000 shares, issued and outstanding 3,129,674 ................................... 7,824,185 7,824,185 Additional paid-in capital ................................ 10,301,982 10,301,982 Retained earnings ......................................... 21,906,156 18,430,141 Accumulated other comprehensive loss, net of tax benefit of $7,264,963 in 1999 and $176,544 in 1998 ....... (11,853,362) (108,815) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY ............................... 28,178,961 36,447,493 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 711,290,996 $ 611,405,462 ============= ============= The accompanying notes are an integral part of these financial statements.
3 American Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1999, 1998 and 1997 1999 1998 1997 Loans ........................................... $28,501,782 $25,759,177 $24,890,709 Investment securities Taxable interest income ....................... 15,330,699 13,003,297 9,718,745 Non-taxable interest income ................... 2,771,283 398,051 90,386 Dividends ..................................... 649,083 384,316 491,420 ----------- ----------- ----------- 18,751,065 13,785,664 10,300,551 Short-term investments .......................... 365,400 755,802 347,905 ----------- ----------- ----------- Total interest income ...................... 47,618,247 40,300,643 35,539,165 INTEREST EXPENSE Deposits Interest bearing demand ....................... 413,588 609,938 628,799 Savings ....................................... 2,792,845 2,584,443 2,686,435 Time - under $100,000 ......................... 11,472,173 11,255,479 7,767,168 Time - over $100,000 .......................... 3,221,631 3,131,532 2,101,660 ----------- ----------- ----------- 17,900,237 17,581,392 13,184,062 Borrowings Borrowed funds .................................. 10,169,583 5,047,018 5,005,959 Notes payable and other long-term debt .......... 1,101,412 811,571 87,634 ----------- ----------- ----------- Total interest expense ...................... 29,171,232 23,439,981 18,277,655 ----------- ----------- ----------- NET INTEREST INCOME ............................. 18,447,015 16,860,662 17,261,510 PROVISION FOR LOAN LOSSES .......................... 420,000 240,000 -- ----------- ----------- ----------- Net interest income after provision for loan losses 18,027,015 16,620,662 17,261,510 OTHER INCOME Service charges on deposit accounts ........... 896,191 716,512 749,680 Insurance commissions ......................... 80,714 90,938 87,592 Net gains on sale of loans .................... 1,524,509 2,178,609 1,303,363 Net securities gains .......................... 342,967 946,742 34,336 Other income .................................. 659,607 761,680 750,873 ----------- ----------- ----------- Total other income ......................... 3,503,988 4,694,481 2,925,844 OTHER EXPENSE Salaries and employee benefits ................ 6,920,404 6,677,506 5,910,116 Occupancy expense ............................. 1,317,634 1,241,005 1,261,026 Furniture and equipment expense ............... 1,274,460 1,133,690 1,128,188 Other expenses ................................ 5,137,784 5,291,035 4,801,750 ----------- ----------- ----------- Total other expense ........................ 14,650,282 14,343,236 13,101,080 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES ......................... 6,880,721 6,971,907 7,086,274 PROVISION FOR INCOME TAXES ......................... 1,526,902 1,770,025 2,577,467 ----------- ----------- ----------- NET INCOME ......................................... $ 5,353,819 $ 5,201,882 $ 4,508,807 =========== =========== =========== Basic Earnings Per Share .................... $ 1.71 $ 1.66 $ 1.44 =========== =========== =========== The accompanying notes are an integral part of these financial statements.
4 American Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Years ended December 31, 1999, 1998 and 1997
Accumulated other Additional comprehensive Total Common paid-in Retained income (loss), stockholders' Stock capital earnings net of tax equity Balance at January 31, 1997 .... 7,824,185 10,301,982 12,021,258 275,269 30,422,694 Comprehensive results: Net Income ................... -- -- 4,508,807 -- 4,508,807 Other comprehensive income, net of tax of $218,121 ...... -- -- -- 327,182 327,182 ------------ ------------ Total comprehensive results .. -- -- 4,508,807 327,182 4,835,989 Dividends ($0.50 per share) .. -- -- (1,564,837) -- (1,564,837) ------------ ------------ ------------ Balance at December 31, 1997 ... 7,824,185 10,301,982 14,965,228 602,451 33,693,846 ------------ ------------ ------------ ------------ ------------ Comprehensive results: Net Income ................... -- -- 5,201,882 -- 5,201,882 Other comprehensive loss, net of tax of ($302,004) .... -- -- -- (343,504) (343,504) Reclassification adjustment, net of tax of ($141,841) ... -- -- -- (367,762) (367,762) ------------ ------------ ------------ Total comprehensive results .. -- -- 5,201,882 (711,266) 4,490,616 Dividends ($0.555 per share) . -- -- (1,736,969) -- (1,736,969) ------------ ------------ ------------ Balance at December 31, 1998 ... 7,824,185 10,301,982 18,430,141 (108,815) 36,447,493 ------------ ------------ ------------ ------------ ------------ Comprehensive results: Net Income .................. -- -- 5,353,819 -- 5,353,819 Other comprehensive loss, net of tax of ($7,050,970) -- -- -- (11,532,374) (11,532,374) Reclassification adjustment, net of tax of ($37,449) .. -- -- -- (212,173) (212,173) ------------ ------------ Total comprehensive results -- -- 5,353,819 (11,744,547) (6,390,728) Dividends ($0.60) per share) -- -- (1,877,804) -- (1,877,804) ------------ ------------ ------------ Balance at December 31, 1999 ... $ 7,824,185 $ 10,301,982 $ 21,906,156 $(11,853,362) $ 28,178,961 ============ ============ ============ ============ ============ The accompanying notes are an integral part of these financial statements.
5 American Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1999, 1998 and 1997 Operating Activities: 1999 1998 1997 Net income ................................................................... $ 5,353,819 $ 5,201,882 $ 4,508,807 Adjustments to reconcile net income to net cash from operating activities: Depreciation ............................................................... 907,350 843,842 805,499 Amortization of intangibles ................................................ 277,805 335,476 335,476 Net amortization of investment securities .................................. 929,776 662,117 336,384 Provision for loan losses .................................................. 420,000 240,000 -- Net gain on sale of investment securities .................................. (342,967) (946,742) (34,336) Net gain on sale of loans .................................................. (1,524,509) (2,178,609) (1,303,363) Change in assets and liabilities net of effects from the purchase of branch assets: Net (increase) decrease in accrued interest receivable ..................... (1,076,532) (680,097) 272,082 Net increase in accrued interest payable ................................... 204,642 524,186 293,669 Real estate mortgage loans originated for sale ............................. (98,409,845) (132,774,915) (79,808,277) Proceeds from sale of real estate mortgage loans ........................... 101,049,167 128,848,539 77,953,379 Net (increase) decrease in other assets .................................... 257,055 (1,220,484) 1,632,174 Net increase (decrease) in other liabilities ............................... (778,651) 650,877 (697,637) Net (increase) decrease from other operating activities .................... (352,857) 62,427 449,035 ------------- ------------- ----------- Net cash provided (used) by operating activities ..................... 6,914,254 (431,501) 4,742,892 Investing Activities: Investment securities available for sale: Proceeds from maturities and repayments .............................. 84,908,012 148,926,057 39,638,162 Proceeds from sales .................................................. 37,800,556 19,978,365 54,567,143 Purchases ............................................................ (176,454,231) (264,426,160) (119,664,429) Net increase in loans ...................................................... (72,098,476) (8,307,917) (12,362,393) Purchase of premises and equipment ......................................... (1,385,976) (520,842) (1,222,909) Proceeds from sale of premises and equipment ............................... -- 2,085 -- ------------- ------------ ------------ Net cash used by investing activities ................................ (127,230,115) (104,348,412) (39,044,426) Financing Activities: Net increase (decrease) in non-interest bearing demand deposits ............ (1,538,030) 5,984,905 (3,231,604) Net increase (decrease) in interest bearing demand and savings deposits .... 25,045,019 395,823 (9,890,172) Net increase (decrease) in time deposits ................................... (5,469,691) 69,125,135 49,045,290 Net increase (decrease) in borrowed funds .................................. 90,702,018 36,317,031 (16,521,891) Principal repayment of long-term debt ...................................... (11,242) (2,413,558) (11,931) Proceeds from issuance of long-term debt ................................... -- 13,650,000 499,050 Cash dividends paid ........................................................ (1,877,804) (1,658,726) (1,564,837) ------------- ------------- ------------- Net cash provided by financing activities ............................ 106,850,270 121,400,610 18,323,905 ------------- ------------- ------------- Net Increase (Decrease) in Cash and Cash Equivalents ......................... (13,465,591) 16,620,697 (15,977,629) Cash and Cash Equivalents Beginning Balance .................................. $ 30,063,201 $ 13,442,504 $ 29,420,133 ------------- ------------- ------------- Cash and Cash Equivalents Ending Balance ..................................... $ 16,597,610 $ 30,063,201 $ 13,442,504 ============= ============= ============= Supplemental information: Cash paid during the year for: Interest ................................................................ $ 28,966,590 $ 22,915,795 $ 17,983,986 Income taxes ............................................................ $ 1,320,000 $ 2,105,000 $ 2,630,000 Non-cash investing and financing activities: Loan foreclosures and repossessions ..................................... $ 1,309,224 $ 1,026,117 $ 427,339 Transfer of premises and equipment to other real estate owned ........... $ - $ - $ 77,913 The accompanying notes are an integral part of these financial statements.
