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
June 30, 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 August 10, 1998 there were outstanding 4,560,614 Common Shares,
$1 stated value, of the Registrant.
Page 1 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 1998
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Part I - Financial Information:
Item 1 - Financial Statements Page
----
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 4 - Submission of Matters to a Vote of
Security Holders................................ 14
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>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................ $27,095 $22,262
Interest-bearing deposit accounts....................... 296 391
-------- --------
Cash and cash equivalents......................... 27,391 22,653
Securities available for sale:
Taxable........................................... 25,427 24,041
Tax exempt........................................ 45,282 45,031
-------- --------
Total securities available for sale.......... 70,709 69,072
Loans:
Loans............................................. 415,756 408,771
Allowance for loan losses....................... (3,577) (3,497)
-------- --------
Net loans.................................... 412,179 405,274
Loans held for sale .................................... 518 76
Premises and equipment.................................. 12,182 11,664
Federal Reserve & Federal Home Loan Bank Stock 5,031 4,699
Other real estate....................................... 470 518
Interest receivable..................................... 4,371 4,532
Goodwill and core deposit intangibles .................. 4,794 5,050
Other assets............................................ 1,839 1,952
-------- --------
Total assets................................. $539,484 $525,490
======== ========
LIABILITIES
Deposits
Noninterest bearing............................... $50,383 $54,640
Interest bearing.................................. 366,574 356,622
-------- --------
Total deposits 416,957 411,262
Short-term borrowings................................... 14,211 13,335
Federal Home Loan Bank advances......................... 45,145 39,615
Interest payable........................................ 1,702 1,334
Other liabilities....................................... 2,588 3,711
-------- --------
Total liabilities............................ 480,603 469,257
-------- --------
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-4,564,884 and
4,530,974 shares................................ 4,565 4,531
Capital surplus......................................... 8,190 7,691
Capital surplus-stock options........................... 335 335
Retained earnings....................................... 44,640 42,286
Accumulated other comprehensive income.................. 1,151 1,390
-------- --------
Total stockholders' equity................... 58,881 56,233
-------- --------
Total liabilities and stockholders' equity... $539,484 $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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees:
Taxable......................... $9,177 $8,642 $18,321 $16,913
Tax exempt...................... 62 29 104 55
Securities available for sale:
Taxable......................... 369 409 770 845
Tax exempt...................... 661 652 1,314 1,296
Federal funds sold.................... 84 23 170 77
Other interest
income.......................... 122 73 204 116
Total interest ------ ------ ------- -------
income................. 10,475 9,828 20,883 19,302
------ ------ ------- -------
Interest Expense
Deposits.............................. 3,770 3,831 7,637 7,546
Short-term
borrowings...................... 93 155 160 277
FHLB advances......................... 688 252 1,313 505
Total interest ------ ------ ------- -------
expense................ 4,551 4,238 9,110 8,328
------ ------ ------- -------
NET INTEREST INCOME........................ 5,924 5,590 11,773 10,974
Provision for loan
losses..................... 129 233 258 510
------ ------ ------- -------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES..................... 5,795 5,357 11,515 10,464
</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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other Income:
Fiduciary activities.................. 1,595 1,254 3,062 2,429
Service charges on
deposit accounts.................... 352 368 670 696
Other customer fees................... 144 128 253 234
Investment securities
gains, net.......................... (1) 25 5
Net loans sold gains.................. 87 24 163 45
Other operating
income.......................... 160 136 312 272
Total other ------ ------ ------ ------
income................. 2,338 1,909 4,485 3,681
------ ------ ------ ------
Other Expenses:
Salaries and
employee benefits............... 2,663 2,570 5,415 5,026
Premises and
equipment expense............... 970 656 1,851 1,368
Advertising........................... 203 132 417 256
Printing, supplies
and stationery.................. 191 149 362 286
Professional fees..................... 73 119 151 233
Deposit insurance
premiums........................ 24 9 49 14
Goodwill and core
deposit intangibles
amortization.................... 127 104 256 198
Other operating
expenses........................ 884 802 1,662 1,490
Total other ------ ------ ------ ------
expenses.................. 5,135 4,541 10,163 8,871
------ ------ ------ ------
INCOME BEFORE INCOME
TAX EXPENSE.............................. 2,998 2,725 5,837 5,274
Income tax expense.................. 986 919 1,934 1,765
------ ------ ------ ------
NET INCOME................................. $2,012 $1,806 $3,903 $3,509
====== ====== ====== ======
NET INCOME PER SHARE:
Basic ................................ $0.44 $0.40 $0.86 $0.78
Diluted .............................. $0.43 $0.39 $0.84 $0.76
Cash Dividends............................. $0.17 $0.15 $0.34 $0.30
</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 $51,341
Comprehensive income:
Net income..................................................... 3,903 3,509
Other comprehensive income, net of tax:
Unrealized gains(losses) on securities
available for sale.
