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
September 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 November 10, 1998 there were outstanding 4,563,313 Common
Shares, $1 stated value, of the Registrant.
Page 1 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 30, 1998
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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 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)
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<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- --------
<S> <C> <C>
ASSETS
Cash and due from banks ...................... $20,671 $22,262
Federal funds sold............................ 8,500
Interest-bearing deposit accounts............. 28,085 391
-------- --------
Cash and cash equivalents................ 57,256 22,653
Securities available for sale:
Taxable.................................. 37,770 24,041
Tax exempt............................... 44,506 45,031
-------- --------
Total securities available for sale. 82,276 69,072
Loans:
Loans.................................... 436,607 408,771
Allowance for loan losses.............. (3,618) (3,497)
-------- --------
Net loans........................... 432,989 405,274
Loans held for sale .......................... 246 76
Premises and equipment........................ 12,620 11,664
Federal Reserve & Federal Home Loan Bank Stock 5,031 4,699
Other real estate............................. 708 518
Interest receivable........................... 4,505 4,532
Goodwill and core deposit intangibles ........ 11,868 5,050
Other assets.................................. 4,997 1,952
-------- --------
Total assets........................ $612,496 $525,490
======== ========
LIABILITIES
Deposits
Noninterest bearing...................... $53,043 $54,640
Interest bearing......................... 444,866 356,622
-------- --------
Total deposits 497,909 411,262
Short-term borrowings......................... 6,833 13,335
Federal Home Loan Bank advances............... 42,145 39,615
Interest payable.............................. 1,998 1,334
Other liabilities............................. 3,486 3,711
-------- --------
Total liabilities................... 552,371 469,257
-------- --------
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-4,557,313 and
4,530,974 shares....................... 4,557 4,531
Capital surplus............................... 7,943 7,691
Capital surplus-stock options................. 335 335
Retained earnings............................. 45,827 42,286
Accumulated other comprehensive income........ 1,463 1,390
-------- --------
Total stockholders' equity.......... 60,125 56,233
-------- --------
Total liabilities and stockholders' equity $612,496 $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)
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees:
Taxable.................... $9,391 $8,957 $27,712 $25,870
Tax exempt................. 62 32 166 87
Securities available for sale:
Taxable.................... 425 408 1,195 1,253
Tax exempt................. 642 656 1,956 1,952
Federal funds sold.............. 61 1 231 78
Other interest
income..................... 173 69 377 185
Total interest ------ ------ ------- -------
income........... 10,754 10,123 31,637 29,425
------ ------ ------- -------
Interest Expense
Deposits........................ 3,973 3,860 11,610 11,406
Short-term
borrowings................. 125 214 285 491
FHLB advances................... 677 299 1,990 804
Total interest ------ ------ ------- -------
expense.......... 4,775 4,373 13,885 12,701
------ ------ ------- -------
NET INTEREST INCOME.................. 5,979 5,750 17,752 16,724
Provision for loan
losses..................... 129 173 387 683
------ ------ ------- -------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES................ 5,850 5,577 17,365 16,041
</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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other Income:
Fiduciary activities............ 1,456 1,302 4,518 3,731
Service charges on
deposit accounts.............. 372 381 1,042 1,077
Other customer fees............. 126 61 379 295
Investment securities
gains, net.................... 58 (13) 83 (8)
Net loans sold gains............ 47 31 210 76
Other operating
income..................... 182 137 494 409
Total other ------ ------ ------- -------
income........... 2,241 1,899 6,726 5,580
------ ------ ------- -------
Other Expenses:
Salaries and
employee benefits.......... 2,803 2,669 8,218 7,695
Premises and
equipment expense.......... 881 737 2,732 2,105
Advertising..................... 195 151 612 407
Printing, supplies
and stationery............. 142 157 504 443
Professional fees............... 88 48 239 281
Deposit insurance
premiums................... 23 6 72 20
Goodwill and core
deposit intangibles
amortization............... 127 109 383 307
Other operating
expenses................... 741 805 2,403 2,295
Total other ------ ------ ------ ------
expenses............. 5,000 4,682 15,163 13,553
------ ------ ------ ------
INCOME BEFORE INCOME
TAX EXPENSE........................ 3,091 2,794 8,928 8,068
Income tax expense............ 1,038 950 2,972 2,715
------ ------ ------ ------
NET INCOME........................... $2,053 $1,844 $5,956 $5,353
====== ====== ====== ======
NET INCOME PER SHARE:
Basic .......................... $0.45 $0.41 $1.31 $1.19
Diluted ........................ $0.44 $0.40 $1.28 $1.16
Cash Dividends....................... $0.19 $0.17 $0.53 $0.47
</TABLE>
Page 5 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
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<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, January 1 ................................................. $56,233 $51,341
Comprehensive income:
Net income..................................................... 5,956 5,353
Other comprehensive income, net of tax:
Unrealized gains(losses) on securities available for sale.
