This is a conforming paper copy pursuant to Rule # 901(d) of Regulation S-T.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934 FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
Commission file number 0-12820
AMERICAN NATIONAL BANKSHARES INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1284688
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
628 Main Street
Danville, Virginia 24541
(Address of principal executive offices) (Zip Code)
(804) 792-5111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
The number of shares outstanding of the issuer's common stock as of November 7,
1997 was 3,051,733.
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AMERICAN NATIONAL BANKSHARES INC.
INDEX
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Part I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996.....................................................................3
Condensed Consolidated Statements of Income for the three months
ended September 30, 1997 and 1996.........................................................4
Condensed Consolidated Statements of Income for the nine months
ended September 30, 1997 and 1996.........................................................5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996.........................................................6
Notes to Condensed Consolidated Financial Statements........................................7-8
Item 2. Management's Discussion and Analysis of the Financial Condition
and Results of Operations.................................................................9-13
Part II. Other Information................................................................................14
SIGNATURES .................................................................................................14
EXHIBITS - Financial Data Schedule..........................................................................15
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<TABLE>
Consolidated Balance Sheets
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
September 30 December 31
ASSETS 1997 1996
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Cash and due from banks .............................................. $ 16,022 $ 14,623
Interest-bearing deposits in other banks.............................. 69 199
Federal funds sold ................................................... 5,800 -
Investment securities:
Securities available for sale (at market value)..................... 67,890 87,371
Securities held to maturity (market value of $70,029 at
September 30, 1997 and $88,621at December 31, 1996................ 69,394 88,386
Total investment securities..................................... 137,284 175,757
Loans ................................................................ 254,049 237,039
Less--
Unearned income................................................... (359) (460)
Reserve for loan losses........................................... (3,558) (3,070)
Net loans..................................................... 250,132 233,509
Bank premises and equipment, at cost, less accumulated
depreciation of $6,596 in 1997 and $6,148 in 1996................... 6,426 6,385
Accrued interest receivable and other assets.......................... 9,318 9,685
Total assets.................................................. $425,681 $440,158
LIABILITIES and STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits -- non-interest bearing............................. $ 44,491 $ 41,891
Demand deposits -- interest bearing................................. 50,738 46,777
Money market deposits............................................... 18,638 21,810
Savings deposits.................................................... 69,082 69,998
Time deposits ...................................................... 173,424 181,507
Total deposits................................................ 356,373 361,983
Federal funds purchased............................................. - 8,425
Repurchase agreements............................................... 17,452 15,059
Accrued interest payable and other liabilities...................... 2,817 2,473
Total liabilities............................................. 376,642 387,940
Stockholders' equity:
Preferred stock, $5 par, 200,000 shares authorized,
none outstanding.................................................. - -
Common stock, $1 par,10,000,000 shares authorized,
3,051,733 shares outstanding at September 30, 1997 and
3,279,798 shares outstanding at December 31, 1996 ................ 3,052 3,280
Capital in excess of par value...................................... 9,892 10,631
Retained earnings................................................... 35,575 37,993
Net unrealized gains ............................................... 520 314
Total stockholders' equity.................................... 49,039 52,218
Total liabilities and stockholders' equity.................... $425,681 $440,158
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
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<TABLE>
Consolidated Statements of Income
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
Three Months Ended
September 30
1997 1996
Interest Income:
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Interest and fees on loans......................... $5,755 $5,209
Interest on federal funds sold and other........... 53 115
