<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996 Commission file number 0-18925
ANB CORPORATION
------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1612066
- ------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
110 East Main Street, Muncie, Indiana 47305
-------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 747-7575
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No-Par Value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
----
Indicate by check mark whether the registrant (1) has filed all reports required
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
The aggregate market value of voting stock held by non-affiliates of the
registrant (for purposes of such calculation, includes persons who are not
directors, executive officers or holders of more than 10% of the registrant's
common stock) based upon the average of the bid and asked prices as of
March 17, 1997 was approximately $86,815,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 17, 1997:
Common Stock, No-Par Value - 4,496,803 shares
Documents incorporated by reference:
Portions of the Annual Report to Shareholders of ANB Corporation for the year
ended December 31, 1996 are incorporated by reference into Part II.
Portions of the definitive proxy statement dated March 14, 1997 relating to the
annual meeting of shareholders of ANB Corporation to be held on April 16, 1997
are incorporated by reference into Part III.
Exhibit index - page 16
(1)
<PAGE>
FORM 10-K TABLE OF CONTENTS
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<TABLE>
Page
<S> <C> <C>
Part I
Item 1 - Business..................................................... 3
Item 2 - Properties.................................................. 14
Item 3 - Legal Proceedings........................................... 14
Item 4 - Submission of Matters to a Vote of Security Holders......... 14
Part II
Item 5 - Market For the Registrant's Common Equity and
Related Stockholder Matters............................... 15
Item 6 - Selected Financial Data..................................... 15
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 15
Item 8 - Financial Statements and Supplementary Data................. 15
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................... 15
Part III
Item 10 - Directors and Executive Officers of the Registrant.......... 15
Item 11 - Executive Compensation...................................... 15
Item 12 - Security Ownership of Certain Beneficial
Owners and Management..................................... 16
Item 13 - Certain Relationships and Related Transactions.............. 16
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................... 16
Signatures .......................................................... 19
</TABLE>
(2)
<PAGE>
PART I
ITEM 1. BUSINESS
- --------------------------------------------------------------------------------
GENERAL
ANB Corporation (the "Registrant") is a multibank holding company located in
Muncie, Indiana, engaged in the business of commercial banking, trust and asset
management. The business of the Registrant is conducted through its financial
institution and trust subsidiaries, American National Bank and Trust Company of
Muncie ("American National"), American National Trust and Investment Management
Company ("ANTIM") and Peoples Loan & Trust Bank ("Peoples"), which provide a
broad range of financial services.
American National is a national banking association with its principal offices
in Muncie, Delaware County, Indiana. American National was originally
incorporated under the laws of the State of Indiana in 1918. In 1960, American
National received its charter as a national banking association. Muncie Federal
Savings Bank ("Muncie Federal"), a federally chartered mutual savings and loan
association, was acquired by the Registrant in 1991 and converted to a savings
bank. Muncie Federal and American National merged in 1993. The acquisition of
Muncie Federal benefited the Registrant through an increase in market share and
an expansion of its operations. The additional Muncie Federal offices allowed
American National to increase the number of full service banking locations
within Delaware County and to expand into Jay County, Indiana, northeast of the
Registrant's home county. At December 31, 1996, American National had assets of
$339.6 million, deposits of $278.8 million and stockholder's equity of
$27.8 million.
The Registrant acquired Winchester Bancorporation ("Winchester") in Winchester,
Indiana and its subsidiary bank, Peoples in early 1994. The Registrant acquired
100% of the outstanding common stock of Winchester for approximately $11.0
million. Peoples' customers are located primarily in Randolph, Wayne and
surrounding counties. In December, 1995, The Saratoga State Bank ("Saratoga"),
previously a subsidiary of the Registrant, was merged into Peoples. Saratoga
was located in Saratoga, Randolph County, Indiana, immediately east of the
Registrant's home county. At December 31, 1996, Peoples had assets of $147.8
million, deposits of $127.7 million and stockholder's equity of $16.0 million.
ANTIM, previously the trust department of American National, traces its history
to 1900 and is the successor of The Muncie Trust Company. To capitalize on its
profitable $1.2 billion trust operation, American National formed its previously
wholly owned subsidiary, ANTIM, which has succeeded to American National's trust
business. Ownership of ANTIM was transferred from American National to the
Registrant in December, 1996. ANTIM provides trust and asset management
services with offices in Anderson, Fort Wayne, Winchester and Muncie. Trust
operations provide a significant source of fee income to the Registrant and in
1996 constituted 10.0% of the Registrant's total operating income.
ANB Financial Planning Services ("ANBFPS") is a wholly owned subsidiary of
American National. ANBFPS offers a full range of financial planning services.
The Registrant provides its commercial banking, trust and asset management
products and services through its 23 affiliated offices in six Indiana
counties, and this expanded financial base has enabled it to compete with
larger bank holding companies in east central Indiana.
(3)
<PAGE>
BUSINESS ACTIVITIES
American National and Peoples offer a wide range of depository, lending,
fiduciary and related financial services to individual and business
customers. The financial institutions offer checking and savings plans;
investment accounts consisting of certificates of deposit, money market
deposit accounts, IRA accounts and interest paying deposit accounts; provide
lending services consisting of simple interest consumer loans, car and home
improvement loans, student loans, commercial loans and mortgage loans; and
offer credit cards (Master Card and Visa), safety deposit services, travelers
checks, U. S. Savings Bonds, night depositories, bank by mail and automatic
transfer services. Automated teller machines provide 24 hour service in
Muncie, Winchester, Richmond, Portland, Farmland and Yorktown. Trust
services are provided to both individual and corporate customers, including
personal trust and agency accounts, employee benefit plans and corporate bond
trustee accounts.
The lending philosophy of the Registrant is to develop sound loans with the
resources of its subsidiary financial institutions. The subsidiaries
emphasize loans to existing customers, potential customers in proximity to
the branch offices and potential customers within their respective market
areas. The Registrant lends almost exclusively within its market area and
does not make loans to foreign countries.
The Registrant is dedicated to minimizing risk in the loan portfolio through
careful pre-loan investigation, through clearly understood loan terms,
through acquisition of adequate collateral and through close monitoring of
loan and financial information on customer accounts. Efforts are made to
avoid industry concentrations by type of business through diversification of
borrowers.
EMPLOYEES
As of December 31, 1996, the Registrant and its subsidiaries had
approximately 257 full-time equivalent employees to whom it provides a
variety of benefits and with whom it enjoys excellent relations.
STATISTICAL INFORMATION
The following tables present statistical information with respect to the
Registrant, which is not included in Registrant's 1996 Annual Report to
Shareholders.
(4)
<PAGE>
LOAN PORTFOLIO
TYPES OF LOANS
The loan portfolio at the dates indicated is presented below:
<TABLE>
<CAPTION>
December 31 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $81,142 $ 75,083 $ 68,361 48,293 47,585
Bankers' acceptances and commercial paper 500
Term federal funds sold 5,500 8,784 9,969 6,260 1,863
Real estate mortgage 243,115 226,069 211,442 159,068 175,530
Individuals' loans for household expenditures 42,507 35,736 35,495 23,790 26,820
Tax-exempt and other loans 3,817 3,241 3,536 1,938 1,358
-----------------------------------------------------------
Total loans $376,081 $348,913 $328,803 $239,349 $253,656
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
Presented in the table below are the maturities of the commercial loan portfolio
and the sensitivity of the portfolio at December 31, 1996 as to predetermined or
adjustable interest rates.
<TABLE>
<CAPTION>
Within 1-5 Over
1 Year Years 5 Years Total
- ------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Fixed rate loans $14,384 $ 9,720 $ 914 $25,018
Variable rate loans 35,668 15,515 4,941 56,124
------------------------------------------------------
Totals $50,052 $25,235 $5,855 $81,142
------------------------------------------------------
------------------------------------------------------
Per cent 61.7% 31.1% 7.2% 100.0%
</TABLE>
Principal balances of term loans included in the 1-5 Years and Over 5 Years
categories are shown based on maturity date.
RISK ELEMENTS
Nonaccrual, past due and restructured loans
<TABLE>
<CAPTION>
December 31 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans* $1,326 $1,184 $2,472 $822 $640
Accruing loans contractually past due 90 days
or more as to interest or principal payments 472 241 390 516 556
Restructured loans* 63 880 156 629 954
</TABLE>
*Impaired loans for 1996 included in nonaccruing and restructured loans totaled
$657 and $63, respectively.
(5)
<PAGE>
Nonaccruing loans are loans which are reclassified to a nonaccruing status when
in management's judgment the collateral value and financial condition of the
borrower do not justify accruing interest. Interest previously recorded but not
deemed collectible is reversed and charged against current income. Interest
income on these loans is then recognized when collected.
Restructured loans are loans for which the contractual interest rate has been
reduced or other concessions are granted to the borrower because of a
deterioration in the financial condition of the borrower resulting in the
inability of the borrower to meet the original contractual terms of the loans.
Interest income of $78,000 for the year ended December 31, 1996 was
recognized on the nonaccruing and restructured loans listed in the table above,
whereas interest income of $143,000 would have been recognized under their
original loan terms.
Potential problem loans:
Management has identified additional impaired loans of $517,000 as of
December 31, 1996, not included in the risk element table, about which there are
doubts as to the borrowers' ability to comply with present repayment terms.
Loans are considered to be impaired when it becomes probable that the bank
subsidiaries will be unable to collect all amounts due according to the
contractual terms of the loan agreement.
Risk elements are considered by management in determining the appropriate level
of the allowance for loan losses.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31
Presented below is an analysis of the composition of the allowance for loan
losses (in thousands) and per cent of loans in each category to total loans:
1996 1995 1994
- --------------------------------------------------------------------------------
Amount Per Cent Amount Per Cent Amount Per Cent
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Balance at December 31:
Commercial $1,337 21.6% $ 827 21.5% $ 867 20.8%
Term federal funds sold 1.5 2.5 3.0
Real estate mortgage 889 64.6 878 64.8 1,172 64.3
Loans to individuals 581 11.3 554 10.3 481 10.8
Tax exempt and other 23 1.0 12 .9 20 1.1
Unallocated 570 626 158
----------------------------------------------------
Totals $3,400 100.0% $2,897 100.0% $2,698 100.0%
----------------------------------------------------
----------------------------------------------------
(6)
<PAGE>
1993 1992
- --------------------------------------------------------------------------------
Amount Per Cent Amount Per Cent
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Balance at December 31:
Commercial $ 664 20.2% $1,036 18.8%
Bankers' acceptances and commercial 2.6
paper purchased .2
Term federal funds sold 343 66.5 .7
Real estate mortgage 353 9.9 555 69.2
Loans to individuals .8 285 10.6
Tax exempt and other 81 .5
Unallocated 260
----------------------------------------------------
Totals $1,441 100.0% $2,136 100.0%
----------------------------------------------------
----------------------------------------------------
LOAN LOSS CHARGE-OFF PROCEDURES
The subsidiary financial institutions have weekly loan committee meetings at
which loans in excess of certain amounts are approved or disapproved and loan
delinquencies, maturities and problems are reviewed.
The boards of directors of the subsidiaries receive and review reports on loans
monthly, including information on new and renewed, delinquent and problem loans.
All chargeoffs are reported to and approved by the subsidiaries' boards monthly.
Loans are charged off when a determination is made that all or a portion of a
loan is uncollectible or as a result of examinations by regulators and the
independent auditors.
PROVISION FOR LOAN LOSSES
In banking, loan losses are one of the costs of doing business. Although the
financial institutions' management emphasize the early detection and chargeoff
of loan losses, it is inevitable that at any time certain losses exist in the
portfolio which have not been specifically identified. Accordingly, the
provision for loan losses is charged to earnings on an anticipatory basis, and
recognized loan losses are deducted from the allowance so established. Over
time, all net loan losses must be charged to earnings. During the year, an
estimate of the loss experience for the year serves as a starting point in
determining the appropriate level for the provision. However, the amount
actually provided in any period may be greater or less than net loan losses,
based on management's judgment as to the appropriate level of the allowance for
loan losses. The determination of the provision in any period is based on
management's continuing review and evaluation of the loan portfolio, and its
judgment as to the impact of current economic conditions on the portfolio. The
evaluation by management includes consideration of past loan loss experience,
changes in the composition of the loan portfolio, the current condition and
amount of loans outstanding, and the probability of collecting all amounts due.
(7)
<PAGE>
SECURITIES PORTFOLIO
The carrying values of the components of the securities portfolio at the dates
indicated were:
December 31 1996 1995 1994
- --------------------------------------------------------------------------------
(In Thousands)
Available for sale(1)
U. S. Treasury $17,838 $18,173 $12,836
Federal agencies 7,972 4,153 2,685
State and municipal 44,166 43,105 9,697
Corporate obligations 200 447 408
Mortgage-backed 3,078 3,695
Other securities 690 941 667
---------------------------------
Total available for sale 73,944 70,514 26,293
---------------------------------
Held to maturity
U. S. Treasury 5,579
Federal agencies
State and municipal 27,877
Mortgage-backed 4,347
---------------------------------
Total held to maturity 37,803
---------------------------------
Total securities $73,944 $70,514 $64,096
---------------------------------
---------------------------------
(1) Available for sale securities are carried at market value.
The maturity distribution and average yields for the securities portfolio at
December 31, 1996 were:
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5-10 Years Over 10 Years
------------------------------------------------------------------------------
Amount Yield* Amount Yield* Amount Yield* Amount Yield*
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Available for sale(2)
U. S. Treasury $ 6,728 6.7% $11,035 6.3%
Federal agencies 1,500 5.7 6,199 6.1 $ 348 6.6%
State and municipal 564 7.4 4,271 9.3 16,603 9.4 $20,700 9.5%
Corporate obligations 100 5.7 100 5.5
Mortgage-backed 440 6.1 2,683 6.0
Other securities 676 6.1 14
------------------------------------------------------------------------------
Totals $ 9,568 6.5% $21,605 6.8% $17,391 9.2% $23,397 9.1%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
(2) Available for sale amounts shown in the maturity distribution table are at
amortized cost for computation of yields.
* Interest yields on state and municipal securities are presented on a fully
taxable equivalent basis using a 34% rate after adjustment for effect of
non-deductible interest expense attributed to such investments.
(8)
<PAGE>
DEPOSITS
The following table shows the average amount of deposits and the average rate of
interest paid thereon for the years indicated.
1996 1995 1994
- --------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- --------------------------------------------------------------------------------
(Dollars In Thousands)
Noninterest-bearing demand $42,816 $ 39,780 $ 37,298
NOW accounts 71,954 2.5% 67,742 2.4% 66,576 2.4%
Money market investment accounts 40,383 3.1 44,235 3.0 53,210 2.8
Savings 28,174 2.5 29,277 2.6 31,710 2.6
Certificates of deposit 217,350 5.4 207,075 5.5 169,180 4.4
---------- ---------- ---------
Totals $400,677 $388,109 $357,974
---------- ---------- ---------
---------- ---------- ---------
As of December 31, 1996, certificates of deposit and other time deposits of
$100,000 or more mature as follows:
3-6 6-12 Over
3 Months Months Months 12 Months Total
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Certificates of deposit $33,513 $11,968 $7,051 $5,142 $ 57,674
Per cent 58.1% 20.8% 12.2% 8.9% 100.0%
SHORT-TERM BORROWINGS
December 31 1996 1995 1994
- --------------------------------------------------------------------------------
(In Thousands)
Short-term borrowings
Federal funds purchased $6,600
Securities sold under repurchase agreements 7,203 $ 4,594 $ 7,397
U. S. Treasury demand notes 3,873 3,155 5,260
----------------------------------
Totals $17,676 $ 7,749 $12,657
----------------------------------
----------------------------------
Securities sold under repurchase agreements are borrowings maturing within one
year and are secured by U. S. Treasury and Federal agencies securities.
(9)
<PAGE>
Pertinent information with respect to short-term borrowings is summarized below:
<TABLE>
<CAPTION>
December 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate on outstanding balance
Securities sold under repurchase agreements 5.1% 5.3% 5.6%
Total short-term borrowings 5.9 5.2 5.9
Weighted average interest rate paid on short-term borrowings during the year 5.2 5.6 4.0
Highest amount outstanding at any month end during the year (in thousands)
Securities sold under repurchase agreements $7,203 $ 8,502 $ 8,450
Total short-term borrowings 17,676 12,933 13,283
Average short-term borrowings outstanding during the year (in thousands) 9,277 8,516 8,017
</TABLE>
REGULATION AND SUPERVISION OF THE REGISTRANT
The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended ("BHCA"), and is registered as such with the
Board of Governors of the Federal Reserve System ("Federal Reserve"). The
Registrant is examined, regulated and supervised by the Federal Reserve and is
required to file annual reports and other information regarding its business and
operations and the business and operations of its subsidiaries with the Federal
Reserve. The Federal Reserve has the authority to issue cease-and-desist orders
against a bank holding company and nonbank subsidiaries if it determines that
activities of such entities represent an unsafe and unsound practice or a
violation of law.
Under the BHCA, a bank holding company is, with limited exceptions, prohibited
from acquiring direct or indirect ownership or control of voting stock of any
company which is not a bank and from engaging in any activity other than
managing or controlling banks. A bank holding company may, however, own shares
of a company engaged in activities which the Federal Reserve has determined to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
Acquisitions by the Registrant of banks and savings associations are subject to
federal and state regulation. Any acquisition by the Registrant of more than
five percent of the voting stock of any bank requires prior approval of the
Federal Reserve. Acquisition of savings associations is also subject to the
approval of the Office of Thrift Supervision ("OTS").
(10)
<PAGE>
Federal law imposes, with certain limited exceptions, a "cross-guarantee" on the
part of commonly controlled depository institutions. Under this provision, if
one depository institution subsidiary of a multi-unit holding company, such as
the Registrant, fails or requires Federal Deposit Insurance Corporation ("FDIC")
assistance, the FDIC may assess a commonly controlled depository institution for
the loss or estimated loss suffered by the FDIC. While the FDIC's claim is
junior to the claims of nonaffiliated depositors, holders of secured
liabilities, general creditors, and subordinated creditors, it is superior to
the claims of stockholders and any affiliate of the depository institution. In
addition, under Federal Reserve policy the Registrant is expected to act as a
source of financial strength to, and commit resources to support, each of its
affiliate banks. As a result, the Registrant may be required to commit
resources to its affiliate banks in circumstances where it might not otherwise
do so.
REGULATION AND SUPERVISION OF THE SUBSIDIARY BANKS
American National and ANTIM are supervised, regulated and examined by the
Comptroller of the Currency. Peoples is supervised, regulated and examined by
the Indiana Department of Financial Institutions and, as state non-member bank,
by the FDIC. A cease and desist order may be issued by the Comptroller of the
Currency against American National and by the Indiana Department of Financial
Institutions and FDIC against Peoples, if the respective agency finds that the
activities of such institution represents an unsafe and unsound banking practice
or violation of law. In addition, under certain circumstances, the FDIC may
also issue a cease-and-desist order against any subsidiary financial institution
of the Registrant.
With certain exceptions, a bank, a savings and loan association, and a
subsidiary or affiliate thereof, may not extend credit, lease or sell property
or furnish any services or fix or vary the consideration for the foregoing on
the condition that (i) the customer must obtain or provide some additional
credit, property or services from, or to, any of them, or (ii) the customer may
not obtain some other credit, property or service from a competitor, except to
the extent reasonable conditions are imposed to assure the soundness of credit
extended.
The deposits of American National and Peoples are insured by the Bank Insurance
Fund ("BIF") of the FDIC. The deposits of Muncie Federal, previously a separate
entity (merged into American National in 1993), continue to be insured by the
Savings Association Insurance Fund ("SAIF") of the FDIC. The FDIC has the
ability to raise premiums twice per year. Effective January, 1996, the FDIC
reduced insurance rates paid by banks to a range from 0 to 27 basis points for
the semiannual assessment period from January 1, 1996 to June 30, 1996.
Insurance premiums paid by banks to SAIF are also at a range from 0 to 27 basis
points. The FDIC is authorized to make limited adjustments to the BIF rate
schedule without notice or rulemaking as deemed necessary by the FDIC to
maintain the BIF designated reserve ratio. Increases in the rate schedule could
adversely impact, and decreases would positively impact, the Registrant and its
subsidiary banks.
Branching by banks in Indiana is subject to the jurisdiction, and requires the
prior approval, of the bank's primary federal regulatory authority and, if the
branching bank is a state bank, of the Indiana Department of Financial
Institutions. Under Indiana law, American National and Peoples may branch
anywhere in the state.
The Registrant is a legal entity separate and distinct from its subsidiary
banks. There are various legal limitations on the extent to which the
subsidiary banks can supply funds to the Registrant. The principal source of
the Registrant's funds consists of dividends from its subsidiaries. State and
Federal laws restrict the amount of dividends which may be paid by banks and
savings associations. In addition, the subsidiary banks are subject to certain
restrictions on extensions of credit to the Registrant or any of its
subsidiaries, on investments in the stock or other securities of the Registrant
or in any of its subsidiaries and in taking such stock or securities as
collateral for loans.
(11)
<PAGE>
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
directs that each federal banking agency prescribe standards for depository
institutions relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, management compensation, a maximum ratio of classified assets to
capital, minimum earnings sufficient to absorb losses, a minimum ratio of market
value to book value of publicly traded shares and such other standards as the
agency deems appropriate. The federal banking agencies have issued guidelines
establishing standards for safety and soundness for operational and managerial
standards and compensation standards, and has proposed guidelines for asset
quality and earnings.
The federal banking regulators have adopted regulations to implement the
prompt corrective action provisions of FDICIA, effective as of December 19,
1992. Among other things, the regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be
"well capitalized" if it has a total risk-based capital ratio of 10% or
greater, a Tier 1 risk-based capital ratio of 8% or greater, and a leverage
ratio of 5% or greater, and is not subject to a regulatory order, agreement
or directive to meet and maintain a specific capital level for any capital
measure. An institution is deemed to be "adequately capitalized" if it has a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater, and generally a leverage ratio of 4% or greater. An
institution is deemed to be "undercapitalized" if it has a total risk-based
capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than
4%, or generally a leverage ratio of less than 4%, and "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%,
a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of
less than 3%. An institution is deemed to be "critically undercapitalized"
if it has a ratio of tangible equity (as defined in the regulations) to total
assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized
institution as described above. If an "undercapitalized" bank fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks are subject to one or more of a number
of requirements and restrictions, including an order by the appropriate federal
banking regulator to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks, and restrictions on compensation of executive
officers. "Critically undercapitalized" institutions may not, beginning 60 days
after becoming "critically undercapitalized", make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject
to appointment of a receiver or conservator.
(12)
<PAGE>
CAPITAL REQUIREMENTS
The Registrant and its subsidiary banks must meet certain minimum capital
requirements mandated by the Federal Reserve, the Comptroller of the Currency,
the FDIC and state banking regulators in Indiana. These regulatory agencies
require bank holding companies and banks to maintain certain minimum ratios of
primary capital to total assets and total capital to total assets. As of
January 1, 1991, the Federal Reserve required bank holding companies to maintain
a minimum Tier 1 leverage ratio of 3 percent capital to total assets; however,
for all but the most highly rated institutions which do not anticipate
significant growth, the minimum Tier 1 leverage ratio is 3 percent plus an
additional cushion of 100 to 200 basis points. As of December 31, 1996, the
Registrant's leverage ratio of capital to total assets was 9.5 percent.
The Federal Reserve, the Comptroller of the Currency and the FDIC each have
approved the imposition of "risk-adjusted" capital ratios on bank holding
companies and financial institutions.
The Registrant and each of its subsidiaries had capital to assets ratios and
risk-adjusted capital ratios at December 31, 1996 in excess of the applicable
regulatory minimum requirements. The following table summarizes the
Registrant's risk-adjusted capital ratios under Federal Reserve guidelines at
December 31, 1996:
Registrant Regulatory
Consolidated Minimum
Ratio Requirement
----- -----------
Tier 1 Capital to Risk-Weighted Assets Ratio 13.4% 4%
Total Capital to Risk-Weighted Assets Ratio 14.4% 8%
INTERSTATE BANKING
The Riegle Community Development and Regulatory Improvement Act of 1994 ("Act")
allows for interstate banking and interstate branching without regard to whether
such activity is permissible under state law. Bank holding companies may
acquire banks anywhere in the United States subject to certain state
restrictions. Beginning on June 1, 1997, an insured bank may merge with an
insured bank in another state without regard to whether such merger is
prohibited by state law. Additionally, an out-of-state bank may acquire the
branches of an insured bank in another state without acquiring the entire bank;
provided, however, that the law of the state where the branch is located permits
such an acquisition. States may permit interstate branching earlier than
June 1, 1997, where both states involved with the bank merger expressly permit
it by statute. Indiana permits interstate branching (both denovo and by
acquisition), subject to certain conditions, as contemplated by the Act.
Further, bank holding companies may merge existing bank subsidiaries located in
different states into one bank.
An insured bank subsidiary may act as an agent for an affiliated bank or thrift
in offering limited banking services (receive deposits, renew time deposits,
close loans, service loans and receive payments on loans obligations) both
within the same state and across state lines.
The Registrant cannot predict with certainty the impact of this legislation on
the banking industry.
(13)
<PAGE>
ADDITIONAL MATTERS
In addition to the matters discussed above, the Registrant's affiliate banks are
subject to additional regulation of their activities, including a variety of
consumer protection regulations affecting their lending, deposit and collection
activities and regulations affecting secondary mortgage market activities.
The earnings of financial institutions are also affected by general economic
conditions and prevailing interest rates, both domestic and foreign, and by the
monetary and fiscal policies of the United States Government and its various
agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking industry
are being considered and in the future may be considered by the United States
Congress, state legislatures and various regulatory agencies, including those
referred to above. It cannot be predicted with certainty whether such
legislation of administrative action will be enacted or the extent to which the
banking industry in general or the Registrant and its affiliate banks in
particular would be affected thereby.