Unrealized holding gains arising
during period................................... 123 122
Reclassification adjustment for
(gains) losses included in net income........... (50) 5
------- -------
Net unrealized gains................................. 73 127
------- -------
Comprehensive income........................................... 6,029 5,480
Cash dividends ($.53 and $.47 per share)............................ (2,414) (2,117)
Stock reacquired.................................................... (413)
Exercise of stock options .......................................... 305 132
Stock tendered in exercise of stock options......................... (202) (167)
Tax benefit on stock options exercised.............................. 223 87
Stock issued under dividend reinvestment
and stock purchase plan........................................ 364 327
------- -------
Balance, September 30 .............................................. $60,125 $55,083
======= =======
</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)
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<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $5,956 $5,353
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses..................... 387 683
Depreciation.................................. 1,372 939
Securities amortization....................... 13 31
Amortization of goodwill, other intangibles
and fair value adjustments............... 383 307
Net loans sold gains.......................... (210) (76)
Mortgage loans originated for sale............ (26,254) (6,767)
Proceeds from sale of mortgage loans.......... 26,294 6,865
Net change in:
Interest receivable...................... 27 86
Interest payable......................... 664 356
Other adjustments............................. (1,770) (818)
------- -------
Net cash provided by operating activities... 6,862 6,959
------- -------
INVESTING ACTIVITIES:
Purchases of available for sale securities......... (30,285) (4,877)
Proceeds from available for sale securities
maturities and sales............................. 17,284 10,058
Net increase in loans.............................. (28,101) (26,205)
Purchases of premises and equipment................ (2,425) (2,863)
Cash received in branch acquisitions............... 80,474 7,852
Net cash provided (used) ------- -------
by investing activities........... 36,947 (16,035)
------- -------
FINANCING ACTIVITIES:
Net change in noninterest-bearing,
NOW, money market and savings deposits........... 1,276 (3,363)
Net change in certificates of
deposits and other time deposits................. (4,373) 11,524
Net change in short-term borrowings................ (6,502) (6,262)
Proceeds from Federal Home Loan Bank advances...... 20,530 10,780
Repayment of Federal Home Loan Bank advances....... (18,000) (6,000)
Cash dividends..................................... (2,414) (2,117)
Stock sold:
Exercise of stock options..................... 326 52
Dividend reinvestment and stock purchase plan 364 327
Stock repurchases.................................. (413)
Net cash provided (used) ------- -------
by financing activities................. (9,206) 4,941
------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS................. 34,603 (4,135)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......... 22,653 24,384
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $57,256 $20,249
======= =======
Additional Cash Flows Information:
Interest paid...................................... $13,221 $12,346
Income tax paid.................................... 3,095 3,005
</TABLE>
Page 7 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 30, 1998
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
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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 nine months ended
September 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:
Nine Months Ended
September 30,
-----------------
1998 1997
---- ----
Accumulated comprehensive income
Balance, January 1 ............... $1,390 $1,198
Net unrealized gains.............. 73 127
------ ------
Balance, September 30 ............ $1,463 $1,325
====== ======
Income tax expense (benefit):
Unrealized holding gains.......... $81 $80
Reclassification adjustments...... $33 ($3)
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NOTE 2--INVESTMENT SECURITIES:
1998
-----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
September 30 Cost Gains Losses Value
-----------------------------------------------------------------------------
Available for sale:
U.S. Treasury.......... $7,803 $159 $7,962
Federal agencies....... 20,712 171 20,883
State and municipal.... 42,429 2,080 3 44,506
Mortgage backed
securities........... 5,126 4 5,130
Marketable equity
securities........ 896 896
Corporate obligations 2,888 11 2,899
-----------------------------------------------
Total investment
securities... $79,854 $2,425 $3 $82,276
===============================================
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
===============================================
Page 8 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
-----------------------------------------------------------------------------
NOTE 3--LOANS AND ALLOWANCE:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Loans
Commercial and industrial loans............... $100,574 $99,378
Term federal funds sold....................... 5,912 1,500
Real estate loans:
One-to-four family properties............ 166,891 157,570
