-----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, LX1ASM+4QQXilcydGKpWhyWyYfzuxaclMApXix1c5Un5YLNDAg6tS6Z1eYr2JVTQ CYS8jJaxybvsx8QFnZDiZw== 0000741516-96-000010.txt : 19961210 0000741516-96-000010.hdr.sgml : 19961210 ACCESSION NUMBER: 0000741516-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN NATIONAL BANKSHARES INC CENTRAL INDEX KEY: 0000741516 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 541284688 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12820 FILM NUMBER: 96663783 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-Q 1 3RD QTR 1996 FILING This is a conforming paper copy pursuant to Rule # 901(d) of Regulation S-T. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the quarterly period ended September 30,1996 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-12820 AMERICAN NATIONAL BANKSHARES INC. (Exact name of registrant as specified in its charter) VIRGINIA 54-1284688 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 628 Main Street Danville, Virginia 24541 (Address of principal executive offices) (Zip Code) (804) 792-5111 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . The number of shares outstanding of the issuer's common stock as of November 12, 1996 was 3,279,798. AMERICAN NATIONAL BANKSHARES INC. INDEX Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995...........................................3 Condensed Consolidated Statements of Income for the three months ended September 30, 1996 and 1995..............................4 Condensed Consolidated Statements of Income for the nine months ended September 30. 1996 and 1995................................5 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1996...............................6 Notes to Condensed Consolidated Financial Statements.............7-9 Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations....................................10-14 Part II. Other Information................................................15 SIGNATURES .................................................................16 EXHIBITS - Financial Data Schedule..........................................17 2 AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY CONDENSED CONSOLIDATED BALANCE SHEETS September 30 December 31 1996 1995 (Unaudited) (See note) ASSETS CASH AND DUE FROM BANKS.................................$ 12,902 $ 10,394 FEDERAL FUNDS SOLD....................................... 7,560 1,100 INTEREST-BEARING DEPOSITS IN BANKS....................... 208 1,295 INVESTMENT SECURITIES: Securities available for sale (at market value)......... 84,520 49,307 Securities held to maturity (market value of $70,859 at September 30, 1996 and $99,195 at December 31, 1995). 70,996 98,102 Total investment securities....................... 155,516 147,409 LOANS..................................................... 225,513 216,355 Less: Unearned income............................ (538) (914) Reserve for loan losses................ (2,981) (2,757) Net loans......................................... 221,994 212,684 OTHER ASSETS.............................................. 16,795 15,597 Total assets.....................................$ 414,975 $ 388,479 LIABILITIES AND SHAREHOLDERS' INVESTMENT LIABILITIES: Demand deposits - non-interest bearing....................$ 38,552 $ 32,578 Demand deposits - interest bearing........................ 42,285 41,602 Money market deposits..................................... 20,436 22,409 Savings deposits.......................................... 65,064 66,084 Time deposits............................................. 171,559 164,670 Total deposits....................................... 337,896 327,343 Repurchase agreements..................................... 23,601 9,572 Accrued interest payable and other liabilities............ 2,875 2,651 Total liabilities.................................... 364,372 339,566 SHAREHOLDERS' INVESTMENT: Common stock, $1 par, 10,000,000 shares authorized, 3,279,798 shares outstanding at September 30, 1996 and 3,213,641 shares outstanding at December 31, 1995. 3,280 3,214 Capital in excess of par value............................ 10,631 9,967 Retained earnings......................................... 37,006 35,104 Net unrealized (depreciation) appreciation................ (314) 628 Total shareholders' investment....................... 50,603 48,913 Total liabilities and shareholders' investment...........................$ 414,975 $ 388,479 The accompanying notes are an integral part of these balance sheets. Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date . 3
