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 JUNE 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 August 5,
1997 was 3,051,733.
<PAGE>
AMERICAN NATIONAL BANKSHARES INC.
INDEX
<TABLE>
<S> <C>
Part I Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the three months
ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Income for the six months
ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the six months
ended June 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
</TABLE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
June 30 December 31
ASSETS 1997 1996
-------------------------
<S> <C> <C>
Cash and due from banks $13,816 $14,623
Interest-bearing deposits in other banks 145 199
Federal funds sold - -
Investment securities:
Securities available for sale (at market value) 64,491 87,371
Securities held to maturity (market value of $75,114 at
June 30, 1997 and $88,621at December 31, 1996 74,976 88,386
-------------------------
Total investment securities 139,467 175,757
-------------------------
Loans 253,707 237,039
Less--
Unearned income (379) (460)
Reserve for loan losses (3,416) (3,070)
-------------------------
Net loans 249,912 233,509
-------------------------
Bank premises and equipment, at cost, less accumulated
depreciation of $6,427 in 1997 and $6,148 in 1996 6,476 6,385
Accrued interest receivable and other assets 9,442 9,685
-------------------------
Total assets. $419,258 $440,158
=========================
LIABILITIES and STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits -- non-interest bearing $39,462 $41,891
Demand deposits -- interest bearing 46,707 46,777
Money market deposits 18,649 21,810
Savings deposits 70,700 69,998
Time deposits 175,444 181,507
-------------------------
Total deposits 350,962 361,983
-------------------------
Federal funds purchased 2,975 8,425
Repurchase agreements 15,093 15,059
Accrued interest payable and other liabilities 2,515 2,473
-------------------------
Total liabilities 371,545 387,940
-------------------------
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 June 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 34,570 37,993
Net unrealized gain 199 314
-------------------------
Total stockholders' equity 47,713 52,218
-------------------------
Total liabilities and stockholders' equity $419,258 $440,158
=========================
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
Three Months Ended
June 30
-------------------------
1997 1996
-------------------------
Interest Income:
<S> <C> <C>
Interest and fees on loans $5,609 $4,917
Interest on federal funds sold and other 37 148
Income on investment securities:
U. S. Government 1,010 1,599
Federal agencies 843 194
State and municipal 282 220
Other investments 102 104
-------------------------
Total interest income 7,883 7,182
-------------------------
Interest Expense:
Interest on deposits:
Demand 342 341
Money market 140 127
Savings 534 492
Time 2,401 2,380
Interest on short-term borrowed funds 202 140
-------------------------
Total interest expense 3,619 3,480
-------------------------
Net Interest Income 4,264 3,702
Provision for Loan Losses 257 122
-------------------------
Net Interest Income After Provision
For Loan Losses 4,007 3,580
-------------------------
Non-Interest Income:
Trust department income 470 567
Service charges on deposit accounts 197 144
Non-deposit fees and insurance commissions 25 29
Other income 91 21
-------------------------
Total non-interest income 783 761
-------------------------
Non-Interest Expense:
Salaries 1,211 993
Pension and other employee benefits 258 217
Occupancy and equipment expense 320 268
FDIC insurance expense 20 40
Postage and printing 114 96
Core deposit intangible 112 73
Merger related expense - 17
Other expenses 507 382
-------------------------
Total non-interest expense 2,542 2,086
-------------------------
Income Before Income Tax Provision 2,248 2,255
Income Tax Provision 704 697
-------------------------
Net Income $1,544 $1,558
=========================
Net Income Per Common Share, based on weighted
average shares outstanding of 3,199,599 at June 30, 1997
and 3,279,798 at June 30, 1996 $0.48 $0.48
Cash dividends paid per share $0.21 $0.18
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Income
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
Six Months Ended
June 30
----------------------
1997 1996
----------------------
Interest Income:
<S> <C> <C>
Interest and fees on loans $10,961 $9,874
Interest on federal funds sold and other 61 216
Income on investment securities:
U. S. Government 2,266 2,964
Federal agencies 1,693 632
State and municipal 574 447
Other investments 204 234
----------------------
Total interest income 15,759 14,367
----------------------
Interest Expense:
Interest on deposits:
Demand 681 612
Money market 286 325
Savings 1,062 986
Time 4,863 4,766
Interest on short-term borrowed funds 404 267
----------------------
Total interest expense 7,296 6,956
----------------------
Net Interest Income 8,463 7,411
Provision for Loan Losses 500 253
----------------------
Net Interest Income After Provision
For Loan Losses 7,963 7,158
----------------------
Non-Interest Income:
Trust department income 897 1,012
Service charges on deposit accounts 382 254
Non-deposit fees and insurance commissions 52 55
Other income 190 50
----------------------