Other.................................... 114,176 105,141
Individuals' loans for household and other
personal expenditures.................... 42,006 39,654
Tax exempt loans.............................. 3,922 2,994
Other loans................................... 3,126 2,534
-------- --------
Total loans..................... $436,607 $408,771
======== ========
Nonperforming loans
Nonaccruing loans............................. $604 $538
Accruing loans contractually past due
90 days or more other than nonaccruing... 338 300
Restructured loans............................ 430 590
-------- --------
Total nonperforming loans....... $1,372 $1,428
======== ========
Nine Months Ended
September 30,
1998 1997
Allowance for loan losses -------- --------
Balances, beginning of period................. $3,497 $3,400
Provision for losses.......................... 387 683
Recoveries on loans........................... 41 182
Loans charged off............................. (307) (904)
-------- --------
Balances, end of period....................... $3,618 $3,361
======== ========
</TABLE>
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NOTE 4--DEPOSITS:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Deposits
Noninterest bearing...................... $53,043 $54,640
NOW accounts............................. 79,044 73,658
Money market deposit accounts............ 68,304 42,687
Savings deposits......................... 29,425 25,797
Certificates and other time deposits
of $100,000 or more................. 68,471 59,666
Other certificates and time deposits..... 199,622 154,814
-------- --------
Total deposits.................. $497,909 $411,262
======== ========
</TABLE>
On September 18, 1998, the Company acquired deposits totaling $89.7
million for a premium of $7.02 million allocated to core deposit
intangibles and goodwill.
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NOTE 5--EARNINGS PER SHARE:
Earnings per share ("EPS") were computed as follows:
<TABLE>
<CAPTION>
1998 1997
Weighted- Weighted-
Quarter Ended Average Per Share Average Per Share
September 30 Income Shares Amount Income Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to
common stockholders.......... $2,053 4,561,110 $0.45 $1,844 4,511,986 $0.41
Effect of dilutive ===== =====
stock options................ - 109,085 - 98,735
------ --------- ------ ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion................... $2,053 4,670,195 $0.44 $1,844 4,610,721 $0.40
====== ========= ===== ====== ========= =====
Nine Months Ended September 30,
Basic Earnings Per Share
Income available to
common stockholders.......... $5,956 4,553,323 $1.31 $5,353 4,502,739 $1.19
Effect of dilutive ===== =====
stock options................ - 116,869 - 92,914
------ --------- ------ ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion................... $5,956 4,670,192 $1.28 $5,353 4,595,653 $1.16
====== ========= ===== ====== ========= =====
</TABLE>
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NOTE 6--ACQUISITION
On October 21, 1998, the Company entered into an Agreement and Plan of
Merger with Farmers State Bancorp (Farmers), Union City, Ohio. Under the
Agreement, shareholders of Farmers would receive 5.4 shares of the common
stock of the Company for each issued and outstanding share of common stock
of Farmers, or a total of approximately 841,000 shares. The merger is
subject to approval by Farmers shareholders and regulatory agencies.
Page 9 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 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.
Forward-Looking Statements
--------------------------
Except for historical information contained herein, the discussion in
this Form 10-Q quarterly report includes certain forward-looking
statements based upon management expectations. Factors which could cause
future results to differ from these expectations include the following:
general economic conditions; legislative and regulatory initiatives;
monetary and fiscal policies of the federal government; deposit flows; the
costs of funds; general market rates of interest; interest rates on
competing investments; demand for loan products, demand for financial
services; changes in accounting policies or guidelines; and changes in the
quality or composition of the Company's loan and investment portfolios.
The Company does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after
the date of such statements.
Net Income
----------
Net income for the first nine months of 1998 was $5.956 million
compared to $5.353 million for the first nine months of 1997, an increase
of $603 thousand or 11.3%. Diluted net income per share for the first nine
months of 1998 was $1.28, an increase of $.12 or 10.3% from the $1.16 per
share which was reported for the first nine months of 1997.
Third quarter 1998 net income improved $209 thousand from the $1.844
million reported for third quarter 1997. Net income per share diluted for
third quarter 1998 was higher by $.04 per share or 10.0% when compared to
third quarter 1997.
The Company's return on average assets for the first nine months of
1998 was 1.48%, an increase of 3 basis points over the first nine months
of 1997 and a 7 basis point improvement over the 1997 year ended return on
average assets of 1.41%.
Return on average equity for the first nine months of 1998 was 13.99%
compared to 13.78% 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 nine months of 1998 was $1.35
per share compared to $1.23 per share for the comparable period in 1997.
