SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 31, 1998 0-18925
--------------------- ----------------------
For the quarter ended Commission file number
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.)
120 West Charles Street, Muncie, Indiana 47305
-------------------------------------------------
Address of principal executive offices
765-747-7575
-----------------------------------------
Registrant's telephone number & area code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
As of May 8, 1998 there were outstanding 4,559,350 Common Shares, $1
stated value, of the Registrant.
Page 1 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
TABLE OF CONTENTS
-----------------
Part I - Financial Information:
Page
Item 1 - Financial Statements ----
Consolidated Condensed Balance Sheet........... 3
Consolidated Condensed Statement of Income..... 4 - 5
Consolidated Condensed Statement of Changes in
Stockholders' Equity........................... 6
Consolidated Condensed Statement of Cash
Flows.......................................... 7
Notes to Consolidated Condensed Financial
Statements..................................... 8 - 9
Item 2 Management's Discussion and Analysis of-
Financial Condition and Results of Operations.. 10 - 13
Item 3 Quantitative and Qualitative Disclosures
About Market Risk............................ 13
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K............... 14
Signatures.................................................... 15
Page 2 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
ASSETS -------- ------------
<S> <C> <C>
Cash and due from banks ........................... $19,206 $22,262
Interest-bearing deposit accounts.................. 570 391
-------- --------
Cash and cash equivalents...................... 19,776 22,653
Securities available for sale:
Taxable........................................ 26,364 24,041
Tax exempt..................................... 44,161 45,031
-------- --------
Total securities available for sale......... 70,525 69,072
Loans:
Loans.......................................... 411,136 408,771
Allowance for loan losses.................... (3,537) (3,497)
-------- --------
Net loans................................... 407,599 405,274
Loans held for sale ............................... 1,135 76
Premises and equipment............................. 12,371 11,664
Federal Reserve & Federal Home Loan Bank Stock 5,031 4,699
Other real estate.................................. 467 518
Interest receivable................................ 3,855 4,532
Goodwill and core deposit intangibles ............. 4,921 5,050
Other assets....................................... 1,741 1,952
-------- --------
Total assets................................ $527,421 $525,490
======== ========
LIABILITIES
Deposits
Noninterest bearing............................ $50,900 $54,640
Interest bearing............................... 362,983 356,622
-------- --------
Total deposits 413,883 411,262
Short-term borrowings.............................. 4,875 13,335
Federal Home Loan Bank advances.................... 45,570 39,615
Interest payable................................... 1,575 1,334
Other liabilities.................................. 3,938 3,711
-------- --------
Total liabilities........................... 469,841 469,257
-------- --------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock, without par value:
Authorized-250,000 shares, none issued
Common stock, $1 stated value:
Authorized-20,000,000 shares
Issued and outstanding-4,554,205 and
4,530,974 shares............................. 4,554 4,531
Capital surplus.................................... 8,000 7,691
Capital surplus-stock options...................... 335 335
Retained earnings.................................. 43,404 42,286
Accumulated other comprehensive income............. 1,287 1,390
-------- --------
Total stockholders' equity.................. 57,580 56,233
-------- --------
Total liabilities and stockholders' equity.. $527,421 $525,490
======== ========
</TABLE>
Page 3 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Interest Income
Loans, including fees:
Taxable...................... $9,144 $8,271
Tax exempt................... 42 26
Securities available for sale:
Taxable...................... 401 436
Tax exempt................... 653 644
Federal funds sold............... 86 54
Other interest
income....................... 82 43
Total interest ------ ------
income................ 10,408 9,474
------ ------
Interest Expense
Deposits......................... 3,867 3,715
Short-term
borrowings................... 67 122
FHLB advances.................... 625 253
Total interest ------ ------
expense............... 4,559 4,090
------ ------
NET INTEREST INCOME.................. 5,849 5,384
Provision for loan
losses....................... 129 277
------ ------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES.................. 5,720 5,107
</TABLE>
Page 4 of 15 Pages
<PAGE>
(continued)
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Other Income:
Fiduciary activities........... 1,467 1,175
Service charges on
deposit accounts............. 318 328
Other customer fees............ 109 106
Investment securities
gains, net................... 25 6
Net loans sold gains........... 76 21
Other operating