Income on investment securities:
U. S. Government................................. 893 1,573
Federal agencies................................. 836 352
State and municipal ............................. 276 255
Other investments................................ 103 103
Total interest income.......................... 7,916 7,607
Interest Expense:
Interest on deposits:
Demand........................................... 354 302
Money market..................................... 140 147
Savings.......................................... 538 500
Time............................................. 2,383 2,396
Interest on short-term borrowed funds.............. 214 242
Total interest expense......................... 3,629 3,587
Net Interest Income.................................. 4,287 4,020
Provision for Loan Losses............................ 262 165
Net Interest Income After Provision
For Loan Losses.................................... 4,025 3,855
Non-Interest Income:
Trust and investment services...................... 507 471
Service charges on deposit accounts................ 204 164
Non-deposit fees and insurance commissions......... 41 25
Other income....................................... 83 18
Total non-interest income...................... 835 678
Non-Interest Expense:
Salaries........................................... 1,177 1,025
Pension and other employee benefits................ 273 253
Occupancy and equipment expense.................... 359 282
FDIC insurance expense............................. 20 388
Postage and printing............................... 97 85
Core deposit intangible ........................... 113 73
Merger related expense............................. 5
Other expenses..................................... 427 385
Total non-interest expense..................... 2,466 2,496
Income Before Income Tax Provision................... 2,394 2,037
Income Tax Provision................................. 749 4
Net Income........................................... $1,645 $2,033
Net Income Per Common Share, based on weighted
average shares outstanding of 3,051,733 at September
30, 1997 and 3,279,798 at September 30, 1996........ $ 0.54 $ 0.62
Cash dividends paid per share........................ $ 0.21 $ 0.18
The accompanying notes to consolidated financial statements are an integral part of these statements.
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<TABLE>
Consolidated Statements of Income
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
1997 1996
Interest Income:
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Interest and fees on loans.................................. $16,716 $15,083
Interest on federal funds sold and other.................... 114 331
Income on investment securities:
U. S. Government.......................................... 3,159 4,537
Federal agencies.......................................... 2,529 984
State and municipal ...................................... 850 702
Other investments......................................... 307 337
Total interest income................................... 23,675 21,974
Interest Expense:
Interest on deposits:
Demand.................................................... 1,035 914
Money market.............................................. 426 472
Savings................................................... 1,600 1,486
Time...................................................... 7,246 7,162
Interest on short-term borrowed funds....................... 618 509
Total interest expense.................................. 10,925 10,543
Net Interest Income........................................... 12,750 11,431
Provision for Loan Losses..................................... 762 418
Net Interest Income After Provision
For Loan Losses............................................. 11,988 11,013
Non-Interest Income:
Trust and investment services............................... 1,404 1,483
Service charges on deposit accounts......................... 586 425
Non-deposit fees and insurance commissions.................. 9 73
Other income................................................ 273 68
Total non-interest income............................... 2,356 2,049
Non-Interest Expense:
Salaries.................................................... 3,566 3,003
Pension and other employee benefits......................... 802 674
Occupancy and equipment expense............................. 1,026 853
FDIC insurance expense...................................... 5 467
Postage and printing........................................ 323 296
Core deposit intangible .................................... 338 219
Merger related expense...................................... 1,190
Other expenses.............................................. 1,409 1,193
Total non-interest expense.............................. 7,523 7,895
Income Before Income Tax Provision............................ 6,821 5,167
Income Tax Provision.......................................... 2,095 1,712
Net Income.................................................... $ 4,726 $ 3,455
Net Income Per Common Share, based on weighted
average shares outstanding of 3,176,208 at September 30, 1997
and 3,262,754 at September 30, 1996......................... $ 1.49 $ 1.06
Cash dividends paid per share................................. $ 0.60 $ 0.51
The accompanying notes to consolidated financial statements are an integral part of these statements.