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three Months Ended September 30 1996 1995 INTEREST INCOME: Interest and fees on loans...........................$ 5,209 $ 4,768 Interest on federal funds sold and other............. 38 44 Income on investment securities: U. S. Government................................... 1,573 973 Federal Agencies................................... 352 576 State and municipal (tax exempt)................... 255 159 Other.............................................. 145 90 Total interest income........................... 7,572 6,610 INTEREST EXPENSE: Interest on deposits: Demand............................................. 302 267 Money Market....................................... 147 162 Savings............................................ 500 521 Time............................................... 2,396 1,986 Interest on repurchase agreements.................... 242 79 Total interest expense.......................... 3,587 3,015 NET INTEREST INCOME..................................... 3,985 3,595 PROVISION FOR LOAN LOSSES............................... 165 160 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...................................... 3,820 3,435 NON-INTEREST INCOME: Trust department..................................... 471 375 Service charges on deposit accounts.................. 161 119 Fees and insurance premiums.......................... 28 25 Other................................................ 53 51 Total non-interest income....................... 713 570 NON-INTEREST EXPENSE: Salaries ............................................ 1,025 967 Pension and other employee benefits.................. 253 242 Occupancy and equipment expense...................... 282 251 FDIC insurance expense............................... 388 23 Postage and printing................................. 85 81 Merger related expense............................... 5 - Other................................................ 458 457 Total non-interest expense...................... 2,496 2,021 INCOME BEFORE INCOME TAX PROVISION...................... 2,037 1,984 INCOME TAX PROVISION ................................... 4 625 NET INCOME..............................................$ 2,033 $ 1,359 NET INCOME PER SHARE, based on weighted average shares outstanding at September 30, 1996 and 1995 of 3,279,798 and 3,213,641, respectively............ $0.62 $0.42 CASH DIVIDENDS PAID per share........................... $0.18 $0.03 The accompanying notes are an integral part of these statements. 4
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Nine Months Ended September 30 1996 1995 INTEREST INCOME: Interest and fees on loans......................$ 15,083 $ 13,520 Interest on federal funds sold and other......... 237 73 Income on investment securities: U. S. Government............................... 4,537 2,527 Federal Agencies............................... 984 1,778 State and municipal (tax exempt)............... 702 513 Other.......................................... 330 260 Total interest income....................... 21,873 18,671 INTEREST EXPENSE: Interest on deposits: Demand......................................... 914 788 Money Market................................... 472 503 Savings........................................ 1,486 1,654 Time........................................... 7,162 4,904 Interest on repurchase agreements................ 509 249 Total interest expense...................... 10,543 8,098 NET INTEREST INCOME................................. 11,330 10,573 PROVISION FOR LOAN LOSSES........................... 418 374 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.................................. 10,912 10,199 NON-INTEREST INCOME: Trust department................................. 1,483 1,067 Service charges on deposit accounts.............. 415 329 Fees and insurance premiums...................... 83 83 Other............................................ 169 205 Total non-interest income................... 2,150 1,684 NON-INTEREST EXPENSE Salaries ........................................ 3,003 2,848 Pension and other employee benefits.............. 674 675 Occupancy and equipment expense.................. 853 734 FDIC insurance expense........................... 467 342 Postage and printing............................. 296 212 Merger related expense........................... 1,190 - Other............................................ 1,412 1,358 Total non-interest expense.................. 7,895 6,169 INCOME BEFORE INCOME TAX PROVISION.................. 5,167 5,714 INCOME TAX PROVISION ............................... 1,712 1,793 NET INCOME..........................................$ 3,455 $ 3,921 NET INCOME PER SHARE, based on weighted average shares outstanding at September 30, 1996 and 1995 of 3,262,754 and 3,213,641, respectively........ $1.06 $1.22 CASH DIVIDENDS PAID per share....................... $0.51 $0.31 The accompanying notes are an integral part of these statements. 5
