-----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, POus3YEo2znXk+yZ4cCdvRSUCQQqJzA87o2ovZVR1zkV+ZgJFgZa+93e8kPKOmjC 4HrYu5mgAbuP4VVqaS/SkA== 0000741516-96-000004.txt : 19960402 0000741516-96-000004.hdr.sgml : 19960402 ACCESSION NUMBER: 0000741516-96-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12820 FILM NUMBER: 96542501 BUSINESS ADDRESS: STREET 1: 628 MAIN ST CITY: DANVILLE STATE: VA ZIP: 24541 BUSINESS PHONE: 8047925111 MAIL ADDRESS: STREET 1: 628 MAIN STREET CITY: DANVILLE STATE: VA ZIP: 24541 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 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) Registrant's telephone number, including area code: 804-792-5111 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Title of each class Common Stock ($1.00 Par Value) 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 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. Yes X No Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 25, 1996 Common Stock ($1.00 Par Value) 3,279,798 Shares State the aggregate market value of the voting stock held by non-affiliates of the registrant Aggregate market value of voting Based upon the price of the most stock held by non-affiliates recent sale known to management as of $78,085,647 March 25, 1996 DOCUMENTS INCORPORATED BY REFERENCE (1) Annual Report to Shareholders for year ended December 31, 1995 is incorporated herein by reference in response to Items 6, 7, 8, 13 and 14. (2) Notice of Annual Meeting of Shareholders and Proxy Statement dated March 29, 1996 is incorporated herein by reference in response to Items 1, 10, 12 and 13. 1 PART I ITEM 1 - BUSINESS American National Bankshares Inc. (the Corporation) is a one-bank holding company which was organized under the laws of the State of Virginia in 1984. On September 1, 1984, the Corporation acquired all of the outstanding capital stock of American National Bank and Trust Company (the Bank), a National Banking Association chartered in 1909 under the laws of the United States. The Bank is the only subsidiary of the Corporation. At March 25, 1996 the Corporation employed 146 persons. American National Bank and Trust Company The Bank has been operating as a commercial bank in Danville, Virginia since its organization in 1909. On March 14, 1996, the Corporation completed the acquisition of Mutual Savings Bank, F.S.B. (Mutual) and Mutual was merged with and into American National Bank and Trust Company. In this transaction the Corporation exchanged 879,798 common shares, at an exchange ratio of .705 of a share of the Corporation's common stock, for each of Mutual's 1,248,100 common shares. The operations of the Bank are conducted at eight offices located throughout Danville, one office in Gretna, Virginia and one office at Collinsville, Virginia. The Bank offers all services normally offered by a full-service commercial bank, including commercial and individual demand and time deposit accounts, commercial and individual loans, trust services and automated teller machines. Competition The Bank's primary service area is generally defined as the City of Danville, Pittsylvania County and a portion of Henry County. Vigorous competition exists in this service area. The Bank competes not only with other commercial banks but also with diversified financial institutions such as a savings bank, money market and mutual funds, and mortgage and finance companies. As of March 25, 1996, there were approximately 16 banks operating in this service area. American National Bank and Trust Company is the largest bank operating solely in this service area. No new banks or savings and loan associations have been chartered in the Danville area in the past five years. Supervision and Regulation The Corporation is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the Act) and is registered as such with the Board of Governors of the Federal Reserve System (the Federal Reserve Board). As a bank holding company, the Corporation is required to file with the Federal Reserve Board an annual report and such other information as may be required. The Federal Reserve Board may also make examinations of the Corporation. The operations of the Bank are subject to federal statutes and to regulations of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation, which insures the Bank's deposits. The primary supervisory authority over the Bank is the Comptroller of the Currency, which regularly examines such areas as reserves, loans, investments, management practices and other aspects of the Bank's operations. These examinations are designed primarily for the protection of the Bank's depositors. In addition to these regular examinations, the Bank must furnish the Comptroller periodic reports containing a full and accurate statement of its affairs. As a national bank, the Bank is a member of the Federal Reserve System and is affected by general fiscal and monetary policies of the Federal Reserve Board. The techniques used by the Federal Reserve Board include setting the reserve requirements of member banks and establishing the discount rate on member bank borrowings. Government Monetary Policies and Economic Controls The policies of the Federal Reserve Board have a direct effect on the amount of bank loans and deposits and the interest rates charged and paid thereon. While current economic conditions, the policies of the Federal Reserve Board (and other regulatory authorities) designed to deal with these conditions and the impact of such conditions and policies upon the future business and earnings of the Bank cannot accurately be predicted, they can materially affect the revenues and income of commercial banks. Foreign Operations The Corporation does not engage in any foreign operations. 2 Executive Officers For information concerning the Executive Officers of the Corporation see EXECUTIVE OFFICERS, pages 8 through 11, of the Notice of Annual Meeting and Proxy Statement. ITEM 2 - PROPERTIES The principal executive offices of the Corporation as well as the principal executive offices of the Bank are located at 628 Main Street, Danville, Virginia. As of March 25, 1996 the Bank maintained seven full service branches located within the City of Danville at 1013 South Main Street, 1081 Riverside Drive, 239 Nor-Dan Drive, 1407 South Boston Road, 2016 West Main Street, 600 West Main Street and 103 Tower Drive. A full service branch is located at 109 Main Street, Gretna, Virginia and another full service branch is located at 625 Virginia Avenue, Collinsville, Virginia. The Bank owns and operates six Automated Teller Machines (ATMs). Four ATMs are located on branch office properties. One ATM is located at Piedmont Mall, Piedmont Drive in Danville and one ATM is located at the Express Mart, Inc., U. S. Route 29, Tightsqueeze, Virginia. All property is owned by the Bank with the exception of 2016 West Main Street, Danville, the ATM location at Piedmont Mall and the ATM location at the Express Mart, Inc. Both the land and building at 2016 West Main Street are leased and the space occupied at Piedmont Mall and the space occupied at the Express Mart, Inc. are leased. The Bank also owns a parking lot for its employees fronting on Ridge Street in close proximity to the main office. The Bank recently purchased approximately 2.5 acres of land on Piedmont Drive in Danville, opposite of Piedmont Mall for future expansion of its retail banking operations. There are no mortgages or liens against any property of the Bank or the Corporation. ITEM 3 - LEGAL PROCEEDINGS There are no legal actions or proceedings pending to which the Corporation is a party. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The Corporation's common stock is not traded on any stock exchange but is listed on the OTC (Over The Counter) Bulletin Board. At March 25, 1996 the Corporation had 1,652 shareholders. The tables below present the high and low sales' prices known to management for the Corporation's common stock and semi- annual dividends declared for the past two years. Market value and dividends are shown per share and are based on 2,400,000 shares outstanding for 1994 and 1995. First Second Third Fourth Market Value Quarter Quarter Quarter Quarter 1995 Common Stock $26.00 - 30.50 $27.00 - 30.50 $27.00 - 30.50 $28.00 - 31.00 1994 Common Stock $29.00 - 29.50 $29.00 - 30.50 $30.50 - 30.50 $30.50 - 30.50 Per Share First Second Third Fourth Dividends Declared Quarter Quarter Quarter Quarter Total 1995 Common Stock $ - $ .27 $ - $ .29 $ .56 1994 Common Stock $ - $ .25 $ - $ .50 $ .75 ITEM 6 - SELECTED FINANCIAL DATA The information contained on page 4 of the 1995 Annual Report is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information set forth under the above caption on pages 6 through 19 of the 1995 Annual Report is herein incorporated by reference. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the registrant and Report of Independent Public Accountants set forth on pages 20 through 30 of the 1995 Annual Report are incorporated herein by reference: 3 Report of Independent Public Accountants Consolidated Statements of Income - Years ended December 31, 1995, 1994 and 1993 Consolidated Balance Sheets - As of December 31, 1995 and 1994 Consolidated Statements of Changes in Shareholders' Investment - Years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements ITEM 9 - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information with respect to the Directors and Executive Officers of the Registrant see pages 6 through 11 of the attached Notice of Annual Meeting and Proxy Statement, which is herein incorporated by reference. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) The information set forth under the caption INFORMATION AS TO VOTING SECURITIES on page 4 of the Notice of Annual Meeting and Proxy Statement is herein incorporated by reference. (b) Security ownership by management as outlined on pages 6 and 7 of the notice of Annual Meeting and Proxy Statement under the captions NOMINEES and DIRECTORS CONTINUING IN OFFICE is herein incorporated by reference. (c) There are no arrangements known to the registrant, the operation of which may at a subsequent date result in control of the registrant. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth under the caption INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT on page 11 of the attached Notice of Annual Meeting and Proxy Statement and the information set forth under the caption RELATED PARTY TRANSACTIONS on page 29 of the 1995 Annual Report is herein incorporated by reference. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of Documents filed as part of this Report: (1) Financial Statements All financial statements of the registrant as set forth under Item 8 of this Report on Form 10-K. (2) Financial Statement Schedules All schedules are omitted since the required information is either not applicable, not deemed material or is shown in the respective financial statements or in the notes thereto of the attached 1994 Annual Report. (3) Exhibits An Exhibit Index is set forth on page 6 of this report. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1995. SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) 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. March 26, 1996 AMERICAN NATIONAL BANKSHARES INC. By: /s/ David Hyler Senior Vice President, Secretary & Treasurer 4 Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 26, 1996. /s/ Charles H. Majors President and Chief Executive Officer /s/ Richard G. Barkhouser Director /s/ B. Carrington Bidgood Director /s/ Fred A. Blair Director /s/ H. Dan Davis Director /s/ E. Budge Kent, Jr. Director /s/ Fred B. Leggett, Jr. Director /s/ Landon R. Wyatt, Jr. Director /s/ David Hyler Senior Vice President Secretary & Treasurer 5 EXHIBIT INDEX Page Number or Incorporation Exhibit by Reference to 1 Articles of Incorporation and By-Laws Exhibit III on Form S-14 Registration Statement filed April 4, 1985 2 Notice of Annual Meeting and Proxy Statement EX-28 3 1995 Annual Report to Shareholders EX-13 4 Financial Data Schedule EX-27 4 a. Agreement between American National Bank and Exhibit 4a. on Form 10-K Trust Company and James A. Motley dated filed March 28, 1994 August 26, 1982, as amended August 11, 1987 b. Agreement between American National Bank and Exhibit 4b. on Form 10-K Trust Company and Charles H. Majors dated filed March 28, 1994 February 22, 1993 c. Agreement between American National Bank and Exhibit 4c. on Form 10-K Trust Company and E. Budge Kent, Jr. dated filed March 28, 1994 August 31, 1982, as amended August 11, 1987 d. Agreement between American National Bank and Exhibit 4d. on Form 10-K Trust Company and David Hyler dated filed March 28, 1994 August 31, 1982, as amended August 11, 1987 e. Agreement between American National Bank and Exhibit 4e. on Form 10-K Trust Company and Gilmer D. Jefferson dated filed March 28, 1994 August 25, 1982, as amended August 11, 1987 f. Agreement between American National Bank and Exhibit 4f. on Form 10-K Trust Company and Carl T. Yeatts dated filed March 28, 1994 August 26, 1982, as amended August 11, 1987 5. Agreement and Plan of Reorganization, dated as Exhibit 2.1 on Form 8-K of September 26, 1995, by and between American filed September 27, 1995 National Bankshares Inc. and Mutual Savings Bank, F.S.B. 6. Plan of Merger, dated as of September 26, 1995, Exhibit 2.2 on Form 8-K by and between American National Bank and filed September 27, 1995 Trust Company and Mutual Savings Bank, F.S.B. 7. Text of joint press release, dated September Exhibit 99.1 on Form 8-K 26, 1995, issued by American National filed September 27, 1995 Bankshares Inc. and Mutual Savings Bank, F.S.B. 6 EX-13 2 1995 Annual Report ---------------------------- | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ---------------------------- American National Bankshares Inc. 1995 Annual Report American National Bankshares Inc. is a bank holding company whose only subsidiary is American National Bank and Trust Company. The Bank offers a wide variety of retail, commercial and trust banking services through its offices located in the trade area of the City of Danville, Virginia and the County of Pittsylvania. Annual Shareholders' Meeting The Annual Meeting of Shareholders of Ameri- can National Bankshares Inc. will be held Tuesday, April 23, 1996 at 11:30 a.m. in the Piedmont Room, of the Howard Johnson Hotel, 100 Tower Drive, Danville, Virginia. Form 10-K The form 10-K Report filed with the Securities and Exchange Commission may be obtained without charge by request to Charles H. Majors, President and Chief Executive Officer, American National Bankshares Inc., P. O. Box 191, Danville, Virginia, 24543. TABLE OF CONTENTS President's Report........................... 3 Selected Financial Data...................... 4 Management's Discussion and Analysis......... 6 Management's Report on Financial Statements..20 Report of Independent Public Accountants.....20 Consolidated Financial Statements............21 Notes to Consolidated Financial Statements...25 1
Financial Highlights American National Bankshares Inc. For the Year Ended December 31 Percent 1995 1994 Change Balance Sheet Highlights (in thousands) Total assets.....................................................$305,083 $253,768 20.2 % Deposits......................................................... 259,830 215,861 20.4 Net loans........................................................ 172,815 151,126 14.4 Investment securities............................................ 109,303 79,251 37.9 Shareholders' investment......................................... 34,125 30,786 10.8 Income Statement Highlights (in thousands) Net interest income..............................................$ 11,184 $ 9,683 15.5 % Provision for loan losses........................................ 476 272 75.0 Non-interest income.............................................. 1,927 1,886 2.2 Non-interest expense............................................. 6,768 6,119 10.6 Net income....................................................... 4,023 3,533 13.9 Per Share Data Net income.......................................................$ 1.68 $ 1.47 14.3 % Regular cash dividends paid...................................... .56 .50 12.0 Extra cash dividends paid........................................ .25 - Book value....................................................... 14.22 12.83 10.8 Statistical Highlights Return on average assets......................................... 1.49% 1.43% Return on average shareholders' investment....................... 12.32% 11.64%
1991 1992 1993 1994 1995 Net Income (in millions) $3,052 $3,494 $3,303 $3,533 $4,023 1991 1992 1993 1994 1995 Regular Dividends Paid (per share) $0.41 $0.44 $0.47 $0.50 $0.56
2 American National Bankshares Inc. P.O. Box 191 - 628 Main Street - Danville, Virginia 24543 Phone 1-804-792-5111 March 14, 1996 TO OUR SHAREHOLDERS: We have exciting things to report to you. First, our net income for 1995 increased 13.9% over 1994. For the first time, our earnings exceeded $4 million, resulting in record net income of $1.68 per share. Our return on average assets increased to 1.49% and our return on average shareholders' investment increased to 12.32%. In August 1995, we completed the purchase of Crestar Bank's branch office in Gretna, Virginia, adding $36 million in deposits and $2 million in loans. Improved lending conditions enabled us to increase our outstanding loans by $21 million. Assets at the end of 1995 exceeded $305 million, a 20% increase over the $253 million at 1994 year end. Our shareholders' investment increased almost 11% to over $34 million. In September 1995, we signed an agreement to acquire Mutual Savings Bank, F.S.B. by its merger into American National Bank and Trust Company. Today we completed that transaction and we now have 8 offices in Danville, the office in Gretna and an office in Collinsville, Virginia. This transaction has increased our total assets by $84 million and makes us the sixth largest independent bank in Virginia. In 1995, we completed our three-year strategic plan outlining how we expect to meet our mission of providing quality financial services and exceptional customer service. We believe this strategic plan has been and will continue to be a vital part of our continued success. Since October 1995, we have had several market makers in our stock and our transactions are now reported on the OTC Bulletin Board under the symbol "AMNB". We believe this will provide greater marketability and liquidity for our stock. We appreciate the confidence and loyalty of our customers and shareholders. We look forward to the new customers and new shareholders from the recent merger with Mutual Savings Bank. I wish to express my appreciation for the dedicated work of our employees. They have made 1995 a success and have begun to continue that success in 1996. We look forward to the challenges and opportunities we face together. Very truly yours, /s/ Charles H. Majors Charles H. Majors President & Chief Executive Officer 3
SUMMARY of SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share amounts) American National Bankshares Inc. and Subsidiary 1995 1994 1993 1992 1991 Operations Information: Interest income: Loans................................ $ 15,008 $ 11,798 $ 10,607 $ 11,039 $ 13,068 Federal funds sold and other......... 159 171 322 490 616 Investment securities................ 4,580 4,088 4,989 5,820 5,843 -------- -------- -------- -------- -------- Total interest income.............. 19,747 16,057 15,918 17,349 19,527 Interest expense....................... 8,563 6,374 7,017 8,826 11,669 -------- -------- -------- -------- -------- Net interest income.................... 11,184 9,683 8,901 8,523 7,858 Provision for loan losses.............. -476 -272 -214 -230 -214 Non-interest income.................... 1,927 1,886 1,871 1,728 1,383 Non-interest expense................... -6,768 -6,119 -5,772 -5,290 -4,981 -------- -------- -------- -------- -------- Income before income taxes............. 5,867 5,178 4,786 4,731 4,046 Income taxes........................... 1,844 1,645 1,483 1,237 994 -------- -------- -------- -------- -------- Net income............................. $ 4,023 $ 3,533 $ 3,303 $ 3,494 $ 3,052 ======== ======== ======== ======== ======== Balance Sheet Information: Investment securities.................. $109,303 $ 79,251 $ 91,826 $ 93,560 $ 85,822 Net loans.............................. 174,294 151,126 137,877 127,940 121,686 Total deposits......................... 259,830 215,861 217,655 212,439 200,620 Shareholders' investment............... 34,125 30,786 29,082 26,907 24,997 Total assets........................... 306,562 253,768 247,706 240,589 228,033 Per Share Information:* Net income............................. $ 1.68 $ 1.47 $ 1.38 $ 1.46 $ 1.27 Dividends.............................. .56 .75 .47 .66 .41 Book value............................. 14.22 12.83 12.12 11.21 10.42 Ratios: Return on average assets............... 1.49% 1.43% 1.36% 1.48% 1.37% Return on average shareholders' equity. 12.32 11.64 11.96 13.50 12.93 Total risk-based capital/assets........ 20.12 21.30 22.25 22.20 22.05 Leverage capital/assets................ 11.19 12.13 11.74 11.18 10.96 Net charge-offs to average net loans... .11 .05 .12 .11 .09 Reserve for loan losses to period-end loans, net of unearned income........ 1.50 1.53 1.54 1.61 1.62 * Per share amounts are based on 2,400,000 shares outstanding and have been restated to retroactively reflect a 2 for 1 stock split declared on April 21, 1992.
