-----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, FAajU+jnHmGOdSp8Q3EM09HR14w3tZyW1eRVrrsEKReRo4mUf9J8zgUnY9ezVr3p LUTgSUpxtZ9dWV/KUVkoug== 0000004570-97-000002.txt : 19970401 0000004570-97-000002.hdr.sgml : 19970401 ACCESSION NUMBER: 0000004570-97-000002 CONFORMED SUBMISSION TYPE: ARS PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-05893 FILM NUMBER: 97570701 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 AMERICAN BANCORPORATION 1996 ANNUAL REPORT American Bancorporation and Subsidiaries FINANCIAL HIGHLIGHTS (In thousands, except per share) 1996 1995 1994 Statement of Operations: Net Income. . . . . . . . . $ 3,666 $ 3,052 $ 1,696 Net Income per share. . . . 2.34 1.95 1.13 Balance Sheet: Assets. . . . . . . . . . . $461,632 $353,995 $338,116 Deposits. . . . . . . . . . 319,811 292,665 292,341 Loans - net . . . . . . . . 267,886 246,518 225,129 Stockholders' equity. . . . 30,423 28,012 26,193 Book Value per share. . . . 19.44 17.90 16.74 QUARTERLY STOCK PRICE RANGES 1996: High Low Fourth. . . . . . . . . . . 26 3/4 23 3/4 Third . . . . . . . . . . . 25 1/2 19 3/4 Second. . . . . . . . . . . 24 1/2 19 1/4 First . . . . . . . . . . . 25 21 1/2 1995: High Low Fourth. . . . . . . . . . . 23 1/2 20 1/2 Third . . . . . . . . . . . 23 1/2 19 1/2 Second. . . . . . . . . . . 21 1/2 14 3/4 First . . . . . . . . . . . 15 1/2 13 1/2 American Bancorporation is traded on the Nasdaq Stock Market under the ticker symbol AMBC. CORPORATE PROFILE American Bancorporation (the "Company"), is a registered Ohio bank holding company headquartered in Wheeling, West Virginia. The Company was organized in 1966. During 1996 the Company merged its two affiliate banks. Columbus National Bank was merged into Wheeling National Bank ("WNB") which serves its customers through twenty full service offices located in Ohio County, Hancock County and Wetzel County, West Virginia and Belmont County, Harrison County, Guernsey County, Jefferson County and Franklin County, Ohio. In addition to the banking offices, the Company operates three non-bank subsidiaries: American Mortgages, Inc. which originates and services mortgage loans, American Bancdata Corporation which provides electronic data processing services to the Company and WNB and American Bancservices, Inc., which provides the Company's transfer agent services. The approximate number of common stockholders of record was 2,670 on January 31, 1997. CONTENTS Financial Highlights. . . . . . . . See above Quarterly Stock Price Ranges. . . . See above Corporate Profile . . . . . . . . . See above Chairman's Letter . . . . . . . . . 1 Financial Statements. . . . . . . . 2 - 26 Independent Auditors' Report . . 27 Five Year Selected Financial Data . 28 Management's Discussion and Analysis . . 29 - 42 THE CHAIRMAN'S LETTER TO OUR SHAREHOLDERS: For the year 1996 American Bancorporation recognized net income of $3,666,000 or $2.34 per share, compared to net income of $3,052,000 or $1.95 per share in 1995. Total assets at December 31, 1996 were $462 million, compared to $354 million at December 31, 1995. At December 31, 1996 total capital was $30,423,000, compared to $28,012,000 at December 31, 1995 and book value per common share at year end 1996 was $19.44, compared to $17.90 at year end 1995. At December 31, 1996 the allowance for loan losses to loans outstanding was 1.3%, compared to 1.5% at December 31, 1995. At December 31, 1996 total nonperforming loans as a percentage of total loans stood at 0.7%, compared to 0.8% at December 31, 1995. 1996 was again a year of growth and accomplishment. On February 9, 1996 we closed the purchase of the Bank One deposits at Flushing and the Ohio Valley Mall. On March 29, 1996 the merger of Columbus National Bank into Wheeling National Bank was completed. On September 25, 1996 our wholly owned subsidiary, American Mortgages, Inc. ("AMI") became the owner of 51% of Premier Mortgage Limited, dba On-Line Financial Services ("On-Line"). The other 49% is owned by subsidiaries of H.E.R. Realtors of Columbus, Ohio ("HER"). HER is one of the largest independent real estate operations in the State of Ohio and is nationally ranked. Under this joint venture, AMI is now purchasing conforming mortgage loans for sale into the market on either a service retained or a service released basis and Wheeling National Bank is now purchasing non conforming portfolio loans. In the 3rd quarter our regularly quarterly dividend was raised from $0.20 per quarter to $0.25 per quarter. We deeply appreciate your continued strong support. Sincerely, /s/ Jeremy C. McCamic Jeremy C. McCamic Chairman and Chief Executive Officer CONSOLIDATED BALANCE SHEET American Bancorporation and Subsidiaries December 31, 1996 and 1995 ASSETS 1996 1995 Cash and due from banks. . . . . . . . . . . . $ 11,550,133 $ 10,887,718 Federal funds sold . . . . . . . . . . . . . . 17,870,000 11,469,000 Investment securities available for sale . . . 143,473,608 68,014,533 Loans Commercial, financial and agricultural. . . 84,608,068 64,951,306 Real estate mortgage. . . . . . . . . . . . 136,488,358 128,709,317 Installment . . . . . . . . . . . . . . . . 50,353,407 56,711,400 271,449,833 250,372,023 Less allowance for loan losses. . . . . . . 3,563,774 3,853,633 267,886,059 246,518,390 Premises and equipment - net . . . . . . . . . 9,730,880 8,947,284 Accrued interest receivable. . . . . . . . . . 2,985,322 2,065,832 Excess of cost over net assets acquired. . . . 2,304,416 1,830,170 Other assets . . . . . . . . . . . . . . . . . 5,832,008 4,261,848 TOTAL ASSETS. . . . . . . . . . . . . . $461,632,426 $353,994,775 LIABILITIES Deposits Demand - non-interest bearing . . . . . . . $ 36,744,316 $ 31,792,609 Demand - interest bearing . . . . . . . . . 27,568,710 27,286,771 Savings . . . . . . . . . . . . . . . . . . 101,823,009 98,977,637 Time - under $100,000 . . . . . . . . . . . 126,726,720 116,370,529 Time - over $100,000. . . . . . . . . . . . 26,948,063 18,237,061 TOTAL DEPOSITS. . . . . . . . . . . . . 319,810,818 292,664,607 Short-term borrowings. . . . . . . . . . . . . 104,096,043 27,522,666 Accrued interest payable . . . . . . . . . . . 1,488,999 1,033,315 Other liabilities. . . . . . . . . . . . . . . 4,876,191 3,714,641 Notes payable and other long term debt . . . . 937,681 1,047,124 TOTAL LIABILITIES . . . . . . . . . . . 431,209,732 325,982,353 Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock. . . . . . . . . . . . . . - - Common stock without par value, stated value $5 a share, authorized 6,500,000 shares, issued and outstanding 1,564,837 in 1996 and 1995. . 7,824,185 7,824,185 Additional paid-in capital . . . . . . . . 10,301,982 10,301,982 Retained earnings. . . . . . . . . . . . . 12,021,258 9,763,633 Unrealized gain on securities available for sale, net. . . . . . . . . . . . . . . 275,269 122,622 TOTAL STOCKHOLDERS' EQUITY. . . . . . . . 30,422,694 28,012,422 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. $461,632,426 $353,994,775 The accompanying notes are an integral part of these financial statements. American Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF OPERATIONS Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 INTEREST INCOME Loans . . . . . . . . . . . . . . . $22,500,530 $21,929,265 $14,902,482 Investment securities Taxable interest income . . . . . 6,377,858 3,844,393 4,410,109 Non-taxable interest income . . . 127,880 144,316 163,039 Dividends . . . . . . . . . . . . 461,557 207,773 148,027 6,967,295 4,196,482 4,721,175 Short-term investments. . . . . . . 417,703 370,332 511,494 Total interest income. . . . . 29,885,528 26,496,079 20,135,151 INTEREST EXPENSE Deposits Interest bearing demand . . . . . 630,275 618,035 586,563 Savings . . . . . . . . . . . . . 2,783,607 2,872,553 2,690,109 Time - under $100,000 . . . . . . 6,269,821 5,303,309 3,368,774 Time - over $100,000. . . . . . . 1,247,259 1,003,706 384,872 10,930,962 9,797,603 7,030,318 Borrowings Short-term borrowings . . . . . . . 2,782,434 1,275,187 145,622 Notes payable and other long-term debt . . . . . . . . . . 88,714 97,872 13,059 Total interest expense. . . . . 13,802,110 11,170,662 7,188,999 NET INTEREST INCOME . . . . . . . . 16,083,418 15,325,417 12,946,152 PROVISION FOR LOAN LOSSES. . . . . . . - 105,000 215,000 Net interest income after provision for loan losses . . . . . . . . . . 16,083,418 15,220,417 12,731,152 OTHER INCOME Service charges on deposit accounts. . . . . . . . 864,557 735,514 661,492 Insurance commissions . . . . . . 106,990 119,017 113,619 Net gains (losses) on sale of loans . . . . . . . . . 511,171 93,118 (2,848) Net securities gains (losses) . . (922) 3,261 2,634 Other income. . . . . . . . . . 910,302 729,349 286,970 Total other income . . . . . . 2,392,098 1,680,259 1,061,867 OTHER EXPENSE Salaries and employee benefits. . 5,589,526 5,318,929 4,932,526 Occupancy expense . . . . . . . . 1,137,334 1,048,541 843,095 Furniture and equipment expense . 1,117,577 1,067,046 1,032,268 Other expenses. . . . . . . . . . 4,862,734 4,656,170 4,407,160 Total other expense. . . . . . 12,707,171 12,090,686 11,215,049 INCOME BEFORE INCOME TAXES . . . . . . 5,768,345 4,809,990 2,577,970 PROVISION FOR INCOME TAXES . . . . . . 2,102,367 1,757,823 881,651 NET INCOME . . . . . . . . . . . . . . $ 3,665,978 $ 3,052,167 $ 1,696,319 Per Share: NET INCOME. . . . . . . . . . . $ 2.34 $ 1.95 $ 1.13 The accompanying notes are an integral part of these financial statements. American Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Years ended December 31, 1996, 1995 and 1994
Unrealized gain Additional on securities Common paid-in Retained available for stock capital earnings sale, net Total Balance at January 1, 1994 7,533,060 9,753,871 6,871,117 - 24,158,048 Net Income. . . . . . . . . . - - 1,696,319 - 1,696,319 Dividends ($0.50 per share) - - (760,584) - (760,584) Proceeds from stockholder rights offering (58,225 shares) 291,125 548,111 - - 839,236 Unrealized gain on securities available for sale, net - - - 260,000 260,000 Balance at December 31, 1994 7,824,185 10,301,982 7,806,852 260,000 26,193,019 Net Income. . . . . . . . . . - - 3,052,167 - 3,052,167 Dividends ($0.70 per share) - - (1,095,386) - (1,095,386) Change in unrealized gain on securities available for sale, net - - - (137,378) (137,378) Balance at December 31, 1995 7,824,185 10,301,982 9,763,633 122,622 28,012,422 Net Income. . . . . . . . . . - - 3,665,978 - 3,665,978 Dividends ($0.90 per share) - - (1,408,353) - (1,408,353) Change in unrealized gain on securities available for sale, net - - - 152,647 152,647 Balance at December 31, 1996 $7,824,185 $10,301,982 $12,021,258 $275,269 $30,422,694
The accompanying notes are an integral part of these financial statements. American Bancorporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS Years ended December 31, 1996, 1995 and 1994 Operating Activities: 1996 1995 1994 Net income. $ 3,665,978 $ 3,052,167 $ 1,696,319 Adjustments to reconcile net income to net cash from operating activities: Depreciation 658,103 603,798 555,372 Amortization of intangibles 327,130 315,490 128,300 Net amortization (accretion) of investment securities 250,869 (74,137) 100,355 Provision for loan losses - 105,000 215,000 Gain on sale of premises and equipment - - (2,975) Net (gain) loss on sale of investment securities 922 (3,261) (2,634) Net (gain) loss on sale of loans (511,171) (93,118) 2,848 Change in assets and liabilities net of effects from the purchase of branch assets: Net increase in accrued interest receivable (917,883) (47,054) (323,175) Net increase in accrued interest payable 335,941 21,992 45,159 Net increase in other assets (1,584,158) (472,525) (538,102) Net increase in other liabilities 1,044,189 414,762 1,449,798 Net decrease from other operating activities 255,996 106,740 346,907 Net cash provided by operating activities 3,525,916 3,929,854 3,673,172 Investing Activities: Purchase of branch assets, net of cash acquired 14,171,001 - (4,487,905) Investment securities held to maturity: Proceeds from maturities and repayments - 19,607,659 33,151,514 Purchases - (8,272,273) (22,380,352) Investment securities available for sale: Proceeds from maturities and repayments 22,998,696 6,692,533 106,400 Proceeds from sales 16,474,939 8,088,052 3,017,375 Purchases (114,944,324) (12,555,150) (1,303,231) Net increase in loans (20,606,716) (21,401,522) (15,037,260) Purchase of loans - - (14,036,899) Purchase of premises and equipment (1,686,300) (828,810) (1,323,607) Proceeds from sale of premises and equipment - - 290,468 Net cash used by investing activities (83,592,704) (8,669,511) (22,003,497) Financing Activities: Net increase in non-interest bearing demand deposits 3,974,744 583,696 2,038,122 Net decrease in interest bearing demand and savings deposits (4,338,517) (16,462,117) (9,384,462) Net increase in time deposits 12,360,154 16,202,371 4,596,371 Net increase in short-term borrowings 76,573,377 14,124,485 11,789,434 Principal repayment of long-term debt (109,442) (1,002,433) - Proceeds from issuance of long-term debt - - 2,000,000 Proceeds from stockholder rights offering - - 839,236 Cash dividends paid (1,330,113) (978,023) (753,306) Net cash provided by financing activities 87,130,203 12,467,979 11,125,395 Net Increase (Decrease) in Cash and Cash Equivalents 7,063,415 7,728,322 (7,204,930) Cash and Cash Equivalents Beginning Balance $ 22,356,718 $ 14,628,396 $ 21,833,326 Cash and Cash Equivalents Ending Balance $ 29,420,133 $ 22,356,718 $ 14,628,396 Supplemental schedule of noncash investing and financing activities: Business Acquisitions: Fair value of assets acquired $ 1,098,572 $ - $ 51,931,274 Cash received (paid) in the acquisition 14,171,001 - (4,782,680) Liabilities assumed $ 15,269,573 $ - $(47,148,594) Cash paid during the year for: Interest $ 13,346,426 $ 11,148,670 $ 7,046,161 Income taxes $ 1,883,000 $ 1,331,100 $ 1,228,000 Non-cash investing and financing activities: Loan foreclosures and repossessions $ 324,539 $ 149,810 $ 281,603 Transfer of premises and equipment to other real estate owned $ 287,774 $ - $ 549,566 The accompanying notes are an integral part of these financial statements. