<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 1996
Registration No. 33-64865
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
PRE-EFFECTIVE AMENDMENT NUMBER ONE TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
AMERICAN NATIONAL BANKSHARES INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
VIRGINIA 6711 52-1284688
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
628 MAIN STREET
DANVILLE, VIRGINIA 24541
(804) 792-5111
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive office)
CHARLES H. MAJORS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AMERICAN NATIONAL BANKSHARES INC.
628 MAIN STREET
DANVILLE, VIRGINIA 24541
(804) 792-5111
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
<TABLE>
<S> <C> <C>
LESLIE A. MURPHY H. DAN DAVIS FRANK M. CONNER III
MULDOON, MURPHY & FAUCETTE PRESIDENT AND CHIEF EXECUTIVE OFFICER ALSTON & BIRD
SUITE 500 MUTUAL SAVINGS BANK, F.S.B. 601 PENNSYLVANIA AVENUE, N.W.
5101 WISCONSIN AVENUE, N.W. 103 TOWER DRIVE NORTH BUILDING, SUITE 250
WASHINGTON, D.C. 20016 DANVILLE, VIRGINIA 24540 WASHINGTON, D.C. 20004
(202) 362-0840 (804) 791-0200 (202) 508-3303
</TABLE>
APPROXIMATE DATE OF THE COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC
As soon as practicable after the effective time of the merger (the "Merger")
described in the Joint Proxy Statement/Prospectus included in this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE>
CROSS-REFERENCE SHEET
(CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K SHOWING THE
LOCATION IN THE JOINT PROXY STATEMENT/PROSPECTUS OF THE RESPONSE TO THE ITEMS
OF PART I OF FORM S-4)
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
ITEM CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ---- ------- --------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Table of
Pages of Prospectus Contents
3. Risk Factors, Ratio of Earnings to Summary; Meetings of Shareholders;
Fixed Charges, and Other Information Pro Forma Financial Information
4. Terms of the Transaction Summary; The Merger; Effect of the
Merger on Rights of Shareholders;
Amendment and Restatement of ANB's
Articles of Incorporation; Description of
ANB Capital Stock
5. Pro Forma Financial Information Summary; Pro Forma Financial
Information
6. Material Contacts With the Company The Merger
Being Acquired
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Not Applicable (see Part II, Item 20)
Indemnification for Securities Act
Liabilities
10. Information With Respect to S-3 Not Applicable
Registrants
11. Incorporation of Certain Information Not Applicable
by Reference
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LOCATION OR HEADING IN
ITEM CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ---- ------- --------------------------------
<C> <S> <C>
12. Information With Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
14. Information With Respect to Registrants Summary; Pro Forma Financial
Other than S-3 or S-2 Registrants Information; Selected Historical Financial
Data of ANB; Management's Discussion
and Analysis of ANB; Business of ANB;
Amendment and Restatement of ANB's
Articles of Incorporation; Supervision and
Regulation; Description of ANB Capital
Stock
15. Information With Respect to S-3 Not Applicable
Companies
16. Information With Respect to S-2 or Not Applicable
S-3 Companies
17. Information With Respect to Companies Summary; Pro Forma Financial
Other than S-2 or S-3 Companies Information; Selected Historical Financial
Data of Mutual; Management's
Discussion and Analysis of Mutual;
Business of Mutual; Election of Directors
of Mutual; Appointment of Mutual's
Auditors for Fiscal Year Ending
September 30, 1996; Supervision and
Regulation
18. Information if Proxies, Consents, or Summary; Meetings of Shareholders;
Authorizations are to be Solicited The Merger; Amendment and
Restatement of ANB's Articles of
Incorporation; Election of Directors of
Mutual; Appointment of Mutual's Auditors
for Fiscal Year Ending September 30, 1996
19. Information if Proxies, Consents, or Not Applicable
Authorizations are not to be Solicited
in an Exchange Offer
</TABLE>
<PAGE>
[LETTERHEAD OF MUTUAL]
February __, 1996
TO THE SHAREHOLDERS OF
MUTUAL SAVINGS BANK, F.S.B.:
You are cordially invited to attend the 1996 Annual Meeting of
Shareholders ("Mutual Annual Meeting") of Mutual Savings Bank, F.S.B.
("Mutual") to be held on March __, 1996, at _____ ___M., local time, at
_________________________, notice of which is enclosed.
At this important meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Reorganization (the "Agreement")
with American National Bankshares Inc. ("ANB") and the related Plan of Merger
with American National Bank and Trust Company, a wholly owned subsidiary of
ANB ("American National"), pursuant to which (i) Mutual will merge (the
"Merger") with and into American National and (ii) each share of the $1.00
par value common stock of Mutual ("Mutual Common Stock") outstanding at the
effective time of the Merger will be converted into .705 of a share of the
$1.00 par value common stock of ANB ("ANB Common Stock"), plus the right to
receive cash in lieu of fractional shares as determined under the Agreement.
At the Mutual Annual Meeting, you also will be asked to consider and
vote upon a proposal to elect two nominees to the Board of Directors of
Mutual for three-year terms, each of whom currently serves as a director of
Mutual, and on a proposal to ratify the appointment of Manning, Perkinson,
Floyd & Company as the independent auditors of Mutual for the fiscal year
ending September 30, 1996.
The Merger has been approved unanimously by your Board of Directors as
being in the best interests of Mutual and its shareholders. The Board of
Directors of Mutual believes the combined company will be a more effective
competitor in the rapidly changing financial services industry by creating a
combined institution with greater size, breadth of services, efficiency, and
market presence.
The Board of Directors of Mutual believes that the greater market
presence of ANB and the other benefits of the Merger, including opportunities
for cost savings and product penetration, will enhance significantly the
ability of management to achieve greater shareholder value. The Board of
Directors also believes that the shares of ANB Common Stock to be received in
the Merger will provide the shareholders of Mutual with a more liquid
investment. For these reasons, and the reasons discussed further in the
Joint Proxy Statement/Prospectus, the Board of Directors believes that the
Merger is in the best interests of Mutual and its shareholders.
It is anticipated that the exchange of shares of Mutual Common Stock for
shares of ANB Common Stock will qualify as a tax-free transaction for federal
income tax purposes. ANB Common Stock is traded in the over-the-counter
market and is quoted on the OTC Bulletin Board under the symbol "AMNB."
The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the Merger, including descriptions of the effects of the
Merger on the rights of Mutual shareholders. Please give this information
your careful attention.
Approval of the Merger requires the affirmative vote of two-thirds of
the outstanding shares of Mutual Common Stock at the Mutual Annual Meeting by
the holders of record
<PAGE>
on February __, 1996. In addition to the approval of Mutual shareholders,
certain aspects of the Merger are subject to the approval of ANB shareholders
and various governmental agencies and to certain other conditions.
Election of the two nominees to serve as directors of Mutual for
three-year terms requires the affirmative vote of a plurality of the shares
of Mutual Common Stock voted at the Mutual Annual Meeting, assuming a quorum
is present. The ratification of the appointment of Manning, Perkinson, Floyd
& Company as the independent auditors of Mutual requires the affirmative vote
of a majority of the shares of Mutual Common Stock present and voted at the
Mutual Annual Meeting, assuming a quorum is present.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
AGREEMENT AND THE PLAN OF MERGER, THE ELECTION OF TWO NOMINEES TO SERVE AS
DIRECTORS OF MUTUAL, AND THE RATIFICATION OF THE APPOINTMENT OF MANNING,
PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT AUDITORS OF MUTUAL.
In view of the importance of the action to be taken, we urge you to
complete, sign, and date your proxy and return it promptly in the enclosed
envelope, whether or not you plan to attend the Mutual Annual Meeting. If
you attend the Mutual Annual Meeting, you may vote in person even if you
previously have mailed your proxy.
We look forward to seeing you at the Mutual Annual Meeting.
Sincerely
H. Dan Davis
President and Chief Executive Officer
<PAGE>
[LETTERHEAD OF ANB]
February __, 1996
TO THE SHAREHOLDERS OF
AMERICAN NATIONAL BANKSHARES INC.:
You are cordially invited to attend a Special Meeting of Shareholders
("ANB Special Meeting") of American National Bankshares Inc. ("ANB") to be
held on March __, 1996, at ____ __.M., local time at
________________________________, notice of which is enclosed.
At this important meeting, you will be asked to consider and vote upon
the approval of an amendment to the Articles of Incorporation of ANB to
increase the number of authorized shares of the $1.00 par value common stock
of ANB ("ANB Common Stock") from 3,000,000 to 10,000,000 ("Articles of
Incorporation Amendment").
The Articles of Incorporation Amendment is being proposed by the Board
of Directors of ANB in order to permit consummation of the proposed merger
(the "Merger") of Mutual Savings Bank, F.S.B. ("Mutual") with and into
American National Bank and Trust Company, a wholly owned subsidiary of ANB
("American National"), pursuant to the terms of the Agreement and Plan of
Reorganization (the "Agreement") between Mutual and ANB, and the related Plan
of Merger between Mutual and American National. In accordance with the terms
of the Agreement, upon consummation of the Merger, each share of the $1.00
par value common stock of Mutual ("Mutual Common Stock") outstanding at the
effective time of the Merger will be converted into .705 of a share of ANB
Common Stock. As ANB currently has authorized 3,000,000 shares of ANB Common
Stock, of which 2,400,000 shares were issued and outstanding as of September
30, 1995, and as the Merger will require that ANB issue up to 879,911
additional shares of ANB Common Stock in exchange for the outstanding shares
of and options for Mutual Common Stock, the Articles of Incorporation
Amendment is required in order to permit completion of the Merger.
The Articles of Incorporation Amendment has been approved unanimously by
your Board of Directors as being in the best interests of ANB and its
shareholders. The Board of Directors of ANB believes that the greater market
presence of ANB and the other benefits of the Merger, including opportunities
for cost savings and product penetration, will enhance significantly the
ability of management to achieve greater shareholder value. For these
reasons, and the reasons discussed further in the Joint Proxy
Statement/Prospectus, the Board of Directors believes that the Merger and the
Articles of Incorporation Amendment are in the best interests of ANB and its
shareholders.
As the Articles of Incorporation of ANB have previously been amended on
several occasions but have not been restated, the Board of Directors intends,
if the proposed Articles of Incorporation Amendment is approved, to restate
ANB's Articles of Incorporation to consolidate all existing amendments to the
Articles of Incorporation, together with the Articles of Incorporation
Amendment. Accordingly, a vote in favor of the Articles of Incorporation
Amendment will constitute a vote in favor of the proposed restatement of
ANB's Articles of Incorporation. The restatement of ANB's Articles of
Incorporation does not involve any amendments to such articles except the
Articles of Incorporation Amendment. Included as Appendix V to the
accompanying Joint Proxy Statement/Prospectus are the proposed Amended and
Restated Articles of Incorporation of ANB, which include the Articles of
Incorporation Amendment.
<PAGE>
The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the Merger, including a description of the proposed Articles
of Incorporation Amendment. Please give this information your careful
attention.
Approval of the Articles of Incorporation Amendment requires the
affirmative vote of more than two-thirds of the votes entitled to be cast at
the ANB Special Meeting by the holders of record of the outstanding shares of
ANB Common Stock on February __, 1996. In addition to the approval of ANB
shareholders, the Merger is subject to the approval of Mutual shareholders
and various governmental agencies and to certain other conditions.
YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE
ARTICLES OF INCORPORATION AMENDMENT.
In view of the importance of the action to be taken, we urge you to
complete, sign, and date your proxy and return it promptly in the enclosed
envelope, whether or not you plan to attend the ANB Special Meeting. If you
attend the ANB Special Meeting, you may vote in person even if you previously
have mailed your proxy.
We look forward to seeing you at the ANB Special Meeting.
Sincerely,
Charles H. Majors
President and Chief Executive Officer
<PAGE>
MUTUAL SAVINGS BANK, F.S.B.
103 TOWER DRIVE
DANVILLE, VIRGINIA 24540
NOTICE OF THE 1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH ___, 1996
February __, 1996
TO THE SHAREHOLDERS OF
MUTUAL SAVINGS BANK, F.S.B.:
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of
Mutual Savings Bank, F.S.B. ("Mutual") will be held at
____________________________________, on March __, 1996, at _______ ___.M.,
local time, for the following purposes:
1. MERGER. To consider and vote upon a proposal to approve the
Agreement and Plan of Reorganization, dated as of September 26, 1995 (the
"Agreement"), by and between Mutual and American National Bankshares Inc., a
corporation organized and existing under the laws of the Commonwealth of
Virginia ("ANB"), and the related Plan of Merger, dated as of September 26,
1995, by and between Mutual and American National Bank and Trust Company, a
national banking association organized and existing under the laws of the
United States and a wholly owned subsidiary of ANB ("American National"),
pursuant to which, among other matters, (i) Mutual will merge with and into
American National (the "Merger"), (ii) each share of the $1.00 par value
common stock of Mutual ("Mutual Common Stock") outstanding at the effective
time of the Merger will be converted into .705 of a share of the $1.00 par
value common stock of ANB ("ANB Common Stock"), plus the right to receive
cash in lieu of fractional shares as determined under the Agreement, and
(iii) ANB will assume the obligations of the Mutual stock option plan, all as
more fully described in the accompanying Joint Proxy Statement/Prospectus.
2. ELECTION OF DIRECTORS. To consider and vote upon a proposal to
elect two nominees as directors of Mutual to serve for three-year terms or
until their successors are duly elected and qualified.
3. RATIFICATION OF AUDITORS. To consider and vote upon a proposal to
ratify the appointment of Manning, Perkinson, Floyd & Company as the
independent auditors of Mutual for the fiscal year ending September 30, 1996.
4. OTHER BUSINESS. To transact such other business as may come
properly before the meeting or any adjournment or postponement thereof (the
"Mutual Annual Meeting"), including the adjournment of the Mutual Annual
Meeting if necessary to solicit additional proxies in the event sufficient
proxies have not been received to approve the foregoing proposals.
Shareholders of Mutual have a right to dissent from the Merger and
obtain payment in cash of the fair value of their shares of Mutual Common
Stock if the Merger is consummated. The right of any shareholder to receive
such payment is conditioned on strict compliance with the applicable
provisions of the regulations promulgated by the Office of Thrift
Supervision, which are attached to the accompanying Joint Proxy
Statement/Prospectus as Appendix VI.
Only shareholders of record at the close of business on February __,
1996, will be entitled to receive notice of and to vote at the Mutual Annual
Meeting. Approval of the Merger requires the affirmative vote at the Mutual
Annual Meeting by the holders of record of two-thirds of the
<PAGE>
outstanding shares of Mutual Common Stock. Election of the two nominees to
serve as directors of Mutual for three-year terms requires the affirmative
vote of a plurality of the shares of Mutual Common Stock voted at the Mutual
Annual Meeting, assuming a quorum is present. The ratification of the
appointment of Manning, Perkinson, Floyd & Company as the independent
auditors of Mutual for the fiscal year ending September 30, 1996, requires
the affirmative vote of a majority of the shares of Mutual Common Stock
present and voted at the Mutual Annual Meeting, assuming a quorum is present.
THE BOARD OF DIRECTORS OF MUTUAL UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE PLAN OF MERGER, THE
ELECTION OF TWO NOMINEES TO SERVE AS DIRECTORS OF MUTUAL, AND THE
RATIFICATION OF THE APPOINTMENT OF MANNING, PERKINSON, FLOYD & COMPANY AS THE
INDEPENDENT AUDITORS OF MUTUAL.
By Order of the Board of Directors
Secretary
Danville, Virginia
February __, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MUTUAL ANNUAL
MEETING, PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED FORM
OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES
WILL BE REPRESENTED AT THE MUTUAL ANNUAL MEETING.
<PAGE>
AMERICAN NATIONAL BANKSHARES INC.
628 MAIN STREET
DANVILLE, VIRGINIA 24541
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH __, 1996
SHAREHOLDERS OF
AMERICAN NATIONAL BANKSHARES INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
American National Bankshares Inc. ("ANB") will be held at
__________________________, on March __, 1996, at _________ ____.M., local
time, for the following purposes:
1. AMENDMENT AND RESTATEMENT OF ARTICLES OF INCORPORATION. To consider
and vote upon a proposal to approve an amendment to the Articles of
Incorporation of ANB to increase the number of authorized shares of the $1.00
par value common stock of ANB ("ANB Common Stock") from 3,000,000 to
10,000,000 ("Articles of Incorporation Amendment"), in order to permit
consummation of the proposed merger of Mutual Savings Bank, F.S.B. ("Mutual")
with and into American National Bank and Trust Company, a wholly owned
subsidiary of ANB ("American National"), pursuant to the terms of the
Agreement and Plan of Reorganization (the "Agreement"), dated as of September
26, 1995, by and between Mutual and ANB, and the related Plan of Merger,
dated as of September 26, 1995, by and between Mutual and American National,
and to restate the Articles of Incorporation of ANB to reflect all previous
amendments to the Articles of Incorporation, together with the Articles of
Incorporation Amendment, all as more fully described in the accompanying
Joint Proxy Statement/Prospectus.
2. OTHER BUSINESS. To transact such other business as may come
properly before the meeting or any adjournment or postponement thereof (the
"ANB Special Meeting"), including the adjournment of the ANB Special Meeting
if necessary to solicit additional proxies in the event sufficient proxies
have not been received to approve the foregoing proposal.
Pursuant to the provisions of the Virginia Stock Corporation Act,
holders of ANB Common Stock will not have dissenters' rights with respect to
the Articles of Incorporation Amendment.
Only shareholders of record at the close of business on February __,
1996, will be entitled to receive notice of and to vote at the ANB Special
Meeting. Approval of the Articles of Incorporation Amendment requires the
affirmative vote of more than two-thirds of the votes entitled to be cast at
the ANB Special Meeting by the holders of ANB Common Stock.
<PAGE>
THE BOARD OF DIRECTORS OF ANB UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF THE ARTICLES OF INCORPORATION AMENDMENT.
By Order of the Board of Directors
Secretary
Danville, Virginia
February __, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE ANB SPECIAL
MEETING, PLEASE COMPLETE, DATE, AND SIGN THE ENCLOSED FORM
OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE
PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES
WILL BE REPRESENTED AT THE ANB SPECIAL MEETING.
<PAGE>
PROSPECTUS
AMERICAN NATIONAL BANKSHARES INC.
COMMON STOCK, $1.00 PAR VALUE
_______________________________________
JOINT PROXY STATEMENT
MUTUAL SAVINGS BANK, F.S.B. AMERICAN NATIONAL BANKSHARES INC.
103 Tower Drive 628 Main Street
Danville, Virginia 24540 Danville, Virginia 24541
This prospectus of American National Bankshares Inc. ("ANB") relates to up
to 879,911 shares of common stock, par value $1.00 per share, of ANB ("ANB
Common Stock") which are issuable to the shareholders of Mutual Savings Bank,
F.S.B. ("Mutual") (including shares reserved for issuance under the stock option
plan of Mutual) upon consummation of the proposed reorganization (the "Merger")
described herein, by which Mutual would be merged with and into American
National Bank and Trust Company, a national banking association organized and
existing under the laws of the United States and a wholly owned subsidiary of
ANB ("American National"), pursuant to the terms of an Agreement and Plan of
Reorganization, dated as of September 26, 1995, by and between Mutual and ANB
(the "Agreement"), and the related Plan of Merger, dated as of September 26,
1995, by and between Mutual and American National (the "Plan of Merger").
At the effective time of the Merger (as described herein, the "Effective
Time"), except as described herein, each outstanding share of common stock, par
value $1.00 per share, of Mutual ("Mutual Common Stock") will be converted into
.705 of a share of ANB Common Stock. For a further description of the terms of
the Merger, see "The Merger."
This prospectus also serves as a joint proxy statement of Mutual and ANB
and is being furnished to the shareholders of Mutual and ANB in connection with
the solicitation of proxies by the Board of Directors of Mutual for use at its
1996 Annual Meeting of Shareholders (including any adjournment or postponement
thereof, the "Mutual Annual Meeting") and by the Board of Directors of ANB for
use at its Special Meeting of Shareholders (including any adjournment or
postponement thereof, the "ANB Special Meeting"), each to be held on March __,
1996, for the shareholders of Mutual and ANB, respectively, to consider and vote
upon the matters submitted for the approval of such shareholders (collectively,
the "Meetings"). This joint proxy statement/ prospectus (the "Joint Proxy
Statement") is being mailed to the shareholders of Mutual and ANB on or about
February __, 1996.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS
ACCOUNTS, OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY OR INSTRUMENTALITY.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION,
THE OFFICE OF THRIFT SUPERVISION, OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE COMMISSION, THE OFFICE OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
JOINT PROXY STATEMENT.
ANY REPRESENTATION TO THE
CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Joint Proxy Statement is February __, 1996.
<PAGE>
AVAILABLE INFORMATION
ANB is subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "SEC"). Copies of such reports, proxy statements, and
other information can be obtained, at prescribed rates, from the SEC by
addressing written requests for such copies to the Public Reference Section at
the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In
addition, such reports, proxy statements, and other information can be inspected
at the public reference facilities referred to above and at the regional offices
of the SEC at 7 World Trade Center, New York, New York 10048, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
This Joint Proxy Statement constitutes part of the Registration Statement
on Form S-4 of ANB (including any exhibits and amendments thereto, the
"Registration Statement") filed with the SEC under the Securities Act of 1933,
as amended (the "Securities Act"), relating to the securities offered hereby.
This Joint Proxy Statement does not include all of the information in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the SEC. For further information about ANB and the
securities offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected and copied, at prescribed rates, at the
SEC's public reference facilities at the addresses set forth above.
Mutual also is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements, and other
information with the Office of Thrift Supervision (the "OTS"). Such reports,
proxy statements, and other information can be inspected and copied at the
Office of Public Information of the OTS, 1700 G Street, N.W., Washington, D.C.
20552, and also can be obtained by written request from such office at
prescribed rates.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER
THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO PURCHASE THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN
WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT NOR ANY DISTRIBUTION OF THE SECURITIES BEING OFFERED
PURSUANT TO THIS JOINT PROXY STATEMENT SHALL CREATE, UNDER ANY CIRCUMSTANCES,
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MUTUAL OR ANB
SINCE THE DATE OF THIS JOINT PROXY STATEMENT OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
<PAGE>
______________________________
The information contained in this Joint Proxy Statement with respect to ANB
has been supplied by ANB. The information contained herein with respect to
Mutual has been supplied by Mutual.
-ii-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Meetings of Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Other Proposals to be Considered at the Mutual Annual Meeting . . . . . . . . . 7
Proposal to Amend and Restate ANB's Articles of Incorporation . . . . . . . . . 7
Comparative Per Share Data. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Selected Historical Financial Data of ANB . . . . . . . . . . . . . . . . . . . 10
Recent Developments of ANB. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Selected Historical Financial Data of Mutual. . . . . . . . . . . . . . . . . . 15
Recent Developments of Mutual . . . . . . . . . . . . . . . . . . . . . . . . . 16
Comparison of the Results of Operation for the Three Months Ended December
31, 1995 and December 31, 1994. . . . . . . . . . . . . . . . . . . . . . . 18
Selected Pro Forma Financial Data . . . . . . . . . . . . . . . . . . . . . . . 20
Meetings of Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Date, Place, Time, and Purpose. . . . . . . . . . . . . . . . . . . . . . . . . 22
Record Dates, Voting Rights, Required Votes, and Revocability of Proxies. . . . 22
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Background of and Mutual's Reasons for the Merger . . . . . . . . . . . . . . . 25
ANB's Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . . . . 26
Opinions of Investment Bankers. . . . . . . . . . . . . . . . . . . . . . . . . 28
Exchange Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Effect of the Merger on Stock Options . . . . . . . . . . . . . . . . . . . . . 34
Management and Operations After the Merger. . . . . . . . . . . . . . . . . . . 34
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . . . . . 35
Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Distribution of ANB Certificates and Payment for Fractional Shares. . . . . . . 37
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . 38
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Conditions to Consummation of the Merger. . . . . . . . . . . . . . . . . . . . 39
Governmental Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Amendment, Waiver, and Termination. . . . . . . . . . . . . . . . . . . . . . . 41
Conduct of Business Pending the Merger. . . . . . . . . . . . . . . . . . . . . 42
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Resales of ANB Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Effect of the Merger on Rights of Shareholders . . . . . . . . . . . . . . . . . . . 47
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Anti-Takeover Provisions Generally. . . . . . . . . . . . . . . . . . . . . . . 47
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Amendment of Articles or Bylaws . . . . . . . . . . . . . . . . . . . . . . . . 48
Required Shareholder Vote for Certain Actions; Anti-Takeover Provisions . . . . 49
Director Nominations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Directors and Classes of Directors; Vacancies and Removal of Directors. . . . . 50
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Liquidation Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Special Meetings of Shareholders. . . . . . . . . . . . . . . . . . . . . . . . 51
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
-iii-
<PAGE>
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Shareholder Inspection Rights; Shareholder Lists. . . . . . . . . . . . . . . . 52
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Payment of Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Market Prices and Dividends of Mutual Common Stock and ANB Common Stock. . . . . . . 55
Market Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Pro Forma Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Pro Forma Condensed Combined Balance Sheet. . . . . . . . . . . . . . . . . . . 57
Pro Forma Condensed Combined Statements of Income (Unaudited) . . . . . . . . . 60
Selected Historical Financial Data of ANB. . . . . . . . . . . . . . . . . . . . . . 62
Management's Discussion and Analysis of ANB. . . . . . . . . . . . . . . . . . . . . 64
For the Three Years Ended December 31, 1994, 1993, and 1992 . . . . . . . . . . 64
For the Three and Nine Months Ended September 30, 1995 and 1994 . . . . . . . . 79
Business of ANB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Comparative Company Performance . . . . . . . . . . . . . . . . . . . . . . . . 88
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Certain Transactions with ANB . . . . . . . . . . . . . . . . . . . . . . . . . 91
Ownership of ANB Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 91
Selected Historical Financial Data of Mutual . . . . . . . . . . . . . . . . . . . . 92
Management's Discussion and Analysis of Mutual . . . . . . . . . . . . . . . . . . . 93
Changes in Financial Condition for the Three Years Ended September 30, 1995 . . 98
Comparison of the Results of Operations for the Years Ended September 30,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Business of Mutual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Lending Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Non-Performing Assets and Allowance for Loan Losses . . . . . . . . . . . . . . 108
Investment Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Source of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Federal and State Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Election of Directors of Mutual. . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Information As To Mutual Nominees And Continuing Directors. . . . . . . . . . . 119
Mutual Board of Directors Meetings and Committees . . . . . . . . . . . . . . . 121
Mutual Directors Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 121
Mutual Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 121
Indebtedness of Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Compliance with Section 16 of the Exchange Act. . . . . . . . . . . . . . . . . 124
Security Ownership Of Certain Beneficial Owners Of Mutual Common Stock. . . . . 124
-iv-
<PAGE>
Appointment Of Mutual's Auditors For Fiscal Year Ending September 30, 1996 . . . . . 126
Authority to Adjourn Mutual's Annual Meeting . . . . . . . . . . . . . . . . . . . . 126
Amendment and Restatement of ANB's Articles of Incorporation . . . . . . . . . . . . 126
Supervision and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Community Reinvestment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Payment of Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 132
Capital Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Support of American National. . . . . . . . . . . . . . . . . . . . . . . . . . 133
Prompt Corrective Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
FDIC Insurance Assessments. . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Safety and Soundness Standards. . . . . . . . . . . . . . . . . . . . . . . . . 138
Depositor Preference. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Description of ANB Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 140
ANB Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
ANB Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Shareholder Proposals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
Appendices:
Appendix I --Agreement and Plan of Reorganization
Appendix II --Plan of Merger
Appendix III --Opinion of Baxter Fentriss and Company
Appendix IV --Opinion of Scott & Stringfellow, Inc.
Appendix V --Proposed Amended and Restated Articles of Incorporation
of ANB
Appendix VI --Section 552.14, Title 12, Code of Federal Regulations
Relating to Dissenting Shareholders
-v-
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS JOINT
PROXY STATEMENT AND THE DOCUMENTS ATTACHED HERETO AS APPENDICES AND INCORPORATED
HEREIN BY REFERENCE. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION
OF THE MATTERS COVERED IN THIS JOINT PROXY STATEMENT AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION AND
FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS JOINT PROXY STATEMENT,
INCLUDING THE APPENDICES HERETO AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. SHAREHOLDERS ARE URGED TO READ CAREFULLY THE ENTIRE JOINT PROXY
STATEMENT, INCLUDING THE APPENDICES. AS USED IN THIS JOINT PROXY STATEMENT, THE
TERMS "MUTUAL," "ANB," AND "AMERICAN NATIONAL," REFER TO SUCH ENTITIES,
RESPECTIVELY, AND IF THE CONTEXT REQUIRES, SUCH ENTITIES AND THEIR RESPECTIVE
SUBSIDIARIES.
THE PARTIES
MUTUAL. Mutual is a federally chartered stock savings bank located in
Danville, Virginia. Mutual provides an array of financial services through four
offices located in Danville and Collinsville, Virginia. As of September 30,
1995, Mutual had total assets of approximately $83.4 million, total deposits of
approximately $67.5 million, total loans of approximately $39.9 million, and
total shareholders' equity of approximately $14.8 million. Mutual's principal
executive offices are located at 103 Tower Drive, Danville, Virginia 24540, and
its telephone number at such address is (804) 791-0200. For additional
information concerning the business of Mutual and its financial condition, see
"Selected Historical Financial Data of Mutual," "Management's Discussion and
Analysis of Mutual," and "Business of Mutual."
ANB. ANB is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), which serves as the holding
company for American National, a national banking association. Through American
National, ANB provides a broad array of financial services through seven offices
in Danville and Gretna, Virginia. As of September 30, 1995, ANB had total
assets of approximately $302.5 million, total deposits of approximately $259.9
million, total loans of approximately $174.9 million, and total shareholders'
equity of approximately $33.5 million. ANB's principal executive offices are
located at 628 Main Street, Danville, Virginia 24541, and its telephone number
at such address is (804) 792-5111. For additional information concerning the
business of ANB and its financial condition, see "Selected Historical Financial
Data of ANB," "Management's Discussion and Analysis of ANB," and "Business of
ANB."
MEETINGS OF SHAREHOLDERS
MUTUAL. This Joint Proxy Statement is being furnished to the holders of
Mutual Common Stock in connection with the solicitation by the Mutual Board of
Directors of proxies for use at the Mutual Annual Meeting at which Mutual
shareholders will be asked to vote upon a proposal to approve the Agreement and
the Plan of Merger. At the Mutual Annual Meeting, the holders of Mutual Common
Stock also will be asked to vote upon a proposal to elect two nominees as
directors of Mutual for three-year terms or until their successors are duly
elected and qualified. In addition, the holders of Mutual Common Stock will be
asked to vote upon a proposal to ratify the appointment of Manning, Perkinson,
Floyd & Company as the independent auditors of Mutual for the fiscal year ending
September 30, 1996. The Mutual Annual Meeting will be held at ___________, on
March __, 1996 at ______ __. M. local time. See "Meetings of Shareholders--
Date, Place, Time, and Purpose."
Mutual's Board has fixed the close of business on February __, 1996, as the
record date (the "Mutual Record Date") for determination of the shareholders
entitled to notice of and to vote at the Mutual Annual Meeting. Only holders of
record of shares of Mutual Common Stock on the Mutual Record Date will be
entitled to notice of and to vote at the Mutual Annual Meeting. Each share of
Mutual Common Stock is entitled to one vote. Shareholders who execute proxies
retain the right to revoke them at any time prior to
<PAGE>
being voted at the Mutual Annual Meeting. On the Mutual Record Date, there were
________ shares of Mutual Common Stock outstanding. See "Meetings of
Shareholders--Record Dates, Voting Rights, Required Votes, and Revocability of
Proxies."
Approval of the Merger requires the affirmative vote at the Mutual Annual
Meeting by the holders of record of two-thirds of the outstanding shares of
Mutual Common Stock. Approval of the election of the two nominees as directors
of Mutual for three-year terms requires the affirmative vote of a plurality of
the shares of Mutual Common Stock voted at the Mutual Annual Meeting, assuming a
quorum is present. Approval of the appointment of Manning, Perkinson, Floyd &
Company as the independent auditors of Mutual for the fiscal year ending
September 30, 1996 requires the affirmative vote of a majority of the shares of
Mutual Common Stock present and voted at the Mutual Annual Meeting, assuming a
quorum is present.
On the Mutual Record Date, the directors and executive officers of Mutual
and their affiliates beneficially owned ____% of the outstanding shares of
Mutual Common Stock entitled to vote at the Mutual Annual Meeting. All of the
directors and executive officers of Mutual have executed support agreements
pursuant to which they have each committed to vote all of the shares of Mutual
Common Stock over which they have voting authority, other than in a fiduciary
capacity, in favor of the Merger. See "Meetings of Shareholders--Record Dates,
Voting Rights, Required Votes, and Revocability of Proxies."
ANB. This Joint Proxy Statement is being furnished to the holders of ANB
Common Stock in connection with the solicitation by the ANB Board of Directors
of proxies for use at the ANB Special Meeting at which ANB shareholders will be
asked to vote upon a proposal to approve the Articles of Incorporation
Amendment. See "Meetings of Shareholders--Date, Place, Time, and Purpose."
ANB's Board of Directors has fixed the close of business on February __,
1996, as the ANB record date (the "ANB Record Date") for determination of the
shareholders entitled to notice of and to vote at the ANB Special Meeting. Only
holders of record of shares of ANB Common Stock on the ANB Record Date will be
entitled to notice of and to vote at the ANB Special Meeting. Each share of ANB
Common Stock is entitled to one vote. Shareholders who execute proxies retain
the right to revoke them at any time prior to being voted at the ANB Special
Meeting. On the ANB Record Date, there were _____ shares of ANB Common Stock
outstanding. See "Meetings of Shareholders--Record Dates, Voting Rights,
Required Votes, and Revocability of Proxies."
Approval of the Articles of Incorporation Amendment requires the
affirmative vote of more than two-thirds of the votes entitled to be cast at the
ANB Special Meeting by the holders of the issued and outstanding shares of ANB
Common Stock. On the ANB Record Date, the directors and executive officers of
ANB and their affiliates beneficially owned ___% of the outstanding shares of
ANB Common Stock entitled to vote at the ANB Special Meeting. All of the
directors and executive officers of ANB have indicated their intention to vote
their shares of ANB Common Stock in favor of the Articles of Incorporation
Amendment. See "Meetings of Shareholders--Record Dates, Voting Rights, Required
Votes, and Revocability of Proxies."
THE MERGER
GENERAL. At the Effective Time, ANB will acquire Mutual pursuant to the
merger of Mutual with and into American National. At the time the Merger is
consummated, each share of Mutual Common Stock issued and outstanding at the
Effective Time (other than shares held by Mutual companies or ANB companies,
other than in a fiduciary capacity or in satisfaction of debts previously
contracted and shares held by shareholders who perfect their dissenters' rights
of appraisal) will be converted into .705 of a share of ANB Common Stock (such
exchange ratio of ANB Common Stock for Mutual Common Stock is referred to herein
as the "Exchange Ratio"), with the result that Mutual will be merged with and
into American National. No fractional shares of ANB Common Stock will be
issued. Rather, cash (without interest) will be
-2-
<PAGE>
paid in lieu of any fractional share interest to which any Mutual shareholder
would be entitled upon consummation of the Merger, in an amount equal to such
fractional share interest multiplied by $30.50. Copies of the Agreement and the
Plan of Merger are attached to this Joint Proxy Statement as Appendices I and
II, respectively. See "The Merger."
RECOMMENDATION OF THE BOARDS OF DIRECTORS OF MUTUAL AND ANB. The Board of
Directors of Mutual believes that the Agreement, the Plan of Merger, and the
Merger are in the best interests of Mutual and its shareholders, and the Board
of Directors of ANB believes that the Agreement, the Plan of Merger, the Merger,
and the Articles of Incorporation Amendment are in the best interests of ANB and
its shareholders. Each Board has unanimously approved the matters to be
approved by their respective shareholders. THE MUTUAL DIRECTORS UNANIMOUSLY
RECOMMEND THAT MUTUAL SHAREHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT AND THE
PLAN OF MERGER. THE ANB DIRECTORS UNANIMOUSLY RECOMMEND THAT ANB SHAREHOLDERS
VOTE FOR THE ARTICLES OF INCORPORATION AMENDMENT. The Boards of Directors of
Mutual and ANB believe that the Merger will result in a company with expanded
opportunities for profitable growth and that the combined resources and capital
of Mutual and ANB will provide an enhanced ability to compete in the changing
and competitive financial services industry. See "The Merger--Background of the
Merger," "--Background of and Mutual's Reasons for the Merger," and "--ANB's
Reasons for the Merger." IN ADDITION, THE MUTUAL DIRECTORS UNANIMOUSLY
RECOMMEND THAT MUTUAL SHAREHOLDERS VOTE FOR THE ELECTION OF TWO NOMINEES AS
DIRECTORS OF MUTUAL AND FOR THE RATIFICATION OF THE APPOINTMENT OF MANNING,
PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT AUDITORS OF MUTUAL. See "Election
of Directors of Mutual" and "Appointment of Mutual's Auditors for Fiscal Year
Ending September 30, 1996."
OPINIONS OF INVESTMENT BANKERS. Baxter Fentriss and Company ("Baxter
Fentriss") has served as financial advisor to Mutual in connection with the
Merger, and Scott & Stringfellow, Inc. ("Scott & Stringfellow") has served as
financial advisor to ANB, in connection with the Merger. Baxter Fentriss has
delivered a written opinion to the Board of Directors of Mutual to the effect
that, as of the date of this Joint Proxy Statement and on the basis of the
matters referred to herein, the Exchange Ratio is fair, from a financial point
of view, to the holders of Mutual Common Stock. Scott & Stringfellow has
delivered a written opinion to the Board of Directors of ANB to the effect that,
as of the date of this Joint Proxy Statement and on the basis of the matters
referred to herein, the Exchange Ratio is fair, from a financial point of view,
to the holders of ANB Common Stock. Copies of the opinions of Baxter Fentriss
to Mutual and Scott & Stringfellow to ANB are attached as Appendices III and IV,
respectively, to this Joint Proxy Statement and should be read in their entirety
for information with respect to the assumptions made and other matters
considered by Baxter Fentriss and Scott & Stringfellow in rendering their
respective opinions. See "The Merger--Opinions of Investment Bankers."
MANAGEMENT AND OPERATIONS AFTER THE MERGER. Upon consummation of the
Merger, ANB and American National will continue to operate their business to
serve the communities and customers of Danville, Virginia and the surrounding
counties. It is currently anticipated that certain branch offices of Mutual
will be closed and the deposits and assets domiciled in such branch offices will
be transferred to the nearest branch office of American National. It is further
anticipated that all of the officers and employees of Mutual will become
officers and employees of American National. For additional information
regarding ANB. See "Business of ANB."
The management at ANB will remain unchanged except that H. Dan Davis, the
current President and Chief Executive Officer of Mutual, and one other
individual currently serving on the Board of Directors of Mutual, will be
appointed to serve on the Boards of Directors of ANB and American National and
nominated for election to the Boards of Directors of ANB and American National
at the first annual meeting of shareholders of ANB following the Effective Time.
Mr. Davis also will be appointed an Executive Vice President of ANB and a Senior
Vice President of American National. See "The Merger--Management and Operations
After the Merger" and "Business of ANB--Management." For additional information
regarding the interests of certain persons in the Merger, see "The Merger--
Interests of Certain Persons in the Merger."
-3-
<PAGE>
For a description of the provisions of the Agreement affecting the operations of
Mutual and ANB prior to the Effective Time, see "The Merger--Conduct of Business
Pending the Merger."
In addition, following the consummation of the Merger, American National
will organize a new subsidiary, Mutual Mortgage Company ("Mutual Mortgage"),
that will focus on residential home mortgage lending. Mr. Davis will serve as
President and Chief Executive Officer of Mutual Mortgage.
EFFECTIVE TIME. If the Merger is approved by the requisite vote of the
shareholders of Mutual and the Articles of Incorporation Amendment is approved
by the requisite vote of the shareholders of ANB and the other conditions to the
Merger are satisfied or waived (to the extent permitted by applicable law), the
Merger will be consummated and effected at the time of the issuance of the
Certificate of Merger by the Office of the Comptroller of the Currency (the
"OCC") or on such other date or at such other time as the OCC declares the
Merger effective. See "The Merger--Conditions to Consummation of the Merger."
The Agreement provides that, unless otherwise mutually agreed upon in
writing by the chief executive officers or chief financial officers of ANB and
Mutual, ANB and Mutual shall use their reasonable efforts to cause an Effective
Time to occur on the first business day following the last to occur of (i) the
effective time (including expiration of any applicable waiting period) of the
last required consent of any regulatory agency having authority over approving
or exempting the Merger, and (ii) the date on which the shareholders of ANB and
Mutual approve the Agreement and the Plan of Merger to the extent such approval
is required by applicable law or such later date within 30 days of such date as
may be mutually agreed upon by Mutual and ANB. The Agreement may be terminated
by either Mutual or ANB in certain circumstances, including failure to
consummate the Merger by July 31, 1996.
DISTRIBUTION OF ANB CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES.
Promptly after the Effective Time, the exchange agent selected by ANB will mail
to each holder of record of a certificate or certificates (collectively, the
"Certificates") which, immediately prior to the Effective Time, represented
outstanding shares of Mutual Common Stock, a letter of transmittal and
instructions for use in effecting the surrender and cancellation of the
Certificates in exchange for certificates representing shares of ANB Common
Stock. Cash will be paid to the holders of Mutual Common Stock in lieu of the
issuance of any fractional shares of ANB Common Stock. See "The Merger--
Distribution of ANB Certificates and Payment for Fractional Shares."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. It is intended that the Merger
will be treated as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, no gain or
loss will be recognized by a Mutual shareholder upon the exchange of such
shareholder's Mutual Common Stock for shares of ANB Common Stock. Gain or loss
will be recognized with respect to cash received in lieu of fractional shares.
Consummation of the Merger is conditioned upon receipt by Mutual and ANB of an
opinion of Alston & Bird substantially to this effect. DUE TO THE INDIVIDUAL
NATURE OF THE TAX CONSEQUENCES OF THE MERGER, MUTUAL SHAREHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF THE MERGER ON THEM
UNDER FEDERAL, STATE, LOCAL, AND FOREIGN TAX LAWS. For a further discussion of
the federal income tax consequences of the Merger, see "The Merger--Certain
Federal Income Tax Consequences" and "--Dissenters' Rights."
ACCOUNTING TREATMENT. As a condition to consummation of the Merger, the
Merger must be accounted for as a pooling of interests in accordance with
Accounting Principles Board Opinion No. 16. See "The Merger--Accounting
Treatment."
CONDITIONS TO CONSUMMATION OF THE MERGER. Consummation of the Merger is
subject to various conditions, including (i) receipt of the approval of the
Merger by the shareholders of Mutual, (ii) receipt of the approval of the
Articles of Incorporation Amendment by the shareholders of ANB, (iii) receipt of
certain regulatory approvals without burdensome conditions from the OCC (which
approval was received on
-4-
<PAGE>
January 10, 1996) and the non-objection to the Merger by the Office of Thrift
Supervision (the "OTS") (which condition has been satisfied), (iv) receipt of a
favorable opinion of Alston & Bird as to the tax-free nature (except for cash
received in lieu of fractional shares) of the Merger, (v) the Registration
Statement being declared effective and all necessary SEC and state approvals
relating to the issuance of the shares of ANB Common Stock in the transaction
shall have been issued, (vi) the accuracy, as of the date of the Agreement and
as of the Effective Time, of the representations and warranties of Mutual and
ANB as set forth in the Agreement, (vii) the performance of all agreements and
the compliance with all covenants of Mutual and ANB as set forth in the
Agreement, (viii) receipt of letters by Mutual and ANB, respectively, within a
date ten days prior to the date of this Joint Proxy Statement, from each of
Baxter Fentriss and Scott & Stringfellow with respect to the fairness of the
Exchange Ratio to the shareholders of Mutual and ANB, respectively, (ix) receipt
by ANB of a letter from Arthur Andersen LLP, dated as of the Effective Time, to
the effect the Merger will qualify for pooling-of-interests accounting
treatment, (x) receipt of all consents required for consummation of the Merger
or for the preventing of any default under any contract or permit which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect, (xi) the absence of any law or order or
any action taken by any court, governmental or regulatory authority prohibiting,
restricting, or making illegal the consummation of the transaction, and
(xii) satisfaction of certain other conditions, including the receipt of legal
opinions from the respective counsel to Mutual and ANB and various certificates
from the officers of Mutual and ANB. See "The Merger--Conditions to
Consummation of the Merger," "--Governmental Approvals," and "--Amendment,
Waiver, and Termination."
GOVERNMENTAL APPROVALS. Consummation of the Merger is subject to obtaining
the prior approval of the OCC and all other requisite regulatory approvals
and the non-objection to the Merger by the OTS. On January 10, 1996, the OCC
approved the Merger. In addition, the condition that the OTS not object to the
Merger has been satisfied. See "The Merger--Governmental Approvals."
TERMINATION; AMENDMENT. The Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time (i) by the mutual consent of
the Boards of Directors of Mutual and ANB or (ii) by the Board of Directors of
Mutual or ANB, (a) in the event of any inaccuracy of any representation or
warranty of the other party contained in the Agreement which cannot be or has
not been cured within 30 days after giving written notice to the breaching party
of such inaccuracy and which inaccuracy would provide the terminating party the
ability to refuse to consummate the Merger under the applicable standards set
forth in the Agreement, (b) in the event of a material breach by the other party
of any covenant or agreement contained in the Agreement which cannot be or has
not been cured within 30 days after the giving of written notice to the
breaching party of such breach, (c) if the Merger is not consummated by
July 31, 1996, (d) if (1) any approval of any regulatory authority required for
consummation of the Merger and the other transactions contemplated by the
Agreement has been denied by final nonappealable action, or if any action taken
by such authority is not appealed within the time limit for appeal, (2) the
shareholders of Mutual fail to vote their approval of the Agreement and the
transactions contemplated thereby as required by the Home Owners' Loan Act of
1933, as amended ("HOLA"), and the regulations of the OTS at the Mutual Annual
Meeting, or (3) the shareholders of ANB fail to vote their approval of the
Articles of Incorporation Amendment as required by the Virginia Stock
Corporation Act (the "VSCA") at the ANB Special Meeting, or (e) if any of the
conditions precedent to the obligations of such party to consummate the Merger
have not been satisfied, fulfilled, or waived by the appropriate party by the
Effective Time. The Agreement may be amended upon the written agreement of
Mutual and ANB without the approval of shareholders at any time, except that the
Exchange Ratio may not be decreased after the Meetings without further
shareholder approval. See "The Merger--Amendment, Waiver, and Termination."
-5-
<PAGE>
DISSENTERS' RIGHTS. Each holder of Mutual Common Stock who dissents from
the Merger is entitled to the rights and remedies of dissenting shareholders
provided in 12 C.F.R. Section 552.14, subject to compliance with the procedures
set forth therein. A copy of 12 C.F.R. Section 552.14 is attached as Appendix
VI to this Joint Proxy Statement, and a summary thereof is included under "The
Merger--Dissenters' Rights." Under the VSCA, the holders of ANB Common Stock
are not entitled to dissenters' rights of appraisal with respect to the Articles
of Incorporation Amendment.
INTERESTS OF CERTAIN PERSONS IN THE MERGER. Mr. H. Dan Davis, the
President and Chief Executive Officer of Mutual, and the Mutual Board have
interests in the Merger in addition to their interests as shareholders of Mutual
generally. These include provisions in the Agreement relating to
indemnification and continued employment or service with ANB or American
National. In connection with the Merger, all rights with respect to Mutual
stock options outstanding at the Effective Time will become rights with respect
to ANB Common Stock. Mr. Davis will become an executive officer of ANB and he
and one other directors of Mutual will be elected to the Boards of Directors of
ANB and American National. All other members of Mutual's Board will become
members of the Board of Directors of Mutual Mortgage. In addition, at the
Effective Time, ANB has agreed to offer to enter into an employment agreement
with Mr. Davis whereby Mr. Davis will be assured of employment for a minimum
period of two years as Executive Vice President of ANB, Senior Vice President of
American National and President of Mutual Mortgage and thereafter may become a
consultant to ANB and American National for an additional five-year period.
During the initial two-year period, Mr. Davis may resign his positions and elect
to become a consultant for the remaining portion of the full seven-year term.
Mr. Davis' compensation under the new agreement will be substantially similar to
his current compensation. When Mr. Davis signs this new employment agreement
with ANB and American National he will relinquish all rights under his current
agreement with Mutual, including the right to receive three times his current
compensation as a change in control benefit. See "The Merger--Interests of
Certain Persons in the Merger."
EFFECTS OF THE MERGER ON RIGHTS OF SHAREHOLDERS. Upon consummation of the
Merger, shareholders of Mutual will become shareholders of ANB, which will be
governed by the Articles of Incorporation of ANB, as amended pursuant to the
Articles of Incorporation Amendment. There are certain differences affecting
the rights of shareholders between the laws governing federally chartered stock
savings banks and the laws governing a Virginia corporation. The provisions of
the Charter and Bylaws of Mutual differ in certain respects from the provisions
of the Articles of Incorporation, as amended pursuant to the Articles of
Incorporation Amendment, and Bylaws of ANB. For a comparison of the rights of
shareholders under the laws governing federally chartered savings banks and the
laws governing a Virginia corporation and the Charter and Bylaws of Mutual and
the Articles of Incorporation, as amended pursuant to the Articles of
Incorporation Amendment, and Bylaws of ANB, see "Effect of the Merger on Rights
of Shareholders."
MARKET AND MARKET PRICES OF COMMON STOCK. Mutual Common Stock is not
actively traded in any established market. Prior to the date of the Agreement,
ANB Common Stock also was not actively traded in any established market.
Subsequent to the date of the Agreement, ANB Common Stock was listed on the OTC
Bulletin Board but is still not actively traded. However, management of Mutual
and ANB are aware of various (but not necessarily all) trades of Mutual Common
Stock and ANB Common Stock in the over-the-counter market. The following table
sets forth the sale prices per share of the last trades known to the respective
managements for Mutual Common Stock and ANB Common Stock and the equivalent per
share prices (as explained below) for Mutual Common Stock in trades occurring on
September 11, 1995, in the case of Mutual, and on September 20, 1995, in the
case of ANB, preceding the public announcement of the execution of the
Agreement, and February __, 1996, the latest practicable date prior to the
mailing of this Joint Proxy Statement. The equivalent per share price of a
share of Mutual Common Stock at each
-6-
<PAGE>
specified date represents the price of a share of ANB Common Stock on the
indicated date multiplied by the Exchange Ratio. As there is limited trading in
Mutual Common Stock and ANB Common Stock, additional information with respect to
the trading range of such common stock is provided under "Market Prices and
Dividends of Mutual Common Stock and ANB Common Stock."
<TABLE>
<CAPTION>
Market Price Mutual ANB Equivalent Per
Per Share at: Common Stock Common Stock Share Price
- --------------------------- ------------- -------------- ---------------
<S> <C> <C> <C>
September 11 (as to Mutual)
and 20 (as to ANB), 1995 . . . $16.00 $30.50 $21.50
February __, 1996. . . . . . .
</TABLE>
There can be no assurance as to what the market price of the ANB Common
Stock will be if and when the Merger is consummated. See "Market Prices and
Dividends of Mutual Common Stock and ANB Common Stock."
OTHER PROPOSALS TO BE CONSIDERED AT THE MUTUAL ANNUAL MEETING
At the Mutual Annual Meeting, the shareholders of Mutual also will be
voting on a proposal to elect two nominees to the Board of Directors of Mutual
to serve for three-year terms or until their successors are duly elected and
qualified. See "Election of Directors of Mutual." In addition, the
shareholders of Mutual will be voting on a proposal to ratify the appointment of
Manning, Perkinson, Floyd & Company as the independent auditors of Mutual for
the fiscal year ending September 30, 1996. See "Appointment of Mutual's
Auditors for Fiscal Year Ending September 30, 1996."
PROPOSAL TO AMEND AND RESTATE ANB'S ARTICLES OF INCORPORATION
At the ANB Special Meeting, the shareholders of ANB will be voting on
amending ANB's Articles of Incorporation to provide that Article 3 be amended to
increase the number of authorized shares of ANB Common Stock from 3,000,000 to
10,000,000. Because the Articles of Incorporation Amendment to increase the
number of authorized shares of ANB Common Stock is necessary to consummate the
Merger, in the event the shareholders of ANB do not approve the Articles of
Incorporation Amendment by the requisite vote, the Merger will not be
consummated. However, in the event the Merger is not consummated but the
Articles of Incorporation Amendment is approved, the proposed increase in the
number of authorized shares of ANB Common Stock will be effected.
As the Articles of Incorporation of ANB have previously been amended on
several occasions but have not been restated, the Board of Directors intends, if
the proposed Articles of Incorporation Amendment is approved, to restate ANB's
Articles of Incorporation to consolidate all existing amendments to the Articles
of Incorporation, together with the Articles of Incorporation Amendment.
Accordingly, a vote in favor of the Articles of Incorporation Amendment will
constitute a vote in favor of the proposed restatement of ANB's Articles of
Incorporation. The restatement of ANB's Articles of Incorporation does not
involve any amendments to such articles except the Articles of Incorporation
Amendment. Included as Appendix V to this Joint Proxy Statement are the
proposed Amended and Restated Articles of Incorporation of ANB, which include
the Articles of Incorporation Amendment. See "Amendment and Restatement of
ANB's Articles of Incorporation."
-7-
<PAGE>
COMPARATIVE PER SHARE DATA
The following unaudited financial information reflects certain comparative
per share data relating to net income, cash dividends, and book value per common
share on (i) an historical basis for ANB and Mutual, (ii) a pro forma combined
basis per share of ANB Common Stock giving effect to the Merger, and (iii) an
equivalent pro forma basis per share of Mutual Common Stock, giving effect to
the Merger. The pro forma combined information and the Mutual pro forma
equivalent information give effect to the Merger on a pooling-of-interests
accounting basis and reflect the Exchange Ratio of .705 of a share of ANB Common
Stock for each share of Mutual Common Stock. The pro forma combined information
does not reflect any pro forma adjustments. For a description of pooling-of-
interests accounting with respect to the Merger, see "The Merger--Accounting
Treatment." The information shown below should be read in conjunction with the
historical consolidated financial statements of Mutual and ANB, including the
respective notes thereto, and the unaudited pro forma financial statements,
including the notes thereto, appearing elsewhere in this Joint Proxy Statement.
Results of ANB for the nine months ended September 30, 1995, are not necessarily
indicative of the results which may be expected for any other interim period or
for the year as a whole. The pro forma financial data are not necessarily
indicative of results that actually would have occurred had the Merger been
consummated on the dates indicated or that may be obtained in the future. See
"Pro Forma Financial Information," and "Index to Financial Statements."
-8-
<PAGE>
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
--------------------- ---------------------------------
1995 1994 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES
ANB historical................... 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000
Mutual historical................ 1,213,683 1,209,112 1,206,786 1,194,299 1,191,002
Pro forma equivalent(2).......... 3,255,647 3,252,424 3,250,786 3,241,981 3,239,656
NET INCOME PER COMMON SHARE
ANB historical................... $1.32 $1.07 $1.47 $1.38 $1.46
Mutual historical................ 0.61 0.59 0.81 1.06 0.88
Pro forma combined(3)(4)......... 1.20 1.01 1.39 1.41 1.40
Mutual pro forma equivalent(5)... 0.85 0.71 0.98 0.99 0.99
CASH DIVIDENDS DECLARED PER COMMON
SHARE(6)
ANB historical................... $0.27 $0.25 $0.75 $0.47 $0.66
Mutual historical................ 0.30 0.30 0.40 0.40 0.39
Pro forma combined(7)............ 0.27 0.25 0.75 0.47 0.66
Mutual pro forma equivalent(5)... 0.19 0.18 0.53 0.33 0.47
BOOK VALUE PER COMMON SHARE
(END OF PERIOD)
ANB historical................... $13.97 $12.83 $12.83 $12.12 $11.21
Mutual historical................ 12.81 12.36 12.36 11.90 11.09
Pro forma combined(3)............ 15.03 14.10 14.02 13.32 12.35
Mutual pro forma equivalent(5)... 10.60 9.94 9.88 9.39 8.71
</TABLE>
____________________
(1) ANB prepares annual financial statements based on a fiscal year ending on
December 31, and Mutual prepares annual financial statements based on a
fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended on
September 30 have been combined with the historical data of ANB at and
for the years ended on December 31.
(2) Represents the historical ANB Common Stock weighted average shares
outstanding in each period plus historical Mutual Common Stock primary
weighted average shares outstanding in each period multiplied by the
Exchange Ratio.
(3) Represents the pro forma combined information of ANB and Mutual as if
the Merger were consummated on January 1, 1992, and accounted for as a
pooling-of-interests.
(4) Represents pro forma combined net income divided by the pro forma
equivalent weighted average shares outstanding.
(5) Represents the pro forma combined information multiplied by the Exchange
Ratio of .705 of a share of ANB Common Stock for each share of Mutual
Common Stock.
(6) See "Market Prices and Dividends of Mutual Common Stock and ANB Common
Stock."
(7) Represents the historical dividends per share paid by ANB.
-9-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ANB
The following table sets forth certain unaudited historical
financial data of ANB and is based on the consolidated financial statements
of ANB, including the respective notes thereto, which appear elsewhere in
this Joint Proxy Statement and should be read in conjunction therewith.
Results for the nine months ended September 30, 1995, are not necessarily
indicative of the results which may be expected for any other interim period
or for the year as a whole. See "Index to Financial Statements."
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, At or for the Years Ended December 31,
------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
EARNINGS DATA
Total interest income........ $14,158 $11,753 $16,057 $15,918 $17,349 $19,527 $19,404
Total interest expense....... 5,978 4,671 6,374 7,017 8,826 11,669 11,520
------- ------- ------- ------- ------- ------- -------
Net interest income.......... 8,180 7,082 9,683 8,901 8,523 7,858 7,884
Provision for loan losses.... 374 189 272 214 230 214 308
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses... 7,806 6,893 9,411 8,687 8,293 7,644 7,576
Non-interest income.......... 1,492 1,328 1,886 1,871 1,728 1,383 1,137
Non-interest expenses........ 4,696 4,453 6,119 5,772 5,290 4,981 4,692
------- ------- ------- ------- ------- ------- -------
Income before taxes.......... 4,602 3,768 5,178 4,786 4,731 4,046 4,021
Income taxes................. 1,431 1,194 1,645 1,483 1,237 994 922
------- ------- ------- ------- ------- ------- -------
Net income.................. $ 3,171 $ 2,574 $ 3,533 $ 3,303 $ 3,494 $ 3,052 $ 3,099
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
PER SHARE DATA(1)
Earnings per share.......... $1.32 $1.07 $1.47 $1.38 $1.46 $1.27 $1.29
Dividends per share(2)...... 0.27 0.25 0.75 0.47 0.66 0.41 0.57
Book value per share........ 13.97 12.83 12.83 12.12 11.21 10.42 9.56
BALANCE SHEET DATA
Total assets................ $302,500 $253,768 $253,768 $247,706 $240,589 $228,033 $215,644
Investment securities....... 107,257 79,297 79,251 91,826 93,560 85,822 66,134
Loans receivable, net....... 171,360 151,126 151,126 137,877 127,940 121,686 125,455
Deposits.................... 259,936 215,861 215,861 217,655 212,439 200,620 187,096
Shareholders' equity........ 33,518 30,785 30,786 29,082 26,907 24,997 22,929
</TABLE>
___________________
(1) Per share amounts are based on 2,400,000 shares of ANB Common Stock
outstanding and have been restated to retroactively reflect a 2 for 1
stock split declared on April 21, 1992.
(2) For years ended December 31, 1994, 1992, and 1990, dividend amount
includes special dividends of $0.25, $0.22, and $0.19 per share,
respectively.
-10-
<PAGE>
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, At or for the Years Ended December 31,
------------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
PERFORMANCE RATIOS(1)
Return on average assets...... 1.69% 1.41% 1.43% 1.36% 1.48% 1.37% 1.52%
Return on average
shareholders' equity......... 13.19 11.44 11.64 11.96 13.50 12.93 14.12
Efficiency ratio(2)........... 49.03 53.45 53.39 53.91 51.92 54.25 52.38
ASSET QUALITY RATIOS
Net chargeoffs to average
loans(1)..................... 0.11% 0.05% 0.05% 0.12% 0.11% 0.09% 0.12%
Nonperforming assets to total
assets....................... 0.03 0.06 0.07 0.19 0.27 0.30 0.37
Allowance for loan losses
to net loans................. 1.50 1.50 1.53 1.54 1.61 1.62 1.49
Allowance for loan losses
to nonperforming loans....... 31.33 X 14.11 X 13.76 X 4.61 X 3.24 X 2.94 X 2.39 X
</TABLE>
(1) The ratios have been annualized for the nine months ended September 30,
1995, and 1994.
(2) General and administrative expenses divided by net interest income plus
fee-based income.
-11-
<PAGE>
RECENT DEVELOPMENTS OF ANB
The following table sets forth certain consolidated financial and other
data of ANB at and for the periods indicated. Consolidated financial and
operating data and financial ratios and other data at and for the year ended
December 31, 1994 have been derived from and should be read in conjunction
with the consolidated financial statements of ANB and notes thereto presented
elsewhere in Joint Proxy Statement. Consolidated financial and operating data
and financial ratios and other data at and for the three months ended
December 31, 1995 and 1994, and the year ended December 31, 1995, were
derived from unaudited financial statements.
<TABLE>
<CAPTION>
At At
December 31, December 31,
1995(1) 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Selected Financial Condition Data:
Total assets................................ $ 306,562 $ 253,768
Investment securities available for sale.... 42,635 2,765
Investment securities held to maturity...... 66,668 76,486
Loans receivable, net....................... 174,294 151,126
Deposit accounts............................ 259,830 215,861
Shareholders' investment.................... 34,125 30,786
</TABLE>
<TABLE>
<CAPTION>
For the three months ended For the year ended
December 31, December 31,
1995(1) 1994 1995(1) 1994
------------ ------------ ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Selected Operating Data:
Interest income............................. $ 5,589 $ 4,304 $ 19,747 $ 16,057
Interest expense............................ 2,584 1,703 8,562 6,374
-------- -------- -------- --------
Net interest income before provision for
loan losses............................. 3,005 2,601 11,185 9,683
Provision for loan losses................... 102 83 476 272
-------- -------- -------- --------
Net interest income after provision for
loan losses............................. 2,903 2,518 10,709 9,411
Non-interest income......................... 434 558 1,926 1,886
Non-interest expense........................ 2,072 1,666 6,768 6,119
-------- -------- -------- --------
Net income before income tax provision...... 1,265 1,410 5,867 5,178
Income tax provision........................ 413 451 1,844 1,645
-------- -------- -------- --------
Net income.................................. $ 852 $ 959 $ 4,023 $ 3,533
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
At or For the three months At or For the year ended
ended December 31, December 31,
1995(1) 1994 1995(1) 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Performance Ratios (2):
Return on average assets.................... 1.11% 1.52% 1.49% 1.43%
Return on average shareholders' investment.. 10.04 12.42 13.22 11.64
Average equity to average assets............ 11.02 12.27 11.31 12.29
Taxable equivalent net yield on earning
assets (3)................................ 4.28 4.41 4.49 4.26
Earnings per average common share........... $ .36 $ .40 $ 1.68 $ 1.47
Average shares of common stock outstanding................................ 2,400,000 2,400,000
Regulatory Capital Ratios (2):
Tier 1 capital............................................................ 18.87% 20.05%
Total capital............................................................. 20.12 21.30
Asset Quality Ratios (2):
Non-performing assets as a percent of
total assets............................................................ 0.01 0.07
Allowance for loan losses to net loans
outstanding............................................................. 1.50 1.53
</TABLE>
(1) In the opinion of management, financial information at and for the three
months and years ended December 31, 1995 and 1994 reflects all adjustments
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such periods.
(2) Asset quality ratios and regulatory capital ratios are end of period
ratios. With the exception of end of period ratios, all ratios for the
three months ended December 31, 1995 and 1994 are annualized where
appropriate.
(3) The taxable equivalent net yield on earning assets represents taxable
equivalent net interest income as a percentage of average
interest-earning assets.
-13-
<PAGE>
COMPARISON OF THE RESULTS OF OPERATION OF ANB FOR THE THREE MONTHS AND THE
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
At December 31, 1995 total assets were $306,562,000, an increase of
$52,794,000 or 21% over December 31, 1994. This increase was due in part to
ANB's acquisition of the branch office of Crestar Bank at Gretna, Virginia.
This acquisition occurred on August 24, 1995 and was reported in the SEC Form
8-K, filed by the ANB on September 7, 1995. In the acquisition of the branch
facilities at Gretna, ANB acquired $2,150,000 in loans and assumed deposits
of $36,295,000.
During the year 1995 net loans increased by a total of $23,168,000 or
15% as the result of a strong loan demand. Excluding the acquired Gretna
accounts, deposits increased $7,674,000 or 4% over the prior year end. During
1995 investment securities and mortgage-backed securities increased
$30,052,000 from the prior year end primarily from the purchase of securities
with the proceeds of the assumed deposits of the Gretna branch office.
Net income for the year ended December 31, 1995 was $4,023,000 an
increase of $490,000 or 14% over the $3,533,000 recorded for the prior year.
The increase was primarily due to the increase in the volume of loans during
1995 and the increase in the taxable equivalent net yield on earning assets.
The taxable equivalent net yield on earning assets increased from 4.26% in
1994 to 4.49% in 1995.
ANB's net income for the fourth quarter ended December 31, 1995 was
$852,000. This was a decrease of $107,000 or 11.2% from the $959,000 recorded
for the same period of 1994. The decline in net income during the fourth
quarter of 1995 as compared to the same quarter of 1994 was primarily the
result of expenditures occuring in 1995 related to the planned merger with
Mutual. During the fourth quarter of 1995, ANB's taxable equivalent net
interest margin was 4.28% compared to 4.41% for the same period of 1994.
The provision for loan losses was $475,000 for the year 1995, an
increase of $203,838 from the $271,802 provided in 1994. This increase was
primarily to provide a reserve for the increase in new loans booked during
1995. The ratio of the loan loss reserve to loans, less unearned discount was
1.53% at December 31, 1994 and 1.50% at December 31, 1995.
Total non-interest expense was $6,768,000 for 1995, an increase of
$649,000 or 11% over the $6,119,000 recorded for 1994. Total non-interest
expense for the fourth quarter of 1995 was $2,072,000, an increase of
$406,000 or 24% over the $1,666,000 recorded for the same period of 1994.
Non-interest expense for both the year of 1995 and the fourth quarter of 1995
included fees paid in regard to the planned merger with Mutual and fees for
general consulting services.
-14-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF MUTUAL
The following table sets forth certain unaudited historical financial data of
Mutual and is based on the consolidated financial statements of Mutual,
including the respective notes thereto, which appear elsewhere in this Joint
Proxy Statement and should be read in conjunction therewith. See "Index to
Financial Statements."
<TABLE>
<CAPTION>
At or for the Years Ended September 30,
------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OTHER DATA)
RESULTS OF OPERATIONS
Interest income $6,040 $5,664 $6,090 $6,576 $6,770
Interest expense 2,920 2,545 2,698 3,577 4,330
-------- -------- -------- -------- --------
Net interest income 3,120 3,119 3,392 2,999 2,440
Provision for loan losses 8 -- -- 98 68
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 3,112 3,119 3,392 2,901 2,372
Noninterest income 198 326 197 267 154
Noninterest expense 1,830 1,963 1,777 1,633 1,567
-------- -------- -------- -------- --------
Income before taxes 1,480 1,482 1,812 1,535 959
Income taxes 487 506 550 482 318
-------- -------- -------- -------- --------
Net income $ 993 $ 976 $1,262 $1,053 $ 641
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
BALANCE AT YEAR-END
Assets $83,396 $83,586 $80,203 $81,378 $73,615
Interest-bearing deposits 1,167 770 2,074 1,608 747
Investment securities 24,598 25,974 20,535 11,133 6,688
Mortgage-backed securities 14,338 16,334 14,957 22,298 17,557
Loans receivable, net 39,870 36,908 39,253 42,816 45,069
Deposits 67,513 66,931 65,668 67,497 60,723
Borrowed funds -- 1,500 12 146 108
Stockholders' equity 14,787 14,260 13,733 12,799 12,105
PER SHARE DATA
Net income $ 0.82 $ 0.81 $ 1.06 $ 0.88 $ 0.54
Stockholders' equity 12.81 12.36 11.90 11.09 10.49
Cash dividends declared 0.40 0.40 0.40 0.39 0.37
SIGNIFICANT RATIOS
Return on average assets 1.20% 1.19% 1.56% 1.35% 0.87%
Return on average equity 6.77 6.90 9.48 8.39 5.45
Average equity to average assets 17.72 17.24 16.50 16.07 15.94
Interest rate spread 3.23 3.40 3.79 3.22 2.48
Dividend payout ratio 46.49 47.30 36.59 42.75 66.56
Regulatory Capital:
Tangible 17.73 17.06 16.48 15.26 16.40
Core 17.73 17.06 16.48 15.26 16.40
Risk-based 50.03 51.51 45.44 37.57 32.57
OTHER DATA
Full service offices 2 1 1 1 1
Total offices 4 4 4 4 4
</TABLE>
-15-
<PAGE>
RECENT DEVELOPMENTS OF MUTUAL
The following table sets forth certain consolidated financial and other data
of Mutual at and for the periods indicated. Consolidated financial and
operating data and financial ratios and other data at and for the year ended
September 30, 1995 have been derived from and should be read in conjunction
with the consolidated financial statements of Mutual, including the
respective notes thereto appearing elsewhere in this Joint Proxy Statement.
Consolidated financial and operating data and financial ratios and other data
at and for the threes months ended December 31, 1995 and 1994, were derived
from unaudited financial statements.
<TABLE>
<CAPTION>
At At
December 31, September 30,
1995(1) 1995
------------ -------------
<S> <C> <C>
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA
Total assets $84,706 $83,396
Investment securities available for sale 6,286 5,227
Investment securities held to maturity 19,344 19,371
Mortgage-backed securities held to maturity 14,306 14,338
Loans receivable, net 40,518 39,870
Deposit accounts 68,732 67,513
Stockholders' equity, substantially restricted 14,956 14,787
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
---------------------------------------
1995(1) 1994(1)
------------ -------------
<S> <C> <C>
(IN THOUSANDS)
SELECTED OPERATING DATA
Interest income $1,561 $1,482
Interest expense 811 633
------------ -------------
Net interest income before provision for
estimated loan losses 750 819
Provision for estimated loan losses 25 --
------------ -------------
Net interest income after provision for
estimated loan losses 725 819
Other income 47 35
General and administrative expenses 415 478
------------ -------------
Earnings before income taxes 357 376
Income tax expense 122 126
------------ -------------
Net earnings $ 235 $ 250
------------ -------------
------------ -------------
</TABLE>
(1) In the opinion of management of Mutual, financial information at and
for the three months ended December 31, 1995 and 1994 reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary to present fairly the results for such interim periods.
Interim results at and for the three months ended December 31, 1995 are
not necessarily indicative of the results that may be expected for any
other interim period or the year ending September 30, 1996.
-16-
<PAGE>
<TABLE>
<CAPTION>
At or For the Three Months Ended
December 31,
---------------------------------------
1995(1) 1994(1)
--------------- ---------------
<S> <C> <C>
PERFORMANCE RATIOS(2)
Return on average assets 1.12% 1.21%
Return on average equity 6.29 6.94
Average equity to average assets 17.82 17.48
Equity to total assets at end of period 17.66 17.30
Average interest rate spread (3) 2.92 3.52
Net interest margin (4) 3.70 4.13
Average interest-earning assets to
average interest-bearing liabilities 1.19x 1.18x
Number of shares outstanding 1,156,100 1,154,100
REGULATORY CAPITAL RATIOS(2)
Tangible capital 17.63% 17.45%
Core capital 17.63 17.45
Risk-based capital 49.21 51.75
ASSET QUALITY RATIOS(2)
Non-performing assets as a percent of
total assets 0.29 --
</TABLE>
(1) In the opinion of management of Mutual, financial information at and for
the three months ended December 31, 1995 and 1994 reflects all adjustments
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such interim periods. Interim results at
and for the three months ended December 31, 1995 are not necessarily
indicative of the results that may be expected for any other interim
period or the year ending September 30, 1996.
(2) Asset quality ratios and regulatory capital ratios are end of period
ratios. With the exception of end of period ratios, all ratios are
annualized where appropriate.
(3) The average interest rate spread represents the difference between
the weighted average yield on interest-earning assets and the
weighted average cost of interest-bearing liabilities.
(4) The net interest margin represents net interest income as a percent of
average interest-earning assets.
-17-
<PAGE>
Comparison of the Results of Operation for the
Three Months Ended December 31, 1995 and December 31, 1994
Cash and investment securities increased $653,400 for the quarter ended
December 31, 1995 as compared to September 30, 1995. Loans increased
$648,700 to $40,518,400 as compared to $39,869,700 as of September 30, 1995.
Savings deposits increased $1,219,900 for the quarter ended December 31,
1995 to $68,732,400 as compared to $67,512,500 as of September 30, 1995.
Deposit increases were used to fund investments and loans.
Stockholders' equity totaled $14,955,700 or 17.66% of total assets at
December 31, 1995. Stockholders' equity per share was $12.94 at December 31,
1995 compared to $12.81 at September 30, 1995. This increase was due to the
crediting of net earnings after dividends and an improvement in the market
value of securities available for sale.
For the three months ended December 31, 1995, Mutual had net income of
$235,500 as compared to $250,100 for the same period ended in 1994. Net
interest income decreased $69,200 for the quarter as compared to the same
period last year. The net interest rate margin decreased 0.08% from 2.77% at
September 30, 1995 to 2.69% at December 31, 1995. Provision for loan losses
increased $25,000 during the quarter.
Noninterest income increased $12,800 during the current three-month
period as compared to the same period last year. This increase was primarily
the result of increased loan fees and prepayment penalties on loans.
Noninterest expense decreased $63,400 during the current three-month
period as compared to the same period in 1994. This decrease was primarily
the result of the accrual of $45,500 in stock appreciation rights in 1994
that were not provided for in 1995. In addition, directors' fees were $9,400
higher in 1994.
On December 19, 1995, Mutual declared a $0.10 per share dividend payable
on January 15, 1996 to stockholders of record on January 5, 1996 which, in
the aggregate, amounted to $115,610.
Earnings per share of Mutual Common Stock were $0.19 for the quarter as
compared to $0.21 for the comparative quarter ended December 31, 1994.
As of December 31, 1995, Mutual exceeded all the applicable capital
requirements as indicated by the following table. Percentages are based on
adjusted assets unless otherwise noted and dollars are in thousands.
<TABLE>
<S> <C>
Total capital (GAAP) ................ $14,956
Minus unrealized gain ............ 53
Deferred income taxes ............ 18
-------
Regulatory capital ................... 14,921
General loan loss reserves ....... 133
-------
Risk-based capital ................... 15,054
-------
</TABLE>
-18-
<PAGE>
<TABLE>
<S> <C>
Total assets ......................... 84,706
Minus unrealized gain - AFS ...... 53
-------
Adjusted assets ...................... 84,653
-------
-------
Risk weighted assets ................. $30,593
-------
-------
</TABLE>
<TABLE>
<CAPTION>
Requirement Mutual
----------------- --------------------
Percent Dollars Percent Excess
------- ------- ------- --------
<S> <C> <C> <C> <C>
Tangible capital ........ 1.5% $1,270 17.63% $13,651
Core capital ............ 3.0 2,540 17.63 12,381
Total capital/risk
weighted assets ...... 8.0 2,447 49.21 12,606
</TABLE>
Mutual's liquidity ratio at December 31, 1995 was 18.75%. Management
believes this liquidity is adequate to meet its requirements.
On July 28, 1995, the Federal Deposit Insurance Corporation (the
"FDIC"), the Treasury Department, and the OTS released statements outlining a
proposed plan (the "Proposed Plan") to recapitalize the Savings Association
Insurance Fund ("SAIF") certain features of which were subsequently approved
by the House of Representatives and the Senate of the United States in bills
that provided for different resolutions of the disparity between the Bank
Insurance Fund ("BIF") and SAIF. In negotiations between members of the
Banking Committees of the House and Senate to reconcile the differences in
the two bills, it was agreed on November 7, 1995 that the current Budget
Reconciliation Package will focus on the financial problems of the SAIF.
Under the Committee Agreement, all SAIF-insured institutions would pay a
special assessment to recapitalize the SAIF and the assessment base for the
payments on the FICO bonds would be expanded to include the deposits of both
BIF- and SAIF-insured institutions. The amount of the special assessment
required to recapitalize the SAIF is currently estimated to be approximately
80 basis points, somewhat less than the 85-90 basis point assessment that had
been previously estimated as necessary. The special assessment would be
payable some time in 1996 based on the amount of SAIF-insured deposits held
on March 31,1995. The Committee Agreement would also permit BIF-insured
institutions holding deposits subject to SAIF assessments to reduce such SAIF
deposits by 20% in computing the institution's special assessment. There is
some question as to whether either BIF-insured institutions acquiring
SAIF-insured institutions after March 31, 1995 or SAIF-insured institutions
that go out of existence prior to the enactment of the Budget Reconciliation
legislation would be required to pay any special assessment under the current
language of the legistation. If an 80 basis point assessment were assessed
against Mutual's deposits as of March 31, 1995, Mutual would be required to
pay a special assessment on its SAIF-insured deposits of $536,500. In
accordance with generally accepted accounting principles, Mutual had not
recorded an accrual for the special assessment at September 30, 1995.
Mutual's assessment rate for fiscal 1995 was 23 basis points and the premium
paid for this period was $153,585. A significant increase in SAIF insurance
premiums or a significant special assessment to recapitalize the SAIF would
likely have an adverse effect on the operating expenses and results of
operations of Mutual.
-19-
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited pro forma combined
financial data for ANB giving effect to the Merger accounted for as a pooling
of interests. For a description of the pooling-of-interests accounting with
respect to the Merger, see "The Merger--Accounting Treatment." The following
information does not include any pro forma adjustments. This information
should be read in conjunction with the historical consolidated financial
statements of Mutual and ANB, including the respective notes thereto,
appearing elsewhere in this Joint Proxy Statement. Results for the nine
months ended September 30, 1995, are not necessarily indicative of the
results which may be expected for any other interim period or for the year as
a whole. The pro forma financial data are not necessarily indicative of
results that actually would have occurred had the Merger been consummated on
the dates indicated or that may be obtained in the future. See "Pro Forma
Financial Information," and "Index to Financial Statements."
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
-------------------- ---------------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Total interest income........... $18,716 $15,990 $21,721 $22,008 $23,925
Total interest expense.......... 8,236 6,580 8,919 9,715 12,403
------- ------- ------- ------- -------
Net interest income............. 10,480 9,410 12,802 12,293 11,522
Provision for loan losses....... 381 189 272 214 328
------- ------- ------- ------- -------
Net interest income after
provision for loan losses..... 10,099 9,221 12,530 12,079 11,194
Non-interest Income............. 1,655 1,608 2,212 2,068 1,995
Non-Interest expenses........... 6,048 5,978 8,082 7,549 6,923
------- ------- ------- ------- -------
Income before taxes............. 5,706 4,851 6,660 6,598 6,266
Income taxes.................... 1,792 1,568 2,151 2,033 1,719
------- ------- ------- ------- -------
Net income...................... $ 3,914 $ 3,283 $ 4,509 $ 4,565 $ 4,547
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
_____________________
(1) ANB prepares annual financial statements based on a calendar year ending
on December 31, and Mutual prepares annual financial statements based on a
fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended
on September 30 have been combined with the historical data of ANB at and
for the years ended on December 31.
-20-
<PAGE>
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
-------------------- ----------------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- --------
(In thousands, except percentages and per share data)
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Income Per Common Share(2)... $ 1.20 $ 1.01 $ 1.39 $ 1.41 $ 1.40
Dividends per share(3)........... 0.27 0.25 0.75 0.47 0.66
Book value per share(4).......... 15.03 14.10 14.02 13.32 12.35
BALANCE SHEET DATA
Total assets..................... $385,896 $334,690 $337,354 $327,909 $321,967
Investment securities............ 131,855 105,271 105,225 112,361 104,693
Mortgage-backed securities....... 14,338 16,334 16,334 14,957 22,298
Loans receivable, net............ 211,230 187,139 188,034 177,130 170,756
Deposits......................... 327,449 284,775 282,792 283,323 279,936
Borrowed funds................... -- 1,500 1,500 12 146
Shareholders' equity............. 48,305 45.315 45,046 42,815 39,706
PERFORMANCE RATIOS(5)
Return on average assets......... 1.57% 1.34% 1.37% 1.41% 1.45%
Return on average
shareholders' equity........... 11.15 9.89 10.13 11.15 11.83
Efficiency ratio................. 50.43 55.55 54.90 53.06 51.94
</TABLE>
_____________________________
(1) ANB prepares annual financial statements based on a calendar year ending
on December 31, and Mutual prepares annual financial statements based on
a fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended on
September 30 have been combined with the historical data of ANB at and
for the years ended on December 31.