6 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 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 ("WNB"), American Bancdata Corporation, American Bancservices, Inc., American Mortgages, Inc. ("AMI") and American Bancorporation Capital Trust I (the "Trust"). 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 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 accumulated other comprehensive income or loss, 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. 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 7 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 initiated, which is generally 180 days past the due date. 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 north eastern 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 when it is probable that the Company will be unable to collect all principal and interest amounts due according to the original 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. Impaired loans are 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 provision for loan losses. Interest receipts on nonaccrual and impaired loans are recognized as interest revenue or are applied to principal when management believes the ultimate collectibility of principal is in doubt. 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 appropriate to provide for probable 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. Mortgage Loan Servicing On January 1, 1997 the Company adopted 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." Adoption of this statement was immaterial to the Company's financial position and results of operations. 8 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 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 assumptions 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 are stratified by interest rate. If the carrying value of an individual stratum exceeds its fair value, a valuation allowance is established. 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 eight 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. 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"). 9 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Earnings Per Common Share Basic EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares outstanding during the period, without considering any dilutive items. Diluted EPS is computed by dividing net income applicable to common stock by the weighted average number of common shares and common stock equivalents for items that are dilutive, net of shares assumed to be repurchased using the treasury stock method using the average share price for the Company's common stock during the period. Common stock equivalents arise from the assumed conversion of outstanding stock options, warrants and convertible capital notes. During the years 1999, 1998 and 1997 the Company had no common stock equivalents. The weighted average number of shares used in the calculation of basic earnings per share was 3,129,674 for 1999, 1998 and 1997. Comprehensive Results Comprehensive income is defined as net income, as currently reported, as well as unrealized gains and losses on assets available for sale and certain other items not currently included in the income statement. In complying with the reporting requirements the Company retitled the line item in 1998 in the Consolidated Balance Sheet and the Statement of Changes in Stockholders' Equity from "Unrealized gain (loss) on securities available for sale, net" to "Accumulated other comprehensive income (loss), net of tax". Other comprehensive income (loss) includes unrealized gains (losses) on investment securities available for sale. 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 1999. Note B-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, 1999 and 1998. 10 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note C-INVESTMENT SECURITIES Securities Available for Sale The amortized cost and approximate market value of investment securities available for sale as of December 31, 1999 and 1998 is summarized as follows:
1999 Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value United States Treasury ........................ $ 999,956 $ 354 $ -- $ 1,000,310 United States Federal agencies ................ 27,025,553 4,985 1,770,953 25,259,585 States and political subdivisions ............. 63,182,636 15,656 7,102,241 56,096,051 ------------ ------------ ------------ ------------ Total Debt Securities ...................... 305,266,849 42,645 19,160,967 286,148,527 Equity securities ............................. 12,004,600 -- -- 12,004,600 ------------ ------------ ------------ ------------ Total Securities Available for Sale ... $317,271,449 $ 42,645 $ 19,160,967 $298,153,127 ============ ============ ============ ============ 1998 Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value United States Treasury......................... $ 2,257,757 $ 15,450 $ - $ 2,273,207 United States Federal agencies................. 8,441,989 19,785 7,259 8,454,515 United States agency mortgage-backed securities 212,590,075 406,732 736,304 212,260,503 States and political subdivisions.............. 34,173,178 124,090 263,854 34,033,414 ------------- ---------- ------------ ------------ Total Debt Securities....................... 257,462,999 566,057 1,007,417 257,021,639 Equity securities.............................. 6,649,600 156,000 - 6,805,600 ------------- ---------- ------------ ------------ Total Securities Available for Sale ... $264,112,599 $ 722,057 $1,007,417 $263,827,239 ============ ========== ========== ============
Included in equity securities at December 31,1999 are Federal Home Loan Bank and Federal Reserve Bank stock of $11,725,000 and $279,600, respectively. At December 31, 1998 these stock investments were $5,950,000 and $279,600, respectively. 11 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 The amortized cost and approximate market value of debt securities at December 31, 1999, 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 ................... $ 999,956 $ 1,000,310 Due after one year through five years...... 7,747,516 7,687,198 Due after five years through ten years..... 21,155,205 20,218,024 Due after ten years ....................... 275,364,172 257,242,995 ------------ ------------ $305,266,849 $286,148,527 ============ ============ Proceeds from the sale of securities available for sale for the years ended December 31, 1999, 1998 and 1997 were $37,800,556, $19,978,365 and $54,567,143, respectively. Gross realized gains on the sale of securities available for sale were $342,967 in 1999, $946,825 in 1998 and $156,591 in 1997. Gross realized losses on the sale of securities available for sale were $0 in 1999, $83 in 1998 and $122,255 in 1997. At December 31, 1999 the amortized cost of securities pledged to secure public deposits or for other purposes required or permitted by law aggregated $163,370,000. 12 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note D-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 as of December 31: 1999 1998 1997 Nonperforming loans Nonaccrual .......... $1,248,000 $1,347,000 $ 815,000 90 days past due .... 1,122,000 1,271,000 1,277,000 Restructured ........ 360,000 342,000 566,000 ---------- ---------- ---------- $2,730,000 $2,960,000 $2,658,000 Other real estate owned 536,000 183,000 236,000 ---------- ---------- ---------- Total ............... $3,266,000 $3,143,000 $2,894,000 ========== ========== ========== There were no commitments to advance additional funds to such borrowers at December 31, 1999. 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 $193,000, $130,000 and $72,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Interest recognized on such loans approximated $79,000, $64,000 and $33,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Impaired loans totalled $1,248,000 and $1,347,000 at December 31, 1999 and 1998, respectively. Impaired loans totalling $810,000 and $196,000 at the end of 1999 and 1998, respectively, had a corresponding specific allowance for credit losses of $132,000 and $68,000. The average balance of impaired loans was $1,119,000 in 1999, $899,000 in 1998 and $558,000 in 1997. Interest income recognized on impaired loans totalled $79,000, $64,000 and $33,000 in 1999, 1998 and 1997, respectively. Note E-RELATED PARTY TRANSACTIONS At December 31, 1999, 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 $1,672,000. Other changes reflect related party loans which were less than $60,000 in the aggregate at December 31, 1998 and exceeded the $60,000 threshold in 1999. The following is an analysis of the activity with respect to such loans for the year ended December 31, 1999: Aggregate outstanding balance at January 1, 1999 . $ 990,000 Additions ..................................... 808,000 Retirements ................................... (288,000) Other changes ................................. 162,000 ----------- Aggregate outstanding balance at December 31, 1999 $ 1,672,000 13 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note F-ALLOWANCE FOR LOAN LOSSES An analysis of the allowance for loan losses follows: Years ended December 31, 1999 1998 1997 Balance at beginning of year $ 3,042,269 $ 3,284,338 $ 3,563,774 Provision for loan losses . 420,000 240,000 -- Loans charged-off ......... (527,481) (733,361) (578,184) Less recoveries ........... 145,008 251,292 298,748 ----------- ----------- ----------- Net loans charged-off .... (382,473) (482,069) (279,436) ----------- ----------- ----------- Balance at end of year ..... $ 3,079,796 $ 3,042,269 $ 3,284,338 =========== =========== =========== Note G-MORTGAGE LOAN SERVICING At December 31, 1999, 1998 and 1997, the Company was servicing approximately 1,700, 1,800 and 1,700 mortgage loans for various investors with aggregate balances of approximately $137,337,000, $137,437,000 and $109,647,000, respectively. Originated mortgage servicing rights capitalized during 1999 and 1998 totalled $327,000 and $845,000 respectively. At December 31, 1999 and 1998 the Company had capitalized mortgage servicing rights of $1,570,000 and $1,512,000 respectively, which related to approximately $136 million and $137 million, respectively, in loans serviced. In connection with these loans serviced for others, the Company held advances by borrowers for taxes and insurance in the amount of $1,586,000 and $1,854,000 at December 31, 1999 and 1998, respectively. The fair value of the capitalized mortgage servicing rights at December 31, 1999 and 1998 approximated $1,828,000 and $1,662,000, respectively. 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 $28,000 at December 31, 1997. The impairment valuation allowance based on the fair value of the designated strata for the capitalized mortgage servicing rights was $0 and $58,000 at December 31, 1999 and 1998, respectively. 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, 1999, 1998 and 1997 was $309,000, $370,000 and $147,000, respectively. Mortgage loans originated for sale totalled $98,410,000, $132,775,000 and $79,808,000 during 1999, 1998 and 1997, respectively. Mortgage loans sold during 1999, 1998 and 1997 totalled $101,049,000, $128,849,000 and $77,953,000, respectively. Net gains on mortgage loans sold aggregated $1,525,000, $2,179,000 and $1,303,000 during 1999, 1998 and 1997, respectively. Mortgage loans available for sale, which are carried at lower cost or market value on a net aggregate basis included in real estate mortgage loans, totalled $2,214,000, $7,142,000 and $4,082,000 at December 31, 1999, 1998 and 1997, respectively. 14 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1998, 1997 and 1996 Note H-PREMISES AND EQUIPMENT A summary of premises and equipment and accumulated depreciation and amortization follows: December 31, 1999 1998 Premises and Equipment Buildings .................... $ 7,267,559 $ 7,164,406 Equipment .................... 7,429,847 6,689,076 Leasehold improvements ....... 875,315 855,484 ----------- ----------- 15,572,721 14,708,966 Less accumulated depreciation and amortization ......... 8,570,945 7,663,595 ----------- ----------- 7,001,776 7,045,371 Land ......................... 3,212,431 2,690,211 ----------- ----------- $10,214,208 $ 9,735,582 =========== =========== Depreciation and amortization of premises and equipment charged to expense for the years ended December 31, 1999, 1998 and 1997 was $907,000, $844,000 and $806,000 respectively. At December 31, 1999 the Company and certain subsidiaries were obligated under various noncancellable operating leases for premises and equipment. The leases, expiring at various dates to 2009, 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, 1999, 1998 and 1997 was $856,000, $742,000 and $715,000 respectively. Future minimum payments under operating leases were as follows at December 31, 1999: 2000 ........................ $ 517,000 2001 ........................ 441,000 2002 ........................ 349,000 2003 ........................ 246,000 2004 ........................ 156,000 After 2004 .................. 717,000 ---------- Total minimum lease payments $2,426,000 ========== Note I - DEPOSITS At December 31, 1999, the scheduled maturity of time deposits for the years 2000 through 2004 are as follows: $176,912,000, $65,495,000, $14,875,000, $6,908,000 and $2,186,000, respectively. 15 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note J-BORROWED FUNDS The following summarizes borrowed funds at December 31: 1999 1998 Securities sold under repurchase agreements $ 831,944 $ 3,118,888 Treasury tax and loan notes ............... 1,442,801 288,750 Warehouse revolving line of credit ........ 1,318,456 1,483,545 Federal Home Loan Bank advances ........... 211,000,000 119,000,000 ------------ ------------ Total borrowed funds .................... $214,593,201 $123,891,183 ============ ============ The Company utilizes a warehouse revolving line of credit with a regional bank for purposes of funding loan originations. Under the terms of this loan, the Company may borrow up to $6,000,000 at any one time at an interest rate of prime (8.50% at December 31, 1999). The Company pledges a security interest in the originated mortgage loans as collateral. Proceeds from the sale of the originated mortgage loans in the secondary market are used to repay the warehouse loan which expires in 2000, subject to extension. 