_______________________________________________________________________________ MARKET PRICE OF THE CORPORATION'S COMMON STOCK: Price per share Price per share known to management known to management 1994 Low High 1995 Low High 4th quarter $30.50 $30.50 4th quarter $28.00 $31.00 3rd quarter $30.50 $30.50 3rd quarter $27.00 $30.50 2nd quarter $29.50 $30.50 2nd quarter $27.00 $30.50 1st quarter $29.00 $29.50 1st quarter $26.00 $30.50 American National Bankshares Inc. common stock is traded in the over-the-counter market and is quoted on the OTC Bulletin Board under the symbol "AMNB". At December 31, 1995 there were 903 shareholders of record.
1991 1992 1993 1994 1995 Shareholders' Investment (in millions) $24,997 $26,907 $29,082 $30,786 $34,125
4 The following table presents the Corporation's average assets, liabilities and shareholders' investment for each of the past three years:
AVERAGE ASSETS 1995 1994 1993 Cash and Due from Banks..................................$ 8,993,806 $ 9,870,473 $ 10,718,599 Investment Securities: Securities available for sale.......................... 17,764,263 461,483 -- Securities held to maturity............................ 66,413,659 82,346,549 88,322,335 ------------ ------------ ------------ Average investment securities......................... 84,177,922 82,808,032 88,322,335 ------------ ------------ ------------ Loans.................................................... 168,761,745 150,768,216 137,807,306 Less: Unearned income.................................... -1,277,765 -3,108,380 -3,868,646 Reserve for loan losses............................ -2,502,148 -2,243,121 -2,176,180 ------------ ------------ ------------ Average net loans.................................. 164,981,832 145,416,715 131,762,480 Federal Funds Sold....................................... 2,304,986 1,251,972 4,959,511 Federal Reserve Bank stock, Federal Home Loan Bank stock and other.......................................... 958,860 834,661 201,500 Bank Premises and Equipment.............................. 3,540,673 3,145,712 3,323,240 Accrued Interest Receivable and Other Assets............. 4,133,645 3,453,243 3,648,718 ------------ ------------ ------------ Average assets.....................................$269,091,724 $246,780,808 $242,936,383 ============ ============ ============ AVERAGE LIABILITIES and SHAREHOLDERS' INVESTMENT LIABILITIES: Demand deposits -- non-interest bearing................$ 28,678,999 $ 25,235,223 $ 23,374,779 Demand deposits -- interest bearing.................... 33,762,979 30,917,878 30,141,138 Money market deposits.................................. 16,317,873 19,735,360 21,755,018 Savings deposits....................................... 50,626,596 56,870,304 58,538,081 Time deposits.......................................... 98,394,198 80,886,019 79,631,765 ------------ ------------ ------------ Average deposits................................. 227,780,645 213,644,784 213,440,781 Federal funds purchased................................ 1,071,810 663,397 106,182 Securities sold under repurchase agreements............ 5,877,593 370,334 -- Accrued interest payable and other liabilities......... 1,718,059 1,764,981 1,766,907 ------------ ------------ ------------ Average liabilities.............................. 236,448,107 216,443,496 215,313,870 ------------ ------------ ------------ SHAREHOLDERS' INVESTMENT: Common stock........................................... 2,400,000 2,400,000 2,400,000 Capital in excess of par value......................... 5,400,000 5,400,000 5,400,000 Net unrealized gains (losses)........................... 152,568 -2,437 -- Retained earnings...................................... 24,691,049 22,539,749 19,822,513 ------------ ------------ ------------ Average shareholders' investment.................... 32,643,617 30,337,312 27,622,513 ------------ ------------ ------------ Average liabilities and shareholders' investment....$269,091,724 $246,780,808 $242,936,383 ============ ============ ============ 5
MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS American National Bankshares Inc. (the Corporation) was organized in 1984 for the purpose of acquiring all of the outstanding shares of American National Bank and Trust Company (the Bank). The Bank was chartered and opened for business in February 1909. Under an agreement and plan of merger, the Bank was acquired by the Corporation on September 1, 1984. Performance Summary Net income increased 14% to $4,023,000 for the year 1995. This amount established a new high in earnings for the history of the Bank and the Corporation. The Company reported in its SEC Form 8-K, filed September 7, 1995, that it had acquired the branch office of Crestar Bank at Gretna, Virginia on August 24, 1995. In addition to the branch facilities at Gretna, the Company acquired $2,150,000 in loans and assumed deposits of $36,295,000. The economy of the Bank's trade area continues to be healthy as evidenced by a strong loan demand. During 1995 net loans increased by a total of $21,689,000 or 14%, including the loans from the Gretna branch acquisition. Excluding the acquired Gretna loans, the percentage increase was 13%. Total deposits increased during 1995 by $43,969,000 or 20% including the Gretna acquisition. Excluding the Gretna acquisition of deposits, the increase was $7,674,000 or 4% over the prior year. In addition to deposits, the Company increased its repurchase agreements by $3,467,000 or 57%. No repurchase agreements were acquired from the Gretna branch purchase. Earnings and Capital On a per common share basis net income was $1.68 in 1995, $1.47 in 1994, and $1.38 in 1993. The significant items affecting the increase in net earnings per share in 1995 are summarized as follows: 1994 Earnings per Share $1.47 Net interest income .62 Provision for loan losses (.08) Non-interest income .02 Non-interest expense (.27) Income tax provision (.08) Net increase .21 1995 Earnings Per Share $1.68 The Corporation increased its capital during 1995 by $3,340,000 or 11% through the retention of $2,679,000 in earnings and an increase in net unrealized gains on securities of $661,000. This followed an increase in capital of $1,704,000, or 6%, in 1994. The increase in 1994 resulted from a combination of an increase in retained earnings of $1,733,000 and a decrease from a net unrealized loss on securities of $29,000. Shareholders' investment was 11.2% of assets at December 31, 1995 and 12.1% at December 31, 1994. During 1995, the Corporation increased its reserve for loan losses to $2,649,000 an increase of $296,000 or 13% from 1994. The reserve, as a percentage of loans, was 1.51% at December 31, 1995 and 1.53% at December 31, 1994. Return on average total assets was 1.49% in 1995, compared with 1.43% in 1994 and 1.36% in 1993. The return on average shareholders' investment was 12.32% in 1995, 11.64% in 1994, and 11.96% in 1993. Shareholders' equity was $34,125,000 at December 31, 1995 and $30,786,000 at December 31, 1994. This was an increase of $3,340,000 or 11% over the prior year-end. The total market value of American National Bankshares Inc. common stock at $28.875 per share (the last trade recorded on the OTC Bulletin Board during 1995) was $69,300,000. he market value was 203 percent of the $34,125,000 shareholders' investment. Book value per common share was $14.22 at the close of 1995. Merger with Mutual On September 26, 1995, American National Bankshares Inc. and Mutual Savings Bank, F.S.B. signed and announced a definitive merger agreement providing for the merger of Mutual into American National Bank and Trust Company. American National Bankshares Inc. agreed to exchange .705 of a share of its common stock for each share of Mutual common stock and assume all outstanding Mutual stock options. Based on American National Bankshares stock price as of February 27, 1996 of $27, the transaction represents an exchange value of approximately $19.04 for each share of Mutual common stock. The purchase price will be 1.69 times Mutual's June 30, 1995 book value. The merger, which will be accounted for as a pooling of interests, was consummated during the first quarter of 1996. The merger is also expected to be a tax-free reorganization for federal income tax purposes. At December 31, 1995, Mutual had total assets of approximately $84,706,000, total deposits of approximately $68,732,000 and shareholders' equity of $14,956,000. Upon consummation of the merger, the Corporation will have total assets of approximately $390,000,000, total deposits 6 of approximately $329,000,000, total shareholder's equity of approximately $47,000,000. According to a survey of independent Virginia banks published by Scott & Stringfellow Inc. in 1995, American National Bank will be the sixth largest independent commercial bank in Virginia based on assets and deposits and the third largest based on equity after the merger is consummated. American National Bankshares will have more than 3,200,000 shares of common stock outstanding, held by more than 1,500 shareholders. Trends and Future Events The economic conditions of the Corporation's trade area have continued to be healthy during the year 1995 as evidenced by a strong loan demand. The Corporation's net loans grew at a rate of 14% during 1995. The indicated strong loan demand is expected to continue into 1996. The weighted average yield on interest earning assets and the weighted average cost of deposits increased during 1995 due to a combination of increased volume in both assets and deposits and an increase in rates of loans and deposits. As a result of the Corporation's asset and liability repricing strategy and increased loan demand, the Corporation was able to increase its net interest income (interest income less interest expense) by 16%. Management believes the Corporation positioned itself to continue to maintain this level of net interest income into the near future. During 1995, time deposits increased by $40,680,000 or 51%. Interest bearing demand deposits increased $6,666,000 or 21% and non-interest bearing demand deposits also increased by $4,035,000 or 15%. Money market deposits declined by $4,366,000 or 20% and savings deposits declined by $3,047,000 or 6%. The net effect of these changes in the Corporation's deposit structure reduced the Corporation's dependency on short term deposits and provided more stable funding for loans with the increase in time deposits. On February 1, 1996, the Federal Reserve Bank lowered its discount rate by 1/4% and the major money center banks followed by lowering their prime rate by 1/4%. Although a downward trend has been indicated in early 1996, Management does not expect a major shift of funds within the Bank's deposit categories in 1996. As mandated by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC adopted regulations effective January 1, 1993, for the transition from a flat-rate insurance assessment system to a risk-based system by January 1, 1994. Pursuant to these regulations, the Bank's deposit insurance assessment was set at the lowest allowable rate of $.23 per $100 of deposits for the year 1994. During the year 1995 the assessment rate was further dropped to $.04 per $100 of deposits. The Bank has been advised that for the first six months of 1996, it will be assessed the minimum fee of $500 per calendar quarter. Among other things, FDICIA identifies five capital categories for insured depository institutions: "well capitalized", "adequately capitalized", "undercapitalized", "significantly undercapitalized" and "critically undercapitalized". FDICIA requires the federal banking regulators to take prompt corrective action with respect to insured depository institutions that do not meet minimum capital requirements. The FRB has adopted regulations establishing relevant capital requirements for banks. Under the regulations, a well capitalized institution must have a Tier I risk-based capital ratio of at least six percent, a total risk-based capital ratio of at least ten percent and a leverage ratio of at least five percent and not be subject to a capital directive order. Under these guidelines the Bank has always been and continues to be considered well capitalized. Net Interest Income Net interest income, the most significant component of earnings, is the excess of interest income over interest expense. For analytical purposes, net interest income is adjusted to a taxable equivalent basis to recognize the income tax savings on tax-exempt assets, such as state and municipal securities. A tax rate of 34% was used in adjusting interest on tax-exempt securities and loans to a fully taxable equivalent basis for the years 1995, 1994 and 1993. During 1995, taxable equivalent net interest income increased to $11,421,000, up 15% from $9,958,000 in 1994. Taxable equivalent net interest income for 1994 was up 8% from the $9,226,000 recorded in 1993. The $1,463,000 increase in taxable equivalent net interest income during 1995 consisted of $827,000 due to increases in volume and $636,000 due to increases in rates. The $732,000 increase in taxable equivalent net interest income during 1994 was the net result of an increase of $514,000 due to volume and $218,000 due to increases in rate. Due to the reduced availability of qualified tax exempt investments and loans, a reduction in tax exempt assets is expected in future years. 7 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):
Average Balance Interest Income/Expense Average Yield/Rate 1995 1994 1993 1995 1994 1993 1995 1994 1993 Interest income Loans: Commercial $ 57,173 $ 51,460 $ 43,664 $ 5,103 $ 3,939 $ 2,970 8.93 % 7.65 % 6.80 % Mortgage 72,816 65,570 62,792 6,405 5,081 4,901 8.80 7.75 7.80 Installment 37,495 30,630 27,483 3,542 2,845 2,838 9.45 9.29 10.33 -------- -------- -------- ------- ------- ------- Total loans 167,484 147,660 133,939 15,050 11,865 10,709 8.99 8.04 8.00 -------- -------- -------- ------- ------- ------- Investment securities: U. S. Government 71,290 68,058 69,315 3,860 3,204 3,710 5.41 4.71 5.35 Federal agencies 2,729 4,320 8,624 149 273 623 5.46 6.32 7.22 State and municipal 10,149 10,420 10,373 765 818 879 7.54 7.85 8.48 Other investments 10 10 10 1 1 1 5.50 5.50 5.50 -------- -------- -------- ------- ------- ------- Total investment securities 84,178 82,808 88,322 4,775 4,296 5,213 5.67 5.19 5.90 -------- -------- -------- ------- ------- ------- Federal funds sold and other 2,612 3,459 8,446 159 171 321 6.09 4.94 3.81 -------- -------- -------- ------- ------- ------- Total interest-earning assets 254,274 233,927 230,707 $19,984 $16,332 $16,243 7.86 6.98 7.04 -------- -------- -------- ------- ------- ------- ----- ----- ----- Non-earning assets 14,818 12,854 12,229 -------- -------- -------- Total assets $269,092 $246,781 $242,936 ======== ======== ======== Interest expense Deposits: Demand $ 33,763 $ 30,918 $ 30,141 $ 1,007 $ 752 $ 797 2.98 2.43 2.64 Money market 16,318 19,736 21,755 524 510 591 3.21 2.58 2.72 Savings 50,627 56,870 58,538 1,524 1,577 1,871 3.01 2.77 3.20 Time 98,394 80,886 79,632 5,201 3,494 3,755 5.29 4.32 4.72 -------- -------- -------- ------- ------- ------- Total deposits 199,102 188,410 190,066 8,256 6,333 7,014 4.15 3.36 3.69 Federal funds purchased 1,072 664 106 66 29 3 6.16 4.37 2.83 Repurchase agreements 5,877 370 -- 241 12 -- 4.10 3.24 -------- -------- -------- ------- ------- ------- Total interest-bearing liabilities 206,051 189,444 190,172 $ 8,563 $ 6,374 $ 7,017 4.16 3.36 3.69 ------- ------- ------- ----- ----- ----- Demand deposits 28,679 25,235 23,375 Other liabilities 1,718 1,765 1,767 Shareholders' investment 32,644 30,337 27,622 -------- -------- -------- Total liabilities and shareholders' investment $269,092 $246,781 $242,936 ======== ======== ======== Interest rate spread 3.70 % 3.62 % 3.35 % ===== ===== ===== Net interest income $11,421 $ 9,958 $ 9,226 ======= ======= ======= Taxable equivalent adjustment $ 237 $ 275 $ 325 ======= ======= ======= Net yield on earning assets 4.49 % 4.26 % 4.00 % ===== ===== ===== 8
Changes in Net Interest Income (Rate/Volume Analysis) Net interest income is the product of the volume of average earning assets and the average rates earned, less the volume of average interest-bearing liabilities and the average rates paid. The portion of change relating to both rate and volume is allocated to each of the rate and volume changes based on the relative change in each category. The following table analyzes the changes in both rate and volume components of net interest income on a taxable equivalent basis for the past two years (in thousands):
1995 vs. 1994 1994 vs. 1993 Interest Change Interest Change Increase Attributable to Increase Attributable to (Decrease) Rate Volume (Decrease) Rate Volume Interest Income: Loans: Commercial $1,164 $ 698 $ 466 $ 969 $ 400 $ 569 Mortgage 1,324 728 596 180 -35 215 Installment 697 49 648 7 -301 308 ------ ------ ------ ------ ------ ------ Total loans 3,185 1,475 1,710 1,156 64 1,092 ------ ------ ------ ------ ------ ------ Investment securities: U.S. Government 656 498 158 -506 -440 -66 Federal agencies -124 -33 -91 -350 -70 -280 State and municipal -53 -32 -21 -61 -65 4 ------ ------ ------ ------ ------ ------ Total investment securities 479 433 46 -917 -575 -342 ------ ------ ------ ------ ------ ------ Federal funds sold and other -12 35 -47 -150 77 -227 ------ ------ ------ ------ ------ ------ Total interest income 3,652 1,943 1,709 89 -434 523 ------ ------ ------ ------ ------ ------ Interest expense Deposits: Demand 255 181 74 -45 -65 20 Money market 14 111 -97 -81 -28 -53 Savings -53 128 -181 -294 -242 -52 Time 1,707 868 839 -261 -319 58 ------ ------ ------ ------ ------ ------ Total deposits 1,923 1,288 635 -681 -654 -27 Federal funds purchased 37 15 22 26 2 24 Repurchase agreements 229 4 225 12 -- 12 ------ ------ ------ ------ ------ ------ Total interest expense 2,189 1,307 882 -643 -652 9 ------ ------ ------ ------ ------ ------ Net interest income $1,463 $ 636 $ 827 $ 732 $ 218 $ 514 ====== ====== ====== ====== ====== ======
