-----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, MBAZ+ymOg47jWaE535FlxhiyhWNOMq6qft+0abY1BbwP3N6U1Bukz4fnpNa5Dprb fdfzFjT7lZVbi0ZOGd/a8A== 0000741516-03-000013.txt : 20030514 0000741516-03-000013.hdr.sgml : 20030514 20030514103044 ACCESSION NUMBER: 0000741516-03-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN NATIONAL BANKSHARES INC CENTRAL INDEX KEY: 0000741516 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 541284688 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12820 FILM NUMBER: 03697191 BUSINESS ADDRESS: STREET 1: 628 MAIN ST CITY: DANVILLE STATE: VA ZIP: 24541 BUSINESS PHONE: 4347925111 MAIL ADDRESS: STREET 1: 628 MAIN STREET STREET 2: P O BOX 191 CITY: DANVILLE STATE: VA ZIP: 24543 10-Q 1 march0310q.txt 03/31/2003 10-Q AMERICAN NATIONAL BANKSHARES INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2003 -------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ----- ----- Commission file number 0-12820 ------- AMERICAN NATIONAL BANKSHARES INC. --------------------------------- (Exact name of registrant as specified in its charter) VIRGINIA 54-1284688 - -------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 628 Main Street Danville, Virginia 24541 - ---------------------------------------- -------------------- (Address of principal executive offices) (Zip Code) (434) 792-5111 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ----- ----- At May 13, 2003, 5,710,866 shares of the registrant's common stock, $1 par value, were outstanding. AMERICAN NATIONAL BANKSHARES INC. INDEX
Page No. -------- Index...............................................................................2 Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002..................................................3 Consolidated Statements of Income for the three months ended March 31, 2003 and 2002..........................................4 Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002..........................................5 Notes to Consolidated Financial Statements...............................6 Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations.............................................11 Item 3. Quantitative and Qualitative Disclosures about Market Risk..............17 Item 4. Controls and Procedures.................................................18 Part II. Other Information.......................................................19 SIGNATURES ........................................................................19 Section 302 Certifications.........................................................20 Exhibits...........................................................................22
2 Consolidated Balance Sheets American National Bankshares Inc. and Subsidiary (In Thousands) - -------------------------------------------------------------------------------------------------------------
(Unaudited) (Audited) March 31 December 31 2003 2002 ------------ ------------ ASSETS Cash and due from banks.........................................................$ 15,962 $ 16,757 Interest-bearing deposits in other banks........................................ 2,045 6,720 Securities available for sale, at fair value.................................... 138,578 137,046 Securities held to maturity (market value of $27,642 at March 31, 2003 and $28,219 at December 31, 2002).............................. 25,975 26,778 ----------- ----------- 164,553 163,824 ----------- ----------- Loans held for sale............................................................. 1,576 1,285 Loans, net of unearned income .................................................. 419,752 406,403 Less allowance for loan losses.................................................. (5,771) (5,622) ----------- ----------- Net loans..................................................................... 413,981 400,781 ----------- ----------- Bank premises and equipment, at cost, less accumulated depreciation of $10,964 in 2003 and $10,673 in 2002........................... 7,982 8,167 Core deposit intangibles........................................................ 1,271 1,384 Accrued interest receivable and other assets.................................... 6,807 6,941 ----------- ----------- Total assets..................................................................$ 614,177 $ 605,859 =========== =========== LIABILITIES and SHAREHOLDERS' EQUITY Liabilities: Demand deposits -- non-interest bearing.......................................$ 63,642 $ 69,102 Demand deposits -- interest bearing........................................... 61,536 62,680 Money market deposits......................................................... 46,545 43,831 Savings deposits.............................................................. 79,458 73,410 Time deposits................................................................. 231,896 224,539 ----------- ----------- Total deposits................................................................ 483,077 473,562 ----------- ----------- Repurchase agreements......................................................... 34,803 36,155 FHLB borrowings............................................................... 21,500 22,000 Accrued interest payable and other liabilities................................ 3,880 3,406 ----------- ----------- Total liabilities............................................................. 543,260 535,123 ----------- ----------- Shareholders' equity: Preferred stock, $5 par, 200,000 shares authorized, none outstanding........................................................... - - Common stock, $1 par, 10,000,000 shares authorized, 5,745,816 shares outstanding at March 31, 2003 and 5,780,816 shares outstanding at December 31, 2002...................... 5,746 5,781 Capital in excess of par value............................................... 9,514 9,571 Retained earnings............................................................ 53,597 53,093 Accumulated other comprehensive income....................................... 2,060 2,291 ----------- ----------- Total shareholders' equity................................................... 70,917 70,736 ----------- ----------- Total liabilities and shareholders' equity...................................$ 614,177 $ 605,859 =========== =========== The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
3 Consolidated Statements of Income American National Bankshares Inc. and Subsidiary (In Thousands) (Unaudited) - ---------------------------------------------------------------------------------------------------------