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 Note A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES American Bancorporation (the "Company"), which was organized in 1966, is a registered Ohio bank holding company with its headquarters located in Wheeling, West Virginia. The Company's wholly owned subsidiaries are Wheeling National Bank, American Bancdata Corporation, American Bancservices, Inc. and American Mortgages, Inc. The Company's subsidiaries primarily engage in commercial banking and mortgage banking. The subsidiary bank branch offices are primarily located in the northern panhandle of West Virginia, and central and eastern Ohio. The accounting and reporting policies of American Bancorporation and Subsidiaries (the "Company") conform to generally accepted accounting principles and with general practice within the banking industry. The following is a description of the significant policies. Principles of Consolidation The consolidated financial statements include the accounts of American Bancorporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Subsidiaries acquired in purchase transactions are included in the consolidated financial statements from the date of acquisition. Cash and Cash Equivalents For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds are sold for one-day periods. Investment Securities The Company has adopted a methodology for the classification of securities at the time of their purchase as either held to maturity or available for sale. If it is management's intent and the Company has the ability to hold such securities until their maturity, these securities are classified as held to maturity and are carried on the Company's books at cost, adjusted for amortization of premium and accretion of discount on a level yield basis. Alternatively, if it is management's intent at the time of purchase to hold securities for an indefinite period of time and/or to use such securities as part of its asset/liability management strategy, the securities are classified as available for sale and are carried at fair value, with net unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity, net of applicable income taxes. Investment securities available for sale include securities which may be sold in response to changes in interest rates, resultant prepayment risk and other factors related to interest rate or prepayment risk. Gains and losses on sales of securities are recognized using the specific identification method. The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities" in 1994. On December 1, 1995, the Company reclassified $66,965,000 of investment securities held to maturity to investment securities available for sale. The reclassification was in accordance with the FASB's special report "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" that permitted this one-time reassessment. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Loans Loans are reported at their principal amounts, net of any deferred origination fees and costs and the allowance for loan losses. Interest on loans is computed primarily on the principal balance outstanding. For loans not primarily secured by real estate or in the process of collection, the Company discontinues the accrual of interest when a loan is 90 days past due or collection of the interest is doubtful. Real estate loans are placed on nonaccrual status when, in management's judgement, collection is in doubt or when foreclosure proceedings are initiated, which is generally 180 days past the due date. Income on discounted loans is principally recognized on the sum-of-the-months digits method, which approximates a level yield. Loan origination and commitment fees, as well as certain direct loan origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans via a method which approximates a level yield. The Company grants commercial and industrial loans, commercial and residential mortgages and consumer loans to customers primarily in the northern panhandle of West Virginia, southwestern Pennsylvania and central and eastern Ohio. The Company's loan portfolio can be adversely impacted by downturns in the local economic and real estate markets as well as employment conditions. A loan is considered to be impaired, as defined by SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", when it is probable that the Company will be unable to collect all principal and interest amounts due according to the contractual terms of the loan agreement. All of the Company's nonaccrual loans, excluding consumer and single family residential loans, are considered to be impaired loans. Large groups of smaller homogenous loans, such as loans secured by first and second liens on residential properties and other consumer loans are evaluated collectively for impairment. Under SFAS No. 114, impaired loans subject to the statement are required to be measured based upon the present value of expected future cash flows, discounted at the loan's initial effective interest rate, or at the loan's market price or fair value of the collateral if the loan is collateral dependent. If the loan valuation is less than the recorded value of the loan, an impairment reserve must be established for the difference. The impairment reserve is established by either an allocation of the reserve for credit losses or by a provision for credit losses, depending on the adequacy of the reserve for credit losses. Interest income on impaired loans is recognized using the cash basis method. Allowance for Loan Losses The determination of the balance in the allowance for loan losses is based on an analysis of the portfolio and reflects an amount which, in management's judgement, is adequate to provide for potential losses after giving consideration to the character of the portfolio, current economic conditions, past loss experience and such other factors that deserve current recognition. The regulatory examiners may require the Company to recognize additions to the allowances based upon their judgements about information available to them at the time of their examinations. The provision for loan losses is charged to current operations. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Mortgage Loan Servicing On January 1, 1996 the Company adopted SFAS No. 122 "Accounting for Mortgage Servicing Rights", which requires that a mortgage banking enterprise that acquires mortgage servicing rights through either the purchase or origination of mortgage loans recognize those rights as separate assets by allocating the total costs of the mortgage loans to the mortgage servicing rights and the loans (without the mortgage servicing rights) based on their relative fair values. Purchased mortgage servicing rights are recorded at cost. The Company measures the impairment of the mortgage servicing rights based on their current fair value. Current fair value is determined through the discounted present value of the estimated future net servicing cashflows using a risk-based discount rate and assumption based upon market estimates for future servicing revenues and expenses (including prepayment expectations, servicing costs, default rates and interest earnings on escrows). For impairment measurement purposes, servicing rights acquired after January 1, 1996 are stratified by loan type. If the carrying value of an individual stratum were to exceed its fair value, a valuation allowance would be established. Mortgage servicing rights acquired prior to January 1, 1996 are stratified by acquisition and evaluated for possible impairment using fair market values. The adoption of SFAS No. 122 resulted in an increase in income and net income of $402,000 and $242,000, respectively, for the year ended December 31, 1996. Premises and Equipment Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is provided on the straight-line method, distributing the cost of premises over an estimated useful life of twenty to fifty years and the cost of equipment over an estimated useful life of three to fifteen years. Excess of Cost over Net Assets Acquired Excess of cost over net assets acquired include both goodwill and core deposit intangibles. Goodwill is being amortized on a straight-line basis over a period of twelve to thirty years. Core deposit intangibles are being amortized over a period of five to twelve years. Such assets are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Other Real Estate Owned Other real estate owned in connection with loan settlements, including real estate acquired, is stated at the lower of estimated fair value less estimated costs to sell, or the carrying amount of the loan. Decreases in fair value between annual appraisals, net gains or losses on the sale of other real estate owned, and net direct operating expense attributable to these assets are included in other income/other expense. Other real estate owned is included in other assets. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Income Taxes Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax laws and rates. Pension Plan Pension costs, based on actuarial computations, are charged to expense and funded as required by minimum Internal Revenue Service standards. (See Note R "Pension Plan and Profit Sharing 401(k) Savings Plan"). Per Share Data Per share data is computed based upon the weighted average number of common shares outstanding. The weighted average number of shares used in the calculation was 1,564,837 for 1996 and 1995 and 1,506,771 in 1994. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. Estimates are used when accounting for allowance for loan losses, realization of deferred tax assets, fair values of certain assets and liabilities, determination and carrying value of impaired loans, carrying value of other real estate, carrying value and amortization of intangibles, employee benefit plans and other areas. Reclassifications Certain prior year financial information has been reclassified to conform to the presentation in 1996. Note B-BRANCH ACQUISITIONS On February 9, 1996, the Company acquired certain assets and assumed certain liabilities of Bank One, Wheeling-Steubenville, N.A. The Company acquired liabilities totalling $15.3 million, including deposits totalling $15.1 million and purchased the equipment of the St. Clairsville and Flushing, Ohio branch offices of Bank One. The Company paid a $801,000 premium based on core deposits which is being amortized over a period of eight years. On December 8, 1994, the Company acquired certain assets and assumed certain liabilities of Buckeye Savings Bank ("Buckeye"), a wholly owned subsidiary of Crown Bank, F.S.B., headquartered in Casselberry, Florida. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 The Company assumed liabilities totalling $46.5 million, including deposits totalling $46.4 million, and purchased the premises and equipment of the St. Clairsville and Steubenville, Ohio branch offices of Buckeye. The Company also acquired assets with a fair value of $50.2 million, including loans (primarily mortgage loans) totalling $47.9 million, including $0.4 million allowance for loan losses. A premium of $916,000, based on core deposits, was paid and is being amortized over a period of eight years. The Company also acquired the mortgage servicing rights to loans totalling $81.6 million for $570,000 and certain fixed assets totalling $210,000. Note C-CASH AND DUE FROM BANKS The Company's banking subsidiary is required to maintain with a Federal Reserve bank reserve balances based principally on deposits outstanding. Balances maintained are included in cash and due from banks. The required reserves were approximately $150,000 at December 31, 1996 and $300,000 at December 31, 1995. Note D-INVESTMENT SECURITIES Securities Available for Sale The amortized cost and approximate market value of investment securities available for sale at December 31, 1996 and 1995 is summarized as follows: 1996 Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value United States Treasury . . . . . $ 8,243,186 $ - $ 44,237 $ 8,198,949 United States Federal agencies . 105,135,857 616,973 423,583 105,329,247 United States agency mortgage-backed securities. . . . 17,105,590 9,296 144,517 16,970,369 States and political subdivisions. 1,125,926 109,070 53 1,234,943 Other. . . . . . . . . . . . . . 5,000 - - 5,000 Total Debt Securities . . . . 31,615,559 735,339 612,390 131,738,508 Equity securities. . . . . . . . 11,533,600 201,500 - 11,735,100 Total Securities Available for Sale . . . . $143,149,159 $936,839 $612,390 $143,473,608 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 1995 Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value United States Treasury . . . . . . $18,405,901 $ 37,418 $ 73,818 $18,369,501 United States Federal agencies . . 16,800,763 66,736 88,762 16,778,737 United States agency mortgage-backed securities. . . . 25,891,941 21,305 356,091 25,557,155 States and political subdivisions. 1,882,261 276,089 141 2,158,209 Other. . . . . . . . . . . . . . . 10,000 - - 10,000 Total Debt Securities . . . . . 62,990,866 401,548 518,812 62,873,602 Equity securities. . . . . . . . . 4,939,431 201,500 - 5,140,931 Total Securities Available for Sale . . . . . $67,930,297 $603,048 $518,812 $68,014,533 Included in equity securities at December 31, 1996 are Federal Home Loan Bank and Federal Reserve Bank stock of $9,434,000 and $279,600, respectively. At December 31, 1995 these stock investments were $2,839,500 and $279,931, respectively. The amortized cost and approximate market value of debt securities at December 31, 1996, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Market Cost Value Due in one year or less . . . $ 6,174,577 $ 6,148,988 Due after one year through five years . . . . . 