(2) The pro forma combined net income per common share data are based on
(i) combined historical income of Mutual and ANB assuming the Merger is
accounted for as a pooling of interests and (ii) pro forma combined
equivalent common shares of Mutual (as adjusted for the Exchange Ratio
of .705 of a share of ANB Common Stock for each share of Mutual Common
Stock) and ANB.
(3) Represents the historical dividend per share paid by ANB.
(4) The pro forma combined book value per common share data are based on
(i) combined historical shareholders' equity of Mutual and ANB assuming
the Merger is accounted for as a pooling of interests and (ii) pro forma
combined equivalent common shares of Mutual (as adjusted for the Exchange
Ratio of .705 of a share of ANB Common Stock for each share of Mutual
Common Stock) and ANB.
(5) The ratios have been annualized for the nine months ended September 30,
1995 and 1994.
-21-
<PAGE>
MEETINGS OF SHAREHOLDERS
DATE, PLACE, TIME, AND PURPOSE
MUTUAL. This Joint Proxy Statement is being furnished to the holders of
Mutual Common Stock in connection with the solicitation by the Mutual Board of
Directors of proxies for use at the Mutual Annual Meeting at which Mutual
shareholders will be asked to vote upon a proposal to approve the Agreement and
the Plan of Merger. At the Mutual Annual Meeting, the Mutual shareholders also
will be asked to vote upon a proposal to elect two nominees to serve as
directors of Mutual for three-year terms or until their successors are duly
elected and qualified and a proposal to ratify the appointment of Manning,
Perkinson, Floyd & Company as the independent auditors of Mutual for the fiscal
year ending September 30, 1996. The Mutual Annual Meeting will be held at
___________, on March __, 1996, at ___ ___. M. local time. See "The Merger,"
"Election of Directors of Mutual," and "Appointment of Mutual's Auditors for
Fiscal Year Ending September 30, 1996."
ANB. This Joint Proxy Statement is being furnished to the holders of ANB
Common Stock in connection with the solicitation by the ANB Board of Directors
of proxies for use at the ANB Special Meeting at which ANB shareholders will be
asked to vote upon a proposal to approve the Articles of Incorporation
Amendment. The ANB Special Meeting will be held at _______________________, on
March __, 1996, at ______ ___.M., local time. See "The Merger" and "Amendment
of ANB's Articles of Incorporation."
RECORD DATES, VOTING RIGHTS, REQUIRED VOTES, AND REVOCABILITY OF PROXIES
MUTUAL. The close of business on February __, 1996, has been fixed as the
Mutual Record Date for determining holders of outstanding shares of Mutual
Common Stock entitled to notice of and to vote at the Mutual Annual Meeting.
Only holders of Mutual Common Stock of record on the books of Mutual at the
close of business on the Mutual Record Date are entitled to notice of and to
vote at the Mutual Annual Meeting. As of the Mutual Record Date, there were
__________ shares of Mutual Common Stock issued and outstanding and held by
___________ holders of record.
Holders of Mutual Common Stock are entitled to one vote on each matter
considered and voted upon at the Mutual Annual Meeting for each share of Mutual
Common Stock held of record as of the Mutual Record Date. To hold a vote on any
proposal, a quorum must be assembled, which is a majority of the outstanding
shares of Mutual Common Stock entitled to vote, present in person or represented
by proxy. After determining that a quorum exists at the Mutual Annual Meeting
for purposes of all matters to be voted on, the withdrawal of sufficient record
holders, present in person or represented by proxy, to make up less than a
quorum shall not prevent the remaining shareholders from otherwise duly
transacting business. The vote required for the approval of the Agreement and
the Plan of Merger is two-thirds of the outstanding shares of Mutual Common
Stock. Consequently, with respect to the proposal to approve the Agreement and
the Plan of Merger, abstentions and broker non-votes will be counted as part of
the base number of votes to be used in determining if the proposal has received
the requisite number of base votes for approval. Thus, an abstention and a
broker non-vote will have the same effect as a vote "against" such proposal.
The vote required for the approval of the election of two nominees to serve as
directors of Mutual for three-year terms is a plurality of the votes cast at the
Mutual Annual Meeting, assuming a quorum is determined. The vote required for
the approval of the proposal to ratify the appointment of Manning, Perkinson,
Floyd & Company as the independent auditors of Mutual for the fiscal year ending
September 30, 1996 is a majority of those shares present and voting.
Consequently, with respect to these proposals, abstentions and broker non-votes
will not be counted as part of the base number of
-22-
<PAGE>
votes to be used in determining if the proposal has received the requisite
number of base votes for approval.
Shares of Mutual Common Stock represented by properly executed proxies, if
such proxies are received in time and not revoked, will be voted in accordance
with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE AGREEMENT AND THE PLAN
OF MERGER, FOR APPROVAL OF THE PROPOSAL TO ELECT TWO NOMINEES AS DIRECTORS OF
MUTUAL, AND FOR APPROVAL OF THE PROPOSAL TO RATIFY THE APPOINTMENT OF MANNING,
PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT AUDITORS OF MUTUAL, AND, IN THE
DISCRETION OF THE PROXY HOLDER, AS TO ANY OTHER MATTER WHICH MAY COME PROPERLY
BEFORE THE MUTUAL ANNUAL MEETING. IF NECESSARY, THE PROXY HOLDER MAY VOTE IN
FAVOR OF A PROPOSAL TO ADJOURN THE MUTUAL ANNUAL MEETING IN ORDER TO PERMIT
FURTHER SOLICITATION OF PROXIES IN THE EVENT THERE ARE NOT SUFFICIENT VOTES TO
APPROVE THE FOREGOING PROPOSALS AT THE TIME OF THE MUTUAL ANNUAL MEETING.
FAILURE TO RETURN THE PROXY CARD OR TO VOTE IN PERSON AT THE MUTUAL ANNUAL
MEETING WILL HAVE THE EFFECT OF A VOTE CAST AGAINST APPROVAL OF THE AGREEMENT
AND THE PLAN OF MERGER BUT, ASSUMING A QUORUM IS OBTAINED, WILL HAVE NO EFFECT
ON APPROVAL OF THE PROPOSAL TO ELECT TWO NOMINEES AS DIRECTORS OF MUTUAL FOR
THREE-YEAR TERMS OR THE PROPOSAL TO RATIFY THE APPOINTMENT OF MANNING,
PERKINSON, FLOYD & COMPANY AS THE INDEPENDENT AUDITORS OF MUTUAL FOR THE FISCAL
YEAR ENDING SEPTEMBER 30, 1996.
A Mutual shareholder who has given a proxy may revoke it at any time prior
to its exercise at the Mutual Annual Meeting by (i) giving written notice of
revocation to the Secretary of Mutual, (ii) properly submitting to Mutual a duly
executed proxy bearing a later date, or (iii) attending the Mutual Annual
Meeting and voting in person. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: Mutual Savings Bank, F.S.B., 103 Tower Drive, Danville, Virginia
24540, Attention: Barbara Hobgood, Secretary.
As of the Mutual Record Date, Mutual's directors and executive officers and
their affiliates owned beneficially _______ shares, or approximately __%, of
Mutual Common Stock, and the directors and executive officers of ANB owned
beneficially _____ shares, or approximately _____%, of Mutual Common Stock. All
of the directors and executive officers of Mutual have executed support
agreements pursuant to which they have each committed to vote all of the shares
of Mutual Common Stock over which they have voting authority, other than in a
fiduciary capacity, in favor of the Merger.
ANB. The close of business on February __, 1996, has been fixed as the ANB
Record Date for determining holders of outstanding shares of ANB Common Stock
entitled to notice of and to vote at the ANB Special Meeting. Only holders of
ANB Common Stock of record on the books of ANB at the close of business on the
ANB Record Date are entitled to notice of and to vote at the ANB Special
Meeting. As of the ANB Record Date, there were issued and outstanding ____
shares of ANB Common Stock. At that date, there were ____ holders of record of
ANB Common Stock.
Holders of ANB Common Stock are entitled to one vote on each matter
considered and voted upon at the ANB Special Meeting for each share of ANB
Common Stock held of record as of the ANB Record Date. To hold a vote on any
proposal, a quorum must be assembled, which is a majority of the outstanding
shares of ANB Common Stock entitled to vote, present in person or represented by
proxy. In determining whether a quorum exists at the ANB Special Meeting for
purposes of all matters to be voted on, all votes "for" or "against," as well as
all abstentions, with respect to the proposal receiving the most such votes,
will be counted. The vote required for the approval of the Articles of
Incorporation Amendment is more than two-thirds of the shares of ANB
-23-
<PAGE>
Common Stock entitled to be cast at the ANB Special Meeting. Abstentions and
broker non-votes will have the same effect as a vote "against" the proposal to
approve the Articles of Incorporation Amendment.
Shares of ANB Common Stock represented by properly executed proxies, if
such proxies are received in time and not revoked, will be voted in accordance
with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE ARTICLES OF
INCORPORATION AMENDMENT AND, IN THE DISCRETION OF THE PROXY HOLDER, AS TO ANY
OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE ANB SPECIAL MEETING. IF
NECESSARY, THE PROXY HOLDER MAY VOTE IN FAVOR OF A PROPOSAL TO ADJOURN THE ANB
SPECIAL MEETING IN ORDER TO PERMIT FURTHER SOLICITATION OF PROXIES IN THE EVENT
THERE ARE NOT SUFFICIENT VOTES TO APPROVE THE FOREGOING PROPOSAL AT THE TIME OF
THE ANB SPECIAL MEETING.
FAILURE TO RETURN THE PROXY CARD OR TO VOTE IN PERSON AT THE ANB SPECIAL
MEETING WILL HAVE THE EFFECT OF A VOTE AGAINST THE APPROVAL OF THE ARTICLES OF
INCORPORATION AMENDMENT.
An ANB shareholder who has given a proxy may revoke it at any time prior to
its exercise at the ANB Special Meeting by (i) giving written notice of
revocation to the Secretary of ANB, (ii) properly submitting to ANB a duly
executed proxy bearing a later date, or (iii) attending the ANB Special Meeting
and voting in person. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: American National Bankshares Inc., 628 Main Street, Danville, Virginia
24541, Attention: David Hyler, Secretary.
As of the ANB Record Date, ANB's directors and executive officers and their
affiliates owned beneficially ____ shares, or approximately __%, of ANB Common
Stock, and the directors and executive officers of Mutual owned beneficially
1500 shares, or approximately 0.06%, of ANB Common Stock. All such directors
and officers have indicated that they will vote all of their shares of ANB
Common Stock in favor of the Articles of Incorporation Amendment.
In addition, as of the ANB Record Date, American National, as fiduciary,
custodian, and agent, had sole or shared voting power over _____ shares, or
____%, of the issued and outstanding shares of ANB Common Stock, under trust
agreements and other instruments and agreements. It is the policy of American
National not to vote such shares in the absence of instructions from other
appropriate parties having an interest in such stock, such as a co-fiduciary.
In the absence of appropriate parties which may instruct the voting of any such
shares, American National may provide for co-fiduciaries in order that such
shares of ANB Common Stock can be voted at the ANB Special Meeting.
-24-
<PAGE>
THE MERGER
THE FOLLOWING INFORMATION DESCRIBES CERTAIN OF THE MATERIAL ASPECTS OF THE
MERGER. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE APPENDICES HERETO, INCLUDING THE AGREEMENT AND
THE PLAN OF MERGER, WHICH ARE ATTACHED TO THIS JOINT PROXY STATEMENT AS
APPENDICES I AND II, RESPECTIVELY, AND ARE INCORPORATED HEREIN BY REFERENCE.
ALL SHAREHOLDERS ARE URGED TO READ THE APPENDICES IN THEIR ENTIRETY.
BACKGROUND OF AND MUTUAL'S REASONS FOR THE MERGER
In 1992, management of Mutual, recognizing that substantial and rapid
changes were occurring in the banking industry, began general discussions with
investment bankers to determine ways to best position Mutual to respond to
heightened regulatory involvement, increasingly intense competition and rapid
industry consolidation. Based on those discussions, Mutual engaged an
investment banker to provide financial advisory services pertaining to the
possible merger of Mutual with another financial institution. The investment
banker identified several potential merger candidates, including ANB, and after
meeting with management and presenting the various prospects to the Mutual
Board, the Mutual Board decided that Mutual should engage in negotiations with a
North Carolina bank holding company. Those negotiations ultimately resulted in
the Mutual Board entering into a definitive agreement on August 10, 1993,
pursuant to which Mutual would become a national bank and a subsidiary of such
company. Primarily as a result of delays outside of Mutual's control which
extended beyond the termination date of June 30, 1994 in the definitive
agreement, on July 6, 1994, Mutual and the bank holding company announced that
they had jointly agreed to terminate the agreement and to abandon the
combination of the two companies.
After July 6, 1994, management and the Mutual Board determined not to
continue looking for merger partners, but to seek other ways to enhance
shareholder value by improving Mutual's competitive position and positioning
Mutual for continued growth and profitability. Because of the uncertain future
and the increased regulatory involvement occurring in the thrift industry,
management pursued the possibility of converting to a national bank, but
abandoned this pursuit when the cost of such a conversion appeared prohibitive
for an institution of Mutual's size. During this time, Mutual was approached by
several financial institutions (including ANB) wanting to discuss the
possibility of acquiring Mutual. Management considered the potential offers,
but in each instance determined that by remaining independent shareholder value
could be enhanced more than by any of the proposals that were presented.
Therefore, Mutual's Board advised those institutions that Mutual's current
policy was to remain independent and that management and the Mutual Board
believed that Mutual's opportunities to improve its business prospects and
enhance shareholder value were better if Mutual remained independent.
Subsequently, management considered expansion and actively looked for branches
in its market and surrounding areas. Management of Mutual placed a bid to
acquire a branch office that would have expanded Mutual's market share in
Collinsville, but the bid was not accepted.
In the course of investigating potential branch acquisitions, management
talked with several investment bankers, one of which, Baxter Fentriss, informed
Mutual of several financial institutions and their holding companies who were
looking for expansion opportunities and would be interested in Mutual's
franchise. Baxter Fentriss met with the Mutual Board to review the current
merger and acquisition environment. On May 2, 1995, Mutual entered into an
agreement with Baxter Fentriss whereby Baxter Fentriss agreed to provide
financial advisory services generally concerning mergers, acquisitions, and
restructurings. In June, 1995, Baxter Fentriss contacted prospective merger
partners for Mutual, including ANB and other companies who had previously
expressed an interest in
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Mutual, and distributed an information package on Mutual. In July, 1995, Baxter
Fentriss met with prospective acquirors and solicited preliminary indications of
interest for Mutual. On August 3, 1995, Baxter Fentriss discussed the
proposals received with Mutual's management. The proposals did not reach the
level which management believed represented the intrinsic worth of Mutual and
Baxter Fentriss was directed to negotiate with the bidders for an improved
offer. From August 3 through August 20, 1995, Baxter Fentriss attempted to
solicit improved offers. During August, the Mutual Board, management, and
Baxter Fentriss had numerous special meetings to review the preliminary
indications of interest, and discuss further the possibility of pursuing a
merger or acquisition of Mutual. In some cases representatives from the
companies who had offered indications of interest were present. In these
meetings the following aspects were discussed: the terms and conditions of any
proposal; the nature of the proposed acquiror's business, earnings, capital
strength, and prospects; the consideration being offered both in amount and
nature and, with respect to companies offering an exchange of stock, the market
for each company's stock, the financial implications of a merger with each
company, including a review of potential pro forma earnings per share,
dividends, book value per share, and comparative shareholder rates of return,
and potential dilutive effects on Mutual's shareholders; the prospects for
Mutual's employees in the resulting company; and comparable operating
characteristics and market data for each company. In addition, management of
Mutual had meetings with senior management of the companies. On August 21,
1995, several companies (including ANB) submitted improved proposals which were
discussed with management and presented to the Mutual Board on August 22, 1995.
Three of the proposals were determined by the Mutual Board to warrant further
consideration. One of the three refused to improve its offer and another
determined to withdraw its bid after further consideration of its market
priorities. Negotiations with ANB were continued in which ANB increased the
consideration to be offered to Mutual shareholders and on September 1, 1995, the
Mutual Board met with Baxter Fentriss and representatives of ANB to discuss the
ANB proposal.
The Mutual Board concluded that ANB's preliminary indication of interest
afforded Mutual shareholders greater potential shareholder value for a variety
of reasons. These reasons included the proven financial strength of ANB, as
well as the prospects for economies of scale and reduced expenses upon merging
Mutual and American National. The prospects of merging with and becoming a
national bank with its expanded products and improved profitability (while
retaining the mortgage lending capabilities of Mutual in the form of a mortgage
subsidiary) were believed to be better than merging with another thrift, given
the uncertain future of the thrift industry. The Mutual Board determined that
if the suggested value for Mutual Common Stock could be increased, management
should seek to negotiate a definitive agreement satisfactorily addressing all
terms of the proposed acquisition. Management undertook such a negotiation and
the consideration to be offered to Mutual shareholders was increased to an
amount that management and Baxter Fentriss believed to be a fair exchange ratio
from a financial point of view, and negotiations were commenced on a definitive
agreement.
On September 26, 1995 the Mutual Board met to consider the offer from ANB
and determined to accept it and sign the Agreement.
THE BOARD OF DIRECTORS OF MUTUAL BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF MUTUAL AND ITS SHAREHOLDERS AND HAS
UNANIMOUSLY APPROVED THE AGREEMENT AND THE PLAN OF MERGER AND RECOMMENDS
APPROVAL OF THE AGREEMENT AND THE PLAN OF MERGER BY MUTUAL'S SHAREHOLDERS.
ANB'S REASONS FOR THE MERGER
The ANB Board of Directors has approved the Agreement and determined that
the Merger and the Articles of Incorporation Amendment are in the best interests
of ANB and its shareholders.
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In approving the Agreement and the Articles of Incorporation Amendment, the ANB
Board considered a number of factors. In reaching its conclusion, the Board of
Directors of ANB considered, among other things, the following:
(a) The effectiveness of the Merger in implementing ANB's basic business
strategy of enhancing shareholder value by virtue of the improved competitive
position of the resulting institution and the greater financial and capital
resources available to the resulting institution to compete more effectively
against larger and nonregulated competitors. In this regard, the Board of
Directors of ANB considered that the Merger will permit ANB to further enhance
shareholder value by permitting ANB to achieve certain economies of scale with
respect to a larger asset base and to enhance revenue opportunities through the
greater resources available to ANB to compete with larger competitors operating
in ANB's marketplace for business that it cannot currently serve due to its
smaller size.
(b) The enhanced opportunities for cost savings and synergies that are
expected to result from the Merger. In this regard, ANB intends to achieve
certain cost savings by consolidating the back office operations of Mutual and
eliminating certain duplicative functions of Mutual and ANB.
(c) The enhanced opportunities for growth that the Merger makes possible.
In this regard, the Board considered that ANB will be able to sell additional
depository and non-depository products to the customer base of Mutual that are
not currently provided to such customers by Mutual.
(d) The presentation by the ANB management team regarding its due
diligence reviews of Mutual, including the business, operations, earnings, asset
quality, financial condition and performance, regulatory compliance, asset-
liability management, and operations of Mutual on an historical, prospective,
and pro forma basis.
(e) The terms of the Agreement, the Plan of Merger, and the other
documents executed in connection with the Merger.
(f) The opinion of Scott & Stringfellow (discussed elsewhere in this Joint
Proxy Statement) that the Exchange Ratio is fair, from a financial point of
view, to the holders of ANB Common Stock.
(g) The current and prospective economic and competitive environment
facing financial institutions, generally, and ANB, in particular.
The foregoing discussion of the information and factors considered by the
ANB Board is not intended to be exhaustive but is believed to include all
material factors considered by the ANB Board. In reaching its determination to
approve the Merger, the ANB Board did not assign any relative or specific
weights to different factors. After deliberating with respect to the Merger and
the other transactions contemplated thereby, and considering, among other
things, the matters discussed above and the opinion of Scott & Stringfellow, the
ANB Board unanimously approved the Agreement and the transactions contemplated
thereby, as being in the best interests of ANB and its shareholders.
THE BOARD OF DIRECTORS OF ANB BELIEVES THAT THE TERMS OF THE MERGER ARE
FAIR TO AND IN THE BEST INTERESTS OF ANB AND ITS SHAREHOLDERS AND HAS
UNANIMOUSLY APPROVED THE AGREEMENT AND RECOMMENDS APPROVAL OF THE ARTICLES OF
INCORPORATION AMENDMENT IN CONNECTION WITH THE MERGER BY ANB'S SHAREHOLDERS.
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OPINIONS OF INVESTMENT BANKERS
BAXTER FENTRISS. Baxter Fentriss has acted as financial advisor to Mutual
("Mutual") in connection with the merger. Baxter Fentriss assisted Mutual in
identifying prospective acquirors. On December 1, 1995 Baxter Fentriss
delivered to Mutual its opinion that as of such date, and on the basis of
matters referred to herein, the Exchange Ratio was fair, from a financial point
of view, to the holders of Mutual Common Stock. In rendering its opinion Baxter
Fentriss consulted with the management of Mutual and ANB; reviewed the Agreement
and the Plan of Merger, and certain publicly-available information on the
parties; and reviewed certain additional materials made available by the
management of the respective banks.
In addition, Baxter Fentriss discussed with the management of Mutual and
ANB their respective businesses and outlook. No limitations were imposed by
Mutual's Board of Directors upon Baxter Fentriss with respect to the
investigation made or procedures followed by it in rendering its opinion. The
full text of Baxter Fentriss' written opinion is attached as Appendix III to
this Joint Proxy Statement and should be read in its entirety with respect to
the procedures followed, assumptions made, matters considered, and
qualifications and limitations on the review undertaken by Baxter Fentriss in
connection therewith. In reviewing the analyses and assumptions underlying
Baxter Fentriss' written opinion, the Mutual Board found no reason not to
believe that they were complete and reasonable.
Baxter Fentriss' opinion is directed to Mutual's Board of Directors, and is
directed only to the fairness, from a financial point of view, of the Exchange
Ratio to the holders of Mutual Common Stock. It does not address Mutual's
underlying business decision to effect the proposed Merger, nor does it
constitute a recommendation to any Mutual shareholder as to how such shareholder
should vote with respect to the Merger at the Mutual Annual Meeting or as to any
other matter.
Baxter Fentriss' opinion was one of many factors taken into consideration
by Mutual's Board of Directors in making its determination to approve the
Agreement, and the Plan of Merger, and the receipt of Baxter Fentriss' opinion
is a condition precedent to Mutual consummating the Merger. The opinion of
Baxter Fentriss does not address the relative merits of the Merger as compared
to any alternative business strategies that might exist for Mutual or the effect
of any other business combination in which Mutual might engage.
Baxter Fentriss, as part of its investment banking business, is continually
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. Baxter Fentriss is a nationally recognized advisor to firms
in the financial services industry on mergers and acquisitions. Mutual selected
Baxter Fentriss as its financial advisor because Baxter Fentriss is an
investment banking firm focusing on bank and thrift transactions, and because of
the firm's extensive experience and expertise in transactions similar to the
Merger. Baxter Fentriss is not affiliated with ANB or Mutual.
In connection with rendering its opinion to Mutual's Board of Directors,
Baxter Fentriss performed a variety of financial analyses. In conducting its
analyses and arriving at its opinion as expressed herein, Baxter Fentriss
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial condition and results of operations of ANB and Mutual
including interest income, interest expense, interest sensitivity, noninterest
income, noninterest expense, earnings, book value, returns on assets and equity,
capitalization, the amount and type of non-performing assets, the impact of
holding certain non-earning real estate assets, the reserve for loan losses and
possible tax consequences resulting from the transaction; (ii) the business
prospects of ANB and Mutual (iii) the
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economies of ANB's and Mutual's respective market areas; (iv) the historical and
current market for ANB and Mutual Common Stock; and (v) the nature and terms of
certain other merger transactions that it believed to be relevant. Baxter
Fentriss also considered its assessment of general economic, market, financial
and regulatory conditions and trends, as well as its knowledge of the financial
institutions industry, its experience in connection with similar transactions,
its knowledge of securities valuation generally, and its knowledge of merger
transactions in Virginia.
In connection with rendering its opinion, Baxter Fentriss reviewed (i) the
Agreement; (ii) drafts of this Joint Proxy Statement; (iii) the annual reports
to shareholders, including the audited financial statements of Mutual for the
year ended September 30, 1994 and ANB for the year ended December 31, 1994, and
the quarterly reports of ANB for the nine months ended September 30, 1995; (iv)
pro forma combined statements of income for the year ended December 31, 1994 and
September 30, 1995; and (v) certain additional financial and operating
information with respect to the business, operations and prospects of ANB and
Mutual as it deemed appropriate. Baxter Fentriss also (i) held discussions with
members of the senior management of ANB and Mutual regarding the historical and
current business operation, financial condition and future prospects of their
respective companies; (ii) reviewed the historical market prices and trading
activity for the common stock of Mutual and ANB; (iii) compared the results of
operations of Mutual and ANB with those of certain banking companies that it
deemed to be relevant; (iv) analyzed the pro forma financial impact of the
Merger on ANB; (v) analyzed the pro forma financial impact of the Merger on
Mutual; and (vi) conducted such other studies, analyses, inquiries and
examinations as Baxter Fentriss deemed appropriate, as described below.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness, from a financial point of
view, of the Exchange Ratio to holders of Mutual Common Stock was to some extent
a subjective one based on the experience and judgment of Baxter Fentriss and not
merely the result of mathematical analysis of financial data. Accordingly,
notwithstanding the separate factors summarized below, Baxter Fentriss believes
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
analyses and factors, could create an incomplete view of the evaluation process
underlying its opinion. The ranges of valuations resulting from any particular
analysis described below should not be taken to be Baxter Fentriss' view of the
actual value of Mutual or ANB.
In performing its analyses, Baxter Fentriss made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Mutual or ANB. The analyses
performed by Baxter Fentriss are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of businesses
do not purport to be appraisals or to reflect the prices at which businesses
actually may be sold. In rendering its opinion, Baxter Fentriss assumed that,
in the course of obtaining the necessary regulatory approvals for the
Acquisition, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Acquisition, on a pro forma basis, to
Mutual.
The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion:
(a) Stock Price History. Baxter Fentriss studied the history of the
trading prices and volume for Mutual Common Stock and ANB Common Stock and
compared that to publicly traded
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banks and thrifts in Virginia and to the price offered by ANB. As of
September 30, 1995, Mutual's fully diluted book value was $12.81.
(b) Comparative Analysis. Baxter Fentriss compared the price to earnings
multiple, price to book multiple, and price to assets multiple of the ANB offer
with other comparable merger transactions in Virginia after considering Mutual's
non-performing assets and other variables. The comparative multiples included
both bank and thrift sales during the last 3 years.
(c) Baxter Fentriss considered the pro forma impact of the transaction and
concluded the transaction should have a positive long-term impact on ANB.
(d) Baxter Fentriss performed a discounted cash flow analysis to determine
hypothetical present values for a share of Mutual's common stock as a 5- and 10-
year investment. Under this analysis, Baxter Fentriss considered various
scenarios for the performance of Mutual's stock using (i) a range from 5.0% to
12% in the growth of Mutual's earnings and dividends and (ii) a range from 8
times to 20 times earnings as the terminal value for Mutual's stock. A range of
discount rates from 11% to 15% were applied to these alternative growth and
terminal value scenarios. These ranges of discount rates, growth alternatives,
and terminal values were chosen based upon what Baxter Fentriss, in its
judgment, considered to be appropriate taking into account, among other things,
Mutual's past and current performance, the general level of inflation, rates of
return for fixed income and equity securities in the marketplace generally and
for companies with similar risk profiles. In most of the scenarios considered,
the present value of a share of Mutual's common stock was calculated at less
than that of the ANB offer. Thus, Baxter Fentriss' discounted cash flow
analysis indicated that Mutual shareholders would be in a better financial
position by receiving the ANB Common Stock offered in the Merger transaction
rather than continuing to hold Mutual Common Stock.
Using publicly available information on ANB and applying the capital
guidelines of federal regulators of banks and thrifts, Baxter Fentriss' analysis
indicated that the Merger would not seriously dilute the capital and earnings
capacity of ANB and would, therefore, likely not be opposed by the federal
regulatory agencies from a capital perspective. Furthermore, Baxter Fentriss
considered the likely market overlap and the guidelines of the Board of
Governors of the Federal Reserve System (the "Federal Reserve") with regard to
market concentration and did not believe there to be an issue with regard to
possible antitrust concerns.
Baxter Fentriss has relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss has assumed that all estimates, including those as to possible
economies of scale, were reasonably prepared by management and reflect their
best current judgments. Baxter Fentriss did not make an independent appraisal
of the assets or liabilities of either Mutual or ANB, and has not been furnished
such an appraisal.
No company or transaction used as a comparison in the above analysis is
identical to Mutual or the Acquisition. Accordingly, an analysis of the results
of the foregoing necessarily involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies used for comparison in the above analysis.
Baxter Fentriss will be paid an amount equal to 1.5% of aggregate
consideration plus reasonable out-of-pocket expenses for its services. Based on
the price per share of ANB Common Stock of $30.50, the dollar amount of Baxter
Fentriss fee is expected to be approximately $400,000. Baxter Fentriss also was
paid a fee of $15,000 for rendering its opinion on the fairness of the
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Exchange Ratio. Mutual has agreed to indemnify Baxter Fentriss against certain
liabilities, including certain liabilities under federal securities laws.
SCOTT & STRINGFELLOW. ANB retained the investment banking firm of Scott &
Stringfellow to evaluate the terms of the Exchange Ratio and Scott &
Stringfellow has rendered its opinion to the Board of Directors of ANB that the
Exchange Ratio is fair from a financial point of view to holders of ANB Common
Stock. In developing its opinion, Scott & Stringfellow reviewed and analyzed:
(i) the Agreement; (ii) the Registration statement filed with the SEC in
connection with the Merger; (iii) Mutual's audited financial statements for the
three years ended September 30, 1995, and other information related to Mutual
prepared by Mutual's management, including but not limited to asset quality,
reserve adequacy, margin analysis, interest rate sensitivity, internal controls,
loan policies, budgets, regulatory matters and legal matters; (iv) information
regarding the trading market for the common stocks of ANB and Mutual and the
price ranges within which the respective stocks have traded; (v) the
relationships for prices paid to relevant financial data such as net worth,
loans, deposits, and earnings in certain financial institutions mergers and
acquisitions in Virginia in recent years; (iv) ANB's annual reports to
shareholders and its audited financial statements for the three fiscal years
ended December 31, 1994; (vii) ANB's unaudited financial statements for the nine
months ended September 30, 1994 and 1995; and (viii) other information related
to ANB prepared by ANB's management including but not limited to asset quality,
reserve adequacy, margin analysis, interest rate sensitivity, internal controls,
loan policies, budgets, regulatory matters and legal matters. Scott &
Stringfellow has discussed with members of Mutual's and ANB's management the
background of the Merger, the reasons and basis for the Exchange Ratio, and the
business and future prospects of Mutual and ANB as a combined entity. No
instructions or limitation were given or imposed by Mutual or ANB in connection
with the scope of the examination or investigation made by Scott & Stringfellow
in arriving at its findings. Finally, Scott & Stringfellow has conducted such
other studies, analyses and investigations particularly of the banking industry,
and has considered such other information as it deemed appropriate, the material
portion of which is described below. A copy of that opinion, which sets forth
the assumptions made, matters considered and limitation on the review
undertaken, is attached as Appendix IV to the Joint Proxy Statement and should
be read in its entirety. In reviewing the analyses and assumptions underlying
Scott & Stringfellow's written opinion, the ANB Board found no reason not to
believe that they were complete and reasonable.
The consideration to be given to Mutual shareholders in the Merger was
determined by ANB and Mutual in their negotiations. In connection with
rendering its opinion to ANB's Board of Directors, Scott & Stringfellow
performed a variety of financial analyses. However, the preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
particular circumstances and therefore such opinion is not readily susceptible
to summary description. Scott & Stringfellow, in conducting its analysis and in
arriving at its opinion, has not conducted a physical inspection of any of the
properties or assets of Mutual, and has not made or obtained any independent
valuation or appraisals of any properties, assets or liabilities of Mutual.
Scott & Stringfellow has assumed and relied upon the accuracy and completeness
of the financial and other information that was provided to it by Mutual or that
was publicly available. Its opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to it
as of the date of, its analysis.
VALUATION METHODOLOGIES. In connection with its opinion on the Exchange
Ratio and the presentation of that opinion to ANB's Board of Directors, Scott &
Stringfellow performed three valuation analyses with respect to Mutual: (i) a
comparison with comparable publicly traded companies; (ii) an analysis of
comparable prices and terms of recent transactions involving financial
institutions buying thrifts; and (iii) a discounted cash flow analysis. For
purposes of the comparable company and comparable transaction analysis, ANB's
stock was valued at $30.50 per share, which
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was the price at which numerous trades had taken place in the month prior to the
signing of the Agreement and of which management was aware. Based on the
Exchange Ratio of 0.705 ANB shares for each Mutual share outstanding, the
implied purchase price per share for Mutual was $21.50. Each of these
methodologies is discussed below.
COMPARABLE COMPANY ANALYSIS. In performing its comparable company
analysis, Scott & Stringfellow analyzed the market trading of Mutual Common
Stock relative to publicly traded thrifts in Virginia. The institutions
included in the comparison to Mutual consisted of Bedford Bancshares, Inc.
(BFSB), Community Financial Corp. (CFFC), CENIT Bancorp, Inc. (CNIT), CSB
Financial Corp. (COSB), FFVA Financial Corp. (FFFC), Fidelity Federal Bankshares
(FFRV), Life Bancorp, Inc. (LIFB), Virginia Beach Financial (VABF), and Virginia
First (VFFC).
Among the market trading information compared was market price to book
value and tangible book value, of which the average multiples for the
comparables was 1.05 times and 1.07 times, respectively, compared to the
multiple of approximately 1.59 times book value and tangible book value
represented by the consideration to be received by Mutual shareholders in the
Merger. Also examined was the market price to the latest twelve months earnings
per share, for which the average multiple for the comparable thrifts was 11.0
times, compared to the multiple of approximately 23.9 times represented by the
consideration to be received by the Mutual Shareholders in the Merger on the
basis of the Exchange Ratio.
COMPARABLE TRANSACTION ANALYSIS. Scott & Stringfellow performed an
analysis of premiums paid for selected thrifts in the Commonwealth of Virginia.
Comparable transactions were considered to be a total of ten transactions since
January 1, 1994, where the seller was a savings association or savings bank
located in Virginia. When determining if a transaction is fair, from a
financial point of view, to the institution's shareholders, Scott & Stringfellow
compares the proposed transaction with the other transactions in the market
place with similar characteristics. Four ratios that are considered by Scott &
Stringfellow to be the most determinative in this fairness analysis are price to
book value, price to tangible book value, price to earnings per share, and price
as a percentage of the tangible book premium to core deposits. No ratio,
however, is determinative on its own, but rather the performance of the other
ratio analysis must be reviewed.
Based on transactions since January 1, 1994, where the seller was a savings
association or savings bank located in Virginia, the analysis yielded a range of
transaction value to book value of 1.11 times to 2.04 times with an average of
1.60 times. These compare to the transaction value for the Exchange Ratio of
approximately 1.59 times of the Mutual book value as of June 30, 1995.
In addition, the analysis yielded a range of transaction values as a
multiple of tangible book value for the comparable transactions ranging from
1.11 times to 3.82 times with an average of 1.87 times. These compare to a
transaction value for the Exchange Ratio of approximately 1.59 times of the
Mutual book value as of June 30, 1995.
Furthermore, the analysis yielded a range of transaction values as a
multiple of trailing twelve month earnings per share. These values ranged from
8.87 times to infinity (one of the institutions recorded losses for the trailing
twelve month period) and averaged 20.6 times. These compare to a transaction
value to the June 30, 1995 trailing twelve months earnings per share of 23.9
times for the Exchange Ratio.
Lastly, the analysis yielded a range of transaction values as a percentage
of tangible book premium to core deposits of 2.76% to 22.54% and averaged 8.08%.
These compare to a transaction value of tangible book premium to core deposits
of 13.73% as of June 30, 1995 for the Exchange Ratio.
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No company or transaction used in the comparable transaction analysis is
identical to Mutual. Accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments, as well as other factors that
affect the public trading value or acquisition value of the company to which it
is being compared.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, Scott
& Stringfellow estimated the present value of the future stream of after-tax
cash flows that Mutual could produce through 1999, under various circumstances,
assuming that Mutual performed in accordance with the earnings/return
projections of management at the time that Mutual entered into acquisition
discussions in July, 1995. Scott & Stringfellow estimated the terminal value
for Mutual at the end of the period by applying multiples of earnings ranging
from 12.0 to 13.5 times and then discounting the cash flow streams, and terminal
value using differing discount rates (ranging from 7.0% to 9.0%) chosen to
reflect different assumptions regarding the required rates of return of Mutual
and the inherent risk associated with the underlying projections. This
discounted cash flow analysis indicated a range of $22.2 million to $26.3
million, or $18.44 to $21.83 per share, for Mutual. These values compared to
the value implied by the Exchange Ratio of $21.50, based on the market value of
ANB Common Stock as of the signing of the Agreement. This fact, among others,
contributes to Scott & Stringfellow's opinion that the Exchange Ratio is fair
from a financial point of view to the ANB shareholders.
The preparation of a fairness opinion is not susceptible to partial
analysis or summary description. Scott & Stringfellow believes that its
analyses must be considered as a whole and that selecting portions of its
analysis and the factors considered by it, without considering all analyses and
factors, would create an incomplete view of the process underlying the
preparation of its opinion.
Scott & Stringfellow is a full service investment banking and brokerage
firm headquartered in Richmond, Virginia, that provides a broad array of
services to corporations, financial institutions and state and local
governments. The Financial Institutions group of Scott & Stringfellow actively
works with community banks and thrifts in Virginia, Maryland, North Carolina and
West Virginia on these and other matters. As part of its investment banking
business, it is continually engaged in the valuation of banks, bank holding
companies and thrifts and their securities in connection with mergers and
acquisitions, negotiated underwritings and secondary distributions of listed and
unlisted securities. Scott & Stringfellow was selected by the Board of
Directors of ANB based upon its expertise and reputation in providing valuation,
merger and acquisition and advisory services to banks, bank holding companies,
and thrifts.
COMPENSATION OF SCOTT & STRINGFELLOW. Pursuant to an engagement letter
dated July 19, 1995 between ANB and Scott & Stringfellow, ANB agreed to pay
Scott & Stringfellow a fee totaling approximately $18,000 to evaluate this
transaction and render its opinion of fairness. ANB has also agreed to
indemnify and hold harmless Scott & Stringfellow and its officers and employees
against certain liabilities in connection with its services under the engagement
letter, except for liabilities resulting from the negligence of Scott &
Stringfellow.
EXCHANGE RATIO
At the time the Merger is consummated, each share of Mutual Common Stock
issued and outstanding at the Effective Time (other than shares held by Mutual
companies or ANB companies, other than in a fiduciary capacity or as a result of
debts previously contracted and shares held by shareholders who perfect their
dissenters' rights of appraisal) will be converted into .705 of a share of ANB
Common Stock. Each share of ANB Common Stock outstanding immediately prior to
the Effective Time will remain outstanding and unchanged as a result of the
Merger.
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No fractional shares of ANB Common Stock will be issued in connection with
the Merger. In lieu of issuing fractional shares, ANB will make a cash payment
(without interest) equal to the fractional interest which a Mutual shareholder
otherwise would receive multiplied by $30.50.
EFFECT OF THE MERGER ON STOCK OPTIONS
The Agreement and the Plan of Merger contemplate that, at the Effective
Time, all rights with respect to Mutual Common Stock pursuant to stock options
(the "Mutual Options") granted by Mutual under the existing Mutual Stock Plan
(the "Mutual Stock Plan"), which Mutual Options are outstanding at the Effective
Time, whether or not then exercisable, will be converted into and become rights
with respect to ANB Common Stock, and ANB will assume each of such Mutual
Options in accordance with the terms of the Mutual Stock Plan and the stock
option agreement by which it is evidenced, except that from and after the
Effective Time, (i) the Board of Directors of Mutual Mortgage shall be
substituted for the Committee of Mutual's Board of Directors (including, if
applicable, the entire Board of Directors of Mutual) administering such Mutual
Stock Plan, (ii) the number of shares of ANB Common Stock subject to such
Mutual Option shall be equal to the number of shares of Mutual Common Stock
subject to such Mutual Option immediately prior to the Effective Time multiplied
by the Exchange Ratio, and (iii) the per share exercise price under each such
Mutual Option shall be adjusted by dividing the per share exercise price under
each such Mutual Option by the Exchange Ratio and rounding up to the nearest
cent. Therefore, after the Effective Time, the Mutual Options will become
options to purchase ANB Common Stock on a basis adjusted to reflect the Exchange
Ratio, as contemplated by the Agreement and the Plan of Merger.
Approval of the Merger by the shareholders of Mutual and approval of the
Articles of Incorporation Amendment by the shareholders of ANB will constitute
shareholder approval of the assumption by ANB of the rights and obligations of
Mutual under the Mutual Options. Such approval also will constitute shareholder
approval of related amendments to the Mutual Stock Plan to provide for, among
other things, the conversion at the Effective Time of each outstanding Mutual
Stock Option into an option to purchase ANB Common Stock. See "Election of
Directors of Mutual."
MANAGEMENT AND OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, ANB and American National will continue to
operate their business to serve the communities and customers of Danville,
Virginia and the surrounding counties. It is currently anticipated that certain
branch offices of Mutual will be closed and the deposits and assets domiciled in
such branch offices will be transferred to the nearest branch office of American
National.
The management at ANB will remain unchanged except that H. Dan Davis, the
current President and Chief Executive Officer of Mutual, and one other
individual currently serving as an outside director on the Board of Directors of
Mutual, will be appointed to serve on the Boards of Directors of ANB and
American National and nominated for election to the Boards of Directors of ANB
and American National at the first annual meeting of shareholders following the
Effective Time. Mr. Davis also will be appointed an Executive Vice President of
ANB and a Senior Vice President of American National. The Agreement provides
that ANB will elect or appoint all individuals of Mutual who are serving as
officers of Mutual at the Effective Time as officers of either American National
or Mutual Mortgage, taking into account the prior positions and experience of
such officers with Mutual in designating such officer positions. ANB has
further agreed not to terminate, except for "cause" as determined under the
employee policies of ANB, any employee of Mutual who becomes an employee of ANB
at the Effective Time for a period of one year after the Effective Time.
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In addition, following the consummation of the Merger, American National
will establish Mutual Mortgage to focus on residential home mortgage lending.
Mr. Davis will serve as President and Chief Executive Officer of Mutual Mortgage
and all individuals who are serving as members of Mutual's Board of Directors at
the Effective Time (other than the outside former Mutual director who is elected
a director of ANB) shall comprise the Board of Directors of Mutual Mortgage.
Such individuals will receive fees for such service as directors of Mutual
Mortgage at the same rate as Mutual's Board as of the date of the Agreement.
See "Business of ANB--Management." For additional information regarding the
interests of certain persons in the Merger, see "The Merger--Interests of
Certain Persons in the Merger." For a description of the provisions of the
Agreement affecting the operations of Mutual and ANB prior to the Effective
Time, see "The Merger--Conduct of Business Pending the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. Information as to the shareholdings of directors and executive
officers of Mutual and ANB in the respective companies is included under,
respectively, "Business of ANB--Ownership of ANB Common Stock" and "Business of
Mutual--Ownership of Mutual Common Stock." At the Mutual Record Date, _____ of
the directors and executive officers of Mutual owned an aggregate of
approximately _________ shares of ANB Common Stock. Also, at the Mutual Record
Date, ____ of the directors and executive officers of ANB owned an aggregate of
approximately _____ shares of Mutual Common Stock.
STOCK OPTIONS. As described under "The Merger--Effect of the Merger on
Stock Options," the Agreement and the Plan of Merger also provide that all
rights with respect to Mutual Options which are outstanding at the Effective
Time will be converted into and will become rights with respect to ANB Common
Stock, and ANB will assume each of such Mutual Options in accordance with its
terms. Information related to the executive officers and directors of Mutual
who hold Mutual Options is included under "Election of Directors of
Mutual--Executive Compensation" and "--Director Compensation."
POST-MERGER EMPLOYMENT, COMPENSATION, AND BENEFITS. ANB has agreed to
offer employment to all employees of Mutual with no reduction in base salary.
ANB has further agreed not to terminate, except for "cause" as determined under
the employee policies of ANB, any employee of Mutual who becomes an employee of
ANB at the Effective Time for a period of one year after the Effective Time.
In addition, ANB has agreed to cause two members of Mutual's Board of
Directors, which members shall be nominated by Mutual and approved by ANB and
willing so to serve (subject to any applicable legal restrictions) including
H. Dan Davis, to be elected or appointed as directors of ANB and American
National at the first meetings of the Boards of Directors of ANB and American
National held after the Effective Time. At the first annual meeting of
shareholders of ANB after the Effective Time, ANB shall take all corporate
action necessary to, and shall, renominate such two former Mutual directors for
election as directors of ANB and shall recommend that the ANB shareholders vote
for the election of such individuals as directors.
ANB has agreed to establish a Board of Directors for Mutual Mortgage, which
will be composed of all individuals who are serving as members of Mutual's Board
of Directors at the Effective Time (other than the outside former Mutual
director who is elected a director of ANB), and the outside directors of the
Mutual Mortgage Board will receive fees for such service as directors of Mutual
Mortgage at the same rate as Mutual's Board as of the date of the Agreement.
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ANB is also obligated to elect or appoint all individuals of Mutual who are
serving as officers of Mutual at the Effective Time as officers of either
American National or Mutual Mortgage Company, taking into account the prior
positions and experience of such officers with Mutual in designating such
officer positions. The Agreement provides that, after the Effective Time, ANB
will provide generally to officers and employees of Mutual and its subsidiaries
who become officers or employees of ANB or its subsidiaries, employee benefits
under employee benefit plans (other than stock options or other plans involving
a potential issuance of ANB Common Stock), on terms and conditions that, when
taken as whole, are substantially similar to those currently provided by ANB and
its subsidiaries to their similarly situated officers and employees. For
purposes of participation and vesting (but not benefit accrual) under such
employee benefit plans, service with Mutual or its subsidiaries prior to the
Effective Time will be treated as service with ANB or its subsidiaries.
INDEMNIFICATION. The Agreement provides that ANB will maintain all rights
of indemnification existing in favor of the employees, agents, directors, and
officers of Mutual on terms no less favorable than those provided in applicable
OTS regulations and the Charter or Bylaws of Mutual or otherwise in effect on
the date of the Agreement, including provisions relating to advances of expenses
incurred in the defense of any litigation, and that such rights will continue in
full force and effect for at least six years from the Effective Time with
respect to matters occurring prior to the Effective Time. See "Effect of the
Merger on Rights of Shareholders."
The Agreement also provides that, for one year after the Effective Time,
ANB will use its reasonable efforts to maintain Mutual's existing directors' and
officers' liability insurance policy (or a policy providing comparable coverage)
on terms no less favorable than those in effect on the date of the Agreement.
EMPLOYMENT CONTRACT. Under the Agreement, ANB has agreed to appoint H. Dan
Davis as (i) Executive Vice President of ANB and Senior Vice President of
American National at the Effective Time and (ii) President and Chief Executive
Officer of Mutual Mortgage at the time of its organization. In addition, at the
Effective Time, ANB has agreed to offer to enter into an employment agreement
(the "Employment Agreement") with Mr. Davis. The Employment Agreement, when
entered into by Mr. Davis, will supersede Mr. Davis' current employment
agreement with Mutual.
Under the terms of the Employment Agreement, Mr. Davis will: (i) receive
an annual salary of $110,000; (ii) be eligible to participate in the group and
major medical benefit plans made available to similarly positioned officers of
American National and in the 401-K Plan, the Retirement Plan, and the group life
and disability plan of American National; (iii) have the right to use of an
automobile supplied by American National under the terms of its policy relating
to American National vehicles; and (iv) have the right to have reasonable
expenses paid for him and his spouse to attend meetings that he has customarily
attended of bankers associations, including, but not limited to, meetings of the
Virginia Bankers Association. The term of Mr. Davis' employment as an
executive officer under the Employment Agreement is two years.
Under the Employment Agreement, during this two-year term, Mr. Davis will
have the right to elect to become a senior consultant to ANB for a term
effective on the first calendar day of the month following such election and
expiring seven years from the Effective Time. If Mr. Davis elects to become
a senior consultant to ANB, he will have to resign, upon the effectiveness of
his election, all management positions with ANB, American National, and Mutual
Mortgage. As a senior consultant, ANB will pay Mr. Davis a consulting salary of
$5,500 per month, but Mr. Davis will not be entitled to receive any other
compensation, fees, or other benefits, except for the group health and major
medical benefit plans made available to any full-time employee of ANB, American
National, or Mutual Mortgage. As a senior consultant, Mr. Davis will be
responsible for carrying out such
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advisory or consulting duties and responsibilities as may be requested of him
from time to time by the chief executive officer of ANB or the Board of
Directors of ANB. If Mr. Davis elects to become a senior consultant, the
Employment Agreement also restricts Mr. Davis' ability to serve in a management,
policy-making, consulting, or marketing capacity for any bank, savings and loan
association, credit union, or other financial institution maintaining an office
in any city or county in which ANB or any of its subsidiaries maintains a
banking or banking-related office or in any city or county whose city or county
limits are within 50 miles of a city or county in which ANB or any of its
subsidiaries maintains a banking or banking-related office.
EFFECTIVE TIME
If the Merger is approved by the requisite vote of the shareholders of
Mutual, the Articles of Incorporation Amendment is approved by the requisite
vote of the shareholders of ANB, the Merger is approved by the OCC, as described
under "The Merger--Governmental Approvals," and the other conditions to the
Merger are satisfied or waived (to the extent permitted by applicable law), the
Merger will be consummated and effected at the time of the issuance of the
Certificate of Merger by the OCC or on such other date or at such other time as
the OCC declares the Merger effective. See "The Merger--Conditions to
Consummation of the Merger."
The Agreement provides that, unless otherwise agreed upon in writing by the
respective chief executive officers or chief financial officers of Mutual and
ANB, Mutual and ANB will cause the Effective Time to occur on the first business
day following the last to occur of (i) the effective time (including expiration
of any applicable waiting period) of the last required consent of any Regulatory
Authority having authority over and approving or exempting the Merger and
(ii) the date on which the shareholders of Mutual and ANB approve the Agreement;
or such later date within 30 days of such date as may be agreed upon by Mutual
and ANB. The Agreement may be terminated by either Mutual or ANB in certain
circumstances, including failure to consummate the Merger by July 31, 1996. See
"The Merger--Amendment, Waiver, and Termination."
DISTRIBUTION OF ANB CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
Mutual and ANB will select an exchange agent (the "Exchange Agent") to
effect the exchange of certificates in connection with the Merger. Promptly
after the Effective Time, the Exchange Agent will mail to each holder of record
of Certificates that immediately prior to the Effective Time represented
outstanding shares of Mutual Common Stock a letter of transmittal and
instructions for its use in effecting the surrender of Certificates in exchange
for certificates representing shares of ANB Common Stock. SHAREHOLDERS OF
MUTUAL SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH LETTER OF
TRANSMITTAL AND INSTRUCTIONS ARE RECEIVED. Upon surrender of Certificates (duly
endorsed, if the Exchange Agent so requires) for exchange and cancellation to
the Exchange Agent, together with a duly executed letter of transmittal, the
holder of such Certificates will be entitled to receive in exchange therefor a
certificate representing the number of shares of ANB Common Stock to which such
Certificate holder becomes entitled pursuant to the Merger, and the Certificate
so surrendered forthwith will be canceled. In lieu of any such fractional
share, ANB will pay to each former Mutual shareholder who otherwise would be
entitled to receive a fractional share of ANB Common Stock an amount in cash
determined as described under "The Merger--Exchange Ratio." Lost, stolen,
mutilated, or destroyed Certificates will be treated in accordance with the
existing procedures of ANB.
After the Effective Time, to the extent permitted by law, former
shareholders of Mutual otherwise having the right to do so will be entitled to
vote at any meeting of ANB shareholders the number of whole shares of ANB Common
Stock into which their shares of Mutual Common Stock are converted, regardless
of whether such holders have exchanged their Certificates as described
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above. In addition, after the Effective Time, no dividend or other distribution
payable on ANB Common Stock will be paid to the holder of any Certificates until
such holder physically surrenders such Certificates for exchange as instructed.
Subject to any applicable law, after surrender of the Certificates formerly
representing the shares of Mutual Common Stock, such holder will receive the
certificates representing shares of ANB Common Stock issuable upon the exchange
or conversion of such shares of Mutual Common Stock, all withheld dividends or
other distributions (without interest), and any withheld cash payments (without
interest) for any fractional share to which such shareholder is entitled.
If any certificates for shares of ANB Common Stock or check representing
cash is to be issued in a name other than that in which the Certificates
surrendered for exchange are issued, the Certificates so surrendered shall be
endorsed properly or otherwise in proper form for transfer, and the person
requesting such exchange shall affix any requisite stock transfer tax stamps to
the Certificates surrendered, provide funds for their purchase, or establish to
the satisfaction of the Exchange Agent that such taxes are not payable.
At the Effective Time, the transfer books of Mutual will be closed as to
holders of Mutual Common Stock. If, after the Effective Time, Certificates
representing such shares are presented for transfer to the Exchange Agent, they
will be canceled and exchanged for Certificates representing whole shares of ANB
Common Stock pursuant to the terms of the Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS A SUMMARY OF CERTAIN ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. THIS SUMMARY IS BASED ON THE FEDERAL INCOME TAX
LAWS AS NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT DOES NOT TAKE INTO
ACCOUNT POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS, INCLUDING AMENDMENTS
TO APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN JUDICIAL OR ADMINISTRATIVE
RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT. THIS SUMMARY DOES NOT
PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. IN PARTICULAR,
AND WITHOUT LIMITING THE FOREGOING, THIS SUMMARY DOES NOT ADDRESS THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES OR STATUS (FOR EXAMPLE, AS FOREIGN PERSONS, TAX-EXEMPT
ENTITIES, DEALERS IN SECURITIES, INSURANCE COMPANIES, AND CORPORATIONS, AMONG
OTHERS). NOR DOES THIS SUMMARY ADDRESS ANY CONSEQUENCES OF THE MERGER UNDER ANY
STATE, LOCAL, ESTATE, OR FOREIGN TAX LAWS. SHAREHOLDERS, THEREFORE, ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICATION AND
EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL, AND OTHER TAX LAWS, AND THE
IMPLICATIONS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service. Instead, Alston & Bird, counsel to
ANB, has rendered an opinion to Mutual and ANB concerning certain federal income
tax consequences of the proposed Merger under federal income tax law. It is
such firm's opinion that, based upon the assumption the Merger is consummated in
accordance with applicable law and in conformity with the representations made
by the management of Mutual and ANB, the transaction will have the following
federal income tax consequences:
(a) The merger of Mutual with and into American National will qualify as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code. Mutual, American National, and ANB will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
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(b) No gain or loss will be recognized by a Mutual shareholder upon the
exchange of such shareholder's Mutual Common Stock for shares of ANB Common
Stock.
(c) The basis of the ANB Common Stock to be received by a Mutual
shareholder will be the same as the basis of the Mutual Common Stock surrendered
in exchange therefor.
(d) The holding period of the ANB Common Stock to be received by a Mutual
shareholder (including the holding period of any fractional share interest) will
include the holding period of the Mutual Common Stock surrendered in exchange
therefor, provided Mutual Common Stock was held as a capital asset on the date
of the exchange.
(e) The payment of cash in lieu of fractional shares of ANB Common Stock
will be treated as if the fractional shares were issued as part of the exchange
and then redeemed by ANB. These cash payments will be treated as having been
received as distributions in full payment in exchange for the stock redeemed.
Generally, any gain or loss recognized upon such exchange will be capital gain
or loss, provided the fractional share would constitute a capital asset in the
hands of the exchanging shareholder.
The tax opinion does not address any state, local, or other tax
consequences of the Merger.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the Merger being accounted
for as a pooling of interests. Under the pooling-of-interests method of
accounting, as of the effective date of the Merger, the recorded amounts of the
assets and liabilities of Mutual and ANB will be combined at their previously
recorded amounts. Revenues and expenses will be restated and conformed as if
Mutual and ANB were combined for the entire fiscal period in which the Merger
occurs and for all periods prior to the Merger at previously recorded amounts.
For information concerning certain conditions to be imposed on the exchange
of Mutual Common Stock for ANB Common Stock in the Merger by affiliates of
Mutual and certain restrictions to be imposed on the transferability of the ANB
Common Stock received by those affiliates in the Merger in order, among other
things, to ensure the availability of pooling-of-interests accounting treatment,
see "The Merger--Resales of ANB Common Stock."
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Mutual and ANB to consummate the Merger are subject to
the satisfaction or waiver (to the extent permitted by applicable law) of
certain conditions, including the following: (i) receipt of the approval of the
Merger by the shareholders of Mutual, (ii) receipt of the approval of the
Articles of Incorporation Amendment by the shareholders of ANB, (iii) receipt of
certain regulatory approvals from the OCC without burdensome conditions and
other regulatory authorities, (iv) receipt of a favorable opinion of Alston &
Bird as to the tax-free nature (except for cash received in lieu of fractional
shares) of the Merger, (v) the Registration Statement being declared effective
and all necessary SEC and state approvals relating to the issuance of the ANB
shares used in the transaction shall have been issued, (vi) the accuracy, as of
the date of the Agreement and as of the Effective Time, of the representations
and warranties of Mutual and ANB as set forth in the Agreement, (vii) the
performance of all agreements and the compliance with all covenants of Mutual
and ANB as set forth in the Agreement, (viii) receipt of letters by Mutual and
ANB, respectively, within a date ten days prior to the date of this Joint Proxy
Statement, from each of Baxter Fentriss and Scott & Stringfellow with respect to
the fairness, from a financial point of view, of the Exchange Ratio to the
shareholders of Mutual and ANB, respectively; (ix) receipt by ANB of a letter
from Arthur
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Andersen LLP, dated as of the Effective Time, to the effect the Merger will
qualify for pooling-of-interests accounting treatment under Accounting
Principles Board Opinion No. 16; (x) receipt of all consents required for
consummation of the Merger or for the preventing of any default under any
contract or permit which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a material adverse effect; (xi) the absence of
any law or order or any action taken by any court or governmental or regulatory
authority prohibiting, restricting, or making illegal the consummation of the
transaction; and (xii) satisfaction of certain other conditions, including the
receipt of legal opinions from the respective counsel to Mutual and ANB and
various certificates from the officers of Mutual and ANB.
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not effected on or before
July 31, 1996, the Agreement may be terminated and the Merger abandoned by a
vote of a majority of the Board of Directors of either Mutual or ANB. See "The
Merger--Amendment, Waiver, and Termination."
GOVERNMENTAL APPROVALS
Consummation of the Merger is subject to obtaining the prior approval of
the OCC (which approval was received on January 10, 1996) and the non-objection
to the Merger by the OTS (which condition has been satisfied).
Mutual and ANB are not aware of any material governmental approvals or
actions that are required for consummation of the Merger, except as described
below. Should any other approval or action be required, it is presently
contemplated that such approval or action would be sought. Should Mutual and
ANB not receive approval for the Merger, the Merger will not be consummated, and
each of Mutual and ANB will remain an independent entity and a going concern.
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AMENDMENT, WAIVER, AND TERMINATION
To the extent permitted by applicable law, Mutual and ANB, with the
approval of their respective Boards of Directors, may amend the Agreement by
written agreement at any time before or after approval of the Agreement by the
Mutual shareholders; provided, however, that after the approval of the Merger by
the shareholders of Mutual, no amendment may decrease the consideration to be
received by the Mutual shareholders without the requisite approval of the
holders of Mutual Common Stock. In addition, prior to or at the Effective Time,
either Mutual or ANB, or both, acting through their respective Boards of
Directors or chief executive officers or other authorized officers, without
shareholder approval, may waive any default in the performance of any term of
the Agreement by the other party, may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the Agreement and may waive any of the conditions precedent to the
obligations of such party under the Agreement, except any condition that, if not
satisfied, would result in the violation of any applicable law or governmental
regulation.
The Agreement may be terminated and the Merger abandoned at any time prior
to the Effective Time (i) by the mutual consent of the Boards of Directors of
Mutual and ANB or (ii) by the Board of Directors of Mutual or ANB, (a) in the
event of any inaccuracy of any representation or warranty of the other party
contained in the Agreement which cannot be or has not been cured within 30 days
after giving written notice to the breaching party of such inaccuracy and which
inaccuracy would provide the terminating party the ability to refuse to
consummate the Merger under the applicable standards set forth in the Agreement
(provided that the terminating party is not then in breach of any representation
or warranty contained in the Agreement under the applicable standards set forth
in the Agreement or in material breach of any covenant or other agreement
contained in the Agreement), (b) in the event of a material breach by the other
party of any covenant or agreement contained in the Agreement which cannot be or
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach (provided that the terminating party is not in
breach of any representation or warranty contained in the Agreement under the
applicable standards set forth in the Agreement or in material breach of any
covenant or other agreement contained in the Agreement, (c) if the Merger is not
consummated by July 31, 1996, (d) if (1) any approval of any regulatory
authority required for consummation of the Merger and the other transactions
contemplated by the Agreement has been denied by final nonappealable action, or
if any action taken by such authority is not appealed within the time limit for
appeal, (2) the shareholders of Mutual fail to vote their approval of the
Agreement and the transactions contemplated thereby as required by the HOLA and
the regulations of the OTS at the Mutual Annual Meeting, or (3) the shareholders
of ANB fail to vote their approval of the Articles of Incorporation Amendment as
required by the VSCA at the ANB Special Meeting, or (e) if any of the conditions
precedent to the obligations of such party to consummate the Merger have not
been satisfied, fulfilled, or waived by the appropriate party by the closing of
the Merger (unless the conditions precedent providing the bases for termination
can reasonably be and are satisfied within a reasonable period of time, in which
case such closing will be postponed appropriately. Such termination and
abandonment would not require the approval of shareholders.
If the Merger is terminated as described above, the Agreement and the Plan
of Merger will become void and have no effect, except that certain provisions of
the Agreement, including those relating to the obligations to share certain
expenses, maintain the confidentiality of certain information obtained, and
return all documents obtained from the other party under the Agreement, will
survive. In addition, termination of the Agreement will not relieve any
breaching party from liability for any uncured breach of a representation,
warranty, covenant, or agreement giving rise to such termination. Moreover, if
the Agreement is terminated because of the willful breach by one
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party of any representation, warranty, covenant, undertaking, or restriction
contained therein, the breaching party may be required to pay certain expenses
incurred by the nonbreaching party in connection with the Merger, provided that
such payment would not limit the rights of the nonbreaching party to seek
remedies to which it may be entitled. See "The Merger--Expenses and Fees."
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Agreement, each of Mutual and ANB has agreed, unless one
party has obtained the prior consent of the other party, and except as otherwise
contemplated by the Agreement, to operate their respective businesses and engage
in transactions only in the ordinary course, to preserve intact their respective
business organizations and assets and to maintain their rights and franchises,
to take no action that would materially adversely affect either the ability of
any of the parties to obtain any necessary approvals of governmental authorities
or their respective abilities to perform their covenants and agreements under
the Agreement in all material respects, and to cause their respective
subsidiaries to do the same.
In addition, Mutual has agreed that, prior to the earlier of the Effective
Time or termination of the Agreement, Mutual will not, except with the prior
written consent of the chief executive officer or chief financial officer of ANB
or as expressly contemplated or permitted by the Agreement, do, or agree to
commit to do, any of the following: (i) amend the Charter, Bylaws, or other
governing instruments of any Mutual company; (ii) incur, guarantee, or otherwise
become responsible for, any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Mutual company to another Mutual
company) in excess of an aggregate of $50,000 (for the Mutual companies on a
consolidated basis) except in the ordinary course of the business of Mutual
companies consistent with past practices (which shall include, for Mutual
creation of deposit liabilities, purchases of federal funds, advances from the
Federal Home Loan Bank ("FHLB") System or the Federal Reserve Bank, and entry
into repurchase agreements fully secured by U.S. government or agency
securities), or forgive any such indebtedness of any person to any Mutual
company (in excess of an aggregate of $25,000), or impose, or suffer the
imposition, on any share of stock held by any Mutual company of any lien or
permit any such lien to exist; (iii) repurchase, redeem, or otherwise acquire or
exchange (other than exchanges in the ordinary course under employee benefit
plans or in their capacity as transfer agent), directly or indirectly, any
shares, or any securities convertible into any shares, of the capital stock of
any Mutual company, or declare or pay any dividend or make any other
distribution in respect of any Mutual Common Stock; provided that Mutual may (to
the extent legally able to do so), but shall not be obligated to, declare and
pay regular quarterly cash dividends on the shares of Mutual Common Stock at a
rate not in excess of $.10 per share with usual and regular record and payment
dates in accordance with past practice as previously disclosed by Mutual to ANB;
PROVIDED FURTHER, that any dividend declared or payable on the shares of Mutual
Common Stock for the quarter during which the Effective Time occurs shall,
unless otherwise agreed upon in writing by Mutual and ANB, be declared only if
the record date for payment of the quarterly dividend to holders of ANB Common
Stock for the quarter in which the Effective Time occurs is prior to the
Effective Time; and PROVIDED FURTHER, that in the event ANB declares a special
cash dividend prior to the Effective Time, Mutual may (to the extent legally
able to do so), but shall not be obligated to, declare and pay a cash dividend
on the shares of Mutual Common Stock at a rate per share of Mutual Common Stock
equivalent, taking into account the Exchange Ratio, to the special dividend paid
by ANB on each share of ANB Common Stock; (iv) except pursuant to the exercise
of stock options outstanding as of the date of the Agreement and pursuant to the
terms thereof in existence on the date of the Agreement, issue, sell, pledge,
encumber, authorize the issuance of, enter into any contract to issue, sell,
pledge, encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Mutual Common Stock, Mutual preferred
stock, or any other capital stock of any Mutual company, or
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any stock appreciation rights, or any option, warrant, conversion, or other
right to acquire any such stock, or any security convertible into any such
stock; (v) adjust, split, combine, or reclassify any capital stock of any Mutual
company or issue or authorize the issuance of any other securities in respect of
or in substitution for shares of Mutual Common Stock or sell, lease, mortgage,
or otherwise dispose of or otherwise encumber any shares of capital stock of any
Mutual subsidiary (unless any such shares of stock are sold or otherwise
transferred to another Mutual company) or any assets other than in the ordinary
course of business for reasonable and adequate consideration; (vi) acquire
direct or indirect control over, or invest in equity securities of, any person,
other than in connection with (a) foreclosures in the ordinary course of
business, or (b) acquisitions of control by Mutual in its fiduciary capacity;
(vii) grant any increase in compensation or benefits to the employees or
officers of any Mutual company except in the ordinary course of business or as
previously disclosed by Mutual to ANB or as required by law; pay any bonus
except in the ordinary course of business or pursuant to the provisions of any
applicable program or plan adopted by its Board of Directors prior to the date
of the Agreement and as previously disclosed by Mutual to ANB; enter into or
amend any severance agreements with officers of any Mutual company except as
previously disclosed by Mutual to ANB; or grant any increase in fees or other
increases in compensation or other benefits to directors of any Mutual company;
(viii) enter into or amend any employment contract between any Mutual company
and any person (unless such amendment is required by law) that the Mutual
company does not have the unconditional right to terminate without liability
(other than liability for services already rendered), at any time on or after
the Effective Time; (ix) adopt any new employee benefit plan or program of any
Mutual company or make any material change in or to any existing employee
benefit plans or programs of any Mutual company other than any such change that
is required by law or that, in the opinion of counsel, is necessary or advisable
to maintain the tax qualified status of any such plan; (x) make any significant
change in any accounting methods, principles, or practices or systems of
internal accounting controls, except as may be necessary to conform to changes
in regulatory accounting requirements or generally accepted accounting
principles; (xi) commence or settle any litigation other than in accordance with
past practice; provided that, except to the extent specifically reserved against
in the Mutual financial statements dated prior to the date of the Agreement, no
Mutual company shall settle any litigation involving any liability of any Mutual
company for money damages in excess of $25,000 or restrictions upon the
operations of any Mutual company; or (xii) except in the ordinary course of
business, enter into or terminate any material contract or make any change in
any material lease or contract, other than renewals of leases and contracts
without material adverse changes of terms.
EXPENSES AND FEES
The Agreement provides in general that each of the parties will bear and
pay its own expenses in connection with the transactions contemplated by the
Agreement, including fees and expenses of its own financial or other
consultants, investment bankers, accountants, and counsel, except that ANB will
bear and pay the filing fees and printing costs in connection with this Joint
Proxy Statement. Notwithstanding the foregoing, the Agreement provides that for
12 months following the termination of the Agreement under certain circumstances
or failure to consummate the Merger at a time in which it has been publicly
disclosed that a third party has disclosed an intent to acquire Mutual, it will
be a binding condition to Mutual's entering into a letter of intent, agreement
in principle, or definitive agreement (whether or not considered binding,
nonbinding, or conditional) with respect to, or recommending shareholder
acceptance of, any business combination with any third party, that such third
party that is a party to the business combination will pay to ANB, not later
than the announcement of the business combination, an amount in cash equal to
$1,000,000, which sum represents the direct costs and expenses incurred by ANB
in negotiating and carrying out the transactions contemplated by the Agreement,
and the indirect costs and expenses incurred by ANB in connection with the
transactions contemplated by the Agreement, including ANB management time
devoted to negotiation and preparation for such transaction. In the event such
third party
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refuses to pay such amount, the amount will be an obligation of Mutual and will
be paid by Mutual promptly upon notice to Mutual by ANB. See "The
Merger--Amendment, Waiver, and Termination."
RESALES OF ANB COMMON STOCK
ANB Common Stock to be issued to shareholders of Mutual in connection with
the Merger will be registered under the Securities Act. All shares of ANB
Common Stock received by holders of Mutual Common Stock, and all shares of ANB
Common Stock issued and outstanding immediately prior to the Effective Time,
upon consummation of the Merger will be freely transferable by those
shareholders of Mutual and ANB not deemed to be "Affiliates" of Mutual or ANB.
"Affiliates" generally are defined as persons or entities who control, are
controlled by, or are under common control with Mutual or ANB at the time of the
Meetings (generally, executive officers and directors).
Rules 144 and 145 promulgated under the Securities Act restrict the sale of
ANB Common Stock received in the Merger by Affiliates and certain of their
family members and related interests. Generally speaking, the rules, as
currently in effect, provided that during the two years following the Effective
Time, Affiliates of Mutual or ANB may resell publicly the ANB Common Stock
received by them in the Merger within certain limitations as to the amount of
ANB Common Stock sold in any three-month period and as to the manner of sale.
After the two-year period, such Affiliates of Mutual who are not affiliates of
ANB may resell their shares without restriction. The ability of Affiliates to
resell shares of ANB Common Stock received in the Merger under Rule 144 or 145
as summarized herein generally will be subject to ANB's having satisfied its
Exchange Act reporting requirements for specified periods prior to the time of
sale. Affiliates will receive additional information regarding the effect of
Rules 144 and 145 on their ability to resell ANB Common Stock received in the
Merger. The SEC has proposed an amendment to Rule 144 that, if adopted, would
reduce the holding period to one year. Affiliates also would be permitted to
resell ANB Common Stock received in the Merger pursuant to an effective
registration statement under the Securities Act or an available exemption from
the Securities Act registration requirements. This Joint Proxy Statement does
not cover any resales of ANB Common Stock received by persons who may be deemed
to be Affiliates of Mutual or ANB.
Mutual has agreed to use its reasonable efforts to cause each person who
may be deemed to be an Affiliate of Mutual to execute and deliver to ANB not
later than 30 days prior to the Effective Time an agreement (each, an "Affiliate
Agreement") providing that such Affiliate will not sell, pledge, transfer, or
otherwise dispose of any ANB Common Stock obtained as a result of the Merger
(i) except in compliance with the Securities Act and the rules and regulations
of the SEC thereunder and (ii) in any case, until after results covering 30 days
of post-Merger operations of ANB have been published. Certificates representing
shares of Mutual Common Stock surrendered for exchange by any person who is an
Affiliate of Mutual for purposes of Rule 145(c) under the Securities Act shall
not be exchanged for certificates representing shares of ANB Common Stock until
ANB has received such a written agreement from such person. Prior to
publication of such results, ANB will not transfer on its books any shares of
ANB Common Stock received by an Affiliate pursuant to the Merger. The stock
certificates representing ANB Common Stock issued to Affiliates in the Merger
may bear a legend summarizing the foregoing restrictions. See "The
Merger--Conditions to Consummation of the Merger."
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DISSENTERS' RIGHTS
MUTUAL COMMON STOCK. If the Merger is consummated, pursuant to regulations
of the OTS, any shareholder of record of Mutual Common Stock who (i) objects to
the Agreement and the Plan of Merger, (ii) does not vote any of such holder's
shares in favor of the Agreement and the Plan of Merger, and (iii) fully
complies with all of the provisions of 12 C.F.R. Section 552.14 will be entitled
to demand and receive payment in an amount equal to the fair or appraised value
of such holder's shares of Mutual Common Stock. For the purpose of determining
the amount to be received in connection with the exercise of dissenters' rights
pursuant to regulations of the OTS, the fair value of a dissenting shareholder's
Mutual Common Stock equals the fair market value of the shares as of the
Effective Time, exclusive of any element of value arising from the
accomplishment or expectation of the Merger.
Any Mutual shareholder desiring to receive payment of the fair value of
such holder's Mutual Common Stock in accordance with the requirements of 12.
C.F.R. Section 552.14 must (i) deliver to Mutual, prior to voting on the
Agreement and the Plan of Merger, a writing identifying such holder and stating
such holder's intention to demand appraisal of and payment for such holder's
shares of Mutual Common Stock and (ii) not vote in favor of the Agreement and
the Plan of Merger. Any written notice of intent to demand appraisal of and
payment for shares of Mutual Common Stock should be sent to: H. Dan Davis,
President and Chief Executive Officer, Mutual Savings Bank, F.S.B., 103 Tower
Drive, Danville, Virginia 24540. A vote against the Agreement and the Plan of
Merger will not satisfy the requirements for the separate written notice of
intent to demand appraisal of and payment for shares of Mutual Common Stock
referred to in condition (i) above. Rather, such demand must be made prior and
in addition to and separate from any proxy or vote against the Agreement and the
Plan of Merger by the dissenting shareholder.
Within ten days of the Effective Time, ANB or American National must
(i) give written notice of the Effective Time by mail to any shareholder who
complied with the provisions above and did not vote in favor of the Agreement
and the Plan of Merger and (ii) make a written offer to each such shareholder to
pay for such holder's shares at a price ANB or American National estimates to be
the fair value of the shares. Such notice and offer must be accompanied by
Mutual's balance sheet and statement of income for a fiscal year ending not more
than 16 months before the date of notice and offer, together with the latest
available interim financial statements and a statement of the procedures that
must be followed if the shareholder elects under 12 C.F.R. Section 552.14(c)(5)
and (6) to demand appraisal and payment of a different amount than that offered
by ANB or American National.
If within 60 days of the Effective Time the shareholder accepts ANB's or
American National's offer of the fair value for such holder's shares, or the
fair value is otherwise agreed upon between ANB or American National and the
dissenting shareholder, ANB or American National must make payment for the
dissenting shareholder's shares within 90 days of the Effective Time. At any
time within 60 days of the Effective Time, a dissenting shareholder may withdraw
a demand for appraisal and accept the terms of the Agreement and the Plan of
Merger, and such shares of Mutual Common Stock will become shares of ANB Common
Stock in accordance with the terms of the Agreement.
If the dissenting shareholder and ANB or American National do not agree as
to the fair value of the dissenting shareholder's shares within 60 days of the
Effective Time, the dissenting shareholder must file a petition with the OTS,
with a copy by registered or certified mail to ANB or American National,
demanding a determination of the fair market value of the shares. Each
shareholder demanding appraisal of and payment for such holder's shares of
Mutual Common Stock in compliance with 12 C.F.R. Section 552.14 must deliver
such holder's shares of Mutual Common Stock to the Exchange Agent for notation
thereon that an appraisal proceeding is pending. If a
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dissenting shareholder fails to file a petition with the OTS demanding a
determination of fair value within 60 days of the Effective Time or fails to
deliver such holder's shares of Mutual Common Stock to the Exchange Agent, such
dissenting shareholder will be deemed to have accepted the terms of the
Agreement and the Plan of Merger, and such shareholder's shares of Mutual Common
Stock will become shares of ANB Common Stock in accordance with the terms of the
Agreement.
The director of the OTS (the "Director") may appoint either appropriate OTS
staff or one or more independent persons to appraise the shares of a dissenting
shareholder who has complied fully with 12 C.F.R. Section 552.14. Appraisals
prepared by independent persons will be subject to review by OTS staff. If the
Director concurs in the final valuation of the shares, the Director will
instruct Mutual to pay the appraised fair market value, together with accrued
interest, upon the surrender of the dissenting shareholder's Mutual Common
Stock. The Director, at his or her discretion, may apportion or assess the cost
of the appraisal proceeding against some or all of the parties to the
proceeding.
The foregoing does not purport to be a complete statement of the provisions
of the OTS regulations relating to dissenter and appraisal rights and is
qualified in its entirety by reference to the dissenter and appraisal rights
provisions of 12 C.F.R. Section 552.14, which section is reproduced in Appendix
VI to this Joint Proxy Statement and which hereby is incorporated by reference
herein.
ANB COMMON STOCK. Under the VSCA, the holders of ANB Common Stock do not
have dissenters' rights of appraisal with respect to the Articles of
Incorporation Amendment.
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EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
GENERAL
Mutual is a federally chartered savings bank, and accordingly, the rights
of Mutual's shareholders are governed by Mutual's Charter and Bylaws and
regulations of the OTS (the "OTS Regulations"). ANB is incorporated under
the laws of the Commonwealth of Virginia, and accordingly, the rights of
ANB's shareholders currently are governed by ANB's Articles of Incorporation
and Bylaws and the VSCA.
Upon consummation of the Merger, shareholders of Mutual will become
shareholders of ANB. In connection with the Merger, the shareholders of ANB
are being asked to approve an amendment to ANB's Articles of Incorporation.
See "Amendment of ANB's Articles of Incorporation." The Articles of
Incorporation of ANB as amended by the Articles of Incorporation Amendment,
which is a condition to consummation of the Merger, are referred to herein as
the Amended Articles of Incorporation of ANB. Accordingly, upon consummation
of the Merger, the rights of shareholders of Mutual, as well as shareholders
of ANB, will be governed by the Amended Articles of Incorporation of ANB, the
Bylaws of ANB, and the VSCA. Certain differences arise from this change of
governing law, as well as from distinctions between the Charter and Bylaws of
Mutual and the Amended Articles of Incorporation and the Bylaws of ANB.
The following is a summary of certain significant differences between the
VSCA and the OTS Regulations, as well as between the Amended Articles of
Incorporation of ANB and Bylaws of ANB and Mutual's Charter and Bylaws that
might affect significantly the rights of Mutual's shareholders. This
discussion is not intended to be a complete statement of the differences
affecting the rights of shareholders. The Amended Articles of Incorporation,
which are attached to this Joint Proxy Statement as Appendix V, and are
incorporated herein by reference, should be reviewed for more detailed
information. For further discussion of the amendment of ANB's Articles of
Incorporation, see "Amendment of ANB's Articles of Incorporation."
ANTI-TAKEOVER PROVISIONS GENERALLY
The provisions of ANB's Articles of Incorporation and Bylaws described
below under the headings, "--Capitalization," "--Amendment of Articles or
Bylaws," "--Required Shareholder Vote for Certain Actions; Anti-Takeover
Provisions," and "--Directors and Classes of Directors; Vacancies and Removal
of Directors" are referred to herein as the "Protective Provisions." In
general, one purpose of the Protective Provisions is to assist ANB's Board of
Directors in playing a role if any group or person attempts to acquire
control of ANB, so that the Board can further protect the interests of ANB
and its shareholders as appropriate under the circumstances, including, if
the Board determines that a sale of control is in their best interests, by
enhancing the Board's ability to maximize the value to be received by the
shareholders upon such a sale.
