-----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, HL6JhQAHHPweDoxY1joas4PYel/y+tswvHW+41fS1lolqxm8TRa2QQ6vu20oNzVt LR4ndiodgFsDfkpnXGgyjw== 0000941965-97-000030.txt : 19970401 0000941965-97-000030.hdr.sgml : 19970401 ACCESSION NUMBER: 0000941965-97-000030 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMBANC CORP CENTRAL INDEX KEY: 0000702904 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 351525227 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-10710 FILM NUMBER: 97569687 BUSINESS ADDRESS: STREET 1: 302 MAIN ST STREET 2: P O BOX 438 CITY: VINCENNES STATE: IN ZIP: 47591 BUSINESS PHONE: 8128823050 MAIL ADDRESS: STREET 1: 302 MAIN STREET CITY: VINCENNES STATE: IN ZIP: 47591 10-K405/A 1 1 FORM 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________________ to _________________________ Commission File No. 0-10710 AMBANC CORP. (Exact name of Registrant as specified in its charter) INDIANA 35-1525227 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 302 Main Street, Vincennes, Indiana 47591 (Address of Principal Executive Offices)(Zip Code) Registrant's telephone number, including area code: (812) 885-6418 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Shares, $10.00 par value (Title of Class) [Cover page 1 of 2 pages] 2 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting shares held by non-affiliates of the Registrant is $111,067,275. Solely for purposes of this computation, it has been assumed that officers and directors are "affiliates" and the price of $37.50 as reported on NASDAQ as the last trade on March 14, 1997, was the fair market value of the shares. Number of Common Shares outstanding at March 14, 1997: 3,316,003 DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF PARTS II AND IV ARE INCORPORATED BY REFERENCE FROM THE REGISTRANT'S 1996 ANNUAL REPORT TO SHAREHOLDERS AND A PORTION OF PART III IS INCORPORATED BY REFERENCE FROM THE REGISTRANT'S PROXY STATEMENT PURSUANT TO REGULATION 14A DATED MARCH 21, 1997, FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 18, 1997. EXCEPT FOR THOSE PORTIONS OF THE 1996 ANNUAL REPORT INCORPORATED BY REFERENCE, THE ANNUAL REPORT IS NOT DEEMED FILED AS PART OF THIS REPORT. [Cover page 2 of 2 pages] 3 AMBANC CORP. VINCENNES, INDIANA ANNUAL REPORT TO SECURITIES AND EXCHANGE COMMISSION December 31, 1996 PART I ITEM 1. BUSINESS GENERAL AMBANC Corp. (the "Corporation") is a registered bank holding company. The Corporation's banking subsidiaries recently have been combined to form two principal subsidiaries, AmBank Indiana, N.A. and AmBank Illinois, N.A. Effective July 1, 1996, Citizens' National Bank of Linton, Indiana, was merged into The American National Bank of Vincennes, Indiana, and the name of the resulting bank was changed to AmBank Indiana, N.A. ("AmBank Indiana"). Also during 1996, the name of Bank of Casey, Illinois, was changed to AmBank Illinois, and the name of The First National Bank in Robinson, Illinois, was changed to AmBank Illinois, N.A. Effective March 1, 1997, AmBank Illinois was merged into AmBank Illinois, N.A. (the bank resulting from the merger is referred to hereinafter as "AmBank Illinois") (collectively AmBank Indiana and AmBank Illinois are referred to herein as the "Banks"). The Corporation was organized as an Indiana corporation on January 7, 1982. Since October 1, 1982, the Corporation's principal business has been the ownership of the stock of its banking subsidiaries. The Corporation's Common Stock is listed on the NASDAQ Small Cap Market and is traded under the symbol "AMBK." As a bank holding company, the Corporation engages in commercial banking through its banking subsidiaries and can engage in certain non-banking businesses closely related to banking and own certain other business corporations that are not banks, subject to applicable laws and regulations. In addition to the Banks, the Corporation has as a subsidiary American National Realty Corp., which owns various real estate, which is leased to AmBank Indiana for normal banking activities. Lincolnland Insurance Agency & Investments, Inc., a non- operating shell corporation that the Corporation acquired in connection with a 1994 Illinois acquisition, was dissolved in 1996. The Corporation's principal executive offices are located at 302 Main Street, Vincennes, Indiana 47591, and its telephone number is (812) 885- 6418. 4 OPERATIONS The Banks engage in a wide range of commercial, agricultural and personal banking activities, including accepting demand deposits; accepting savings and time deposits and money market accounts; making secured and unsecured loans to corporations, individuals and others; issuing letters of credit; offering safekeeping services; and providing financial counseling for institutions and individuals. The Banks' lending services include commercial, agricultural, real estate, installment loans and credit cards. Revenues from the Banks' lending activities comprise the largest component of the Banks' operating revenues. The Banks provides a wide range of personal and corporate trust and trust-related services, including serving as executor of estates, as trustee under testamentary and inter vivos trusts and various pension and other employee benefit plans, as guardian of the estates of minors and incompetents, as escrow agent under various agreements, and as financial advisor to and custodian for individuals, corporations and others. EMPLOYEES At December 31, 1996, the Corporation and the Banks had 295 employees on a full-time equivalent basis. Neither the Corporation nor the Banks are a party to any collective bargaining agreement. Employee relations are considered to be good. REGULATION AND SUPERVISION General The Corporation is subject to the Bank Holding Company Act of 1956, as amended (the "BHC Act"), and is required to file with the Board of Governors of the Federal Reserve System ("FRB") annual reports and such additional information as the FRB may require. The FRB also may make examinations or inspections of the Corporation. The BHC Act prohibits a bank holding company from engaging in, or acquiring direct or indirect control of more than 5 percent of the voting shares of any company engaged in, non-banking activities. One of the principal exceptions to this prohibition is for activities deemed by the FRB to be "closely related to banking." Under current regulations, bank holding companies and their subsidiaries are permitted to engage in such banking-related business ventures as sales and consumer finance, equipment leasing, computer service bureau and 5 software operations, and mortgage banking. As national banks, AmBank Indiana and AmBank Illinois are under the supervision of and subject to examination by the Comptroller of the Currency. Regulation and examination by banking regulatory agencies are primarily for the benefit of depositors rather than shareholders. Regulation of Expansion Under the BHC Act, the Corporation must receive the prior written approval of the FRB or its delegate before it may acquire ownership or control of more than five percent of the voting shares of another bank, and under Indiana law it may not acquire 25 percent or more of the voting shares of another bank without the prior approval of the Indiana Department of Financial Institutions. Furthermore, the Corporation's acquisition of a bank located outside the State of Indiana is not permitted unless the acquisition is specifically authorized by the laws of the state in which such bank is located. Illinois law expressly authorizes the acquisition of an Illinois bank by bank holding companies in other states, such as Indiana, the laws of which expressly authorize Illinois bank holding companies to acquire banks in such other states. Since July 1, 1992, bank holding companies outside of Indiana have been permitted under Indiana law to acquire Indiana banks and bank holding companies, subject to certain restrictions such as the existence of reciprocal legislation in the state of the acquiring bank holding company. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") provides for nationwide interstate banking and branching. Since September 30, 1995, well-capitalized bank holding companies have been authorized, pursuant to the legislation, to acquire banks and bank holding companies in any state. The Interstate Act also permits banks to merge across state lines, thereby creating a main bank in one state with branches in other states. Interstate branching by merger provisions will become effective on June 1, 1997, unless a state takes legislative action prior to that date. States may pass laws to either "opt in" before June 1, 1997 or to "opt-out" by expressly prohibiting merger transactions involving out-of-state banks, providing the legislative action is taken before June 1, 1997. Effective March 14, 1996, Indiana "opted in" to the interstate branching provisions of the Interstate Act. Illinois has adopted legislation that will permit interstate branching by acquisition effective June 1, 1997. 6 Regulation of Capital Adequacy The Federal Reserve Board, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, each has issued similar risk-based capital guidelines for all U.S. banks and bank holding companies. The guidelines include a definition of capital and provide a framework for calculating weighted risk assets by assigning assets and off-balance sheet items to broad risk categories. The guidelines also provide a schedule for achieving a minimum supervisory standard for the ratio of qualifying capital to weighted risk assets. All banks must have a minimum ratio of total capital to risk-weighted assets of 8.0 percent. As of December 31, 1996, the Corporation was in compliance with the risk-based capital guidelines. For a detailed discussion of regulatory capital requirements and the Banks' compliance with such requirements, see Note 17 of the Notes to Consolidated Financial Statements. Deposit Insurance The Bank's deposits are insured up to a maximum of $100,000 per insured account by the FDIC through the Bank Insurance Fund ("BIF"). Since BIF reached its required 1.25 reserve ratio in 1995, the FDIC has reduced deposit insurance assessment rates to historic low levels. The assessment rates in effect for the first six months of 1997 range from zero to $.27 per $100 of insured deposits, with the healthiest banks, including the Banks, not being required to pay any deposit insurance premiums for the period. Legislation enacted in September 1996 included provisions for the recapitalization of the Savings Association Insurance Fund ("SAIF"). As a result of this legislation, rates for financial institutions insured through SAIF have been brought into parity with BIF rates. All of the Corporation's banking subsidiaries are BIF-insured institutions (the deposits that AmBank Indiana acquired from the Princeton branch of First Indiana Bank on March 17, 1995, however, remain insured through SAIF). See Note 17 to the Notes to Consolidated Financial Statements and the discussion of "Noninterest Expense" in the Results of Operations section of Management's Discussion and Analysis of Financial Condition and Results of Operations. Dividends The Corporation is a legal entity separate and distinct from the Banks. Substantially all of the Corporation's cash income, including funds for the satisfaction of the Corporation's debt service requirements, for the payment of its operating expenses, 7 and for the payment of Corporation dividends, is derived from dividends paid by the Banks. There are statutory and regulatory limitations on the amount of dividends that may be paid to the Corporation by the Banks. The prior approval of appropriate regulatory authorities is required if the total of all dividends declared by AmBank Indiana or AmBank Illinois in any calendar year would exceed net income for the preceding two calendar years. For discussion of the Banks' ability to pay dividends to the Corporation, see Note 17 of the Notes to the Consolidated Financial Statements. COMPETITION The banking business is highly competitive. The Banks' market area consists principally of Knox, Greene, Gibson and Eastern Sullivan Counties in Indiana, and Crawford, Clark, Lawrence and Wabash Counties in Illinois, although the Banks also compete with other financial institutions in those counties and in surrounding counties in Indiana and Illinois in obtaining deposits and providing many types of financial services. The Banks compete with larger banks in other areas for the business of local and regional offices of companies located in the Banks' market area and are aggressively seeking and have acquired commercial loan customers from the Indianapolis, Indiana and Evansville, Indiana areas. The Banks also compete with savings and loan associations, credit unions, production credit associations and federal land banks and with finance companies, personal loan companies, money market funds and other non-depository financial intermediaries. Many of these financial institutions have resources many times greater than those of the Banks. In addition, new financial intermediaries such as money-market mutual funds and large retailers are not subject to the same regulations and laws that govern the operation of traditional depository institutions. Recent changes in federal and state law have resulted in and are expected to continue to result in increased competition. The reductions in legal barriers to the acquisition of banks by out-of-state bank holding companies resulting from implementation of the Interstate Act and other recent and proposed changes are expected to continue to further stimulate competition in the markets in which the Banks operate, although it is not possible to predict the extent or timing of such increased competition. 8 EFFECTS OF GOVERNMENT MONETARY POLICIES The earnings of commercial banks are affected not only by general economic conditions but also by the policies of various governmental regulatory authorities. In particular, the FRB regulates money and credit conditions and interest rates in order to influence general economic conditions, primarily through open-market operations in U.S. Government securities, varying the discount rate on bank borrowings, and setting reserve requirements against bank deposits. These policies have a significant influence on overall growth and distribution of bank loans, investments and deposits, and affect interest rates charged on loans and earned on investments or paid for deposits. FRB monetary policies have had a significant effect on the operating results of commercial banks in the past and such policies are expected to continue to have a significant effect in the future. The general effect, if any, of such policies upon the future business and earnings of the Corporation and the Banks cannot accurately be predicted. FORWARD-LOOKING STATEMENTS This Form 10-K and future filings made by the Corporation with the Securities and Exchange Commission, as well as other filings, reports and press releases made or issued by the Corporation and the Banks, and oral statements made by executive officers of the Corporation and Banks, may include forward-looking statements relating to such matters as (a) assumptions concerning future economic and business conditions and their effect on the economy in general and on the markets in which the Banks do business, and (b) expectations regarding future revenues and earnings for the Corporation and Banks, acquisitions, deposit and loan volume and possible new products or services. Such forward-looking statements are based on assumptions rather than historical or current facts and, therefore, are inherently uncertain and subject to risk. To comply with the terms of a "safe harbor" provided by the Private Securities Litigation Reform Act of 1995 that protects the making of such forward-looking statements from liability under certain circumstances, the Corporation notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations described or implied by such forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Corporation's and Banks' business include the 9 following: (a) the risk of adverse changes in business conditions in the banking industry generally and in the specific markets in which the Banks operate; (b) changes in the legislative and regulatory environment that negatively impact the Corporation and Banks through increased operating expenses; (c) increased competition from other financial and non-financial institutions; (d) the impact of technological advances; and (e) other risks detailed from time to time in the Corporation's filings with the Securities and Exchange Commission. The Corporation and Banks do not undertake any obligation to update or revise any forward-looking statements subsequent to the date on which they are made. ITEM 2. PROPERTIES The Banks conduct their operations from 25 banking offices located in Vincennes, Bicknell, Evansville, Sandborn, Monroe City, Linton, Patoka, Princeton and Terre Haute in Indiana, and Robinson, Palestine, Casey, Mt. Carmel, Flat Rock, Martinsville, Westfield and West Union in Illinois. In addition, the Banks have a total of 25 automated teller machines. AmBank Indiana's main banking office is located at 302 Main Street, Vincennes. The main office building contains approximately 80,000 square feet and the Corporation occupies approximately 80 percent of the space. The remaining space is leased to third parties. All of the parcels of real estate and buildings utilized as banking offices of AmBank Indiana are owned by either AmBank Indiana or American National Realty Corp., except for five branches that are leased. The Corporation also owns the main offices and branch locations of AmBank Illinois, except for one branch that is leased. ITEM 3. LEGAL PROCEEDINGS Other than ordinary routine litigation incidental to the business, there are no material pending legal proceedings to which the Corporation or its subsidiaries are a party or of which any of their property is the subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. 