Factors which impacted the Company's net income during the first nine
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 $1.066
million or 6.0% for the nine months ended September 30, 1998 when compared
to the same nine month period in 1997. Total interest income, expressed on
a FTE basis, increased $2.250 million for the nine month period, while
total interest expense of the Company increased $1.184 million. Net
interest margin (FTE), expressed as a percent of earning assets, was 5.03%
for the first nine months of 1998, down thirteen basis points from the
5.16% reported for the first nine months of 1997.
For the third quarter of 1998, net interest income (FTE) increased
$237 thousand or 3.9% when compared to the quarter ended September 30,
1997. Net interest margin (FTE) for third quarter 1998 was 4.89% compared
to 5.20% for third quarter 1997.
On September 18, 1998 the Company completed the acquisition of six
branches , establishing a presence in two new markets. Average rates on
acquired deposits were slightly higher than rates on existing deposits.
The Company believes significant lending opportunities exist to employ
these funds. Quality loan portfolio growth continues to be a primary focus
of the Company.
Although the Company's net interest margin ratio declined slightly
during the third quarter, a common occurrence in today's economic
environment for financial institutions, net interest income grew beyond
budget projections. This positive result in a difficult market was
achieved primarily through increased lending volume, but with a strong
resolve not to compromise the Company's credit quality standards.
Page 10 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 30, 1998
-----------------------------------------------------------------------------
Provision for Loan Losses
-------------------------
The Company's provision for loan losses decreased $296 thousand for
the nine months ended September 30, 1998 when compared to the same period
in 1997. . For the third quarter of 1998 the provision expense was $129
thousand compared to $173 thousand for the third quarter of 1997.
Net charge-offs during the first nine months of 1998 were $266
thousand compared to net charge-offs of $722 thousand for the comparable
period in 1997. During the first quarter of 1997, a large commercial loan
of approximately $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 .06% at September 30, 1998 compared to
.19% for the same nine 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 $1.146
million or 20.5% during the first nine months of 1998 compared to the same
period one year ago. Fees generated from fiduciary activities increased
$787 thousand or 21.1% for the first nine 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 $134 thousand for 1998 over
1997, as a result of increased volume in loan production and resulting
sales.
Total other expenses increased $1.610 million or 11.9% in the first
nine months of 1998 compared to the same period in 1997. Salaries and
employee benefits increased $523 thousand or 6.8%. The Company's full time
equivalent employees were 311 at September 30, 1998 compared to 271 for
the same time in 1997. Full time equivalent employees have increased
primarily as a result of recent branch acquisitions and trust expansion.
In addition, modest general additions to staff have been required in
specific areas.
Premises and equipment expense increased $627 thousand or 29.8% for
the first nine months of 1998 when compared to the same period in 1997.
For 1998, depreciation expense was greater by $433 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 $205 thousand for the first nine 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 nine months of 1998 were $42 thousand
less than than the same period in 1997. Additional matters requiring
outside legal and accounting expertise were incurred for 1997 over the
comparable period for 1998. In addition, the recovery of a previous year's
legal fees incurred of $35 thousand was recorded in 1998.
Income Taxes
------------
Income tax expense, including both federal income tax and the Indiana
franchise tax, increased by $257 thousand for the first nine months of
1998 over 1997. Income before income tax increased $860 thousand or 10.7%
for the first nine months of 1998 over 1997. The effective tax rate for
the period ending September 30, 1998 was 33.3% compared to 33.7% for the
comparable period in 1997.
Page 11 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 30, 1998
-----------------------------------------------------------------------------
Balance Sheet
-------------
The Company's total assets increased $87.006 million from the level
reported at year end 1997. When compared to September 30, 1997 total
assets have increased $98.518 million or 19.2%. On September 18, 1998 the
Company acquired six branches which added $89.7 to total assets. For the
third quarter of 1998 average assets were $552.314 million compared to
$498.790 million for the third quarter of 1997.
Cash and cash equivalents increased $34.603 million at September 30,
1998 from the level reported at December 31, 1997. The increase in cash
and cash equivalents was primarily due to the funds received as a result
of the Company's acquisition of branches.