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<TABLE>
Consolidated Statements of Cash Flows
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
1997 1996
Cash Flows from Operating Activities:
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Net income........................................................ $ 4,726 $ 3,455
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses..................................... 762 418
Depreciation.................................................. 495 361
Amortization of intangibles................................... 338 219
Accretion of (discounts) and amortization of premiums
on investment securities.................................... (38) 41
(Gain) loss on sale of securities............................. (31) 338
Benefit for deferred income taxes............................. (210) (126)
Reconciliation of fiscal year of merged company to calendar ye - (379)
Decrease (increase) in interest receivable.................... 152 (211)
Increase in other assets...................................... (21) (270)
(Decrease) increase in interest payable....................... (225) 511
Increase in other liabilities................................. 569 190
Net cash provided by operating activities..................... 6,517 4,547
Cash Flows from Investing Activities:
Proceeds from maturities, calls, and sales of securities ....... 41,855 48,834
Purchases of securities available for sale...................... (3,000) (28,710)
Purchases of securities held to maturity........................ - (29,280)
Net increase in loans........................................... (17,384) (9,080)
Purchases of property and equipment............................. (536) (577)
Net cash provided by investing activities....................... 20,935 (18,813)
Cash Flows from Financing Activities:
Net increase in demand, money market, and savings deposits...... 2,473 3,662
Net (decrease) increase in certificates of deposit.............. (8,083) 5,671
Net (decrease) increase in federal funds purchased
and repurchase agreements................................... (6,032) 14,029
Cash dividends paid............................................. (1,871) (1,672)
Cash paid in lieu of fractional shares.......................... - (3)
Repurchase of stock............................................. (6,240) -
Proceeds from exercise of stock options......................... - 460
Net cash (used in) provided by financing activities............. (19,753) 22,147
Net Increase in Cash and Cash Equivalents....................... 7,699 7,881
Cash and Cash Equivalents at Beginning of Period................ 14,822 12,789
Cash and Cash Equivalents at End of Period...................... $ 22,521 $ 20,670
Supplemental Schedule of Cash and Cash Equivalents:
Cash:
Cash and due from banks......................................... $ 16,022 $ 12,902
Interest-bearing deposits in other banks........................ 699 7,560
Federal funds sold.............................................. 5,800 208
$ 22,521 $ 20,670
Supplemental Disclosure of Cash Flow Information:
Interest paid................................................... $ 11,150 $ 10,931
Income taxes paid............................................... $ 2,151 $ 1,953
The accompanying notes to consolidated financial statements are an integral part of these statements.
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AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly American National Bankshares'
financial position as of September 30, 1997, the results of its operations for
the three and nine months ended September 30, 1997 and September 30, 1996 and
its cash flows for the nine months ended September 30, 1997 and September 30,
1996. Operating results for the three and nine month periods ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1997. 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 1996.
2. Investment Securities
The Bank classifies investment securities in one of three categories: held
to maturity, available for sale and trading.
Debt securities acquired with both the intent and ability to be held to
maturity are classified as held to maturity and reported at amortized cost.
Gains or losses realized from the sale of any securities held to maturity are
determined by specific identification and are included in non-interest income.
Securities which may be used to meet liquidity needs arising from
unanticipated deposit and loan fluctuations, changes in regulatory capital and
investment requirements, or unforeseen changes in market conditions, including
interest rates, market values or inflation rates, are classified as available
for sale. Securities available for sale are reported at estimated fair value,
with unrealized gains and losses reported as a separate component of
stockholders' equity, net of tax. Gains or losses realized from the sale of
securities available for sale are determined by specific identification and are
included in non-interest income.
Trading account securities, of which none were held on September 30,
1997 and December 31, 1996, are reported at fair value. Market adjustments,
fees, gains or losses and income earned on trading account securities are
included in non-interest income. Gains or losses realized from the sale of
trading securities are determined by specific identification and are included in
non-interest income.
Management determines the appropriate classification of securities at
the time of purchase. Securities classified as held to maturity are those
securities that management intends to hold to maturity, subject to continued
credit-worthiness of the issuer, and that the Bank has the ability to hold on a
long-term basis. Accordingly, these securities are stated at cost, adjusted for
amortization of premium and accretion of discount on the level yield method.
Securities designated as available for sale have been adjusted to their
respective market values and a corresponding adjustment made to shareholders'
investment at September 30, 1997 and December 31, 1996.