income..................... 152 136
Total other ------ ------
income.............. 2,147 1,772
------ ------
Other Expenses:
Salaries and
employee benefits.......... 2,752 2,456
Premises and
equipment expense.......... 881 712
Advertising.................... 214 124
Printing, supplies
and stationery............. 171 137
Professional fees.............. 78 114
Deposit insurance
premiums................... 25 5
Goodwill and core
deposit intangibles
inamortization............... 129 94
Other operating
expenses................... 778 688
Total other ------ ------
expenses............... 5,028 4,330
------ ------
INCOME BEFORE INCOME
TAX EXPENSE...................... 2,839 2,549
Income tax expense........... 948 846
------ ------
NET INCOME......................... $1,891 $1,703
====== ======
NET INCOME PER SHARE:
Basic ......................... $0.42 $0.38
Diluted ....................... $0.41 $0.37
Cash Dividends..................... $0.17 $0.15
</TABLE>
Page 5 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, January 1 .................................. $56,233 $51,341
Comprehensive income:
Net income....................................... 1,891 1,703
Other comprehensive income, net of tax:
Unrealized gains(losses) on securities
available for sale.
Unrealized holding losses arising
during period......................... (88) (226)
Reclassification adjustment for
gains included in net income.......... 15 4
------ ------
Net unrealized losses..................... (103) (230)
------ ------
Comprehensive income............................. 1,788 1,473
Cash dividends ($.17 and $.15 per share)............. (773) (675)
Exercise of stock options ........................... 217 54
Stock tendered in exercise of stock options.......... (148) (60)
Tax benefit on stock options exercised............... 144 43
Stock issued under dividend reinvestment
and stock purchase plan.......................... 119 112
------- -------
Balance, March 31 ................................... $57,580 $52,288
======= =======
</TABLE>
Page 6 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in th(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income....................................... $1,891 $1,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses.................... 129 277
Depreciation................................. 425 293
Securities amortization...................... 3 12
Amortization of goodwill, other intangibles
and fair value adjustments................ 129 94
Net loans sold gains......................... (76) (21)
Mortgage loans originated for sale........... (10,994) (1,341)
Proceeds from sale of mortgage loans......... 10,011 1,525
Net change in:
Interest receivable....................... 677 429
Interest payable.......................... 241 189
Other adjustments............................ 684 (292)
----- -----
Net cash provided by operating activities.. 3,120 2,868
----- -----
INVESTING ACTIVITIES:
Purchases of available for sale securities....... (5,928) (1,899)
Proceeds from available for sale securities
maturities and sales........................... 3,841 6,009
Net increase in loans............................ (2,453) 156
Purchases of premises and equipment.............. (1,132) (479)
Net cash provided (used) ------ ------
by investing activities............. (5,672) 3,787
------ ------
FINANCING ACTIVITIES:
Net change in noninterest-bearing,
NOW, money market and savings deposits......... (2,423) (4,496)
Net change in certificates of
deposits and other time deposits............... 5,044 (5,744)
Net change in short-term borrowings.............. (8,460) (4,572)
Proceeds from Federal Home Loan Bank advances.... 14,955 5,000
Repayment of Federal Home Loan Bank advances..... (9,000)
Cash dividends................................... (773) (675)
Stock sold:
Exercise of stock options.................... 213 54
Dividend reinvestment and stock purchase plan 119 112
Stock reacquired................................. (60)
------ ------
Net cash used by financing activities.... (325) (10,381)
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS.............. (2,877) (3,726)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 22,653 24,384
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $19,776 $20,658
======= =======
Additional Cash Flows Information:
Interest paid.................................... $4,318 $3,901
Income tax paid.................................. 210 285
</TABLE>
Page 7 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NOTE 1--GENERAL:
The significant accounting policies followed by ANB Corporation (Company)
and its subsidiaries, American National Bank and Trust Company of Muncie,
American National Trust and Investment Management Company and Peoples Loan &
Trust Bank, Winchester, for interim financial reporting, are consistent with
the accounting policies followed for annual financial reporting. The
accompanying financial statements are unaudited, however, all adjustments,
consisting only of normal recurring adjustments, which are, in the opinion of
management necessary for a fair presentation of the results for the periods
reported, have been included in the accompanying consolidated condensed
financial statements. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of those expected for the
remainder of the year.