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Nine Months Ended September 30 1996 1995 Cash Flows from Operating Activities: Net income..........................................................................$ 3,455 $ 3,921 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses....................................................... 418 374 Depreciation.................................................................... 361 339 Amortization of intangibles..................................................... 219 - Amortization of premiums and (discounts) on investment securities...................................................... 41 53 Loss (gain) on sale of securities............................................... 338 (24) Deferred income taxes benefit................................................... (126) (38) Reconciliation of fiscal year of merged company to calendar year................ (379) - Increase in interest receivable................................................. (211) (1,027) (Increase) decrease in other assets............................................. (270) 339 Increase in interest payable.................................................... 511 289 Increase in other liabilities................................................... 190 1,241 Net cash provided by operating activities....................................... 4,547 5,467 Cash Flows from Investing Activities: Acquisition of branch operations.................................................. - 30,626 Proceeds from maturities+A47, calls, and sales of securities .................... 48,834 22,392 Purchases of securities available for sale........................................(28,522) (35,646) Purchases of securities held to maturity..........................................(29,280) (12,682) Purchases of other stock.......................................................... (188) (18) Net increase in loans............................................................. (9,080) (21,049) Purchases of property and equipment............................................... (577) (357) Net cash used in investing activities.............................................(18,813) (16,734) Cash Flows from Financing Activities: Net increase (decrease) in demand, money market, and savings deposits............ 3,662 (6,772) Net increase in certificates of deposit........................................... 5,671 14,947 Net decrease in borrowings from Federal Home Loan Bank............................ - (900) Net increase in federal funds purchased and repurchase agreements..................................................... 14,029 777 Cash dividends paid............................................................... (1,672) (994) Cash paid in lieu of fractional shares............................................ (3) - Proceeds from exercise of stock options........................................... 460 - Net cash provided by financing activities......................................... 22,147 7,058 Net Increase (Decrease) in Cash and Cash Equivalents.............................. 7,881 (4,209) Cash and Cash Equivalents at Beginning of Period.................................. 12,789 17,036 Cash and Cash Equivalents at End of Period........................................$20,670 $12,827 Supplemental Schedule of Cash and Cash Equivalents: Cash: Cash and due from banks...........................................................$12,902 $12,335 Federal funds sold................................................................ 7,560 - Interest-bearing deposits in other banks.......................................... 208 492 ------- ------- $20,670 $12,827 Supplemental Disclosure of Cash Flow Information: Interest paid.....................................................................$10,931 $7,710 Income taxes paid................................................................. 1,953 $1,602 6
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly American National Bankshares Inc. financial position as of September 30, 1996, the results of its operations for the three and nine months ended September 30, 1996 and September 30, 1995 and its cash flows for the nine months ended September 30, 1996 and September 30, 1995. Operating results for the three and nine month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. A summary of the Corporation's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements in the Corporation's Annual Report to Shareholders for 1995. 2. Investment Securities Management determines the appropriate classification of securities at the time of purchase. Securities classified as held for investment are those securities that management intends to hold to maturity, subject to continued credit-worthiness of the issuer, and that the Bank has the ability to hold on a long-term basis. Accordingly, these securities are stated at cost, adjusted for amortization of premium and accretion of discount on the level yield method. Securities designated as available for sale have been adjusted to their respective market values and a corresponding adjustment made to shareholders' investment at September 30, 1996 and December 31, 1995. 