ITEM 2. PROPERTIES
- --------------------------------------------------------------------------------
As of December 31, 1996, the Registrant operated through twenty-three affiliated
offices. American National operates eleven branch offices, nine of which are in
Muncie and one in Yorktown and in Portland. Peoples operates seven full-service
offices, including branches in Winchester, Saratoga, Richmond, Farmland and
Lynn. Other offices are operated by ANTIM and ANBFPS. All such offices are
owned by the subsidiaries with the exception of two branches of American
National and two facilities of ANTIM which are leased.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
As a part of the ordinary course of business, the Registrant's subsidiaries are
parties to lawsuits involving claims to the ownership of funds and involving the
collection of delinquent accounts. All such litigation is incidental to the
business of the financial institutions. Management believes that no litigation
is threatened or pending in which the Registrant or its subsidiaries face
potential loss or exposure which will materially affect the Registrant's
stockholders' equity or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
None
(14)
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market for the Registrant's common equity and related stockholder matters
included in the 1996 Annual Report to Shareholders of the Registrant on page 2
is incorporated herein by reference.
As of March 14, 1997, the Registrant had approximately 629 stockholders of
record.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data under the heading "Financial Highlights" included in
the 1996 Annual Report to Shareholders of the Registrant on page 3 is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operation included in the 1996 Annual Report to Shareholders of the Registrant
on pages 29 through 40 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements as of and for the three-year period ended
December 31, 1996 and the independent auditor's report included in the 1996
Annual Report to Shareholders of the Registrant on pages 8 through 28 are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be provided under this item is incorporated by reference
herein from pages 2 and 3 of the Registrant's definitive proxy statement
dated March 14, 1997 as filed with the Commission pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information to be provided under this item is incorporated by reference
herein from pages 5 through 10 of the Registrant's definitive proxy statement
dated March 14, 1997 as filed with the Commission pursuant to Regulation 14A.
(15)
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be provided under this item is incorporated by reference
herein from pages 2 and 4 of the Registrant's definitive proxy statement
dated March 14, 1997 as filed with the Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be provided under this item is incorporated by reference
herein from page 5 of the Registrant's definitive proxy statement dated March
14, 1997 as filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of the Registrant
and subsidiaries are incorporated by reference in Item 8:
Annual
Report Form 10-K
Page Page
Number Number
------ ------
Independent Auditor's Report 8 59
Consolidated Balance Sheet as of
December 31, 1996 and 1995 9 60
Consolidated Statement of Income for the years
ended December 31, 1996, 1995 and 1994 10 61
Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1996,
1995 and 1994 11 62
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 12 63
Notes to Consolidated Financial Statements 13 - 28 64 - 79
(2) All financial statement schedules have been omitted because they are
not applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(3) Listing of Exhibits:
Exhibit Number Description
-------------- -----------------------------------------------------
2.01 Restated and Amended Plan and Agreement of
Reorganization (Incorporated herein by reference
to Exhibit 2.01 of Form S-1 Registration
Statement, Commission File No. 33-36958).
2.02 Restated and Amended Plan of Merger-Conversion
(Incorporated herein by reference to Exhibit 2.02
of Form S-1 Registration Statement, Commission
File No. 33-36958).
(16)
<PAGE>
(3) Listing of Exhibits:
Exhibit Number Description
-------------- -----------------------------------------------------
2.03 Agreement of Merger and Reorganization, as amended
by Amendment and Waiver (Incorporated herein by
reference to Exhibit 2.03 of the Registrant's
Form 8-K filed on February 4, 1994).
3.01 Articles of Incorporation of the Registrant, as
amended (Incorporated herein by reference to
Exhibit 3.01 of the Registrant's 1995 Form 10-K
Annual Report).
3.02 Bylaws of the Registrant, as amended.
3.03 Bylaw Amendments of the Registrant adopted on
August 21, 1996.
10.01 ANB Corporation Stock Option Plan (Incorporated
herein by reference to Exhibit 4.3 of Form S-8
Registration Statement, Commission
File No. 33-95868 filed on August 18, 1995).
10.02 Nonqualified Stock Option Plan of ANB Corporation
for Former Directors of Muncie Federal Savings and
Loan Association (Incorporated herein by reference
to Exhibit 28 of the Registrant's Form 10-Q as of
March 31, 1991).
10.03 Agreement to Merge by and between American National
Bank and Trust Company and Muncie Federal Savings
Bank dated June 16, 1992 (Incorporated herein by
reference to Exhibit 10.12 of the Registrant's 1992
Form 10-K Annual Report).
10.04 1993 Amended and Restated Employment Agreement dated
September 7, 1993 by and among James R. Schrecongost,
ANB Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.13
of the Registrant's 1993 Form 10-K Annual Report).
10.05 1993 Amended and Restated Employment Agreement dated
September 7, 1993 by and among Lloyd M. Townsend,
ANB Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.14 of
the Registrant's 1993 Form 10-K Annual Report).
10.06 1993 Amended and Restated Employment Agreement dated
September 7, 1993 by and among Larry E. Thomas,
ANB Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.15 of
the Registrant's 1993 Form 10-K Annual Report).
10.07 1993 Amended and Restated Employment Agreement dated
September 7, 1993 by and among David W. Spade, ANB
Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.16 of
the Registrant's 1993 Form 10-K Annual Report).
(17)
<PAGE>
(3) Listing of Exhibits:
Exhibit Number Description
-------------- -----------------------------------------------------
10.08 1993 Amended and Restated Employment Agreement dated
September 8, 1993 by and among Paul L. Sehnert, Jr.,
ANB Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.17 of
the Registrant's 1993 Form 10-K Annual Report).
10.09 1994 Amended and Restated Employment Agreement dated
November 30, 1994 by and among Chris L. Talley,
ANB Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.19 of
the Registrant's 1994 Form 10-K Annual Report).
10.10 1994 Amended and Restated Employment Agreement dated
November 30, 1994 by and among Philip R. Hirschfeld,
ANB Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.20 of
the Registrant's 1994 Form 10-K Annual Report).
10.12 ANB Corporation 1995 Stock Option Plan (Incorporated
herein by reference to Exhibit 4.3 of Form S-8
Registration Statement, Commission File No. 33-95866
filed on August 18, 1995).
10.13 ANB Corporation 1996 Directors' Stock Option Plan.
11 Statement Re Computation of Per Share Earnings.
13 1996 Annual Report to Shareholders of ANB Corporation
(Incorporated in part into this Form 10-K by reference).
21 Subsidiaries of the Registrant.
23 Consent of Geo. S. Olive & Co. LLC.
27 Financial Data Schedule (Included in electronic version
only).
99 Annual financial statements and independent auditor's
report for Stock Investment Plan of ANB Corporation for
the year ended December 31, 1996.
(b) During the fourth quarter of 1996, the Registrant did not file any reports
on Form 8-K.
(c) See the listing of exhibits in Item 14(a)(3).
(d) No financial statement schedules are required to be submitted.
(18)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the 20th
day of March, 1997.
ANB CORPORATION
(Registrant)
By: /s/ James R. Schrecongost
----------------------------------
James R. Schrecongost, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated below as of the 20th day of
March, 1997.
Name Title
- ---------------------------------------------------------------------------
/s/ William L. Peterson Chairman of the Board of Directors
- ------------------------------
William L. Peterson
/s/ James R. Schrecongost President and Director
- ------------------------------ (Chief Executive Officer)
James R. Schrecongost
/s/ Larry E. Thomas Treasurer (Chief Financial Officer
- ------------------------------ and Principal Accounting Officer)
Larry E. Thomas
/s/ Ben E. Delk Director
- ------------------------------
Ben E. Delk
/s/ R. David Hoover Director
- ------------------------------
R. David Hoover
/s/ Donald A. Ross Director
- ------------------------------
Donald A. Ross
(19)
<PAGE>
Name Title
- ---------------------------------------------------------------------------
/s/ Kelly N. Stanley Director
- ------------------------------
Kelly N. Stanley
/s/ Leon V. Towne Director
- ------------------------------
Leon V. Towne
/s/ Chris L. Talley Director
- ------------------------------
Chris L. Talley
/s/ Madelyn K. Ferris Director
- ------------------------------
Madelyn K. Ferris
(20)
<PAGE>
BYLAWS
OF
ANB CORPORATION
<PAGE>
INDEX
ARTICLE ONE - Name, Offices and Resident Agent . . . . . . . . . . . . . . 1
Section 1. Name . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Offices. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Resident Agent . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO - Seal and Fiscal Year . . . . . . . . . . . . . . . . . . . . 1
Section 1. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE THREE - Capital Stock. . . . . . . . . . . . . . . . . . . . . . . 2
Section 1. Number of Shares and Classes of Capital Stock. . . . . . . 2
Section 2. Consideration for No Par Value Shares. . . . . . . . . . . 2
Section 3. Consideration for Treasury Shares. . . . . . . . . . . . . 2
Section 4. Payment for Shares . . . . . . . . . . . . . . . . . . . . 2
Section 5. Certificate for Shares . . . . . . . . . . . . . . . . . . 2
Section 6. Facsimile Signatures . . . . . . . . . . . . . . . . . . . 2
Section 7. Transfer of Shares . . . . . . . . . . . . . . . . . . . . 3
Section 8. Cancellation . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Transfer Agent and Registrar . . . . . . . . . . . . . . . 3
Section 10. Lost, Stolen or Destroyed Certificates . . . . . . . . . . 3
Section 11. Registered Shareholders. . . . . . . . . . . . . . . . . . 3
Section 12. Options to Officers and Employees. . . . . . . . . . . . . 3
ARTICLE FOUR - Meetings of Shareholders. . . . . . . . . . . . . . . . . . 4
Section 1. Place of Meeting . . . . . . . . . . . . . . . . . . . . . 4
Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . 4
Section 4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . 4
Section 5. Addresses of Shareholders. . . . . . . . . . . . . . . . . 5
Section 6. Voting at Meetings . . . . . . . . . . . . . . . . . . . . 5
(a) Quorum . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Voting Rights. . . . . . . . . . . . . . . . . . . . . 5
(c) Proxies. . . . . . . . . . . . . . . . . . . . . . . . 5
(d) Required Vote. . . . . . . . . . . . . . . . . . . . . 5
Section 7. Voting List. . . . . . . . . . . . . . . . . . . . . . . . 5
Section 8. Fixing of Record Date to Determine Shareholders
Entitled to Vote . . . . . . . . . . . . . . . . . . . . 6
Section 9. Nominations for Director . . . . . . . . . . . . . . . . . 6
ARTICLE FIVE - Board of Directors. . . . . . . . . . . . . . . . . . . . . 6
Section 1. Election, Number and Term of Office. . . . . . . . . . . . 6
Section 2. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3. Annual Meeting of Directors. . . . . . . . . . . . . . . . 7
Section 4. Regular Meetings . . . . . . . . . . . . . . . . . . . . . 7
Section 5. Special Meeting. . . . . . . . . . . . . . . . . . . . . . 7
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7. Consent Action by Directors. . . . . . . . . . . . . . . . 8
Section 8. Removal of Directors . . . . . . . . . . . . . . . . . . . 8
Section 9. Dividends. . . . . . . . . . . . . . . . . . . . . . . . . 8
i
<PAGE>
Section 10. Fixing of Record Date to Determine Shareholders Entitled
to Receive Corporate Benefits. . . . . . . . . . . . . . 8
Section 11. Interest of Directors in Contracts . . . . . . . . . . . . 9
Section 12. Committees . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 13. Retirement of Directors. . . . . . . . . . . . . . . . . . 10
ARTICLE SIX - Officers . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 1. Principal Officers . . . . . . . . . . . . . . . . . . . . 10
Section 2. Election and Term of Office. . . . . . . . . . . . . . . . 10
Section 3. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4. Subordinate Officers . . . . . . . . . . . . . . . . . . . 10
Section 5. Resignations . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7. Chairman of the Board. . . . . . . . . . . . . . . . . . . 11
Section 8. Vice Chairman of the Board . . . . . . . . . . . . . . . . 11
Section 9. Chief Executive Officer. . . . . . . . . . . . . . . . . . 11
Section 10. President. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 11. Vice-Presidents. . . . . . . . . . . . . . . . . . . . . . 11
Section 12. Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 13. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 14. Auditor. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 15. Salaries . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 16. Voting Corporation's Securities. . . . . . . . . . . . . . 12
ARTICLE SEVEN - Indemnification. . . . . . . . . . . . . . . . . . . . . . 13
Section 1. Indemnification of Directors, Officers, Employees and
Agents . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE EIGHT - Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 14
Section 1. Contracts, Drafts, Checks, Etc . . . . . . . . . . . . . . 14
ARTICLE NINE - Amendments . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1. Regular Bylaws . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Anti-takeover Bylaws . . . . . . . . . . . . . . . . . . . 14
Section 3. Notice of Proposed Amendment . . . . . . . . . . . . . . . 14
ii
<PAGE>
BYLAWS
OF
ANB CORPORATION
ARTICLE ONE
-----------
NAME, OFFICES AND RESIDENT AGENT
SECTION 1. NAME. The name of the Corporation is ANB Corporation, and said
Corporation is hereinafter referred to as the "Corporation."
SECTION 2. OFFICE. The post office address and location of the principal
office of the Corporation is 110 East Main Street, Muncie, Indiana 47305.
The Board of Directors may from time to time establish other offices of the
Corporation or branches of the Corporation's business at whatever place or
places seem to be expedient.
SECTION 3. RESIDENT AGENT. The name of the resident agent of the
Corporation is Larry E. Thomas. The post office address of such resident
agent is 110 East Main Street, Muncie, Indiana 47305.
ARTICLE TWO
------------
SEAL AND FISCAL YEAR
SECTION 1. CORPORATE SEAL. The seal of the Corporation shall be circular in
form and mounted upon a metal die, suitable for impressing the same upon
paper. About the upper periphery of the seal shall appear the words "ANB
Corporation" and about the lower periphery thereof the words "Muncie,
Indiana". In the center of the seal shall appear the word "Seal". The
following is an impression of the seal adopted by the Board of Directors:
( Impression )
( of )
( Seal )
Any officer of the Corporation shall have the authority to affix the
corporate seal or to attest the same.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation begins on the
first day of January and ends on the last day of December of the same year
except that the first year of the Corporation begins on July 10, 1984.
<PAGE>
ARTICLE THREE
-------------
CAPITAL STOCK
SECTION 1. NUMBER OF SHARES AND CLASSES OF CAPITAL STOCK. The total number
of shares of capital stock which the Corporation shall have authority to
issue shall be as stated in the Articles of Incorporation.
SECTION 2. CONSIDERATION FOR NO PAR VALUE SHARES. The shares of stock of
the Corporation without par value shall be issued or sold in such manner and
for such amount of consideration as may be fixed from time to time by the
Board of Directors. Upon payment of the consideration fixed by the Board of
Directors, such shares of stock shall be fully paid and nonassessable.
SECTION 3. CONSIDERATION FOR TREASURY SHARES. Treasury shares may be
disposed of by the Corporation for such consideration as may be determined
from time to time by the Board of Directors.
SECTION 4. PAYMENT FOR SHARES. The consideration for the issuance of shares
of capital stock of the Corporation may be paid, in whole or in part, in
money, in other property, tangible or intangible, or in labor actually
performed for, or services actually rendered to the Corporation; provided,
however, that the part of the surplus of the Corporation which is transferred
to stated capital upon the issuance of shares as a share dividend shall be
deemed to be the consideration for the issuance of such shares. When payment
of the consideration for which a share was authorized to be issued shall have
been received by the Corporation, or when surplus shall have been transferred
to stated capital upon the issuance of a share dividend, such share shall be
declared and taken to be fully paid and not liable to any further call or
assessment, and the holder thereof shall not be liable for any further
payments thereon. In the absence of actual fraud in the transaction, the
judgment of the Board of Directors as to the value of such property, labor or
services received as consideration, or the value placed by the Board of
Directors upon the corporate assets in the event of a share dividend, shall
be conclusive. Promissory notes, uncertified checks, or future services shall
not be accepted in payment or part payment for the capital stock of the
Corporation.
SECTION 5. CERTIFICATE FOR SHARES. Each holder of capital stock of the
Corporation shall be entitled to a stock certificate, signed by the President
or a Vice President and the Secretary or any Assistant Secretary of the
Corporation, with the seal of the Corporation thereto affixed, stating the
name of the registered holder, the number of shares represented by such
certificate, the par value of each share of stock or that such shares of
stock are without par value, and that such shares are fully paid and
nonassessable. If such shares are not fully paid, the certificates shall be
legibly stamped to indicate the per cent which has been paid, and as further
payments are made, the certificate shall be stamped accordingly.
SECTION 6. FACSIMILE SIGNATURES. If a certificate is countersigned by the
written signature of a transfer agent other than the Corporation or its
employee the signatures of the officers of the Corporation may be facsimiles.
If a stock certificate representing shares of the capital stock of the
Corporation is manually signed by an officer of the Corporation designated to
sign such certificate pursuant to ARTICLE THREE, SECTION 5 of these Bylaws,
the signature of the other officer of the Corporation required to sign such
certificate may be a facsimile. If a certificate is countersigned by the
written signature of a registrar other than the Corporation or its employee,
the signatures of the registrar and the officers of the Corporation may be
facsimiles. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such
certificate is
2
<PAGE>
issued, it may be issued by the Corporation with the same effect as if he
were such officer, transfer agent, or registrar at the date of its issue.
(Section 6 was amended by vote of the Board of Directors on November 16,
1995.)
SECTION 7. TRANSFER OF SHARES. The shares of capital stock of the
Corporation shall be transferable only on the books of the Corporation upon
surrender of the certificate or certificates representing the same, properly
endorsed by the registered holder or by his duly authorized attorney or
accompanied by proper evidence of succession, assignment or authority to
transfer. A stock certificate book shall be maintained in which all
assignments and transfers of stock shall be made.
SECTION 8. CANCELLATION. Every certificate surrendered to the Corporation
for exchange or transfer shall be canceled, and no new certificate or
certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so canceled, except in cases
provided for in Section 10 of this Article Three.
SECTION 9. TRANSFER AGENT AND REGISTRAR. The Board of Directors may appoint
a transfer agent and a registrar for each class of capital stock of the
Corporation and may require all certificates representing such share to bear
the signature of such transfer agent and registrar. Shareholders shall be
responsible for notifying the Corporation or transfer agent and registrar for
the class of stock held by such shareholder in writing of any changes in
their addresses from time to time, and failure so to do shall relieve the
Corporation, its shareholders, directors, officers, transfer agent and
registrar of liability for failure to direct notices, dividends, or other
documents or property to an address other than the one appearing upon the
records of the transfer agent and registrar of the Corporation.
SECTION 10. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may
cause a new certificate or certificates to be issued in place of any
certificate or certificates heretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Corporation may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum and in such form as it may direct to indemnify
against any claim that may be made against the Corporation with respect to
the certificate alleged to have been lost, stolen or destroyed or the
issuance of such new certificate. The Corporation, in its discretion, may
authorize the issuance of such new certificates without any bond when in its
judgment it is proper to do so.
SECTION 11. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the
owner of such shares to receive dividends, to vote as such owner, to hold
liable for calls and assessments, and to treat as owner in all other
respects, and shall not be bound to recognize any equitable or other claims
to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Indiana.
SECTION 12. OPTIONS TO OFFICERS AND EMPLOYEES. The issuance, including the
consideration, of rights or options to directors, officers or employees of
the Corporation, and not to the shareholders generally, to purchase from the
Corporation shares of its capital stock shall be approved by the affirmative
vote of the holders of a majority of the shares entitled to vote thereon or
shall be authorized by and consistent with a plan approved by such a vote of
the shareholders.
3
<PAGE>
ARTICLE FOUR
------------
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of shareholders of the Corporation
shall be held at such place, within or without the State of Indiana, as may
from time to time be designated by the Board of Directors, or as may be
specified in the notices or waivers of notice of such meetings.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders for the
election of Directors, and for the transaction of such other business as may
properly come before the meeting, shall be held on the third Wednesday in
March of each year, if such day is not a holiday, and if a holiday, then on
the first following day that is not a holiday, or in lieu of such day may be
held on such other day as the Board of Directors may set by resolution, but
not later than the end of the fifth month following the close of the fiscal
year of the Corporation. Failure to hold the annual meeting at the
designated time shall not work any forfeiture or a dissolution of the
Corporation, and shall not affect otherwise valid corporate acts. The
President of the Corporation shall then make report to the shareholders
regarding the condition of the Corporation and shall review the business of
the preceding year.
SECTION 3. SPECIAL MEETINGS. A special meeting of the shareholders, for any
purpose or purposes, unless otherwise prescribed by law, may be called by the
Board of Directors or the President and shall be called by the Board of
Directors or the President at the request in writing of persons who hold of
record not less than 1/4 of all shares outstanding and entitled to vote on
any proposal to be submitted at the meeting. Such request shall state the
purpose or purposes of the proposed meeting and shall be delivered either in
person or by registered or certified mail, return receipt requested, to the
President. The Board of Directors shall, no later than 45 days after the
Corporation's receipt of such request, set the date, time and place of such
meeting and fix a record date for determination of the shareholders entitled
to vote at the meeting and to receive notice thereof. The Secretary shall
thereafter cause notice of such meeting to be given to the shareholders
entitled thereto, no later than the 60th day after the Corporation's receipt
of the shareholder's request for a meeting. Such meeting shall be held not
less than 15 nor more than 90 days after the receipt of such request.
(Section 3 was amended by vote of the Board of Directors on February 12,
1986.)
SECTION 4. NOTICE OF MEETINGS. A written or printed notice, stating the
place, day and hour of the meeting and, in case of a special meeting or when
required by any other provision of The Indiana General Corporation Act or of
the Articles of Incorporation, as now or hereafter amended, or these Bylaws,
the purpose or purposes for which the meeting is called. The notice shall be
delivered or mailed by the Secretary, or by the officers or persons calling
the meeting, to each shareholder of record entitled by the Articles of
Incorporation, as now or hereafter amended, and by The Indiana General
Corporation Act to vote at such meeting, at such address as appears upon the
records of the Corporation, at least ten (10) days before the date of the
meeting. Notice of any such meeting may be waived in writing by any
shareholder, if the waiver sets forth in reasonable detail the purpose or
purposes for which the meeting is called and the time and place thereof.
Attendance at any meeting in person, or by proxy, shall constitute a waiver
of notice of such meeting. Each shareholder, who has in the manner above
provided waived notice of a shareholders' meeting, or who personally attends
a shareholders' meeting, or is represented thereat by a proxy authorized to
appear by an instrument of proxy, shall be conclusively presumed to have been
given due notice of such meeting. Notice of any adjourned meeting of
shareholders shall not be required to be given if the time and place thereof
are announced at the meeting at which the
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adjournment is taken except as may be expressly required by law.
SECTION 5. ADDRESSES OF SHAREHOLDERS. The address of any shareholder
appearing upon the records of the Corporation shall be deemed to be the
latest address of such shareholder appearing on the records maintained by the
Corporation or its transfer agent for the class of stock held by such
shareholder.
SECTION 6. VOTING AT MEETINGS.
(a) QUORUM. The holders of record of a majority of the issued and
outstanding stock of the Corporation entitled to vote at such
meeting, present in person or by proxy, shall constitute a quorum at
all meetings of shareholders for the transaction of business, except
where otherwise provided by law, the Articles of Incorporation or
these Bylaws. In the absence of a quorum any officer entitled to
preside at, or act as secretary of, such meeting shall have the
power to adjourn the meeting from time to time until a quorum shall
be constituted. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might have
been transacted at the original meeting, but only those shareholders
entitled to vote at the original meeting shall be entitled to vote
at any adjournment or adjournments thereof unless a new record date
is fixed by the Board of Directors for the adjourned meeting.
(b) VOTING RIGHTS. Except as otherwise provided by law or by the
provisions of the Articles of Incorporation, every shareholder shall
have the right at every shareholders' meeting to one vote for each
share of stock having voting power, registered in his name on the
books of the Corporation on the date for the determination of
shareholders entitled to vote, on all matters coming before the
meeting, including the election of directors.
(c) PROXIES. At any meeting of shareholders, every shareholder having
the right to vote shall be entitled to vote in person, or by proxy
executed in writing by the shareholder or a duly authorized attorney
in fact and bearing a date not more than eleven months prior to its
execution, unless a longer time is expressly provided therein.
Proxies shall be valid for one meeting only, to be specified
therein, and any adjournment of said meeting. Proxies shall be
dated and shall be filed with the records of said meeting. No
director, officer, employee, or attorney for this Corporation shall
act as proxy.
(d) REQUIRED VOTE. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which, by
express provision of The Indiana General Corporation Act or of the
Articles of Incorporation or by these Bylaws, a greater vote is
required, in which case such express provision shall govern and
control the decision of such question.
SECTION 7. VOTING LIST. The Corporation or its transfer agent shall make,
at least five days before each election of directors, a complete list of the
shareholders entitled by the Articles of Incorporation, as now or hereafter
amended, to vote at such election, arranged in alphabetical order, with the
address and number of shares so entitled to vote held by each, which list
shall be on file at the principal office of the Corporation and subject to
inspection by any shareholder. Such list shall be produced and kept open at
the time and place of election and shall be subject to the inspection of any
shareholder during the holding of such election. The original stock register
or transfer book, or a duplicate thereof kept in the State of Indiana, shall
be the only evidence as to who are the shareholders entitled to examine such
list or the stock ledger or transfer book or to
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vote at any meeting of the shareholders.
SECTION 8. FIXING OF RECORD DATE TO DETERMINE SHAREHOLDERS ENTITLED TO VOTE.
The Board of Directors may prescribe a period not exceeding 50 days prior to
meetings of the shareholders, during which no transfer of stock on the books
of the Corporation may be made; or, in lieu of prohibiting the transfer of
stock may fix a day and hour not more than 50 days prior to the holding of
any meeting of shareholders at the time as of which shareholders entitled to
notice of, and to vote at, such meeting shall be determined, and all persons
who are holders of record of voting stock at such time, and no others, shall
be entitled to notice of, and to vote at, such meeting. In the absence of
such a determination, such date shall be 10 days prior to the date of such
meetings.