Although ANB's management believes the Protective Provisions are,
therefore, beneficial to ANB's shareholders, the Protective Provisions also
may tend to discourage some takeover bids. As a result, ANB's shareholders
may be deprived of opportunities to sell some or all of their shares at
prices that represent a premium over prevailing market prices. On the other
hand, defeating undesirable acquisition offers can be a very expensive and
time-consuming process. To the extent that the Protective Provisions
discourage undesirable proposals, ANB may be able to avoid those expenditures
of time and money.
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The Protective Provisions also may discourage open market purchases by a
potential acquiror. Such purchases may increase the market price of ANB
Common Stock temporarily, enabling shareholders to sell their shares at a
price higher than that which otherwise would prevail. In addition, the
Protective Provisions may decrease the market price of ANB Common Stock by
making the stock less attractive to persons who invest in securities in
anticipation of price increases from potential acquisition attempts. The
Protective Provisions also may make it more difficult and time consuming for
a potential acquiror to obtain control of ANB through replacing the Board of
Directors and management. Furthermore, the Protective Provisions may make it
more difficult for ANB's shareholders to replace the Board of Directors or
management, even if a majority of the shareholders believe such replacement
is in the best interests of ANB. As a result, the Protective Provisions may
tend to perpetuate the incumbent Board of Directors and management.
CAPITALIZATION
MUTUAL. Mutual's Charter authorizes the issuance of up to 10,000,000
shares of Mutual capital stock, of which 7,500,000 shares are Mutual Common
Stock, of which _________ shares were issued and outstanding as of the Mutual
Record Date, and of which 2,500,000 shares are Mutual preferred stock, par
value $1.00 per share ("Mutual Preferred Stock"), of which no shares were
issued and outstanding as of the Mutual Record Date.
ANB. ANB's authorized capital under the current Articles of Incorporation
and the Amended Articles of Incorporation is set forth under "Description of
ANB Capital Stock."
AMENDMENT OF ARTICLES OR BYLAWS
MUTUAL. No amendment of Mutual's Charter may be made unless it is first
proposed by the Board of Directors of Mutual, then preliminarily approved by
the OTS, and thereafter approved by the holders of a majority of the total
votes eligible to be cast at a legal meeting.
The Bylaws of Mutual may be amended by a majority vote of the full Board
of Directors of Mutual or by a majority vote of the votes cast by the
shareholders of Mutual at any legal meeting, subject to either objection by
the OTS or, in certain cases, approval by the OTS pursuant to governing
regulations.
ANB. As provided in the VSCA, unless a greater vote is required by law or
by a resolution of the Board of Directors, ANB's Articles of Incorporation
may be amended if the amendment is adopted by the Board of Directors and
approved by a vote of the holders of more than two-thirds of the votes
entitled to be cast on the amendment by each voting group entitled to vote
thereon. Pursuant to ANB's Articles of Incorporation, Articles 5, 8, and 9,
concerning "Cumulative Voting," "Directors," and "Voting Requirements for
Certain Business Combinations," respectively, may not be amended unless such
amendment receives the affirmative vote of 80% of all shares of voting stock
of ANB (except those amendments which are unanimously recommended by the
Board of Directors when no other entity owns 25% or more of ANB's voting
stock or if all such directors were directors prior to the other entity
acquiring 25% of the voting stock).
ANB's Bylaws generally provide that the Bylaws may be amended, altered, or
repealed either by the shareholders at any regular meeting of the
shareholders or at any special meeting called for that purpose or by
affirmative vote of a majority of the Board of Directors at any regular or
special meeting. However, the authority of the Board includes the authority
to amend, alter, or repeal any bylaw adopted by the shareholders, unless the
shareholders with respect to any specific bylaw, limit the power of the Board
to amend or repeal any such specific bylaw.
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REQUIRED SHAREHOLDER VOTE FOR CERTAIN ACTIONS; ANTI-TAKEOVER PROVISIONS
MUTUAL. An OTS Regulation generally requires the approval of the Board of
Directors of Mutual and the affirmative vote of two-thirds of the outstanding
stock of Mutual for mergers, consolidations, and sales of all or
substantially all of Mutual's assets. Such regulation permits Mutual to
merge with another corporation without obtaining the approval of its
shareholders if: (i) it does not involve an interim savings association;
(ii) Mutual's Charter is not changed; (iii) each share of Mutual Common Stock
outstanding immediately prior to the effective date of the transaction is to
be an identical outstanding share or a treasury share of Mutual after such
effective date; and (iv) either: (a) no shares of voting stock of Mutual and
no securities convertible into such stock are to be issued or delivered under
the plan of combination or (b) the authorized unissued shares or the treasury
shares of voting stock of Mutual to be issued or delivered under the plan of
combination, plus those initially issuable upon conversion of any securities
to be issued or delivered under such plan, do not exceed 15% of the total
shares of voting stock of Mutual outstanding immediately prior to the
effective date of the transaction.
The Charter of Mutual further provides that, during the three years after
a person acquires 10% or more of any class of outstanding voting shares of
Mutual, thereby becoming an interested shareholder, Mutual can not enter into
a merger, or similar, transaction with such interested shareholder without an
affirmative vote of a majority of the disinterested directors and an
affirmative vote of two-thirds of the voting shares other than the shares
beneficially owned by the interested shareholder. This requirement is
subject to certain limited exceptions.
ANB. The VSCA generally requires the approval of a majority of a
corporation's Board of Directors and the holders of more than two-thirds of
all the votes entitled to be cast thereon by each voting group entitled to
vote on any plan of merger or consolidation, plan of share exchange, or sale
of substantially all of the assets of a corporation not in the ordinary
course of business. The VSCA also specifies additional voting requirements
for affiliated mergers and transactions that would cause an acquiring
person's voting power to meet or exceed 10% of the outstanding voting shares.
ANB's Articles of Incorporation also require, with certain specified
exceptions, a vote of 80% of the voting shares, considered as one class, for
a business combination with any entity that owns 25% or more of the
outstanding shares of voting stock of ANB or has in the past owned 25% or
more and is currently an affiliate of ANB.
None of the additional voting requirements contained in the ANB Articles
of Incorporation or the VSCA are applicable to the Merger.
DIRECTOR NOMINATIONS
MUTUAL. Pursuant to the Bylaws of Mutual, the Board of Directors acts as
the nominating committee for selecting Board nominees for election as
directors. The Board generally delivers its written nominations to the
Secretary of Mutual at least 20 days prior to the date of the annual meeting.
Upon delivery, such nominations are posted in a conspicuous place in each of
Mutual's branch offices. Nominations for election as a director of Mutual
may be made by shareholders, but such nominations must be in writing and
delivered to the Secretary of Mutual at least five days prior to the annual
meeting.
ANB. In accordance with the Bylaws of ANB, the directors of ANB are
selected by the shareholders at the annual meeting of shareholders after
being nominated in accordance with Virginia law.
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DIRECTORS AND CLASSES OF DIRECTORS; VACANCIES AND REMOVAL OF DIRECTORS
MUTUAL. Mutual's Charter and Bylaws require the Board of Directors of
Mutual to be divided into three classes as nearly equal in number as possible
and that the members of each class be elected for a term of three years or
until their successors are elected and qualified, with one class being
elected annually. The Bylaws of Mutual provide that the number of directors
shall be nine.
Any vacancy occurring in the Board of Directors of Mutual, whether by
death, resignation, removal, or increase in the number of directors, may be
filled by the affirmative vote of a majority of the remaining directors. A
director elected to fill a vacancy shall serve for the unexpired portion of
the term or until his successor is elected and qualified. A director elected
to fill a newly created directorship shall serve until the next election of
directors by the Mutual shareholders.
Under Mutual's Bylaws, any director may be removed for cause by the
holders of a majority of the outstanding shares entitled to vote at an
election of directors at a meeting of shareholders called expressly for such
purpose.
ANB. ANB's Articles of Incorporation provide that the number of
directors, shall be set forth in the Bylaws, but the number of directors set
forth in the Bylaws may not be increased by more than two during any 12-month
period except by the affirmative vote of more than 80% of the votes entitled
to be cast. The Bylaws provide for a Board of Directors consisting of 11
members. ANB's Board of Directors is divided into three classes, each as
nearly equal in number as possible, with one class being elected annually.
The Articles of Incorporation of ANB further provide that any vacancy
occurring on the Board of Directors, including a vacancy resulting from an
increase by not more than two in the number of directors, may be filled by
the affirmative vote of a majority of the remaining directors, though less
than a quorum of the Board of Directors. Directors so chosen shall hold
the remaining term for which they are elected. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Subject to the rights of the holders of preferred stock then outstanding,
any director may be removed, with cause, only by the affirmative vote of the
holders of at least 80% of outstanding voting shares ANB Common Stock.
PREEMPTIVE RIGHTS
Neither the shareholders of ANB nor the shareholders of Mutual have
preemptive rights. Thus, if additional shares of ANB Common Stock or Mutual
Common Stock are issued, or if shares of preferred stock of ANB with a par
value of $5.00 per share ("ANB Preferred Stock") are issued by ANB as
authorized by ANB's Articles of Incorporation, or if shares of Mutual
Preferred Stock are issued by Mutual as authorized by Mutual's Charter,
holders of such stock, to the extent they do not participate in such
additional issuance of shares, would own proportionately smaller interests in
a larger amount of outstanding capital stock.
LIQUIDATION RIGHTS
MUTUAL. Subject to the prior rights of the holders of any shares of
Mutual Preferred Stock that may be outstanding, in the event of any
liquidation, dissolution, or winding up of Mutual, the holders of the Mutual
Common Stock would be entitled to receive all assets of Mutual available for
distribution, after payment of all debts and liabilities of Mutual (including
all deposit accounts and
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accrued interest thereon) and after distribution of the balance remaining in
the liquidation account ("Liquidation Account") established upon the
conversion of Mutual to stock form for the benefit of certain depositors who
have continued to maintain deposit accounts with Mutual. After the
consummation of the Merger, American National will assume liability for
Mutual's Liquidation Account.
ANB. The VSCA generally provides that a corporation's Board of Directors
may propose dissolution for submission to shareholders and that to be
authorized dissolution must be approved by the holders of more than
two-thirds of all votes entitled to be cast on the proposal, unless the
articles of incorporation of the corporation require a greater or lesser
vote. There are no provisions in the Articles of Incorporation of ANB which
would modify the statutory requirements for dissolution under the VSCA.
SPECIAL MEETINGS OF SHAREHOLDERS
MUTUAL. Mutual's Bylaws provide that special meetings of the shareholders
relating to a change in control of Mutual or to an amendment of the Charter
may be called only by the Board of Directors. Special meetings for any other
purpose or purposes, unless otherwise prescribed by the regulations of the
OTS, may be called by the Chairman of the Board, the President, or a majority
of the Board of Directors of Mutual and shall be called by the Chairman,
President, or Secretary of Mutual upon the written request of the holders of
not less than 10% of the outstanding capital stock of Mutual entitled to vote
at the meeting.
ANB. Under the VSCA, special meetings may be called by the chairman of
the board of directors, the president, the board of dirctors and any person
designated in the by-laws of the corporation. The Bylaws of ANB provide that
Special Meetings of the shareholders may be called for any purpose at any
time by the Board of Directors or by any shareholder at the written request
of at least 10% of the shares entitled to vote at the meeting.
INDEMNIFICATION
MUTUAL. Federal savings associations are required by an OTS Regulation to
indemnify their directors, officers, and employees against any action brought
or threatened because that person is or was a director, officer, or employee
for: (i) any amount for which such person becomes liable under a judgment in
such action, and (ii) reasonable costs and expenses, including reasonable
attorney's fees, actually paid or incurred by that person in defending or
settling such action or in enforcing such person's rights under the
applicable regulation if he or she attains a favorable judgment in such
enforcement action. Indemnification shall be made to such person only if:
(i) final judgment on the merits is in such person's favor, or (ii) in the
case of: (a) settlement, (b) final judgment against such person, or (c)
final judgment in such person's favor, other than on the merits, if a
majority of the disinterested directors of the savings association determine
that such person was acting in good faith within the scope of such person's
employment or authority as such person could reasonably have perceived it
under the circumstances and for a purpose such person could reasonably have
believed under the circumstances was in the best interests of the savings
association or its shareholders. No indemnification shall be made unless the
association gives the OTS at least 60 days' notice of its intentions to make
such indemnification and if the OTS, within such notice period, advises the
association in writing of its objection thereto.
ANB. The Articles of Incorporation of ANB provide that each director and
officer be indemnified by ANB against liabilities, fines, penalties, and
claims imposed upon or served against him and (including amounts paid in
settlement) by reason of having been an officer or director of ANB, including
all expenses and counsel fees reasonably incurred by him in connection with
such,
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except in relation to matters as to which he shall have been finally
judged to be liable by reason of having been guilty of gross negligence or
willful misconduct in the performance of his duties as an officer or
director.
SHAREHOLDER PROPOSALS
MUTUAL. The Bylaws of Mutual generally provide that shareholders of
Mutual must provide Mutual with written notice of shareholder nominations for
election as directors and shareholder proposals at least five days prior to
the date of the annual meeting of the shareholders of Mutual at which these
matters will be considered. Shareholder proposals which are proposed to be
included in the Mutual proxy materials must be submitted in accordance with
the notice and other requirements of Rule 14a-8 under the Exchange Act.
ANB. The Articles of Incorporation and Bylaws of ANB do not discuss
shareholder proposals. The VSCA provides that notice must be given to the
shareholders of a corporation describing the purpose of any special meeting.
The VSCA further provides that only those matters described in such notice
may be considered at a special meeting.
SHAREHOLDER INSPECTION RIGHTS; SHAREHOLDER LISTS
MUTUAL. An OTS Regulation provides that certain shareholders of a
federally-chartered savings association such as Mutual may, upon making
written demand stating a proper purpose and, if requested, providing
specified affidavits, inspect its books and records of account, minutes, and
record of shareholders. Such right of examination pursuant to the OTS
regulations is limited to a shareholder or group of shareholders holding of
record (i) voting shares having a cost of not less than $100,000 or
constituting not less than 1.0% of the total outstanding voting shares,
provided in either case that the shareholder or group of shareholders have
held of record such voting shares for at least six months, or (ii) not less
than 5.0% of the total outstanding voting shares.
ANB. The Articles of Incorporation and Bylaws of ANB do not contain any
provisions which govern shareholder inspection rights or shareholder lists.
Under the VSCA, the shareholder of a Virginia corporation is entitled to
inspect and copy certain books and records of the corporation, including a
list of shareholders, if (i) the shareholder has been a shareholder of record
for at least six months immediately preceding his or her written demand or is
the holder of at least 5.0% of the corporation's outstanding shares, (ii) the
shareholder's demand is made in good faith and for a proper purpose, (iii)
the shareholder describes with reasonable particularity the purpose of the
request and the records desired to be inspected, and (iv) the records are
directly related to the stated purpose. The VSCA also provides that a
corporation shall make available for inspection by any shareholder during
usual business hours, at least 10 days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at such meeting.
DISSENTERS' RIGHTS
MUTUAL. An OTS Regulation provides that a shareholder of a
federally-chartered savings association such as Mutual which engages in a
merger, consolidation, or sale of all or substantially all of its assets
shall have the right to demand from such savings association payment of the
fair or appraised value of his or her stock in the savings association,
subject to specified procedural requirements. This regulation also provides
that the shareholders of a federally-chartered savings association with stock
that is listed on a national securities exchange or quoted on the Nasdaq
System are not entitled to dissenters' rights in connection with a merger
involving such savings association if the shareholder is required to accept
only "qualified consideration" for the shareholder's stock, which is defined
to include cash, shares of stock of any savings association or corporation
-52-
<PAGE>
which at the effective date of the merger will be listed on a national
securities exchange or quoted on the Nasdaq System, or any combination of
such shares of stock and cash. Because neither Mutual Common Stock nor ANB
Common Stock is listed on a national stock exchange or quoted on the Nasdaq
System, Mutual shareholders will be entitled to exercise their dissenter's
rights regarding the Merger and obtain payment of the fair value of their
shares of Mutual Common Stock if they follow the procedures outlined in the
OTS regulations for perfecting such rights. See "The Merger--Dissenters'
Rights."
ANB. The provisions of Article 15 of the VSCA which provide a shareholder
of a Virginia corporation the right to dissent from, and obtain payment of
the fair value of such holder's shares in the event of, mergers,
consolidations, and certain other corporate transactions are applicable to
ANB as a Virginia corporation. Though Article 15 of the VSCA provides that
holders of shares of a Virginia corporation which has shares listed on a
national securities exchange or which has at least 2,000 record shareholders
are not entitled to dissenters' rights unless certain requirements are met,
because ANB does not currently have more than 2,000 record shareholders and
is not currently traded on a national securities exchange, the shareholders
of ANB have rights to dissent from mergers, consolidations, and certain other
corporate transactions to which ANB is a party.
PAYMENT OF DIVIDENDS
MUTUAL. The ability of a federally-chartered savings association such as
Mutual to pay dividends on its capital stock is restricted by regulatory
considerations. Dividends by Mutual are subject to the requirements of an
OTS Regulation which governs capital distributions by savings associations.
This regulation creates a safe harbor for specified levels of capital
distributions by savings associations which meet at least their minimum
capital requirements, so long as such associations notify the OTS and receive
no objection from the OTS to the distribution, and provides that savings
associations that do not qualify for the safe harbor are required to obtain
prior OTS approval before making any capital distributions.
Generally, Tier 1 associations, which are savings associations that before
and after the proposed distribution meet or exceed their fully phased-in
capital requirements, may make capital distributions during any calendar year
equal to the greater of: (i) 100% of net income for the calendar
year-to-date plus 50% of its "surplus capital ratio," as defined, at the
beginning of the calendar year, and (ii) 75% of its net income over the most
recent four-quarter period. Tier 2 associations, which are associations that
before and after the proposed distribution meet or exceed their current
minimum capital requirements but do not exceed their fully phased-in capital
requirements, may make capital distributions totaling up to 75% of net income
over the most recent four quarter period. Tier 3 associations, which are
associations that do not meet current minimum capital requirements, or that
have capital in excess of either their fully phased-in requirement or minimum
capital requirement but which have been notified by the OTS that they will be
treated as a Tier 3 association for purposes of the OTS capital distribution
regulation, may not make any capital distribution without obtaining prior OTS
approval. Mutual is currently considered by the OTS to be a Tier 1
association.
ANB. The VSCA generally provides that a corporation may make
distributions to its shareholders unless, after giving effect to the
distribution, (i) the corporation would not be able to pay its debts as they
become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless the
articles of incorporation permit otherwise, which in the case of ANB they do
not) the amount that would be needed, if the corporation were to be dissolved
at the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
-53-
<PAGE>
In addition to the limitations set forth in the VSCA, there are various
regulatory requirements which are applicable to distributions by bank holding
companies such as ANB. For a description of the regulatory limitations on
distributions by ANB, see "Supervision and Regulation--Payment of Dividends"
and "Description of ANB Capital Stock--ANB Common Stock."
-54-
<PAGE>
MARKET PRICES AND DIVIDENDS OF MUTUAL COMMON STOCK
AND ANB COMMON STOCK
MARKET PRICES
Mutual Common Stock is not actively traded in any established market.
Prior to the date of the Agreement, ANB Common Stock also was not actively
traded in any established market. Subsequent to the date of the Agreement,
ANB Common Stock was listed on the OTC Bulletin Board but is still not
actively traded. However, management of Mutual and ANB are aware of various
(but not necessarily all) trades of Mutual Common Stock and ANB Common Stock
in the over-the-counter market. The following table sets forth the high and
low bid or, when known, actual sale prices of shares of Mutual Common Stock,
known to Mutual, and high and low closing sale prices of shares of ANB Common
Stock, known to ANB, for the periods indicated.
<TABLE>
<CAPTION>
Mutual ANB
Common Stock Common Stock
---------------- ---------------
High Low High Low
------- ------- ------- ------
<S> <C> <C> <C> <C>
1993
Quarter ended March 31. . . . . . $ 9.25 $ 9.00 $27.00 $27.00
Quarter ended June 30 . . . . . . 9.25 9.00 28.00 27.00
Quarter ended September 30. . . . 9.25 9.00 29.00 28.00
Quarter ended December 31 . . . . 9.25 9.00 29.00 29.00
1994
Quarter ended March 31. . . . . . 11.00 9.50 29.50 29.00
Quarter ended June 30 . . . . . . 11.00 10.75 30.50 29.50
Quarter ended September 30. . . . 12.00 12.00 30.50 30.50
Quarter ended December 31 . . . . 13.00 12.00 30.50 30.50
1995
Quarter ended March 31. . . . . . 13.00 13.00 30.50 26.00
Quarter ended June 30 . . . . . . 14.00 13.50 30.50 27.00
Quarter ended September 30. . . . 16.00 14.00 30.50 27.00
Quarter ended December 31 . . . . 15.00 15.00 31.00 28.00
</TABLE>
DIVIDENDS
Mutual has paid regular quarterly cash dividends on Mutual Common Stock
since 1988. ANB has paid regular semi-annual cash dividends for more than 25
years, and in addition has paid special cash dividends in certain years. The
following table sets forth for the periods indicated the per share cash
dividends paid on Mutual Common Stock and ANB Common Stock. For information
regarding provisions of the Agreement affecting Mutual's payment of dividends
prior to the Effective Time, see "The Merger--Conduct of Business Pending the
Merger."
<TABLE>
<CAPTION>
Mutual ANB
Common Stock Common Stock
------------ ------------
<S> <C> <C>
1993
Quarter ended March 31. . . . . . $0.10 --
Quarter ended June 30 . . . . . . 0.10 0.23
Quarter ended September 30. . . . 0.10 --
Quarter ended December 31 . . . . 0.10 0.24
</TABLE>
-55-
<PAGE>
<TABLE>
<CAPTION>
Mutual ANB
Common Stock Common Stock
------------ ------------
<S> <C> <C>
1994
Quarter ended March 31. . . . . . $0.10 $ --
Quarter ended June 30 . . . . . . 0.10 0.25
Quarter ended September 30. . . . 0.10 --
Quarter ended December 31 . . . . 0.10 0.50(1)
1995
Quarter ended March 31. . . . . . 0.10 --
Quarter ended June 30 . . . . . . 0.10 0.27
Quarter ended September 30. . . . 0.10 --
Quarter ended December 31 . . . . 0.10 0.29
</TABLE>
- --------------------
(1) Reflects the payment of a special dividend of $0.25 per share.
Management of ANB intends, subject to the earnings of the ANB companies,
their financial condition, liquidity and capital requirements, applicable
governmental regulations and policies, and other factors deemed relevant by
management, to recommend to the Board of Directors of ANB that the regular
semi-annual cash dividend payable per share of ANB Common Stock be maintained
at a rate not less than $.29.
The holders of ANB Common Stock are entitled to receive dividends when and
if declared by the Board of Directors out of funds legally available
therefor. Although ANB currently intends to continue to pay quarterly cash
dividends on the ANB Common Stock, there can be no assurance that ANB's
dividend policy will remain unchanged after completion of the Merger. The
declaration and payment of dividends thereafter will depend upon business
conditions, operating results, capital requirements, and the Board of
Directors' consideration of other relevant factors.
ANB is a legal entity separate and distinct from its subsidiaries and its
revenues depend in significant part on the payment of dividends from American
National. American National is subject to certain legal restrictions on the
amount of dividends that it is permitted to pay. See "Supervision and
Regulation--Payment of Dividends."
-56-
<PAGE>
PRO FORMA FINANCIAL INFORMATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1995
(UNAUDITED)
The following unaudited pro forma condensed combined balance sheet is
presented to show the impact on ANB's historical financial position of the
proposed merger with Mutual. The proposed merger is reflected in the pro
forma condensed combined balance sheet under the pooling of interests method
of accounting. For purposes of determining the pro forma effects on the
condensed balance sheets as of September 30, 1995, the pro forma adjustments
and eliminations have been made as if the transaction had occurred on
September 30, 1995. The unaudited pro forma condensed combined balance sheet
should be read in conjunction with the historical consolidated financial
statements of Mutual and ANB, including the respective notes thereto, and the
unaudited consolidated historical and other pro forma financial information,
including the notes thereto, appearing elsewhere in this Joint Proxy
Statement. See "Summary--Comparative Per Share Data," and "Index to Financial
Statements." The pro forma condensed combined balance sheet is not
necessarily indicative of the results that actually would have occurred had
the Merger been consummated on the date indicated or that may be obtained in
the future.
<TABLE>
<CAPTION>
ANB Mutual Pro Forma Pro Forma
Historical Historical Adjustments Combination
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Cash and due from banks. . . $ 11,436 $ 861 $ $ 12,297
Interest-bearing deposits
in other banks . . . . . . 112 1,167 1,279
Investment Securities. . . . 107,757 23,769 (500)(a) 131,026
Mortgage-backed securities . -- 14,338 14,338
Loans receivable, net. . . . 171,360 39,870 11,230
Core deposit intangibles . . 2,896 -- 2,896
Other assets . . . . . . . . 8,939 3,391 12,330
------- ------- ------- --------
Total assets . . . . . . . $302,500 $83,396 $(500) $385,396
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
- ----------------
(a) ANB's plans for certain Mutual securities are demonstrably different from
the plans that have served as the basis for Mutual's intention to hold these
securities to maturity. As such, American National intends to classify
these securities as available for sale. This adjustment is recorded to
present these securities at market value as of September 30, 1995.
-57-
<PAGE>
<TABLE>
<CAPTION>
ANB Mutual Pro Forma Pro Forma
Historical Historical Adjustments Combination
----------- ---------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
INVESTMENT
LIABILITIES
Deposits. . . . . . . . . . . . . . . $259,936 $67,513 $327,449
Federal funds purchased and
repurchase agreements . . . . . . . 6,882 -- 6,882
Accrued interest payable and other
liabilities . . . . . . . . . . . . 2,164 1,096 1,074 (a)
965 (b) 5,299
-------- ------- ----- -------
Total liabilities . . . . . . . . . 268,982 68,609 2,039 339,630
SHAREHOLDERS' INVESTMENT
Common Stock; $1.00 par, 2,400,000
actual shares issued and
outstanding, 3,213,640 pro forma
shares outstanding. . . . . . . . . 2,400 1,154 (1,154)(c) 3,214
814 (d)
Capital in excess of par value. . . . 5,400 4,226 (4,226)(c)
4,566 (d) 9,966
Net unrealized gain (loss). . . . . . 181 (4) 177
Retained earnings . . . . . . . . . . 25,537 9,411 (1,074)(a)
(965)(b)
(500)(e) 32,409
-------- ------- ------ -------
Total Shareholders'
Investment. . . . . . . . . . . . 33,518 14,787 (2,539) 45,766
Total Liabilities and
Shareholders' Investment. . . . . $302,500 $83,396 $ (500) $385,396
-------- ------- ----- -------
-------- ------- ----- -------
Book value per common share(f). . . . . $13.97 $12.81 $14.24
</TABLE>
___________________________
(a) This adjustment reflects the estimated Federal tax liability associated with
prior untaxed loan loss reserves of Mutual in the amount of $3,158,439
calculated at the marginal tax rate of 34%. The impact of this adjustment
has not been reflected in the Pro Forma Condensed Statements of Income.
(b) This adjustment reflects certain material, nonrecurring expenses expected
to be incurred in connection with the Merger. These charges include such
items as legal, accounting, printing and filing fees. The impact of these
expenses has not been reflected in the Pro Forma Condensed Statements of
Income.
(c) These adjustments eliminate the outstanding shares of Mutual Common Stock
and related capital in excess of par value outstanding prior to the Merger.
-58-
<PAGE>
(d) Based on the exchange ratio of .705 of a share of ANB Common Stock for each
share of Mutual Common Stock, these adjustments reflect the issuance of
813,640 shares of ANB Common Stock in exchange for the 1,154,100 shares of
Mutual Common Stock outstanding on September 30, 1995.
(e) ANB's plans for certain Mutual securities are demonstrably different from
the plans that have served as the basis for Mutual's intention to hold
these securities to maturity. As such, American National intends to
classify these securities as available for sale. This adjustment is
recorded to present these securities at market value as of September 30,
1995.
(f) Pro forma book value per common share represents pro forma combined total
shareholders' investment divided by 3,213,640 pro forma shares outstanding.
-59-
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
The following table sets forth certain unaudited pro forma condensed combined
financial data for ANB giving effect to the Merger accounted for as a pooling
of interests. For a description of the pooling-of-interests accounting with
respect to the Merger, see "The Merger--Accounting Treatment." The following
information does not include any pro forma adjustments relating to expected
future reductions in expenses and revenue enhancements. This information
should be read in conjunction with the historical consolidated financial
statements of Mutual and ANB, including the respective notes thereto and the
unaudited consolidated historical and other pro forma financial information,
including the notes thereto, appearing elsewhere in this Joint Proxy
Statement. Results for the nine months ended September 30, 1995 are not
necessarily indicative of the results which may be expected for any other
interim period or for the year as a whole. The pro forma financial data are
not necessarily indicative of results that actually would have occurred had
the Merger been consummated on the dates indicated or that may be obtained in
the future. See "Summary--Comparative Per Share Data," and "Index to
Financial Statements."
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, For the Fiscal Years(1)
--------------------- ------------------------------------
1995 1994 1994 1993 1992
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EARNINGS DATA
Total interest income. . . . . . $18,716 $15,990 $21,721 $22,008 $23,925
Total interest expense . . . . . 8,236 6,580 8,919 9,715 12,403
------- ------- ------- ------- -------
Net interest income. . . . . . . 10,480 9,410 12,802 12,293 11,522
Provision for loan losses. . . . 381 189 272 214 328
------- ------- ------- ------- -------
Net interest income after
provision for loan losses. . . 10,099 9,221 12,530 12,079 11,194
Non-interest Income. . . . . . . 1,655 1,608 2,212 2,068 1,995
Non-Interest expenses. . . . . . 6,048 5,978 8,082 7,549 6,923
------- ------- ------- ------- -------
Income before taxes. . . . . . . 5,706 4,851 6,660 6,598 6,266
Income taxes . . . . . . . . . . 1,792 1,568 2,151 2,033 1,719
------- ------- ------- ------- -------
Net income . . . . . . . . . . . $ 3,914 $ 3,283 $ 4,509 $ 4,565 $4,547
------- ------- ------- ------- -------
------- ------- ------- ------- -------
PER SHARE DATA
Net Income Per Common Share(2) . $1.20 $1.01 $1.39 $1.41 $1.40
Dividends per share(3) . . . . . 0.20 0.19 0.56 0.35 0.49
</TABLE>
___________________________
(1) ANB prepares annual financial statements based on a calendar year ending
on December 31, and Mutual prepares annual financial statements based on
a fiscal year ending on September 30. For purposes of annual pro forma
information, the historical data of Mutual at and for the years ended on
September 30 have been combined with the historical data of ANB at and
for the years ended on December 31.
(2) The pro forma combined net income per common share data are based on (i)
combined historical income of Mutual and ANB assuming the Merger is
accounted for as a pooling of interests and (ii) pro
-60-
<PAGE>
forma combined equivalent common shares of Mutual (as adjusted for the
Exchange Ratio of .705 of a share of ANB Common Stock for each share of
Mutual Common Stock) and ANB.
(3) Represents the historical dividends paid by ANB divided by pro forma
shares outstanding as of the last date of the period which includes
Mutual shares multiplied by the Exchange Ratio of .705.
-61-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF ANB
The following table sets forth certain historical financial data of ANB and
is based on the consolidated financial statements of ANB, including the
respective notes thereto, appearing elsewhere in this Joint Proxy Statement
and should be read in conjunction therewith. See "Management's Discussion
and Analysis of ANB," "Business of ANB," and "Index to Financial Statements."
Interim unaudited data for the nine months ended September 30, 1995 and 1994
reflect, in the opinion of management of ANB, all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of
such data. Results for the nine months ended September 30, 1995 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, At or for the Years Ended December 31,
--------------------- ----------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EARNINGS DATA
Total interest income. . . . . . . $14,158 $11,753 $16,057 $15,918 $17,349 $19,527 $19,404
Total interest expense . . . . . . 5,978 4,671 6,374 7,017 8,826 11,669 11,520
------- ------- ------- ------- ------- ------- -------
Net interest income. . . . . . . . 8,180 7,082 9,683 8,901 8,523 7,858 7,884
Provision for loan losses. . . . . 374 189 272 214 230 214 308
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses. . . . 7,806 6,893 9,411 8,687 8,293 7,644 7,576
Non-interest income. . . . . . . . 1,492 1,328 1,886 1,871 1,728 1,383 1,137
Non-interest expenses. . . . . . . 4,696 4,453 6,119 5,772 5,290 4,981 4,692
------- ------- ------- ------- ------- ------- -------
Income before taxes. . . . . . . . 4,602 3,768 5,178 4,786 4,731 4,046 4,021
Income taxes . . . . . . . . . . . 1,431 1,194 1,645 1,483 1,237 994 922
------- ------- ------- ------- ------- ------- -------
Net income . . . . . . . . . . . . $ 3,171 $ 2,574 $ 3,533 $ 3,303 $ 3,494 $ 3,052 $ 3,099
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
PER SHARE DATA(1)
Earnings per share . . . . . . . . $1.32 $1.07 $1.47 $1.38 $1.46 $1.27 $1.29
Dividends per share(2) . . . . . . 0.27 0.25 0.75 0.47 0.66 0.41 0.57
Book value per share . . . . . . . 13.97 12.83 12.83 12.12 11.21 10.42 9.56
BALANCE SHEET DATA
Total assets . . . . . . . . . . . $302,500 $253,768 $253,768 $247,706 $240,589 $228,033 $215,644
Investment securities. . . . . . . 107,257 79,297 79,251 91,826 93,560 85,822 66,134
Loans receivable, net. . . . . . . 171,360 151,126 151,126 137,877 127,940 121,686 125,455
Deposits . . . . . . . . . . . . . 259,936 215,861 215,861 217,655 212,439 200,620 187,096
Shareholders' equity . . . . . . . 33,518 30,785 30,786 29,082 26,907 24,997 22,929
</TABLE>
___________________________
(1) Per share amounts are based on 2,400,000 shares of ANB Common Stock
outstanding and have been restated to retroactively reflect a 2 for 1
stock split declared on April 21, 1992.
(2) For years ended December 31, 1994, 1992, and 1990, dividend amount
includes special dividends of $0.25, $0.22, and $0.19 per share,
respectively.
-62-
<PAGE>
<TABLE>
<CAPTION>
At or for the
Nine Months
Ended September 30, At or for the Years Ended December 31,
--------------------- ----------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERFORMANCE RATIOS(1)
Return on average assets. . . . . 1.69% 1.41% 1.43% 1.36% 1.48% 1.37% 1.52%
Return on average
shareholders'
equity. . . . . . . . . . . . . 13.19 11.44 11.64 11.96 13.50 12.93 14.12
Efficiency ratio(2) . . . . . . . 49.03 53.45 53.39 53.91 51.92 54.25 52.38
ASSET QUALITY RATIOS
Net chargeoffs to average
loans(1). . . . . . . . . . . . 0.11% 0.05% 0.05% 0.12% 0.11% 0.09% 0.12%
Nonperforming assets to total
assets. . . . . . . . . . . . . 0.03 0.06 0.07 0.19 0.27 0.30 0.37
Allowance for loan losses
to net loans. . . . . . . . . . 1.50 1.50 1.53 1.54 1.61 1.62 1.49
Allowance for loan losses
to nonperforming loans. . . . . 31.33X 14.11X 13.76X 4.61X 3.24X 2.94X 2.39X
</TABLE>
(1) The ratios have been annualized for the nine months ended September 30,
1995, and 1994.
(2) General and administrative expenses divided by net interest income plus
fee-based income.
-63-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ANB
The following discussion and analysis is intended to assist in
understanding ANB's results of operations and changes in financial condition
for the periods indicated. This information should be read in conjunction
with the information included under "Selected Historical Financial Data of
ANB," "Business of ANB," and the consolidated financial statements and
related notes thereto, appearing elsewhere in this Joint Proxy Statement.
See "Index to Financial Statements."
FOR THE THREE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
PERFORMANCE SUMMARY
On a per share basis of ANB Common Stock, net income was $1.47 in 1994,
$1.38 in 1993, and $1.46 in 1992. Return on average total assets was 1.43%
in 1994, compared with 1.36% in 1993 and 1.48% in 1992. The return on
average shareholders' investment was 11.64% in 1994, 11.96% in 1993, and
13.50% in 1992.
Shareholders' equity was $30,785,672 at December 31, 1994, $29,081,632 at
December 31, 1993, and $26,906,892 at December 31, 1992. These represented
increases of 5.9% and 8.1%, respectively, over the two prior year ends. The
economic conditions of ANB's trade area have shown improvement during the
year 1994 as evidenced by a strong loan demand. ANB's net loans grew at a
rate of 10% during 1994. The weighted average yield on interest earning
assets and the weighted average cost of deposits declined for the year 1994
due to the lower market interest rates during most of the year. As a result
of ANB's asset and liability repricing strategy and increased loan demand,
ANB was able to increase its net interest income (interest income less
interest expense) by 8.8%.
During 1994 some shifting of funds in customer deposits occurred. Due to
increases in interest rates toward the end of 1994, this shift has been
primarily from short term demand deposits and savings accounts to longer term
certificates of deposit. Due to the recent rise in market interest rates,
this trend is now the reverse of the trend set in 1993 and 1992.
In April, 1993, American National replaced its data processing system
(hardware) and its application programs. The new system has provided
American National with greater efficiency and the ability to better serve its
customers. Additional expenses incurred in 1993 due to the conversion and
training were approximately $238,000. This included an increase of $137,000
in depreciation related to the new system for 1993. Depreciation associated
with the data processing system rose in 1994 by approximately $82,000.
The Federal Reserve has adopted regulations establishing relevant capital
requirements for banks. Under the regulations, a well capitalized institution
must have a Tier 1 risk-based capital ratio of at least 6.0%, a total
risk-based capital ratio of at least 10%, and a leverage ratio of at least
5.0% and not be subject to a capital directive order. Under these guidelines
American National has always been and continues to be considered well
capitalized.
-64-
<PAGE>
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 1994,
1993, and 1992.
During 1994, taxable equivalent net interest income increased to
$9,958,000, up 7.9% from $9,226,000 in 1993. Taxable equivalent net interest
income for 1993 was up 2.7% from the $8,980,000 recorded in 1992. The
$732,000 increase of taxable equivalent net interest income during 1994
consisted of $514,000 due to increases in volume and $218,000 due to
increases in rates. The $246,000 increase in taxable equivalent net interest
income during 1993 was the net result of an increase of $681,000 due to
volume and was partially offset by a decrease of $435,000 due to declines in
rate.
The following is an analysis of net interest income, on a taxable
equivalent basis. Nonaccrual loans are included in the average balances.
Interest income on nonaccrual loans, if recognized, is recorded on a cash
basis.
<TABLE>
<CAPTION>
Average Balance Interest Income/Expense Average Yield/Rate
------------------------------ --------------------------- ------------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
-------- -------- -------- ------- ------- ------- ------ ------ ------
(IN THOUSANDS, EXCEPT RATES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income
Loans
Commercial .............. $ 51,460 $ 43,664 $ 39,692 $ 3,939 $ 2,970 $ 2,887 7.65% 6.80% 7.27%
Mortgage ................ 65,570 62,792 61,998 5,081 4,901 5,525 7.75 7.80 8.91
Installment ............. 30,630 27,483 23,981 2,845 2,838 2,773 9.29 10.33 11.56
-------- -------- -------- ------- ------- -------
Total Loans ............. 147,660 133,939 125,671 11,865 10,709 11,185 8.04 8.00 8.90
-------- -------- -------- ------- ------- -------
Investment securities
U.S. Government ......... 68,058 69,315 64,815 3,204 3,710 4,164 4.71 5.35 6.42
Federal agencies ........ 4,320 8,624 11,158 273 623 738 6.32 7.22 6.61
State and municipal...... 10,420 10,373 13,206 818 879 1,228 7.85 8.48 9.30
Other investments ....... 10 10 10 1 1 1 5.50 5.50 5.50
-------- -------- -------- ------- ------- -------
Total investment
securities ............ 82,808 88,322 89,189 4,296 5,213 6,131 5.19 5.90 6.87
-------- -------- -------- ------- ------- -------
Federal funds sold and
other ..................... 3,459 8,446 10,046 171 321 490 4.94 3.81 4.88
-------- -------- -------- ------- ------- -------
Total interest-earning
assets ................ 233,927 230,707 224,906 16,332 16,243 17,806 6.98 7.04 7.92
------- ------- -------
Non-earning assets .......... 12,854 12,229 11,096
-------- -------- --------
Total assets .......... $ 246,781 $242,936 $236,002
-------- -------- --------
-------- -------- --------
Interest expense
Deposits
Demand .................. $ 30,918 $ 30,141 $ 27,841 752 797 960 2.43 2.64 3.45
Money market ............ 19,736 21,755 21,271 510 591 734 2.58 2.72 3.45
Savings ................. 56,870 58,538 42,770 1,577 1,871 1,631 2.77 3.20 3.81
Time .................... 80,886 79,632 93,697 3,494 3,755 5,439 4.32 4.72 5.80
-------- -------- -------- ------- ------- -------
Total deposits ........ 188,410 190,066 185,579 6,333 7,014 8,764 3.36 3.69 4.72
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Average Balance Interest Income/Expense Average Yield/Rate
----------------------------- ------------------------ --------------------
1994 1993 1992 1994 1993 1992 1994 1993 1992
------- -------- -------- ------ ------ ------ ---- ---- ----
(IN THOUSANDS, EXCEPT RATES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds purchased ........ $ 664 $ 106 $ 1,862 $ 29 $ 3 $ 62 4.37% 2.83% 3.33%
Repurchase agreements .......... 370 -- -- 12 -- -- 3.24 --
------- -------- -------- ------ ------ ------ ---- ---- ----
Total interest-bearing
liabilities .................. 189,444 190,172 187,441 6,374 7,017 8,826 3.36 3.69 4.71
------ ------ -----
Demand deposits ................ 25,235 23,375 20,653
Other liabilities .............. 1,765 1,767 2,025
Shareholders' investment ....... 30,337 27,622 25,883
-------- -------- --------
Total liabilities and
shareholders' investment ...... $246,781 $242,936 $236,002
-------- -------- --------
-------- -------- --------
Interest rate spread ........... 3.62% 3.35% 3.21%
Net interest income ............ $9,958 $9,226 $8,980
------ ------ ------
------ ------ ------
Taxable equivalent adjustment .. $ 275 $ 325 $ 456
------ ------ ------
------ ------ ------
Net yield on earning assets .... 4.26% 4.00% 3.99%
</TABLE>
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<PAGE>
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.
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
-------------------------------- --------------------------------
Change Change
Interest Attributable to Interest Attributable to
Increase ------------------- Increase -------------------
(Decrease) Rate Volume (Decrease) Rate Volume
---------- -------- -------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest income
Loans:
Commercial ...................... $ 969 $ 400 $ 569 $ 83 $ (195) $ 278
Mortgage ........................ 180 (35) 215 (624) (694) 70
Installment ..................... 7 (301) 308 65 (315) 380
------ ------ ------ ------- -------- -----
Total loans ................... 1,156 64 1,092 (476) (1,204) 728
------ ------ ------ ------- -------- -----
Investment securities:
U.S. Government ................. (506) (440) (66) (454) (729) 275
Federal agencies ................ (350) (70) (280) (115) 64 (179)
State and municipal ............. (61) (65) 4 (349) (102) (247)
Other investments ............... -- -- -- -- -- --
------ ------ ------ ------- -------- -----
Total investment securities ... (917) (575) (342) (918) (767) (151)
------ ------ ------ ------- -------- -----
Federal funds sold and other ...... (150) 77 (227) (169) (98) (71)
------ ------ ------ ------- -------- -----
Total interest income ......... 89 (434) 523 (1,563) (2,069) 506
------ ------ ------ ------- -------- -----
Interest expense
Deposits:
Demand .......................... (45) (65) 20 (163) (237) 74
Money market .................... (81) (28) (53) (143) (159) 16
Savings ......................... (294) (242) (52) 240 (294) 534
Time ............................ (261) (319) 58 (1,684) (936) (748)
------ ------ ------ ------- -------- -----
Total deposits ................ (681) (654) (27) (1,750) (1,626) (124)
Federal funds purchased ........... 26 2 24 (59) (8) (51)
Repurchase agreements ............. 12 0 12 -- -- --
------ ------ ------ ------- -------- -----
Total interest expense ........ (643) (652) 9 (1,809) (1,634) (175)
------ ------ ------ ------- -------- -----
Net interest income ................. $ 732 $ 218 $ 514 $ 246 $ (435) $ 681
------ ------ ------ ------- -------- -----
------ ------ ------ ------- -------- -----
</TABLE>
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.
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<PAGE>
The 1994 provision for loan losses was $271,802 and compares with
$213,500 in 1993 and $229,650 in 1992.
The reserve for loan losses totaled $2,353,411 at December 31, 1994, an
increase of 9.2% over December 31, 1993. The increase in the reserve for
loan losses during 1994 of $198,640 consists of the provision of $271,802
less net charge-offs of $73,162. The ratio of reserve to loans, less
unearned discount, was 1.53% at December 31, 1994 and 1.54% at December 31,
1993.
ANB'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 ANB'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
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 ANB'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 ANB's trade area continues to be strong at this time
and ANB'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.
ANB's management believes the reserve for loan losses is appropriate in view
of this geographic concentration.
The provision for loan losses ($374,000) recorded during the nine months
ended September 30, 1995 is larger than the provision ($189,000) recorded for
the nine months ended September 30, 1994 due to an increase in the volume of
loans, an increase in past due loans during the same period of 1995 and to
the application of ANB's loan loss methodology.
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<PAGE>
LOAN LOSSES - ALLOCATION OF RESERVE. An analysis of the allocation of
the reserve for loan losses appears below.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------------- ------------------ ----------------- ----------------- -----------------
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
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
agricultural loans .... $1,505 27.69% $1,378 25.45% $1,339 28.68% $1,280 29.23% $1,212 31.78%
Real estate
construction loans .... 45 2.37 41 1.37 40 1.81 38 2.58 36 2.46
Real estate
mortgage loans ........ 253 45.54 232 50.64 225 47.77 215 47.55 204 43.01
Installment loans ....... 471 24.40 431 22.54 419 21.74 400 20.64 379 22.75
Unallocated ............. 79 -- 73 -- 71 -- 68 -- 64 --
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
Balance at end of year .. $2,353 100.00% $2,155 100.00% $2,094 100.00% $2,001 100.00% $1,895 100.00%
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
</TABLE>
LOAN LOSSES - RATIOS.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Reserve as percentage of outstanding loans, net of unearned income ...... 1.53% 1.54% 1.61%
Net charge-offs as percentage of reserve ................................ 3.11 7.07 6.55
Net charge-offs as percentage of average loans, net of unearned income .. 0.05 0.12 0.11
Provision as percentage of net charge-offs .............................. 371.51 140.12 167.41
Provision as percentage of average loan, net of unearned income ......... 0.18 0.16 0.18
Reserve for loan losses to nonperforming loans .......................... 13.76X 4.61X 3.24X
</TABLE>
NON-INTEREST INCOME
Non-interest income was $1,885,858 in 1994, an increase of 1.0% from
1993. During 1993, non-interest income increased 8.0% from the 1992 level.
The increase in 1994 consisted primarily of a 9.0% increase in service
charges on deposit accounts due to adjustments in fee schedules, a 29%
increase in non-deposit fees and insurance commissions due to an increase in
volume of related loans, and a 65% increase in other income resulting from
dividends received from the FHLB. In 1994, trust department income decreased
5.0% as a result of the closing of several large estates.
The increase in non-interest income in 1993 included a 9.0% increase in
trust department income, a 22% increase in service charges on deposit
accounts, a 23% decrease in non-deposit fees and insurance commissions, and a
3.0% increase in other income. The increase in trust department income for
1993 was attributable to new business. The decrease in non-deposit fees and
insurance premiums was the result of weak demand for the type of loans that
normally carry insurance.
NON-INTEREST EXPENSE
Non-interest expense amounted to $6,118,952 in 1994, a 6.0% increase over
the $5,772,247 recorded in 1993. The 1993 non-interest expense increased
9.0% over the $5,289,847 recorded in 1992. The increase in 1994 included a
45% increase in pension and other employee benefits due
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<PAGE>
primarily to increases in pension cost, a 5.0% increase in occupancy and
equipment expense, a 3.0% increase in FDIC insurance expense, a 7.0% decrease
in postage and printing, and a 9.0% increase in other expenses. The level of
salaries expense was relatively unchanged from 1993.
The increase in 1993 included a 7.0% increase in salaries, a 32% increase
in pension and other employee benefits due to increased pension cost, an 11%
increase in occupancy and equipment expense, a 4.0% increase in FDIC
insurance expense, a 6.0% increase in postage and printing and a 6.0%
increase in other expenses.
INCOME TAXES
The provision for income taxes (total of current and deferred) was
$1,645,000 in 1994, compared with $1,483,000 in 1993, and $1,237,000 in 1992.
In each year, ANB 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 is that of state and municipal securities and industrial
revenue bonds or loans.
The increase in the 1994 provision for income taxes, compared to the 1993
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 1)
capital and supplementary (Tier 2) capital. American National's Tier 1
capital consists primarily of shareholder's equity, while Tier 2 capital
consists of Tier 1 capital plus 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 1 and Tier 2) of 8.0% be
held against total risk-adjusted assets, at least half of which (4.0%) must
be Tier 1 capital.
At December 31, 1994, American National's Tier 1 and Total capital ratios
were 20.1% and 21.3%, respectively. At December 31, 1993, these ratios were
21.0% and 22.3%, respectively. The ratios for both years were well in excess
of the regulatory requirements.
ANB's leverage ratios (shareholder's equity divided by year-end assets)
were 12.13% and 11.74% at December 31, 1994 and 1993, respectively. The
leverage ratio has a regulatory minimum of 3.0%, with most institutions
required to maintain a ratio 100 to 200 basis points above the 3.0% minimum
depending upon risk profiles and other factors.
ANB's 1994 capital formation rate (net income less dividends declared,
divided by average shareholders' investment) was 5.7%. This compares with
7.9% in 1993 and 7.4% in 1992. These ratios evidence ANB'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 17, 1994, the Board of Directors declared a regular semi-annual
cash dividend of $.25 per share of ANB Common Stock payable on June 24, 1994.
On November 15, 1994, the
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Board of Directors declared a regular semi-annual cash dividend of $.25 per
share of ANB Common Stock and an extra cash dividend of $.25 per share of ANB
Common Stock, both payable on December 16, 1994. A total of $.75 per share
was paid to shareholders in 1994.
Since 1989, regular cash dividends (excluding extra dividends) paid by
ANB have increased at a compounded annual rate of 6.8%. The Board of
Directors reviews ANB's dividend policy regularly and increases dividends
when justified by earnings after considering future capital needs.
LIQUIDITY
Liquidity is the measure of ANB's ability to generate sufficient funds to
meet customer demands for loans and the withdrawal of deposit balances. ANB,
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 ANB'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, ANB's customers have relatively stable
requirements for funds.
ANB'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 1992
and 1993 this shifting was primarily a result of the reduction of interest
rates. In the later part of 1994 this trend began to reverse itself due to
rising interest rates and at the close of 1994, the most notable changes in
the components of the deposit base during 1994 consisted of a 9.0% decrease
in savings deposits, a 7.0% increase in money market deposits, and a 3.0%
increase in certificates of deposit. Demand deposits (both interest bearing
and non-interest bearing) remained approximately the same.
ANB's consolidated statement of cash flows for the fiscal year ended
December 31, 1993, shows an increase in cash of $5,969,199 during the past
year. This increase was a combination of $4,061,836 provided by operating
activities, $2,510,611 provided by financing activities, and $603,248 used by
investing activities.
It is the policy of American National to schedule maturities of
investments through a laddered structure which provides 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 ANB's liquidity needs at all times
during the year.
Liquidity strategies are implemented and monitored by ANB'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 ANB
and manage the investment of funds and net interest income. ANB'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 ANB's assets and
liabilities on December 31, 1994 that will either be repriced in accordance
with market rates or mature within the periods indicated. ANB 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 ANB 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,
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<PAGE>
permitting ANB 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 ANB to reprice a greater amount of assets than liabilities.
Although all of the interest sensitive gaps shown below do not appear as
balanced, it should be recognized that ANB'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 ANB's balance sheet at one point in time and is not
necessarily indicative of its position on other dates.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
At December 31, 1994
---------------------------------------------------------------
Over 3 Over 6
3 Months Months Over 1
Months to 6 to 12 Year to Over 5
or Less Months Months 5 Years Years Total
------- -------- -------- ------- ------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets:
Interest bearing deposits with other
banks .................................... $ 1,586 $ -- $ -- $ -- $ -- $ 1,586
Investment securities ...................... 5,006 5,405 20,042 41,666 7,132 79,251
Commercial loans ........................... 34,665 3,604 8,900 4,758 600 52,527
Mortgage loans ............................. 15,697 9,137 20,243 17,340 4,902 67,319
Consumer loans ............................. 4,197 3,013 5,676 20,675 72 33,633
Federal funds sold ......................... 4,650 -- -- -- -- 4,650
------- -------- -------- ------- ------- --------
Total interest sensitive assets .......... 65,801 21,159 54,861 84,439 12,706 238,966
------- -------- -------- ------- ------- --------
Interest sensitive liabilities:
NOW and savings deposits ................... 85,802 -- -- -- -- 85,802
Money market deposits ...................... 21,916 -- -- -- -- 21,916
Time deposits .............................. 19,341 14,226 17,694 29,055 -- 80,316
------- -------- -------- ------- ------- --------
Total interest sensitive liabilities ..... 127,059 14,226 17,694 29,055 -- 188,034
------- -------- -------- ------- ------- --------
Interest sensitivity gap ..................... $(61,258) 6,933 37,167 55,384 12,706 $ 50,932
------- -------- -------- ------- ------- --------
------- -------- -------- ------- ------- --------
Cumulative interest sensitivity gap .......... $(61,258) $(54,325) $(17,158) $38,226 $50,932
------- -------- -------- ------- -------
------- -------- -------- ------- -------
Ratio of cumulative gap to total assets ...... (24.1)% (21.4)% (6.8)% 15.1% 20.1%
------- -------- -------- ------- -------
------- -------- -------- ------- -------
</TABLE>
Investment securities maturing within the time frame of "Over 1 year to 5
years" include one debt security in the amount of $2,793 designated as
"available for sale." Of the loans in the above table that either mature or
can be repriced in periods over 1 year, $13,643 have adjustable rates and
$34,704 have fixed rates.
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<PAGE>
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 three years:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------- --------------------------------- ---------------------------------
Taxable Taxable Taxable
Book Market Equivalent Book Market Equivalent Book Market Equivalent
Value Value Yield Value Value Yield Value Value Yield
-------- -------- ---------- -------- ------- ----------- -------- -------- ------------
(IN THOUSANDS, EXCEPT YIELDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
Within 1 year..... $29,059 $28,590 4.11% $33,029 $33,211 5.16% $30,112 $30,566 6.48%
1 to 5 years...... 36,893 35,719 5.75 40,305 40,480 4.42 42,285 42,765 5.27
------- ------- ------- ------- ------- -------
Total............ 65,952 64,309 5.03 73,334 73,691 4.75 72,397 73,331 5.78
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Federal Agencies:
Within 1 year..... -- -- -- -- 2,000 2,033 6.25
1 or 5 years...... 2,568 2,383 5.21 7,875 7,951 7.12 6,582 6,807 7.75
After 10 years.... 241 237 8.27 331 354 8.27 452 480 8.27
------- ------- ------- ------- ------- -------
Total............ 2,809 2,620 5.47 8,206 8,305 7.13 9,034 9,320 7.44
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------- --------------------------------- ---------------------------------
Taxable Taxable Taxable
Book Market Equivalent Book Market Equivalent Book Market Equivalent
Value Value Yield Value Value Yield Value Value Yield
-------- -------- ---------- -------- -------- ----------- -------- -------- ------------
(IN THOUSANDS, EXCEPT YIELDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
States and Municipal:
Within 1 year..... $ 1,395 $ 1,397 9.08% $ 1,416 $ 1,442 10.08% $ 3,010 $ 3,055 11.80%
1 to 5 years...... 2,194 2,213 9.35 3,522 3,692 9.16 4,743 4,958 9.58
6 to 10 years..... 6,221 6,029 8.50 4,201 4,468 8.73 2,818 3,018 10.30
After 10 years.... 670 653 8.87 1,137 1,191 8.37 1,548 1,682 10.68
------- ------- -------- -------- -------- --------
Total............ 10,480 10,292 8.78 10,276 10,793 9.03 12,119 12,713 10.44
------- ------- -------- -------- -------- --------
------- ------- -------- -------- -------- --------
Other Investments:
1 to 5 years...... 10 10 5.50 10 10 5.50 10 10 5.50
------- ------- -------- -------- -------- --------
Total portfolio.. $79,251 $77,231 5.54 $91,826 $92,799 5.38 $93,560 $95,374 6.55
------- ------- -------- -------- -------- --------
------- ------- -------- -------- -------- --------
</TABLE>
In 1994, U.S. Government securities maturing within one to five years include
one asset with a cost of $2,793,321 and a market value of $2,764,680 that is
classified as "available for sale." At December 31, 1994, American National
recorded a net unrealized loss of $28,641 related to this security. This is
the only security classified as "available for sale." The remaining
securities shown in the table above (including 1994, 1993 and 1992) are
classified as "held to maturity." There are no securities classified as
"trading account" securities.
The "held to maturity" securities at December 31, 1994 total $76,458,000. Of
this amount, $63,159,000, or 83%, are U.S. Government direct obligations and
all U.S. Government obligations held mature within five years. The "held to
maturity" category at the close of 1994 also includes $2,809,000 in Federal
Agency obligations. These consist of three issues of mortgage-backed
securities with $2,568,000 in two issues maturing within five years. The
remaining portion of the "held to maturity" category (13%) consist of
$10,480,000 tax exempt state and municipal securities and $10,000 in other
investments. The state and municipal securities are diversified among many
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<PAGE>
different issues and localities. All investments by American National in
state and municipal securities are rated "A" or better.
The book value of the total investment portfolio exceeds the market value by
$2,030,000. No losses are anticipated since American National 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 American National's liquidity needs of future
years.
LOAN PORTFOLIO
Total loans increased $11,589,447 or 8.1% during 1994. The primary increases
in types of loans were real estate loans secured by one- to four-family
residential properties, real estate loans secured by construction and land
development, and commercial and industrial loans.
The loan portfolio is diversified and consists of 47.9% real estate loans
(28.0% one- to four-family residential, 17.0% nonfarm, nonresidential, and
2.9% other real estate), 26.3% commercial and industrial loans, 22.9%
consumer loans, 1.4% nonrated industrial development obligations, and 1.5%
for all other loans.
Note 8 of the consolidated financial statements of ANB presents related party
loan activity. The majority of the loan additions and payments result from
floor plan activity by two automobile dealerships owned separately by two of
ANB's directors. See "Index to Financial Statements."
ANB does not participate in highly leveraged lending transactions, as defined
by the OCC and there are no loans of this nature recorded in the loan
portfolio. ANB has no foreign loans in its portfolio.
REAL ESTATE LOANS
Commercial real estate loans have received considerable attention in recent
years by American National's 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 ANB'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 of ANB has not detected a
significant change in values within ANB's trade area during 1994 or 1993.
Management of ANB has confined its real estate lending to its trade area and
has always taken a conservative approach in its lending practice to maintain
equity in real estate loans. American National has not experienced any
commercial real estate charge-offs in recent years.
ANB is conforming to the real estate appraisal guidelines set forth by the
OCC. The total of outstanding real estate loans at December 31, 1994 was
$74,476,000. This consisted of $43,458,000 or 58% in loans secured by one-
to four-family residential properties, $26,412,000 or 36% in loans secured by
non-farm, non-residential properties, $3,684,000 or 5.0% in construction and
land development, $872,000 or 1.0% in loans secured by farmland, and $50,000
of other real estate loans.
Nonperforming real estate loans at December 31, 1994 and 1993 were $22,000
and $138,000, respectively. There were no real estate loans on accrual
status and past due 90 days or more at December 31, 1994 or 1993.
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<PAGE>
ASSET QUALITY
ANB 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. ANB 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
under "--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, 1994 and 1993, loans in a nonaccrual
or restructured status totaled approximately $171,000 and $467,000,
respectively.
Under ANB's policy a nonaccruing loan may be restored to accrual status when
none of its principal and interest is due and unpaid and ANB 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 1994 and 1992.
Foreclosed properties held at the close of 1993 were $17,500. Loans on
accrual status and past due 90 days or more have increased during 1994 by
$5,000 from $108,000 in 1993 to $113,000 in 1994. The increase occurred in
installment loans and revolving credit loans. Total nonperforming loans and
past due loans 90 days or more on an accrual status is considered very low by
industry standards.
The following table presents the year-end balances of loans, classified by
type:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Real estate loans:
Construction and land development..... $ 3,684 $ 1,925 $ 2,416 $ 3,293 $ 3,244
Secured by farmland................... 872 716 745 1,189 1,108
Secured by 1-4 family residential
properties......................... 43,458 42,194 39,985 37,098 35,102
Secured by multi-family (5 or more)
residential properties............. 50 63 76 87 97
Secured by nonfarm, nonresidential
properties......................... 26,412 27,946 23,094 22,210 20,300
Loans to commercial banks............. -- -- -- -- 3,000
Loans for purchasing or carrying
securities......................... -- -- 40 42 43
Loans to farmers...................... 2,173 1,768 2,066 2,458 2,325
Commercial and industrial loans....... 40,865 31,337 32,629 30,329 31,788
Loans to individuals for personal
expenditures....................... 35,512 35,358 28,928 26,168 29,898
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans for nonrated industrial
development obligations........... $ 2,155 $ 2,528 $ 3,666 $ 4,462 $ 4,717
All other loans...................... 255 11 121 87 2
-------- -------- -------- -------- --------
Total loans..................... $155,436 $143,846 $133,766 $127,423 $131,624
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
There were no foreign loans outstanding during any of the above periods.
An analysis of the loan maturity and interest rates sensitivity is as
follows:
<TABLE>
<CAPTION>
Remaining Maturities or First Repricing Opportunities
-----------------------------------------------------
Over 1 Over
1 Year Year to Five
or Less 5 Years Years Total Percent
----------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Commercial, industrial, and
agricultural..................... $ 38,269 $ 4,624 $ 1,017 $ 43,910 28%
Real estate construction........... 3,684 -- -- 3,684 2
Real estate mortgage............... 45,078 17,340 9,657 72,075 47
Consumer........................... 13,606 21,858 48 35,512 23
Other.............................. 255 -- -- 255 0
---------- -------- -------- --------- -----
$ 100,892 $ 43,822 $ 10,722 $ 155,436 100%
---------- -------- -------- --------- -----
---------- -------- -------- --------- -----
Rate Sensitivity:
Pre-determined rate................ $ 24,772 $29,942 $ 5,939 $ 60,653 39%
Floating or adjustable rate........ 81,055 13,653 75 94,783 61
---------- -------- -------- --------- -----
$ 105,827 $43,595 $ 6,014 $ 155,436 100%
---------- -------- -------- --------- -----
---------- -------- -------- --------- -----
Percent............................ 68% 28% 4% 100%
---------- -------- -------- ---------
---------- -------- -------- ---------
</TABLE>
Certain short term loans and demand loans within the commercial,
industrial, 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 American National's loan policy
after a reappraisal of the borrower's creditworthiness at the date of
maturity.
An analysis of the nonperforming loans and loans past due 90 days or more
is as follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans:
Real estate....................... $22 $138 $129 $165 $227
Commercial........................ 40 73 185 364 156
----- ------ ------ ------- -------
Total nonaccruing loans......... 62 211 314 529 383
----- ------ ------ ------- -------
----- ------ ------ ------- -------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Restructured loans:
Real estate...................... $ -- $ -- $ -- $ -- $ 89
Commercial....................... 109 256 332 152 322
----- ----- ----- ----- -----
Total restructured loans........ 109 256 332 152 411
----- ----- ----- ----- -----
Total nonperforming loans..... $ 171 $ 467 $ 646 $ 681 $ 794
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Loans on accrual status past
due 90 days or more:
Real Estate...................... $ -- $ -- $ 28 $ 85 $ 106
Installment...................... 112 108 61 235 123
Revolving credit................. 1 -- -- 2 13
Commercial....................... $ -- $ -- $ -- $ -- $ --
----- ----- ----- ----- -----
Total past due loans............ $ 113 $ 108 $ 89 $ 322 $ 242
----- ----- ----- ----- -----
----- ----- ----- ----- -----
Asset Quality Ratios:
Reserve for loan losses
to year-end net loans........... 1.53% 1.54% 1.61% 1.62% 1.49%
Nonperforming loans to
year-end net loans.............. 0.11 0.34 0.50 0.56 0.63
Reserve for loan losses
to nonperforming loans.......... 13.76X 4.61X 3.24X 2.94X 2.39X
</TABLE>
For the year 1994, the gross amount of interest income that would have
been recorded on nonaccrual loans and restructured loans at December 31,
1994, if all such loans had been accruing interest at the original
contractual rate, was $20,000. No interest payments were recorded in 1994 as
interest income for all such nonperforming loans.
At December 31, 1994, American National had no loan concentrations (loans
to borrowers engaged in similar activities) which exceeded 10% of total
loans, other than as shown above.
The total of nonperforming loans and loans past due 90 days or more at
December 31, 1994 was $284,000, a decrease of $291,000 from the $575,000
shown at December 31, 1993. Total nonperforming loans and loans past due 90
days or more represent 0.2% of total loans at December 31, 1994 and 0.4% at
December 31, 1993. The sizable 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
OCC and American National'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.
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<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE. An analysis of the reserve for loan
losses is set forth in the following table:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period .... $2,155 $2,094 $2,001 $1,895 $1,734
Charge-offs:
Commercial loans ................ 5 80 24 7 75
Real estate loans ............... 14 11 23 15 --
Installment loans ............... 112 112 119 145 127
------ ------ ------ ------ ------
131 203 166 167 202
------ ------ ------ ------ ------
Recoveries:
Commercial loans ................ -- -- -- 24 7
Real estate loans ............... 4 -- -- -- --
Installment loans ............... 53 50 29 35 48
------ ------ ------ ------ ------
57 50 29 59 55
------ ------ ------ ------ ------
Net charge-offs ................... 74 153 137 108 147
Provision for loan losses ......... 272 214 230 214 308
------ ------ ------ ------ ------
Balance at end of period .......... $2,353 $2,155 $2,094 $2,001 $1,895
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Percent of net charge-offs to
average net loans outstanding
during the period ............... 0.05% 0.12% 0.11% 0.09% 0.12%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
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.
DEPOSITS. The following table presents the average amount of deposits and
the average rate paid on those deposits for the past three years:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------ ----------------------- ------------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
----------- ----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Demand deposits -
non-interest bearing .... $ 25,236 --% $ 23,375 --% $ 20,653 --%
Demand deposits -
interest-bearing ........ 30,918 2.43 30,141 2.64 27,841 3.45
Money market .............. 19,735 2.59 21,755 2.72 21,272 3.45
Savings ................... 56,870 2.77 58,538 3.20 42,769 3.81
Time ...................... 80,886 4.32 79,632 4.72 93,697 5.80
-------- -------- --------
$213,645 3.36% $213,441 3.69% $206,232 4.72%
-------- -------- --------
-------- -------- --------
</TABLE>
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<PAGE>
CERTIFICATES OF DEPOSIT. Certificates of deposit at the end of 1994 in
amounts of $100,000 or more were classified by maturity as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
3 months or less ...................... $ 2,912
Over 3 through 6 months ............... 2,409
Over 6 through 12 months .............. 3,476
Over 12 months ........................ 5,012
-------
$13,809
-------
-------
</TABLE>
RETURN ON SHAREHOLDERS' INVESTMENT AND ASSETS. The following table
presents certain rates of return and percentages for the past three years:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Return on average assets ........... 1.43% 1.36% 1.48%
Return on average
shareholders' investment ......... 11.64 11.96 13.50
Dividend payout .................... 50.95 34.15 45.33
Average shareholders'
investment to average assets ..... 12.29 11.37 10.97
</TABLE>
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 ANB'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 ANB'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.
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
EARNINGS AND CAPITAL
ANB's net income for the third quarter of 1995 was $1,123,000, an
increase of 25% from the $898,000 earned in the third quarter of 1994. For
the nine-month period ended September 30, 1995, net income was $3,171,000, a
23% increase from the $2,574,000 reported in the same period of 1994.
Net income per share of ANB Common Stock was $0.47 for the third quarter
of 1995, compared to $0.37 recorded during the same period of 1994. For the
first nine months of 1995 and
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<PAGE>
1994, net income per share of ANB Common Stock was $1.32 and $1.07,
respectively. Per share earnings for both periods have been computed on
2,400,000 weighted average shares of ANB Common Stock outstanding.
On an annualized basis, return on average total assets was 1.65% for the
third quarter of 1995 and 1.69% for the first nine months of 1995 compared to
1.47% for the third quarter of 1994 and 1.41% for the first nine months of
1994.
Return on average common shareholders' equity was 13.69% for the third
quarter of 1995 and 13.19% for the first nine months of 1995 compared to
11.75% for the same quarter of 1994 and 11.44% for the first nine months of
1994.
TRENDS AND FUTURE EVENTS
ANB acquired the branch office of Crestar Bank located in Gretna,
Virginia on August 24, 1995. In addition to the branch facilities at Gretna,
ANB acquired $2,150,000 in loans and assumed deposits of $36,295,000.
Without regard to the purchased loans of the Gretna branch office, loans
increased $3,227,000 during the third quarter of 1995. This was an increase
of 2.0% during the quarter. During the first nine months of 1995, loans
increased (without the purchased Gretna branch loans) $18,084,000 or 12%.
During the third quarter of 1995, deposits (without regard to the assumed
deposits of the Gretna branch office) increased by $12,340,000 or 6.0%.
Without regard to the Gretna branch deposits, deposits of American National
increased by $7,780,000 or 4.0% during the first nine months of 1995.
The increase in loans during the nine-month period is the result of a
continued strong loan demand which management views as an indication of a
continuing strong local economy.
Funds received by American National from the assumption of deposits in
the Gretna transaction were used primarily to purchase investment securities.
Investment securities increased $28,506,000 during the first nine months of
1995.
During the month of May, 1995, the reserves of the Bank Insurance Fund
(the "BIF") held by the FDIC reached their legally-mandated level. This
allowed the FDIC to reduce the premiums charged to banks effective June 1,
1995. American National continues to meet the highest safety classification
set by the FDIC and its annual premium rate was reduced from $0.23 per $100
of deposits to $0.04 per $100 of deposits. More recently, on November 14,
1995, the FDIC announced that, beginning in 1996, it would further reduce the
deposit insurance premiums for the 92% of all BIF members that are in the
highest capital and supervisory categories to $2,000 per year, regardless of
deposit size. Based on deposits held at September 30, 1995, the decrease in
FDIC premiums will approximate $598,000 per year in future periods or until
such time the rate may be adjusted.
NET INTEREST INCOME
Net interest income is the excess of interest income over interest
expense. During the third quarter of 1995, net interest income increased by
$316,000 or 12.6% over the same quarter a year ago. For the first nine-month
period of 1995, net interest income increased $1,098,000 or 15.5% over the
same period of 1994. The increase for both periods was attributable to an
increase in the volume of both loans and investment securities. During the
second and third calendar quarters of 1995, market interest rates have
remained relatively steady showing only minor fluctuations.
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<PAGE>
Taxable equivalent net yield on interest earning assets was 4.45% in the
third quarter of 1995, compared to 4.37% for the third quarter of 1994, and
4.57% for the first nine months of 1995 compared to 4.13% for the first nine
months of 1994.
During the next 12 months, repricing opportunities in liabilities will
exceed repricing opportunities in assets by approximately $35,000,000 or 11%
of assets. This makes ANB slightly liability sensitive. At June 30, 1995,
ANB was asset-sensitive by 1.0% of assets. This change during the third
quarter is the result of assuming $36,295,000 in deposits and acquiring only
$2,150,000 in loans from the acquisition of the branch office of Crestar Bank
located in Gretna, Virginia on August 24, 1995. The funds received from
Crestar were primarily used to purchase securities with yields greater than
one year. Any increase in market interest rates during the next 12 months
may tend to decrease ANB's taxable equivalent net yield on interest earnings
assets. It should be recognized, however, that ANB's interest-sensitive
position changes quickly as a result of management decisions and market
conditions. In any event, this interest-sensitive position is not expected
to have a substantial effect upon the earnings of ANB during the next twelve
months.
ASSET QUALITY
Nonperforming assets include loans on which interest is no longer
accrued, loans classified as trouble debt restructurings, and foreclosed
properties. There were no foreclosed properties held during the reporting
period. Nonperforming assets were $83,000 at September 30, 1995 and $171,000
at December 31, 1994, a decrease of $88,000 during the first nine months of
1995.
For the nine months ended September 30, 1995, the gross amount of
interest income that would have been recorded on nonaccrual loans and
restructured loans at September 30, 1995, if all such loans had been accruing
interest at the original contractual rate, was $10,000. No interest payments
were recorded during the nine-month period of 1995 as interest income for all
such nonperforming loans.
Nonperforming assets as a percentage of net loans were 0.05% at September
30, 1995 and .11% at December 31, 1994. Loans past due 90 days or more and
still accruing interest totaled $159,000 at September 30, 1995 and $113,000
at December 31, 1994. This was an increase of $46,000 during the first nine
months of 1995.
Management does not anticipate any significant increase in nonperforming
assets in the foreseeable future.
PROVISION AND RESERVE FOR LOAN LOSSES
The provision for loan losses for the third quarter of 1995 was $160,000
compared to $90,000 for the same quarter of 1994. The provision for loan
losses was $374,000 for the nine-month period ended September 30, 1995 and
losses for both periods were primarily the result of increases in loans.
The reserve for loan losses was $2,600,000 at September 30, 1995 and
$2,353,000 at December 31, 1994. As a percentage of total loans (less
unearned income), the reserve for loan losses was 1.50% at September 30, 1995
and 1.53% at December 31, 1994. In management's opinion, the current reserve
for loan losses is adequate.
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<PAGE>
NON-INTEREST INCOME
Non-interest income for the third quarter of 1995 was $525,000, an
increase of 24% from the $422,000 reported in the third quarter of 1994. The
increase in non-interest income during the quarter was primarily attributable
to a 28% increase in trust department income as a result of new business
booked and increased activity of existing accounts and a 28% increase in
service charges on deposit accounts from increased activity and an increased
volume of deposits from the acquisition of the Gretna branch office. It also
included a 31% decrease in fees and insurance premiums primarily due to a
decline in loans subject to such fees and premiums and a 10% increase in
other non-interest income.
For the first nine months of 1995, non-interest income was $1,492,000, an
increase of 12% from the $1,328,000 reported for the same period of 1994.
This included an increase of 10% in trust department income resulting from
new business booked and increased activity of existing accounts and an
increase of 33% in service charges on deposit accounts resulting from both
increased deposit account activity and new accounts. Fees and insurance
premiums for the nine months period decreased 18% due to a reduced volume of
loans subject to fees. Other non-interest income increased $16,000 or 20%.
NON-INTEREST EXPENSE
Non-interest expense for the third quarter of 1995 was $1,547,000, up
3.0% from the $1,496,000 reported in the third quarter of 1994. The increase
in non-interest expense for the quarterly period over 1994 included an 11%
increase in salaries, due in part to the additional employees of the Gretna
branch office, a 12% increase in pension and other employee benefits, also
due in part to the additional employees of the Gretna branch office, and a
5.0% decrease in occupancy and equipment expense. Also included was a 113%
decrease in FDIC premiums resulting from a refund in the amount of $131,000
from the FDIC which represents a decrease in FDIC premiums from June 1, 1995
through September 30, 1995. Also included was a 45% increase in postage and
printing due to increased postage rates and additional printing related to
the acquisition of the Gretna branch office and a 30% increase in other
expense primarily related to the acquisition of the Gretna branch office and
the use of consultants for training.
For the first nine months of 1995, non-interest expense was $4,696,000,
up 5.0% from the $4,453,000 reported for the same period of 1994. The
increase in non-interest expense for the first nine-month period of 1995 over
the same period of 1994 included a 9.0% increase in salaries, due in part to
additional personnel at the Gretna branch office, a 10% increase in pension
and other employee benefits due in part to the additional personnel at the
Gretna branch office, a 5.0% decrease in occupancy and equipment expense, a
38% decrease in FDIC premiums as previously mentioned, a 2.0% decrease in
postage and printing, and a 24% increase in other expense due primarily to
expenses related to the acquisition of the Gretna branch office and
consultant fees for personnel training.
INCOME TAX PROVISION
The income tax provision for the third quarter of 1995 was $513,000, an
increase of $73,000 from the $440,000 reported for the same period a year
earlier. The income tax provision for the nine-month period in 1995 was
$1,431,000, an increase of $237,000 from the $1,194,000 reported for the same
period of 1994. ANB's overall effective tax rates were 31.1% and 31.7% for
the nine-month period ended September 30, 1995 and 1994, respectively.
Changes in the income tax provision were primarily attributable to the
corresponding changes in taxable income.
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<PAGE>
CAPITAL MANAGEMENT
At September 30, 1995, ANB had a ratio of 18.9% for Tier 1 and a combined
total ratio for Tier 1 and Tier 2 capital of 20.2%. At December 31, 1994
these ratios were 21.0% for Tier 1 and 22.3% for the combined total of Tier 1
and Tier 2.
ANB's leverage ratios (shareholders' equity divided by assets at the
close of the reporting period) were 11.1% and 12.1% at September 30, 1995 and
December 31, 1994, respectively.
Cash dividends are normally declared during the second and fourth
calendar quarters and consequently no dividend was declared during the third
quarter ending September 30, 1995.
LIQUIDITY
ANB had a liquidity position with a ratio of 33% of net liquid assets to
net liabilities at September 30, 1995. At December 31, 1994, this ratio was
34%.
Management constantly monitors and plans ANB'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 corespondent 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.
-83-
<PAGE>
BUSINESS OF ANB
GENERAL
ANB is a registered bank holding company under the BHC Act, which serves
as a holding company for American National, a national banking association.
Through American National, ANB provides a broad array of financial services
through seven offices in Danville and Gretna, Virginia. As of September 30,
1995, ANB had total assets of approximately $303 million, total deposits of
approximately $260 million, total loans of approximately $175 million, and
total shareholders' equity of approximately $34 million.
ANB was organized under the laws of the Commonwealth of Virginia in
1984, and effective September 1, 1984, acquired all of the outstanding
capital stock of American National. American National was chartered in 1909
under the laws of the United States.
EMPLOYEES
At September 30, 1995, a total of 127 persons were employed by ANB, of
whom 12 were part-time employees. ANB considers relations with its employees
to be good.
COMPETITION
In its market area, ANB is subject to intense competition from a number
of local, regional, and superregional banking organizations, along with other
financial institutions and companies that offer financial services, such as
savings and loan associations, credit unions, industrial loan associations,
securities firms, insurance companies, small loan companies, finance
companies, mortgage companies, and other financial service enterprises.
Competition among financial institutions is based upon interest rates offered
on deposit accounts, interest rates charged on loans, and other credit and
service charges, the quality of services rendered, the convenience of banking
facilities, and, in the case of loans to large issuers and suppliers of U.S.
government securities, private debt obligations and other investment
alternatives for depositors. Many of ANB's non-bank competitors are not
subject to the same extensive federal regulations that govern federally
insured banks and state regulations governing state chartered banks. As a
result, such non-bank competitors may have certain advantages over ANB in
providing certain services.
Many of the financial organizations in competition with ANB have much
greater financial resources than ANB and are able to offer similar services
at varying costs with greater loan capacities.
PROPERTIES
The principal executive office of ANB as well as the principal executive
and banking office of American National is located at 628 Main Street,
Danville, Virginia. Five full service branches are located within the City
of Danville at 1013 South Main Street, 1081 Riverside Drive, 239 Nor-Dan
Drive, 1407 South Boston Road and 2016 West Main Street. One full service
branch is located at 109 Main Street, Gretna, Virginia. American National
owns and operates six automated teller machines (ATM). 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, in
Tightsqueeze, Virginia. 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 are leased. American National also owns a parking lot for
its employees fronting on Ridge Street in close proximity to the
- 84 -
<PAGE>
main office. American National recently purchased approximately 2.5 acres of
land on Piedmont Drive opposite Piedmont Mall for future expansion of its
retail banking operations. There are no mortgages or liens against any
property of American National or ANB.
