SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
Commission file number 0-18925
ANB CORPORATION
---------------
(Exact name of registrant as specified in its charter)
Indiana 35-1612066
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(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) (Zip Code)
Registrant's telephone number, including area code: (765) 747-7575
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No-Par Value
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
Indicate by check mark whether the registrant (1) has filed all reports required
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---
The aggregate market value of voting stock held by non-affiliates of the
registrant (for purposes of such calculation, includes persons who are not
directors, executive officers or holders of more than 10% of the registrant's
common stock) based upon the average of the bid and asked prices as of March 12,
1999 was approximately $91,387,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 12, 1999:
Common Stock, No-Par Value - 4,571,107 shares
Documents incorporated by reference:
Portions of the Annual Report to Shareholders of ANB Corporation for the year
ended December 31, 1998 are incorporated by reference into Part II.
Portions of the definitive proxy statement dated March 25, 1999 relating to the
annual meeting of shareholders of ANB Corporation to be held on April 27, 1999
are incorporated by reference into Part III.
Exhibit index - page 22
(1)
<PAGE>
FORM 10-K TABLE OF CONTENTS
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Page
Forward Looking Statement ................................................. 3
Part I
Item 1 - Business..................................................... 3
Item 2 - Properties................................................... 15
Item 3 - Legal Proceedings............................................ 15
Item 4 - Submission of Matters to a Vote of Security Holders.......... 15
Part II
Item 5 - Market For the Registrant's Common Equity and
Related Stockholder Matters.............................. 15
Item 6 - Selected Financial Data...................................... 15
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 15
Item 7A - Quantitative and Qualitative Disclosures
About Market Risk ....................................... 15
Item 8 - Financial Statements and Supplementary Data.................. 15
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 16
Part III
Item 10 - Directors and Executive Officers of the Registrant........... 16
Item 11 - Executive Compensation....................................... 16
Item 12 - Security Ownership of Certain Beneficial
Owners and Management.................................... 16
Item 13 - Certain Relationships and Related Transactions............... 16
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K...................................... 16
Signatures ......................................................... 20
(2)
<PAGE>
FORWARD LOOKING STATEMENT
This Annual Report on Form 10-K ("Form 10-K") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-K and include statements regarding the intent, belief,
outlook, estimate or expectations of the Registrant (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Registrant. Readers of this Form 10-K are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-K
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
financial institutions; substantial changes in financial markets; changes in
real estate values and the real estate market; regulatory changes; or
unanticipated results in pending legal proceedings.
PART I
ITEM 1. BUSINESS
- -----------------------------------------------------------------------------
GENERAL
ANB Corporation (the "Registrant") is a multibank holding company located in
Muncie, Indiana, engaged in the business of commercial banking, and trust and
asset management. The business of the Registrant is conducted through its
financial institution and trust subsidiaries, American National Bank and Trust
Company of Muncie ("American National"), American National Trust and Investment
Management Company ("ANTIM") and Peoples Loan & Trust Bank ("Peoples"), which
provide a broad range of financial services.
American National is a national banking association with its principal offices
in Muncie, Delaware County, Indiana. American National was originally
incorporated under the laws of the State of Indiana in 1918. In 1960, American
National received its charter as a national banking association. Muncie Federal
Savings Bank ("Muncie Federal"), a federally chartered mutual savings and loan
association, was acquired by the Registrant in 1991 and converted to a savings
bank. Muncie Federal and American National merged in 1993. The acquisition of
Muncie Federal benefited the Registrant through an increase in market share and
an expansion of its operations. The additional Muncie Federal offices allowed
American National to increase the number of full service banking locations
within Delaware County and to expand into Jay County, Indiana, northeast of the
Registrant's home county. At December 31, 1998, American National had assets of
$433.1 million, deposits of $363.6 million and stockholder's equity of $32.9
million.