10 SPECIAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth certain information relating to the executive officers of the Corporation as of March 1, 1997. Name Age Offices Held Robert G. Watson 61 Chairman of the Board, President and Chief Executive Officer of the Corporation and AmBank Indiana Richard E. Welling 51 Secretary, Treasurer, and Chief Financial Officer of the Corporation Richard A. Fox 54 Director of Human Resources of the Corporation Chris D. Melton 47 Senior Vice President of AmBank Indiana David K. Milligan 41 Senior Vice President and Cashier of AmBank Indiana Raymond E. Mott 57 Senior Vice President of AmBank Indiana William F. Perry 48 Senior Vice President of AmBank Indiana Dan J. Robinson 49 Executive Vice President of AmBank Indiana Robert E. Seed 62 President, C.E.O. and a Director of AmBank Illinois, N.A.; Vice President of the Corporation Officers are elected annually by the Board of Directors and serve for a one-year period and until their successors are elected. No officers have employment contracts except Robert G. Watson, whose employment contract is incorporated by reference as Exhibit 10-A to this Report. There are no family relationships between or among the persons named. Except as indicated below, each of the officers has held the same or similar position with the Corporation or the Banks for the past five years. 11 Mr. Fox has been employed as the Corporation's Director of Human Resources since 1993. Prior to that date he had served as General Manager and Corporate Secretary of Green Construction of Indiana, Inc. Mr. Melton has been employed by AmBank Indiana since October 1994. From September 1978 to August 1994, he was employed by The National City Bank of Evansville, Evansville, Indiana. Mr. Mott has been employed by AmBank Indiana since 1987 and has served as Senior Vice President since 1993. He served as a Director of the Corporation from 1989 through 1990 and as a Director of AmBank Indiana from 1989 through 1993. Mr. Perry has been employed by AmBank Indiana since September 1986, serving as Senior Loan Officer. He was elected Senior Vice President of AmBank Indiana in April 1987. Mr. Robinson was in charge of the Administrative Division of AmBank Indiana until 1993 when he was elected Executive Vice President. Mr. Seed was Chief Executive Officer and President of Bank of Casey prior to its name change in 1996 to AmBank Illinois and its merger, effective March 1, 1997, into AmBank Illinois, N.A., at which time he became Vice President and a Director of the Corporation. For information concerning the Directors of the Corporation, see the Corporation's Proxy Statement. PART II Information for Items 5 through 8 of this Report appears in the 1996 Annual Report to Shareholders as indicated in the following tables and is incorporated herein by reference from the Annual Report to Shareholders: ITEM 5. MARKET FOR THE CORPORATION'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS Annual Report to Shareholders Page (a) Market 48 (b) Holders 48 (c) Dividends 48 12 ITEM 6. SELECTED FINANCIAL DATA Annual Report to Shareholders Page Selected Financial Data 49 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Annual Report to Shareholders Page Management's Discussion and Analysis of Financial Condition and Results of Operations 29-48 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Annual Report to Shareholders Page Financial Statements and Supplementary Data 5-27 ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE PART III Except as set forth below in "Directors and Executive Officers of the Corporation," the information for Items 10 through 13 of this Report is incorporated herein by reference from the Corporation's definitive Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1997, which was filed with the Commission pursuant to Regulation 14A on March 26, 1997. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION The information required by this item relating to Executive Officers is found under the heading "Special 13 Item. Executive Officers of the Registrant" in Part I of this Report and the information required by this item relating to Directors is included under the caption "Election of Directors" in the Corporation's definitive Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1997, which has been filed with the Commission and is incorporated herein by reference in this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is included under the caption "Executive Compensation" in the Corporation's definitive Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1997, which has been filed with the Commission and is incorporated by reference in this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is included under the caption "Election of Directors" in the Corporation's definitive Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1997, which has been filed with the Commission and is incorporated by reference in this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is included under the caption "Certain Transactions" in the Corporation's definitive Proxy Statement for its Annual Meeting of Shareholders to be held April 18, 1997, which has been filed with the Commission and is incorporated by reference in this Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The documents listed below are either filed as a part of this Report or incorporated by reference from the Annual Report to Shareholders or the Corporation's Registration Statement as indicated. 14 (a)1. Financial Statements. Annual Report to Shareholders Page Independent Auditors' Report 4 Consolidated Balance Sheets as of December 31, 1996 and 1995 5 Consolidated Statements of Income for the years ended December 31, 1996, 1995 and 1994 6 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1996, 1995 and 1994 7 Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 and 1994 8 Notes to Consolidated Financial Statements 9-27 All other schedules have been omitted because the required information is either inapplicable or has been included in the Corporation's consolidated financial statement or notes thereto. (a)2. Schedules. All schedules have been omitted because the required information is either inapplicable or has been included in the Corporation's consolidated financial statements or notes thereto. (a)3. Exhibits. The exhibits filed as part of this Report on Form 10-K are identified in the Exhibit Index, which Exhibit Index specifically identifies those exhibits that describe or evidence all management contracts and compensatory plans or arrangements required to be filed as exhibits to this Report. Such Exhibit Index is incorporated herein by reference, (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended December 31, 1996. 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this amended reprot to be signed on its behalf by the undersigned, thereunto duly authorized. AMBANC CORP. Date: March 31, 1997 By /s/ Richard E. Welling Richard E. Welling Secretary, Treasurer and Chief Financial Officer 16 EXHIBIT INDEX Exhibits 3-A Restated Articles of Incorporation of the Corporation. The copy of this Exhibit filed as Exhibit 3.1 to the Registration Statement Under the Securities Act of 1933 on Form S-4 filed by the Corporation on January 22, 1993 (File No. 33-57296), is incorporated herein by reference. 3-B Bylaws of the Corporation, as amended to date. The copy of this Exhibit filed as Exhibit 3-B to the Corporation's Annual Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by reference. 10-A Employment Agreement executed January 15, 1985, and re-executed December 21, 1988, between the Corporation and Robert G. Watson. The copy of this Exhibit filed as Exhibit 10.1 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995, is incorporated herein by reference.* 10-B 1988 AMBANC Corp. Nonqualified Stock Option Plan, as amended. The copy of this Exhibit filed as Exhibit 10.2 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995, is incorporated herein by reference.* 10-C Letter from AMBANC to Robert G. Watson, dated November 8, 1988, granting a stock option. The copy of this Exhibit filed as Exhibit 10.3 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995, is incorporated herein by reference.* 10-D Letter from AMBANC to Robert G. Watson, dated May 16, 1989, granting stock appreciation rights. The copy of this Exhibit filed as Exhibit 10.4 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995, is incorporated herein by reference.* 10-E Letter from AMBANC to Raymond E. Mott, dated November 8, 1988, granting a stock option. The copy of this Exhibit filed as Exhibit 10.5 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 17 1995, is incorporated herein by reference.* 10-F Letter from AMBANC to Raymond E. Mott, dated May 16, 1989, granting stock appreciation rights. The copy of this Exhibit filed as Exhibit 10.6 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995, is incorporated herein by reference.* 10-G Amended and Restated Supplemental Retirement Benefits Agreement between the Corporation and Robert G. Watson dated March 16, 1995. The copy of this Exhibit filed as Exhibit 10-G to the Registrant's Annual Report on Form 10-L for the year ended December 31, 1995, is incorporated herein by reference.* 10-H AMBANC Corp. Director Stock Grant Plan. The copy of this Exhibit filed as Exhibit 10-A to the Registrant's Report on Form 10-Q for the Quarter ended June 30, 1996, is incorporated herein by reference.* 10-I AMBANC Corp. and Affiliates Director Deferred Compensation Plan. The copy of this Exhibit filed as Exhibit 10-B to the Registrant's Report on Form 10-Q for the Quarter ended June 30, 1996, is incorporated herein by reference.* 10-J List of Executive Compensation Plans and Arrangements.* 11 Statement of Computation of per share earnings. 13 Copy of the portions of the Corporation's Annual Report to Shareholders for the year ended December 31, 1996, that are incorporated by reference herein. This exhibit, except for portions thereof that have expressly been incorporated by reference into this Report, is furnished for the information of the Commission and shall not be deemed "filed" as part hereof. 21 List of Subsidiaries. 23.1 Consent of Deloitte & Touche LLP. 18 27 Financial Data Schedule. 99.1 Report of Crowe, Chizek & Company. 99.2 Reports of Kemper CPA Group L.L.C. *Indicates an exhibit that describes or evidences a management contract or compensatory plan or arrangement required to be filed as an exhibit. EX-10 2 EXHIBIT 10-J EXHIBIT 10-J LIST OF EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS The Corporation's Chief Executive Officer, Robert G. Watson, who is the only named executive officer, participates in the following compensatory plans and arrangements: EMPLOYMENT AGREEMENT. Employment Agreement executed January 15, 1985, and re-executed December 21, 1988, between the Corporation and Robert G. Watson. This document was filed as Exhibit 10.1 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995. STOCK OPTION PLAN AND OPTION/SAR GRANTS. 1988 AMBANC Corp. Nonqualified Stock Option Plan, as amended. This document was filed as Exhibit 10.2 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995. Letter from AMBANC to Robert G. Watson, dated November 8, 1988, granting a stock option. This document was filed as Exhibit 10.3 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995. Letter from AMBANC to Robert G. Watson, dated May 16, 1989, granting stock appreciation rights. This document was filed as Exhibit 10.4 to the Corporation's Registration Statement on Form S-4 (File No. 33-61065) filed July 17, 1995. AMENDED AND RESTATED SUPPLEMENTAL RETIREMENT BENEFITS AGREEMENT. Amended and Restated Supplemental Retirement Benefits Agreement among the Corporation, The American National Bank of Vincennes, and Robert G. Watson dated March 16, 1995. EX-11 3 EXHIBIT 11 AMBANC Corp. Computation of Earnings Per Share Earnings with Common Stock Options Outstanding (Treasury Stock Method)
1996(a) 1995(a) 1994(a) Fully Fully Fully Primary Diluted Primary Diluted Primary Diluted Average Shares: Outstanding Common Shares 3,315,808 3,315,543 3,316,264 3,316,267 3,313,716 3,315,844 Common Stock Equivalents: Stock Options 26,460 26,460 26,460 26,460 26,460 26,460 Assumed Repurchase of Treasury Shares (16,707) (16,707)(b) (16,349) (16,349)(b) (16,222) (16,222)(b) Average Common and Common Equivalent Shares Outstanding 3,325,561 3,325,296 3,326,375 3,326,378 3,323,954 3,326,122 Net Income in $1,000 7,966 7,966 7,045 7,045 6,502 6,502 Earnings Per Common and Common Equivalent Share $2.40 $2.40 $2.12 $2.12 $1.96 $1.95
(a) The above schedule has been restated to reflect AMBANC Corp. shares issued in merger transactions consisting of 569,454 on June 1, 1994, and 668,235 on November 1, 1995, and the effect on net income of these merger transactions booked under the pooling of interests method of accounting and 5% stock dividends issued to shareholders on December 2, 1996 and November 30, 1995. (b) Because it was higher, average price not ending price was used for repurchase assumption. AM\9610KAMB.11 EX-13 4 EXHIBIT 13 EXCERPTS FROM ANNUAL REPORT TO SHAREHOLDERS Board of Directors and Shareholders of AMBANC Corp. Vincennes, Indiana We have audited the consolidated balance sheets of AMBANC Corp. as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the two years in the period ended December 31, 1996. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on the 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 AMBANC Corp. as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements give retroactive effect to the 1995 merger of AMBANC Corp. and First Robinson Bancorp (FRB), which has been accounted for as a pooling of interests as described in Note 2 to the consolidated financial statements. Other auditors previously audited and reported on the consolidated statements of income, changes in shareholders' equity and cash flows of AMBANC Corp. for the year ended December 31, 1994, prior to their restatement for the 1995 pooling of interests, and their report dated January 27, 1995, expressed an unqualified opinion on those statements and included an explanatory paragraph that described the restatement of the 1994 financial statements to reflect a 1994 pooling of interests. The financial statements of FRB for the year ended December 31, 1994, were audited by other auditors, whose report dated January 20, 1995, expressed an unqualified opinion. We audited the combination of the related consolidated statements of income, changes in shareholders' equity and cash flows for the year ended December 31, 1994, after restatement for the 1995 pooling of interests; in our opinion, such consolidated statements have been properly combined on the basis described in Note 2 to the consolidated financial statements. As discussed in Note 1 to the consolidated financial statements, the Corporation adopted the provisions of Statement of Accounting Standards No. 122, Accounting for Mortgage Servicing Rights, on January 1, 1996. DELOITTE & TOUCHE LLP Indianapolis, Indiana January 17, 1997 2 AMBANC CORP. Consolidated Balance Sheets December 31, 1996 and 1995 (Dollar amounts in thousands, except share and per share data)
1996 1995 ASSETS Cash and due from banks $ 26,409 $ 20,520 Federal funds sold 5,875 22,653 Total cash and cash equivalents 32,284 43,173 Interest bearing deposits in other banks 590 692 Securities available for sale-at fair value (amortized cost 1996-$170,249 and 1995-$171,744) 170,724 173,469 Loans held for sale-at cost (fair value 1996-$2,404 and 1995-$7,141) 2,350 6,727 Loans, net of unearned income 494,467 442,657 Allowance for loan losses (5,630) (5,022) Loans, net 488,837 437,635 Premises, furniture and equipment, net 11,184 9,398 Accrued interest receivable and other assets 12,785 11,253 Total assets $ 718,754 $ 682,347 LIABILITIES Noninterest bearing deposits $ 61,518 $ 63,116 Interest bearing deposits 571,940 536,953 Total deposits 633,458 600,069 Short-term borrowings 5,286 6,788 Long-term debt 2,309 2,677 Accrued interest payable and other liabilities 5,518 5,101 Total liabilities 646,571 614,635 SHAREHOLDERS' EQUITY Preferred stock, $10 par value, 200,000 shares authorized, no shares issued or outstanding Common stock, $10 par value, 10,000,000 and 5,000,000 shares authorized at December 31, 1996 and 1995, 3,316,267 and 3,158,961 shares issued and outstanding at December 31, 1996 and 1995 33,163 31,590 Treasury stock, 724 shares at cost (21) Retained earnings 38,731 35,009 Unrealized gain/(loss) on securities available for sale, net of deferred taxes of $165 and $612 310 1,113 Total shareholders' equity 72,183 67,712 Total liabilities and shareholders' equity $ 718,754 $ 682,347
See accompanying notes to consolidated financial statements. 3 AMBANC CORP. Consolidated Statements of Income For the years ended December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except per share data)
1996 1995 1994 INTEREST INCOME Interest and fees on loans $ 42,560 $ 37,888 $ 30,676 Interest and fees on loans held for sale 389 326 536 Interest on securities Taxable 7,805 7,680 8,629 Tax exempt 2,809 2,759 2,842 Other interest 748 739 370 Total interest income 54,311 49,392 43,053 INTEREST EXPENSE Interest on deposits 26,761 23,593 18,568 Interest on short-term borrowings 385 437 409 Interest on long-term debt 142 161 177 Total interest expense 27,288 24,191 19,154 Net interest income 27,023 25,201 23,899 Provision for loan losses 1,366 1,182 338 Net interest income after provision for loan losses 25,657 24,019 23,561 NONINTEREST INCOME Income from fiduciary activities 654 602 546 Service charges on deposit accounts 1,586 1,520 1,274 Net realized gain on securities 28 41 29 Other operating income 1,122 990 1,035 Total noninterest income 3,390 3,153 2,884 NONINTEREST EXPENSE Salaries and employee benefits 9,633 9,450 8,777 Occupancy expenses, net 1,218 1,051 1,107 Equipment expenses 1,220 1,117 1,038 Data processing expenses 480 388 442 FDIC insurance 270 690 1,225 Other operating expenses 4,978 4,806 4,730 Total noninterest expense 17,799 17,502 17,319 INCOME BEFORE INCOME TAXES 11,248 9,670 9,126 Income taxes 3,282 2,625 2,624 NET INCOME $ 7,966 $ 7,045 $ 6,502 EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING $ 2.40 $ 2.12 $ 1.96
See accompanying notes to consolidated financial statements. 4 AMBANC CORP. Consolidated Statements of Changes in Shareholders' Equity For the years ended December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except per share data)