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income. Comprehensive income includes unrealized
gains on securities available for sale, net of tax. Accumulated other
comprehensive income and income tax on such income reported are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Accumulated comprehensive income
Balance, January 1 .................. $1,390 $1,198
Net unrealized gains(losses)......... (103) (230)
------ ------
Balance, March 31 ................... $1,287 $968
====== ======
Income tax expense (benefit):
Unrealized holding losses........... ($58) ($148)
Reclassification adjustments......... $10 $2
</TABLE>
NOTE 2--INVESTMENT SECURITIES:
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
March 31 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury......... $12,565 $88 $4 $12,649
Federal agencies...... 13,274 14 20 13,268
State and municipal... 42,107 2,058 4 44,161
Mortgage-backed
securities........
Marketable equity
securities........ 347 347
Corporate obligations 100 100
----------------------------------------------------------
Total investment
securities..... $68,393 $2,160 $28 $70,525
==========================================================
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury......... $14,811 $ 76 $7 $14,880
Federal agencies...... 8,253 11 16 8,248
State and municipal... 42,793 2,241 3 45,031
Mortgage-backed
securities........
Marketable equity
securities........ 813 813
Corporate obligations 100 100
----------------------------------------------------------
Total investment
securities..... $66,770 $2,328 $26 $69,072
==========================================================
</TABLE>
Page 8 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE 3--LOANS AND ALLOWANCE:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Loans
Commercial and industrial loans............. $93,115 $99,378
Term federal funds sold..................... 6,250 1,500
Real estate loans:
One-to-four family properties........... 155,927 157,570
Other................................... 110,480 105,141
Individuals' loans for household and other
personal expenditures................... 38,804 39,654
Tax exempt loans............................ 3,801 2,994
Other loans................................. 2,759 2,534
-------- --------
Total loans....................... $411,136 $408,771
======== ========
Nonperforming loans
Nonaccruing loans........................... $604 $538
Accruing loans contractually past due
90 days or more other than nonaccruing.. 179 300
Restructured loans.......................... 580 590
------ ------
Total nonperforming loans......... $1,363 $1,428
====== ======
Three Months Ended
March 31,
1998 1997
------ ------
Allowance for loan losses
Balances, beginning of period............... $3,497 $3,400
Provision for losses........................ 129 277
Recoveries on loans......................... 11 138
Loans charged off........................... (100) (481)
------ ------
Balances, end of period..................... $3,537 $3,334
====== ======
</TABLE>
NOTE 4--DEPOSITS:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Deposits
Noninterest bearing..................... $50,900 $54,640
NOW accounts............................ 72,758 73,658
Money market deposit accounts........... 44,130 42,687
Savings deposits........................ 26,571 25,797
Certificates and other time deposits
of $100,000 or more.................. 64,817 59,666
Other certificates and time deposits.... 154,707 154,814
-------- --------
Total deposits.................... $413,883 $411,262
======== ========
</TABLE>
NOTE 5--EARNINGS PER SHARE
Earnings per share ("EPS") were computed as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ------------------------------------
Weighted- Weighted-
Average Per Share Average Per Share
Quarter Ended March 31, Income Shares Amount Income Shares Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to
common stockholders......... $1,891 4,540,421 $0.42 $1,703 4,492,565 $0.38
===== =====
Effect of dilutive
stock options............... - 123,282 - 94,175
------ --------- ------ ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion.............. $1,891 4,663,703 $0.41 $1,703 4,586,740 $0.37
====== ========= ===== ====== ========= =====
</TABLE>
Page 9 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
General =====================
- -------
The following discussion and analysis 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.