Three Months Ended March 31 ------------------------- 2003 2002 ---------- ---------- Interest Income: Interest and fees on loans....................................................$ 6,559 $ 6,749 Interest on deposits in other banks........................................... 25 82 Income on securities: Federal agencies............................................................ 549 427 Mortgage-backed............................................................. 454 656 State and municipal......................................................... 469 456 Other investments........................................................... 346 431 ---------- ---------- Total interest income....................................................... 8,402 8,801 ---------- ---------- Interest Expense: Interest on deposits: Demand...................................................................... 68 119 Money market................................................................ 139 190 Savings..................................................................... 225 265 Time........................................................................ 1,720 2,530 Interest on repurchase agreements............................................. 125 149 Interest on other borrowings.................................................. 242 171 ---------- ---------- Total interest expense...................................................... 2,519 3,424 ---------- ---------- Net Interest Income............................................................. 5,883 5,377 Provision for Loan Losses....................................................... 240 183 ---------- ---------- Net Interest Income After Provision For Loan Losses............................................................... 5,643 5,194 ---------- ---------- Non-Interest Income: Trust and investment services................................................. 606 666 Service charges on deposit accounts........................................... 423 365 Other fees and commissions.................................................... 228 196 Mortgage banking income....................................................... 128 82 Securities gains, net......................................................... 2 19 Other income.................................................................. 75 67 ---------- ---------- Total non-interest income................................................... 1,462 1,395 ---------- ---------- Non-Interest Expense: Salaries...................................................................... 1,721 1,553 Pension and other employee benefits........................................... 448 375 Occupancy and equipment....................................................... 641 612 Core deposit intangible amortization ......................................... 112 112 Other......................................................................... 887 846 ---------- ---------- Total non-interest expense.................................................. 3,809 3,498 ---------- ---------- Income Before Income Tax Provision.............................................. 3,296 3,091 Income Tax Provision............................................................ 962 892 ---------- ---------- Net Income......................................................................$ 2,334 $ 2,199 ========== ========== - --------------------------------------------------------------------------------------------------------- Net Income Per Common Share: Basic...........................................................................$ .41 $ .38 Diluted.........................................................................$ .40 $ .38 - --------------------------------------------------------------------------------------------------------- Average Common Shares Outstanding: Basic...........................................................................5,756,094 5,821,367 Diluted.........................................................................5,817,153 5,852,000 - --------------------------------------------------------------------------------------------------------- The accompanying notes to consolidated financial statements are an integral part of these statements.
4 Consolidated Statements of Cash Flows American National Bankshares Inc. and Subsidiary (In Thousands) (Unaudited) - ---------------------------------------------------------------------------------------------------------
Three Months Ended ------------------------- March 31 2003 2002 ---------- ---------- Cash Flows from Operating Activities: Net income....................................................................$ 2,334 $ 2,199 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses..................................................... 240 183 Depreciation.................................................................. 291 297 Core deposit intangible amortization.......................................... 112 112 Amortization (accretion) of bond premiums and discounts....................... 208 38 Gain on sale or call of securities........................................... (2) (19) Gain on loans held for sale................................................... (128) (82) Proceeds from sales of loans held for sale.................................... 6,985 3,338 Originations of loans held for sale........................................... (7,148) (3,927) Deferred income taxes provision (benefit)..................................... 13 (54) Increase in interest receivable............................................... (646) (20) Decrease (increase) in other assets........................................... 884 (453) Decrease in interest payable.................................................. (66) (122) Increase in other liabilities................................................. 541 840 ---------- ---------- Net cash provided by operating activities..................................... 3,618 2,330 ---------- ---------- Cash Flows from Investing Activities: Proceeds from maturities and calls of securities available for sale........... 17,917 18,267 Proceeds from sales of securities available for sale.......................... - 1,053 Proceeds from maturities and calls of securities held to maturity............. 802 2,804 Purchases of securities available for sale.................................... (20,003) (11,012) Purchases of securities held to maturity...................................... - (1,209) Net increase in loans......................................................... (13,440) (5,718) Purchases of bank property and equipment...................................... (106) (794) ---------- ---------- Net cash (used in) provided by investing activities........................... (14,830) 3,391 ---------- ---------- Cash Flows from Financing Activities: Net increase (decrease) in demand, money market, and savings deposits........................................................ 2,158 (10,129) Net increase in time deposits................................................. 7,357 3,186 Net (decrease) increase in repurchase agreements.............................. (1,352) 7,542 Net decrease in FHLB borrowings............................................... (500) - Cash dividends paid........................................................... (1,033) (990) Repurchase of stock........................................................... (889) (132) Proceeds from exercise of stock options....................................... - 6 ---------- ---------- Net cash provided by (used in) financing activities........................... 5,741 (517) ---------- ---------- Net (Decrease) Increase in Cash and Cash Equivalents............................ (5,471) 5,204 Cash and Cash Equivalents at Beginning of Period................................ 23,478 29,149 ---------- ---------- Cash and Cash Equivalents at End of Period......................................$ 18,007 $ 34,353 ========== ========== Supplemental Schedule of Cash and Cash Equivalents: Cash: Cash and due from banks.......................................................$ 15,962 $ 11,468 Interest-bearing deposits in other banks...................................... 2,045 22,885 ---------- ---------- $ 18,007 $ 34,353 ========== ========== Supplemental Disclosure of Cash Flow Information: Interest paid.................................................................$ 2,585 $ 3,546 Income taxes paid.............................................................$ - $ 3 Transfer of loans to other real estate owned..................................$ - $ - The accompanying notes to consolidated financial statements are an integral part of these statements.