Unrealized Gain/(Loss) Total Common Retained Treasury on Shareholders' Stock Earnings Stock Securities Equity BALANCE, JANUARY 1, 1994 $ 30,062 $ 27,048 $ (37)$ 649 $ 57,722 Net income for 1994 6,502 6,502 Cash dividends ($.59 per common share) (1,947) (1,947) Net change in unrealized gain/(loss) on securities available for sale (4,137) (4,137) Issuance of stock for dividend reinvestment and stock purchase plan 24 50 74 Fractional shares paid for acquisition (4) (4) BALANCE, DECEMBER 31, 1994 30,086 31,649 (37) (3,488) 58,210 Net income for 1995 7,045 7,045 Cash dividends ($.65 per common share) (2,144) (2,144) Net change in unrealized gain/(loss) on securities available for sale 4,601 4,601 Issuance of stock for dividend reinvestment and stock purchase plan 4 8 12 Fractional shares paid for acquisition and stock dividend (12) (12) Retired treasury stock (37) 37 5% stock dividend 1,500 (1,500) BALANCE, DECEMBER 31, 1995 31,590 35,009 -- 1,113 67,712 Net income for 1996 7,966 7,966 Cash dividends ($.80 per common share) (2,653) (2,653) Net change in unrealized gain/(loss) on securities available for sale (803) (803) Net change in treasury stock (21) (21) Fractional shares paid for stock dividend (18) (18) 5% stock dividend 1,573 (1,573) BALANCE, DECEMBER 31, 1996 $ 33,163 $ 38,731 $ (21)$ 310 $ 72,183
See accompanying notes to consolidated financial statements. 5 AMBANC CORP. Consolidated Statements of Cash Flows For the years ended December 31, 1996, 1995 and 1994 (Dollar amounts in thousands) 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 7,966 $ 7,045 $ 6,502 Adjustments to reconcile net income to net cash from operating activities: Net premium amortization and discount accretion on securities 319 374 443 Depreciation 1,081 987 1,072 Provision for loan losses 1,366 1,182 338 Deferred income tax provision (337) (621) 365 Gain on securities (28) (41) (29) Gain on sale of loans held for sale (409) (191) (229) Proceeds from sales of loans held for sale 30,385 16,231 35,676 Loans held for sale made to customers, net of payments collected (25,599) (20,103) (21,192) Accrued interest receivable and other assets (748) (1,290) (4,047) Accrued interest payable and other liabilities 417 941 2,436 Deferred loan fees, net of costs (48) (81) (33) Net cash from operating activities 14,365 4,433 21,302 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of securities available for sale 16,893 4,559 14,999 Proceeds from maturities and calls of securities available for sale 40,395 31,453 40,783 Proceeds from maturities and calls of securities held to maturity -- 4,037 3,232 Purchases of securities available for sale (56,084) (15,816) (38,136) Purchases of securities held to maturity -- (3,938) (4,020) Net change in interest bearing deposits in other banks 102 501 (303) Loans made to customers, net of payments collected (58,662) (54,028) (51,206) Loans purchased (8) (7,386) (1,187) Proceeds from sales of loans 6,150 6,804 6,845 Property and equipment expenditures (2,867) (1,497) (1,295) Net cash from investing activities (54,081) (35,311) (30,288) /TABLE 6
AMBANC CORP. Consolidated Statements of Cash Flows - continued For the years ended December 31, 1996, 1995 and 1994 (Dollar amounts in thousands)
1996 1995 1994 CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 33,389 49,682 494 Net change in short-term borrowings (1,502) (2,506) (527) Payments on long-term debt (484) (597) (338) Proceeds from long-term debt 116 85 2,527 Purchase of treasury stock (21) -- -- Payment for fractional shares (18) (12) (4) Issuance of stock for dividend reinvestment and stock purchase plan -- 12 74 Dividends paid (2,653) (2,144) (1,947) Net cash from financing activities 28,827 44,520 279 NET CHANGE IN CASH AND CASH EQUIVALENTS (10,889) 13,642 (8,707) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 43,173 29,531 38,238 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 32,284 $ 43,173 $ 29,531 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 26,343 $ 22,371 $ 18,976 Income taxes 3,850 2,981 2,722
Noncash activities occurred consisting of the reclassification of $40,080 from the held to maturity securities portfolio to the available for sale securities portfolio in 1995. See accompanying notes to consolidated financial statements. 7 AMBANC CORP. Notes To Consolidated Financial Statements December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Reporting The consolidated financial statements include the accounts of AMBANC Corp. (Corporation), and its wholly owned subsidiaries, AmBank Indiana, N.A. (IND), AmBank Illinois, N.A. (ROB), AmBank Illinois (CAS) and American National Realty Corp. (ANR). On June 30, 1996, The American National Bank of Vincennes and Citizens' National Bank of Linton were merged and renamed AmBank Indiana, N.A. The First National Bank in Robinson and Bank of Casey were also renamed to AmBank Illinois, N.A. and AmBank Illinois, respectively, on June 30, 1996. On September 30, 1996, Lincolnland Insurance Agency & Investments, Inc., previously a wholly owned subsidiary of the Corporation, was dissolved. Upon consolidation, all significant intercompany accounts and transactions have been eliminated. As discussed in Note 2, AMBANC Corp. acquired First Robinson Bancorp (FRB) on November 1, 1995, under the pooling of interests method of accounting. These consolidated financial statements have been restated to reflect the accounts of FRB for all periods presented. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Description of Business IND, ROB and CAS operate primarily in the banking industry, which accounts for more than 90 percent of the Corporation's revenues, operating income and assets. IND, ROB and CAS generate commercial, real estate mortgage and installment loans and receive deposits from customers located in Greene, Knox, Gibson, Vigo and surrounding counties in Indiana and Crawford, Clark, Wabash and surrounding counties in Illinois. Although the overall loan portfolio is diversified, the economy of these counties is heavily dependent upon the agricultural industry. The majority of the loans are secured by specific items of collateral including business assets, real property and consumer assets. ANR owns various real estate, which is leased to IND for normal banking activities, such as parking, drive-in banking and branch banking facilities. Securities Statement of Financial Accounting Standards (FAS) 115, "Accounting for Certain Investments in Debt and Equity Securities", requires securities to be classified as held to maturity, available for sale or trading. Only those securities classified as held to maturity, which management has the intent and ability to hold to maturity, are reported at amortized cost. Available for sale securities are reported at fair value with unrealized after tax gains and losses included in shareholders' equity. The Corporation does not maintain any securities classified as trading. Realized securities gains or losses are reported in the Consolidated Statements of Income. The cost of securities sold is based on the specific identification method. In November 1995 the Financial Accounting Standards Board allowed a one time reclassification of all securities. In December 1995 the Corporation reclassified all held to maturity securities to available for sale securities. 8 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Loans Held for Sale Loans held for sale consist of fixed rate mortgage loans conforming to established guidelines and held for sale to the secondary mortgage market. Mortgage loans held for sale are carried at the lower of cost or fair value determined on an aggregate basis. Gains and losses on the sale of these mortgage loans are included in other noninterest income. The Corporation adopted FAS 122, "Accounting for Mortgage Servicing Rights" (MSRs), on January 1, 1996. FAS 122 requires that the Corporation recognize as separate assets, rights to service mortgage loans for others that have been acquired through either the purchase or origination of a loan. An entity that sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the MSRs and the loans based on their relative fair values. These costs are initially capitalized and subsequently amortized in proportion to, and over the period of, estimated net loan servicing income. Additionally, FAS 122 requires that MSRs be reported on the Consolidated Balance Sheet at the lower of cost or fair value. The Corporation is required to assess its capitalized MSRs for impairment based upon the fair value of the rights. MSRs are stratified based upon one or more of the predominant risk characteristics of the underlying loans. Impairment is recognized through a valuation allowance for each impaired stratum. The provisions of FAS 122 were applied prospectively beginning in fiscal 1996. The ongoing impact of FAS 122 is dependent upon, among other things, the volume of loan originations, the general levels of market interest rates and the rate of estimated loan prepayments. Accordingly, management is unable to predict with any reasonable certainty what effect FAS 122 will have on the Corporation's future results of operations or its financial condition. FAS 122 prohibits restatement of prior years' financial statements. Loans Loans are stated at the principal amount outstanding adjusted for unearned discounts, unamortized premiums and net deferred fees. The Corporation defers loan fees, net of certain direct loan origination costs. The net amount deferred is reported on the balance sheets as part of loans and is recognized into interest income over the term of the loan on a level yield basis. Any unamortized fees on loans sold are credited to gain on sale of loans at time of sale. Interest on real estate, commercial and installment loans is accrued over the term of the loans on a level yield basis. The recognition of interest income is discontinued when, in management's judgment, the interest will not be collectible in the normal course of business. The Corporation adopted FAS 114 and 118, "Accounting by Creditors for Impairment of a Loan and Income Recognition and Disclosures", as amended, effective January 1, 1995. These statements require that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or the fair value of the underlying collateral, and specifies alternative methods for recognizing interest income on loans that are impaired or for which there are credit concerns. For purposes of applying this standard, impaired loans have been defined as all nonaccrual loans. The Corporation's policy for income recognition was not affected by adoption of the standard. The adoption of FAS 114 and 118 did not have any effect on the total reserve for credit losses or related provision. 9 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Allowance for Loan Losses The balance in the allowance and the amount of the annual provision charged to expense are judgmentally determined based upon a number of factors. The allowance is maintained by management at a level considered adequate to cover possible losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations, including their financial position and collateral values, and other factors that are particularly susceptible to changes that could result in a material adjustment in the near term. While management endeavors to use the best information available in making its evaluations, future allowance adjustments may be necessary if economic conditions change substantially from the assumptions used in making the evaluations. While management may periodically allocate portions of the allowance for specific problem loan situations, the entire allowance is available for any loan charge-offs which occur. Increases to the allowance are recorded by a provision for possible loan losses charged to expense. A loan is charged off by management as a loss when deemed uncollectible, although collection efforts continue and future recoveries may occur. Premises, Furniture and Equipment Premises, furniture and equipment are stated at cost less accumulated depreciation and are depreciated over the estimated useful lives of the assets ranging from 3 to 40 years, principally on the straight-line method. Maintenance and repairs are expensed, and major improvements are capitalized. Intangible Assets Goodwill and other intangible assets are amortized on a straight- line basis generally over a period of 15 years. Management reviews intangible assets for possible impairment if there is a significant event that detrimentally affects operations. Impairment is measured using estimates of the future earnings potential of the entity or assets acquired. Other Real Estate Real estate acquired through foreclosure or acceptance of a deed in lieu of foreclosure is recorded at the lower of cost (fair value at date of foreclosure) or fair value less estimated selling costs. The costs of holding the real estate are charged to operations while major improvements are capitalized. Income Taxes The Corporation and its subsidiaries file consolidated tax returns. Each entity is charged or credited for taxes as if separate returns were filed. Deferred income tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and basis of such assets and liabilities as measured by tax laws and regulations. Fiduciary Activities Trust Department income is recognized on the cash basis method, which in this circumstance does not materially differ from the accrual method. 10 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Statements of Cash Flows Cash and cash equivalents is defined to include cash on hand, noninterest bearing amounts due from other banks and federal funds sold. Generally, federal funds are sold for one-day periods. The Corporation reports net cash flows for loans held for sale, customer loan transactions, deposit transactions and deposits made with other financial institutions. New Accounting Pronouncements FAS 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities", is effective for fiscal years beginning after December 31, 1996. FAS 125 provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. The effects of FAS 125 on the future financial position and results of operations of the Corporation cannot be readily determined. Financial Statement Presentation Certain items in the 1995 and 1994 financial statements have been reclassified to correspond with the 1996 presentation. 11 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 2 - BUSINESS COMBINATION
Common Shares Method of Date Completed Issued Accounting First Robinson Bancorp (FRB) November 1, 1995 701,647 Pooling
The Consolidated Financial Statements have been restated to include the accounts and operations of FRB, parent holding company of ROB for all periods presented. FRB was merged into the Corporation and ceased to exist at the conclusion of the merger. The contribution of FRB to consolidated interest income, net interest income and net income for the periods prior to the merger was as follows.
Ten Months Ended Year Ended October 31, December 31, 1995 1994 Interest income Previously reported $ 33,967 $ 35,023 FRB 6,826 8,030 Total $ 40,793 $ 43,053 Net interest income Previously reported $ 17,362 $ 19,423 FRB 3,624 4,476 Total $ 20,986 $ 23,899 Net income Previously reported $ 5,042 $ 5,443 FRB 678 1,059 Total $ 5,720 $ 6,502
Note 3 - SECURITIES The amortized cost and estimated fair value of securities are as follows.
December 31, 1996 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Securities available for sale U.S. Government and its agencies $ 102,163 $ 670 $ (1,014) $ 101,819 States and political subdivisions 54,696 1,235 (155) 55,776 Corporate obligations 1,823 -- -- 1,823 Collateralized mortgage obligations 9,253 2 (89) 9,166 Mutual funds 2,314 -- (174) 2,140 Total $ 170,249 $ 1,907 $ (1,432) $ 170,724
12 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 3 - SECURITIES - Continued December 31, 1995 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value Securities available for sale U.S. Government and its agencies $ 101,483 $ 891 $ (664) $ 101,710 States and political subdivisions 50,216 1,705 (84) 51,837 Corporate obligations 3,550 43 (3) 3,590 Collateralized mortgage obligations 15,544 45 (73) 15,516 Mutual funds 951 -- (135) 816 Total $ 171,744 $ 2,684 $ (959) $ 173,469
The one time reclassification under FAS 115 occurred in December 1995 and reclassified securities with amortized cost of $40,080 from held to maturity to available for sale. The unrealized gain at the time of the transfer was $1,628. Investments in states and political subdivisions and corporate obligations are made within policy standards, which call for these securities to be investment grade or better as established by national rating organizations. These securities are actively traded and have a readily available market valuation. Ratings and fair values of these securities are reviewed monthly with fair values being obtained from an independent rating service or broker. 13 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 3 - SECURITIES - Continued The amortized cost and estimated fair value of securities at December 31, 1996, by contractual maturity are shown in the following schedule. 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.
Available for Sale Estimated Amortized Fair Cost Value Due in 1 year or less $ 15,175 $ 15,179 Due after 1 year through 5 years 60,574 60,741 Due after 5 years through 10 years 54,085 54,320 Due after 10 years 9,938 9,990 Subtotal 139,772 140,230 Collateralized mortgage obligations 9,253 9,166 U.S. agency mortgage-backed securities 18,910 19,188 Mutual funds 2,314 2,140 Total $ 170,249 $ 170,724
Proceeds from sales of securities available for sale were $16,893 in 1996, $4,559 in 1995 and $14,999 in 1994. Sales and calls of securities available for sale resulted in gross gains and gross losses of $56 and $28 in 1996, $21 and $3 in 1995 and $78 and $49 in 1994. Sales and calls of securities held to maturity resulted in gross gains and gross losses of $0 and $0 in 1996, $24 and $1 in 1995, and $0 and $0 in 1994. Securities with a carrying value of $50,609 and $47,631 at December 31, 1996 and 1995, were pledged to secure public deposits and for other purposes required or permitted by law. 14 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 4 - LOANS Loans as presented on the balance sheets are comprised of the following.