LEGAL PROCEEDINGS
ANB is a party to various legal proceedings in the ordinary course of
its business. Based on information presently available, and after
consultation with legal counsel, management believes that the ultimate
outcome in such proceedings, in the aggregate, will not have any material
adverse effect on the financial condition of ANB. The most siginificant of
these legal proceedings is described below.
On July 28, 1995, Charles A. Womack, Jr., Register Acquisition Corp. and
Andrew C. Boor, Trustee of an Employee Stock Ownership Plan to be Formed,
served American National with a Bill of Complaint. The suit was filed in the
Circuit Court of Pittsylvania County. The suit names as defendants American
National in its capacity as Executor under the Will of E. Stuart James Grant,
as Trustee of the E. Stuart James Grant Charitable Trust and American
National in its own capacity. The suit seeks to compel American National to
sell to plaintiffs the stock of the Register Publishing Company, the primary
asset of the Grant Estate. In the alternative, plaintiffs seek damages of
$10,000,000. Management believes the complaint is without merit and intends
to defend vigorously the allegations in this Bill of Complaint. A motion was
filed by American National to dismiss the suit and a hearing was held before
the court on October 10, 1995. By letter opinion dated November 17, 1995,
the court ruled that it would dismiss the suit.
The U.S. District Court for the Western District of Virginia dismissed
on July 14, 1995 (and reaffirmed its dismissal on November 1, 1995), another
suit seeking to compel the sale of the Register Publishing Company to
Trustees of the Register Publishing Company Employee Stock Ownership Plan
(ESOP). American National was named as a defendant in its capacity as
Executor and Trustee. On November 30, 1995, the Trustees of the ESOP noted
an appeal of the suit to the U.S. Court of Appeals for the Fourth Circuit.
In the opinion of management, the outcome of the above legal proceedings
will not have a material adverse effect on the financial position, results of
operations, or liquidity of ANB.
MANAGEMENT
DIRECTORS. The following table sets forth, as of September 30, 1995,
the names of the directors and executive officers of ANB, their ages, a brief
description of their recent business experience, including present
occupations and employment, certain directorships held by each, the year in
which each became a director, and the year in which their terms as directors
of ANB expire. The table also sets forth the amount of ANB Common Stock and
the percentage thereof beneficially owned by each director and executive
officer and by all directors and executive officers as a group as of
September 30, 1995.
- 85 -
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF ANB COMMON STOCK
NAME, PRINCIPAL DIRECTOR OWNED BENEFICIALLY AND PERCENT OF
OCCUPATION, AND (AGE) SINCE NATURE OF OWNERSHIP CLASS
- ------------------------------------- -------- -------------------------- ----------
<S> <C> <C> <C>
DIRECTORS OF CLASS III TO CONTINUE IN OFFICE UNTIL 1996
Richard G. Barkhouser (64) 1980 82,412 - Direct (1) 3.4338%
President, Barkhouser Motors, Inc., 7,260 - Family Relationship (4) .3025
Danville, VA, automobile
dealership
B. Carrington Bidgood (70) 1975 11,000 - Direct (1) .4583%
Retired Senior Vice President, 1,200 - Family Relationship (4) .0500
Dibrell Brothers, Inc.,
Danville, VA, leaf tobacco
Lester A. Hudson, Jr. (56) 1984 3,492 - Direct .1455
Chairman, H&E Associates,
Greenville, SC, investments, since
June, 1995; prior thereto, Vice
Chairman, Wunda Weve Carpets,
Inc., Greenville, SC, carpet
manufacturer, since June, 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 (49) 1981 3,300 - Direct (1) .1375
President and Chief Executive 540 - Family Relationships (4) .0225
Officer of ANB and American
National since January 1, 1994;
prior thereto, President of ANB and
American National since January 1,
1993; prior thereto, Clement &
Wheatley, Attorneys-at-Law,
Danville, VA
DIRECTORS OF CLASS I TO CONTINUE IN OFFICE UNTIL 1997
Ben J. Davenport, Jr. (53) 1992 2,768 - Direct (1)(2) .1153
Chairman, First Piedmont Corp.,
Chatham, VA, waste management
James A. Motley (67) 1975 11,238 - Direct (1)(2) .4683
Retired Chairman and Chief 2,900 - Family Relationship (4) .1208
Executive Officer of ANB and
American National since January 1,
1994; prior thereto, Chairman and
Chief Executive Officer of ANB and
American National since January 1,
1993; prior thereto, President of
ANB and American National
</TABLE>
- 86 -
<PAGE>
<TABLE>
<CAPTION>
AMOUNT OF ANB COMMON STOCK
NAME, PRINCIPAL DIRECTOR OWNED BENEFICIALLY AND PERCENT OF
OCCUPATION, AND (AGE) SINCE NATURE OF OWNERSHIP CLASS
- ------------------------------------- -------- -------------------------- ----------
<S> <C> <C> <C>
Landon R. Wyatt, Jr. (69) 1965 4,540 - Direct (1) .1892
President, Wyatt Buick Sales Co., 26,418 - Family Relationship (4) 1.1008
Danville, VA, automobile dealership
DIRECTORS OF CLASS II TO CONTINUE IN OFFICE UNTIL 1998
Fred A. Blair (49) 1992 1,482 - Direct (1) .0622%
President, Blair Construction, 225 - Family Relationship (3) .0094
Inc., Gretna, VA, commercial
building contractor
E. Budge Kent, Jr. (56) 1979 6,010 - Direct (1) .2504
Senior Vice President and 800 - Family Relationship (4) .0333
Assistant Secretary of ANB and
Senior Vice President and Trust
Officer of American National
Fred B. Leggett, Jr. (58) 1994 8,304 - Direct (1)(2) .3460
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 5,716 - Direct (1) .2382
Chairman, Chief Executive Officer, 2,100 - Family Relationships (4) .0875
DIMON Incorporated, Danville, VA,
leaf tobacco, since May, 1995; prior
thereto, Chairman, President &
Chief Executive Officer, Dibrell
Brothers, Inc., Danville, VA, leaf
tobacco, since July, 1993; prior
thereto, Chairman & Chief
Executive Officer, Dibrell Brothers,
Inc.
All executive officers and directors, 161,300 - Direct (1)(2) 6.7208
including nominees and directors 43,052 - Family Relationship (3)(4) 1.7938
named above (14 in group)
</TABLE>
- --------------------
(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.
There exist no family relationships between any director.
- 87 -
<PAGE>
Mr. Owen is a director of DIMON Incorporated and 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 SEC.
EXECUTIVE OFFICERS. Mr. Charles H. Majors and Mr. E. Budge Kent, Jr.,
together with the three senior vice presidents listed below, are the
executive officers of ANB and American National.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATIONS AND BUSINESS EXPERIENCE
- ---------------------- ---- -------------------------------------------------
<S> <C> <C>
David Hyler 62 Senior Vice President and Secretary and Treasurer
of ANB and Senior Vice President and Controller
of American National; Officer of American National
since 1969
Gilmer D. Jefferson 58 Senior Vice President and Assistant Treasurer of ANB
and Senior Vice President and Cashier of American
National; Officer of American National since 1963
Carl T. Yeatts 56 Senior Vice President of ANB and Senior Vice President
and Senior Loan Officer of American National; Officer of
American National since 1964
</TABLE>
COMPARATIVE COMPANY PERFORMANCE
The following graph compares ANB's cumulative total return to its
shareholders with the returns of two indexes for the five-year period ended
December 31, 1994. 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.
[Graphic Omitted]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
American National Bankshares Inc. .... 100 96 111 178 201 217
Independent Bank Index - Weighted .... 100 89 99 136 160 193
S&P 500 Index ........................ 100 97 127 136 150 152
</TABLE>
EXECUTIVE COMPENSATION
The Salary Committee of the Board of Directors (the "Committee"), which
is composed of four independent outside directors, Richard G. Barkhouser, B.
Carrington Bidgood, Lester A. Hudson, Jr., and Fred B. Leggett is responsible
for making recommendations to the Board of Directors concerning compensation.
The Salary Committee considered a variety of factors and criteria in
arriving at its recommendation for compensation of executive officers.
In making its recommendations regarding compensation, the Committee
attempts to align the interests of shareholders with those of American
National's executive officers. The Committee believes that increases in
dividends and net equity improve shareholder market value and,
- 88 -
<PAGE>
accordingly, compensation should be structured to enhance the long-term
profitability of American National.
Officer compensation generally consists of salary and participation in
American National's profit sharing plan. A description of the profit sharing
plan is included below in Note (1) 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 American National and no officer receives any
additional compensation from ANB. 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 Chief Executive Officer's compensation is determined
by the Committee after consideration of American National's performance and
the resulting benefit to the shareholders.
<TABLE>
<CAPTION>
LONG-
RESTRICTED STOCK TERM ALL OTHER
NAME AND PRINCIPAL BONUS OTHER ANNUAL STOCK OPTIONS/ INCENTIVE COMPENSATION
POSITION YEAR SALARY (1) COMPENSATION AWARDS SARS PAYOUTS (2)
- --------------------------- ---- -------- ------ ------------ ---------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles H. Majors 1994 $108,140 $23,095 N/A N/A N/A N/A $41,137
President and Chief 1993 100,641 19,426 N/A N/A N/A N/A 11,907
Executive Officer
(effective January 1, 1994)
</TABLE>
- --------------------
(1) Includes payments in cash of profit-sharing (bonus) participations. The
profit-sharing (bonus) plan provides that an amount equal to 12.5% of
American National's net income (after taxes, but before deducting profit
sharing and its related tax effect) be paid to officers and employees who
are in American National's employ on December 31, 1994. The total expense
for the plan for the year 1994 amounted to $486,518.
(2) All Other Compensation includes amounts set aside or accrued by American
National for the Retirement Plan and Executive Compensation Continuation
Plan, each of which is described below.
American National provided hospitalization, disability, and life
insurance benefits for all officers and employees on a contributory basis and
the aggregate of personal benefits paid for by American National for all such
individuals did not exceed $5,000 each in 1994. 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 1994 was $100,200. Non-officer
directors are excluded from American National's retirement plan and,
therefore, do not qualify for pension benefits.
RETIREMENT PLAN. American National's retirement plan is a
non-contributory defined benefit pension plan which covers substantially all
employees of American National 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, 1994, the normal retirement benefit formula was 1.0%
per year of service times compensation plus 0.65% per year of service times
compensation in excess of the integration level (not to exceed $9,000).
Effective January 1, 1995, the plan was amended to provide a normal
retirement benefit formula of 1.3% per year of service times compensation
plus 0.65% 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
- 89 -
<PAGE>
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. Partial vesting of the retirement benefits under
the plan occurs after three years and full vesting occurs after seven years
of service with American National.
The estimated annual benefits at retirement for the five executive
officers as of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL
NAME OF INDIVIDUAL BENEFIT AT RETIREMENT
---------------------------------------------- ---------------------
<S> <C>
Charles H. Majors, $ 28,836
President and Chief Executive Officer
E. Budge Kent, Jr. 32,424
Senior Vice President and Assistant Secretary
Carl T. Yeatts, 30,000
Senior Vice President
Gilmer D. Jefferson, 29,928
Senior Vice President and Assistant Treasurer
David Hyler, 25,956
Senior Vice President and Secretary and Treasurer
--------
$147,144
--------
--------
</TABLE>
401(K) PROFIT SHARING PLAN. Effective July 1, 1995, American National
adopted a 401(K) Profit Sharing Plan which covers substantially all 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 entire compensation
(salary and bonus), not to exceed the lesser of 15% of compensation or
$9,240. American National will make a matching contribution in the amount of
50% of the first 6.0% of compensation so deferred.
DEFERRED COMPENSATION PLAN. The Board of Directors of American National
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 Board, are making substantial contributions to the
overall growth and success of American National 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 American National, such
executive or his designated beneficiary will receive annual payments
commencing at death or retirement and continuing for a period of ten 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 $20,000 each under the plan, and executive
officers as a group (5) are entitled to annual benefits of $130,000 under the
plan. Based on reasonable actuarial assumptions, the related costs of the
plan are expected to be fully recovered through life insurance policies on
the key executives purchased by American National. Premiums in the aggregate
amount of $22,942 were paid in 1994.
- 90 -
<PAGE>
CERTAIN TRANSACTIONS WITH ANB
Some of the directors and officers of ANB and the companies with which
they are associated were customers of, and had banking transactions with,
American National in the ordinary course of American National's business
during 1994. 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 American National, do
not involve more than a normal risk of collectibility or present other
unfavorable features.
During the year 1994, the highest aggregate amount of outstanding loans,
direct and indirect, to the directors and officers was $12,825,425 or 42% of
equity capital and this highest amount occurred on November 30, 1994.
OWNERSHIP OF ANB COMMON STOCK
As of September 30, 1995, the only two shareholders known to ANB to be
beneficial owners, as defined by the SEC, of 5.0% or more of the outstanding
shares of ANB Common Stock were Ambro and Company and The Alexander Berkeley
Carrington, Jr. and Ruth Simpson Carrington Charitable Trust, with respect to
whom beneficial ownership information has been set forth in the following
table.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------- -------------------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock, $1.00 par value Ambro and Company (1) 632,381(1) 26.3492%
628 Main Street shares
Danville, Virginia 24541
Common Stock, $1.00 par value The Alexander Berkeley Carrington, 150,604(1) 6.2752
Jr. and Ruth Simpson Carrington shares
Charitable Trust (1)
628 Main Street
Danville, Virginia 24541
</TABLE>
- --------------------
(1) Ambro and Company is the nominee name in which American National
registers securities it holds in a fiduciary capacity, and the total of
632,381 shares includes 150,604 shares (6.2752%) held for The Alexander
Berkeley Carrington, Jr. and Ruth Simpson Carrington Charitable Trust.
- 91 -
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF MUTUAL
The following table sets forth certain historical financial data of Mutual
and is based on the consolidated financial statements of Mutual, including the
respective notes thereto, which appear elsewhere in this Joint Proxy Statement
and should be read in conjunction therewith. See "Management's Discussion and
Analysis of Mutual," "Business of Mutual," and "Index to Financial Statements."
<TABLE>
<CAPTION>
At or for the Years Ended September 30,
---------------------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES, PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income..................... $6,040 $5,664 $6,090 $6,576 $6,770
Interest expense.................... 2,920 2,545 2,698 3,577 4,330
------- ------- ------- ------- -------
Net interest income................. 3,120 3,119 3,392 2,999 2,440
Provision for loan losses........... 8 -- -- 98 68
------- ------- ------- ------- -------
Net interest income after provision
for loan losses................... 3,112 3,119 3,392 2,901 2,372
Noninterest income.................. 198 326 197 267 154
Noninterest expense................. 1,830 1,963 1,777 1,633 1,567
------- ------- ------- ------- -------
Income before taxes................. 1,480 1,482 1,812 1,535 959
Income taxes........................ 487 506 550 482 318
------- ------- ------- ------- -------
Net income.......................... $ 993 $ 976 $1,262 $1,053 $ 641
------- ------- ------- ------- -------
------- ------- ------- ------- -------
BALANCE AT YEAR-END
Assets.............................. $83,396 $83,586 $80,203 $81,378 $73,615
Interest-bearing deposits........... 1,167 770 2,074 1,608 747
Investment securities............... 24,598 25,974 20,535 11,133 6,688
Mortgage-backed securities.......... 14,338 16,334 14,957 22,298 17,557
Loans receivable, net............... 39,870 36,908 39,253 42,816 45,069
Deposits............................ 67,513 66,931 65,668 67,497 60,723
Borrowed funds...................... -- 1,500 12 146 108
Stockholders' equity................ 14,787 14,260 13,733 12,799 12,105
PER SHARE DATA
Net income.......................... $ 0.82 $ 0.81 $ 1.06 $ 0.88 $ 0.54
Stockholders' equity................ 12.81 12.36 11.90 11.09 10.49
Cash dividends declared............. 0.40 0.40 0.40 0.39 0.37
SIGNIFICANT RATIOS
Return on average assets............ 1.20% 1.19% 1.56% 1.35% 0.87%
Return on average equity............ 6.77 6.90 9.48 8.39 5.45
Average equity to average assets.... 17.72 17.24 16.50 16.07 15.94
Interest rate spread................ 3.23 3.40 3.79 3.22 2.48
Dividend payout ratio............... 46.49 47.30 36.59 42.75 66.56
Regulatory capital:
Tangible.......................... 17.73 17.06 16.48 15.26 16.40
Core.............................. 17.73 17.06 16.48 15.26 16.40
Risk-based........................ 50.03 51.51 45.44 37.57 32.57
OTHER DATA
Full service offices................ 2 1 1 1 1
Total offices....................... 4 4 4 4 4
</TABLE>
-92-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF MUTUAL
The following discussion and analysis is intended to assist in
understanding Mutual's results of operations and changes in financial
condition for the periods indicated. This information should be read in
conjunction with the information included under "Selected Historical
Financial Data of Mutual," "Business of Mutual," and the consolidated
financial statements and related notes thereto, appearing elsewhere in this
Joint Proxy Statement. See "Index to Financial Statements."
INTEREST RATE SENSITIVITY
Mutual seeks to manage its assets and liabilities so as to provide a
positive and stable net interest income and to provide adequate liquidity and
capital. The major objective has been to reduce interest rate risk while
maintaining an acceptable net interest margin without increasing credit risk.
To accomplish this objective, Mutual continues to make almost all mortgage
loans for periods of greater than 15 years in the form of adjustable-rate
loans. Through the purchase of investments and the origination of mostly
adjustable-rate mortgage loans Mutual attempts to improve its gap position so
that its sensitivity to interest rate changes is diminished. The
adjustable-rate mortgage loans held in Mutual's loan portfolio at September
30, 1995 were 73.3% of all mortgage loans. Most of these loans adjust each
12 months and use the one year Treasury Bill Rate as an index. Mutual
originates primarily adjustable rate loans. At September 30, 1995, long term
fixed rate mortgages were 26.7% of Mutual's mortgage loan portfolio and had a
weighted average yield of 9.67%. Because of the average yields earned on
these loans, they will cause the earnings spread to decrease in periods of
higher interest rates which will decrease profits, and increase in periods of
lower interest rates which will increase profits. Mutual also offers a
variety of consumer loans.
These asset/liability management techniques promote a stabilization of
net interest income. Despite these techniques, Mutual's income is still
dependent upon the fluctuation of interest rates in general and a significant
increase in interest rates would have a negative effect upon the net interest
income of Mutual. During the year ended September 30, 1995, interest rates
declined generally and, with respect to Mutual, interest rates declined more
rapidly on loans and investments than on savings deposits. These changes
reduced the interest rate spread from 3.40% for fiscal year 1994 to 3.23% for
fiscal year 1995. It appears fiscal year 1996 may be one of a stable rate
environment. If this does not hold true, and rates rise, income may be
adversely affected as discussed below.
When interest rates are increasing, generally interest rates on loans
increase more slowly than interest rates on savings. In periods of declining
interest rates, the rates on adjustable mortgage loans will also decrease,
but generally more slowly than the interest rates on savings. These
increases and decreases in general interest rates will effectively increase
and decrease Mutual's interest income from mortgage loans and interest
expense for deposits and any borrowings. In a rising interest rate
environment, a savings bank with an excess of interest-bearing liabilities
maturing or otherwise repricing during a given period (a "negative gap") will
generally experience a greater increase in the cost of its liabilities than
in the yield of its assets. Conversely, the cost of funds to an institution
with a negative gap will generally decrease more than the yield of its assets
in a falling interest rate environment. Changes in interest rates will
generally have the opposite effect on a savings bank with an excess of
interest-earning assets maturing or otherwise repricing during a given period
(a "positive gap"). Accordingly, during a period of rising interest rates, a
negative gap would tend to affect income adversely while a positive gap would
tend to result in an increase in income. During a period of falling interest
rates, a negative gap would tend to result in an increase in income while a
positive gap would tend to affect income adversely. At September 30, 1995,
Mutual had a one-year positive cumulative gap position of $4.4 million.
-93-
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding as of September 30, 1995, which are
anticipated by Mutual, based upon certain assumptions, to reprice, decay or
mature during various time periods. Except as stated otherwise, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of the term to
repricing or the contractual term to maturity of the asset or liability. The
principal amount for each asset and liability is included in the period in
which it, respectively, matures or reprices. The interest rate sensitivity
"gap" refers to the difference between the amount of interest-earning assets
over (under) interest-bearing liabilities maturing within the same time
period. Mutual attempts to reduce its "gap" or exposure to interest rate
risk by use of one year adjustable rate loans and investments in short term
assets. Of Mutual's mortgage loan and mortgage-backed securities portfolio,
54.7% is in the adjustable rate category. While Mutual tries to manage its
"gap" position, it will continue to be affected by changes in the levels of
interest rates and economic conditions beyond its control.
The calculations used to produce the gap table were performed by the
FHLB-Atlanta based upon assumptions selected by the FHLB-Atlanta as of
September 30, 1995 and which management believes are indicative of the
experience of savings institutions generally. These assumptions do not
necessarily reflect Mutual's historical or future experience.
The table assumes annual prepayment rates for mortgages and
mortgage-backed securities and consumer loans as follows:
<TABLE>
<CAPTION>
Weighted Average
Type Annual Prepayment Rate
- -------------------------------------------------------------- ----------------------
<S> <C>
ARM loans and mortgage-backed securities by interest rate:
Less than 7%................................................ 17.22%
7-7.99%..................................................... N/A
8-8.99%..................................................... 20.76
Fixed-rate loan and mortgage-backed securities by interest rate:
Less than 8%................................................ 9.11
8-8.99%..................................................... 12.52
9-9.99%..................................................... 16.75
10-10.99%................................................... 21.60
11-11.99%................................................... 30.60
More than 12%............................................... 30.60
Consumer loans.................................................. 18.00
</TABLE>
Decay rates have been assumed for NOW accounts, passbook and money market
deposits and outstanding "cashiers" checks of Mutual and indicate the annual
rate at which an interest-bearing liability will be withdrawn or repriced.
Certificates of deposit are assumed to reprice generally based upon
contractual maturities.
<TABLE>
<CAPTION>
Annual Percentage Decay Rates
for Deposit Accounts
------------------------------------------------
12 Months 13 to 36 37 Months More than 5
or Less Months to 5 Years Years
--------- -------- ---------- -----------
<S> <C> <C> <C>> <C>
Passbook......................... 17% 17% 16% 100%
NOW.............................. 37 32 17 100
Money Market..................... 79 31 31 100
Noninterest bearing deposits..... 12.54
</TABLE>
-94-
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
AT SEPTEMBER 30, 1995
Less
than 3-6 7-12 1-3 3-5 5-10 10-20 Over 20
3 Mos. Months Months Years Years Years Years Years Total
------- ------- ------- ------- ------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans and mortgage-backed securities:
Adjustable Rate: 1-4 dwelling units -
current market index.................. $ 8,080 $ 5,049 $11,977 $ 995 $ -- $ -- $ -- $ -- $26,101
Fixed rate: 1-4 dwelling units......... 1,332 1,179 2,114 6,596 4,345 5,174 1,854 92 22,686
Fixed rate: other residential and
all nonresidential.................... 122 38 78 257 396 209 -- -- 1,000
Adjustable rate: other residential
and all nonresidential................ 1,194 402 499 650 -- -- -- -- 2,745
Consumer loans.......................... 417 178 215 272 44 1 -- -- 1,127
Commercial loans........................ 670 17 5 20 11 -- -- -- 723
Investment securities................... 3,417 2,000 500 2,595 6,310 9,620 500 829 25,771
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-earning assets....... 15,232 8,863 15,388 11,385 11,106 15,004 2,354 921 80,253
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Deposits:
Fixed maturity deposits................. 6,081 9,974 11,364 12,630 3,624 -- -- -- 43,673
NOW..................................... 355 317 533 1,103 295 396 217 40 3,256
Money market............................ 1,569 1,062 1,206 534 254 197 35 1 4,858
Passbook................................ 687 656 1,224 3,900 2,542 3,545 2,103 446 15,103
Non-interest deposits................... 22 20 38 128 98 156 120 41 623
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest-bearing liabilities.. 8,714 12,029 14,365 18,295 6,813 4,294 2,475 528 67,513
------- ------- ------- ------- ------- ------- ------- ------- -------
Gap...................................... $ 6,518 $(3,166) $ 1,023 $(6,910) $ 4,293 $10,710 $ (121) $393 $12,740
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
Cumulative gap........................... $ 6,518 $ 3,352 $ 4,375 $(2,535) $ 1,758 $12,468 $12,347 $12,740
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Cumulative gap to total assets........... 7.82% 4.02% 5.25% (3.04)% 2.11% 14.95% 14.81% 15.28%
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
-95-
<PAGE>
NET PORTFOLIO ANALYSIS
The OTS adopted a final rule in August 1994 incorporating an interest
rate risk ("IRR") component into the risk-based capital rules. The IRR
component is a dollar amount that will be deducted from total capital for the
purpose of calculating an institution's risk-based capital requirement and is
measured in terms of the sensitivity of its net portfolio value ("NPV") to
changes in interest rates. NPV is the difference between incoming and
outgoing discounted cash flows from assets, liabilities, and off-balance
sheet contracts. An institution's IRR is measured as the change to its NPV
as a result of a hypothetical 200 basis point (one basis point equals 0.01%)
change in market interest rates. A resulting change in NPV of more than 2.0%
of the estimated market value of its assets will require the institution to
deduct from its capital 50% of that excess change. For the present time, the
OTS has deferred implementation of the interest rate risk component. The
following table presents Mutual's NPV as of September 30, 1995, as calculated
by the FHLB Atlanta, based upon information taken from Mutual's Thrift
Financial Reports and is consistent with OTS methodology.
<TABLE>
<CAPTION>
NPV NPV as % of Assets
--------------------------------- --------------------
Changes in Interest
Rates in Basis Points
(Rate Shock) Amount $ Change % Change NPV Rate Change
- --------------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
+400 bp $11,963 $(4,350) (27)% 15.09% -403 bp
+300 bp 13,258 (3,055) (19) 16.37 -275 bp
+200 bp 14,451 (1,862) (11) 17.50 -162 bp
+100 bp 15,485 (828) (5) 18.43 - 70 bp
0 bp 16,313 19.12
-100 bp 17,068 755 5 19.73 + 60 bp
-200 bp 18,040 1,727 11 20.50 +138 bp
-300 bp 19,193 2,881 18 21.41 +229 bp
-400 bp 20,476 4,163 26 22.39 +327 bp
</TABLE>
Set forth below is a breakout of Mutual's NPV as of September 30, 1995 by
assets, liabilities and off-balance sheet items.
<TABLE>
<CAPTION>
No
Net Portfolio Value -400 BP -300 BP -200 BP -100 BP Change +100 BP +200 BP +300 BP +400 BP
- ------------------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets............. $91,437 $89,640 $87,983 $86,522 $85,299 $84,026 $82,568 $80,967 $79,279
Less Liabilities... 71,092 70,550 70,022 69,509 69,007 68,519 68,044 67,579 67,125
Plus off balance
sheet items....... 130 103 79 55 21 (22) (73) (130) (191)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net Portfolio...... $20,476 $19,193 $18,040 $17,068 $16,313 $15,485 $4,451 $13,258 $11,963
------- ------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
ANALYSIS OF NET INTEREST INCOME
Net interest income, the primary contributor to earnings, represents
the difference between income on interest-earning assets and expense on
interest-bearing liabilities. Net interest income depends upon the volume of
interest-earning assets and interest-bearing liabilities and the interest
rate earned or paid on them.
-96-
<PAGE>
The following table sets forth certain information relating to Mutual's
average balance sheets and reflects the average yield on assets and average
cost of liabilities for the year ended September 30, 1995. Such yields and
rates are derived by dividing income or expense by the monthly average
balance of assets or liabilities, respectively, during the year. Nonaccruing
loans, if any, have been included in the average balances but not in the
corresponding interest income.
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net ............................ $38,395 $3,343 8.71% $37,799 $3,062 8.10% $41,228 $3,502 8.49%
Mortgage-backed securities ............ 15,386 1,112 7.23 15,322 1,029 6.71 18,806 1,470 7.82
Investments ........................... 25,720 1,585 6.16 25,430 1,573 6.19 17,306 1,118 6.46
------- -------- ------ ------- -------- ------ ------- -------- ------
Total interest-earning assets ............ 79,501 6,040 7.60 78,551 5,664 7.21 77,340 6,090 7.87
------- -------- ------- -------- ------- --------
Noninterest-earning assets ............... 3,252 3,546 3,325
------- ------- -------
Total assets ........................... $82,753 $82,097 $80,665
------- ------- -------
------- ------- -------
Interest-bearing liabilities:
Outstanding official checks and NOW
and money market accounts ............ 8,915 249 2.79 9,525 257 2.70 10,106 278 2.76
Savings deposits ....................... 19,100 647 3.39 24,840 867 3.49 21,673 770 3.55
Time Deposits .......................... 38,331 1,992 5.20 32,252 1,410 4.37 34,289 1,643 4.79
Borrowed funds ......................... 546 32 5.98 216 11 5.09 139 7 5.10
------- -------- ------- -------- ------- --------
Total interest-bearing liabilities ..... 66,892 2,920 4.37 66,833 2,545 3.81 66,207 2,698 4.08
Non-interest bearing liabilities ......... 1,200 1,110 1,147
Stockholders' equity ..................... 14,661 14,154 13,311
------- ------- -------
Total liabilities and stockholders'
equity ................................. $82,753 $82,097 $80,665
------- ------- -------
------- ------- -------
Net interest income ...................... $3,120 $3,119 $3,392
-------- -------- --------
-------- -------- --------
Interest rate spread ..................... 3.23 3.40 3.79
Net yield on interest-earning assets ..... 3.92 3.97 4.39
Ratio of interest-earning assets to
interest-bearing liabilities ........... 1.19x 1.18x 1.17x
</TABLE>
-97-
<PAGE>
The following table presents, for the periods indicated, the change in
interest income and interest expense attributable to (i) changes in volume
(change in volume multiplied by prior year rate), (ii) changes in rate
(change in rate multiplied by prior year volume) and (iii) changes in
rate/volume (change in rates multiplied by the change in volumes). The
rate/volume variances which cannot be segregated have been allocated
proportionately to the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------
1995 compared to 1994 1994 compared to 1993
----------------------------- ---------------------------
Increase (decrease) due to Increase (decrease) due to
------------------------------ ---------------------------
Rate/ Rate/
Rate Volume Volume Rate Volume Volume
------- -------- -------- -------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans, net......................... $230 $47 $4 $(162) $(291) $ 13
Mortgage-backed securities......... 79 4 -- (209) (271) 39
Investments........................ (8) 20 -- (47) 524 (22)
---- --- -- ------ ----- ----
Total............................ 301 71 4 (418) (38) 30
---- --- -- ------ ----- ----
INTEREST-BEARING LIABILITIES:
Outstanding official checks and NOW
and money market accounts........ 9 (16) (1) (6) (15) --
Savings deposits................... (25) (201) 6 (13) 112 (2)
Time deposits...................... 267 265 50 (144) (98) 9
Borrowed funds..................... 2 16 3 -- 4 --
---- --- -- ------ ----- ----
Total............................ 253 64 58 (163) 3 7
---- --- -- ------ ----- ----
---- --- -- ------ ----- ----
Net change in net interest
income........................... $ 48 $ 7 $ (54) $ (255) $ (41) $ 23
---- --- -- ------ ----- ----
---- --- -- ------ ----- ----
</TABLE>
CHANGES IN FINANCIAL CONDITION FOR THE THREE YEARS ENDED SEPTEMBER 30, 1995
Total assets of Mutual at September 30, 1995 decreased $190,500, or 0.23%, to
$83,396,000 from $83,586,500 at September 30, 1994 primarily due to decreases
in mortgage-backed securities of $1,996,200, or 12.22% , and investment
securities of $1,375,800, or 5.30% , which were offset in part by an increase
in loans of $2,961,500, or 8.02%. These changes were the result of
investment maturities and mortgage-backed securities repayments being used to
fund new mortgage lending during fiscal year 1995.
-98-
<PAGE>
During fiscal year 1995, Mutual originated $11,827,000 permanent mortgage
loans for its own portfolio. All mortgage loans originated during the year
with terms greater than 15 years were one-year adjustable rate loans in
keeping with management's policy to control interest rate risk.
Total liabilities at September 30, 1995 decreased $717,700, to $68,609,200
from $69,326,900, or 1.04%, at September 30, 1994 primarily due to the
repayment of $1,500,000 in FHLB Advances offset by an increase of $581,800,
or 0.87%, in savings deposits at September 30, 1995 to $67,512,500 as
compared with $66,930,700 at September 30, 1994. Advances from the FHLB
Atlanta were used occasionally during the year to meet temporary funding
needs. Stockholders' equity totaled $14,786,800 or 17.73% of total assets at
September 30, 1995, compared to $14,259,600, or 17.06% of total assets, at
September 30, 1994. The increase is due primarily to net income of $992,900
for the year ended September 30, 1995, offset by cash dividends of $461,600.
The return on average assets increased to 1.20% in 1995 as compared to 1.19%
in 1994 and 1.56% in 1993. The decrease for 1994 was the result of lower net
income combined with a higher average asset base. The return on average
equity was 6.77% in 1995 as compared to 6.90% in 1994 and 9.48% in 1993.
Cash dividends declared during fiscal years 1995, 1994, and 1993 totaled
$0.40 per share annually. The dividend payout ratio for 1995 was 46.49%
compared to 47.30% in 1994 and 36.59% in 1993.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE YEARS ENDED
SEPTEMBER 30, 1995, 1994 AND 1993
For the year ended September 30, 1995, Mutual had net income of $992,900
compared with net income of $976,000 for 1994 and $1,261,800 for 1993.
Overall income for 1995 as compared to 1994 was stable. The decrease in 1994
as compared to 1993 was due primarily to expenses relating to the abandoned
merger transaction with FNB Financial Services Corporation. The decrease in
fiscal 1995 from 1993 was due to a reduction in net interest margin over the
two year period to 3.23% from 3.79% during fiscal 1993 together with a shift
in the volume of interest-earning assets from higher yielding assets (loans)
to lower yielding assets (investment securities).
NET INTEREST INCOME
Net interest income for the year ended September 30, 1995 was $3,120,000,
compared with $3,118,900 and $3,392,000 in 1994 and 1993, respectively. Net
interest income for 1995 remained stable as compared to 1994. In 1994,
Mutual changed its method of accounting for premium and discounts on
investments and mortgage-backed securities to a level yield method which
reduced interest income by $84,300. Also during fiscal 1994 and to a lesser
extent, in fiscal 1995, yields declined more rapidly on loans and investments
in Mutual's portfolio than rates declined on savings deposits held by Mutual.
These changes reduced the interest rate spread and together with the
increased provision for loan losses in 1995 of $8,300 caused net interest
income after provision for loan losses to decline by $7,200 to $3,111,700 in
1995 from $3,118,900 in 1994 and by $273,100 from $3,392,000 in 1993. The
interest rate spread between interest-earning assets and interest-bearing
liabilities decreased to 3.23% in fiscal year 1995 from 3.40% in 1994 and
3.79% in 1993.
INTEREST INCOME AND EXPENSE
Total interest income increased $376,600, or 6.65%, in the year ended
September 30, 1995 primarily as a result of an increase in the average yield
on loans and mortgage-backed securities to 8.71% and 7.23%, respectively,
from 8.10 % and 6.71%, respectively, in fiscal 1994. Total interest income
decreased $426,500, or 7.0%, in the year ended September 30, 1994 primarily
as a result of
-99-
<PAGE>
a decrease in the average balances of loans to $37,799,000
from $41,228,000, and mortgage-backed securities to $15,322,000 from
18,806,000 and a decrease in the average rates to 8.10% and 6.71%,
respectively, from 8.49 % and 7.82%, respectively, in fiscal 1993, offset in
part by an increase in the average balance of investment securities of
$8,124,000 to $25,430,000 during fiscal 1994 from $17,306,000 during fiscal
1993.
Total interest expense increased $375,600, or 14.76%, in the year ended
September 30, 1995 primarily as a result of an increase in the average rate
of savings deposits to 4.35% from 3.80% during fiscal 1994. Total interest
expense decreased $153,400, or 5.69%, in the year ended September 30, 1994
primarily as a result of a decrease in the average rate of savings deposits
to 3.80% from 4.07% during fiscal 1993.
NONINTEREST INCOME AND EXPENSE
Total noninterest income for 1995 was $198,400, compared with $325,900 for
1994 and $197,300 for 1993. The increase for 1994 as compared to 1995 and
1993 was primarily the result of a $126,000 gain on the sale of real estate
owned by Mutual Service Corporation.
Total noninterest expense for 1995 was $1,830,100, compared with $1,962,700
for 1994 and $1,777,700 for 1993. The increase in other expenses in 1994 as
compared to 1995 and 1993 was due primarily to $259,000 in charges relating
to the abandoned merger plans with FNB Financial Services Corporation.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
Mutual has established an allowance for loan losses to provide for estimated
potential losses in its loan portfolio. Management determines the level of
reserves on a quarterly basis based on loan performance, the value of the
collateral, and previous experience. During 1995, $8,300 was added to the
provision for loan losses. No provision for loan losses was provided in 1994
or 1993 as management considered the allowance to be adequate.
INCOME TAXES
Income taxes amount to $487,000 for 1995 as compared to $506,200 for 1994 and
$549,800 for 1993. The effective tax rate for 1995 was 33% as compared to
34% for 1994 and 30% for 1993.
CAPITAL RESOURCES
Stockholders' equity increased to $12.81 per share at September 30, 1995 as
compared to $12.36 and $11.90 at fiscal year end 1994 and 1993, respectively.
Equity growth was due entirely to the retention of net income, after
dividend payments made to stockholders.
The OTS requires institutions to meet three capital standards: (i) tangible
capital requirement, (ii) core capital requirement, and (iii) risk-based
capital requirement. As of September 30, 1995, Mutual exceeded all three
requirements as indicated by the following table.
-100-
<PAGE>
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-Based Capital
----------------- ------------------- --------------------
Amount % Amount % Amount %
------- ------- ---------- ------- ---------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Mutual............... $ 14,79 17.73% $14,791 17.73% $14,899 50.03%
OTS Requirement...... 1,251 1.50 2,502 3.00 2,382 8.00
------- ------ ------- ------ ------- ------
Excess............... $13,540 16.23% $12,289 14.73% $12,517 42.03%
------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------
</TABLE>
LIQUIDITY
Liquidity represents the ability to meet funding requirements for loans,
withdrawal of customers' deposits and operating expenses. The principal
sources of liquidity for Mutual are customer deposits, principal and interest
payments on loans and earnings on investments, with minimal reliance on FHLB
advances and other borrowings. Mutual is required by the current OTS
regulations to maintain a minimum liquidity ratio of 5.0%. This ratio is
represented by cash and eligible investments as a percentage of net
withdrawable savings and borrowings payable within one year. Mutual's
liquidity ratio at September 30, 1995 was 17.22%. Mutual has maintained a
liquidity ratio well in excess of its regulatory requirements and intends to
continue to maintain a liquid position in excess of that requirement to
offset any potential adverse increases in short-term rates and to meet
customer demands.
Mutual's goal is to fund all customer loan demands while closely monitoring
its liquidity position in order to maintain sufficient liquidity to satisfy
reasonably foreseeable needs. At September 30, 1995, Mutual had credit
availability from the FHLB Atlanta in the amount of $12.6 million.
Anticipated loan and mortgage-backed securities repayments are also expected
to be sufficient to meet future loan demand. At September 30, 1995,
commitments to originate loans totaled $1.7 million. Mutual anticipates
funding loan commitment from normal operations.
EFFECTS OF INFLATION
The financial statements and related notes presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms
of historical dollars without considering changes in the relative purchasing
power of money over time due to inflation.
The effect of changing prices on financial institutions is typically
different from other industries as Mutual's assets and liabilities are
monetary in nature. Interest rates are significantly impacted by inflation,
but neither the timing nor the magnitude of the changes are directly related
to price level indices. Impacts of inflation on interest rates, loan demands
and deposits are reflected in the consolidated financial statements.
-101-
<PAGE>
BUSINESS OF MUTUAL
GENERAL
Mutual received its charter from the Commonwealth of Virginia in 1907 and
began operations in 1908. Mutual is a federally chartered savings bank which
converted from a state chartered mutual to a federal stock association in
April 1987 and changed to a federal savings bank charter in February 1989.
Mutual is headquartered in Danville, Virginia where it has its main office
and two branch offices. Mutual also has a third branch office in
Collinsville, Virginia. Mutual's savings accounts are insured by the Savings
Association Insurance Fund ("SAIF") of the FDIC and it is a member of the
FHLB Atlanta.
Mutual's market area primarily consists of south central Virginia and north
central North Carolina. Business is conducted primarily in Danville,
Virginia through Mutual's main office and two branch offices. See
"--Properties" for information as to the location of all offices. Mutual does
not have offices in North Carolina; however, Mutual has customers who live in
North Carolina.
Mutual is a savings institution in the business of attracting savings
deposits from the public and using such deposits together with borrowings and
other funds to originate loans secured by residential and other real estate,
particularly adjustable-rate loans, and to purchase investment and other
securities. Mutual also offers consumer loans and other financial services
to its customers. Mutual has a wholly owned subsidiary, Mutual Service
Corporation, involved in the sale of credit life insurance and trustee sales
for the parent company.
LENDING ACTIVITIES
GENERAL. Mutual, like most other thrift institutions, has traditionally
concentrated its lending activities on conventional first mortgage loans
secured by residential property, and to a much lesser extent, commercial
property. Mutual is a portfolio lender and has never sold loans through the
secondary market.
Mutual requires that its mortgagors carry insurance against fire and casualty
losses in property value. Mutual also carries a back-up master mortgage
policy to protect Mutual in the event the individual borrower fails to keep
his insurance current. Mutual would, in such event, pursue all remedies
available to it to require the mortgagor to reinstitute coverage. Mutual
does not require title insurance, but instead depends upon the professional
liability insurance of the attorney preparing the title. This has always
been the practice of Mutual and Mutual has never incurred a loss or
experienced any problems due to this practice. Mutual maintains files of
letters certifying that they maintain adequate professional liability
insurance. Mutual requires physical damage insurance for other types of
collateral that secure loans and are insurable.
The following table sets forth information summarizing the composition of
Mutual's loan portfolio by dollar amounts and in percentages by type of loan
at the dates indicated:
-102-
<PAGE>
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------
1995 1994 1993
--------------- ------------------ ------------------
Amount % Amount % Amount %
-------- ----- ---------- ----- --------- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
1- to 4-family units.... $33,158 79.7% $31,623 83.5% $33,980 85.2%
Nonresidential.......... 2,560 6.2 2,590 6.8 3,027 7.6
Land.................... 467 1.1 446 1.2 319 0.8
Multi-family units...... 622 1.5 468 1.3 63 0.2
Construction............ 2,933 7.1 1,295 3.4 930 2.3
------- ----- ------- ---- ------- ----
Total mortgage loans.... 39,740 95.6 36,422 96.2 38,319 96.1
------- ----- ------- ---- ------- ----
Consumer loans:
Auto.................... 500 1.2 201 0.5 166 0.4
Mobile home............. 328 0.8 209 0.6 295 0.7
Other................... 299 0.7 105 0.3 230 0.6
------- ----- ------- ---- ------- ----
Total consumer loans.... 1,127 2.7 515 1.4 691 1.7
Commercial loans.......... 722 1.7 939 2.4 878 2.2
------- ----- ------- ---- ------- ----
Total loans receivable.. 41,589 100.0% 37,876 100.0% 39,888 100.0%
----- ----- -----
----- ----- -----
Deduct net items:
Undisbursed loan funds.. (1,449) (685) (362)
Deferred loan fees...... (162) (183) (172)
Allowance for loan
losses................. (108) (101) (101)
------- -------- --------
Total loans receivable,
net....................$39,870 $36,908 $39,253
------- -------- --------
------- -------- --------
</TABLE>
RESIDENTIAL MORTGAGE LOANS. As a savings bank, Mutual has authority to make
real estate loans throughout the United States. Mutual originates loans
primarily in its market area within south central Virginia and portions of
north central North Carolina, but also originates loans in other parts of
Virginia and in other states as opportunities in such areas arise. It is
Mutual's policy to originate and hold in its portfolio primarily
adjustable-rate residential mortgage loans ("ARMs") secured by first liens on
single-family dwellings. Interest rates and loan origination fees charged on
loans originated by Mutual are generally competitive with other financial
institutions and mortgage originators in its general market area. Mutual is
authorized and qualified to originate loans guaranteed by the Veterans
Administration ("VA") or insured by the Federal Housing Administration
("FHA"). Mutual obtains its loan originations primarily through referrals
from customers and other persons such as real estate brokers and contractors.
The original contractual loan payment period for residential loans originated
by Mutual is normally up to 30 years. Mutual's experience is that
residential loans normally remain outstanding for an average period of 12
years because borrowers usually prepay their loans.
All of Mutual's mortgage lending is subject to prescribed loan origination
and underwriting procedures designed to protect Mutual; detailed loan
applications are submitted and property
-103-
<PAGE>
valuations by approved appraisers are required. In addition, loans must be
approved by senior management and are subject to the final ratification
of the Board of Directors of Mutual.
Under the OTS regulations, a real estate loan may not exceed 100% of the
market value of the property at the time of origination. OTS regulations
require that loans on residential real property may not at the time of
origination exceed 90% of the value of the property unless the borrower
supplies private mortgage insurance. In recent years, the loan-to-value
ratios of residential loans made by Mutual have been predominantly 80% or
less. In the case of a loan made in excess of 80%, Mutual requires the
borrower to obtain private mortgage insurance to reduce Mutual's exposure on
the original amount of the loan.
Mutual's first mortgage loans customarily include "due-on-sale" clauses,
which are provisions giving Mutual the right to declare a loan immediately
due and payable in the event, among other things, that the borrower sells or
otherwise disposes of the real property subject to the mortgage and the loan
is not repaid.
Federal legislation enacted on March 31, 1980 preempted all state usury
laws which would otherwise be applicable to first mortgage lending activities
on residential properties. The legislation provides that state legislatures
may act to override such preemption within three years of March 31, 1980.
Virginia did take action to override such preemption; however, the usury rate
in Virginia is higher than the Federal rate. Mutual may charge the higher
rate (whether federal or state) under federal legislation.
NONRESIDENTIAL AND MULTI-FAMILY MORTGAGE LOANS. Mutual also makes loans
on nonresidential real estate and multi-family units which include apartment
buildings of five units or more, farms, developed lots and land, and other
improved and unimproved real estate which is not for residential purposes.
The term of these loans generally will not exceed 20 years and the interest
rate is made on an adjustable basis. The amount of the loan generally is
based on 75% of the lesser of the current appraisal value or the cost.
RESIDENTIAL CONSTRUCTION LOANS. Mutual offers residential construction
mortgage loans to owner/occupants, to persons building residential properties
for permanent or seasonal use or for investment purposes and on a limited
basis to builders for inventory and sale. Mutual's residential construction
loans are made as "construction/permanent" loans, which provide for
disbursement of loan funds during construction and the automatic conversion
to a long-term permanent loan. The interest rate on construction/permanent
loans is adjustable.
Construction loans to builders and owners of single-family residential
homes are made on a long-term adjustable-rate basis. The property and the
personal endorsement of the builder and spouse or owner and spouse are
security for construction loans. Inspection of construction is made
periodically and the loan is funded in proportion to the percent of
completion. The application process to obtain such loans from Mutual
includes the same items which are required for other residential mortgage
loans, and also includes a submission to Mutual of accurate plans,
specifications, and costs of the property to be constructed. These items are
used as a basis to determine the appraised value of the subject property.
Appraisal reports are completed by approved appraisers. Loans are generally
made based on 75% of the lesser of the current appraised value or the cost.
If an inspection shows the house to be occupied, repayment must begin
immediately. During the year ended September 30, 1995, Mutual had an average
of $2.7 million in construction loans outstanding at all times to about nine
builders or owners who were constructing a total of 23 single family
residential houses. The average time to complete a house and convert it to a
permanent loan or sell it was six months. Most of the homes financed for
builders were pre-sold.
-104-
<PAGE>
CONSUMER LOANS. Federal regulations also permit federally-chartered
institutions to make secured and unsecured consumer loans for up to 35% of
the institution's assets. In addition, a federally-chartered institution has
lending authority above the 35% category for certain consumer loans, such as
home equity loans, property improvement loans, mobile home loans, and deposit
account secured loans.
Mutual makes various types of consumer loans, including property or home
improvement, education, mobile home loans, recreational vehicle and
automobile loans, and secured and unsecured personal loans.
NON-REAL ESTATE COMMERCIAL LOANS. Federal regulations allow federally
chartered institutions to make secured and unsecured commercial loans up to
10% of the institution's assets. Mutual has adopted a commercial loan
lending policy which is in conformance with OTS regulations. This policy
provides for the granting of all sound, short-term local loans that Mutual's
resources permit, and as the opportunity arises. The policy contains strict
tests of credit soundness for each commercial loan, including requirements as
to amount and form of collateralization and restrictions on the term of
certain loans. Personal guarantees are required for some types of loans.
PURCHASE OF LOANS. Mutual from time to time purchases loans secured by
commercial properties, mobile homes, or automobiles located in other parts of
the state of Virginia and in other states. Loans are purchased primarily
from selected financial institutions which usually continue to service these
loans for a fee. All loan purchases are approved by the loan committee and
ratified by the Board of Directors of Mutual. The purchase of loans has
enabled Mutual to generate a more acceptable yield on its funds during the
periods of rapid savings growth or when Mutual's deposit flows exceed the
demand for mortgage loans in Mutual's market area. Mutual has not
participated in selling loans in the secondary market in the past but would
consider originating loans for the secondary market, if conditions were
favorable. Mutual did not purchase any such loans in 1994 and 1995.
MORTGAGE-BACKED SECURITIES. Mutual purchases mortgage-backed securities
guaranteed by the Government National Mortgage Association ("GNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC") Participation Certificates, and
Federal National Mortgage Association ("FNMA"). Purchases of these types of
investments are normally made when loan demand is low in Mutual's market
area.
All of Mutual's mortgage-backed securities are classified as held to
maturity. The following table sets forth Mutual's portfolio of mortgage
backed securities by type and dollar amount indicated:
<TABLE>
<CAPTION>
At September 30,
--------------------------------------
1995 1994 1993
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage-Backed Securities
Participation Certificates:
FHLMC.................................. $ 5,675 $ 6,685 $ 4,403
GNMA................................... 4,404 4,902 4,126
FNMA................................... 2,490 2,832 5,932
Collateralized Mortgage Obligations.... 1,769 1,915 496
-------- -------- --------
Total................................ $ 14,338 $ 16,334 $ 14,957
-------- -------- --------
-------- -------- --------
Fixed rate............................. $ 13,582
Adjustable rate........................ 756
</TABLE>
-105-
<PAGE>
ORIGINATION OF LOANS. The following table sets forth Mutual's loan
activity for the periods indicated. This includes originations and
prepayments of real estate and other loans, net of loans in process.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------
1995 1994 1993
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage Loans (gross):
Loans at beginning of period............. $36,422 $38,319 $41,167
New loans originated:
Construction......................... 4,570 2,573 1,723
Permanent............................ 7,257 4,566 5,189
Loan repayments:
Construction......................... (2,923) (2,050) (2,278)
Permanent............................ (5,586) (6,986) (7,482)
------- ------- -------
Loans at end of period................... $39,740 $36,422 $38,319
------- ------- -------
------- ------- -------
Consumer and Commercial Loans (gross):
Loans at beginning of period............. $ 1,454 $ 1,569 $ 2,521
New loans originated................... 2,928 2,374 2,774
Loan repayments........................ (2,533) (2,489) (3,726)
------- ------- -------
Loans at end of period................... $ 1,849 $ 1,454 $ 1,569
------- ------- -------
------- ------- -------
</TABLE>
FEE INCOME FROM LENDING ACTIVITIES. Mutual generally charges loan
origination fees (excluding fees for private mortgage insurance) for first
mortgage loans secured by residential property or land. Mutual also charges
fees for builder's construction loans and home equity second mortgage loans.
Origination fees on commercial and multi-family residential property loans
are negotiated, along with other loan terms, for each loan. Loan application
fees and out-of-pocket costs of Mutual in reviewing loan applications, such
as appraisal or survey costs, are paid by the borrower. Mutual believes its
loan origination fees generally are competitive with those of other lenders
in its market area.
In addition to origination fees, Mutual charges fees for prepayments, late
payments, changes of property ownership and for miscellaneous services.
Income realized from these activities can vary significantly with the volume
and type of loans in the portfolio and in response to competitive factors.
LOAN MATURITY SCHEDULE. The following table sets forth certain
information at September 30, 1995 regarding the dollar amount of loans
maturing in Mutual's portfolio. Scheduled principal repayments are reported
in the maturity category in which the payment is due. Demand loans and loans
having no stated schedule of repayments and no stated maturity, and
overdrafts are reported as due in one year or less.
-106-
<PAGE>
<TABLE>
<CAPTION>
Due Due Due Due Due Due
Year Ended Year Ended Year Ended After After After After
September 30, September 30, September 30, 3 to 5 5 to 10 10 to 15 15
1996 1997 1998 Years Years Years Years Total
------------- ------------- ------------- -------- ------- -------- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Permanent....... $2,469 $2,433 $2,064 $4,202 $11,131 $8,477 $6,081 36,857
Construction(1). 121 1,313 -- -- -- -- 1,434
Nonmortgage loans:
Commercial...... 343 358 10 11 -- -- -- 722
Consumer........ 264 428 164 261 10 -- -- 1,127
------ ------ ------ ------ ------- ------ ------ -------
Total.......... $3,197 $4,532 $2,238 $4,474 $11,141 $8,477 $6,081 $40,140
------ ------ ------ ------ ------- ------ ------ -------
------ ------ ------ ------ ------- ------ ------ -------
Total adjustable rate loans due after one year................... $25,019
Total fixed-rate loans due after one year........................ 9,487
</TABLE>
- ------------------
(1) Amount is net of loans in process of $1,449.
RISKS AND BENEFITS OF VARIOUS TYPES OF LOANS. Currently, Mutual
originates predominantly residential real estate loans and consumer loans,
and to a lesser extent residential construction loans and commercial loans.
Most of the loans being originated currently are either made to borrowers who
reside locally or are loans secured by real estate located in Mutual's normal
lending area. Historically, residential real estate loans offer the least
risk of default, but generally earn the least amount of interest when
compared to other types of loans such as consumer loans.
Residential construction loans are somewhat riskier but provide a higher rate
of return than permanent residential real estate loans; however, Mutual
attempts to minimize the risk by extending construction loans primarily to
established builders operating in Mutual's market area.
All residential mortgage loans currently originated by Mutual for terms in
excess of 15 years provide for periodic interest rate adjustments. The
adjustable-rate mortgage loans offered by Mutual provide for initial rates of
interest below the rates that would prevail were the market rate index used
for repricing applied initially. Loans which are discounted the first year
will adjust to the current index at the end of one year. Adjustable rate
loans are based on the monthly average yield on U.S. Treasury securities
adjusted to a constant maturity of one year. To compensate for this risk,
Mutual uses more restrictive underwriting standards when originating such
loans, and qualifies any borrowers based upon the fully adjusted rate for
such a loan. Although the introduction of adjustable-rate mortgage loans has
been beneficial in helping Mutual improve the interest rate sensitivity of
its assets, such loans may pose potential additional risks to Mutual,
primarily because as interest rates rise, the payments by the borrower rise,
increasing the potential for delinquency or default, while at the same time
the marketability of the underlying property securing the loan may be
adversely affected.
Mutual's commercial and consumer loan portfolios comprise a very small
portion of the overall portfolio. Such loans, while carrying a higher degree
of risk than residential real estate loans, provide a greater rate of return.
-107-
<PAGE>
LOAN COMMITMENTS. Once a mortgage loan is approved, Mutual will issue a
commitment to the borrower. Mutual will guarantee the interest rate and fees
quoted at application for a period of 15 days from the commitment date, so
long as the loan is closed during that time. As of September 30, 1995,
commitments of $1,707,300 were outstanding to finance real estate acquisition
and construction of which commitments of $106,200 were for fixed rate loans
and $1,601,100 were for adjustable rate loans.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
NON-PERFORMING LOANS. The following table sets forth as to
non-performing loans in the loan portfolio the aggregate amount of loans
which are accounted for on a non-accrual basis, accruing loans which are
contractually past due 90 days or more as to principal or interest payments,
and loans not included in either of the previous two categories which are
"troubled debt restructurings" as defined by the Statement of Financial
Accounting Standards ("SFAS") No. 15 ("SFAS No. 15") at the dates shown.
<TABLE>
<CAPTION>
At September 30,
--------------------------------------
1995 1994 1993
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-accruing(1) ................... $278 $14 $306
Accruing, delinquent
for 90 days or more(2) ......... -- -- --
Restructured(3) ................... -- -- --
-------- --------- --------
Total ....................... $278 $14 $306
-------- --------- --------
-------- --------- --------
</TABLE>
- --------------------
(1) No interest was included in net income for these loans for the period
ended September 30, 1995. For the period ended September 30, 1995, $23,874
in gross interest would have been recorded in the period if these loans had
been current in accordance with its original term and had been outstanding
throughout the period.
(2) Loans delinquent as to principal or interest payments.
(3) Loans not included in the other two categories which are defined as
"troubled debt restructurings" pursuant to SFAS No. 15.
Mutual's collection policy provides that all loans will receive a
payment request within 15 days after they become delinquent. When the loan
is 30 days delinquent a second notice is mailed. After 60 days, a letter is
sent. In certain instances, Mutual may negotiate a payment schedule with
borrowers to allow them time to bring the loan current. If no arrangement is
made after 90 days, a notice of pending foreclosure is sent. Because of
Mutual's adequate collection procedure as well as the lower risks associated
with its loan portfolio of primarily residential real estate loans,
delinquent loans and foreclosures have not posed a serious problem for Mutual
in the past and are not anticipated to be a problem in the future. Whenever
a loan becomes 90 days or more past due or a potential loss is anticipated or
collection is doubtful, it is Mutual's policy to place all such loans in a
nonaccrual status. Once a loan becomes nonaccrual, interest previously
accrued is reversed out of income.
- 108 -
<PAGE>
REAL ESTATE OWNED. All property acquired as the result of foreclosure
or by deed in lieu of foreclosure is classified as real estate owned until
such time as it is sold or otherwise disposed of by Mutual. As of September
30, 1995, Mutual had no real estate owned.
CLASSIFIED ASSETS. The OTS requirements contain a classification system
for problem assets of insured institutions which covers all problem assets.
Under this classification system, problem assets of insured institutions are
classified as "substandard," "doubtful" or "loss," depending on the presence
of certain characteristics.
When an insured institution classifies problem assets as either
substandard or doubtful, it is required to establish general allowances for
loan losses in an amount deemed prudent by management. General allowances
represent loss allowances which have been established to recognize the
inherent risk associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem assets. When an
insured institution classifies problem assets as "loss," it is required
either to establish a specific allowance for losses equal to 100% of the
amount of the asset so classified or to charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by the institution's
District Director, who can order the establishment of additional general or
specific loss allowances.
Mutual's Treasurer, being independent of loan management, reviews all
problem assets on a quarterly basis, setting up prudent valuation allowances
based on such classifications as needed. Mutual's Board of Directors reviews
the classified assets quarterly and the classification procedures annually.
All loans 90 days delinquent or more are automatically classified. As of
September 30, 1995, $278,453 in loans and other assets, consisting primarily
of one commercial loan ($226,000) which is in the process of being sold, were
classified as substandard. Mutual's management anticipates no loss in the
sale of such loan.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes the
collectability of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing
loans that may become uncollectable, based on valuations of the
collectability of loans and prior loan loss experience. The evaluation by
management considers such factors as current economic conditions, loan
portfolio risks including the value of underlying collateral, and past loan
loss experience. The allowance is increased by charges to income and
decreased by net charge-offs. While management believes the allowance to be
adequate, there are no assurances that further increases in the allowance
will not be required in the future.
- 109 -
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
For Periods Ended September 30,
---------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period..... $101 $101 $100 $ 3 $ 3
Charge offs:
Loans
Real estate-mortgage........... -- -- -- -- 67
Consumer loans to
individuals................, 1 -- -- 1 1
Commercial...................., -- -- -- -- --
Recoveries:
Loans
Real estate-mortgage........... -- -- -- -- --
Consumer loans to individuals.. -- -- 1 -- --
Commercial..................... -- -- -- -- --
------ ----- ----- ----- -----
Net charge-offs.................... 1 -- (1) 1 68
Provision for loan losses.......... 8 -- -- 98 68
------ ----- ----- ----- -----
Balance at end of period........... $108 $101 $101 $100 $ 3
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Ratio of allowances to
non-performing assets............ 38.79% 7.43% 32.27% 24.35% 0.64%
------ ----- ----- ----- -----
------ ----- ----- ----- -----
Ratio of net charge-offs during
the period to average loans
outstanding during the period.... -- -- -- -- 0.14
------ ----- ----- ----- -----
</TABLE>
The following table sets forth the allocation of the allowance for
losses by asset category at the dates indicated:
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------
1995 1994 1993
-------------------------- --------------------- ----------------------
% of Loans % of Loans % of Loans
in Category in Category in Category
of Total of Total of Total
Outstanding Outstanding Outstanding
Amount Loans Amount Loans Amount Loans
------ ----------- ------ ----------- ------ -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Loans:
One- to four-family
residential mortgage... $ 90 79.7% $ 83 83.5% $ 83 85.2%
Real estate
construction and land.. -- 8.2 -- 4.6 -- 3.1
Commercial and multi-family
real estate.............. -- 7.7 -- 8.1 -- 7.8
Consumer and commercial.... 18 4.4 18 3.8 18 3.9
---- ----- ---- ----- ---- -----
Total................. 108 100.0% 101 100.0% 101 100.0%
---- ----- ---- ----- ---- -----
----- ----- -----
Unallocated.................. -- -- --
---- ---- ----
Total................. $108 $101 $101
---- ---- ----
---- ---- ----
</TABLE>
- 110 -
<PAGE>
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------
1992 1991
-------------------------- ---------------------
% of Loans % of Loans
in Category in Category
to Total to Total
Outstanding Outstanding
Amount Loans Amount Loans
------ ----------- ------ -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Loans:
One- to four-family
residential mortgage..... $ 83 85.1% $-- 83.8%
Real estate construction
and land................... -- 1.2 -- 1.5
Commercial and multi-family
real estate................ -- 8.1 -- 7.1
Consumer and commercial...... 17 5.8 3 7.6
---- ----- --- -----
Total................. 100 100.0% 3 100.0%
----- -----
----- -----
Unallocated.................. -- --
---- ---
Total................. $100 $ 3
---- ---
---- ---
</TABLE>
INVESTMENT ACTIVITIES
Federally chartered savings institutions have authority to invest in
various types of liquid assets, including short-term U.S. Treasury
obligations and securities of various federal agencies, certificates of
deposit at insured banks and savings and loan associations, bankers'
acceptances, federal funds, and certain commercial paper and corporate debt
securities. SAIF-insured savings institutions are required to maintain
minimum levels of liquid assets, which minimum is presently set at 5.0% of
savings deposits, but which may vary from time to time. Liquidity may
increase or decrease depending upon the availability of funds and comparative
yields on investments in relation to return on loans.
On September 30, 1995, the investment portfolio totaled $24.6 million
and had an overall yield of 5.83%. As economic conditions change, tactical
decisions as to current needs for liquidity levels, portfolio yield and
maturity structure will cause alteration in the composition of the investment
portfolio in an attempt to meet the goals of Mutual.
- 111 -
<PAGE>
All of the investment securities in Mutual's portfolio are classified as
held to maturity or available for sale. The following tables set forth the
composition of Mutual's investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
Book % of Book % of Book % of
Value Portfolio Value Portfolio Value Portfolio
------- --------- ------- --------- ------- ---------
(IN THOUSANDS, EXCEPT YIELDS)
<S> <C> <C> <C> <C> <C> <C>
Held for investment:
U.S. government and agency obligations.. $13,748 55.9% $18,736 72.1% $14,745 71.8%
Other investments....................... 4,794 19.5 6,409 24.7 4,981 24.3
FHLB Stock.............................. 829 3.3 829 3.2 809 3.9
------- ----- ------- ----- ------- -----
Total held for investment............. 19,371 78.7 25,974 100.0 20,535 100.0
------- ----- ------- ----- ------- -----
Available for sale:
U.S. government and agency obligations.. 2,499 10.2 -- -- -- --
Other investments....................... 2,734 11.1 -- -- -- --
------- -----
Total available for sale.............. 5,233 21.3 -- -- -- --
------- ----- ------- ----- ------- -----
Total investment securities........... $24,609 100.0% $25,974 100.0% $20,535 100.0%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
Total market value........................ $24,011 $24,018 $21,133
------- ------- -------
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
At September 30, 1995
------------------------------------------------
Within 1 1 to 5 5 to 10 After 10
Year Years Years Years Total
-------- ------ ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Held for investment:
U.S.government and agency obligations...... $ -- $7,997 $5,751 $ -- $13,748
Other investments.......................... -- 698 3,619 1,306 5,623
----- ------ ------ ------ -------
Total.................................... $ -- $8,695 $9,370 $1,306 $19,371
----- ------ ------ ------ -------
----- ------ ------ ------ -------
Weighted Average Yield..................... --% 5.02% 6.22% 6.57% 5.70%
Available for sale:
U.S. government and agency obligations..... $ 499 $1,500 $ 500 $ -- $ 2,499
Other investments.......................... 500 1,464 770 -- 2,734
----- ------ ------ ------ -------
Total.................................... $ 999 $2,964 $1,270 $ -- $ 5,233
----- ------ ------ ------ -------
----- ------ ------ ------ -------
Weighted Average Yield..................... 4.72% 6.30% 7.55% --% 6.30%
</TABLE>
- 112 -
<PAGE>
<TABLE>
<CAPTION>
At September 30, 1994
--------------------------------------------------
Within 1 1 to 5 5 to 10 After 10
Year Years Years Years Total
-------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Held for investment:
U.S. government and agency obligations.... $500 $ 9,987 $ 7,249 $1,000 $18,736
Other investments......................... -- 1,995 3,938 1,305 7,238
---- ------- ------- ------ -------
Total................................... $500 $11,982 $11,187 $2,305 $25,974
---- ------- ------- ------ -------
---- ------- ------- ------ -------
Weighted Average Yield...................... 6.12% 5.79% 6.53% 7.32% 6.25%
</TABLE>
SOURCE OF FUNDS
GENERAL. Savings accounts and other types of deposits are the primary
source of funds for Mutual. In addition to deposits, Mutual obtains funds
from loan repayments, interest on investments, and other borrowed money.
These funds are invested primarily in residential real estate loans, consumer
loans and investments. As of September 30, 1995, approximately 4.0% of
Mutual's deposits came from out-of-state sources.
DEPOSITS. The ability of Mutual to attract and maintain deposits and
manage their associated costs has been and will continue to be, significantly
affected by changes in interest rates. It is the policy of Mutual to pay a
competitive rate of interest to attract savings accounts as long as the funds
can be invested for a profit. If the competitive rate of interest is so much
that an investment profit is not realizable, Mutual allows the competitors to
bid in the funds and Mutual obtains needed funds from repayment of loans or
borrowings. It is also the policy of Mutual to safeguard its net worth even
if it means shrinking in size.
- 113 -
<PAGE>
The following table sets forth the deposits of Mutual in dollar amounts
and as percentages of total deposits at the dates indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ---------------------------- ----------------------------
PERCENT WEIGHTED PERCENT WEIGHTED PERCENT WEIGHTED
OF TOTAL AVERAGE OF TOTAL AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
------- -------- -------- ------- -------- -------- ------- -------- --------
(IN THOUSANDS, EXCEPT FOR PERCENTAGES AND RATES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Passbook and statement.............. $15,103 22.4% 3.00% $24,386 36.4% 3.50% $23,577 35.9% 3.50%
Money market accounts............... 4,858 7.2 3.45 5,599 8.4 3.00 6,261 9.5 3.00
NOW checking........................ 3,635 5.4 2.44 3,280 4.9 2.47 3,126 4.8 2.54
Outstanding official checks......... 243 0.3 -- 590 0.9 -- 320 0.5 --
------- ----- ------- ----- ------- -----
Sub-Total....................... 23,839 35.3 2.98 33,855 50.6 3.25 33,284 50.7 3.28
------- ----- ------- ----- ------- -----
Certificate:
3 mo. - 1 year.................... 27,420 40.6 5.45 22,819 34.1 4.14 22,391 34.1 4.19
1 - 3 year........................ 12,630 18.7 6.27 8,142 12.2 4.97 8,148 12.4 5.06
Due thereafter.................... 3,624 5.4 6.60 2,115 3.1 5.63 1,845 2.8 5.75
------- ----- ------- ----- ------- -----
Total Certificate Accounts...... 43,674 64.7 5.78 33,076 49.4 4.44 32,384 49.3 4.50
------- ----- ------- ----- ------- -----
Total........................... $67,513 100.0% 4.79 $66,931 100.0% 3.84 $65,668 100.0% 3.88
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
- 114 -
<PAGE>
The following table presents, by various interest rate categories, the
amounts of certificates of deposit at Mutual as of the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest Rate
Below 3.00%............. $ 208 $ 239 $ 133
3.00 - 3.99%............. 93 8,987 13,715
4.00 - 4.99%............. 5,822 17,733 9,547
5.00 - 5.99%............. 16,693 3,992 4,629
6.00 - 6.99%............. 17,336 1,242 1,829
7.00 - 7.99%............. 3,304 371 1,327
8.00 - 8.99%............. 211 486 1,018
9.00 - 9.99%............. 7 6 158
10.00 - and over.......... -- 20 28
------- ------- -------
Total................. $43,674 $33,076 $32,384
------- ------- -------
------- ------- -------
</TABLE>
The following table presents time certificates of deposits in amounts of
$100,000 or more at September 30, 1995, by maturity.
<TABLE>
<CAPTION>
MATURITY AMOUNT
-------- ------
(IN THOUSANDS)
<S> <C>
Less than 3 months $ 308
3 to 6 months 1,221
6 to 12 months 1,746
Over 12 months 1,803
------
Total $5,078
------
------
</TABLE>
BORROWINGS. A potential source of borrowings for Mutual is advances
from the FHLB Atlanta, which functions as a central reserve bank providing
credit for savings institutions and certain other member financial
institutions. Under current OTS regulations, there are no limitations on the
amount of borrowings which may be made by an institution. In recent years,
because of decreased permanent loan demand Mutual has generally not needed
long-term advances and has only occasionally borrowed overnight funds.
The following table sets forth certain information regarding short-term
borrowings and FHLB advances at the indicated dates. Note: The weighted
average rate was computed using the daily balance and total interest expense.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS, EXCEPT FOR RATES)
<S> <C> <C> <C>
Amount outstanding......... $ -- $1,500 $12
Weighted average rate paid.... --% 5.95% 5.10%
</TABLE>
- 115 -
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS, EXCEPT RATES)
<S> <C> <C> <C>
Maximum amount outstanding
at any month end period..... $1,500 $1,500 $144
Approximate weighted average
rate paid.................. 5.98% 5.09% 5.10%
</TABLE>
EMPLOYEES
On September 30, 1995, Mutual had 27 employees. Management believes
that its employee relations are excellent.
Mutual currently maintains a comprehensive employee benefit program
providing, among other benefits, a qualified pension plan, an ESOP plan,
hospitalization and major medical insurance, paid vacations, paid sick leave,
long-term disability insurance, life insurance and reduced loan rates for
employees who qualify. Mutual's employees are not represented by any
collective bargaining group.
SUBSIDIARIES
OTS regulations permit Mutual to invest up to 2.0% of its assets in
capital stock and secured and unsecured loans to subsidiary corporations of
service corporations and additional 1.0% of its assets when the additional
funds are utilized for community or inner-city purposes. In addition, under
OTS regulations, federally-chartered savings institutions may invest an
amount not to exceed the institution's total capital in conforming loans to
service corporations in which the lender owns or holds not more than 10% of
the capital stock. An institution which owns or holds more than 10% of the
capital stock of a service corporation may make conforming loans to the
service corporation in an amount not to exceed 50% of the institution's total
capital.
Service corporation activities are conducted through Mutual's
wholly-owned subsidiary, Mutual Service Corporation ("MSC"). The principal
activity of this subsidiary had been the development of residential
subdivisions in the local Danville, Virginia, area. During fiscal 1994, all
residential subdivisions owned by the service corporation were sold. MSC,
although no longer involved in residential or other real estate development,
is involved in the sale of credit life insurance and trustee sales for
Mutual. Commissions from the sale of credit life provide additional income.
MSC had total assets of $39,082 at September 30, 1995, as compared to
$1,051,592 at September 30, 1994. Net income for 1995 amounted to $16,135 as
compared to $96,868 in 1994. Earnings for fiscal 1995 primarily came from
interest on time deposits and credit life insurance commissions. Earnings
for fiscal 1994 primarily came from the sale of residential lots.
The net book value of Mutual's investment in and advances to MSC
(eliminated in consolidation) as of September 30, 1995, was approximately
$68,069, all of which is includable in Mutual's regulatory capital.
COMPETITION
Mutual faces strong competition both in attracting savings deposits (its
primary source of funds) and in originating loans. Its most direct
competition for savings deposits has historically come from other thrift
institutions, commercial banks and credit unions. Mutual also faces
increasing
- 116 -
<PAGE>
competition for investor funds from money market and mutual funds, the stock
market and governmental and corporate bonds. Mutual's competition for real
estate and other loans comes principally from other thrift institutions,
mortgage banking companies, commercial banks, credit unions, finance
companies and other institutional lenders. Interest rates charged on loans
and paid on deposits by Mutual are generally competitive with other financial
institutions and mortgage originators in its general market area.
Non-depository financial service institutions, primarily in the
securities and insurance industries, have become competitors for retail
savings and investments. Mortgage banking/brokerage firms compete for the
residential mortgage business. Removal of regulatory restrictions has
enabled Mutual to enter the highly competitive consumer lending business.
In addition to offering competitive interest rates, the principal method
used by Mutual to attract deposits includes the offering of a variety of
services, friendly courteous service and convenient office locations and
business hours. The primary factors in competing for loans are interest
rates and rate adjustment provisions, loan maturity, loan fees, and the
quality of service to borrowers and real estate brokers. Mutual has repeat
business because of the customers' trust in Mutual and because of its
reputation of fair dealings. Mutual has seven major competitors in its
market area.
FEDERAL AND STATE TAXATION
GENERAL. Mutual reports its income on a fiscal year basis (October 1 to
September 30) using the accrual method of accounting and will be subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly Mutual's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to Mutual. Mutual has been audited by the Internal Revenue
Service ("IRS") up to the tax year September 30, 1983.
TAX BAD DEBT RESERVES. Savings institutions such as Mutual which meet
certain definitional tests primarily relating to their assets and the nature
of their business ("qualifying thrifts") are permitted to establish a reserve
for bad debts and to make annual additions thereto, which additions may,
within specified formula limits, be deducted in arriving at their taxable
income. Mutual's deduction with respect to "qualifying loans," generally
loans secured by certain interests in real property, may be computed using an
amount based on Mutual's actual loss experience, or a percentage equal to
8.0% of Mutual's taxable income. Use of the percentage of taxable income
method of calculating its deductible addition to its loss reserve has the
effect of reducing the marginal rate of federal tax on Mutual's income
(exclusive of wholly-owned service corporations), as compared to the
generally applicable maximum corporate federal income tax rate. Mutual's
deduction with respect to non-qualifying loans must be computed under the
experience method which essentially allows a deduction for actual
charge-offs. Any deduction for an addition to the reserve for non-qualifying
loans reduces the addition to the reserve for qualifying real property loans
calculated under the percentage of taxable income method. Each year Mutual
selects the most favorable way to calculate the deduction with respect to an
addition to the tax bad debt reserve.
The amount of the addition to the reserve for losses on qualifying real
property loans under the percentage of taxable income method cannot exceed
the amount necessary to increase the balance of the reserve for losses on
qualifying real property loans at the close of the taxable year to 6.0% of
the balance of the qualifying real property loans outstanding at the end of
the taxable year. Also, if the qualifying thrift uses the percentage of the
taxable income method, then the qualifying thrift's aggregate addition to its
reserve for losses on qualifying real property loans cannot, when added to
the addition to the reserve for losses on nonqualifying loans, exceed the
amount by which
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<PAGE>
(i) 12% of the amount that the total deposits or withdrawable accounts of
depositors of the qualifying thrift at the close of the taxable year exceeded
(ii) the sum of the qualifying thrift's surplus undivided profits and
reserves at the beginning of such year. At September 30, 1995, 12% of
Mutual's deposits and withdrawable accounts, less its surplus, undivided
profits and reserves, did not exceed the balance of its reserve for losses on
qualifying real property loans. For the tax year ended September 30, 1995,
Mutual did not qualify for the special allowance for bad debts of 8% of
taxable income. As of September 30, 1995, Mutual's bad debt reserve
allowance was $3.2 million.
Mutual is also subject to taxation by the Commonwealth of Virginia. The
present Virginia tax rate on federal taxable income with certain modification
is 6.0%. Tax regulations under Virginia law allow savings banks to utilize
the bad debt deduction method for the purpose of computing net income subject
to state law.
PROPERTIES
Mutual's main office is located at 103 Tower Drive, Danville, Virginia.
In addition to its main office, Mutual has three branch offices. The
following table sets forth the location and certain other information for
each office of Mutual as of September 30, 1995.
<TABLE>
<CAPTION>
YEAR OWNED OR NET BOOK
LOCATION ACQUIRED LEASED VALUE
-------- -------- -------- ----------
<S> <C> <C> <C>
MAIN OFFICE:
-----------
103 Tower Drive 1985 Owned $1,387,364
Danville, Virginia
BRANCHES:
--------
625 Virginia Avenue 1974 Owned 187,931
Collinsville, Virginia
539 Arnett Boulevard 1968 Owned 118,564
Danville, Virginia
600 West Main Street 1970 Owned 46,086
Danville, Virginia
</TABLE>
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<PAGE>
ELECTION OF DIRECTORS OF MUTUAL
The Mutual Board of Directors is presently composed of nine members
elected for terms of three years, one-third of whom stand for election each
year. Two directors are to be elected at the Mutual Annual Meeting to serve
until the 1999 annual meeting or until the proposed merger transaction is
consummated. The nominees, Willie G. Barker, Jr. and F. Neal Howard, Jr.,
are both currently serving on the Board of Directors and are being nominated
by the Mutual Board of Directors for re-election. Mr. E. Ballou Bagby, whose
term as a director is expiring, will retire from the Mutual Board of
Directors effective on the date of the Mutual Annual Meeting. Mr. Bagby is
to be commended for 35 years of faithful and valued service as a member of
Mutual's Board of Directors. The size of the Mutual Board of Directors will
be reduced to eight members upon Mr. Bagby's retirement. No person being
nominated as a director is being proposed for election pursuant to any
agreement or understanding between any person and Mutual. Unless directions
are given to the contrary, it is intended that the proxies solicited by the
Mutual Board of Directors will be voted for the election of said nominees.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Mutual Board
of Directors may recommend. At this time, all nominees have agreed to serve
and the Mutual Board of Directors knows of no reason why any nominee might be
unavailable to serve. For the election of directors, each shareholder is
entitled to vote in person or by proxy, one vote for each share owned by him
or her.
INFORMATION AS TO MUTUAL NOMINEES AND CONTINUING DIRECTORS
The following table sets forth, as of the Mutual Record Date, the names
of the nominees and continuing directors as well as their age, a brief
description of their principal occupation or employment for the past five
years, the year first elected as a director of Mutual, and the year in which
their current term (or in the case of nominees, their proposed term) as a
director will expire. This table also sets forth the amount of Mutual Common
Stock and percent thereof beneficially owned by each director and by all
directors and executive officers as a group as of the Mutual Record Date.
<TABLE>
<CAPTION>
EXPIRATION SHARES OF
NAME, PRINCIPAL DIRECTOR OF MUTUAL COMMON STOCK PERCENT OF
OCCUPATION, AND (AGE) SINCE TERM BENEFICIALLY OWNED (1) CLASS (2)
- ------------------------------------------ -------- ---------- ---------------------- ----------
<S> <C> <C> <C> <C>
BOARD NOMINEES:
Willie G. Barker, Jr. (58) 1995 1999 3,000 (direct) 1.73%
Businessman; director and former 20,000 (indirect)
president and chief operating officer
of Dibrell Brothers Inc., a tobacco
processing company.