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. WNB is a member of the Federal Home Loan Bank of Pittsburgh (the "FHLB"). Under a blanket collateral pledge agreement, WNB has pledged, as collateral for advances from the FHLB, all stock in the Federal Home Loan Bank and certain other qualifying collateral, such as investment securities, mortgage-backed securities and loans. The remaining maximum borrowing capacity with the FHLB at December 31, 1999 is $76,056,000. Included in Federal Home Loan Bank advances are FHLB "RepoPlus" advances and FHLB "Convertible Select" advances. FHLB "RepoPlus" Advances are short-term borrowings maturing within one day to one year, bear a fixed interest rate and are subject to prepayment penalty. Although no specific collateral is required to be pledged for these borrowings, "RepoPlus" Advances are secured under the blanket collateral agreement. The daily average balance during 1999 and 1998 was $102,462,000 and $20,973,000, respectively, and the daily average interest rate was 5.24% and 5.58%, respectively, with an average interest rate at fiscal year-end 1999 of 5.63% and fiscal year-end of 5.31%. The maximum amount outstanding at any month-end during 1999 and 1998 was $145,000,000 and $55,000,000, respectively. The interest expense incurred on the FHLB "RepoPlus" Advances during 1999 and 1998 was $5,373,000 and $1,171,000, respectively. 16 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 FHLB "Convertible Select" Advances are long-term borrowings with terms of up to ten years, and which have a fixed rate for the first three months to five years of the term. After the fixed rate term expires, and quarterly thereafter, the FHLB may convert the advance to an adjustable-rate advance at their option. If the advance is converted to an adjustable-rate advance, WNB has the option at the conversion date, and quarterly thereafter, to prepay the advance with no prepayment fee. The daily average balance during 1999 and 1998 was $79,863,000 and $61,370,000, respectively. The daily average interest rate during 1999 and 1998 was 5.64% and 5.61%, respectively. The maximum amount outstanding at any month end during 1999 and 1998 was $100,000,000 and $75,000,000, respectively. The interest expense incurred on the FHLB "Convertible Select" Advances during 1999 and 1998 was $4,507,000 and $3,441,000, respectively. The contractual maturities of Federal Home Loan Bank advances as of December 31, 1999 and 1998 are as follows: Current December 31, Interest Rate 1999 1998 Repo Plus Advances: Due within one year ..... 5.63% $111,000,000 $ 44,000,000 Convertible Select Advances February 14, 2002 ....... -- -- 25,000,000 April 7, 2003 ........... 5.65% 25,000,000 25,000,000 April 15, 2005 .......... 5.65% 25,000,000 25,000,000 October 27, 2009 ........ 5.65% 25,000,000 -- October 27, 2009 ........ 5.57% 25,000,000 -- ------------ ------------- Total FHLB Advances ....... $211,000,000 $119,000,000 ============ ============= 17 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note K-GUARANTEED PREFERRED BENEFICIAL INTEREST IN SUBORDINATED DEBT On April 27, 1998, the Trust, a statutory business trust created under Delaware law issued $12,650,000 of 8.5% Trust Preferred Securities ("Preferred Securities") with a stated value and liquidation preference of $10 per share. The Trust's obligations under the Preferred Securities issued are fully and unconditionally guaranteed by the Company. The proceeds from the sale of the Preferred Securities of the Trust, as well as proceeds from the issuance of common securities to the Company, were utilized by the Trust to invest in $13,041,000 of 8.5% Junior Subordinated Debentures (the "Debentures") of the Company. The Debentures are unsecured and rank subordinate and junior in right of payment to all indebtedness, liabilities and obligations of the Company. The Debentures represent the sole assets of the Trust. Interest on the Preferred Securities is cumulative and payable quarterly in arrears. The Company has the right to optionally redeem the Debentures prior to the maturity date of April 30, 2028, on or after April 30, 2003, at 100% of the stated liquidation amount, plus accrued and unpaid distributions, if any, to the redemption date. Under the occurrence of certain events, specifically, a Tax Event, Investment Company Event or Capital Treatment Event as more fully defined in the ABC Capital Trust I Prospectus dated April 21, 1998, the Company may redeem in whole, but not in part, the Debentures prior to April 30, 2003. Proceeds from any redemption of the Debentures would cause a mandatory redemption of the Preferred Securities and the common securities having an aggregate liquidation amount equal to the principal amount of the Debentures redeemed. The interest incurred on these Preferred Securities amounted to $1,100,826 and $809,260 for the years ended December 31, 1999 and 1998, respectively. The Trust is a wholly owned subsidiary of the Company, has no independent operations and has issued securities that contain a full and unconditional guarantee of its parent, the Company. Accordingly, on October 21, 1998, the Securities and Exchange Commission exempted the Trust from the reporting requirements of the Securities Exchange Act of 1934. 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. 18 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 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, 1999 and 1998 is as follows: Financial instruments whose contract amounts represent credit risk: Contract Amounts 1999 1998 Commitments to extend credit... $63,569,000 $46,587,000 Standby letters of credit...... -- -- Commercial letters of credit... 6,407,000 816,000 Commitments to extend credit, approximately $725,000 at December 31, 1999 and $685,000 at December 31, 1998, 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 variable interest rates. An adverse movement in market interest rates is not deemed to be a significant risk on the outstanding commitments at December 31, 1999. 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. 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. 19 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 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. 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, 1999 and 1998. 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. Borrowed Funds The fair values of the Company's short-term and long-term borrowings with variable rates are based on carrying amounts since these borrowings reprice frequently as market rates change. The fair value of long-term fixed rate borrowed funds is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for similar remaining maturities. The fair value of the Company's Preferred Securities is based on the issue's quoted market price. Off-Balance-Sheet Financial Instruments The Company's off-balance-sheet financial instruments are comprised of commitments to extend credit, 52% of which are lines of credit. 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 20 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 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 premises and equipment. The following table represents carrying values and estimated fair values of the Company's financial instruments as of December 31, 1999 and 1998:
1999 1998 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value FINANCIAL ASSETS Federal Funds Sold ...................... $ 4,823,000 $ 4,823,000 $ 17,747,000 $ 17,747,000 Investment Securities available for sale 298,153,000 298,153,000 263,827,000 263,827,000 Loans Receivable, net of allowance ...... 368,143,000 364,474,000 297,580,000 306,394,000 FINANCIAL LIABILITIES Fixed Maturity Deposits (1) Time Deposits ......................... 266,376,000 266,509,000 271,845,000 277,051,000 Borrowed funds .......................... 214,593,000 209,736,000 123,902,000 125,889,000 Guaranteed preferred beneficial interest in subordinated debt ................. 12,650,000 9,962,000 12,650,000 13,283,000 (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 $182.9 million and $159.4 million of such deposits at December 31, 1999 and 1998 respectively, are not included in this table.
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, 1999 and 1998. 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. At December 31, 1999, WNB's retained earnings available for the payment of dividends was $16,499,000. In addition, dividends paid by WNB to the Company would be prohibited if the effect thereof would cause WNB's capital to be reduced below acceptable minimum capital requirements. 21 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1998, 1997 and 1996 Note P-INCOME TAXES Total income tax provision(benefit)for the three years ended December 31, 1999 was allocated as follows: 1999 1998 1997 Income from operations ................ $ 1,526,902 $ 1,770,025 $ 2,577,467 Shareholders' equity for the tax effect of net unrealized gain (loss) on securities available for sale ....... (7,088,419) (443,845) 225,560 ----------- ----------- ----------- $(5,561,517) $ 1,326,180 $ 2,803,027 =========== =========== =========== The composition of the provision for income taxes from operations for the three years ended December 31, 1999 follows: 1999 1998 1997 Federal Income Taxes Current........................... $ 1,347,227 $ 1,879,953 $ 2,260,156 Deferred ......................... 163,550 222,334 38,551 ----------- ----------- ----------- Provision for federal income taxes 1,510,777 2,102,287 2,298,707 State ............................... 16,125 (332,262) 278,760 ----------- ----------- ----------- Provision for income taxes ....... $ 1,526,902 $ 1,770,025 $ 2,577,467 =========== =========== =========== The following is a reconciliation of federal income tax expense to the amount computed at the statutory rate: 1999 1998 1997 Pre-tax income at statutory rate .......$ 2,339,446 $ 2,370,449 $ 2,409,334 Increase (decrease) resulting from: Tax exempt income ..................... (784,724) (141,212) (25,489) Dividends received deduction .......... (1,785) (17,606) (30,940) Amortization of goodwill and other intangibles............... 21,464 21,467 40,579 State tax provision (net of federal tax benefit)........ (5,483) 112,969 (94,777) Change in valuation allowance ......... (14,093) (187,340) -- Other ................................. (44,048) (56,440) -- ----------- ---------- ---------- Provision for federal income taxes . $ 1,510,777 $ 2,102,287 $ 2,298,707 =========== =========== =========== The state tax benefit during 1998 resulted from the Company receiving state refunds from prior years. These refunds are due to the Company's use of a more advantageous method of filing their state income tax returns that was not previously available. The Company has determined that 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 decreased in 1999 by $16,580 as a result of the sale of equity securities. 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 1999 on its recovery. 22 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31, 1999, 1998 and 1997 consist of the following: 1999 1998 1997 Deferred tax assets: Loan loss reserves ......... $ 710,388 $ 687,447 $ 746,960 Equity securities .......... -- 16,580 236,980 Investment securities ...... 7,264,963 176,544 -- Pension plan ............... 150,959 184,724 199,753 Real estate owned .......... 2,415 10,597 10,597 Cash basis accounting ...... -- 29,336 -- Other ...................... 180,552 143,413 163,554 ---------- ---------- ---------- 8,309,277 1,248,641 1,357,844 Deferred tax liabilities: Fixed assets ............... 198,187 249,462 252,384 Cash basis accounting ...... 199,380 -- 22,384 Mortgage servicing rights .. 454,105 449,863 267,941 Investment securities ...... -- -- 267,301 ---------- ---------- ---------- 851,672 699,325 809,638 Net deferred tax asset before valuation allowance ....... 7,457,605 549,316 548,206 Valuation allowance ......... -- 16,580 236,980 ---------- ---------- ---------- Net deferred tax asset ...... $7,457,605 $ 532,736 $ 311,226 ========== ========== ========== 23 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note Q-OTHER EXPENSES Amounts included in other expenses are as follows for the years ended December 31, 1999, 1998 and 1997: 1999 1998 1997 Advertising............................ $ 457,582 $ 378,478 $ 302,031 Data processing ........................ 462,833 462,951 467,963 FDIC assessment ........................ 219,108 185,875 171,218 Postage ................................ 265,301 270,842 276,092 Professional fees ...................... 823,286 702,627 601,638 Stationery and supplies ................ 360,586 421,189 368,439 Taxes other than on income ............. 455,704 276,826 375,516 Other (each less than 1% of income) ..................... 2,093,384 2,592,247 2,238,853 ---------- ---------- ---------- $5,137,784 $5,291,035 $4,801,750 ========== ========== ========== 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 certain 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 changes in the Plan's benefit obligation and Plan assets for the year ended December 31, 1999 and 1998: 1999 1998 Change in benefit obligation: Benefit obligation at beginning of year $ 1,048,250 $ 917,286 Interest cost ......................... 56,578 57,651 Actuarial loss (gain) ................. (125,273) 144,088 Benefits paid ......................... (53,880) (70,775) ----------- ----------- Benefit obligation at end of year ..... $ 925,675 $ 1,048,250 =========== =========== Changes in plan assets: Plan assets at beginning of year....... $ 733,512 $ 744,832 Actual return on plan assets .......... 10,560 37,540 Employer contributions ................ 49,479 22,005 Benefits paid ......................... (53,880) (70,775) --------- --------- Plan assets at end of year ............ $ 739,671 $ 733,512 ========= ========= 24 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 As of December 31, 1999 and 1998, the Company's accrued pension costs were $397,000 and $461,000, respectively. Net periodic pension cost for the years ended December 31, 1999, 1998 and 1997 were insignificant. The discount rate used in determining the projected benefit obligation in 1999, 1998 and 1997 was 6.50%, 5.50% and 6.50%, respectively. The expected long-term rate of return on plan assets was 6.50%, 6.50% and 7.00% for the years ending in 1999, 1998 and 1997, respectively. 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, 1999 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 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 denied the claim and the claimants' subsequent appeal and believes the former employees have no further rights to appeal the denial of the claim. The Company does not expect that 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 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, 1999, 1998 and 1997 amounted to $88,000, $84,000 and $76,000, respectively. 25 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 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, 1999, the Company and its subsidiary bank, WNB, exceeded the regulatory minimums and met the regulatory definition of well capitalized. The following table summarizes the Company's and WNB's actual consolidated capital amounts and ratios as of December 31, 1999 and 1998.