1996 1995 Commercial $ 201,092 $ 172,782 Agricultural 55,404 65,239 Real estate 129,116 107,123 Installment 105,464 94,784 Credit cards 3,686 3,722 Total loans 494,762 443,650 Unearned income (295) (993) Total loans, net $ 494,467 $ 442,657
Certain loans have been restructured in a manner that grants a concession to the borrower because of the borrower's financial difficulties. At December 31, 1996, 1995 and 1994, these loans totaled $3,089, $45 and $490. Interest income recorded on these loans was $310, $3 and $39 during 1996, 1995 and 1994. Interest income which would have been recorded under the original terms of the loans was $310, $4 and $44 during 1996, 1995 and 1994. Directors and executive officers of the Corporation and its wholly owned subsidiaries were customers of, and had other transactions with, the banking subsidiaries in the ordinary course of business. A schedule of the aggregate activity involving loans to related parties follows.
Balance, January 1, 1996 $ 19,309 New loans 6,442 Loan reductions (14,222) Balance, December 31, 1996 $ 11,529 /TABLE 15 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 5 - ALLOWANCE FOR LOAN LOSSES The activity in the allowance for loan losses is as follows.
1996 1995 1994 Balance, January 1 $ 5,022 $ 4,531 $ 4,238 Provision charged to operations 1,366 1,182 338 Loans charged off (1,266) (1,019) (808) Recoveries 508 328 763 Balance, December 31 $ 5,630 $ 5,022 $ 4,531
Impaired loan information under FAS 114 and 118 at December 31, 1996 1995 Impaired loans with a valuation reserve $ 843 $ 160 Impaired loans with no valuation reserve 578 823 Total impaired loans $ 1,421 $ 983 Valuation reserve on impaired loans $ 469 $ 50 Average impaired loans 2,495 1,127
Income recorded on these loans during 1996, 1995 and 1994 totaled $89, $18 and $17. Income which would have been recorded on these loans during 1996, 1995 and 1994, had they been accruing all year, was $149, $41 and $55. Note 6 - MORTGAGE BANKING ACTIVITIES Loans serviced for others, amounting to $97,606, $79,990 and $73,748 at December 31, 1996, 1995 and 1994, are not included in the consolidated financial statements. Net gain on sales of loans was $409, $191 and $229 for the years ended December 31, 1996, 1995 and 1994. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. Loan servicing income includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees. The following analysis reflects the changes in MSRs acquired for the year ended December 31, 1996. Carrying Value January 1, 1996 $ -- Additions 307 Amortization (16) Net change in valuation allowance -- Carrying Value December 31, 1996 $ 291
The fair value of MSRs as of December 31, 1996, was $291. Fair value is estimated by discounting the net servicing income to be received over the estimated servicing term using a current market rate. The significant risk characteristic of the underlying loans used to stratify MSRs for impairment measurement was term and note of rate. No valuation allowance existed for the year ended December 31, 1996. 16 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 7 - PREMISES, FURNITURE AND EQUIPMENT Premises, furniture and equipment as presented on the balance sheets are comprised of the following.
1996 1995 Land and improvements $ 1,351 $ 1,346 Buildings and improvements 12,133 10,751 Furniture and equipment 10,340 8,973 Total cost 23,824 21,070 Accumulated depreciation (12,640) (11,672) Total, net $ 11,184 $ 9,398
Depreciation expense for the years ended December 31, 1996, 1995 and 1994, totaled $1,081, $987 and $1,072. Note 8 - INTEREST BEARING DEPOSITS Interest bearing deposits issued in denominations of $100 or greater totaled $76,948 and $66,647 at December 31, 1996 and 1995. Note 9 - SHORT-TERM BORROWINGS Short-term borrowings is comprised of the following.
1996 1995 Repurchase agreements $ 3,049 $ 5,385 Demand notes issued to the U.S. Treasury 2,237 1,403 Total $ 5,286 $ 6,788
Borrowings under the Federal Reserve Bank note option plan are collateralized by certain securities and are reduced at the discretion of the U.S. Treasury. 17 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 10 - LONG-TERM DEBT Long-term debt is comprised of a deferred compensation plan of $218 and $102 in 1996 and 1995 as discussed in Note 11 and two Federal Home Loan Bank Mortgage Advances (Advances) totaling $2,091 and $2,575 in 1996 and 1995. The Advances have an average rate of 5.84% and 5.68% at December 31, 1996 and 1995, interest payable monthly and principal payable in annual installments with the final payment due March 15, 2004, and are secured by various securities. The principal maturities of these Advances in each of the five years after December 31, 1996, will be $400, $332, $211, $188 and $167. Note 11 - EMPLOYEE BENEFITS The Corporation maintains a retirement savings plan covering substantially all employees. To be eligible to participate, the Plan requires employees to complete one year of service and be 21 years of age. The Plan covers all employees and allows for the matching of 50% of the first 4% of employee salary contributions and an annual discretionary contribution. The Corporation's contributions to the Plan are vested by employees at 20% per year starting with the second year of service and become 100% vested after six years. Prior to 1996, ROB employees were eligible to participate in a separate defined contribution money purchase pension plan. The Corporation's total contributions were $615, $473 and $435 for 1996, 1995 and 1994. Prior to December 31, 1994, CAS sponsored a defined benefit pension plan covering substantially all employees. Benefits were based primarily on years of service and on the employees' average compensation during their period of employment. CAS's funding policy was to contribute the minimum amount required by applicable regulations. In 1994, a curtailment occurred which was accounted for in accordance with FAS 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits". During 1996, a final distribution of $929 was made of the plan assets, which had a fair value of $978, resulting in a net gain to the Corporation of $49. Net pension (benefit)/expense was $(49), $(11) and $197 for the years ended December 31, 1996, 1995 and 1994. The Corporation has a deferred compensation plan for the benefit of certain executive officers. In return for the officers' relinquishing the right to a portion of their current compensation, the Corporation agrees to pay the participants at retirement or termination, in the form of 120 monthly payments or one lump-sum payment, the amount deferred plus any interest earned during the deferral period. Interest is paid annually at prime rate and the liability of $218 and $102 is included with long-term debt on the December 31, 1996 and 1995, balance sheets. During 1996, 1995 and 1994 the Corporation accrued approximately $13, $6 and $1 of interest expense towards its obligation under the plan. 18 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 12 - POSTRETIREMENT BENEFITS The Corporation sponsors an unfunded postretirement benefit plan which provides defined medical and death benefits to certain eligible employees. Retirees as of December 31, 1992, receive postretirement medical benefits and death benefits for themselves and medical benefits for their spouses. These medical expenses were fixed in 1992 and all future increases are passed on to the retirees. Employees hired before April 1990 who retire after January 1, 1993, are eligible to receive a postretirement medical benefit for themselves, if they have completed 20 years of service and attained age 62. This benefit is sixty dollars per month to pay up to fifty percent of the retirees' medical benefits provided under the Corporation's group major medical insurance plan until age 65 and then under a medicare supplement plan.
Accumulated postretirement benefit obligations at December 31, 1996 1995 Retirees $ (411) $ (394) Fully eligible active participants (30) (31) Other active plan participants (306) (294) Accumulated postretirement benefit obligation (747) (719) Unrecognized prior service cost 142 154 Unrecognized loss (20) (20) Unrecognized transition obligation 465 494 Accrued postretirement benefit liability $ (160) $ (91)
Net periodic postretirement benefit cost for the years ended December 31: 1996 1995 1994 Service cost-benefits attributed to service during the period $ 23 $ 13 $ 11 Interest cost on accumulated postretirement benefit obligation 49 39 40 Amortization of transition obligation over 20 years 29 29 29 Amortization of unrecognized prior service cost 12 -- -- Postretirement benefit cost $ 113 $ 81 $ 80
Benefit payments of $45, $48 and $45 were made for postretirement medical benefits in 1996, 1995 and 1994. 19 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 12 - POSTRETIREMENT BENEFITS - Continued For measurement purposes, the annual rate of increase in the per capita cost of covered health care benefits was assumed to be 9.5% for 1996 and 1995 and 16% for 1994 with the rate gradually decreasing to 6% after 15 years. The health care cost trend assumption has a significant effect on the amounts reported. An increase in the assumed health care cost trend rates by 1% in each year would increase the accumulated postretirement benefit obligation as of December 31, 1996, 1995 and 1994, by approximately $14 and would have virtually no effect on the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1996, 1995 and 1994. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7%, 7% and 6% at December 31, 1996, 1995 and 1994. Note 13 - STOCK OPTION PLAN The Corporation had a Nonqualified Stock Option Plan which expired in April 1993. Under the terms of the plan, options were granted at amounts not less than the fair value of the shares at the date of the grant and any options granted must be exercised within ten years of the grant. As of December 31, 1996, 1995 and 1994, fully vested options for 26,460 shares at an option price of $18.14 per share were outstanding. Additionally, under provisions of the Nonqualified Stock Option Plan, stock appreciation rights have been granted coinciding with the number of stock options granted. The value of each stock appreciation right at any time is equal to 50% of the excess of the fair value of one share of common stock of the Corporation over the exercise price of the option to which it relates. Employee benefits charged/(credited) to operations in 1996, 1995 and 1994 includes $(1), $12 and $(69) related to stock appreciation rights. 20 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 14 - INCOME TAXES Income taxes consist of the following. 1996 1995 1994 Current payable $ 3,619 $ 3,246 $ 2,259 Deferred income taxes/(benefits) (337) (409) 365 Change in valuation allowance -- (212) -- Income taxes $ 3,282 $ 2,625 $ 2,624 Income taxes applicable to security transactions were $18, $14 and $17 in 1996, 1995 and 1994. The following is a reconciliation of income tax expense and the amount computed by applying the statutory federal income tax rate of 34% to income before income taxes.
1996 1995 1994 Statutory rate applied to income $ 3,824 $ 3,288 $ 3,103 Adjustments Tax exempt interest income (1,053) (1,048) (1,086) Non-deductible interest 160 144 156 Merger expenses -- 111 66 State income taxes 531 374 333 Alternative minimum tax (93) -- (27) Surtax exemption and other (87) (32) 79 Change in valuation allowance -- (212) -- Total income taxes $ 3,282 $ 2,625 $ 2,624
The Corporation's deferred income tax assets and liabilities consist of the following.
1996 1995 Deferred tax assets Allowance for loan losses $ 959 $ 563 Accrued employee benefits 519 392 Alternative minimum tax carryforward 166 259 Other 18 4 1,662 1,218 Deferred tax liabilities Depreciation 684 605 Unrealized gain on securities available for sale 165 612 Mark to market adjustment on loans held for sale 10 1 Accretion of securites discount 131 112 990 1,330 Net deferred tax asset/(liability) $ 672 $ (112) /TABLE 21 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 15 - COMMITMENTS AND CONTINGENT LIABILITIES The Corporation leases various facilities and equipment. These leases expire at various times during the years 1997 through 2008 with renewal options through the year 2038. Certain of these leases are with companies controlled by directors of the Corporation and its subsidiaries which had total lease payments of $30, $42 and $41 in 1996, 1995 and 1994. Total rental expense for all leases for the years 1996, 1995 and 1994, was $308, $166 and $94. The following is a schedule of future minimum lease payments. 1997 $ 360 1998 287 1999 179 2000 169 2001 127 Thereafter 1,427 Total $ 2,549
In the ordinary course of business, the Corporation's banking subsidiaries have loans, commitments and contingent liabilities, such as guarantees and commitments to extend credit, which are not reflected in the consolidated balance sheets. The Corporation's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to make loans and standby letters of credit is represented by the contractual amount of those instruments. The Corporation uses the same credit policy to make such commitments as is used for on-balance sheet items. Outstanding loan commitments and customers' unused lines of credit amounted to $100,546 and $74,779 at December 31, 1996 and 1995. Outstanding standby letters of credit were $9,328 and $6,058 at December 31, 1996 and 1995. Since many commitments to make loans expire without being used, the outstanding amount of commitments does not necessarily represent future cash commitments. Collateral obtained upon exercise of the commitment is determined using management's credit evaluation of the borrower and may include accounts receivable, inventory, property, land and other items. The Corporation was required to have $8,137 and $7,018 at December 31, 1996 and 1995, on deposit with the Federal Reserve or as cash on hand or on deposit with other banks. These reserves do not earn interest. Note 16 - SHAREHOLDERS' EQUITY All share and per share amounts have been retroactively adjusted to reflect the effect of the shares issued in the business combination discussed in Note 2 as though these shares had been outstanding for all periods presented. A 5% stock dividend was paid on December 2, 1996, and November 30, 1995, and all average share and per share amounts have been retroactively adjusted to reflect these stock dividends. Earnings per share amounts are based on average outstanding shares of 3,315,808 for 1996, 3,316,264 for 1995 and 3,313,716 for 1994. In 1993 the directors of the Corporation approved the establishment of a Dividend Reinvestment and Stock Purchase Plan (Plan) to provide shareholders a method of purchasing additional shares of the Corporation's common stock by reinvesting their cash dividends or making optional cash payments into the Plan. Shares are credited to the participant's account at the fair value of the Corporation's 22 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 16 - SHAREHOLDERS' EQUITY - Countinued stock at the date of the monthly purchase by the Plan. The directors of the Corporation reserved 50,000 shares for the Plan and issued 383 shares in 1995 and 2,388 shares in 1994 to the Plan. The Plan was changed to a market only plan during the second quarter of 1995 and no more shares of common stock are reserved or will be issued by the Corporation through this Plan. The directors of the Corporation are being paid in stock per the Director Stock Grant Plan approved by the shareholders in 1996. The Corporation's stock is purchased routinely on the market and held as treasury stock until it is reissued as payment of director fees each quarter. 23 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 17 - REGULATORY MATTERS The Corporation is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - - and possible additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the table below) of Total and Tier 1 Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 Leverage Capital (as defined) to average assets (as defined). Management believes, as of December 31, 1996 and 1995, that the Corporation met all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notifications from the Office of Comptroller of Currency and the Commissioner of Banks and Trust Companies in Illinois categorized the bank subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Corporation must maintain minimum Total Capital, Tier 1 Capital, Tier 1 Leverage Capital ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institutions' categories. The Corporation's consolidated and individual banking subsidiaries' actual capital amounts and ratios are also presented in the table.