15,207,479 15,254,904 Due after five years through ten years. . . . . . 97,546,014 97,824,640 Due after ten years . . . . . 12,687,489 12,509,976 $131,615,559 $131,738,508 Proceeds from the sale of securities available for sale for the years ended December 31, 1996, 1995 and 1994 were $16,474,939, $8,088,052 and $3,017,375, respectively. Gross realized gains on the sale of securities available for sale were $41,070 in 1996, $33,171 in 1995 and $6,915 in 1994. Gross realized losses on the sale of securities available for sale were $41,992 in 1996, $29,910 in 1995 and $4,281 in 1994. There were no sales of investment securities held to maturity in 1996, 1995 and 1994. At December 31, 1996 the book value of securities pledged to secure public deposits or for other purposes required or permitted by law aggregated $26,696,000. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note E-NONPERFORMING ASSETS Nonperforming assets consist of nonaccrual loans, restructured loans, past due loans and other real estate owned. Nonaccrual loans are loans on which interest recognition has been suspended until realized because of doubts as to the borrowers' ability to repay principal or interest. Restructured loans are loans where the terms have been altered to provide a reduction or deferral of interest or principal because of a deterioration in the financial position of the borrower. Past due loans are accruing loans which are contractually past due 90 days or more as to interest or principal payments. The following summarizes the nonperforming assets at December 31: 1996 1995 1994 Nonperforming loans Nonaccrual. . . . . . . . $ 547,000 $ 790,000 $1,214,000 90 days past due. . . . . 744,000 609,000 766,000 Restructured. . . . . . . 672,000 666,000 610,000 $1,963,000 $2,065,000 $2,590,000 Other real estate owned. . 607,000 575,000 682,000 Total. . . . . . . . . . $2,570,000 $2,640,000 $3,272,000 There were no commitments to advance additional funds to such borrowers at December 31, 1996. Gross interest income that would have been recorded if nonaccrual loans and restructured loans had been current and in accordance with their original terms approximated $49,000, $85,000 and $140,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Interest recognized on such loans approximated $6,000, $21,000 and $8,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Impaired loans totalled $547,000 and $790,000 at December 31, 1996 and 1995, respectively. Impaired loans totalling $341,000 and $489,000 at the end of 1996 and 1995, respectively, had a corresponding specific allowance for credit losses of $148,000 and $172,000. The average balance of impaired loans was $691,000 in 1996 and $818,000 in 1995. Interest income recognized on impaired loans totalled $6,000 and $21,000 in 1996 and 1995, respectively. Note F-RELATED PARTY TRANSACTIONS At December 31, 1996, receivables, both direct and indirect, from persons related to the Company and subsidiaries as directors, executive officers or principal shareholders, exclusive of loans to such persons which in the aggregate do not exceed $60,000, approximated $1,577,000. Other changes reflect loans to persons which no longer exceed $60,000. The following is an analysis of the activity with respect to such loans for the year ended December 31, 1996: Aggregate outstanding balance at January 1, 1996 $ 1,750,000 Additions . . . . . . . . . . . . . . . . 210,000 Retirements . . . . . . . . . . . . . . . (295,000) Other changes . . . . . . . . . . . . . . (88,000) Aggregate outstanding balance at December 31, 1996 $ 1,577,000 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note G-ALLOWANCE FOR LOAN LOSSES An analysis of the allowance for loan losses follows: Years ended December 31, 1996 1995 1994 Balance at beginning of year. . . . . . $3,853,633 $3,736,994 $3,543,743 Allowance acquired in loan purchase (see Note B) . . . . . . . - - 410,763 Provision for loan losses. . . . . . . - 105,000 215,000 Loans charged-off. . . . . . . . . . . (427,602) (363,381) (837,667) Less recoveries. . . . . . . . . . . . 137,743 375,020 405,155 Net loans (charged-off) recovered . . (289,859) 11,639 (432,512) Balance at end of year. . . . . . . . . $3,563,774 $3,853,633 $3,736,994 Note H-MORTGAGE LOAN SERVICING At December 31, 1996 and 1995, the Company was servicing approximately 1,600 and 1,500 mortgage loans for various investors with aggregate balances of approximately $92,228,000 and $74,586,000, respectively. Originated mortgage servicing rights capitalized during 1996 totalled $427,000. At December 31, 1996, the Company had capitalized mortgage servicing rights of $816,000 which related to approximately $89 million of the aggregate $92 million in loans serviced. The mortgage servicing rights associated with the remaining $3 million in loans serviced are not subject to capitalization because the loans were originated and sold prior to the Company's adoption of SFAS No. 122 on January 1, 1996 (See Note A "Summary of Significant Accounting Policies"). At December 31, 1995 the Company had capitalized purchased mortgage servicing rights of $490,000. In connection with these loans serviced for others, the Company held advances by borrowers for taxes and insurance in the amount of $1,294,000 at December 31, 1996 and $1,311,000 at December 31, 1995. The fair value of the capitalized mortgage servicing rights approximated $1,042,000 at December 31, 1996. The fair value of the mortgage servicing rights not subject to capitalization due to the loans being originated or sold prior to the adoption of SFAS No. 122 approximated $42,000 at December 31, 1996. Based on management's estimate of the fair value of the designated strata, no impairment valuation allowance is necessary. The Company amortizes the capitalized mortgage servicing rights in proportion to, and over the period of, the estimated net servicing income. The amortization for the years ending December 31, 1996 and 1995 was $101,000 and $80,000, respectively. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note I-PREMISES AND EQUIPMENT A summary of premises and equipment and accumulated depreciation and amortization follows: December 31, 1996 1995 Premises and Equipment Buildings . . . . . . . . . . . . $ 6,412,998 $ 6,664,298 Equipment . . . . . . . . . . . . 5,753,211 4,681,706 Leasehold improvements. . . . . . 830,397 743,464 12,996,606 12,089,468 Less accumulated depreciation and amortization . . . . . . . 6,106,753 5,779,089 6,889,853 6,310,379 Land. . . . . . . . . . . . . . . 2,841,027 2,636,905 $ 9,730,880 8,947,284 Depreciation and amortization of premises and equipment charged to expense for the years ended December 31, 1996, 1995 and 1994 was $658,000, $604,000 and $555,000 respectively. At December 31, 1996 the Company and certain subsidiaries were obligated under various noncancellable operating leases for premises and equipment. The leases, expiring at various dates to 2005, generally provide options to renew and to purchase at fair value and require payment of taxes, insurance and maintenance costs. Total rental expense for all operating leases for the years ended December 31, 1996, 1995 and 1994 was $709,000, $643,000 and $477,000 respectively. Future minimum payments under operating leases were as follows at December 31, 1996: 1997. . . . . . . . . . . . . . . . . $ 506,000 1998. . . . . . . . . . . . . . . . . 348,000 1999. . . . . . . . . . . . . . . . . 220,000 2000. . . . . . . . . . . . . . . . . 170,000 2001. . . . . . . . . . . . . . . . . 115,000 After 2001. . . . . . . . . . . . . . 607,000 Total minimum lease payments . . . . $1,966,000 Note J-DEPOSITS At December 31, 1996, the scheduled maturity of time deposits for the years 1997 through 2001 and thereafter are as follows: $102,273,000, $26,045,000, $14,765,000, $7,543,000 and $3,409,000, repectively. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note K-NOTE PAYABLE, SHORT TERM AND LONG TERM BORROWINGS Short Term Borrowings The following summarizes the short term borrowings at December 31: 1996 1995 Securities sold under repurchase agreements . . $ 2,609,535 $ 2,355,000 Treasury tax and loan notes . . . . . . . . . . 1,486,508 167,666 Federal Home Loan Bank advances . . . . . . . . 100,000,000 25,000,000 Total short term borrowings . . . . . . . . . $104,096,043 $27,522,666 Securities sold under repurchase agreements are retained by the Company's custodian under written agreements that recognize the customer's interests in the securities. The subsidiary bank has an agreement with its Federal Reserve district bank to be an authorized treasury tax and loan depository. The subsidiary bank, Wheeling National Bank ("WNB") is a member of the Federal Home Loan Bank (the "FHLB") in the Pittsburgh district. The FHLB advances mature in 1997. The advances payable to the FHLB of Pittsburgh are secured by the WNB's stock in the FHLB of Pittsburgh, qualifying residential mortgage loans and other mortgage-backed securities to the extent that the fair market value of such pledged collateral must be at least equal to the notes payable outstanding. Interest expense on FHLB advances was $2,606,000, $1,233,000 and $120,000 for the years ended December 31, 1996, 1995 and 1994, respectively. The following table summarizes information regarding the Federal Home Loan Bank advances at December 31: 1996 1995 Balance, end of year. . . . . . . . . . . . . . .$100,000,000 $25,000,000 Weighted average interest rate, end of year . . . 5.50% 5.76% Average amount outstanding during the year. . . . 47,356,557 20,277,006 Weighted average interest rate during the year. . 5.53% 6.08% Maximum amount outstanding at any month end . . . 100,000,000 25,000,000 Notes Payable and Other Long Term Borrowings The following summarizes notes payable and other long term borrowings at December 31: 1996 1995 Variable rate note, due December 1997 . . . $ 900,000 $ 1,000,000 Capitalized lease obligations . . . . . . . 37,681 47,124 $ 937,681 $ 1,047,124 The variable rate term note had an interest rate of 8.31% and 7.76% at December 31, 1996 and 1995, respectively. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note L-FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK In the normal course of business the Company enters into contractual commitments involving financial instruments with off-balance-sheet risk. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit, commercial letters of credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on- balance-sheet instruments. Unless noted otherwise, the Company does not require collateral or other security to support financial instruments with off-balance-sheet risk. A summary of off-balance-sheet financial instruments at December 31, 1996 and 1995 is as follows: Financial instruments whose contract amounts represent credit risk: Contract Amounts 1996 1995 Commitments to extend credit. . . $36,106,000 $30,721,000 Standby letters of credit . . . . - 96,000 Commercial letters of credit. . . 736,000 778,000 Commitments to extend credit, approximately $626,000 at December 31, 1996 and $453,000 at December 31, 1995, of which are dealer floor plan lines, are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments, except dealer floor plan lines, are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. A majority of the commitments extended by the Company have either variable interest rates or are revolving credit card commitments which have a fixed interest rate. An adverse movement in market interest rates is not deemed to be a significant risk on the outstanding commitments at December 31, 1996. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Commercial letters of credit are issued by the Company specifically to facilitate trade or commerce. The credit risk involved in issuing letters of credit is essentially the same as that in extending loan facilities to customers. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note M-FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", requires that the Company disclose estimated fair values for its financial instruments. Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments. Securities and Federal Funds Sold The carrying amounts for federal funds sold approximate fair value as they mature in 90 days or less. The fair value of investment and mortgage-backed securities is based on quotations from an independent investment portfolio accounting service. Loans Fair values are estimates for portfolios of loans with similar financial characteristics. Loans are segregated by type and include commercial, real estate mortgage and installment loans. Each loan category is further segmented into fixed and adjustable rate terms, for purposes of estimating their fair value. The carrying values approximate fair value for variable rate loans which reprice frequently, provided there has been no change in credit quality since origination. Book value also approximates fair value for loans with a relatively short term to maturity, provided there is little or no risk of default before maturity and the disparity between the current rate and market rate is small. Any mark-to-market adjustment for these short-term loans would be insignificant. This estimation methodology is applied to the Company's demand loans, lines of credit and credit card portfolios. The fair value of all other performing loans is calculated by discounting scheduled cash flows through the estimated maturity using the rates currently offered for loans of similar remaining maturities. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions. The fair value reflects market prepayment estimates. The fair value of nonperforming loans is calculated by discounting carrying values adjusted for specific reserve allocations through anticipated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The installment loan portfolio includes credit card loans. The fair value estimate of credit card loans is based on the value of existing loans at December 31, 1996 and 1995. This estimate does not include the value that relates to estimated cash flows from new loans generated from existing cardholders over the remaining life of the portfolio. Deposits and Other Liabilities Under SFAS No. 107, the fair value of deposits with no stated maturity, such as demand and savings accounts, is equal to the amount payable on demand as of December 31, 1996 and 1995. The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Borrowings The Company's short-term and long-term borrowings are variable rate, thus fair values are based on carrying amounts since these borrowings reprice frequently as market rates change. Off-Balance-Sheet Financial Instruments The Company's off-balance-sheet financial instruments are comprised of commitments to extend credit, 66% of which are lines of credit and credit cards. These commitments to extend credit generally are not sold or traded and estimated fair values are not readily available. The fair value of commitments to extend credit can be estimated by discounting the remaining contractual fees over the term of the commitment using the fees currently charged to enter into similar agreements. Considering the current economic environment and the creditworthiness of the counterparties in the portfolio, the Company believes that such a calculation would not indicate a material calculated fair value. Limitations Fair value estimates are made at a specific point in time, based on relevant market data and information about each financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets that are not considered financial assets include property, plant and equipment. The following table represents carrying values and estimated fair values of the Company's financial instruments as of December 31, 1996 and 1995: 1996 1995 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value FINANCIAL ASSETS Federal Funds Sold . . .$ 17,870,000 $ 17,870,000 $ 11,469,000 $ 11,469,000 Investment Securities available for sale. . . 143,474,000 143,474,000 68,015,000 68,015,000 Loans Receivable, net of allowance . . . 267,886,000 267,710,000 246,517,000 248,525,000 FINANCIAL LIABILITIES Fixed Maturity Deposits (1) Time Deposits. . . . . 153,675,000 153,530,000 134,608,000 135,643,000 Short-term Borrowings. .104,096,000 104,096,000 27,523,000 27,523,000 Long-term Borrowings . . . 938,000 938,000 1,047,000 1,047,000 (1) SFAS No. 107 defines the estimated fair value of deposits with no stated maturity, which includes demand deposits, money market and other savings accounts, to be equal to the amount payable on demand. Therefore, the balances of the Company's $166.1 million and $158.1 million of such deposits at December 31, 1996 and 1995, respectively, are not included in this table. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note N-STOCKHOLDERS' EQUITY The Company has authorized 200,000 shares of $100 par value preferred stock issuable in series. No shares of preferred stock were issued or outstanding at December 31, 1996 and 1995. On December 31, 1994, the Company issued 58,225 shares of common stock through a stockholder rights offering with net proceeds to the Company of $839,000. Note O-DIVIDEND RESTRICTIONS Dividends declared by the Company may be substantially provided from subsidiary bank dividends. The payment of dividends by bank subsidiaries is subject to various restrictions imposed under banking regulations. For national banks, surplus in an amount equal to capital stock is not available for dividends and prior approval of the Comptroller of the Currency is required if total dividends declared exceed the total (defined) net profits from the beginning of the current year to the date of declaration, combined with the retained net profits of the preceding two years. Note P-INCOME TAXES Total income tax provision (benefit) for the three years ended December 31, 1996 was allocated as follows: 1996 1995 1994 Income from operations. . . . . . $2,102,367 $1,757,823 $ 881,651 Shareholders' equity for the tax effect of net unrealized gain (loss) on securities available for sale . . . . . . . 80,090 (38,349) - $2,182,457 $1,719,474 $ 881,651 The composition of the provision for income taxes from operations for the three years ended December 31, 1996 follows: 1996 1995 1994 Federal Income Taxes Current . . . . . . . . . . . . $1,777,004 $1,216,425 $1,023,837 Deferred. . . . . . . . . . 67,382 301,680 (302,380) Provision for federal income taxes. . 1,844,386 1,518,105 721,457 State. . . . . . . . . . . . . . . 257,981 239,718 160,194 Provision for income taxes $2,102,367 $1,757,823 $ 881,651 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 The following is a reconciliation of federal income tax expense to the amount computed at the statutory rate: 1996 1995 1994 Pre-tax income at statutory rate . . . . $1,961,237 $1,635,397 $ 876,510 Increase (decrease) resulting from: Tax exempt income. . . . . . . . . . . (38,784) (45,476) (51,385) Dividends received deduction . . . . . (30,940) (30,940) (30,940) Amortization of goodwill and other intangibles. . . . . . . . . 40,586 40,627 41,161 State tax provision (net of federal tax benefit) . . . . . . . (87,713) (81,503) (54,466) Other. . . . . . . . . . . . . . . . . - - (59,423) Provision for federal income taxes . . $1,844,386 $ 721,457 $ 721,457 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and liabilities as of December 31, 1996, 1995 and 1994 consist of the following: 1996 1995 1994 Deferred tax assets: Loan loss reserves. . . . . . . . . . $ 764,711 $ 772,573 $ 822,621 Equity securities . . . . . . . . . . 236,980 236,980 217,090 Investment securities . . . . . . . . - 38,349 - Pension plan. . . . . . . . . . . . . 239,369 242,799 207,599 Cash basis accounting . . . . . . . . - - 55,157 Real estate owned . . . . . . . . . . 7,818 6,967 83,842 Other . . . . . . . . . . . . . . . . 40,914 - - 1,289,792 1,297,668 1,386,309 Deferred tax liabilities: Fixed assets. . . . . . . . . . . . . 201,467 169,040 174,513 Cash basis accounting . . . . . . . . 99,623 125,640 - Mortgage servicing rights . . . . . . 134,644 - - Investment securities . . . . . . . . 41,741 - - Other . . . . . . . . . . . . . . . . - 43,199 8,566 477,475 337,879 183,079 Net deferred tax asset before valuation allowance. . . . . . . . . 812,317 959,789 1,023,230 Valuation allowance. . . . . . . . . . 236,980 236,980 217,090 Net deferred tax asset . . . . . . . . $ 575,337 $ 722,809 $ 986,140 The deferred tax assets recorded under SFAS No. 109 are expected to be realized through carryback to taxable income in prior years, future reversals of existing taxable temporary differences, and, to a lesser extent, future taxable income. The valuation allowance increased in 1995 by $19,890 as a result of the decrease in equity securities market value. In 1994, the valuation allowance decreased by $88,400 as a result of the increase in equity securities market value. Since no net deferred tax benefit was recorded on the initial writedown of the asset, due to its capital nature, no tax expense or benefit was recorded in 1995 or 1994 on its recovery. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note Q-OTHER EXPENSES Amounts included in other expenses are as follows for the years ended December 31, 1996, 1995 and 1994: 1996 1995 1994 Advertising . . . . . . $ 398,101 $ 245,096 $ 186,913 Credit card expenses. . 320,868 315,340 281,433 Data processing . . . . 362,593 389,533 246,397 FDIC assessment . . . . 428,724 429,066 615,326 Other real estate - 4,497 387,797 Postage . . . . . . . . 340,696 312,186 261,615 Professional fees . . . 588,320 640,832 556,158 Stationery and supplies 519,435 380,237 309,588 Taxes other than on income 405,673 356,259 266,140 Telephone . . . . . . . 251,569 272,546 225,583 Other (each less than 1% of income). . . 1,246,755 1,310,578 1,070,210 $4,862,734 $4,656,170 $4,407,160 Note R-PENSION PLAN AND PROFIT SHARING 401(K) SAVINGS PLAN Effective January 1, 1989, the Company established the American Bancorporation Pension Plan (the "Plan"). This non-contributory defined benefit plan covers all eligible employees of the Company and its banking and non-banking subsidiaries. Benefits are based on employees' years of service and compensation. The following table sets forth the Plan's funded status as of December 31, 1996 and 1995: 1996 1995 Actuarial present value of accumulated benefits obligation: Vested. . . . . . . . . . . . . . . . $1,051,701 $1,476,327 Non-vested. . . . . . . . . . . . . . - - $1,051,701 $1,476,327 Plan assets at fair value; primarily marketable securities . . . . . $ 802,224 $1,078,502 Projected benefit obligation . . . . . . . 1,051,701 1,476,327 Projected benefit obligation in excess of plan assets . . . . . . . . . . (249,477) (397,825) Unrecognized net transition asset. . . . . - - Prior service cost not yet recognized in net periodic pension cost . . . . . . - - Unrecognized net loss. . . . . . . . . . . - - Accrued pension costs. . . . . . . . . $ (249,477) $ (397,825) NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Net pension costs, for the three years ended December 31, 1996, included the following components: 1996 1995 1994 Service cost - benefits earned during the period . . $ - $ - $ - Interest cost on projected benefit obligation. 65,620 66,253 65,832 Actual return on plan assets . . . . (44,141) (41,162) 821 Net amortization and deferral. . . . (47,068) (39,854) (83,867) Net periodic pension benefit . . . . $(25,609) $(14,763) $(17,214) The discount rate used in determining the projected benefit obligation in 1996, 1995 and 1994 was 7.25%, 6.25% and 5.75%, respectively. The expected long-term rate of return on plan assets for each of the years ending in 1996, 1995 and 1994 was 7.00%. In 1993, due to the continuation of a claim discussed below, the Company notified the Plan participants that the planned termination of the Plan was rescinded; however, an amendment to freeze all benefit accruals and fully vest all participants in the benefits accrued to them as of December 31, 1992 remains in effect at December 31, 1996 due to an additional claim made against the Plan during 1996. A claim was made against the Plan during 1992 by a former employee (the "Claimant"), alleging additional benefits due him under the Plan and litigation between the parties ensued. Prior to the Court's final ruling, all parties agreed as to the method of computing the benefit due the claimant. The Court found that the computation was made pursuant to the pertinent Plan provisions and approved a joint motion by the parties to dismiss the action. As a result, the Plan Administrator disbursed $141,135 to the Claimant during 1995 to settle the claim and approximately $215,000 in 1996 to other affected Plan participants as determined based on the application of the Court's final ruling. No amount of the disbursements were recognized in the 1996 or 1995 statement of operations as the Company recorded a reserve of $500,000 in 1994 to recognize the liability for additional benefits due to Plan participants as determined based on the application of the Court's decision regarding the method of computing benefits to affected Plan participants. Management believes appropriate liabilities have been established to recognize the application of the Court's decision and expects to incur no further expense for this situation. An additional claim was made against the Plan during 1996 by former employees alleging further additional benefits due them under the Plan. The Administrator of the Plan has denied the claim and believes it has meritorious defenses to this claim and intends to oppose it vigorously. As the former employees have certain rights to appeal the denial of the claim, it is not possible to predict the resolution of the claim. The Company does not expect any additional provision need be made in the consolidated financial statements for this matter. The Company sponsors a profit sharing 401(k) savings plan to which eligible employees are permitted to contribute up to fifteen percent of their salary to the plan each year. The plan provides for matching contributions of the Company equal to 50% of employee contributions up to the first 6% of NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 compensation. The Company may, at its discretion, make profit sharing contributions to the plan. Plan participants are fully and immediately vested in Company matching contributions and fully vested in Company profit sharing contributions after 5 years of service. Company matching contributions for . the years ended December 31, 1996, 1995 and 1994 amounted to $68,000, $67,000 and $49,000, respectively. Note S - REGULATORY CAPITAL REQUIREMENTS The Company and WNB are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the entities must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off- balance sheet items as calculated under regulatory accounting practices. The entities capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Tier I and Total capital are expressed as a percentage of risk-adjusted assets which include various credit risk-weighted percentages of on-balance sheet exposures. The Leverage capital ratio evaluates capital adequacy on the basis of the ratio of Tier I capital to quarterly average total assets as reported on the Company's regulatory financial statements, net of the loan loss reserve, goodwill and certain other intangibles. To be categorized well-capitalized, the Company's banking subsidiary must maintain minimum Tier I, Total and Leverage capital ratios of 6%, 10% and 5%, respectively. At December 31, 1996, the Company and its subsidiary bank, WNB, exceeded the regulatory minimums and met the regulatory definition of well capitalized. The following table summarizes the Company's and WNB's actual consolidated capital amounts and ratios as of December 31, 1996 and 1995.