Company WNB December 31, 1999 1998 1999 1998 Tier I Capital......................... $ 51,365 $ 47,179 $ 48,397 $ 39,888 Total Qualifying Capital............... $ 54,445 $ 50,737 $ 51,477 $ 43,000 Risk-Adjusted Assets................... $381,874 $303,127 $377,566 $299,420 Regulatory Requirements Well- Minimum Capitalized Capital Ratios Tier I Capital Ratio.............. 4.00% 6.00% 13.45% 15.56% 12.82% 13.99% Total Capital Ratio............... 8.00 10.00 14.26 16.74 13.63 15.03 Leverage Capital Ratio............ 3.00 5.00 7.34 7.99 6.80 7.36
Note T - CONTINGENT LIABILITIES The Company and its subsidiaries, in the normal course of business, are subject, from time to time to various asserted and unasserted claims. Management believes that the aggregate liability, if any, resulting from such pending and threatened actions and proceedings will not have a material adverse effect on the Company's financial statements. 26 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note U-PARENT COMPANY CONDENSED FINANCIAL INFORMATION AMERICAN BANCORPORATION (Parent Company Only) BALANCE SHEET December 31, 1999 and 1998 1999 1998 ASSETS Cash and short-term investments ............ $ 516,965 $ 3,800,777 Due from subsidiaries ...................... 28,921 6,720 Investment in subsidiaries Banking ................................... 37,899,664 43,413,518 Non-banking ............................... 1,238,246 1,334,430 ----------- ----------- 39,137,910 44,747,948 Premises and equipment - net ............... 21,829 17,906 Other assets ............................... 1,775,404 1,584,462 ----------- ----------- Total Assets ............................. $41,481,029 $50,157,813 =========== =========== LIABILITIES Due to subsidiaries ....................... $ 41,887 $ 41,887 Other liabilities ......................... 610,181 1,018,433 Notes payable ............................. 12,650,000 12,650,000 ----------- ----------- Total Liabilities ....................... 13,302,068 13,710,320 STOCKHOLDERS' EQUITY ....................... 28,178,961 36,447,493 ----------- ----------- Total Liabilities and Stockholders' Equity $41,481,029 $50,157,813 =========== =========== STATEMENT OF INCOME (Parent Company Only) Years ended December 31, 1999, 1998 and 1997 1999 1998 1997 INCOME Dividends from banking subsidiaries ... $ - $ - $ - Dividends from non-banking subsidiaries - - 100,000 Reimbursement from subsidiaries ....... 625,000 355,000 355,000 Interest income ....................... 92,985 233,730 16,747 Other income .......................... 412 374 521 ----------- --------- -------- Total income ........................ 718,397 589,104 472,268 EXPENSE Interest expense ....................... 1,100,825 809,260 84,842 Other expenses ......................... 970,077 909,846 801,955 ----------- --------- -------- Total expense ....................... 2,070,902 1,719,106 886,797 ----------- --------- -------- (1,352,505) (1,130,002) (414,529) Credit for income taxes ............... (526,588) (689,911) (156,442) ----------- --------- -------- (825,917) (440,091) (258,087) Equity in undistributed net income of subsidiaries ................ 6,179,736 5,641,973 4,766,894 ----------- --------- --------- NET INCOME ............................. $ 5,353,819 $5,201,882 $4,508,807 =========== ========== ========== 26 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997
STATEMENT OF CASH FLOWS (Parent Company Only) Years ended December 31, 1999, 1998 and 1997 1999 1998 1997 Operating Activities: Net income ........................................ $ 5,353,819 $ 5,201,882 $ 4,508,807 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization .................... 51,603 50,206 50,503 Equity in undistributed net income of subsidiaries (6,179,736) (5,641,973) (4,766,894) Net (increase) decrease in due from subsidiaries . (22,201) (3,989) 68,064 Net change in other assets and other liabilities . (599,196) (1,224,221) (32,881) ------------ ------------ ------------ Net cash used by operating activities ........ (6,749,530) (1,618,095) (172,401) Investing Activities: Purchase of premises and equipment ............... (10,297) (9,885) (1,069) Net change in investment in subsidiaries ......... -- (4,200,000) -- ------------ ------------ ------------ Net cash used by investing activities ........ (10,297) (4,209,885) (1,069) Financing Activities: Cash dividends paid .............................. (1,877,804) (1,658,727) (1,564,837) Net increase in notes payable .................... -- 11,250,950 499,050 ------------ ------------ ------------ Net cash provided by (applied to) financing activities ...................... (1,877,804) 9,592,223 (1,065,787) ------------ ------------ ------------ Net increase (decrease) in Cash and Cash Equivalents ....................... (3,283,812) 3,764,243 (1,239,257) Cash and Cash Equivalents Beginning Balance ........ 3,800,777 36,534 1,275,791 ------------ ------------ ------------ Cash and Cash Equivalents Ending Balance ........... $ 516,965 $ 3,800,777 $ 36,534 ============ ============ ============ Cash paid during the year for: Interest .......................................... $ 1,075,250 $ 719,656 $ 84,842 The Parent Company paid no income taxes during 1999, 1998 or 1997.