F. Neal Howard, Jr. (58) 1977 1999 3,080 (direct) 0.46
Professor of Mathematics at Danville 2,202 (indirect)
Community College until retirement
in June of 1992.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE ELECTION OF EACH NOMINEE
- 119 -
<PAGE>
<TABLE>
<CAPTION>
EXPIRATION SHARES OF
NAME, PRINCIPAL DIRECTOR OF MUTUAL COMMON STOCK PERCENT OF
OCCUPATION, AND (AGE) SINCE TERM BENEFICIALLY OWNED (1) CLASS (2)
- ------------------------------------------ -------- ---------- ---------------------- ----------
<S> <C> <C> <C> <C>
Roy L. Connor (77) 1964 1997 12,050 (direct) 3.68%
District sales manager of Metropolitan 400 (indirect)
Life Insurance Co. until retirement 30,000 (indirect) (3)
in 1975.
Russell Perkins (73) 1961 1997 32,160 (direct) 7.33
Chairman of the Board of Mutual; and 36,800 (direct) (2)
director and president of Mutual 30,000 (indirect) (3)
Service Corporation. 19,831 (indirect) (4)
L. Samuel Saunders (51) 1995 1997 3,000 (direct) 0.45
Certified public accountant with the 2,200 (indirect)
accounting firm of Harris, Harvey,
Neal and Company.
Phillip R. Blackmon (52) 1992 1998 4,000 (direct) 0.35
President of Retail Merchants
Association.
H. Dan Davis (58) 1972 1998 20,000 (direct) 8.85
President, Chief Executive Officer and 500 (indirect)
Director of Mutual and vice 29,900 (direct) (2)
president, treasurer and director of 30,000 (indirect) (3)
Mutual Service Corp. 23,443 (indirect) (4)
T. David Luther (54) 1995 1998 2,000 (direct) 0.52
President, Chief Executive Officer of 4,000 (indirect) (5)
Piedmont Broadcasting
Corporation; president of Multi-
Housing Management, Inc.; general
partner and limited partner of
Downtown Mall Enterprises; and T.
David Luther, T/A Manchester
Square.
RETIRING DIRECTOR:
E. Ballou Bagby (86) 1960 1996 3,000 (direct) 0.26
Served as chairman of the board and
president and chief executive
officer of the First National Bank of
Danville until retirement in 1976.
</TABLE>
- --------------------
(1) Each person effectively exercises sole (or shared with spouse) voting and
dispositive power as to shares reported as directly held.
(2) Reflects shares which may be acquired pursuant to options which are
exercisable.
(3) Reflects 30,000 shares held by the Mutual Pension Plan attributable to
each of Messrs. Perkins, Davis and Connor because they share voting power as
trustees of plan.
(4) Reflects shares allocated in Mutual ESOP and over which the participants
share voting power.
(5) Shares are held by Piedmont Broadcasting Corporation.
- 120 -
<PAGE>
MUTUAL BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Mutual Board of Directors conducts its business through board meetings
and the activities of its committees. During the fiscal year ended September
30, 1995, the Mutual Board of Directors held 13 meetings. During such
period, no director attended fewer than 75% of the aggregate of the total
number of meetings of the Mutual Board of Directors and of the committees of
which he was a member. The following committees have been established by the
Mutual Board of Directors.
EXECUTIVE COMMITTEE. This committee has all the powers of the Mutual
Board of Directors between meetings of the Mutual Board of Directors. The
directors that serve on this committee are Messrs. Perkins, Davis, Blackmon,
Howard, and Bagby. Although the Executive Committee also has responsibility
for compensation policy, the Board has made all compensation decisions during
the last fiscal year. This committee held no meetings in fiscal 1995.
Mutual does not have standing nominating or audit committees.
MUTUAL DIRECTORS COMPENSATION
MUTUAL DIRECTORS FEES. Mutual Directors receive an annual retainer of
$3,000 plus a fee of $300 per Mutual Board meeting attended and $200 per
committee meeting attended. Mutual Services Corporation directors received a
fee of $75 for one meeting in fiscal year 1995. Mr. Perkins, the Chairman
of the Board, received a salary in the amount of $1,400 per month for a
portion of the fiscal year ending September 30, 1995, commencing on January 1,
1995.
MUTUAL EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table shows, for the fiscal
years ending September 30, 1995, 1994 and 1993, the cash compensation paid by
Mutual, as well as certain other compensation paid or accrued for those
years, to the Chief Executive Officer and those executive officers ("Named
Executive Officers") of Mutual, who received salary and bonus in excess of
$100,000 in fiscal 1995.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------- ------------------------------------
Awards Payouts
------------------------- -------
Securities
Name and Other Annual Restricted Underlying LTIP
Principal Salary Bonus Compensation Stock Awards Options/ Payouts All Other
Position Year ($)(1) ($) ($)(2) ($) SARs (#) ($)(3) Compensation ($)
- ---------- ---- --------- --------- ------------ ------------ ---------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Russell Perkins, 1995 $ 42,075 $ -- $ -- None None None $ 18,165(6)
Chairman 1994 101,975 -- -- None None None 4,644(6)
of the Board(4) 1993 99,980 9,000 -- None None None 43,882(6)
H. Dan Davis, President 1995 100,011 -- -- None None None 32,085(7)
and Chief Executive 1994 100,663 -- -- None None None 4,572(7)
Officer(5) 1993 95,509 8,644 -- None None None 42,769(7)
</TABLE>
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<PAGE>
- -----------------------
(1) Includes fees as director of Mutual, and compensation and fees for
service as officers and directors of MSC.
(2) For fiscal 1995, there were no (a) perquisites over the lesser of $50,000
or 10% of the individual's total salary and bonus for the year; (b) payments
of above-market preferential earnings on deferred compensation; (c) payments
with respect to long term incentive plans prior to settlement or maturation;
(d) tax payment reimbursements; or (e) preferential discounts on stock.
(3) Mutual does not maintain a long-term incentive plan.
(4) Mr. Perkins retired as Chief Executive Officer of Mutual effective
December 31, 1994.
(5) Mr. Davis was named Chief Executive Officer effective January 1, 1995.
Previously, Mr. Davis had served as President and Chief Operations Officer.
(6) Mr. Perkins was allocated 4,809 shares, 387 shares and 1,211 shares under
the Mutual ESOP for 1993, 1994 and 1995, respectively. The Mutual ESOP
allocation had an estimated market value of $43,882, $4,644 and $18,165, at
September 30, 1993, 1994 and 1995, respectively. Mr. Perkins is 100% vested
in all allocated amounts.
(7) Mr. Davis was allocated 4,687 shares, 381 shares and 2,139 shares under
the Mutual ESOP for 1993, 1994 and 1995, respectively. The Mutual ESOP
allocation had an estimated market value of $42,769, $4,572 and $32,085, at
September 30, 1993, 1994 and 1995, respectively. Mr. Davis is 100% vested
in all allocated amounts.
STOCK OPTION PLAN. Mutual's 1987 Stock Option Plan (the "Option Plan")
authorizes the granting to employees of Mutual of 115,000 options, as
adjusted for the 2 for 1 stock split on March 15, 1989, to purchase Mutual
Common Stock.
The following table provides certain information with respect to the
number of shares of Mutual Common Stock represented by outstanding stock
options held by the Named Executive Officers as of September 30, 1995. Also
reported are the values for "in-the-money" options which represent the
positive spread between the exercise price of any such existing stock options
and the year-end price of Mutual Common Stock. No options were exercised by
the Named Executive Officers in fiscal 1995.
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-money
Options/SARs Options/SARs
at Fiscal Year End at Fiscal Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
- ---- ------------------------- ----------------------------
<S> <C> <C>
Russell Perkins 36,800/0 $368,000/0
H. Dan Davis 29,900/0 299,000/0
</TABLE>
- -----------------------
(1) The exercise price of the options is $5.00. As of September 30, 1995,
the average of the bid and ask price as determined from the most recent
trades was $15.00.
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<PAGE>
EMPLOYMENT AGREEMENTS. H. Dan Davis, President and Chief Executive
Officer, has an employment agreement with Mutual that is intended to maintain
a stable and competent management base for Mutual.
Mr. Davis' agreement currently provides for a three (3) year term.
Commencing in 1989, on each anniversary date, the contract automatically
renews for an additional year so the remaining term will remain three years
unless notice is given to the contrary. The contract provides for a base
salary, participation in stock option plans and other fringe benefits
otherwise applicable to executive personnel. In the event Mutual chooses to
terminate Mr. Davis' employment for reasons other than for cause, or in the
event of Mr. Davis' resignation from Mutual upon: (i) failure to re-elect Mr.
Davis as president and director; (ii) a material change in his functions,
duties or responsibilities; (iii) liquidation, dissolution, consolidation, or
merger of Mutual or transfer of all or substantially all of its assets in
which Mutual is not the resulting institution and to which Mr. Davis does not
consent; or (iv) a breach of the agreement by Mutual, he or his beneficiary
would be entitled to a sum equal to the greater of (i) thirty-six (36) times
the highest monthly salary, or (ii) the payments owed for the remaining term
of the contract. The contract also provides that generally if termination
results after a Change in Control (as that term is defined in the agreement)
of Mutual (other than as a result of retirement), Mr. Davis would be entitled
to a sum equal to thirty-six (36) times the highest monthly salary paid under
the contract. Based upon the salary Mr. Davis received in fiscal 1995, Mr.
Davis would be entitled to receive $279,108 in the event of a Change in
Control as defined under his agreement.
INDEBTEDNESS OF MANAGEMENT
Mutual has followed the policy of offering loans to its officers and
employees for the financing of their personal residences and, for the past
several years, for other personal reasons. Prior to the enactment of the
Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") in
August, 1989, these loans were made in the ordinary course of business and on
substantially the same terms and collateral, except for interest rates, as
those of comparable transactions prevailing at the time and did not involve
more risk of collectability or present other unfavorable features. After
FIRREA, all loans to directors and executive officers are made on
substantially the same terms and conditions, including interest rates, fees
and collateral, as loans to the general public.
Set forth below is certain information as of September 30, 1995, relating
to loans that in the aggregate exceed $60,000 made to officers of Mutual, if
any loan to such person was made with preferential treatment.
<TABLE>
<CAPTION>
Largest
Outstanding Collected Rate Balance
Balance September 30, September 30,
Name Loan Type For 1994 1995 1995
- --------------------- -------------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
H. Dan Davis First Mortgage $55,789 4.319%(V)(2) $52,102
James R. Jefferson(1) First Mortgage 94,206 4.319 (V)(2) 90,455
</TABLE>
- -----------------------
(1) James R. Jefferson is the Treasurer and Chief Financial Officer of Mutual.
(2) Employees of Mutual are entitled to a special loan program which provides
for reduced interest rates on home loans while employed by Mutual. The
interest rate is based on Mutual's average cost of funds, including average
cost of deposits, advances, and borrowings, on loans secured by the principal
residence of the employee, to a maximum of $125,000. Loans are adjusted
annually each March 1st as to interest rate and monthly payment. (V)
indicates variable or adjustable rate.
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<PAGE>
COMPLIANCE WITH SECTION 16 OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended
requires Mutual's executive officers and directors, and persons who own more
than ten percent of a registered class of Mutual's equity securities, to file
reports of ownership and changes in ownership with the OTS. Executive
officers, directors, and greater than ten-percent shareholders are required
by SEC regulation to furnish Mutual with copies of all Section 16(a) forms
they file. Based solely on its review of the copies of such forms received
by it, or written representations from certain reporting persons that no
Forms 5 were required for those persons, Mutual believes that, since
September 30, 1994, all filing requirements applicable to its executive
officers, directors, and greater than ten-percent beneficial owners were
complied with except that Messrs. Barker, Luther and Saunders failed to file
a Form 3 reporting their beneficial ownership of Mutual stock upon becoming
board members. However, such holdings were subsequently reported on the Form
5 by such directors for the fiscal year ended September 30, 1995.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF MUTUAL COMMON STOCK
Persons and groups owning in excess of 5.0% of Mutual Common Stock are
required to file certain reports regarding such ownership with Mutual and
with the OTS. Mutual is not aware of any person or group, other than the
Mutual Savings Bank, F.S.B. Employee Stock Ownership Plan ("Mutual ESOP"),
Mr. Russell Perkins and Mr. H. Dan Davis, that beneficially owns more than
5.0% of Mutual Common Stock as of the Mutual Record Date. See "-Information
as to Mutual Nominees and Continuing Directors" herein for the ownership of
Messrs. Perkins and Davis.
The following table sets forth certain information, as of the Mutual
Record Date, as to those persons or groups known to management as having
reported beneficial ownership of more than 5.0% of Mutual Common Stock except
for Messrs. Perkins and Davis.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percentage
of Beneficial Owner Ownership of Class
- ------------------------------- -------------------- ----------
<S> <C> <C>
Mutual Savings Bank, F.S.B. 118,020(1) 10.23%
Employee Stock Ownership Plan
c/o William H. Smith, Trustee
Smith & Stowe
P.O. Box 190
Danville, Virginia 24543
</TABLE>
- -----------------------
(1) All of the shares held by the Mutual ESOP are allocated to participants.
An administrative committee, consisting of Directors Russell Perkins, H. Dan
Davis, and Roy L. Connor, administers the Mutual ESOP. An unrelated
corporate trustee for the Mutual ESOP has been appointed (the "Mutual ESOP
Trustee"). The Mutual ESOP Trustee must vote all allocated shares held in
the Mutual ESOP in accordance with the instructions of the participating
employees. Allocated shares for which the Mutual ESOP Trustee receives no
instructions from participants are voted by the Mutual ESOP Trustee in a
manner calculated to most
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<PAGE>
accurately reflect the instructions received from participants regarding the
allocated stock so long as such vote is in accordance with the provisions of
the Employee Retirement Income Security Act of 1974, as amended (the "ERISA").
-125-
<PAGE>
APPOINTMENT OF MUTUAL'S AUDITORS FOR FISCAL
YEAR ENDING SEPTEMBER 30, 1996
Mutual's independent auditors for the fiscal year ended September 30, 1995
were Manning, Perkinson, Floyd & Company. The Board of Directors plans to
renew Mutual's arrangements with Manning, Perkinson, Floyd & Company to be
its auditors for the fiscal year ending September 30, 1996 and is seeking
shareholder ratification of its decision. A representative of Manning,
Perkinson, Floyd & Company is expected to be present at the Mutual Annual
Meeting to respond to shareholder questions and will have the opportunity to
make a statement if he so desires.
THE BOARD OF DIRECTORS OF MUTUAL RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF MANNING, PERKINSON, FLOYD & COMPANY AS
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1996.
AUTHORITY TO ADJOURN MUTUAL'S ANNUAL MEETING
The Merger as described above, must be approved by the holders of
two-thirds of the outstanding shares of Mutual Common Stock. The form of
revocable proxy sent to shareholders with this Joint Proxy Statement sets
forth a proposal to permit the Board of Directors of Mutual to vote the proxy
in favor of an adjournment of the annual meeting for up to 29 days in order
to solicit further proxies voting in favor of the Merger. The proposal to
authorize such adjournment must be approved by a majority of the votes
present in person or by proxy at the annual meeting. In the event that a
two-thirds vote has not been achieved within the 29-day adjournment period,
the Mutual Board of Directors may elect to either re-solicit shareholders
based on a new or revised prospectus/proxy statement or, subject to the terms
of the Agreement, allow the Merger to terminate. MUTUAL'S BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL AND REQUESTS
SHAREHOLDERS CHECK THE BOX PERMITTING ADJOURNMENT OF THE MUTUAL ANNUAL
MEETING IN THE EVENT SUFFICIENT VOTES ARE NOT CAST IN FAVOR OF THE MERGER.
AMENDMENT AND RESTATEMENT OF ANB'S
ARTICLES OF INCORPORATION
THE TEXT OF THE PROPOSED AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
ANB, REFLECTING THE PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION OF
ANB TO BE EFFECTED BY THE ARTICLES OF INCORPORATION AMENDMENT, IS ATTACHED AS
APPENDIX V TO THIS JOINT PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO APPENDIX V AND TO THE PROVISIONS OF THE VSCA.
ANB currently is authorized to issue (i) 3,000,000 shares of ANB Common
Stock and (ii) 200,000 shares of $5.00 par value preferred stock ("ANB
Preferred Stock"). ANB's Board of Directors has unanimously approved a
proposed amendment to ANB's Articles of Incorporation which would increase
the number of authorized shares of ANB Common Stock from 3,000,000 to
10,000,000. Because the amendment to ANB's Articles of Incorporation to
increase the number of authorized shares of ANB Common Stock is necessary to
consummate the Merger, in the event that the shareholders of ANB fail to
approve the Articles of Incorporation Amendment by the necessary vote, the
Merger will not be consummated. However, in the event the Merger is not
consummated
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<PAGE>
but the Articles of Incorporation Amendment is approved, the proposed
increase in the number of authorized shares of ANB Common Stock will be
effected.
As the Articles of Incorporation of ANB have previously been amended on
several occasions but have not been restated, the Board of Directors intends,
if the proposed Articles of Incorporation Amendment is approved, to restate
ANB's Articles of Incorporation to consolidate all existing amendments to the
Articles of Incorporation, together with the Articles of Incorporation
Amendment. Accordingly, a vote in favor of the Articles of Incorporation
Amendment will constitute a vote in favor of the proposed restatement of
ANB's Articles of Incorporation. The restatement of ANB's Articles of
Incorporation does not involve any amendments to such articles except the
Articles of Incorporation Amendment. Included as Appendix V to this Joint
Proxy Statement are the proposed Amended and Restated Articles of
Incorporation of ANB, which include the Articles of Incorporation Amendment.
As of September 30, 1995, there were 2,400,000 shares of ANB Common Stock
issued and outstanding. In connection with the Merger, ANB will issue up to
814,000 shares of ANB Common Stock to the holders of Mutual Common Stock. As
a result, upon completion of the Merger, ANB will have approximately
3,214,000 shares of ANB Common Stock outstanding. Because the resulting
number of outstanding shares will exceed the number of shares currently
authorized by the ANB Articles of Incorporation, ANB must increase the number
of authorized shares of ANB Common Stock in order to complete the Merger as
contemplated. In addition to permitting ANB to consummate the Merger, the
proposed increase in the number of shares of ANB Common Stock will give the
ANB Board flexibility to issue additional shares of ANB Common Stock in
connection with stock dividends and stock splits, acquisitions, financings,
employee benefits, and for other general corporate purposes without the
expense and delay of obtaining shareholder approval of an amendment to the
Articles of Incorporation increasing the number of authorized shares at that
time, unless required by applicable law or by the rules of any stock exchange
on which the ANB Common Stock then may be listed.
The affirmative vote of more than two-thirds of the votes entitled to be
cast at the ANB Special Meeting by holders of the issued and outstanding ANB
Common Stock is required to increase the number of authorized shares of ANB
Common Stock to 10,000,000. If the proposal is approved, officers of ANB
promptly will make appropriate filings in the Commonwealth of Virginia and
take any other action necessary to implement the amendment.
THE BOARD OF DIRECTORS OF ANB RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE ARTICLES OF INCORPORATION AMENDMENT.
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<PAGE>
SUPERVISION AND REGULATION
GENERAL
ANB is a bank holding company, registered with the Federal Reserve under
the BHC Act. As such, ANB and its subsidiaries are subject to the
supervision, examination, and reporting requirements of the BHC Act and the
regulations of the Federal Reserve.
American National, ANB's national bank subsidiary, is a member of the BIF
administered by the FDIC, and as such, its deposits are insured by the FDIC
to the maximum extent provided by law. American National is also subject to
numerous state and federal statutes and regulations that affect its business,
activities, and operations, including the National Bank Act and regulations
adopted thereunder by the OCC. The OCC regularly examines the operations of
American National and is given authority to approve or disapprove mergers,
consolidations, the establishment of branches, and similar corporate actions.
The OCC also has the power to prevent the continuance or development of
unsafe or unsound banking practices or other violations of law.
Mutual, as a federally-chartered savings bank, is subject to the
regulation, supervision, and examination of the OTS, as well as the back-up
examination and supervision of the FDIC as its deposit insurer. Mutual is a
member of the SAIF of the FDIC, and its deposits are insured by the FDIC to
the maximum extent permitted by law. Mutual is also a member of the Federal
Home Loan Bank of Atlanta.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (i) it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5.0% of the voting shares of the bank; (ii) it or any of
its subsidiaries, other than a bank, may acquire all or substantially all of
the assets of the bank; or (iii) it may merge or consolidate with any other
bank holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business
of banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and
needs of the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the
bank holding companies and banks concerned and the convenience and needs of
the community to be served. Consideration of financial resources generally
focuses on capital adequacy, and consideration of convenience and needs
issues includes the parties' performance under the Community Reinvestment Act
of 1977, as amended (the "CRA"), both of which are discussed below. Similar
federal statutes require savings and loan holding companies and other
companies to obtain the prior approval of the OTS before acquiring direct or
indirect ownership or control of a savings association.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that ANB and any other bank holding company
located in Virginia may now acquire a bank located in any other state, and a
bank holding company located outside Virginia is able to acquire any
Virginia-based bank, regardless of state law to the contrary, in either
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case subject to certain deposit percentage and other restrictions. The
Interstate Banking Act also generally provides that, after June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions
of banks in other states. By adopting legislation prior to that date, a
state has the ability either to "opt in" and accelerate the date after which
interstate branching is permissible or "opt out" and prohibit interstate
branching altogether. Virginia is among the 13 states that have so opted in.
Accordingly, were ANB to acquire a bank located in a state other than
Virginia that had also opted in, it would be able to consolidate American
National and the acquired bank into a single entity with interstate branches
following the acquisition. Mutual, as a federally-chartered thrift,
currently possesses the authority to establish and operate branch offices in
Virginia and anywhere else in the country, either through mergers with other
depository institutions, branch purchases, or DE NOVO branching.
The BHC Act generally prohibits ANB from engaging in activities other than
banking or managing or controlling banks or other permissible subsidiaries
and from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In determining whether
a particular activity is permissible, the Federal Reserve must consider
whether the performance of such an activity reasonably can be expected to
produce benefits to the public, such as greater convenience, increased
competition, or gains in efficiency, that outweigh possible adverse effects,
such as undue concentration of resources, decreased or unfair competition,
conflicts of interest, or unsound banking practices. For example, factoring
accounts receivable, acquiring or servicing loans, leasing personal property,
conducting discount securities brokerage activities, performing certain data
processing services, acting as agent or broker in selling credit life
insurance and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities all
have been determined by the Federal Reserve to be permissible activities of
bank holding companies. The BHC Act does not place territorial limitations
on permissible nonbanking activities of bank holding companies. Despite
prior approval, the Federal Reserve has the power to order a bank holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when it has reasonable cause to
believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability
of any bank subsidiary of that bank holding company.
Under the HOLA, Mutual's ability to invest in certain types of loans and
other assets is subject to certain restrictions, including: (i) a limit of
400% of its capital on the aggregate amount of loans secured by
nonresidential real estate property; (ii) a limit of 10% of its assets on
commercial loans; and (iii) a limit of 35% of its assets on consumer loans
and acquisitions of certain debt securities. Mutual is also required by the
HOLA to meet a qualified thrift lender or "QTL" test, under which it must
maintain at least 65% of its "portfolio assets" in certain housing-related
investments in at least nine months out of every 12-month period. At
September 30, 1995, Mutual maintained 74.31% of its portfolio assets in
qualified thrift investments.
COMMUNITY REINVESTMENT
American National and Mutual are subject to the provisions of the CRA and
the federal banking agencies' implementing regulations. Under the CRA, all
financial institutions have a continuing and affirmative obligation
consistent with its safe and sound operation to help meet the credit needs
for their entire communities, including low- and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions, nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires a depository institution's federal regulator, in connection with its
examination of the institution, to assess the
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institution's record in assessing and meeting the credit needs of the
community served by that institution, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the institution's
record is made available to the public. Further, such assessment is required
of any institution which has applied to: (i) charter a national bank; (ii)
obtain deposit insurance coverage for a newly chartered institution; (iii)
establish a new branch office that will accept deposits; (iv) relocate an
office; or (v) merge or consolidate with, or acquire the assets or assume the
liabilities of, a federally regulated financial institution. In the case of
a bank holding company applying for approval to acquire a bank or other bank
holding company, the Federal Reserve will assess the records of each
subsidiary depository institution of the applicant bank holding company, and
such records may be the basis for denying the application. Following their
most recent CRA compliance examinations, American National and Mutual each
received "satisfactory" CRA ratings.
In December, 1993, the federal banking agencies proposed to revise their
CRA regulations in order to provide clearer guidance to depository
institutions on the nature and extent of their CRA obligations and the
methods by which those obligations would be assessed and enforced. In
response to widespread criticisms of the December, 1993 proposal, the
agencies in September, 1994, issued a revised proposal, which was adopted
substantially as proposed on April 17, 1995. Under the new CRA regulations,
which are scheduled to go into effect starting on January 1, 1996, the
current process-based CRA assessment factors are to be replaced with a new
evaluation system that would rate institutions based on their actual
performance in meeting community credit needs. The evaluation system used to
judge an institution's CRA performance will consist of three tests: a
lending test; an investment test; and a service test. Each of these tests
will be applied by the institution's federal regulator in an assessment
context that would take into account such factors as: (i) demographic data
about the community; (ii) the institution's capacity and constraints; (iii)
the institution's product offerings and business strategy; and (iv) data on
the prior performance of the institution and similarly-situated lenders. The
new lending test - the most important of the three tests for all institutions
other than wholesale and limited purpose (e.g., credit card) banks - will
evaluate an institution's lending activities as measured by its home mortgage
loans, small business and farm loans, community development loans, and, at
the option of the institution, its consumer loans. The institution's
regulator will weigh each of these lending categories to reflect its relative
importance to the institution's overall business and, in the case of
community development loans, the characteristics and needs of the
institution's service area and the opportunities available for this type of
lending. Assessment criteria for the lending test will include: (i)
geographic distribution of the institution's lending; (ii) distribution of
the institution's home mortgage and consumer loans among different economic
segments of the community; (iii) the number and amount of small business and
small farm loans made by the institution; (iv) the number and amount of
community development loans outstanding; and (v) the institution's use of
innovative or flexible lending practices to meet the needs of low-to-moderate
income individuals and neighborhoods. At the election of an institution, or
if particular circumstances so warrant, the banking agencies will take into
account in making their assessments lending by the institution's affiliates
as well as community development loans made by the lending consortia and
other lenders in which the institution has invested. As part of the new
regulation, all financial institutions will be required to report data on
their small business and small farm loans as well as their home mortgage
loans, which are currently required to be reported under the Home Mortgage
Disclosure Act.
The focus of the investment test will be the degree to which the
institution is helping to meet the needs of its service area through
qualified investments that (i) benefit low-to-moderate income individuals and
small businesses or farms, (ii) address affordable housing needs, or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the
investment test will be based upon the dollar amount of the institution's
qualified investments, its use of innovative or complex techniques to support
community development initiatives, and its responsiveness to credit and
community development needs. The
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service test will evaluate an institution's systems for delivering retail
banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs, (ii) the
institution's record of opening and closing branch offices and ATMs, and
(iii) the availability of alternative product delivery systems such as home
banking and loan production offices in low-to-moderate income areas. The
federal regulators also will consider an institution's community development
service as part of the service test. A separate community development test
will be applied to wholesale or limited purpose financial institutions.
Smaller institutions, those having total assets of less than $250 million,
will be evaluated under more streamlined criteria. In addition, a financial
institution will have the option of having its CRA performance evaluated
based on a strategic plan of up to five years in length that it had developed
in cooperation with local community groups. In order to be rated under a
strategic plan, the institution will be required to obtain the prior approval
of its federal regulator.
The joint agency CRA regulation provides that an institution evaluated
under a given test will receive one of five ratings for that test:
outstanding, high satisfactory, low satisfactory, needs to improve, or
substantial non-compliance. An institution will then receive a certain
number of points for its rating on each test, and the points will be combined
to produce an overall composite rating of either outstanding, satisfactory,
needs to improve, or substantial noncompliance. Under the agencies' rating
guidelines, an institution that receives an "outstanding" rating on the
lending test will receive an overall rating of at least "satisfactory", and
no institution can receive an overall rating of "satisfactory" unless it
receives a rating of at least "low satisfactory" on its lending test. In
addition, evidence of discriminatory or other illegal credit practices would
adversely affect an institution's overall rating. Under the new regulations,
an institution's CRA rating would continue to be taken into account by its
regulator in considering various types of applications.
PAYMENT OF DIVIDENDS
ANB is a legal entity separate and distinct from American National and its
subsidiaries. The principal source of cash flow of ANB, including cash flow
to pay dividends to its shareholders, is dividends from American National.
There are statutory and regulatory limitations on the payment of dividends by
American National to ANB as well as ANB to its shareholders. Separate
restrictions also apply to the payment of dividends by Mutual to its
shareholders.
As a national bank, American National is subject to the applicable
provisions of the National Bank Act and to the regulations of the OCC as to
the payment of dividends. Under the National Bank Act, a national bank may
only pay dividends from "net profits then on hand," which the OCC has defined
as retained earnings (including surplus in excess of required amounts that is
derived from and transferred back to retained earnings).
Mutual is subject to the OTS' regulations governing dividend payments and
other capital distributions. Under those regulations, a savings association
that is well capitalized is permitted to declare dividends of up to the
greater of (i) sum of 100% of its current net income plus one-half of its
capital in excess of the minimum regulatory requirements or (ii) 75% of its
net income during the most recent four-quarter period. Mutual is not
permitted to pay dividends if its shareholders' equity would be reduced below
the amount required for its Liquidation Account. Mutual's declaration of
dividends is also dependent upon tax considerations and general economic
conditions.
In addition, under FDICIA, a national bank or federal savings bank may not
pay any dividend if payment would cause it to become undercapitalized or if
it already is undercapitalized. See "--Prompt Corrective Action." Moreover,
the Federal Reserve has issued a policy statement which
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provides that bank holding companies should generally pay dividends only out
of current operating earnings.
The payment of dividends by ANB, American National, and Mutual may also be
affected or limited by other factors, such as the requirement to maintain
adequate capital above regulatory guidelines.
TRANSACTIONS WITH AFFILIATES
There are various restrictions on the extent to which ANB can borrow or
otherwise obtain credit from American National. American National (and its
subsidiaries) is limited in engaging in borrowing and other "covered
transactions" with nonbank or non-savings-bank affiliates to the following
amounts: (i) in the case of any such affiliate, the aggregate amount of
covered transactions of American National and its subsidiaries may not exceed
10% of the capital stock and surplus of American National; and (ii) in the
case of all affiliates, the aggregate amount of covered transactions of
American National and its subsidiaries may not exceed 20% of the capital
stock and surplus of American National. "Covered transactions" are defined
by statute to include a loan or extension of credit, as well as a purchase of
securities issued by an affiliate, a purchase of assets (unless otherwise
exempted by the Federal Reserve), the acceptance of securities issued by the
affiliate as collateral for a loan and the issuance of a guarantee,
acceptance, or letter of credit on behalf of an affiliate. Covered
transactions are also subject to certain collateralization requirements.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease, or sale of property or furnishing of services.
CAPITAL ADEQUACY
ANB, American National, and Mutual are required to comply with the capital
adequacy standards established by the Federal Reserve in the case of ANB, the
OCC in the case of American National, and the OTS in the case of Mutual.
There are two basic measures of capital adequacy for bank holding companies
and insured depository institutions that have been promulgated by the federal
banking agencies: a risk-based measure and a leverage measure. All
applicable capital standards must be satisfied for a bank holding company or
a depository institution to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among depository
institutions or their holding companies, to account for off-balance-sheet
exposure, and to minimize disincentives for holding liquid assets. Assets
and off-balance-sheet items are assigned to broad risk categories, each with
appropriate weights. The resulting capital ratios represent capital as a
percentage of total risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio ("Risk-Based Capital Ratio") of total
capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8.0%. At least
half of the Total Capital must be composed of common equity, undivided
profits, minority interests in the equity accounts of consolidated
subsidiaries, noncumulative perpetual preferred stock, and, only for bank
holding companies, a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a
limited amount of loan loss reserves. At September 30, 1995, the
Risk-Based Capital Ratio was 20.16% for both ANB and American National.
Mutual's Risk-Based Capital Ratio was 50.03% at September 30, 1995.
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In addition, the federal banking agencies have established minimum
leverage ratio guidelines for bank holding companies and depository
institutions. These guidelines provide for a minimum ratio of Tier 1 Capital
to average assets, less goodwill and certain other intangible assets (the
"Leverage Ratio"), of 3.0% for entities that meet certain specified criteria,
including having the highest regulatory rating. All other holding companies
and depository institutions generally are required to maintain a Leverage
Ratio of at least 3.0%, plus an additional cushion of 100 to 200 basis
points. At September 30, 1995, ANB's, American National's, and Mutual's
Leverage Ratios were 11.08%, 11.08%, and 17.73%, respectively. The
guidelines also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve
has indicated that it will consider a "tangible Tier 1 Capital leverage
ratio" (deducting all intangibles) and other indicators of capital strength
in evaluating proposals for expansion or new activities. Neither ANB,
American National, nor Mutual has been advised by any federal banking agency
of any specific minimum capital ratio requirement applicable to it.
Failure to meet capital guidelines could subject a depository institution
to a variety of enforcement remedies, including the termination of deposit
insurance by the FDIC, and to certain restrictions on its business. See
"--Prompt Corrective Action."
The federal regulators continue to indicate their desire to refine the
capital requirements applicable to depository institutions and bank holding
companies in order to more accurately reflect the risks other than credit
risk to which banks are subject. In this regard, the Federal Reserve and the
OCC have, pursuant to FDICIA, proposed an amendment to the Risk-Based Capital
standards which would calculate the change in an institution's net economic
value attributable to increases and decreases in market interest rates and
would require banks with excessive interest rate risk exposure to hold
additional amounts of capital against such exposures. In the case of Mutual,
the OTS has already included an interest-rate risk component in its
risk-based capital guidelines for savings associations.
SUPPORT OF AMERICAN NATIONAL
Under Federal Reserve policy, ANB is expected to act as a source of
financial strength for, and to commit resources to support, American
National. This support may be required at times when, absent such Federal
Reserve policy, ANB may not be inclined to provide it. In addition, any
capital loans by ANB to American National are subordinate in right of payment
to deposits and to certain other indebtedness of American National. In the
event of ANB's bankruptcy, any commitment by ANB to a federal bank regulatory
agency to maintain the capital of American National will be assumed by the
bankruptcy trustee and entitled to a priority of payment.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in 1992, the federal banking regulators are required to establish
five capital categories ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized") and to take certain mandatory supervisory actions (and are
authorized to take other discretionary actions) with respect to institutions
in the three undercapitalized categories, the severity of which will depend
upon the capital category in which the institution is placed. Generally,
subject to a narrow exception, FDICIA requires the depository institution
regulator to appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal regulatory agencies have specified
by regulation the relevant capital level for each category.
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Under the final agency rule implementing the prompt corrective action
provisions, an institution that (i) has a Risk-Based Capital ratio of 10% or
greater, a Tier 1 Risk-Based Capital ratio (i.e., the ratio of Tier 1 Capital
to risk-weighted assets) of 6.0% or greater, and a Leverage Ratio of 5.0% or
greater, and (ii) is not subject to any written agreement, order, capital
directive, or prompt corrective action directive issued by the appropriate
federal banking agency, is deemed to be "well capitalized." An institution
with a Risk-Based Capital ratio of 8.0% or greater, a Tier 1 Risk-Based
Capital ratio of 4.0% or greater, and a Leverage Ratio of 4.0% or greater is
considered to be "adequately capitalized." A depository institution that has
a Risk-Based Capital ratio of less than 8.0%, a Tier 1 Risk-Based Capital
ratio of less than 4.0%, or a Leverage Ratio of less than 4.0% is considered
to be "undercapitalized." A depository institution that has a Risk-Based
Capital ratio of less than 6.0%, a Tier 1 Risk-Based Capital ratio of less
than 3.0%, or a Leverage Ratio of less than 3.0% is considered to be
"significantly undercapitalized," and an institution that has a tangible
equity capital to assets ratio equal to or less than 2.0% is deemed to be
"critically undercapitalized." For purposes of the regulation, the term
"tangible equity" includes core capital elements counted as Tier 1 Capital
for purposes of the Risk-Based Capital standards plus the amount of
outstanding cumulative perpetual preferred stock (including related surplus),
minus all intangible assets with certain exceptions. A depository
institution may be deemed to be in a capitalization category that is lower
than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal regulatory
agency. Under FDICIA, a bank holding company must guarantee that a
subsidiary depository institution meet is capital restoration plan, subject
to certain limitations. The obligation of a controlling bank holding company
under FDICIA to fund a capital restoration plan is limited to the lesser of
5.0% of an undercapitalized subsidiary's assets and the amount required to
meet regulatory capital requirements. An undercapitalized institution is
also generally prohibited from increasing its average total assets, making
acquisitions, establishing any branches, or engaging in any new line of
business, except in accordance with an accepted capital restoration plan or
with the approval of the FDIC. In addition, the appropriate federal banking
agency is given authority with respect to any undercapitalized depository
institution to take any of the actions it is required to or may take with
respect to a significantly undercapitalized institution as described below if
it determines "that those actions are necessary to carry out the purpose" of
FDICIA. For those institutions that are significantly undercapitalized or
undercapitalized and either fail to submit an acceptable capital restoration
plan or fail to implement an approved capital restoration plan, the
appropriate federal banking agency must require the institution to take one
or more of the following actions: (i) sell enough shares, including voting
shares, to become adequately capitalized; (ii) merge with (or be sold to)
another institution (or holding company), but only if grounds exist for
appointing a conservator or receiver; (iii) restrict certain transactions
with banking affiliates as if the "sister bank" exception to the requirements
of Section 23A of the Federal Reserve Act did not exist; (iv) otherwise
restrict transactions with bank or nonbank affiliates; (v) restrict interest
rates that the institution pays on deposits to "prevailing rates" in the
institution's "region"; (vi) restrict asset growth or reduce total assets;
(vii) alter, reduce, or terminate activities; (viii) hold a new election of
directors; (ix) dismiss any director or senior executive officer who held
office for more than 180 days immediately before the institution became
undercapitalized, provided that in requiring dismissal of a director or
senior officer, the agency must comply with certain procedural requirements,
including the opportunity for an appeal in which the director or officer will
have the burden of proving his or her value to the institution; (x) employ
"qualified" senior executive officers; (xi) cease accepting deposits from
correspondent depository institutions; (xii) divest certain nondepository
affiliates which pose a danger to the institution; or (xiii) be divested by a
parent holding company. In addition, without the prior approval of the
appropriate federal banking agency, a significantly undercapitalized
institution may
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not pay any bonus to any senior executive officer or increase the rate of
compensation for such an officer without regulatory approval.
At September 30, 1995 American National and Mutual both had the requisite
capital levels to qualify as well capitalized.
BROKERED DEPOSITS
The FDIC has adopted regulations governing the receipt of brokered
deposits. Under the regulations, a depository institution cannot accept,
roll over, or renew brokered deposits unless (i) it is well capitalized or
(ii) it is adequately capitalized and receives a waiver from the FDIC. A
depository institution that cannot receive brokered deposits also cannot
offer "pass-through" insurance on certain employee benefit accounts. Whether
or not it has obtained such a waiver, an adequately capitalized depository
institution may not pay an interest rate on any deposits in excess of 75
basis points over certain prevailing market rates specified by regulation.
There are no such restrictions on a depository institution that is well
capitalized. Because both American National and Mutual had at September 30,
1995, the requisite capital levels to qualify as well capitalized, the
brokered deposits regulation will have no material effect on the funding or
liquidity of either institution.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system
for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities. The new system, which went into effect on January 1, 1994 and
replaces a transitional system that the FDIC had utilized for the 1993
calendar year, assigns an institution to one of three capital categories:
(i) well capitalized; (ii) adequately capitalized; and (iii)
undercapitalized. These three categories are substantially similar to the
prompt corrective action categories described above, with the
"undercapitalized" category including institutions that are undercapitalized,
significantly undercapitalized, and critically undercapitalized for prompt
corrective action purposes. An institution is also assigned by the FDIC to
one of three supervisory subgroups within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary
federal regulator, information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by
the institution's state supervisor). An institution's insurance assessment
rate is then determined based on the capital category and supervisory
category to which it is assigned. Under the final risk-based assessment
system, as well as the prior transitional system, there are nine assessment
risk classifications (i.e., combinations of capital groups and supervisory
subgroups) to which different assessment rates are applied.
Assessment rates for the first half of 1995 for members of both the BIF
and the SAIF, as they had been during 1994, ranged from 23 basis points
(0.23% of deposits) for an institution in the highest category (i.e., "well
capitalized" and financially sound) to 31 basis points (0.31% of deposits)
for an institution in the lowest category (i.e., "undercapitalized" and
"substantial supervisory concern").
The FDI Act requires that the SAIF and BIF funds each be recapitalized
until reserves reach a designated ratio of at least 1.25% of the deposits
insured by that fund. The SAIF is not expected to be recapitalized until
2002. SAIF reserves have not grown as quickly as the BIF reserves due to a
number of factors, including the fact that a significant portion of SAIF
premiums have been and are currently being used to make payments on the FICO
bonds issued in the late 1980s by the Financing
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Corporation to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation.
Once the designated ratio for the BIF was reached, which appears to have
occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve ratio at the
designated level. In August 1995, the FDIC reduced the assessment rates for
BIF members. Under the revised assessment schedule, which became effective
on June 1, 1995, BIF-insured institutions were to pay assessments ranging
from 0.04% of deposits to 0.31% of deposits, with an average assessment rate
of 4.5 basis points. Refunds, with interest, were paid to BIF-insured
institutions for assessments they had paid for the period beginning on June
1, 1995, and American National received $132,000. Subsequently, on November
14, 1995, the FDIC voted to reduce annual assessments to the legal minimum of
$2,000 for all BIF-insured institutions except those that are not well
capitalized and are assigned to the higher supervisory risk categories.
At the same time, the FDIC elected to retain the existing assessment
range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund. As a result of the
BIF premium reduction, institutions that are required to pay SAIF premiums,
such as Mutual, are likely to be subject to a significant competitive
disadvantage relative to BIF-insured institutions, pending any legislative
action to remedy the disparity. The FDIC has recognized that the disparity
may have adverse consequences for such institutions, including reduced
earnings and an impaired ability to raise funds in capital markets and to
attract deposits. Further, it is not currently known whether institutions
that are required to pay SAIF premiums will be required to pay higher deposit
insurance premiums in the future.
On July 28, 1995, the FDIC, the Treasury Department, and the OTS released
statements outlining the Proposed Plan to recapitalize the SAIF, certain
features of which were subsequently approved by the House of Representatives
and the Senate of the United States in bills that provided for different
resolutions of the BIF-SAIF disparity. In negotiations between members of
the Banking Committees of the House and Senate to reconcile the differences
in the two bills, it was agreed on November 7, 1995 that the current Budget
Reconciliation Package will focus on the financial problems of the SAIF.
Under the Committee Agreement, all SAIF-member institutions will pay a
special assessment to recapitalize the SAIF, and the assessment base for the
payments on the FICO bonds would be expanded to include the deposits of both
BIF- and SAIF-insured institutions. The amount of the special assessment
required to recapitalize the SAIF is currently estimated to be approximately
80 basis points (0.80% of deposits), somewhat less than the 85 basis point
assessment that had been previously estimated as necessary. The special
assessment would be payable some time in 1996 based on the amount of
SAIF-insured deposits held on March 31, 1995. The Committee Agreement will
also permit BIF-insured institutions holding deposits subject to SAIF
assessments to reduce such SAIF deposits by 20% in computing the
institutions' special assessment. There is some question as to whether
either BIF-insured institutions acquiring SAIF-insured institutions after
March 31, 1995 or SAIF-insured institutions that go out of existence prior to
the enactment of the Budget Reconciliation legislation will be required to
pay any
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special assessment under the current language of the legislation. If an 80
basis point assessment were assessed against Mutual's deposits as of March
31, 1995, Mutual would be required to pay a special assessment on its
SAIF-insured deposits of $536,500. In accordance with generally accepted
accounting principles, Mutual had not recorded an accrual for the special
assessment at December 31, 1995. The special assessment paid by Mutual would
be at least partially offset by a reduction in insurance premiums paid by
Mutual (or American National, following the Merger) if, as expected, the FDIC
were to reduce SAIF premiums to BIF levels following payment of the special
assessment and recapitalization of the SAIF.
The Budget Reconciliation Package would also provide for the merger of
the BIF and SAIF on January 1, 1998, with such merger being conditioned upon
the prior elimination of the thrift charter. They also agreed that Congress
should consider and act upon separate legislation to eliminate the thrift
charter and to abolish the OTS and transfer its functions to the OCC, the
FDIC, and the Federal Reserve as early as possible in 1996. If adopted, such
legislation would require that Mutual, as a federal savings bank, convert to
a bank charter in the event that the Merger were not consummated. Such a
requirement to convert to a bank charter would cause Mutual to lose the
favorable tax treatment for its bad debt reserves that it currently enjoys
under section 593 of the Code and to have all or part of its existing bad
debt reserves recaptured into income. The Merger would also result in the
recapture of Mutual's bad debt reserves into income.
Under section 593 of the Code, thrift institutions such as Mutual, which
meet certain definitional tests primarily relating to their assets and the
nature of their business, are permitted to establish a tax reserve for bad
debts and to make annual additions thereto, which additions, may, within
specified limitations, be deducted in arriving at their taxable income.
Mutual's deduction with respect to "qualifying loans," which are generally
loans secured by certain interests in real property, may be computed using an
amount based on Mutual's actual loss experience, the Experience Method, or a
percentage equal to 8.0% of Mutual's taxable income, the PTI Method, computed
without regard to this deduction and with additional modifications and
reduced by the amount of any permitted addition to the non-qualifying
reserve. Under pending tax legislative proposals, a small thrift institution
(those with less than $500 million in assets) would no longer be permitted to
make additions to its tax bad debt reserve under the PTI Method, but would be
permitted to use the Experience Method in lieu of deducting bad debts only as
they occur. A small thrift institution would be required to recapture over a
multi-year period the lesser of (i) the balance of its bad debt reserves in
excess of the balance of such reserves as of the end of its last taxable
year ending before 1988 or (ii) an amount that would have been the balance of
such reserves had the institution always computed its additions to its
reserves using the Experience Method. Under the proposed legislation, the
bad debt reserve recapture requirements discussed above would be suspected
for each of two successive taxable years beginning January 1, 1996 in which a
thrift institution originates a minimum amount of certain residential loans
based upon the average of the principal amounts of such loans made by the
thrift during its six taxable years preceding 1996.
The managements of ANB and Mutual cannot predict whether the above
legislation or any other legislative proposal will be enacted as described
above or, if enacted, the amount of any special SAIF assessment, whether
ongoing SAIF premiums will be reduced to a level equal to that of BIF
premiums or whether, if thrifts are required to convert to a bank charter,
there will be any relief from the additional tax liabilities that would be
incurred upon the recapture of their bad debt reserves. It also cannot be
predicted whether some other legislative action will be taken to address the
BIF-SAIF disparity and what consequences such action could have for SAIF
members. A significant increase in SAIF insurance premiums, either
absolutely or relative to BIF premiums, a significant one-time fee to
recapitalize the SAIF or a significant tax liability associated with the
recapture of the bad debt reserve could have an adverse effect on the
operating expenses and results of operations of Mutual or American National
if such expenses are incurred following the Merger.
-137-
<PAGE>
Under the Federal Deposit Insurance Act ("FDI Act"), insurance of
deposits may be terminated by the FDIC upon a finding that the institution
has engaged in unsafe and unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law,
regulation, rule, order, or condition imposed by the FDIC.
SAFETY AND SOUNDNESS STANDARDS
The FDI Act, as amended by the FDICIA, and the Riegle Community
Development and Regulatory Improvement Act of 1994 ("Community Development
Act"), requires the federal bank regulatory agencies, to prescribe standards,
by regulations or guidelines, relating to internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, asset quality, earnings, stock
valuation and compensation, fees and benefits and such other operational and
managerial standards as the agencies deem appropriate. The federal bank
regulatory agencies have adopted, effective August 9, 1995, a set of
guidelines prescribing safety and soundness standards pursuant to FDICIA as
amended. The guidelines establish general standards relating to internal
controls and information systems, internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation,
fees, and benefits. In general, the guidelines require, among other things,
appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director, or principal
shareholder. The federal agencies determined that stock valuation standards
were not appropriate. In addition, the agencies adopted regulations that
authorize, but do not require, them to order an institution that has been
notified that it is not satisfying any of such safety and soundness standards
to submit a compliance plan. If, after being so notified, an institution
fails to submit an acceptable compliance
-138-
<PAGE>
plan or fails in any material respect to implement an accepted compliance
plan, the agency must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to
which an undercapitalized association is subject under the "prompt corrective
action" provisions of FDICIA. See "--Prompt Corrective Action." If an
institution fails to comply with such an order, the federal agency may seek
to enforce such an order in judicial proceedings and to impose civil money
penalties. The federal bank regulatory agencies also proposed guidelines for
asset quality and earnings standards.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against
an insured depository institution would be afforded a priority over other
general unsecured claims against such an institution in the "liquidation or
other resolution" of such an institution by any receiver.
OTHER
Because of concerns relating to the competitiveness and the safety and
soundness of the industry, the Congress continues to consider a number of
wide-ranging proposals for altering the structure, regulation, and
competitive relationships of the nation's financial institutions. Among such
bills are proposals to alter the statutory separation of commercial and
investment banking and to further expand the powers of depository
institutions, bank holding companies, and competitors of depository
institutions. It cannot be predicted whether or in what form any of these
proposals will be adopted or the extent to which the businesses of ANB,
American National, or Mutual may be affected thereby.
-139-
<PAGE>
DESCRIPTION OF ANB CAPITAL STOCK
In the event the Articles of Incorporation Amendment is effected, the
authorized capital stock of ANB will consist of (i) 10,000,000 shares of ANB
Common Stock and (ii) 2,000,000 shares of ANB Preferred Stock. Upon
completion of the Merger, based on the outstanding shares of Mutual Common
Stock and ANB Common Stock on the Mutual Record Date and the ANB Record Date,
respectively, approximately 3,214,000 shares of ANB Common Stock will be
issued and outstanding, and no shares of ANB Preferred Stock will be issued
and outstanding. ANB Common Stock will be listed for trading on the OTC
Bulletin Board under the symbol "AMNB." The following discussion is a brief
summary of the ANB capital stock and the relevant provisions of Virginia law
and the Amended Articles of Incorporation and Bylaws of ANB. The following
summary does not purport to be complete and is qualified in its entirety by
reference to the VSCA and to the Amended Articles of Incorporation, which are
attached hereto as Appendix V and are incorporated herein by reference, and
the Bylaws of ANB. See "Effect of the Merger on Rights of Shareholders" and
"Amendment and Restatement of ANB's Articles of Incorporation."
ANB COMMON STOCK
VOTING RIGHTS. Each share of the ANB Common Stock has the same relative
rights and is identical in all respects with every other share of the ANB
Common Stock. The shareholders of ANB Common Stock possess exclusive voting
rights in ANB, except to the extent that shares of ANB Preferred Stock issued
in the future may have voting rights, if any. Each shareholder of ANB Common
Stock is entitled to one vote for each share held of record on all matters
submitted to a vote of holders of the ANB Common Stock. Holders of shares of
ANB Common Stock are not entitled to cumulate votes for the election of
directors.
DIVIDENDS. Subject to such preferences as may be applicable to any
shares of ANB Preferred Stock which may be issued in the future, the holders
of ANB Common Stock are entitled to such dividends as the Board of Directors
of ANB may declare from time to time out of funds legally available therefor
and will be entitled to share pro rata in liquidating and other distributions
to shareholders. Dividends from ANB will depend upon the receipt by ANB of
dividends from American National because ANB will have no source of income
other than dividends from American National. See "Supervision and
Regulation--Payment of Dividends."
LIQUIDATION. In the event of the liquidation, dissolution, or winding up
of ANB, the holders of shares of ANB Common Stock are entitled to share
ratably in all assets remaining after payment of all debts and other
liabilities of ANB, subject to prior distribution rights of ANB Preferred
Stock, if any, then outstanding.
OTHER CHARACTERISTICS. Holders of ANB Common Stock do not have any
preemptive, conversion, or other subscription rights with respect to any
additional shares of ANB Common Stock that may be issued. Therefore, the
Board of Directors of ANB may sell shares of capital stock of ANB without
first offering it to existing shareholders. ANB Common Stock is not subject
to any redemption or sinking fund provisions. Upon completion of the Merger,
the outstanding shares of ANB Common Stock will be fully paid and non
assessable.
TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar for ANB
Common Stock is ANB.
-140-
<PAGE>
ANB PREFERRED STOCK
The ANB Preferred Stock may be issued from time to time by the Board of
Directors of ANB as shares of one or more classes or series. As provided by
Virginia law, the Board of Directors of ANB will be authorized by adopting
resolutions to establish the number of shares to be included in each class or
series and to fix the designations and relative powers, preferences, rights,
qualifications, and limitations or restrictions thereof, including the
dividend rate, terms of redemption, convertibility, voting rights, and any
obligation to retire the shares or series pursuant to a sinking fund. If and
when issued, ANB Preferred Stock is likely to rank prior to the ANB Common
Stock as to dividend rights, liquidation preferences, or both and may have
full or limited voting rights. The ANB Board of Directors has no present
intention to issue any of the ANB Preferred Stock. Because of its broad
discretion with respect to the creation and issuance of any series of ANB
Preferred Stock without shareholder approval, the ANB Board of Directors
could affect adversely the voting power of the holders of ANB Common Stock
and by issuing shares of ANB Preferred Stock with certain voting, conversion,
and/or redemption rights, could discourage any attempt to obtain control of
ANB in any transaction not approved by ANB's Board of Directors.
LEGAL MATTERS
Alston & Bird, counsel for ANB, has delivered its opinion to the effect
that ANB Common Stock to be issued to the holders of Mutual Common Stock in
connection with the Merger, when issued as contemplated in the Agreement,
will be validly issued, fully paid, and nonassessable. Alston & Bird has
delivered its opinion concerning the federal income tax consequences of the
Merger. See "The Merger--Certain Federal Income Tax Consequences." Certain
other legal matters in connection with the Merger will be passed upon for ANB
by Alston & Bird and for Mutual by Muldoon, Murphy & Faucette, counsel to
Mutual.
EXPERTS
The consolidated financial statements of ANB incorporated in this Joint
Proxy Statement by reference from ANB's Annual Report on Form 10-K for the
year ended December 31, 1994, and attached to this Joint Proxy Statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report, which is incorporated herein by reference and
attached to this Joint Proxy Statement, and are incorporated by reference
herein and attached hereto in reliance upon the authority of said firm as
experts in accounting and auditing in giving said report.
The consolidated financial statements of Mutual as of September 30, 1995,
and 1994, and for each of the years in the three-year period ended September
30, 1995, and attached to this Joint Proxy Statement, have been included
herein in reliance upon the report Manning, Perkinson, Floyd & Company,
independent public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
-141-
<PAGE>
OTHER MATTERS
MISCELLANEOUS
As of the date of this Joint Proxy Statement, the Board of Directors of
Mutual and the Board of Directors of ANB know of no matter which will be
presented for consideration at the Meetings other than as described in this
Joint Proxy Statement. However, if any other matter shall come before the
Mutual Annual Meeting or any adjournment or postponement thereof or the ANB
Special Meeting or any adjournment or postponement thereof and be voted upon,
the proposed proxy will be deemed to confer discretionary authority to the
individuals named as authorized herein to vote the shares represented by such
proxy as to any such matters.
SOLICITATION
In addition to solicitation by mail, proxies may be solicited by the
officers, directors, and employees of Mutual and ANB by telephone, telegram,
or in person. Such directors, officers, and employees will not be
compensated additionally for such solicitation but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Brokerage houses,
nominees, fiduciaries, and other custodians will be requested to forward
solicitation materials to beneficial owners and will be reimbursed for their
reasonable out-of-pocket expenses incurred in connection therewith. All
other expenses associated with soliciting proxies will be borne by the party
incurring the same, except for the expenses of printing, filing, and mailing
this Joint Proxy Statement, which will be shared equally by Mutual and ANB.
SHAREHOLDER PROPOSALS
If the Merger is consummated, it currently is anticipated that ANB will
hold its first annual meeting of shareholders following such consummation
during April, 1996. As disclosed in the proxy statement sent to shareholders
in connection with the 1995 Annual Meeting of Shareholders of ANB,
shareholders wishing to submit proposals for inclusion in the ANB proxy
statement must submit them to ANB on or before January 2, 1996 for
consideration by ANB for possible inclusion in such proxy materials.
If the Merger is not consummated, proposals of Mutual shareholders
intended to be presented at its 1997 Annual Meeting of Shareholders must be
received by Mutual at its principal executive offices on or before
___________, 1996, in order to be included in Mutual's proxy statement and
form of proxy relating to its 1997 Annual Meeting of Shareholders of Mutual.
-142-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN NATIONAL BANKSHARES INC.
Report of Independent Public Accountants.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1993.............................................. F-3
Consolidated Statements of Income for the Years Ended December 31, 1994, 1993, and 1992................... F-4
Consolidated Statements of Changes in Shareholders' Investment for the Years Ended December 31, 1994,
1993, and 1992........................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1993, and 1992............... F-6
Notes to Consolidated Financial Statements................................................................ F-7
Consolidated Condensed Balance Sheets as of September 30, 1995 and December 31, 1994 (Unaudited).......... F-17
Consolidated Condensed Statements of Income for the Three Months Ended September 30, 1995 and 1994
(Unaudited).............................................................................................. F-18
Consolidated Condensed Statements of Income for the Nine Months Ended September 30, 1995 and 1994
(Unaudited).............................................................................................. F-19
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 (Unaudited)... F-20
Notes to Consolidated Condensed Financial Statements...................................................... F-21
MUTUAL SAVINGS BANK, F.S.B.
Independent Auditor's Report.............................................................................. F-22
Consolidated Statements of Financial Condition as of September 30, 1995 and 1994.......................... F-23
Consolidated Statements of Operations for the Years Ended September 30, 1995, 1994, and 1993.............. F-24
Consolidated Statements of Stockholders' Equity for the Years Ended September 30, 1995, 1994, and 1993.... F-25
Consolidated Statements of Cash Flows for the Years Ended September 30, 1995, 1994, and 1993.............. F-26
Notes to Consolidated Financial Statements................................................................ F-28
</TABLE>
F-1
<PAGE>
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Greensboro, North Carolina,
January 13, 1995.
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
American National Bankshares Inc. and Subsidiary
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1993
------------- -------------
<S> <C> <C>
ASSETS
Cash and Due from Banks (Notes 1 and 7)............................................. $ 9,177,088 $ 6,307,888
Federal Funds Sold (Note 1)......................................................... 4,650,000 1,550,000
Interest-Bearing Deposits in Other Banks............................................ 1,585,961 3,499,087
Investment Securities (Notes 1 and 3):
U.S. Government................................................................... 65,952,135 73,333,861
Federal agencies.................................................................. 2,809,151 8,206,271
State and municipal............................................................... 10,479,607 10,276,001
Other investments................................................................. 10,000 10,000
------------- -------------
Total investment securities (market value of $77,231,293 in 1994 and $92,798,939
in 1993)....................................................................... 79,250,893 91,826,133
------------- -------------
Loans (Notes 1, 4, and 8)........................................................... 155,435,934 143,846,487
Less --
Unearned income................................................................... (1,956,678) (3,814,927)
Reserve for loan losses........................................................... (2,353,411) (2,154,771)
------------- -------------
Net loans....................................................................... 151,125,845 137,876,789
------------- -------------
Federal Reserve Stock, Federal Home Loan Bank Stock and Other, at cost.............. 944,600 201,500
Bank Premises and Equipment, at cost, less accumulated depreciation of $4,239,886 in
1994 and $3,788,225 in 1993 (Note 1)............................................... 3,401,759 3,233,279
Accrued interest receivable and other assets........................................ 3,632,185 3,211,125
------------- -------------
Total assets.................................................................... $ 253,768,331 $ 247,705,801
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Liabilities:
Demand deposits -- non-interest bearing........................................... $ 27,827,503 $ 28,045,965
Demand deposits -- interest bearing............................................... 31,773,232 31,133,749
Money market deposits............................................................. 21,915,675 20,572,014
Savings deposits.................................................................. 54,028,591 59,607,003
Time deposits (Note 5)............................................................ 80,315,772 78,296,226
------------- -------------
Total deposits 215,860,773 217,654,957
Repurchase agreements............................................................. 6,104,795 --
Accrued interest payable and other liabilities.................................... 1,017,091 969,212
------------- -------------
Total liabilities............................................................... 222,982,659 218,624,169
------------- -------------
Shareholders' Investment (Notes 2 and 10):
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
Net unrealized loss (Note 3)...................................................... (28,641) --
Retained earnings................................................................. 23,014,313 21,281,632
------------- -------------
Total shareholders' investment.................................................. 30,785,672 29,081,632
------------- -------------
Total liabilities and shareholders' investment.................................. $ 253,768,331 $ 247,705,801
------------- -------------
------------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
American National Bankshares Inc. and Subsidiary
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (Note 4)................................ $ 11,797,860 $ 10,606,879 $ 11,039,406
Interest on federal funds sold and other........................... 171,167 321,534 489,724
Income on investment securities:
U.S. Government.................................................... 3,203,707 3,710,226 4,164,471
Federal agencies................................................... 272,729 622,617 737,971
State and municipal (tax-exempt)................................... 610,851 656,374 916,731
Other investments.................................................. 550 550 550
------------- ------------- -------------
Total interest income............................................ 16,056,864 15,918,180 17,348,853
------------- ------------- -------------
INTEREST EXPENSE:
Interest on deposits:
Demand........................................................... 751,388 796,821 959,667
Money market..................................................... 510,267 591,229 733,877
Savings.......................................................... 1,577,452 1,870,521 1,630,780
Time (Note 5).................................................... 3,494,147 3,755,283 5,439,801
Interest on federal funds purchased and repurchase agreements...... 41,033 3,387 62,007
------------- ------------- -------------
Total interest expense......................................... 6,374,287 7,017,241 8,826,132
------------- ------------- -------------
NET INTEREST INCOME.................................................. 9,682,577 8,900,939 8,522,721
PROVISION FOR LOAN LOSSES (NOTES 1 AND 4)............................ 271,802 213,500 229,650
------------- ------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.................. 9,410,775 8,687,439 8,293,071
------------- ------------- -------------
NON-INTEREST INCOME:
Trust department income............................................ 1,396,072 1,469,727 1,351,057
Service charges on deposit accounts................................ 278,807 256,071 209,319
Non-deposit fees and insurance commissions......................... 103,713 80,090 104,545
Other income....................................................... 107,266 64,660 62,858
------------- ------------- -------------
Total non-interest income...................................... 1,885,858 1,870,548 1,727,779
------------- ------------- -------------
NON-INTEREST EXPENSE:
Salaries........................................................... 2,767,447 2,753,944 2,563,488
Pension and other employee benefits (Note 9)....................... 683,386 472,440 357,313
Occupancy and equipment expense (Note 1)........................... 870,545 830,645 745,388
FDIC insurance expense............................................. 484,337 469,690 452,894
Postage and printing............................................... 237,108 254,519 239,192
Other expenses..................................................... 1,076,129 991,009 931,572
------------- ------------- -------------
Total non-interest expense..................................... 6,118,952 5,772,247 5,289,847
------------- ------------- -------------
INCOME BEFORE INCOME TAX PROVISION................................... 5,177,681 4,785,740 4,731,003
INCOME TAX PROVISION (NOTES 1 AND 6)................................. 1,645,000 1,483,000 1,237,000
------------- ------------- -------------
NET INCOME........................................................... $ 3,532,681 $ 3,302,740 $ 3,494,003
------------- ------------- -------------
------------- ------------- -------------
NET INCOME PER COMMON SHARE, BASED ON 2,400,000 SHARES OUTSTANDING
(NOTE 10)........................................................... $ 1.47 $ 1.38 $ 1.46
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' INVESTMENT
American National Bankshares Inc. and Subsidiary
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN NET TOTAL
--------------------- EXCESS OF UNREALIZED RETAINED SHAREHOLDERS'
SHARES AMOUNT PAR VALUE LOSS EARNINGS INVESTMENT
--------- ---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991.......... 1,200,000 $1,200,000 $5,400,000 $ -- $18,396,889 $24,996,889
Net income.......................... -- -- -- -- 3,494,003 3,494,003
Cash dividends, at $.66 per share... -- -- -- -- (1,584,000) (1,584,000)
Common stock issued pursuant to a 2
for 1 stock split (Note 10)........ 1,200,000 1,200,000 -- -- (1,200,000) --
--------- ---------- ---------- ----------- ----------- -------------
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 $ (28,641) $23,014,313 $30,785,672
--------- ---------- ---------- ----------- ----------- -------------
--------- ---------- ---------- ----------- ----------- -------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
American National Bankshares Inc. and Subsidiary
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1994 1993 1992
-------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received............................................ $ 16,004,339 $ 16,392,487 $ 17,958,281
Fees and commissions received................................ 1,826,504 2,105,099 1,440,224
Interest paid................................................ (6,359,202) (7,064,332) (9,253,296)
Cash paid to suppliers and employees......................... (5,723,550) (5,388,813) (4,975,314)
Income taxes paid............................................ (1,686,255) (1,736,707) (1,160,897)
-------------- --------------- ---------------
Net cash provided by operating activities.................... 4,061,836 4,307,734 4,008,998
-------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturing investment securities................. 39,803,176 37,252,284 28,354,415
Purchase of investment securities and corporate stock........ (28,174,861) (35,815,616) (36,385,202)
Proceeds from maturing interest-bearing deposits in other
banks....................................................... 2,000,000 -- 4,000,000
Interest-bearing deposits made in other banks................ (86,874) (1,498,725) (1,999,290)
Net increase in loans made to customers...................... (13,520,859) (10,150,260) (6,483,572)
Capital expenditures......................................... (623,829) (363,823) (885,356)
-------------- --------------- ---------------
Net cash used by investing activities........................ (603,247) (10,576,140) (13,399,005)
-------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand, money market and savings
deposits.................................................... (3,813,729) 8,188,100 37,559,630
Net increase (decrease) in certificates of deposit........... 2,019,545 (2,972,016) (25,740,264)
Net increase (decrease) in repurchase agreements............. 6,104,795 -- (930,000)
Repayment of note payable.................................... -- -- (30,000)
Dividends paid............................................... (1,800,000) (1,128,000) (1,584,000)
-------------- --------------- ---------------
Net cash provided by financing activities.................... 2,510,611 4,088,084 9,275,366
-------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 5,969,200 (2,180,322) (114,641)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................. 7,857,888 10,038,210 10,152,851
-------------- --------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................... $ 13,827,088 $ 7,857,888 $ 10,038,210
-------------- --------------- ---------------
-------------- --------------- ---------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income................................................... $ 3,532,681 $ 3,302,740 $ 3,494,003
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation............................................... 455,349 393,941 257,650
Provision for loan losses.................................. 271,802 213,500 229,650
Provision (benefit) for deferred income taxes.............. (125,000) 40,525 (107,404)
Increase (decrease) in accrued interest receivable and
other assets.............................................. (121,627) 630,592 348,979
Increase (decrease) in interest payable and other
liabilities............................................... 48,631 (273,564) (213,880)
-------------- --------------- ---------------
Net cash provided by operating activities.................... $ 4,061,836 $ 4,307,734 $ 4,008,998
-------------- --------------- ---------------
-------------- --------------- ---------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
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).
All significant intercompany transactions and accounts are eliminated in
consolidation.
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 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.
Gains or losses on sales of securities are recognized on a specific
identification method. In 1993, the Bank adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". During 1994 the Bank purchased and designated one issue of
debt securities as "available for sale". This security has been adjusted to its
market value at December 31, 1994.
LOANS
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.
F-7
<PAGE>
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.
UNADOPTED ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards Nos. 114 and 118, which address
accounting by creditors for loan impairment, are required to be adopted by the
Bank in 1995. The effect of adopting these accounting standards is not expected
to have a material impact on the Bank's financial position.
2. PARENT COMPANY FINANCIAL INFORMATION:
Condensed parent company financial information is as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
CONDENSED BALANCE SHEETS 1994 1993
- ------------------------------------------------------------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investment in Subsidiary......................................... $ 30,761 $ 29,061
Other Assets..................................................... 25 21
--------- ---------
Total Assets................................................... $ 30,786 $ 29,082
--------- ---------
--------- ---------
Shareholders' Investment........................................... $ 30,786 $ 29,082
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
CONDENSED STATEMENTS OF INCOME 1994 1993 1992
- ----------------------------------------------------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Dividend from Subsidiary................................... $ 1,805 $ 1,128 $ 1,584
Expenses................................................... (1) (1) (1)
--------- --------- ---------
Income Before Equity in Undistributed Earnings of
Subsidiary.............................................. 1,804 1,127 1,583
Equity in Undistributed Earnings of Subsidiary............. 1,729 2,176 1,911
--------- --------- ---------
Net Income................................................. $ 3,533 $ 3,303 $ 3,494
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
CONDENSED STATEMENTS OF CASH FLOWS 1994 1993 1992
- -------------------------------------------------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash provided by dividends received from Subsidiary..... $ 1,805 $ 1,128 $ 1,584
Cash used for payment of dividends...................... (1,800) (1,128) (1,584)
Other................................................... (1) (1) (1)
--------- --------- ---------
Net increase (decrease) in cash......................... $ 4 $ (1) $ (1)
--------- --------- ---------
--------- --------- ---------
</TABLE>
3. INVESTMENT SECURITIES:
The book value and market value of investments in debt securities at
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
BOOK ---------------------- MARKET
TYPE VALUE GAINS LOSSES VALUE
- ---------------------------------------------------- --------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government..................................... $ 65,952 $ 5 $ (1,648) $ 64,309
Federal agencies.................................... 2,809 -- (189) 2,620
State and municipal................................. 10,480 103 (291) 10,292
Other............................................... 10 -- -- 10
--------- ----- --------- ---------
$ 79,251 $ 108 $ (2,128) $ 77,231
--------- ----- --------- ---------
--------- ----- --------- ---------
</TABLE>
The book value and market value of investments in debt securities at
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
BOOK ---------------------- MARKET
TYPE VALUE GAINS LOSSES VALUE
- ----------------------------------------------------- --------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government...................................... $ 73,334 $ 480 $ (123) $ 73,691
Federal agencies..................................... 8,206 112 (13) 8,305
State and municipal.................................. 10,276 540 (23) 10,793
Other................................................ 10 -- -- 10
--------- --------- ----------- ---------
$ 91,826 $ 1,132 $ (159) $ 92,799
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
F-9
<PAGE>
The book value and market value of investments in debt securities at
December 31, 1994, by contractual maturity, are shown below. 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.
<TABLE>
<CAPTION>
Book Market
Value Value
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less......... $30,454 $29,987
Due after one year through
five years..................... 41,665 40,324
Due after five years through
ten years...................... 6,221 6,029
Due after ten years............. 911 891
------- -------
$79,251 $77,231
======= =======
</TABLE>
At December 31, 1994, one U. S. Government security with a cost of
$2,793,321 and a market value of $2,764,680 was classified as "available for
sale". At December 31, 1994, a net unrealized holding loss of $28,641 was
recorded as a separate component of shareholders' investment.
Proceeds from calls exercised by the issuers of investments in debt
securities were $5,405,000 in 1994. There were no sales in 1994 or 1993.
Investment securities with a book value of approximately $14,974,000 at
December 31, 1994 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, $6,996,000 was pledged to secure repurchase agreements.
4. LOANS:
Outstanding loans at December 31, 1994 and 1993 were composed of the
following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Real estate loans:
Construction and land development....... $3,684 $1,925
Secured by farmland..................... 872 716
Secured by 1-4 family residential
properties............................. 43,458 42,194
Security by multi-family (5 or more)
residential properties................... 50 63
Secured by nonfarm, nonresidential
properties............................... 26,412 27,946
Loans to farmers......................... 2,173 1,768
Commercial and industrial loans........... 40,865 31,337
Loans to individuals for personal
expenditures............................. 35,512 35,358
Loans to nonrated industrial development
obligations.............................. 2,155 2,528
All other loans........................... 255 11
-------- --------
Total loans.......................... $155,436 $143,846
======== ========
</TABLE>
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
F-10
<PAGE>
delinquency of 90 days. At December 31, 1994 and 1993, loans in a nonaccrual
or restructured status totaled approximately $171,000 and $467,000,
respectively.
Interest income on nonaccrual loans, if recognized, is recorded on a
cash basis. For the years 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 $20,000 and $59,000, respectively. No interest payments
were recorded in 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.
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, 1994.
An analysis of the reserve for possible loan losses is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year . . . . . $2,155 $2,094 $2,001
Provision for possible loan losses
charged to expense. . . . . . . . . 272 214 230
Charge-offs. . . . . . . . . . . . . (131) (203) (166)
Recoveries . . . . . . . . . . . . . 57 50 29
------ ------ ------
Balance, end of year . . . . . . . . $2,353 $2,155 $2,094
====== ====== ======
</TABLE>
5. TIME DEPOSITS:
Included in time deposits are certificates of deposit in denominations
of $100,000 or more totaling $13,809,000, $12,744,000 and $11,236,000 at
December 31, 1994, 1993 and 1992, respectively. Interest expense on such
deposits during 1994, 1993 and 1992 was $390,000, $395,000 and $701,000,
respectively.
6. INCOME TAXES:
The components of the Corporation's net deferred tax assets as of
December 31, 1994 and December 31, 1993, were as follows:
F-11
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses............. $596 $529
Deferred compensation............... 144 139
Other............................... 46 45
---- ----
786 713
Valuation allowance................. (152) (214)
---- ----
634 499
Deferred tax liability................ (121) (111)
---- ----
Net deferred tax asset.............. $513 $388
==== ====
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
For Years Ended December 31,
----------------------------
1994 1993 1992
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax currently payable.................. $1,770 $1,442 $1,344
Deferred tax provision (benefit)....... (125) 41 (107)
------ ------ ------
$1,645 $1,483 $1,237
====== ====== ======
</TABLE>
The effective rates of the provision differ from the
statutory federal income tax rates due to the following items:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Federal statutory rate............... 34.0% 34.0% 34.0%
Non-taxable interest income.......... (3.2) (5.4) (7.6)
Other................................ 1.0 2.4 (0.2)
------ ------ ------
31.8% 31.0% 26.2%
------ ------ ------
------ ------ ------
</TABLE>
7. 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 $34,150,000 and
$26,739,000 at December 31, 1994 and 1993, 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.
F-12
<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 December 31, 1994 and 1993 the Bank had $672,000 and
$547,000 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 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, 1994, this reserve
requirement was approximately $1,509,000.
8. 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 $12,527,000, $8,908,000 and $7,985,000 at December 31, 1994,
1993 and 1992, respectively. The maximum amount of loans outstanding to the
officers, directors and their business interests at any month-end during
1994, 1993 and 1992 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. As of December 31, 1994, none of these loans were
restructured, nor were any related party loans charged off during 1994. An
analysis of these loans for 1994 is as follows:
<TABLE>
<S> <C>
Balance, beginning of year.............. $ 8,908
Additions............................... 21,532
Repayments.............................. (17,913)
-------
Balance, end of year.................... $12,527
-------
-------
</TABLE>
9. 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 20 & 1/2
years of age or older and who have had at least 1/2 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, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,969 in 1994 and $2,457 in 1993.... $(1,986) $(2,467)
======= =======
Projected benefit obligation at December 31......... $(3,032) $(3,527)
Plan assets at fair value........................... 2,700 3,108
------- -------
</TABLE>
F-13
<PAGE>
(CONTINUED)
<TABLE>
<CAPTION>
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Plan assets less than projected benefit
obligation........................................ (332) (419)
Unrecognized net asset, at date of adoption,
being recognized over 16.4 years.................. (103) (151)
Unrecognized net loss.............................. 698 825
---- ----
Prepaid pension cost included in other assets...... $263 $255
==== ====
</TABLE>
Net periodic pension cost for 1994 and 1993, based on the above
valuation included the following components:
<TABLE>
<CAPTION>
1994 1993
---- ----
(IN THOUSANDS)
<S> <C> <C>
Service cost - benefits earned during the period . . . . $127 $120
Interest cost on projected benefit obligation. . . . . . 164 185
Actual return (gain) loss on plan assets . . . . . . . . (56) 203
Net amortization and deferral. . . . . . . . . . . . . . (85) (457)
---- ----
Net periodic pension cost. . . . . . . . . . . . . . . . $150 $ 51
==== ====
</TABLE>
During 1994 and 1993, a rate of increase in future compensation levels
of 4.0%, and a discount rate of 6.0% and 5.75%, respectively, 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 1994 and 7.25%
in 1993.
Pension plan cost (income) was $150,000, $51,000 and $(38,000) for
years 1994, 1993 and 1992, 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 by insurance and the expense is provided on a current
basis.
10. 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, $3,905,000 plus an additional amount equal to the Bank's net
income for 1995 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,
1994 and 1993 these ratios were above the minimums prescribed for holding
companies and banks.
F-14
<PAGE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Corporation's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31, 1994
---------------------
Carrying Fair
Amount Value
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and federal funds sold......................... $ 13,827 $ 13,827
Investment securities............................... 79,251 77,231
Other............................................... 2,530 2,530
Loans, net.......................................... 151,126 150,608
Financial liabilities:
Deposits............................................ $(215,861) $(216,841)
Repurchase agreements............................... (6,105) (6,100)
Unrecognized financial instruments:
Commitments to extend credit........................ $ (34,150) --
Standby letters of credit........................... (672) (11)
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
---------------------
Carrying Fair
Amount Value
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Financial assets:
Cash and federal funds sold....................... $ 7,858 $ 7,858
Investment securities............................. 91,826 92,799
Other............................................. 3,701 3,706
Loans, net........................................ 137,877 138,963
Financial liabilities:
Deposits.......................................... $(217,655) $(218,603)
Repurchase agreements............................. -- --
Unrecognized financial instruments:
Commitments to extend credit...................... $ (26,739) --
Standby letters of credit......................... (547) (9)
</TABLE>
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.
F-15
<PAGE>
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, 1994 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.