Company WNB Well- December 31, Minimum Capitalized 1996 1995 1996 1995 Tier I Capital $ 27,872 $ 26,059 $ 26,885 $ 24,840 Total Qualifying Capital $ 31,190 $ 28,866 $ 30,188 $ 27,639 Risk-Adjusted Assets $265,159 $223,552 $263,986 $222,877 Capital Basis Ratios Tier I Capital Ratio 4.00% 6.00% 10.51% 11.66% 10.18% 11.15% Total Capital Ratio 8.00 10.00 11.76 12.91 11.44 12.40 Leverage Capital Ratio 3.00 5.00 6.49 7.47 6.32 7.22
NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 Note T-PARENT COMPANY CONDENSED FINANCIAL INFORMATION AMERICAN BANCORPORATION (Parent Company Only) BALANCE SHEET December 31, 1996 and 1995 1996 1995 ASSETS Cash and short-term investments . . $ 1,275,791 $ 1,528,487 Due from subsidiaries . . . . . . . 70,795 56,428 Investment in subsidiaries Banking. . . . . . . . . . . . . . 29,405,758 26,732,262 Non-banking. . . . . . . . . . . . 1,207,863 1,191,487 30,613,621 27,923,749 Premises and equipment - net. . . . 17,205 19,483 Other assets. . . . . . . . . . . . 180,220 152,855 Total Assets. . . . . . . . . . . $32,157,632 $29,681,002 LIABILITIES Due to subsidiaries. . . . . . . . $ 392,689 $ 339,251 Other liabilities. . . . . . . . . 442,249 329,329 Notes payable . . . . . . . . . . 900,000 1,000,000 Total Liabilities. . . . . . . . 1,734,938 1,668,580 STOCKHOLDERS' EQUITY. . . . . . . . 30,422,694 28,012,422 Total Liabilities and Stockholders' Equity. . . . . $32,157,632 $29,681,002 STATEMENT OF OPERATIONS (Parent Company) Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 INCOME Dividends from banking subsidiaries. . . . $1,250,000 $2,000,000 $ - Dividends from non-banking subsidiaries. . 100,000 - - Reimbursement from subsidiaries . . . . 324,000 357,984 354,000 Interest income . . . . . . . . . . . . . 45,464 25,028 40,481 Other income . . . . . . . . . . . . . . 814 443 326 Total income. . . . . . . . . . . . . . 1,720,278 2,383,455 394,807 EXPENSE Interest expense . . . . . . . . . . . . . 82,386 96,363 13,059 Other expenses . . . . . . . . . . . . . . 690,164 589,176 682,508 Total expense . . . . . . . . . . . . . 772,550 685,539 695,567 947,728 1,697,916 (300,760) Credit for income taxes . . . . . . . . . (135,797) (86,863) (81,443) 1,083,525 1,784,779 (219,317) Equity in undistributed net income of subsidiaries. . . . . . . . . . 2,582,453 1,267,388 1,915,636 NET INCOME . . . . . . . . . . . . . . . . $3,665,978 $3,052,167 $1,696,319 NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS-CONTINUED December 31, 1996, 1995 and 1994 STATEMENT OF CASH FLOWS (Parent Company) Years ended December 31, 1996, 1995 and 1994 1996 1995 1994 Operating Activities: Net income. . . . . . . . . . . . . . .$ 3,665,978 $ 3,052,167 $ 1,696,319 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization. . . . . 51,455 51,803 52,305 Equity in undistributed net income of subsidiaries . . . . . . . . . . . (2,582,453) (1,267,388) (1,915,636) Net (increase) decrease in due from subsidiaries . . . . . . . . (14,367) 50,827 (69,219) Net change in other assets and other liabilities.. . . . . . . . . . 60,753 106,762 24,874 Net cash provided (used) by operating activities . . . . . 1,181,366 1,994,171 (211,357) Investing Activities: Purchase of premises and equipment. . (3,949) (10,439) (4,266) Net change in investment. . . . . . . in subsidiaries . . . . . . . . . . - 432,000 (2,570,000) Net cash provided (used) by investing activities. . . . . (3,949) 421,561 (2,574,266) Financing Activities: Cash dividends paid . . . . . . . . . (1,330,113) (978,023) (753,306) Proceeds from stockholder rights offering . . . . . . . . . - - 839,236 Net increase (decrease) in notes payable . . . . . . . . . . (100,000) (1,000,000) 2,000,000 Net cash provided by (applied to) financing activities. . . (1,430,113) (1,978,023) 2,085,930 Net increase (decrease) in Cash and Cash Equivalents . . . . . . . . . (252,696) 437,709 (699,693) Cash and Cash Equivalents Beginning Balance. . . . . . . . . . . 1,528,487 1,090,778 1,790,471 Cash and Cash Equivalents Ending Balance . . . . . . . . . . . $ 1,275,791 $ 1,528,487 $ 1,090,778 Cash paid during the year for: Interest. . . . . . . . . . . . . . $ 82,386 $ 96,363 $ 13,059 The Parent Company paid no income taxes during 1996, 1995 or 1994. NOTES TO CONSOLIDATED American Bancorporation and Subsidiaries FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 Note U-SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarters Ended (In thousands, except per share) Mar 31 June 30 Sept 30 Dec 31 Year 1996 Interest income. . . . . . . . .$ 6,875 $ 7,104 $ 7,890 $ 8,016 $ 29,885 Interest expense . . . . . . . . 3,018 3,256 3,694 3,834 13,802 Net interest income . . . . . . 3,857 3,848 4,196 4,182 16,083 Provision for loan losses. . - - - - - Net interest income after provision for loan losses. . . 3,857 3,848 4,196 4,182 16,083 Other operating income . . . . . 499 639 683 571 2,392 Other operating expense. . . . . 2,982 3,085 3,394 3,246 12,707 Income before income taxes. . . 1,374 1,402 1,485 1,507 5,768 Provision for income taxes . . 503 511 552 536 2,102 Net income. . . . . . . . . .$ 871 $ 891 $ 933 $ 971 $ 3,666 Per common share Net income . . . . . . . . .$ 0.55 $ 0.57 $ 0.60 $ 0.62 $ 2.34 1995 Interest income. . . . . . . . .$ 6,425 $ 6,679 $ 6,660 $ 6,732 $ 26,496 Interest expense . . . . . . . . 2,621 2,801 2,855 2,894 11,171 Net interest income . . . . . . 3,804 3,878 3,805 3,838 15,325 Provision for loan losses. . . 45 45 15 - 105 Net interest income after provision for loan losses. . . 3,759 3,833 3,790 3,838 15,220 Other operating income . . . . . 381 420 441 438 1,680 Other operating expense. . . . . 3,082 3,052 2,925 3,031 12,090 Income before income taxes. . . 1,058 1,201 1,306 1,245 4,810 Provision for income taxes . . 388 439 478 453 1,758 Net income. . . . . . . . . .$ 670 $ 762 $ 828 $ 792 $ 3,052 Per common share Net income . . . . . . . . .$ 0.43 $ 0.49 $ 0.53 $ 0.50 $ 1.95 KPMG Peat Marwick LLP One Mellon Bank Center Telephone 412 391 9710 Telefax 412 391 8963 Pittsburgh, PA 15219 Telex 7106642199 PMM & CO PGH Independent Auditors' Report To the Board of Directors and Shareholders of American Bancorporation: We have audited the accompanying consolidated balance sheets of American Bancorporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Bancorporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights", effective January 1, 1996 and Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," in 1994. /s/ KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania March 18, 1997 Member Firm of Klynveld Peat Marwick Goerdeler American Bancorporation and Subsidiaries Five Year Selected Financial Data ($ in thousands, except per share data) Consolidated Statement of Operations For the years ended 1996 1995 1994 1993 1992 Interest income Interest and fees on loans. . . . $ 22,500 $ 21,929 $ 14,902 $ 14,590 $ 16,903 Interest on securities. . . . . . 6,967 4,197 4,721 5,513 6,034 Interest on other short-term investments. . . . . . . . . . . 418 370 512 467 578 29,885 26,496 20,135 20,570 23,515 Interest expense Interest on deposits and borrowed funds. . . . . . . . . . 13,802 11,171 7,189 8,009 11,370 Net interest income . . . . . . 16,083 15,325 12,946 12,561 12,145 Provision for loan losses. . . . . . - 105 215 844 3,159 Net interest income after provision for loan losses. . . . . . . . . . 16,083 15,220 12,731 11,717 8,986 Service charges and other income . . 2,392 1,680 1,062 1,449 1,124 Other expenses Salaries and employee benefits. . . 5,590 5,319 4,933 4,428 4,368 Other operating expenses. . . . . . 7,117 6,771 6,282 5,969 6,452 12,707 12,090 11,215 10,397 10,820 Income (loss) before income taxes. . 5,768 4,810 2,578 2,769 (710) Provision (credit) for income taxes 2,102 1,758 882 999 (269) Net income (loss) . . . . . . $ 3,666 $ 3,052 $ 1,696 $ 1,770 $ (441) Per common share*: Net income (loss) . . . . . . $ 2.34 $ 1.95 $ 1.13 $ 1.18 $ (0.29) Dividends . . . . . . . . . . $ 0.90 $ 0.70 $ 0.50 $ 0.50 $ 0.50 Average common shares outstanding (000's). . . . . . 1,565 1,565 1,507 1,507 1,507 Consolidated Balance Sheet Data Balance at year end Total Assets. . . . . . . . . . . $461,632 $353,995 $338,116 $276,390 $288,962 Earning Assets. . . . . . . . . . 432,793 330,136 314,463 256,967 266,748 Loans, net of unearned income . . 271,450 250,372 228,866 150,523 158,978 Deposits. . . . . . . . . . . . . 319,811 292,665 292,341 248,040 261,001 Notes payable and other long-term debt. . . . . . . . . 938 1,047 2,000 - - Stockholders' equity. . . . . . . 30,423 28,012 26,193 24,158 23,141 Average Balances for years ended Total Assets. . . . . . . . . . . 400,866 348,655 284,845 278,669 293,383 Earning Assets. . . . . . . . . . 373,874 323,750 263,178 257,455 270,008 Loans, net of unearned income . . 254,397 243,043 164,405 153,277 165,024 Deposits. . . . . . . . . . . . . 310,746 293,415 252,916 250,504 262,957 Long-term debt. . . . . . . . . . 1,033 1,091 167 - 800 Stockholders' equity. . . . . . . 29,045 27,248 25,188 23,778 24,127 Consolidated Financial Ratios (as a Percent) Net income to average assets. . . 0.91% 0.88% 0.60% 0.64% N/A Net income to average equity. . . 12.62 11.20 6.73 7.44 N/A Dividends to net income . . . . . 38.42 35.89 44.84 42.57 N/A Average equity to average assets. 7.25 7.82 8.84 8.53 8.22% Average debt to average equity. . 3.56 4.00 0.66 0.00 3.32 *(Per share data has been retroactively restated for a two for one stock split which became effective March 16, 1994.) Average Balances, Income and Expense, Yields and Rates