SECTION 9. NOMINATIONS FOR DIRECTOR. Nominations for election to the Board
of Directors may be made by the Board of Directors or by any shareholder of
any outstanding class of capital stock of the Corporation entitled to vote
for the election of directors. Nominations, other than those made by or on
behalf of the existing management of the Corporation, shall be made in
writing and shall be delivered or mailed to the President of the Corporation
not less than 10 days nor more than 50 days prior to any meeting of
shareholders called for the election of directors. Such notification shall
contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the name and residence
address of the notifying shareholder; and (d) the number of shares of capital
stock of the Corporation owned by the notifying shareholder. Nominations not
made in accordance herewith may, in his discretion, be disregarded by the
chairman of the meeting, and upon his instructions, the vote tellers may
disregard all votes cast for each such nominee.
(Section 10 dealing with Shareholders' Preemptive Rights was amended by
deletion in its entirety by vote of the Board of Directors on February 12,
1986.)
ARTICLE FIVE
------------
BOARD OF DIRECTORS
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. Directors shall be elected
at the annual meeting of shareholders, or, if not so elected, shall be
elected at a special meeting of shareholders called for that purpose, by the
holders of the shares of stock entitled by the Articles of Incorporation to
elect Directors.
The number of Directors of the Corporation to be elected by the holder of
the shares of stock entitled by the Articles of Incorporation to elect
Directors shall consist of not less than 5 nor more than 25 shareholders.
The number of Directors to be elected shall be determined periodically, and
at least as often as one time per year, by the Board of Directors.
The Directors shall be classified, with respect to the time for which
they severally hold office, into three classes as nearly equal in number as
possible. One class shall be originally elected at the 1986 annual meeting of
shareholders for a term expiring at the annual meeting of shareholders to be
held in 1987. Another class shall be originally elected at the 1986 annual
meeting of shareholders for a term expiring at the annual meeting of
shareholders to be held in 1988. The third class shall be originally elected
at the 1986 meeting of shareholders for a term expiring at the annual meeting
of shareholders to be held in 1989. Each Director shall hold office until
his or her successor is elected and qualified. At each annual meeting of
shareholders, the successor of each Director whose term expires at that
meeting shall be elected to hold office for a term
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expiring at the annual meeting of shareholders to be held in the third year
following the year of his election, and until such Director's successor shall
have been elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
(Section 1 was amended by vote of the Board of Directors on March 19, 1986,
January 19, 1994 and August 21, 1996.)
SECTION 2. VACANCIES. Any vacancy on the Board of Directors caused by an
increase in the number of Directors shall be filled by the affirmative vote
of a majority of the remaining Directors. Any Director elected in accordance
with the preceding sentence shall hold office for the remainder of the full
term of the class of Directors in which the new directorship was created and
until such Director's successor shall have been elected and qualified.
Any vacancy occurring in the Board of Directors caused by resignation,
death, removal or other incapacity of a Director shall be filled by the
affirmative vote of a majority of the remaining Directors. Any Director
elected in accordance with the preceding sentence shall hold office for the
remainder of the term of the person for whom the vacancy occurred and until
such Director's successor shall have been elected and qualified.
If the vote of the Directors to fill a vacancy shall result in a tie,
such vacancy, at the discretion of the Board of Directors, may be filled by
the vote of the shareholders at a special meeting called expressly for that
purpose.
(Section 2 was amended by vote of the Board of Directors on March 19, 1986.)
SECTION 3. ANNUAL MEETING OF DIRECTORS. The Board of Directors shall meet
on the fourth Wednesday in March of each year, if such day is not a holiday,
and if a holiday, then on the first following date that is not a holiday, or
in lieu of such, on such other day, as the Board of Directors may by
resolution set, which day is no later than the end of the fifth month
following the close of the fiscal year of the Corporation for the purpose of
organization, election of officers, and consideration of any other business
that may properly come before the meeting. No notice of any kind to either
old or new members of the Board of Directors for such annual meeting shall be
necessary.
(Section 3 was amended by vote of the Board of Directors on November 16,
1988.)
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such times and places, either within or without the State of
Indiana, as may be fixed by the Directors. Such regular meetings of the
Board of Directors may be held without notice or upon such notice as may be
fixed by the Directors.
SECTION 5. SPECIAL MEETING. Special meetings of the Board of Directors may
be called by the Chairman of the Board, the President, or by not less than a
majority of the member of the Board of Directors. Notice of the time and
place, either within or without the State of Indiana, of a special meeting
shall be served upon or telephoned to each Director at least twenty-four
hours, or mailed, telegraphed or cabled to each Director at his usual place
of business or residence at least forty-eight hours, prior to the time of the
meeting. Directors in lieu of such notice, may sign a written waiver of
notice either before the time of the meeting, at the meeting or after the
meeting. Attendance by a director in person at any special meeting shall
constitute a waiver of notice.
SECTION 6. QUORUM. A majority of the actual number of Directors elected and
qualified, from time to time, shall be necessary to constitute a quorum for
the transaction of any
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business except the filling of vacancies, and the act of a majority of the
directors present at the meeting, at which a quorum is present, shall be the
act of the Board of Directors, unless the act of a greater number is required
by The Indiana General Corporation Act, by the Articles of Incorporation, or
by these Bylaws. A director, who is present at a meeting of the Board of
Directors, at which action on any corporate matter is taken, shall be
conclusively presumed to have assented to the action taken, unless (a) his or
her dissent shall be affirmatively stated at and before the adjournment of
such meeting (in which event the fact of such dissent shall be entered by the
secretary of the meeting in the minutes of the meeting), or (b) he or she
shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. The right of
dissent provided for by either clause (a) or clause (b) of the immediately
preceding sentence shall not be available in respect of any matter acted upon
at any meeting, to a Director who voted at the meeting in favor of such
matter and did not change his or her vote prior to the time that the result
of the vote on such matter was announced by the chairman of such meeting.
A member of the Board of Directors may participate in a meeting of the
Board by means of a conference telephone or similar communications equipment
by which all directors participating in the meeting can communicate with each
other, and participation by these means constitutes presence in person at the
meeting. A director cannot vote by proxy at a meeting of the Board of
Directors.
SECTION 7. CONSENT ACTION BY DIRECTORS. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if prior to such action a written consent to
such action is signed by all members of the Board of Directors or such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee.
SECTION 8. REMOVAL OF DIRECTORS. Any or all members of the Board of
Directors may be removed, only with cause, at a meeting of the shareholders
called expressly for that purpose by the affirmative vote of the holders of
2/3 of the voting power of the then outstanding shares of voting stock of the
corporation entitled to vote on the election of Directors, voting together as
a single class.
(Section 8 was amended by vote of the Board of Directors on March 19, 1986.)
SECTION 9. DIVIDENDS. The Board of Directors shall have power, subject to
any restrictions contained in The Indiana General Corporation Act or in the
Articles of Incorporation and out of funds legally available therefor, to
declare and pay dividends upon the outstanding capital stock of the
Corporation as and when they deem expedient. Before declaring any dividend,
there maybe set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from time to time in
their absolute discretion deem proper for working capital, or as a reserve or
reserves to meet contingencies or for such other purposes as the Board of
Directors determines. The Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
SECTION 10. FIXING OF RECORD DATE TO DETERMINE SHAREHOLDERS ENTITLED TO
RECEIVE CORPORATE BENEFITS. The Board of Directors may fix a day and hour
not exceeding 50 days preceding the date fixed for payment of any dividend or
for the delivery of evidence of rights, or for the distribution of other
corporate benefits, or for a determination of shareholders for any other
purpose, as a record time for the determination of the shareholders
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entitled to receive any such dividend, rights or distribution, and in such
case only shareholders of record at the time so fixed shall be entitled to
receive such dividend, rights or distribution. If no record date is fixed
for the determination of shareholders entitled to receive payment of a
dividend, the end of the day of which the resolution of the Board of
Directors declaring such dividend is adopted shall be the record date for
such determination.
SECTION 11. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other
transaction between the Corporation or any corporation in which this
Corporation owns a majority of the capital stock shall be valid and binding,
notwithstanding that the directors or officers of this Corporation are
identical or that some or all of the directors or officers, or both, are also
directors or officers of such other corporation.
Any contract, or other transaction between the Corporation and one or
more of its directors or members or employees, or between the Corporation and
any firm of which one or more of its directors are members or employees or in
which they are interested, or between the Corporation and any corporation or
association of which one or more of its directors are stockholders, members,
directors, officers, or employees, or in which they are interested, shall be
valid for all purposes notwithstanding the presence of such director or
directors at the meeting of the Board of Directors of the Corporation which
acts upon, or in reference to, such contract or transaction and
notwithstanding his or their participating in such action, if the fact of
such interest shall be disclosed or known to the Board of Directors and the
Board of Directors shall authorize, approve and ratify such contract or
transaction by a vote of a majority of the directors present, such interested
director or directors to be counted in determining whether a quorum is
present, but not to be counted in calculating the majority of such quorum
necessary to carry such vote. This Section shall not be construed to
invalidate any contract or other transaction which would otherwise be valid
under the common and statutory law applicable thereto.
SECTION 12. COMMITTEES. The Board of Directors may, by resolution adopted
by a majority of the actual number of Directors elected and qualified, from
time to time, designate from among its members an Executive Committee and one
or more other committees, each of which, to the extent provided in the
resolution, the Articles of Incorporation, or these Bylaws, may exercise all
of the authority of the Board of Directors of the Corporation, including, but
not limited to, the authority to issue and sell or approve any contract to
issue and sell, securities or shares of the Corporation or designate the
terms of a series of a class of securities or shares of the Corporation. The
terms which may be affixed by each such committee include, but are not
limited to, the price, dividend rate, and provisions of redemption, a sinking
fund, conversion, voting, or preferential rights or other features of
securities or class or series of a class of shares. Each such committee may
have full power to adopt a final resolution which sets forth those terms and
to authorize a statement of such terms to be filed with the Secretary of
State. However, no such committee has the authority to declare dividends or
distributions, amend the Articles of Incorporation or the Bylaws, approve a
plan of merger or consolidation even if such plan does not require
shareholder approval, reduce earned or capital surplus, authorize or approve
the reacquisition of shares unless pursuant to a general formula or method
specified by the Board of Directors, or recommend to the shareholders a
voluntary dissolution of the Corporation or a revocation thereof. No member
of any such committee shall continue to be a member thereof after he ceases
to be a Director of the Corporation. The calling and holding of meetings of
any such committee and its method of procedure shall be determined by the
Board of Directors. A member of the Board of Directors shall not be liable
for any action taken by any such committee if he is not a member of that
committee and has acted in good faith and in a manner he reasonably believes
is in the best interest of the Corporation. A member of a committee may
participate in a meeting of the committee by means of a conference telephone
or similar communications equipment by which all members participating in the
meeting can communicate with each other, and participation by these means
constitutes presence in person at the meeting.
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SECTION 13. RETIREMENT OF DIRECTORS. No person shall be nominated to serve
as a director who shall have attained the age of seventy (70) years during
the calendar year preceding the annual meeting at which directors are to be
elected. No person shall be nominated to serve as a director if said person
shall no longer maintain a principal residence in the market area of the
Corporation or if the principal occupation or profession of said person has
changed during the calendar year preceding the annual meeting at which
directors are to be elected.
(Section 13 was amended by vote of the Board of Directors on September 21,
1994.)
ARTICLE SIX
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OFFICERS
SECTION 1. PRINCIPAL OFFICERS. The principal officers of the Corporation
shall be a Chairman of the Board, a Chief Executive Officer, a President, one
or more Vice-Presidents, a Treasurer and a Secretary. The Corporation may
also have, at the discretion of the Board of Directors, a principal officer
designated as Vice Chairman of the Board. The Corporation may also have, at
the discretion of the Board of Directors, such other subordinate officers as
may be appointed in accordance with the provisions of these Bylaws. Any two
or more offices may be held by the same person, except the duties of
President and Secretary shall not be performed by the same person. No person
shall be eligible for the office of Chairman of the Board, Chief Executive
Officer, Vice Chairman of the Board or President who is not a director of the
Corporation.
(Section 1 was amended by vote of the Board of Directors on March 18, 1992.)
SECTION 2. ELECTION AND TERM OF OFFICE. The principal officers of the
Corporation shall be chosen annually by the Board of Directors at the annual
meeting thereof. Each such officer shall hold office until his successor
shall have been duly chosen and qualified, or until his death, or until he
shall resign, or shall have been removed in the manner hereinafter provided.
SECTION 3. REMOVAL. Any principal officer may be removed, either with or
without cause, at any time, by resolution adopted at any meeting of the Board
of Directors by a majority of the actual number of Directors elected and
qualified from time to time.
SECTION 4. SUBORDINATE OFFICERS. In addition to the principal officers
enumerated in Section 1 of this Article Six, the Corporation may have one or
more Assistant Treasurers, one or more Assistant Secretaries and such other
officers, agents and employees as the Board of Directors may deem necessary,
each of whom shall hold office for such period, may be removed with or
without cause, have such authority, and perform such duties as the President,
or the Board of Directors may from time to time determine. The Board of
Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
(Section 4 was amended by vote of the Board of Directors on March 18, 1992.)
SECTION 5. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Chairman of the Board or to the Board of Directors or
to the President or to the Secretary. Any such resignation shall take effect
upon receipt of such notice or at any later time specified therein, and,
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
SECTION 6. VACANCIES. Any vacancy in any office for any cause may be filled
for the
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unexpired portion of the term in the manner prescribed in these Bylaws for
election or appointment to such office for such term.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board, who shall be
chosen from among the Directors, shall preside at all meetings of
shareholders and at all meetings of the Board of Directors. He or she shall
perform such other duties and have such other power as, from time to time,
may be assigned by the Board of Directors.
SECTION 8. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, who
shall be chose from among the Directors, shall preside at all meetings of
shareholders and at all meetings of the Board of Directors in the absence or
disability of the Chairman of the Board. The Vice Chairman shall perform
such other duties and have such other power as, from time to time, may be
assigned by the Board of Directors.
(Section 8 was added by vote of the Board of Directors on March 18, 1992.)
SECTION 9. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, who shall
be chosen from among the directors, shall be the Chief Executive Officer of
the Corporation. The Chief Executive Officer shall be an ex-officio member
of all standing committees. In the absence or disability of the Chairman of
the Board and the Vice Chairman of the Board, the Chief Executive Officer
shall preside at all meetings of shareholders and all meetings of the Board
of Directors. The Chief Executive Officer shall perform such other duties
and have such other power as, from time to time, are assigned by the Board of
Directors.
(Section 9 was amended by vote of the Board of Directors March 18, 1992.)
SECTION 10. PRESIDENT. The President, who shall be chosen from among the
Directors, shall have general supervision of the affairs of the Corporation,
subject to the control of the Board of Directors. The President shall be an
ex-officio member of all standing committees. In the absence or disability
of the Chairman of the Board and of the Vice Chairman of the Board and of the
Chief Executive Officer, the President shall preside at all meetings of
shareholders and at all meetings of the Board of Directors. Subject to the
control and direction of the Board of Directors, the President may enter into
any contract or execute and deliver any instrument in the name and on behalf
of the Corporation. In general, the President shall perform all duties and
have all powers incident to the office of President, and all such other
duties and powers as, from time to time, may be assigned by the Board of
Directors.
(Section 10 was amended by vote of the Board of Directors on March 18, 1992.)
SECTION 11. VICE-PRESIDENTS. The Executive Vice-President, if any, shall
perform such duties not inconsistent with these Bylaws as may be specifically
designated by the President or the Chief Executive Officer or the Board of
Directors and in the absence of the President, may perform the duties and
exercise the authority of the President. The Vice-Presidents, in the order
of their seniority, unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the President and Executive
Vice-President (if any) perform the duties and powers of the President. They
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer, or the President may from time to
time assign.
SECTION 12. TREASURER. The Treasurer shall have charge and custody of, and
be responsible for, all funds and securities of the Corporation and shall
deposit all such funds in the name of the Corporation in such banks or other
depositories as shall be selected by the Board of Directors. The Treasurer
shall, upon request, exhibit at all reasonable times the books of account and
records to any of the directors of the Corporation during business
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hours at the office of the Corporation where such books and records shall be
kept; shall render upon request by the Board of Directors a statement of the
condition of the finances of the Corporation at any meeting of the Board of
Directors or at the annual meeting of the shareholders; shall receive, and
give receipt for, moneys due and payable to the Corporation from any source
whatsoever; and in general, shall perform all duties incident to the office
of Treasurer and such other duties as from time to time may be assigned by
the President or the Board of Directors. The Treasurer shall give such bond,
if any, for the faithful discharge of the assigned duties as the Board of
Directors may require.
SECTION 13. SECRETARY. The Secretary shall keep or cause to be kept in the
books provided for that purpose the minutes of the meetings of the
shareholders and of the Board of Directors; shall duly give and serve all
notices required to be given in accordance with the provisions of these
Bylaws and by The Indiana General Corporation Act; shall be custodian of the
records and of the seal of the Corporation and see that the seal is affixed
to all documents, the execution of which on behalf of the Corporation under
its seal is duly authorized in accordance with the provisions of these
Bylaws; and, in general, shall perform all duties incident to the office of
Secretary and such other duties as may, from time to time, be assigned by the
President or the Board of Directors.
SECTION 14. AUDITOR. The Auditor shall be responsible directly to the Board
of Directors for the safeguarding of all operations of the Corporation and
for the systems of internal audit and protective controls. He shall make
such other examinations and audit as the Audit Committee of the Board shall
direct and shall perform such other duties as prescribed by the Chief
Executive Officer. The Auditor shall have the duty to report to the Chief
Executive Officer on all matters concerning the safeguarding of the
operations as he shall deem necessary or upon request of the Chief Executive
Officer. It shall be the duty of the Auditor to report independently to the
Audit Committee of the Board and to the Board of Directors at such intervals
as the Board of Directors shall specify on all matters concerning the
safeguarding of the operations of the Bank which should properly be brought
to the attention of the Board of Directors.
(Section 14 was added by vote of the Board of Directors on March 18, 1992.)
SECTION 15. SALARIES. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors, and the salaries of any
subordinate officers may be fixed by the President.
SECTION 16. VOTING CORPORATION'S SECURITIES. Unless otherwise ordered by
the Board of Directors, the Chairman of the Board, the Vice Chairman of the
Board, the Chief Executive Officer, the President and Secretary, and each of
them, are appointed attorneys and agents of the Corporation, and shall have
full power and authority in the name and on behalf of the Corporation, to
attend, to act, and to vote all stock or other securities entitled to be
voted at any meetings of security holders of corporations, or associations in
which the Corporation may hold securities, in person or by proxy, as a
stockholder or otherwise, and at such meetings shall possess and may exercise
any and all rights and powers incident to the ownership of such securities,
and which as the owner thereof the Corporation might have possessed and
exercised, if present, or to consent in writing to any action by any such
other corporation or association. The Board of Directors by resolution from
time to time may confer like powers upon any other person or persons.
(Section 16 was amended by vote of the Board of Directors on March 18, 1992.)
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ARTICLE SEVEN
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INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
Every person who is or was a director, officer, employee or agent of this
Corporation or of any other corporation for which he or she is or was serving
in any capacity at the request of this Corporation shall be indemnified by
this Corporation against any and all liability and expense that may be
incurred by said person in connection with or resulting from or arising out
of any claim, action, suit or proceeding; provided, however, that such person
is wholly successful with respect thereto or acted in good faith in what he
or she reasonably believed to be in or not opposed to the best interests of
this corporation and, in addition, in any criminal action or proceeding in
which said person had no reasonable cause to believe that the conduct was
unlawful. As used herein, "claim, action, suit or proceeding" shall include
any claim, action, suit or proceeding (whether brought by or in the right of
this Corporation or such other corporation or otherwise), civil, criminal,
administrative or investigative, whether actual or threatened or in
connection with an appeal relating thereto, in which a director, officer,
employee or agent of this Corporation may become involved, as a party or
otherwise,
(i) by reason of his being or having been a director, officer, employee,
or agent of this Corporation or such other corporation or arising out
of his status as such or
(ii) by reason of any past or future action taken or not taken by him in
any such capacity, whether or not he continues to be such at the time
such liability or expense is incurred.
The terms "liability" and "expense" shall include, but shall not be limited
to, attorneys' fees and disbursements, amounts of judgments, fines or
penalties, and amounts paid in settlement by or on behalf of a director,
officer, employee, or agent, but shall not in any event include any liability
or expenses on account of profits realized by said person in the purchase or
sale of securities of the Corporation in violation of the law. The
termination of any claim, action, suit or proceeding, by judgment, settlement
(whether with or without court approval) or conviction or upon a plea of
guilty or of nolo contendere, or its equivalent, shall not create a
presumption that a director, officer, employee, or agent did not meet the
standards of conduct set forth in this paragraph.
Any such director, officer, employee, or agent who has been wholly
successful with respect to any such claim, action, suit or proceeding shall
be entitled to indemnification as a matter or right. Except as provided in
the preceding sentence, any indemnification hereunder shall be made only if
(i) the Board of Directors acting by a quorum consisting of directors who
are not parties to or who have been wholly successful with respect to
such claim, action, suit or proceeding shall find that the director,
officer, employee, or agent has met the standards of conduct set forth
in the preceding paragraph; or
(ii) independent legal counsel shall deliver to the Corporation their
written opinion that such director, officer, employee, or agent has met
such standards of conduct.
If several claims, issues or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though said
person is not entitled as to other matters.
13
<PAGE>
The Corporation may advance expenses to or, where appropriate, may at its
expense undertake the defense of any such director, officer, employee, or
agent upon receipt of an undertaking by or on behalf of such person to repay
such expenses if it should ultimately be determined that said person is not
entitled to indemnification hereunder.
The provisions of this Section shall be applicable to claims, actions,
suits or proceedings made or commenced after the adoption hereof, whether
arising from acts or omissions to act during, before or after the adoption
hereof.
The rights of indemnification provided hereunder shall be in addition to
any rights to which any person concerned may otherwise be entitled by
contract or as a matter of law and shall inure to the benefit of the heirs,
executors and administrators of any such person.
The Corporation may purchase and maintain insurance 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 against any
liability asserted against and incurred in any capacity or arising out of
said persons status as such, whether or not the Corporation would have the
power to indemnify said person against such liability under the provisions of
this Section or otherwise.
ARTICLE EIGHT
-------------
MISCELLANEOUS
SECTION 1. CONTRACTS, DRAFTS, CHECKS, ETC. All contracts, checks, drafts
and other instruments shall be signed by the Chief Executive Officer or the
President or a Vice President or the Treasurer or an Assistant Treasurer or
such other individuals as may be designated by the Board of Directors.
ARTICLE NINE
------------
AMENDMENTS
SECTION 1. REGULAR BYLAWS. The power to make, alter, amend or repeal these
Bylaws is vested in the Board of Directors, but the affirmative vote of a
majority of the actual number of Directors elected and qualified, from time
to time, shall be necessary to effect the alteration, amendment or repeal of
these Bylaws.
(Section 1 was added by vote of the Board of Directors on March 19, 1986.)
SECTION 2. ANTI-TAKEOVER BYLAWS. Unless the continuing Directors on the
Board as defined in the Articles of Incorporation have unanimously
recommended the Amendment, no Amendment shall be adopted which shall repeal,
modify, amend, alter or diminish in any way the provisions of Article Four,
Section 3; Article Five, Sections 1, 2 and 8 and Article Nine without the
affirmative vote of 2/3 of the majority of the continuing Directors as
defined in the Articles of Incorporation.
(Section 2 was added by vote of the Board of Directors on March 19, 1986.)
SECTION 3. NOTICE OF PROPOSED AMENDMENT. Ten (10) days written notice of
any proposed amendment to the Bylaws shall be given to each member of the
Board of Directors unless said notice is waived in writing by each Director.
14
<PAGE>
(Section 3 was added by vote of the Board of Directors on March 19, 1986.)
STATE OF INDIANA, DELAWARE COUNTY, SS:
I hereby certify that the foregoing are the Bylaws of ANB Corporation as
adopted by the Board of Directors on September 12, 1984 and as amended by the
Board of Directors on February 12, 1986, March 19, 1986, November 16, 1988,
March 18, 1992, January 19, 1994, September 21, 1994, November 16, 1995 and
August 21, 1996.
ANB CORPORATION
By /s/ James W. Convy
--------------------------------------
(James W. Convy) CORPORATE SECRETARY
15
<PAGE>
Exhibit 3.03--BYLAW AMENDMENTS
- ------------------------------------------------------------------------------
On August 21, 1996, the following Bylaw Amendment to ARTICLE FIVE, Board of
Directors, was adopted:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. Directors shall be elected
at the annual meeting of shareholders, or, if not so elected, shall be
elected at a special meeting of shareholders called for that purpose, by the
holders of the shares of stock entitled by the Articles of Incorporation to
elect Directors.
The number of Directors of the Corporation to be elected by the holder of the
shares of stock entitled by the Articles of Incorporation to elect Directors
shall consist of not less than 5 nor more than 25 shareholders. The number
of Directors to be elected shall be determined periodically, and at least as
often as one time per year by the Board of Directors.
The Directors shall be classified, with respect to the time for which they
severally hold office, into three classes as nearly equal in number as
possible. One class shall be originally elected at the 1986 annual meeting of
shareholders for a term expiring at the annual meeting of shareholders to be
held in 1987. Another class shall be originally elected at the 1986 annual
meeting of shareholders for a term expiring at the annual meeting of
shareholders to be held in 1988. The third class shall be originally elected
at the 1986 meeting of shareholders for a term expiring at the annual meeting
of shareholders to be held in 1989. Each Director shall hold office until
his or her successor is elected and qualified. At each annual meeting of
shareholders, the successor of each Director whose term expires at that
meeting shall be elected to hold office for a term expiring at the annual
meeting of shareholders to be held in the third year following the year of
his election, and until such Director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
<PAGE>
ANB CORPORATION 1996 DIRECTORS' STOCK OPTION PLAN
1. PURPOSE. The purpose of the ANB Corporation 1996 Directors' Stock
Option Plan (the "Plan") is to provide to non-employee members of the Board
of Directors of ANB Corporation (the "Corporation"), an opportunity to
acquire common voting stock of the Corporation ("Common Stock"), thereby
encouraging such non-employee directors' ownership in the Corporation and
providing a long-term incentive for non-employee directors to enhance
shareholder value. The Plan provides for the granting of solely nonqualified
stock options ("NSOs").
