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.
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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
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AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
1996 1995
(Unaudited) (See note)
ASSETS
<C> <C> <C>
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
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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:
<C> <C> <C>
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 $0.03
The accompanying notes are an integral part of these statements.
4
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AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30
1996 1995
INTEREST INCOME:
<C> <C> <C>
Interest and fees on loans......................$ 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 $0.31
The accompanying notes are an integral part of these statements.
5
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AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
1996 1995
<C> <C> <C>
Cash Flows from Operating Activities:
Net income..........................................................................$ 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
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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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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)
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