($ in thousands) 1996 1995 1994 Average Revenue/ Yield/ Average Revenue/ Yield/ Average Revenue/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate INTEREST EARNING ASSETS Loans Commercial . . . . . . $ 73,366 $ 6,723 9.16% $ 59,497 $ 5,839 9.81% $ 48,161 $ 4,052 8.41% Real estate. . . . . . 128,361 10,533 8.21 127,107 10,457 8.23 64,114 5,416 8.45 Installment-net. . . . 52,670 4,734 8.99 56,439 5,215 9.24 52,130 4,880 9.36 Fees . . . . . . . . . - 510 - - 418 - - 554 - Total loans . . . . . 254,397 22,500 8.84 243,043 21,929 9.02 164,405 14,902 9.06 Investment securities Taxable. . . . . . . . 111,530 6,839 6.13 73,644 4,052 5.50 85,509 4,558 5.33 Tax-exempt . . . . . . 1,903 128 6.72 1,979 145 7.29 2,246 163 7.26 Total investment securities. . . . . 113,433 6,967 6.14 75,623 4,197 5.55 87,755 4,721 5.38 Other short-term investments. . . . 6,044 418 6.91 5,084 370 7.28 11,018 512 4.64 Total earning assets. 373,874 29,885 7.99 323,750 26,496 8.18 263,178 20,135 7.65 Non-interest Earning Assets Cash and due from banks. 10,592 10,823 11,024 Premises and equipment - net. . . . 9,091 8,752 7,992 Other assets. . . . . . . 7,309 5,330 2,651 26,992 24,905 21,667 TOTAL ASSETS . . . . $400,866 $348,655 $284,845 INTEREST BEARING LIABILITIES Deposits NOW, Savings and MMDA . $129,408 $ 3,414 2.64% $130,741 $ 3,491 2.67% $127,626 $ 3,277 2.57% Time. . . . . . . . . . 148,545 7,517 5.06 130,742 6,307 4.82 96,392 3,753 3.89 Total deposits. . . . 277,953 10,931 3.93 261,483 9,798 3.75 224,018 7,030 3.14 Short-term borrowings . 54,644 2,782 5.09 21,736 1,275 5.87 3,942 146 3.69 Notes payable and other long-term debt. 1,033 89 8.59 1,091 98 8.97 167 13 7.84 Total interest bearing liabilities . 333,630 13,802 4.14 284,310 11,171 3.93 228,127 7,189 3.15 Non-interest bearing Demand non-interest bearing. . . . . . . 32,793 31,932 28,898 Other liabilities. . . 5,398 5,165 2,632 38,191 37,097 31,530 Stockholders' Equity . . 29,045 27,248 25,188 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . $400,866 $348,655 $284,845 Net interest income $16,083 $15,325 $12,946 Interest rate spread 3.85% 4.25% 4.50% MARGIN ANALYSIS (as a % of Earning Assets) Interest income . . . . . 7.99% 8.18% 7.65% Interest expense. . . . . 3.69 3.45 2.73 Net interest income . . . 4.30% 4.73% 4.92%
Averages stated are month end average balances. Installment loans are stated net of unearned income. Average loans include nonaccrual loans. Yields do not reflect tax equivalent adjustments. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS December 31, 1996, 1995 and 1994 Introduction The discussion and analysis, when read in conjunction with the consolidated financial statements and accompanying notes, is designed to provide information relevant to an assessment of financial performance and management's perception of significant events. Summary American Bancorporation recognized net income of $3,666,000 ($2.34 per share) in 1996, compared to net income of $3,052,000 ($1.95 per share) in 1995. The increase was the result of increases in net interest income and other income and a decrease in the provision for loan losses, which were partially offset by an increase in other expenses. At year end, the Company's assets totalled $461,632,000. Deposits totalled $319,811,000 at year end. Stockholders equity aggregated $30,423,000. On February 9, 1996, the Company acquired certain assets and assumed certain liabilities of Bank One, Wheeling-Steubenville, N.A. On December 8, 1994 the Company acquired certain assets and assumed certain liabilities of Buckeye Savings Bank, a wholly owned subsidiary of Crown Bank, F.S.B., headquartered in Casselberry, Florida. (See Note B "Branch Acquisition"). MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1996, 1995 and 1994 RESULTS OF OPERATIONS The discussion and analysis of the results of operations is focused on the three years ended December 31, 1996 and uses a format of consecutive year comparisons. Volume and rate variances contributing to change in net interest income are analyzed using adjusted month end average balances. Tax equivalency is not imputed in the calculation of yields.
($ in thousands) Years ended December 31 Change 1996 1995 1994 1996 - 1995 1995 - 1994 Amount % Amount % Interest income $ 29,885 $ 26,496 $ 20,135 $ 3,389 12.79% $ 6,361 31.59% Interest expense 13,802 11,171 7,189 2,631 23.55 3,982 55.39 Net interest income 16,083 15,325 12,946 758 4.95 2,379 18.38 Provision for loan losses - 105 215 (105) (100.00) (110) (51.16) Net interest income after provision for loan losses 16,083 15,220 12,731 863 5.67 2,489 19.55 Other operating income 2,392 1,680 1,062 712 42.38 618 58.24 Other operating expense 12,707 12,090 11,215 617 5.10 875 7.81 Income before income taxes $ 5,768 $ 4,810 $ 2,578 $ 958 19.92% $ 2,232 86.58% Average Volume Earning Assets $373,874 $323,750 $263,178 $50,124 15.48% $60,572 23.02% Interest Bearing Liabilities 333,630 284,310 228,127 49,320 17.35 56,183 24.63 Yield/Rate Earning Assets 7.99% 8.18% 7.65% Interest Bearing Liabilities 4.14 3.93 3.15 Spread 3.85 4.25 4.50 Net Interest Margins 4.30 4.73 4.92
MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1996, 1995 and 1994 VOLUME AND RATE VARIANCES 1996 - 1995 1995 - 1994 Increase/ (decrease) due to Increase/ (decrease) due to ($ in thousands) Volume Rate Net Volume Rate Net Interest Income Loans $1,010 $(439) $ 571 $7,096 $ (69) $7,027 Investment securities Taxable 2,280 507 2,787 (649) 143 (506) Tax-exempt (6) (11) (17) (19) 1 (18) Other short-term investments 67 (19) 48 (352) 210 (142) Total interest income 3,351 38 3,389 6,076 285 6,361 Interest Expense NOW, Savings and MMDA (36) (41) (77) 81 133 214 Time 890 320 1,210 1,529 1,024 2,553 Short-term borrowings 1,696 (189) 1,507 999 131 1,130 Long-term debt (5) 2 85 83 2 85 Total interest expense 2,545 86 2,631 2,692 1,290 3,982 Net Interest Income $ 806 $ (48) $ 758 $3,384 $(1,005) $2,379 The rate-volume variance has been allocated in proportion to the absolute value attributed to each change. Year ended December 31, 1996 Compared to Year Ended December 31, 1995 Net Income. Net income for the year ended December 31, 1996 amounted to $3,666,000, compared to net income of $3,052,000 for the year ended December 31, 1995. The increase was the result of increases in net interest income and other income and a decrease in the provision for loan losses which were partially offset by an increase in other expenses. Net Interest Income. Net interest income before provision for loan losses for the year ended December 31, 1996 amounted to $16,083,000, an increase of $758,000 or 4.9%, as compared to the year ended December 31, 1995. The increase resulted primarily from a $50,124,000 or 15.5% increase in average interest earning assets, which was partially offset by a 43 basis point decrease in the Company's margin. Interest Income. Total interest income for the year ended December 31, 1996 amounted to $29,885,000, an increase of $3,389,000 or 12.8% as compared to the year ended December 31, 1995. The increase resulted primarily from a $50,124,000 increase in the average volume of earning assets which was partially offset by a 19 basis point decrease in the average yield on earning assets. Average loans outstanding increased $11,354,000 or 4.7% with average commercial loans increasing $13,869,000 or 23.3% and average real estate loans increased $1,254,000 or 9.9% while average consumer installment loans decreased $3,769,000 or 6.7%. The average yield on loans decreased from 9.02% in 1995 to 8.84% in 1996. Average investment securities and other short-term investments outstanding increased $38,770,000 or 48.0% and the average yield increased from 5.66% in 1995 to 6.18% in 1996. Interest Expense. Total interest expense for the year ended December 31, 1996 amounted to $13,802,000, an increase of $2,631,000 or 23.6%, as compared to the year ended December 31, 1995. The increase resulted primarily from a $49,320,000 or 17.3% increase in the average volume of interest bearing liabilities and a 21 basis point increase in interest rates paid on such liabilities. Average NOW, money market and savings accounts decreased $1,333,000 or 1.0%. Average time deposits increased $17,803,000 or 13.6%. Average non-interest bearing accounts increased $861,000 or 2.7% and represented 10.6% of average total deposits for the year ended December 31, 1996. Average borrowings increased $32,850,000 or 143.9% while the average rate paid on borrowings decreased from 6.02% in 1995 to 5.16% in 1996. Provision for Loan Losses. There was no loan loss provision for the year ended December 31, 1996. Net loans charged-off were $290,000 in 1996, compared to net loans recovered of $12,000 in 1995. Other Income. Other income for the year ended December 31, 1996 amounted to $2,392,000, an increase of $712,000 or 42.4%, as compared to the year ended December 31, 1995. Net gains on sale of loans increased $418,000 or 448.9%, primarily as a result of the implementation of SFAS No. 122 in 1996. Net losses on sale of investment securities totalled $1,000 in 1996 compared to net gains on sale of investment securities totalling $3,000 in 1995. Other (miscellaneous) income increased by $181,000 or 24.8%. Other Expense. Total other expense for the year ended December 31, 1996 amounted to $12,707,000, an increase of $616,000 or 5.1%, as compared to the year ended December 31, 1995. Salaries and employee benefits increased $271,000, or 5.1%. Occupancy and equipment expense increased $139,000 or 6.6%. Other (miscellaneous) expenses increased $206,000 or 4.4%, including a one-time charge of $245,000 as a result of Federal legislation enacted to recapitalize the Savings Association Insurance Fund. The one-time assessment applied to approximately $46 million in thrift deposits the Company acquired in recent years. Provision for Income Taxes. The provision for income taxes for the year ended December 31, 1996 was $2,102,000, compared to $1,758,000 for the year ended 1995. The increase was due to the increase in the Company's pre-tax income. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1996, 1995 and 1994 Year ended December 31, 1995 Compared to Year Ended December 31, 1994 Net Income. Net income for the year ended December 31, 1995 amounted to $3,052,000, compared to net income of $1,696,000 for the year ended December 31, 1994. The increase was the result of increases in net interest income and other income and a decrease in the provision for loan losses which were partially offset by an increase in other expenses. Net Interest Income. Net interest income before provision for loan losses for the year ended December 31, 1995 amounted to $15,325,000, an increase of $2,379,000 or 18.4%, as compared to the year ended December 31, 1994. The increase resulted primarily from a $60,572,000 or 23.0% increase in average interest earning assets, which was partially offset by a 19 basis point decrease in the Company's margin. The increase in average interest earning assets was primarily the result of assets acquired from Buckeye. Interest Income. Total interest income for the year ended December 31, 1995 amounted to $26,496,000, an increase of $6,361,000 or 31.6% as compared to the year ended December 31, 1994. The increase resulted primarily from a $60,572,000 increase in the average volume of earning assets and a 53 basis point increase in the average yield on earning assets. Average loans outstanding increased $78,638,000 or 47.8% with average real estate loans increasing $62,993,000 or 98.3%, average commercial loans increasing $11,336,000 or 23.5% and average consumer installment loans increased $4,309,000 or 8.3%. The average yield on loans decreased from 9.06% in 1994 to 9.02% in 1995. Average investment securities and other short-term investments outstanding decreased $18,066,000 or 18.3% while the average yield increased from 5.30% in 1994 to 5.66% in 1995. Interest Expense. Total interest expense for the year ended December 31, 1995 amounted to $11,171,000, an increase of $3,982,000 or 55.4%, as compared to the year ended December 31, 1994. The increase resulted primarily from a $56,183,000 or 24.6% increase in the average volume of interest bearing liabilities and a 78 basis point increase in interest rates paid on such liabilities. The increase in average interest bearing liabilities was primarily the result of liabilities acquired from Buckeye. Average NOW, money market and savings accounts increased $3,116,000 or 2.4%. Average time deposits increased $34,350,000 or 35.6%. Average non-interest bearing accounts increased $3,034,000 or 10.5% and represented 10.9% of average total deposits for the year ended December 31, 1995. Provision for Loan Losses. The provision for loan losses for the year ended December 31, 1995 was $105,000, compared to $215,000 for the year ended December 31, 1994. Net loans recovered were $12,000 in 1995, compared to net loans charged-off of $433,000 in 1994. Other Income. Other income for the year ended December 31, 1995 amounted to $1,680,000, an increase of $618,000 or 58.2%, as compared to the year ended December 31, 1994. Net gains on sale of investment securities totalled $3,000 in 1995 and 1994. Other (miscellaneous) income increased by $442,000, primarily due to increases in customer service fees and fees from mortgage loan servicing. Other Expense. Total other expense for the year ended December 31, 1995 amounted to $12,091,000, an increase of $876,000 or 7.8%, as compared to the year ended December 31, 1994. Salaries and employee benefits increased $387,000, or 7.8%. Occupancy and equipment expense increased $240,000 or 12.8%. Other (miscellaneous) expenses increased $249,000 or 5.7%. Provision for Income Taxes. The provision for income taxes for the year ended December 31, 1995 was $1,758,000, compared to $882,000 for the year ended 1994. The increase was due to the increase in the Company's pre-tax income. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1996, 1995 and 1994 FINANCIAL CONDITION Loans The Company's primary earning assets are loans, representing 58.8% of the total assets at December 31, 1996. Loans increased $21,078,000 or 8.4% between 1995 and 1996 primarily due to improved demand in the commercial and real estate lending segments of the portfolio. Loans increased $78,343,000 or 52.0% between 1993 and 1994, primarily due to loans acquired from Buckeye. At December 31, 1996 there were no concentrations of loans in any particular industry or in a group of related industries exceeding 10% of total loans. It is the policy of the Company to review each prospective credit in order to determine an adequate level of security or collateral to obtain prior to making the loan. The type of collateral will vary and ranges from liquid assets to real estate. Commercial business loans are made based on the financial ability of the borrower to repay the obligation and the appraised value of assets used as collateral. Real estate construction loans are made with loan-to-value ratios generally below 75%. Real estate mortgage loans are made with loan-to-value ratios generally below 80% of the appraised value. The real estate is appraised at the time the loan is originated and is reappraised if the loan is placed on a classified status. All consumer installment loan requests are evaluated to determine the prospective borrowers ability and willingness to repay the obligation and their stability as a borrower. Ability to repay is determined by comparing an applicant's monthly debt payment including the proposed loan payment with net monthly income. The resulting debt service to income ratio generally must be below 40%. In addition, for consumer installment loans which require collateral, the Company will make advances up to 90% of the value on certain types of collateral. The table below sets forth loans by category at December 31, 1992 through 1996. TYPES OF LOANS ($ in thousands) 1996 1995 1994 1993 1992 Commercial . . . . . . . . . $ 82,792 $ 63,082 $ 51,818 $ 42,488 $ 44,697 Real estate construction . . 1,816 1,869 1,112 1,751 1,795 Real estate mortgage . . . . 136,488 128,709 119,629 53,417 49,524 Installment. . . . . . . . . 50,353 56,712 56,307 52,867 62,962 $271,449 $250,372 $228,866 $150,523 $158,978 Scheduled repayment and rate sensitivity of commercial loans and real estate construction loans is indicated as follows at December 31, 1996: ($ in thousands) One Year One to Over or Less Five Years Five Years Total Commercial . . . . . . . . . $58,518 $4,961 $19,313 $82,792 Real estate construction . . 870 946 - 1,816 Total . . . . . . . . . . . $59,388 $5,907 $19,313 $84,608 For the commercial and real estate construction loans due after one year, $20,974,000 have a predetermined interest rate and $4,246,000 have a floating or adjustable interest rate. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1996, 1995 and 1994 Asset Quality The following presents loans considered nonperforming and consequently detracting from asset quality: NONPERFORMING ASSETS ($ in thousands) 1996 1995 1994 1993 1992 Nonperforming loans Nonaccrual. . . . . . . . . . $ 547 $ 790 $1,214 $2,188 $4,058 90 days past due. . . . . . . 744 609 766 601 886 Restructured. . . . . . . . . 672 666 610 709 509 Total nonperforming loans. . $1,963 $2,065 $2,590 $3,498 $5,453 Other nonperforming assets Other real estate owned . . . 607 575 682 699 1,049 Total nonperforming assets . $2,570 $2,640 $3,272 $4,197 $6,502 Nonperforming loans as a percent of loans . . . . . . 0.7% 0.8% 1.1% 2.3% 3.4% Nonperforming assets as a percent of total assets. . . 0.6% 0.7% 1.0% 1.5% 2.3% The nonaccrual category represents loans on which interest recognition has been suspended until realized because the borrower's ability to repay principal or interest is in doubt. For loans not primarily secured by real estate or in the process of collection, the Company discontinues accrual when a loan is 90 days past due. Real estate loans are placed on nonaccrual status when, in management's judgement, collection is in doubt or when foreclosure proceedings are initiated, which is generally 180 days past the due date. Although nominally performing, nonaccrual treatment may also be accorded on loans when information becomes available which suggests that more than normal risk of collection exists. Restructured loans are loans, the terms of which have been altered, to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. Past due loans are loans contractually past due 90 days or more and not included elsewhere. Total nonperforming loans were $1,963,000 at December 31, 1996, as compared to $2,065,000 at December 31, 1995. Nonaccrual loans due decreased by $243,000 while loans 90 days past due increased $135,000, and restructured loans increased by $6,000. The largest nonaccrual loan at December 31, 1996 was $129,000. Of the $607,000 total other real estate owned, $576,000 represents former banking facilities. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1996, 1995 and 1994 Allowance for Loan Losses The Company's loan loss experience for the five years ended December 31, 1996 is summarized as follows: SUMMARY OF LOAN LOSS EXPERIENCE ($ in thousands) 1996 1995 1994 1993 1992 Balance at beginning of year . . $ 3,854 $ 3,737 $ 3,544 $ 3,681 $ 2,463 Allowance acquired in loan purchase (See Note B) . . . . - - 411 - - Provision for loan losses . . . - 105 215 844 3,159 Loans charged-off Commercial . . . . . . . . . . 54 63 205 110 798 Real estate mortgage . . . . . 66 21 141 283 288 Installment. . . . . . . . . . 308 279 491 941 1,093 Total loans charged-off . . . 428 363 837 1,334 2,179 Loans recovered Commercial . . . . . . . . . . 3 101 93 39 43 Real estate mortgage . . . . . 16 108 25 44 12 Installment. . . . . . . . . . 119 166 286 270 183 Total loans recovered . . . . 138 375 404 353 238 Net loans charged-off (recovered) . . . . . . . . 290 (12) 433 981 1,941 Balance at end of year . . . . . $ 3,564 $ 3,854 $ 3,737 $ 3,544 $ 3,681 Loans outstanding at December 31, . . . . . . . . $271,450 $250,372 $228,866 $150,523 $158,978 Average loans for the year ended . . . . . . . 254,397 243,043 164,405 153,277 165,024 Ratio of net charge-offs to average loans . . . . . . 0.11% 0.00% 0.26% 0.64% 1.18% Ratio of allowance to loans outstanding. . . . . . 1.31% 1.54% 1.63% 2.35% 2.32% Ratio of provision to average loans. . . . . . . . 0.00% 0.04% 0.13% 0.55% 1.91% The allowance for loan losses was equal to 1.31% of loans outstanding at year end 1996 and in management's judgment is adequate to absorb potential loan losses. While management's on-going analysis includes, among other factors, the financial position of particular borrowers, results of internal loan reviews, past due loans and the Company's historical loss experience, future additions to the allowance may be necessary based on changes in economic conditions. In addition, federal regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1996, 1995 and 1994 Securities The following table summarizes the carrying value and weighted average yield of securities by type and maturity range at December 31, 1996:
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 U.S. Treasury Securities . $4,904 4.70% $ 3,295 5.47% $ - -% $ - -% $ 8,199 5.01% Federal agency obligations . . . 1,106 5.29 11,187 5.67 97,825 7.24 12,182 5.54 122,300 6.90 State and Municipal securities 139 5.90 768 9.85 - - 328 8.13 1,235 8.87 Other. . . . . . . - - 5 5.50 - - 11,735 6.05 11,740 6.05 Total Carrying Value. . $6,149 4.83% $15,255 5.84% $97,825 7.24% $24,245 5.82% $143,474 6.74%
The after ten year range of Federal agency obligations represents holdings of certificates of participation in pools of residential mortgages. Principal repayment prior to maturity has not been reflected. The after ten year range of equity securities includes securities with no stated maturity. Yields do not reflect tax equivalent adjustments. Deposits Summarized below are average deposit balances by type for the years ended December 31, 1996, 1995 and 1994. Also presented is the maturity distribution of time deposits in excess of $100,000 at each year end.