Total non-interest income 1,521 1,371
----------------------
Non-Interest Expense:
Salaries 2,389 1,978
Pension and other employee benefits 529 421
Occupancy and equipment expense 667 571
FDIC insurance expense 39 79
Postage and printing 226 211
Core deposit intangible 225 146
Merger related expense - 1,185
Other expenses 982 808
----------------------
Total non-interest expense 5,057 5,399
----------------------
Income Before Income Tax Provision 4,427 3,130
Income Tax Provision 1,346 1,708
----------------------
Net Income $3,081 $1,422
======================
Net Income Per Common Share, based on weighted
average shares outstanding of 3,239,477 at June 30, 1997
and 3,254,139 at June 30, 1996 $0.95 $0.44
Cash dividends paid per share $0.39 $0.33
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
Six Months Ended
------------------------
June 30
1997 1996
------------------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $3,081 $1,422
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 500 253
Depreciation 326 236
Amortization of intangibles 225 146
Accretion of (discounts) and amortization of premiums
on investment securities (27) 38
(Gain) loss on sale of securities (31) 338
(Benefit) provision for deferred income taxes (157) 445
Reconciliation of fiscal year of merged company to calendar year - (379)
Decrease (increase) in interest receivable 183 (685)
Decrease (increase) in other assets 50 (126)
(Decrease) increase in interest payable (141) 497
Increase (decrease) in other liabilities 183 (237)
------------------------
Net cash provided by operating activities 4,192 1,948
------------------------
Cash Flows from Investing Activities:
Proceeds from maturities, calls, and sales of securities 36,174 41,310
Purchases of securities available for sale - (23,314)
Purchases of securities held to maturity - (17,228)
Net increase in loans (16,903) (6,143)
Purchases of property and equipment (416) (221)
------------------------
Net cash provided by investing activities 18,855 (5,596)
------------------------
Cash Flows from Financing Activities:
Net decrease in demand, money market, and savings deposits (4,958) (1,004)
Net (decrease) increase in certificates of deposit (6,063) 3,579
Net (decrease) increase in federal funds purchased
and repurchase agreements (5,416) 6,740
Cash dividends paid (1,231) (1,082)
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 (23,908) 8,690
------------------------
Net Increase in Cash and Cash Equivalents (861) 5,042
Cash and Cash Equivalents at Beginning of Period 14,822 12,789
------------------------
Cash and Cash Equivalents at End of Period $13,961 $17,831
========================
Supplemental Schedule of Cash and Cash Equivalents:
Cash:
Cash and due from banks $13,816 $9,570
Interest-bearing deposits in other banks 145 3,261
Federal funds sold - 5,000
------------------------
$13,961 $17,831
========================
Supplemental Disclosure of Cash Flow Information:
Interest paid $7,437 $6,458
Income taxes paid $1,358 $1,275
</TABLE>
<PAGE>
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 June 30, 1997, the results of its operations for the three and
six months ended June 30, 1997 and June 30, 1996 and its cash flows for the six
months ended June 30, 1997 and June 30, 1996. Operating results for the three
and six month period ended June 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 June
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 for investment
are those securities that management intends to hold to maturity, subject to
continued credit-worthiness of the issuer, and that the Bank has the ability to
hold on a long-term basis. Accordingly, these securities are stated at cost,
adjusted for amortization of premium and accretion of discount on the level
yield method. Securities designated as available for sale have been adjusted to
their respective market values and a corresponding adjustment made to
shareholders' investment at June 30, 1997 and December 31, 1996.
<PAGE>
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 June 30, 1997 and December 31,
1996, there were no borrowings outstanding under this availability.
Commitments to extend credit, which amount to $53,691,000 at June 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
June 30, 1997 and December 31, 1996 the Bank had $1,118,000 and $705,000 in
outstanding standby letters of credit.
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 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.
<PAGE>
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EARNINGS and CAPITAL
On March 14, 1996, the Corporation completed the merger of Mutual Savings Bank,
F.S.B. (Mutual) into American National Bankshares Inc. (ANB). For comparative
reporting purposes the financial results for the first six months ended June 30,
1996 include income and expenses of both Mutual and ANB during this period.
The Corporation's net income for the six months ended June 30, 1997 was
$3,081,000 an increase of $1,659,000 or 117% over the net income of $1,422,000
recorded in the same period of 1996. Net income recorded during the six months
ended June 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 six months ended June 30, 1996 was
$2,986,000. The $3,081,00 net income for the six months ended June 30, 1997 was
an increase of $95,000 or 3% over the $2,986,000 for 1996.