Note V - SEGMENT REPORTING In 1998 the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information", which requires disclosures about reportable segments of an enterprise. The determination of these segments is based upon the manner in which the decision makers of an enterprise evaluates its financial information. American Bancorporation, through its wholly owned subsidiaries Wheeling national Bank, American Bancdata Corporation, American Mortgages, Inc. and American Bancorporation Capital Trust I, performs traditional banking services. These financial services include making loans to individuals and businesses, offering an array of deposit products and investment in marketable securities. The retail network of offices is located throughout the northern panhandle of West Virginia, central and eastern Ohio, and southwestern Pennsylvania. These market areas all possess similar characteristics. The operating results of the Company as a single entity are used by management in making operating decisions. Therefore, the consolidated financial statements, as presented, represent the results of a single financial services segment. 28 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1999, 1998 and 1997 Note W-SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarters Ended (In thousands, except per share) Mar 31 June 30 Sept 30 Dec 31 Year 1999 Interest income............. $10,911 $11,615 $12,339 $12,753 $47,618 Interest expense ........... 6,608 6,962 7,582 8,019 29,171 ------- ------- ------- ------- ------- Net interest income ........ 4,303 4,653 4,757 4,734 18,447 Provision for loan losses ... 75 75 120 150 420 ------- ------- ------- ------- ------- Net interest income after provision for loan losses . 4,228 4,578 4,637 4,584 18,027 Other operating income ...... 1,000 958 818 728 3,504 Other operating expense ..... 3,642 3,800 3,712 3,496 14,650 ------- ------- ------- ------- ------- Income before income taxes . 1,586 1,736 1,743 1,816 6,881 Provision for income taxes 301 389 392 445 1,527 ------- ------- ------- ------- ------- Net income................ $ 1,285 $ 1,347 $ 1,351 $ 1,371 $ 5,354 ======= ======= ======= ======= ======= Basic earnings per share....$ 0.41 $ 0.43 $ 0.43 $ 0.44 $ 1.71 1998 Interest income ............... $ 9,328 $ 9,974 $10,362 $10,637 $40,301 Interest expense .............. 5,064 5,764 6,234 6,378 23,440 ------- ------- ------- ------- ------- Net interest income .......... 4,264 4,210 4,128 4,259 16,861 Provision for loan losses ..... 60 60 60 60 240 ------- ------- ------- ------- ------- Net interest income after provision for loan losses ... 4,204 4,150 4,068 4,199 16,621 Other operating income ........ 996 1,195 1,395 1,108 4,694 Other operating expense ....... 3,392 3,587 3,649 3,715 14,343 ------- ------- ------- ------- ------- Income before income taxes ... 1,808 1,758 1,814 1,592 6,972 Provision for income taxes .. 554 471 499 246 1,770 ------- ------- ------- ------- ------- Net income ................. $ 1,254 $ 1,287 $ 1,315 $ 1,346 $ 5,202 ======= ======= ======= ======= ======= Basic earnings per share .. $ 0.40 $ 0.41 $ 0.42 $ 0.43 $ 1.66 29 KPMG One Mellon Bank Center Telephone 412 391 9710 Pittsburgh, PA 15219 Fax 412 391 8963 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, 1999 and 1998, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1999. 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 as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Pittsburgh, Pennsylvania March 24, 2000 | KPMG LLP. KPMG LLP, a U.S. limited liability partnership, is a member of KPMG International, a Swiss association 30 American Bancorporation and Subsidiaries Five Year Selected Financial Data ($ in thousands, except per share data)
Consolidated Statement of Income For the years ended 1999 1998 1997 1996 1995 Interest income Interest and fees on loans ................ $ 28,502 $ 25,759 $ 24,891 $ 22,500 $ 21,929 Interest on securities .................... 18,751 13,786 10,300 6,967 4,197 Interest on other short-term investments .. 365 756 348 418 370 -------- -------- -------- -------- -------- 47,618 40,301 35,539 29,885 26,496 Interest expense Interest on deposits and borrowed funds ... 29,171 23,440 18,278 13,802 11,171 -------- -------- -------- -------- -------- Net interest income ................... 18,447 16,861 17,261 16,083 15,325 Provision for loan losses .................. 420 240 -- -- 105 -------- -------- -------- -------- -------- Net interest income after provision for loan losses ...... 18,027 16,621 17,261 16,083 15,220 Service charges and other income ........... 3,504 4,694 2,926 2,392 1,680 Other expenses Salaries and employee benefits ............ 6,920 6,677 5,910 5,590 5,319 Other operating expenses .................. 7,730 7,666 7,191 7,117 6,771 -------- -------- -------- -------- -------- 14,650 14,343 13,101 12,707 12,090 -------- -------- -------- -------- -------- Income before income taxes ................. 6,881 6,972 7,086 5,768 4,810 Provision for income taxes ................ 1,527 1,770 2,577 2,102 1,758 -------- -------- -------- -------- -------- Net income ................................. $ 5,354 $ 5,202 $ 4,509 $ 3,666 $ 3,052 ======== ======== ======== ======== ======== Per common share*: Basic earnings per share .............. $ 1.71 $ 1.66 $ 1.44 $ 1.17 $ 0.98 Dividends ............................. $ 0.60 $ 0.555 $ 0.50 $ 0.45 $ 0.35 Average common shares outstanding (000's) .. 3,130 3,130 3,130 3,130 3,130 Consolidated Balance Sheet Data Balance at year end Total Assets .............................. $711,291 $611,405 $484,606 $461,632 $353,995 Earning Assets ............................ 674,338 582,196 458,282 432,793 330,136 Loans ..................................... 371,223 300,622 286,691 271,450 250,372 Deposits .................................. 449,277 431,240 355,734 319,811 292,665 Borrowed funds ............................ 214,593 123,891 87,574 104,096 27,523 Notes payable and other long-term debt .... 12,650 12,661 1,425 938 1,047 Stockholders' equity ...................... 28,179 36,447 33,694 30,423 28,012 Average Balances for years ended Total Assets .............................. 680,254 550,452 468,163 400,866 348,655 Earning Assets ............................ 646,685 521,241 439,549 373,874 323,750 Loans ..................................... 336,518 292,662 281,738 254,397 243,043 Deposits .................................. 435,265 404,906 337,684 310,746 293,415 Borrowed funds ............................ 192,909 92,786 90,676 54,644 21,736 Notes payable and other long-term debt .... 12,654 9,988 1,055 1,033 1,091 Stockholders' equity ...................... 33,076 35,544 31,866 29,045 27,248 Consolidated Financial Ratios (as a Percent) Net income to average assets .............. 0.79% 0.95% 0.96% 0.91% 0.88% Net income to average equity .............. 16.19 14.64 14.15 12.62 11.20 Dividends to net income ................... 35.07 33.39 34.71 38.42 35.89 Average equity to average assets .......... 4.86 6.46 6.81 7.25 7.82 Average debt to average equity ............ 38.26 28.10 3.31 3.56 4.00 *(Per share data has been retroactively restated for the adoption of SFAS No. 128 and a two for one stock split which became effective October 23, 1997.)
31
Average Balances, Income and Expense, Yields and Rates ($ in thousands) 1999 1998 1997 Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate INTEREST EARNING ASSETS Loans Commercial........................... $135,013 $ 11,792 8.73% $100,415 $ 9,219 9.18% $ 91,729 $ 8,560 9.33% Real estate.......................... 145,892 11,527 7.90 142,272 11,767 8.27 141,642 11,495 8.12 Installment-net...................... 55,613 4,619 8.31 49,975 4,231 8.47 48,367 4,259 8.81 Fees................................. - 564 - - 542 - - 577 - Total loans......................... 336,518 28,502 8.47 292,662 25,759 8.80 281,738 24,891 8.83 Investment securities Taxable.............................. 248,665 15,980 6.43 209,153 13,388 6.40 153,658 10,210 6.64 Tax-exempt........................... 54,944 2,771 5.04 8,968 398 4.44 1,083 90 8.35 Total investment securities......... 303,609 18,751 6.18 218,121 13,786 6.32 154,741 10,300 6.66 Other short-term investments.......... 6,558 365 5.57 10,458 756 7.23 3,070 348 11.33 Total earning assets................ 646,685 47,618 7.36 521,241 40,301 7.73 439,549 35,539 8.09 Non-interest Earning Assets Cash and due from banks............... 11,518 12,297 11,164 Premises and equipment - net.......... 9,765 9,856 10,053 Other assets........................... 12,286 7,058 7,397 33,569 29,211 28,614 TOTAL ASSETS........................ $680,254 $550,452 $468,163 ======== ======== ======== INTEREST BEARING LIABILITIES Deposits NOW, Savings and MMDA............... $126,694 $ 3,206 2.53% $119,373 $ 3,194 2.68% $123,879 $ 3,315 2.68% Time................................ 270,117 14,694 5.44 250,623 14,387 5.74 180,561 9,869 5.47 Total deposits.................... 396,811 17,900 4.51 369,996 17,581 4.75 304,440 13,184 4.33 Borrowed funds........................ 192,909 10,170 5.27 92,786 5,047 5.44 90,676 5,006 5.52 Notes payable and other long-term debt .............. 12,654 1,101 8.70 9,988 812 8.13 1,055 88 8.30 Total interest bearing liabilities................ 602,373 29,171 4.84 472,770 23,440 4.96 396,171 18,278 4.62 Non-interest bearing Demand non-interest bearing......... 38,454 34,910 33,244 Other liabilities................... 6,351 7,228 6,882 44,805 42,138 40,126 Stockholders' Equity.................. 33,076 35,544 31,866 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $680,254 $550,452 $468,163 ======== ======== ======== Net interest income............... $18,447 $16,861 $17,262 ======= ======= ======= Interest rate spread............. 2.52% 2.77% 3.47% ==== ==== ==== MARGIN ANALYSIS (as a % of Earning Assets) Interest income....................... 7.36% 7.73% 8.09% Interest expense...................... 4.51 4.50 4.16 Net interest income................... 2.85% 3.23% 3.93% ==== ==== ===== 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.
32 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS December 31, 1999, 1998 and 1997 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. When used in filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. Summary American Bancorporation recognized net income of $5,354,000 or $1.71 basic earnings per share, in 1999, compared to net income of $5,202,000 or $1.66 basic earnings per share, in 1998. The 2.9% increase in net income was primarily the result of an increase in net interest income and a decrease in income taxes which were partially offset by a decrease in other income and increases in other expenses and provision for loan losses. Net income for the year ended December 31, 1997 totalled $4,509,000 or $1.44 basic earnings per share. Return on average assets and return on average equity were 0.79% and 16.19%, respectively, for the year ended December 31, 1999 compared to 0.95% and 14.64%, respectively, for the year ended December 31, 1998 and 0.96% and 14.15%, respectively, for the year ended December 31, 1997. Total assets at December 31, 1999 increased to $711,291,000 from $611,405,000 at December 31, 1998, an increase of 16.3%. Loans increased to $371,223,000 at December 31, 1999 from $300,622,000 at December 31, 1998, an increase of 23.5%. Deposits increased to $449,277,000 at December 31, 1999 from $431,240,000 at December 31, 1998, an increase of 4.2%. Total stockholders' equity was $28,179,000 at December 31, 1999 compared $36,447,000 at December 31, 1998, a decrease of 22.7%. 33 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1999, 1998 and 1997 RESULTS OF OPERATIONS The discussion and analysis of the results of operations is focused on the three years ended December 31, 1999 and uses a format of consecutive year comparisons. Volume and rate variances contributing to change in net interest income are analyzed using adjusted month end average balances. Tax equivalency is not imputed in the calculation of yields.
($ in thousands) Years ended December 31 Change 1999 1998 1997 1999 - 1998 1998 - 1997 Amount % Amount % Interest income.......................... $ 47,618 $ 40,301 $ 35,539 $ 7,317 18.16% $ 4,762 13.40% Interest expense......................... 29,171 23,440 18,278 5,731 24.45 5,162 28.24 Net interest income...................... 18,447 16,861 17,261 1,586 9.41 (400) (2.32) Provision for loan losses................ 420 240 - 180 75.00 240 100.00 Net interest income after provision for loan losses.............. 18,027 16,621 17,261 1,406 8.46 (640) (3.71) Other operating income................... 3,504 4,694 2,926 (1,190) (25.35) 1,768 60.42 Other operating expense.................. 14,650 14,343 13,101 307 2.14 1,242 9.48 Income before income taxes..............$ 6,881 $ 6,972 $ 7,086 $ (91) (1.31)% $ (114) (1.61)% Average Balance Earning Assets.......................... $646,685 $521,241 $439,549 $125,444 24.07% $81,692 18.59% Interest Bearing Liabilities............ 602,373 472,770 396,171 129,603 27.41 76,599 19.33 Yield/Rate Earning Assets.......................... 7.36% 7.73% 8.09% Interest Bearing Liabilities............ 4.84 4.96 4.62 Interest Rate Spread.................... 2.52 2.77 3.47 Net Interest Margin..................... 2.85 3.23 3.93
34 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1999, 1998 and 1997
VOLUME AND RATE VARIANCES 1999 vs 1998 1998 vs 1997 Increase/(decrease) due to Increase/(decrease) due to ($ in thousands) Volume Rate Net Volume Rate Net Interest Income Loans ...................... $ 3,744 $(1,001) $ 2,743 $ 962 $ (93) $ 869 Investment securities Taxable ................... 2,539 53 2,592 3,564 (387) 3,177 Tax-exempt ................ 2,312 61 2,373 369 (61) 308 Other short-term investments (242) (148) (390) 574 (166) 408 ------- ------- ------- ------- ------- ------- Total interest income .... 8,353 (1,035) 7,318 5,469 (707) 4,762 Interest Expense NOW, Savings and MMDA ..... 190 (178) 12 (121) -- (121) Time ...................... 1,084 (777) 307 4,000 518 4,518 Short-term borrowings ..... 5,283 (160) 5,123 115 (74) 41 Long-term debt ............ 229 61 290 726 (2) 724 ------- ------- ------- ------- ------- Total interest expense ... 6,786 (1,054) 5,732 4,720 442 5,162 ------- ------- ------- ------- ------- ------- Net Interest Income ....... $1,567 $ 19 $ 1,586 $ 749 $(1,149) $ (400) ======= ======= ======= ======= ======= ======= The rate-volume variance has been allocated in proportion to the absolute value attributed to each change.