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 1996 Total Capital (to Risk Weighted Assets) Consolidated $ 75,594 14.33% $ 42,195 8.00% $ 52,744 10.00% AmBank Indiana, N.A. 43,308 12.82 27,024 8.00 33,780 10.00 AmBank Illinois, N.A. 19,035 16.90 9,010 8.00 11,263 10.00 AmBank Illinois 12,165 15.87 6,131 8.00 7,663 10.00 Tier 1 Capital (to Risk Weighted Assets) Consolidated $ 69,964 13.26% $ 21,098 4.00% $ 31,646 6.00% AmBank Indiana, N.A. 39,823 11.79 13,512 4.00 20,268 6.00 AmBank Illinois, N.A. 17,627 15.65 4,505 4.00 6,758 6.00 AmBank Illinois 11,445 14.94 3,065 4.00 4,598 6.00 Tier 1 Leverage Capital (to Average Assets) Consolidated $ 69,964 10.00% $ 27,993 4.00% $ 34,992 5.00% AmBank Indiana, N.A. 39,823 9.37 16,997 4.00 21,247 5.00 AmBank Illinois, N.A. 17,627 10.63 6,633 4.00 8,291 5.00 AmBank Illinois 11,445 10.42 4,395 4.00 5,494 5.00 /TABLE 24 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 17 - REGULATORY MATTERS- Continued
To Be Well For Capital Capitalized Under Adequacy Prompt Corrective Actual Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio As of December 31, 1995 Total Capital (to Risk Weighted Assets) Consolidated $ 69,595 14.67% $ 37,961 8.00% $ 47,452 10.00% AmBank Indiana, N.A. 39,606 13.19 24,027 8.00 30,034 10.00 AmBank Illinois, N.A. 18,015 17.56 8,208 8.00 10,260 10.00 AmBank Illinois 11,163 15.63 5,715 8.00 7,143 10.00 Tier 1 Capital (to Risk Weighted Assets) Consolidated $ 64,573 13.61% $ 18,981 4.00% $ 28,471 6.00% AmBank Indiana, N.A. 36,462 12.14 12,014 4.00 18,020 6.00 AmBank Illinois, N.A. 16,824 16.40 4,104 4.00 6,156 6.00 AmBank Illinois 10,476 14.67 2,857 4.00 4,286 6.00 Tier 1 Leverage Capital (to Average Assets) Consolidated $ 64,573 10.01% $ 25,794 4.00% $ 32,243 5.00% AmBank Indiana, N.A. 36,462 9.63 15,149 4.00 18,936 5.00 AmBank Illinois, N.A. 16,824 10.20 6,596 4.00 8,245 5.00 AmBank Illinois 10,476 10.17 4,120 4.00 5,150 5.00
The Corporation and its wholly owned subsidiary banks are subject to regulations which require the maintenance of certain capital levels and, as a result, limit the amount of dividends which may be paid by the banks. IND and ROB are regulated by the Comptroller of the Currency, CAS is regulated by the Commissioner of Banks and Trust Companies in Illinois, while the Corporation is regulated by the Federal Reserve Board. The most restrictive of the regulations generally requires the banks to maintain a minimum leverage capital to total asset ratio. As a result of this limitation, approximately $21,303 of the $71,114 equity of the banks was restricted and unavailable for the payment of dividends to the Corporation at December 31, 1996. Additionally, the amount of dividends the banks may pay to the Corporation in a single year without approval from regulators is limited by regulation. Under the most restrictive regulations, approximately $10,318 of undistributed earnings of the banks was available for distribution to the Corporation at December 31, 1996. As a practical matter, dividends are ordinarily restricted to a lesser amount because of the need to maintain an adequate capital structure. On September 30, 1996, the President signed into law an omnibus appropriations act for fiscal year 1997 that included, among other things, the recapitalization of the Savings Association Insurance Fund (SAIF) in a section entitled, "The Deposit Insurance Funds Act of 1996" (the Act). The Act included a provision where all insured depository institutions would be charged a one-time special assessment on their SAIF assessable deposits as of March 31, 1995. The Corporation recorded a pre-tax charge of $191 during the year ended December 31, 1996, which represented 65.7 basis points of the March 31, 1995, assessable deposits. 25 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 18 - FAIR VALUES OF FINANCIAL INSTRUMENTS The following table shows the carrying amount and estimated fair value of financial instruments held by the Corporation at December 31, 1996 and 1995.
December 31, 1996 December 31, 1995 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Cash and cash equivalents $ 32,284 $ 32,284 $ 43,173 $ 43,173 Interest bearing deposits in other banks 590 590 692 692 Securities available for sale 170,724 170,724 173,469 173,469 Loans held for sale 2,350 2,404 6,727 7,141 Loans, less allowance for loan losses 488,837 488,033 437,635 429,848 Demand and savings deposits 281,248 281,248 275,087 275,087 Time deposits 352,210 353,556 324,982 320,921 Short-term borrowings 5,286 5,286 6,788 6,788 Long-term debt 2,309 2,309 2,677 2,677
For purposes of the above disclosures of estimated fair value, the following assumptions were used as of December 31, 1996 and 1995. The estimated fair value for cash and cash equivalents is considered to approximate cost. The estimated fair value for securities is based on quoted market values for the individual securities or for equivalent securities. The estimated fair value for commercial loans is based on estimates of the difference in interest rates the bank would charge the borrowers for similar loans with similar maturities applied for an estimated time period until the loan is assumed to reprice or be paid. The estimated fair value for other loans is based on estimates of the rates the bank would charge for similar such loans applied for the time period until estimated repayment. The estimated fair value for demand and savings deposits is based on their carrying value. The estimated fair value for time deposits is based on estimates of the rates the bank would pay on such deposits applied for the time period until maturity. The estimated fair value for short-term borrowings is considered to approximate cost. Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate the fair value of existing long-term debt. The estimated fair value for other financial instruments and off-balance sheet loan commitments approximate cost and are not considered significant to this presentation because the majority of these items are primarily at variable rates and are not made for long term periods. While these estimates of fair value are based on management's judgment of the most appropriate factors, there is no assurance that were the Corporation to have disposed of such items at December 31, 1996 and 1995, the estimated fair values would necessarily have been achieved at that date, since market values may differ depending on various circumstances. The estimated fair values at December 31, 1996 and 1995, should not necessarily be considered to apply at subsequent dates. In addition, other assets and liabilities of the Corporation that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, non-financial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the earnings potential of loan servicing rights, the earnings potential of trust departments, a trained work force, customer goodwill and similar items. 26 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) Note 19 - PARENT COMPANY STATEMENTS Presented below are condensed balance sheets, statements of income and cash flows for the parent company.
Condensed Balance Sheets December 31, 1996 and 1995 1996 1995 ASSETS Cash on deposit with subsidiaries $ 806 $ 673 Investment in bank subsidiaries 71,114 66,901 Investment in non-bank subsidiaries 494 454 Premises, furniture and equipment, net 178 158 Other assets 243 276 Total assets $ 72,835 $ 68,462 LIABILITIES Other liabilities $ 652 $ 750 SHAREHOLDERS' EQUITY Common stock 33,163 31,590 Treasury stock (21) -- Retained earnings 38,731 35,009 Unrealized gain/(loss) on securities available for sale, net of deferred tax 310 1,113 Total shareholders' equity 72,183 67,712 Total liabilities and shareholders' equity $ 72,835 $ 68,462
Condensed Statements Of Income For the years ended December 31, 1996, 1995 and 1994 1996 1995 1994 OPERATING INCOME Dividends received from bank subsidiaries $ 3,450 $ 2,678 $ 3,526 Rental income -- -- 240 Other income 8 35 32 Total operating income 3,458 2,713 3,798 OPERATING EXPENSE Other expenses 1,871 2,315 1,003 INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 1,587 398 2,795 Income tax credit (354) (351) (181) INCOME BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES 1,941 749 2,976 Equity in undistributed earnings of subsidiaries 6,025 6,296 3,526 NET INCOME $ 7,966 $ 7,045 $ 6,502
27 AMBANC CORP. Notes To Consolidated Financial Statements-Continued December 31, 1995, 1994 and 1993 (Dollar amounts in thousands, except share and per share data) Note 19 - PARENT COMPANY STATEMENTS - Continued
Condensed Statements Of Cash Flows For the years ended December 31, 1996, 1995 and 1994 1996 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 7,966 $ 7,045 $ 6,50 Adjustments to reconcile net income to net cash from operating activities Depreciation 47 19 100 Equity in undistributed income of subsidiaries (3,450) (2,678) (3,526) ther liabilities (98) 547 (11) Other assets 33 13 78 Net cash from operating activities 4,498 4,946 3,143 CASH FLOWS FROM INVESTING ACTIVITIES Investment in subsidiaries (1,643) (2,664) (893) Purchase of furniture and equipment (30) (147) (33) Net cash from investing activities (1,673) (2,811) (926) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid (2,653) (2,144) (1,947) Payment for fractional shares (18) (12) (4) Treasury stock (21) 37 -- Issuance of stock for dividend reinvestment and stock purchase plan -- 12 74 Net cash from financing activities (2,692) (2,107) (1,877) NET CHANGE IN CASH AND CASH EQUIVALENTS 133 28 340 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 673 645 305 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 806 $ 673 $ 645
NOTE 20 - SUBSEQUENT EVENT An application has been made to merge the Illinois banks, ROB and CAS, under the ROB National Bank charter. It is anticipated that the Comptroller of the Currency will approve this merger for completion during the first quarter of 1997. 28 The management of AMBANC Corp. is responsible for the integrity of all information contained in the accompanying financial statements and other sections of this annual report. The statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on management's best estimates and judgment. In meeting its responsibility, management relies on the systems of internal control which are designed to provide reasonable assurance that assets are safeguarded and that transactions are properly executed and recorded. The development and dissemination of written policies and procedures, appropriate segregation of duties and responsibilities and the conducting of a continuing comprehensive program of internal audits provide further enhancements to the systems of internal control. The Audit Committee of the Board of Directors, consisting solely of outside directors, meets periodically with management, the internal auditors and the independent auditors to review audits, financial reporting and other related matters. The internal auditors and the independent auditors have full and free access to the Audit Committee to further assure their independence. The financial statements have been audited by Deloitte & Touche LLP, independent auditors for the years ended December 31, 1996 and 1995. They were engaged to audit the financial statements and to express an opinion thereon. Their audit was conducted in accordance with generally accepted auditing standards. Robert G. Watson Richard E. Welling, CPA Chairman of the Board, Secretary, Treasurer and C.F.O. President and C.E.O. 29 AMBANC CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section presents an analysis of the consolidated financial condition of AMBANC Corp. (Corporation) and its wholly-owned subsidiaries, AmBank Indiana, N.A. (IND), AmBank Illinois, N.A. (ROB), AmBank Illinois (CAS), American National Realty Corp. (ANR) at December 31, 1996 and 1995, and the consolidated results of operations for the years ended December 31, 1996, 1995 and 1994. This review should be read in conjunction with the consolidated financial statements, notes to consolidated financial statements and other financial data presented elsewhere in this Annual Report. On November 1, 1995, the Corporation issued 701,647 shares of its common stock in exchange for all of the outstanding common stock of First Robinson Bancorp (FRB), the parent holding company of ROB. FRB was then merged into the Corporation. This acquisition was accounted for under the pooling of interests method. Accordingly, the Corporation's financial statements and financial data have been retroactively restated to include the accounts and operations of FRB for all periods presented. Certain reclassifications have been made to FRB's historical financial statements to conform to the Corporation's presentation. A 5% stock dividend was paid on December 2, 1996 and November 30, 1995. All share and per share amounts have been retroactively restated to reflect the 5% stock dividends and the shares issued for FRB. Earnings per share amounts are based on average outstanding shares of 3,315,808 for 1996, 3,316,264 for 1995 and 3,313,716 for 1994. 30 RESULTS OF OPERATIONS (Dollar amounts in thousands, except share and per share data) Net income for 1996 was $7,966 or $2.40 per share compared to $7,045 or $2.12 per share in 1995 and $6,502 or $1.96 per share in 1994. Earnings expressed as a percent of average assets and average equity were:
Table I Percent of Percent of Average Assets Average Equity 1996 1995 1994 1996 1995 1994 Net income 1.14% 1.09% 1.05% 11.58% 11.30% 11.19%
The following is an analysis of the critical components of net income for the years 1996, 1995 and 1994 with discussion and analysis of the contrasts between these periods and the effect of previous trends on anticipated future earnings performance. Net Interest Income Net interest income is the principal source of the Corporation's earnings and represents the difference between interest income on interest earning assets and the interest cost of interest bearing liabilities. Income on certain interest earning assets is exempt from federal income tax and, as is customary in the banking industry, changes in net interest income are analyzed on a fully tax equivalent basis. Under this method, and throughout this discussion, nontaxable income on loans and securities is adjusted to an amount which represents the equivalent earnings if such earnings were subject to federal tax. The marginal tax rate used to restate nontaxable income was 34% for 1996, 1995 and 1994. The yield on average interest earning assets and the rate paid on average interest bearing liabilities is based upon three major factors: the yield/rate received or paid, the mix of the individual components and the volume of interest earning assets and interest bearing liabilities. While the national prime rate is not the only indicator for yields received on assets or the rates paid on liabilities by the Corporation, it does indicate a general trend of current rates being received on assets and paid on liabilities. The national prime rate averaged 7.14% during 1994, increased to an average of 8.83% during 1995 and decreased to an average of 8.27% during 1996. Yields received and rates paid by the Corporation are a blend of current and past year's interest rates due to the lag effect of the repricing of both long-term assets and long-term liabilities. 31 Tables II, III and IV illustrate the components of net interest income for the last three years. Table II shows the average balances, interest income or expense and average yields and rates on interest earning assets and interest bearing liabilities by type. It also shows the calculation of net interest margin for 1996, 1995 and 1994. Table III shows the change from year to year for average interest earning assets and average interest bearing liabilities and the resulting net interest earning assets. Table IV shows the change in net interest income from year to year and the allocation of that yearly change between volume and rate by type of interest earning asset and interest bearing liability. 32