Net Income
- ----------
Net income for the first three months of 1998 was $1.891 million compared
to $1.703 million for the first three months of 1997, an increase of $188
thousand or 11.0%. Diluted net income per share for the first three months of
1998 was $.41, an increase of $.04 or 10.8% from the $.37 per share which was
reported for the first three months of 1997.
The Company's return on average assets for the first three months of 1998
was 1.46%, an increase of 3 basis points over the first three months of 1997
and a 5 basis point improvement over the 1997 year ended return on average
assets of 1.41%.
Return on average equity for the first three months of 1998 was 13.80%
compared to 13.62% for the same period in 1997.
The Company's diluted cash or tangible earnings per share (diluted net
income per share plus the amortization expense per share of goodwill and core
deposit intangibles) for the first three months of 1998 was $.43 per share
compared to $.39 per share for the comparable period in 1997.
Factors which impacted the Company's net income during the first three
months of 1998 are discussed in the "Net Interest Income" and "Other Income
and Expense" sections.
Net Interest Income
- -------------------
Net interest income is the difference between interest and fees earned on
earning assets and interest paid on interest bearing liabililties. It is the
largest and most critical component of the Company's earnings and is impacted
by both rates and volume of earning assets and interest-bearing liabilities.
The Company's net interest income, reported on a fully tax equivalent basis
(FTE), increased $474 thousand or 8.3% for the three months ended March 31,
1998 when compared to the same three month period last year. For the quarter
ended March 31, 1998 total interest income expressed on a fully tax equivalent
basis, increased by $943 thousand when compared to first quarter of 1997.
Total interest expense of the Company increased only $469 thousand from the
amount reported for first quarter 1997.
Net interest margin (FTE) expressed as a percent of earning assets was
5.13% for the first three months of 1998, a slight increase from the 5.11%
which was reported for the first quarter of 1997.
Increased levels of loan volume have been the primary reason for higher
total interest income and improving net interest margins. Interest income
from taxable loans increased $873 thousand or 10.6% for the first quarter of
1998 when compared to first quarter of 1997. Quality loan portfolio growth
continues to be a primary focus of the Company.
Page 10 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
Provision for Loan Losses
- -------------------------
The Company's provision for loan losses decreased $148 thousand for the
three months ended March 31, 1998 when compared to the same period in 1997.
For the first quarter of 1998 the provision expense was $129 thousand
compared to $277 thousand for the first quarter of 1997.
Increases in the Company's provision for loan losses were required to
replenish the allowance for loan losses for charge-offs recorded during the
first three months of 1998.
Net charge-offs during the first three months of 1998 were $89 thousand
compared to net charge-offs of $343 thousand for the comparable period in
1997. During the first quarter of 1997, a large commercial loan of approxi-
mately $725 thousand was written down by $379 thousand and the balance was
transferred to nonaccruing loans. Net charged-off loans as a percentage of
average loans was .02% at March 31, 1998 compared to .09% for the same three
month period in 1997.
Other Income and Expense
- ------------------------
Other income represents income received which is not directly related to
the Company's interest-earning assets, except for gains and losses on
securities and loans held for sale. Total other income increased $375
thousand or 21.2% during the first three months of 1998 compared to the same
period one year ago. Fees generated from fiduciary activities increased $292
thousand for first quarter 1998 over 1997. This significant increase occured
as a result of increased levels of accounts under management and higher market
values of those assets being managed.