The Registrant acquired Winchester Bancorporation ("Winchester") in Winchester,
Indiana and its subsidiary bank, Peoples in early 1994. The Registrant acquired
100% of the outstanding common stock of Winchester for approximately $11.0
million. Peoples' customers are located primarily in Randolph, Wayne and
surrounding counties. In December, 1995, The Saratoga State Bank ("Saratoga"),
previously a subsidiary of the Registrant, was merged into Peoples. Saratoga was
located in Saratoga, Randolph County, Indiana, immediately east of the
Registrant's home county. In 1997, Peoples acquired a branch in Parker City,
Indiana with deposits approximately $9 million. At December 31, 1998, Peoples
had assets of $177.6 million, deposits of $145.4 million and stockholder's
equity of $17.6 million.
ANTIM, previously the trust department of American National, traces its history
to 1900 and is the successor of The Muncie Trust Company. To capitalize on its
profitable $1.7 billion trust operation, American National formed its previously
wholly owned subsidiary, ANTIM, which has succeeded to American National's trust
business. Ownership of ANTIM was transferred from American National to the
Registrant in December, 1996. ANTIM provides trust and asset management services
with offices in Indianapolis, Anderson, Fort Wayne, Winchester and Muncie. In
September 1997, ANTIM acquired a 15% interest in Indiana Trust & Investment
Management Company in Mishawaka, Indiana, and under a Stock Acquisition
Agreement, is obligated to acquire the remaining 85% by the year 2002, subject
to
(3)
<PAGE>
various terms and conditions. Trust operations provide a significant source
of fee income to the Registrant and in 1998 constituted 11.5% of the
Registrant's total operating income.
ANB Financial Planning Services ("ANBFPS") is a wholly owned subsidiary of
American National. ANBFPS offers a full range of financial planning services.
The Registrant provides its commercial banking, trust and asset management
products and services through its 32 affiliated offices in nine Indiana
counties, and this expanded financial base has enabled it to compete with larger
bank holding companies in east central Indiana.
BUSINESS ACTIVITIES
American National and Peoples offer a wide range of depository, lending,
fiduciary and related financial services to individual and business customers.
The financial institutions offer checking and savings plans; investment accounts
consisting of certificates of deposit, money market deposit accounts, IRA
accounts and interest paying deposit accounts; provide lending services
consisting of simple interest consumer loans, car and home improvement loans,
student loans, commercial loans and mortgage loans; and offer credit cards
(Master Card and Visa), safety deposit services, travelers checks, U. S. Savings
Bonds, night depositories, bank by mail and automatic transfer services.
Automated teller machines provide 24-hour service in Muncie, Winchester,
Richmond, Parker City, Portland, Farmland, Anderson, Zionsville and Yorktown.
Trust services are provided to both individual and corporate customers,
including personal trust and agency accounts, employee benefit plans and
corporate bond trustee accounts.
The lending philosophy of the Registrant is to develop sound loans with the
resources of its subsidiary financial institutions. The subsidiaries emphasize
loans to existing customers, potential customers in proximity to the branch
offices and potential customers within their respective market areas. The
Registrant lends almost exclusively within its market area and does not make
loans to foreign countries.
The Registrant is dedicated to minimizing risk in the loan portfolio through
careful pre-loan investigation, through clearly understood loan terms, through
acquisition of adequate collateral and through close monitoring of loan and
financial information on customer accounts. Efforts are made to avoid industry
concentrations by type of business through diversification of borrowers.
During 1998, the Registrant engaged in market expansion in Madison and Boone
counties. In September, the Registrant acquired six branch offices in the
Anderson and Zionsville communities with deposits totaling approximately $90
million. In December 1998, the Registrant continued its expansion with the
announcement of the opening of a de novo office in Marion, Indiana. The office
opened in February, 1999. The acquired branches and the de novo office have
provided opportunities for the Registrant to deliver its distinctive brand of
retail banking into new markets. Customer reception in Anderson, Zionsville, and
Marion has exceeded expectations, and reaffirmed the Registrant's belief that
there is a great opportunity to gain market share in communities that have
experienced turnover in local ownership.