RESULTS OF OPERATIONS - Continued Table II Consolidated Average Balance Sheets and Interest Rates Years ended December 31, 1996, 1995 and 1994 (Dollar amounts in thousands, except share and per share data) 1 9 9 6 1 9 9 5 1 9 9 4 Interest Interest Interest Average Income/ Average Income/ Average Income/ Balance Expense Average Balance Expense Average Balance Expense Average ASSETS (Note A) (Note B) Rate (Note A) (Note B) Rate (Note A) (Note B) Rate Interest earning assets Securities U.S. Government $111,473 $ 6,756 6.06% $107,553 $ 6,166 5.73% $125,846 $ 6,864 5.45% State and municipal obligations 52,493 4,325 8.24 50,112 4,298 8.58 51,211 4,474 8.74 Other 15,889 979 6.16 22,113 1,396 6.31 29,126 1,597 5.48 Total securities 179,855 12,060 6.71 179,778 11,860 6.60 206,183 12,935 6.27 Interest bearing deposits in other banks 628 38 6.05 914 54 5.91 1,548 75 4.85 Loans held for sale 5,441 389 7.15 4,307 326 7.57 6,849 536 7.83 Total loans, less unearned (Notes A and C) 467,509 42,725 9.14 416,489 38,073 9.14 368,198 30,882 8.39 Federal funds sold 13,076 710 5.43 11,842 685 5.78 7,424 295 3.97 Total interest earning assets and interest income 666,509 $ 55,922 8.39% 613,330 $ 50,998 8.32% 590,202 $ 44,723 7.58% Noninterest earning assets Cash and due from banks 18,325 18,372 17,326 Premises and equipment, net 10,249 8,877 9,044 Other assets 11,954 10,906 8,864 Allowance for loan losses (5,237) (4,636) (4,377) Unrealized loss on securities available for sale (214) (2,393) (1,519) Total assets $701,586 $644,456 $619,540 LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities Savings and demand deposits $218,090 $ 6,709 3.08% $212,092 $ 6,662 3.14% $225,280 $ 6,485 2.88% Time deposits 344,388 20,052 5.82 299,794 16,931 5.65 266,698 12,083 4.53 Total savings and time deposits 562,478 26,761 4.76 511,886 23,593 4.61 491,978 18,568 3.77 Short-term borrowings 7,383 385 5.22 8,129 437 5.38 9,649 409 4.24 Long-term debt 2,373 142 5.98 2,804 161 5.74 2,924 177 6.05 Total interest bearing liabilities and interest expense 572,234 $ 27,288 4.77% 522,819 $ 24,191 4.63% 504,551 $ 19,154 3.80% Noninterest bearing liabilities Demand deposits 54,730 55,527 53,415 Other 5,850 3,766 3,461 Shareholders' equity 68,772 62,344 58,113 Total liabilities and shareholders' equity $701,586 $644,456 $619,540 Interest margin recap Interest income/interest earning assets $ 55,922 8.39% $ 50,998 8.32% $ 44,723 7.58% Interest expense/interest earning assets 27,288 4.09 24,191 3.95 19,154 3.25 Net interest income/interest earning assets $ 28,634 4.30% $ 26,807 4.37% $ 25,569 4.33%
33 Note A - Included in total loans are nonaccrual loans averaging $2,495, $1,127 and $818 for the years 1996, 1995 and 1994. Note B - Interest income includes the effects of tax equivalent adjustments using a marginal federal tax rate of 34% for 1996, 1995 and 1994. The total adjustment to convert tax exempt loans and securities to a fully tax equivalent basis was $1,611, $1,606 and $1,670 for 1996, 1995 and 1994. Note C - Net loan fees and costs included in interest income on loans amounted to $1,275, $866 and $769, for the years 1996, 1995 and 1994. 34 RESULTS OF OPERATIONS - Continued (Dollar amounts in thousands, except share and per share data)
Table III Changes in Net Interest Earning Assets 1996 change 1995 change from 1995 from 1994 1996 Dollar Percent 1995 Dollar Percent 1994 Average interest earning assets $666,509 $53,179 8.67% $613,330 $23,128 3.92% $590,202 Average interest bearing liabilities 572,234 49,415 9.45 522,819 18,268 3.62 504,551 Net interest earning assets $ 94,275 $ 3,764 4.16% $ 90,511 $ 4,860 5.67% $ 85,651
Table IV Changes in Net Interest Income 1996 compared to 1995 1995 compared to 1994 increase/(decrease) increase/(decrease) due to change in due to change in Volume Rate Total Volume Rate Total Interest income Loans $4,663 $ (11) $ 4,652 $ 4,414 $ 2,777 $ 7,191 Loans held for sale 81 (18) 63 (193) (17) (210) Interest bearing deposits with other banks (17) 1 (16) (37) 16 (21) Securities U.S. Government 237 353 590 (1,049) 351 (698) State and municipal obligations 196 (169) 27 (94) (82) (176) Other (383) (34) (417) (443) 242 (201) Total securities 50 150 200 (1,586) 511 (1,075) Federal funds sold 67 (42) 25 256 134 390 Total interest income 4,844 80 4,924 2,854 3,421 6,275 Interest expense Savings and demand deposits 185 (138) 47 (414) 591 177 Time deposits 2,597 524 3,121 1,869 2,979 4,848 Short-term borrowings (39) (13) (52) (82) 110 28 Long-term debt (26) 7 (19) (7) (9) (16) Total interest expense 2,717 380 3,097 1,366 3,671 5,037 Net interest income $2,127 $ (300) $ 1,827 $ 1,488 $ (250)$ 1,238
35 RESULTS OF OPERATIONS - Continued (Dollar amounts in thousands, except share and per share data) Net interest income in 1996 increased $1,827 or 6.82% from 1995, and the percent of net interest margin, or net interest income to average interest earning assets, decreased to 4.30% in 1996 from 4.37% in 1995. This increase in net interest income was due to an increase of $3,764 or 4.16% in net interest earning assets during 1996 from 1995 and the increase in rates for both interest earning assets and interest bearing liabilities. The allocation of the yearly difference shows that $2,127 of the 1996 increase was due to volume changes while rate changes reduced the net interest income by $300. Rates on both interest earning assets and interest bearing liabilities increased in 1996, but the rate allocation shows the .14% increase in the rates on interest bearing liabilities exceeded the .07% increase in rates on interest earning assets. Net interest income in 1995 increased $1,238 or 4.84% from 1994, and the percent of net interest margin increased to 4.37% in 1995 from 4.33% in 1994. This increase in net interest income was due to an increase of $4,860 or 5.67% in net interest earning assets during 1995 from 1994 and the increase in rates for both average interest earning assets and average interest bearing liabilities. The allocation of the yearly difference shows that $1,488 of the 1995 increase was due to volume changes while rate changes reduced the net interest income by $250. Rates on both interest earning assets and interest bearing liabilities increased in 1995, but the rate allocation shows the .83% increase in rates on interest bearing labilities exceeded the .74% increase in rates on interest earning assets. Provision and Allowance for Loan Losses The provision for loan losses expense on the income statement provides a reserve called the allowance for loan losses (a contra asset on the balance sheet) to which loan losses are charged as those losses become evident. Management of each bank determines the appropriate level of the allowance for loan losses on a quarterly basis utilizing a report containing loans with a more than normal degree of risk. This report is the by-product of an ongoing loan review process, the purpose of which is to determine the level of credit risk within the portfolio and to ensure proper adherence to underwriting and documentation standards. Utilizing this 36 report, a specific portion of the reserve is allocated to those loans which are considered to represent significant exposure to risk. In addition, estimates are made for potential losses on commercial, agricultural, real estate, installment, credit cards and other loans not specifically reviewed based on historical loan loss experience and other factors and trends. Table V shows the provision and allowance for loan losses for the last five years. Table VI includes the specific allocation For loan losses at year end for the last five years. 37 RESULTS OF OPERATIONS - Continued (Dollar amounts in thousands, except share and per share data)
Table V Analysis of Allowance for Loan Losses 1996 1995 1994 1993 1992 Balance at beginning of year $ 5,022 $ 4,531 $ 4,238 $ 4,168 $ 3,957 Loans charged off Commercial 329 349 352 1,327 777 Agricultural -- -- (a) (a) (a) Real estate 106 11 32 112 315 Installment 586 537 365 266 460 Credit cards 219 108 (a) (a) (a) Other 26 14 59 49 50 Total charge-offs 1,266 1,019 808 1,754 1,602 Charge-offs recovered Commercial 196 115 548 177 152 Agricultural 70 78 (a) (a) (a) Real estate 29 6 71 43 45 Installment 195 117 136 105 115 Credit cards 11 7 (a) (a) (a) Other 7 5 8 7 6 Total recoveries 508 328 763 332 318 Net loans charged off 758 691 45 1,422 1,284 Current year provision 1,366 1,182 338 1,492 1,495 Balance at end of year $ 5,630 $ 5,022 $ 4,531 $ 4,238 $ 4,168 Loans at year end $494,467 $442,657 $388,657 $342,950 $311,097 Ratio of allowance to loans at year end 1.14 % 1.13 % 1.17 % 1.24 % 1.34 % Average loans $467,509 $416,489 $368,198 $325,544 $311,523 Ratio of net loans charged off to average loans .16 % .17 % .01 % .44 % .41 % (a) Unavailable but included in another classification.
Table VI Allocation of Allowance for Loan Losses 1996 1995 1994 1993 1992 Commercial $ 1,305 $ 1,231 $ 936 $ 954 $ 1,061 Agricultural 94 424 213 329 321 Real estate 223 212 204 223 105 Installment 350 451 674 457 412 Credit cards 109 18 25 17 14 Unallocated 3,549 2,686 2,479 2,258 2,255 Total $ 5,630 $ 5,022 $ 4,531 $ 4,238 $ 4,168
38 RESULTS OF OPERATIONS - Continued (Dollar amounts in thousands, except share and per share data) Nonperforming Assets Nonperforming assets are defined as nonaccrual loans for which the ultimate collectibility of interest is uncertain, but for which the principal is considered collectible; restructured loans which have had an alteration to the original interest rate, repayment terms or principal balance because of a deterioration in the financial condition of the borrower; and loans past due over 90 days but still accruing interest because the interest is ultimately considered collectible. Impaired loans covered in FAS 114 and 118 are defined by the Corporation to be nonaccrual loans. Nonperforming assets also include other real estate owned which has been acquired through foreclosure or acceptance of a deed in lieu of foreclosure. Other real estate owned is carried at the lower of cost or fair value less estimated selling costs, and is actively being marketed for sale. Table VII sets forth the components of nonperforming assets and their percentage to loans and the allowance for loan losses as a percent of nonperforming assets at December 31, for the past five years. 39
Table VII Nonperforming Assets at December 31, 1996 1995 1994 1993 1992 Nonaccrual loans $ 1,421 $ 983 $ 650 $ 1,078 $ 1,612 Restructured 3,089 45 490 565 265 90 days or more past due 1,313 1,272 1,325 837 1,179 Total nonperforming loans $ 5,823 $ 2,300 $ 2,465 $ 2,480 $ 3,056 Percent of loans 1.18 % .52 % .63 % .72 % .98 % Allowance as a percent of nonperforming loans 97 % 218 % 184 % 171 % 136 % Other real estate owned $ 324 $ 280 $ 72 $ 145 $ 215 Percent of loans .07 % .06 % .02 % .04 % .07 %
Assets considered to be nonperforming are reviewed more frequently by management for repayment probability and residual collateral values. All restructured loans shown above have been performing within the terms of their restructured agreements. In addition to the nonperforming loans, there are other loans in the portfolio that have been identified by management or through an ongoing loan review process as having more than a normal degree of risk. These loans are reviewed quarterly by management and totaled $12,922 or 2.61% of total loans at December 31, 1996. The provision for loan losses for 1996, 1995 and 1994 was $1,366, $1,182 and $338 while net charge-offs were $758, $691 and $45. The increase in the provision in 1996 and 1995 was due in part to the increase of loans outstanding and also to anticipated credit problems in the loan portfolio. Loans at December 31, 1996, were up $51,810 or 11.70% to $494,467 while nonperforming loans showed an increase in both amount and percent of ending loans. Nonperforming loans at December 31, 1996, were up $3,523 or 153.17% to $5,823 from $2,300 at December 31, 1995. Nonperforming loans were also up to 1.18% of loans at December 31, 1996, from .52% at December 31, 1995. The Corporation had one large commercial loan for $3,012 which was restructured during the fourth quarter of 1996. This loan restructure added collateral, was made at a market interest rate but did involve deferral of principal payments. The nonaccrual loans also includes one commercial loan for $582 that has a specific reserve allocation of $325 at year end. Without the inclusion of these two loans, the total nonperforming loans would be only $2,229 and .45% of outstanding loans as of year end 1996. 40 RESULTS OF OPERATIONS - Continued (Dollar amounts in thousands, except share and per share data) Based upon the Corporation's review, considering remaining collateral and/or financial condition of identified loans with a more than normal degree of risk, including nonperforming loans, historical loan loss percentages and economic conditions, it is management's belief that the $1,366 of provision for loan losses during 1996 and the $5,630 of allowance for loan losses at December 31, 1996, is adequate to cover future possible losses. Noninterest Income
Table VIII Changes in Noninterest Income 1996 change 1995 change from 1995 from 1994 1996 Dollar Percent 1995 Dollar Percent 1994 Fiduciary income $ 654 $ 52 8.64 % $ 602 $ 56 10.26 % $ 546 Deposit service charges 1,586 66 4.34 1,520 246 19.31 1,274 Other operating income 1,122 132 13.33 990 (45) (4.35) 1,035 Security gains/(losses) 28 (13) (31.71) 41 12 41.38 29 Total noninterest income $3,390 $ 237 7.52 % $3,153 $ 269 9.33 % $2,884
As shown in Table VIII noninterest income was up in both 1996 and 1995. Fiduciary income increased both years due to the trust departments' having more assets under management and due to the increase in the market valuation of investments managed. Deposit service charges increased in both 1996 and 1995 and was due mainly to increases in fees from nonsufficient and return check charges. These fees increased more dramatically in 1995 than in 1996. Other operating income is composed of many different items but the major reason for the increase in 1996 was due to increased gains on sales of loans held for sale and increased insurance commissions. The 1995 decrease was also mainly due to decreases in gains on sales of loans held for sale. Loans held for sale (see loan discussion) realized net gains of $409, $191 and $229 in the years 1996, 1995 and 1994. 41 RESULTS OF OPERATIONS - Continued (Dollar amounts in thousands, except share and per share data) Noninterest Expense
Table IX Changes in Noninterest Expense 1996 change 1995 change from 1995 from 1994 1996 Dollar Percent 1995 Dollar Percent 1994 Salaries and employee benefits $ 9,633 $ 183 1.94 % $ 9,450 $ 673 7.67 % $ 8,777 Occupancy expenses 1,218 167 15.89 1,051 (56) (5.06) 1,107 Equipment expenses 1,220 103 9.22 1,117 79 7.61 1,038 Data processing expenses 480 92 23.71 388 (54) (12.22) 442 FDIC insurance 270 (420) (60.87) 690 (535) (43.67) 1,225 Other operating expenses 4,978 172 3.58 4,806 76 1.61 4,730 Total noninterest expense $17,799 $ 297 1.70 % $17,502 $ 183 1.06 % $17,319