Year ended December 31, 1999 Compared to Year Ended December 31, 1998 Net Income. Net income for the year ended December 31, 1999 amounted to $5,354,000 or $1.71 basic earnings per share, compared to net income of $5,202,000 or $1.66 basic earnings per share for the year ended December 31, 1998. The increase was primarily the result of an increase in net interest income and a decrease in income taxes which were partially offset by a decrease in other income and increases in other expenses and provision for loan losses. Net Interest Income. Net interest income represents the amount by which interest income on interest-earning assets, including investment securities and loans, exceeds interest paid on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of the Company's earnings. Interest rate fluctuations, as well as changes in the amount and type of interest earning assets and liabilities, combine to affect net interest income. Net interest income before provision for loan losses for the year ended December 31, 1999 amounted to $18,447,000, an increase of $1,586,000 or 9.4%, compared to the year ended December 31, 1998. The increase resulted primarily from a $125,444,000 or 24.1% increase in average interest earning assets, which was partially offset by a 38 basis point decrease in the Company's net interest margin. Total interest income for the year ended December 31, 1999 amounted to $47,618,000, an increase of $7,318,000 or 18.2%, compared to the year ended December 31, 1998. The increase resulted primarily from the increase in the average interest earning assets which was partially offset by a 37 basis point decrease in the average yield on earning assets. Average 35 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1999, 1998 and 1997 loans outstanding increased $43,856,000 or 15.0% with average commercial loans increasing $34,598,000 or 34.5%, average consumer installment loans increased $5,638,000 or 11.3% and average real estate loans increased $3,620,000 or 2.5%,, primarily due to increased demand. The average yield on loans decreased from 8.80% in 1998 to 8.47% in 1999. Average investment securities and other short-term investments outstanding increased $81,588,000 or 35.7% and the average yield decreased from 6.36% in 1998 to 6.17% in 1999. The increase in investment securities is primarily due to growth strategies utilizing increases in both FHLB advances and time deposits. These strategies leveraged the Company's capital thereby enhancing its return on equity and earnings. Total interest expense for the year ended December 31, 1999 amounted to $29,171,000, an increase of $5,731,000 or 24.5%, compared to the year ended December 31, 1998. The increase resulted primarily from a $129,603,000 or 27.4% increase in average interest bearing liabilities which was partially offset by a 12 basis point decrease in interest rates paid on such liabilities. Average NOW, money market and savings accounts increased $7,321,000 or 6.1%. Average time deposits increased $19,494,000 or 7.8%. Average non-interest bearing accounts increased $3,544,000 or 10.2% and represented 8.8% of average total deposits for the year ended December 31, 1999. Average borrowed funds, primarily FHLB advances, increased $100,123,000 or 107.9%. The average rate paid on borrowed funds decreased from 5.44% in 1998 to 5.27% in 1999. Provision for Loan Losses. The loan loss provision for the year ended December 31, 1999 was $420,000, compared to $240,000 for the year ended December 31, 1998. Net loans charged-off totalled $382,000 in 1999, compared to net loans charged-off of $482,000 in 1998. Other Income. Other income for the year ended December 31, 1999 amounted to $3,504,000, a decrease of $1,190,000 or 25.4%, compared to the year ended December 31, 1998. Net gains on sale of loans totalled $1,525,000 for the year ended December 31, 1999, compared to net gains of $2,179,000 for the year ended December 31, 1998, including a $297,000 gain on sale of the Company's credit card portfolio. The remainder of net gains on sale of loans is primarily the result of sales of residential mortgages loans generated for sale to secondary markets. Net gains on sale of investment securities totalled $343,000 in 1999, compared to $947,000 in 1998. Other Expense. Total other expense for the year ended December 31, 1999 amounted to $14,650,000, an increase of $307,000 or 2.1%, compared to the year ended December 31, 1998. Salaries and employee benefits increased $243,000 or 3.6%. Occupancy and equipment expense decreased $217,000 or 9.2%. Other (miscellaneous) expense decreased $153,000 or 2.9%. Provision for Income Taxes. The provision for income taxes for the year ended December 31, 1999 was $1,527,000, compared to $1,770,000 for the year ended 1998. The decrease is primarily the result of additional tax-exempt income in 1999. 36 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1999, 1998 and 1997 Year ended December 31, 1998 Compared to Year Ended December 31, 1997 Net Income. Net income for the year ended December 31, 1998 amounted to $5,202,000 or $1.66 basic earnings per share, compared to net income of $4,509,000 or $1.44 basic earnings per share for the year ended December 31, 1997. The increase was primarily the result of an increase in other income which was partially offset by a decrease in net interest income and increases in other expenses and provision for loan losses. Net Interest Income. Net interest income represents the amount by which interest income on interest-earning assets, including investment securities and loans, exceeds interest paid on interest-bearing liabilities, including deposits and other borrowed funds. Net interest income is the principal source of the Company's earnings. Interest rate fluctuations, as well as changes in the amount and type of interest earning assets and liabilities, combine to affect net interest income. Net interest income before provision for loan losses for the year ended December 31, 1998 amounted to $16,861,000, a decrease of $401,000 or 2.3%, compared to the year ended December 31, 1997. The decrease resulted primarily from a 70 basis point decrease in the Company's margin, which was partially offset by a $81,692,000 or 18.6% increase in average interest earning assets. Total interest income for the year ended December 31, 1998 amounted to $40,301,000, an increase of $4,762,000 or 13.4%, compared to the year ended December 31, 1997. The increase resulted primarily from the increase in the average interest earning assets which was partially offset by a 36 basis point decrease in the average yield on earning assets. Average loans outstanding increased $10,924,000 or 3.9% with average commercial loans increasing $8,686,000 or 9.5%, average real estate loans increased $630,000 or 0.4%, and average consumer installment loans increased $1,608,000 or 3.3%, primarily due to increased demand. The average yield on loans decreased from 8.83% in 1997 to 8.80% in 1998. Average investment securities and other short-term investments outstanding increased $70,768,000 or 44.8% and the average yield decreased from 6.75% in 1997 to 6.36% in 1998. The increase in investment securities is primarily due to growth strategies utilizing increases in both FHLB advances and time deposits. These strategies leveraged the Company's capital thereby enhancing its return on equity and earnings. Total interest expense for the year ended December 31, 1998 amounted to $23,440,000, an increase of $5,162,000 or 28.2%, compared to the year ended December 31, 1997. The increase resulted primarily from a $76,599,000 or 19.3% increase in average interest bearing liabilities and a 34 basis point increase in interest rates paid on such liabilities. Average NOW, money market and savings accounts decreased $4,506,000 or 3.6%. Average time deposits increased $70,062,000 or 38.8%, primarily the result of increased marketing efforts. Average non-interest bearing accounts increased $1,666,000 or 5.0% and represented 8.6% of average total deposits for the year ended December 31, 1998. Average short-term borrowings increased $2,110,000 or 2.3%. The average rate paid on short-term borrowings decreased from 5.52% in 1997 to 5.44% in 1998. 37 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1999, 1998 and 1997 Provision for Loan Losses. The loan loss provision for the year ended December 31, 1998 was $240,000. There was no loan loss provision for the year ended December 31, 1997. Net loans charged-off totalled $482,000 in 1998, compared to net loans charged-off of $279,000 in 1997. Other Income. Other income for the year ended December 31, 1998 amounted to $4,694,000, an increase of $1,769,000 or 60.4%, compared to the year ended December 31, 1997. Net gains on sale of loans totalled $2,179,000 for the year ended December 31, 1998, including a $297,000 gain on the sale of the Company's credit card portfolio, compared to net gains of $1,303,000 for the year ended December 31, 1997. The remainder of the increase is primarily the result of increased residential mortgages loans generated for sale to secondary markets. Net gains on sale of investment securities totalled $947,000 in 1998, compared to $34,000 in 1997. Other Expense. Total other expense for the year ended December 31, 1998 amounted to $14,343,000, an increase of $1,242,000 or 9.5%, compared to the year ended December 31, 1997. Salaries and employee benefits increased $767,000 or 13.0%. Occupancy and equipment expense decreased $15,000 or 0.6%. Other (miscellaneous) expense increased $489,000 or 10.2%. Provision for Income Taxes. The provision for income taxes for the year ended December 31, 1998 was $1,770,000, compared to $2,577,000 for the year ended 1997. 38 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1999, 1998 and 1997 FINANCIAL CONDITION Loans The Company's primary earning assets are loans, representing 52.2% of the total assets at December 31, 1999. Loans outstanding were $371,223,000 at December 31, 1999, an increase of $70,601,000 or 23.5% between 1998 and 1999. The increase was primarily due to improved demand in the commercial lending segment of the portfolio. At December 31, 1999 there were no concentrations of loans in any particular industry or in a group of related industries exceeding 10% of total loans. The table below sets forth loans by category at December 31, 1995 through 1999.