F-16
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
American National Bankshares Inc. and Subsidiary
<TABLE>
<CAPTION>
(Unaudited)
-----------------------------
September 30, December 31,
ASSETS 1995 1994
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
CASH AND DUE FROM BANKS $ 11,436 $ 9,177
FEDERAL FUNDS SOLD -- 4,650
INTEREST-BEARING DEPOSITS IN OTHER BANKS........ 112 1,586
INVESTMENT SECURITIES:
U.S. Government and federal agencies.......... 97,991 68,761
State and municipal........................... 9,756 10,480
Other investments............................. 10 10
------------- ------------
Total investment securities (market value
$107,945) at September 30, 1995 and
$77,231 at December 31, 1994).............. 107,757 79,251
------------- ------------
LOANS........................................... 174,920 155,436
Less: Unearned income..................... (960) (1,957)
Reserve for loan losses............. (2,600) (2,353)
------------- ------------
Net loans................................... 171,360 151,126
------------- ------------
CORE DEPOSIT INTANGIBLES........................ 2,896 --
OTHER ASSETS.................................... 8,939 7,978
------------- ------------
Total assets................................ $302,500 $253,768
============= ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
LIABILITIES:
Demand deposits non-interest bearing.......... $ 37,009 $ 27,827
Demand deposits interest bearing.............. 35,856 31,773
Money market deposits......................... 18,402 21,916
Savings deposits.............................. 51,857 54,029
Time deposits................................. 116,812 80,316
------------- ------------
Total deposits.............................. 259,936 215,861
Federal funds purchased....................... 800 --
Repurchase agreements......................... 6,082 6,105
Accrued interest payable and other
liabilities.................................. 2,164 1,017
------------- ------------
Total liabilities........................... 268,982 222,983
============= ============
SHAREHOLDERS' INVESTMENT:
Common stock, $1 par, 3,000,000 shares
authorized, 2,400,000 shares outstanding.... 2,400 2,400
Capital in excess of par value................ 5,400 5,400
Retained earnings............................. 25,537 23,014
Net unrealized appreciation (depreciation).... 181 (29)
------------- ------------
Total shareholders' investment.............. 33,518 30,785
------------- ------------
Total liabilities and shareholders'
investment................................. $302,500 $253,768
============= ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-17
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
American National Bankshares Inc. and Subsidiary
<TABLE>
<CAPTION>
(Unaudited)
--------------------
Three Months Ended
September 30,
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans............................................ $ 3,884 $ 3,093
Interest on federal funds sold and other.............................. 44 34
Income on investment securities:
U.S. Government..................................................... 973 765
Federal Agencies.................................................... 37 40
State and municipal (tax exempt).................................... 131 149
--------- ---------
Total interest income............................................. 5,069 4,081
--------- ---------
INTEREST EXPENSE:
Interest on deposits:
Demand.............................................................. 245 182
Money Market........................................................ 122 117
Savings............................................................. 374 396
Time................................................................ 1,432 872
Interest on federal funds purchased and repurchase agreements......... 78 12
--------- ---------
Total interest expense.............................................. 2,251 1,579
--------- ---------
NET INTEREST INCOME..................................................... 2,818 2,502
PROVISION FOR LOAN LOSSES............................................... 160 90
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES..................... 2,658 2,412
--------- ---------
NON-INTEREST INCOME:
Trust revenue......................................................... 376 294
Service charges on deposit accounts................................... 97 70
Fees and insurance premiums........................................... 20 29
Other................................................................. 32 29
--------- ---------
Total non-interest income........................................... 525 422
--------- ---------
NON-INTEREST EXPENSE:
Salaries.............................................................. 769 690
Pension and other employee benefits................................... 182 162
Occupancy and equipment............................................... 208 220
FDIC insurance........................................................ (15) 120
Postage and printing.................................................. 74 51
Other................................................................. 329 253
--------- ---------
Total non-interest expense.......................................... 1,547 1,496
--------- ---------
INCOME BEFORE INCOME TAX PROVISION 1,636 1,338
INCOME TAX PROVISION.................................................... 513 440
--------- ---------
NET INCOME.............................................................. $ 1,123 $ 898
--------- ---------
--------- ---------
NET INCOME PER COMMON SHARE, based on 2,400,000 shares outstanding...... $ .47 $ .37
CASH DIVIDENDS PAID per common share.................................... $ .00 $ .00
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
American National Bankshares Inc. and Subsidiary
<TABLE>
<CAPTION>
(Unaudited)
--------------------
Nine Months Ended
September 30,
--------------------
1995 1994
--------- ---------
(In THOUSANDS)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans.......................................... $ 11,015 $ 8,562
Interest on federal funds sold and other............................ 73 124
Income on investment securities:
U.S. Government................................................... 2,527 2,369
Federal Agencies.................................................. 113 234
State and municipal (tax exempt).................................. 430 464
--------- ---------
Total interest income........................................... 14,158 11,753
--------- ---------
INTEREST EXPENSE:
Interest on deposits:
Demand............................................................ 731 528
Money Market...................................................... 372 353
Savings........................................................... 1,127 1,163
Time.............................................................. 3,527 2,603
Interest on federal funds purchased and repurchase agreements....... 221 24
--------- ---------
Total interest expense.......................................... 5,978 4,671
--------- ---------
NET INTEREST INCOME................................................... 8,180 7,082
PROVISION FOR LOAN LOSSES............................................. 374 189
--------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES................... 7,806 6,893
--------- ---------
NON-INTEREST INCOME:
Trust revenue....................................................... 1,067 970
Service charges on deposit accounts................................. 264 199
Fees and insurance premiums......................................... 66 80
Other............................................................... 95 79
--------- ---------
Total non-interest income....................................... 1,492 1,328
--------- ---------
NON-INTEREST EXPENSE:
Salaries............................................................ 2,245 2,054
Pension and other employee benefits................................. 497 450
Occupancy and equipment............................................. 610 645
FDIC insurance...................................................... 227 364
Postage and printing................................................ 183 186
Other............................................................... 934 754
--------- ---------
Total non-interest expense...................................... 4,696 4,453
--------- ---------
INCOME BEFORE INCOME TAX PROVISION.................................... 4,602 3,768
INCOME TAX PROVISION.................................................. 1,431 1,194
--------- ---------
NET INCOME............................................................ $ 3,171 $ 2,574
--------- ---------
--------- ---------
NET INCOME PER COMMON SHARE, based on 2,400,000 shares outstanding.... $ 1.32 $ 1.07
CASH DIVIDENDS PAID per common share.................................. $ 0.27 $ 0.25
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
American National Bankshares Inc. and Subsidiary
<TABLE>
<CAPTION>
(UNAUDITED)
----------------------
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received...................................................................... $ 13,083 $ 11,932
Fees and commissions received.......................................................... 1,397 1,313
Interest paid.......................................................................... (5,584) (4,680)
Cash paid to suppliers and employees................................................... (3,054) (3,827)
Income taxes paid...................................................................... (1,303) (1,136)
---------- ----------
Net cash provided by operating activities.............................................. 4,539 3,602
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of branch operations....................................................... 30,626 --
Proceeds from maturing investment securities........................................... 17,820 32,376
Purchase of investment securities and corporate stock.................................. (46,099) (20,738)
Proceeds from maturing interest bearing deposits in other banks........................ 1,474 2,000
Interest bearing deposits in other banks............................................... -- (73)
Net increase in loans made to customers................................................ (18,459) (12,544)
Capital expenditures................................................................... (322) (90)
---------- ----------
Net cash (used) provided by investing activities....................................... (14,960) 931
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand, money market and savings accounts.............................. (7,876) (2,361)
Net increase in certificates of deposit................................................ 15,777 2,550
Net increase in repurchase agreements and federal funds purchased...................... 777 595
Dividends paid......................................................................... (648) (600)
---------- ----------
Net cash provided by financing activities.............................................. 8,030 184
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS..................................... (2,391) 4,717
---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................................... 13,827 7,858
---------- ----------
CASH EQUIVALENTS AT END OF PERIOD........................................................ $ 11,436 $ 12,575
---------- ----------
---------- ----------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income............................................................................. $ 3,171 $ 2,574
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation......................................................................... 292 340
Provision for possible loan losses................................................... 374 189
Deferred income tax (benefit) provision.............................................. (38) 4
Increase in accrued interest receivable and other assets............................. (513) (293)
Increase in accrued interest payable and other liabilities........................... 1,253 788
---------- ----------
Net cash provided by operating activities................................................ $ 4,539 $ 3,602
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
American National Bankshares Inc. and Subsidiary
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments necessary to present
fairly American National Bankshares' financial position as of September 30,
1995, the results of its operations for the three and nine months periods and
its cash flows for the nine months period then ended. 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 1994.
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
shareholder's investment at September 30, 1995 and December 31, 1994.
3. COMMITMENTS AND CONTINGENCIES
The Bank has available to it a line of credit in the amount of
$5,153,000 with the Federal Home Loan Bank of Atlanta. As of September 30,
1995 and December 31, 1994, there were no borrowings outstanding under this
line of credit.
Commitments to extend credit, which amount to $35,930,000 at September
30, 1995 and $34,150,000 at December 31, 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.
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, 1995 and December 31, 1994 the Bank had
$630,000 and $672,000 in outstanding standby letters of credit.
4. NEW ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1995 the Bank adopted the provisions of
Statement of Financial Accounting Standards Nos. 114 and 118, which address
accounting by creditors for loan impairment. The effect of adopting these
standards did not have a material impact on the Bank's financial position or
the results of operations.
F-21
<PAGE>
MANNING, PERKINSON, FLOYD & COMPANY
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
2012 RIVERSIDE DRIVE
DANVILLE, VIRGINIA 24540
MEMBERS
AMERICAN INSTITUTE OF TELEPHONE: (804) 792-5334
CERTIFIED PUBLIC ACCOUNTANTS FAX - (804) 799-3954
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Mutual Savings Bank, F.S.B.
Danville, Virginia
We have audited the accompanying consolidated statements of financial
condition of Mutual Savings Bank, F.S.B. and subsidiary (the "Savings Bank")
as of September 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years ended
September 30, 1995, 1994 and 1993. These financial statements are the
responsibility of the Savings Bank'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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mutual
Savings Bank, F.S.B. and subsidiary as of September 30, 1995 and 1994, and
the results of their operations and their cash flows for the years ended
September 30, 1995, 1994, and 1993, in conformity with generally accepted
accounting principles.
Certified Public Accountants
Danville, Virginia
November 8, 1995
F-22
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
Mutual Savings Bank, F.S.B.
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Non-interest-bearing deposits.................................................. $ 860,557 $ 853,238
Interest-bearing deposits...................................................... 1,166,729 769,817
Investment securities, net (fair value of $24,010,691 and $24,018,233,
respectively) (Note 2).......................................................... 24,598,018 25,973,821
Mortgage-backed securities (fair value of $14,478,093 and $15,843,922,
respectively) (Note 3).......................................................... 14,337,785 16,333,959
Loans receivable, net (Notes 4, 9 and 15)........................................ 39,869,679 36,908,194
Office properties and equipment, net (Note 5).................................... 1,889,282 1,917,922
Accrued interest receivable (Note 7)............................................. 524,326 562,297
Prepaid and other assets......................................................... 149,608 267,244
-------------- --------------
Total assets............................................................... $ 83,395,984 $ 83,586,492
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (Note 8).............................................................. $ 67,512,520 $ 66,930,704
Advances from Federal Home Loan Bank (Note 9).................................. -- 1,500,000
Advance payments and deposits by borrowers..................................... 321,796 223,032
Accounts payable and other accrued liabilities................................. 774,886 673,143
-------------- --------------
Total liabilities.......................................................... 68,609,202 69,326,879
-------------- --------------
Commitments and Contingencies
(Notes 13, 15 and 19)
Stockholders' equity (Notes 10 and 11):
Preferred stock, par value $1.00 per share, authorized 2,500,000 shares;
outstanding, none............................................................. -- --
Common stock, par value $1.00 share, authorized 7,500,000 shares; 1,154,100
shares issued and outstanding................................................. 1,154,100 1,154,100
Additional paid-in capital..................................................... 4,226,252 4,226,252
Retained earnings, substantially restricted.................................... 9,410,509 8,879,261
Net unrealized loss on securities available for sale, net of taxes............. (4,079) --
-------------- --------------
Total stockholders' equity................................................. 14,786,782 14,259,613
-------------- --------------
Total liabilities and stockholders' equity................................. $ 83,395,984 $ 83,586,492
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Mutual Savings Bank, F.S.B.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans..................................................................... $3,342,920 $3,062,075 $3,501,880
Mortgage-backed securities................................................ 1,112,311 1,028,424 1,470,679
Investment securities..................................................... 1,542,213 1,534,228 1,077,515
Short-term investments and bank deposits.................................. 43,053 39,135 40,307
---------- ---------- ----------
Total interest income....................................................... 6,040,497 5,663,862 6,090,381
---------- ---------- ----------
Interest expense:
Deposits (Note 8)......................................................... 2,887,887 2,533,926 2,691,268
Federal Home Loan Bank advances........................................... 32,658 10,848 --
Short-term borrowings..................................................... -- 162 7,069
---------- ---------- ----------
Total interest expense...................................................... 2,920,545 2,544,936 2,698,337
---------- ---------- ----------
Net interest income......................................................... 3,119,952 3,118,926 3,392,044
Provision for loan losses (Note 4).......................................... 8,300 -- --
---------- ---------- ----------
Net interest income after provision for loan losses......................... 3,111,652 3,118,926 3,392,044
---------- ---------- ----------
Noninterest income:
Service charges and fees on loans......................................... 40,211 39,208 46,551
Other fees and service charges............................................ 105,296 100,401 84,295
Gain on sale of investments............................................... 45,564 42,673 51,898
Gain on sale of real estate owned......................................... -- 126,029 --
Loss on revaluation of real estate owned.................................. -- -- (6,290)
Other..................................................................... 7,283 17,581 20,832
---------- ---------- ----------
Total noninterest income.................................................... 198,354 325,892 197,286
---------- ---------- ----------
Noninterest expense:
Compensation, payroll taxes, and employee benefits (Note 12).............. 1,098,173 1,039,174 1,106,830
Occupancy and equipment................................................... 160,298 151,988 156,359
Federal deposit insurance premiums........................................ 153,584 152,649 135,446
Other (Note 14)........................................................... 418,056 618,898 379,106
---------- ---------- ----------
Total noninterest expense................................................... 1,830,111 1,962,709 1,777,741
---------- ---------- ----------
Income before income taxes.................................................. 1,479,895 1,482,109 1,811,589
Provision for income taxes (Note 13)........................................ 487,007 506,151 549,812
---------- ---------- ----------
Net income.................................................................. $ 992,888 $ 975,958 $1,261,777
---------- ---------- ----------
---------- ---------- ----------
Earnings per share of common stock (Note 10)................................ $ .82 $ .81 $ 1.06
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Mutual Savings Bank, F.S.B.
<TABLE>
<CAPTION>
NET
UNREALIZED
RETAINED LOSS ON
ADDITIONAL EARNINGS -- SECURITIES STOCK TOTAL
COMMON PAID-IN SUBSTANTIALLY AVAILABLE FOR ACQUIRED STOCKHOLDERS'
STOCK CAPITAL RESTRICTED SALE BY ESOP EQUITY
---------- ---------- ------------ ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1992....... $1,154,100 $4,226,252 $7,564,806 $ -- $(145,759) $12,799,399
Net income........................ -- -- 1,261,777 -- -- 1,261,777
Cash dividends on common stock.... -- -- (461,640) -- -- (461,640)
ESOP stock purchased.............. -- -- -- -- -- --
ESOP loan payments................ -- -- -- -- 133,369 133,369
---------- ---------- ------------ ------------- --------- ------------
Balance, September 30, 1993....... 1,154,100 4,226,252 8,364,943 -- (12,390) 13,732,905
Net income........................ -- -- 975,958 -- -- 975,958
Cash dividends on common stock.... -- -- (461,640) -- -- (461,640)
ESOP loan payments................ -- -- 12,390 -- -- 12,390
---------- ---------- ------------ ------------- --------- ------------
Balance, September 30, 1994....... 1,154,100 4,226,252 8,879,261 -- -- 14,259,613
Net income........................ -- -- 992,888 -- -- 992,888
Cash dividends on common stock.... -- -- (461,640) -- -- (461,640)
Cumulative effect of change in
accounting for securities
available for sale, net of income
taxes of $2,101.................. -- -- -- (4,079) -- (4,079)
---------- ---------- ------------ ------------- --------- ------------
Balance, September 30, 1995....... $1,154,100 $4,226,252 $9,410,509 $ (4,079) $ -- $14,786,782
---------- ---------- ------------ ------------- --------- ------------
---------- ---------- ------------ ------------- --------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Mutual Savings Bank, F.S.B.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.............................................................. $ 992,888 $ 975,958 $ 1,261,777
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for depreciation and amortization........................... 63,535 57,843 59,870
Provision for loan losses............................................. 8,300 -- --
Provision for losses -- REO........................................... -- -- 6,290
Increase (decrease) in deferred loan fees............................. (20,149) 10,602 1,378
Gain on sale of real estate owned..................................... -- (126,029) --
Gain on sale of investment securities held to maturity and available
for sale............................................................. (45,564) (42,673) (51,898)
Amortization of premiums and (discounts) on investment securities and
mortgage-backed securities........................................... (2,340) 96,219 (10,236)
Federal Home Loan Bank stock dividends................................ -- (10,300) (44,300)
Loss on sale of property and equipment................................ -- -- 5,493
Deferred income taxes................................................. (29,218) (8,869) (30,010)
(Increase) decrease in interest receivable............................ 37,971 (89,749) (51,009)
(Increase) decrease in prepaid and other assets....................... 127,161 21,213 (188,124)
Increase (decrease) in interest payable............................... 7,119 312 (3,060)
Increase (decrease) in accounts payable and other liabilities......... 220,715 138,025 (89,767)
----------- ----------- -----------
Net cash provided by operating activities............................... 1,360,418 1,022,552 866,404
----------- ----------- -----------
Cash Flows From Investing Activities:
Investment securities held to maturity:
Purchases............................................................. -- (10,003,865) (13,741,250)
Proceeds from sale.................................................... -- 542,673 51,898
Maturities............................................................ 2,116,320 2,666,842 3,904,711
Investment securities available for sale:
Purchases............................................................. (2,733,960) -- --
Proceeds from sale.................................................... 2,041,440 -- --
Purchase of mortgage-backed securities.................................. -- (5,734,989) --
Principal collections on mortgage-backed securities..................... 1,989,901 5,680,930 7,831,757
Net (increase)decrease in loans......................................... (2,949,636) 2,334,557 3,561,268
Purchase of property and equipment...................................... (34,894) (19,518) (585)
Proceeds from sale of real estate owned................................. -- 194,500 --
Proceeds from sale of property and equipment............................ -- 40,000 15,000
----------- ----------- -----------
Net cash provided by (used in) investing activities................... 429,171 (4,298,870) 1,622,799
----------- ----------- -----------
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts................. $(10,015,477) $ 571,243 $ 3,518,876
Net increase (decrease) in certificates of deposit.. 10,597,293 691,954 (5,348,756)
Advances from Federal Home Loan Bank................ 5,900,000 4,250,000 --
Repayment of Federal Home Loan Bank advances........ (7,400,000) (2,750,000) --
Net decrease in advance payments by borrowers
for taxes and insurance........................... (5,534) (23,138) (22,412)
Cash dividends...................................... (461,640) (461,640) (461,640)
------------- ------------ ------------
Net cash provided by (used in) financing
activities........................................ (1,385,358) 2,278,419 (2,313,932)
------------- ------------ ------------
Increase (decrease) in cash and cash equivalents...... 404,231 (997,899) 175,271
Cash and cash equivalents:
Beginning........................................... 1,623,055 2,620,954 2,445,683
------------- ------------ ------------
Ending.............................................. 2,027,286 1,623,055 2,620,954
Supplemental Schedule of Cash and Cash Equivalents:
Non-interest-bearing deposits..................... 860,557 853,238 547,284
Interest-bearing deposits......................... 1,166,729 769,817 2,073,670
------------- ------------ ------------
$ 2,027,286 $ 1,623,055 $ 2,620,954
------------- ------------ ------------
------------- ------------ ------------
Supplemental Disclosures of Cash Flow
Information:
Income taxes paid................................. $ 426,013 $ 576,000 $ 873,569
------------- ------------ ------------
------------- ------------ ------------
Interest paid..................................... $ 2,913,426 $ 2,544,624 $ 2,701,397
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MUTUAL SAVINGS BANK, F.S.B.
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Savings Bank is primarily engaged in the business of obtaining
savings deposits and originating single-family residential loans within
its primary lending area, south central Virginia and north central North
Carolina. The Savings Bank's underwriting policies require such loans to
be made at no greater than 80% loan-to-value based upon appraised values
unless private mortgage insurance is obtained. These loans are secured by
the underlying properties.
A description of the significant accounting policies used in the
preparation of the accompanying consolidated financial statements follows:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
Mutual Savings Bank, F.S.B. and Mutual Service Corporation, its
wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated in the consolidation.
CASH AND CASH EQUIVALENTS:
The Savings Bank considers all cash and amounts due from depository
institutions, and interest-bearing deposits in other banks to be cash
equivalents for purposes of the statements of cash flows.
INVESTMENT SECURITIES:
At October 1, 1994, the Savings Bank adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 115 "Accounting For
Certain Investments in Debt and Equity Securities". SFAS No. 115 requires
that debt and equity securities be classified as either held to maturity,
available for sale, or trading.
Investment securities classified as "held to maturity" are stated at
cost, adjusted for amortization of premium and accretion of discount
using a level yield method and are not adjusted to the lower of cost or
market, as the Savings Bank has the intent and ability to hold such
investments to maturity. Gains or losses are recognized by use of the
specific identification method.
Securities classified as "available for sale" are stated at fair value
with unrealized holding gains and losses reported, net of related income
taxes, as a separate component of stockholders' equity until realized.
Adjustment to fair value, below amortized cost, that are other than
temporary are charged to earnings. Realized gains and losses are
recognized by use of the specific identification method.
The Savings Bank has not classified any debt or equity securities as
"trading".
F-28
<PAGE>
MORTGAGE-BACKED SECURITIES:
Mortgage-backed securities are stated at cost or unpaid principal
balance, adjusted for amortization of premiums and accretion of discounts
using a level yield method. The Savings Bank has the intent and ability
to hold such assets to maturity. Should any be sold, gains and losses are
recognized by use of the specific identification method.
LOANS RECEIVABLE:
Loans receivable are stated at unpaid principal balances net of
undisbursed loans in process, deferred loan fees, and allowances for loan
losses. Interest is accrued as earned unless the collectibility of the
loan is in doubt, at which time an allowance is provided.
The allowance for loan losses is based upon management's evaluation of
the loans receivable portfolio and is maintained at an amount considered
adequate by management. The evaluation by management considers such
factors as current economic conditions, loan portfolio risks including
the value of underlying collateral, and past loan loss experience. The
allowance is increased by charges to income and decreased by net
charge-offs. While management believes the allowance to be adequate,
there are no assurances that further increases in the allowance will not
be required in the future.
LOAN ORIGINATION FEES AND COSTS:
Loan fees received less direct loan origination costs are deferred and
recognized by the interest method over the life of the related loan as an
adjustment of yield.
OFFICE PROPERTIES AND EQUIPMENT:
Office properties and equipment are stated at cost less accumulated
depreciation. Expenditures for major improvements are capitalized, while
the costs of maintenance and repairs, which do not improve or extend the
life of the existing assets, are expensed as incurred. For financial
reporting, depreciation and amortization are provided on the
straight-line method over the estimated useful lives of the assets,
estimated to be 33 to 50 years for buildings, 5 to 10 years for furniture
and equipment, and 4 years for automobiles.
REAL ESTATE OWNED:
Property acquired by foreclosure or deed in lieu of foreclosure is
recorded at the lower of cost, or fair value less estimated costs to
sell, at date of acquisition. Any improvements to property are
capitalized, while costs of holding property are expensed when incurred.
Specific valuation allowances are recorded through a charge to earnings
if there is further deterioration in fair value.
Real estate held for investment or development and sale is recorded at
the lower of cost or net realizable value. Losses are recognized when
carrying values exceed net realizable value, but gains are only
recognized at the time of sale.
INCOME TAXES:
In 1993, the Savings Bank adopted SFAS No. 109 "Accounting For Income
Taxes". SFAS No. 109 requires a change in the method of accounting and
reporting for deferred income taxes by use of an asset and liability
method of accounting for income taxes. Under the asset
F-29
<PAGE>
and liability method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences of temporary differences between
the financial statement carrying amounts and the tax bases of existing
assets and liabilities. The adoption of SFAS No. 109 had no material effect
on the financial statements in 1993.
RECLASSIFICATIONS:
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 method of presentation. These
reclassifications had no effect on 1994 and 1993 net income or retained
earnings.
2. INVESTMENT SECURITIES
The amortized cost and fair value of investment securities at September
30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Government and
Agency obligations................... $13,747,583 $13,147,098 $18,735,833 $17,072,253
Corporate securities................. 2,503,555 2,509,216 4,000,763 3,802,182
Obligations of states and political
subdivisions....................... 2,014,328 2,021,825 2,015,524 1,922,097
Other................................ 275,980 275,980 392,301 392,301
----------- ----------- ----------- -----------
18,541,446 17,954,119 25,144,421 23,188,833
----------- ----------- ----------- -----------
Federal Home Loan Bank stock......... 829,400 829,400 829,400 829,400
----------- ----------- ----------- -----------
19,370,846 18,783,519 25,973,821 24,018,233
----------- ----------- ----------- -----------
Available for sale:
U.S. Government and Agency
obligations........................ 2,499,642 2,459,841 -- --
Corporate securities................. 1,753,401 1,783,046 -- --
Obligations of states and
political subdivisions............. 980,309 984,285 -- --
Net unrealized loss.................. (6,180) -- -- --
----------- ----------- ----------- -----------
5,227,172 5,227,172 -- --
----------- ----------- ----------- -----------
$24,598,018 $24,010,691 $25,973,821 $24,018,233
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-30
<PAGE>
Investment securities had gross unrealized gains and losses at September
30, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Held to Maturity:
U.S. Government and
Agency obligations............... $ 1,521 $(602,006) $ 783 $(1,664,363)
Corporate securities............... 40,357 (34,696) 35,937 (234,518)
Obligations of states
and political subdivisions....... 15,404 (7,906) -- (93,427)
Other.............................. -- -- -- --
---------- ---------- --------- ------------
57,282 (644,608) 36,720 (1,992,308)
---------- ---------- --------- ------------
Available for Sale:
U.S. Government and
Agency obligations............... 2,619 (42,420) -- --
Corporate securities............... 32,911 (3,266) -- --
Obligations of states
and political subdivisions....... 4,645 (669) -- --
---------- ---------- --------- ------------
40,175 (46,355) -- --
---------- ---------- --------- ------------
$ 97,457 $(690,963) $ 36,720 $ (1,992,308)
---------- ---------- --------- ------------
---------- ---------- --------- ------------
</TABLE>
The amortized cost and fair value of debt securities at September 30,
1995, by contractual maturity are shown below:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Held to Maturity:
Due in one year or less................... $ -- $ --
Due after one year through five years..... 8,694,824 8,407,693
Due after five years through ten years.... 9,369,680 9,076,902
Due after ten years....................... 476,942 469,524
----------- -----------
18,541,446 17,954,119
----------- -----------
Available for Sale:
Due in one year or less................... 999,828 991,093
Due after one year through five years..... 2,963,882 2,956,473
Due after five years through ten years.... 1,269,642 1,279,606
Unrealized gain (loss).................... (6,180) --
----------- -----------
5,227,172 5,227,172
----------- -----------
$23,768,618 $23,181,291
----------- -----------
----------- -----------
</TABLE>
F-31
<PAGE>
FHLB stock has been excluded from the maturity schedule above because it
does not have a contractual maturity. No ready market exists for this
stock; therefore, for presentation purposes, such stock is assumed to
have a fair value equal to cost.
Proceeds from sales of investments and gross gains and losses realized at
September 30 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- -------
<S> <C> <C> <C>
Proceeds from sales......... $2,041,440 $542,673 $51,898
---------- -------- -------
---------- -------- -------
Gross gains................. $ 61,337 $ 42,673 $51,898
Gross losses................ 15,773 -- --
---------- -------- -------
Net realized............. $ 45,564 $ 42,673 $51,898
---------- -------- -------
---------- -------- -------
</TABLE>
3. MORTGAGED-BACKED SECURITIES
The amortized cost and fair value of mortgage-backed securities at
September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held to Maturity:
Federal Home Loan
Mortgage Corporation............... $ 5,674,952 $ 5,666,348 $ 6,685,398 $ 6,446,449
Government National
Mortgage Association............... 4,404,176 4,516,456 4,901,517 4,839,315
Federal National Mortgage
Association........................ 2,489,980 2,526,438 2,831,658 2,781,271
Collateralized Mortgage
Obligations........................ 1,768,677 1,768,851 1,915,386 1,776,887
----------- ----------- ----------- -----------
$14,337,785 $14,478,093 $16,333,959 $15,843,922
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The effective yield on collateralized mortgage obligations at September
30, 1995 was 6.07%.
Mortgaged-backed securities had gross unrealized gains and losses at
September 30, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS LOSSES
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Held to Maturity:
Federal Home Loan Mortgage
Corporation......................... $ 65,921 $ (74,525) $23,376 $(262,325)
Government National Mortgage
Association......................... 135,232 (22,952) 61,860 (124,062)
Federal National Mortgage
Association......................... 49,851 (13,393) 14,617 (65,004)
Collateralized Mortgage Obligations.. 15,886 (15,712) -- (138,499)
---------- ---------- ---------- ------------
$ 266,890 $(126,582) $99,853 $(589,890)
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
F-32
<PAGE>
The amortized cost and fair value of mortgage-backed securities at
September 30, 1995 by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or repay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................. $ 192,928 $ 194,118
Due after one year through five years... 652,644 651,017
Due after five years through ten years.. 2,038,706 2,038,485
Due after ten years..................... 11,453,507 11,594,473
----------- -----------
$14,337,785 $14,478,093
----------- -----------
----------- -----------
</TABLE>
No mortgage-backed securities were sold in years ended September 30,
1995, 1994 or 1993.
4. LOANS RECEIVABLE
Loans receivable at September 30 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Mortgage Loans
1 to 4 family...................... $35,784,427 $32,917,810
Multi-family....................... 621,974 468,288
Non-residential.................... 2,866,754 2,590,792
Land............................... 466,750 445,574
----------- -----------
39,739,905 36,422,464
Commercial........................... 722,241 938,736
Consumer and other................... 1,127,127 515,200
----------- -----------
41,589,273 37,876,400
----------- -----------
Less:
Undisbursed loan funds............. 1,449,201 684,664
Deferred loan fees................. 162,393 182,542
Allowance for loan losses.......... 108,000 101,000
----------- -----------
1,719,594 968,206
----------- -----------
$39,869,679 $36,908,194
----------- -----------
----------- -----------
</TABLE>
The following is an analysis of allowance for loan losses:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance beginning.......... $101,000 $101,000 $100,000
Amounts charged off........ (1,300) -- --
Recoveries................. -- -- 1,000
Provision charged.......... 8,300 -- --
-------- -------- --------
Balance ending............. $108,000 $101,000 $101,000
-------- -------- --------
-------- -------- --------
</TABLE>
F-33
<PAGE>
The allowance for loan losses consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Real estate and commercial loans..... $ 90,000 $ 83,300
Consumer loans....................... 18,000 17,700
-------- --------
$108,000 $101,000
-------- --------
-------- --------
</TABLE>
Nonaccrual loans for which interest has been reduced totaled
approximately $278,453 and $13,600 at September 30, 1995 and 1994,
respectively. Interest income that would have been recorded under the
original terms of such loans and has been foregone amounted to $23,874,
$415 and $8,854 for the years ended September 30, 1995, 1994 and 1993,
respectively. The Savings Bank is not committed to lend additional funds
to customers whose loans are classified as non-performing at September 30,
1995.
In the ordinary course of business, the Savings Bank has made loans to
officers, directors, and related interest aggregating $260,745 and
$276,100 at September 30, 1995 and 1994, respectively.
5. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at September 30 are summarized by major
classifications as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Land and improvements................ $ 335,237 $ 335,237
Buildings and building improvements.. 2,137,060 2,137,060
Furniture, fixtures and equipment.... 402,594 391,235
Automobiles.......................... 32,862 9,327
---------- ----------
2,907,753 2,872,859
Less accumulated depreciation and
amortization....................... 1,018,471 954,937
---------- ----------
$1,889,282 $1,917,922
---------- ----------
---------- ----------
</TABLE>
Depreciation expense amounted to $63,535, $57,843, and $59,870, for the
years ended September 30, 1995, 1994 and 1993, respectively.
6. REAL ESTATE OWNED
Real estate acquired in settlement of loans constitutes restructured debt
and produces no interest income for the Savings Bank. Interest foregone
on real estate sold prior to 1995 was estimated to be $-0-, $-0- and $300
for the years ended September 30, 1995, 1994 and 1993, respectively.
F-34
<PAGE>
7. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at September 30 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Investment securities.............. $ 368,587 $412,292
Mortgage-backed securities......... 104,011 119,648
Loans receivable................... 51,728 30,357
--------- --------
$ 524,326 $562,297
--------- --------
--------- --------
</TABLE>
8. DEPOSITS
Deposits at September 30 are summarized as follows:
<TABLE>
<CAPTION>
Weighted 1995 1994
Average Rate ---------------------- --------------------
1995 Amount Percent Amount Percent
------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Outstanding official checks......... $ 242,608 0.36% $ 589,628 0.88%
NOW accounts........................ 2.44% 3,635,441 5.38 3,279,995 4.90
Money market accounts............... 3.45 4,858,450 7.20 5,598,962 8.37
Passbook accounts................... 3.00 15,102,693 22.37 24,386,084 36.43
-------- ----------- ------
23,839,192 35.31 33,854,669 50.58
----------- -------- ----------- ------
Certificates of deposit:
Less than 3%...................... 207,811 0.31 238,920 0.36
3.00% to 3.99%.................... 93,172 0.14 8,987,349 13.43
4.00% to 4.99%.................... 5,822,238 8.62 17,733,369 26.49
5.00% to 5.99%.................... 16,693,182 24.73 3,991,377 5.96
6.00% to 6.99%.................... 17,335,441 25.68 1,242,280 1.86
7.00% to 7.99%.................... 3,304,146 4.89 370,857 0.55
8.00% to 8.99%.................... 210,692 0.31 485,803 0.73
9.00% to 9.99%.................... 6,646 0.01 6,080 0.01
10.00% and over................... -- 0.00 20,000 0.03
----------- -------- ----------- ------
5.78 43,673,328 64.69 33,076,035 49.42
----------- -------- ----------- ------
$67,512,520 100.00% $66,930,704 100.00%
----------- -------- ----------- ------
----------- -------- ----------- ------
Weight average cost of savings
deposits........................... 4.79% 3.84%
</TABLE>
Certificates of deposit with balances of $100,000 or more at September 30,
1995 and 1994 were $5,078,411 and $2,763,500, respectively.
F-35
<PAGE>
Scheduled maturities of certificates of deposit at September 30, 1995 are
as follows:
<TABLE>
<CAPTION>
Less Than
One Year 1-2 Years 2-3 Years Over 3 Years Total
---------- --------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Less than 3.00%.................. $ 207,811 $ -- $ -- $ -- $ 207,811
3.00% to 3.99%................... 93,122 50 -- -- 93,172
4.00% to 4.99%................... 5,003,649 818,589 -- -- 5,822,238
5.00% to 5.99%................... 14,016,993 1,096,175 872,456 707,558 16,693,182
6.00% to 6.99%................... 7,804,200 6,901,654 1,423,379 1,206,208 17,335,441
7.00% to 7.99%................... 98,584 -- 1,495,643 1,709,919 3,304,146
8.00% to 8.99%................... 188,977 21,715 -- -- 210,692
9.00% to 9.99%................... 6,646 -- -- -- 6,646
10.00% and over.................. -- -- -- -- --
----------- ---------- --------- ------------ -----------
$27,419,982 $8,838,183 $3,791,478 $ 3,623,685 $43,673,328
----------- ---------- --------- ------------ -----------
----------- ---------- --------- ------------ -----------
</TABLE>
Interest paid on depositor accounts for the years ended September 30
consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
NOW and money market accounts................ $ 243,124 $ 257,180 $ 278,522
Passbook and statement accounts.............. 647,229 867,175 769,761
Certificate accounts......................... 2,009,412 1,413,858 1,651,346
2,899,765 2,538,213 2,699,629
Less penalties for early withdrawal.......... 11,878 4,287 8,361
------------ ----------- -----------
Net interest expense on deposits............. $ 2,887,887 $ 2,533,926 $ 2,691,268
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
9. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank are summarized below by
maturity date:
<TABLE>
<CAPTION>
1995 1994
--------------------- --------------------
Due in year ending Interest Interest
September 30 Amount Rate Amount Rate
- ------------------ ------ -------- ------ --------
<S> <C> <C> <C> <C>
1995............................ $ -- -- $1,500,000 5.95%
</TABLE>
At September 30, 1994, under a blanket floating lien with the FHLB, the
Savings Bank had pledged all of its stock in the FHLB and all residential
(1-4 units) first mortgage loans as collateral for advances. These advances
were drawn on a $5,000,000 line of credit that the Savings Bank had established
with FHLB at that time.
The Federal Home Loan Bank has established a credit availability program
and is phasing out the line of credit program. Credit availability allows
members of FHLB to request credit by completing an application. Credit
availability is based on financial and operating conditions and
F-36
<PAGE>
is subject to continued creditworthiness, compliance with conditions of the
application, and the pledging of eligible collateral. The credit availability
for the Savings Bank is $12.6 million.
10. STOCKHOLDERS' EQUITY
In 1987, the Board of Directors adopted an incentive stock option plan to
attract and retain management and key employees. The plan provided for
the granting of options to purchase 57,500 shares of common stock at fair
market value on the date of grant and a term of 10 years in which to
exercise the options:
Stock option activity was as follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------- ------------
<S> <C> <C>
Options outstanding at September 30, 1993 105,500 $5.00
Options surrendered 4,600 --
-------- ------
Options outstanding at September 30, 1994 100,900 5.00
Options surrendered 6,900 --
-------- ------
Options outstanding at September 30, 1995 94,000 $5.00
-------- ------
-------- ------
</TABLE>
All options were eligible to be exercised at September 30, 1995. The
number of shares and the option price per share have been adjusted to
reflect the effect of a 2 for 1 stock split in March 1989.
In lieu of normal redemption of the stock options, under the terms of
the Plan, the optionholders may present their options to the Option
Committee of the Board of Directors and receive, at the discretion
of the Option Committee, either common stock of the Savings Bank or cash
or a combination of cash and stock, an amount equal to the appreciation
of the value of the common stock from the date of grant (i.e., the
difference between the strike price of the option ($5) and the current
market price of the common stock). This settlement of the options is
equivalent to a stock appreciation rights (SAR) feature.
In February 1992, the Option Committee implemented a policy to provide
for the accrual of SAR's on all options then outstanding in anticipation of the
potential future exercise of these options. As of September 30, 1995, the
Option Committee resolved to discontinue accruing for the exercising of SAR's
and to limit any grants of SAR's to a $400,700 cap. Such amount will be
available to grant SAR's requests, if any, during the remaining term of the
plan from the optionees and will be granted on a pro rata basis.
At the time of conversion from mutual to a stock association, a
liquidation account was established in an amount equal to the net worth
as of the latest date of the financial statements contained in the final
prospectus used to sell the stock in the conversion. The liquidation account
will be maintained for the benefit of eligible account holders who continue
to maintain their accounts after conversion. In the event of a complete
liquidation (and only in such an event), each eligible account holder
will be entitled to receive a liquidation distribution from the liquidation
account, in the proportionate amount of the then current adjusted balance for
F-37
<PAGE>
accounts then held, before any liquidation distribution may be made with
respect to the stockholders. Except for the repurchase of stock and
payment of dividends by the Savings Bank, the existence of the liquidation
account will not restrict the use or application of such net worth.
The Board of Directors declared cash dividends during fiscal year
1995 totaling $0.40 per share, which amount to $461,640.
Earnings per share for the year ended September 30, 1995, 1994 and
1993 are based on the weighted average number of common and common equivalent
shares outstanding. Stock options are treated as common stock equivalents
using the treasury stock method in each period in which the effect is
dilutive. The weighted average number of common and common equivalent shares
used to compute earnings per share for years ended 1995, 1994, and 1993 were
1,213,732, 1,206,788, and 1,194,299, respectively.
Earnings per share for the years ended 1994 and 1993 have been restated
to provide for inclusion of the common stock equivalents then outstanding.
Retained earnings at September 30, 1995 and 1994, include allocations
of income to bad debt reserves for tax purposes. Earnings appropriated to bad
debt reserves and deducted for federal income tax purposes are not available
for payment of cash dividends or other distributions to stockholders,
including distributions on redemption, dissolutions, or liquidation, without
payment of such taxes on the amount of such earnings removed from the reserves
for such distribution at the then current tax rate. At September 30, 1995,
the Savings Bank had $3,158,439 of such appropriated reserves (see also
Note 13).
11. REGULATORY CAPITAL
Regulations of the Office of Thrift Supervision ("OTS") require
institutions to meet three minimum capital standards: a 1.5% of tangible
capital ratio, a 3% core capital ratio and an 8% risk-based capital ratio.
As of September 30, 1995, the Savings Bank exceeded all three capital
requirements as indicated in the following tabulation:
<TABLE>
<CAPTION>
Actual Required Excess over Actual Required
Capital Capital Required Percent Percent
--------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Tangible capital................ $14,790,861 $1,251,001 $13,539,860 17.73% 1.50%
Core capital.................... 14,790,861 2,502,002 12,288,859 17.73 3.00
Risk-based capital.............. 14,898,861 2,382,243 12,516,618 50.03 8.00
</TABLE>
OTS regulations impose limitations upon all capital distributions such
as dividends, stock repurchases, and cash-out mergers by savings institutions.
The rule establishes three tiers of institutions and the prerequisites as to
how each tier institution can make distributions. As of September 30, 1995,
the Savings Bank qualified as a Tier 1 institution; therefore, capital
distributions can be made, after prior notice but without OTS approval, equal
to the greater of: (1) 100% of net income plus the amount that would reduce
by one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the year; or (2) 75% of
its net income for the previous four quarters. Any additional capital
distributions would require prior regulatory approval.
In addition to the above capital requirements, the Savings Bank is
required to maintain an average daily balance of specified liquid assets equal
to a monthly average of not less than a
F-38
<PAGE>
specified percentage of its net withdrawable deposit accounts plus
short-term borrowings. This liquidity requirement is currently 5%. OTS
regulations also require each member institution to maintain an average
daily balance of short-term liquid assets at a specified percentage
(currently 1%) of the total of its net withdrawable deposit accounts and
borrowings payable in one year or less. The Savings Bank's liquidity and
short-term liquidity ratios for September 30, 1995 were 17.22% and 3.42%
respectively.
12. EMPLOYEE BENEFIT PLANS
The Savings Bank has a non-contributory defined benefit pension plan which
covers substantially all employees. The plan uses the final average salary
benefit formula with benefits based on years of accrued service. The
Savings Bank's policy is to contribute annually the amount required by the
plan. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in
the future.
The following table sets forth the plan's funded status and amounts
recognized in the statements of financial condition at September 30, 1995
and 1994. Certain amounts as shown for 1994 have been restated to provide
new valuation data from the actuary:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits obligation of $1,193,128 and $1,051,322,
respectively. . . . . . . . . . . . . . . . . . . $ 1,251,311 $ 1,108,852
----------- -----------
----------- -----------
Projected benefit obligation for
service rendered to date. . . . . . . . . . . . . $(1,323,744) $(1,207,655)
Plan assets at fair value; Mutual Savings
Bank common stock and short-term investments. . . 1,313,355 1,128,025
----------- -----------
Funded status . . . . . . . . . . . . . . . . . . . (10,389) (79,630)
Unrecognized net obligation being recognized
over 17 years . . . . . . . . . . . . . . . . . . 305,410 335,206
Unrecognized net (gain) or loss . . . . . . . . . . (475,774) (425,323)
----------- -----------
Accrued pension cost. . . . . . . . . . . . . . . . $ (180,753) $ (169,747)
----------- -----------
----------- -----------
</TABLE>
Net periodic pension cost for years ended September 30 included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Service cost - benefits earned
during the period. . . . . . . . $ 66,518 $ 73,632 $ 64,868
Interest cost on projected
benefit obligation . . . . . . . 82,249 85,883 42,058
Return on plan assets. . . . . . . (138,193) (69,175) (74,623)
Net amortization and deferral. . . 75,432 22,079 15,002
--------- -------- --------
Net periodic pension cost. . . . . $ 86,006 $112,419 $ 47,305
--------- -------- --------
--------- -------- --------
</TABLE>
The discount rate used to determine the actuarial present value of the
projected benefit obligation was 7% for both 1995 and 1994, respectively.
The expected long-term rate of return on plan assets used in determining
net pension expense was 7% for both 1995 and 1994,
F-39
<PAGE>
respectively. The assumed rate of increase in future compensation levels
was 4% for both 1995 and 1994, respectively.
As of September 30, 1995, the plan had no additional liability and no
intangible asset.
The Savings Bank also has an Employee Stock Ownership Plan ("ESOP"). The
plan covers substantially all employees. At September 30, 1995, the ESOP
held 118,020 shares of the Savings Bank's common stock all of which had
been allocated to the participants as of that date. As of September 30,
1995, the market value of plan assets was $1,804,497.
Contributions, which include interest, to the ESOP plan for years ended
September 30, 1995, 1994 and 1993 were $57,925, $36,712, and $166,236,
respectively. Contributions are made based upon 10% of annual compensation
plus a discretionary amount as determined by the Board of Directors, not to
exceed 25% of the participants' compensation.
The Savings Bank does not provide any benefits that are subject to the
provisions of SFAS No. 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 112, "Employers Accounting for
Postemployment Benefits".
13. INCOME TAXES
Under the Internal Revenue Code, the Savings Bank is allowed a special bad
debt deduction related to additions to tax bad debt reserves established
for the purposes of absorbing losses. A deduction for bad debts of 8% of
taxable income is allowable. The Savings Bank is also subject to state
income taxes. The state allows a deduction for bad debts of 40% of taxable
income. The Savings Bank did not qualify for the special allowance for bad
debt deduction in 1995 and 1994.
Deferred income taxes have not been provided on bad debt reserves since the
Savings Bank does not intend to use the reserves for purposes other than to
absorb losses.
The Savings Bank estimates that approximately $1,074,000 of income tax
would be payable on the tax bad debt reserves if these amounts are used for
purposes other than bad debt losses.
Provision for income taxes for the years ended September 30 is summarized
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Current . . . $516,225 $515,020 $579,822
Deferred. . . (29,218) (8,869) (30,010)
-------- -------- --------
$487,007 $506,151 $549,812
-------- -------- --------
-------- -------- --------
</TABLE>
F-40
<PAGE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . 34% 34% 34%
Increase (decrease) in taxes
resulting from:. . . . . . . . . . . . . .
Tax bad debt deduction . . . . . . . . . -- -- (3)
Tax exempt interest and dividends. . . . (2) (1) (1)
State income taxes . . . . . . . . . . . 2 2 1
Other, net . . . . . . . . . . . . . . . (1) (1) (1)
---- ---- ----
33% 34% 30%
---- ---- ----
---- ---- ----
</TABLE>
The sources of temporary differences and their deferred tax effect are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Deferred loan fees . . . . . . $ 6,850 $ (3,605) $ (468)
Depreciation . . . . . . . . . 13,067 9,900 9,531
Pension expense. . . . . . . . (3,742) (102) (16,084)
Federal Home Loan Bank
stock dividends. . . . . . . 479 16,245 12,646
Stock appreciation rights. . . (45,390) (32,028) (35,292)
Other, net . . . . . . . . . . (482) 721 (343)
-------- -------- --------
$(29,218) $ (8,869) $(30,010)
-------- -------- --------
-------- -------- --------
</TABLE>
The tax effect of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at September 30, are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred loan fees . . . . . . . . . . . . . . . . $ 55,214 $ 62,064
Pension expense. . . . . . . . . . . . . . . . . . 61,456 57,714
Provision for stock appreciation rights. . . . . . 136,238 90,848
Unrealized loss on securities available for sale . 2,101 --
Other. . . . . . . . . . . . . . . . . . . . . . . 623 141
-------- --------
Total gross deferred tax assets. . . . . . . . . 255,632 210,767
-------- --------
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . 195,572 182,505
Federal Home Loan Bank stock dividends . . . . . . 50,535 50,056
-------- --------
Total gross deferred tax liabilities . . . . . . 246,107 232,561
-------- --------
Net deferred tax assets (liability). . . . . . . $ 9,525 $(21,794)
-------- --------
-------- --------
</TABLE>
With respect to the realization of total gross deferred tax assets, the
Savings Bank believes that a valuation allowance is not necessary.
F-41
<PAGE>
14. OTHER NONINTEREST EXPENSE
Other noninterest expense amounts are summarized as follows for the years
ended September 30:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Advertising . . . . . . . . . $ 79,222 $ 49,442 $ 42,081
Data processing . . . . . . . 144,756 137,914 138,963
Merger expenses . . . . . . . 8,278 259,050 --
Other . . . . . . . . . . . . 185,800 172,492 198,062
-------- -------- --------
$418,056 $618,898 $379,106
-------- -------- --------
-------- -------- --------
</TABLE>
Merger expenses as shown for 1995 represent initial consultant expenses
related to the proposed merger with American National Bankshares Inc. (See
also Note 19).
On July 5, 1994, Mutual Savings mutually agreed with FNB Financial Services
Corporation ("FNB") to terminate the plan of combination. The combination
had provided for the Savings Bank to merge with and into a newly chartered
national banking association subsidiary of FNB. Merger expenses as
indicated for 1994 represent a charge to income for expenses incurred as
associated with the merger.
15. COMMITMENTS
The Savings Bank entered into transactions in the normal course of doing
business which represented off-balance-sheet risk as of September 30, 1995
and 1994. A summary of these transactions follow:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Commitments to finance real estate
acquisitions and construction . . . . . . $1,256,185 $438,500
Commitments to finance commercial loans . . 451,125 367,525
Undisbursed lines of credit . . . . . . . . 33,500 12,500
Standby letters of credit . . . . . . . . . -- 13,500
---------- --------
$1,740,810 $832,025
---------- --------
---------- --------
</TABLE>
The Savings Bank's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
notional amount of those instruments. The Savings Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
16. CONCENTRATIONS OF CREDIT RISK
Substantially all of the Savings Bank's loans, commitments and lines of
credit have been granted to customers in the Savings Bank's market area.
Substantially all of the investments are in U.S. Government and Agency
obligations, municipal obligations, and corporate notes of other financial
institutions. Mortgaged-backed securities involve the secondary mortgage
loan
F-42
<PAGE>
market through government agencies. The concentrations of credit by loan
are set forth in Note 4. Lines of credit are granted primarily to
commercial borrowers. The Savings Bank does not extend credit to any single
borrower or group in excess of its loans to one borrower limit of
$2.2 million.
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly data for years ended September 1995 and 1994 follows:
<TABLE>
<CAPTION>
Year Ended September 30, 1995
-----------------------------
Three Months Ended
--------------------------------------------------
December 31 March 31 June 30 September 30
----------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net interest income . . . . . . . . . $819,230 $786,501 $772,592 $741,629
Provision for loan losses . . . . . . -- -- -- 8,300
Noninterest income. . . . . . . . . . 34,870 87,854 37,763 37,867
Noninterest expense . . . . . . . . . 478,318 463,576 451,182 437,035
-------- -------- -------- --------
Net income before taxes . . . . . . . 375,782 410,779 359,173 334,161
Income taxes. . . . . . . . . . . . . 125,684 146,800 123,000 91,523
-------- -------- -------- --------
Net income. . . . . . . . . . . . . . $250,098 $263,979 $236,173 $242,638
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share. . . . . . . . . . $ 0.21 $ 0.22 $ 0.19 $ 0.20
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30, 1994
-----------------------------
Three Months Ended
--------------------------------------------------
December 31 March 31 June 30 September 30
----------- -------- -------- ------------
<S> <C> <C> <C> <C>
Net interest income . . . . . . . . . $791,301 $723,933 $797,313 $806,379
Noninterest income. . . . . . . . . . 45,524 81,550 45,578 153,240
Noninterest expense . . . . . . . . . 438,317 416,790 402,517 705,085
-------- -------- -------- --------
Net income before taxes . . . . . . . 398,508 388,693 440,374 254,534
Income taxes. . . . . . . . . . . . . 131,500 128,300 145,300 101,051
-------- -------- -------- --------
Net income. . . . . . . . . . . . . . $267,008 $260,393 $295,074 $153,483
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share. . . . . . . . . . $ 0.22 $ 0.22 $ 0.24 $ 0.13
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
18. PROPOSED CHANGES IN ACCOUNTING
In December 1991, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments". SFAS
No. 107 requires all entities to disclose the fair value of financial
instruments, for which it is practicable to estimate fair value. SFAS
No. 107 is effective for financial statements issued for fiscal years
ending after December 15, 1992 (1995 for entities with less than
$150 million in total assets in the current statement of financial
position). Presently, this statement will be effective for the Savings
Bank
F-43
<PAGE>
in the year ending September 30, 1996. Management believes that the effect
on the consolidated statements would not be significantly adverse.
In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of Loans," which is effective for fiscal years beginning after
December 15, 1994. Statement No. 114 requires that specified impaired loans
be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate. In October, 1994, the
FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." SFAS No. 118 amends certain
requirements of SFAS No. 114 and is effective concurrently with No. 114.
Statements No. 114 and 118 are not expected to have a material effect on
the Savings Bank.
19. DEFINITIVE MERGER AGREEMENT
On September 26, 1995, Mutual entered into a definitive agreement, whereby
Mutual would be acquired by American National Bankshares Inc. ("American
National") in a stock for stock exchange. The transaction contemplates a
fixed rate of .705 of a share of American National common stock for each
share of Mutual common stock. The merger will be tax free to Mutual's
stockholders and will be accounted for as a pooling of interest. In
connection with the transaction, Mutual has agreed to pay American National
a termination fee of $1,000,000 in the event Mutual, under certain
circumstances as set forth in the agreement, terminates the agreement or
fails to consummate the merger and within 12 months thereafter is acquired
by another party.
F-44
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
MUTUAL SAVINGS BANK, F.S.B.
AND
AMERICAN NATIONAL BANKSHARES INC.
DATED AS OF SEPTEMBER 26, 1995
I-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Parties................................................................. I-6
Preamble................................................................ I-6
ARTICLE ONE - TRANSACTIONS AND TERMS OF MERGER.......................... I-6
1.1 Merger........................................................ I-6
1.2 Time and Place of Closing..................................... I-7
1.3 Effective Time................................................ I-7
ARTICLE TWO - TERMS OF MERGER........................................... I-7
2.1 Business of Resulting Association............................. I-7
2.2 Assumption of Rights.......................................... I-7
2.3 Assumption of Liabilities..................................... I-8
2.4 Articles of Association....................................... I-8
2.5 Bylaws........................................................ I-8
2.6 Directors and Officers........................................ I-8
ARTICLE THREE - MANNER OF CONVERTING SHARES............................. I-8
3.1 Conversion of Shares.......................................... I-8
3.2 Anti-Dilution Provisions...................................... I-9
3.3 Shares Held by Mutual or ANB.................................. I-9
3.4 Dissenting Shareholders....................................... I-9
3.5 Fractional Shares............................................. I-9
3.6 Conversion of Stock Options................................... I-9
ARTICLE FOUR - EXCHANGE OF SHARES....................................... I-11
4.1 Exchange Procedures........................................... I-11
4.2 Rights of Former Mutual Shareholders.......................... I-11
ARTICLE FIVE - REPRESENTATIONS AND WARRANTIES OF MUTUAL................. I-12
5.1 Organization, Standing, and Power............................. I-12
5.2 Authority; No Breach By Agreement............................. I-12
5.3 Capital Stock................................................. I-13
5.4 Mutual Subsidiaries........................................... I-14
5.5 Financial Statements.......................................... I-14
5.6 Absence of Undisclosed Liabilities............................ I-15
5.7 Absence of Certain Changes or Events.......................... I-15
5.8 Adequacy of Reserves.......................................... I-15
5.9 Tax Matters................................................... I-16
5.10 Assets........................................................ I-16
5.11 Environmental Matters......................................... I-17
5.12 Compliance With Laws.......................................... I-18
5.13 Labor Relations............................................... I-18
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
5.14 Employee Benefit Plans........................................ I-18
5.15 Material Contracts............................................ I-21
5.16 Legal Proceedings............................................. I-21
5.17 Reports....................................................... I-21
5.18 Statements True and Correct................................... I-22
5.19 Accounting, Tax, and Regulatory Matters....................... I-22
5.20 Charter Provisions............................................ I-23
5.21 Support Agreements............................................ I-23
ARTICLE SIX - REPRESENTATIONS AND WARRANTIES OF ANB..................... I-23
6.1 Organization, Standing, and Power............................. I-23
6.2 Authority; No Breach By Agreement............................. I-23
6.3 Capital Stock................................................. I-24
6.4 ANB Subsidiaries.............................................. I-24
6.5 Financial Statements.......................................... I-25
6.6 Absence of Undisclosed Liabilities............................ I-25
6.7 Absence of Certain Changes or Events.......................... I-26
6.8 Adequacy of Reserves.......................................... I-26
6.9 Assets........................................................ I-27
6.10 Compliance With Laws.......................................... I-27
6.11 Legal Proceedings............................................. I-27
6.12 Reports....................................................... I-28
6.13 Statements True and Correct................................... I-28
6.14 Authority of American National................................ I-29
6.15 Accounting, Tax, and Regulatory Matters....................... I-29
ARTICLE SEVEN - CONDUCT OF BUSINESS PENDING CONSUMMATION................ I-29
7.1 Covenants of Both Parties..................................... I-29
7.2 Covenants of Mutual........................................... I-29
7.3 Covenants of ANB.............................................. I-32
7.4 Adverse Changes in Condition.................................. I-32
7.5 Reports....................................................... I-32
ARTICLE EIGHT - ADDITIONAL AGREEMENTS................................... I-32
8.1 Registration Statement; Joint Proxy Statement;
Shareholder Approval.......................................... I-32
8.2 Applications.................................................. I-33
8.3 Agreement as to Efforts to Consummate......................... I-33
8.4 Investigation and Confidentiality............................. I-34
8.5 Press Releases................................................ I-34
8.6 Certain Actions............................................... I-34
8.7 Tax Matters................................................... I-35
8.8 Agreements of Affiliates...................................... I-35
8.9 Employee Benefits and Contracts............................... I-35
8.10 Indemnification............................................... I-36
8.11 Organization of Mortgage Subsidiary........................... I-37
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.12 Certain Director and Officer Positions........................ I-37
8.13 Certain Modifications......................................... I-38
ARTICLE NINE - CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE........ I-38
9.1 Conditions to Obligations of Each Party....................... I-38
9.2 Conditions to Obligations of ANB.............................. I-39
9.3 Conditions to Obligations of Mutual........................... I-40
ARTICLE TEN - TERMINATION............................................... I-42
10.1 Termination................................................... I-42
10.2 Effect of Termination......................................... I-43
10.3 Non-Survival of Representations and Covenants................. I-43
ARTICLE ELEVEN - MISCELLANEOUS.......................................... I-43
11.1 Definitions................................................... I-43
11.2 Expenses...................................................... I-51
11.3 Brokers and Finders........................................... I-52
11.4 Entire Agreement.............................................. I-52
11.5 Amendments.................................................... I-52
11.6 Waivers....................................................... I-52
11.7 Assignment.................................................... I-53
11.8 Notices....................................................... I-53
11.9 Governing Law................................................. I-54
11.10 Counterparts.................................................. I-54
11.11 Captions...................................................... I-54
11.12 Severability.................................................. I-54
Signatures.............................................................. I-54
</TABLE>
I-4
<PAGE>
APPENDIX I
LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
1. Form of Plan of Merger and Combination between Mutual and
American National. (SectionSection 1.1, 11.1).
2. Form of Support Agreement. (Section 5.22).
3. Form of Affiliate Agreement. (Section 8.8).
4. Form of Employment Agreement. (Section 8.12(c)).
5. Matters as to which Muldoon, Murphy & Faucette will opine.
(Section 9.2(e)).
6. Matters as to which Alston & Bird will opine.
(Section 9.3(d)).
</TABLE>
I-5
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of September 26, 1995, by and between MUTUAL SAVINGS BANK,
F.S.B. ("Mutual"), a federal stock savings bank organized and existing under
the Laws of the United States, with its principal office located in Danville,
Virginia; and AMERICAN NATIONAL BANKSHARES INC. ("ANB"), a corporation
organized and existing under the Laws of the Commonwealth of Virginia, with
its principal office located in Danville, Virginia.
PREAMBLE
The Boards of Directors of Mutual and ANB are of the opinion that the
transactions described herein are in the best interests of the parties and
their respective shareholders. This Agreement provides for the acquisition of
Mutual by ANB pursuant to the merger (the "Merger") of Mutual with and into
American National Bank and Trust Company ("American National"), a national
banking association and a wholly owned subsidiary of ANB. At the effective
time of the Merger, the outstanding shares of the common stock of Mutual shall
be converted into shares of the common stock of ANB (except as provided
herein). As a result, shareholders of Mutual shall become shareholders of
ANB, and the business and operations of Mutual shall be conducted through, and
as a part of, American National. The transactions described in this Agreement
are subject to the approvals of the shareholders of Mutual and ANB, the Office
of the Comptroller of the Currency, appropriate state regulatory authorities,
and the satisfaction of certain other conditions described in this Agreement.
It is the intention of the parties to this Agreement that the Merger (i) for
federal income tax purposes shall qualify as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code, and that the exchange
of Mutual common stock, to the extent exchanged for ANB common stock, will not
give rise to gain or loss to the holders of Mutual common stock with respect
to such exchange, and (ii) for accounting purposes shall be accounted for as a
"pooling of interests."
Certain terms used in this Agreement are defined in Section 11.1 of
this Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
ARTICLE ONE
TRANSACTIONS AND TERMS OF MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time, Mutual shall be merged with and into American National
in accordance with and with the effect provided in 12 U.S.C. Sections 215c,
1815(d)(3), and 1828(c). American National shall be
I-6
<PAGE>
the Resulting Association resulting from the Merger and shall be a
wholly-owned, first tier Subsidiary of ANB and shall continue to be governed
by the Laws of the United States. The Merger shall be consummated pursuant to
the terms of this Agreement, which has been approved and adopted by the
respective Boards of Directors of Mutual and ANB, and the Plan of Merger,
which has been approved by the respective Boards of Directors of Mutual and
American National.
1.2 TIME AND PLACE OF CLOSING. The Closing will take place at 9:00
A.M. on the date that the Effective Time occurs (or the immediately preceding
day if the Effective Time is earlier than 9:00 A.M.), or at such other time as
the Parties, acting through their chief executive officers or chief financial
officers, may mutually agree. The place of Closing shall be at the offices of
ANB, or such other place as may be mutually agreed upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by this Agreement shall become effective on the date and at the time of
issuance of the Certificate of Merger by the OCC or on such other date and at
such other time as the OCC declares the Merger effective (the "Effective
Time"). Subject to the terms and conditions hereof, unless otherwise mutually
agreed upon in writing by the chief executive officers or chief financial
officers of each Party, the Parties shall use their reasonable efforts to
cause the Effective Time to occur on the first business day following the last
to occur of (i) the effective date (including expiration of any applicable
waiting period) of the last required Consent of any Regulatory Authority
having authority over and approving or exempting the Merger, and (ii) the date
on which the shareholders of Mutual and ANB approve this Agreement and the
Plan of Merger to the extent such approval is required by applicable Law; or
such later date within thirty (30) days of such date as may be mutually agreed
upon by Mutual and ANB.
ARTICLE TWO
TERMS OF MERGER
2.1 BUSINESS OF RESULTING ASSOCIATION. The business of the Resulting
Association from and after the Effective Time shall continue to be that of a
national banking association organized under the Laws of the United States.
The business shall be conducted from its main office located in Danville,
Virginia, and at its legally established branches, which shall also include
the main office and all branches of Mutual, whether in operation or approved
but unopened, at the Effective Time.
2.2 ASSUMPTION OF RIGHTS. At the Effective Time, the separate
existence and corporate organization of Mutual shall be merged into and
continued in the Resulting Association. All rights, franchises, and interests
of both Mutual and American National in and to every type of property (real,
personal, and mixed), and all choses in action of both Mutual and American
National shall be transferred to and vested in the Resulting Association
without any deed or other transfer. The Resulting Association, upon
consummation of the Merger and without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of
I-7
<PAGE>
estates, assignee, receiver, and committee of estates of incompetent persons,
and in every other fiduciary capacity, in the same manner and to the same
extent as such rights, franchises, and interests were held or enjoyed by
either Mutual or American National at the Effective Time.
2.3 ASSUMPTION OF LIABILITIES. All liabilities and obligations of both
Mutual and American National of every kind and description (including without
limitation the liquidation account established by Mutual in connection with
its conversion to the stock form of organization, as in existence at the
Effective Time) shall be assumed by the Resulting Association, and the
Resulting Association shall be bound thereby in the same manner and to the
same extent that Mutual and American National were so bound at the Effective
Time.
2.4 ARTICLES OF ASSOCIATION. The Articles of Association of
American National in effect immediately prior to the Effective Time shall be
the Articles of Association of the Resulting Association until otherwise
amended or repealed.
2.5 BYLAWS. The Bylaws of American National in effect immediately
prior to the Effective Time shall be the Bylaws of the Resulting Association
until otherwise amended or repealed.
2.6 DIRECTORS AND OFFICERS. The directors of American National in
office immediately prior to the Effective Time, together with such additional
persons as may thereafter be elected, shall serve as the directors of the
Resulting Association from and after the Effective Time in accordance with the
Bylaws of the Resulting Association. The officers of American National in
office immediately prior to the Effective Time, together with such additional
persons as may thereafter be elected pursuant to Section 8.12 of this
Agreement or otherwise, shall serve as the officers of the Resulting
Association from and after the Effective Time in accordance with the Bylaws of
the Resulting Association.
ARTICLE THREE
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this
Article Three, at the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, the shares of the constituent
corporations or associations shall be converted as follows:
(a) Each share of ANB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of American National Common Stock issued and
outstanding at the Effective Time shall remain issued and outstanding from
and after the Effective Time.
(c) Each share of Mutual Common Stock (excluding shares held by any
Mutual Company or by any ANB Company, which shares shall be canceled as
provided in
I-8
<PAGE>
Section 3.3 of this Agreement, in each case other than in a
fiduciary capacity or in satisfaction of debts previously contracted)
issued and outstanding at the Effective Time shall cease to be outstanding
and shall be converted into and exchanged for .705 of a share of ANB
Common Stock (the "Exchange Ratio").
3.2 ANTI-DILUTION PROVISIONS. In the event Mutual or ANB changes
the number of shares of Mutual Common Stock or ANB Common Stock, respectively,
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, or similar recapitalization with respect to such stock
and the record date therefor shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted.
3.3 SHARES HELD BY MUTUAL OR ANB. Each of the shares of Mutual
Common Stock held by any Mutual Company or by any ANB Company, in each case
other than in a fiduciary capacity or in satisfaction of debts previously
contracted, shall be canceled and retired at the Effective Time, and no
consideration shall be issued in exchange therefor.
3.4 DISSENTING SHAREHOLDERS. Any holder of shares of Mutual Common
Stock who perfects such holder's dissenters' rights of appraisal in accordance
with and as contemplated by 12 C.F.R. Section 552.14 shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, however, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has
complied with the applicable provisions of 12 C.F.R. Section 552.14 and
surrendered to the Resulting Association the certificate or certificates
representing the shares for which payment is being made. In the event that
after the Effective Time a dissenting shareholder of Mutual fails to perfect,
or effectively withdraws or loses, such holder's right to appraisal and of
payment for such holder's shares, ANB shall issue and deliver the
consideration to which such holder of shares of Mutual Common Stock is
entitled under this Article Three (without interest) upon surrender by such
holder of the certificate or certificates representing shares of Mutual Common
Stock held by such holder. Mutual will establish an escrow account with an
amount sufficient to satisfy the maximum aggregate payment that may be
required to be paid to dissenting shareholders. Upon satisfaction of all
claims of dissenting shareholders, the remaining escrowed amount, reduced by
payment of the fees and expenses of the escrow agent, will be returned to the
Resulting Association.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of Mutual Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of ANB Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of ANB Common
Stock multiplied by $30.50.
3.6 CONVERSION OF STOCK OPTIONS.
(a) At the Effective Time, each option or other right to purchase
shares of Mutual Common Stock pursuant to stock options or stock appreciation
rights ("Mutual Options") granted by Mutual under the Mutual Stock Plans,
which are outstanding at the Effective Time,
I-9
<PAGE>
whether or not exercisable, shall be converted into and become rights with
respect to ANB Common Stock, and ANB shall assume each Mutual Option, in
accordance with the terms of the Mutual Stock Plan and stock option agreement
by which it is evidenced, except that from and after the Effective Time, (i)
the Board of Directors of Mutual Mortgage Company shall be substituted for
Mutual and the Committee of Mutual's Board of Directors (including, if
applicable, the entire Board of Directors of Mutual) administering such
Mutual Stock Plan, (ii) each Mutual Option assumed by ANB may be exercised
solely for shares of ANB Common Stock (or cash in the case of stock
appreciation rights), (iii) the number of shares of ANB Common Stock subject
to such Mutual Option shall be equal to the number of shares of Mutual Common
Stock subject to such Mutual Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, and (iv) the per share exercise price under
each such Mutual Option shall be adjusted by dividing the per share exercise
price under each such Mutual Option by the Exchange Ratio and rounding up to
the nearest cent. Notwithstanding the provisions of clause (iii) of the
preceding sentence, ANB shall not be obligated to issue any fraction of a
share of ANB Common Stock upon exercise of Mutual Options and any fraction of
a share of ANB Common Stock that otherwise would be subject to a converted
Mutual Option shall represent the right to receive a cash payment equal to
the product of such fraction and the difference between the market value of
one share of ANB Common Stock and the per share exercise price of such
option. The market value of one share of ANB Common Stock shall be the
average of the closing bid and asked prices of such common stock as quoted on
the Nasdaq System or, if not reported thereby, any other authoritative source
selected by ANB) on the last trading day preceding the exercise of the
option. In addition, notwithstanding the provisions of clauses (iii) and (iv)
of the first sentence of this Section 3.6, each Mutual Option which is an
"incentive stock option" shall be adjusted as required by Section 424 of the
Internal Revenue Code, and the regulations promulgated thereunder, so as not
to constitute a modification, extension, or renewal of the option, within the
meaning of Section 424(h) of the Internal Revenue Code.
(b) At or prior to the Effective Time, ANB shall take all corporate
action necessary to reserve for issuance sufficient shares of ANB Common Stock
for delivery upon exercise of Mutual Options assumed by it in accordance with
this Section 3.6. As soon as reasonably practicable after the Effective Time,
ANB shall file a registration statement on Form S-3 or Form S-8, as the case
may be (or any successor or other appropriate forms), with respect to the
shares of ANB Common Stock subject to such options and shall use its
reasonable efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding. With
respect to those individuals who subsequent to the Merger will be subject to
the reporting requirements under Section 16(a) of the Exchange Act, where
applicable, ANB shall administer the Mutual Option Plan assumed pursuant to
this Section 3.6 in a manner that complies with Rule 16b-3 promulgated under
the Exchange Act to the extent the Mutual Option Plan complied with such rule
prior to the Merger.
(c) All restrictions or limitations on transfer with respect to
Mutual Common Stock awarded under the Mutual Stock Plans or any other plan,
program, or arrangement of any Mutual Company, to the extent that such
restrictions or limitations shall not have already lapsed, and except as
otherwise expressly provided in such plan, program, or arrangement, shall
remain in
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full force and effect with respect to shares of ANB Common Stock into which
such restricted stock is converted pursuant to Section 3.1 of this Agreement.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, ANB
shall cause the exchange agent selected by it (the "Exchange Agent") to mail
to the former shareholders of Mutual appropriate transmittal materials (which
shall specify that delivery shall be effected, and risk of loss and title to
the certificates theretofore representing shares of Mutual Common Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent).
After the Effective Time, each holder of shares of Mutual Common Stock (other
than shares to be canceled pursuant to Section 3.3 of this Agreement) issued
and outstanding at the Effective Time shall surrender the certificate or
certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1 of this Agreement, together with all undelivered dividends or
distributions in respect of such shares (without interest thereon) pursuant to
Section 4.2 of this Agreement. To the extent required by Section 3.5 of this
Agreement, each holder of shares of Mutual Common Stock issued and outstanding
at the Effective Time also shall receive, upon surrender of the certificate or
certificates representing such shares, cash in lieu of any fractional share of
ANB Common Stock to which such holder may be otherwise entitled (without
interest). ANB shall not be obligated to deliver the consideration to which
any former holder of Mutual Common Stock is entitled as a result of the Merger
until such holder surrenders such holder's certificate or certificates
representing the shares of Mutual Common Stock for exchange as provided in
this Section 4.1. The certificate or certificates of Mutual Common Stock so
surrendered shall be duly endorsed as the Exchange Agent may require. Any
other provision of this Agreement notwithstanding, neither ANB, the Resulting
Association, nor the Exchange Agent shall be liable to a holder of Mutual
Common Stock for any amounts paid or property delivered in good faith to a
public official pursuant to any applicable abandoned property Law.
4.2 RIGHTS OF FORMER MUTUAL SHAREHOLDERS. At the Effective Time,
the stock transfer books of Mutual shall be closed as to holders of Mutual
Common Stock immediately prior to the Effective Time, and no transfer of
Mutual Common Stock by any such holder shall thereafter be made or recognized.
Until surrendered for exchange in accordance with the provisions of Section
4.1 of this Agreement, each certificate theretofore representing shares of
Mutual Common Stock (other than shares to be canceled pursuant to Section 3.3
of this Agreement or as to which the holder thereof has perfected dissenters'
rights of appraisal as contemplated by Section 3.4 of this Agreement) shall
from and after the Effective Time represent for all purposes only the right to
receive the consideration provided in Sections 3.1 and 3.5 of this Agreement
in exchange therefor. To the extent permitted by Law, former shareholders of
record of Mutual shall be entitled to vote after the Effective Time at any
meeting of ANB shareholders the number of whole shares of ANB Common Stock
into which their respective shares of Mutual Common Stock are converted,
regardless of whether such holders have exchanged their certificates
representing Mutual Common Stock for certificates representing ANB Common
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Stock in accordance with the provisions of this Agreement. Whenever a
dividend or other distribution is declared by ANB on the ANB Common Stock, the
record date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares of ANB Common Stock
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of ANB Common Stock as of any time subsequent
to the Effective Time shall be delivered to the holder of any certificate
representing shares of Mutual Common Stock issued and outstanding at the
Effective Time until such holder surrenders such certificate for exchange as
provided in Section 4.1 of this Agreement. However, upon surrender of such
Mutual Common Stock certificate, both the ANB Common Stock certificate
(together with all such undelivered dividends or other distributions without
interest) and any undelivered cash payments to be paid for fractional share
interests (without interest) shall be delivered and paid with respect to each
share represented by such certificate.
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF MUTUAL
Mutual hereby represents and warrants to ANB as follows:
5.1 ORGANIZATION, STANDING, AND POWER. Mutual is a federal stock
savings bank duly organized, validly existing, and in good standing under the
Laws of the United States, and has the corporate power and authority to carry
on its business as now conducted and to own, lease, and operate its Assets.
Mutual is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of
its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Mutual. Mutual is an "insured institution" as defined in
the Federal Deposit Insurance Act and applicable regulations thereunder, and
the deposits in which are insured by the Savings Association Insurance Fund.
5.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) Mutual has the corporate power and authority necessary to
execute, deliver, and perform its obligations under, this Agreement and the
Plan of Merger and to consummate the transactions contemplated hereby and
thereby, subject to the approval of this Agreement and the Plan of Merger by
the requisite vote of the holders of Mutual Common Stock. The execution,
delivery, and performance of this Agreement and the Plan of Merger and the
consummation of the transactions contemplated herein and therein, including
the Merger, have been or will be duly and validly authorized by all necessary
corporate action in respect thereof on the part of Mutual subject to the
approval of this Agreement and the Plan of Merger by the holders of two-thirds
of the outstanding shares of Mutual Common Stock. Subject to such requisite
approval, this Agreement and the Plan of Merger represent legal, valid, and
binding obligations of Mutual enforceable against Mutual in accordance with
their respective terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency,
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reorganization, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally or the rights of creditors of a federal savings
bank, the deposits in which are insured by the FDIC, and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought).
(b) Neither the execution and delivery of this Agreement and
the Plan of Merger by Mutual nor the consummation by Mutual of the
transactions contemplated hereby or thereby, nor compliance by Mutual with
any of the provisions hereof or thereof, will (i) conflict with or result in
a breach of any provision of Mutual's Charter or Bylaws, or (ii) constitute
or result in a Default under, or require any Consent pursuant to, or result
in the creation of any Lien on any Asset of any Mutual Company under, any
Contract or Permit of any Mutual Company, or (iii) subject to receipt of the
requisite approvals referred to in Section 9.1(b) of this Agreement, violate
any material Law or Order applicable to any Mutual Company or any of their
respective Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate and securities Laws, and
rules of the NASD, and other than Consents required from and notices to be
filed with Regulatory Authorities, and other than notices to or filings with
the Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, and other than Consents, filings, or
notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Mutual
no notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by Mutual of the Merger and the other
transactions contemplated by this Agreement and the Plan of Merger.
5.3 CAPITAL STOCK.
(a) The authorized capital stock of Mutual consists of (i)
7,500,000 shares of Mutual Common Stock, of which 1,154,100 shares are issued
and outstanding as of the date of this Agreement and not more than 1,248,100
shares will be issued and outstanding at the Effective Time, and (ii)
2,500,000 shares of Mutual Preferred Stock, of which no shares are issued and
outstanding. All of the issued and outstanding shares of Mutual Common Stock
are duly and validly issued and outstanding and are fully paid and
nonassessable. None of the outstanding shares of Mutual Common Stock has
been issued in violation of any preemptive rights of the current or past
shareholders of Mutual. Mutual has reserved 94,000 shares of Mutual Common
Stock for issuance under the Mutual Stock Plans, pursuant to which options to
purchase no more than 94,000 shares of Mutual Common Stock are outstanding.
(b) Except as set forth in Section 5.3(a) of this Agreement, or
as disclosed in Section 5.3(b) of the Mutual Disclosure Memorandum, there are
no shares of capital stock or other equity securities of Mutual outstanding
and no outstanding options, warrants, scrip, rights to subscribe to, calls,
or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of the capital stock of
Mutual or contracts, commitments, understandings, or arrangements by which
Mutual is or may be bound to issue
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additional shares of Mutual capital stock or options, warrants, or rights to
purchase or acquire any additional shares of its capital stock.
5.4 MUTUAL SUBSIDIARIES. Mutual has disclosed in Section 5.4 of the
Mutual Disclosure Memorandum all of the Mutual Subsidiaries as of the date of
this Agreement. Except as disclosed, Mutual or one of its Subsidiaries owns
all of the issued and outstanding shares of capital stock of each Mutual
Subsidiary. No equity securities of any Mutual Subsidiary are or may become
required to be issued (other than to a Mutual Company) by reason of any
options, warrants, scrip, rights to subscribe to, calls, or commitments of
any character whatsoever relating to, or securities or rights convertible
into or exchangeable for, shares of the capital stock of any such Subsidiary,
and there are no Contracts by which any Mutual Subsidiary is bound to issue
(other than to a Mutual Company) additional shares of its capital stock or
options, warrants, or rights to purchase or acquire any additional shares of
its capital stock or by which any Mutual Company is or may be bound to
transfer any shares of the capital stock of any Mutual Subsidiary (other than
to a Mutual Company). There are no Contracts relating to the rights of any
Mutual Company to vote or to dispose of any shares of the capital stock of
any Mutual Subsidiary. All of the shares of capital stock of each Mutual
Subsidiary held by any Mutual Company are duly authorized, validly issued,
and fully paid and nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are
owned by the Mutual Company free and clear of any Lien. Each Mutual
Subsidiary is a corporation, and is duly organized, validly existing, and in
good standing under the Laws of the jurisdiction in which it is incorporated
or organized, and has the corporate power and authority necessary for it to
own, lease, and operate its Assets and to carry on its business as now
conducted. Each Mutual Subsidiary is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its Assets or
the nature or conduct of its business requires it to be so qualified or
licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Mutual.
5.5 FINANCIAL STATEMENTS. Mutual has disclosed in Section 5.5 of
the Mutual Disclosure Memorandum, and has delivered to ANB, copies of, all
Mutual Financial Statements prepared for periods ended prior to the date
hereof and will deliver to ANB copies of all Mutual Financial Statements
prepared subsequent to the date hereof. The Mutual Financial Statements (as
of the dates thereof and for the periods covered thereby) (i) are or, if
dated after the date of this Agreement, will be in accordance with the books
and records of the Mutual Companies, which are or will be, as the case may
be, complete and correct and which have been or will have been, as the case
may be, maintained in accordance with good business practices, and (ii)
present or will present, as the case may be, fairly the consolidated
financial position of the Mutual Companies as of the dates indicated and the
consolidated results of operations, changes in shareholders' equity, and cash
flows of the Mutual Companies for the periods indicated, in accordance with
GAAP (subject to any exceptions as to consistency specified therein or as may
be indicated in the notes thereto or, in the case of interim financial
statements, to normal recurring year-end adjustments that are not material).
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5.6 ABSENCE OF UNDISCLOSED LIABILITIES. To the Knowledge of Mutual
no Mutual Company has any Liabilities that are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual except
Liabilities which are accrued or reserved against in the consolidated balance
sheets of Mutual as of June 30, 1995 included in the Mutual Financial
Statements or reflected in the notes thereto. Except as disclosed in Section
5.6 of the Mutual Disclosure Memorandum, no Mutual Company has incurred or
paid any Liability since June 30, 1995, except for such Liabilities incurred
or paid in the ordinary course of business consistent with past business
practice and which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Mutual.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1995,
except as disclosed in the Mutual Financial Statements filed with the OTS
after such date and prior to the date of this Agreement, (i) there have been
no events, changes, or occurrences which have had, or are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Mutual and (ii) the Mutual Companies have not taken any action, or failed to
take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result
in a material breach or violation of any of the covenants and agreements of
Mutual provided in Section 7.2(a), (b), (c), (g), (h), or (i) of this
Agreement.
5.8 ADEQUACY OF RESERVES.
(a) The allowance for possible loan or credit losses (the
"Allowance") shown on the consolidated balance sheets of Mutual included in
the most recent Mutual Financial Statements dated prior to the date of this
Agreement was, and the Allowance shown on the consolidated balance sheets of
Mutual included in the Mutual Financial Statements as of dates subsequent to
the execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the loan and
lease portfolios (including accrued interest receivables) of the Mutual
Companies and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by the Mutual Companies as of the
dates thereof.