The largest component of noninterest expense is salaries and employee benefits which increased $183 in 1996 due to $440 of salary increases offset by reductions of $257 in employee benefits. The employee benefits decreases were the result of lower medical claims incurred, the 1995 curtailment of the CAS pension plan and lower education expenses offset by increases in payroll taxes. The increase of $673 in salaries and employee benefits in 1995 was due to salary increases of $466 and employee benefits increases of $207 due to increases in payroll taxes, medical claims incurred and the CAS pension plan curtailment. Occupancy expense increased in 1996 after decreasing during 1995. The Corporation opened two new branches in 1996 and two new branches in the latter part of 1995 which caused this 1996 increase and also influenced the salary increases in 1996. The Corporation had opened a new branch and made major repairs to several other branches in 1994. These 1994 expenditures caused the occupancy expense to be down in 1995, but the new branch did influence the salaries increase in 1995. The Corporation opened a new full service branch in Vanderburgh county in Indiana during January 1997 and will open a new instore Wal-Mart branch in that same county during the second quarter of 1997. These two new branches will increase salaries, occupancy and equipment expenses in future years. Equipment expense increased in both 1996 and 1995 and was due in part to new branches and to expenses related to the continued increase in the 42 use of technology. Data processing expenses increased in 1996 after decreasing in 1995. All subsidiary banks are now using one computer system which was installed during the latter part of 1995. Having this new data processing system during all of 1996 caused data processing expenses to increase. The FDIC deposit insurance premium paid by the Corporation for Bank Insurance Funds (BIF) was at a 0% rate with a minimum annual payment of $2 per subsidiary bank starting in 1996. The banks have all been assigned the classification of least risk by the FDIC and as such are subject to the lowest deposit insurance rates available from BIF. The Corporation had $30,383 of deposits as of December 31, 1996, purchased from savings and loans by two of its subsidiary banks. These deposits (adjusted to a consistent percent of current deposits) remain insured by the Savings Association Insurance Fund (SAIF) rather than BIF. The cost of SAIF to the Corporation for these savings and loan deposits was .23% for 1996 and 1995. At September 30, 1996, a special one time assessment was signed into law and charged on all SAIF insured deposits. This special assessment amounted to .657% times 80% of SAIF deposits as of March 31, 1995, and totaled $191 in 1996 for the Corporation. This special assessment was $118 after tax and had the effect of reducing earnings per share for 1996 by $.04. The cost of BIF and SAIF fees through 1999 will be .0129% and .0644%. Starting in the year 2000 it is anticipated that the insurance expense on all deposits will be approximately .0243%. Other operating expenses increased both in 1996 and 1995. The largest increases in 1996 were in telephone, supplies, advertising, ATM charges, goodwill amortization and outside labor less decreases in professional fees. Most of these increases can be explained by the changing of the name of all subsidiary banks to AmBank effective July 1, 1996, the opening of new branches in 1996 and 1995 and the fact that 1996 did not have professional fees related to an acquisition. The goodwill increase resulted from 1996 containing a full year of goodwill amortization from deposits purchased in 1995. The largest increases in 1995 were in professional fees related to acquisitions and increased goodwill amortization related to purchased deposits. 43 RESULTS OF OPERATIONS - Continued (Dollar amounts in thousands, except share and per share data) Income Tax The Corporation's effective tax rate was 29.18%, 27.15% and 28.75% in 1996, 1995 and 1994. The higher rates in 1996 and 1994 were due to 1995 having a lower effective tax rate because of a reversal of an allowance relating to the realization of alternative minimum tax credits of $212. Management determined that these credits would be realized and the allowance was reversed during 1995. The major differences between the effective tax rate on the financial statements and the federal statutory rate of 34% is interest income on tax exempt securities and loans offset by nondeductible interest, nondeductible merger expenses and state taxes. The Corporation had tax exempt income of $3,128, $3,118 and $3,218 for 1996, 1995 and 1994. Note 14 to the consolidated financial statements contains additional details of the differences between the statutory taxes and taxes shown on the consolidated financial statements. 44 FINANCIAL CONDITION (Dollar amounts in thousands, except share and per share data) Investments The Corporation's holdings of short-term investments and securities serve as a source of liquidity to meet depositor and borrower funding requirements, in addition to being a significant element of total interest income. Short-term investments, defined as federal funds sold and interest bearing deposits in other banks, had combined average outstanding balances of $13,704, $12,756 and $8,972 for the years 1996, 1995 and 1994. The year end outstanding balances of short-term investments were $6,465, $23,346 and $8,193 for 1996, 1995 and 1994. The significant changes in the amounts in short-term investments from year to year is due to large fluctuations in deposits from public and governmental institutions which are invested in federal funds sold at year end. These deposits were being kept liquid to fund commercial loan commitments at year end 1995 and for possible liquidity needs of institutional deposits. Effective December 31, 1993, the Corporation adopted FAS 115, "Accounting for Certain Investments in Debt and Equity Securities". With the adoption of FAS 115, all securities were classified by management into one of two categories, available for sale or held to maturity. The Corporation does not maintain any securities that are held for trading. Securities classified as available for sale are securities that the Corporation intends to hold for an indefinite period of time, but not necessarily until maturity. Securities available for sale are carried at fair value with market adjustments, net of related deferred taxes, being recorded in shareholders' equity as unrealized gain or loss on securities. Securities classified as held to maturity are carried at amortized cost, calculated by using the level yield method. In November 1995 the Financial Accounting Standards Board allowed a one time reclassification of all securities without calling into question the intent of an enterprise to hold other securities to maturity in the future. The Corporation reclassified all held to maturity securities to available for sale securities in December 1995. This reclassification was made to allow for all securities to be sold in response to changes in interest rates, changes in prepayment risk or other requirements of liquidity. Since the original adoption of FAS 115, and starting in December 1994, the equity adjustment for mark to market of available for sale securities has been deleted from inclusion in the 45 regulatory capital ratio calculations. The mark to market for available for sale securities at December 31, 1996, included market gains of $1,907 and market losses of $1,432 for a net increase due to the mark to market of $475 on securities with an amortized cost of $170,249. The after tax effect of these available for sale securities accounted for $310 of the total equity at December 31, 1996. The mark to market for available for sale securities at December 31, 1995, included market gains of $2,684 and market losses of $959 for a net increase due to the mark to market of $1,725 on securities with an amortized cost of $171,744 at December 31, 1995. The after tax effect on these available for sale securities accounted for a positive $1,113 of the total equity at December 31, 1995. The effect on the total change in equity of the Corporation at December 31, 1996, from December 31, 1995, was a total decrease of $803 due to this mark to market of available for sale securities. The difference between the mark to market adjustment at December 31, 1996 and 1995, was due to the difference in the market yields at these two year ends when compared to the yields on the investments of the Corporation classified as available for sale. Sales of available for sale securities in 1996 were $16,938 and resulted in net gains of $28 while sales of $4,559 resulted in net gains of $18 in 1995 and sales of $14,999 resulted in net gains of $29 in 1994. Calls and maturities of held to maturity securities accounted for net gains of $23 in 1995. Other than U.S. Government securities, there are no concentrations of securities over 10% of shareholders' equity to any single issuer. Table X presents securities outstanding at year end for the preceding three years. 46 FINANCIAL CONDITION - Continued (Dollar amounts in thousands, except share and per share data)
Table X Securities at December 31, 1996 1995 1994 Securities available for sale U.S. Government and its agencies $101,819 $101,710 $112,007 States and political subdivisions 55,776 51,837 11,266 Corporate obligations 1,823 3,590 4,965 Collateralized mortgage obligations 9,166 15,516 17,290 Mutual funds 2,140 816 1,152 Total securities available for sale 170,724 173,469 146,680 Securities held to maturity U.S. Government and its agencies -- -- 500 States and political subdivisions -- -- 39,695 Corporate obligations -- -- -- Collateralized mortgage obligations -- -- -- Mutual funds -- -- -- Total securities held to maturity -- -- 40,195 Total securities $170,724 $173,469 $186,875
The market value of securities held to maturity was $39,177 for 1994. Loans The loan portfolio constitutes the major earning asset of most bank holding companies and typically offers the best alternative for obtaining the maximum interest spread above the cost of funds. The overall economic strength of any bank holding company generally parallels the quality and yield of its loan portfolio. The Corporation's total average loans were $467,509 in 1996, an increase of $51,020 or 12.25% from 1995. The Corporation had total average loans of $416,489 in 1995, an increase of $48,291 or 13.12% from the 1994 total average loans of $368,198. Table XI presents loans outstanding at year end for the preceding five years. 47
Table XI Loans at December 31, 1996 1995 1994 1993 1992 Commercial $201,092 $172,782 $151,027 $126,738 $117,156 Agricultural 55,404 65,239 44,876 52,569 51,953 Real estate 129,116 107,123 101,111 81,945 75,193 Installment 105,464 94,784 90,300 80,909 66,344 Credit cards 3,686 3,722 3,351 3,039 2,192 Total loans 494,762 443,650 390,665 345,200 312,838 Unearned income (295) (993) (2,008) (2,250) (1,741) Total loans, net $494,467 $442,657 $388,657 $342,950 $311,097 Loans held for sale $ 2,350 $ 6,727 $ 2,664 $ 16,919 $ 11,553 Composition of loan portfolio at December 31, Commercial 40.67 % 39.03 % 38.86 % 36.95 % 37.66 % Agricultural 11.20 14.74 11.55 15.33 16.70 Real estate 26.11 24.20 26.01 23.89 24.17 Installment 21.27 21.19 22.72 22.94 20.77 Credit cards .75 .84 .86 .89 .70 /TABLE 48 FINANCIAL CONDITION - Continued (Dollar amounts in thousands, except share and per share data) The economy rebounded in late 1992 and has continued steady to strong through 1996. The Corporation has placed added efforts to take advantage of the increased demand in commercial loans. Commercial loans increased $28,310 or 16.38% in 1996 from 1995, increased $21,755 or 14.40% in 1995 from 1994 and increased $24,289 or 19.16% in 1994 from 1993. While commercial loans have shown the largest increases over the last five years, real estate and installment loans have also increased during 1996. As shown in Table XI the percentage of loans to total loans for commercial, real estate, installment and credit cards have remained very similar for 1995 and 1996 with only agricultural loans having a change over 2%. Agricultural loans actually decreased $9,835 or 15.08% in 1996 from 1995 after having increased $20,363 or 45.38% in 1995 from 1994. The government, through Farm Credit Services, has become a major competitor in agricultural lending. Real estate loans shown in Table XI are mainly variable rate loans. These loans have increased $21,993 or 20.53% in 1996 from 1995 and increased $6,012 or 5.95% in 1995 from 1994. During these years the Corporation has placed added emphasis on serving the real estate mortgage needs of our customers. The balance of real estate loans was directly affected by the current rates on variable and fixed rate mortgages. As rates increase customers tend to prefer variable rate mortgages and as rates decrease customers tend to prefer fixed rate mortgages. The Corporation also makes conforming fixed rate mortgage loans that can be sold into the secondary market with the Corporation retaining more than 95% of the MSRs. These fixed rate mortgage loans are shown separately in Table XI and on the balance sheet as loans held for sale. The Corporation's strategy has been to hold fixed rate loans during periods of decreasing rates and sell them during periods of increasing rates to realize a gain. The balance of loans held for sale at year end fluctuates a great deal depending upon the variations of rates during the year and the amount of these loans that are sold into the secondary market. Sales of loans held for sale were $30,385, $16,231 and $35,676 for 1996, 1995 and 1994 with corresponding net gains of $409, $191 and $229. At December 31, 1996, the Corporation serviced $97,606 of loans for others which it sold into the secondary market. This was a 22.02% increase from $79,990 of sold loans serviced for others as of December 31, 1995. As included in Note 1 and 6 to the consolidated financial statements, the Corporation adopted FAS 122 as of January 1, 1996, and capitalized $307 of MSRs during 1996 and amortized to expense $16 of these MSRs for a net carrying value of $291 at December 31, 1996. These loans serviced for others were not included in the financial statements. Installment loans increased $10,680 or 11.27% in 1996 over 1995, $4,484 or 4.97% in 1995 over 1994 and $9,391 or 11.61% in 1994 over 1993. The level of consumer lending normally relates directly to consumer confidence in the economy, but the Corporation has seen increased charge-offs of installment loans starting in 1995 and 1994 over 1993. A lag effect does exist in charge-offs and the Corporation has increased its lending criteria for consumer loans starting in 1995. The composition of installment loans at December 31, 1996, was $97,735 of vehicle and other secured loans, $4,564 of money lines tied to second mortgages on real estate and $3,165 of unsecured loans. The loan portfolio contains no loans to foreign governments, foreign enterprises or foreign operations of domestic corporations. Other than loans for real estate, equipment and operating lines to farmers engaged in the agricultural industry, the Corporation has no concentrations of loans in the same or similar industries that exceed 10% of total loans. Deposits The deposit base provides the major funding source for earning assets of most bank holding companies. Generally, demand, savings and time certificates less than $100 are recognized as the core base of deposits while certificates in excess of $100 and public funds are more subject to interest variations and, thus, are not included in the core deposit base. Because of these factors, management views the growth of demand, savings and time certificates less than $100 as more stable growth. The Corporation's total average core deposits were $541,704 in 1996, $519,453 in 1995 and $500,103 in 1994. Total average deposits were $617,208, $567,413 and $545,393 during 1996, 1995 and 1994. Table XII indicates the mix and levels of deposits at year end for the preceding five years. 49 FINANCIAL CONDITION - Continued (Dollar amounts in thousands, except share and per share data)
Table XII Deposits at December 31, 1996 1995 1994 1993 1992 Noninterest bearing $ 61,518 $ 63,116 $ 62,269 $ 62,145 $ 58,484 Interest bearing demand and savings 219,730 211,971 218,896 226,030 217,633 Time, less than $100 275,262 258,335 212,073 208,716 217,801 Time, $100 or more 76,948 66,647 57,149 53,459 50,180 Total deposits $633,458 $600,069 $550,387 $550,350 $544,098
The Corporation opened new branches in 1996 and 1995 and purchased $25,462 of deposits from a savings and loan association in March 1995. These new branches and purchased deposits plus lower interest rates and the general trend of consumers returning deposits to banks from nonbanking institutions saw total deposits increase $33,389 or 5.56% in 1996 from 1995 and $49,682 or 9.03% in 1995 from 1994. The largest growth in 1996 from 1995 was in time deposits both under and over $100 and accounted for $27,228 of the increase while time deposits increased $55,760 in 1995 from 1994. Interest bearing demand and savings deposits increased $7,759 in 1996 but decreased $6,925 in 1995 and $7,134 in 1994. Noninterest bearing deposits decreased $1,598 in 1996, increased $847 in 1995 and remained constant in 1994. 50 LIQUIDITY AND CAPITAL RESOURCES (Dollar amounts in thousands, except share and per share data) Liquidity and Rate Sensitivity Cash flows for the Corporation occur within the operating, investing and financing categories as follows: Cash flows from operating activities emanate primarily from interest income and fees reduced by interest expense and overhead expense. Investing activities generate or use cash flows through the origination, purchase and principal collection of loans; the purchase, maturity and sale of investments; and the acquisition of property and equipment for the Corporation. Cash flows from financing activities occur from deposits and withdrawals of deposit accounts, increases or decreases in short-term borrowings and long-term debt, and dividends paid by the Corporation. The Corporation's use and source of funds can be determined by the changes in average balances of assets and liabilities. Table XIII summarizes funding uses and sources for 1996 and 1995, showing average balances, amount of dollar change from prior year and the percent change from the prior year.