Gains on sales of loans were higher by $55 thousand for 1998 over 1997,
as a result of increased volume in loan production and resulting sales.
Total other expenses increased $698 thousand or 16.1% in the first three
months of 1998 compared to the same period in 1997. Salaries and employee
benefits increased $296 thousand or 12.1%. The Company's full time equivalent
employees were 278 at March 31, 1998 compared to 257 at first quarter end in
1997. In addition to modest general additions to staff in specific areas,
full time equivalent employees have increased due to branch acquisitions and
expansion into the Indianapolis market by the Company's trust affiliate, both
of which occured after first quarter 1997. Also, expense relating to the
Company/affiliates incentive bonus plans were slightly higher at March 31,
1998 when compared to one year ago.
Premises and equipment expense increased $169 thousand or 23.7% from the
level reported for the three months ended March 31, 1998. First quarter 1998
reflects increased depreciation and operating costs associated with the
Company's purchase and installation in fourth quarter 1997, of a new corporate
in-house core data processing system and supporting delivery systems for
affiliates and their customers.
Advertising expense rose by $90 thousand for first quarter 1998 over the
same period one year ago. Expansion into new markets has required marketing
campaigns announcing our services and in addition, business development for
new products and services has been required.
Professional fees for first quarter of 1998 were $36 thousand less than
the first quarter of 1997. In 1997 professional fees relating to the
Company's purchase of two existing branches, including deposits and real
estate, increased this category. In addition, matters requiring outside legal
and accounting expertise were greater for first quarter in 1997 than for first
quarter 1998.
Income Taxes
- ------------
Income tax expense, including both federal income tax and the Indiana
franchise tax increased by $102 thousand for the first three months of 1998
over 1997. Income before income tax increased $290 thousand or 11.4% for the
first three months of 1998 over 1997. The effective tax rate for the period
ending March 31, 1998 was 33.4% compared to 33.2% for the first three months
of 1997.
Page 11 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
Balance Sheet
- -------------
The Company's total assets increased $1.931 million from the level
reported at year end 1997. When compared to March 31, 1997 total assets have
increased $42.173 million or 8.7%. For the first quarter in 1998 average
assets were $523.965 million compared to $487.677 million for the first
quarter of 1997.
Cash and cash equivalents decreased $2.877 million at March 31, 1998 from
the level reported at December 31, 1997. Cash and due from banks declined
$3.056 million from the levels reported at year end, while interest bearing
deposit accounts increased $179 thousand.
Loans and Deposits
- ------------------
Loans, excluding loans held for sale and term federal funds, were $404.886
million at March 31, 1998, a decline of $2.385 million over the year end 1997
level of $407.271 million. At March 31, 1997, loans, excluding loans held for
sale and term federal funds, were $371.957 million. Growth in the Company's
loan portfolio from March 31, 1997 to March 31, 1998 has been $32.929 million
or 8.9%. This loan growth has occured in most major categories of the
portfolio, with $21.808 million, or 66.2% of the total growth experienced
during the past twelve months, having occurred in the mortgage loan component
of the loan portfolio.
Real estate loans continue to be the largest asset category of the
Company. At March 31, 1998 loans made to individuals on owner occupied
property represented 29.6% of total assets and 58.5% of the Company's mortgage
loan portfolio. At March 31, 1997 loans made to individuals on owner occupied
property represented 30.1% of total assets and 59.7% of the Company's mortgage
loan portfolio. Over the last twelve months loans on owner occupied property
and commercial mortgage loans have grown $9.854 million and $11.954 million
respectively.
Loan growth has been achieved under the Company's strategic plan and has
been accomplished in accordance with credit policies designed to ensure
continued strong asset quality.
Total deposits of the Company at March 31, 1998 increased $2.621 million
from levels reported at year end 1997. Noninterest-bearing deposits declined
by $3.740 million at March 31, 1998 as measured against year end, while total
interest bearing deposits increased $6.361 million. Average interest bearing
deposits were higher by $11.722 million or 3.3% for first quarter 1998, when
compared to the same period last year.