3. Commitments and Contingencies The Bank has an established credit availability in the amount of $29,000,000 with the Federal Home Loan Bank of Atlanta. As of September 30, 1996 and December 31, 1995, there were no borrowings outstanding under this availability. Commitments to extend credit, which amount to $62,634,000 at September 30, 1996 and $35,416,000 at December 31, 1995, 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. 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 September 30, 1996 and December 31, 1995 the Bank had $700,000 and $632,000 in outstanding standby letters of credit respectively. 4. 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". This statement is not applicable to the current operations of the Bank. In June of 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". The statement, which becomes effective for transactions occurring after December 31, 1996, provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on the financial components approach that focuses on control. Under this approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes all assets it does not control and derecognizes liabilities when extinguished. The statement also provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. Management does not anticipate that the implementation of the statement will have a material impact on the consolidated financial position or consolidated results of operations of American National Bankshares Inc. 5. Merger and Acquisitions 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. 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 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 was accounted for as a pooling of interests. The financial position and results of operations of the Corporation and Mutual were combined and the fiscal year of Mutual was conformed to the Corporation's fiscal year. In addition prior periods have been restated to give effect to the merger. In March 1996 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. On July 25, 1996 the Corporation signed a purchase and assumption agreement with FirstSouth Bank of Burlington, North Carolina. The agreement provided for the purchase of the Yanceyville North Carolina branch office of FirstSouth Bank by American National Bank and Trust Company. The transaction was consummated on October 25, 1996 when American National Bank and Trust Company assumed $21,410,000 in deposits and purchased loans of $4,775,000 in addition to the building, fixtures and equipment. In consideration of the transaction, American National Bank and Trust Company paid a premium on the deposits of $1,516,000 or approximately 7%. The acquisition was recorded as a purchase transaction and the premium of $1,516,000 was recorded as a core deposit intangible asset. AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS and CAPITAL On March 14, 1996, the Corporation completed the merger of Mutual Savings Bank, F.S.B. (Mutual) into American National Bankshares Inc. (ANB). The transaction was accounted for as a pooling of interests. The financial position and results of operations of the Corporation and Mutual were combined and the fiscal year of Mutual was conformed to the Corporation's fiscal year. In addition prior periods have been restated to give effect to the merger. The Corporation's net income (excluding the effect of cost associated with the merger, a one time FDIC assessment against Mutual deposits to recapitalized the SAIF fund and all related income tax effects on the merger cost and the assessment) for the nine months ended September 30, 1996 was $4,446,000, an increase of $525,000 or 13% over the $3,921,000 earned in the first nine months of 1995. The results of the third quarter ended September 30, 1996 show net income of $1,487,000 (excluding the effect of cost associated with merger, the one-time FDIC assessment and all related income tax effects) which was an increase of $128,000 or 9% over the income earned in the same period of 1995. The increase in earnings for both periods was primarily attributable to an increase in trust revenue during both periods and an increase in net interest income as a result of new loans and improved yields on investments. The components of the cost associated with the merger include consulting, legal, accounting, conversion, regulatory and other related fees and expense. Also included in the merger related expense is a loss on the sale of securities. These were securities held by Mutual that were not compatible with ANB's investment program. For the six months ended June 30, 1996, the cost associated with the merger included a Federal Income tax recapture of $1,074,000 on untaxed loan loss reserves of Mutual. During the quarter ended September 30, 1996 the Federal income tax recapture was dismissed by congressional legislation and the $1,074,000 was reversed from the Company's liabilities. This amount was partially offset during the third quarter by a one-time special assessment by the Federal Deposit Insurance Corporation (FDIC), in the amount of $350,000, against deposits formerly held by Mutual to recapitalize the Savings Association Insurance Fund (SAIF). Net income per common share for the first nine months of 1996 was $1.06 compared with $1.22 earned during the same period of 1995. Net income per common share for the third quarter ended September 30, 1996 was $.62 compared with $.42 earned during the same period of 1995. On an annualized basis, return on average total assets, before merger related expense and the one-time FDIC assessment, was 1.49% for the nine month period ended September 30, 1996 and 1.57% for the same period of 1995. Return on average total assets, before merger related expense and the one-time FDIC assessment, during the third quarter ended September 30, 1996 was 1.45% compared to 1.48% for the same period of 1995. Return on average common shareholders' equity, before merger related expense and the one-time FDIC assessment, was 12.03% for the first nine months of 1996 compared to 11.51% for the first nine months of 1995 and 11.99% for the third quarter of 1996 compared to 11.40% for the same quarter of 1995. TRENDS AND FUTURE EVENTS During the first nine months of 1996, the volume of net loans increased by $9,310,000 or 4%. This increase is the result of a strong loan demand and is indicative of the continuance of a healthy local economy. Total investment securities increased during this period by $8,107,000 or 5%. The increases in loans and investment securities were funded from an increase in deposits and repurchase agreements. Total deposits increased $10,553,000 or 3% during the first nine months of 1996 and repurchase agreements increased $14,029,000 or 147% during the same period. The increase in repurchase agreements was attributable to several large commercial customers. During the first quarter of 1996, the Corporation changed its policy from paying dividends semi-annually to a quarterly schedule. On March 29, 1996, the Board of Directors paid the Corporation's first quarterly dividend of $.15 per share on 3,279,798 shares of common stock outstanding. On May 22, 1996 a dividend of $.18 per share was declared and was paid on June 28, 1996. The third dividend, also $.18 per share, was declared on August 20, 1996, in the amount of $.18 per share and was paid on September 27, 1996. On August 25, 1996 the Corporation entered into an agreement with FirstSouth Bank of Burlington, North Carolina to purchase the branch office and associated ATM of FirstSouth Bank located in Yanceyville, (Caswell County) North Carolina. This acquisition was completed October 25, 1996 and American National Bank and Trust Company assumed $21,410,000 in deposits and purchased $4,775,000 in loans as well as the building, furniture, fixtures and equipment. American National Bank and Trust Company paid a premium of $1,516,000, approximately 7% of the deposits assumed. The transaction will be accounted for as a purchase and the premium will be recorded as a core deposit intangible asset. The Yanceyville branch office is approximately 12 miles from the City of Danville and Management views this as a natural expansion of the Corporation's market area. The Corporation already serves many customers who work in the greater Danville area but reside in Yanceyville and Caswell County. Certain statements contained above in this section are forward-looking statements that involve a number of risks and uncertainties. In addition to the factors discussed above regarding the local economy and the expansion of the Corporation's market area are other factors that could cause actual results to differ materially. These factors include business conditions, development of new products and services, interest rate trends, future legislation, regulatory controls and the risks described from time to time in the Corporation's SEC reports. NET INTEREST INCOME Net interest income, the largest component of the Corporation's earnings, is the excess of interest income over interest expense. During the nine months of 1996, net interest income increased $757,000 or 7% over the same period of 1995. During the third quarter of 1996, net interest income increased $390,000 or 11% over the same period of 1995. The increase in net interest income for both periods is primarily attributable to an increase in the volume of loans and improved yields on investments. During the first nine months of 1996, short-term interest market rates (those under 2 years) increased slightly while long term interest market rates decreased in the range of 5 to 10 basis points. During the next twelve months the Corporation's repricing opportunities in liabilities will exceed repricing opportunities of assets by approximately $60,468,000, (approximately 15% of total assets), which makes the Corporation liability sensitive. Included in the liabilities are savings accounts of $65,064,000 which are not as sensitive to change as money market and interest bearing checking accounts. Considering