5 AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly American National Bankshares' financial position as of March 31, 2003, its cash flows for the three months then ended, and the results of its operations for the three months then ended. Operating results for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. The consolidated financial statements include the amounts and results of operations of American National Bankshares Inc. ("the Corporation") and its wholly owned subsidiary, American National Bank and Trust Company ("the Bank") and the Bank's two subsidiaries, ANB Mortgage Corp. and ANB Services Corp. FORWARD LOOKING STATEMENTS This report contains forward-looking statements with respect to the financial condition, results of operations and business of the Corporation and Bank. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Corporation and Bank and on information available at the time these statements and disclosures were prepared. Factors that may cause actual results to differ materially from those expected include the following: o General economic conditions may deteriorate and negatively impact the ability of borrowers to repay loans and depositors to maintain balances. o Changes in interest rates could reduce net interest income. o Competitive pressures among financial institutions may increase. o The businesses that the Corporation and Bank are engaged in may be adversely affected by legislative or regulatory changes, including changes in accounting standards. o New products developed or new methods of delivering products could result in a reduction in business and income for the Corporation and Bank. o Adverse changes may occur in the securities market. Internet Access to Corporate Documents The Corporation provides access to their SEC filings through the corporate Web site at www.amnb.com. After accessing the Web site, the filings are available upon selecting the American National Bankshares Inc. icon. Reports available include the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC. CRITICAL ACCOUNTING POLICIES The Corporation's critical accounting policies are listed below. A summary of the Corporation's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in the Corporation's 2002 Annual Report on Form 10-K. The Corporation's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable 6 method to another method. Although the economics of our transactions would be the same, the timing of events that would impact our transactions could change. Allowance for Loan Losses The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. Our allowance for loan losses has three basic components: the formula allowance, the specific allowance and the unallocated allowance. Each of these components is determined based upon estimates that can and do change when the actual events occur. The formula allowance uses a historical loss view as an indicator of future losses along with various economic factors and, as a result, could differ from the loss incurred in the future. However, since this history is updated with the most recent loss information, the errors that might otherwise occur are mitigated. The specific allowance uses various techniques to arrive at an estimate of loss for specifically identified loans. Historical loss information, expected cash flows and fair market value of collateral are used to estimate these losses. The unallocated allowance captures losses whose impact on the portfolio have occurred but have yet to be recognized in either the formula or specific allowance. The use of these values is inherently subjective and our actual losses could be greater or less than the estimates. Core Deposit Intangibles In July, 2001, the Financial Accounting Standards Board issued two statements - Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets, which impacted the accounting for goodwill and other intangible assets. Statement 141 eliminated the pooling method of accounting for business combinations and required that intangible assets that meet certain criteria be reported separately from goodwill. Statement 142 eliminated the amortization of goodwill and other intangibles that are determined to have an indefinite life. The Statement requires, at a minimum, annual impairment tests for goodwill and other intangible assets that are determined to have an indefinite life. SFAS 142 allows certain intangibles arising from Bank and Thrift acquisitions to be amortized over their estimated useful lives. The Financial Accounting Standards Board issued Statement No. 147, Acquisitions of Certain Financial Institutions, an Amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9 in October 2002. FASB Statement No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, and FASB Interpretation No. 9, Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method, provided interpretive guidance on the application of the purchase method to acquisitions of financial institutions. Except for transactions between two or more mutual enterprises, this Statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this Statement. In addition, this Statement amends FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for other long-lived assets that are held and used. 7 Paragraph 5 of this Statement, which relates to the application of the purchase method of accounting, is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The provisions in paragraph 6 related to accounting for the impairment or disposal of certain long-term customer-relationship intangible assets are effective on October 1, 2002. Transition provisions for previously recognized unidentifiable intangible assets in paragraphs 8-14 are effective on October 1, 2002, with earlier application permitted. This Statement clarifies that a branch acquisition that meets the definition of a business should be accounted for as a business combination, otherwise the transaction should be accounted for as an acquisition of net assets that does not result in the recognition of goodwill. The transition provisions state that if the transaction that gave rise to the unidentifiable intangible asset was a business combination, the carrying amount of that asset shall be reclassified to goodwill as of the later of the date of acquisition or the date Statement 142 was first applied (fiscal years beginning after December 15, 2001). Any previously issued interim statements that reflect amortization of the unidentifiable intangible asset subsequent to the Statement 142 application date shall be restated to remove that amortization expense. The carrying amounts of any recognized intangible assets that meet the recognition criteria of Statement 141 that have been included in the amount reported as an unidentifiable intangible asset and for which separate accounting records have been maintained shall be reclassified and accounted for as assets apart from the unidentifiable intangible asset and shall not be reclassified to goodwill. Upon adoption of these Statements, the Corporation re-evaluated its intangible assets that arose from branch acquisitions prior to July 1, 2001. The intangible assets arising from the premium paid for deposits acquired at the Gretna office in 1995 and the Yanceyville office in 1996 are classified as core deposit intangibles and continue to be amortized over their estimated lives based on management's determination that a business was not acquired in either of the two purchases. Stock Based Compensation At March 31, 2003, the Corporation has a stock-based compensation plan. The Corporation accounts for the plan under the recognition and measurement principles of APB Opinion 25, Accounting for Stock Issued to Employees, and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of the grant. The following illustrates the effect on net income and earnings per share for the three months ended March 31, 2003, and 2002 had the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, been adopted.