Allowance for Loan Losses and Nonperforming Loans
- -------------------------------------------------
The Company's nonperforming loans, which include nonaccrual, past due 90
days, and restructured loans, decreased $65 thousand from year end 1997. At
March 31, 1998 total nonperforming loans amounted to $1.363 million or .26%
of total assets, compared to .27% of total assets at year end 1997. Total
nonperforming loans represented .33% of total loans at March 31, 1998,
compared to .42% and .35% on March 31, 1997 and December 31, 1997
respectively.
The allowance for loan losses at March 31, 1998 increased $40 thousand
from year end 1997. Loans charged off for the period ending March 31, 1998
decreased by $381 thousand when compared to the same period in 1997. In the
first quarter of 1997 a large commercial loan was written down by $379
thousand and the balance transferred to nonaccruing loans. The allowance for
loan losses equaled 260% of nonperforming loans at March 31, 1998 compared to
245% and 210% for December 31, 1997 and March 31, 1997.
Based on the components of the loan portfolio, an analysis of historical
net charge-offs, and other economic considerations, management considers the
allowance for loan losses to be adequate.
Page 12 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
Liquidity, Rate Sensitivity and Market Risk
- -------------------------------------------
The Company manages liquidity by closely monitoring the funds available
to meet the financial needs and credit demands of its customer base. The
Company expects to have adequate funds available to satisfy loan demand as
provided through both deposit growth and net income. Additionally the Company
has established federal funds lines with correspondent banks and may borrow
from the Federal Reserve Bank or the Federal Home Loan Bank.
The Company's interest rate sensitivity position is influenced by the
various maturities of its interest earning assets and interest bearing
liabilities. The Company monitors its maturity distribution of assets and
liabilities to ensure an adequate balance is maintained. Company policy
requires management to keep rate sensitivity positions within pre-established
guidelines, so as to control the interest rate risk exposure.
The Company is liability sensitive at the one-year time frame, indicating
that net interest income could be adversely impacted during periods of
increasing interest rates, since rate sensitive liabilities would be
repricing at a more rapid rate than interest sensitive assets. The Company
measures the impact of changes in interest rates on a regular basis.
Market risk is the risk of loss in financial instruments arising from
adverse changes in market rates and prices. Interest rate risk is the primary
source of market risk for the Company. Interest rate risk is always present
in the Company's balance sheet, impacting the Company's performance and value.
The Company's Asset/Liability Management committees monitor and manage
interest rate risk on an ongoing basis.
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. When interest rates change, the interest income and
expense streams associated with the Company's financial instruments change,
thereby impacting net interest income. The Company uses a rate sensitivity
gap and rate shock analysis model for estimating the impact on net interest
income in the event of market interest rate changes. The timing mismatch
between the repricing of assets and liabilities is at the core of interest
rate risk. If repricing opportunities of assets and liabilities were
identical, there would be no risk and the spread between the two would remain
constant if assets and liabilities were priced from the same index or yield
curve. However, in reality the mismatch exists, and it is the Company's
challenge to quantify and manage the timing difference of the interest spread.
Based on the Company's model utilized, if market interest rates were to
immediately increase 100 basis points, the Company would experience a slight
decline in earnings, due to a decrease in net interest income of approximately
$240 thousand over a one year time period. This hypothetical estimate is
based on numerous assumptions including yield curve shape and loan amortiza-
tion. In addition, maturing balances are replaced with new balances at the
new rate level and repricing balances are adjusted to the new rate shock
level. The analysis assesses the behavior of earning assets and interest
bearing liabilities and assumes that account rate behavior correlates to
economic behavior. The Company cannot make any assurances as to the predic-
tive nature of these assumptions, nor can it assess the impact of such
variables as prepayment and refinancing levels, depositor withdrawals,
customer product preference changes, and competitive factors, as well as
other internal and external variables. In addition, this analysis cannot
reflect actions taken by the Company's Asset/Liability Management committees;
therefore, this analysis should not be relied upon as indicative of expected
operating results.