Provision and Reserve for Loan Losses The provision for loan losses is an amount added to the reserve against which loan losses are charged. The amount of the provision is determined by management based upon its assessment of the size and quality of the loan portfolio and the adequacy of the reserve in relation to the risks inherent within the loan portfolio. The 1995 provision for loan losses was $476,000 and compares with $272,000 in 1994 and $214,000 in 1993. The reserve for loan losses totaled $2,649,000 at December 31, 1995, an increase of 13% over December 31, 1994. The increase in the reserve for loan losses during 1995 of $296,000 consists of the provision of $476,000 less net charge-offs of $180,000. The ratio of reserve to loans, less unearned discount, was 1.51% at December 31, 1995 and 1.53% at December 31, 1994. The Corporation's Loan Committee has responsibility for determining the level of the reserve for loan losses, subject to the review of the Board of Directors. The Loan Committee has taken economic factors, as well as any other external events that may affect the value and collectibility of the loan portfolio, into consideration when making its assessment and recommendation. The methodology used to determine the level of the loan loss reserve on a quarterly basis includes the identification of losses from a review of the Corporation's loan "Watch" list. In addition to these identifiable potential losses, an experience factor for each major category of loans is applied against the remaining portion of the loans considered to have no more than a normal risk 9 of collectibility. Additional factors considered in determining the level of the loan loss reserve are economic conditions, historical losses, trends and other external factors. The sum of these elements is the Loan Committee's recommended level of the reserve for loan losses. If the existing level of the loan loss reserve is below the Loan Committee's recommended level of the reserve at the close of an interim period, an increase sufficient to eliminate the deficiency is recorded in the current period provision for loan losses. If the existing level of the reserve exceeds the recommended level at the close of an interim period, no adjustment is made to the provision for loan losses if loan growth is expected. The economy of the Corporation's trade area, which includes the City of Danville and Pittsylvania County, is dependent primarily on the success of the city's largest employer (a textile manufacturing firm), tobacco farming (the major crop of rural Pittsylvania County), tobacco marketing and processing and the city's second largest employer, a tire manufacturing plant. Textile manufacturing, tobacco farming and tobacco processing have been subjected to extreme market pressures in recent years. The local economy of the Corporation's trade area continues to be strong at this time and the Corporation's loan losses have not been significant in recent years; however, an inherent risk to the loan portfolio exists if a significant decline occurs in any of these industries along with a corresponding reduction in employment. Management believes the reserve for loan losses is appropriate in view of this geographic concentration. The adoption in 1995, of Statement of Financial Accounting Standards Nos. 114 and 118, which address accounting by creditors for loan impairment, did not have a significant impact on the provision for loan losses. Management has allocated the reserve for loan losses to loan categories as follows (in thousands):
1995 1994 1993 1992 1991 __________________ _________________ _________________ __________________ _______________ Percent Percent Percent Percent Percent of loans of loans of loans of loans of loans in each in each in each in each in each category category category category category to total to total to total to total to total Amount loans Amount loans Amount loans Amount loans Amount loans Commercial and agricultural loans $ 1,570 28 % $ 1,505 28 % $ 1,378 25 % $ 1,339 28 % $ 1,280 29% Real estate- construction loans 47 3 45 2 41 1 40 2 38 2 Real estate- mortgage loans 261 46 253 46 232 51 225 48 215 48 Installment loans 682 23 471 24 431 23 419 22 400 21 Unallocated 89 -- 79 -- 73 -- 71 -- 68 -- Balance at end of year $ 2,649 100 % $ 2,353 100 % $ 2,155 100 % $ 2,094 100 % $ 2,001 100%
Management's criteria for evaluating the adequacy of its loan loss reserve includes individual evaluation of significant loans and overall portfolio analyses of more homogeneous, smaller balance loan portfolios. Based on management's evaluation, estimated loan loss reserves are assigned to the individual loans which present a greater risk of loan loss. The remaining loan loss reserve is allocated to the remaining loans on an overall portfolio basis based on historical loss experience. The assessed risk of loan loss is higher in the commercial and agricultural loan categories as these categories contain loans which are more significant to ANB and to the individual borrowers, thereby exposing ANB to a greater risk of loss in the event of downturns in the financial position of individual borrowers. The remaining loan categories are typically for lesser amounts and are distributed over a much larger population of borrowers, thereby reducing the Corporation's risk of loan loss. _______________________________________________________________________________
Loan Losses - Ratios 1995 1994 1993 ------- ------- ------- Reserve as percentage of outstanding loans, net of unearned income 1.51% 1.53% 1.54% Net charge-offs as percentage of reserve 6.78 3.11 7.07 Net charge-offs as percentage of average loans, net of unearned income 0.11 0.05 .12 Provision as percentage of net charge-offs 264.77 371.51 140.12 Provision as percentage of average loans, net of unearned income 0.28 0.18 .16 Reserve for loan losses to nonperforming loans 94.62 X 13.76 X 4.61 X
10 Non-Interest Income Non-interest income totaled $1,926,000 in 1995 compared with $1,886,000 in 1994 and $1,871,000 in 1993. This was an increase of 2% during 1995. During 1994, non-interest income increased 1% from the 1993 level. The major components of non-interest income are trust department income, service charges on deposit accounts, non-deposit fees and insurance commissions and other income. The trust department services have been expanded in both corporate and personal trusts during the past three years and the income from the administration of several large estates during this period has caused some fluctuation in the department's income. The trust department reported income of $1,343,000 in 1995, a decrease of 4% from the $1,396,000 in 1994 which in turn was a 5% decrease from the $1,470,000 reported in 1993. The trust department has recently expanded its services to include alternate investments for both corporate and personal trusts. Service charges on deposit accounts were $361,000 in 1995, an increase of 30% over $279,000 reported in 1994, which was a 9% increase over the $256,000 recorded for 1993. The increase in 1995 was caused in part by the increase in deposit accounts of $36,295,000 from the acquisition of the Gretna branch office. Non-deposit fees and insurance commissions were $93,000 in 1995, a decrease of 10% from the $104,000 in 1994. The amount recorded in 1994 was an increase of 29% over the $80,000 recorded in 1993. In 1994 the Bank increased its loans with related non-deposit fees and insurance commissions. Due to market conditions the Bank was not able to sustain the same increase in such loans during 1995. Other income was $128,000 in 1995, an increase of 20% over the $107,000 in 1994, which in turn was an increase of 66% over the $65,000 in 1993. The increase in both 1994 and 1995 resulted primarily from dividends received from the Federal Home Loan Bank. During 1995 the Bank increased its investment in the Federal Home Loan Bank. Non-Interest Expense Non-interest expense totaled $6,768,000 in 1995, an increase of $649,000 or 11% over the $6,119,000 in 1994, which in turn was an increase of $347,000 or 6% over the $5,772,000 recorded for 1993. Non-interest expense includes salaries, pension and other employee benefits, occupancy and equipment expense, postage and printing and other expenses. Salaries totaled $2,991,000 for 1995, an increase of 8% over 1994. The increase in 1995 included the addition of employees from the acquisition of the Gretna branch office. Salaries totaled $2,767,000 in 1994, an increase of 1% over the $2,754,000 for 1993. Pension and other employee benefits totaled $843,000 in 1995, an increase of 23% over the $683,000 recorded in 1994 which in turn was an increase of 45% over the $472,000 reported in 1993. The increase in 1994 was due primarily to an increase in pension cost. In 1995 both the pension plan and the executive deferred compensation plan were amended and employees from the Gretna acquisition were added to the pension plan. The total occupancy and equipment expense was $871,000 for both 1995 and 1994. The total of 1994 was an increase of 5% over the $831,000 recorded in 1993. FDIC insurance expense was $253,000 in 1995, a decrease of 48% from the $484,000 recorded in 1994. The 1994 FDIC insurance expense was an increase of 3% over the $470,000 shown in 1993. The increase in 1994 was the result of an increase in the deposit assessment base. The decrease in 1995 resulted from a reduction, at mid-year, in the premium required by the FDIC, from $.23 per one hundred of deposits to $.04 per one hundred of deposits. The Bank will receive a further reduction in 1996. The FDIC has notified the Bank that the assessment for the first six months of 1996 will be at the minimum of $500 per quarter. Postage and printing expense was $248,000 in 1995, an increase of 4% from the $237,000 recorded in 1994, which in turn was a decrease of 7% from the $255,000 recorded in 1993. Other expenses were $1,562,000 in 1995, an increase of 45% over the $1,076,000 reported in 1994. Other expenses in 1994 increased 9% over the $991,000 recorded in 1993. Other expenses in 1995 included $103,000 of amortization expense of core deposit intangibles related to the Gretna acquisition and expenditures made in 1995 of approximately $140,000 for legal and other fees related to the merger with Mutual Savings Bank. Other expenses in 1995 also included an increase in consulting fees for general operational and planning purposes. Income Taxes The provision for income taxes (total of current and deferred) was $1,844,000 in 1995, compared with $1,645,000 in 1994 and $1,483,000 in 1993. In each year, the Corporation was subject to a Federal tax rate of 34%. The major difference between the statutory rate and the effective rate results from income which is not taxable for Federal income tax purposes. The primary non-taxable income 11 is that of state and municipal securities and industrial revenue bonds or loans. The increase in the 1995 provision for income taxes, compared to the 1994 provision, results primarily from an increase in taxable income caused by increases in pre-tax income and lower amounts of non-taxable income due to limited availability of tax exempt investments. Capital Management Regulatory agencies issued risk-based capital guidelines which were fully effective in 1992. The guidelines were established to more appropriately consider the credit risk inherent in the assets and off-balance sheet activities of a financial institution in the assessment of capital adequacy. Under the guidelines, total capital has been redefined as core (Tier I) capital and supplementary (Tier II) capital. The Bank's Tier I capital consists primarily of shareholder's equity, while Tier II capital consists of the reserve for loan losses. The definition of assets has been modified to include items on and off the balance sheet, with each item being assigned a "risk-weight" for the determination of the ratio of capital to risk-adjusted assets. The guidelines require that total capital (Tier I and Tier II) of 8% be held against total risk-adjusted assets, at least half of which (4%) must be Tier I capital. At December 31, 1995, the Bank's Tier I and Total capital ratios were 18.9% and 20.3%, respectively. At December 31, 1994, these ratios were 20.1% and 21.3%, respectively. The ratios for both years were well in excess of the regulatory requirements. The Corporation's leverage ratios (shareholder's equity divided by year-end assets) were 11.19% and 12.13% at December 31, 1995 and 1994, respectively. The leverage ratio has a regulatory minimum of 3%, with most institutions required to maintain a ratio 100 to 200 basis points above the 3% minimum depending upon risk profiles and other factors. The Corporation's 1995 capital formation rate (net income less dividends declared, divided by average shareholders' investment) was 8.2%. This compares with 5.7% in 1994 and 7.9% in 1993. These ratios evidence the Corporation's attainment of its goal of meeting future capital requirements by retaining a portion of operating earnings while providing steadily increasing cash dividends. On May 16, 1995, the Board of Directors declared a regular semi-annual cash dividend of $.27 per share of common stock payable on June 23, 1995. On November 21, 1995, the Board of Directors declared a regular semi-annual cash dividend of $.29 per share of common stock making a total of $.56 dividends per share for 1995. Since 1990, regular cash dividends (excluding extra dividends) paid by the Corporation have increased at a compounded annual rate of 8%. The Board of Directors reviews the Corporation's dividend policy regularly and increases dividends when justified by earnings after considering future capital needs. Liquidity Liquidity is the measure of the Corporation's ability to generate sufficient funds to meet customer demands for loans and the withdrawal of deposit balances. The Corporation, in its normal course of business, maintains cash reserves and has an adequate flow of funds from maturing loans and investment securities to meet present liquidity needs. Expansion of the Corporation's earning assets is based largely on the growth of deposits from individuals and small and medium size businesses. These deposits are more stable in number and size than large denomination certificates of deposit. In addition, the Corporation's customers have relatively stable requirements for funds. The Corporation's major source of funds and liquidity is its deposit base. The mix of this deposit base has been shifting over the past few years. During 1995 the trend in this shifting has been to time deposits due to an increase in interest rates. The most notable changes in the components of the deposit base during 1995 consisted of a 51% increase in time deposits, a 21% increase in interest bearing demand deposits, a 15% increase in non-interest bearing demand deposits, a 20% decrease in money market deposits and a 6% decrease in savings deposits. In 1994 deposit interest rates were lower but began to rise in the latter part of the year. The most notable changes in the components of the deposit base during 1994 consisted of a 7% increase in money market deposits, a 3% increase in certificates of deposit and a 9% decrease in savings deposits. Demand deposits (both interest bearing and non- interest bearing) remained approximately the same in 1994. The 1995 Consolidated Statement of Cash Flows appearing in the financial statement section shows a net decrease in cash and cash equivalents of $3,194,000 during the past year. This decrease was the result of a combination of $4,376,000 provided by operating activities, $17,488,000 net cash used by investing activities (primarily used to purchase securities with the proceeds of assumed deposits from the Gretna, Virginia acquisition), and $9,919,000 provided by financing activities. It is the policy of the Bank to schedule maturities of investments through a laddered structure which provides 12 sources of liquidity on a periodic basis in each year. The cash provided by operating and financing activities, in addition to the cash provided by maturing of investments, more than adequately supplied the Corporation's liquidity needs at all times during the year. Liquidity strategies are implemented and monitored by the Corporation's Asset Liability/Investment Committee on a day to day basis. The activities of the Committee are reported to and reviewed by the Board of Directors. The Committee uses a simulation model to assess the future liquidity needs of the Corporation and manage the investment of funds and net interest income. The Corporation's ability to reprice both assets and liabilities, as well as its policy to schedule maturities of investments, give it flexibility in its control over liquidity needs. The following interest rate sensitivity table reflects the Corporation's assets and liabilities on December 31, 1995 that will either be repriced in accordance with market rates or mature within the periods indicated. The Corporation monitors and manages its interest rate risk position with the objectives of increasing earnings and minimizing adverse changes in net interest income. The objectives are attained through a policy of maintaining a relatively balanced interest-sensitive ratio. The optimum position for the least risk to the Corporation is a ratio of 1.00. Although management attempts to maintain a ratio close to 1.00, in a declining interest rate market it is more desirable to have a ratio below 1.00, permitting the Corporation to reprice more liabilities than assets. In a rising interest rate market, however, it is more advantageous to have a ratio greater than 1.00, allowing the Corporation to reprice a greater amount of assets than liabilities. Although all of the ratios shown below do not appear as balanced, it should be recognized that the Corporation's interest-sensitive position changes quickly as a result of management decisions and market conditions. No prepayment assumptions are reflected in the table. The table shows the sensitivity of the Corporation's balance sheet at one point in time and is not necessarily indicative of its position on other dates.