2. ADMINISTRATION OF THE PLAN. The Plan shall be administered,
construed and interpreted by a committee comprised of at least two (2)
non-eligible members of Board of Directors (the "Committee"), who shall be
designated from time to time by the Board of Directors of the Corporation. If
a member of the Committee, for any reason, shall cease to serve, the vacancy
shall be filled by the Board of Directors. Any member of the Committee may
be removed, at any time, with or without cause, by the Board of Directors. No
member of the Committee shall be eligible, at any time when he/she is such a
member or within one (1) year prior to his/her appointment to the Committee,
to be granted an option under the Plan. The decision of a majority of the
members of the Committee shall constitute the decision of the Committee, and
the Committee may act either at a meeting at which a majority of the members
of the Committee is present or by a written consent signed by all members of
the Committee.
(a) RULE 16b-3 COMPLIANCE. Notwithstanding any Plan provision to the
contrary, the Plan is intended to meet the requirements of Rule
16b-3(c)(2)(ii) adopted under the Securities Exchange Act of 1934,
as amended (or its successor) ("Act"), and accordingly is intended
to be self-governing. To this end, the Plan requires no
discretionary action by any administrative body with regard to any
transaction hereunder. To the extent, if any, that any questions of
interpretation arise, such questions shall be resolved by the
Committee. Transactions under the Plan are intended to comply with
all applicable conditions of Rule 16b-3 under the Securities
Exchange Act of 1934 (of its successors). To the extent any
provision of this Plan or any action by the Committee or the Board
fails to so comply, it shall be deemed null and void to the extent
permitted by law and deemed advisable by the Committee.
(b) STOCK OPTIONS AGREEMENTS. Each option granted under the Plan shall
be evidenced by a written stock option agreement which contains
terms and conditions established by the Committee consistent with
the provisions of the Plan. The Committee also shall have authority to
prescribe, amend or rescind rules and regulations relating to the
Plan, and to make all other determinations and interpretations
necessary or advisable in connection with the administration of the
Plan. The Committee's determinations and interpretations shall be final
and conclusive.
1
<PAGE>
3. ELIGIBILITY. Options may be granted hereunder only to non-employee
members of the Board of Directors.
4. STOCK SUBJECT TO THE PLAN. There shall be reserved for issuance
upon the exercise of options granted under the Plan Ninety-six thousand
(96,000) shares of Common Stock, without par value, which may be authorized
but unissued shares of the Corporation. Subject to the provisions of Section 9,
the shares for which options may be granted under the Plan shall not exceed that
number. If any option shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares subject thereto shall (unless
the Plan shall have terminated) become available for the grant of other
options under the Plan.
The Committee annually shall grant to each non-employee director
("Optionee") who is a director on the date of grant an option to acquire
four thousand (4,000) shares of Common Stock ("Election Options"). Election
Options shall be granted on the first (1st) day of the month following the
month in which the Annual Meeting of Shareholders is held. The Committee
shall not have any authority to exercise discretion with respect to an
Optionee's eligibility for Election Options or with respect to the number of
the Election Options granted. The first Election Options shall be granted on
May 1, 1996.
5. TERMS OF OPTION. The stock option agreement between the Corporation
and the Optionee shall be subject to the following terms and conditions:
(a) OPTION PRICE. The price to be paid for each share of Common Stock
upon the exercise of each option shall not be less than the Fair
Market Value of such stock determined on the date the option is
granted. For all purposes of the Plan, the term "Fair Market Value"
shall be the mean between the reported closing bid and asked prices
for the shares of Common Stock as quoted by the National Association of
Securities Dealers Automated Quotation System ("NASDAQ"). If the Common
Stock is not quoted by NASDAQ, its Fair Market Value shall be
determined by the Committee based upon the quotations of the entities
which make a market in the Corporation's Common Stock and such other
factors as the Committee shall deem appropriate.
(b) PERIOD OF EXERCISE OF OPTION. All options granted under the Plan
shall not be exercisable after the expiration of ten (10) years from
the date on which such option is granted.
(c) EXERCISE OF OPTIONS. Except as otherwise provided herein, each
Optionee must serve as a director of the Corporation for one (1)
year from the date the option is granted before he/she can exercise
any part thereof. After such one (1) year period, options will be
exercisable as provided herein. Each option will be divided into
four (4) installments with each installment to be approximately
equal in size. The first installment shall not be exercisable until
after one (1) year from the date the option is granted, and each
succeeding installment shall not be exercisable until
2
<PAGE>
one (1) year from the date that the prior installment became
exercisable. When the right to exercise any installment accrues, the
shares of Common Stock included in that installment may be purchased
at that time or from time to time thereafter during the term of the
option. Provided, however, an option, unless it has earlier expired
and subject to the provisions hereof and to any provisions in the
Option Agreement, may be exercised (1) immediately upon or at any
time after the Optionee attains age seventy (70) or (2) at any time
during the thirty (30) day period immediately following the day on
which a Change in Control of the Corporation occurs.
(i) The option price of each share of Common Stock purchased upon
the exercise of an option shall be paid in full in cash at the
time of such exercise. Provided, however, an Optionee may, with
the approval of the Committee, exercise his/her option in whole
or in part by tendering to the Corporation whole shares of
Common Stock without par value, owned by him/her or any
combination of whole shares of Common Stock and cash, which have
a Fair Market Value equal to the cash exercise price of the
shares with respect to which the option is being exercised.
(ii) An option may be exercised only by written notice to the
Corporation, mailed to the attention of its Treasurer, signed
by the Optionee (or such other person or persons as shall
demonstrate to the Corporation his/her or their right to
exercise the option), specifying the number of shares with
respect to which it is being exercised and accompanied by
payment of the option price for such shares. Subject to the
provisions of Sections 7 and 8, the certificate or certificates
for the shares as to which the option is exercised shall be
registered in the name of the person or persons who exercised
the option and shall be delivered to or upon the order of such
person or persons, as soon as practicable after such written
notice is received by the Corporation. An Optionee shall not
have any rights of a shareholder in respect to the shares of
stock subject to an option until such shares are actually
issued.
(iii) If an Optionee ceases to serve as a director of the
Corporation for any reason other than for cause, as defined in
Section 5(c)(vi) or after attaining age seventy (70) or on
account of death, he/she may, but only within the thirty (30)
day period immediately following such termination of director
status and in no event later than the expiration date specified
in the option agreement, exercise his/her option to the extent
that he/she was otherwise entitled to exercise the option at
the date of such termination of director status.
3
<PAGE>
(iv) If an Optionee ceases to serve as a director of the
Corporation on or after the Optionee attains age seventy (70),
he/she may, but only within the twelve (12) month period
immediately following the effective date on which the Optionee
ceases to serve as a director and in no event later than the
expiration date specified in the stock option agreement,
exercise his/her option to the extent that he/she was entitled
to exercise it at the effective date of such termination of
director status.
(v) If an Optionee dies (whether prior to or after ceasing to
serve as a director) while he/she is entitled to exercise an
option, such option, to the extent that the Optionee was
entitled to exercise on the date of his/her death, may be
exercised during the twelve (12) month period immediately
following the Optionee's death, by the person or persons to
whom his/her rights to such option shall pass by his/her will
or by the applicable laws of descent and distribution.
Provided, however, no such option may be exercised later than
the expiration date specified in the option agreement.
(vi) If an Optionee is removed from the Board of Directors of the
Corporation for cause, no previously unexercised option
granted hereunder may be exercised. Rather, all unexercised
options shall terminate effective on the date the Optionee
receives notice of his/her removal for cause. As used in this
Plan, "for cause" shall be defined as follows: (A) the willful
and continued failure of an Optionee to perform his/her
required duties as a director of the Corporation; (B) action
by an Optionee as a director which involves willful
misfeasance or gross negligence; (C) the requirement or
direction of a federal or state regulatory agency having
jurisdiction over the Corporation to terminate the
directorship of an Optionee; (D) conviction of an Optionee of
the commission of any criminal offense involving dishonesty or
breach of trust; or (E) any intentional breach by an optionee
of a material term, condition or covenant of any agreement
between the Optionee and the Corporation.
(vii) No option may be exercised in whole or in part until the plan
has been approved by the Board and the shareholders of the
Corporation.
(viii) Nothing contained in the Plan or in any option agreement
executed pursuant to the Plan shall confer upon the Optionee
any right to continued service as a director of the Corporation
or limit in any way the right of the shareholders of the
Corporation and the members of the Board to remove him/her
from the Board of Directors.
6. NONTRANSFERABILITY OF OPTION. An option may not be transferred by an
Optionee other than by will or the laws of descent and distribution, and
during the lifetime of the Optionee shall be exercisable (to the extent
exercisable) only by him/her. No option or any rights or
4
<PAGE>
privileges pertaining thereto shall be transferred, assigned, pledged or
hypothecated by him/her in any way, whether by operation of law or otherwise
and shall not be subject to execution, attachment, or similar process.
7. INVESTMENT REPRESENTATIONS. Unless the shares subject to an option
are registered under the applicable federal and state securities laws, each
Optionee, by accepting an option, shall be deemed to agree for
himself/herself and his/her legal representatives that any option granted to
him/her and any and all shares of Common Stock purchased upon the exercise of
the option shall be acquired for investment and not with a view to, or for
the sale in connection with, any distribution thereof, and each notice of the
exercise of any portion of an option shall be accompanied by a representation
in writing, signed by the Optionee or his/her legal representatives, as the
case may be, that the shares of Common Stock are being acquired in good faith
for investment and not with a view to, or for sale in connection with, any
distribution thereof (except in the case of the Optionee's legal
representatives for distribution, but not for sale, to his/her legal heirs,
legatees and other testamentary beneficiaries). Any shares issued pursuant to
an exercise of an option shall bear a legend evidencing such representations
and restrictions.
8. ISSUANCE OF SHARES AND COMPLIANCE WITH SECURITIES ACT. The
Corporation may postpone the issuance and delivery of shares of Common Stock
upon the exercise of any option hereunder until: (a) the admission of such
shares to listing on any stock exchange on which shares of the Corporation of
the same class are then listed and (b) the completion of such registration or
other qualification of such shares under any state or federal law, rule or
regulation as the Corporation shall determine to be necessary or advisable.
Any person exercising an option hereunder shall make such representation and
furnish such information as, in the opinion of counsel for the Corporation,
may be appropriate to permit the Corporation, in lieu of the existence or
non-existence of an effective registration statement with respect to such
shares under the Securities Act of 1933, as amended, to issue the shares in
compliance with the provision of that or any comparable act.
9. CHANGES IN STOCK.
(a) ADJUSTMENT OF SHARES. In the event of any change in the Common Stock
of the Corporation through stock splits, stock dividends, split-ups,
recapitalizations, reclassifications, conversions, or otherwise, or in
the event that other stock shall be converted into or substituted for
the present Common Stock as the result of any merger, consolidation,
reorganization, or similar transaction which results in a Change in
Control of the Corporation, then the Committee shall make appropriate
adjustment or substitution in the aggregate number, price and kind of
shares available under the Plan and in the number, price and kind of
shares covered under any options granted or to be granted under the
Plan. Specifically, the number of shares subject to options granted
and to be granted and the purchase price per share upon the exercise
of the option shall be correspondingly adjusted, so that, by virtue
of such change in the Common Stock of the Corporation, each Optionee
5
<PAGE>
shall have the right to purchase: (i) that number of shares of
common stock hereunder which have a Fair Market Value, as of the date
of such change in the Common Stock, equal to the Fair Market Value of
the shares of Common Stock of the Corporation theretofore subject to
his/her option, and (ii) for a purchase price per share which, when
multiplied by the number of shares of common stock after such change
in the Common Stock of the Corporation which were subject to the
option, shall equal the aggregate exercise price at which the Optionee
could have acquired all of the shares of Common Stock theretofore
optioned to the Optionee. The Committee's determination in this
respect shall be final and conclusive. Provided, however, that the
Corporation shall not, and shall not permit its Subsidiaries to,
recommend, facilitate, or agree or consent to a transaction or series
of transactions which would result in a Change of Control of the
Corporation unless an until the person or persons or entity or
entities acquiring or succeeding to the assets or capital stock of the
Corporation or any of its Subsidiaries as a result of such transaction
or transactions agrees to be bound by the terms of the Plan insofar as
it pertains to options theretofore granted but unexercised and agrees
to assume and perform the obligations of the Corporation hereunder.
(b) CONVERSION OF SHARES. In the event of a Change in Control of the
Corporation pursuant to which another person or entity acquires control
of the Corporation (such other person or entity being the
"successor"), the kind of shares of Common Stock which shall be
subject to the Plan and to each outstanding option shall, automatically
by virtue of such Change in Control of the Corporation, be converted
into and replaced by shares of common stock, or such other class of
securities having rights and preferences no less favorable than common
stock of the successor, and the number of shares subject to the option
and the purchase price per share upon exercise of the option shall be
correspondingly adjusted, so that, by virtue of such Change in Control
of the Corporation, each Optionee shall have the right to purchase:
(i) that number of shares of common stock of the successor which have
a Fair Market Value equal, as of the date of such Change in Control of
the Corporation, to the Fair Market Value, as of the date of such
Change in Control, of the shares of Common Stock of the Corporation
theretofore subject to his/her option, and (ii) for a purchase price
per share which, when multiplied by the number of shares of common
stock of the successor subject to the option, shall equal the aggregate
exercise price at which the Optionee could have acquired all of the
shares of Common Stock theretofore optioned to the Optionee.
10. AMENDMENT.
(a) AUTHORITY TO AMEND. The Board of Directors (except as otherwise
required by applicable law, rule or regulations, including without any
limitation any
6
<PAGE>
shareholder approval of the safe harbor rule promulgated under the
Securities Exchange Act of 1933) may at any time without the
approval of the shareholders of the Corporation, amend, suspend or
discontinue the Plan at any time and, with the consent of the
Optionee, the terms and provisions of his option.
(b) LIMITATIONS ON AMENDMENTS. Notwithstanding the provisions of
subsection (a), the Board of Directors may not amend Section 4
more than once every six months, other than to comport with changes
in the Internal Revenue Code, the Employee Retirement Income
Security Act, or the rules thereunder, and without the approval of the
shareholders of the Corporation, make any alteration which would:
(i) increase the aggregate number of shares subject to options
under the Plan, except as provided in Section 9; (ii) decrease the
minimum option price, except as provided in Section 9; (iii) permit
any member of the Committee to become eligible to receive the grant
of an option under the Plan; (iv) withdraw administration of the Plan
from the Committee or the Board of Directors; (v) extend the term of
the Plan or the maximum period during which any option may be
exercised; (vi) change the manner of determining the option price;
(vii) change the class of individuals eligible to receive the grant
of an option under the Plan; or (viii) without the consent of the
holder of an option, alter or impair any option previously granted
under the Plan. No amendment to the Plan may, without the consent of
the Optionees, make any changes in any outstanding options theretofore
granted under the Plan which would adversely affect the rights of such
Optionees.
11. TERMINATION. The Board of Directors may terminate the Plan at any
time and no options shall be granted thereafter. Such termination, however,
shall not affect the validity of any option theretofore granted under the
Plan. In any event, no option may be granted under the Plan after the date
which is ten (10) years from the date the Board of Directors adopts the Plan.
12. SUCCESSORS. This Plan shall be binding upon the successors and
assigns of the Corporation.
13. GOVERNING LAW. The terms of any options granted hereunder and the
rights and obligations hereunder of the Corporation, the Optionees and their
successors in interest shall, except to the extent governed by federal law, be
governed by Indiana law.
14. GOVERNMENT AND OTHER REGULATIONS. The obligations of the Corporation
to issue or transfer and deliver shares under options granted under the Plan
shall be subject to compliance with all applicable laws, governmental rules
and regulations, and administrative action.
15. LIMITATION OF LIABILITY. No member of the Board of Directors of the
Corporation shall be personally liable for any action, omission, or
determination made in good faith in connection with the Plan.
7
<PAGE>
16. NO GUARANTEE OF CONTINUED SERVICE AS A DIRECTOR. Nothing contained in
the Plan or in any stock option agreement executed pursuant to the Plan shall
confer upon the Optionee any right to continued service as a director of the
Corporation or limit in any way the right of the Corporation to remove
him/her as a director, with or without cause, at any time.
17. DEFINITIONS.
(a) The term "Board" or "Board of Directors" used herein shall mean the
Board of Directors of the Corporation, unless the context clearly
requires otherwise, and to the extent that any powers and discretion
vested in the Board of Directors are delegated to any Committee of the
Board, the term "Board" or "Board of Directors" shall also mean such
Committee.
(b) The term "Subsidiary" or "Subsidiaries" used herein shall mean any
banking institution or other corporation more than fifty percent (50%)
or whose total combined voting stock of all classes is held by the
Corporation or by another corporation qualifying as a Subsidiary within
this definition.
(c) The term "Change in Control of the Corporation" used herein shall
mean (i) any merger, consolidation or similar transaction which
involves the Corporation or any Subsidiary and in which persons who
are the shareholders of the Corporation immediately prior to such
transaction own, immediately after such transaction, shares of the
surviving or combined entity which possess voting rights equal to or
less than fifty percent (50%) of the voting rights of all shareholders
of such entity, determined on a fully diluted basis; (ii) any sale,
lease, exchange, transfer or other disposition of all or any
substantial part of the consolidated assets of the Corporation; (iii)
any tender, exchange, sale or other disposition (other than
dispositions of the stock of the Corporation or any Subsidiary in
connection with bankruptcy, insolvency, foreclosure, receivership or
other similar transactions) or purchases (other than purchases by the
Corporation or any corporation-sponsored employee benefit plan, or
purchases by members of the Board of Directors or any Subsidiary) of
shares which represent more than twenty-five percent (25%) of the
voting power of the Corporation or any Subsidiary, (iv) during any
period of two (2) consecutive years during the term of the Plan
specified in Section 18, individuals who at the date of the adoption
of the Plan constitute the Board of Directors cease for any reason to
constitute at least a majority thereof, unless the election of each
director at the beginning of such period has been approved by directors
representing at least a majority of the directors then in office who
were directors on the date of the adoption of the Plan; (v) a majority
of the Board of Directors recommends the acceptance of or accept any
agreement, contract, offer or other arrangement providing for, or any
series of transactions resulting in, any of the transactions described
above.
8
<PAGE>
18. EFFECTIVE DATE AND TERM OF THE PLAN. The Plan shall become effective
only upon approval by the Board of Directors and Shareholders of the
Corporation. Options may be granted under the Plan for a period of ten (10)
years commencing on May 1, 1996.
ANB CORPORATION
By: /s/ James R. Schrecongost
---------------------------------
James R. Schrecongost, President
ATTEST: [SEAL]
By: /s/ James W. Convy
--------------------------
James W. Convy, Secretary
APPROVED BY THE SHAREHOLDERS OF THE CORPORATION ON APRIL 17, 1996.
9
<PAGE>
EXHIBIT 11--STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
- ------------------------------------------------------------------------------
COMPUTATION OF EARNINGS PER SHARE ON PRIMARY AND FULLY DILUTED BASIS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
Net income $6,005,912 $5,285,011 $4,770,190
Average number of common shares
outstanding 4,501,155 4,551,822 4,549,010
Earnings per average shares
outstanding(1) $ 1.33 $ 1.16 $ 1.05
PRIMARY
Net income $6,005,912 $5,285,011 $4,770,190
Average number of common shares
outstanding 4,501,155 4,551,822 4,549,010
Add incremental shares for stock options 79,004 73,364 109,934
----------------------------------------
Adjusted average shares 4,580,159 4,625,186 4,658,944
Primary earnings per share(1) $ 1.31 $ 1.14 $ 1.02
FULLY DILUTED
Net income $6,005,912 $5,285,011 $4,770,190
Average number of common shares
outstanding 4,501,155 4,551,822 4,549,010
Add incremental shares for stock options 94,789 91,287 101,812
----------------------------------------
Adjusted average shares 4,595,944 4,643,109 4,650,822
Fully diluted earnings per share(1) $ 1.31 $ 1.14 $ 1.03
</TABLE>
(1) Due to the immaterial differences computed before rounding between primary
and fully diluted earnings per share and earnings per average shares
outstanding, earnings per average shares outstanding only is reported.
The above per share calculations reflect the 2 for 1 stock split declared in
November, 1995.
<PAGE>
Mission Statement
The mission of ANB Corporation is to provide a broad range of financial
services to its market, to maximize a long-term return to stockholders
through capital appreciation and dividends, and to provide a challenging work
environment with appropriate compensation.
ANB Corporation will accomplish its mission through its affiliated companies
by taking an active financial and civic role in its local communities. The
organization shall deal fairly under all circumstances, and shall endeavor to
be the most professional and responsive financial institution in the market.
ANB Corporation will continue to grow profitably by attaining excellence in
the fulfillment of customer financial service needs. Growth may also be
accomplished via acquisition or merger when such actions are in the best
interests of all ANB Corporation stockholders.
<PAGE>
Shareholder Information
Founded in 1984, ANB Corporation is a multi-bank holding company engaged in
the business of commercial banking, trust and asset management. Headquartered
in Muncie, Indiana, the business of the company is conducted through its
three subsidiaries: American National Bank and Trust Company of Muncie,
American National Trust And Investment Management Company, and Peoples Loan &
Trust Bank.
American National Bank is a national banking association with its principal
office in Muncie, Delaware County, Indiana. American National Trust is a
nationally chartered trust bank headquartered in Muncie, with regional
offices in three other Indiana communities. Peoples is a state banking
association with its home office in Winchester, Randolph County, Indiana.
American National Bank has one wholly owned subsidiary: ANB Financial
Planning Services.
ANB Corporation provides commercial banking, trust and asset management
products and services through 23 affiliated offices in six Indiana counties.
ALLEN COUNTY
American National Trust And Investment Management Company
DELAWARE COUNTY
American National Bank and Trust Company of Muncie (10 offices)
American National Trust And Investment Management Company
ANB Financial Planning Services
JAY COUNTY
American National Bank and Trust Company of Muncie
MADISON COUNTY
American National Trust And Investment Management Company
RANDOLPH COUNTY
American National Trust And Investment Management Company
Peoples Loan & Trust Bank (5 Offices)
WAYNE COUNTY
Peoples Loan & Trust Bank (2 Offices)
<PAGE>
Annual Meeting Market Makers
Wednesday, April 16, 1997 NatCity Investments
Minnetrista Cultural Center McDonald & Company Sec., Inc.
1200 North Minnetrista Parkway Howe Barnes Investments, Inc.
Muncie, Indiana 47303 Robert W. Baird & Co., Inc.
Corporate Address Stock Transfer Agent
ANB Corporation American National Trust And
110 East Main Street Investment Management Company
Muncie, Indiana 47305 320 South High Street
Muncie, Indiana 47305
ANNUAL REPORT (FORM 10-K)
Upon written request, the Company will provide without charge to each
shareholder, a copy of the annual report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended December 31, 1996.
Address all requests to: L.E. Thomas, Chief Financial Officer and Treasurer,
at the corporate office address.
COMPANY STOCK PRICES AND DIVIDENDS
The Company's common stock trades on The NASDAQ Stock Market under the symbol
ANBC. At December 31, 1996, the Company had 4,490,556 shares of its common
stock outstanding, and there were 619 shareholders of record.
The following table sets forth the high and low prices of the Company's
common stock as reported by NatCity Investments in 1996 and 1995. The prices
do not include retail mark-ups, mark-downs or commissions and may not
represent actual transactions. The prices have been adjusted for stock
splits. The table also sets forth the cash dividends declared on Company
common stock since January 1, 1995. All dividends have been adjusted to give
effect to stock splits.
Stock Price Dividends
High Low Per Share
1996 1995 1996 1995 1996 1995
------ ------ ------ ------ ------ ------
First Quarter $16.50 $12.25 $15.50 $11.88 $0.125 $0.105
Second Quarter 17.50 13.50 16.50 12.25 0.125 0.105
Third Quarter 18.00 14.00 17.50 13.50 0.150 0.125
Fourth Quarter 21.00 15.75 18.00 14.00 0.150 0.125
The primary source of funds for the payment of cash dividends by the Company
is dividends received from its subsidiaries. The subsidiaries have certain
dividend restrictions, which are common to the banking industry, that limit
the payment of dividends. The Company has no reason to believe these
restrictions will, in any way, impair the payment of future cash dividends.
The Company currently anticipates that it will continue to pay quarterly cash
dividends on its common stock. The payment of dividends in the future is at
the discretion of the Company's Board of Directors and will depend on the
Company's operating results and financial condition, the availability of
funds, regulatory limitations, tax considerations and other factors.
<PAGE>
FINANCIAL HIGHLIGHTS
ANB Corporation Selected Financial Data
(Dollars in Thousands Except for Per Share Amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Net interest income $21,028 $19,824 $17,411 $14,424 $14,510
Provision for loan losses 1,089 1,084 277 519 1,082
Net interest income after
provision for loan losses 19,939 18,740 17,134 13,905 13,428
Income before cumulative effect
of change in accounting
method 6,006 5,285 4,770 4,987 4,573
Net income 6,006 5,285 4,770 5,185 4,573
Dividends 2,472 2,090 1,866 1,676 1,446
Average shares outstanding 4,501,155 4,551,822 4,549,010 4,529,060 4,517,680
PER SHARE:*
Income before cumulative effect
of change in accounting
method $1.33 $1.16 $1.05 $1.10 $1.01
Net income 1.33 1.16 1.05 1.14 1.01
Dividends 0.55 0.46 0.41 0.37 0.32
Stockholders' equity 11.43 10.92 9.85 9.17 8.38
Market stock price at year end 20.00 15.75 12.00 13.25 11.25
AT YEAR END:
Total assets $493,847 $483,236 $441,586 $346,335 $353,445
Loans, net 372,681 346,016 326,105 237,908 251,520
Deposits 405,845 415,351 380,132 289,492 301,422
Stockholders' equity 51,341 49,471 44,910 41,703 37,904
</TABLE>
*Per share amounts have been restated to give retroactive effect to the 1995
stock split.