AVERAGE DEPOSITS 1996 1995 1994 ($ in thousands) Amount % Rate Amount % Rate Amount % Rate Demand noninterest bearing . $ 32,793 10.6% -% $ 31,932 10.9% -% $ 28,898 11.4% -% Interest bearing deposits NOW Accounts. . . . . . . . 26,615 8.5 2.37 26,409 9.0 2.34 24,849 9.8 2.36 MMDA and savings accounts . 102,793 33.1 2.71 104,332 35.6 2.75 102,777 40.7 2.62 Time . . . . . . . . . . . 148,545 47.8 5.06 130,742 44.5 4.82 96,392 38.1 3.89 277,953 89.4 3.93 261,483 89.1 3.75 224,018 88.6 3.14 Total. . . . . . . . . . . . $310,746 100.0% 3.52% $293,415 100.0% 3.34% $250,916 100.0% 2.78%
MATURITY OF TIME DEPOSITS OVER $100,000 1996 1995 1994 ($ in thousands) Within three months. . . . . . . . $ 8,511 $ 2,814 $ 2,844 Three to six months. . . . . . . . 2,813 5,745 3,586 Six months to one year . . . . . . 7,656 5,625 3,461 After one year . . . . . . . . . . 7,968 4,053 4,211 Total . . . . . . . . . . . . . . $26,948 $18,237 $14,102 MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1996, 1995 and 1994 Capital Capital resources represent funds obtained externally through issuance of securities and internally through the retention of earnings. Federal regulatory authorities define core ("Tier 1") capital to include common stockholders' equity and non-cumulative perpetual preferred stock, less certain intangible assets. Supplementary ("Tier 2") capital includes core capital, allowance for loan losses, perpetual preferred stock and qualifying notes and debentures. Capital adequacy is determined after consideration of a range of factors including organizational size, asset quality, consistency of earnings, risk diversification, management expertise and internal controls. Banking organizations are required to meet capital adequacy guidelines established by federal regulators. The Company and the Banks are subject to a risk-based capital framework and a minimum leverage ratio. The regulatory minimum risk-based capital ratio is 8.0% (of which at least 4.0% should be a core component consisting of common stockholders' equity). In addition, the Company and the Bank must meet a leverage capital ratio of 3.0% Tier I capital to adjusted total assets. The percentages established are minimums and most banks are required to maintain ratios at levels 100 to 200 basis points above the minimum and under certain circumstances may be required by federal regulators to maintain ratios at higher levels. At December 31, 1996 the Company's total risk-based capital ratio was 11.8% and its Tier I risk-based capital ratio was 10.5%, while the total risk-based capital ratio for WNB was 11.4%, with Tier I risk-based capital of 10.2%. The Company's leverage ratio at December 31, 1996 was 6.5%, while the leverage ratio of WNB was 6.3%. Liquidity In banking, liquidity refers to the ability of an institution to procure or generate cash in order to fund operations, satisfy commitments, provide credit to customers and withstand contraction of deposits during varying economic conditions without disruption of service capabilities. Liquidity depends upon confidence of customers and financial intermediaries and confidence is engendered by financial strength as demonstrated by profitability, asset quality and capitalization. The primary source of funds are deposits and to a lesser extent, amortization and prepayment of outstanding loans, maturing investment securities and borrowings from the FHLB of Pittsburgh and Cincinnati. At December 31, 1996, money market assets and investment securities maturing in one year or less totalled $22.2 million. Short-term borrowings outstanding at December 31, 1996 totalled $104.1 million and certificates of deposit in excess of $100,000, which mature within one year or less, totalled $19.0 million or 5.9% of total deposits. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS-CONTINUED December 31, 1996, 1995 and 1994 At December 31, 1996, the Parent Company had outstanding debt totalling $900,000 and had $1.3 million in liquid assets. Dividends declared by the Company and funds to support parent company operations may be substantially provided from subsidiary bank dividends. Various legal restrictions limit the ability of a bank subsidiary to finance or otherwise supply funds to its parent or certain of its affiliates (See Note O "Dividend Restrictions" to the consolidated financial statements). Management believes that liquidity in banking and nonbanking operations is sufficient. Asset/Liability Management (Interest Rate Sensitivity) The objective of asset/liability management is to insulate an institution's rate spread from changes in interest rates and thus enable the institution to maintain satisfactory levels of net interest income in both rising and falling interest rate environments. In order to meet this objective, the Company actively monitors the maturity or repricing relationship between its interest earning assets and interest bearing liabilities and endeavors to control the difference between such assets and liabilities maturing or repricing within one year to less than ten percent of its total assets. The difference between rate sensitive assets and rate sensitive liabilities that mature or reprice within a given time period is referred to as the interest rate sensitivity gap. A positive gap exists when rate sensitive assets exceed rate sensitive liabilities. This mismatch generally will enhance earnings in a rising interest rate environment and inhibit earnings when rates decline. Conversely, a negative gap exists when rate sensitive liabilities exceed rate sensitive assets. In this case, a rising interest rate environment generally will inhibit earnings and declining rates generally will enhance earnings. The Company's interest rate sensitivity analysis at December 31, 1996, is presented in the following table. In evaluating the Company's exposure to interest rate risk certain shortcomings inherent in this method of analysis must be considered. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to change in market interest rates. Interest bearing demand deposits and savings deposits are presented as repricing within the earliest period as they are subject to immediate withdrawal and rate change. However, these types of deposits have historically shown relatively stable balances and rates have generally changed in lesser degrees than other interest earning assets and interest bearing liabilities. MANAGEMENT'S DISCUSSION AND American Bancorporation and Subsidiaries ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED December 31, 1996, 1995 and 1994
December 31, 1996 Days Total INTEREST RATE SENSITIVITY 31 61 91 181 One Year Over ($ in thousands) 30 60 90 180 1 year or Less One Year Total INTEREST EARNING ASSETS Loans $ 84,488 $ 18,448 $ 4,034 $ 14,425 $ 27,188 $ 148,583 $122,867 $271,450 Investment securities - 499 - 25 5,625 6,149 137,325 143,474 Other short-term investments 17,870 - - - - 17,870 - 17,870 Total interest earning assets 102,358 18,947 4,034 14,450 32,813 172,602 260,192 432,794 INTEREST BEARING LIABILITIES Deposits Interest bearing demand 27,569 - - - - 27,569 - 27,569 Savings deposits 101,823 - - - - 101,823 - 101,823 Time deposits 14,497 10,872 9,971 25,309 41,624 102,273 51,402 153,675 Short-term borrowings 32,596 15,000 55,000 1,500 - 104,096 - 104,096 Long-term debt 900 - - - - 900 38 938 Total interest bearing liabilities 177,385 25,872 64,971 26,809 41,624 336,661 51,440 388,101 Non Interest Bearing Sources-net - - - - - - 44,693 44,693 Total Funding sources 177,385 25,872 64,971 26,809 41,624 336,661 96,133 432,794 INTEREST SENSITIVITY GAP $(75,027) $ (6,925) $ (60,937) $ (12,359) $ (8,811) $(164,059) $164,059 $ - CUMULATIVE INTEREST SENSITIVITY GAP $(75,027) $(81,952) $(142,889) $(155,248) $(164,059) $(164,059) $ - $ - GAP/INTEREST EARNING ASSETS (17.34)% (1.60)% (14.08)% (2.85)% (2.04)% (37.91)% 37.91% - CUMULATIVE GAP/INTEREST EARNING ASSETS (17.34) (18.94) (33.02) (35.87) (37.91) (37.91) - -
At December 31, 1996, there were no outstanding financial futures, options or interest rate swap agreements. Recently Issued Accounting Standards In June, 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 establishes the criteria for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 125 supersedes several accounting standards including SFAS No. 122, "Accounting for Mortgage Servicing Rights." This standard is effective for transactions that occur after December 31, 1996. Earlier implementation is not permitted. The Company is currently evaluating the impact that this statement will have on its financial position and results of operations, but it is not expected to be material. On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 established guidelines for recognition of impairment losses related to long-lived assets and certain intangibles and related goodwill for both assets to be held and used as well as assets held for disposition. This statement excludes financial instruments, long-term customer relationships of financial institutions, mortgage and other servicing rights, and deferred tax assets. Adoption of this statement was immaterial to the Company's financial position and results of operations. DIRECTORS Jack O. Cartner, President Motrim Inc., Cambridge, OH Paul W. Donahie, President American Bancorporation, Wheeling, WV Jay T. McCamic, Attorney at Law McCamic & McCamic, Wheeling, WV Jeremy C. McCamic, Attorney at Law McCamic & McCamic, Wheeling, WV Jolyon W. McCamic, Attorney at Law McCamic & McCamic, Wheeling, WV Robert C. Mead, President American Mortgages, Inc., Wheeling, WV OFFICERS Jeremy C. McCamic, Chairman & CEO Jolyon W. McCamic, Vice Chairman/Administration Paul W. Donahie, President Robert C. Mead, Chief Operating Officer Brent E. Richmond, Executive Vice President, Secretary/Treasurer and Chief Financial Officer Jeffrey A. Baran, CPA, Assistant Controller Linda M. Woodfin, Assistant Secretary Paul W. Donahie, President Wheeling National Bank Robert C. Mead, President American Mortgages, Inc. CORPORATE INFORMATION Annual Meeting The annual meeting of shareholders will be held in Wheeling, West Virginia at the corporate offices, located at Suite 800, Mull Center, 1025 Main Street. The meeting will convene at 10:00 A.M. (E.D.S.T.) May 21, 1997. All shareholders are invited to attend. Stock Transfer Agent American Bancservices, Inc. 1025 Main Street - Suite 800 Wheeling, WV 26003 Stock Listing NASDAQ Symbol: "AMBC" Shares of American Bancorporation common stock are traded on the Nasdaq Stock Market-National List. Primary Market Makers Legg Mason Wood Walker, Inc. Herzog, Heine, Geduld, Inc. Wheat First Securities, Inc. Ferris Baker Watts, Inc. F. J. Morrissey & Co., Inc. Form 10K Stockholders may receive a copy of American Bancorporation's 1996 Annual Report on Form 10K as filed with the Securities and Exchange Commission upon written request to Treasurer, American Bancorporation, 1025 Main Street, Suite 800, Wheeling, WV 26003. Independent Certified Public Accountants KPMG Peat Marwick LLP Pittsburgh, PA Securities Counsel Maloney & Knox Washington, DC -----END PRIVACY-ENHANCED MESSAGE-----