Interest Rate Sensitivity Analysis December 31, 1995 (in thousands) Over 3 Over 6 3 Months Months Over 1 Months - 6 - 12 Year - Over 5 or Less Months Months 5 years Years Total Interest sensitive assets: Interest bearing deposits with other banks $ 128 $ -- $ -- $ -- $ -- $ 128 Investment securities 11,009 6,880 12,513 68,606 10,295 109,303 Commercial loans 42,879 1,996 6,351 2,289 1,319 54,834 Mortgage loans 25,995 8,248 21,959 19,031 5,212 80,445 Consumer loans 5,462 3,448 6,758 25,268 -- 40,936 Federal funds sold 1,100 -- -- -- -- 1,100 -------- -------- -------- -------- -------- -------- Total interest sensitive assets 86,573 20,572 47,581 115,194 16,826 286,746 -------- -------- -------- -------- -------- -------- Interest sensitive liabilities: NOW and savings deposits 89,421 -- -- -- -- 89,421 Money market deposits 17,550 -- -- -- -- 17,550 Time deposits 24,073 19,265 21,563 56,095 -- 120,996 Repurchase agreements 8,715 558 299 -- -- 9,572 -------- -------- -------- -------- -------- -------- Total interest sensitive liabilities 139,759 19,823 21,862 56,095 -- 237,539 -------- -------- -------- -------- -------- -------- Interest sensitivity gap $-53,186 749 25,719 59,099 16,826 $ 49,207 ======== -------- -------- -------- -------- ======== Cumulative interest sensitivity gap $-52,437 $-26,718 $ 32,381 $ 49,207 ======== ======== ======== ======== Percentage of cumulative gap to total interest sensitive assets -19 % -18 % -9 % 11 % 17 %
Investment securities include $44,080 designated as "available for sale". Of the loans in the above table that either mature or can be repriced in periods over 1 year, $25,109 have adjustable rates and $28,010 have fixed rates. 13 Investment Portfolio
INVESTMENT PORTFOLIO The following table presents information on the book and market values, maturities and taxable equivalent yields of investment securities at the end of the last 3 years (in thousands, except yields): 1995 1994 1993 ----------------------------- ----------------------------- --------------------------- Taxable Taxable Taxable Book Market Equivalent Book Market Equivalent Book Market Equivalent Value Value Yield Value Value Yield Value Value Yield U.S. Government: Within 1 year $29,055 $29,124 5.60 % $29,059 $28,590 4.11 % $33,029 $33,211 5.16 % 1 to 5 years 64,923 65,091 6.00 36,893 35,719 5.75 40,305 40,480 4.42 ------- ------- ------- ------- ------- ------- Total 93,978 94,215 5.88 65,952 64,309 5.03 73,334 73,691 4.75 ------- ------- ------- ------- ------- ------- Federal Agencies: Within 1 year 452 456 7.15 -- -- -- -- -- -- 1 to 5 years 2,002 1,985 4.68 2,568 2,383 5.21 7,875 7,951 7.12 After 10 years 199 210 8.27 241 237 8.27 331 354 8.27 ------- ------- ------- ------- ------- ------- Total 2,653 2,651 7.49 2,809 2,620 5.47 8,206 8,305 7.13 ------- ------- ------- ------- ------- ------- State and Municipal: Within 1 year 885 888 7.91 1,395 1,397 9.08 1,416 1,442 10.08 1 to 5 years 1,681 1,733 8.74 2,194 2,213 9.35 3,522 3,692 9.16 6 to 10 years 6,556 6,807 8.27 6,221 6,029 8.50 4,201 4,468 8.73 After 10 years 3,540 3,540 7.59 670 653 8.87 1,137 1,191 8.37 ------- ------- ------- ------- ------- ------- Total 12,662 12,968 8.18 10,480 10,292 8.78 10,276 10,793 9.03 ------- ------- ------- ------- ------- ------- Other Investments: Within 1 year 10 10 5.50 -- -- -- -- -- -- 1 to 5 years -- -- -- 10 10 5.50 10 10 5.50 ------- ------- ------- ------- ------- ------- Total 10 10 5.50 10 10 5.50 10 10 5.50 ------- ------- ------- ------- ------- ------- Total portfolio $109,303 $109,844 6.12 $79,251 $77,231 5.54 $91,826 $92,799 5.38% ======== ======== ======= ======= ======= =======
At December 31, 1995, securities available for sale included (at amortized cost) $38,783,000 in U. S. Governments and $4,339,000 in State and Municipal securities. A net unrealized gain of $958,000 related to these securities was recorded at December 31, 1995. At December 31, 1994, one U. S. Government security maturing within 1 to 5 years with an amortized cost of $2,794,000 was classified as "available for sale". In 1994 the Corporation recorded a net unrealized loss of $29,000 on this security. The "held to maturity" securities totaled $65,223,000 and $76,486,000 at December 31, 1995 and 1994, respectively and had respective estimated fair values of $65,763,000 and $74,466,000. Of the amount at December 31, 1995, $54,347,000, or 83%, were U. S. Government direct obligations, all maturing within 5 years. Securities "held to maturity" in 1995 also included $2,653,000, or 4%, in Federal agency obligations, maturing within 5 years. The remaining portion of the "held to maturity" category (13%), consisted of $8,213,000 tax exempt state and municipal securities and $10,000 in other investments. The state and municipal securities were diversified among many different issues and localities. All investments by the Corporation in state and municipal securities were rated "A" or better. The book value of the total investment portfolio at December 31, 1995 exceeded the market value by $1,498,000. No losses are anticipated since the Corporation has the ability and intent to hold these securities until their respective maturities. The maturities of the investment portfolio are laddered in a consistent pattern to meet the Corporation's liquidity needs of future years. - ------------------------------------------------------------------- Loan Portfolio Total gross loans increased $20,779,000 or 13% during 1995. As shown in schedule A on page 15, the primary increases in types of loans were commercial and industrial loans, loans to individuals for personal expenditures, real estate loans secured by nonfarm, nonresidential properties and real estate loans secured by 1 - 4 family residential properties. The loan portfolio is diversified and consists of 46% mortgage loans, 31% commercial loans and 23% consumer loans. Note 9 of the Consolidated Financial Statements presents related party loan activity. The majority of the loan additions and payments result from floorplan activity by two automobile dealerships owned separately by two of the Corporation's Directors. The Corporation does not participate in highly leveraged lending transactions, as defined by the bank regulators and there are no loans of this nature recorded in the loan portfolio. The Corporation has no foreign loans in its portfolio. Real Estate Loans Commercial real estate loans have received considerable attention in recent years by the bank regulators and the news media. The concerns have been in real estate values in certain areas of the country and the quality of banks' commercial real estate portfolios. It is difficult to measure commercial real estate values within the Corporation's trade area due to the light sales activity. Commercial real estate values did not escalate to levels seen in other areas of the state and country during the ten years prior to the last recession and Management has not detected a significant change in values within our trade area during 1995 or 1994. Management has confined its real estate lending to its trade area and has always taken a 14 conservative approach in its lending practice to maintain equity in real estate loans. The Bank has not experienced any commercial real estate charge-offs in recent years. The Corporation is conforming to the real estate appraisal guidelines set forth by the Comptroller of the Currency. The total of outstanding real estate loans at December 31, 1995 was $84,608,000. This consisted of $47,332,000 or 56% in loans secured by 1-4 family residential properties, $31,083,000 or 37% in loans secured by non-farm, non- residential properties, $5,032,000 or 6% in construction and land development, $1,032,000 or 1% in loans secured by farmland and $129,000 of other real estate loans. Nonperforming real estate loans at December 31, 1995 and 1994 were $12,000 and $22,000, respectively. There were $23,000 in real estate loans on accrual status and past due 90 days or more at December 31, 1995 and none at December 31, 1994. Asset Quality The Corporation identifies specific credit exposures through its periodic analysis of the loan portfolio and monitors general exposures from economic trends, market values and other external factors. The Corporation maintains a reserve for loan losses, which is available to absorb losses inherent in the loan portfolio. The reserve is increased by the provision for losses and by recoveries from losses. Charge-offs decrease the reserve. The adequacy of the reserve for loan losses is determined on a quarterly basis. Various factors as defined in the previous section "Provision and Reserve for Loan Losses" are considered in determining the adequacy of the reserve. Loans, other than consumer, are generally placed on nonaccrual status when any portion of principal or interest is 90 days past due or collectibility is uncertain. Unless loans are in the process of collection, income recognized on consumer loans is discontinued and the loans are charged off after a delinquency of 90 days. At December 31, 1995 and 1994, loans in a nonaccrual or restructured status totaled approximately $28,000 and $171,000, respectively. Under the Corporation's policy a nonaccuring loan may be restored to accrual status when none of its principal and interest is due and unpaid and the Corporation expects repayment of the remaining contractual principal and interest or when it otherwise becomes well secured and in the process of collection. Nonperforming assets include loans on which interest is no longer accrued, loans classified as troubled debt restructurings and foreclosed properties. There were no foreclosed properties held at the close of 1995 and 1994. Foreclosed properties held at the close of 1993 were $17,500. As shown in schedule C on page 16, loans on accrual status and past due 90 days or more have increased during 1995 by $48,000 from $113,000 in 1994 to $161,000 in 1995. The increase occurred in all loan types except installment loans. Total nonperforming loans and past due loans 90 days or more on an accrual status is considered very low by industry standards.
A. The following table presents the year-end balances of loans, classified by type (in thousands): 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Real estate loans: Construction and land development $ 5,032 $ 3,684 $ 1,925 $ 2,416 $ 3,293 Secured by farmland 1,032 872 716 745 1,189 Secured by 1-4 family residential properties 47,332 43,458 42,194 39,985 37,098 Secured by multi-family (5 or more) residential properties 129 50 63 76 87 Secured by nonfarm, nonresidential properties 31,083 26,412 27,946 23,094 22,210 Loans for purchasing or carrying securities -- -- -- 40 42 Loans to farmers 2,529 2,173 1,768 2,066 2,458 Commercial and industrial loans 46,180 40,865 31,337 32,629 30,329 Loans to individuals for personal expenditures 40,936 35,512 35,358 28,928 26,168 Loans for nonrated industrial development obligations 1,901 2,155 2,528 3,666 4,462 All other loans 61 255 11 121 87 -------- -------- -------- -------- -------- Total loans $176,215 $155,436 $143,846 $133,766 $127,423 ======== ======== ======== ======== ========
There were no foreign loans outstanding during any of the above periods. 15 B. An analysis of the loan maturity and interest rate sensitivity is as follows:
Remaining Maturities or First Repricing Opportunities (in thousands) Over 1 Over 1 Year Year to Five or less 5 Years Years Total Percent Commercial, financial and agricultural $ 46,194 $ 2,289 $1,319 $ 49,802 28% Real estate construction 5,032 -- -- 5,032 3% Real estate mortgage 56,202 19,031 5,212 80,445 46% Consumer 15,668 25,268 -- 40,936 23% -------- ------- ------ -------- $123,096 $46,588 $6,531 $176,215 100.00% ======== ======= ====== ======== Rate Sensitivity: Pre-determined rate $ 14,417 $27,239 $ 771 $ 42,427 24% Floating or adjustable rate 108,679 19,349 5,760 133,788 76% -------- ------- ------ -------- $123,096 $46,588 $6,531 $176,215 100% ======== ======= ====== ======== Percent 70% 26% 4% 100%
Certain short term loans and demand loans within the commercial, financial and agricultural classifications are anticipated to be curtailed prior to any renewal. Normally these loans are expected to be paid within one year and all such loans have been classified within the one year category. Any rollovers allowed depend upon the Bank's loan policy after a reappraisal of the borrower's creditworthiness at the date of maturity.