3. Commitments and Contingencies
The Bank has an established credit availability in the amount of
$29,000,000 with the Federal Home Loan Bank of Atlanta. As of September 30, 1997
and December 31, 1996, there were no borrowings outstanding under this
availability.
Commitments to extend credit, which amount to $64,199,000 at September
30, 1997 and $65,030,000 at December 31, 1996, 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, 1997 and December 31, 1996 the Bank had
$1,199,000 and $705,000, respectively, in outstanding standby letters of credit.
<PAGE>
4. Merger and Acquisitions
On March 14, 1996, the Corporation completed the acquisition of Mutual
Savings Bank, F.S.B. (Mutual) upon the approval of the shareholders of each
company. The Corporation exchanged 879,805 common shares, at an exchange ratio
of .705 of a share of the Corporation's common stock, for Mutual's 1,248,100
common shares.
The transaction was accounted for as a pooling of interests. The
financial position and results of operations of the Corporation and Mutual were
combined and the fiscal year of Mutual was conformed to the Corporation's fiscal
year.
In October 1996, the Corporation acquired the branch office of
FirstSouth Bank located in Yanceyville, North Carolina. In addition to the
branch facilities and an ATM located in Yanceyville, the Corporation acquired
$4,775,000 in loans and assumed deposits of $21,405,000. This transaction was
accounted for as a purchase. In conjunction with the Yanceyville purchase, the
Corporation recorded a core deposit intangible of $1,516,000, approximately 7%
of the deposits assumed.
5. New Accounting Pronouncements
In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation" was issued. SFAS No. 123 is effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 encourages companies to adopt the fair
value method for compensation expense recognition related to employee stock
options. Existing accounting requirements of Accounting Principles Board Opinion
No. 25 ("APB No. 25") used the intrinsic value method in determining
compensation expense, which represents the excess of the market price of the
stock over the exercise price on the measurement date. SFAS No. 123 was not
applicable for the Corporation during fiscal 1995 or 1996, as the Corporation
had no stock options outstanding. During fiscal 1997, the Corporation elected to
remain under the APB No. 25 rules for the stock options issued in the current
year. The Corporation will be required to provide pro forma disclosures of what
net income and earnings per share would have been had the Corporation adopted
the new fair value method for recognition purposes at their fiscal year end.
In February 1997, SFAS No. 128, "Earnings Per Share" was issued. SFAS
No. 128 requires presentation of basic earnings per share and diluted earnings
per share and supersedes or amends all previous earnings per share presentation
requirements. Basic earnings per share will be based on income available to
common shareholders divided by the weighted average number of common shares
outstanding. Diluted earnings per share is also based on income available to
common shareholders divided by the sum of the weighted average number of common
shares outstanding and all diluted potential common shares. SFAS No. 128 is
effective for fiscal years ending after December 15, 1997. Earlier adoption is
not allowed. The impact of adopting this new standard is not expected to
significantly impact the Corporation's earnings per share presentations.
In June of 1997, SFAS No. 130, "Reporting Comprehensive Income", was
issued. SFAS No. 130 establishes standards for the prominent reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is the total of net
income and other changes in equity that bypass net income. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997, with earlier
application permitted, but not required. The Corporation has not yet determined
the impact of adoption of SFAS No. 130.
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AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EARNINGS and CAPITAL
On March 14, 1996, the Corporation completed the merger of Mutual
Savings Bank, F.S.B.("Mutual") into American National Bankshares Inc.("ANB").
For comparative reporting purposes the financial results for the first nine
months ended September 30, 1996 include income and expenses of both Mutual and
ANB during this period.
The Corporation's net income for the nine months ended September 30,
1997 was $4,726,000, an increase of $1,271,000 or 37% over the net income of
$3,455,000 recorded in the same period of 1996. Net income recorded during the
nine months ended September 30, 1996 included cost associated with the merger of
Mutual into the American National Bankshares. Excluding the effect of this cost
and all related income tax effects, net income for the nine months ended
September 30, 1996 was $4,446,000. The $4,726,000 net income for the nine months
ended September 30, 1997 was an increase of $280,000 or 6% over the $4,446,000
for 1996.