(b) The reserve for losses on real estate owned ("REO Reserve")
shown on the consolidated balance sheets of Mutual included in the most
recent Mutual Financial Statements dated prior to the date of this Agreement
was, and the REO Reserve shown on the consolidated balance sheets of Mutual
included in the Mutual Financial Statements as of dates subsequent to the
execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or inherent in the other real
estate owned portfolios of the Mutual Companies as of the dates thereof.
(c) The reserves for losses in respect of Litigation
("Litigation Reserves") shown on the consolidated balance sheets of Mutual
included in the most recent Mutual Financial Statements dated prior to the
date of this Agreement was, and the Litigation Reserves shown on the
consolidated balance sheets of Mutual included in the Mutual Financial
Statements as of dates subsequent to the execution of this Agreement will be,
as of the dates thereof, adequate (within
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the meaning of GAAP and applicable regulatory requirements or guidelines) to
provide for losses relating to or arising out of Litigation of the Mutual
Companies as of the dates thereof.
5.9 TAX MATTERS.
(a) All Tax returns required to be filed by or on behalf of any
of the Mutual Companies have been timely filed, or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before September 30, 1994, and on or before the date of the most recent
fiscal year end immediately preceding the Effective Time, except to the
extent that all such failures to file, taken together, are not reasonably
likely to have a Material Adverse Effect on Mutual and all such returns filed
are complete and accurate in all material respects. All Taxes shown on filed
returns have been paid. There is no audit examination, deficiency, or refund
Litigation with respect to any Taxes that is reasonably likely to result in a
determination that would have, individually or in the aggregate, a Material
Adverse Effect on Mutual except to the extent reserved against in the Mutual
Financial Statements dated prior to the date of this Agreement. All Taxes
and other Liabilities due with respect to completed and settled examinations
or concluded Litigation have been paid.
(b) None of the Mutual Companies has executed an extension or
waiver of any statute of limitations on the assessment or collection of any
Tax due (excluding such statutes that relate to years currently under
examination by the Internal Revenue Service or other applicable Taxing
authorities) that is currently in effect.
(c) Adequate provision for any Taxes due or to become due for
any of the Mutual Companies for the period or periods through and including
the date of the respective Mutual Financial Statements has been made and is
reflected on such Mutual Financial Statements.
5.10 ASSETS. Except as disclosed or reserved against in the Mutual
Financial Statements, the Mutual Companies have to the extent material or
applicable, good and marketable title, free and clear of all Liens, to all of
their respective Assets that are material to the business of the Mutual
Companies. All material tangible properties used in the businesses of the
Mutual Companies are in good condition, reasonable wear and tear excepted,
and are usable in the ordinary course of business consistent with Mutual's
past practices. All Assets which are material to the business of the Mutual
Companies and held under leases or subleases by any of the Mutual Companies,
are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting
the enforcement of creditors' rights generally and the rights of creditors of
a federal savings bank, the deposits in which are insured by the FDIC, and
except that the availability of the equitable remedy of specific performance
or injunctive relief is subject to the discretion of the court before which
any proceedings may be brought), and each such Contract is in full force and
effect.
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5.11 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Section 5.11 of the Mutual
Disclosure Memorandum, to the Knowledge of Mutual each Mutual Company, its
Participation Facilities, and its Loan Properties are, and have been, in
compliance with all Environmental Laws, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Mutual.
(b) To the Knowledge of Mutual there is no Litigation pending
or threatened before any court, governmental agency, or authority, or other
forum in which any Mutual Company or any of its Participation Facilities has
been or, with respect to threatened Litigation, may be named as a defendant
(i) for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment of any
Hazardous Material (as defined below) or oil, whether or not occurring at,
on, under, or involving a site owned, leased, or operated by any Mutual
Company or any of its Participation Facilities, except for such Litigation
pending or threatened that is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on Mutual.
(c) To the Knowledge of Mutual there is no Litigation pending
or threatened before any court, governmental agency, or board, or other forum
in which any of its Loan Properties (or Mutual in respect of such Loan
Property) has been or, with respect to threatened Litigation, may be named as
a defendant or potentially responsible party (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii) relating to
the release into the environment of any Hazardous Material or oil, whether or
not occurring at, on, under, or involving a Loan Property, except for such
Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual.
(d) To the Knowledge of Mutual there is no reasonable basis for
any Litigation of a type described in subsections (b) or (c), except such as
is not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Mutual.
(e) To the Knowledge of Mutual during the period of (i) any
Mutual Company's ownership or operation of any of their respective current
properties, (ii) any Mutual Company's participation in the management of any
Participation Facility, or, (iii) any Mutual Company's holding of a security
interest in a Loan Property, there have been no releases of Hazardous
Material or oil in, on, under, or affecting such properties, except such as
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Mutual. Prior to the period of (i) any Mutual
Company's ownership or operation of any of their respective current
properties, (ii) any Mutual Company's participation in the management of any
Participation Facility, or (iii) any Mutual Company's holding of a security
interest in a Loan Property, to the Knowledge of Mutual there were no
releases of Hazardous Material or oil in, on, under, or affecting any such
property, Participation Facility, or Loan Property, except such as are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Mutual.
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5.12 COMPLIANCE WITH LAWS. Each Mutual Company has in effect all
Permits necessary for it to own, lease, or operate its Assets and to carry on
its business as now conducted, except for those Permits the absence of which
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Mutual and there has occurred no Default under any
such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual. None
of the Mutual Companies:
(a) Is in violation of any Laws, Orders, or Permits applicable to
its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on Mutual; and
(b) Has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any Mutual Company is
not in compliance with any of the material Laws or material Orders which
such governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Mutual (ii) threatening to revoke
any material Permits the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual or
(iii) requiring any Mutual Company (x) to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or (y) to adopt any Board
resolution or similar undertaking which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its
management, or the payment of dividends.
5.13 LABOR RELATIONS. No Mutual Company is the subject of any
Litigation asserting that it or any other Mutual Company has committed an
unfair labor practice (within the meaning of the National Labor Relations Act
or comparable state law) or seeking to compel it or any other Mutual Company
to bargain with any labor organization as to wages or conditions of
employment, nor is any Mutual Company a party to or bound by any collective
bargaining agreement, contract, or other agreement or understanding with a
labor union or labor organization, nor is there any strike or other labor
dispute involving any Mutual Company, pending or threatened, or to its
Knowledge, is there any activity involving any Mutual Company's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
5.14 EMPLOYEE BENEFIT PLANS.
(a) Mutual has disclosed in Section 5.14 of the Mutual
Disclosure Memorandum, and has delivered or made available to ANB prior to
the execution of this Agreement correct and complete copies in each case of,
all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs or agreements, all medical, vision,
dental, or other health plans, all life insurance plans, and all other
employee benefit plans or fringe benefit plans, including, without
limitation, "employee benefit plans" as that term is defined in Section 3(3)
of ERISA, currently or previously adopted, maintained by, sponsored in whole
or in
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part by, or contributed to by any Mutual Company for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors,
or other beneficiaries and under which employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries are
eligible to participate (collectively, the "Mutual Benefit Plans"). Any of
the Mutual Benefit Plans which is an "employee welfare benefit plan," as that
term is defined in Section 3(l) of ERISA, or an "employee pension benefit
plan," as that term is defined in Section 3(2) of ERISA, is referred to
herein as a "Mutual ERISA Plan." Each Mutual ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code or Section 3(35) of ERISA) is referred to herein as a "Mutual Pension
Plan." On or after September 26, 1980, neither Mutual nor any Mutual Company
has had an "obligation to contribute" (as defined in ERISA Section 4212) to a
"multiemployer plan" (as defined in ERISA Sections 4001(a)(3) and 3(37)(A)).
(b) Mutual has delivered or made available to ANB prior to the
execution of this Agreement correct and complete copies of the following
documents: (i) all trust agreements or other funding arrangements for such
Mutual Benefit Plans (including insurance contracts), and all amendments
thereto, (ii) with respect to any such Mutual Benefit Plans or amendments,
all determination letters, rulings, opinion letters, information letters, or
advisory opinions issued by the Internal Revenue Service, the United States
Department of Labor, or the Pension Benefit Guaranty Corporation after
December 31, 1974, (iii) annual reports or returns, audited or unaudited
financial statements, actuarial valuations and reports, and summary annual
reports prepared for any Mutual Benefit Plan with respect to the most recent
three plan years, and (iv) the most recent summary plan descriptions and any
material modifications thereto.
(c) All Mutual Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws the breach or violation of which are reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Mutual.
Except as disclosed in Section 5.14(c) of the Mutual Disclosure Memorandum,
each Mutual ERISA Plan which is intended to be qualified under Section 401(a)
of the Internal Revenue Code has received a favorable determination letter
from the Internal Revenue Service, and Mutual is not aware of any
circumstances which will or could result in revocation of any such favorable
determination letter. Except as disclosed in Section 5.14(c) of the Mutual
Disclosure Memorandum, each trust created under any Mutual ERISA Plan has
been determined to be exempt from Tax under Section 501(a) of the Internal
Revenue Code and Mutual is not aware of any circumstance which will or could
result in revocation of such exemption. With respect to each Mutual Benefit
Plan, except as disclosed in Section 5.14(c) of the Mutual Disclosure
Memorandum, no event has occurred which will or could give rise to a loss of
any intended Tax consequences under the Internal Revenue Code or to any Tax
under Section 511 of the Internal Revenue Code. There is no material pending
or threatened Litigation relating to any Mutual ERISA Plan. Except as
disclosed in Section 5.14(c) of the Mutual Disclosure Memorandum, no Mutual
Company has engaged in a transaction with respect to any Mutual Benefit Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, would subject any Mutual Company to a tax or penalty imposed by
either Section 4975 of the Internal Revenue Code or Section 502(i) of ERISA
in amounts which are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Mutual.
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(d) No Mutual Pension Plan has any "unfunded current
liability," as that term is defined in Section 302(d)(8)(A) of ERISA, and the
fair market value of the assets of any such plan exceeds the plan's "benefit
liabilities," as that term is defined in Section 4001(a)(16) of ERISA, when
determined under actuarial factors that would apply if the plan terminated in
accordance with all applicable legal requirements. Since the date of the
most recent actuarial valuation, there has been (i) no material change in the
financial position of any Mutual Pension Plan, (ii) no change in the
actuarial assumptions with respect to any Mutual Pension Plan, and (iii) no
increase in benefits under any Mutual Pension Plan as a result of plan
amendments or changes in applicable Law which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual or
materially adversely affect the funding status of any such plan. Neither any
Mutual Pension Plan nor any "single-employer plan," within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any Mutual
Company, or the single-employer plan of any entity which is considered one
employer with Mutual under Section 4001 of ERISA or Section 414 of the
Internal Revenue Code or Section 302 of ERISA (whether or not waived) (an
"ERISA Affiliate") has an "accumulated funding deficiency" within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA, which is
reasonably likely to have a Material Adverse Effect on Mutual. No Mutual
Company has provided, or is required to provide, security to a Mutual Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Internal Revenue Code.
(e) Except as disclosed in Section 5.14(e) of the Mutual
Disclosure Memorandum, no liability under Title IV of ERISA has been or is
expected to be incurred by any Mutual Company with respect to any defined
benefit plan currently or formerly maintained by any of them or by any entity
which is considered an ERISA Affiliate.
(f) Except as disclosed in Section 5.14(f) of the Mutual
Disclosure Memorandum, no defined benefit plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within the meaning
of Section 412 of the Internal Revenue Code or Section 302 of ERISA and no
ERISA Affiliate has an outstanding funding waiver. No Mutual Company has
provided, or is required to provide, security to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the Internal Revenue
Code.
(g) Except as disclosed in Section 5.14(g) of the Mutual
Disclosure Memorandum, no Mutual Company has any obligations for retiree
health and life benefits under any of the Mutual Benefit Plans.
(h) Except as disclosed in Section 5.14(h) of the Mutual
Disclosure Memorandum, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i) result
in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, or otherwise) becoming due to any director or
any employee of any Mutual Company from any Mutual Company under any Mutual
Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under
any Mutual Benefit Plan, or (iii) result in any acceleration of the time of
payment or vesting of any such benefit.
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(i) No oral or written representation or communication with
respect to any aspect of the Mutual Benefit Plans has been made to employees
of any of the Mutual Companies prior to the date hereof which is not in
accordance with the written or otherwise preexisting terms and provisions of
such plans. All Mutual Benefit Plan documents and annual reports or returns,
audited or unaudited financial statements, actuarial valuations, summary
annual reports, and summary plan descriptions issued with respect to the
Mutual Benefit Plans are correct and complete and there have been no changes
in the information set forth therein.
5.15 MATERIAL CONTRACTS. Except as disclosed in Section 5.15 of the
Mutual Disclosure Memorandum, none of the Mutual Companies, nor any of their
respective Assets, businesses, or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement Contract providing for aggregate
payments to any Person in any calendar year in excess of $50,000, (ii) any
Contract relating to the borrowing of money by any Mutual Company or the
guarantee by any Mutual Company of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds, fully-secured
repurchase agreements, and Federal Home Loan Bank advances, trade payables,
and Contracts relating to borrowings or guarantees made in the ordinary
course of business), (iii) any Contracts between or among Mutual Companies;
and (iv) any other Contract or amendment thereto that would be required to be
filed as an exhibit to a Form 10-K filed by Mutual with the OTS as of the
date of this Agreement that has not been filed as an exhibit to Mutual's Form
10-K filed for the fiscal year ended September 30, 1994 or in an SEC Document
and identified to ANB, (together with all Contracts referred to in Sections
5.10 and 5.14(a) of this Agreement, the "Mutual Contracts"). None of the
Mutual Companies is in Default under any Mutual Contract which, individually
or in the aggregate, is reasonably likely to have a Material Adverse Effect
on Mutual.
5.16 LEGAL PROCEEDINGS. Except to the extent specifically reserved
against in the Mutual Financial Statements dated prior to the date of this
Agreement, there is no Litigation instituted or pending, or, to the Knowledge
of Mutual threatened (or unasserted but considered probable of assertion and
which if asserted would have at least a reasonable probability of an
unfavorable outcome) against any Mutual Company, or against any Asset,
interest, or right of any of them, that is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Mutual nor are
there any Orders of any Regulatory Authorities, other governmental
authorities, or arbitrators outstanding against any Mutual Company, that are
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Mutual. Mutual has disclosed in Section 5.16 of the Mutual
Disclosure Memorandum all Litigation pending or, to the Knowledge of Mutual
threatened, as of the date of this Agreement where there are claims against
Mutual.
5.17 REPORTS. Since January 1, 1990, or the date of organization if
later, each Mutual Company has timely filed all reports and statements,
together with any amendments required to be made with respect thereto, that
it was required to file with (i) the OTS, including, but not limited to,
Forms 10-K, Forms 10-Q, Forms 8-K, and proxy statements, (ii) other
Regulatory Authorities, and (iii) any applicable state securities or banking
authorities (except, in the case of state securities authorities, failures to
file which are not reasonably likely to have,
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individually or in the aggregate, a Material Adverse Effect on Mutual). As
of their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all
material respects with all applicable Laws. As of its respective date, each
such report and document did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.18 STATEMENTS TRUE AND CORRECT. To the Knowledge of Mutual, no
statement, certificate, instrument, or other writing furnished or to be
furnished by any Mutual Company or any Affiliate thereof to ANB pursuant to
this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. None
of the information supplied or to be supplied by any Mutual Company or any
Affiliate thereof for inclusion in the Registration Statement to be filed by
ANB with the SEC will, when the Registration Statement becomes effective, be
false or misleading with respect to any material fact, or contain any untrue
statement of a material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein not
misleading. None of the information supplied or to be supplied by any Mutual
Company or any Affiliate thereof for inclusion in the Joint Proxy Statement
to be mailed to Mutual's and ANB's shareholders in connection with the
Shareholders' Meetings, and any other documents to be filed by any Mutual
Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, and with respect to the Joint
Proxy Statement, when first mailed to the shareholders of Mutual and ANB be
false or misleading with respect to any material fact, or contain any
misstatement of material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case
of the Joint Proxy Statement as amended or supplemented, at the time of the
Shareholders' Meetings, be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated thereunder or
necessary to correct any material statement in any earlier communication with
respect to the solicitation of any proxy for the Shareholders' Meetings. All
documents that any Mutual Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
5.19 ACCOUNTING, TAX, AND REGULATORY MATTERS. No Mutual Company or
any Affiliate thereof has taken any action, or agreed to take any action, or
has any Knowledge of any fact or circumstance that is reasonably likely to
(i) prevent the transactions contemplated hereby, including the Merger, from
qualifying for pooling-of-interests accounting treatment or treatment as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 9.1(b) of this Agreement. To
the Knowledge of Mutual there exists no fact, circumstance, or reason why the
requisite Consents referred to in Section 9.1(b) of this Agreement cannot be
received in a timely manner without imposition of any condition of the type
described in the second sentence of such Section 9.1(b).
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5.20 CHARTER PROVISIONS. Each Mutual Company has taken or will take
all action so that the entering into of this Agreement and the Plan of Merger
and the consummation of the Merger and the other transactions contemplated by
this Agreement and the Plan of Merger do not and will not result in the grant
of any rights to any Person (other than an ANB Company or as contemplated by
Section 3.4 of this Agreement) under the Charter, Bylaws, or other governing
instruments of any Mutual Company or restrict or impair the ability of ANB to
vote, or otherwise to exercise the rights of a shareholder with respect to,
shares of any Mutual Company that may be acquired or controlled by it.
5.21 SUPPORT AGREEMENTS. Each of the directors and executive
officers of Mutual has executed and delivered to ANB an agreement in
substantially the form of Exhibit 2 to this Agreement.
ARTICLE SIX
REPRESENTATIONS AND WARRANTIES OF ANB
ANB hereby represents and warrants to Mutual as follows:
6.1 ORGANIZATION, STANDING, AND POWER. ANB is a corporation duly
organized, validly existing, and in good standing under the Laws of the
Commonwealth of Virginia, and has the corporate power and authority to carry
on its business as now conducted and to own, lease, and operate its Assets.
ANB is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of
its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB.
6.2 AUTHORITY; NO BREACH BY AGREEMENT.
(a) ANB has the corporate power and authority necessary to execute,
deliver, and perform its obligations under, this Agreement and to consummate
the transactions contemplated hereby, subject to the approval of the Articles
of Incorporation Amendment by the requisite vote of the holders of ANB Common
Stock. The execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Merger,
have been duly and validly authorized by all necessary corporate action in
respect thereof on the part of ANB. This Agreement represents a legal,
valid, and binding obligation of ANB, enforceable against ANB in accordance
with its terms (except in all cases as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or similar
Laws affecting the enforcement of creditors' rights generally and except that
the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).
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(b) Neither the execution and delivery of this Agreement by ANB, nor
the consummation by ANB of the transactions contemplated hereby, nor
compliance by ANB with any of the provisions hereof, will (i) subject to the
approval of the Articles of Incorporation Amendment by the requisite vote of
the holders of ANB Common Stock, conflict with or result in a breach of any
provision of ANB's Articles of Incorporation or Bylaws, or (ii) constitute or
result in a Default under, or require any Consent pursuant to, or result in
the creation of any Lien on any Asset of any ANB Company under, any Contract
or Permit of any ANB Company, or (iii) subject to receipt of the requisite
approvals referred to in Section 9.1(b) of this Agreement, violate any Law or
Order applicable to any ANB Company or any of their respective Assets.
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules of
the NASD, and other than Consents required from and notices to be filed with
Regulatory Authorities, and other than notices to or filings with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans and other than Consents, filings, or
notifications which, if not obtained or made, is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on ANB, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by ANB or American National of the Merger and
the other transactions contemplated in this Agreement and the Plan of Merger.
6.3 CAPITAL STOCK.
(a) The authorized capital stock of ANB consists of (i) 3,000,000
shares of ANB Common Stock, of which 2,400,000 shares were issued and
outstanding as of June 30, 1995 and (ii) 200,000 shares of ANB Preferred
Stock, of which none is outstanding. All of the issued and outstanding
shares of ANB Common Stock are, and all of the shares of ANB Common Stock to
be issued in exchange for shares of Mutual Common Stock upon consummation of
the Merger, when issued in accordance with the terms of this Agreement, will
be, duly and validly issued and outstanding and fully paid and nonassessable
under the Virginia SCA. None of the outstanding shares of ANB Common Stock
has been, and none of the shares of ANB Common Stock to be issued in exchange
for shares of Mutual Common Stock upon consummation of the Merger will be,
issued in violation of any preemptive rights of the current or past
shareholders of ANB.
(b) Except as set forth in Section 6.3(a) of this Agreement, there are
no shares of capital stock or other equity securities of ANB outstanding and
no outstanding options, warrants, scrip, rights to subscribe to, calls, or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of ANB or
contracts, commitments, understandings, or arrangements by which ANB is or
may be bound to issue additional shares of ANB capital stock or options,
warrants, or rights to purchase or acquire any additional shares of its
capital stock.
6.4 ANB SUBSIDIARIES. ANB has no Subsidiaries other than American
National as of the date of this Agreement. ANB or one of its Subsidiaries
owns all of the issued and outstanding shares of capital stock of each ANB
Subsidiary. No equity securities of any ANB
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Subsidiary are or may become required to be issued (other than to an ANB
Company) by reason of any options, warrants, scrip, rights to subscribe to,
calls, or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of the capital stock
of any such Subsidiary, and there are no Contracts by which any ANB
Subsidiary is bound to issue (other than to an ANB Company) additional shares
of its capital stock or options, warrants, or rights to purchase or acquire
any additional shares of its capital stock or by which any ANB Company is or
may be bound to transfer any shares of the capital stock of any ANB
Subsidiary (other than to an ANB Company). There are no Contracts relating
to the rights of any ANB Company to vote or to dispose of any shares of the
capital stock of any ANB Subsidiary. All of the shares of capital stock of
each ANB Subsidiary held by an ANB Company are duly authorized, validly
issued, and fully paid and (except pursuant to 12 U.S.C. Section 55, in the
case of national banks) nonassessable under the applicable corporation Law of
the jurisdiction in which such Subsidiary is incorporated or organized and
are owned by the ANB Company free and clear of any Lien. Each ANB Subsidiary
is either a bank or a corporation, and is duly organized, validly existing,
and in good standing under the Laws of the jurisdiction in which it is
incorporated or organized, and has the corporate power and authority
necessary for it to own, lease, and operate its Assets and to carry on its
business as now conducted. Each ANB Subsidiary is duly qualified or licensed
to transact business as a foreign corporation in good standing in the States
of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to
be so qualified or licensed is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on ANB. Each ANB Subsidiary that
is a depository institution is an "insured institution" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder, and the
deposits in which are insured by the Bank Insurance Fund.
6.5 FINANCIAL STATEMENTS. ANB has disclosed in Section 6.5 of the ANB
Disclosure Memorandum and has delivered to Mutual copies of all ANB Financial
Statements and certain SEC Documents prepared for periods ended prior to the
date hereof and will deliver to Mutual copies of all ANB Financial Statements
prepared subsequent to the date hereof. The ANB Financial Statements (as of
the dates thereof and for the periods covered thereby) (i) are or, if dated
after the date of this Agreement, will be in accordance with the books and
records of the ANB Companies, which are or will be, as the case may be,
complete and correct and which have been or will have been, as the case may
be, maintained in accordance with good business practices, and (ii) present
or will present, as the case may be, fairly the consolidated financial
position of the ANB Companies as of the dates indicated and the consolidated
results of operations, changes in shareholders' equity, and cash flows of the
ANB Companies for the periods indicated, in accordance with GAAP (subject to
exceptions as to consistency specified therein or as may be indicated in the
notes thereto or, in the case of interim financial statements, to normal
recurring year-end adjustments that are not material).
6.6 ABSENCE OF UNDISCLOSED LIABILITIES. No ANB Company has any
Liabilities (including Liabilities relating to matters contemplated by
Sections 5.9, 5.11, and 5.14 of this Agreement applying such sections to ANB)
that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ANB, except Liabilities which are accrued or
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reserved against in the consolidated balance sheets of ANB as of June 30,
1995 included in the ANB Financial Statements or reflected in the notes
thereto. Except as disclosed in Section 6.6 of the ANB Disclosure Memorandum,
no ANB Company has incurred or paid any Liability since June 30, 1995, except
for such Liabilities incurred or paid in the ordinary course of business
consistent with past business practice and which are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on ANB.
6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1995, except
as disclosed in the ANB Financial Statements filed with the SEC after such
date and prior to the date of this Agreement or in Section 6.7 of the ANB
Disclosure Memorandum, (i) there have been no events, changes, or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on ANB and (ii) the ANB Companies have
not taken any action, or failed to take any action, prior to the date of this
Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any
of the covenants and agreements of ANB provided in Article Seven of this
Agreement.
6.8 ADEQUACY OF RESERVES.
(a) The allowance for possible loan or credit losses (the "Allowance")
shown on the consolidated balance sheets of ANB included in the most recent
ANB Financial Statements dated prior to the date of this Agreement was, and
the Allowance shown on the consolidated balance sheets of ANB included in the
ANB Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of
GAAP and applicable regulatory requirements or guidelines) to provide for
losses relating to or inherent in the loan and lease portfolios (including
accrued interest receivables) of the ANB Companies and other extensions of
credit (including letters of credit and commitments to make loans or extend
credit) by the ANB Companies as of the dates thereof.
(b) The reserve for losses on real estate owned ("REO Reserve") shown
on the consolidated balance sheets of ANB included in the most recent ANB
Financial Statements dated prior to the date of this Agreement was, and the
REO Reserve shown on the consolidated balance sheets of ANB included in the
ANB Financial Statements as of dates subsequent to the execution of this
Agreement will be, as of the dates thereof, adequate (within the meaning of
GAAP and applicable regulatory requirements or guidelines) to provide for
losses relating to or inherent in the other real estate owned portfolios of
the ANB Companies as of the dates thereof.
(c) The reserves for losses in respect of Litigation ("Litigation
Reserves") shown on the consolidated balance sheets of ANB included in the
most recent ANB Financial Statements dated prior to the date of this
Agreement was, and the Litigation Reserves shown on the consolidated balance
sheets of ANB included in the ANB Financial Statements as of dates subsequent
to the execution of this Agreement will be, as of the dates thereof, adequate
(within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for losses relating to or arising out of Litigation of
the ANB Companies as of the dates thereof.
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6.9 ASSETS. Except as disclosed or reserved against in the ANB
Financial Statements, the ANB Companies have to the extent material or
applicable, good and marketable title, free and clear of all Liens, to all of
their respective Assets that are material to the business of the ANB
Companies. All material tangible properties used in the businesses of the
ANB Companies are in good condition, reasonable wear and tear excepted, and
are usable in the ordinary course of business consistent with ANB past
practices. All Assets which are material to the business of the ANB Companies
and held under leases or subleases by any of the ANB Companies, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganiza tion, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceedings may be
brought), and each such Contract is in full force and effect.
6.10 COMPLIANCE WITH LAWS. ANB is duly registered as a bank holding
company under the BHC Act. Each ANB Company has in effect all Permits
necessary for it to own, lease, or operate its Assets and to carry on its
business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB, and there has occurred no Default under any such
Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on ANB. None of
the ANB Companies:
(a) Is in violation of any Laws, Orders, or Permits applicable to
its business or employees conducting its business, except for violations
which are not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on ANB; and
(b) Has received any notification or communication from any agency
or department of federal, state, or local government or any Regulatory
Authority or the staff thereof (i) asserting that any ANB Company is not
in compliance with any of the material Laws or material Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on ANB, (ii) threatening to revoke
any Permits, the revocation of which are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on ANB, or
(iii) requiring any ANB Company (x) to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or (y) to adopt any Board
resolution or similar undertaking which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its
management, or the payment of dividends.
6.11 LEGAL PROCEEDINGS. Except to the extent specifically reserved
against in the ANB Financial Statements dated prior to the date of this
Agreement, there is no Litigation instituted or pending, or, to the Knowledge
of ANB, threatened (or unasserted but considered probable of assertion and
which if asserted would have at least a reasonable probability of an
unfavorable outcome) against any ANB Company, or against any Asset, interest,
or right of any of them, that is reasonably likely to have, individually or
in the aggregate, a Material Adverse
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Effect on ANB, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any ANB Company,
that are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on ANB.
6.12 REPORTS. Since January 1, 1990, or the date of organization if
later, ANB has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with (i) the SEC, including, but not limited to, Forms 10-K, Forms 10-Q,
Forms 8-K, and proxy statements, (ii) other Regulatory Authorities, and
(iii) any applicable state securities or banking authorities (except, in the
case of state securities authorities, failures to file which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on ANB). As of their respective dates, each of such reports
and documents, including the financial statements, exhibits, and schedules
thereto, complied in all material respects with all applicable Laws. As of
its respective date, each such report and document did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading.
6.13 STATEMENTS TRUE AND CORRECT. To the Knowledge of ANB, no
statement, certificate, instrument, or other writing furnished or to be
furnished by any ANB Company or any Affiliate thereof to Mutual pursuant to
this Agreement or any other document, agreement, or instrument referred to
herein contains or will contain any untrue statement of material fact or will
omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. None
of the information supplied or to be supplied by any ANB Company or any
Affiliate thereof for inclusion in the Registration Statement to be filed by
ANB with the SEC, will, when the Registration Statement becomes effective, be
false or misleading with respect to any material fact, or contain any untrue
statement of a material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein not
misleading. None of the information supplied or to be supplied by any ANB
Company or any Affiliate thereof for inclusion in the Joint Proxy Statement
to be mailed to Mutual's and ANB's shareholders in connection with the
Shareholders' Meetings, and any other documents to be filed by any ANB
Company or any Affiliate thereof with the SEC or any other Regulatory
Authority in connection with the transactions contemplated hereby, will, at
the respective time such documents are filed, and with respect to the Joint
Proxy Statement, when first mailed to the shareholders of Mutual and ANB be
false or misleading with respect to any material fact, or contain any
misstatement of material fact, or omit to state any material fact required to
be stated thereunder or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case
of the Joint Proxy Statement as amended or supplemented, at the time of the
Shareholders' Meetings, be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated thereunder or
necessary to correct any statement in any earlier communication with respect
to the solicitation of any proxy for the Shareholders' Meetings. All
documents that any ANB Company or any Affiliate thereof is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law.
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6.14 AUTHORITY OF AMERICAN NATIONAL. American National has the
corporate power and authority necessary to execute, deliver, and perform its
obligations under the Plan of Merger and to consummate the transactions
contemplated thereby. The execution, delivery, and performance of the Plan
of Merger and the consummation of the transactions contemplated therein,
including the Merger, have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of American National. The
Plan of Merger represents a legal, valid, and binding obligation of American
National, enforceable against American National in accordance with its terms
(except in all cases as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting
the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding
may be brought).
6.15 ACCOUNTING, TAX, AND REGULATORY MATTERS. No ANB Company or any
Affiliate thereof has taken any action, or agreed to take any action, or has
any Knowledge of any fact or circumstance that is reasonably likely to (i)
prevent the transactions contemplated hereby, including the Merger, from
qualifying for pooling-of-interests accounting treatment or treatment as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of
Regulatory Authorities referred to in Section 9.1(b) of this Agreement. To
the Knowledge of ANB, there exists no fact, circumstance, or reason why the
requisite Consents referred to in Section 9.1(b) of this Agreement cannot be
received in a timely manner without imposition of any condition of the type
described in the second sentence of such Section 9.1(b).
ARTICLE SEVEN
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 COVENANTS OF BOTH PARTIES. Unless the prior written consent of
the other Party shall have been obtained, and except as otherwise expressly
contemplated herein, each Party shall and shall cause each of its
Subsidiaries to (i) operate its business only in the usual, regular, and
ordinary course, (ii) preserve intact its business organizations and Assets
and maintain its rights and franchises, and (iii) take no action which would
materially adversely affect the ability of any Party to (a) obtain any
Consents required for the transactions contemplated hereby, or (b) perform
its covenants and agreements under this Agreement in all material respects
and to consummate the Merger; provided, that the foregoing shall not prevent
any ANB Company from discontinuing or disposing of any of its Assets or
business, or from acquiring or agreeing to acquire any other Person or any
Assets thereof, if such action is, in the reasonable judgment of ANB,
desirable in the conduct of the business of ANB and its Subsidiaries and such
discontinuance or disposition would not represent a material portion of the
Assets of the ANB Companies.
7.2 COVENANTS OF MUTUAL. Except as specifically contemplated or
permitted by this Agreement, from the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, Mutual
covenants and agrees that it will not do or agree or commit
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to do, or permit any of its Subsidiaries to do or agree or commit to do, any
of the following without the prior written consent of the chief executive
officer or chief financial officer of ANB:
(a) amend the Charter, Bylaws, or other governing instruments of
any Mutual Company; or
(b) incur, guarantee, or otherwise become responsible for, any
additional debt obligation or other obligation for borrowed money (other
than indebtedness of a Mutual Company to another Mutual Company) in excess
of an aggregate of $50,000 (for the Mutual Companies on a consolidated
basis) except in the ordinary course of the business of Mutual Companies
consistent with past practices (which shall include, for Mutual creation
of deposit liabilities, purchases of federal funds, advances from the
Federal Home Loan Bank or the Federal Reserve Bank, and entry into
repurchase agreements fully secured by U.S. government or agency
securities), or forgive any such indebtedness of any Person to any Mutual
Company (in excess of an aggregate of $25,000), or impose, or suffer the
imposition, on any share of stock held by any Mutual Company of any Lien
or permit any such Lien to exist; or
(c) repurchase, redeem, or otherwise acquire or exchange (other
than exchanges in the ordinary course under employee benefit plans or in
their capacity as transfer agent), directly or indirectly, any shares, or
any securities convertible into any shares, of the capital stock of any
Mutual Company, or declare or pay any dividend or make any other
distribution in respect of any Mutual Common Stock; provided that Mutual
may (to the extent legally able to do so), but shall not be obligated to,
declare and pay regular quarterly cash dividends on the shares of Mutual
Common Stock at a rate not in excess of $ .10 per share with usual and
regular record and payment dates in accordance with past practice
disclosed in Section 7.2(c) of the Mutual Disclosure Memorandum; provided
further, that any dividend declared or payable on the shares of Mutual
Common Stock for the quarter during which the Effective Time occurs shall,
unless otherwise agreed upon in writing by ANB and Mutual, be declared
only if the record date for payment of the quarterly dividend to holders
of ANB Common Stock for the quarter in which the Effective Time occurs is
prior to the Effective Time; and PROVIDED FURTHER, that in the event ANB
declares a special cash dividend prior to the Effective Time, Mutual may
(to the extent legally able to do so), but shall not be obligated to,
declare and pay a cash dividend on the shares of Mutual Common Stock at a
rate per share of Mutual Common Stock equivalent, taking into account the
Exchange Ratio, to the special dividend paid by ANB on each share of ANB
Common Stock; or
(d) except pursuant to the exercise of stock options outstanding as
of the date hereof and pursuant to the terms thereof in existence on the
date hereof, issue, sell, pledge, encumber, authorize the issuance of,
enter into any Contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, any additional
shares of Mutual Common Stock, Mutual Preferred Stock, or any other
capital stock of any Mutual Company, or any stock appreciation rights, or
any option, warrant,
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conversion, or other right to acquire any such stock, or any security
convertible into any such stock; or
(e) adjust, split, combine, or reclassify any capital stock of any
Mutual Company or issue or authorize the issuance of any other securities
in respect of or in substitution for shares of Mutual Common Stock or
sell, lease, mortgage, or otherwise dispose of or otherwise encumber any
shares of capital stock of any Mutual Subsidiary (unless any such shares
of stock are sold or otherwise transferred to another Mutual Company) or
any Assets other than in the ordinary course of business for reasonable
and adequate consideration; or
(f) acquire direct or indirect control over, or invest in equity
securities of, any Person, other than in connection with (i) foreclosures
in the ordinary course of business, or (ii) acquisitions of control by
Mutual in its fiduciary capacity; or
(g) grant any increase in compensation or benefits to the employees
or officers of any Mutual Company except in the ordinary course of
business or as disclosed in Section 7.2(g) of the Mutual Disclosure
Memorandum or as required by Law; pay any bonus except in the ordinary
course of business or pursuant to the provisions of any applicable program
or plan adopted by its Board of Directors prior to the date of this
Agreement and disclosed in Section 7.2(g) of the Mutual Disclosure
Memorandum; enter into or amend any severance agreements with officers of
any Mutual Company except as disclosed in Section 7.2(g) of the Mutual
Disclosure Memorandum; or grant any increase in fees or other increases in
compensation or other benefits to directors of any Mutual Company; or
(h) enter into or amend any employment Contract between any Mutual
Company and any Person (unless such amendment is required by Law) that the
Mutual Company does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any
time on or after the Effective Time; or
(i) adopt any new employee benefit plan or program of any Mutual
Company or make any material change in or to any existing employee benefit
plans or programs of any Mutual Company other than any such change that is
required by Law or that, in the opinion of counsel, is necessary or
advisable to maintain the tax qualified status of any such plan; or
(j) make any significant change in any accounting methods,
principles, or practices or systems of internal accounting controls,
except as may be necessary to conform to changes in regulatory accounting
requirements or GAAP; or
(k) commence or settle any Litigation other than in accordance with
past practice; provided that, except to the extent specifically reserved
against in the Mutual Financial Statements dated prior to the date of this
Agreement, no Mutual Company shall settle any Litigation involving any
Liability of any Mutual Company for money damages in excess of $25,000 or
restrictions upon the operations of any Mutual Company; or
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(l) except in the ordinary course of business, enter into or
terminate any material Contract or make any change in any material lease
or Contract, other than renewals of leases and Contracts without material
adverse changes of terms.
7.3 COVENANTS OF ANB. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, ANB
covenants and agrees that it shall (i) continue to conduct its business and
the business of its Subsidiaries in the usual, regular, and ordinary course,
(ii) take no action which would materially adversely affect the ability of
any Party to obtain any Consents required for the transactions contemplated
hereby without imposition of a condition or restriction of the type referred
to in the last sentences of Section 9.1(b) or 9.1(c) of this Agreement, and
(iii) not, except as contemplated by this Agreement, amend the Articles of
Incorporation or Bylaws of ANB, in each case, in any manner which is adverse
to, and discriminates against, the holders of Mutual Common Stock.
7.4 ADVERSE CHANGES IN CONDITION. Each Party agrees to give written
notice promptly to the other Party upon becoming aware of the occurrence or
impending occurrence of any event or circumstance relating to it or any of
its Subsidiaries which (i) is reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on it or (ii) is reasonably likely
to cause or constitute a material breach of any of its representations,
warranties, or covenants contained herein, and to use its reasonable efforts
to prevent or promptly to remedy the same.
7.5 REPORTS. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of
this Agreement and the Effective Time and shall deliver to the other Party
copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, in the case
of ANB, or the OTS, in the case of Mutual, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows for the periods
then ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material).
As of their respective dates, such reports filed with the SEC or the OTS, as
the case may be, will comply in all material respects with the Securities
Laws and will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading. Any financial statements contained in any other
reports to another Regulatory Authority shall be prepared in accordance with
Laws applicable to such reports.
ARTICLE EIGHT
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT; JOINT PROXY STATEMENT; SHAREHOLDER
APPROVALS. As soon as reasonably practicable after the execution of this
Agreement, ANB shall file the Registration Statement with the SEC, provided
Mutual has provided, on a reasonably timely basis, all information concerning
Mutual necessary for inclusion in the Registration Statement, and shall
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use its reasonable efforts to cause the Registration Statement to become
effective under the 1933 Act as soon as reasonably practicable after the
filing thereof and take any action required to be taken under the applicable
state Blue Sky or securities Laws in connection with the issuance of the
shares of ANB Common Stock upon consummation of the Merger. Mutual shall
promptly furnish all information concerning it and the holders of its capital
stock as ANB may reasonably request in connection with such action. Mutual
shall call a Shareholders' Meeting, to be held as soon as reasonably
practicable after the Registration Statement is declared effective by the
SEC, for the purpose of voting upon approval of (i) this Agreement and the
Plan of Merger and (ii) such other related matters as it deems appropriate.
ANB shall call a Shareholders' Meeting, to be held as soon as reasonably
practicable after the Registration Statement is declared effective by the
SEC, for the purpose of voting upon approval of (i) the Articles of
Incorporation Amendment, and (ii) such other related matters as it deems
appropriate. In connection with the Shareholders' Meetings, (i) Mutual and
ANB shall file the Joint Proxy Statement (which shall be included in the
Registration Statement) with the OTS and the SEC, respectively, and mail it
to their respective shareholders, (ii) the Parties shall furnish to each
other all information concerning them that they may reasonably request in
connection with such Joint Proxy Statement, (iii) the Board of Directors of
Mutual and ANB shall recommend (subject to compliance with their fiduciary
duties) to their respective shareholders the approval of the matters
submitted for consideration and approval by such shareholders, and (iv) the
Board of Directors and officers of Mutual and ANB shall use their reasonable
efforts to obtain such shareholders' approval (subject to compliance with
their fiduciary duties as advised in writing by counsel to such Board).
8.2 APPLICATIONS. As soon as reasonably practicable after execution
of this Agreement, ANB shall prepare and file, and Mutual shall cooperate in
the preparation and, where appropriate, filing of, applications with all
Regulatory Authorities having jurisdiction over the transactions contemplated
by this Agreement and the Plan of Merger seeking the requisite Consents
necessary to consummate the transactions contemplated by this Agreement and
the Plan of Merger. ANB shall use all reasonable efforts to obtain the
requisite Consents of all Regulatory Authorities as soon as reasonably
practicable after the filing of the appropriate applications.
8.3 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement and the Plan of Merger, including, without
limitation, using its reasonable efforts to lift or rescind any Order
adversely affecting its ability to consummate the transactions contemplated
herein and therein and to cause to be satisfied the conditions applicable to
such Party referred to in Article Nine of this Agreement. Each Party shall
use, and shall cause each of its Subsidiaries to use, its reasonable efforts
to obtain all Consents necessary or desirable for the consummation of the
transactions contemplated by this Agreement and the Plan of Merger.
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8.4 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each Party will keep the other
Party advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or cause
to be made such investigation of the business and properties of it and its
Subsidiaries and of their respective financial and legal conditions as the
other Party reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby and shall not
interfere unreasonably with normal operations. No investigation by a Party
shall affect the representations and warranties of the other Party.
(b) Each Party shall, and shall cause its advisers and agents
to, maintain the confidentiality of all confidential information furnished to
it by the other Party concerning its and its Subsidiaries' businesses,
operations, and financial positions and shall not use such information for
any purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Effective Time, each
Party shall promptly return or destroy all documents and copies thereof, and
all work papers containing confidential information received from the other
Party and shall not use such information in a manner detrimental to the other
Party and its Affiliates.
(c) Mutual shall use its reasonable efforts to exercise its
rights under confidentiality agreements entered into with Persons which were
considering an acquisition transaction with Mutual to preserve the
confidentiality of the information relating to Mutual provided to such
parties.
8.5 PRESS RELEASES. Prior to the Effective Time, Mutual and ANB
shall consult with each other as to the form and substance of any press
release or other public disclosure materially related to this Agreement or
any other transaction contemplated hereby; provided, however, that nothing in
this Section 8.5 shall be deemed to prohibit any Party from making any
disclosure which its counsel advises as necessary or advisable in order to
satisfy such Party's disclosure obligations imposed by Law.
8.6 CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, no Mutual Company nor any Affiliate thereof
nor any investment banker, attorney, accountant, or other representative
(collectively, "Representatives") retained by any Mutual Company shall
directly or indirectly solicit any Acquisition Proposal by any Person.
Except to the extent necessary to comply with the fiduciary duties of
Mutual's Board of Directors, no Mutual Company or any Affiliate or
Representative thereof shall furnish any non-public information that it is
not legally obligated to furnish, negotiate with respect to, or enter into
any Contract with respect to, any Acquisition Proposal, and shall direct and
use its reasonable efforts to cause all of its Representatives not to engage
in any of the foregoing, but Mutual may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations. Mutual
shall promptly notify ANB orally and in writing in the event that it receives
any inquiry or proposal relating to any such transaction. Mutual shall
immediately cease and cause to be terminated as of
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the date of this Agreement any existing activities, discussions, or
negotiations with any Persons conducted heretofore with respect to any of the
foregoing.
8.7 TAX MATTERS. The Parties agree to use their reasonable efforts
to obtain a written opinion of Alston & Bird to the effect that (i) the
Merger will constitute a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code, (ii) the exchange in the Merger of Mutual
Common Stock for ANB Common Stock will not give rise to gain or loss to the
shareholders of Mutual with respect to such exchange (except to the extent of
any cash received), and (iii) each of Mutual, ANB, and American National will
be a party to that reorganization within the meaning of Section 368(b) of the
Internal Revenue Code ("Tax Opinion"). In rendering such Tax Opinion, Alston
& Bird shall be entitled to rely upon representations of officers of Mutual
and ANB reasonably satisfactory in form and substance to such counsel. Each
of the Parties undertakes and agrees to use its reasonable efforts to cause
the Merger, and to take no action which would cause the Merger not, to
qualify for treatment as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for Federal income tax purposes.
8.8 AGREEMENTS OF AFFILIATES. Mutual has disclosed in Section 8.8
of the Mutual Disclosure Memorandum all Persons whom it reasonably believes
is an "affiliate" of Mutual for purposes of Rule 145 under the 1933 Act.
Mutual shall use its reasonable efforts to cause each such Person to deliver
to ANB not later than thirty (30) days prior to the Effective Time, a written
agreement, substantially in the form of Exhibit 3 to this Agreement,
providing that such Person will not sell, pledge, transfer, or otherwise
dispose of the shares of Mutual Common Stock held by such Person except as
contemplated by such agreement or by this Agreement and will not sell,
pledge, transfer, or otherwise dispose of the shares of ANB Common Stock to
be received by such Person upon consummation of the Merger except in
compliance with applicable provisions of the 1933 Act and the rules and
regulations thereunder (and ANB shall be entitled to place restrictive
legends upon certificates for shares of ANB Common Stock issued to affiliates
of Mutual pursuant to this Agreement to enforce the provisions of this
Section 8.8). ANB shall not be required to maintain the effectiveness of the
Registration Statement under the 1933 Act for the purposes of resale of ANB
Common Stock by such affiliates.
8.9 EMPLOYEE BENEFITS AND CONTRACTS. As of the Effective Time, the
ANB Companies shall offer employment to all employees of Mutual with no
reduction in base salary. Following the Effective Time, ANB shall provide
generally to officers and employees of the Mutual Companies employee benefits
under employee benefit plans, on terms and conditions which when taken as a
whole are substantially the same as those currently provided by the ANB
Companies to their similarly situated officers and employees; provided that
ANB shall not be required to, but may, permit the officers and employees of
the Mutual Companies to participate in the Cash Profit Sharing Bonus Plan of
American National. For purposes of participation and vesting (but not
benefit accrual) under such employee benefit plans, the service of the
employees of the Mutual Companies prior to the Effective Time shall be
treated as service with an ANB Company participating in such employee benefit
plans. Any vacation and sick leave accrued for the then current year but not
taken prior to the Effective Time will carry over and be available until the
end of such year. ANB also shall cause the Resulting Association and its
Subsidiaries to
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honor in accordance with their terms all provisions for vested benefits or
other vested amounts earned or accrued through the Effective Time under the
Mutual Benefit Plans. In addition, ANB agrees not to terminate, except for
"cause" as determined under the employee policies of ANB, any employee of
Mutual who becomes an employee of ANB at the Effective Time for a period of
one year after the Effective Time.
8.10 INDEMNIFICATION.
(a) Subject to the conditions set forth in paragraph (b) below,
for a period of six (6) years after the Effective Time, ANB shall, and shall
cause the Resulting Association to, indemnify, defend, and hold harmless each
person entitled to indemnification from a Mutual Company (each, an
"Indemnified Party") against all Liabilities arising out of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the same
extent and subject to the conditions set forth in applicable regulations of
the OTS (including all official interpretations thereof) and Mutual's Charter
and Bylaws, in each case as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
Litigation. Without limiting the foregoing, in any case in which approval by
the Resulting Association is required to effectuate any indemnification, ANB
shall cause the Resulting Association to direct, at the election of the
Indemnified Party, that the determination of any such approval shall be made
by independent counsel mutually agreed upon between ANB and the Indemnified
Party.
(b) ANB shall, or shall cause the Resulting Association to, use
its reasonable efforts (and Mutual shall cooperate prior to the Effective
Time in these efforts) to maintain in effect for a period of one (1) year
after the Effective Time, Mutual's existing directors' and officers'
liability insurance policy (provided that ANB may substitute therefor (i)
policies of at least the same coverage and amounts containing terms and
conditions which are substantially no less advantageous or (ii) with the
consent of Mutual given prior to the Effective Time, any other policy) with
respect to claims arising from facts or events which occurred prior to the
Effective Time and covering persons who are currently covered by such
insurance.
(c) Any Indemnified Party wishing to claim indemnification
under paragraph (a), upon learning of any such Liability or Litigation, shall
promptly notify ANB thereof. In the event of any such Litigation (whether
arising before or after the Effective Time), (i) ANB or the Resulting
Association shall have the right to assume the defense thereof and ANB shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if ANB or the
Resulting Association elects not to assume such defense or counsel for the
Indemnified Parties advises that there are substantive issues which raise
conflicts of interest between ANB or the Resulting Association and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory
to them, and ANB or the Resulting Association shall pay all reasonable fees
and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, however, that ANB shall be
obligated pursuant to this paragraph (c) to pay for only one (1) firm of
counsel for all Indemnified Parties in any jurisdiction (assuming there are
no conflicts), (ii) the Indemnified Parties will cooperate in the defense of
any such
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Litigation, and (iii) ANB shall not be liable for any settlement effected
without its prior written consent; and provided further that the Resulting
Association shall not have any obligation hereunder to any Indemnified Party
when and if a court of competent jurisdiction shall determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by
applicable Law.
(d) If ANB or the Resulting Association or any of its
successors or assigns shall consolidate with or merge into any other Person
and shall not be the continuing or surviving Person of such consolidation or
merger or shall transfer all or substantially all of its Assets to any
Person, then in each case, proper provision shall be made so that the
successors and assigns of ANB or the Resulting Association shall assume the
obligations set forth in this Section 8.10.
8.11 ORGANIZATION OF MORTGAGE SUBSIDIARY. ANB agrees to organize as
a subsidiary of ANB or American National, as soon as reasonably practicable
after the Effective Time and subject to receipt of all necessary Consents
from Regulatory Authorities, a mortgage banking subsidiary, containing
sufficient capital, personnel, and other resources, to be named "Mutual
Mortgage Company."
8.12 CERTAIN DIRECTOR AND OFFICER POSITIONS.
(a) ANB agrees to cause two (2) members of Mutual's Board of
Directors, which members shall be nominated by Mutual and approved by ANB and
willing so to serve (subject to any applicable legal restrictions) ("Former
Mutual Directors") and shall include Mr. H. Dan Davis, to be elected or
appointed as directors of ANB and American National at the first meetings of
the Boards of Directors of ANB and American National held after the Effective
Time. At the first annual meeting of shareholders of ANB after the Effective
Time, ANB shall take all corporate action necessary to, and shall, renominate
such two (2) Former Mutual Directors for election as directors of ANB and
shall recommend that the ANB shareholders vote for the election of such
individuals as directors.
(b) ANB also agrees to establish a Board of Directors for
Mutual Mortgage Company, which shall be composed of all individuals who are
serving as members of Mutual's Board of Directors at the Effective Time
(other than the outside Former Mutual Director who is elected a director of
ANB) , and which Board shall receive fees for such service as directors of
Mutual Mortgage at the same rate as Mutual's Board as of the date of this
Agreement.
(c) ANB agrees to elect or appoint all individuals of Mutual
who are serving as officers of Mutual at the Effective Time as officers of
either American National or Mutual Mortgage Company taking into account the
prior positions and experience of such officers with Mutual in designating
such officer positions. Specifically, ANB shall appoint Mr. H. Dan Davis as
(i) Executive Vice President of ANB and Senior Vice President of American
National at the Effective Time and (ii) President and Chief Executive Officer
of Mutual Mortgage Company at the time of its organization. In addition, at
the Effective Time, ANB shall offer to enter into an employment agreement
with Mr. Davis, substantially in the form of Exhibit 4 to this Agreement.
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8.13 CERTAIN MODIFICATIONS.
(a) Mutual and ANB shall consult with respect to their loan,
litigation, and real estate valuation policies and practices (including loan
classifications and levels of reserves) and Mutual shall make such
modifications or changes to its policies and practices, if any, prior to the
Effective Time, as may be mutually agreed upon. Mutual and ANB shall also
consult with respect to the character, amount, and timing of restructuring
and merger-related expense charges to be taken by each of the Parties in
connection with the transactions contemplated by this Agreement and the Plan
of Merger and shall take such charges in accordance with GAAP, prior to the
Effective Time, as may be mutually agreed upon by the Parties. Neither
Parties' representations, warranties, and covenants contained in this
Agreement shall be deemed to be inaccurate or breached in any respect as a
consequence of any modifications or charges undertaken solely on account of
this Section 8.13.
(b) During the first full quarter after the Effective Time,
management of ANB agrees, subject to the earnings of the ANB Companies, their
financial condition, liquidity and capital requirements, applicable
governmental regulations and policies, and other factors deemed relevant by
management, to recommend to the Board of Directors of ANB that the regular
semi-annual cash dividend payable per share of ANB Common Stock be increased
to a rate not less than $.2837.
ARTICLE NINE
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of each Party to perform this Agreement and consummate the Merger
and the other transactions contemplated hereby are subject to the
satisfaction of the following conditions, unless waived by both Parties
pursuant to Section 11.6 of this Agreement:
(a) SHAREHOLDER APPROVAL. The shareholders of Mutual shall
have approved (i) this Agreement and the Plan of Merger and (ii) the
consummation of the transactions contemplated hereby and thereby, including
the Merger, as and to the extent required by Law or by the provisions of any
governing instruments. The shareholders of ANB shall have approved the
Articles of Incorporation Amendment, as and to the extent required by Law or
by the provisions of any governing instruments.
(b) REGULATORY APPROVALS. All Consents of, filings and
registrations with, and notifications to, all Regulatory Authorities required
for consummation of the Merger shall have been obtained or made and shall be
in full force and effect and all waiting periods required by Law shall have
expired. No Consent so obtained which is necessary to consummate the
transactions as contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable good faith judgment of the Board of Directors
of ANB or Mutual would so materially adversely impact the economic benefits
of the transaction as
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contemplated by this Agreement so as to render inadvisable the consummation
of the Merger.
(c) CONSENTS AND APPROVALS. Each Party shall have obtained any
and all other Consents required for consummation of the Merger (other than
those referred to in Section 9.1(b) of this Agreement) or for the preventing
of any Default under any Contract or Permit of such Party which, if not
obtained or made, is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on such Party.
(d) LEGAL PROCEEDINGS. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced, or entered any Law or Order (whether temporary,
preliminary, or permanent) or taken any other action which prohibits,
restricts, or makes illegal consummation of the transactions contemplated
by this Agreement.
(e) REGISTRATION STATEMENT. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding, or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under state securities Laws or the 1933 Act or 1934 Act relating
to the issuance of the shares of ANB Common Stock issuable pursuant to the
Merger shall have been received.
(f) TAX MATTERS. Each Party shall have received a copy of the Tax
Opinion referred to in Section 8.7 of this Agreement. Each Party shall
have delivered to the other a certificate, dated as of the Effective Time,
signed by its chief executive officer and chief financial officer, to the
effect that, to the best knowledge and belief of such officers, the
statement of facts and representations made on behalf of the management of
such Party, presented to the legal counsel delivering the Tax Opinion were
at the date of such presentation, true, correct, and complete, and are on
the date of such certificate, to the extent contemplated by the
presentation, true, correct, and complete, as though such presentation had
been made on the date of such certificate.
9.2 CONDITIONS TO OBLIGATIONS OF ANB. The obligations of ANB to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by ANB pursuant to Section 11.6(a) of this
Agreement:
(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
9.2(a), the accuracy of the representations and warranties of Mutual set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of Mutual set forth in Section 5.3 of this Agreement shall be
true and correct (except for
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inaccuracies which are de minimus in amount). The representations and
warranties of Mutual set forth in Sections 5.19, 5.20, 5.21, and 5.22 of this
Agreement shall be true and correct in all material respects. There shall
not exist inaccuracies in the representations and warranties of Mutual set
forth in this Agreement (including the representations and warranties set
forth in Sections 5.3, 5.19, 5.20, 5.21, and 5.22) such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a Material
Adverse Effect on Mutual; provided that, for purposes of this sentence only,
those representations and warranties which are qualified by references to
"material" or "Material Adverse Effect" shall be deemed not to include such
qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
agreements and covenants of Mutual to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) CERTIFICATES. Mutual shall have delivered to ANB (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its chief executive officer and its chief financial officer, to the effect
that the conditions of its obligations set forth in Sections 9.2(a) and
9.2(b) of this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by Mutual's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery, and performance of this Agreement, and the
consummation of the transactions contemplated hereby, all in such
reasonable detail as ANB and its counsel shall request.
(d) POOLING LETTER. ANB shall have received a letter from Arthur
Andersen LLP, dated as of the Effective Time, to the effect that the
Merger will qualify for pooling-of-interests accounting treatment under
Accounting Principles Board Opinion No. 16 if closed and consummated in
accordance with this Agreement.
(e) LEGAL OPINION. ANB shall have received a written opinion,
dated as of the Effective Time, of counsel to Mutual in form reasonably
satisfactory to ANB, which shall cover the matters set forth in Exhibit 5
to this Agreement.
(f) FAIRNESS OPINION. ANB shall have received from Scott &
Stringfellow, Inc., a letter, dated not more than ten (10) business days
prior to the date of the Joint Proxy Statement, to the effect that, in the
opinion of such firm, the Exchange Ratio is fair, from a financial point
of view, to the shareholders of ANB.
9.3 CONDITIONS TO OBLIGATIONS OF MUTUAL. The obligations of Mutual to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following
conditions, unless waived by Mutual pursuant to Section 11.6(b) of this
Agreement:
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(a) REPRESENTATIONS AND WARRANTIES. For purposes of this Section
9.3(a), the accuracy of the representations and warranties of ANB set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties of ANB set forth in Section 6.3 of this Agreement shall be true
and correct (except for inaccuracies which are de minimus in amount). The
representations and warranties of ANB set forth in Section 6.13 of this
Agreement shall be true and correct in all material respects. There shall
not exist inaccuracies in the representations and warranties of ANB set
forth in this Agreement (including the representations and warranties set
forth in Sections 6.3 and 6.13) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Material Adverse
Effect on ANB; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to
"material" or "Material Adverse Effect" shall be deemed not to include
such qualifications.
(b) PERFORMANCE OF AGREEMENTS AND COVENANTS. Each and all of the
agreements and covenants of ANB to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to
the Effective Time shall have been duly performed and complied with in all
material respects.
(c) CERTIFICATES. ANB shall have delivered to Mutual (i) a
certificate, dated as of the Effective Time and signed on its behalf by
its chief executive officer and its chief financial officer, to the effect
that the conditions of its obligations set forth in Sections 9.3(a) and
9.3(b) of this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by ANB's Board of Directors and American
National's Board of Directors and shareholders evidencing the taking of
all corporate action necessary to authorize the execution, delivery, and
performance of this Agreement and the Plan of Merger, and the consummation
of the transactions contemplated hereby, all in such reasonable detail as
Mutual and its counsel shall request.
(d) LEGAL OPINION. Mutual shall have received a written opinion,
dated as of the Effective Time, of counsel to ANB, in form reasonably
satisfactory to Mutual which shall cover the matters set forth in Exhibit
6 to this Agreement.
(e) FAIRNESS OPINION. Mutual shall have received from Baxter
Fentriss and Company, a letter, dated not more than ten (10) business days
prior to the date of the Joint Proxy Statement, to the effect that, in the
opinion of such firm, the Exchange Ratio is fair, from a financial point
of view, to the shareholders of Mutual.
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ARTICLE TEN
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
shareholders of Mutual or ANB, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of ANB and the
Board of Directors of Mutual; or
(b) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of Mutual and Section 9.3(a)
in the case of ANB or in material breach of any covenant or other
agreement contained in this Agreement) in the event of an inaccuracy of
any representation or warranty of the other Party contained in this
Agreement which cannot be or has not been cured within thirty (30) days
after the giving of written notice to the breaching Party of such
inaccuracy and which inaccuracy would provide the terminating Party the
ability to refuse to consummate the Merger under the applicable standard
set forth in Section 9.2(a) of this Agreement in the case of Mutual and
Section 9.3(a) of this Agreement in the case of ANB; or
(c) By the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of Mutual and Section 9.3(a)
in the case of ANB or in material breach of any covenant or other
agreement contained in this Agreement) in the event of a material breach
by the other Party of any covenant or agreement contained in this
Agreement which cannot be or has not been cured within thirty (30) days
after the giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either Party in the event (i)
any Consent of any Regulatory Authority required for consummation of the
Merger and the other transactions contemplated hereby shall have been denied
by final nonappealable action of such authority or if any action taken by
such authority is not appealed within the time limit for appeal, (ii) the
shareholders of Mutual fail to vote their approval of this Agreement and the
transactions contemplated hereby as required by the HOLA and the regulations
of the OTS at the Mutual Shareholders' Meeting where the transactions were
presented to such shareholders for approval and voted upon, or (iii) the
shareholders of ANB fail to vote their approval of the Articles of
Incorporation Amendment as required by the Virginia SCA at the ANB
Shareholders' Meeting or any adjournment thereof where the amendment was
presented to such shareholders for approval and voted upon; or
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(e) By the Board of Directors of either Party in the event that
the Merger shall not have been consummated by July 31, 1996, in each case
only if the failure to consummate the transactions contemplated hereby on or
before such date is not caused by any breach of this Agreement by the Party
electing to terminate pursuant to this Section 10.1(e); or
(f) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or warranty
contained in this Agreement under the applicable standard set forth in
Section 9.2(a) of this Agreement in the case of Mutual and Section 9.3(a) in
the case of ANB or in material breach of any covenant or other agreement
contained in this Agreement) in the event that any of the conditions
precedent to the obligations of such Party to consummate the Merger (other
than as contemplated by Section 10.1(d) of this Agreement) cannot be
satisfied or fulfilled by the date specified in Section 10.1(e) of this
Agreement.
10.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 10.1 of this Agreement, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
10.2 and Article Eleven and Section 8.4(b) of this Agreement shall survive any
such termination, and (ii) a termination pursuant to Sections 10.1(b),
10.1(c), or 10.1(f) of this Agreement shall not relieve the breaching Party
from Liability for an uncured willful breach of a representation, warranty,
covenant, or agreement giving rise to such termination.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles Two, Three, Four, and Eleven and Sections 8.9, 8.10, 8.11, and 8.12
of this Agreement.
ARTICLE ELEVEN
MISCELLANEOUS
11.1 DEFINITIONS. Except as otherwise provided herein, the
capitalized terms set forth below (in their singular and plural forms as
applicable) shall have the following meanings:
"ACQUISITION PROPOSAL" with respect to a Party shall mean any
tender offer or exchange offer or any proposal for a merger, acquisition
of all of the stock or assets of, or other business combination involving
such Party or any of its Subsidiaries or the acquisition of a substantial
equity interest in, or a substantial portion of the assets of, such Party
or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean (i) any other Person directly,
or indirectly through one or more intermediaries, controlling, controlled
by, or under common control with such Person, (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any ten
percent (10%) or greater equity or voting interest of such Person, or
(iii) any other Person for which a Person described in clause (ii) acts in
any such capacity.
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"AGREEMENT" shall mean this Agreement and Plan of Reorganization,
including the Plan of Merger and the other Exhibits delivered pursuant
hereto and incorporated herein by reference.
"ALLOWANCE" shall have the meaning provided in Section 5.8 of this
Agreement.
"AMERICAN NATIONAL COMMON STOCK" shall mean the $10.00 par value
common stock of American National.
"ANB COMMON STOCK" shall mean the $1.00 par value common stock of
ANB.
"ANB COMPANIES" shall mean, collectively, ANB and all ANB
Subsidiaries.
"ANB DISCLOSURE MEMORANDUM" shall mean the written information
entitled "American National Bankshares Inc. Disclosure Memorandum"
delivered prior to the date of this Agreement to Mutual describing in
reasonable detail the matters contained therein and, with respect to each
disclosure made therein, specifically referencing each Section of this
Agreement under which such disclosure is being made. Information
disclosed with respect to one Section shall not be deemed to be disclosed
for purposes of any other Section not specifically referenced with respect
thereto.
"ANB FINANCIAL STATEMENTS" shall mean (i) the consolidated
statements of condition (including related notes and schedules, if any) of
ANB as of June 30, 1995, and as of December 31, 1994 and 1993, and the
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the six months
ended June 30, 1995, and each of the three years ended December 31, 1994,
1993, and 1992, as filed by ANB in SEC Documents and (ii) the consolidated
statements of condition of ANB (including related notes and schedules, if
any) and related statements of income, changes in shareholders' equity,
and cash flows (including related notes and schedules, if any) included in
SEC Documents filed with respect to periods ended subsequent to June 30,
1995.
"ANB PREFERRED STOCK" shall mean the $5.00 par value preferred
stock of ANB.
"ANB SUBSIDIARIES" shall mean the Subsidiaries of ANB which shall
include the ANB Subsidiaries described in Section 6.4 of this Agreement
and any corporation, bank, savings association, or other organization
acquired as a Subsidiary of ANB in the future and owned by ANB at the
Effective Time.
"ARTICLES OF INCORPORATION AMENDMENT" shall mean the amendment to
the Articles of Incorporation of ANB increasing the number of authorized
shares of ANB Common Stock by an amount which will permit completion of
the transactions contemplated by this Agreement.
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"ASSETS" of a Person shall mean all of the assets, properties,
businesses, and rights of such Person of every kind, nature, character,
and description, whether real, personal, or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC ACT" shall mean the federal Bank Holding Company Act of 1956,
as amended.
"BUSINESS COMBINATION" shall mean an acquisition of, merger or
combination with, share exchange involving any class of voting stock of,
sale of more than twenty-five percent (25%) of the consolidated assets by,
or other business combination involving, or tender offer for or sale or
issuance of any equity securities involving an acquisition by a third-
party of more than twenty-five percent (25%) of the voting stock of,
Mutual.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger or
other order to be issued by the OCC approving the Merger.
"CLOSING" shall mean the closing of the transactions contemplated
hereby, as described in Section 1.2 of this Agreement.
"CONSENT" shall mean any consent, approval, authorization,
clearance, exemption, waiver, or similar affirmation by any Person
pursuant to any Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets, or business.
"DEFAULT" shall mean (i) any breach or violation of or default
under any Contract, Order, or Permit, (ii) any occurrence of any event
that with the passage of time or the giving of notice or both would
constitute a breach or violation of or default under any Contract, Order,
or Permit, or (iii) any occurrence of any event that with or without the
passage of time or the giving of notice would give rise to a right to
terminate or revoke, change the current terms of, or renegotiate, or to
accelerate, increase, or impose any Liability under, any Contract, Order,
or Permit, except those Defaults which do not have a Material Adverse
Effect on a Party.
"EFFECTIVE TIME" shall mean the date and time at which the Merger
becomes effective as defined in Section 1.3 of this Agreement.
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"ENVIRONMENTAL LAWS" shall mean all Laws which are administered,
interpreted, or enforced by the United States Environmental Protection
Agency and state and local agencies with jurisdiction over pollution or
protection of the environment.
"ERISA PLAN" shall have the meaning provided in Section 5.14 of
this Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXCHANGE AGENT" shall have the meaning provided in Section 4.1 of
this Agreement.
"EXCHANGE RATIO" shall have the meaning provided in Section 3.1(c)
of this Agreement.
"EXHIBITS" 1 through 6, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this Agreement. Such Exhibits are
hereby incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"GAAP" shall mean generally accepted accounting principles, con-
sistently applied during the periods involved.
"HAZARDOUS MATERIAL" shall mean any pollutant, contaminant, or
hazardous substance within the meaning of the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 ET SEQ.,
or any similar federal, state, or local Law.
"HOLA" shall mean the Home Owners' Loan Act of 1933, as amended.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder.
"JOINT PROXY STATEMENT" shall mean the joint proxy statement used
by Mutual and ANB to solicit the approval of their respective shareholders
of the transactions contemplated by this Agreement and the Plan of Merger
as and to the extent required by Law or by the provisions of any governing
instruments, and shall include the prospectus of ANB relating to the
shares of ANB Common Stock to be issued to the shareholders of Mutual.
"KNOWLEDGE" as used with respect to a Person shall mean to the best
of the knowledge of the chairman, president, chief financial officer,
chief accounting officer, chief
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credit officer, general counsel, any assistant or deputy general counsel, or
any senior or executive vice president of such Person.
"LAW" shall mean any code, law, ordinance, regulation, reporting,
or licensing requirement, rule, or statute applicable to a Person or its
Assets, Liabilities, or business, including, without limitation, those
promulgated, interpreted, or enforced by any of the Regulatory
Authorities.
"LIABILITY" shall mean any direct or indirect, primary or
secondary, liability, indebtedness, obligation, penalty, cost, or expense
(including, without limitation, costs of investigation, collection, and
defense), claim, deficiency, guaranty, or endorsement of or by any Person
(other than endorsements of notes, bills, checks, and drafts presented for
collection or deposit in the ordinary course of business) of any type,
whether accrued, absolute, or contingent, liquidated or unliquidated,
matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention, or other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever of, on, or with
respect to any property or property interest, other than (i) Liens for
current property Taxes not yet due and payable, (ii) for depository
institutions, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) Liens which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on a Party.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, governmental examination, investi-
gation, hearing, inquiry, administrative proceeding, or notice (written or
oral) by any Person alleging the aforesaid, but shall not include regular,
periodic examinations of depository institutions and their Affiliates by
Regulatory Authorities.
"LOAN PROPERTY" shall mean any property owned by the Party in
question or by any of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where required by the context,
includes the owner or operator of such property, but only with respect to
such property.
"MATERIAL ADVERSE EFFECT" on a Party shall mean an event, change,
or occurrence which, individually or together with any other event,
change, or occurrence, has a material adverse impact on (i) the financial
position, business, or results of operations of such Party and its
Subsidiaries, taken as a whole, or (ii) the ability of such Party to
perform its obligations under this Agreement or to consummate the Merger
or the other transactions contemplated by this Agreement, provided that
"material adverse effect" shall not be deemed to include the impact of
(a) changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, or
(b) changes in GAAP or regulatory accounting principles generally
applicable to banks and savings
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associations and their holding companies, (c) actions and omissions of a
Party (or any of its Subsidiaries) taken with the prior informed consent of
the other Party in contemplation of the transactions contemplated hereby, or
(d) the Merger and compliance with the provisions of this Agreement on the
operating performance of the Parties.
"MATERIAL" for purposes of this Agreement shall be determined in
light of the facts and circumstances of the matter in question; provided
that any specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"MERGER" shall mean the merger of Mutual with and into American
National referred to in Section 1.1 of this Agreement.
"MUTUAL BENEFIT PLANS" shall have the meaning set forth in Section
5.14 of this Agreement.
"MUTUAL COMMON STOCK" shall mean the $1.00 par value common stock
of Mutual.
"MUTUAL COMPANIES" shall mean, collectively, Mutual and all Mutual
Subsidiaries.
"MUTUAL DISCLOSURE MEMORANDUM" shall mean the written information
entitled "Mutual Savings Bank, F.S.B. Disclosure Memorandum" delivered
prior to the date of this Agreement to ANB describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect
to one Section shall not be deemed to be disclosed for purposes of any
other Section not specifically referenced with respect thereto.
"MUTUAL FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Mutual
as of June 30, 1995, and as of September 30, 1994 and 1993, and the
related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the nine months
ended June 30, 1995, and for each of the three fiscal years ended
September 30, 1994, 1993, and 1992, as disclosed by Mutual in the Mutual
Disclosure Memorandum, and (ii) the consolidated balance sheets of Mutual
(including related notes and schedules, if any) and related statements of
income, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) with respect to periods ended subsequent to
June 30, 1995.
"MUTUAL PREFERRED STOCK" shall mean the $1.00 par value preferred
stock of Mutual.
"MUTUAL STOCK PLANS" shall mean Mutual Savings Bank, F.S.B. 1987
Stock Option Plan.
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"MUTUAL SUBSIDIARIES" shall mean the Subsidiaries of Mutual which
shall include the Mutual Subsidiaries described in Section 5.4 of this
Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of Mutual in the future and owned by
Mutual at the Effective Time.
"NASD" shall mean the National Association of Securities Dealers,
Inc.
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"OCC" shall mean Office of the Comptroller of the Currency.
"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local, or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"OTS" shall mean the Office of Thrift Supervision (including its
predecessor, the Federal Home Loan Bank Board).
"PARTICIPATION FACILITY" shall mean any facility in which the Party
in question or any of its Subsidiaries participates in the management and,
where required by the context, includes the owner or operator or such
property, but only with respect to such property.
"PARTY" shall mean either Mutual or ANB and "PARTIES" shall mean
both Mutual and ANB.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a
party or that is or may be binding upon or inure to the benefit of any
Person or its securities, Assets, or business.
"PERSON" shall mean a natural person or any legal, commercial, or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability
company, trust, business association, group acting in concert, or any
person acting in a representative capacity.
"PLAN OF MERGER" shall mean the Plan of Merger and Combination, in
substantially the form of Exhibit 1 to this Agreement, to be entered into
by Mutual and American National setting forth the terms of the Merger.
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"REGISTRATION STATEMENT" shall mean the Registration Statement on
Form S-4, or other appropriate form, filed with the SEC by ANB under the
1933 Act in connection with the transactions contemplated by this
Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the Federal
Trade Commission, the United States Department of Justice, the Board of
the Governors of the Federal Reserve System, the OTS, the OCC, the FDIC,
all state regulatory agencies having jurisdiction over the Parties and
their respective Subsidiaries, the NASD, and the SEC.
"RESULTING ASSOCIATION" shall mean American National as the
surviving association resulting from the Merger.
"SEC DOCUMENTS" shall mean all reports and registration statements
filed, or required to be filed, by a Party or any of its Subsidiaries with
any Regulatory Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder
including the regulations of the OTS included in 12 C.F.R. Part 563g.
"SHAREHOLDERS' MEETINGS" shall mean the respective meetings of the
shareholders of Mutual and ANB to be held pursuant to Section 8.1 of this
Agreement, including any adjournment or adjournments thereof.
"SUBSIDIARY" OR COLLECTIVELY "SUBSIDIARIES" shall mean all those
corporations, banks, associations, or other entities of which the entity
in question owns or controls fifty percent (50%) or more of the
outstanding equity securities either directly or through an unbroken chain
of entities as to each of which fifty percent (50%) or more of the
outstanding equity securities is owned directly or indirectly by ANB;
provided, however, there shall not be included any such entity acquired
through foreclosure or any such entity the equity securities of which are
owned or controlled in a fiduciary capacity.
"TAX" OR "TAXES" shall mean any federal, state, county, local or
foreign income, profits, franchise, gross receipts, payroll, sales,
employment, use, property, withholding, excise, occupancy, and other
taxes, assessments, charges, fares, or impositions, of any nature
whatsoever, including interest, penalties, and additions imposed thereon
or with respect thereto.
"VIRGINIA SCA" shall mean the Virginia Stock Corporation Act.
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11.2 EXPENSES.
(a) Except as otherwise provided in this Section 11.2, each of the
Parties shall bear and pay all direct costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder,
including filing, registration, and application fees, printing fees, and fees
and expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that ANB shall bear and pay the filing fees
payable in connection with the Registration Statement and the Joint Proxy
Statement and printing costs incurred in connection with the printing of the
Registration Statement and the Joint Proxy Statement.
(b) Notwithstanding the foregoing, if, after the date of this
Agreement and within twelve (12) months following:
(1) any termination of this Agreement
(i) by ANB pursuant to Sections 10.1(b) (but only in
the case of a willful breach by Mutual of a representation or
warranty), 10.1(c), or 10.1(f) (but only on the basis of the
failure to satisfy any of the conditions enumerated in Sections
9.1(a) (but only in the case of Mutual shareholder approval) and
(d) or 9.2(a) (but only in the case of a willful breach by Mutual
of a representation or warranty), (b), (c), (d), or (f)) of this
Agreement, or
(ii) by Mutual pursuant to Section 10.1(f) (but only
on the basis of the failure to satisfy any of the conditions
enumerated in Section 9.1(a) (but only in the case of Mutual
shareholder approval) or (d) or 9.3(e)) of this Agreement, or
(iii) by either Party pursuant to Section 10.1(d)(ii)
(but only in the case of Mutual shareholder approval) of this
Agreement, or
(2) failure to consummate the Merger by reason of any
failure to satisfy the conditions enumerated in Sections 9.1(a) (but
only in the case of Mutual shareholder approval) or (d), 9.2(a) (but
only in the case of a willful breach by Mutual of a representation or
warranty), (b), (c), (d), or (f) or 9.3(e) of this Agreement,
Mutual covenants, acknowledges, and agrees that it shall be a specific,
absolute, and unconditional binding condition to Mutual's entering into a
letter of intent, agreement in principle, or definitive agreement (whether or
not considered binding, non-binding, or conditional) with respect to, or
recommending shareholder acceptance of, any Business Combination with any
third-party, that such third-party that is a party to the Business Combination
shall pay to ANB, prior to the time the Business Combination is announced to
the public by press release or otherwise,, an amount in cash equal to
$1,000,000, which sum represents the direct costs and expenses (including,
without limitation, fees and expenses of ANB's financial or other consultants,
printing costs, investment bankers, accountants, and counsel) incurred by ANB
in negotiating and carrying out the transactions contemplated by this
Agreement, and the indirect costs and expenses
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incurred by ANB in connection with the transactions contemplated by this
Agreement including ANB's management time devoted to negotiation and
preparation for such transaction. In the event such third-party shall refuse
to pay such amounts, the amounts shall be an obligation of Mutual and shall
be paid by Mutual promptly upon notice to Mutual by ANB.
(c) Nothing contained in this Section 11.2 shall constitute or
shall be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party.
11.3 BROKERS AND FINDERS. Except for Baxter Fentriss and Company as
to Mutual and Scott & Stringfellow, Inc. as to ANB, each of the Parties
represents and warrants that neither it nor any of its officers, directors,
employees, or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees, brokerage
fees, commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by Mutual or ANB, each of Mutual and ANB, as
the case may be, agrees to indemnify and hold the other Party harmless of and
from any Liability in respect of any such claim.
11.4 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement (including the documents and instruments referred to
herein) constitutes the entire agreement between the Parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements
or understandings with respect thereto, written or oral. Nothing in this
Agreement, expressed or implied, is intended to, or shall, confer upon any
Person, other than the Parties or their respective successors, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
other than as provided in Sections 8.10 and 8.12 of this Agreement.
11.5 AMENDMENTS. To the extent permitted by Law, this Agreement may
be amended by a subsequent writing signed by each of the Parties upon the
approval of the Boards of Directors of each of the Parties; provided, however,
that after any such approval by the holders of Mutual Common Stock, there
shall be made no amendment decreasing the consideration to be received by
Mutual shareholders without the further approval of such shareholders.
11.6 WAIVERS.
(a) Prior to or at the Effective Time, ANB, acting through its
Board of Directors, chief executive officer, or other authorized officer,
shall have the right to waive on behalf of it and American National any
Default in the performance of any term of this Agreement by Mutual to waive or
extend the time for the compliance or fulfillment by Mutual of any and all of
its obligations under this Agreement, and to waive any or all of the
conditions precedent to the obligations of ANB under this Agreement, except
any condition which, if not satisfied, would result in the violation of any
Law. No such waiver shall be effective unless in writing signed by a duly
authorized officer of ANB.
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<PAGE>
(b) Prior to or at the Effective Time, Mutual acting through its
Board of Directors, chief executive officer, or other authorized officer,
shall have the right to waive any Default in the performance of any term of
this Agreement by ANB, to waive or extend the time for the compliance or
fulfillment by ANB or American National of any and all of their obligations
under this Agreement, and to waive any or all of the conditions precedent to
the obligations of Mutual under this Agreement, except any condition which, if
not satisfied, would result in the violation of any Law. No such waiver shall
be effective unless in writing signed by a duly authorized officer of Mutual.
11.7 ASSIGNMENT. Except as expressly contemplated hereby, neither
this Agreement nor any of the rights, interests, or obligations hereunder
shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party. Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the Parties and their respective successors
and assigns.
11.8 NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if
delivered by hand, by facsimile transmission, by registered or certified mail,
postage pre-paid, or by courier or overnight carrier, to the persons at the
addresses set forth below (or at such other address as may be provided
hereunder), and shall be deemed to have been delivered as of the date so
received:
Mutual: Mutual Savings Bank, F.S.B.