C. Nonperforming loans and loans past due 90 days or more (in thousands, except ratios): 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Nonaccruing loans: Real Estate $12 $22 $138 $129 $165 Commercial -- 40 73 185 364 Agricultural 16 -- -- -- -- ---- ---- ---- ---- ---- Total nonaccruing loans 28 62 211 314 529 Restructured loans: Commercial -- 109 256 332 152 Total restructured loans -- 109 256 332 152 ---- ---- ---- ---- ---- Total nonperforming loans $28 $171 $467 $646 $681 ==== ==== ==== ==== ==== Loans on accrual status past due 90 days or more: Real Estate $23 $ -- $ -- $28 $85 Installment 95 112 108 61 235 Revolving credit 6 1 -- -- 2 Commercial 22 -- -- -- -- Agricultural 15 -- -- -- -- ---- ---- ---- ---- ---- Total past due loans $161 $113 $108 $89 $322 ==== ==== ==== ==== ==== Asset Quality Ratios: Reserve for loan losses to year-end net loans 1.51% 1.53% 1.54% 1.61% 1.62% Nonperforming loans to year-end net loans .02% .11% .34% .50% .56% Reserve for loan losses to nonperforming loans 94.62X 13.76X 4.61X 3.24X 2.94X
At December 31, 1995, the Bank had no loan concentrations (loans to borrowers engaged in similar activities) which exceeded 10% of total loans, other than as shown in A on page 15. 16 The total of nonperforming loans and loans past due 90 days or more at December 31, 1995 was $189,000, a decrease of $95,000 from the $284,000 shown at December 31, 1994. Total nonperforming loans and loans past due 90 days or more represent .1% of total loans at December 31, 1995 and .2% at December 31, 1994. The sizeable decline in nonperforming loans and loans past due 90 days or more from 1993 to the close of 1994 was due primarily to two large loans (one real estate and one commercial) that were returned to a current payment status in 1994 and in compliance with the guidelines of the Comptroller of the Currency and the Bank's loan policy. Management has in place an aggressive program to control loan delinquencies and the level of past due loans and nonperforming loans is considered to be within an acceptable range. Summary of Loan Loss Experience An analysis of the reserve for loan losses is set forth in the following table (in thousands):
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Balance at beginning of period $2,353 $2,155 $2,094 $2,001 $1,895 ------ ------ ------ ------ ------ Charge-offs: Commercial loans -- 5 80 24 7 Real estate loans -- 14 11 23 15 Installment loans 240 112 113 119 145 ------ ------ ------ ------ ------ 240 131 204 166 167 ------ ------ ------ ------ ------ Recoveries: Commercial loans -- -- -- -- 24 Real estate loans -- 4 -- -- -- Installmemt loans 60 53 51 29 35 ------ ------ ------ ------ ------ 60 57 51 29 59 ------ ------ ------ ------ ------ Net charge-offs 180 74 153 137 108 Provision for loan losses 476 272 214 230 214 ------ ------ ------ ------ ------ Balance at end of period $2,649 $2,353 $2,155 $2,094 $2,001 ====== ====== ====== ====== ====== Percent of net charge-offs to average net loans outstanding during the period .11% .05% .12% .11% .09% ====== ====== ====== ====== ======
The reserve for loan losses is based upon the quality of loans as determined by management taking into consideration historical loan loss experience, diversification of the loan portfolio, amount of secured and unsecured loans, banking industry standards and averages, and general economic conditions. At the time that collection of the outstanding balance of specific loans together with related interest is considered doubtful, such loans are placed in a nonaccruing status. 17 Deposits The following table presents the average amount of deposits and the average rate paid on those deposits for the past 3 years (in thousands):
1995 1994 1993 Average Average Average Average Average Average Amount Rate Amount Rate Amount Rate Demand deposits - non-interest bearing $ 28,679 -- % $ 25,235 -- % $ 23,375 -- % Demand deposits - interest bearing 33,763 2.98 30,918 2.43 30,141 2.64 Money market 16,318 3.21 19,736 2.59 21,755 2.72 Savings 50,627 3.01 56,870 2.77 58,538 3.20 Time 98,394 5.29 80,886 4.32 79,632 4.72 $227,781 4.15% $213,645 3.36% $213,441 3.69%
_____________________________________________________________________________ Certificates of Deposit Certificates of deposit at the end of 1995 in amounts of $100,000 or more were classified by maturity as follows (in thousands): 3 months or less $ 6,590 Over 3 through 6 months 3,338 Over 6 through 12 months 3,881 Over 12 months 9,767 $23,576 ______________________________________________________________________________ Return on Shareholders' Investment and Assets The following table presents certain rates of return and percentages for the past 3 years: 1995 1994 1993 Return on average assets 1.49% 1.43% 1.36% Return on average shareholders' investment 12.32% 11.64% 11.96% Dividend payout 33.41% 50.95% 34.15% Average shareholders' investment to average assets 12.13% 12.29% 11.37% Impact of Inflation and Changing Prices The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most industrial companies that have significant investments in fixed assets. Due to this fact, the effects of inflation on the Corporation's balance sheet are minimal, meaning that there are no substantial increases or decreases in net purchasing power over time. The most significant effect of inflation is on other expenses which tend to rise during periods of general inflation. Management feels that the most significant impact on financial results is changes in interest rates and the Corporation's ability to react to those changes. As discussed previously, management is attempting to maintain an essentially balanced position between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations. 18
QUARTERLY FINANCIAL RESULTS (in thousands, except per share amounts) American National Bankshares Inc. and Subsidiary Fourth Third Second First Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1995 ---- Interest Income $5,589 $5,069 $4,645 $4,444 Interest Expense 2,585 2,251 1,941 1,786 ------ ------ ------ ------ Net Interest Income 3,004 2,818 2,704 2,658 Provision for Loan Losses 102 160 121 93 ------ ------ ------ ------ Net Interest Income After Provision 2,902 2,658 2,583 2,565 Non-Interest Income 435 525 488 479 Non-Interest Expense 2,072 1,547 1,583 1,566 ------ ------ ------ ------ Income Before Income Tax Provision 1,265 1,636 1,488 1,478 Income Tax Provision 413 513 449 469 ------ ------ ------ ------ Net Income $ 852 $1,123 $1,039 $1,009 ====== ====== ====== ====== Per Common Share: Net Income $ .36 $ .47 $ .43 $ .42 Cash Dividends $ .29 $ -- $ .27 $ -- 1994 ---- Interest Income $4,304 $4,081 $3,842 $3,830 Interest Expense 1,703 1,579 1,540 1,552 ------ ------ ------ ------ Net Interest Income 2,601 2,502 2,302 2,278 Provision for Loan Losses 83 90 45 54 ------ ------ ------ ------ Net Interest Income After Provision 2,518 2,412 2,257 2,224 Non-Interest Income 558 422 489 417 Non-Interest Expense 1,666 1,496 1,471 1,486 ------ ------ ------ ------ Income Before Income Tax Provision 1,410 1,338 1,275 1,155 Income Tax Provision 451 440 394 360 ------ ------ ------ ------ Net Income $ 959 $ 898 $ 881 $ 795 ====== ====== ====== ====== Per Common Share: Net Income $ .40 $ .37 $ .37 $ .33 Cash Dividends $ .50 $ -- $ .25 $ -- 19 MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The following consolidated financial statements and related notes to consolidated financial statements of American National Bankshares Inc. and Subsidiary were prepared by Management which has the primary responsibility for the integrity of the financial information. The statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and include amounts that are based on Management's best estimates and judgement. Financial information elsewhere in this Annual Report is presented on a basis consistent with that in the financial statements. In meeting its responsibility for the fair presentation of the financial statements, Management relies on the Corporation's comprehensive system of internal accounting controls. This system provides reasonable assurance that assets are safeguarded and transactions are recorded to permit the preparation of appropriate financial information. The system of internal controls is characterized by an effective control-oriented environment within the Corporation which is augmented by written policies and procedures, internal audits and the careful selection and training of qualified personnel. The functioning of the accounting system and related internal accounting controls is under the general oversight of the Audit Committee of the Board of Directors which is comprised of three outside directors. The accounting system and related controls are reviewed by an extensive program of internal audits. The Audit Committee meets regularly with the internal auditors to review their work and ensure that they are properly discharging their responsibilities. In addition, the Committee reviews and approves the scope and timing of the internal audits and any findings with respect to the system of internal controls. The Audit Committee also meets periodically with representatives of Arthur Andersen LLP, the Corporation's independent public accountants, to discuss the results of their audit as well as other audit and financial matters. Reports of examinations conducted by the Office of the Comptroller of the Currency are also reviewed by the committee members. The responsibility of Arthur Andersen LLP is limited to an expression of their opinion as to the fairness of the financial statements presented. Their opinion is based on an audit conducted in accordance with generally accepted auditing standards as described in the second paragraph of their report. Charles H. Majors President and Chief Executive Officer David Hyler Senior Vice-President, Secretary & Treasurer - ----------------------------------------------------------------------------- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and the Board of Directors of American National Bankshares Inc.: We have audited the accompanying consolidated balance sheets of American National Bankshares Inc. (a Virginia corporation) and Subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' investment and cash flows for each of the three years in the period ended December 31, 1995. 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 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of American National Bankshares Inc. and Subsidiary as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Arthur Andersen LLP Greensboro, North Carolina, March 14, 1996. 20
CONSOLIDATED BALANCE SHEETS -- December 31, 1995 and 1994 American National Bankshares Inc. and Subsidiary ASSETS 1995 1994 Cash and due from banks .......................................$ 9,533,586 $ 9,177,088 Federal funds sold ............................................ 1,100,000 4,650,000 Interest-bearing deposits in other banks....................... 127,967 1,585,961 Investment securities: Securities available for sale (at market value).............. 44,080,318 2,764,680 Securities held to maturity (market value of $65,763,472 in 1995 and $74,466,613 in 1994)........................... 65,222,646 76,486,213 --------------- -------------- Total investment securities.............................. 109,302,964 79,250,893 --------------- -------------- Loans ......................................................... 176,215,261 155,435,934 Less-- Unearned income............................................ -751,360 -1,956,678 Reserve for loan losses.................................... -2,649,401 -2,353,411 --------------- -------------- Net loans.............................................. 172,814,500 151,125,845 --------------- -------------- Federal Reserve Bank stock, Federal Home Loan Bank stock and other, at cost................................... 962,800 944,600 Bank premises and equipment, at cost, less accumulated depreciation of $4,631,517 in 1995 and $4,239,886 in 1994.... 3,948,493 3,401,759 Accrued interest receivable and other assets................... 7,292,549 3,632,185 --------------- -------------- Total assets...........................................$ 305,082,859 $ 253,768,331 =============== ============== LIABILITIES and SHAREHOLDERS' INVESTMENT Liabilities: Demand deposits -- non-interest bearing......................$ 31,862,593 $ 27,827,503 Demand deposits -- interest bearing.......................... 38,439,165 31,773,232 Money market deposits........................................ 17,550,117 21,915,675 Savings deposits............................................. 50,981,782 54,028,591 Time deposits ............................................... 120,996,210 80,315,772 --------------- -------------- Total deposits......................................... 259,829,867 215,860,773 --------------- -------------- Repurchase agreements........................................ 9,572,035 6,104,795 Accrued interest payable and other liabilities............... 1,555,623 1,017,091 Total liabilities...................................... 270,957,525 222,982,659 Shareholders' investment: --------------- -------------- Preferred stock, $5 par, 200,000 shares authorized, none outstanding........................................... -- -- Common stock, $1 par, 3,000,000 shares authorized, 2,400,000 shares outstanding............................... 2,400,000 2,400,000 Capital in excess of par value............................... 5,400,000 5,400,000 Retained earnings............................................ 25,693,188 23,014,313 Net unrealized gains (losses)................................ 632,146 -28,641 --------------- -------------- Total shareholders' investment......................... 34,125,334 30,785,672 --------------- -------------- Total liabilities and shareholders' investment.........$ 305,082,859 $ 253,768,331 =============== ============== The accompanying notes to consolidated financial statements are an integral part of these balance sheets. 21
CONSOLIDATED STATEMENTS of INC0ME FOR the YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 American National Bankshares Inc. and Subsidiary 1995 1994 1993 Interest Income: Interest and fees on loans....................$ 15,008,441 $ 11,797,860 $ 10,606,879 Interest on federal funds sold and other...... 158,734 171,167 321,534 Income on investment securities: U. S. Government............................ 3,860,228 3,203,707 3,710,226 Federal agencies............................ 148,593 272,729 622,617 State and municipal (tax-exempt)............ 570,870 610,851 656,374 Other investments........................... 550 550 550 ------------- ------------- ------------- Total interest income..................... 19,747,416 16,056,864 15,918,180 ------------- ------------- ------------- Interest Expense: Interest on deposits: Demand...................................... 1,007,187 751,388 796,821 Money market................................ 524,306 510,267 591,229 Savings..................................... 1,523,570 1,577,452 1,870,521 Time........................................ 5,201,062 3,494,147 3,755,283 Interest on federal funds purchased and repurchase agreements....................... 307,014 41,033 3,387 ------------- ------------- ------------- Total interest expense.................... 8,563,139 6,374,287 7,017,241 ------------- ------------- ------------- Net Interest Income............................. 11,184,277 9,682,577 8,900,939 Provision for Loan Losses....................... 475,630 271,802 213,500 Net Interest Income After Provision ------------- ------------- ------------- For Loan Losses............................... 10,708,647 9,410,775 8,687,439 ------------- ------------- ------------- Non-Interest Income: Trust department income....................... 1,343,015 1,396,072 1,469,727 Service charges on deposit accounts........... 361,336 278,807 256,071 Non-deposit fees and insurance commissions.... 93,481 103,713 80,090 Other income.................................. 128,436 107,266 64,660 ------------- ------------- ------------- Total non-interest income................. 1,926,268 1,885,858 1,870,548 ------------- ------------- ------------- Non-Interest Expense: Salaries...................................... 2,991,094 2,767,447 2,753,944 Pension and other employee benefits........... 843,369 683,386 472,440 Occupancy and equipment expense............... 870,630 870,545 830,645 FDIC insurance expense........................ 253,039 484,337 469,690 Postage and printing.......................... 247,526 237,108 254,519 Other expenses................................ 1,562,382 1,076,129 991,009 ------------- ------------- ------------- Total non-interest expense................ 6,768,040 6,118,952 5,772,247 ------------- ------------- ------------- Income Before Income Tax Provision.............. 5,866,875 5,177,681 4,785,740 Income Tax Provision............................ 1,844,000 1,645,000 1,483,000 ------------- ------------- ------------- Net Income......................................$ 4,022,875 $ 3,532,681 $ 3,302,740 Net Income Per Common Share, based on ============= ============= ============= 2,400,000 shares outstanding.................. $1.68 $1.47 $1.38
The accompanying notes to consolidated financial statements are an integral part of these statements. 22
CONSOLIDATED STATEMENTS of CHANGES in SHAREHOLDERS' INVESTMENT FOR the YEARS ENDED DECEMBER 31, 1995, 1994 and 1993 American National Bankshares Inc. and Subsidiary Common Stock Capital in Net Total Excess of Retained Unrealized Shareholders' Shares Amount Par Value Earnings Gains (Losses) Investment Balance, December 31, 1992................. 2,400,000 $ 2,400,000 $ 5,400,000 $ 19,106,892 $ -- $ 26,906,892 Net income................................. -- -- -- 3,302,740 -- 3,302,740 Cash dividends, at $.47 per share.......... -- -- -- -1,128,000 -- -1,128,000 ------------ ------------ ------------ ------------- ------------ ------------- Balance, December 31, 1993................. 2,400,000 $ 2,400,000 $ 5,400,000 $ 21,281,632 $ -- $ 29,081,632 Net income................................. -- -- -- 3,532,681 -- 3,532,681 Cash dividends, at $.75 per share.......... -- -- -- -1,800,000 -- -1,800,000 Net unrealized loss........................ -- -- -- -- -28,641 -28,641 ------------ ------------ ------------ ------------- ------------ ------------- Balance, December 31, 1994................. 2,400,000 $ 2,400,000 $ 5,400,000 $ 23,014,313 $ -28,641 $ 30,785,672 Net income................................. -- -- -- 4,022,875 -- 4,022,875 Cash dividends, at $.56 per share.......... -- -- -- -1,344,000 -- -1,344,000 Net unrealized gain........................ -- -- -- -- 660,787 660,787 ------------ ------------ ------------ ------------- ------------ ------------- Balance, December 31, 1995............. 2,400,000 $ 2,400,000 $ 5,400,000 $ 25,693,188 $ 632,146 $ 34,125,334 ============ ============ ============ ============= ============ =============
23