The components of the one-time cost, associated with the merger, in the
first nine months of 1996, include consulting, legal, accounting, conversion,
regulatory and other related fees and expense. Also included in the merger
related expense is a loss on the sale of securities. The loss resulted from
securities held my Mutual that were not compatible with ANB's investment
program. For the six months ended June 30, 1996, the cost associated with the
merger included a Federal income tax recapture of $1,074,000 on untaxed loan
loss reserves of Mutual. During the quarter ended September 30, 1996 the Federal
income tax recapture was dismissed by congressional legislation and the
$1,074,000 was reversed from the Company's liabilities. This amount was
partially offset during the third quarter by a one-time special assessment by
the Federal Deposit Insurance Corporation (FDIC), in the amount of $350,000,
against deposits formerly held by Mutual to recapitalize the Savings Association
Insurance Fund (SAIF).
Net income for the three months ended September 30, 1997 was
$1,645,000, a decrease of $388,000 or 19% from the $2,033,000 recorded during
the same period of 1996. Excluding the effect of cost associated with the merger
of Mutual into ANB in 1996 as discussed above, net income for the three months
ended September 30, 1996 was $1,487,000. For comparative purposes, net income
for the three months ended September 30, 1997 was an increase of $158,000 or 11%
over the net income for the three months ended September 30, 1996, excluding the
effect of cost associated with the merger.
Net income per common share based on weighted average shares
outstanding of 3,176,208 was $1.49 for the nine months ended September 30, 1997,
an increase of $.43 per share or 41%, compared to $1.06, based on weighted
average shares outstanding of 3,262,754 during the same period of 1996.
Net income per common share based on weighted average shares
outstanding of 3,051,733 was $.54 for the three months ended September 30, 1997,
a decrease of $.08 per share, or 13%, from the net income of $.62 per common
share based on weighted average shares outstanding of 3,279,798 for the three
months ended September 30, 1996.
On an annualized basis, return on average total assets was 1.57% for
the third quarter of 1997 and 1.45% on income before merger related expense for
the same period of 1996. Return on average total assets was 1.48% for both the
first nine months of 1997 and the first nine months of 1996 on income before
merger related expense. Return on average common shareholders' equity was 13.66%
for the third quarter ended September 30, 1997 and 11.99% on income before
merger related expense for the third quarter of 1996. Return on average common
shareholders' equity was 12.53% for the nine months ended September 30, 1997 and
12.03% on income before merger related expense for the nine months ended
September 30, 1996.
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TRENDS AND FUTURE EVENTS
At September 30, 1997, assets were $425,681,000, a decrease of
$14,477,000 or 3% from the $440,158,000 recorded at December 31, 1996. Net loans
were $250,132,000 at September 30, 1997, an increase of $16,623,000 or 7% above
the $233,509,000 recorded at December 31, 1996. The increase in loans resulted
from a strong loan demand. At September 30, 1997, deposits were $356,373,000, a
decrease of $5,610,000 or 2% from the $361,983,000 recorded at December 31,
1996. Due to seasonal fluctuations in the volume of deposits (caused primarily
by the local marketing of tobacco) it is not unusual for the Corporation to
experience a flat or declining volume of deposits and/or assets during the first
six months of the year. In past years most of the Corporation's deposit growth
took place in the second half of the year. The decline in deposits and assets
during the first nine months of 1997, is a departure from trends of prior years
and is attributable to a slight reduction in tobacco sales, a management
decision to decline offering excessive deposit rates on certificates of deposits
and a reduction in equity of approximately $6,240,000. The reduction in equity
is the result of the Company's repurchase of its stock through a "Dutch
Auction." The Dutch Auction is discussed below.