Unrealized holding gains(losses) arising
during period................................... (224) 14
Reclassification adjustment for
gains included in net income.................... 15 3
------- ------
Net unrealized losses............................... (239) 11
------- ------
Comprehensive income........................................... 3,664 3,520
Cash dividends ($.34 and $.30 per share)............................ (1,549) (1,350)
Exercise of stock options .......................................... 278 91
Stock tendered in exercise of stock options......................... (194) (111)
Tax benefit on stock options exercised.............................. 203 63
Stock issued under dividend reinvestment
and stock purchase plan........................................ 246 211
------- -------
Balance, June 30 ................................................... $58,881 $53,765
======= =======
</TABLE>
Page 6 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)(Dollars in Thousands)
(Unaudited)
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................ $3,903 $3,509
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses....................................... 258 510
Depreciation.................................................... 909 602
Securities amortization......................................... 3 21
Amortization of goodwill, other intangibles
and fair value adjustments................................. 256 198
Net loans sold gains............................................ (163) (45)
Mortgage loans originated for sale.............................. (21,585) (3,890)
Proceeds from sale of mortgage loans............................ 21,306 3,624
Net change in:
Interest receivable........................................ 161 (119)
Interest payable........................................... 368 359
Other adjustments............................................... (1,338) (809)
------- -------
Net cash provided by operating activities..................... 4,078 3,960
------- -------
INVESTING ACTIVITIES:
Purchases of available for sale securities............................ (7,027) (4,231)
Proceeds from available for sale securities
maturities and sales................................................ 5,191 7,558
Net increase in loans................................................. (7,162) (13,179)
Purchases of premises and equipment................................... (1,427) (1,424)
Cash received in branch acquisition................................... 7,852
Net cash used ------- -------
by investing activities.............................. (10,425) (3,424)
------- -------
FINANCING ACTIVITIES:
Net change in noninterest-bearing,
NOW, money market and savings deposits.............................. 7,311 9,286
Net change in certificates of
deposits and other time deposits.................................... (1,616) (16,951)
Net change in short-term borrowings................................... 876 2,450
Proceeds from Federal Home Loan Bank advances......................... 15,530 5,000
Repayment of Federal Home Loan Bank advances.......................... (10,000) (1,500)
Cash dividends........................................................ (1,549) (1,350)
Stock sold:
Exercise of stock options....................................... 287 43
Dividend reinvestment and stock purchase plan................... 246 211
Net cash provided (used) ------- -------
by financing activities................................... 11,085 (2,811)
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................... 4,738 (2,275)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 22,653 24,384
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $27,391 $22,109
======= =======
Additional Cash Flows Information:
Interest paid......................................................... $8,741 $7,969
Income tax paid....................................................... 2,115 2,035
</TABLE>
Page 7 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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 six months ended June 30, 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:
Six Months Ended
June 30,
----------------
1998 1997
---- ----
Accumulated comprehensive income
Balance, January 1 .............. $1,390 $1,198
Net unrealized gains(losses)..... (239) 11
------ ------
Balance, June 30 ................ $1,151 $1,209
====== ======
Income tax expense (benefit):
Unrealized holding losses........ $149 $7
Reclassification adjustments..... $10 $2
- -----------------------------------------------------------------------------
NOTE 2--INVESTMENT SECURITIES:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury........ $11,215 $81 $1 $11,295
Federal agencies.... 13,368 12 16 13,364
State and municipal. 43,452 1,901 71 45,282
Marketable equity
securities........ 668 668
Corporate obligations 100 100
--------------------------------------------------------
Total investment
securities........ $68,803 $1,994 $88 $70,709