In October 1998, the Registrant entered into a merger agreement with Farmers
State Bancorp (Farmers) of Union City, Ohio. Farmers would be the fourth banking
company to join the Registrant and the first to be located in another state. The
proposed merger will allow the Registrant to expand its network of financial
service subsidiaries into new market areas. Unaudited total assets, total
deposits and stockholders' equity of Farmers approximated $93 million, $82
million and $10 million at December 31, 1998. The proposed merger is subject to
approval by Farmers' shareholders and regulatory agencies.
EMPLOYEES
As of December 31, 1998, the Registrant and its subsidiaries had approximately
328 full-time equivalent employees to whom it provides a variety of benefits and
with whom it enjoys excellent relations.
(4)
<PAGE>
STATISTICAL INFORMATION
The following tables present statistical information with respect to the
Registrant, which is not included in Registrant's 1998 Annual Report to
Shareholders.
LOAN PORTFOLIO
Types of Loans
- --------------
The loan portfolio at the dates indicated is presented below:
<TABLE>
<CAPTION>
December 31 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial $ 105,690 $ 99,378 $ 81,142 $ 75,083 $68,361
Term federal funds sold 8,623 1,500 5,500 8,784 9,969
Real estate mortgage 303,527 262,711 243,115 226,069 211,442
Individuals' loans for
household expenditures 45,720 39,654 42,507 35,736 35,495
Tax-exempt and other loans 6,547 5,528 3,817 3,241 3,536
------------------------------------------------------------------------------
Total loans $470,107 $408,771 $376,081 $348,913 $328,803
==============================================================================
</TABLE>
Maturities and Sensitivities of Loans to Changes in Interest Rates
- ------------------------------------------------------------------
Presented in the table below are the maturities of the commercial loan portfolio
and the sensitivity of the portfolio at December 31, 1998 as to predetermined or
adjustable interest rates.
<TABLE>
<CAPTION>
Within 1-5 Over
1 Year Years 5 Years Total
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Fixed rate loans $ 16,860 $ 18,290 $2,645 $ 37,795
Variable rate loans 45,627 16,798 5,470 67,895
---------------------------------------------------------------------
Totals $ 62,487 $ 35,088 $8,115 $ 105,690
=====================================================================
Per cent 59.1% 33.2% 7.7% 100.0%
</TABLE>
Principal balances of term loans included in the 1-5 Years and Over 5 Years
categories are shown based on maturity date.
(5)
<PAGE>
Risk Elements
- -------------
Nonaccrual, past due and restructured loans
<TABLE>
<CAPTION>
December 31 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans $ 1,237 $ 538 $1,326 $1,184 $2,472
Accruing loans contractually
past due 90 days or more as to
interest or principal payments 206 300 472 241 390
Restructured loans 147 590 63 880 156
Impaired loans included in the above table 100 190 720
</TABLE>
Nonaccruing loans are loans which are reclassified to a nonaccruing status when
in management's judgment the collateral value and financial condition of the
borrower do not justify accruing interest. Interest previously recorded but not
deemed collectible is reversed and charged against current income. Interest
income on these loans is then recognized when collected.
Restructured loans are loans for which the contractual interest rate has been
reduced or other concessions are granted to the borrower because of a
deterioration in the financial condition of the borrower resulting in the
inability of the borrower to meet the original contractual terms of the loans.
No interest income for the year ended December 31, 1998 was recognized on the
nonaccruing and restructured loans listed in the table above, whereas interest
income of $24,000 would have been recognized under their original loan terms.
Potential problem loans:
Management has identified additional impaired loans of $946,000 as of December
31, 1998, not included in the risk element table, about which there are doubts
as to the borrowers' ability to comply with present repayment terms. Loans are
considered to be impaired when it becomes probable that the bank subsidiaries
will be unable to collect all amounts due according to the contractual terms of
the loan agreement.
Risk elements are considered by management in determining the appropriate level
of the allowance for loan losses.