Loans and Deposits
------------------
Loans, excluding loans held for sale and term federal funds, were
$430.695 million at September 30, 1998, an increase of $23.424 million
over the year end 1997 level of $407.271 million. At September 30, 1997,
loans, excluding loans held for sale and term federal funds, were $396.131
million. Growth in the Company's loan portfolio from September 30, 1997 to
September 30, 1998 has been $34.564 million or 8.7%. This loan growth has
occured in most major categories of the portfolio, with $21.136 million,
or 61% 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 September 30, 1998 loans made to individuals on owner occupied
property represented 27.2% of total assets and 59.4% of the Company's
mortgage loan portfolio. At September 30, 1997 loans made to individuals
on owner occupied property represented 30.2% 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
$11.767 million and $9.369 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 September 30, 1998 increased $86.647
million from the level reported at year end 1997. Noninterest-bearing
deposits decreased by $1.597 million at September 30, 1998 as measured
against year-end 1997, while total interest bearing deposits increased
$88.244 million. Most of the increase in total deposits can be directly
attributable to the deposits acquired in the September 18, 1998 purchase
of six branches from another financial institution.
Average interest bearing deposits were higher by $24.744 million or
6.9% for the three months ended September 30, 1998 when compared to the
same period in 1997.
Allowance for Loan Losses and Nonperforming Loans
-------------------------------------------------
The Company's nonperforming loans, which include nonaccrual, past due
90 days, and restructured loans, decreased $56 thousand from year end
1997. At September 30, 1998 total nonperforming loans were $1.372 million
or .22% of total assets, compared to .27% of total assets at year end
1997. Total nonperforming loans represented .31% of total loans at
September 30, 1998, compared to .47% and .35% on September 30, 1997 and
December 31, 1997 respectively.
The allowance for loan losses at September 30, 1998 increased $257
thousand from year end 1997. Loans charged off for the period ending
September 30, 1998, decreased by $597 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 263% of nonperforming loans
at September 30, 1998, compared to 245% and 178% for December 31, 1997 and
September 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
September 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 $205 thousand over a one year time period. This
hypothetical estimate is based on numerous assumptions including yield
curve shape and loan amortization. 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 predictive 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
$60.125 million on September 30, 1998. Book value per share was $13.19 at
September 30, 1998 compared to $12.41 at year end 1997. Excluding net
unrealized gains on securities available for sale, per share book value
increased $0.77 a share to $12.87 at September 30, 1998 from year end
1997. Tangible book value per share on September 30, 1998 was $10.98
compared to $11.09 for the year end 1997 and $10.92 on September 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 net; divided by total outstanding
shares.)
For the nine months ended September 30, 1998 a total of 13,341 shares
were issued under the Company's Dividend Reinvestment and Stock Purchase
Plan. A total of 338 shareholders or about 50% of the Company's
shareholders of record participate in the Plan.
At September 30, 1998 the Company's Tier I risk based capital ratio
was 11.42% and its leverage capital ratio was 8.65%. The Company and each
of its affiliate banks currently exceed all capital requirements mandated
by regulatory authorities.
On July 6, 1998 the Company announced a limited repurchase of its
shares to be reissued under the Company's stock option and dividend
reinvestment plans. During the third quarter 15,000 shares were acquired
at a total cost of $413 thousand.
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
September 30, 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
September 30, 1998.
Page 14 of 15 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 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
/s/ James R. Schrecongost
Date: November 10, 1998 BY: -----------------------------
James R. Schrecongost
Vice Chairman, President and CEO
/s/ Larry E. Thomas
Date: November 10, 1998 BY: -----------------------------
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 20,671
<INT-BEARING-DEPOSITS> 28,085
<FED-FUNDS-SOLD> 8,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,276
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 436,607
<ALLOWANCE> 3,618
<TOTAL-ASSETS> 612,496
<DEPOSITS> 497,909
<SHORT-TERM> 25,613
<LIABILITIES-OTHER> 5,484
<LONG-TERM> 23,365
0
0
<COMMON> 4,557
<OTHER-SE> 55,568
<TOTAL-LIABILITIES-AND-EQUITY> 612,496
<INTEREST-LOAN> 27,878
<INTEREST-INVEST> 3,151
<INTEREST-OTHER> 608
<INTEREST-TOTAL> 31,637
<INTEREST-DEPOSIT> 11,610
<INTEREST-EXPENSE> 13,885
<INTEREST-INCOME-NET> 17,752
<LOAN-LOSSES> 387
<SECURITIES-GAINS> 83
<EXPENSE-OTHER> 15,163
<INCOME-PRETAX> 8,928
<INCOME-PRE-EXTRAORDINARY> 5,956
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,956
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 5.03
<LOANS-NON> 604
<LOANS-PAST> 338
<LOANS-TROUBLED> 430
<LOANS-PROBLEM> 518
<ALLOWANCE-OPEN> 3,497
<CHARGE-OFFS> 307
<RECOVERIES> 41
<ALLOWANCE-CLOSE> 3,618
<ALLOWANCE-DOMESTIC> 3,618
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