========================================================
1997
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
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
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>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Loans
Commercial and industrial loans................ $96,214 $99,378
Term federal funds sold........................ 5,250 1,500
Real estate loans:
One-to-four family properties............ 156,913 157,570
Other.................................... 110,948 105,141
Individuals' loans for household and other
personal expenditures.................... 39,216 39,654
Tax exempt loans............................... 4,006 2,994
Other loans.................................... 3,209 2,534
-------- --------
Total loans...................... $415,756 $408,771
======== ========
Nonperforming loans
Nonaccruing loans.............................. $936 $538
Accruing loans contractually past due
90 days or more other than nonaccruing... 171 300
Restructured loans............................. 532 590
-------- --------
Total nonperforming loans........ $1,639 $1,428
======== ========
Six Months Ended
June 30,
1998 1997
Allowance for loan losses ---- ----
Balances, beginning of period.................. $3,497 $3,400
Provision for losses........................... 258 510
Recoveries on loans............................ 33 171
Loans charged off.............................. (211) (837)
-------- --------
Balances, end of period........................ $3,577 $3,244
======== ========
- ------------------------------------------------------------------------------------
</TABLE>
NOTE 4--DEPOSITS:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Deposits
Noninterest bearing...................... $50,383 $54,640
NOW accounts............................. 74,574 73,658
Money market deposit accounts............ 53,201 42,687
Savings deposits......................... 25,935 25,797
Certificates and other time deposits
of $100,000 or more................. 60,019 59,666
Other certificates and time deposits..... 152,845 154,814
-------- --------
Total deposits................... $416,957 $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 June 30, Income Shares Amount Income Shares Amount
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to
common stockholders.......... $2,012 4,558,238 $0.44 $1,806 4,503,452 $0.40
Effect of dilutive ===== =====
stock options................ - 118,263 - 85,832
------ --------- ------ ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion................... $2,012 4,676,501 $0.43 $1,806 4,589,284 $0.39
====== ========= ===== ====== ========= =====
Six Months Ended June 30,
- -------------------------
Basic Earnings Per Share
Income available to
common stockholders.......... $3,903 4,549,379 $0.86 $3,509 4,498,039 $0.78
Effect of dilutive ===== =====
stock options................ - 120,773 - 90,003
------ --------- ------ ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion................... $3,903 4,670,152 $0.84 $3,509 4,588,042 $0.76
====== ========= ===== ====== ========= =====
</TABLE>
Page 9 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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 six months of 1998 was $3.903 million compared
to $3.509 million for the first six months of 1997, an increase of
$394 thousand or 11.2%. Diluted net income per share for the first six
months of 1998 was $.84, an increase of $.08 or 10.5% from the $.76 per
share which was reported for the first six months of 1997.
Second quarter 1998 net income improved $206 thousand from the $1.806
million reported for second quarter 1997. Net income per share diluted
for second quarter 1998 was higher by $.04 per share or 10.3% when compared
to second quarter 1997.
The Company's return on average assets for the first six months of 1998
was 1.49%, an increase of 4 basis points over the first six months of 1997
and a 8 basis point improvement over the 1997 year ended return on average
assets of 1.41%.
Return on average equity for the first six months of 1998 was 13.98%
compared to 13.79% 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 six months of 1998 was $.88 per
share compared to $.80 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 $829 thousand or 7.1% for the six months
ended June 30, 1998 when compared to the same six month period last year.
Total interest income, expressed on a FTE basis increased $1.611 million
for the six month period, while total interest expense of the Company
increased $782 thousand. Net interest margin (FTE), expressed as a percent
of earning assets, was 5.10% for the first six months of 1998, down three
basis points from the 5.13% reported for the first six months of 1997.
For the second quarter of 1998, net interest income (FTE) increased
$355 thousand or 6.0% when compared to the quarter ended June 30, 1997.
Net interest margin (FTE) for second quarter 1998 was 5.07%.