(Dollars in thousands except per share amounts) March 31, 2003 March 31, 2002 - ------------------------------------------------ -------------- -------------- Net income, as reported $ 2,334 $ 2,199 Deduct: Total stock-based employee compensation expense determined based on fair value method of awards, net of tax (27) (7) -------- -------- Pro forma net income $ 2,307 $ 2,192 Basic earnings per share: As reported $ .41 $ .38 Pro forma $ .40 $ .38 Diluted earning per share: As reported $ .40 $ .38 Pro Forma $ .40 $ .37
The fair value of each grant is estimated at the grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2002: price volatility of 36.76%, risk-free interest rates of 4.08%, and expected lives of 5 years. There were no grants during the first three months of 2003. 8 Non-GAAP Presentations This management's discussion and analysis refers to the efficiency ratio, which is computed by dividing non-interest expense by the sum of net interest income on a tax equivalent basis and non-interest income. This is a non-GAAP financial measure which we believe provides investors with important information regarding our operational efficiency. Comparison of our efficiency ratio with those of other companies may not be possible because other companies may calculate the efficiency ratio differently. The Corporation, in referring to its net income, is referring to income under generally accepted accounting principals, or "GAAP". NEW ACCOUNTING PRONOUNCEMENTS No new accounting pronouncements have been issued since December 31, 2002. Refer to the Corporation's December 31, 2002 Annual Report on Form 10-K for previously announced accounting pronouncements. COMPREHENSIVE INCOME The following is a detail of comprehensive income for the three months ended March 31, 2003 and 2002: Three Months Ended March 31 ----------------------------- 2003 2002 ------------ ------------ Net Income $ 2,334,000 $ 2,199,000 Unrealized losses on securities available for sale, net of tax expense (231,000) (728,000) ------------ ------------ Total comprehensive income $ 2,103,000 $ 1,471,000 ============ ============ SEGMENT AND RELATED INFORMATION The Corporation adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", in 1998. Reportable segments include community banking and trust and investment services. Community banking involves making loans to and generating deposits from individuals and businesses in the Bank's general market area. All assets and liabilities of the Bank are allocated to community banking. Investment income from fixed income investments is another major source of income. Loan fee income, service charges from deposit accounts and non-deposit fees such as automatic teller machine fees and insurance commissions generate additional income for community banking. The assets and liabilities and operating results of the Bank's two subsidiaries, ANB Mortgage Corp. and ANB Services Corp. are included in the community banking segment. ANB Mortgage Corp. performs secondary mortgage banking and ANB Services Corp. performs retail investment and insurance sales. Trust and investment services include estate and trust planning and administration and investment management for various entities. The trust and investment services division of the Bank manages trusts, estates and purchases equity, fixed income and mutual fund investments for customer accounts. The trust and investment services division receives fees for investment and administrative services. Fees are also received by this division for individual retirement accounts managed for the community banking segment. Unaudited segment information for the three month periods ended March 31, 2003 and 2002 is shown in the following table (in thousands). The "Other" column includes corporate related items, results of insignificant operations and, as it relates to segment profit (loss), income and expense not allocated to reportable segments. 9
Three Months Ended March 31, 2003 - ---------------------------------------------------------------------------------------------------------------------------- Trust and Community Investment Intersegment Banking Services Other Eliminations Total --------- ---------- ----- ------------ ----- Interest income $ 8,402 $ - $ 11 $ (11) $ 8,402 Interest expense 2,519 - 11 (11) 2,519 Non-interest income - external customers 671 606 185 - 1,462 Non-interest income - internal customers - 12 - (12) - Operating income before income taxes 2,982 299 15 - 3,296 Depreciation and amortization 395 6 2 - 403 Total assets 614,127 - 50 - 614,177 Capital expenditures 103 3 - - 106
Three Months Ended March 31, 2002 - ---------------------------------------------------------------------------------------------------------------------------- Trust and Community Investment Intersegment Banking Services Other Eliminations Total --------- ---------- ----- ------------ ----- Interest income $ 8,801 $ - $ 6 $ (6) $ 8,801 Interest expense 3,424 - 6 (6) 3,424 Non-interest income - external customers 592 666 137 - 1,395 Non-interest income - internal customers - 13 - (13) - Operating income before income taxes 2,657 446 (12) - 3,091 Depreciation and amortization 400 8 1 - 409 Total assets 574,488 - 71 - 574,559 Capital expenditures 794 - - - 794