TYPES OF LOANS ($ in thousands) 1999 1998 1997 1996 1995 Commercial............................... $ 142,257 $112,563 $ 92,295 $ 82,792 $ 63,082 Real estate construction................. 5,445 1,060 1,024 1,816 1,869 Real estate mortgage..................... 158,128 138,050 144,179 136,488 128,709 Installment.............................. 65,393 48,949 49,193 50,353 56,712 --------- -------- -------- -------- -------- $371,223 $300,622 $286,691 $271,449 $250,372 ======== ======== ======== ======== ========
It is the policy of the Company to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making the loan. The type of collateral will vary and ranges from liquid assets to real estate. Commercial business loans are made based on the financial ability of the borrower to repay the obligation and the appraised value of assets used as collateral. Real estate construction loans are made with loan-to-value ratios generally below 75%. Real estate mortgage loans are made with loan-to-value ratios generally below 80% of the appraised value. The real estate is appraised at the time the loan is originated and is reappraised if the loan is placed on a classified status. All consumer installment loan requests are evaluated to determine the prospective borrowers ability and willingness to repay the obligation and their stability as a borrower. Ability to repay is determined by comparing an applicant's monthly debt payment including the proposed loan payment with net monthly income. The resulting debt service-to-income ratio generally must be below 40%. In addition, for consumer installment loans which require collateral, the Company will make advances up to 100% of the value on certain types of collateral. Scheduled maturity of commercial loans and real estate construction loans is indicated as follows at December 31, 1999: ($ in thousands) One Year One to Over or Less Five Years Five Years Total Commercial.......................... $27,689 $42,995 $71,573 $142,257 Real estate construction............ 2,075 3,370 - 5,445 ------- ------- ------- -------- Total.............................. $29,764 $46,365 $71,573 $147,702 ======= ======= ======= ======== For the commercial and real estate construction loans due after one year, $52,038,000 have a predetermined interest rate and $65,900,000 have a floating or adjustable interest rate. 39 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 Asset Quality Total nonperforming loans were $2,730,000 at December 31, 1999, compared to $2,960,000 at December 31, 1998. Nonaccrual loans decreased by $99,000 while loans 90 days past due decreased $149,000, and restructured loans increased by $18,000. Of the $536,000 total other real estate owned, $78,000 represents former branch office facilities. The following presents loans considered nonperforming: NONPERFORMING ASSETS ($ in thousands) 1999 1998 1997 1996 1995 Nonperforming loans Nonaccrual ................... $1,248 $1,347 $ 815 $ 547 $ 790 90 days past due ............. 1,122 1,271 1,277 744 609 Restructured ................. 360 342 566 672 666 ------ ------ ------ ------ ------ Total nonperforming loans . $2,730 $2,960 $2,658 $1,963 $2,065 Other nonperforming assets Other real estate owned ...... 536 183 236 607 575 ------ ------ ------ ------ ------ Total nonperforming assets . $3,266 $3,143 $2,894 $2,570 $2,640 ====== ====== ====== ====== ====== Nonperforming loans as a percent of loans .... 0.7% 1.0% 0.9% 0.7% 0.8% Nonperforming assets as a percent of total assets 0.5% 0.5% 0.6% 0.6% 0.7% The nonaccrual category represents loans on which interest recognition has been suspended until realized because the borrower's ability to repay principal or interest is in doubt. For loans not primarily secured by real estate or in the process of collection, the Company discontinues accrual when a loan is 90 days past due. Real estate loans are placed on nonaccrual status when, in management's judgement, collection is in doubt or when foreclosure proceedings are initiated, which is generally 180 days past the due date. Although nominally performing, nonaccrual treatment may also be accorded on loans when information becomes available which suggests that more than normal risk of default exists. Restructured loans are loans, the terms of which have been altered, to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. Past due loans are loans contractually past due 90 days or more and are not on nonaccrual status or restructured. 40 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 Allowance for Loan Losses The Company's loan loss experience for the five years ended December 31, 1999 is summarized as follows:
SUMMARY OF LOAN LOSS EXPERIENCE ($ in thousands) 1999 1998 1997 1996 1995 Balance at beginning of year ............ $ 3,042 $ 3,284 $ 3,564 $ 3,854 $ 3,737 Provision for loan losses .............. 420 240 -- -- 105 Loans charged-off Commercial ............................ 68 228 26 54 63 Real estate mortgage .................. 188 183 111 66 21 Installment ........................... 271 322 441 308 279 --------- --------- -------- --------- --------- Total loans charged-off .............. 527 733 578 428 363 Loans recovered Commercial ............................ 6 121 162 3 101 Real estate mortgage .................. 30 19 16 16 108 Installment ........................... 109 111 120 119 166 --------- --------- -------- --------- --------- Total loans recovered ................ 145 251 298 138 375 --------- --------- -------- --------- --------- Net loans charged-off (recovered) ... 382 482 280 290 (12) --------- --------- --------- --------- Balance at end of year .................. $ 3,080 $ 3,042 $ 3,284 $ 3,564 $ 3,854 ========= ========= ======== ========= ========= Loans outstanding end of year ........... $ 371,223 $ 300,622 $ 286,691 $ 271,450 $ 250,372 Average loans for the year ended ........ 336,518 292,662 281,738 254,397 243,043 Ratio of net charge-offs to average loans 0.11% 0.16% 0.10% 0.11% 0.00% Ratio of allowance to loans outstanding . 0.83% 1.01% 1.15% 1.31% 1.54% Ratio of provision to average loans ..... 0.12% 0.08% 0.00% 0.00% 0.04%
The allowance for loan losses was equal to 0.83% of loans outstanding at year end 1999 and in management's judgment is appropriate to absorb probable loan losses. Based on management's analysis of the allowance for loan losses, the Company increased the allowance with a $420,000 charge to the provision for bad debts in 1999 and a $240,000 charge to the provision for bad debts in 1998. There was no provision made for 1997. While management's on-going analysis includes, among other factors, the financial position of particular borrowers, results of internal loan reviews, past due loans and the Company's historical loss experience, future additions to the allowance may be necessary based on changes in economic conditions. In addition, federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. 41 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 Securities The following table summarizes the carrying value and weighted average yield of securities by type and maturity range as of December 31, 1999:
After After One Year Five Years Within But Within But Within After One Year Five Years Ten Years Ten Years Total Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Securities Available for Sale United States Treasury...............$ 1,000 5.53% $ - -% $ - -% $ - -% $ 1,000 5.57% United States Federal agencies... - - 1,612 6.42 13,751 6.63 9,897 6.66 25,260 6.59 United States agency mortgage-backed securities.... - - 5,591 6.59 6,378 7.10 191,823 6.66 203,792 6.83 States and political subdivisions - - 484 5.42 89 6.42 55,523 4.80 56,096 4.80 Other........................... - - - - - - 12,005 6.38 12,005 6.38 Total Carrying Value..............$ 1,000 5.53% $ 7,687 6.48% $20,218 6.78% $269,248 6.26% $298,153 6.41% ======= ======= ======= ======== ========
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 other 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, 1999, 1998 and 1997. Also presented is the maturity distribution of time deposits in excess of $100,000 at each year end.
AVERAGE DEPOSITS 1999 1998 1997 ($ in thousands) Amount % Rate Amount % Rate Amount % Rate Demand noninterest bearing.......... $ 38,454 8.8% -% $ 34,910 8.6% -% $ 33,244 9.8% -% Interest bearing deposits NOW Accounts...................... 23,646 5.4 1.75 26,146 6.5 2.33 26,648 7.9 2.36 MMDA and savings accounts.......... 103,048 23.7 2.71 93,227 23.0 2.77 97,231 28.8 2.76 Time .............................. 270,117 62.1 5.44 250,623 61.9 5.74 180,561 53.5 5.47 -------- ----- ------- ----- -------- ----- 396,811 91.2 4.51 369,996 91.4 4.75 304,440 90.2 4.33 --------- ------ -------- --- -- -------- ----- Total................................ $435,265 100.0% 4.10% $404,906 100.0% 4.34% $337,684 100.0% 3.90% ======== ===== ======== ===== ======== =====
MATURITY OF TIME DEPOSITS OVER $100,000 1999 1998 1997 ($ in thousands) Within three months .. $19,228 $13,785 $13,753 Three to six months .. 17,182 14,282 6,447 Six months to one year 10,529 13,185 11,727 After one year ....... 15,512 14,283 12,807 ------- ------- ------- Total ............... $62,451 $55,535 $44,734 ======= ======= ======= 42 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 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 Bank are subject to a risk-based capital framework and a minimum leverage ratio. Bank regulatory authorities in the United States have issued risk-based capital standards by which all bank holding companies and banks will be evaluated in terms of capital adequacy. These guidelines relate to banking company's capital to the risk profile of its assets. Tier 1 capital includes common stockholder's equity and qualifying perpetual preferred stock together with related surpluses and retained earnings. Tier 2 capital may be comprised of limited life preferred stock, qualifying debt instruments, and the reserves for credit losses. Banking regulators have also issued leverage ratio requirements. The leverage ratio requirement is measured as the ratio of Tier 1 capital to adjusted 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. The following table summarizes the Company's and WNB's actual consolidated capital amounts and ratios as of December 31, 1999 and 1998.