The components of the one-time cost, associated with the merger, in the first
six months of 1996, include a federal income tax recapture on untaxed loan loss
reserves of Mutual and consulting, legal, accounting, conversion, regulatory and
other related fees and expense. Also included in the merger related expense is a
loss on the sale of securities. These were securities held by Mutual and were
not compatible with ANB's investment program.
Net income for the three months ended June 30, 1997 was $1,544,000, a decrease
of $14,000 or 1% from the $1,558,000 recorded during the same period of 1996.
During 1996 most of the merger related expense mentioned above was recorded in
the first quarter. During the second quarter ended June 30, 1996, merger related
expense was only $17,000. The decrease of $14,000 during the second quarter of
1997 as compared to the same period of 1996 resulted primarily from start-up
costs for the Corporation's subsidiary, Mutual Mortgage of the Piedmont Inc. and
from a comparison with unusual high trust income recorded during the same
quarter of 1996 due to fee income in a large estate. The after-tax effect of the
two items was approximately $77,000.
Net income per common share based on weighted average shares outstanding of
3,239,477 was $.95 for the first six months of 1997 compared to $.44, based on
weighted average shares outstanding of 3,254,139 during the same period of 1996.
Net income per common share based on weighted average shares outstanding of
3,199,599 was $.48 for the three months ended June 30, 1997. Net income per
common share based on weighted average shares outstanding of 3,279,798 was $.48
for the three months ended June 30, 1996.
On an annualized basis, return on average total assets was 1.46% for the second
quarter of 1997 and 1.62% on income before merger related expense for the same
period of 1996. Return on average total assets was 1.45% for the first six
months of 1997 compared to 1.52% on income before merger related expense for the
same period of 1996. Return on average common shareholders' equity was 12.30%
for the second quarter of 1997 and 13.04% on income before merger related
expense for the second quarter of 1996. Return on average common shareholders'
equity was 12.00% for the first six months of 1997 and 12.15% on income before
merger related expense for the first six months of 1996.
<PAGE>
TRENDS AND FUTURE EVENTS
At June 30, 1997, assets were $419,258,000, a decrease of $20,900,000 or 5% from
the $440,158,000 recorded at December 31, 1996. Net loans were $249,912,000 at
June 30, 1997, an increase of $16,403,000 or 7% above the $233,509,000 recorded
at December 31, 1996. The increase in loans resulted from a strong loan demand
and is further evidence of a continuing strong local economy. At June 30, 1997,
deposits were $350,962,000, a decrease of 3% 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. Most of the Corporation's deposit
growth takes place in the second half of the year. The decline in assets, during
the first six months of 1997, is attributable both to a decline in 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 was offering 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 currently
outstanding shares, 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 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 to be administered by the
Stock Option Committee of the Board of Directors. The Committee currently
consists only of the Company's independent non-employee Directors. No stock
options have been issued under this plan.
During the second quarter of 1997, the Corporation declared a quarterly cash
dividend of $.21 per share. This dividend was a 17% increase over the dividend
declared in the first quarter of $.18 per share. The second quarter dividend was
paid on June 27, 1997 to shareholders of record on June 13, 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 first six months of 1997, net interest income increased $1,052,000 or
14% over the same period of 1996. During the second quarter of 1997, net
interest income increased $562,000 or 15% over the same quarter of 1996.
During the first six months of 1997, short term interest market rates increased
slightly due to the action of the Federal Reserve Board by increasing short term
rates by 1/4% in March. During the next twelve months the Corporation's
<PAGE>
repricing opportunities in liabilities will exceed repricing opportunities of
assets by approximately $73,519,000, (approximately 18% of total assets), which
makes the Corporation liability sensitive. Included in the liabilities are
savings accounts of $71,263,000 which are not as sensitive to change as money
market and interest bearing checking accounts. Considering the reality of the
sensitivity of the savings accounts makes the repricing opportunities more
balanced. Any further increases in market interest rates within the next twelve
months may tend to decrease the Corporation's net yield on interest earning
assets but Management does not expect this to have a substantial effect upon the
earnings of the Corporation during the projected period.
ASSET QUALITY
Nonperforming assets include loans on which interest is no longer accrued, loans
classified as troubled debt restructurings and foreclosed properties. There were
no foreclosed properties held at the close of the reporting period.