the reality of the sensitivity of the savings accounts makes the repricing opportunities more balanced. Any further increases in short-term market interest rates within the next twelve months may tend to decrease the Corporation's net yield on interest earning assets but Management does not expect this to have a substantial effect upon the earnings of the Corporation during the projected period. ASSET QUALITY 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 the reporting period. Nonperforming assets were $116,000 at September 30, 1996 and $306,000 at December 31, 1995, a decrease of $190,000 during the first nine months of 1996. During the first nine months of 1996 the gross amount of interest income that would have been recorded on nonaccrual loans and restructured loans at September 30, 1996, if all such loans had been accruing interest at the original contractual rate, was $38,000. No interest payments were recorded during the reporting period as interest income for all such nonperforming loans. Nonperforming assets as a percentage of net loans were .05% at September 30, 1996 and .1% at December 31, 1995. Loans accruing interest and past due 90 days or more totaled $285,000 at September 30, 1996 and $161,000 at December 31, 1995. The increase of $124,000 results primarily from the past due status of several large commercial loans and an increase in consumer loans of $6,578,006 booked in 1996. This is not considered significant in view of the size of the Corporation's loan portfolio. PROVISION and RESERVE FOR LOAN LOSSES The provision for loan losses was $418,000 for the first nine months of 1996 and $165,000 for the third quarter of 1996. The reserve for loan losses totaled $2,981,000 at September 30, 1996, an increase of $224,000 or 8 % over the $2,757,000 recorded at December 31, 1995. The ratio of reserves to loans, less unearned discount, was 1.33% at September 30, 1996 and 1.28% at December 31, 1995. The ratios for both periods are lower than the ratios provided by the Corporation in past years. As a result of the merger with Mutual Savings Bank, the mix of loans in the Corporation's portfolio has been heavily shifted to mortgage loans due to Mutual's high concentration of mortgages. The mortgage loan portfolio is well secured and requires a lower allocation of the Corporation's loan loss reserve than does the remainder of the loan portfolio. In Management's opinion, the current reserve for loan losses is adequate. NON-INTEREST INCOME Non-interest income for the third quarter ended September 30, 1996 was $713,000, an increase of 25% over the $570,000 reported in the third quarter of 1995. The components of the increase in the third quarter of 1996 included a 26% increase in trust revenue. The trust revenue increase of $96,000 resulted primarily from fees associated with the sale of assets in one large estate and fees associated with new business booked. The trust revenue increase is not necessarily indicative of future trust earnings. Other changes in non-interest income during the third quarter included a 35% increase in service charges on deposit accounts due to increased deposits and increased fees, a 12% increase in fees and insurance commissions and a 4% increase in other non-interest income. Non-interest income for the nine months ended September 30, 1996 was $2,150,000, an increase of 28% over the $1,684,000 reported for the same period of 1995. The components of the increase included a 39% increase in trust revenue. The increase in trust revenue resulted from new business booked and the sale of assets in one large estate. Other components of the increase in non-interest income for the nine month period included a 26% increase in service charges on deposit accounts primarily from an increase in deposit accounts, an increase in fees charged and a more comprehensive coverage and analysis of commercial accounts. Also included is an 18% decrease in other non-interest income. The change in other non-interest income reflects additional non-interest income of $59,000 recorded in the same period of 1995 from profit on the sale of investment securities. Fees and insurance premiums remained the same for this period. NON-INTEREST EXPENSE Non-interest expense for the third quarter ended September 30, 1996 was $2,496,000, a 24% increase over the $2,021,000 recorded for both ANB and Mutual during the same period of 1995. The components of the increase included a 6% increase in salaries, a 5% increase in pension and other employee benefits, a 12% increase in occupancy and equipment expense, primarily from upgrading facilities and equipment, and an increase of $365,000 in FDIC insurance expense over the $23,000 recorded for the third quarter of 1995. This was due primarily to a one-time assessment by the FDIC against Mutual deposits to recaptilize the SAIF fund. Postage and printing expense increased 5% over the same period of 1995 and other non-interest expense remained approximately