10 ITEM 2. AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this discussion is to focus on important factors affecting the Corporation's financial condition and results of operations. The discussion and analysis should be read in conjunction with the Consolidated Financial Statements, and supplemental financial data. RESULTS OF OPERATIONS NET INCOME The Corporation's net income for the first three months of 2003 was $2,334,000, an increase of 6.1% over the $2,199,000 earned during the same period of 2002. On a basic and diluted per share basis, net earnings totaled $0.41 and $0.40, respectively, for the first three months of 2003. This compared favorably to the $0.38 in basic and diluted earnings per share recorded for the first three months of 2002. Both earnings per share measurement increases were due to a combination of improved net interest income combined with a lower number of shares outstanding due to stock repurchases under the Corporation's outstanding stock repurchase program. On an annualized basis, return on average total assets was 1.55% for the first three months of 2003 compared to 1.56% for the same period in 2002. Annualized return on average common shareholders' equity was 13.23% and 13.32% for the first three months of 2003 and 2002, respectively. Net interest income after provision for loan losses increased $449,000, or 8.6%, for the first three months of 2003 compared to the same period in 2002 due to an improvement in the interest rate spread and overall growth in assets and liabilities. For the same comparative period, non-interest income excluding securities gains increased by $84,000, led by growth in service charges and mortgage banking fees. Non-interest expense increased by $311,000 for the first three months of 2003 compared to the same period in 2002 due primarily to increases in salary and employee benefit expenses. NET INTEREST INCOME Net interest income on a fully taxable equivalent ("FTE") basis was $6,124,000 for the first three month period ending March 31, 2003 compared to $5,624,000 for the same period of 2002, an increase of 8.9%. The interest rate spread increased to 3.84% from 3.61%, and the net yield on earning assets increased to 4.24% from 4.17% in the first three months of 2003 compared to the same period of 2002. Yields on earning assets declined due to decreases in interest rate indexes which are used to price commercial loans, the scheduled re-pricing of variable rate real estate loans to lower rates, the reinvestment of investment portfolio cash flows into lower yielding investments, and the addition of new loans at lower market rates of interest. As rates declined year-to-year, management substantially reduced interest-bearing deposits in other banks, which typically have a lower yield than other interest-earning assets. Interest- bearing liability costs declined at a faster pace when compared to the previous year, as management took aggressive steps to reprice interest-bearing deposit accounts. This, coupled with the maturity-based repricing of certificates of deposit, accounted for the 26.4% decline in interest expense. Average interest-earning assets increased 7.0%, or $37,814,000 while average interest-bearing liabilities grew 6.1%, or $27,105,000 between March 31, 2002 and March 31, 2003. During this time low cost non-interest bearing demand 11 deposit growth funded the majority of the difference between earning asset growth and interest bearing deposit growth, represented 37.5% of total deposit growth and now represents 12.8% of total deposits. These positive developments in the balance sheet mix, coupled with the aggressive stance on deposit costs, produced the improved interest rate spread. During the first three months of 2003, the Federal Reserve held interest rates unchanged, yet they were below the rates of one year prior. These historically low rates kept the prime lending rate at 4.25% during the three months ending March 31, 2003, which was lower than the 4.75% prime lending rate during the same period of 2002. Many of the Corporation's assets reprice at the prime lending rate or at a rate based on the rates on U.S. Treasury securities. While the Corporation's balance sheet is liability-sensitive, many liabilities have approached pricing floors while assets continue to reprice or be booked at lower yields. When compared to the fourth quarter of 2002, the interest rate spread and net yield on earning assets in the first quarter of 2003 increased with a positive trend noted. The interest rate spread improved from 3.77% in the fourth quarter of 2003 to 3.84% during the first quarter of 2003. The net yield on earning assets improved from 4.22% in the fourth quarter of 2002 to 4.24% during the first quarter of 2003. This improvement was due to several factors including faster growth in earning assets, a higher level of time deposits repricing to lower market interest rates, growth in non-interest bearing demand deposits and management's overall focus on managing the margin during the ongoing low rate period experienced in 2003. The following tables demonstrate fluctuations in net interest income and the related yields for the first three months of 2003 compared to similar prior year periods. 12 The following is an analysis of net interest income, on a taxable equivalent basis. Nonaccrual loans are included in average balances. Interest income on nonaccrual loans if recognized is recorded on a cash basis. (In thousands, except rates):
Interest For three months ended March 31 Average Balance Income/Expense Yield/Rate ------------------------- ------------------------ --------------------- 2003 2002 2003 2002 2003 2002 ---------- ---------- ---------- --------- -------- -------- Loans: Commercial $ 201,669 $ 157,350 $ 2,976 $ 2,617 5.90% 6.65% Mortgage 179,076 182,750 2,800 3,221 6.25 7.05 Consumer 29,504 36,800 807 941 10.94 10.23 ---------- ---------- ---------- --------- -------- -------- Total loans 410,249 376,900 6,583 6,779 6.42 7.19 ---------- ---------- ---------- --------- -------- -------- Investment securities: Federal agencies 58,390 33,966 549 427 3.76 5.03 Mortgage-backed 35,279 42,301 454 656 5.15 6.20 State and municipal 39,618 37,648 669 650 6.75 6.91 Other investments 24,816 28,668 363 454 5.85 6.33 ---------- ---------- ---------- --------- -------- -------- Total investment securities 158,103 142,583 2,035 2,187 5.15 6.14 ---------- ---------- ---------- --------- -------- -------- Deposits in other banks 8,863 19,918 25 82 1.13 1.65 ---------- ---------- ---------- --------- -------- -------- Total interest-earning assets 577,215 539,401 8,643 9,048 5.99 6.71 ---------- ---------- ---------- --------- -------- -------- Other non-earning assets 26,455 24,386 ---------- ---------- Total assets $ 603,670 $ 563,787 ========== ========== Interest-bearing deposits: Demand $ 62,618 $ 60,024 68 119 .43 .79 Money market 46,459 38,983 139 190 1.20 1.95 Savings 76,193 66,687 225 265 1.18 1.59 Time 227,446 233,203 1,720 2,530 3.02 4.34 ---------- ---------- ---------- --------- -------- -------- Total interest-bearing deposits 412,716 398,897 2,152 3,104 2.09 3.11 Repurchase agreements 34,615 30,076 125 149 1.44 1.98 Other borrowings 21,747 13,000 242 171 4.45 5.26 ---------- ---------- ---------- --------- -------- -------- Total interest-bearing liabilities 469,078 441,973 2,519 3,424 2.15 3.10 ---------- --------- --------- -------- Demand deposits 60,831 52,541 Other liabilities 3,185 3,214 Shareholders' equity 70,576 66,059 ---------- ---------- Total liabilities and shareholders' equity $ 603,670 $ 563,787 ========== ========== Interest rate spread 3.84% 3.61% ======== ======== Net interest income $ 6,124 $ 5,624 ========== ========= Taxable equivalent adjustment $ 241 $ 247 ========== ========= Net yield on earning assets 4.24% 4.17% ========= ========