<PAGE>
REPORT FROM MANAGEMENT
To our shareholders and friends:
Nineteen ninety-six was a record-setting year for ANB Corporation. All-time
highs were recorded in net income per share and net income, dividends per
share and total dividends, stockholders' equity, total assets and total
loans. Key asset and equity measurements improved, while for the second
consecutive year, the Company maintained a net interest margin in excess of
five percent.
The board of directors and management of your Company followed closely a
strategic initiatives plan - a "road map" document - designed to grow your
Company, expand earning opportunities and enhance the value of the shares you
hold. The Company grew through one acquisition and poised itself, through
reorganization, to take advantage of future growth possibilities. In
addition, communication with market makers, analysts and institutional
investors received increased emphasis during 1996, an activity that will be
heightened in the future.
In 1996, the associates of ANB Corporation and its affiliated companies
continued a unified pursuit of an important organizational core value -
lifelong learning. We worked to expand our sales and business development
abilities, our technological readiness, our leadership and our managerial
skills. Most importantly, we did not relent in our steadfast quest for
unparalleled customer service; a brand of service for which we have become
well known.
As a stakeholder in ANB Corporation, we invite you to read further as we
report the results of 1996 and share our expectations for continued success.
RECORD NET INCOME. ANB Corporation net income per share in 1996 was $1.33, an
increase of 14.7 percent over the $1.16 earned in 1995. Net income was $6.006
million, an increase of 13.6 percent over 1995 net income.
We are most gratified to report that the double-digit increases in net income
per share and net income were achieved in spite of having to pay a one-time
charge assessed by the Federal Deposit Insurance Corporation. The
non-recurring special assessment, which amounted to $589 thousand, resulted
from federal legislation enacted to recapitalize the Savings Association
Insurance Fund. The impact on net income for 1996 was 8 CENTS per share.
ANB CORPORATION STOCK, DIVIDEND AND EQUITY GROWTH. The market bid price of
ANB Corporation was $15.75 at the beginning of 1996. On December 31, 1996,
the market bid price was $20.00, an increase of 27.0 percent during the year.
Since the beginning of 1995, ANB Corporation has appreciated in value more
than 66.0 percent. An investment of $100 in ANB Corporation on January 1,
1992, would have grown to $293 by December 31, 1996, assuming the
reinvestment of all dividends. The average annual compound growth rate during
that span of five years was 24.0 percent.
Again in 1996, the dividend paid per share of ANB Corporation stock was
increased. Effective with the third quarter payment, the dividend increased
20.0 percent from 12.5 CENTS to 15 CENTS per share. It was the 17th consecutive
year during which the dividend per share was increased. Total dividends paid
per share during 1996 increased 19.6 percent over the prior year and have
risen in excess of 10.8 percent for 13 years in a row.
Total dividends paid to shareholders reached $2.472 million in 1996 with the
dividend payout ratio reaching 41.4 percent. Stockholders' equity in the
Company increased 3.8 percent during 1996, to an all-time high of $51.3
million. At the end of 1996, ANB Corporation maintained a leverage capital
ratio of 9.5 percent and a risk-adjusted total capital ratio of 14.4 percent.
<PAGE>
TOTAL ASSETS. Total assets of the Company increased 2.2 percent during the
year, from $483.2 million at year end 1995 to $493.8 million at year end
1996. Total loans grew 7.8 percent from $348.9 million to $376.1 million.
Credit quality at ANB Corporation remained positive during 1996 due to
continued sound credit administration policies and thorough internal loan
review. The minimization of loan losses is of central importance to long-term
profitability. A strong credit portfolio builds investor confidence and
strengthens customer faith in ANB Corporation and its affiliates.
STRATEGIC INITIATIVES. Enhancement of shareholder value receives top priority
and attention by the directors and management of your Company. Two years ago,
during a day-long corporate board retreat, a strategic initiatives document
was developed. The initiatives provide a road map to be followed, the result
of which will be growth, expanded earning opportunities and shareholder value
enhancement.
In 1996, ANB Corporation senior management accepted the challenge of
developing the concept of a statewide community bank network. The network
envisioned will consist of individually chartered, community financial
institutions supported by a single holding company.
A network such as this will provide community banks and thrifts an
alternative to "going it alone;" an alternative to selling to a regional bank
holding company where local control and decision-making authority are
removed. The network will preserve relationships with the local customer and
the community - the foundations upon which community banking is built. The
holding company will foster economies of size and scale by serving as a
resource for data processing, alternative delivery technologies, internal
audit, loan review, human resources, employee benefits, marketing, trust
services, access to capital markets and shareholder liquidity.
Within the framework of ANB Corporation's strategic initiatives, a
significant 1996 event involved our trust affiliate, American National Trust
And Investment Management Company. Late in the year, the ownership of
American National Trust was transferred from American National Bank and Trust
Company to ANB Corporation. This transfer was made in order to accommodate
plans for future growth and expansion of trust operations throughout Indiana.
In March 1996, American National Trust acquired Northern Indiana Trust
Company and merged the staff and assets of the trust department of another
Company affiliate, Peoples Loan & Trust Bank. These consolidations added
approximately $180 million to the assets of American National Trust and
positioned this important corporate affiliate to gain an even greater share
of the Indiana trust services market. American National Trust is currently
the fourth largest Indiana-based provider of trust and asset management
services.
Formal research conducted last year confirmed there are opportunities to gain
trust market share in communities where ownership of local trust providers
has shifted to institutions headquartered outside of Indiana. This same
research revealed a high level of satisfaction among the current clients of
American National Trust. Contributing elements to this satisfaction are the
rates of return achieved in 1996 by the Trust Company's investment
department. The American National Trust bond and income funds exceeded the
Lehman Brothers Intermediate Government/Corporate Index by 0.54 percent and
0.55 percent, respectively. The American National Trust equity and growth
funds exceeded the Standard and Poor's 500 Index by 2.17 percent and 3.20
percent, respectively.
EXPANSION OF BOARD AND MANAGEMENT. The number of ANB Corporation directors
increased by one in 1996 with the election of Madelyn K. Ferris. As senior
vice president of Paws Incorporated - the operating company for the
international cartoon character, Garfield the Cat - Mrs. Ferris brings a
wealth of national and international business experience. The Board is
delighted to welcome Mrs. Ferris as a member.
As a result of a management expansion plan, Jerome J. Gassen was added to the
executive management of American National Bank and Trust Company of Muncie in
early 1997. Mr. Gassen, formerly an executive with Firstar Corporation of
Iowa, will serve as president and chief operating officer of American
National,
<PAGE>
along with yours truly who will serve as vice chairman and chief executive
officer of the bank and continue to serve as president and chief executive
officer of ANB Corporation.
CAPITALIZING ON TECHNOLOGY. During 1996, an extensive study of core data
processing and alternative delivery applications concluded with the selection
and purchase of a new system. Following conversion in 1997, the corporate
in-house system will support existing Company affiliates and those that join
the ANB Corporation family under the statewide community bank network concept.
Harmonious with the statewide network concept, the new core data processing
solution will allow customers of affiliate companies to transact business on
their accounts at any affiliate bank. In addition, it will enable ANB
Corporation affiliates to implement or enhance comprehensive telephone and
personal computer banking systems. This state-of-the-art technology will make
it possible for increasing numbers of customers to electronically access
their accounts whenever and wherever they choose while ultimately decreasing
delivery costs.
POSITIONED FOR THE FUTURE. The associates of ANB Corporation and its
affiliates worked diligently in 1996 to ensure that the return on your
investment in the Company was enhanced. Although we look forward to continued
high performance results in 1997 and beyond, we will not be content to rest
on the record performance of 1996.
To remain profitable, to increase shareholder value, to meet the
ever-increasing expectations of an interactive marketplace, the directors and
management of your Company will continue to embrace the accelerated pace of
change in the financial services industry. Our objective is to employ change
and make it work to enhance shareholder value. New technologies will be an
integral part of our strategic directions for the future.
Innovation, flexibility, responsiveness and performance are some of the
attributes that characterize your Company. We will continue to build upon the
unique strengths and hard-earned successes of the past - the combination of
which will position ANB Corporation strategically for the future.
James R. Schrecongost
President and Chief Executive Officer
<PAGE>
Independent Auditor's Report
To the Stockholders and
Board of Directors
ANB Corporation
Muncie, Indiana
We have audited the consolidated balance sheet of ANB Corporation and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 described above present
fairly, in all material respects, the consolidated financial position of ANB
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company changed its method of accounting for investments in securities in
1994.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
January 31, 1997
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996 and 1995
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- -------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheet 2
Consolidated statement of income 3
Consolidated statement of changes in stockholders' equity 4
Consolidated statement of cash flows 5
Notes to consolidated financial statements 6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
ANB Corporation
Muncie, Indiana
We have audited the consolidated balance sheet of ANB Corporation and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 described above present
fairly, in all material respects, the consolidated financial position of ANB
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company changed its method of accounting for investments in securities in
1994.
Geo. S. Olive & Co. LLC
Indianapolis, Indiana
January 31, 1997
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31 1996 1995
_____________________________________________________________________________
(Dollars in Thousands)
ASSETS
Cash and due from banks $ 21,835 $ 23,488
Federal funds sold 2,475 19,800
Interest-bearing deposit accounts 74 248
__________________
Cash and cash equivalents 24,384 43,536
Investment securities available for sale 73,944 70,514
Mortgage loans held for sale 204 129
Loans 376,081 348,913
Allowance for loan losses (3,400) (2,897)
__________________
Net loans 372,681 346,016
Premises and equipment 9,345 9,577
Federal Reserve and Federal Home Loan Bank stock 2,713 2,661
Foreclosed real estate 516 341
Interest receivable 4,159 4,081
Core deposit intangibles and goodwill 4,306 4,309
Other assets 1,595 2,072
__________________
Total assets $493,847 $483,236
__________________
__________________
Deposits
Noninterest bearing $ 50,256 $ 52,029
Interest bearing 355,589 363,322
__________________
Total deposits 405,845 415,351
Short-term borrowings 17,676 7,749
Federal Home Loan Bank advances 14,000 2,395
Interest payable 1,391 1,626
Other liabilities 3,594 6,644
__________________
Total liabilities 442,506 433,765
__________________
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock, without par value
Authorized and unissued--250,000 shares
Common stock, $1 stated value
Authorized--20,000,000 shares
Issued and outstanding--4,490,556 and 4,530,335 shares 4,491 4,530
Paid-in capital 6,930 6,274
Paid-in capital--stock options 397 466
Prepaid compensation expense (68)
Retained earnings 38,325 36,358
Net unrealized gain on securities available for sale 1,198 1,911
__________________
Total stockholders' equity 51,341 49,471
__________________
Total liabilities and stockholders' equity $493,847 $483,236
__________________
__________________
See notes to consolidated financial statements.
(2)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1996 1995 1994
______________________________________________________________________________
(Dollars in Thousands
Except for Per Share Amounts)
INTEREST INCOME
Loans receivable
Taxable $32,310 $30,342 $24,502
Tax exempt 107 80 66
Investment securities
Taxable 1,837 1,674 1,391
Tax exempt 2,679 2,573 2,561
Federal funds sold 271 591 368
Other interest and dividend income 220 211 208
___________________________
Total interest income 37,424 35,471 29,096
___________________________
INTEREST EXPENSE
Deposits 15,484 15,051 11,326
Short-term borrowings 481 479 322
Federal Home Loan Bank advances 431 117 37
___________________________
Total interest expense 16,396 15,647 11,685
___________________________
NET INTEREST INCOME 21,028 19,824 17,411
Provision for loan losses 1,089 1,084 277
___________________________
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 19,939 18,740 17,134
___________________________
OTHER INCOME
Fiduciary activities 4,452 4,132 3,990
Service charges on deposit accounts 1,359 1,349 1,244
Other customer fees 463 338 327
Investment securities gains, net 305
Net loans sold gains 159 97 129
Other income 567 625 607
___________________________
Total other income 7,000 6,541 6,602
___________________________
OTHER EXPENSES
Salaries and employee benefits 10,017 9,827 9,206
Premises and equipment expenses 2,672 2,645 2,617
Advertising 472 496 468
Professional fees 268 336 394
Deposit insurance expense 867 558 817
Printing and office supplies 561 569 532
Amortization of goodwill and core deposit intangibles 375 360 338
Other expenses 2,907 2,683 2,563
___________________________
Total other expenses 18,139 17,474 16,935
___________________________
INCOME BEFORE INCOME TAX 8,800 7,807 6,801
Income tax expense 2,794 2,522 2,031
___________________________
NET INCOME $ 6,006 $ 5,285 $ 4,770
___________________________
___________________________
NET INCOME PER SHARE $1.33 $1.16 $1.05
WEIGHTED AVERAGE SHARES OUTSTANDING 4,501,155 4,551,822 4,549,010
See notes to consolidated financial statements.
(3)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMPENSATORY STOCK OPTIONS NET
-------------------------- UNREALIZED
COMMON STOCK GAIN ON
--------------------- PREPAID SECURITIES
SHARES PAID-IN PAID-IN COMPENSATION RETAINED AVAILABLE
OUTSTANDING AMOUNT CAPITAL CAPITAL EXPENSE EARNINGS FOR SALE TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands except for Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1994 2,272,279 $ 2,272 $ 7,960 $ 519 $ (261) $ 31,213 $ 41,703
Net income for 1994 4,770 4,770
Cash dividends ($.41 per share) (1,866) (1,866)
Cumulative effect of change in method
of accounting for securities $ 957 957
Net change in unrealized gain on
securities available for sale (936) (936)
Exercise of stock options 3,362 3 53 (7) 49
Stock tendered in exercise of stock
options (462) (2) (9) (11)
Compensation expense for 1994
related to options granted 109 109
Tax benefit on stock options
exercised 11 11
Stock issued under dividend
reinvestment and stock
purchase plan 5,086 5 119 124
---------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 2,280,265 2,280 8,141 512 (152) 34,108 21 44,910
Net income for 1995 5,285 5,285
Cash dividends ($.46 per share) (2,090) (2,090)
Net change in unrealized gain on
securities available for sale 1,890 1,890
Two-for-one stock split 2,261,963 2,262 (2,262)
Exercise of stock options 17,913 18 172 (46) 144
Stock tendered in exercise of stock
options (6,195) (6) (14) (89) (109)
Compensation expense for 1995
related to options granted 84 84
Tax benefit on stock options
exercised 66 66
Stock repurchases (34,651) (35) (126) (856) (1,017)
Stock issued under dividend
reinvestment and stock
purchase plan 11,040 11 297 308
---------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 4,530,335 4,530 6,274 466 (68) 36,358 1,911 49,471
Net income for 1996 6,006 6,006
Cash dividends ($.55 per share) (2,472) (2,472)
Net change in unrealized gain on
securities available for sale (713) (713)
Exercise of stock options 39,950 40 287 (57) 270
Stock tendered in exercise of stock
options (10,488) (10) (13) (157) (180)
Compensation expense for 1996
related to options granted 56 56
Compensatory stock options
cancelled (12) 12
Tax benefit on stock options
exercised 109 109
Stock repurchases (93,000) (93) (128) (1,410) (1,631)
Stock issued under dividend
reinvestment and stock
purchase plan 23,759 24 401 425
---------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 4,490,556 $ 4,491 $ 6,930 $ 397 $ 0 $ 38,325 $ 1,198 $ 51,341
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,006 $ 5,285 $ 4,770
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 1,089 1,084 277
Depreciation and amortization 1,109 1,172 1,263
Amortization of goodwill and core intangibles 375 360 338
Amortization of loan, deposit and other purchase accounting adjustments, net
33 (31) (110)
Deferred income tax (381) (274) (73)
Investment securities amortization (accretion), net (63) (132) 323
Investment securities gains (305)
Net change in
Loans held for sale (75) 35 111
Accounts receivable for loans sold 163 (163) 696
Interest receivable (78) (566) (196)
Interest payable (235) 376 361
Other adjustments 151 1,509 879
----------------------------------
Net cash provided by operating activities 8,094 8,655 8,334
----------------------------------
INVESTING ACTIVITIES
Net change in marketable equity securities available for sale 251 (274) 1,040
Purchases of securities available for sale (18,455) (17,758) (10,041)
Proceeds from maturities of securities held to maturity 6,342 7,495
Proceeds from maturities of securities available for sale 11,408 15,025 22,200
Proceeds from sales of securities available for sale 250 6,957
Purchases of securities held to maturity (3,493) (1,386)
Net change in loans (28,203) (21,094) (34,018)
Purchases of premises and equipment (878) (572) (895)
Proceeds from sale of foreclosed real estate 253 20 400
Purchase of Federal Home Loan Bank stock (52) (13) (361)
Acquisitions, net of cash acquired (399) (7,330)
Other investing activities 24 42 71
----------------------------------
Net cash used by investing activities (35,801) (21,775) (15,868)
----------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, interest-bearing demand and savings deposits (5,737) 903 1,502
Certificates of deposit (3,760) 34,409 10,772
Short-term borrowings 9,926 (4,908) 486
Proceeds from Federal Home Loan Bank advances 15,000 4,850
Repayment of Federal Home Loan Bank advances (3,395) (2,850)
Repayment of long-term debt (996)
Cash dividends (2,472) (2,090) (1,866)
Stock repurchases (1,631) (1,017)
Stock sold
Exercise of stock options 199 101 49
Dividend reinvestment and stock purchase plan 425 308 124
----------------------------------
Net cash provided by financing activities 8,555 29,706 10,071
----------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (19,152) 16,586 2,537
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 43,536 26,950 24,413
----------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 24,384 $ 43,536 $ 26,950
----------------------------------
----------------------------------
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 16,631 $ 15,271 $ 11,321
Income tax paid 3,095 2,530 1,888
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of ANB Corporation ("Company") and its
wholly owned subsidiaries, American National Bank and Trust Company of Muncie
("American National"), Peoples Loan & Trust Bank ("Peoples") and American
National Trust and Investment Management Company ("ANTIM"), and ANB Financial
Planning Services ("ANBFPS"), a subsidiary of American National, conform to
generally accepted accounting principles and general practices followed by
the banking industry. The more significant of the policies are described
below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a bank holding company whose principal activity is the
ownership and management of the banks and other subsidiaries. The bank and
trust company subsidiaries operate under national and state bank charters and
provide full banking services. Accordingly, these subsidiaries are subject
to regulation by the Office of the Comptroller of the Currency, Department of
Financial Institutions, State of Indiana, and the Federal Deposit Insurance
Corporation.
The banking subsidiaries generate commercial, mortgage and consumer loans and
receive deposits from customers located primarily in Delaware, Jay, Randolph
and Wayne Counties, Indiana and surrounding counties. The loans are
generally secured by specific items of collateral including real property,
consumer assets and business assets. American National also engages in loan
servicing for investors. ANTIM provides trust and asset management services,
and ANBFPS is engaged in the selling of financial services.
CONSOLIDATION--The consolidated financial statements include the accounts of
the Company and subsidiaries after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES--Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as
available for sale. Securities available for sale are carried at fair value
with unrealized gains and losses reported separately in stockholders' equity,
net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net
security gains (losses). Gains and losses on sales of securities are
determined on the specific-identification method.
At January 1, 1994, investment securities, securities held for sale and
marketable equity securities with an approximate carrying value of
$42,058,000 were reclassified as available for sale. This reclassification
resulted in an increase in total stockholders' equity, net of taxes, of
$957,000.
(6)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
MORTGAGE SERVICING RIGHTS on originated loans are capitalized by allocating
the total cost of the mortgage loans between the mortgage servicing rights
and the loans based on their relative fair values. Capitalized servicing
rights are amortized in proportion to and over the period of estimated
servicing revenues.
MORTGAGE LOANS HELD FOR SALE are carried at the lower of aggregate cost or
market. Net unrealized losses are recognized through a valuation allowance
by charges to income.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower
may be unable to meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience,
changes in the composition of the portfolio, the current condition and
amount of loans outstanding, and the probability of collecting all amounts
due. Impaired loans are measured by the present value of expected future
cash flows, or the fair value of the collateral of the loan, if collateral
dependent.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1996 the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline
in the areas within which the banking subsidiaries operate would increase the
likelihood of additional losses due to credit and market risks and could
create the need for additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line and the declining balance
methods based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included
in current operations.
FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK are required investments for
institutions that are members of the Federal Reserve and Federal Home Loan
Bank systems. The required investment in the common stock is based on a
predetermined formula.
FORECLOSED REAL ESTATE is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any
required adjustment is charged to the allowance for loan losses. All
subsequent activity is included in current operations.
CORE DEPOSIT INTANGIBLES AND GOODWILL are being amortized on the
straight-line method over periods not exceeding 15 years. Such assets are
periodically evaluated as to the recoverability of their carrying value.
(7)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
INCOME TAX in the consolidated statement of income includes deferred income
tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax
purposes. The Company files consolidated income tax returns with its
subsidiaries.
EARNINGS PER SHARE have been computed based upon the weighted average common
and common equivalent shares outstanding during each year after retroactive
adjustment for the stock split. Common stock equivalents consisting of
shares issuable under stock option plans were not included since their effect
on dilution was insignificant.
- - ACQUISITION
On January 21, 1994, the Company acquired 100% of the outstanding common
stock of Winchester Bancorporation ("Winchester") for approximately
$11,045,000 including acquisition costs of $119,000. The transaction was
recorded using the purchase method and, accordingly, the net assets acquired
of $6,269,000 were recorded at their estimated fair values at date of
acquisition. The excess of the purchase price over the estimated fair value
of underlying net assets of $4,776,000 was allocated to goodwill and is being
amortized over 15 years. Peoples was the wholly owned subsidiary of
Winchester at the date of acquisition. Winchester, the parent company, was
dissolved. The consolidated financial statements include the accounts of
Peoples from January 21, 1994.
Pro forma condensed results of operations for 1994 as though Winchester and
Peoples had been acquired as of January 1 of that year are as follows:
<TABLE>
<CAPTION>
1994
---------------------
REPORTED PRO FORMA
---------------------
<S> <C> <C>
Net interest income . . . . . . . . . . . . . . . . . . $17,411 $17,578
Net income. . . . . . . . . . . . . . . . . . . . . . . 4,770 4,800
Net income per share. . . . . . . . . . . . . . . . . . 1.05 1.06
</TABLE>
- - RESTRICTION ON CASH AND DUE FROM BANKS
The banking subsidiaries are required to maintain reserve funds in cash and/or
on deposit with the Federal Reserve Bank. The reserve required at December 31,
1996, was $5,561,000.
- - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1996
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury. . . . . . . . . . $17,763 $ 106 $ 31 $17,838
Federal agencies . . . . . . . . 8,047 3 78 7,972
State and municipal. . . . . . . 42,138 2,178 150 44,166
Mortgage-backed securities . . . 3,123 45 3,078
Marketable equity securities . . 690 690
Corporate obligations. . . . . . 200 200
---------------------------------------------
Total investment securities. . $71,961 $2,287 $304 $73,944
---------------------------------------------
---------------------------------------------
</TABLE>
(8)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
1995
---------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury . . . . . . . . . $17,950 $ 226 $ 3 $18,173
Federal agencies. . . . . . . . 4,148 8 3 4,153
State and municipal . . . . . . 40,118 3,031 44 43,105
Mortgage-backed securities. . . 3,744 49 3,695
Marketable equity securities. . 941 941
Corporate obligations . . . . . 450 3 447
---------------------------------------------
Total investment securities. . $67,351 $3,265 $102 $70,514
---------------------------------------------
---------------------------------------------
</TABLE>
Marketable equity securities consist of shares in a mutual fund which invests in
money market instruments including federal funds and repurchase agreements.
The amortized cost and fair value of securities available for sale at December
31, 1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
- ---------------------------------------------------------------------------
<S> <C> <C>
Within one year. . . . . . . . . . . . . . $ 8,892 $ 8,930
One to five years. . . . . . . . . . . . . 21,605 21,767
Five to ten years. . . . . . . . . . . . . 16,951 17,568
After ten years. . . . . . . . . . . . . . 20,700 21,911
-----------------------------
68,148 70,176
Mortgage-backed securities . . . . . . . . 3,123 3,078
Marketable equity securities . . . . . . . 690 690
-----------------------------
Totals . . . . . . . . . . . . . . . $71,961 $73,944
-----------------------------
-----------------------------
</TABLE>
Securities with a total carrying value of $41,063,000 and $29,037,000 were
pledged at December 31, 1996 and 1995 to secure certain deposits and for other
purposes as permitted or required by law.
Proceeds from sales of securities available for sale during 1996 and 1994 were
$250,000 and $6,957,000. No gains or losses were realized on the 1996 sales.
Gross gains of $321,000 and gross losses of $16,000 were realized on the 1994
sales.
The tax expense for securities gains was $121,000 for 1994.
The Company had amounts due to brokers for purchases of investment securities of
$1,999,000 at December 31, 1995.
On December 31, 1995, the Company transferred certain securities from held to
maturity to available for sale in accordance with a transition reclassification
allowed by the Financial Accounting Standards Board. Such securities had a
carrying value of $35,830,000 and a fair value of $37,984,000.
(9)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial loans. . . . . . . . . . . $ 81,142 $ 75,083
Term federal funds sold. . . . . . . . . . . . . . . 5,500 8,784
Real estate loans
One-to-four family properties. . . . . . . . . . . 144,749 134,488
Other. . . . . . . . . . . . . . . . . . . . . . . 98,366 91,581
Individuals' loans for household and other
personal expenditures. . . . . . . . . . . . . . . 42,507 35,736
Tax-exempt loans . . . . . . . . . . . . . . . . . . 2,432 1,630
Other loans. . . . . . . . . . . . . . . . . . . . . 1,385 1,611
------------------------
Total loans . . . . . . . . . . . . . . . . . . $376,081 $348,913
------------------------
------------------------
DECEMBER 31 1996 1995 1994
- -----------------------------------------------------------------------------
Allowance for loan losses
Balances, January 1. . . . . . . . . . $2,897 $2,698 $1,441
Addition resulting from acquisition. . 1,105
Provision for losses . . . . . . . . . 1,089 1,084 277
Recoveries on loans. . . . . . . . . . 66 187 302
Loans charged off. . . . . . . . . . . (652) (1,072) (427)
-----------------------------------
Balances, December 31. . . . . . . . . $3,400 $2,897 $2,698
-----------------------------------
-----------------------------------
Information on impaired loans is summarized below.