Increased levels of loan volume have been the primary reason for higher
total interest income and stable net interest margins. Interest income
from taxable loans increased $1.408 million or 8.3% for the first six months
of 1988 when compared to the same period in 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
June 30, 1998
- -----------------------------------------------------------------------------
Provision for Loan Losses
- -------------------------
The Company's provision for loan losses decreased $252 thousand for the
six months ended June 30, 1998 when compared to the same period in 1997.
For the second quarter of 1998 the provision expense was $129 thousand
compared to $233 thousand for the second quarter of 1997.
Net charge-offs during the first six months of 1998 were $178 thousand
compared to net charge-offs of $666 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 .04% at June 30, 1998 compared to .18% for the same six
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 $804
thousand or 21.8% during the first six months of 1998 compared to the same
period one year ago. Fees generated from fiduciary activities increased
$633 thousand for the first six months of 1998 over the same period in 1997.
Increased levels of assets under management and higher market values of
those assets resulted in higher fee income.
Gains on sales of loans were higher by $118 thousand for 1998 over 1997,
as a result of increased volume in loan production and resulting sales.
Total other expenses increased $1.292 million or 35.3% in the first six
months of 1998 compared to the same period in 1997. Salaries and employee
benefits increased $389 thousand or 7.7%. The Company's full time
equivalent employees were 283 at June 30, 1998 compared to 270 at
June 30, 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.
Premises and equipment expense increased $483 thousand or 35.3% for the
first six months of 1998 when compared to the same period in 1997. For
1998, depreciation expense was greater by $307 thousand. Additional
depreciation has resulted from the Company's purchase/installation of a
new enhanced in-house core data processing system and supporting delivery
systems. This upgrading of the Company's core processing/peripheral equip-
ment and software, provides associates the means to service our growing
customer base more effectively.
Advertising expense rose by $161 thousand for the first six months of
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 necessary.
Professional fees for the first half of 1998 were $82 thousand less than
the first half 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 the first half in 1997 than in the
comparable period for 1998.
Income Taxes
- ------------
Income tax expense, including both federal income tax and the Indiana
franchise tax increased by $169 thousand for the first six months of 1998
over 1997. Income before income tax increased $563 thousand or 10.7% for
the first six months of 1998 over 1997. The effective tax rate for the
period ending June 30, 1998 was 33.1% compared to 33.5% for the comparable
period in 1997.
Page 11 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 1998
- -----------------------------------------------------------------------------
Balance Sheet
- -------------
The Company's total assets increased $13.994 million from the level
reported at year end 1997. When compared to June 30, 1997 total assets
have increased $35.888 million or 7.1%. For the second quarter in 1998
average assets were $534.297 million compared to $489.467 million for the
second quarter of 1998.
Cash and cash equivalents increased $4.738 million at June 30, 1998 from
the level reported at December 31, 1997. Cash and due from banks, including
interest bearing deposits, accounted for all of the increase as the Company's
federal funds sold position was zero at the end of both periods.
Loans and Deposits
- ------------------
Loans, excluding loans held for sale and term federal funds, were $410.506
million at June 30, 1998, an increase of $3.285 million over the year end
1997 level of $407.271 million. At June 30, 1997, loans, excluding loans
held for sale and term federal funds, were $387.630 million. Growth in the
Company's loan portfolio from June 30, 1997 to June 30, 1998 has been
$22.876 million or 5.9%. This loan growth has occurred in most major
categories of the portfolio, with $12.753 million, or 56% 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 June 30, 1998 loans made to individuals on owner occupied property
represented 29.1% of total assets and 58.6% of the Company's mortgage loan
portfolio. At June 30, 1997 loans made to individuals on owner occupied
property represented 30.3% of total assets and 59.8% of the Company's
mortgage loan portfolio. Over the last twelve months loans on owner occupied
property and commercial mortgage loans have grown $4.403 million and
$8.350 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 June 30, 1998 increased $5.695 million
from the level reported at year end 1997. Noninterest-bearing deposits
decreased by $4.257 million at June 30, 1998 as measured against year end
1997, while total interest bearing deposits increased $9.952 million.
Average interest bearing deposits were higher by $10.932 million or 3.1% for
the six months ending June 30, 1998 when compared to the like period in 1997.