13 PROVISION AND RESERVE FOR LOAN LOSSES The allowance for loan losses is to provide for losses inherent in the loan portfolio. The Bank's Loan Committee has responsibility for determining the level of the allowance for loan losses, subject to the review of the Board of Directors. Among other factors, the Committee on a quarterly basis considers the Corporation's historical loss experience, the size and composition of the loan portfolio, the value and adequacy of collateral and guarantors, non-performing credits including impaired loans, the Bank's loan "Watch" list, and national and local economic conditions. The provision for loan losses was $240,000 for the first three months of 2003 versus $183,000 for the same period in 2002. Net charged off loans were $91,000 for the first three months of 2003 versus $94,000 for the same period in 2002. The annualized ratio of net charge-offs to average outstanding loans was ..09% in 2003 and .10% in 2002. Management considers these charge-off ratios lower than those of their peer banks, who generally consider charge-off levels of .10% to .40% to be within reasonable norms from a historical perspective. The reserve for loan losses totaled $5,771,000 at March 31, 2003, an increase of 2.7% over the $5,622,000 recorded at December 31, 2002. The ratio of reserves to loans, less unearned discount, was 1.37% at March 31, 2003 versus 1.38% at December 31, 2002. Management believes that the allowance for loan losses is adequate to absorb any inherent losses on existing loans in the Corporation's loan portfolio at March 31, 2003. NON-INTEREST INCOME Non-interest income for the first three months of 2003 was $1,462,000, an increase of 4.8% from $1,395,000 reported in the same period of 2002. The comparative increase was due to increase in service charge income, mortgage banking fees, and other fees and commissions which offset the market-driven decline in trust and investment services revenue. Service charges on deposit accounts grew 15.9% or $58,000 in the first three months of 2003 when compared to the same period in 2002. Mortgage banking revenue increased 56.1% or $46,000 in the first three months of 2003 when compared to the same period in 2002. Trust and investment services income of $606,000 during the first three months of 2003 was down 9.0% compared to the same period in 2002. Because a majority of trust account fees are calculated based on the market value of the assets under management, the performance of the equity markets continues to affect trust financial performance. The Bank's trust division managed accounts whose market values approximated $291,000,000 at March 31, 2003, compared to $332,000,000 one year prior, a 12.3% decline in asset value. The growth in new trust business and increased management fees slightly offset the continued low valuations in the financial markets, which negatively impacted asset values under management. NON-INTEREST EXPENSE Non-interest expense for the first three months of 2003 was $3,809,000, an 8.9% increase from the $3,498,000 reported for the same period last year. Salaries increased 10.8% from the same period last year to $1,721,000 in 2003 while pension and other employee benefits increased 19.5% to $448,000. The salary increase is due to the growth in staff in the areas of trust and investment services and lending, the accrual for incentive compensation which was not accrued in the prior period, and overall annual salary increases. Occupancy and equipment increased $29,000, or 4.7%, for the first three months of 2003 from the same period in 2002. These increases were primarily the result of the Henry County, Virginia office that opened in March 2002, increased technology software and hardware costs, and increases in building maintenance expenses. 14 Core deposit intangible amortization of $112,000 for the first three months of 2003 and 2002 represents the amortization of the premium paid for deposits acquired at the Gretna office in 1995 and Yanceyville office in 1996. These are being amortized on a ten year straight-line basis. The efficiency ratio, a productivity measure used to determine how well non-interest expense is managed, was 50.29% and 49.97% for the three months ended March 31, 2003 and 2002, respectively. A lower efficiency ratio generally indicates better expense efficiency. Leaders in expense efficiency in the banking industry have achieved ratios in the 45% to 50% range while the majority of the industry remains in the 60-70% range. INCOME TAX PROVISION The income tax provision for the first three months of 2003 was $962,000, an increase of $70,000 from $892,000 reported a year earlier. The effective tax rate for the first three months of 2003 was 29.2% compared to 28.9% for the same period of 2002. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES GENERAL Total assets increased 1.4% to $614,177,000 at March 31, 2003 when compared to assets of $605,859,000 at December 31, 2002. On an annual basis total assets increased 6.9% at March 31, 2003 when compared to assets of $574,559,000 at March 31, 2002. For the first three months of 2003 asset growth has been concentrated in the loan portfolio. Loans grew 3.3% or $13,349,000 to $419,752,000 at March 31, 2003, up from $406,403,000 at December 31, 2002. Loan growth has been concentrated in the commercial and commercial real estate sectors of the portfolio. The funding for the loan growth was through both deposit growth and a decline in interest-bearing deposits in other banks. Total deposits grew 2.0% or $9,515,000 to $483,077,000 at March 31, 2003 when compared to $473,562,000 at December 31, 2002. Deposits grew in time deposits, savings accounts and money market deposit accounts, with declines in demand deposit accounts. Interest-bearing deposits in other banks declined 69.6% or $4,675,000 from December 31, 2002 to March 31, 2003. ASSET QUALITY Non-performing loans include loans on which interest is no longer accrued, accruing loans that are contractually past due 90 days or more as to principal and interest payments, and loans classified as troubled debt restructurings. Loans in a non-accrual status at March 31, 2003 were $448,000 compared with $301,000 at December 31, 2002, and $771,000 on March 31, 2002. Loans on accrual status and past due 90 days or more at March 31, 2003 were $214,000 compared with $239,000 at December 31, 2002, and $171,000 on March 31, 2002. There were no loans classified as troubled debt restructurings on March 31, 2003, December 31, 2002 or March 31, 2002. Total non-performing loans as a percentage of total loans were 0.16% at March 31, 2003, 0.13% at December 31, 2002, and 0.25% at March 31, 2002. The Corporation's total non-performing loans are considered low by industry standards. Properties received due to loan foreclosures were $30,000 at March 31, 2003, $30,000 at December 31, 2002, and $117,000 at March 31, 2002. The gross amount of interest income that would have been recorded on non-accrual loans and restructured loans as of March 31, 2003, if all such loans had been accruing interest at the original contractual rate, was $13,000 for the 15 three month period ending March 31, 2003. No interest payments were recorded as interest income during the reporting period for all such non-performing loans. LIQUIDITY Management monitors and plans the Corporation's liquidity position for future periods. Liquidity is provided from cash and due from banks, interest-bearing deposits in other banks, repayments from loans, increases in deposits, lines of credit from two correspondent banks and two federal agency banks and a planned structured continuous maturity of investments. Management believes that these factors provide sufficient and timely liquidity for the foreseeable future. Management also takes into account any liquidity needs generated by off-balance sheet transactions such as commitments to extend credit, commitments to purchase securities and standby letters of credit. The Corporation's net liquid assets, which includes cash and due from banks, unpledged government securities, unpledged other securities with remaining maturities of less than two years, less the Bank's reserve requirement, to net liabilities ratio was 18.3% at March 31, 2003 and 19.1% at December 31, 2002. Both of these ratios are considered to reflect adequate liquidity for the respective periods. The Bank has a line of credit equal to 15% of assets with the Federal Home Loan Bank of Atlanta (FHLB) that equaled approximately $92,038,000 with $71,538,000 available at March 31, 2003. Should the Bank ever desire to increase their line of credit beyond the current 15% limit, the FHLB would allow borrowings of up to 40% of total assets once the bank meets specific eligibility requirements. The Bank also has federal funds lines of credit facilities established with two other banks in the amounts of $12,000,000 and $5,000,000, as well as has access to the Federal Reserve Bank of Richmond's discount window should a liquidity crisis occur. The Bank has not used these facilities in the past year and considers these as backup sources of funds. Borrowings outstanding under the FHLB line of credit were $21,500,000 at March 31, 2003 and $22,000,000 at December 31, 2002. The Bank has nine fixed rate term borrowing contracts outstanding as of March 31, 2003, with the following final maturities: Amount Expiration Date --------- --------------- 500,000 July 2003 1,500,000 January 2004 1,500,000 July 2004 3,000,000 July 2005 1,000,000 July 2006 1,000,000 July 2007 3,000,000 June 2008 5,000,000 August 2008 5,000,000 April 2009 OFF-BALANCE SHEET TRANSACTIONS The Corporation enters into certain financial transactions in the ordinary course of performing traditional banking services that result in off-balance sheet transactions. The off-balance sheet transactions recognized as of March 31, 2003 and December 31, 2002 were commitments to extent credit and standby letters of credit only. The Corporation does not have any off-balance sheet subsidiaries or special purpose entities. Commitments to extend credit, which amount to $110,909,000 at March 31, 2003 and $107,771,000 at December 31, 2002, represent legally binding agreements to lend to customers with fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements. 16 No commitments to purchase securities existed on March 31, 2003 and December 31, 2002. Standby letters of credit are conditional commitments issued by the Bank guaranteeing the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. At March 31, 2003 and December 31, 2002, the Bank had $3,704,000 and $3,489,000 respectively, in outstanding standby letters of credit. CAPITAL RESOURCES The following table displays the changes in shareholders' equity from December 31, 2002, to March 31, 2003: Equity, December 31, 2002 $ 70,736,000 Net earnings 2,334,000 Repurchase of common stock (889,000) Cash dividends paid (1,033,000) Net change in accumulated other comprehensive income (231,000) ------------- Equity, March 31, 2003 $ 70,917,000 ============= During the first quarter of 2003, the Corporation declared and paid a quarterly cash dividend of $.18 per share. The dividend totaled $1,033,000 and represented a 44.3% payout of first quarter 2003 net income. The Corporation's Board of Directors authorized the repurchase of up to 300,000 shares of the Corporation's common stock between August 16, 2000 and August 15, 2001, 250,000 shares between August 29, 2001 and August 28, 2002, and 250,000 shares between August 21, 2002 and August 19, 2003. The repurchases, which