DECEMBER 31 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with an allowance . . . . . . . . . . $1,047 $ 930
Impaired loans for which the discounted cash flows
or collateral value exceeds the carrying value of
the loan . . . . . . . . . . . . . . . . . . . . . 190 261
-----------------------
Total impaired loans. . . . . . . . . . . . . . $1,237 $1,191
-----------------------
-----------------------
Allowance for impaired loans (included in the
Company's allowance for loan losses) . . . . . . . $ 459 $ 202
-----------------------
-----------------------
YEAR ENDED DECEMBER 31 1996 1995
- ----------------------------------------------------------------------------
Average balance of impaired loans. . . . . . . . . . $1,152 $1,370
Interest income recognized on impaired loans . . . . 56 16
Cash-basis interest included above . . . . . . . . . 56 16
</TABLE>
(10)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Company's banking subsidiaries have entered into transactions with certain
directors, executive officers, significant stockholders and their affiliates or
associates (related parties). Such transactions were made in the ordinary
course of business on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other unfavorable
features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
Balance, December 31, 1995 $13,248
Changes in composition of related parties 155
New loans, including renewals 6,970
Payments, etc., including renewals (5,687)
-------
Balance, December 31, 1996 $14,686
-------
-------
- - PREMISES AND EQUIPMENT
DECEMBER 31 1996 1995
- ------------------------------------------------------------------------
Land $2,342 $2,275
Buildings 7,516 7,451
Leasehold improvements 246 254
Equipment 8,897 8,639
----------------
Total cost 19,001 18,619
Accumulated depreciation (9,656) (9,042)
----------------
Net $9,345 $9,577
----------------
----------------
- - DEPOSITS
DECEMBER 31 1996 1995
- ------------------------------------------------------------------------
Demand deposits $163,181 $167,018
Savings deposits 26,727 28,627
Certificates and other time deposits of $100,000
or more 57,674 55,193
Other certificates and time deposits 158,263 164,513
------------------
Total deposits $405,845 $415,351
------------------
------------------
(11)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Certificates and other time deposits maturing in years ending after December 31,
1996:
1997 $171,677
1998 30,230
1999 8,089
2000 4,618
2001 1,218
Thereafter 105
--------
$215,937
--------
--------
- - SHORT-TERM BORROWINGS
DECEMBER 31 1996 1995
- ------------------------------------------------------------------------
Federal funds purchased $ 6,600
Securities sold under repurchase agreements 7,203 $4,594
U. S. Treasury demand notes 3,873 3,155
------------------
Total short-term borrowings $17,676 $7,749
------------------
------------------
Securities sold under agreements to repurchase consist of obligations of the
Company to other parties. The obligations are secured by U. S. Treasury
securities and such collateral is held in safekeeping by financial institutions.
The maximum amount of outstanding agreements at any month-end during 1996 and
1995 totaled $7,203,000 and $8,502,000 and the monthly average of such
agreements totaled $4,761,000 and $5,611,000. The agreements at December 31,
1996, mature within five months.
- - FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances were $14,000,000 and $2,395,000 at December 31,
1996 and 1995. Maturities by year for advances at December 31, 1996 are
$12,000,000 in 1997; $1,000,000 in 1998; and $1,000,000 in 2000. The weighted
average interest rate at December 31, 1996 and 1995 was 5.61% and 6.77%.
These advances are secured by first mortgage loans and investment securities
totaling $146,175,000 and $136,716,000 at December 31, 1996 and 1995. Advances
are subject to restrictions or penalties in the event of prepayment.
- - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of mortgage loans
serviced for others totaled $56,350,000 and $54,329,000 at December 31, 1996 and
1995.
(12)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
In 1996, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. This Statement requires the
capitalization of retained mortgage servicing rights on originated or purchased
loans. The amount of servicing rights capitalized in 1996 was not material.
- - INCOME TAX
YEAR ENDED DECEMBER 31 1996 1995 1994
- -------------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $2,361 $2,071 $1,471
State 814 725 633
Deferred
Federal (317) (259) (61)
State (64) (15) (12)
--------------------------
Total income tax expense $2,794 $2,522 $2,031
--------------------------
--------------------------
Reconciliation of federal statutory to actual
tax expense
Federal statutory income tax at 34% $2,992 $2,654 $2,312
Tax exempt interest (834) (797) (812)
Effect of state income taxes 495 468 410
Nondeductible goodwill amortization 121 122 115
Other 20 75 6
--------------------------
Actual tax expense $2,794 $2,522 $2,031
--------------------------
--------------------------
A cumulative net deferred tax liability is included in other liabilities. The
components of the liability are as follows:
DECEMBER 31 1996 1995
- -----------------------------------------------------------------------------
Differences in depreciation methods $ 543 $ 569
Accretion of investment discounts 33 25
Differences in accounting for loan fees (22) (99)
Differences in accounting for loan losses (449) (152)
State income tax 114 96
Differences in accounting for retirement plans and other
employee benefits (491) (378)
Deferral of directors' fees (218) (220)
Differences in accounting for stock option compensation (168) (169)
Deferral of Federal Home Loan Bank dividends 110 110
Differences in accounting for securities available for sale 785 1,252
Other (25) 27
---------------
$212 $1,061
---------------
---------------
Liabilities $1,585 $2,079
Assets (1,373) (1,018)
---------------
$ 212 $1,061
---------------
---------------
No valuation allowance was necessary at any time during 1996, 1995 or 1994.
(13)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
banking subsidiaries' exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual or notional
amount of those instruments. The banking subsidiaries use the same credit
policies in making such commitments as they do for instruments that are included
in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
1996 1995
- ---------------------------------------------------------------------------
Commitments to extend credit $57,944 $53,132
Standby letters of credit 1,032 387
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The banking subsidiaries evaluate each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the banking subsidiaries upon extension of
credit, is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the banking
subsidiaries to guarantee the performance of a customer to a third party.
The Company has entered into agreements with seven officers which provide for
salary continuation for a three-year period under certain circumstances
following a change of control of the Company, as defined. Under the terms of
the agreements, these payments could occur if, during a two-year period
following a change of control, such officers are terminated other than for cause
or unreasonable changes are made in their employment relationships.
The Company and its subsidiaries are also subject to claims and lawsuits which
arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated financial
position of the Company.
(14)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - RESTRICTION ON BANK DIVIDENDS
Without prior approval of the Comptroller of the Currency, American National is
restricted by national banking laws as to the maximum amount of dividends it can
pay in any calendar year to its retained net profits (as defined) for that year
plus the two preceding years. In addition, American National assumed the Muncie
Federal Savings Bank (merged into American National in 1993) liquidation account
for the benefit of eligible account holders established in connection with its
merger-conversion, which was $6,277,000 at October 1, 1990. As a result of
these restrictions, net assets of American National not available for payment of
dividends to the Company were approximately $24,224,000 as of December 31, 1996.
Total net assets of American National at such date were $27,823,000. American
National received approval for payment of dividends to the Company needed to
acquire Winchester in 1994.
Without prior approval, current regulations allow Peoples to pay dividends to
the Company not exceeding net profits (as defined) for the current year plus
those for the previous two years. As a result of this restriction, net assets
of Peoples not available for payment of dividends to the Company were
approximately $14,625,000 as of December 31, 1996. Total net assets of Peoples
at such date were $16,025,000.
As a practical matter, banking subsidiary dividends are restricted to a lesser
amount because of the need to maintain adequate capital structures.
- - STOCK TRANSACTIONS
In April, 1995, the stockholders approved an increase in the number of
authorized shares of common stock from 5,000,000 to 20,000,000 shares.
In April, 1995, the Company adopted a resolution to repurchase up to 200,000
shares of Company common stock. During 1996 and 1995, shares totaling 93,000
and 69,302 were repurchased under this program, which was terminated effective
in November, 1996.
In November, 1995, the Company declared a two-for-one common stock split,
distributed 2,261,963 shares ($1 stated value) to stockholders on December 29,
1995, and transferred $2,261,963 from paid-in-capital to common stock.
Accordingly, all references to stock option plans, dividend reinvestment plan,
and stock repurchase program data in the notes to consolidated financial
statements, weighted average shares outstanding and per share amounts have been
restated to give retroactive effect to the two-for-one split.
(15)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Pursuant to the stock option plans, the Company redeemed 10,488, 7,397 and 924
shares of its common stock and issued 39,950, 24,426 and 6,724 shares of common
stock in 1996, 1995 and 1994, respectively. Tax benefits of $109,500, $66,100
and $10,700 related to the exercise of stock options were credited to paid-in
capital in 1996, 1995 and 1994.
The Company approved a Dividend Reinvestment and Stock Purchase Plan in 1994
enabling stockholders to elect to have their cash dividends on all shares held
automatically reinvested in additional shares of the Company's common stock. In
addition, stockholders may elect to make optional cash payments up to an
aggregate of $5,000 per quarter for the purchase of additional shares of common
stock. The stock is credited to participant accounts at fair market value.
Dividends are reinvested on a quarterly basis on the applicable dividend payment
date that began with the October, 1994 dividend payment. The plan made 200,000
shares available for purchase. At December 31, 1996, 143,987 shares of common
stock remained available for purchase under the plan.
- - REGULATORY CAPITAL
The Company and banking subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate actions by the regulatory agencies
that, if undertaken, could have a material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and banking subsidiaries must meet
specific capital guidelines that involve quantitative measures of the Company's
and banking subsidiaries' assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's and
banking subsidiaries' capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
At December 31, 1996, the management of the Company believes that it meets all
capital adequacy requirements to which it is subject. The most recent
notification from the regulatory agency categorized the Company and banking
subsidiaries as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Company and
banking subsidiaries must maintain a minimum total risk-based capital, core
capital to adjusted tangible assets and core capital to adjusted total assets of
10.0%, 6.0% and 5.0%, respectively. There have been no conditions or events
since that notification that management believes have changed this
categorization.
(16)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The actual and required capital amounts and ratios of the Company, American
National and Peoples are as follows:
1996
------------------------------
REQUIRED FOR
ACTUAL ADEQUATE CAPITAL 1
------------------------------
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------------------------------------------
Total capital 1 (to risk-weighted assets)
Consolidated $49,237 14.4% $27,418 8.0%
American National 28,926 12.5 18,544 8.0
Peoples 13,275 12.4 8,598 8.0
Tier I capital 1 (to risk-weighted assets)
Consolidated 45,837 13.4 13,709 4.0
American National 26,742 11.5 9,272 4.0
Peoples 12,059 11.2 4,299 4.0
Tier I capital 1 (to average assets)
Consolidated 45,837 9.5 19,245 4.0
American National 26,742 8.1 13,233 4.0
Peoples 12,059 8.4 5,726 4.0
1 As defined by regulatory agencies
- - EMPLOYEE BENEFIT PLANS
The Company's defined-benefit pension plan covers substantially all of its
employees. The benefits are based primarily on years of service and employees'
pay near retirement. 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. Pension expense was $231,000 for 1996, $161,000 for 1995 and
$170,000 for 1994.
(17)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
Accumulated benefit obligation including vested benefits
of $5,715 and $6,079 $ 6,012 $ 6,381
-------------------------
Projected benefit obligation for service rendered to date $ (7,296) $ (7,703)
Plan assets at fair value, primarily fixed income obligations, equity
securities, and collective investment and mutual funds 8,056 7,178
-------------------------
Plan assets in excess of (less than) projected benefit obligation 760 (525)
Unrecognized net loss from experience different than that assumed 186 1,602
Unrecognized prior service cost being recognized over 16 years (441) (475)
Unrecognized net asset at January 1, 1987 being recognized over 17 years (499) (569)
-------------------------
Prepaid pension cost included in other assets $ 6 $ 33
-------------------------
-------------------------
Plan assets at fair value related to the Company
Company common stock $ 760 $ 751
Collective investment funds managed by ANTIM 1,033 1,417
<CAPTION>
DECEMBER 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension expense includes the following components
Service cost--benefits earned during the year $ 454 $ 346 $ 369
Interest cost on projected benefit obligation 496 517 506
Actual return on plan assets (976) (833) 77
Net amortization and deferral 257 131 (782)
----------------------------------------
$ 231 $ 161 $ 170
----------------------------------------
----------------------------------------
Assumptions used in the accounting as of December 31 were
Discount rate 7.50% 7.00% 7.25%
Rate of increase in compensation 4.50% 4.50% 4.50%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
</TABLE>
(18)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Company has a retirement savings 401(k) plan in which substantially all
employees may participate. The Company matches employees' contributions at
the rate of 50 percent for the first 4 percent of base salary contributed by
participants. The Company also has a stock investment plan under which
employees may, at their option, purchase stock of the Company. The Company
contributes 20 percent of employees' contributions. The expense for these
plans was $157,600 for 1996, $140,600 for 1995 and $129,000 for 1994.
The Company maintains a director retirement policy previously established by
Muncie Federal which provides for benefits subsequent to retirement date.
The amount of accrued benefits under the policy is included in other
liabilities.
- - STOCK OPTION PLANS
Under terms of the ANB Corporation Stock Option Plan ("1990 Plan") for key
employees, 300,000 shares of Company common stock shall be available for
grant, and the option price upon exercise shall not be less than 75% of fair
market value of such stock at date of grant. Options granted shall be
exercisable in four annual installments, on a cumulative basis, beginning one
year after date of grant, or upon a change in control of the Company as
defined in the 1990 Plan, a purchase of Company stock pursuant to a tender
offer or exchange offer, or a merger or sale of assets in which the Company
does not survive as an independent entity. The period for exercising options
shall not exceed ten years, and no options may be granted after December,
1999. The 1990 Plan may be later amended or terminated with no options
granted thereafter pursuant to terms set forth in the 1990 Plan. Any excess
of fair market value over the option price for the 1990 Plan options at date
of grant is recorded as prepaid compensation expense and is allocated to
paid-in capital. The Company recorded amortization of prepaid compensation
expense of $56,000 for 1996, $84,000 for 1995, and $109,000 for 1994 as a
charge to income. There were 8,050 shares available for grant under the 1990
Plan as of December 31, 1996.
The Nonqualified Stock Option Plan of ANB Corporation for Former Directors of
Muncie Federal Savings and Loan Association ("1991 Plan") made 28,000 shares
of Company common stock available for grant at an option price upon exercise
of $7.25 per share. Options granted shall be exercisable within five years
from date of grant. Notwithstanding the five-year period, exercise rights
terminate thirty days after status as a director terminates other than for
retirement after age 70, death or disability.
The Company also adopted the ANB Corporation 1995 Stock Option Plan ("1995
Plan") for key employees. Under terms of the 1995 Plan, 300,000 shares of
Company common stock shall be available for granting both incentive ("ISO's")
and non-qualified stock options. The option price to be paid upon exercise
shall be not less than fair market value at date of grant. For an individual
who receives a grant and is also the owner of more than 10% of the total of
the Company's common stock (stockholder-employee), the option price shall be
not less than 110% of such value. The period for exercising options shall
not exceed ten years from the date of grant. The option period for any ISO
granted to a stockholder-employee may not exceed five years. No option may
be granted after December 31, 2004. The options shall be exercisable in four
annual installments, on a cumulative basis, beginning one year after date of
grant, after reaching age 65, upon circumstances or earlier times determined
by the Compensation Committee or upon a change in control as defined in the
1995 Plan. The 1995 Plan may be amended or terminated with no options granted
thereafter pursuant to its terms. There were 212,000 shares available for
grant under the 1995 Plan as of December 31, 1996.
(19)
<PAGE>
(20)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
In April, 1996, the Company's stockholders approved the ANB Corporation 1996
Directors' Stock Option Plan ("Directors' Plan") for non-employee members of
the Board of Directors. Under terms of the Directors' Plan, 96,000 shares of
the Company stock shall be available for granting non-qualified stock
options. The option price to be paid upon exercise shall be not less than
fair market value at date of grant. The period for exercising options shall
not exceed ten years from the date of grant. Options granted shall be
exercisable in four annual installments, on a cumulative basis, beginning one
year after date of grant. Exercise rights terminate thirty days after status
as a director terminates other than for retirement after age 70, death or
disability. The Directors' Plan may be amended or terminated with no options
granted thereafter pursuant to terms set forth in the Directors' Plan. There
were 72,000 options available for grant under the Directors' Plan as of
December 31, 1996.
The following is a summary of the status of the Company's stock option plans
and changes in those plans as of and for the years ended December 31, 1996,
1995, and 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 305,150 $ 8.97 289,876 $ 7.78 244,600 $ 6.80
Granted 70,000 19.14 42,000 15.44 52,000 12.38
Exercised (39,950) 6.75 (24,426) 5.91 (6,724) 7.33
Cancelled (5,750) 10.52 (2,300) 10.07
---------- ---------- ----------
Outstanding at end of year 329,450 11.37 305,150 8.97 289,876 7.78
---------- ---------- ----------
---------- ---------- ----------
Options exercisable at year end 189,700 178,675 146,576
Weighted-average fair value of options
granted during the year $3.38 $1.89
</TABLE>
As of December 31, 1996, other information in exercise price ranges for options
outstanding and exercisable is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER REMAINING EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OF SHARES CONTRACTUAL LIFE PRICE OF SHARES PRICE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.44 - 6.56 117,450 4.3 Years $ 6.07 117,450 $ 6.07
8.80 - 12.38 100,000 6.8 10.45 61,750 10.10
15.44 - 20.38 112,000 9.5 17.75 10,500 15.44
---------- ----------
Total 329,450 6.8 11.37 189,700 $ 7.90
---------- ----------
---------- ----------
</TABLE>
(21)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Although the Company has elected to follow Accounting Principles Board
Opinion No. 25, SFAS No. 123 requires pro forma disclosures of net income and
earnings per share as if the Company had accounted for its employee stock
options under that Statement. The fair value of each option grant was
estimated on the grant date using an option-pricing model with the following
assumptions:
1996 1995
--------------------
Risk-free interest rates 6.2% AND 6.5 5.4%
Dividend yields 3.0 3.3
Expected volatility factors of market price of common stock 11.0 8.0
Weighted-average expected life of the options 6 YEARS 6 years
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the
options' vesting period. The pro forma effect on net income and earnings per
share of this Statement are as follows:
1996 1995
------------------
Net income As reported $6,006 $5,285
Pro forma 5,983 5,284
Earnings per share As reported 1.33 1.16
Pro forma 1.33 1.16
During the initial phase-in period of SFAS No. 123, the effects of applying
this Statement are not likely to be representative of the effects on reported
net income for future years because options vest over several years and
additional awards generally are made each year.
- - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INVESTMENT SECURITIES--Fair values are based on quoted market prices.
LOANS--For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are
based on carrying values. The fair value for other loans are estimated using
discounted cash flow analyses and using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE--The fair values of accrued interest
receivable/payable approximate carrying values.
(22)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
FRB AND FHLB STOCK--Fair value of FRB and FHLB stock is based on the price at
which it may be resold to the FRB and FHLB.
DEPOSITS--The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance
sheet date. The carrying amounts for variable rate, fixed-term certificates
of deposit approximate their fair values at the balance sheet date. Fair
values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on such time deposits.
FEDERAL HOME LOAN BANK ADVANCES--The fair value of these borrowings are
estimated using a discounted cash flow calculation, based on current Federal
Home Loan Bank advance rates for periods comparable to the remaining terms to
maturity of these advances.
SHORT-TERM BORROWINGS--The interest rates on short-term borrowings
approximate market rates, and thus the fair values approximate carrying
values.
DUE TO BROKER--Fair values approximate carrying values.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------------------
CARRYING FAIR Carrying Fair
DECEMBER 31 AMOUNT VALUE Amount Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 24,384 $ 24,384 $ 43,536 $ 43,536
Investment securities available for sale 73,944 73,944 70,514 70,514
Loans including loans held for sale, net 372,885 374,766 346,145 349,187
Interest receivable 4,159 4,159 4,081 4,081
Stock in FRB and FHLB 2,713 2,713 2,661 2,661
LIABILITIES
Deposits 405,845 406,815 415,351 416,768
Borrowings
Short-term borrowings 17,676 17,676 7,749 7,749
FHLB advances 14,000 14,006 2,395 2,440
Interest payable 1,391 1,391 1,626 1,626
Due to broker 1,999 1,999
</TABLE>
(23)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - CONDENSED FINANCIAL INFORMATION (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
CONDENSED BALANCE SHEET
DECEMBER 31 1996 1995
- ------------------------------------------------------------------
ASSETS
Cash on deposit $ 663 $ 974
Investment securities available for sale 14
Investment in subsidiaries 50,323 48,279
Core deposit intangibles and goodwill 107 144
Other assets 398 408
------- -------
Total assets $51,505 $49,805
------- -------
------- -------
LIABILITIES $ 164 $ 334
STOCKHOLDERS' EQUITY 51,341 49,471
------- -------
Total liabilities and stockholders' equity $51,505 $49,805
------- -------
------- -------
(24)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries $10,261 $3,697 $13,988
Other income 120 107 120
----------------------------
Total income 10,381 3,804 14,108
----------------------------
EXPENSES
Amortization of core deposit intangibles, goodwill and
fair value adjustments 43 48 52
Salaries and employee benefits 626 693 581
Compensation expense for stock options 56 84 109
Other expenses 272 296 215
----------------------------
Total expenses 997 1,121 957
----------------------------
Income before income tax and equity in undistributed
income of subsidiaries 9,384 2,683 13,151
Income tax benefit 292 378 313
----------------------------
Income before equity in undistributed
income of subsidiaries 9,676 3,061 13,464
Equity in undistributed (distribution in excess of) income
of subsidiaries (3,670) 2,224 (8,694)
----------------------------
NET INCOME $ 6,006 $5,285 $ 4,770
----------------------------
----------------------------
</TABLE>
(25)
<PAGE>
ANB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $6,006 $ 5,285 $4,770
Adjustments to reconcile net income to net cash
provided by operating activities
Equity in undistributed income of subsidiaries 3,670 (2,224) 8,694
Noncash dividend (6,426)
Other adjustments (68) 222 317
----------------------------
Net cash provided by operating activities 3,182 3,283 13,781
----------------------------
INVESTING ACTIVITIES
Acquisition of Winchester, net of cash acquired (11,041)
Purchases of securities available for sale (14)
-------- ---------
Net cash used by investing activities (14) (11,041)
-------- ---------
FINANCING ACTIVITIES
Cash dividends (2,472) (2,090) (1,866)
Repayment of long-term debt (996)
Stock repurchases (1,631) (1,017)
Stock sold
Exercise of stock options 199 101 38
Dividend reinvestment and stock purchase plan 425 308 124
----------------------------
Net cash used by financing activities (3,479) (2,698) (2,700)
----------------------------
NET CHANGE IN CASH ON DEPOSIT (311) 585 40
CASH ON DEPOSIT AT BEGINNING OF YEAR 974 389 349
----------------------------
CASH ON DEPOSIT AT END OF YEAR $ 663 $ 974 $ 389
----------------------------
----------------------------
</TABLE>
(26)
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF THE COMPANY
The following discussion and analysis is intended to cover the significant
factors affecting the Company's consolidated financial statements from
January 1, 1994, to December 31, 1996. It is designed to provide a more
comprehensive review of the operating results and financial position than
could be obtained from an analysis of the financial statements alone. It
should, however, be read in conjunction with the financial statements and
notes included elsewhere herein. The consolidated financial statements, and
the following discussion and analysis, include the results of operations of
Peoples Loan & Trust Bank ("Peoples") from its acquisition date of January
21, 1994.
ANALYSIS OF RESULTS OF OPERATIONS
NET INCOME. 1996 was the most profitable year in the history of the Company.
Net income for 1996 climbed to $6.006 million, an increase of $721 thousand,
or 13.6%, over the previous high of $5.285 million which was reported in
1995. Net income results for 1995 were higher by 10.8%, or $515 thousand,
when compared to the $4.770 million net income recorded in 1994.
Net income per common share for 1996, 1995 and 1994 was $1.33, $1.16 and
$1.05 respectively. Net income per common share increased 14.7% for 1996 over
1995, following an increase of 10.5% in 1995 when compared to 1994.
A significant contributor in 1996 to the Company's strong earnings trend was
the continued quality growth in the loan portfolio, and the resulting
increase in both net interest margin and net interest income. Also having a
positive impact on 1996 results was a 10% increase in fees generated by the
Company's fiduciary activities, and the continued improvement in the
operating efficiency ratio of the Company. Effective in December 1995, the
Company merged The Saratoga State Bank ("Saratoga") into the Peoples
operation, making Saratoga a branch of Peoples. As intended, the merger
improved operational efficiencies and, in addition, reduced operating
expenses.
For 1995, the substantial increase in net interest income was partially
offset by the Company's strengthening of the allowance for loan losses to
sustain potential consequences of a national, or local economic downturn.
The following table presents certain key performance ratios for the last
three years:
1996 1995 1994
Return on average assets 1.27% 1.17% 1.15%
Return on average equity 12.29% 11.37% 11.01%
Efficiency ratio* 58.96% 62.16% 66.40%
Average earning assets to average assets 93.26% 93.08% 92.23%
Net interest spread 4.41% 4.39% 4.36%
Net interest margin (fully taxable equivalent) 5.07% 5.02% 4.87%
*Excludes one-time special SAIF assessment of $589 thousand in 1996.
<PAGE>
Other factors impacting the net income of the Company are discussed below.
NET INTEREST INCOME. In an effort to promote sustainable economic growth, the
Federal Open Market Committee ("FOMC") of the Federal Reserve eased its
stance of policy, bringing down the federal funds rate a half percentage
point to 5.25%, with a 25 basis point reduction in December 1995 and another
in late January 1996. Interest rates were left alone by the FOMC for the
balance of 1996, as measurements of the state of the economy apparently
remained within ranges acceptable to the FOMC. The ensuing relatively stable
interest rate environment of 1996, coupled with steady economic growth,
provided new business opportunities that allowed the Company to grow the
balance sheet and generate net interest income that again eclipsed the total
of the prior year.