During the second quarter of 1998, the Company announced the signing of
a definitive agreement to purchase five branches, including deposits of
approximately $81.5 million, from another financial institution. It is
anticipated the acquisition and changeover will be completed during the
third quarter.
Allowance for Loan Losses and Nonperforming Loans
- -------------------------------------------------
The Company's nonperforming loans, which include nonaccrual, past due
90 days, and restructured loans, increased $211 thousand from year end 1997.
At June 30, 1998 total nonperforming loans amounted to $1.639 million
or .30% of total assets, compared to .27% of total assets at year end 1997.
Total nonperforming loans represented .39% of total loans at June 30, 1998,
compared to .43% and .35% on June 30, 1997 and December 31, 1997 respectively.
The allowance for loan losses at June 30, 1998 increased $80 thousand
from year end 1997. Loans charged off for the period ending June 30, 1998
decreased by $626 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 allow-
ance for loan losses equaled 218% of nonperforming loans at June 30, 1998
compared to 245% and 192% for December 31, 1997 and June 30, 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
June 30, 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
$232 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 $58.881 million on June 30, 1998. Book value per share was $12.90 at
June 30, 1998 compared to $12.41 at year end 1997. Excluding net unrealized
gains on securities available for sale, per share book value increased
$0.55 a share to $12.65 at June 30, 1998 from year end 1997. Tangible
book value per share on June 30, 1998 was $11.69 compared to $11.09 for
the year end 1997 and $10.65 on June 30, 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 six months ended June 30, 1998 a total of 8,745 shares were
issued under the Company's Dividend Reinvestment and Stock Purchase Plan.
A total of 334 shareholders or about 50% of the Company's shareholders of
record participate in the Plan.
At June 30, 1998 the Company's Tier 1 risk based capital ratio was
13.93% and its leverage capital ratio was 9.99%. 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
June 30, 1998
- -----------------------------------------------------------------------------
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on April 21, 1998.
The following matter was submitted to the shareholders.
(1) Election of three directors.
The following nominees were elected:
Votes
----------------------------
For Against
--- -------
Ben E. Delk 4,056,246 16,301
Kelly N. Stanley 4,056,246 300
Leon V. Towne 4,056,246 3,522
Other directors continuing to serve include the following:
Madelyn K. Ferris
R. David Hoover
William L. Peterson
Donald A. Ross
James R. Schrecongost
Chris L. Talley
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 June 30, 1998.
Page 14 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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
Date: August 10, 1998 BY: /s/ James R. Schrecongost
-----------------------------
James R. Schrecongost
Vice Chairman, President and CEO
Date: August 10, 1998 BY: /s/ Larry E. Thomas
-----------------------------
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,095
<INT-BEARING-DEPOSITS> 296
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,709
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 415,756
<ALLOWANCE> 3,577
<TOTAL-ASSETS> 539,484
<DEPOSITS> 416,957
<SHORT-TERM> 31,711
<LIABILITIES-OTHER> 4,290
<LONG-TERM> 27,645
0
0
<COMMON> 4,565
<OTHER-SE> 54,316
<TOTAL-LIABILITIES-AND-EQUITY> 539,484
<INTEREST-LOAN> 18,425
<INTEREST-INVEST> 2,084
<INTEREST-OTHER> 374
<INTEREST-TOTAL> 20,883
<INTEREST-DEPOSIT> 7,637
<INTEREST-EXPENSE> 9,110
<INTEREST-INCOME-NET> 11,773
<LOAN-LOSSES> 258
<SECURITIES-GAINS> 25
<EXPENSE-OTHER> 10,163
<INCOME-PRETAX> 5,837
<INCOME-PRE-EXTRAORDINARY> 3,903
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,903
<EPS-PRIMARY> 0.86
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 5.10
<LOANS-NON> 936
<LOANS-PAST> 171
<LOANS-TROUBLED> 532
<LOANS-PROBLEM> 518
<ALLOWANCE-OPEN> 3,497
<CHARGE-OFFS> 211
<RECOVERIES> 33
<ALLOWANCE-CLOSE> 3,577
<ALLOWANCE-DOMESTIC> 3,577
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