may be made through open market purchases or in privately negotiated transactions, were 35,000 shares during the first quarter of 2003 and total 374,466 shares since purchases began on August 16, 2000. Federal regulatory risk-based capital ratio guidelines require percentages to be applied to various assets including off-balance-sheet assets in relation to their perceived risk. Tier I capital includes shareholders' equity and Tier II capital includes certain components of nonpermanent preferred stock and subordinated debt. The Corporation had no preferred stock or subordinated debt outstanding. Banks and bank holding companies must have a Tier I capital ratio of at least 4% and a total ratio, including Tier I and Tier II capital, of at least 8%. As of March 31, 2003 the Corporation had a ratio of 14.23% for Tier I and a ratio of 15.45% for total capital. At December 31, 2002 these ratios were 14.41% and 15.63%, respectively. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The effective management of market risk is essential to achieving the Corporation's objectives. Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. This risk of loss can be reflected in diminished current market values and/or reduced potential net interest income in future periods. The Corporation is not subject to currency exchange risk or commodity price risk. As a financial institution, interest rate risk and its impact on net interest income is the primary market risk exposure. The Asset/Liability Investment Committee ("ALCO") is primarily responsible for establishing asset and liability strategies and for monitoring and controlling liquidity and interest rate risk. 17 ALCO uses computer simulation analysis to measure the sensitivity of earnings and market value of equity to changes in interest rates. The projected changes in net interest income and market value of portfolio equity ("MVE") to changes in interest rates are calculated and monitored by ALCO as indicators of interest rate risk. The projected changes in net interest income and MVE to changes in interest rates at March 31, 2003 and December 31, 2002 were within compliance of established policy guidelines. These projected changes are based on numerous assumptions of growth and changes in the mix of assets or liabilities. Net interest income for the next twelve months is projected to increase when interest rates are higher than current rates and decrease when interest rates are lower than current rates. ITEM 4. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation's management, including the Corporation's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Corporation's Chief Executive Officer and Chief Financial Officer concluded that the Corporation's disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in periodic SEC filings. There have been no significant changes in the Corporation's internal controls or in other factors that could significantly affect internal controls subsequent to the date the Corporation carries out its evaluation. 18 PART II OTHER INFORMATION Item: 1. Legal Proceedings The nature of the business of the Corporation's banking subsidiary ordinarily results in a certain amount of litigation. The subsidiary of the Corporation is involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities arising from these proceedings will not have a material adverse effect on the consolidated financial position or consolidated results of operations of the Corporation. 2. Changes in securities and use of proceeds None 3. Defaults upon senior securities None 4. Results of votes of security holders None 5. Other information None 6. Exhibits and Reports on Form 8-K (a) Exhibits - 99.1 Section 906 Certification of Charles H. Majors, President and CEO 99.2 Section 906 Certification of Brad E. Schwartz, Senior Vice President and CFO (b) Reports on Form 8-K: Amended Bylaws dated April 22, 2003, filed April 23, 2003 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN NATIONAL BANKSHARES INC. /s/ Charles H. Majors --------------------------------------------- Charles H. Majors Date - May 13, 2003 President and Chief Executive Officer /s/ Brad E. Schwartz --------------------------------------------- Brad E. Schwartz Senior Vice-President and Date - May 13, 2003 Secretary-Treasurer (Chief Financial Officer) 19 SECTION 302 CERTIFICATION - ------------------------- I, Charles H. Majors, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American National Bankshares Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Charles H. Majors - ------------------------------------- Charles H. Majors, President and Chief Executive Officer 20 SECTION 302 CERTIFICATION - ------------------------- I, Brad E. Schwartz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of American National Bankshares Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Brad E. Schwartz - ------------------------------------------------- Brad E. Schwartz, Senior Vice President and Chief Financial Officer 21 EX-99 2 exhibit99mar0310q.txt EXHIBITS 99.1 & 99.2 ON 03/31/2003 10-Q Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANNES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of American National Bankshares Inc. (the "Company") for the period ending March 31 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles H. Majors, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbannes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Charles H. Majors - ------------------------------------- Charles H. Majors President and Chief Executive Officer May 13, 2003 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANNES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of American National Bankshares Inc. (the "Company") for the period ending March 31 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles H. Majors, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbannes-Oxley Act of 2002, that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Brad E. Schwartz - --------------------------------------------- Brad E. Schwartz Senior Vice-President and Secretary-Treasurer (Chief Financial Officer) May 13, 2003 -----END PRIVACY-ENHANCED MESSAGE-----