On April 9, 1997, the Corporation announced that it would offer to
purchase 250,000 shares of American National Bankshares Inc. common stock (or
such lesser numbers as are properly tendered), or approximately 7.62% of the
shares outstanding on that date, from existing shareholders. The Corporation
conducted the tender offer through a procedure commonly referred to as a
modified "Dutch Auction." The price was set in an amount not to be in excess of
$27 nor less than $25 per share. The modified "Dutch Auction" allowed the
shareholder to select the price within the specified price range at which the
shareholder was willing to sell all or some of their shares to the Corporation.
A total of 228,065 shares were properly tendered. The Corporation paid $27 per
share for all shares it purchased in the offer. This price was the highest price
of those specified by tendering shareholders.
At the annual meeting of shareholders, held April 22, 1997, the
shareholders approved a Stock Option Plan permitting the Corporation to issue up
to a total of 150,000 shares of common stock, upon the exercise of options
granted under the plan, prior to December 31, 2006. The Plan is administered by
the Stock Option Committee of the Board of Directors. The Committee currently
consists only of the Company's independent non-employee Directors. On September
16, 1997 the Stock Option Committee approved the granting of 100 options to each
full time employee of the Bank and Mutual Mortgage of the Piedmont, Inc.
employed on that date. The total options granted were 16,900. These options may
be exercised at $28 per share between September 16, 1998 and September 16, 2007.
During the third quarter of 1997, the Corporation declared a quarterly
cash dividend of $.21 per share, payable September 26, 1997 to shareholders of
record September 12, 1997.
Certain statements contained above in this section are forward-looking
statements that involve a number of risks and uncertainties. In addition to the
factors discussed above regarding the local economy and the fluctuation of
deposits are other factors that could cause actual results to differ materially.
These factors include business conditions, development of new products and
services, interest rate trends, future legislation, regulatory controls and the
risks described from time to time in the Corporation's SEC reports.
NET INTEREST INCOME
Net interest income is the excess of interest income over interest
expense. During the nine months ended September 30, 1997, net interest income
increased $1,319,000 or 12% over the same period of 1996. During the third
quarter of 1997, net interest income increased $267,000 or 7% over the same
quarter of 1996.
During the nine month period ended September 30, 1997, short term
interest market rates decreased slightly. During the next twelve months the
Corporation's repricing opportunities in liabilities will exceed repricing
opportunities of assets by approximately $64,765,000, (approximately 15% of
total assets), which makes the Corporation liability sensitive. Included in the
liabilities are savings accounts of $69,082,000 which are not as sensitive to
change as money market and interest bearing checking accounts. Considering the
reality of the sensitivity of the savings accounts makes the repricing
opportunities more balanced. Any further decrease in market interest rates
within the next twelve months may tend to increase the Corporation's net yield
on interest earning assets, but Management does not expect this to have a
substantial effect upon the earnings of the Corporation during the projected
period.
<PAGE>
ASSET QUALITY
Nonperforming assets include loans on which interest is no longer
accrued, loans classified as troubled debt restructurings and foreclosed
properties. There were no foreclosed properties held at the close of the
reporting period.
Loans in a nonaccrual status at September 30, 1997 were $1,160,000
compared with $33,000 at December 31, 1996. Loans on accrual status and past due
90 days or more at September 30, 1997 were $381,000 compared with $479,000 at
December 31, 1996. The increase in loans in a nonaccrual status resulted from
the addition of three commercial loans. All three additions are secured by real
estate. Two are in the process of foreclosure. The third loan is being modified
and is expected to be collected under a modified plan. Two of the three loans,
totaling $757,000 are considered impaired. Management has identified a specific
valuation allowance totaling $191,000 to record these loans at their estimated
fair value, based upon the collateral securing the loans. The estimated fair
value of the remaining loan is in excess of the Bank's recorded value.
Total nonperforming loans and loans past due 90 days or more as a
percentage of net loans were .6% at September 30, 1997 and .2% at December 31,
1996. Total nonperforming loans and loans past due 90 days or more, on an
accrual status, are considered acceptable by industry standards.