CONSOLIDATED STATEMENTS of CASH FLOWS FOR the YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 American National Bankshares Inc. and Subsidiary 1995 1994 1993 Cash Flows from Operating Activities: Interest received.............................................. $ 18,779,282 $ 16,004,339 $ 16,392,487 Fees and commissions received.................................. 1,910,184 1,826,504 2,105,099 Interest paid.................................................. -8,306,940 -6,359,202 -7,064,332 Cash paid to suppliers and employees........................... -6,106,248 -5,723,550 -5,388,813 Income taxes paid.............................................. -1,900,517 -1,686,255 -1,736,707 -------------- -------------- -------------- Net cash provided by operating activities...................... 4,375,761 4,061,836 4,307,734 -------------- -------------- -------------- Cash Flows from Investing Activities: Acquisition of branch operations............................... 30,716,425 -- -- Proceeds from maturities and sales of investment securities.... 28,085,119 39,803,176 37,252,284 Purchase of investment securities and corporate stock.......... -57,278,228 -28,174,861 -35,815,616 Proceeds from maturing interest-bearing deposits in other banks.................................................. 1,457,994 2,000,000 -- Interest-bearing deposits made in other banks.................. -- -86,874 -1,498,725 Net increase in loans made to customers........................ -20,015,489 -13,520,859 -10,150,260 Capital expenditures........................................... -453,663 -623,829 -363,823 -------------- -------------- -------------- Net cash used by investing activities.......................... -17,487,842 -603,247 -10,576,140 -------------- -------------- -------------- Cash Flows from Financing Activities: Net (decrease) increase in demand, money market and savings deposits............................................. -12,166,014 -3,813,729 8,188,100 Net increase (decrease) in certificates of deposit............. 19,961,353 2,019,545 -2,972,016 Net increase in repurchase agreements.......................... 3,467,240 6,104,795 -- Dividends paid................................................. -1,344,000 -1,800,000 -1,128,000 -------------- -------------- -------------- Net cash provided by financing activities...................... 9,918,579 2,510,611 4,088,084 -------------- -------------- -------------- Net (Decrease) Increase In Cash And Cash Equivalents........ -3,193,502 5,969,200 -2,180,322 Cash And Cash Equivalents At Beginning Of Year........... 13,827,088 7,857,888 10,038,210 -------------- -------------- -------------- Cash And Cash Equivalents At End Of Year......................... $ 10,633,586 $ 13,827,088 $ 7,857,888 ============== ============== ============== Reconciliation of Net Income to Net Cash Provided by Operating Activities: Net income..................................................... $ 4,022,875 $ 3,532,681 $ 3,302,740 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................ 512,114 455,349 393,941 Provision for loan losses.................................... 475,630 271,802 213,500 Provision (benefit) for deferred income taxes................ -50,000 -125,000 40,525 (Increase) decrease in accrued interest receivable and other assets............................................... -1,021,840 -121,627 630,592 Increase (decrease) in interest payable and other liabilites................................................. 436,982 48,631 -273,564 -------------- -------------- -------------- Net cash provided by operating activities...................... $ 4,375,761 $ 4,061,836 $ 4,307,734 ============== ============== ==============
The accompanying notes to consolidated financial statements are an integral part of these statements. 24 Notes To Consolidated Financial Statements December 31, 1995, 1994 and 1993 American National Bankshares Inc. and Subsidiary 1. Summary of Accounting Policies: Consolidation 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). The Bank offers a wide variety of retail, commercial and trust banking services through its offices located in the trade area of the City of Danville, Virginia and the County of Pittsylvania. All significant intercompany transactions and accounts are eliminated in consolidation. Investment Securities In 1993, the Bank adopted Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. These investments are to be classified in one of three categories: held to maturity, available for sale and trading. Debt securities acquired with both the intent and ability to be held to maturity are classified as held to maturity and reported at amortized cost. Gains or losses realized from the sale of any securities held to maturity would be determined by specific identification and would be included in non-interest income. Securities which may be used to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital and investment requirements, or unforeseen changes in market conditions, including interest rates, market values or inflation rates, are classified as available for sale. Securities available for sale are reported at estimated fair value, with unrealized gains and losses reported as a separate component of shareholders' investment, net of tax. Gains or losses realized from the sale of securities available for sale are determined by specific identification and are included in non-interest income. Trading account securities, of which none were held on December 31, 1995, are reported at fair value. Market adjustments, fees, gains or losses and income earned on trading account securities are included in non-interest income. Gains or losses realized from the sale of trading securities are determined by specific identification and are included in non-interest income. During the fourth quarter of 1995, the Bank transferred $2,631,000 of securities which were previously classified as held to maturity under SFAS No. 115 to the available for sale category. The Financial Accounting Standards Board (FASB) provided enterprises the opportunity to make a one time reassessment of the classification of all investment securities held at that time, such that the reclassification of any security from the held to maturity category would not call into question the enterprise's intent to hold other debt securities to maturity in the future. Management anticipates that this classification will allow more flexibility in the day-to-day management of the overall portfolio than the prior classifications. Loans Loans are stated at the principal amount outstanding, net of unearned income. Mortgage and commercial loans accrue interest on the unpaid balance of the loans. Consumer installment loans made prior to April 1, 1994 earn interest on the level yield method based on the daily outstanding balance. Consumer loans made subsequent to April 1, 1994 accrue interest on the unpaid balance of the loans. The net amount of nonrefundable loan origination fees and direct costs associated with the lending process are deferred and amortized to interest income over the contractual lives of the loans using the effective interest method. Reserve for Loan Losses The reserve for loan losses is an estimate of losses inherent in the loan portfolio as determined by management taking into consideration historical loan loss experience, diversification of the loan portfolio, amount of secured and unsecured loans, banking industry standards and averages, and general economic conditions. Ultimate losses may vary from current estimates. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the periods in which they become reasonably estimable. Bank Premises and Equipment Additions and major replacements are added to bank premises and equipment at cost. Maintenance and repair costs are charged to expense when incurred. Premises and equipment are depreciated over their estimated useful lives using primarily accelerated methods. Income and Expense Recognition The Bank utilizes the accrual method of accounting in recognizing items of income and expense. 25 Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Statement of Cash Flows Cash and cash equivalents include cash and amounts due from banks and Federal funds sold. Generally, Federal funds are purchased and sold for one-day periods. Income Taxes Deferred income taxes have been provided where different accounting methods have been used for reporting income for income tax and for financial reporting purposes. New Accounting Pronouncements During 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement establishes accounting standards for long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and to be disposed of. The statement requires such assets to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Any resulting impairment loss is required to be reported in the period in which the recognition criteria are first applied and met. The Bank adopted the provisions of the statement on January 1, 1996. The implementation did not have a material impact on the consolidated financial position or consolidated results of operations. During 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights" and SFAS No. 123, "Accounting for Stock Based Compensation". The Bank adopted the provisions of these statements on January 1, 1996. The adoption of these statements did not have a material impact on the Bank's consolidated financial position or consolidated results of operations. 2. Parent Company Financial Information: Condensed parent company financial information is as follows (in thousands): As of December 31 Condensed Balance Sheets 1995 1994 Assets: Investment in Subsidiary $34,102 $30,761 Other Assets 23 25 Total Assets $34,125 $30,786 ======= ======= Shareholders' Investment $34,125 $30,786 ======= ======= For the Year Ended December 31 Condensed Statements of Income 1995 1994 1993 Dividends from Subsidiary $1,344 $1,805 $1,128 Expenses (1) (1) (1) Income Before Equity in Undistributed Earnings of Subsidiary 1,343 1,804 1,127 Equity in Undistributed Earnings of Subsidiary 2,680 1,729 2,176 Net Income $4,023 $3,533 $3,303 ====== ====== ====== For the Year Ended December 31 Condensed Statements of Cash Flows 1995 1994 1993 Cash provided by dividends received from Subsidiary $1,344 $1,805 $1,128 Cash used for payment of dividends (1,344) (1,800) (1,128) Other (1) (1) (1) Net increase (decrease) in cash $ (1) $ 4 $ (1) ======= ======= ======= 3. Mergers and Acquisitions On March 14, 1996, the Corporation completed the acquisition of Mutual Savings Bank, F.S.B. (Mutual) upon the approval of the shareholders of each company. The Corporation exchanged approximately 879,805 common shares, at an exchange ratio of .705 of a share of the Corporation's common stock, for each of Mutual's 1,248,100 common shares. The transaction will be accounted for as a pooling of interests. The financial position and results of operations of the Corporation and Mutual will be combined and the fiscal year of Mutual will be conformed to the Corporation's fiscal year. In addition, all prior periods presented will be restated to give effect to the merger. The following unaudited presentation reflects key line items on an historical basis for the Corporation and Mutual and on a proforma combined basis assuming the merger was effective for the periods presented 26 (in thousands, except per share data): American National Mutual Savings Proforma Bankshares Inc. Bank, F.S.B. Combined 1995 Net interest income $11,184 $3,120 $14,304 Net income 4,023 993 5,016 Net income per share 1.68 .82 1.54 1994 Net interest income $ 9,683 $3,119 $12,802 Net income 3,533 976 4,509 Net income per share 1.47 .81 1.39 1993 Net interest income $ 8,901 $3,392 $12,293 Net income 3,303 1,262 4,565 Net income per share 1.38 1.06 1.41 In conjunction with the merger, certain material, non-recurring adjustments will be recorded. These adjustments include recording the Federal tax liability associated with Mutual's prior untaxed loan loss reserves. Based on a marginal tax rate of 34% and Mutual's loan loss reserve of $3,158,000 at September 30, 1995, the impact of this adjustment will result in additional income tax provision of approximately $1,074,000. Additionally, legislation was proposed during the third quarter of 1995 that would result in the payment of a one-time assessment by financial institutions with deposits insured by the Savings Association Insurance Fund (SAIF). As a result of the merger with Mutual, approximately 26% of the Bank's deposits will be SAIF-insured. The one-time assessment rate, to be determined by the Federal Deposit Insurance Corporation, is expected to be $.80 per $100 of deposits. Commercial banks with SAIF-insured deposits acquired from thrifts will likely be allowed a reduction of 20% of the assessment base. This adjustment would be available only to banks with less than 50% of their total deposits in the SAIF. The pretax impact of this one- time assessment on the Bank is not expected to exceed $500,000. The Bank will record this expense when the legislation is enacted. Subsequent to year-end, the shareholders of the Corporation approved an amendment to the articles of incorporation to increase the number of authorized shares of the Corporation's common stock from 3,000,000 shares to 10,000,000 shares. In August 1995, The Corporation acquired the branch office of Crestar Bank in Gretna, Virginia. In addition to the branch facilities at Gretna, the Corporation acquired $2,150,000 in loans and assumed deposits of $36,295,000. This transaction was accounted for as a purchase. 4. Investment Securities: The amortized cost and estimated fair value of investments in debt securities at December 31, 1995 and 1994 were as follows (in thousands): 1995 __________________________________________ Amortized Unrealized Estimated Cost Gains Losses Fair Value --------- ------ ------ ---------- Securities held to maturity: U.S. Government $ 54,347 $ 306 $ -70 $ 54,583 Federal Agencies 2,653 15 -17 2,651 State & Municipal 8,213 325 -19 8,519 Other 10 -- -- 10 -------- ------ -------- -------- Total securities held to maturity 65,223 646 -106 65,763 -------- ------ -------- -------- Securities available for sale: U.S. Government 38,783 848 -- 39,631 State & Municipal 4,339 110 -- 4,449 -------- ------ -------- -------- Total securities available for sale 43,122 958 -- 44,080 -------- ------ -------- -------- Total securities $108,345 $1,604 $ -106 $109,843 ======== ====== ======== ======== 1994 __________________________________________ Amortized Unrealized Estimated Cost Gains Losses Fair Value --------- ------ ------ ---------- Securities held to maturity: U.S. Government $ 63,187 $ 5 $-1,648 $ 61,544 Federal Agencies 2,809 -- -189 2,620 State & Municipal 10,480 103 -291 10,292 Other 10 -- -- 10 -------- ------ ------- -------- Total securities held to maturity 76,486 108 -2,128 74,466 -------- ------ ------- -------- Securities available for sale: U.S. Government 2,794 -- -29 2,765 State & Municipal -- -- -- -- -------- ------ ------- -------- Total securities available for sale 2,794 -- -29 2,765 -------- ------ ------- -------- Total securities $ 79,280 $ 108 $-2,157 $ 77,231 ======== ====== ======= ======== The amortized cost and estimated fair value of investments in debt securities at December 31, 1995, by contractual maturity, are shown below (in thousands). 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.
Held to Maturity Available for Sale Amortized Estimated Amortized Estimated Cost Fair Value Cost Fair Value Due in one year or less $30,402 $30,477 $ -- $ -- Due after one year through five years 28,975 29,178 38,783 39,631 Due after five years through ten years 5,647 5,898 824 909 Due after ten years 199 210 3,515 3,540 ------------------ --------------- ------------- --------------- $65,223 $65,763 $43,122 $44,080 ================== =============== ============= ===============
Proceeds from calls exercised by the issuers of investments in debt securities were $545,000 in 1995 and $5,405,000 in 1994. Proceeds from sales of investments in debt securities were $6,980,000 in 1995. 27 The Bank recognized losses of $22,000 on sales of securities during 1995. There were no sales in 1994 or 1993. Investment securities with a book value of approximately $19,382,000 at December 31, 1995 were pledged to secure deposits of the U. S. Government, state and political sub-divisions and for other purposes as required by law. Of this amount, $11,387,000 was pledged to secure repurchase agreements. 5. Loans: Outstanding loans at December 31, 1995 and 1994 were composed of the following (in thousands): 1995 1994 Real Estate loans: Construction and land development $ 5,032 $ 3,684 Secured by farmland 1,032 872 Secured by 1 - 4 family residential properties 47,332 43,458 Secured by multi-family (5 or more) residential properties 129 50 Secured by nonfarm, nonresidential properties 31,083 26,412 Loans to farmers 2,529 2,173 Commercial and industrial loans 46,180 40,865 Loans to individuals for personal expenditures 40,936 35,512 Loans for nonrated industrial development obligations 1,901 2,155 All other loans 61 255 Total loans $176,215 $155,436 ======== ======== Loans, other than consumer, are generally placed on nonaccrual status when any portion of principal or interest is 90 days past due or collectibility is uncertain. Unless loans are in the process of collection, income recognition on consumer loans is discontinued and the loans are charged off after a delinquency of 90 days. At December 31, 1995, 1994 and 1993, loans in a nonaccrual or restructured status totaled approximately $28,000, $171,000 and $467,000, respectively. Interest income on nonaccrual loans, if recognized, is recorded on a cash basis. For the years 1995, 1994 and 1993, the gross amount of interest income that would have been recorded on nonaccrual loans and restructured loans at December 31, if all such loans had been accruing interest at the original contractual rate, was $1,000, $20,000 and $59,000, respectively. No interest payments were recorded in 1995 or 1994 as interest income for all such nonperforming loans. Under the Corporation's policy a nonaccruing loan may be restored to accrual status when none of its principal and interest is due and unpaid and the Corporation expects repayment of the remaining contractual principal and interest or when it otherwise becomes well secured and in the process of collection. As of January 1, 1995, the Bank adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", which was amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures". SFAS No. 114, as amended, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral, if the loan is collateral-dependent. When the measure of the impaired loan is less than the recorded investment in the loan, the impairment is recorded through a valuation allowance. The Bank had previously measured the reserve for loan losses using methods similar to those prescribed in SFAS No. 114. As a result of adopting these statements, no additional reserve for loan losses was required as of January 1, 1995. For purposes of applying SFAS No. 114, commercial loans on nonaccrual status are evaluated for impairment on an individual basis. Management assesses the current economic condition and the historical repayment patterns of the creditor in determining whether delays in repayment on the loans are considered to be insignificant shortfalls or indicators of impairment. Those loans for which management considers it probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement are considered to be impaired. All loans made by the Bank other than commercial loans are excluded from the scope of SFAS No. 114 as they are considered smaller-balance homogeneous loans that are collectively evaluated for impairment. Interest income is recognized on impaired loans in the same manner as loans on nonaccrual status. During 1995, the Bank did not identify any loans as impaired. The loan portfolio is concentrated primarily in the immediate geographic region which is the Corporation's trade area consisting of the City of Danville and Pittsylvania County, Virginia. There were no concentrations of loans to any individual, group of individuals, businesses or industry that exceeded 10% of the outstanding loans at December 31, 1995. An analysis of the reserve for loan losses is as follows (in thousands): 1995 1994 1993 Balance, beginning of year $2,353 $2,155 $2,094 Provision for loan losses charged to expense 476 272 214 Charge-offs (240) (131) (203) Recoveries 60 57 50 Balance, end of year $2,649 $2,353 $2,155 ====== ====== ====== 28 6. Time Deposits: Included in time deposits are certificates of deposit in denominations of $100,000 or more totaling $23,576,000, $13,809,000 and $12,744,000 at December 31, 1995, 1994 and 1993, respectively. Interest expense on such deposits during 1995, 1994 and 1993 was $648,000, $390,000 and $395,000, respectively. 