the same. Merger related expenses during the quarter ended September 30, 1996 were $5,000. There were no merger related expenses in the same quarter of 1995. Non-interest expense for the nine months ended September 30, 1996 was $7,895,000, compared with $6,169,000 reported for the same period last year. The increase of $1,726,000 included an increase in salaries of 5% over the same period last year. Pension and other employee benefits remained approximately the same. Occupancy and equipment expense increased 16%, due primarily to upgrading of equipment and remodeling of facilities. FDIC insurance expense increased 37% due to a one-time assessment by the FDIC against Mutual deposits to recapitalize the SAIF fund and postage and printing expense increased 40% as a result of increases in deposit and loan accounts, special promotions and advertising by mail. Non-recurring merger related expense which occurred only in 1996 totaled $1,190,000. Other non-interest expense increased 4% from the same period of 1995. INCOME TAX PROVISION The income tax provision for the nine months ended September 30, 1996 was $1,712,000 a decrease of $81,000 from the $1,793,000 reported a year earlier. This decrease resulted primarily from a decrease in taxes associated with the merger related expense recorded in 1996. The Bank has not experienced any significant change in the effective tax rate on the operating income before merger related expense. CAPITAL MANAGEMENT Federal regulatory risk-based capital ratio guidelines require percentages to be applied to various assets including off-balance-sheet assets in relation to their perceived risk. Tier I capital includes stockholders' equity and Tier II capital includes certain components of nonpermanent preferred stock and subordinated debt. The Corporation has no nonpermanent preferred stock or subordinated debt. Banks and bank holding companies must have a Tier I capital ratio of at least 4% and a total ratio, including Tier I and Tier II capital, of at least 8%. As of September 30, 1996 the Corporation had a ratio of 20.5% for Tier I and a ratio of 21.7% for total capital. At December 31, 1995 these ratios were 20.1% and 21.3%, respectively. A cash dividend of $.15 per share, totaling $492,000, was paid on 3,279,798 shares of common stock outstanding on March 29, 1996. A cash dividend of $.18 per share, totaling $590,000, was paid on June 28, 1996 and a cash dividend of $.18 per share totaling $590,000 was paid on September 27, 1996. All three dividends were paid on 3,279,798 shares of common stock outstanding at each respective period. LIQUIDITY The Corporation's net liquid assets to net liabilities ratio was 34% at both September 30, 1996 and December 31, 1995. This ratio is considered to be adequate liquidity for the respective periods. Management constantly monitors and plans the Corporation's liquidity position for future periods. Liquidity is provided from cash and due from banks, federal funds sold, interest-bearing deposits in other banks, repayments from loans, seasonal increases in deposits, lines of credit from two correspondent banks and two federal agency banks and a planned structured continuous maturity of investments. Management believes that these factors provide sufficient and timely liquidity for the foreseeable future. PART II OTHER INFORMATION Item: 1. Legal Proceedings None 2. Changes in securities None 3. Defaults upon senior securities None 4. Results of votes of security holders None 5. Other information None 6. Exhibits and Reports on Form 8-K (a) Exhibits - Financial Data Schedule EX-27 (b) Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN NATIONAL BANKSHARES INC. /s/ Charles H. Majors --------------------------------- Charles H. Majors President and Chief Date - October 12, 1996 Executive Officer /s/ David Hyler --------------------------------- David Hyler Senior Vice-President and Secretary-Treasurer Date - October 12, 1996 (Chief Financial Officer) EX-27 2
9 1000 3-MOS 6-MOS 9-MOS YEAR DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 11039 9570 12902 12902 2485 3261 208 208 6300 5000 7560 7560 0 0 0 0 69279 78762 84520 84520 70888 66389 70996 70996 71090 66093 70859 70859 221967 222832 225513 225513 2800 2882 2981 2981 393983 398640 414975 414975 332124 331137 337896 337896 0 0 0 0 13197 18632 26476 26476 0 0 0 0 0 0 0 0 0 0 0 0 3280 3280 3280 3280 45382 45591 47323 47323 393983 398640 414975 414975 4957 4917 5209 15083 2127 2101 2325 6553 68 131 38 237 7152 7149 7572 21873 3349 3340 3345 10034 3476 3480 3587 10543 3676 3669 3985 11330 131 122 165 418 (338) 0 0 (338) 3313 2086 2496 7895 875 2255 2037 5167 875 2255 2037 5167 0 0 0 0 0 0 0 0 (136) 1558 2033 3455 (.04) .48 .62 1.06 (.04) .48 .62 1.06 3.96 4.03 4.00 4.00 321 41 116 116 214 300 285 285 0 0 0 0 0 0 0 0 2782 2800 2882 2782 122 72 123 317 9 32 56 97 2800 2882 2981 2981 2800 2882 2981 2981 0 0 0 0 0 0 0 0
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