During the first nine months of 1997 the gross amount of interest
income that would have been recorded on nonaccrual loans and restructured loans
at September 30, 1997, if all such loans had been accruing interest at the
original contractual rate, was $68,000. No interest payments were recorded
during the reporting period as interest income for all such nonperforming loans.
PROVISION and RESERVE FOR LOAN LOSSES
The provision for loan losses was $762,000 for the nine months ended
September 30, 1997 and $262,000 for the third quarter ended September 30, 1997.
The reserve for loan losses totaled $3,558,000 at September 30, 1997, an
increase of 16% over the $3,070,000 recorded at December 31, 1996. The ratio of
reserves to loans, less unearned discount, was 1.40% at September 30, 1997 and
1.30% at December 31, 1996. In Management's opinion, the current reserve for
loan losses is adequate.
NON-INTEREST INCOME
Non-interest income for the third quarter ended September 30, 1997 was
$835,000, an increase of 23% from the $678,000 reported in the third quarter of
1996. The components of the increase in the third quarter of 1997 included an 8%
increase in trust and investment services revenue, a 24% increase in service
charges on deposit accounts due to procedural changes in applying fees for
overdrafts and returned checks, a 64% increase ($16,000) in non-deposit fees and
insurance commissions, due primarily to increases in ATM fees and collection and
exchange fees and an increase of $65,000 in other income primarily from fees
generated by the Bank's subsidiary, Mutual Mortgage of the Piedmont Inc.
("Mutual Mortgage"). Mutual Mortgage originates and sells loans in the secondary
market.
Non-interest income for the nine months ended September 30, 1997 was
$2,356,000, a 15% increase from the $2,049,000 reported for the same period of
1996. The components of the increase included a 5% decrease in trust and
investment services revenue due to the comparison of unusually high trust
department fees recorded during the second quarter of 1996. The components of
the increase also included a 38% increase in service charges on deposit accounts
due primarily to procedural changes in applying fees for overdrafts and returned
checks, a 27% increase ($20,000) in non-deposit fees and insurance commissions
due primarily to increases in ATM fees and collection and exchange fees and an
increase of $205,000 in other income which consisted primarily of fees earned by
Mutual Mortgage.
NON-INTEREST EXPENSE
Non-interest expense for the third quarter ended September 30, 1997 was
$2,466,000, a 1% decrease over the $2,496,000 reported for the same quarter last
year. Components of the decrease included a 15% increase in salaries primarily
from the addition of personnel at the Yanceyville branch office and Mutual
Mortgage, an 8% increase in pension and other employee benefits, which included
the addition of personnel at the Yanceyville location and Mutual Mortgage, a 27%
increase in occupancy and equipment expense which was attributable to the
Yanceyville acquisition and the renovation of the Main office and the Tower
Drive office and a 95% reduction ($368,000) in FDIC insurance expense which
resulted from a reduction in the premiums paid in the third quarter of 1997 on
deposits of Mutual Savings Bank compared to the same period of 1996. Also
included was a 14% increase in postage and printing, resulting partially from
the acquisition of the Yanceyville branch office and Mutual Mortgage, a 54%
increase ($40,000) in core deposit intangibles as a result of the acquisition of
the Yanceyville branch office and an 11% increase in other expenses which
included additional expenses related to the Yanceyville office and Mutual
Mortgage. The third quarter of 1996 included merger related expenses of $5,000.
There were no merger related expenses in the third quarter of 1997.