An increase or decrease in net interest income, the Company's primary source
of revenue, is the combined result of volume and rate changes for both
earning assets and interest-bearing liabilities. Loan volume was the key
factor in 1996 in producing another record net interest income total, as the
Company funded new loans with a combination of earnings, liquidity and
borrowings from the Federal Home Loan Bank. The Company experienced moderate
growth in net average earning assets (average earning assets net of average
interest-bearing liabilities) and an improved net interest spread (average
yield on earning assets net of average cost of interest-bearing liabilities)
compared to the prior year totals.
Net interest income on a tax-equivalent basis for 1996 of $22.347 million
exceeded the 1995 total of $21.069 million by $1.278 million, or 6.1%. The
1995 total represented a $2.398 million, or 12.8%, increase over 1994 net
interest income on a tax-equivalent basis of $18.671 million. The enhanced
results for both years were primarily a function of significant growth in net
average earning assets coupled with improvement in the net interest spread.
Total interest income on a tax-equivalent basis of $38.743 million for 1996
was $2.027 million, or 5.5%, higher than the $36.716 million earned in 1995.
The increase was due primarily to a $20.828 million, or 5.0%, growth in
average earning assets from $419.913 million to $440.741 million. The 1996
yield on average earning assets of 8.79% was four basis points higher than
the prior year. In 1995, total interest income on a tax-equivalent basis rose
21.0% to $36.716 million from the $30.356 million recorded in 1994. The
significant increase for 1995 was accomplished through a $35.980 million, or
9.4%, growth in average earning assets combined with an 84 basis points
improvement in yield to 8.75%.
Although total interest-bearing deposits at year end 1996 were down slightly
from the prior period end, average interest-bearing deposits for 1996 of
$357.861 million represented a $9.532 million, or 2.7%, increase over the
$348.329 million total for 1995. A heavier reliance on borrowings in 1996 to
fund loans resulted in the total of average borrowed money increasing by
$6.339 million, or 62.3%, to $16.510 million for 1996, compared to $10.171
million for 1995. Due primarily to these volume increases, interest expense
for 1996 of $16.396 million was $749 thousand, or 4.8%, above the 1995 total
of $15.647 million. Market conditions in 1996 allowed the Company to hold the
average cost of funds to 4.38%, a modest increase of two basis points over
the 1995 average cost of 4.36%.
In 1995, the Company experienced a $27.653 million, or 8.6%, gain over the
prior year in average interest-bearing deposits. This growth was principally
responsible for average total interest-bearing liabilities increasing $29.412
million, or 8.9%, to $358.500 million. A shift of balances to certificate of
deposit accounts and higher average rollover rates for existing certificates
of deposit were the key factors leading to an 81 basis points increase in the
average cost of total interest-bearing liabilities. The volume increase,
together with higher average rates, drove total interest expense up $3.962
million, or 33.9%, from $11.685 million.
Net average earning assets were increased to $66.370 million in 1996, from
$61.413 million in 1995 and $54.845 million in 1994, or annual increases of 8.1%
and 12.0% for 1996 and 1995, respectively. This solid growth in 1996 and 1995
was achieved primarily through the utilization of funds available from
<PAGE>
undistributed earnings and from an increase in average total balances in
noninterest-bearing demand deposits.
In 1996, the Company continued to improve net interest spread, achieving a
two basis point increase to 4.41% compared to 4.39% and 4.36% recorded for
1995 and 1994, respectively.
The following table presents net interest income components on a
tax-equivalent basis and reflects changes between periods attributable to
movement in either the average balance or average interest rate for both
earnings assets and interest-bearing liabilities. The volume differences were
computed as the difference in volume between the current and prior year
multiplied times the prior year's interest rate, while the interest rate
changes were computed as the difference in rate between the current and prior
year multiplied times the volume of the prior year. Volume/rate variances
have been allocated on the basis of the absolute relationship between volume
variances and rate variances.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
<TABLE>
<CAPTION>
1996 over 1995 1995 over 1994
-------------------------- ---------------------------
Volume Rate Total Volume Rate Total
-------------------------- ---------------------------
(In Thousands on Fully Taxable Equivalent Basis)
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold ................ ($279) ($41) ($320) $16 $207 $223
Interest-bearing deposits ......... (7) (2) (9) (80) 24 (56)
Investment securities ............. 335 12 347 (94) 427 333
Loans ............................. 1,969 40 2,009 3,317 2,543 5,860
------------------------------------------------------------
Totals ........................... 2,018 9 2,027 3,159 3,201 6,360
------------------------------------------------------------
Interst expense:
NOW accounts ...................... 105 42 147 28 22 50
Money market investment accounts .. (119) 30 (89) (264) 132 (132)
Savings deposits .................. (28) (16) (44) (62) (7) (69)
Certificates of deposit ........... 556 (137) 419 1,858 2,018 3,876
Short-term borrowings ............. 41 (39) 2 21 136 157
Federal Home Loan Bank advances ... 335 (21) 314 91 (11) 80
------------------------------------------------------------
Totals ........................... 890 (141) 749 1,672 2,290 3,962
------------------------------------------------------------
Change in net interest income
(fully taxable equivalent basis) .. $1,128 $150 1,278 $1,487 $911 2,398
--------------- -----------------
--------------- -----------------
Tax equivalent adjustment .......... (74) 15
----- -----
Change in net interest income ...... $1,204 $2,413
----- -----
----- -----
</TABLE>
PROVISION FOR LOAN LOSSES. During 1996, 1995 and 1994, the Company provided
$1.089 million, $1.084 million and $277 thousand, respectively, to replenish
the allowance for loan losses for charge-offs recorded, and to maintain an
adequate balance for potential losses that may exist in the portfolio, but
are not specifically known.
The allowance for loan losses at year end 1996, 1995 and 1994 was $3.400
million, $2.897 million and $2.698 million, respectively. Total loan balances
at the end of these periods were $376.081 million, $348.913 million and
$328.803 million, respectively, and the ratio of the allowance for loan
losses to total loan balances was 0.90%, 0.83% and 0.82%, respectively.
The allowance for loan losses included $459 thousand at December 31, 1996,
and $202 thousand at December 31, 1995, for loans considered by the Company
to be impaired. Impaired loans totaled $1.237 million and $1.191 million at
December 31, 1996 and 1995, respectively.
The Company's dollar amount of outstanding loans made to individuals to
purchase owner occupied residential property represented 38.5% of the total
loan portfolio at December 31, 1996. Historically, net charge-offs in this
category of the mortgage loan portfolio have been minimal.
Net charge-offs in 1996 were $586 thousand, compared to $885 thousand in 1995
and $125 thousand in 1994. The ratio of net charge-offs to average
outstanding loans for 1996, 1995 and 1994 was 0.16%, 0.26% and 0.04%,
respectively, which compares favorably to the Company's peer group.
Based on management's analysis of the composition of the loan portfolio and
current economic conditions, management considers the current allowance for
loan losses to be adequate.
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the loan loss experience for the years
indicated.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In Thousands, Except for Ratios)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at January 1 ............ $2,897 $2,698 $1,441 $2,136 $1,661
------ ------ ------ ------ ------
Additions resulting from
aquisitions ..................... 1,105
------
Chargeoffs:
Commercial ..................... 284 544 254 1,067 159
Real estate mortgage ........... 177 261 69 140 438
Loans to individuals ........... 191 267 104 87 108
------ ------ ------ ------ ------
Total chargeoffs .............. 652 1,072 427 1,294 705
------ ------ ------ ------ ------
Recoveries:
Commercial ..................... 14 32 31 4 39
Real estate mortgage ........... 20 64 214 21 29
Loans to individuals ........... 32 91 57 55 30
------ ------ ------ ------ ------
Total recoveries .............. 66 187 302 80 98
------ ------ ------ ------ ------
Net chargeoffs .................. 586 885 125 1,214 607
------ ------ ------ ------ ------
Provision for loan losses ....... 1,089 1,084 277 519 1,082
------ ------ ------ ------ ------
Balance at December 31 .......... $3,400 $2,897 $2,698 $1,441 $2,136
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of net charge-offs during
the period to average loans
outstanding during the period ... 0.16% 0.26% 0.04% 0.48% 0.23%
</TABLE>
OTHER INCOME. The following table shows the components of other income for
1996, 1995 and 1994.
1996 1995 1994
--------------------------
(In Thousands)
Fiduciary activities ....................... $4,452 $4,132 $3,990
Service charges on deposit accounts ........ 1,359 1,349 1,244
Other customer fees ........................ 463 338 327
Other income ............................... 567 625 607
--------------------------
Subtotal ................................. 6,841 6,444 6,168
Investment securities gains, net ........... 305
Net loans sold gains ....................... 159 97 129
--------------------------
Total other income ....................... $7,000 $6,541 $6,602
--------------------------
--------------------------
Other income is comprised of income items not directly related to the
Company's interest-earning assets. Other income, excluding net securities
gains and net gains from loan sales, increased $397 thousand from 1995 to
1996, or 6.2%. From 1994 to 1995, other income, excluding net securities
gains and net gains from loan sales, increased $276 thousand, or 4.5%. The
1996 increase in other income, excluding net securities gains and net gains
from loan sales, was primarily a result of increased fiduciary and other
customer fees. Fiduciary fees increased $320 thousand from 1995 to 1996, or
7.7%. Other customer fees increased $125 thousand from 1995 to 1996. The
increase in other customer fee income was primarily attributable to increased
fee income generated by customer usage of check cards that were introduced by
American National and Peoples in 1995.
Other operating income decreased $58 thousand from 1995 to 1996. The change
in other operating income was primarily due to a refund in 1995 of $79
thousand for state bank tax paid in prior years.
In 1996, net gains from loan sales of $159 thousand increased significantly
from $97 thousand recorded in 1995 and $129 thousand recorded in 1994.
Effective January 1, 1996, SFAS No. 122, Accounting for Mortgage Servicing
Rights, was adopted by the Company. SFAS No. 122 requires the capitalization
of retained mortgage servicing rights on originated or purchased loans.
OTHER EXPENSES. The following table shows the components of other expenses
for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------
(In Thousands)
<S> <C> <C> <C>
Salaries and employees benefits ......................... $10,017 $9,827 $9,206
Premises and equipment expenses ......................... 2,672 2,645 2,617
Advertising ............................................. 472 496 468
Professional fees ....................................... 268 336 394
Deposit insurance expense ............................... 867 558 817
Printing and office supplies ............................ 561 569 532
Amortization of goodwill and core deposit intangibles ... 375 360 338
Other operating expenses ................................ 2,907 2,683 2,563
----------------------------------
Total other expenses .................................. $18,139 $17,474 $16,935
----------------------------------
----------------------------------
</TABLE>
Other expenses are noninterest operating expenses of the Company. Total other
expenses increased $665 thousand, or 3.8%, from 1995 to 1996, and $539
thousand, or 3.2%, from 1994 to 1995.
Salaries and employee benefits increased 1.9%, or $190 thousand, from 1995 to
1996, and 6.7%, or $621 thousand, from 1994 to 1995. The increase from 1994
to 1995 was primarily due to general and merit pay increases and an increased
level of incentive bonus plan payments. During the period 1994 through 1996,
the Company reduced its full time equivalent employees. In 1994, there were
278 full time equivalent
<PAGE>
employees, and in 1996, the number of full time equivalent employees had been
reduced to 257, or a 7.6% reduction.
Professional fees declined $68 thousand in 1996 from the level reported in
1995. Fewer matters requiring outside legal and accounting expertise were
experienced during 1996. In 1995, professional fees decreased $58 thousand,
or 14.7%, from 1994. The decrease was primarily attributable to the inclusion
of fees related to the acquisition of Peoples in 1994.
In 1996, the Federal Deposit Insurance Corporation levied a special deposit
insurance assessment on Savings Association Insurance Fund ("SAIF") deposits.
SAIF insured deposits acquired in the 1991 acquisition of Muncie Federal
Savings Bank, a savings and loan association, were subject to the special
assessment. The special assessment resulted in a before tax charge of $589
thousand to deposit insurance expense. As a result of the special assessment,
the Federal Deposit Insurance Corporation adjusted the rate on SAIF
assessable deposits which will lower deposit insurance expense in future
periods. In 1995 and 1996, the Federal Deposit Insurance Corporation lowered
the rate assessed on deposits insured by the Bank Insurance Fund resulting in
a reduction in federal deposit insurance expense.
INCOME TAXES. Income tax expense for 1996, 1995 and 1994 was $2.794 million,
$2.522 million and $2.031 million, respectively. The Company invests in
tax-exempt municipal securities as its principal strategy to reduce federal
income taxes. The Company also receives a state tax credit for a portion of
interest earned on qualified loans made to urban enterprise zone businesses
and residents. The tax credit earned is then reinvested in the urban
enterprise zone which produced the credit.
The effective tax rates for 1996, 1995 and 1994 were 31.7%, 32.3% and 29.9%,
respectively. The increase in income tax expense is generally due to
increases in income upon which applicable federal and state income taxes are
calculated.
<PAGE>
BALANCE SHEET ANALYSIS
AVERAGE BALANCES AND INTEREST. The average balance sheet grew at a more
moderate rate in 1996 than in 1995. Average total assets of $472.589 million
represented a $21.437 million, or 4.8%, increase for the year, while a
significant growth in average deposit account balances in 1995 provided the
funds to raise average total assets to $451.152 million, a $34.872 million,
or 8.4%, gain over the 1994 total.
In both 1996 and 1995, the company's increase in average total assets was
concentrated almost exclusively in the loan portfolio. Average total loans of
$361.199 million for 1996 were $21.902 million, or 6.5%, greater than the
prior year. 1995 average total loans of $339.297 million exceeded the 1994
total by $38.435 million, or an increase of 12.8%.
The average size of the Company's portfolio of investment securities and
overnight investments has remained at a relatively consistent level in recent
years, with an average total portfolio balance for 1996 of $79.542 million,
compared to $80.616 million and $83.071 million for 1995 and 1994,
respectively. This multipurpose portfolio serves as a ready source of
liquidity, can be restructured to mitigate interest rate risk in other areas
of the balance sheet and provides further diversification of the Company's
total portfolio of earning assets.
Average earning assets for 1996 of $440.741 million, represented a strong
share of total average assets at 93.3%, and the continuing enhancement of a
key ratio for the Company. Average earnings assets were $419.913 million and
$383.933 million, and 93.1% and 92.2% of total average assets for 1995 and
1994, respectively.
A paradox developed in 1996 as total deposits declined, but average total
deposits of $400.677 million for the year exceeded the 1995 average of
$388.109 million by $12.568 million, or 3.2%. The deposit account growth in
1995 that fueled the loan portfolio expansion resulted in an increase in
average total deposits of $30.135 million, 8.4% greater than the 1994 total.
In 1996, through an increased use of the funding resources of the Federal
Home Loan Bank ("FHLB"), the Company was able to reach a two-fold objective
of further meeting the housing needs of the community, while expanding its
residential mortgage loan portfolio. As a result of this strategy, average
total borrowings for 1996 of $16.510 million were up $6.339 million over the
1995 total of $10.171 million, which was only $1.759 million higher than the
1994 total of $8.412 million.
The ongoing success the Company has achieved in growing its business and
increasing net earning assets, while maintaining a strong net interest
spread, has provided the required ingredients for consistent significant
annual growth in net interest income. In 1996, net interest income on a tax
equivalent basis rose to $22.347 million, compared to $21.069 million for
1995 and $18.671 million for 1994. The two latest plateaus represented gains
of $1.278 million, or 6.1%, and $2.398 million, or 12.8%, for 1996 and 1995,
respectively.
A summary of average earnings assets and interest-bearing liabilities is set
forth below, together with the interest earned (on a tax-equivalent basis)
and paid on each major type of earning asset and interest-bearing liability
account. The average yield on the earning assets and the average rate paid on
the interest-bearing liabilities is also summarized.
<TABLE>
<CAPTION>
TABLE "E"
1996 1995 1994
---------------------------- --------------------------- ---------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate(%) Balance Expense Rate(%) Balance Expense Rate(%)
-------- -------- ------- -------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold.................. $ 4,992 $ 271 5.43% $ 10,084 $ 591 5.86% $ 5,670 $ 368 3.81%
Interest-bearing deposits........... 163 8 4.91% 303 17 5.61% 1,919 73 3.80%
Investment securities:
Taxable........................... 32,606 2,048 6.28% 31,030 1,868 6.02% 32,894 1,526 4.64%
Tax-exempt........................ 41,781 3,947 9.45% 39,199 3,780 9.64% 38,588 3,789 9.82%
-------- -------- -------- ------- -------- -------
Total investment securities..... 74,387 5,995 8.06% 70,229 5,648 8.04% 71,482 5,315 7.44%
Loans:*
Commercial.......................... 86,217 8,429 9.78% 78,916 8,061 10.21% 68,354 5,875 8.59%
Term federal funds.................. 5,528 295 5.34% 7,142 424 5.94% 7,174 301 4.20%
Real estate mortgage................ 228,381 19,843 8.69% 215,442 18,472 8.57% 191,166 15,336 8.02%
Loans to individuals................ 39,123 3,743 9.57% 36,355 3,385 9.31% 33,146 2,990 9.02%
Tax exempt.......................... 1,950 159 8.15% 1,442 118 8.18% 1,022 98 9.59%
-------- -------- -------- ------- -------- -------
Total loans..................... 361,199 32,469 8.99% 339,297 30,460 8.98% 300,862 24,600 8.18%
-------- -------- -------- ------- -------- -------
*Total earning assets............ 40,741 38,743 8.79% 419,913 36,716 8.75% 383,933 30,356 7.91%
-------- ------- -------
Allowance for loan losses............. (2,882) (2,548) (2,548)
Cash and due from banks............... 14,900 13,667 13,771
Premises and equipment................ 9,475 9,934 10,603
Other assets.......................... 10,355 10,186 10,521
-------- -------- --------
Total assets.................... $472,589 38,743 $451,152 36,716 $416,280 30,356
======== ------- ======== ------- ======== -------
Liabilities:
Interest-bearing deposits:
NOW accounts...................... $ 71,954 1,802 2.50% $ 67,742 1,655 2.44% $ 66,576 1,605 2.41%
Money market investment accounts.. 40,383 1,253 3.10% 44,235 1,342 3.03% 53,210 1,474 2.77%
Savings deposits.................. 28,174 705 2.50% 29,277 749 2.56% 31,710 818 2.58%
Certificates of deposit........... 217,350 11,724 5.39% 207,075 11,305 5.46% 169,180 7,429 4.39%
-------- ------- -------- ------- -------- -------
Total interest-bearing deposits. 357,861 15,484 4.33% 348,329 15,051 4.32% 320,676 11,326 3.53%
Short-term borrowings............. 9,267 481 5.19% 8,516 479 5.62% 8,017 322 4.02%
FHLB advances..................... 7,243 431 5.95% 1,655 117 7.07% 395 37 9.37%
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities................... 374,371 16,396 4.38% 358,500 15,647 4.36% 329,088 11,685 3.55%
Non-interest bearing demand deposits.. 42,816 39,780 37,298
Other liabilities..................... 6,535 6,400 6,562
-------- -------- --------
Total liabilities............... 423,722 404,680 372,948
Stockholders' equity.................. 48,867 46,472 43,332
-------- ------- -------- ------- -------- -------
Total liabilities
and stockholder's equity....... $472,589 16,396 3.72%** $451,152 15,647 3.73%** $416,280 11,685 3.04%
======== ------- ======== ------- ======== -------
Net interest income................ $22,347 5.07% $21,069 5.02% $18,671 4.87%
======= ======= =======
Adjustment to convert tax-exempt
investment securities and loans to
fully taxable equivalent basis,
using marginal rate of 34% after
adjustment for effect of
non-deductible interest expense
attributed to such assets........... $ 1,319 $ 1,245 $ 1,260
========= ======= =======
</TABLE>
* Loans held for sale are included with loans. Nonaccruing loans have been
included in the average balances.
** Total interest expense divided by total earning assets
<PAGE>
ASSETS. At year end 1996, total assets of $493.847 million represented
another record high, surpassing the December 31, 1995, total of $483.236
million by $10.611 million, or 2.2%.
In 1995, the Company had experienced greater balance sheet growth, driven
primarily by a substantial gain in deposits, with total assets increasing
$41.650 million, or 9.4%, over the December 31, 1994, total of $441.586
million.
The Company's investment in federal funds was reduced by $17.325 million
during the year to $2.475 million at December 31, 1996. Federal funds is a
financial instrument designed to serve as an immediate liquidity source for
banks, and funds were redeployed by the Company to take advantage of new
lending opportunities, and to temporarily cover net deposit outflows until
the benefits of new marketing strategies are realized.
Effective January 1, 1994, the Company adopted the Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards No. 115
(SFAS No. 115), Accounting for Certain Investments in Debt and Equity
Securities. In accordance with this statement, investment securities
classified as available-for-sale are reported at fair value, with unrealized
gains and losses excluded from earnings, but reported in a separate component
of stockholders' equity. As a result of a prior management decision to
maintain greater liquidity and flexibility within the portfolio, all
investment securities held at both year end 1996 and year end 1995 had been
classified as available for sale.
When taking into account the Company's asset growth rate for 1996 and 1995,
the size of the investment securities portfolio did not change materially,
with carrying values of $73.944 million, $70.514 million and $64.096 million,
at December 31, 1996, 1995 and 1994, respectively. The annual increases were
$3.430 million, or 4.9%, and $6.418 million, or 10.0%, for 1996 and 1995,
respectively. The product mix of the portfolio, which consists of relatively
conservative financial instruments, also remained fairly similar over the
past two periods.
It should be noted that the 1995 investment portfolio increase was impacted
substantially when the Company elected under FASB's temporary relaxing of
SFAS No. 115 requirements to classify all investment portfolio securities as
available-for-sale. This decision, together with a lower interest rate
environment compared to the prior year end, resulted in net unrealized gains
in the portfolio increasing to $3.163 million at December 31, 1995, from $61
thousand at December 31, 1994. A moderate net upswing in market yields for
1996 was the principal factor causing net unrealized gains in the portfolio
to decline to $1.983 million at December 31, 1996.
As market conditions result in the recording of adjustments to the carrying
value of investment securities classified as available-for-sale,
corresponding entries, reduced by related income taxes, are recorded in the
separate component of stockholders' equity. Securities with a carrying value
of $9.606 million, or 13.0% of the total investment portfolio at December 31,
1996, were scheduled to mature within one year. The following tables show the
mix of the investment securities portfolio for each of the last three years
at December 31, and the maturity distribution at year end 1996:
TABLE "F"
<TABLE>
<CAPTION>
1996 1995 1994
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. Treasury...................... $17,838 24.1% $18,173 25.8% $18,415 28.7%
Federal agencies................... 7,972 10.8% 4,153 5.9% 2,685 4.2%
State and municipal................ 44,166 59.7% 43,105 61.2% 37,574 58.6%
Morgage-backed..................... 3,078 4.2% 3,695 5.2% 4,347 6.8%
Corporates......................... 200 0.3% 447 0.6% 408 0.6%
Other.............................. 690 0.9% 941 1.3% 667 1.1%
------- ------- ------- ------- ------- -------
$73,944 100.0% $70,514 100.0% $64,096 100.0%
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Within Over
1 Year 1-5 Years 5-10 Years 10 Years Total
------ --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
U.S. Treasury...................... $6,764 $11,074 $17,838
Federal agencies................... 1,500 6,131 $ 341 7,972
State and municipal................ 566 4,462 17,227 $21,911 44,166
Morgage-backed..................... 431 2,647 3,078
Corporates......................... 100 100 200
Other.............................. 676 14 690
------ --------- ---------- -------- -------
$9,606 $21,767 $17,999 $24,572 $73,944
====== ========= ========== ======== =======
Distribution Percent 13.0% 29.4% 24.3% 33.3% 100.0%
==== ==== ==== ==== =====
</TABLE>
<PAGE>
LOANS. During 1996, several positive factors, including moderate economic growth
in the communities served by the Company, created many attractive lending
opportunities for the Company to pursue, resulting in another year of
significant loan portfolio expansion.
The total loan portfolio of $376.081 million at December 31, 1996, represented a
gain of $27.168 million, or 7.8%, over the 1995 year end total of $348.913
million. The favorable climate in 1996 for business enterprises allowed the
Company to increase the total of commercial and industrial loans to $81.142
million, a $6.059 million, or 8.1%, net addition for the year.
Affordable interest rates generated substantial mortgage lending activity,
further growing the largest segment of the loan portfolio. The Company sold a
significant share of its new production in the secondary market, but also
originated a considerable amount of product for its portfolio, primarily
adjustable-rate loans and some shorter term fixed-rate loans. Real estate loans
on one-to-four family properties increased $10.261 million, or 7.6%. to $144.749
million, while mortgage loans on other properties grew $6.785 million, or 7.4%,
to $98.366 million at December 31, 1996.
More aggressive marketing efforts for consumer loans produced solid results,
with a $6.771 million, or 18.9%, increase to $42.507 million at year end 1996.
The total loan portfolio of $348.913 million at December 31, 1995, represented
an increase for the year of $20.110 million, or 6.1%. Commercial and industrial
loans increased $6.722 million in 1995, or 9.8%, to $75.083 million. Real estate
loans totaling $226.069 million were up $14.627 million, or 6.9%, for the year,
with the increase occurring totally in the category of loans on other than
one-to-four family properties.
With the reinvestment of available cash from overnight federal funds into higher
yielding loans, the loan portfolio became a larger portion of the company's
total assets in 1996. Total loans net of loss allowances at December 31, 1996,
in the amount of $372.681 million represented 75.5% of total assets, compared to
$346.016 million and 71.6% at December 31, 1995.
OTHER ASSETS. Normal depreciation recorded in 1996 exceeded the acquisition cost
of new items, causing the carrying value of premises and equipment to decrease
by $232 thousand to $9.345 million at December 31, 1996, compared to $9.577
million at the prior year end. Similar activity produced comparable results in
1995, as the carrying value declined $688 thousand from the December 31, 1994,
total of $10.265 million.