Table XIII 1996 1995 Average Increase/(decrease) Average Increase/(decrease) Balance Dollar Percent Balance Dollar Percent Funding uses Loans held for sale $ 5,441 $ 1,134 26.33 % $ 4,307 $ (2,542) (37.12)% Taxable loans, net of unearned income 462,391 51,545 12.55 410,846 49,053 13.56 Tax exempt loans 5,118 (525) (9.30) 5,643 (762) (11.90) Taxable securities 127,521 (1,325) (1.03) 128,846 (17,882) (12.19) Tax exempt securities 52,120 3,581 7.38 48,539 (9,397) (16.22) Interest bearing deposits in other banks 628 (286) (31.29) 914 (634) (40.96) Federal funds sold 13,076 1,234 10.42 11,842 4,418 59.51 Total uses $ 666,295 $ 55,358 9.06 % $ 610,937 $ 22,254 3.78 % Funding sources Noninterest bearing deposits $ 54,730 $ (797) (1.44)% $ 55,527 $ 2,112 3.95 % Interest bearing demand and savings deposits 218,090 5,998 2.83 212,092 (13,188) (5.85) Time deposits 344,388 44,594 14.88 299,794 33,096 12.41 Short-term borrowings 7,383 (746) (9.18) 8,129 (1,520) (15.75) Long-term debt 2,373 (431) (15.37) 2,804 (120) (4.10) Other 39,331 6,740 20.68 32,591 1,874 6.10 Total sources $ 666,295 $ 55,358 9.06 % $ 610,937 $ 22,254 3.78 %
51 LIQUIDITY AND CAPITAL RESOURCES - Continued (Dollar amounts in thousands, except share and per share data) Total average loans increased $51,020 or 12.25% to $467,509 in 1996 from $416,489 in 1995. In 1996 commercial loans averaged $238,462, real estate loans averaged $125,978, installment loans averaged $99,459 and credit cards averaged $3,610. The average increase in loans in 1996 was funded mainly by $5,998 of increased average demand and savings deposits and $44,594 of increased average time deposits. The increase in the average balances of these deposits was due to opening new branches and offering more competitive rates for these deposit products. With more competitive rates, deposits were returned to the banks that had previously been taken to nonbanking institutions. The Corporation anticipates an increase in loan demand during 1997. It is anticipated that this increase in loan demand will be funded through deposits increases at the new branches opened in 1997 or through the conversion of assets as discussed in the next paragraph. Outstanding loan commitments and customers' unused lines of credit totaled $100,546 at December 31, 1996, which was an increase of $25,767 or 34.46% from $74,779 at December 31, 1995. Standby letters of credit outstanding at December 31, 1996, increased $3,270 or 53.98% to $9,328 from $6,058 at December 31, 1995. Letters of credit typically are not funded. To the extent, however, that letters of credit, loan commitments and customers' unused lines of credit require funding, these obligations will be met by the normal conversion of short-term investments, which totaled $6,465 at December 31, 1996, investments with maturities of one year or less, which totaled $39,058 at December 31, 1996, the sale of loans held for sale plus the increase in deposits discussed. IND is a member of the Federal Home Loan Bank of Indianapolis and through this membership has the capacity to borrow funds. IND has approved borrowings up to $50,000 as of February 1997, but used only a small portion, $2,091, of this available funding as of December 31, 1996. See Note 10 of the consolidated financial statements for details. This additional funding from the Federal Home Loan Bank could be activated easily and might be used in 1997 for a source of funding if required. Further liquidity, if required, would be provided by conversion of securities available for sale or other assets into cash or accessing sources of 52 incremental funding such as repurchase agreements or federal funds purchased. Interest rate sensitivity occurs when assets or liabilities are subject to rate and yield changes within a designated time period. The rate sensitivity position, or gap, is determined by the difference in the amount of rate sensitive assets and rate sensitive liabilities at various maturity intervals. The management of this gap position is required to protect the net interest rates and to assure a greater degree of earnings stability. Provided in Tables XIV through XVI are various repricing information relative to securities, loans and deposits at December 31, 1996. 53
Table XIV Maturities and Average Yields at December 31, 1996 1 Year and Less 1 - 5 Years 5 - 10 Years Over 10 Years Total Dollar Yield Dollar Yield Dollar Yield Dollar Yield Dollar Yield U.S. Government and its agencies $ 32,273 6.07% $ 56,361 6.11% $ 3,199 7.51% $ 9,986 7.26% $101,819 6.25% State and political subdivisions 5,232 9.31 27,068 8.31 21,839 7.80 1,637 8.22 55,776 8.20 Corporate obligations -- -- 326 9.10 -- -- 1,497 7.56 1,823 7.83 Collateralized mortgage obligations 628 5.38 2,203 5.64 271 5.67 6,064 6.84 9,166 6.41 Mutual funds 925 5.67 -- -- -- -- 1,215 6.50 2,140 6.17 Total $ 39,058 6.50 % $ 85,958 6.77 % $ 25,309 7.74 % $ 20,399 7.18 % $170,724 6.90 %
Table XV Maturity Ranges of Time Deposits with Balances of $100 or More at December 31, 1996 1995 1994 Three months or less $ 33,781 $ 29,372 $ 24,437 Over three through six months 17,572 11,460 12,558 Over six through twelve months 11,991 9,315 8,333 Over twelve months 13,604 16,500 11,821 Total $ 76,948 $ 66,647 $ 57,149
LIQUIDITY AND CAPITAL RESOURCES - Continued (Dollar amounts in thousands, except share and per share data) Table XVI Loan Maturities at December 31, 1996 1 Year 1 - 5 Over 5 and Less Years Years Total Commercial $147,936 $ 44,461 $ 8,695 $201,092 Agricultural 42,548 12,084 772 55,404
There were no material real estate construction loans outstanding at December 31, 1996.
Interest Rate Sensitivity of Above Loans Maturing After One Year Commercial Agricultural Fixed rate $ 18,112 $ 4,158 Variable rate 35,044 8,698 Total selected loans $ 53,156 $ 12,856
54
Table XVII Liquidity and Interest Rate Sensitivity at December 31, 1996 0 - 90 91 - 365 1 - 5 Days Days Years Interest earning assets Loans $ 131,266 $ 134,362 $ 194,645 Securities 23,417 21,624 40,619 Other 5,970 197 298 Total $ 160,653 $ 156,183 $ 235,562 Interest bearing liabilities Savings and demand deposits $ 219,730 $ -- $ -- Time, less than $100 103,190 94,304 78,806 Time, $100 or more 34,771 28,272 13,198 Other 5,553 133 1,046 Rate sensitive gap $(202,591) $ 33,474 $ 142,512 Rate sensitive cumulative gap (202,591) (169,117) (26,605) Percent to total assets (28.19)% (23.53)% (3.70)%
Rate sensitive gap as shown in Table XVII is defined as the difference between the repricing of interest earning assets and the repricing of interest bearing liabilities within certain defined time frames. Rate sensitive gap is also expressed as a percentage of total assets based upon the accumulation of the defined time frame gap calculation. Rate sensitive gaps constantly change as funds are acquired and invested and the Corporation's analysis as of December 31, 1996, is shown above. As of December 31, 1996, the Corporation had a negative gap of $169,117 and 23.53% during the next one year period with a negative gap of $202,591 and 28.19% relating to the first quarter of 1997. The effect of these negative gaps may result in a negative impact on earnings in 1997 if interest rates increase, but could result in a positive impact on earnings if interest rates decline in 1997. The above rate sensitivity analysis is significantly impacted by the inclusion of savings and demand deposits in the first quarter of the gap analysis. These deposits have historically not exhibited the same degree of sensitivity to rate changes as other liabilities because deposit rates are set by the Corporation. If the above analysis were changed to reflect the Corporation's actual historical results, the savings and demand deposits would be moved to the one to five year time frame. With this change the Corporation would have a positive gap of $50,613 or 7.04% during the next one year period and a positive gap of $17,139 or 2.38% relating to the first quarter of 1997. 55 LIQUIDITY AND CAPITAL RESOURCES - Continued (Dollar amounts in thousands, except share and per share data) Shareholders' Equity Total shareholders' equity at December 31, 1996, increased $4,471 or 6.60% to $72,183 from $67,712 at December 31, 1995. The change in the mark to market on the unrealized gain on securities available for sale between December 31, 1995 and 1996, resulted in shareholders' equity decreasing $803. Without this net change in unrealized gain on securities available for Sale, shareholders' equity would have increased $5,274 or 7.92% at December 31, 1996, from December 31, 1995. Shareholders' equity contains a new caption, Treasury stock, for the first time at December 31, 1996. These 724 treasury shares were purchased on the market for future payments of director fees under the Director Stock Grant Plan as approved by the shareholders in 1996. These treasury shares are purchased routinely and reissued to the directors each quarter. See Note 17 to the consolidated financial statements for description of the capital requirements for the Corporation and its subsidiary banks. By all measurements the Corporation and its subsidiary banks were considered well capitalized. At December 31, 1996, the Corporation had a Total Capital ratio of 14.33%, a Tier 1 Capital ratio of 13.26% and a Tier 1 Leverage Capital ratio of 10.00%. 56 INTERIM FINANCIAL DATA Table XVIII sets forth the condensed quarterly results of operations and per share information for the years ended December 31, 1996 and 1995.
Table XVIII Quarter Ended December September June March 31 30 30 31 1996 Interest income $ 14,059 $ 13,512 $ 13,276 $ 13,294 Interest expense 7,034 6,800 6,733 6,721 Net interest income 7,025 6,712 6,543 6,573 Provision for loan losses 700 100 299 267 Noninterest income 1,048 712 1,028 772 Noninterest expense 4,411 4,682 4,409 4,297 Income before income taxes 2,962 2,642 2,863 2,781 Income taxes 888 770 824 800 Net income $ 2,074 $ 1,872 $ 2,039 $ 1,981 Per share Net income $ .63 $ .56 $ .61 $ .60 Stock price (Note A) 28.50 30.71 27.38 29.05 Weighted average outstanding shares 3,315,929 3,314,814 3,316,232 3,316,267 1995 Interest Income $ 12,924 $ 12,631 $ 12,153 $ 11,482 Interest expense 6,609 6,326 5,961 5,295 Net interest income 6,315 6,305 6,192 6,187 Provision for loan losses 535 361 140 146 Noninterest income 873 896 756 830 Noninterest expense 4,408 4,093 4,475 4,526 Income before income taxes 2,245 2,747 2,333 2,345 Income taxes 397 868 725 635 Net income $ 1,848 $ 1,879 $ 1,608 $ 1,710 Per share Net income $ .56 $ .57 $ .48 $ .51 Stock price (Note A) 29.05 29.03 29.76 28.11 Weighted average outstanding shares 3,316,267 3,316,267 3,316,267 3,316,254
57 Note A - The stock price above represents the sales price of the last actual trade in each respective quarter as reported in the Wall Street Journal restated for a 5% stock dividend paid on December 2, 1996 and November 30, 1995. INFLATION (Dollar amounts in thousands, except share and per share data) For a financial institution, effects of price changes and inflation vary considerably from an industrial organization. Changes in the prices of goods and services are the primary determinant of an industrial company's profit, whereas changes in interest rates have a major impact on a financial institution's profitability. Inflation affects the growth of total assets, but it is difficult to assess its impact because neither the timing nor the magnitude of the changes in the consumer price index directly coincide with changes in interest rates. During periods of high inflation there are normally corresponding increases in the money supply. During such times financial institutions often experience above average growth in loans and deposits. Also, general increases in the price of goods and services will result in increased operation expenses. Over the past few years the rate of inflation has been relatively low, and its impact on the growth in the balance sheets and increased levels of income and expense has been nominal. Market Price of AMBANC Corp. Common Stock and Related Shareholder Matters The Corporation's common stock is traded on The Nasdaq Small-Cap Market (NASDAQ) under the symbol AMBK. The quarterly range of the low and high trade prices per share of the Corporation's common stock, as reported by NASDAQ, is shown in Table XIX. This information represents prices between dealers and does not include adjustments for mark-ups, mark-downs or commissions and does not necessarily represent actual prices on transactions. 58
Table XIX 1996 1995 Stock Range Stock Range 1st Quarter $ 28.10 - 30.95 $ 27.44 - 29.93 2nd Quarter 27.38 - 30.00 28.11 - 29.93 3rd Quarter 27.14 - 30.95 27.67 - 30.84 4th Quarter 27.50 - 30.95 28.57 - 30.71
As of December 31, 1996, there were approximately 1,503 shareholders of record. The Corporation pays cash dividends on a quarterly basis. Cash dividends paid by the Corporation were $.80 per share in 1996 and $.76 per share in 1995 and 1994. Cash dividends, as restated to reflect the acquisition of FRB under the pooling of interests method of accounting, were $.65 and $.59 for the years 1995 and 1994. Refer to Note 17 to the consolidated financial statements for information concerning restrictions on dividends.
FIVE YEAR SUMMARY (Dollar amounts in thousands, except per share data) 1996(a) 1995(a) 1994(a) 1993(a) 1992 AT PERIOD END Actual balances Assets $ 718,754 $ 682,347 $ 625,240 $ 622,568 $ 610,407 Securities 170,724 173,469 186,875 210,774 211,196 Loans 494,467 442,657 388,657 342,950 311,097 Allowance for loan losses 5,630 5,022 4,531 4,238 4,168 Deposits 633,458 600,069 550,387 550,350 544,098 Shareholders' equity 72,183 67,712 58,210 57,722 52,552 Daily averages Assets $ 701,586 $ 644,456 $ 619,540 $ 601,232 $ 582,603 Securities 179,641 177,385 204,664 214,325 210,847 Loans 467,509 416,489 368,198 325,544 311,523 Allowance for loan losses 5,441 4,636 4,377 4,152 3,966 Deposits 617,208 567,413 545,393 534,448 520,034 Shareholders' equity 68,772 62,344 58,113 54,967 50,615 OPERATING RESULTS Interest income $ 54,311 $ 49,392 $ 43,053 $ 41,758 $ 44,722 Net interest income 27,023 25,201 23,899 22,751 22,335 Provision for loan losses 1,366 1,182 338 1,492 1,495 Income before cumulative effect of accounting change 7,966 7,045 6,502 5,910 5,818 Net income 7,966 7,045 6,502 6,162 5,818 Dividends paid on common stock 2,653 2,144 1,947 1,701 1,581 PER SHARE DATA Income before cumulative effect of accounting change $ 2.40 $ 2.12 $ 1.96 $ 1.78 $ 1.76 Cumulative effect of accounting change -- -- -- .08 -- Net income 2.40 2.12 1.96 1.86 1.76 Cash dividends before pooling of interests .80 .76 .76 .72 .72 Cash dividends restated for pooling of interests .80 .65 .59 .51 .48 Book value at end of period 21.77 20.42 17.55 17.42 15.86 Book value at end of period before FAS 115 21.68 20.08 18.61 17.20 15.86 Tangible book value at end of period 21.24 19.83 17.47 17.37 15.80 Tangible book value at end of period before FAS 115 21.15 19.50 18.52 17.15 15.80 Weighted average outstanding shares 3,315,808 3,316,264 3,313,716 3,313,496 3,313,496 RATIOS Return on average assets 1.14 % 1.09 % 1.05 % 1.02 % 1.00 % Return on average equity 11.58 11.30 11.19 11.21 11.50 Dividends paid as a percent of net income 33.30 30.43 29.95 27.61 27.17 Tier 1 Leverage Capital 10.00 10.01 9.87 9.45 8.99 Efficiency ratio 58.52 61.73 64.66 67.56 64.38
(a) - reflects FAS 115 adjustments. EX-21 5 EXHIBIT 21 AMBANC CORP. LIST OF SUBSIDIARIES 1. AmBank Indiana, N.A., Vincennes, Indiana, is a wholly owned subsidiary of AMBANC Corp. and is a national banking association. 2. AmBank Illinois, N.A., Robinson, Illinois, is a wholly owned subsidiary of AMBANC Corp. and is a national banking association. 3. American National Realty Corp. is a wholly owned subsidiary of AMBANC Corp. and is incorporated under the laws of the State of Indiana. EX-23 6 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-42949 and No. 333-02807 of AMBANC Corp. on Form S-8 of our report dated January 17, 1997, appearing in this Annual Report on Form 10-K of AMBANC Corp. for the year ended December 31, 1996. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Indianapolis, Indiana March 28, 1997 EX-27 7
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN THE FILER'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000702904 AMBANC CORP. 1,000 YEAR DEC-31-1996 DEC-31-1996 26,409 590 5,875 0 0 170,249 170,724 494,467 5,630 718,754 633,458 5,286 5,518 2,309 0 0 33,142 39,041 718,754 42,560 10,614 748 54,311 26,761 27,288 27,023 1,366 28 17,799 11,248 11,248 0 0 7,966 2.40 2.40 4.30 1,421 1,313 3,089 0 5,022 1,266 508 5,630 2,081 0 3,549
EX-99 8 EXHIBIT 99.1 CROWE CHIZEK REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders AMBANC Corp. Vincennes, Indiana We have audited the consolidated statements of income, changes in shareholders' equity and cash flows of AMBANC Corp. for the year ended December 31, 1994, prior to the subsequent restatement for the 1995 pooling of interests. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of AMBANC Corp. for the year ended December 31, 1994, prior to the subsequent restatement for the 1995 pooling of interest, in conformity with generally accepted accounting principles. /s/ Crowe, Chizek and Company, LLP Crowe, Chizek and Company LLP Indianapolis, Indiana January 27, 1995 EX-99 9 EXHIBIT 99.2 KEMPER CPA GROUP, LLC Certified Public Accountants and Consultants 302 East Walnut Street Robinson, Illinois 62454 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders First Robinson Bancorp Robinson, Illinois We have audited the accompanying consolidated balance sheet of First Robinson Bancorp and Subsidiary as of December 31, 1994, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above presents fairly, in all material respects, the financial position of First Robinson Bancorp and Subsidiary as of December 31, 1994 and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ Kemper CPA Group L.L.C. KEMPER CPA GROUP L.L.C. Certified Public Accountants January 20, 1995 -----END PRIVACY-ENHANCED MESSAGE-----