Non-interest expense for the nine months period ended September 30,
1997 was $7,523,000, a 5% decrease from the $7,895,000 recorded during the first
nine months of 1996. The components of the decrease included a 19% increase in
salaries due primarily to the addition of personnel at the Yanceyville office
and Mutual Mortgage, a 19% increase in pension and other employee benefits due
primarily to the addition of personnel at the Yanceyville office and Mutual
Mortgage, a 20% increase in occupancy and equipment expense due to the addition
of the Yanceyville office and the renovation of the Main office and the Tower
Drive office and an 87% decrease ($408,000) in FDIC insurance expense due to the
lower rates charged by the FDIC on deposits of Mutual Savings Bank. Also
included was a 9% increase in postage and printing, a 54% increase in core
deposit intangible expense resulting from the Yanceyville acquisition and an 18%
increase in other expenses primarily related to the addition of the Yanceyville
office and Mutual Mortgage. During the first nine months of 1996 non-interest
expense included $1,190,000 in merger related expense. There was no merger
related expense in the first nine months of 1997.
<PAGE>
INCOME TAX PROVISION
The income tax provision for the nine months ended September 30, 1997
was $2,095,000, an increase of $383,000 from the $1,712,000 reported a year
earlier. The provision recorded in 1996 included a one-time Federal tax
assessment associated with Mutual's prior untaxed loan loss reserves through the
second quarter. During the third quarter of 1996, this assessment was eliminated
by Congressional action. The effective tax rates for the nine month periods
ended September 30, 1997 and 1996 were 31% and 33%, respectively.
CAPITAL MANAGEMENT
Federal regulatory risk-based capital ratio guidelines require percentages
to be applied to various assets including off-balance-sheet assets in relation
to their perceived risk. Tier I capital includes shareholders' equity and Tier
II capital includes certain components of nonpermanent preferred stock and
subordinated debt. The Corporation has no nonpermanent preferred stock or
subordinated debt. Banks and bank holding companies must have a Tier I capital
ratio of at least 4% and a total ratio, including Tier I and Tier II capital, of
at least 8%. As of September 30, 1997 the Corporation had a ratio of 16.9% for
Tier I and a ratio of 18.2% for total capital. At December 31, 1996 these ratios
were 19.4% and 20.7%, respectively. The decline in these ratios during 1997 was
due primarily to the stock repurchase program concluded in May 1997.
The following cash dividends were paid during the first nine months of
1997:
Declared by
Board of Directors Record date Date Paid
$.18 per share February 20, 1997 March 14, 1997 March 28, 1997
$.21 per share May 20, 1997 June 13, 1997 June 27, 1997
$.21 per share August 19, 1997 September 12, 1997 September 26, 1997
LIQUIDITY
The Corporation's net liquid assets to net liabilities ratio was 25% at
September 30, 1997 and 32% at December 31, 1996. Both of these ratios are
considered to reflect adequate liquidity for the respective periods.
Management constantly monitors and plans the Corporation's liquidity
position for future periods. Liquidity is provided from cash and due from banks,
federal funds sold, interest-bearing deposits in other banks, repayments from
loans, seasonal increases in deposits, lines of credit from two correspondent
banks and two federal agency banks and a planned structured continuous maturity
of investments. Management believes that these factors provide sufficient and
timely liquidity for the foreseeable future.
<PAGE>
PART II
OTHER INFORMATION
Item:
1. Legal Proceedings
None
2. Changes in securities
None
3. Defaults upon senior securities None
4. Results of votes of security holders
At the annual meeting of shareholders, held April 22, 1997, the
shareholders approved a Stock Option Plan permitting the Corporation
to issue up to a total of 150,000 shares of common stock, upon the
exercise of options granted under the plan, prior to December 31,
2006.
The shareholders cast 2,718,663 votes for the approval of the
Stock Option Plan, 58,804 votes against the Plan and 4,000 votes
abstaining.
5. Other information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits - Financial Data Schedule EX-27
(b) Reports on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN NATIONAL BANKSHARES INC.
/s/ Charles H. Majors
---------------------------------
Charles H. Majors
Date - November 7, 1997 President and Chief Executive Officer
/s/ David Hyler
---------------------------------
David Hyler
Senior Vice-President and
Date - November 7, 1997 Secretary-Treasurer (Chief Financial Officer)
<PAGE>
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