7. Income Taxes: The components of the Corporation's net deferred tax assets as of December 31, 1995 and December 31, 1994, were as follows (in thousands): December 31 December 31 1995 1994 Deferred tax assets: Reserve for loan losses $ 697 $596 Deferred compensation 184 144 Other 47 46 928 786 Valuation allowance (194) (152) 734 634 Deferred tax liabilities: Net unrealized gains 326 -- Prepaid pension 91 89 Other 80 32 497 121 Net deferred tax asset $ 237 $513 ==== === The provision for income taxes consists of the following (in thousands): For Years Ended December 31 1995 1994 1993 Taxes currently payable $1,894 $1,770 $1,442 Deferred tax provision (benefit) (50) (125) 41 $1,844 $1,645 $1,483 ====== ====== ====== The effective rates of the provision differ from the statutory federal income tax rates due to the following items: 1995 1994 1993 Federal statutory rate 34.0% 34.0% 34.0% Non-taxable interest income (3.5) (3.2) (5.4) Other .9 1.0 2.4 31.4% 31.8% 31.0% ==== ==== ==== 8. Commitments and Contingent Liabilities: The consolidated financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business to meet the financing needs of customers. These include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit, interest rate and liquidity risk in excess of the amount recognized in the consolidated balance sheets. The extent of the Bank's involvement in various commitments or contingent liabilities is expressed by the contract or notional amounts of such instruments. Commitments to extend credit, which amounted to $32,226,000 and $34,150,000 at December 31, 1995 and 1994, represent legally binding agreements to lend to a customer 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. Commitments to purchase securities when issued amounted to $3,250,000 at December 31, 1995. There were no commitments to purchase securities at the close of 1994. 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 December 31, 1995 and 1994 the Bank had $632,000 and $672,000 in outstanding standby letters of credit. Management and the Corporation's counsel are not aware of any pending litigation against the Corporation and believe that there are no contingent liabilities outstanding that will result in a material adverse effect on the Corporation's consolidated financial position and consolidated results of operations. The Bank is a member of the Federal Reserve System and is required to maintain certain levels of its cash and due from bank balances as reserves based on regulatory requirements. At December 31, 1995, this reserve requirement was approximately $2,646,000. 9. Related Party Transactions: The Directors provide the Bank with substantial amounts of business, and many are among its largest depositors and borrowers. The total amount of loans outstanding to the executive officers, directors and their business interests was $13,845,000, $12,527,000, and $8,908,000 at December 31, 1995, 1994 and 1993, respectively. The maximum amount of loans outstanding to the officers, directors and their business interests at any month-end during 1995, 1994 and 1993 was approximately 8.3% of gross loans. Management believes that all such loans are made on substantially the same terms, including interest rates, as those prevailing at the time for comparable loans to similar, unrelated borrowers, and do not involve more than a normal risk of collectibility. 29 As of December 31, 1995, none of these loans were restructured, nor were any related party loans charged off during 1995. An analysis of these loans for 1995 is as follows (in thousands): Balance, beginning of year $12,527 Additions 23,545 Repayments (21,607) Other changes (related to changes in directors' related party interests) (620) Balance, end of year $13,845 ====== 10. Employee Benefit Plans: The Bank's retirement plan is a non-contributory defined benefit pension plan which covers substantially all employees of the Bank who are 21 years of age or older and who have had at least one year of service. Advanced funding is accomplished by using the actuarial cost method known as the collective aggregate cost method. The following table sets forth the plan's funded status as of December 31, 1995 and 1994 (in thousands): 1995 1994 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $2,190 in 1995 and $1,969 in 1994 $(2,218) $(1,986) ======= ======= Projected benefit obligation at December 31 $(3,100) $(3,032) Plan assets at fair value 3,271 2,700 Plan assets greater than (less than) projected benefit obligation 171 (332) Unrecognized net asset, at date of adoption, being recognized over 16.4 years (91) (103) Unrecognized net loss 447 698 Unrecognized prior service cost (264) -- Prepaid pension cost included in other assets $ 263 $ 263 ======= ======= Net periodic pension cost for 1995 and 1994, based on the above valuation included the following components (in thousands): 1995 1994 Service cost - benefits earned during the period $106 $127 Interest cost on projected benefit obligation 169 164 Actual return (gain) loss on plan assets (752) (56) Net amortization and deferral 662 (85) Net periodic pension cost $185 $150 ==== ==== During 1995 and 1994, a rate of increase in future compensation levels of 4.0%, and a discount rate of 6.0% were used in determining the actuarial present value of the projected benefit obligation. The expected long-term rate of return on assets was 6.25% in 1995 and 1994. Pension plan cost was $185,000, $150,000, and $51,000 for years 1995, 1994 and 1993, respectively. Additional pension expense of $95,000 was recognized in 1994 related to lump-sum settlements of accrued benefit obligations. Presently the Bank has no postretirement benefits that are not charged to expense during the years that the employees render service. A non-contributory deferred compensation plan was adopted in 1982 by the Board of Directors of the Bank which covers certain key executives. This plan is being funded primarily by insurance and the expense is provided on a current basis. A 401-(k) savings plan was adopted in 1995 which covers substantially all full-time employees of the Bank who have at least one year of service. The Bank matches a portion of the contribution made by employee participants. The Bank's 1995 contribution of $41,000 is included in pension and other employee benefits expense for the year ended December 31, 1995. 11. Dividend Restrictions and Capital: The approval of the Comptroller of the Currency is required if the total of all dividends declared by a national bank in any calendar year exceeds the bank's net income, as defined, for that year combined with its retained net income for the preceding two calendar years. Under this formula, the Bank can distribute as dividends, without the approval of the Comptroller of the Currency, $4,409,000 plus an additional amount equal to the Bank's net income for 1996 up to the date of any dividend declaration. The Bank is required by the Federal Reserve Board and the Comptroller of the Currency to maintain certain capital to assets ratios. At December 31, 1995 and 1994 these ratios were above the minimums prescribed for holding companies and banks. 30 12. Fair Value of Financial Instruments: The estimated fair values of the Corporation's financial instruments are as follows (in thousands): December 31, 1995 December 31, 1994 Carrying Fair Carrying Fair Amount Value Amount Value Financial assets: Cash and federal funds sold $ 10,634 $ 10,634 $ 13,827 $ 13,827 Investment securities 109,303 109,843 79,251 77,231 Other 1,091 1,074 2,530 2,530 Loans, net 172,815 179,089 151,126 150,608 Financial liabilities: Deposits $(259,830) $(259,952) $(215,861) $(216,841) Repurchase agreements (9,752) (9,572) (6,105) (6,100) Unrecognized financial instruments: Commitments to extend credit $ (32,226) -- $ (34,150) -- Standby letters of credit (632) (10) (672) (11) The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that value: Cash and federal funds sold For short-term instruments, the carrying amount is a reasonable estimate of fair value. Investment securities and other For marketable securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. For other securities held as investments, fair value equals market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans Due to the repricing characteristics of revolving credit lines, home equity loans and adjustable demand loans, the carrying amount of these loans is a reasonable estimate of fair value. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Prepayment rates are taken into consideration in the calculation. The interest rates used to discount future cash flows are those in effect at period-end or an average of such for the 10 working days surrounding that date. The fair value of non-performing loans represents an estimate by Management after considering the collectibility of each loan, taking into account the financial position of the borrower, the value of supporting collateral and the portion of the reserve for loan losses allocated to each of these loans. Deposits The fair value of demand deposits, savings deposits, and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposit instruments would be offered to depositors for the same remaining maturities at current rates. Repurchase Agreements The fair value of repurchase agreements is estimated by discounting the future cash flows using the current rates at which similar repurchase agreements would be offered to depositors for the same remaining maturities at current rates. Unrecognized financial instruments The fair value of commitments to extend credit is estimated using the fees currently charged (if any) to enter into agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. At December 31, 1995 no fees were charged for commitments to extend credit and all such commitments were subject to current market rates; therefore, no fair value has been estimated for these commitments. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. 31 Board of Directors American National Bankshares Inc. and American National Bank and Trust Company Richard G. Barkhouser President, Barkhouser Motors, Inc. B. Carrington Bidgood Retired Senior Vice President Dibrell Brothers, Inc. Fred A. Blair President Blair Construction, Inc. Ben J. Davenport, Jr. Chairman, First Piedmont Corporation Lester A. Hudson, Jr. Chairman H & E Associates E. Budge Kent, Jr. Senior Vice President & Trust Officer Fred B. Leggett, Jr. Executive Vice President, Belk-Leggett Co., Incorporated Leggett Stores Charles H. Majors President and Chief Executive Officer James A. Motley Retired Chairman and Chief Executive Officer Claude B. Owen, Jr. Chairman & Chief Executive Officer DIMON Incorporated Landon R. Wyatt, Jr. President, Wyatt Buick Sales Co. GRETNA AREA ADVISORY BOARD American National Bank and Trust Company Dr. Glen M. Bond Physician Melvin W. Bowling Retired President, Crestar Bank, Gretna, Virginia H. Chapman Brown, Jr. President, Gretna Drug Company, Inc. E. B. Fitzgerald, III President, Peoples Mutual Telephone Company, Inc. H. Victor Millner, Jr., Esquire Attorney at Law L. Vernon Moon President, Gretna Tire and Recapping Company, Inc. 32 Officers American National Bank and Trust Company Charles H. Majors President and Chief Executive Officer E. Budge Kent, Jr. David Hyler Senior Vice President & Senior Vice President & Trust Officer Controller Gilmer D. Jefferson Carl T. Yeatts Senior Vice President & Senior Vice President & Cashier Senior Loan Officer Ronnie C. Fowlkes Wayne D. Holley Vice President Vice President Michael L. Thomas John G. Wales Vice President Vice President Mildred B. Wilkerson Vice President B. Michael Barker Thomas Y. Chandler Assistant Vice President Assistant Vice President Barry L. Clarke Cameron W. Clement Assistant Vice President Assistant Vice President James A. Motley, Jr. Samuel W. Price, Jr. Assistant Vice President Assistant Vice President Mary H. Wertz John B. Hall, Jr. Assistant Vice President Trust Officer Linda P. Rhue Cheryl L. Clark Trust Officer Assistant Cashier Janice O. England Kaye S. Hayden Assistant Cashier Assistant Cashier Jean H. Hudgins Elaine T. Jones Assistant Cashier Assistant Cashier Peter A. Moore Beth M. Scearce Assistant Cashier Assistant Cashier Beverly A. Scruggs Nadine S. Crumpton Assistant Cashier Auditor William B. Stephens, Jr. Jane S. Baynes Director of Technology Development Administrative Assistant Carolyn H. Compton Brenda L. Gibson Administrative Assistant Administrative Assistant Delma C. Haley Faye W. Holland Administrative Assistant Administrative Assistant Patricia T. Hudson Garry C. Martin Administrative Assistant Administrative Assistant Linda C. Royal Bernetha W. Saunders Administrative Assistant Administrative Assistant Katherine P. Shelton Phyllis A. Wiles Administrative Assistant Administrative Assistant Voinda R. Wray Administrative Assistant VISION We are committed to being our community's premier financial services organization. MISSION STATEMENT Our mission is to provide quality financial services and exceptional customer service. GUIDING PRINCIPLES To achieve our vision and carry our mission, we must: - Respond to our customers' needs - Conduct our work with integrity and professionalism - Furnish positive leadership for the well-being of all communities we serve - Maintain a challenging quality service - quality sales work environment - Sustain a profitable return for our shareholders BANK OFFICES MAIN OFFICE 628 Main Street, Danville, Virginia 24541 GRETNA OFFICE 109 Main Street, Gretna, Virginia 24557 NOR-DAN OFFICE 239 Nor-Dan Drive, Danville, Virginia 24540 RIVERSIDE OFFICE 1081 Riverside Drive, Danville, Virginia 24540 SOUTH MAIN OFFICE 1013 South Main Street, Danville, Virginia 24541 WEST MAIN OFFICE 2016 West Main Street, Danville, Virginia 24541 SOUTH BOSTON ROAD OFFICE 1407 South Boston Road, Danville, Virginia 24540 ATM LOCATIONS DRIVE-UP Riverside Office - 1081 Riverside Drive, Danville, Virginia 24540 South Boston Road Office - 1407 South Boston Road, Danville, Virginia 24540 WALK-UP Nor-Dan Office - 239 Nor-Dan Drive, Danville, Virginia 24540 Piedmont Mall - 325 Piedmont Drive, Danville, Virginia 24541 West Main Office - 2016 West Main Street, Danville, Virginia 24541 Express Mart - U. S. 29, Tightsqueeze, Virginia 24531 EX-28 3 AMERICAN NATIONAL BANKSHARES INC. 628 Main Street P. O. Box 191 Danville, Virginia 24543 NOTICE OF ANNUAL MEETING AND PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 23, 1996 AMERICAN NATIONAL BANKSHARES INC. 628 Main Street Post Office Box 191 Danville, Virginia 24543 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To be held April 23, 1996 NOTICE is hereby given that the Annual Meeting of Shareholders of American National Bankshares Inc. (the "Corporation") will be held as follows: Place: Piedmont Room Howard Johnson Hotel 100 Tower Drive Danville, Virginia 24541 Date: April 23, 1996 Time: 11:30 o'clock a.m. THE ANNUAL MEETING IS BEING HELD FOR THE FOLLOWING PURPOSES: 1. To elect four (4) directors of the Corporation to fill the vacancies created by the expiration of the terms of the Directors of Class III. 2. To elect one (1) director of the Corporation to fill a vacancy in Class II. 3. To elect one (1) director of the Corporation to fill a vacancy in Class I. 4. To transact any other business that may properly come before the meeting or any adjournment thereof. The record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting is the close of business on March 15, 1996. IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE MEETING. ACCORDINGLY, PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND THE ANNUAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON. Sincerely, Charles H. Majors, President and Chief Executive Officer Dated: March 29, 1996 3 AMERICAN NATIONAL BANKSHARES INC. 628 Main Street Post Office Box 191 Danville, Virginia 24543 PROXY STATEMENT Annual Meeting of Shareholders To be held April 23, 1996 INTRODUCTION This Proxy Statement is furnished in conjunction with the solicitation by the Board of Directors of American National Bankshares Inc. (the "Corporation") of the accompanying proxy to be used at the Annual Meeting of Shareholders of the Corporation and at any adjournments thereof. The meeting will be held on Tuesday, April 23, 1996, at 11:30 a.m. in the Piedmont Room of the Howard Johnson Hotel, Danville, Virginia, for the purposes set forth below and in the Notice of Annual Meeting of Shareholders. Shares represented by properly executed proxy, if such proxies are received in time and not revoked, will be voted at the Annual Meeting as set forth therein. Any shareholder may attend the Annual Meeting, revoke the proxy and vote in person. INFORMATION AS TO VOTING SECURITIES The Board of Directors has set March 15, 1996 as the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting. Shareholders of record on that date will be entitled to vote on the matters described herein. As of March 15, 1996, the Corporation had 1,627 shareholders of record. No one individual or entity owns directly and indirectly more than 5% of the outstanding Corporation Common Stock except Ambro and Company, the nominee name in which the Bank registers securities it holds in a fiduciary capacity, which held 702,834 shares (21.4292%) on March 15, 1996. The number of shares of common stock, there being no other class of stock, outstanding and entitled to vote at the Annual Shareholders' Meeting is 3,279,798. There are 702,834 shares held of record by Ambro and Company which amount represents 21.4292% of the outstanding securities, and only 315,097 of these shares may be voted by the existing co-fiduciaries. The remaining shares may not be voted by the Bank but co-fiduciaries may be qualified for the sole purpose of voting all or a portion of the shares at the Annual Meeting. CUMULATIVE VOTING Shareholders of the Corporation shall not have cumulative voting rights. 4 VOTING OF PROXIES If the enclosed proxy is properly executed, dated, returned and not revoked, it will be voted in accordance with the specification made by the shareholder. If a specification is not made, it will be voted "FOR" the proposals set forth below and in the notice of Annual Meeting of Shareholders. Fred A. Blair, E. Budge Kent, Jr., Fred B. leggett, Jr. and Claude B. Owen, Jr., or any of them, will act as proxies on behalf of the Board of Directors. EXPENSES OF SOLICITATION The Corporation will pay the cost of preparing, assembling and mailing this Proxy Statement and the enclosed material. Proxies may also be solicited personally or by telephone by the Corporation and the Bank's officers without additional compensation. PURPOSES OF THE ANNUAL MEETING As set forth in the Notice of Annual Meeting of Shareholders, the Board of Directors is seeking proxies in connection with the following proposals to be set forth before the shareholders: 1. To elect four (4) directors of the Corporation to fill the vacancies created by the expiration of the terms of the Directors of Class III. 2. To elect one (1) director of the Corporation to fill a vacancy in Class II. 3. To elect one (1) director of the Corporation to fill a vacancy in Class I. 4. To transact any other business that may properly come before the meeting or any adjournment thereof. ELECTION OF DIRECTORS Four Directors of Class III are to be elected at the Annual Meeting of Shareholders to serve until the Annual Meeting in 1999 and until their respective successors are duly elected and qualified. Management proposes that the four (4) nominees listed in this Proxy Statement as Directors of Class III be elected. One Director of Class II is to be elected at the Annual Meeting of Shareholders to serve until the Annual Meeting in 1998 and until his successor is duly elected and qualified. Management proposes that H. Dan Davis be elected. One Director of Class I is to be elected at the Annual Meeting of Shareholders to serve until the Annual Meeting in 1997 and until his successor is duly elected and qualified. Management proposes that Willie G. Barker, Jr. be elected. The nominees for whom the persons named as proxies intend to vote as directors, unless otherwise indicated on the form of proxy, and certain information with regard to their ownership of the common stock of the Corporation and memberships on various committees of the Board of Directors of the Corporation, are set forth below. 