Company WNB December 31, 1999 1998 1999 1998 Tier I Capital........................ $ 51,365 $ 47,179 $ 48,397 $ 39,888 Total Qualifying Capital.............. $ 54,445 $ 50,737 $ 51,477 $ 43,000 Risk-Adjusted Assets.................. $381,874 $303,127 $377,566 $299,420 Regulatory Requirements Well- Minimum Capitalized Capital Ratios Tier I Capital Ratio.............. 4.00% 6.00% 13.45% 15.56% 12.82% 13.99% Total Capital Ratio............... 8.00 10.00 14.26 16.74 13.63 15.03 Leverage Capital Ratio............ 3.00 5.00 7.34 7.99 6.80 7.36
43 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 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 advances from the FHLB of Pittsburgh. Core deposits, representing the Company's largest, most stable source of funds, totalled $386,827,000 at December 31, 1999, an increase of $11,121,000 or 3.0% as compared to December 31, 1998. At December 31, 1999 core deposits represented 104.2% of loans, compared to 125.0% at December 31, 1998. Such deposits generally represent a more stable alternative to more volatile money market sources such as short-term borrowings and time deposits over $100,000. The Company has no brokered deposits. Cash and cash equivalents (cash and due from banks and Federal funds sold), are the Company's most liquid assets. At December 31, 1999, cash and cash equivalents totalled $16,598,000, a decrease of $13,466,000 or 44.8% from December 31, 1998. Additionally, the Company has secondary sources of liquidity in investment securities available for sale totalling $298,153,000 at December 31, 1999, compared to $263,827,000 at December 31, 1998, as well as maturities and repayments of loans. The Company utilizes FHLB advances as a low cost funding source for implementing investment security growth strategies. FHLB advances totalled $211,000,000 at December 31, 1999. Management views FHLB advances as a stable secondary funding source. Management believes that the Company's liquidity position is sufficient based on its level of cash, cash equivalents, core deposits and the stability of its other funding. 44 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 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. The Company uses financial modeling to measure the impact of changes in interest rates on the net interest margin. Modeling techniques are a more relevant method of measuring interest rate risk than the less sophisticated interest rate sensitivity gap table shown on page 46. Assumptions are made regarding loan prepayments and amortization rates of passbook and NOW account withdrawal rates. Because it is difficult to accurately project the market reaction of depositors and borrowers, the effects of actual changes in interest on these assumptions may differ from simulated results. The Company has established the following guidelines for assuming interest rate risk: Net interest margin simulation. Given a 200 basis point increase or decrease in interest rates, the estimated net interest margin may not change by more than 10% for a one-year period. Market value of equity simulation. The market value of the Company's equity is the net present value of the Company's assets and liabilities. Given a 200 basis point increase or decrease in interest rates, equity may not change by more than 30% of total stockholder equity. The following table illustrates the simulated analysis of the impact of a 200 basis point upward or downward movement in interest rates on net interest revenue, return on common stockholders' equity and basic earnings per share. The analysis was prepared assuming that interest-earning assets at December 31, 1999 remain constant. The impact of the rate movements was computed by simulating the effect of an immediate and sustained shift in interest rates over a twelve-month period from the December 31, 1999 levels. Interest rate simulation sensitivity analysis Movements in interest rates from December 31, 1999 rates Compared with December 31, 1999: Net interest income decrease (3.30)% (2.60)% Return on average equity decrease (130)bp (100)bp Basic earnings per share decrease $(0.14) $(0.11) 45 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 The difference between rate sensitive assets and rate sensitive liabilities that mature or reprice within a given time period is referred to as the interest rate sensitivity gap. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities. This mismatch generally will enhance earnings in a rising interest rate environment and inhibit earnings when rates decline. Conversely, a negative gap exists when rate sensitive liabilities exceed rate sensitive assets. In this case, a rising interest rate environment generally will inhibit earnings and declining rates generally will enhance earnings. The Company's interest rate sensitivity analysis at December 31, 1999, is presented in the following table. In evaluating the Company's exposure to interest rate risk certain shortcomings inherent in this method of analysis must be considered. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to change in market interest rates. Interest bearing demand deposits and savings deposits are presented as repricing within the earliest period as they are subject to immediate withdrawal and rate change. However, these types of deposits have historically shown relatively stable balances and rates have generally changed in lesser degrees than other interest earning assets and interest bearing liabilities. At December 31, 1999, there were no outstanding financial futures, options or interest rate swap agreements.
December 31, 1999 Days Total INTEREST RATE SENSITIVITY 31 61 91 181 One Year Over ($ in thousands) 0 to 30 to 60 to 90 to 180 to 1 year or Less One Year Total ========== ====== ===== ====== ========= ======== ======== ===== INTEREST EARNING ASSETS Loans.............................. $ 53,445 $ 1,983 $ 7,728 $ 12,365 $ 29,763 $ 112,447 $258,776 $371,223 Investment securities.............. - 1,000 - - - 1,000 297,153 298,153 Other short-term investments....... 4,823 - - - - 4,823 - 4,823 Total interest earning assets..... 65,431 2,983 7,728 12,365 29,763 118,270 555,929 674,199 INTEREST BEARING LIABILITIES Deposits Interest bearing demand........... 23,966 - - - - 23,966 - 23,966 Savings deposits.................. 120,977 - - - - 120,977 - 120,977 Time deposits..................... 25,212 25,644 16,314 53,072 56,491 176,733 89,643 266,376 Borrowed funds..................... 114,593 - - - - 114,593 100,000 214,593 Long-term debt..................... - - - - - - 12,650 12,650 Total interest bearing liabilities... 284,748 25,644 16,314 53,072 56,491 436,269 202,293 638,562 Non Interest Bearing Sources-net... - - - - - - 35,637 35,637 Total Funding sources............. $ 284,748 $ 25,644 $ 16,314 $ 53,072 $ 56,491 $ 436,269 $237,930 $674,199 INTEREST SENSITIVITY GAP............. $(219,317) $ (22,661) $ (8,586) $ (40,707) $(26,728) $(317,999) $317,999 - CUMULATIVE INTEREST SENSITIVITY GAP............... $(219,317) $(241,978) $(250,564) $(291,271) $(317,999) $(317,999) $ - $ - GAP/INTEREST EARNING ASSETS.......... (47.86)% (4.94)% (1.87)% (8.88)% (5.83)% (69.39)% 69.39% - CUMULATIVE GAP/INTEREST EARNING ASSETS............... (47.86) (52.80) (54.67) (63.56) (69.39) (69.39) - -
46 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1999, 1998 and 1997 Recently Issued Accounting Standards In June 1998, the Financial Accounting Standard Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities on the balance sheet and measure those instruments at fair value. This statement, as amended, is effective January 1, 2001, and need not be applied retroactively to financial statements of prior periods. The statement may be adopted early, as of the beginning of any quarter. The company intends to adopt this statement on January 1, 2001. 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. Year 2000 Compliance Like many financial institutions, the Company relies on computers to conduct business and information systems processing. Industry experts were concerned that on January 1, 2000, some computers might not be able to interpret the new year properly, causing computer malfunctions. Some banking industry experts remain concerned that some computers may not be able to interpret additional dates in the Year 2000 properly. We have operated and evaluated our computer operating systems following January 1, 2000 and have not identified any errors or experienced any computer system malfunctions. We will continue to monitor our information systems to assess whether our systems are at risk of misinterpreting any future dates and will develop appropriate contingency plans to prevent any potential system malfunction or correct any system failures. The Company has not been informed of any such problem experienced by its vendors or its customers, nor by any of the municipal agencies that provide services to the Company. Nevertheless, it is too soon to conclude that there will not be any problems arising from the Year 2000 problem, particularly at some of the Company's vendors. The Company will continue to monitor its significant vendors of goods and services with respect to Year 2000 problems they may encounter as those issues affect the Company's ability to continue operations, or might adversely affect the Company's ability to continue operations, or might adversely affect the Company's financial position, results of operations and cash flows. The Company does not believe at this time that these potential problems will materially impact the ability of the Company to continue its operations; however, no assurance can be given that this will be the case. 47 DIRECTORS Jack O. Cartner, President Motrim Inc., Cambridge, OH Paul W. Donahie, President American Bancorporation, Wheeling, WV Abigail McCamic Feinknopf Feinknopf Photography, Columbus, OH Jay T. McCamic, Attorney at Law McCamic & McCamic, Wheeling, WV Jeffrey W. 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 The Honorable John J. Malik, Jr., Retired Probate Court Judge, Belmont County, Ohio OFFICERS Jeremy C. McCamic, Chairman & CEO Jolyon W. McCamic, Vice Chairman/Administration Paul W. Donahie, President Brent E. Richmond, Executive Vice President, Chief Operating Officer Jeffrey A. Baran, CPA, Chief Financial Officer John H. Och, IV, CPA, Controller Linda M. Woodfin, Secretary Paul W. Donahie, President Wheeling National Bank Mark D. Krupinski, President American Bancdata Corporation John J. Rataiczak, President American Mortgages, Inc. 48 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 17, 2000. All shareholders are invited to attend. Stock Transfer Agent American Bancservices, Inc. 1025 Main Street - Suite 800 Wheeling, WV 26003 Stock Listing American Bancorporation's common stock trades on The Nasdaq Stock Market under the symbol AMBC. Shares of American Bancorporation's Capital Trust Preferred trade on The Nasdaq Stock Market under the symbol AMBCP. 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 1999Annual Report on Form 10K, as filed with the Securities Exchange Commission, upon written request to the Secretary, American Bancorporation, 1025 Main Street, Suite 800, Wheeling, WV 26003. Independent Certified Public Accountants KPMG LLP Pittsburgh, PA Securities Counsel Maloney & Knox LLP Washington, DC 49 AMERICAN BANCORPORATION 1025 MAIN STREET SUITE 800, MULL CENTER WHEELING, WV 26003 (304) 233-5006 AMERICAN MORTGAGES, INC. AMERICAN BANCDATA CORP. 2B ELM GROVE CROSSING 1025 MAIN STREET WHEELING, WV 26003 SUITE 800, MULL CENTER (304) 242-1010 WHEELING, WV 26003 (304) 232-0957 WHEELING NATIONAL BANK Ohio Locations BARNESVILLE CAMBRIDGE DOWNTOWN COLUMBUS (740) 425-3696 (740) 439-4444 (614) 228-0070 FLUSHING FREEPORT GAHANNA (740) 968-3541 (740) 658-3370 (614) 475-6162 GAHANNA - STONE RIDGE PLAZA REYNOLDSBURG SHADYSIDE (614) 337-1200 (614) 759-0400 (740) 676-1110 ST. CLAIRSVILLE MALL ST. CLAIRSVILLE STEUBENVILLE (740) 695-4361 (740) 695-3291 (740) 266-2361 West Virginia Locations ELM GROVE NEW MARTINSVILLE PINE GROVE (304) 242-9401 (304) 455-2000 (304) 889-2500 THREE SPRINGS DRIVE WEIRTON WHEELING - MARKET ST. (304) 723-4105 (304) 748-1717 (304) 232-0110 WHEELING - MAIN ST. WHEELING ISLAND (304) 233-3136 (304) 232-2760 Pennsylvania Locations WASHINGTON (Loan Production Office) (724) 225-4220 EX-27 2 ARTICLE 9 FDS FOR 10-K
9 1 YEAR DEC-31-1999 DEC-31-1999 11,774,610 0 4,823,000 0 298,153,127 298,153,127 298,153,127 371,223,074 3,079,796 711,290,996 449,277,493 214,593,201 2,511,496 4,079,845 7,824,185 0 0 20,354,776 711,290,996 28,501,782 18,751,065 365,400 47,618,247 17,900,237 29,171,232 18,447,015 420,000 342,967 14,650,282 6,880,721 5,353,819 0 0 5,353,819 1.71 1.71 0285 1,248,000 1,122,000 360,000 0 3,042,269 527,481 145,008 3,079,796 0 0 0
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