DEPOSITS. The dramatic climb of the stock market during 1996 and management
strategies designed to control interest costs were factors in the Company's
total deposits dropping $9.506 million, or 2.3%, from $415.351 million to
$405.845 million at December 31, 1996. It should be noted, though, that in many
cases the funds were moved to alternative investments available through the
Company's financial planning and trust subsidiaries, ANBFPS and ANTIM, resulting
in additional fee income for the Company and a continuing and expanded financial
services provider relationship with the customer.
The deposit mix remained relatively unchanged, with certificates and other time
deposits comprising $215.937 million, or 53.2% of total deposits at December 31,
1996, compared to $219.706 million and 52.9% of total deposits at December 31,
1995.
The Company's total deposits at December 31, 1995, represented a $35.219
million, or 9.3%, increase over the 1994 year end total of $380.132 million.
With many investors extending their investment maturities to obtain higher
yields, balances in certificate accounts grew by $34.316 million, or 18.5%, to
$219.706 million at year end 1995.
<PAGE>
BORROWED FUNDS. With borrowing rates in 1996 offering an attractive alternative
to management's estimate of the incremental cost of quickly raising new deposit
balances, it was decided to further utilize FHLB advances, as well as daily
purchases of federal funds as a temporary measure, to fund new lending
opportunities and net deposit outflows.
Total borrowed funds of $31.676 million at December 31, 1996, was considerably
higher than the totals of $10.144 million and $13.052 million for December 31,
1995 and 1994, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY. The principal objective of liquidity
management is to insure the availability of sufficient funds to meet borrowers'
credit requirements and depositor withdrawal needs on a continual basis, while
maintaining a responsive program of investing excess funds until the need arises
for their use. Funds management committees are responsible for monitoring the
liquidity position on a monthly basis at each affiliate. Outside sources for
temporary primary liquidity, which include the federal funds market and Federal
Reserve discount window, are available should such a situation develop.
During 1996 and 1995, funds provided principally through net income, advances
from the FHLB, and a reduction in the Company's average daily federal funds sold
position were used by the Company to take advantage of strong loan demand.
In January 1994, short-term investments were liquidated to finance the
acquisition of Peoples.
Interest rate sensitive assets and liabilities are monitored monthly by the
Asset/Liability Management committees. A rate sensitive asset is any asset that
can be repriced upward or downward within a specific time frame, and likewise, a
rate sensitive liability is any liability that can be repriced upward or
downward within the identical time frame. Measuring interest rate sensitivity is
an important fundamental to develop so that proper management of interest
margins can be achieved, thereby avoiding wide variances in net interest income
and net income. A positive or negative gap results from the measurement of rate
sensitivity, and this gap can be expressed as a percentage of total assets. The
lower the negative or positive gap, the less likely a severe earnings swing will
occur during periods of rapidly changing interest rates.
On December 31, 1996, the Company had interest rate-sensitive assets and
liabilities which matured or could be repriced within one year, of $250.401
million and $345.506 million respectively. For this one year time frame, the
Company had a negative rate sensitivity gap. A negative rate sensitivity gap is
beneficial to the Company's net interest income during a period in which
interest rates are falling, and could adversely affect the Company's net
interest income during a period in which interest rates are rising. The
Company's current negative gap for the one year time frame expressed as a
percentage of total assets is 19.3%, which is within the guidelines established
by the funds management committee and approved by the board of Directors. The
policy of the Company requires management to keep interest rate sensitivity gaps
within certain pre-determined parameters.
The following table shows the gap position of the Company at December 31, 1996.
<TABLE>
<CAPTION>
0-3 3-6 Total 6-12 Total 12 Over 12 Current
Months Months 6 Months Months Months Months Balance
------ ------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets
Federal funds sold............ $2,475 $2,475 $2,475 $2,475
Interest bearing deposits
in banks.................... 74 74 74 74
Securities available for sale:
Taxable...................... 4,880 $1,107 5,987 $3,057 9,044 23,447 32,491
Tax-exempt................... 1,485 1,485 417 1,900 42,264 44,166
Loans......................... 123,944 41,990 165,934 70,768 236,702 139,379 376,081
Loans held for sale........... 204 204 204 204
------- ------ ------- ------ ------- ------- -------
TOTALS 123,062 43,097 176,159 74,242 250,401 205,090 455,491
------- ------ ------- ------ ------- ------- -------
Interest-bearing liabilities
Deposits:
NOW Accounts.................. 75,174 75,174 75,174 75,174
Money market accounts......... 37,751 37,174 37,751 37,751
Regular savings............... 26,727 26,727 26,727 26,727
Certificates of deposit....... 84,319 20,679 104,998 71,180 176,178 39,759 215,937
Short-term borrowings......... 17,409 267 17,676 17,676 17,676
Federal Home Loan Bank
advances.................... 12,000 12,000 12,000 2,000 14,000
------- ------- ------- ------- ------- -------- -------
TOTALS 253,380 20,946 274,326 71,180 345,506 41,759 387,265
------- ------- ------- ------- ------- -------- -------
Rate sensitivity gap
positive (negative)............. ($120,318) $22,151 ($98,167) $3,062 ($95,105)
------- ------ ------ ----- ------
------- ------ ------ ----- ------
Rate sensitivity gap as a
percent of total assets......... -24.4% 4.5% -19.9% 0.6% -19.3%
Percent of earning assets to
interest-bearing liabilities 52.5% 64.2% 72.5%
</TABLE>
CAPITAL. A strong commitment to safety and soundness is the fundamental
philosophy that has served the Company well in the development of its strong
capital position. A high level of capital provides a solid foundation to support
future growth and to weather difficult economic periods and promotes depositor
and
<PAGE>
investor confidence. For many years, stockholders have been rewarded with
increasing cash dividends and with significant growth in the value of their
Company achieved through the retention of a share of net income.
For the three years ended December 31, 1996, the Company has recorded net income
totaling $16.061 million. Total stockholders' equity has grown from $41.703
million on January 1, 1994, to $51.341 at year end 1996, an increase of $9.638
million or 23.1% for the three year period. Stockholders have received a total
of $6.428 million in cash dividends, representing an average payout ratio of 40%
for the three year period. In August 1996, the Company's Board of Directors
approved raising the quarterly dividend from $.125 to $.15 a share effective
with the third quarter of 1996. This 20% increase in the quarterly dividend rate
marked the seventeenth consecutive year dividends have been increased. In each
of the last thirteen years, total annual dividends paid per share have grown at
a rate of 10.8% or more. Average annual increase in total dividends paid per
share during the last thirteen years has been 16.4%.
The $1.870 million increase in stockholders' equity in 1996 was the result of
net income of $6.006 million, a reduction of $713 thousand related to market
value accounting for investment securities classified as available for sale, a
net addition of $680 thousand from activity related to stock options and the
Company's dividend reinvestment and stock purchase plan, and reductions of
$2.472 million for cash dividends and $1.631 million for stock purchases.
The Federal Reserve Board has adopted "risk adjusted" capital ratios for bank
holding companies. The "risk based" guidelines require the assignment of risk
weightings to all assets and certain off-balance sheet items. Bank holding
companies are required to have a total risk-based capital ratio of 10% or
greater to be considered well-capitalized. The Company's total risk-based
capital ratio at December 31, 1996, was 14.4%, which is 4.4% above the level
considered "well capitalized" under the current regulatory guidelines. At
December 31, 1996, the Company's leverage capital ratio was 9.5%, which was 4.5%
greater than the requirement for well capitalized institutions.
The following table shows various capital and performance ratios for the last
three years:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Average stockholders' equity to:
Average assets..................................... 10.34% 10.30% 10.41%
Average deposits................................... 12.20% 11.97% 12.10%
Dividend payout ratio................................. 41.35% 39.66% 39.05%
Increases in annual dividends paid.................... 19.57% 12.20% 10.81%
Total return to investors (*)......................... 30.91% 35.66% -6.42%
Market value as a % of book value..................... 174.98% 144.23% 121.83%
(*) Market value change with dividends reinvested
</TABLE>
INFLATION. Changing prices of goods, services and capital affect the financial
position of every business enterprise. The level of market interest rates and
the price of funds loaned or borrowed fluctuate due to changes in the rate of
inflation and various other factors, including government monetary policy.
Fluctuating interest rates affect the affiliated banks' net interest income and
loan volume. The Company and affiliated banks' other expenses, such as employee
salaries and benefits, reflect the effects of escalating prices as well as
increased levels of operation and other factors. As the inflation rate
increases, the purchasing power of the dollar decreases. Those holding
fixed-rate monetary assets incur a loss, while those holding fixed-rate monetary
liabilities enjoy a gain. The nature of a bank holding company's operations is
such that there will be an excess of monetary assets over monetary liabilities
and thus, a bank holding company will tend to suffer from an increase in the
rate of inflation and benefit from a decrease.
<PAGE>
CURRENT ACCOUNTING ISSUES
MORTGAGE SERVICING RIGHTS. During 1995, the FASB issued SFAS No. 122, Accounting
for Mortgage Servicing Rights. SFAS No. 122 pertains to mortgage banking
enterprises and financial institutions that conduct operations that are
substantially similar to the primary operations of mortgage banking enterprises.
SFAS No. 122 eliminates the accounting distinction between mortgage servicing
rights that are acquired through loan origination activities and those acquired
through purchase transactions. Under SFAS No. 122, if a mortgage banking
enterprise sells or securitizes loans and retains the mortgage servicing rights,
the enterprise must allocate the total cost of the mortgage loans to mortgage
servicing rights and the loans (without the rights) based on their relative fair
values if it is practicable to estimate those fair values. If it is not
practicable, the entire cost should be allocated to the mortgage loans and no
cost should be allocated to the mortgage service rights. An entity would measure
impairment of mortgage servicing rights and loans based on the excess of the
carrying amount of the mortgage servicing rights portfolio over the fair value
of that portfolio.
SFAS No. 122 is to be applied prospectively in fiscal years beginning after
December 15, 1995, to transactions in which an entity acquires mortgage
servicing rights and to impairment evaluations of all capitalized mortgage
servicing rights. The Company adopted SFAS No. 122 in 1996.
STOCK BASED COMPENSATION. The FASB has issued SFAS No. 123, Accounting for
Stock-based Compensation. SFAS No. 123 establishes a fair value based method of
accounting for stock-based compensation plans. The FASB encourages all entities
to adopt this method for accounting for all arrangements under which employees
receive shares of stock or other equity instruments of the employer, or the
employer incurs liabilities to employees in amounts based on the price of its
stock.
Due to the extremely controversial nature of this project, SFAS No. 123 permits
a company to continue the accounting for stock-based compensation prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. If a company elects that option, pro forma disclosures of net income
(and EPS, if presented) are required in the notes to the financial statements as
if the provision of SFAS No. 123 had been used to measure stock-based
compensation. The disclosure requirements of Opinion No. 25 have been superseded
by the disclosure requirements of this Statement. Once an entity adopts the fair
value based method for accounting for these transactions, that election cannot
be reversed.
Equity instruments granted or otherwise transferred directly to an employee by a
principal stockholder are stock-based employee compensation to be accounted for
in accordance with either Opinion No. 25 or SFAS No. 123 unless the transfer
clearly is for a purpose other than compensation. The accounting requirements of
SFAS No. 123 became effective for transactions entered into in fiscal years
beginning after December 15, 1995, and the disclosure requirements became
effective for financial statements for fiscal years beginning after December 15,
1995. Pro forma disclosures required for entities that elect to continue to
measure compensation cost using Opinion 25 must include the effects of all
awards granted in fiscal years beginning after December 15, 1994. During the
initial phase-in period, the effects of applying this Statement are not likely
to be representative of the effects on reported net income for future years
because options vest over several years and additional awards generally are made
each year.
The Company adopted SFAS No. 123 for 1996, and elected to report the pro forma
disclosures of net income and earnings per share in the notes to financial
statements.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES.
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, breaks new ground in resolving long-standing
questions about whether transactions should be accounted for as secured
borrowings or as sales. The Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are considered secured borrowings.
<PAGE>
A transfer of financial assets in which the transferor surrenders control over
those assets is accounted for as a sale to the extent that consideration other
than beneficial interests in the transferred assets is received in exchange. The
transferor has surrendered control over transferred assets only if all of the
following conditions are met:
* The transferred assets have been isolated from the transferor - put
presumptively beyond the reach of the transferor and its creditors, even in
bankruptcy or other receivership.
* Each transferee obtains the right - free of conditions that constrain it from
taking advantage of that right - to pledge or exchange the transferred assets,
or the transferee is a qualifying special-purpose entity and the holders of
beneficial interest in that entity have the right - free of conditions that
constrain them from taking advantage of that right - to pledge or exchange those
interests.
* The transferor does not maintain effective control over the transferred
assets through an agreement that both entitles and obligates the transferor to
repurchase or redeem them before their maturity, or an agreement that entitles
the transferor to repurchase or redeem transferred assets are not readily
obtainable.
The Statement provides detailed measurement standards for assets and liabilities
included in these transactions. It also includes implementation guidance for
assessing isolation of transferred assets and for accounting for transfers of
partial interest, servicing of financial assets, securitization, transfers or
sales type and direct financing lease receivables, securities lending
transactions, repurchase agreements, "wash sales," loan syndications and
participations, risk participation in banker's acceptances, factoring
arrangements, transfers of receivables with recourse and extinguishment of
liabilities.
The Statement supersedes SFAS Statements No. 76, Extinguishment of Debt, and No.
77, Reporting by Transferors of Transfers of Receivables with Recourse, and No.
122, Accounting for Mortgage Servicing Rights, and amends SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, in addition to
clarifying or amending a number of other statements and technical bulletins.
Except as amended by SFAS No. 127, this Statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively. Earlier or retroactive
application is not permitted.
The FASB was made aware that the volume of certain transactions and the related
changes to information systems and accounting processes that are necessary to
comply with the requirements of SFAS No. 125 would make it extremely difficult,
if not impossible, for some affected enterprises to apply the transfer and
collateral provision of SFAS No. 125 to those transactions as soon as January 1,
1997. As a result, SFAS No. 127 defers for one year the effective date (a) of
paragraph 15 of SFAS No. 125 and (b) for repurchase agreements, dollar-roll,
securities lending, and similar transactions, of paragraphs 9-12 and 237(b) of
SFAS No. 125.
SFAS No. 127 provides additional guidance on the types of transactions for which
the effective date of SFAS No. 125 has been deferred. It also requires that if
it is not possible to determine whether a transfer occurring during calendar
year 1997 is part of a repurchase agreement, dollar-roll, securities lending, or
similar transaction, then paragraphs 9-12 of SFAS No. 125 should be applied to
that transfer.
All provisions of SFAS No. 125 should continue to be applied prospectively, and
earlier or retroactive application is not permitted.
<PAGE>
ANB Corporation Directors and Officers
DIRECTORS
Ben E. Delk, President, Standt's Fine Jewelry
Madelyn K. Ferris, Senior Vice President, Paws Incorporated
R. David Hoover, Executive Vice President and Chief Financial Officer and
Director, Ball Corporation
William L. Peterson, Chairman of the Board, ANB Corporation; Chairman of the
Board, Alltrista Corporation
Donald A. Ross, President, A. L. Ross & Sons, Inc.
James R. Schrecongost, President and Chief Executive Officer, ANB Corporation;
Vice Chairman and Chief Executive Officer, American National Bank and Trust
Company
Kelly N. Stanley, Vice Chairman of the Board, ANB Corporation; President and
Chief Executive Officer, Ontario Corporation
Chris L. Talley, President and Chief Executive Officer, Peoples Loan & Trust
Bank
Leon V. Towne, Management Advisor and Consultant
HONORARY DIRECTOR
Edmund F. Ball
OFFICERS
William L. Peterson, Chairman of the Board
Kelly N. Stanley, Vice Chairman of the Board
James R. Schrecongost, President and Chief Executive Officer
Larry E. Thomas, Treasurer and Chief Financial Officer
Lloyd M. Townsend, Vice President
James W. Convy, Corporate Secretary
David W. Spade, Assistant Secretary
Jason A. Conley, Information Technology Officer
Suanne B. Collins, Director of Corporate Sales and Service Training
Ted R. Girton, Director of Corporate Loan Review
AUDIT DEPARTMENT
Douglas J. Schuba, CBA, Senior Auditor
<PAGE>
Debra A. Clayborn, Assistant Auditor
Jeffrey A. Davis, CTA, CBA, Assistant Auditor
American National Bank and Trust Company Directors and Officers
DIRECTORS
Ben E. Delk, President, Standt's Fine Jewelry
W H Fike, Managing Partner, Atlas Collections, Inc.
Charles N. Hetrick, President and Chief Operating Officer, Maxon Corporation
Robert L. Hoogenboom, Retired, American National Bank and Trust Company
Noel L. Pooler, President, Pooler Industries, Inc.
Donald A. Ross, Chairman of the Board, American National Bank and Trust Company;
President, A. L. Ross & Sons, Inc.
Charles E. Sanders, Jr., M.D., Medical Consultants, P.C.
James R. Schrecongost, President and Chief Executive Officer, ANB Corporation;
Vice Chairman and Chief Executive Officer, American National Bank and Trust
Company
W. Alan Simmons, Partner, Simmons, Carroll, Summers, Estep & Whisler, CPA
Norman L. Tirey, Retired Vice Chairman of the Board, ANB Corporation
HONORARY DIRECTORS
Edmund F. Ball
Wendell E. Covalt, M.D.
John L. Cullison, M.D.
J. Roberts Dailey
Margaret J. Edwards
John W. Fisher
John P. Isenbarger
William F. Radcliff
Charles W. Rothhaar
Martin D. Schwartz
<PAGE>
Edgar H. Seward
James O. Timbrook
OFFICERS
EXECUTIVE OFFICERS
Donald A. Ross, Chairman of the Board
James R. Schrecongost, Vice Chairman and Chief Executive Officer
Jerome J. Gassen, President and Chief Operating Officer
David W. Spade, Senior Vice President, Commercial Lending
Larry E. Thomas, Senior Vice President and Cashier
Lloyd M. Townsend, Senior Vice President for Administration, Banking Department
Banking Department
James W. Convy, Vice President, Human Resources and Branch Administrator
Joseph M. Davis, Vice President, Data Processing Manager
Richard A. Hancock, Vice President, Operations
John J. Letter, CPA, Vice President and Controller
Roger S. Miller, Vice President, Retail Banking and Alternative Delivery
Services
Bettie J. Hensley, Personnel Officer
David M. Ivey, Assistant Vice President and Assistant Data Processing Manager
Jill A. Jordan, Assistant Vice President, Deposit Services Manager
Betty M. Brown, Assistant Cashier
Sherry J. Hildreth, Assistant Deposit Services Manager
Thomas L. Kovach, Marketing Officer
Patricia A. Shoemaker, Assistant Cashier, Data Processing Supervisor
Cynthia L. Sollars, CPA, Assistant Cashier
Mary J. Wingate, Assistant Cashier, Money Desk Manager
Lending Department
Patricia A. Davis, Vice President and Senior Mortgage Loan Officer
<PAGE>
Thomas R. Miller, Vice President, Commercial Lending
Wade R. Phelps, Vice President, Commercial Lending
Terri E. Rickel, Vice President, Loan Administration
Serona S. Bartlett, Assistant Vice President, Mortgage Loan Officer
David George II, Assistant Vice President, Consumer Lending
Brian T. Jackson, Assistant Vice President, Mortgage Loan Officer
Judy A. Schuck, Mortgage Loan Operations Officer
Denise L. Williams, Consumer Loan Officer
Muncie Banking Centers
Tamra L. Brown, Manager, Hoyt Avenue
Carol S. Dobbs, Manager, Westminster Village
Jennifer S. Haisley, Manager, Morrison Road
Rebecca L. Harmon, Assistant Vice President and Manager, Jackson Street
Lillie M. King, Assistant Vice President and Manager, Main Street
Connie J. Lamb, Manager, Country Village
Jeffrey M. Lindley, Manager, East Memorial
Barbara I. Metcalf-Bell, Assistant Vice President and Manager, Broadway Avenue
and McGalliard Road
Portland Banking Center
Donald C. Gillespie, Assistant Vice President and Manager
Yorktown Banking Center
Stanton E. Schad, Assistant Vice President and Manager
American National Trust and Investment Management Company
Directors and Officers
DIRECTORS
William A. Barnes, Chairman of the Board
Frank E. Ball, President, Minnetrista Corporation
John W. Fisher, Retired Chairman, Ball Corporation
<PAGE>
Robert E. Kersey, President, American Lawn Mower Company
James R. Schrecongost, President and Chief Executive Officer, ANB Corporation;
Vice Chairman and Chief Executive Officer, American National Bank and Trust
Company
Paul L. Sehnert, Jr., President and Chief Executive Officer, American National
Trust And Investment Management Company
William L. Skinner, Senior Vice President, Alltrista Corporation
Edmund F. Ball, Honorary Director
Officers
William A. Barnes, Chairman
Paul L. Sehnert, Jr., President and Chief Executive Officer
David S. Gooden, Senior Vice President and Senior Investment Officer
Theodore H. Jarvis, Senior Vice President and Senior Portfolio Manager
Thomas R. Papp, Vice President and Senior Trust Officer and Corporate Secretary
Archie B. Spangler, Vice President and Senior Trust Officer and Corporate
Cashier
Gary D. Demaree, Vice President
Edward V. Huffman, Vice President and Trust Officer
Terri E. Matchett, Vice President and Trust Officer
Tracy O. Osborne, CPA, Vice President and Trust Officer
Nancy L. Reed, Vice President and Trust Officer
John C. Silletto, Vice President and Investment Officer
William A. Tucker, Jr., Vice President and Trust Officer
Carolyn S. Bowers, Assistant Vice President and Trust Officer
Judith A. Polson, Assistant Vice President and Trust Officer
James L. Griest, Business Development Officer
J. Thomas Hurley, Trust Officer
Melissa V. Jones, Trust Officer
<PAGE>
ANB Financial Planning Services
Directors and Officers
Directors and Officers
James R. Schrecongost, Chairman of the Board
Lloyd M. Townsend, President
Michael T. Downham, Executive Vice President
Larry E. Thomas, Treasurer
Cynthia L. Sollars, CPA, Secretary
Peoples Loan & Trust Bank
Directors and Officers
Directors
Richard G. Applegate, President, R. G. Applegate Steel Company, Inc.
Lowell W. Fields, Retired Manager, Campbell Soup Company
Richard L. Golliher, Retired, The Saratoga State Bank
John B. Goodrich, President, J&P Plating, Inc.
Grace E. Losh, Retired
James R. Schrecongost, President and Chief Executive Officer, ANB Corporation;
Vice Chairman and Chief Executive Officer, American National Bank and Trust
Company
Gerald Stephen, Chairman of the Board
Chris L. Talley, President and Chief Executive Officer, Peoples Loan & Trust
Bank
Carl A. Thompson, Retired Farmer
Honorary Director
John W. Thompson
Officers
Gerald Stephen, Chairman of the Board
Chris L. Talley, President and Chief Executive Officer
Dean E. Edwards, Executive Vice President, Loan Administration
<PAGE>
Kent L. Heckley, Executive Vice President, Randolph County Mortgage and Consumer
Lending
Philip R. Hirschfeld, Executive Vice President, Wayne County Commercial Lending
Janice A. Powers, Vice President/Cashier
E. Daniel Cox, Vice President, Wayne County Commercial and Ag Lending
Marc C. Edwards, Vice President and Branch Manager, Saratoga
Ernest R. Heighway, Vice President, Wayne County Mortgage Lending
Mary Jane Miller, Vice President, Wayne County Commercial Lending
Thomas L. Powers, Vice President and Branch Manager, Farmland
Gary A. Saxman, Vice President, Director of Data Processing
Stephen K. Welch, Vice President and Branch Manager, Lynn
David E. Bartram, Assistant Vice President and Branch Manager, Wayne County
Kathy E. Beumer, Assistant Cashier, Director of Marketing
Debra K. Butcher, Secretary to the Board of Directors
Linda E. Pugh, Controller
<PAGE>
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
- ------------------------------------------------------------------------------
Incorporation
-------------
American National Bank and Trust Company of Muncie United States
Peoples Loan & Trust Bank State of Indiana
American National Trust and Investment Management
Company United States
ANB Financial Planning Services (indirect subsidiary) State of Indiana
<PAGE>
EXHIBIT 23--CONSENT OF GEO. S. OLIVE & CO. LLC
- ------------------------------------------------------------------------------
We consent to the incorporation by reference in the Registration Statements
on Form S-8's, File No's. 33-41105, 33-95866 and 33-95868, and on Form S-3,
File No. 33-83838, of our report dated January 31, 1997 contained in the 1996
Annual Report to Shareholders of ANB Corporation, which is incorporated by
reference in this Form 10-K.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,835
<INT-BEARING-DEPOSITS> 74
<FED-FUNDS-SOLD> 2,475
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,944
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 376,285
<ALLOWANCE> 3,400
<TOTAL-ASSETS> 493,847
<DEPOSITS> 405,845
<SHORT-TERM> 29,676
<LIABILITIES-OTHER> 4,985
<LONG-TERM> 2,000
0
0
<COMMON> 4,491
<OTHER-SE> 46,850
<TOTAL-LIABILITIES-AND-EQUITY> 493,847
<INTEREST-LOAN> 32,417
<INTEREST-INVEST> 4,516
<INTEREST-OTHER> 491
<INTEREST-TOTAL> 37,424
<INTEREST-DEPOSIT> 15,484
<INTEREST-EXPENSE> 16,396
<INTEREST-INCOME-NET> 21,028
<LOAN-LOSSES> 1,089
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 18,139
<INCOME-PRETAX> 8,800
<INCOME-PRE-EXTRAORDINARY> 6,006
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,006
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 5.07
<LOANS-NON> 1,326
<LOANS-PAST> 472
<LOANS-TROUBLED> 63
<LOANS-PROBLEM> 517
<ALLOWANCE-OPEN> 2,897
<CHARGE-OFFS> 652
<RECOVERIES> 66
<ALLOWANCE-CLOSE> 3,400
<ALLOWANCE-DOMESTIC> 2,830
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 570
</TABLE>
<PAGE>
EXHIBIT 99--ANNUAL FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT FOR
STOCK INVESTMENT PLAN OF ANB CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1996
- ------------------------------------------------------------------------------
Exhibit to be filed by amendment - will include information required by Form
11-K.