Loans in a nonaccrual status at June 30, 1997 were $1,029,000 compared with
$33,000 at December 31, 1996. Loans on accrual status and past due 90 or more at
June 30, 1997 were $566,000 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 June 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 six months of 1997 the gross amount of interest income that
would have been recorded on nonaccrual loans and restructured loans at June 30,
1997, if all such loans had been accruing interest at the original contractual
rate, was $40,000. 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 $500,000 for the six months of 1996 and
$257,000 for the second quarter of 1997. The reserve for loan losses totaled
$3,416,000 at June 30, 1997 an increase of 11% over the $3,070,000 recorded at
December 31, 1996. The ratio of reserves to loans, less unearned discount, was
1.35% at June 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 second quarter of 1997 was $783,000, an increase of
3% from the $761,000 reported in the second quarter of 1996. The components of
the increase in the second quarter of 1997 included a 17% decrease in trust
revenue due to the comparison of an unusually high trust fee from a large estate
in the second quarter of 1996. Also included was a 37% increase in service
charges on deposit accounts due to procedural changes in applying fees for
overdrafts and returned checks, a 14% decrease in non-deposit fees and insurance
commissions due primarily to a low demand for the type of loans providing
insurance commissions and an increase of $70,000 in other income primarily from
fees generated by the Bank's subsidiary, Mutual Mortgage of the Piedmont Inc.
Mutual Mortgage of the Piedmont Inc. originates and sells loans in the secondary
market.
<PAGE>
Non-interest income for the six months ended June 30, 1997 was $1,521,000, an
11% increase from the $1,371,000 reported for the same period of 1996. The
components of the increase included an 11% decrease in trust department income
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 50%
increase in service charges on deposit accounts due primarily to procedural
changes in applying fees for overdrafts and returned checks, a 5% decrease in
non-deposit fees and insurance commission due to reduced insurance commissions
and an increase of $140,000 in other income which consisted primarily of fees
earned by the Bank's subsidiary, Mutual Mortgage of the Piedmont Inc.
NON-INTEREST EXPENSE
Non-interest expense for the second quarter ended June 30, 1997 was $2,542,000,
a 22% increase over the $2,086,000 reported for the same quarter last year.
Components of the increase included a 22% increase in salaries primarily from
the addition of personnel at the Yanceyville branch office and Mutual Mortgage
of the Piedmont Inc., a 19% increase in pension and other employee benefits,
which included the addition of personnel at the Yanceyville location and the
Mortgage Company, a 19% increase in occupancy and equipment expense which was
also primarily attributable to the Yanceyville acquisition and a 50% reduction
in FDIC insurance expense which resulted from a reduction in the premiums paid
in the second quarter of 1997 on deposits of Mutual Savings Bank compared to the
same quarter of 1996. Also included was a 19% increase in postage and printing,
resulting partially from the acquisition of the Yanceyville branch office and
the Mortgage Company, a 53% increase in core deposit intangibles as a result of
the acquisition of the Yanceyville branch office and a 33% increase in other
expenses which included additional expenses related to the Yanceyville office
and the Mortgage Company. The second quarter of 1996 included merger related
expenses of $17,000. There were no merger related expenses in the second quarter
of 1997.
Non-interest expense for the first six months ended June 30, 1997 was
$5,057,000, a 6% decrease from the $5,399,000 recorded during the first six
months of 1996. The components of the decrease included a 21% increase in
salaries due primarily to the addition of personnel at the Yanceyville office
and the Mortgage Company, a 26% increase in pension and other employee benefits
due primarily to the addition of personnel at the Yanceyville office and the
Mortgage Company, a 17% increase in occupancy and equipment expense due
primarily to the Yanceyville office addition and a 51% decrease in FDIC
insurance expense due to the lower rates charged by the FDIC on deposits of
Mutual Savings Bank after the merger occurred in the first quarter of 1996. Also
included was a 7% increase in postage and printing, a 54% increase in core
deposit intangible expense resulting from the Yanceyville acquisition and a 22%
increase in other expenses primarily related to the addition of the Yanceyville
office and the Mortgage Company. During the first six months of 1996
non-interest expense included $1,185,000 in merger related expense. There was no
merger related expense in the first six months of 1997.
INCOME TAX PROVISION
The income tax provision for the first six months of 1997 was $1,346,000, an
increase of $362,000 from the $1,708,000 reported a year earlier. The $1,708,000
recorded in 1996 included a one-time Federal tax assessment associated with
Mutual's prior untaxed loan loss reserves. During the third quarter of 1996,
this assessment was eliminated by Congressional action. The effective tax rate
for the first six months of 1997 was 30%.
<PAGE>
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 June 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.
A cash dividend of $.21 per share was paid on 3,051,733 shares of common stock
outstanding on June 27, 1997 to shareholders of record June 13, 1997. This
dividend totaled $640,864,000.
LIQUIDITY
The Corporation's net liquid assets to net liabilities ratio was 25% at June 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 - August 11, 1997 President and Chief Executive Officer
/s/ David Hyler
---------------------------------
David Hyler
Senior Vice-President and
Date - August 11, 1997 Secretary-Treasurer (Chief Financial Officer)
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