5 NOMINEES Directors of Class III to be elected for a term expiring in 1999 Amount of Common Stock Director Owned Beneficially and Name, Principal of Bank Nature of Ownership on Percent Occupation and (Age) Since March 15, 1996 of Class Richard G. Barkhouser (65) 1980 82,412 - Direct (1) 2.5127 President, Barkhouser 7,260 - Family .2214 Motors, Inc., Danville, Relationship (4) VA, automobile dealership B. Carrington Bidgood (71) 1975 11,000 - Direct (1) .3354 Retired Senior Vice 1,200 - Family .0366 President, Dibrell Relationship (4) Brothers, Inc., Danville, VA, leaf tobacco & flowers Lester A. Hudson, Jr. (56) 1984 4,902 - Direct (1) .1495 Chairman, H & E Associates, Greenville, SC, investments, since June, 1995; prior thereto Vice Chairman, Wunda Weve Carpets, Inc., Greenville, SC, carpet manufacturer, since August, 1993; prior thereto Chairman, Wunda Weve Carpets, Inc., since Nov., 1991; prior thereto Chairman, President and Chief Executive Officer of Wunda Weve Carpets, Inc. Charles H. Majors (50) 1981 3,328 - Direct (1) .1015 President and Chief 560 - Family .0171 Executive Officer of Relationship (4) the Corporation and the Bank since January 1, 1994; prior thereto President of the Corporation and the Bank since January, 1, 1993; prior thereto Clement & Wheatley, Attorneys-at-Law, Danville, VA Director of Class II to be elected for a term expiring in 1998 Amount of Common Stock Director Owned Beneficially and Name, Principal of Bank Nature of Ownership on Percent Occupation and (Age) Since March 15, 1996 of Class H. Dan Davis (58) 1996 35,813 - Direct (1)(2) 1.0919 Executive Vice President 457 - Family .0139 of the Corporation and Relationship (4) Senior Vice President of the Bank since March 19, 1996; prior thereto, President and Chief Executive Officer of Mutual Savings Bank, F.S.B. since January 1, 1995; prior thereto, President and Chief Operations Officer of Mutual Savings Bank, F.S.B. Director of Class I to be elected for a term expiring in 1997 Amount of Common Stock Director Owned Beneficially and Name, Principal of Bank Nature of Ownership on Percent Occupation and (Age) Since March 15, 1996 of Class Willie G. Barker, Jr. (58) 1996 14,100 - Direct (1) .4299 Consultant to DIMON Incorporated, Danville, VA, leaf tobacco & flowers since 1995; prior thereto, consultant to Dibrell Brothers, Incorporated, Danville, VA, leaf tobacco & flowers since June, 1993; prior thereto, President and Chief Operating Officer of Dibrell Brothers, Incorporated 6 DIRECTORS CONTINUING IN OFFICE Directors of Class I to continue in office until 1997 Amount of Common Stock Director Owned Beneficially and Name, Principal of Bank Nature of Ownership on Percent Occupation and (Age) Since December 31, 1995 of Class Ben J. Davenport, Jr. (53) 1992 3,168 - Direct (1)(2) .0966 Chairman, First Piedmont Corporation, Chatham, VA, waste management James A. Motley (67) 1975 10,838 - Direct (1)(2) .3304 Retired Chairman and Chief 3,310 - Family .1009 Executive Officer of Relationship (4) the Corporation and the Bank since January 1, 1994; prior thereto Chairman and Chief Executive Officer of the Corporation and the Bank since January 1, 1993; prior thereto President of the Corporation and the Bank Landon R. Wyatt, Jr. (70) 1965 4,540 - Direct (1) .1384 President, Wyatt Buick 26,418 - Family .8055 Sales Co., Danville, VA, Relationship (4) automobile dealership Directors of Class II to continue in office until 1998 Fred A. Blair (49) 1992 1,492 - Direct (1) .0455 President, Blair 225 - Family .0069 Construction, Inc., Relationship (3) Gretna, VA, commercial building contractor E. Budge Kent, Jr. (57) 1979 6,687 - Direct (1) .2039 Senior Vice President & 491 - Family .0150 Assistant Secretary of Relationship (4) the Corporation and Senior Vice President & Trust Officer of the Bank Fred B. Leggett, Jr. (59) 1994 8,304 - Direct (1)(2) .2532 Executive Vice President, Belk-Leggett Co., Incorporated, Danville, VA, retail department store, since March 7, 1996; prior thereto, Chairman and Chief Executive Officer, Leggett Stores, Danville, VA, retail department stores, since December, 1994; prior thereto, Executive Vice President, Leggett Stores Claude B. Owen, Jr. (50) 1984 5,416 - Direct (1) .1651 Chairman & Chief 2,100 - Family .0640 Executive Officer of Relationship (4) DIMON Incorporated, Danville, VA, leaf tobacco & flowers, since May, 1995; prior thereto, Chairman, President & Chief Executive Officer, Dibrell Brothers, Inc., Danville, VA, leaf tobacco & flowers, since July, 1993; prior thereto, Chairman & Chief Executive Officer, Dibrell Brothers, Inc. All executive officers and directors, 214,112 - Direct (1)(2) 6.5282 including nominees and directors 42,321 - Family 1.2904 named above (16 in group) Relationship (3)(4) (1) Individual exercises sole voting and investment power over shares held. (2) Shared voting and investment power. (3) Sole voting and investment power as custodian for minor children. (4) Can exercise no voting or investment power. All of the above nominees and directors have been engaged in the occupations listed during the last five years. There exists no family relationship between any director or nominee. Mr. Owen and Mr. Barker are directors of DIMON Incorporated. Mr. Owen is a director of Richfood Holdings Inc. Mr. Hudson is a director of American Electric Power Company, Inc. Mr. Motley and Mr. Davenport are directors of Intertape Polymer Group Inc. The stock of these corporations is registered with the Securities and Exchange Commission. 7 EXECUTIVE OFFICERS Mr. Charles H. Majors, Mr. H. Dan Davis and and Mr. E. Budge Kent, Jr., together with the three senior vice presidents listed below, are the executive officers of the Corporation and the Bank. Principal Occupation and Name Age Business Experience David Hyler 63 Senior Vice President and Secretary & Treasurer of the Corporation and Senior Vice President and Chief Financial Officer of the Bank; Officer of the Bank since 1969 Gilmer D. Jefferson 58 Senior Vice President and Assistant Treasurer of the Corporation and Senior Vice President and Cashier of the Bank; Officer of the Bank since 1963 Carl T. Yeatts 57 Senior Vice President of the Corporation and Senior Vice President and Senior Loan Officer of the Bank; Officer of the Bank since 1964 All executive officers serve one-year terms of office. BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD The Board of Directors held 14 Board Meetings during the year 1995. These meetings were either the Corporation Board Meetings and/or the Bank Board Meetings. In addition to meeting as a group to review the Corporation and Bank's business, certain members of the Board are appointed to serve on various standing committees. Among those committees are the Audit Committee, Salary Committee and Directors' Nominating Committee. All incumbent directors attended more than 75% of the aggregate of all meetings of the Board of Directors and Committees on which they served. Audit Committee. The Audit Committee, which currently consists of Messrs. Blair, Davenport and Motley, reviews significant audit and accounting principles, policies and practices, meets with the Corporation and Bank's independent auditors to discuss the results of their annual audit and reviews the performance of the internal auditing functions. The Audit Committee held three meetings in 1995. Salary Committee. The Salary Committee currently consists of Messrs. Barkhouser, Bidgood, Hudson and Leggett. The Salary Committee makes recommendations to the Board of Directors for officers' compensation and promotions, directors' fees and related personnel matters. The Salary Committee held two meetings in 1995. Directors' Nominating Committee. The Committee's function is to search for potential qualified directors, to review the qualifications of potential directors as suggested by Directors, Management, Shareholders and others, and to make recommendations to the entire Board for nominations of such individuals to the shareholders. A shareholder may recommend nominees for director by writing to the President of the Corporation and providing the proposed nominee's full name, address, qualifications and other relevant biographical information. Members of the present committee are Messrs. Barkhouser, Owen and Wyatt. The Directors' Nominating Committee held one meeting in 1995. 8 REPORT OF SALARY COMMITTEE ON EXECUTIVE COMPENSATION The Salary Committee of the Board of Directors, which is composed of four independent outside directors, is responsible for making recommendations to the Board of Directors concerning compensation. The Salary Committee considers a variety of factors and criteria in arriving at its recommendations for compensation of executive officers. In making its recommendations regarding compensation, the Committee attempts to align the interests of the shareholders with those of the Bank's executive officers. The Committee believes that increases in dividends and net equity improve shareholder market value and, accordingly, compensation should be structured to enhance the long-term profitability of the Bank. Officer compensation generally consists of salary and participation in the Bank's profit sharing plan. A description of the profit sharing plan is included below in Note (2) under Executive Compensation. Certain key executive officers are eligible to participate in the Executive Compensation Continuation Plan described below under "Deferred Compensation Plan". All compensation is paid by the Bank and no officer receives any additional compensation from the Corporation. There are no stock options offered to employees. In considering officer compensation (other than the Chief Executive Officer), the Committee receives and considers recommendations from the Chief Executive Officer. The Committee conducts an annual evaluation of the performance and effectiveness of the Chief Executive Officer. The Chief Executive Officer's compensation then is determined by the Committee after consideration of the Bank's performance and the resulting benefit to the shareholders. Salary Committee, Richard G. Barkhouser B. Carrington Bidgood Lester A. Hudson, Jr. Fred B. Leggett, Jr. OTHER INFORMATION Comparative Company Performance The following graph compares American National Bankshares Inc.'s cumulative total return to its shareholders with the returns of two indexes for the five-year period ended December 31, 1995. The two indexes are the S & P 500 Total Return published by Standard & Poor's Corporation and the Independent Community Bank Index, consisting of 21 independent banks located in the states of Florida, Georgia, North Carolina, South Carolina, Tennessee and Virginia. The Independent Community Bank Index is published by the Carson Medlin Company.
Five Year Performance Index 1990 1991 1992 1993 1994 1995 AMERICAN NATIONAL BANKSHARES INC. 100 116 186 211 227 219 INDEPENDENT BANK INDEX 100 111 152 188 225 299 S&P 500 INDEX 100 131 141 155 157 215
9
Executive Compensation Annual Compensation Long-Term Compensation Awards Payouts Name and Other Restricted Stock Long-Term All Principal Bonus Annual Stock Options/ Incentive Other Position Year Salary(1) (2) Compensation Awards SARs Payouts Comp.(3) Charles H. 1995 118,665 27,479 N/A N/A N/A N/A 28,780 Majors 1994 108,140 23,095 N/A N/A N/A N/A 41,437 President 1993 100,641 19,426 N/A N/A N/A N/A 11,907 & Chief Executive Officer (effective January 1, 1994)
____________________________________ (1) Includes salary deferrals contributed by the employee to the 401(k) Plan. (2) Includes matching contributions to the 401(k) Plan made by the Bank. Also includes payments in cash of profit-sharing (bonus) participations. In 1995, the profit-sharing (bonus) plan provided that an amount equal to 12.5% of the Bank's net income (after taxes, but before deducting profit sharing and its related tax effect), less the Bank's 401(k) contributions, be paid to officers and employees who are in the Bank's employ on December 31, 1995. The total expense for the plan for the year 1995 amounted to $543,309. (3) All Other Compensation includes amounts set aside or accrued by the Bank for the Retirement Plan and Executive Compensation Continuation Plan. (4) The Bank provided life insurance and disability insurance benefits for all full-time officers and employees and hospitalization insurance for such individuals on a contributory basis and the aggregate of personal benefits paid for by the Bank for all such individuals did not exceed $5,000 each in 1995. (5) In 1995, each non-officer director received a monthly retainer fee of $500 and attendance fees of $100 for each regular Board meeting and $400 for each Committee meeting attended. The aggregate total amount paid for the year 1995 was $104,600. Non-officer directors are excluded from the Bank's retirement plan and, therefore, do not qualify for pension benefits. Retirement Plan. The Bank's retirement plan is a non-contributory defined benefit pension plan which covers substantially all employees of the Bank who are 21 years of age or older and who have had at least one year of service. Advanced funding is accomplished by using the actuarial cost method known as the collective aggregate cost method. As of December 31, 1995, the normal retirement benefit formula was 1.3% per year of service times compensation plus .65% per year of service times compensation in excess of social security covered compensation. At normal retirement, the monthly benefit is calculated based on any consecutive five-year period which will produce the highest average rate of basic monthly compensation. Bonuses are not included in the definition of compensation. Cash benefits under the plan generally commence on retirement at age 65, death, or termination of employment. 10 Partial vesting of the retirement benefits under the plan occurs after three years of service and full vesting occurs after seven years of service with the Bank. The estimated annual benefits at retirement for the five executive officers as of December 31, 1995 are as follows: Estimated Annual Benefit Name of Individual at Retirement Charles H. Majors $ 35,118 President and Chief Executive Officer E. Budge Kent, Jr., 41,785 Senior Vice President and Asst. Secretary Carl T. Yeatts, 39,015 Senior Vice President Gilmer D. Jefferson, 37,357 Senior Vice President and Asst. Treasurer David Hyler, 34,501 Senior Vice President and Secretary & Treasurer ________ $187,776 Deferred Compensation Plan. The Board of Directors of the Bank adopted the Executive Compensation Continuation Plan, a non-contributory deferred compensation plan, in 1982. Under the plan, certain key executives who, in the opinion of the Directors, are making substantial contributions to the overall growth and success of the Bank and who must be retained in order to expand and continue satisfactory long term growth are eligible to receive benefits afforded by the plan. Under agreements with eligible key executives pursuant to this plan, if any such executive dies or retires while employed by the Bank, such executive or his designated beneficiary will receive annual payments commencing at death or retirement and continuing for a period of 10 years. Charles H. Majors is entitled to an annual benefit of $50,000 under the plan. E. Budge Kent, Jr., Gilmer D. Jefferson, Carl T. Yeatts and David Hyler are entitled to an annual benefit of $25,000 each under the plan and the current executive officers as a group (5) are entitled to annual benefits of $150,000 under the plan. Premiums in the aggregate amount of $22,942 were paid in 1995. 401(k) Plan. Effective July 1, 1995, the Bank adopted a 401(k) Plan which covers substantially all full-time employees who are 21 years of age or older and who have had at least one year of service. An employee may defer a portion of his or her salary, not to exceed the lesser of 15% of compensation or $9,240. The Bank will make a matching contribution in the amount of 50% of the first 6.0% of compensation so deferred. Indebtedness of and Transactions with Management Some of the directors and officers of the Corporation and the companies with which they are associated were customers of, and had banking transactions with, the Bank in the ordinary course of the Bank's business during 1995. All loans and commitments to loan included in such transactions were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and, in the opinion of the management of the Bank, do not involve more than a normal risk of collectibility or present other unfavorable features. During the year 1995, the highest aggregate amount of outstanding loans, direct and indirect, to the directors and officers was $14,566,974 or 43% of equity capital and this peak amount occurred on September 30, 1995. 11 Independent Public Accountants The Board of Directors of the Corporation, pursuant to the recommendation of its Audit Committee, selected Arthur Andersen, L.L.P., independent public accountants, to audit the financial statements of the Corporation and the Bank for the year 1995. Arthur Andersen, L.L.P. was first engaged by the Bank in 1978 as its independent public accountant. A representative of Arthur Andersen, L.L.P. will be present at the shareholders' meeting and this representative will have an opportunity to make a statement if he so desires. He will be available to respond to appropriate questions. Shareholder Proposals Any shareholder proposal intended to be presented at next year's Annual Meeting must be received at the principal office of the Corporation (Post Office Box 191, Danville, Virginia 24543) for inclusion in the proxy statement for the 1997 annual meeting not later than January 2, 1997. The proposals should be mailed to the Corporation by Certified Return Receipt Requested mail. Other Business The Board of Directors knows of no other matters which may properly be brought before the Annual Meeting. However, if any other matters should properly come before the Annual Meeting, it is the intention of the persons named in the enclosed form of proxy to vote such proxy in accordance with their best judgement on such matters. Annual Report The Annual Report for the year ended December 31, 1995 accompanies this Proxy Statement. A copy of the Corporation's Annual report to the Securities and Exchange Commission on Form 10-K may be obtained without charge by any beneficial owner of the Corporation's Common Stock upon written request to Charles H. Majors, President and Chief Executive Officer, American National Bankshares Inc., P. O. Box 191, Danville, Virginia 24543. By Order of the Board of Directors Charles H. Majors President and Chief Executive Officer March 29, 1996 12 EX-27 4
9 1000 3-MOS 6-MOS 9-MOS 12-MOS YEAR DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995 DEC-31-1995 JAN-01-1995 APR-01-1995 JUL-01-1995 OCT-01-1995 JAN-01-1995 MAR-31-1995 JUN-30-1995 SEP-30-1995 DEC-31-1995 DEC-31-1995 9236 7554 11436 9534 9534 83 97 112 128 128 0 900 0 1100 1100 0 0 0 0 0 2807 2821 36026 44080 44080 74276 68883 71731 65223 65223 73579 69030 71919 65763 65763 163036 169734 174920 176215 176215 2415 2527 2600 2649 2649 250552 251543 302500 305083 305083 209776 211301 259936 259830 259830 0 0 0 0 0 8917 7939 9046 11128 11128 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2400 2400 2400 2400 2400 29459 29630 31118 31725 31725 250552 251543 302500 305083 305083 3432 3699 3884 3993 15008 997 932 1141 1510 4580 15 14 44 86 159 4444 4645 5069 5589 19747 1723 1861 2173 2499 8256 1786 1941 2251 2585 8563 2658 2704 2818 3004 11184 93 121 160 102 476 0 0 0 0 0 1566 1583 1547 2072 6768 1478 1488 1636 1265 5867 1478 1488 1636 1265 5867 0 0 0 0 0 0 0 0 0 0 1009 1039 1123 852 4023 .42 .43 .47 .36 1.68 .42 .43 .47 .36 1.68 4.52 4.60 4.39 4.27 4.40 141 244 83 28 28 51 132 159 161 161 105 101 0 0 0 0 0 0 0 0 2353 2415 2527 2600 2353 45 22 108 66 241 14 13 21 13 61 2415 2527 2600 2649 2649 2415 2527 2513 2560 2560 0 0 0 0 0 0 0 87 89 89
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