103 Tower Drive
Danville, Virginia 24543-1001
Telecopy Number: (804) 791-0249
Attention: H. Dan Davis
President and Chief Executive Officer
Copy to Counsel: Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W., Suite 400
Washington, D.C. 20016
Telecopy Number: (202) 966-9409
Attention: Leslie A. Murphy and John R. Hall
ANB: American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541
Telecopy Number: (804) 792-5681
Attention: Charles H. Majors
President and Chief Executive Officer
I-53
<PAGE>
Copy to Counsel: Alston & Bird
601 Pennsylvania Avenue, N.W.
North Building, Suite 250
Washington, D.C. 20004
Telecopy Number: (202) 508-3333
Attention: Frank M. Conner III
11.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the Commonwealth of Virginia, without
regard to any applicable conflicts of Laws, except to the extent that the
federal Laws of the United States may apply to the Merger.
11.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
11.11 CAPTIONS. The captions contained in this Agreement are for
reference purposes only and are not part of this Agreement.
11.12 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: MUTUAL SAVINGS BANK, F.S.B.
By: /S/ Barbara N. Hobgood By: /S/ H. Dan Davis
------------------------ ------------------
Barbara N. Hobgood H. Dan Davis
Corporate Secretary President and Chief Executive Officer
[CORPORATE SEAL]
I-54
<PAGE>
ATTEST: AMERICAN NATIONAL BANKSHARES INC.
By: /S/ David Hyler By: /S/ Charles H. Majors
------------------------ ----------------------
David Hyler Charles H. Majors
Corporate Secretary President and Chief Executive Officer
[CORPORATE SEAL]
I-55
<PAGE>
APPENDIX II
PLAN OF MERGER
OF
MUTUAL SAVINGS BANK, F.S.B.
WITH AND INTO
AMERICAN NATIONAL BANK AND TRUST COMPANY
This PLAN OF MERGER (this "Plan of Merger") is made and entered into as
of September 26, 1995, by and between MUTUAL SAVINGS BANK, F.S.B., a federally
chartered stock savings bank organized and existing under the laws of the
United States, with its main office located in Danville, Virginia ("Mutual"),
and AMERICAN NATIONAL BANK AND TRUST COMPANY, a national banking association
organized and existing under the laws of the United States, with its main
office located in Danville, Virginia ("American National").
American National is a wholly-owned subsidiary of American National
Bankshares Inc., a corporation organized and existing under the laws of the
Commonwealth of Virginia, with its principal office located in Danville,
Virginia ("ANB"). Concurrently with the execution and delivery of this Plan
of Merger, Mutual and ANB are entering into an Agreement and Plan of
Reorganization (the "Agreement") pursuant to which Mutual would merge with and
into American National. The Boards of Directors of Mutual and American
National are of the opinion that the best interests of their respective
institutions would be served if Mutual is merged with and into American
National on the terms and conditions provided in this Plan of Merger.
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein, Mutual and American National hereby make, adopt, and approve
this Plan of Merger in order to set forth the terms and conditions for the
merger of Mutual with and into American National.
ARTICLE ONE
DEFINITIONS
Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"AGREEMENT" shall mean the Agreement and Plan of Reorganization,
dated as of September 26, 1995, by and between Mutual and ANB.
"AMERICAN NATIONAL COMMON STOCK" shall mean the $10.00 par value
common stock of American National.
"ANB COMMON STOCK" shall mean the $1.00 par value common stock of
ANB.
II-1
<PAGE>
"ANB COMPANIES" shall mean, collectively, ANB and all ANB
Subsidiaries.
"ANB SUBSIDIARIES" shall mean the subsidiaries of ANB which shall
include the ANB Subsidiaries described in Section 6.4 of the Agreement and
any corporation, bank, savings association, or other organization acquired
as a Subsidiary of ANB in the future and owned by ANB at the Effective
Time.
"EFFECTIVE TIME" shall mean the date and time at which the Merger
becomes effective as defined in Section 5.3 of this Plan of Merger.
"EXCHANGE AGENT" shall have the meaning provided in Section 4.1 of
this Plan of Merger.
"EXCHANGE RATIO" shall have the meaning provided in Section 2.2(b)
of this Plan of Merger.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of
1986, as amended.
"MERGER" shall refer to the merger of Mutual with and into American
National as provided in Section 2.1 of this Plan of Merger.
"MUTUAL COMMON STOCK" shall mean the $1.00 par value common stock
of Mutual.
"MUTUAL COMPANIES" shall mean, collectively, Mutual and all Mutual
Subsidiaries.
"MUTUAL SUBSIDIARIES" shall mean the subsidiaries of ANB which
shall include the ANB Subsidiaries described in Section 5.4 of the
Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of ANB in the future and owned by
ANB at the Effective Time.
"OCC" shall mean the Office of the Comptroller of the Currency.
"RESULTING ASSOCIATION" shall mean American National upon and after
the Effective Time.
ARTICLE TWO
TERMS OF MERGER
2.1 MERGER. Subject to the terms and conditions set forth in this Plan
of Merger, at the Effective Time, Mutual shall be merged with and into
American National under the Articles of Association and Bylaws of American
National pursuant to the provisions of and with the effect
II-2
<PAGE>
provided in 12 U.S.C. Sections 215c, 1815(d), and 1828(c). American National
shall be the Resulting Association and receiving association resulting from
the Merger and shall continue to conduct its business under the name
"American National Bank and Trust Company." The Merger shall be consummated
pursuant to the terms of this Plan of Merger, which has been approved and
adopted by the respective Boards of Directors of Mutual and American National.
2.2 METHOD OF CONVERTING SHARES. Subject to the provisions of this
Article Two, at the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, the shares of the constituent
corporations or associations shall be converted as follows:
(a) Each share of American National Common Stock issued and
outstanding at the Effective Time shall remain issued and outstanding from and
after the Effective Time.
(b) Each share of Mutual Common Stock (excluding shares held by any
Mutual Company or by any ANB Company, which shares shall be canceled as
provided in Section 2.4 of this Plan of Merger, in each case other than in a
fiduciary capacity or in satisfaction of debts previously contracted) issued
and outstanding at the Effective Time shall cease to be outstanding and shall
be converted into and exchanged for .705 of a share of ANB Common Stock (the
"Exchange Ratio").
2.3 ANTI-DILUTION PROVISIONS. In the event Mutual or ANB changes
the number of shares of Mutual Common Stock or ANB Common Stock, respectively,
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend, or similar recapitalization with respect to such stock
and the record date therefor shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted.
2.4 SHARES HELD BY MUTUAL OR ANB. Each of the shares of Mutual
Common Stock held by any Mutual Company or by any ANB Company, in each case
other than in a fiduciary capacity or in satisfaction of debts previously
contracted, shall be canceled and retired at the Effective Time, and no
consideration shall be issued in exchange therefor.
2.5 DISSENTING SHAREHOLDERS. Any holder of shares of Mutual Common
Stock who perfects such holder's dissenters' rights of appraisal in accordance
with and as contemplated by 12 C.F.R. Section 552.14 shall be entitled to
receive the value of such shares in cash as determined pursuant to such
provision of Law; provided, however, that no such payment shall be made to any
dissenting shareholder unless and until such dissenting shareholder has
complied with the applicable provisions of 12 C.F.R. Section 552.14 and
surrendered to the Resulting Association the certificate or certificates
representing the shares for which payment is being made. In the event that
after the Effective Time a dissenting shareholder of Mutual fails to perfect,
or effectively withdraws or loses, such holder's right to appraisal and of
payment for such holder's shares, ANB shall issue and deliver the
consideration to which such holder of shares of Mutual Common Stock is
entitled under this Article Two (without interest) upon surrender by such
holder of the certificate or certificates representing shares of Mutual Common
Stock held by such holder. Mutual will establish an escrow account with an
amount sufficient to satisfy the maximum aggregate payment that may be
required to be paid to dissenting shareholders. Upon satisfaction
II-3
<PAGE>
of all claims of dissenting shareholders, the remaining escrowed amount,
reduced by payment of the fees and expenses of the escrow agent, will be
returned to the Resulting Association.
2.6 FRACTIONAL SHARES. Notwithstanding any other provision of this
Plan of Merger, each holder of shares of Mutual Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of ANB Common Stock (after taking into account all
certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to such fractional part of a share of
ANB Common Stock multiplied by $30.50.
2.7 CONVERSION OF STOCK OPTIONS.
(a) At the Effective Time, each option or other right to purchase
shares of Mutual Common Stock pursuant to stock options or stock appreciation
rights ("Mutual Options") granted by Mutual under the Mutual Stock Plans (as
defined in the Agreement) which are outstanding at the Effective Time, whether
or not exercisable, shall be converted into and become rights with respect to
ANB Common Stock, and ANB shall assume each Mutual Option, in accordance with
the terms of the Mutual Stock Plan and stock option agreement by which it is
evidenced, except that from and after the Effective Time, (i) the Board of
Directors of Mutual Mortgage Company shall be substituted for Mutual and the
Committee of Mutual's Board of Directors (including, if applicable, the entire
Board of Directors of Mutual) administering such Mutual Stock Plan, (ii) each
Mutual Option assumed by ANB may be exercised solely for shares of ANB Common
Stock (or cash in the case of stock appreciation rights), (iii) the number of
shares of ANB Common Stock subject to such Mutual Option shall be equal to the
number of shares of Mutual Common Stock subject to such Mutual Option
immediately prior to the Effective Time multiplied by the Exchange Ratio, and
(iv) the per share exercise price under each such Mutual Option shall be
adjusted by dividing the per share exercise price under each such Mutual
Option by the Exchange Ratio and rounding up to the nearest cent.
Notwithstanding the provisions of clause (iii) of the preceding sentence, ANB
shall not be obligated to issue any fraction of a share of ANB Common Stock
upon exercise of Mutual Options and any fraction of a share of ANB Common
Stock that otherwise would be subject to a converted Mutual Option shall
represent the right to receive a cash payment equal to the product of such
fraction and the difference between the market value of one share of ANB
Common Stock and the per share exercise price of such option. The market
value of one share of ANB Common Stock shall be the average of the closing bid
and asked prices of such common stock as quoted on the Nasdaq System or, if
not reported thereby, any other authoritative source selected by ANB) on the
last trading day preceding the exercise of the option. In addition,
notwithstanding the provisions of clauses (iii) and (iv) of the first sentence
of this Section 2.7, each Mutual Option which is an "incentive stock option"
shall be adjusted as required by Section 424 of the Internal Revenue Code, and
the regulations promulgated thereunder, so as not to constitute a
modification, extension, or renewal of the option, within the meaning of
Section 424(h) of the Internal Revenue Code.
(b) All restrictions or limitations on transfer with respect to
Mutual Common Stock awarded under the Mutual Stock Plans or any other plan,
program, or arrangement of any Mutual Company, to the extent that such
restrictions or limitations shall not have already lapsed, and except as
otherwise expressly provided in such plan, program, or arrangement, shall
remain in full force and effect with respect to shares of ANB Common Stock
into which such restricted stock is converted pursuant to Section 2.2 of this
Plan of Merger.
II-4
<PAGE>
ARTICLE THREE
EFFECT OF MERGER
3.1 BUSINESS OF THE RESULTING ASSOCIATION. From and after the
Effective Time, the business of the Resulting Association shall continue to be
that of a national banking association. The Resulting Association's business
shall be conducted from its main office located in Danville, Virginia and at
its legally established branches, which shall also include the main office and
all branches, the addresses of which are listed in Exhibit A to this Plan of
Merger, whether in operation or approved but unopened, of Mutual at the
Effective Time.
3.2 ASSUMPTION OF RIGHTS. At the Effective Time, the separate
existence and corporate organization of Mutual shall be merged into and
continued in the Resulting Association. All rights, franchises, and interests
of both Mutual and American National in and to every type of property (real,
personal, and mixed), and all choses in action of both Mutual and American
National shall be transferred to and vested in the Resulting Association
without any deed or other transfer. The Resulting Association, upon
consummation of the Merger and without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, and committee of estates of incompetent persons, and in every other
fiduciary capacity, in the same manner and to the same extent as such rights,
franchises, and interests were held or enjoyed by either Mutual or American
National at the Effective Time.
3.3 ASSUMPTION OF LIABILITIES. All liabilities and obligations of both
of Mutual and of American National of every kind and description (including
without limitation the liquidation account established by Mutual in connection
with its conversion to the stock form of organization, as in existence at the
Effective Time) shall be assumed by the Resulting Association by virtue of the
Merger, and the Resulting Association shall be bound thereby in the same
manner and to the same extent that either of Mutual or American National was
so bound at the Effective Time.
3.4 SAVINGS ACCOUNTS AND DEPOSITS. All savings accounts and deposits
of Mutual and American National shall be and continue to be savings accounts
and deposits of the Resulting Association, without change in their respective
terms, maturity, minimum required balances, or withdrawal value. As of the
Effective Time, each savings account or deposit of Mutual or American National
shall be considered for dividend or interest purposes as a savings account or
deposit of the Resulting Association from the time said savings account or
deposit was opened in Mutual and American National and at all times thereafter
until such account or deposit ceases to be a savings account or deposit of the
Resulting Association until otherwise amended or repealed.
II-5
<PAGE>
3.5 ARTICLES OF ASSOCIATION AND BYLAWS. The Articles of Association
and Bylaws of American National, as in effect immediately prior to the
Effective Time, shall continue in full force and effect as the Articles of
Association and Bylaws of the Resulting Association.
3.6 OFFICERS, EMPLOYEES, AND DIRECTORS. The officers and employees of
the Resulting Association immediately following the Effective Time shall
include the officers and employees of American National, together with such
additional persons as may thereafter be elected. The Board of Directors of
the Resulting Association immediately following the Effective Time shall
include the directors of American National, together with such additional
persons as may thereafter be elected.
3.7 CAPITAL STOCK OF THE RESULTING ASSOCIATION. The capital stock of
the Resulting Association upon completion of the Merger shall be $3.0 million,
consisting of 300,000 issued and outstanding shares of common stock of a par
value of $10.00 per share. In addition, the Resulting Association shall have
a surplus of approximately $8,380,352 and undivided profits, including capital
reserves, of approximately $35,548,014 adjusted, however, for, among other
adjustments, earnings and expenses between June 30, 1995 and the Effective
Time. The capital structures of Mutual and American National are set forth in
Exhibit B to this Plan of Merger.
ARTICLE FOUR
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, ANB
shall cause the exchange agent selected by it (the "Exchange Agent") to mail
to the former shareholders of Mutual appropriate transmittal materials (which
shall specify that delivery shall be effected, and risk of loss and title to
the certificates theretofore representing shares of Mutual Common Stock shall
pass, only upon proper delivery of such certificates to the Exchange Agent).
After the Effective Time, each holder of shares of Mutual Common Stock (other
than shares to be canceled pursuant to Section 2.4 of this Plan of Merger)
issued and outstanding at the Effective Time shall surrender the certificate
or certificates representing such shares to the Exchange Agent and shall
promptly upon surrender thereof receive in exchange therefor the consideration
provided in Section 2.2 of this Plan of Merger, together with all undelivered
dividends or distributions in respect of such shares (without interest
thereon) pursuant to Section 4.2 of this Plan of Merger. To the extent
required by Section 2.6 of this Plan of Merger, each holder of shares of
Mutual Common Stock issued and outstanding at the Effective Time also shall
receive, upon surrender of the certificate or certificates representing such
shares, cash in lieu of any fractional share of ANB Common Stock to which such
holder may be otherwise entitled (without interest). ANB shall not be
obligated to deliver the consideration to which any former holder of Mutual
Common Stock is entitled as a result of the Merger until such holder
surrenders such holder's certificate or certificates representing the shares
of Mutual Common Stock for exchange as provided in this Section 4.1. The
certificate or certificates of Mutual Common Stock so surrendered shall be
duly endorsed as the Exchange Agent may require. Any other provision of the
Agreement notwithstanding, neither ANB, the Resulting Association, nor the
Exchange Agent shall be liable
II-6
<PAGE>
to a holder of Mutual Common Stock for any amounts paid or property delivered
in good faith to a public official pursuant to any applicable abandoned
property Law.
4.2 RIGHTS OF FORMER MUTUAL SHAREHOLDERS. At the Effective Time,
the stock transfer books of Mutual shall be closed as to holders of Mutual
Common Stock immediately prior to the Effective Time, and no transfer of
Mutual Common Stock by any such holder shall thereafter be made or recognized.
Until surrendered for exchange in accordance with the provisions of Section
4.1 of this Plan of Merger, each certificate theretofore representing shares
of Mutual Common Stock (other than shares to be canceled pursuant to Section
2.4 of this Plan of Merger or as to which the holder thereof has perfected
dissenters' rights of appraisal as contemplated by Section 2.5 of this Plan of
Merger) shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 2.2 and 2.6
of this Plan of Merger in exchange therefor. To the extent permitted by Law,
former shareholders of record of Mutual shall be entitled to vote after the
Effective Time at any meeting of ANB shareholders the number of whole shares
of ANB Common Stock into which their respective shares of Mutual Common Stock
are converted, regardless of whether such holders have exchanged their
certificates representing Mutual Common Stock for certificates representing
ANB Common Stock in accordance with the provisions of this Plan of Merger.
Whenever a dividend or other distribution is declared by ANB on the ANB Common
Stock, the record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all shares of
ANB Common Stock issuable pursuant to the Agreement, but no dividend or other
distribution payable to the holders of record of ANB Common Stock as of any
time subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Mutual Common Stock issued and outstanding
at the Effective Time until such holder surrenders such certificate for
exchange as provided in Section 4.1 of this Plan of Merger. However, upon
surrender of such Mutual Common Stock certificate, both the ANB Common Stock
certificate (together with all such undelivered dividends or other
distributions without interest) and any undelivered cash payments to be paid
for fractional share interests (without interest) shall be delivered and paid
with respect to each share represented by such certificate.
ARTICLE FIVE
EFFECTIVENESS
5.1 CONDITIONS PRECEDENT. Consummation of the Merger is conditioned
upon the approval of the Merger by the shareholders of Mutual and by the sole
shareholder of American National as to the extent provided by law, and the
receipt of the requisite regulatory approvals as set forth in the Agreement.
The Merger shall not be consummated unless and until notification is given to
the OTS pursuant to 12 C.F.R. section 563.22(b). Additionally, consummation
of the Merger is conditioned on the fulfillment of the conditions precedent
set forth in Article Nine of the Agreement or the waiver of such conditions as
provided in Section 11.6 of the Agreement.
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<PAGE>
5.2 TERMINATION. This Plan of Merger may be terminated at any time
prior to the Effective Time by the parties hereto after termination of the
Agreement in accordance with the provisions of Section 10.1 thereof.
5.3 EFFECTIVE TIME. The Merger and other transactions contemplated
by the Agreement shall become effective on the date and at the time of
issuance of the Certificate of Merger by the OCC or on such other date and at
such other time as the OCC declares the Merger effective (the "Effective
Time").
ARTICLE SIX
MISCELLANEOUS
6.1 AMENDMENT. To the extent permitted by law, this Plan of Merger may
be amended by a subsequent written instrument upon the approval of the Boards
of Directors of each of the parties hereto and upon execution of such
instrument by the duly authorized officers of each and by a majority of the
Boards of Directors of each of the Parties; provided, however, that after any
such approval by the holders of Mutual Common Stock, there shall be made no
amendment decreasing the consideration to be received by Mutual shareholders
without the further approval of such shareholders, and provided further, that
no amendment to this Plan of Merger shall modify the requirements of
regulatory approval required for the transactions contemplated by this Plan of
Merger.
6.2 GOVERNING LAW. This Plan of Merger shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, except
to the extent that the federal laws of the United States of America apply to
consummation of the Merger.
6.3 HEADINGS. The headings in this Plan of Merger are for convenience
only and shall not affect the construction or interpretation of this Plan of
Merger.
6.4 COUNTERPARTS. This Plan of Merger may be executed in two or more
counterparts, each of which shall be deemed an original instrument, but all of
which together shall constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, each of Mutual and American National has caused this
Plan of Merger to be executed on its behalf by its officers thereunto duly
authorized and by a majority of its Board of Directors, all as of the day and
year first above written.
ATTEST: MUTUAL SAVINGS BANK, F.S.B.
By: /s/ Barbara N. Hobgood By: /s/ H. Dan Davis
--------------------------- ----------------------------------
Barbara N. Hobgood H. Dan Davis
Corporate Secretary President and Chief Executive Officer
[SAVINGS BANK SEAL]
A Majority of the Entire
Board of Directors of Mutual Savings Bank, F.S.B.
- ------------------------------ ------------------------------
E. Ballou Bagby F. Neal Howard, Jr.
- ------------------------------ -------------------------------
W.G. Barker, Jr. T. David Luther
- ------------------------------ -------------------------------
Phillip R. Blackmon Russell Perkins
- ------------------------------ -------------------------------
Roy L. Connor L. Samuel Saunders
- ------------------------------
H. Dan Davis
II-9
<PAGE>
ATTEST: AMERICAN NATIONAL BANK
AND TRUST COMPANY
By: /s/ David Hyler By: /s/ Charles H. Majors
------------------------ ----------------------------------
David Hyler Charles H. Majors
Secretary President and Chief Executive Officer
[ASSOCIATION SEAL]
A Majority of the Entire
Board of Directors of American National Bank
and Trust Company
- ----------------------------- ------------------------------
Richard G. Barkhouser Charles H. Majors
- ----------------------------- ------------------------------
B. Carrington Bidgood James A. Motley
- ----------------------------- ------------------------------
Fred A. Blair Claude B. Owen, Jr.
- ----------------------------- ------------------------------
Ben J. Davenport, Jr. Landon R. Wyatt, Jr.
- ----------------------------- ------------------------------
Lester A. Hudson, Jr. Fred B. Leggett, Jr.
- ----------------------------- ------------------------------
E. Budge Kent, Jr.
II-10
<PAGE>
EXHIBIT A
Main Office:
628 Main Street
Danville, Virginia 24541
Branches:
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
103 Tower Drive
Danville,Virginia, 24543
625 Virginia Avenue
Collinsville, Virginia, ____
539 Arnett Boulevard
Danville, Virginia, ____
600 West Main Street
Danville, Virginia, ____
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<PAGE>
EXHIBIT B
Capital Structures of Mutual
and
American National
(as of June 30, 1995)
<TABLE>
<CAPTION>
Mutual American National
------ -----------------
<S> <C> <C>
Equity Securities 7,500,000 shares common 300,000 shares common
Authorized $1.00 par value $10.00 par value
2,500,000 shares preferred
$1.00 par value
Outstanding Equity Securities 1,154,100 shares common 300,000 shares common
$1.00 par value $10.00 par value
Capital $1.154 million $3.000 million
Surplus $4.226 million $3.000 million
Unrealized Gain (Loss) on $(15) thousand $89 thousand
Investment Securities and
Investment Securities Held for
Sale
Undivided Profits $9.283 million $26.191 million
Total Stockholders'
Equity $14.648 million $32.280 million
</TABLE>
II-12
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APPENDIX III
February __, 1996
The Board of Directors
Mutual Savings Bank, F.S.B.
103 Tower Drive
Danville, Virginia 24540
Dear Members of the Board:
Mutual Savings Bank, F.S.B., Danville, Virginia ("Mutual") and American
National Bankshares Inc., Danville, Virginia ("ANB") have entered into an
Agreement and Plan of Reorganization (the "Agreement") dated as of
September 26, 1995, providing for the acquisition of Mutual by ANB
("Acquisition"). The terms of the Acquisition are set forth in the Agreement.
The terms of the Acquisition provide that, with the possible exception of
those shares as to which dissenter's rights may be perfected, each share of
common stock of Mutual will be converted into 0.705 of a share of common stock
of ANB (the "Exchange Ratio").
You have asked our opinion as to whether the Exchange Ratio is fair, from
a financial point of view, to the shareholders of Mutual.
In rendering our opinion, we have evaluated the consolidated financial
statements of Mutual available to us from published sources. In addition, we
have, among other things; (i) to the extent deemed relevant, analyzed
selected public information of certain other financial institutions and
compared Mutual and ANB from a financial point of view to the other financial
institutions; (ii) considered the historical market price of the common stock
of Mutual and ANB; (iii) compared the terms of the Acquisition and the terms
of certain other comparable transactions to the extent information concerning
such acquisitions was publicly available; (iv) reviewed the Agreement and
related documents; and (v) made such other analyses and examinations as we
deemed necessary. We also met with various senior officers of Mutual and ANB
to discuss the foregoing as well as other matters that may be relevant.
We have not independently verified the financial and other information
concerning Mutual or ANB or other data which we have considered in our review.
We have assumed the accuracy and completeness of all such information;
however, we have no reason to believe that such information is not accurate
and complete. Our conclusion is rendered on the basis of securities market
conditions prevailing as of the date hereof and on the conditions and
prospects, financial and otherwise, of Mutual and ANB as they exist and are
known to us as of September 30, 1995.
We have acted as financial advisor to Mutual in connection with the
Acquisition and will receive from Mutual a fee for our services, a significant
portion of which is contingent upon the consummation of the Acquisition.
It is understood that this opinion may be included in its entirety in any
communication by Mutual or the Board of Directors to the stockholders of
Mutual. The opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.
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Based on the foregoing, and subject to the limitations described above,
we are of the opinion that the Exchange Ratio is fair, from a financial point
of view, to the shareholders of Mutual.
Very truly yours,
--------------------------------------
Baxter Fentriss and Company
III-2
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APPENDIX IV
February __, 1996
Board of Directors
American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541
Gentlemen:
You have asked Scott & Stringfellow, Inc. to render our opinion relating
to the fairness, from a financial point of view, to the shareholders of
American National Bankshares Inc. ("ANB") of the "Exchange Ratio" (as defined
herein) provided for under the terms of the Agreement and Plan of
Reorganization, dated as of September 26, 1995, by and between ANB and Mutual
Savings Bank, Inc. ("Mutual") and a related Plan of Merger (collectively, the
"Merger Agreement"). Under the terms of the Merger Agreement, each share of
common stock of Mutual which is issued and outstanding immediately prior to
consummation shall be exchanged for 0.705 of a share ("Exchange Ratio") of ANB
common stock ("ANB Common Stock"). In addition, the Merger contemplates that,
at the effective time, all rights with respect to Mutual Common Stock pursuant
to stock options granted by Mutual and outstanding at the effective time (the
"Mutual Options"), whether or not exercisable, will be converted into and
become rights with respect to ANB Common Stock. The number of Mutual Options
and the exercise price of such options shall be subject to adjustment for the
Exchange Ratio. Accordingly, after the effective time, the Mutual Options
will become options to purchase ANB Common Stock on a basis adjusted to
reflect the Exchange Ratio, as contemplated in the Merger Agreement.
In developing our opinion, we have, among other things, reviewed and
analyzed: (i) the Merger Agreement; (ii) the Form S-4 Registration Statement
filed with the Securities and Exchange Commission in connection with the
Merger; (iii) Mutual's audited financial statements for the three years ended
September 30, 1994; (iv) Mutual's unaudited interim financial statements for
the nine months ended June 30, 1994 and 1995 and other internal information
relating to Mutual prepared by Mutual's management; (v) information regarding
the trading market for the common stocks of Mutual and ANB and the price
ranges within which the respective stocks have traded; (vi) the relationship
of prices paid to relevant financial data such as net worth, loans, deposits
and earnings in certain thrift merger and acquisition transactions in Virginia
in recent years; (vii) ANB's annual reports to shareholders and its financial
statements for the three years ended December 31, 1994; and (viii) ANB's
unaudited financial statements for the nine months ended September 30, 1994
and 1995, and other internal information relating to ANB prepared by ANB's
management. We have discussed with members of management of Mutual and ANB
the background to and reasons and basis for the Merger and the business and
future prospects of Mutual and ANB individually and as a combined entity.
Finally, we have conducted such other studies, analyses and investigations,
particularly of the banking industry, and considered such other information as
we deemed appropriate.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of the information furnished to us
by or on behalf of Mutual and ANB. We have not attempted independently to
verify such information, nor have we made any independent appraisal of the
assets or assets of Mutual or ANB. We have taken into account our assessment
of general economic, financial market and industry conditions as they exist
and can be evaluated at the date hereof, as well as our experience in business
valuation in general.
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Our firm, as part of its investment banking business, is actively
involved in the valuation of securities as related to public underwritings,
private placements, mergers and acquisitions, recapitalizations and other
purposes.
On the basis of our analyses and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof, the
Exchange Ratio is fair, from a financial point of view, to the holders of ANB
Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
IV-2
<PAGE>
APPENDIX V
PROPOSED AMENDED AND RESTATED
ARTICLES OF INCORPORATION(1)
OF
AMERICAN NATIONAL BANKSHARES INC.
1. NAME. The name of the Corporation is
AMERICAN NATIONAL BANKSHARES INC.
2. PURPOSE. The purpose of the Corporation is to transact any or all
lawful business not required to be specifically stated in these Articles of
Incorporation for which corporations may be incorporated under the Virginia
Stock Corporation Act.
3. AUTHORIZED STOCK. The Corporation shall have authority to issue
200,000 shares of Preferred Stock, par value $5 per share, and 10,000,000
shares of Common Stock, par value $1 per share.
A. PREFERRED STOCK. Authority is expressly vested in the Board of
Directors to divide the Preferred Stock into series and, within the following
limitations, to fix and determine the relative rights and preferences of the
shares of any series so established and to provide for the issuance thereof.
Each series shall be so designated as to distinguish the shares thereof from
the shares of all other series and classes. All shares of Preferred Stock
shall be identical except as to the following relative rights and preferences,
as to which there may be variations between different series:
(i) The rate of dividend, the time of payment and the dates
from which dividends shall be cumulative, and the extent of
participation rights, if any;
(ii) Any right to vote with holders of shares of any other
series or class and any right to vote as a class, either generally
or as a condition to specified corporate action;
(iii) The price at and the terms and conditions on which
shares may be redeemed;
(iv) The amount payable upon shares in event of involuntary
liquidation;
(v) The amount payable upon shares in event of voluntary
liquidation;
- -------------------------------
(1) Reflects the proposed increase from 3,000,000 to 10,000,000 shares of
Common Stock of the Corporation.
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<PAGE>
(vi) Sinking fund provisions for the redemption or purchase of
shares; and
(vii) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the privilege
of conversion.
Prior to the issuance of any shares of a series of Preferred Stock,
the Board of Directors shall establish such series by adopting a resolution
setting forth the designation and number of shares of the series and the
relative rights and preferences thereof to the extent that variations are
permitted by the provisions hereof.
All series of Preferred Stock shall rank on a parity as to dividends
and assets with all other series according to the respective dividend rates
and amounts distributable upon any voluntary or involuntary liquidation of the
Corporation fixed for each such series and without preference or priority of
any series over any other series; but all shares of Preferred Stock shall be
preferred over shares of Common Stock as to both dividends and amounts
distributable upon any voluntary or involuntary liquidation of the
Corporation. All shares of any one series shall be identical.
B. COMMON STOCK. The holders of Common Stock shall, to the
exclusion of the holders of any other class of stock of the Corporation, have
the sole and full power to vote for the election of directors and for all
other purposes without limitation except only (i) as otherwise provided in the
certificate of serial designation for a particular series of Preferred Stock,
and (ii) as otherwise expressly provided by the then existing statutes of
Virginia. The holders of Common Stock shall have one vote for each share of
Common Stock held by them.
Subject to the provisions of articles of serial designation for each
series of Preferred Stock, the holders of shares of Common Stock shall be
entitled to receive dividends if, when and as declared by the Board of
Directors out of funds legally available therefor and to the net assets
remaining after payment of all liabilities upon any voluntary or involuntary
liquidation of the Corporation.
4. PREEMPTIVE RIGHTS. Stockholders of the Corporation shall not have
the preemptive right to acquire unissued shares of any class of the
Corporation.
5. CUMULATIVE VOTING. Stockholders of the Corporation shall not have
cumulative voting rights.
6. A. To the full extent that the Virginia Stock Corporation Act, as
it exists on the date hereof or may hereafter be amended, permits the
limitation or elimination of the liability of directors or officers, a
Director or officer of the Corporation shall not be liable to the Corporation
or its stockholders for monetary damages.
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<PAGE>
B. To the full extent permitted and in the manner prescribed by
the Virginia Stock Corporation Act and any other applicable law, the
Corporation shall indemnify a Director or officer of the Corporation who is or
was a party to any proceeding by reason of the fact that he is or was such a
Director or officer or is or was serving at the request of the Corporation as
a director, officer, employee, or agent of another corporation, partnership,
joint venture. trust, employee benefit plan, or other enterprise. The Board
of Directors is hereby empowered, by majority vote of a quorum of
disinterested Directors, to contract in advance to indemnify any Director or
officer.
C. The Board of Directors is hereby empowered, by majority vote of
a quorum of disinterested Directors, to cause the Corporation to indemnify or
contract in advance to indemnify any person not specified in Section B of this
Article who was or is a party to any proceeding, by reason of the fact that he
is or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, to the same extent as if such person were specified as
one to whom indemnification is granted in Section B.
D. The Corporation may purchase and maintain insurance to
indemnify it against the whole or any portion of the liability assumed by it
in accordance with this Article and may also procure insurance, in such
amounts as the Board of Directors may determine, on behalf of any person who
is or was a Director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, against any liability asserted
against or incurred by such person in any such capacity or arising from his
status as such, whether or not the Corporation would have power to indemnify
him against such liability under the provisions of this Article.
E. In the event there has been a change in the composition of a
majority of the Board of Directors after the date of the alleged act or
omission with respect to which indemnification is claimed, any determination
as to indemnification and advancement of expenses with respect to any claim
for indemnification made pursuant to Section A of this Article 6 shall be made
by special legal counsel agreed upon by the Board of Directors and the
proposed indemnitee. If the Board of Directors and the proposed indemnitee
are unable to agree upon such special legal counsel, the Board of Directors
and the proposed indemnitee each shall select a nominee, and the nominees
shall select such special legal counsel.
F. The provisions of this Article 6 shall be applicable to all
actions, claims, suits, or proceedings commenced after the adoption hereof,
whether arising from any action taken or failure to act before or after such
adoption. No amendment, modification, or repeal of this Article shall
diminish the rights provided hereby or diminish the right to indemnification
with respect to any claim, issue, or matter in any then pending
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<PAGE>
or subsequent proceeding that is based in any material respect or any alleged
action or failure to act prior to such amendment, modification, or repeal.
G. Reference herein to Directors, officers, employees, or agents
shall include former Directors, officers, employees, and agents and their
respective heirs, executors, and administrators.
7. REGISTERED OFFICE. The Corporation's initial registered office
shall be located in the City of Danville at 400 Masonic Building, Danville,
Virginia 24541. The Corporation's initial registered agent shall be Charles
H. Majors, whose address is the same as the Corporation's registered office
and who is a resident of Virginia and a member of the Virginia State Bar.
8. DIRECTORS. The number of Directors shall be as stated in the
Corporation's bylaws but the number of directors set forth in the bylaws
cannot be increased by more than two during any 12-month period except by the
affirmative vote of holders of 80% of all shares of voting stock of the
Corporation. In the absence of a bylaw, the number of Directors shall be
three. The Corporation's initial Board of Directors shall consist of three
individuals whose names and addresses are as follows:
NAME ADDRESS
---- -------
James A. Motley 175 Acorn Lane
Danville, Virginia 24541
E. Budge Kent, Jr. 292 Dogwood Drive
Danville, Virginia 24541
Charles H. Majors 415 Chadwyck Drive
Danville, Virginia 24541
Commencing with the 1984 Annual Meeting of Stockholders, the Board of
Directors shall be divided into three classes -- Class I, Class II and Class
III -- as nearly equal in number as possible. At the 1984 Annual Meeting of
Stockholders, directors of the first class (Class I) shall be elected to hold
office for a term expiring at the 1985 Annual Meeting of Stockholders;
directors of the second class (Class II) shall be elected to hold office for a
term expiring at the 1986 Annual Meeting of Stockholders; and directors of the
third class (Class III) shall be elected to hold office for a term expiring at
the 1987 Annual Meeting of Stockholders. At each annual meeting of
stockholders after 1984, the successors to the class of directors whose term
shall then expire shall be identified as being of the same class as the
directors they succeed and elected to hold office for a term expiring at the
third succeeding annual meeting of stockholders. When the number of directors
is changed, any newly-created directorships or any decrease in directorships
shall be so apportioned among the classes as to make all classes as nearly
equal in number as possible.
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<PAGE>
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any vacancy occurring in the Board of Directors, including a
vacancy resulting in an increase by not more than two in the number of
directors, may be filled by the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors, and
directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which they have been
elected expires. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director may be removed, with or without cause, but only
by the affirmative vote of the holders of at least 80% of the outstanding
shares of Common Stock.
9. VOTING REQUIREMENTS FOR CERTAIN BUSINESS COMBINATIONS. (1) The
affirmative vote of the holders of 80% of all shares of stock of the
Corporation entitled to vote on any business combination (as hereinafter
defined) considered for the purposes of this ARTICLE 9 as one class (herein
called "voting stock"), shall be required for the adoption or authorization of
such business combination with any other entity (as hereinafter defined) if,
as of the record date for the determination of stockholders entitled to notice
thereof and to vote thereon, such other entity is the beneficial owner,
directly or indirectly, of more than 25% of the voting stock of the
Corporation; provided that such 80% voting requirement shall not be applicable
if:
(a) The cash, or fair market value of the property, securities or
other consideration to be received per share by common stockholders of
the Corporation in such business combination:
(i) is not less than the highest per share price (including
brokerage commissions and/or soliciting dealers' fees) paid by such
other entity in acquiring any of its holdings of the Corporation's
Common Stock;
(ii) bears the same or a greater percentage relationship to the
market price of the Corporation's Common Stock immediately prior to
the public announcement of such business combination as the highest
per share price (including brokerage commissions and/or soliciting
dealers' fees) that such other entity has theretofore paid for any
of the shares of the Corporation's Common Stock already owned by it
bears to the market price of the Common Stock of the Corporation
immediately prior to the public announcement or commencement of the
tender offer or market acquisition of the Corporation's Common Stock
by such other entity; and
(iii) if the public announcement of such business
combination occurs more than one year after the transaction which
resulted in such other entity having a 25% interest, is not less
than the earnings per share of
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Common Stock of the Corporation for the four full consecutive fiscal
quarters immediately preceding the record date for solicitation of
votes on such business combination, multiplied by the price-earnings
multiple represented by the price referred to in paragraph (i) in
relation to the earnings per share of Common Stock of the
Corporation for the four full consecutive fiscal quarters
immediately preceding the transaction which resulted in such other
entity having a 25% interest;
(b) After such other entity has acquired a 25% interest and prior
to the consummation of such business combination:
(i) the Corporation's Board of Directors shall have included
at all times representation by continuing director(s) (as
hereinafter defined) proportionate to the voting stock of the
Corporation not held by such other entity (with a continuing
director to occupy any resulting fractional board position);
(ii) such other entity shall not have acquired any newly issued
or treasury shares of stock, directly or indirectly, from the
Corporation (except upon conversion of convertible securities
acquired by it prior to obtaining a 25% interest or as a result of a
pro rata stock dividend or stock split); and
(iii) such other entity shall not have acquired any
additional shares of the Corporation's outstanding Common Stock or
securities convertible into Common Stock except as a part of the
transaction which results in such other entity having a 25%
interest;
(c) Such other entity shall not have:
(i) received the benefit, directly or indirectly (except
proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial assistance provided by the
Corporation, or
(ii) made any major change in the Corporation's business or
capital structure without the unanimous approval of the directors,
in either case prior to the consummation of such business
combination; and
(d) A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 shall be mailed to public stockholders of
the Corporation for the purpose of soliciting stockholder approval of
such business combination and shall contain at the front thereof, in a
prominent place, any recommendations as to the advisability (or
inadvisability) of the business combination which the continuing
directors, or any of them, may choose to state and, if deemed advisable
by a majority of the continuing directors, an opinion of a reputable
investment
V-6
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banking firm as to the fairness (or not) of the terms of such
business combination, from the point of view of the remaining public
stockholders of the Corporation (such investment banking firm to be
selected by a majority of the continuing directors and to be paid a
reasonable fee for its services by the Corporation upon receipt of such
opinion).
The provisions of this ARTICLE 9 shall also apply to a business
combination with any other entity which at any time has been the beneficial
owner, directly or indirectly, of more than 25% of the outstanding shares of
voting stock of the Corporation, notwithstanding the fact that such other
entity has reduced its shareholdings below 25% if, as the record date for the
determination of stockholders entitled to notice of and to vote on the
business combination, such other entity is an "affiliate" of the Corporation
(as hereinafter defined).
(2) For the purposes of this ARTICLE 9,
(a) the term "other entity" shall include any corporation, person
or other entity and other entity with which it or its "affiliate" or
"associate" (as defined below) has any agreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding, voting or disposing of stock of the Corporation, or which is its
"affiliate" or "associate" as those terms are defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of
1934 as in effect on January 1, 1984, together with the successors and
assigns of such persons in any transaction or series of transactions not
involving a public offering of the Corporation's stock within the meaning
of the Securities Act of 1933;
(b) another entity shall be deemed to be the beneficial owner of
any shares of stock of the Corporation which the other entity (as defined
above) has the right to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise;
(c) the outstanding shares of any class of stock of the Corporation
shall be deemed to include shares deemed owned through application of
clause (b) above but shall not include any other shares which may be
issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options or otherwise;
(d) the term "business combination" shall include (i) any merger or
consolidation of the Corporation or any Subsidiary with or into any other
entity; (ii) any statutory stock exchange for cash, property, securities
or obligations of any other entity; (iii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all or substantially
all of the property and assets of the Corporation or any Subsidiary to
any other entity; (iv) the issuance or transfer by the Corporation or any
Subsidiary of any securities having an aggregate fair market value
greater than $1,000,000; (v) the adoption of any plan or proposal for the
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liquidation or dissolution of the Corporation; or (vi) any
reclassification of securities (including any reverse stock split) or
recapitalization of the Corporation, or any merger or consolidation of
the Corporation with any of its Subsidiaries, or any other transaction
which has the effect, directly or indirectly, of increasing the
proportion of any class of securities of the Corporation or any
Subsidiary directly or indirectly owned by any other entity who, prior to
such transaction, owned 00% of the voting stock of the Corporation;
(e) the term "continuing director" shall mean a person who was a
member of the Board of Directors of the Corporation prior to the time
that such other entity acquired in excess of 25% of the voting stock of
the Corporation, or a person designated (whether before or after election
as a director) to be a continuing director by a majority of continuing
directors;
(f) the "fair market value" of property, securities or other
consideration shall be as determined in good faith by the Board of
Directors of the Corporation and concurred in by a majority of continuing
directors;
(g) in the event of a business combination in which the Corporation
is the surviving corporation, the term "other consideration to be
received" as used in paragraph 9(a) shall mean Common Stock of the
Corporation retained by its existing public stockholders;
(h) a "Subsidiary" is any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation.
(3) A majority of the continuing directors shall have the power and
duty to determine for the purposes of this ARTICLE 9, on the basis of
information known to them, whether (a) such other entity beneficially owns
more than 25% of the outstanding shares of voting stock of the Corporation,
(b) another entity is an "affiliate" or "associate" of another, (c) another
entity has an agreement, arrangement or understanding with another, or (d) the
assets being acquired by the Corporation, or any subsidiary thereof, have an
aggregate fair market value of less than $1,000,000.
(4) Nothing contained in this ARTICLE 9 shall be construed to
relieve any other entity from any fiduciary obligation imposed by law. The
voting requirements of this ARTICLE 9 shall be in addition to the voting
requirements imposed by law or other provisions of these Articles of
Incorporation in favor of certain classes of stock.
10. VOTING REQUIREMENTS FOR CERTAIN AMENDMENTS. No amendment to the
Articles of Incorporation of the Corporation shall change, repeal or make
inoperative any of the provisions of ARTICLE 5, ARTICLE 8 or ARTICLE 9, unless
such amendment receives the affirmative vote of the holders of 80% of all
shares of voting stock of the Corporation, provided that this ARTICLE 10 shall
not apply to, and such 80% vote shall not be required for, any such amendment
unanimously recommended to the stockholders by the Board of
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Directors of the Corporation (a) at a time when no other entity beneficially
owns or to the knowledge of any director proposes to acquire 25% or more of
the Corporation's voting stock, or (b) if all such directors are "continuing
directors" within the meaning of paragraph (2) of ARTICLE 9.
11. VOTING REQUIREMENTS FOR CERTAIN OTHER AMENDMENTS. Except as
expressly otherwise required in these Articles of Incorporation, an amendment
or restatement of these Articles other than an amendment or restatement that
amends or affects the shareholder vote required by the Virginia Stock
Corporation Act to approve a merger, statutory share exchange, sale of all or
substantially all of the Corporation's assets or the dissolution of the
Corporation shall be approved by a majority of the votes entitled to be cast
by each voting group that is entitled to vote on the matter.
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APPENDIX VI
DISSENTER AND APPRAISAL RIGHTS
Dissenter and appraisal rights for holders of stock in a federal stock
savings bank are governed by Section 552.14 of Title 12 of the Code of Federal
Regulations, the text of which is reproduced below.
SECTION 552.14 DISSENTER AND APPRAISAL RIGHTS.
(a) RIGHT TO DEMAND PAYMENT OF FAIR OR APPRAISED VALUE. Except as
provided in paragraph (b) of this section, any stockholder of a Federal stock
association combining in accordance with Section 552.13 of this part shall
have the right to demand payment of the fair or appraised value of his stock:
PROVIDED, That such stockholder has not voted in favor of the combination and
complies with the provisions of paragraph (c) of this section.
(b) EXCEPTIONS. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was
listed on a national securities exchange or quoted on the National Association
of Securities Dealers' Automated Quotation System ("NASDAQ") on the date of
the meeting at which the combination was acted upon or stockholder action is
not required for a combination made pursuant to Section 552.13(h)(2) of this
part. "Qualified consideration" means cash, shares of stock of any
association or corporation which at the effective date of the combination will
be listed on a national securities exchange or quoted on NASDAQ or any
combination of such shares of stock and cash.
(c) PROCEDURE.
(1) NOTICE. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less that
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of
appraised value of shares, and shall include in such notice a copy of this
section. Such written notice shall be mailed to stockholders of record and
may be part of the management's proxy solicitation for such meeting.
(2) DEMAND FOR APPRAISAL AND PAYMENT. Each stockholder electing to
make a demand under this section shall deliver to the Federal Stock
association, before voting on the combination, a writing identifying himself
or herself and stating his or her intention thereby to demand appraisal of and
payment for his or her shares. Such demand must be in addition to and
separate from any proxy or vote against the combination by the stockholder.
(3) NOTIFICATION OF EFFECTIVE DATE AND WRITTEN OFFER. Within ten
days after the effective date of the combination, the resulting association
shall;
(i) Given written notice by mail to stockholders of
constituent Federal stock associations who have complied with the
provisions of paragraph (c)(2) of this section and have not voted in
favor of the combination, of the effective date of the combination;
(ii) Make a written offer to each stockholder to pay for
dissenting shares at a specified price deemed by the resulting
association to be the fair value thereof; and
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(iii) Inform them that, within sixty days of such date, the
respective requirements of paragraphs (c)(5) and (6) of this section (set
out in the notice) must be satisfied.
The notice and offer shall be accompanied by a balance sheet and statement of
income of the association the shares of which the dissenting stockholder
holds, for a fiscal year ending not more than sixteen months before the date
of notice and offer, together with the latest available interim financial
statements.
(4) ACCEPTANCE OF OFFER. If within sixty days of the effective date of
the combination the fair value is agreed upon between the resulting
association and any stockholder who has complied with the provisions of
paragraph (c)(2) of this section, payment therefor shall be made within ninety
days of the effective date of the combination.
(5) PETITION TO BE FILED IF OFFER NOT ACCEPTED. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file
a petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market value of
the stock of all such stockholders. A stockholder entitled to file a petition
under this section who fails to file such petition within sixty days of the
effective date of the combination shall be deemed to have accepted the terms
offered under the combination.
(6) STOCK CERTIFICATES TO BE NOTED. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment
under this section shall submit to the transfer agent his certificates of
stock for notation thereon that an appraisal and payment have been demanded
with respect to such stock and that appraisal proceedings are pending. Any
stockholder who fails to submit his stock certificates for such notation shall
no longer be entitled to appraisal rights under this section and shall be
deemed to have accepted the terms offered under the combination.
(7) WITHDRAWAL OF DEMAND. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.
(8) VALUATION AND PAYMENT. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate Staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value
arising from the accomplishment or expectation of the combination.
Appropriate staff of the Office shall review and provide an opinion on
appraisals prepared by independent persons as to the suitability of the
appraisal methodology and the adequacy of the analysis and supportive data.
The Director after consideration of the appraisal report and the advice of the
appropriate staff shall, if he or she concurs in the valuation of the shares,
direct payment by the resulting association of the appraised fair market value
of the shares, upon surrender of the certificates representing such stock.
Payment shall be made, together with interest from the effective date of the
combination, at a rate deemed equitable by the Director.
(9) COSTS AND EXPENSES. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this
determination the Director shall consider whether any party has acted
arbitrarily, vexatiously, or not in good faith in respect to the rights
provided by this section.
VI-2
<PAGE>
(10) VOTING AND DISTRIBUTION. Any stockholder who has demanded
appraisal rights as provided in paragraph (c)(2) of this section shall
thereafter neither be entitled to vote such stock for any purpose nor be
entitled to the payment of dividends or other distributions on the stock
(except dividends or other distributions payable to, or a vote to be taken by
stockholders of record at a date which is on or prior to, the effective date
of the combination): PROVIDED, That if any stockholder becomes unentitled to
appraisal and payment of appraised value with respect to such stock and
accepts or is deemed to have accepted the terms offered upon the combination,
such stockholder shall thereupon be entitled to vote and receive the
distributions described above.
(11) STATUS. Shares of the resulting association into which shares of
the stockholders demanding appraisal rights would have been converted or
exchanged, had they assented to the combination, shall have the status of
authorized and unissued shares of the resulting association.
VI-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 13.1-697 through 13.1-704 of the VSCA generally permit a
corporation to indemnify its officers and directors in connection with civil
and criminal actions if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation. Such indemnification is permitted in connection with
shareholders' derivative actions, but only if such persons are not adjudged
liable for negligence or misconduct, or upon court order. The statute permits
a corporation to provide further indemnity, upon approval by the shareholders
before or after the event, except indemnity against gross negligence or
willful misconduct. Article 6 of ANB's Articles of Incorporation contains
indemnification provisions relating to directors and officers of ANB.
Under Article 6, each director and officer is indemnified by ANB against
liabilities, fines, penalties, and claims imposed upon or asserted against
such director or officer (including amounts paid in settlement) by reason of
having been such a director or officer, whether or not then continuing to be
so, and against all expenses (including counsel fees) reasonably incurred by
him or her in connection therewith, except in relation to matters as to which
he or she shall have been finally adjudged to be liable by reason of having
been guilty of gross negligence or willful misconduct in the performance of
his or her duties as such director or officer. In the event of any other
judgment against such director or officer or in the event of a settlement, the
indemnification will be made only if ANB is advised, if none of the persons
involved is or was a director of ANB, by the Board of Directors, and otherwise
by independent counsel to be appointed by the Board of Directors, that in its
or his or her opinion such director or officer was not guilty of gross
negligence or willful misconduct in the performance of his or her duties, and,
in the event of a settlement, that such settlement was, or if still to be made
is, in the best interests of ANB. If the determination is to be made by the
Board of Directors, it may, as to all questions of law, rely on the advice of
independent counsel. Every reference herein to director or officer includes
every director or officer or former director or officer of ANB and every
person who may have served at its request as a director or officer of another
corporation in which ANB owned shares of stock or of which it is a creditor
or, in the case of a nonstock corporation, to which ANB contributes and, in
all of such cases, his or her executors or administrators. The right of
indemnification provided is not exclusive of any other rights to which any
director or officer may be entitled by Virginia law or otherwise.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following are exhibits to this Registration Statement:
2.1 Agreement and Plan of Reorganization, dated as of September 26,
1995, by and between Mutual Savings Bank, F.S.B. and American
National Bankshares Inc. (Included as Appendix I to the Joint Proxy
Statement/Prospectus included in this Registration Statement.)
2.2 Plan of Merger, dated as of September 26, 1995, by and between
of Mutual Savings Bank, F.S.B. and American National Bank and Trust
Company. (Included as Appendix II to the Joint Proxy
Statement/Prospectus included in this Registration Statement.)
II-1
<PAGE>
3.1 Articles of Incorporation of American National Bankshares Inc.
(Incorporated by reference from Exhibit III to ANB's Registration
Statement on Form S-14 filed on April 4, 1985.)
3.2 Bylaws of American National Bankshares Inc. (Incorporated by
reference from Exhibit III to ANB's Registration Statement on Form
S-14 filed on April 4, 1985.)
3.3 Proposed Amended Articles of Incorporation of American National
Bankshares Inc. (Included as Appendix V to the Joint Proxy
Statement/Prospectus included in this Registration Statement.)
5 Opinion of Alston & Bird regarding the legality of the securities
being issued.
8 Opinion of Alston & Bird regarding certain tax matters.
10.1 Agreement between American National Bank and Trust Company and
James A. Motley, dated August 26, 1982, as amended August 11, 1987.
(Incorporated by reference from Exhibit 4a to ANB's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10.2 Agreement between American National Bank and Trust Company and
Charles H. Majors, dated February 22, 1993. (Incorporated by
reference from Exhibit 4b to ANB's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.)
10.3 Agreement between American National Bank and Trust Company and
E. Budge Kent, Jr., dated August 31, 1982, as amended August 11,
1987. (Incorporated by reference from Exhibit 4c to ANB's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.4 Agreement between American National Bank and Trust Company and
David Hyler, dated August 31, 1982, as amended August 11, 1987.
(Incorporated by reference from Exhibit 4d to ANB's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10.5 Agreement between American National Bank and Trust Company and
Gilmer D. Jefferson, dated August 25, 1982, as amended August 11,
1987. (Incorporated by reference from Exhibit 4e to ANB's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.)
10.6 Agreement between American National Bank and Trust Company and
Carl T. Yeatts, dated August 26, 1982, as amended August 11, 1987.
(Incorporated by reference from Exhibit 4f to ANB's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Manning, Perkinson, Floyd & Company
23.3 Consent of Baxter Fentriss and Company
23.4 Consent of Scott & Stringfellow, Inc.
II-2
<PAGE>
23.5 Consents of Alston & Bird (Included in the opinions of such
firm included as Exhibits 5 and 8.)
24 Power of Attorney (Included on page II-5 of this Registration
Statement.)
99.1 Form of Proxy for American National Bankshares Inc.
99.2 Form of Proxy for Mutual Savings Bank, F.S.B.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(b) To reflect in the prospectus any facts or events arising after the
effective Time of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to
II-3
<PAGE>
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed
as part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day or receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective Time of the Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the Registration Statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, American
National Bankshares Inc. has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Danville, Commonwealth of Virginia, on the 1st day
of February, 1996.
AMERICAN NATIONAL BANKSHARES INC.
(Registrant)
By: /s/ Charles H. Majors
-----------------------------
Charles H. Majors
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Charles H. Majors President and Chief February 1, 1996
- ----------------------------- Executive Officer
Charles H. Majors
* Senior Vice President and February 1, 1996
- ----------------------------- Treasurer
David Hyler (Principal Accounting Officer)
DIRECTORS:
*
- ----------------------------- Director February 1, 1996
Richard G. Barkhouser
*
- ---------------------------- Director February 1, 1996
B. Carrington Bidgood
*
- ---------------------------- Director February 1, 1996
Fred A. Blair
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
*
- ---------------------------- Director February 1, 1996
Ben J. Davenport
*
- ---------------------------- Director February 1, 1996
Lester A. Hudson, Jr.
*
- --------------------------- Director February 1, 1996
E. Budge Kent, Jr.
*
- --------------------------- Director February 1, 1996
Fred B. Leggett, Jr.
- --------------------------- Director February 1, 1996
Charles H. Majors
*
- --------------------------- Director February 1, 1996
James A. Motley
*
- --------------------------- Director February 1, 1996
Claude B. Owen, Jr.
*
- --------------------------- Director February 1, 1996
Landon R. Wyatt, Jr.
* By: /s/ Charles H. Majors February 1, 1996
-------------------------------------
Charles H. Majors as attorney-in-fact
pursuant to power of attorney
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED PAGE
------- -------------
5 Opinion of Alston & Bird regarding the
legality of the securities being issued ...................
8 Opinion of Alston & Bird regarding certain tax matters ....
23.1 Consent of Arthur Andersen LLP ............................
23.2 Consent of Manning, Perkinson, Floyd & Company ............
23.3 Consent of Baxter Fentriss and Company ....................
23.4 Consent of Scott & Stringfellow, Inc. .....................
99.1 Form of proxy for American National Bankshares Inc. .......
99.2 Form of proxy for Mutual Savings Bank, F.S.B. .............
<PAGE>
EXHIBIT 5
[ALSTON & BIRD Letterhead]
Frank M. Conner III Direct Dial: 202-508-3303
February 1, 1996
American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541
Gentlemen:
This opinion is given in connection with the filing by America National
Bankshares Inc., a corporation organized and existing under the laws of the
Commonwealth of Virginia ("ANB"), with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, of a Registration Statement on
Form S-4 ("Registration Statement") with respect to the shares of the $1.00
par value common stock of ANB ("ANB Common Stock") to be issued in connection
with the proposed merger of Mutual Savings Bank, F.S.B. ("Mutual"), with and
into America National Bank and Trust Company, a wholly owned subsidiary of
ANB (the "Merger").
The Merger is intended to be effected pursuant to an Agreement and Plan
of Reorganization, dated as of September 26, 1995 (the "Merger Agreement"), by
and between ANB and Mutual pursuant to which each outstanding share of the
$1.00 par value common stock of Mutual ("Mutual Common Stock") (excluding
shares held by Mutual or any of its subsidiaries or by ANB or any of its
subsidiaries, in each case other than in a fiduciary capacity or as a result
of debts previously contracted) will be converted into and exchanged for the
right to receive .705 of a share of ANB Common Stock.
In rendering this opinion, we have examined such corporate records and
documents, including the Merger Agreement, as we have deemed, relevant and
necessary as the basis for the opinion set forth herein.
Based upon the foregoing, it is our opinion that the shares of ANB Common
Stock included in the Registration Statement, when issued to the holders of
Mutual Common Stock in connection with the Merger as provided in the Merger
Agreement, have been duly authorized by all requisite actions on the part of
ANB and, upon consummation of the Merger, and the issuance of such shares,
such shares will be validly issued, fully paid, and non-assessable under the
Virginia Stock Corporation Act.
<PAGE>
American National Bankshares Inc.
February 1, 1996
Page 2
We hereby consent to the use of this opinion and to the reference made to
the firm under the caption "Legal Matters" in the Joint Proxy
Statement/Prospectus constituting part of the Registration Statement.
Very truly yours,
ALSTON & BIRD
By: /s/ Frank M. Conner III
---------------------------------
Frank M. Conner III
FMC:sbw
<PAGE>
EXHIBIT 8
[ALSTON & BIRD Letterhead]
Philip C. Cook Direct Dial: 404-881-7491
February 1, 1996
American National Bankshares Inc.
628 Main Street
Danville, Virginia 24541
Mutual Savings Bank, F.S.B.
103 Tower Drive
Danville, Virginia 24543-1001
Re: PROPOSED AGREEMENT AND PLAN OF REORGANIZATION INVOLVING MUTUAL
SAVINGS BANK, F.S.B., AMERICAN NATIONAL BANKSHARES INC., AND
AMERICAN NATIONAL BANK AND TRUST COMPANY
Ladies and Gentlemen:
We have served as counsel to American National Bankshares Inc.
("ANB") in connection with the proposed reorganization of Mutual Savings Bank,
F.S.B. ("Mutual") pursuant to the Agreement and Plan of Reorganization, dated
as of September 26, 1995 (the "Agreement"), which provides for the merger of
Mutual with and into American National Bank and Trust Company ("American
National"), a wholly-owned subsidiary of ANB. In our capacity as counsel to
ANB, our opinion has been requested with respect to certain of the federal
income tax consequences of the Merger.
In rendering this opinion, we have examined (i) the Internal Revenue
Code of 1986, as amended (the "Code"), and Treasury Regulations, (ii) the
legislative history of applicable sections of the Code, and (iii) appropriate
Internal Revenue Service and court decisional authority. In addition, we have
relied upon certain assumptions as more fully described below. All terms used
herein without definition shall have the respective meanings specified in the
Agreement, and unless otherwise specified, all section references herein are
to the Code.
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:
(1) The Agreement;
(2) The Registration Statement on Form S-4 filed by American
National Bankshares Inc. with the Securities and Exchange Commission under the
Securities Act of 1933, on December 8,
<PAGE>
American National Bankshares Inc.
February 1, 1996
Page 2
1995, including the Joint Proxy Statement/Prospectus for meetings of the
shareholders of American National and Mutual; and
(3) Such additional documents as we have considered relevant.
In our examination of the documents, we have assumed with your
consent that all documents submitted to us as photocopies faithfully reproduce
the originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate.
We have also obtained such additional information and
representations as we have deemed relevant and necessary through consultation
with various officers and representatives of Mutual and ANB and through
certificates provided by the management of Mutual and the management of ANB.
You have advised us that the proposed transaction will enable the
Resulting Association to realize certain economies of scale, yield a wider
array of banking and banking-related services to consumers and businesses, and
provide for a stronger market position and for greater financial resources to
meet competitive challenges within the Danville, Virginia market area. To
achieve these goals, the following will occur pursuant to the Agreement:
(1) Subject to the terms and conditions of the Agreement, at the
Effective Time, Mutual shall be merged with and into American National in
accordance with and with the effect provided in 12 U.S.C. Sections 215c,
1815(d)(3), and 1828(c). American National shall be the Resulting Association
resulting from the Merger and shall be a wholly-owned, first-tier subsidiary
of ANB and shall continue to be governed by the Laws of the United States.
The Merger shall be consummated pursuant to the terms of the Agreement, which
has been approved and adopted by the respective Boards of Directors of Mutual
and ANB, and the Plan of Merger which has been approved by the respective
Boards of Directors of Mutual and American National.
(2) At the Effective Time, by virtue of the Merger, and without any
action on the part of the holders thereof, the shares of the constituent
corporations shall be converted as follows:
(a) Each share of ANB Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding
from and after the Effective Time.
(b) Each share of American National Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(c) Each share of Mutual Common Stock (excluding shares held by
any Mutual Company or by any ANB Company, which shares be canceled as provided
in Section 3.3 of the Agreement, in each case other than in a fiduciary
capacity or in satisfaction of debts previously contracted) issued and
outstanding at the Effective Time shall cease to be outstanding and shall
converted into and exchanged for .705 of a share of ANB Common Stock (the
"Exchange Ratio"). In the event Mutual or ANB changes the number of shares of
Mutual Common Stock or ANB Common Stock, respectively, issued and outstanding
prior to the Effective Time as a result of a stock split, stock dividend, or
similar recapitalization with respect to such stock and the record date
therefor shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
(3) Each of the shares of Mutual Common Stock held by Mutual or any
of its wholly owned Subsidiaries or by ANB or any of its wholly owned
Subsidiaries, in each case other than in a
<PAGE>
American National Bankshares Inc.
February 1, 1996
Page 3
fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time, and no consideration shall be
issued in exchange therefor.
(4) Any holder of shares of Mutual Common Stock who perfects such
holder's dissenter's rights of appraisal in accordance with and as
contemplated by 12 C.F.R. Section 552.14 shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of Law
and in accordance with the terms of the Agreement.
(5) Notwithstanding any other provision of the Agreement, each
holder of shares of Mutual Common Stock exchanged pursuant to the Merger, or
of options to purchase shares of Mutual Common Stock, who would otherwise have
been entitled to receive a fraction of a share of ANB Common Stock (after
taking into account all certificates delivered by such holder) shall receive,
in lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of ANB Common Stock multiplied by $30.50.
(6) At the Effective Time, each option or other right to purchase
shares of Mutual Common Stock pursuant to stock options or stock appreciation
rights ("Mutual Options") granted by Mutual under the Mutual Stock Plans,
which are outstanding at the Effective Time, whether or not exercisable, shall
be converted into and become rights with respect to ANB Common Stock and ANB
shall assume each Mutual Option, in accordance with the terms of the Mutual
Stock Plan and stock option agreement by which it is evidenced on
substantially the same terms and conditions.
(7) All restrictions or limitations on transfer with respect to
Mutual Common Stock awarded under the Mutual Stock Plans or any other plan,
program, or arrangement of any Mutual Company, to the extent that such
restrictions or limitations shall not have already lapsed, and except as
otherwise expressly provided in such plan, program, or arrangement, shall
remain in full force and effect with respect to shares of ANB Common Stock
into which such restricted stock is converted pursuant to Section 3.1 of the
Agreement.
With your consent, we have also assumed that the following
statements are true on the date hereof and will be true on the date on which
the Merger is consummated:
(1) The fair market value of the ANB stock received by each
shareholder of Mutual will, in each instance, be approximately equal to the
fair market value of the Mutual stock surrendered in exchange therefor.
(2) There is no plan or intention by any of the shareholders of
Mutual who own five percent (5%) or more of the outstanding Mutual Common
Stock, and to the best of the knowledge of the management of Mutual, the
remaining Mutual shareholders have no plan or intention, to sell, exchange, or
otherwise dispose of a number of shares of ANB Common Stock that they will
receive in the Merger that will reduce on the part of the Mutual shareholders
such shareholders' ownership of ANB Common Stock to a number of shares having
an aggregate value as of the date of the Merger of less than fifty percent
(50%) of the aggregate value of all of the stock of Mutual outstanding
immediately prior to the Merger. For purposes of this representation, shares
of Mutual stock that are disposed of or exchanged for cash in lieu of
fractional shares of ANB Common Stock will be treated as outstanding Mutual
stock immediately prior to the Merger. Moreover, shares of Mutual Common
Stock and shares of ANB Common Stock held by Mutual shareholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the transactions will be
considered outstanding immediately prior to the Merger in making this
representation.
(3) In the Merger, American National will acquire assets
representing at least ninety percent (90%) of the fair market value of the net
assets and at least seventy percent (70%) of the fair
<PAGE>
American National Bankshares Inc.
February 1, 1996
Page 4
market value of the gross assets held by Mutual immediately prior to the
Merger. For this purpose, all redemptions and distributions (except for
regular, normal dividends) made by Mutual immediately preceding the Merger
and all amounts paid out of the assets of Mutual as reorganization expenses
will be considered as assets held by Mutual immediately prior to the Merger.
In addition, assets disposed of in contemplation of the Merger will be
considered as assets held by Mutual immediately prior to the Merger.
(4) ANB has no plan or intention to liquidate American National, or
to sell or otherwise dispose of its stock in American National or cause
American National to sell or otherwise dispose of any of the assets acquired
by American National from Mutual, except for dispositions made in the ordinary
course of business or transfers to a corporation controlled by American
National.
(5) From and after the consummation of the Merger, American
National will continue the historic business of Mutual or use a significant
portion of Mutual's business assets in a business.
(6) The liabilities of Mutual to be assumed by American National in
the Merger (and the liabilities to which the assets to be transferred are
subject) were incurred or will be incurred by Mutual in the ordinary course of
its business.
(7) There is not now nor will there be at the time of the Merger
any intercorporate indebtedness existing between Mutual and ANB or between
Mutual and American National that was issued, acquired, or will be settled at
a discount.
(8) Mutual, American National, and ANB will each pay all direct
costs and expenses incurred by it or on its behalf in connection with the
Merger, except that ANB shall bear and pay the filing fees payable in
connection with the Registration Statement and the Joint Proxy Statement and
printing costs incurred in connection with the printing of the Registration
Statement and the Joint Proxy Statement.
(9) None of ANB, American National or Mutual are investment
companies as defined in Code section 368(a)(2)(F).
(10) None of the parties are under the jurisdiction of a court in a
case under Title 11 of the United States Code, a receivership, foreclosure, or
similar proceeding in a federal or state court.
(11) Prior to the Merger, ANB will be in control of American
National. For purposes of this assumption, as well as assumption 12, a
corporation is considered to control a corporation in which it holds at least
eighty percent (80%) of the total combined voting power of all classes of
stock entitled to vote and at least eighty percent (80%) of the total number
of shares of all other classes of stock.
(12) Following the Merger, American National will not issue
additional shares of its stock that would result in ANB losing control of
American National.
(13) The fair market value and adjusted basis of the assets to be
transferred from Mutual to American National as a result of the Merger will
equal or exceed the sum of the liabilities of Mutual to be assumed by American
National (plus the amount of liabilities to which the assets to be transferred
are subject).
(14) The payment of cash to Mutual shareholders in lieu of
fractional shares of ANB stock will not be a separately bargained for
consideration, but will be undertaken solely for the purpose of avoiding the
expense and inconvenience of issuing and transferring fractional shares.
<PAGE>
American National Bankshares Inc.
February 1, 1996
Page 5
(15) ANB has no plan or intention to redeem or otherwise reacquire
its stock that will be issued in the Merger.
(16) None of the compensation received by any shareholder-employee
of Mutual represents separate consideration for, or is allocable to, any of
his Mutual stock. None of the ANB stock that will be received by Mutual
shareholder-employees in the Merger represents separately bargained for
consideration which is allocable to any employment agreement or arrangement.
Any compensation to be paid to a Mutual shareholder-employee who continues as
an employee of ANB or American National subsequent to the Merger will be for
services rendered and will be commensurate with amounts paid to third parties
bargaining at arms length for similar services.
(17) Mutual has no plan or intention to make, and has not made, any
distributions other than regular, normal dividends to shareholders prior to
the Merger.
(18) No stock of American National will be issued in the Merger.
(19) Mutual has not reacquired or redeemed any of its stock within
the last three (3) years.
(20) The reorganization of ANB, American National and Mutual will
occur pursuant to the Agreement.
(21) The Merger is being undertaken for the purposes of enhancing
the business of Mutual through utilization of the financial resources of ANB
and allowing ANB to expand its banking business into the markets served by
Mutual and for other valid business purposes.
(22) ANB does not own, directly or indirectly, nor has it owned
during the past five (5) years, directly or indirectly, any stock of Mutual.
OPINIONS
Based on the foregoing assumptions, we are of the opinion that:
(1) The merger of Mutual with and into American National will
qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D). Mutual, American National, and ANB will each be "a party to a
reorganization" within the meaning of Section 368(b).
(2) No gain or loss will be recognized by a Mutual shareholder upon
the exchange of such shareholder's Mutual Common Stock for shares of ANB
Common Stock.
(3) The basis of the ANB Common Stock to be received by a Mutual
shareholder will be the same as the basis of the Mutual Common Stock
surrendered in exchange therefor.
(4) The holding period of the ANB Common Stock to be received by a
Mutual shareholder (including the holding period of any fractional share
interest) will include the holding period of the Mutual Common Stock
surrendered in exchange therefor, provided Mutual Common Stock was held as a
capital asset on the date of the exchange.
(5) The payment of cash in lieu of fractional shares of ANB Common
Stock will be treated as if the fractional shares were issued as part of the
exchange and then redeemed by ANB. These cash payments will be treated as
having been received as distributions in full payment in
<PAGE>
American National Bankshares Inc.
February 1, 1996
Page 6
exchange for the stock redeemed. Generally, any gain or loss recognized upon
such exchange will be capital gain or loss, provided the fractional share
would constitute a capital asset in the hands of the exchanging shareholder.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time
with retroactive effect. In addition, our opinions are based solely on the
documents that we have examined, the additional information that we have
obtained, and the statements set out herein, which we have assumed are true on
the date hereof and will be true on the date on which the Merger is
consummated. Our opinions cannot be relied upon if any of the facts pertinent
to the Federal income tax treatment of the Merger stated in such documents or
in such additional information is, or later becomes, inaccurate, or if any of
the statements set out herein are, or later become, inaccurate. Finally, our
opinions are limited to the tax matters specifically covered thereby, and we
have not been asked to address, nor have we addressed, any other tax
consequences of the Merger, including for example any issues related to
intercompany transactions, accounting methods, or changes in accounting
methods resulting from the Merger.
This opinion is being provided solely for the benefit of ANB,
Mutual, and their shareholders. No other person or party shall be entitled to
rely on this opinion.
We hereby consent to the use of this opinion and to the references
made to the firm under the captions "Summary--The Merger--Certain Federal Income
Tax Consequences" and "The Merger--Certain Federal Income Tax Consequences" in
the Joint Proxy Statement/Prospectus constituting part of the Registration
Statement on Form S-4 of ANB.
Very truly yours,
ALSTON & BIRD
By: /s/ Philip C. Cook
-------------------------
Philip C. Cook
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement and the inclusion in this
registration statement of our report dated January 13, 1995, incorporated by
reference in the Annual Report on Form 10-K of ANB for the year ended
December 31, 1994, and to the reference to our firm under the heading
"Experts" in the Joint Proxy Statement/Prospectus, which is part of this
Registration Statement.
ARTHUR ANDERSEN LLP
By: /s/ ARTHUR ANDERSEN LLP
-----------------------------------
Greensboro, North Carolina
February 1, 1996
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report on the consolidated balance sheets of
Mutual Savings Bank, F.S.B. and subsidiary at September 30, 1995 and 1994, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended September 30,
1995, included herein in the Joint Proxy Statement/Prospectus included in the
Registration Statement on Form S-4 of American National Bankshares Inc., and
to the reference to our firm under the heading "Experts" in the Joint Proxy
Statement/Prospectus.
MANNING, PERKINSON, FLOYD & COMPANY
By: /s/ MANNING, PERKINSON, FLOYD & COMPANY
--------------------------------------------
Danville, Virginia
February 1, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF FINANCIAL ADVISORS
We hereby consent to the inclusion of our Fairness Opinion issued to the
Board of Directors of Mutual Savings Bank in the Pre-effective Amendment No. 1
to Form S-4 of American National Bankshares, Inc. included as Appendix III to
the Joint Proxy Statement/Prospectus that is a part of this Registration
Statement and references to such letter and to our firm in such Joint Proxy
Statement/Prospectus. In giving such consent we do not thereby admit that we
come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations of the Securities
and Exchange Commission thereunder.
BAXTER FENTRISS AND COMPANY
/s/ BAXTER FENTRISS AND COMPANY
------------------------------------------
Richmond, Virginia
February 1, 1996
<PAGE>
EXHIBIT 23.4
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the use in this Registration Statement on Form S-4
on American National Bankshares Inc. of our letter to the Board of Directors
of American National Bankshares Inc., included as Appendix IV to the Joint
Proxy Statement/Prospectus that is a part of this amendment to the Registration
Statement filed Dec. 8, 1995, and to references to such letter and to our firm
in such Joint Proxy Statement/Prospectus. In giving such consent we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
SCOTT & STRINGFELLOW, INC.
/s/ SCOTT & STRINGFELLOW, INC.
---------------------------------------------
Danville, Virginia
February 1, 1996
<PAGE>
EXHIBIT 99.1
AMERICAN NATIONAL BANKSHARES INC. COMMON STOCK PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF AMERICAN NATIONAL BANKSHARES INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
MARCH ___, 1996.
The undersigned hereby appoints
_____________ or ___________, or
any of them, with individual power of
substitution, proxies to vote all shares of
Common Stock of American National
Bankshares Inc. ("ANB") which the
undersigned may be entitled to vote at the
Special Meeting of Stockholders of ANB to
be held at _____________, on March ___,
1996 at ____.m., local time, and any
adjournment thereof.
SAID PROXIES WILL VOTE ON THE PROPOSAL SET FORTH IN THE NOTICE OF THE
SPECIAL MEETING AND JOINT PROXY STATEMENT/PROSPECTUS AS SPECIFIED ON THIS CARD
AND ARE AUTHORIZED TO VOTE IN THEIR DISCRETION AS TO ANY OTHER BUSINESS WHICH
MAY PROPERLY COME BEFORE THE MEETING. IF A VOTE IS NOT SPECIFIED, SAID
PROXIES WILL VOTE IN FAVOR OF PROPOSAL 1.
1. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ] a proposal to
approve an amendment to the Articles of Incorporation of ANB to increase the
number of authorized shares of the $1.00 par value common stock of ANB from
3,000,000 to 10,000,000 ("Articles of Incorporation Amendment"), in order to
permit consummation of the proposed merger of Mutual Savings Bank, F.S.B.
("Mutual") with and into American National Bank and Trust Company, a wholly
owned subsidiary of ANB ("American National"), pursuant to the terms of the
Agreement and Plan of Reorganization, dated as of September 26, 1995, by and
between Mutual and ANB, and the related Plan of Merger, dated as of
September 26, 1995, by and between Mutual and American National, and to
restate the Articles of Incorporation of ANB to reflect all previous
amendments to the Articles of Incorporation, together with the Articles of
Incorporation Amendment, all as more fully described in the accompanying Joint
Proxy Statement/Prospectus.
PLEASE MARK, SIGN BELOW, DATE, AND RETURN THIS PROXY PROMPTLY
IN THE ENVELOPE FURNISHED.
Please sign exactly as name appears below.
When shares are held by joint tenants, both
should sign. When signing as attorney, as
executor, administrator, trustee, or
guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
DATED: __________________, 1996
________________________________
Signature
________________________________
Signatures if held jointly
<PAGE>
EXHIBIT 99.2
MUTUAL SAVINGS BANK, F.S.B. COMMON STOCK REVOCABLE PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF MUTUAL SAVINGS BANK, F.S.B. FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH ___, 1996.
The undersigned hereby appoints __________
or _________, or any of them, with
individual power of substitution, proxies
to vote all shares of Common Stock of
Mutual Savings Bank, F.S.B. ("Mutual")
which the undersigned may be entitled to
vote at the Annual Meeting of Stockholders
of Mutual to be held at ____________, on
March __, 1996 at ____ _.m., local time,
and any adjournment thereof.
SAID PROXIES WILL VOTE ON THE PROPOSAL SET FORTH IN THE NOTICE OF THE
ANNUAL MEETING AND JOINT PROXY STATEMENT/PROSPECTUS AS SPECIFIED ON THIS CARD
AND ARE AUTHORIZED TO VOTE IN THEIR DISCRETION AS TO ANY OTHER BUSINESS WHICH
MAY PROPERLY COME BEFORE THE MEETING. IF A VOTE IS NOT SPECIFIED, SAID
PROXIES WILL VOTE IN FAVOR OF PROPOSAL 1, 2, 3, AND 4.
1. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ] a proposal to
approve the Agreement and Plan of Reorganization, dated as of September 26,
1995 (the "Agreement"), by and between Mutual and American National Bankshares
Inc., a corporation organized and existing under the laws of the Commonwealth
of Virginia ("ANB"), and the related Plan of Merger, dated as of September 26,
1995, by and between Mutual and American National Bank and Trust Company, a
national banking association organized and existing under the laws of the
United States and a wholly owned subsidiary of ANB ("American National"),
pursuant to which, among other matters, (i) Mutual will merge with and into
American National (the "Merger"), (ii) each share of the $1.00 par value
common stock of Mutual outstanding at the effective time of the Merger will be
converted into .705 of a share of the $1.00 par value common stock of ANB,
plus the right to receive cash in lieu of fractional shares as determined
under the Agreement, and (iii) ANB will assume the obligations of Mutual under
certain stock plans and programs and adopt substitute plans where appropriate,
all as more fully described in the accompanying Joint Proxy
Statement/Prospectus.
2. FOR [ ], or WITHHELD AUTHORITY FROM [ ] a proposal to elect two
nominees as directors of Mutual to serve for three-year terms or until their
successors are duly elected and qualified: Willie G. Barker, Jr. and F. Neal
Howard, Jr. INSTRUCTION: To withhold authority to vote for any individual
nominee(s), list name(s) below:
______________________________________
______________________________________
3. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ] a proposal to
ratify the appointment of Manning, Perkinson, Floyd & Company as the
independent auditors of Mutual for the fiscal year ending September 30, 1996.
<PAGE>
4. FOR [ ], or AGAINST [ ], or ABSTAIN FROM VOTING ON [ ] a proposal to
permit the Board of Directors of Mutual to vote this proxy in favor of an
adjournment of the annual meeting for up to 29 days in order to solicit
further proxies voting in favor of the Merger.
PLEASE MARK, SIGN BELOW, DATE, AND RETURN THIS PROXY PROMPTLY
IN THE ENVELOPE FURNISHED.
Please sign exactly as name appears below.
When shares are held by joint tenants, both
should sign. When signing as attorney, as
executor, administrator, trustee, or
guardian, please give full title as such.
If a corporation, please sign in full
corporate name by President or other
authorized officer. If a partnership,
please sign in partnership name by
authorized person.
DATED: __________________, 1996
________________________________
Signature
________________________________
Signatures if held jointly