Capital Resources
- -----------------
Stockholders' equity, including net unrealized gains on securities
available for sale, increased from $56.233 million at December 31, 1997 to
$57.580 million on March 31, 1998. Book value per share was $12.64 at March
31, 1998 compared to $12.41 at year end 1997. Excluding net unrealized gains
on securities available for sale, per share book value increased $0.26 a share
to $12.36 at March 31, 1998 from year end 1997. Tangible book value per share
on March 31, 1998 was $11.38 compared to $11.09 for the year end 1997 and
$10.49 on March 31, 1997. (Tangible book value per share is defined as total
stockholders' equity less net unrealized gains on securities available for
sale and goodwill/core deposit intangibles; divided by total outstanding
shares.)
For the three months ended March 31, 1998 a total of 4,206 shares were
issued under the Company's Dividend Reinvestment and Stock Purchase Plan. A
total of 329 shareholders or about 50% of the Company's shareholders of record
participate in the Plan.
At March 31, 1998 the Company's Tier 1 risk based capital ratio was 13.71%
and its leverage capital ratio was 9.89%. The Company and each of its
affiliate banks currently exceed all capital requirements mandated by
regulatory authorities.
Year 2000 Compliance
- --------------------
A significant issue has emerged in the banking industry and for the
economy overall regarding how existing application software program and
operating systems can accommodate the date value for the year 2000. The year
2000 Issue is the result of computer programs being written using two digits
rather than four to define the applicable year. The Company has formed a year
2000 review committee to focus on potential operational problems associated
with this issue. The financial impact to the Company to ensure year 2000
compliance is not anticipated by management to be material to the financial
position, results of operations or cash flow of the Company.
Other
- -----
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the
Company, and that the address is (http://www.sec.gov).
Page 13 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule
(b) No reports on Form 8-K were filed with respect to events
occurring during the three months ended March 31, 1998.
Page 14 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANB CORPORATION
BY: /s/ James R. Schrecongost
Date: May 8, 1998 ----------------------------
James R. Schrecongost
Vice Chairman, President and CEO
BY: /s/ Larry E. Thomas
Date: May 8, 1998 ----------------------------
Larry E. Thomas
Chief Financial Officer and
Principal Accounting Officer
Page 15 of 15 Pages
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,206
<INT-BEARING-DEPOSITS> 570
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,525
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 411,136
<ALLOWANCE> 3,537
<TOTAL-ASSETS> 527,421
<DEPOSITS> 413,883
<SHORT-TERM> 22,375
<LIABILITIES-OTHER> 5,513
<LONG-TERM> 28,070
0
0
<COMMON> 4,554
<OTHER-SE> 53,026
<TOTAL-LIABILITIES-AND-EQUITY> 527,421
<INTEREST-LOAN> 9,186
<INTEREST-INVEST> 1,054
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<INTEREST-TOTAL> 10,408
<INTEREST-DEPOSIT> 3,867
<INTEREST-EXPENSE> 4,559
<INTEREST-INCOME-NET> 5,849
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<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 5,028
<INCOME-PRETAX> 2,839
<INCOME-PRE-EXTRAORDINARY> 1,891
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,891
<EPS-PRIMARY> .42
<EPS-DILUTED> .41
<YIELD-ACTUAL> 5.13
<LOANS-NON> 604
<LOANS-PAST> 179
<LOANS-TROUBLED> 580
<LOANS-PROBLEM> 518
<ALLOWANCE-OPEN> 3,497
<CHARGE-OFFS> 100
<RECOVERIES> 11
<ALLOWANCE-CLOSE> 3,537
<ALLOWANCE-DOMESTIC> 3,537
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