Allocation of the Allowance for Loan Losses at December 31
- ----------------------------------------------------------
Presented below is an analysis of the composition of the allowance for loan
losses (in thousands) and per cent of loans in each category to total loans:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Amount Per Cent Amount Per Cent Amount Per Cent
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31:
Commercial $ 1,837 22.5% $1,505 24.3% $1,337 21.6%
Term federal funds sold 1.8 .4 1.5
Real estate mortgage 1,031 64.6 838 64.2 889 64.6
Loans to individuals 649 9.7 730 9.7 581 11.3
Tax exempt and other 55 1.4 25 1.4 23 1.0
Unallocated 15 399 570
----------------------------------------------------------------------------------
Totals $3,587 100% $3,497 100.0% $3,400 100.0%
==================================================================================
</TABLE>
(6)
<PAGE>
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Amount Per Cent Amount Per Cent
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at December 31:
Commercial $ 827 21.5% $ 867 20.8%
Term federal funds sold 2.5 3.0
Real estate mortgage 878 64.8 1,172 64.3
Loans to individuals 554 10.3 481 10.8
Tax exempt and other 12 .9 20 1.1
Unallocated 626 158
--------------------------------------------------
Totals $2,897 100.0% $2,698 100.0%
==================================================
</TABLE>
Loan Loss Charge-off Procedures
- -------------------------------
The subsidiary financial institutions have weekly loan committee meetings at
which loans in excess of certain amounts are approved or disapproved and loan
delinquencies, maturities and problems are reviewed.
The boards of directors of the subsidiaries receive and review reports on loans
monthly, including information on new and renewed, delinquent and problem loans.
All chargeoffs are reported to and approved by the subsidiaries' boards monthly.
Loans are charged off when a determination is made that all or a portion of a
loan is uncollectible or as a result of examinations by regulators and the
independent auditors.
Provision for Loan Losses
- -------------------------
In banking, loan losses are one of the costs of doing business. Although the
financial institutions' management emphasize the early detection and chargeoff
of loan losses, it is inevitable that at any time certain losses exist in the
portfolio which have not been specifically identified. Accordingly, the
provision for loan losses is charged to earnings on an anticipatory basis, and
recognized loan losses are deducted from the allowance so established. Over
time, all net loan losses must be charged to earnings. During the year, an
estimate of the loss experience for the year serves as a starting point in
determining the appropriate level for the provision. However, the amount
actually provided in any period may be greater or less than net loan losses,
based on management's judgment as to the appropriate level of the allowance for
loan losses. The determination of the provision in any period is based on
management's continuing review and evaluation of the loan portfolio, and its
judgment as to the impact of current economic conditions on the portfolio. The
evaluation by management includes consideration of past loan loss experience,
changes in the composition of the loan portfolio, the current condition and
amount of loans outstanding, and the probability of collecting all amounts due.
(7)
<PAGE>
SECURITIES PORTFOLIO
The carrying values of the components of the securities portfolio at the dates
indicated were:
<TABLE>
<CAPTION>
December 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Available for sale(1)
U. S. Treasury $ 5,491 $14,880 $17,838
Federal agencies 25,098 8,248 7,972
State and municipal 35,428 45,031 44,166
Corporate obligations 100 100 200
Mortgage-backed 9,968 3,078
Other securities 397 813 690
----------------------------------------------------
Total available for sale $ 76,482 $69,072 $73,944
====================================================
</TABLE>
(1) Available for sale securities are carried at market value.
The maturity distribution and average yields for the securities portfolio at
December 31, 1998 were:
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5-10 Years Over 10 Years
--------------------------------------------------------------------------------------------
Amount Yield* Amount Yield* Amount Yield* Amount Yield*
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale(2)
U. S. Treasury $ 1,352 6.4% $ 4,055 6.0%
Federal agencies 4,971 5.3 10,024 5.9 $10,078 6.1%
State and municipal* 4,425 10.3 4,447 8.6 12,049 9.1 $13,216 8.5%
Corporate obligations 100 5.5
Mortgage-backed securities
1,013 7.0 910 6.5 8,116 6.7
Other securities 7.2
397
--------------------------------------------------------------------------------------------
Totals $ 11,245 7.5% $ 19,539 6.6% $23,037 7.7% $21,332 7.8%
=========== =========== =========== ===========
</TABLE>
(2) Available for sale amounts shown in the maturity distribution table are at
amortized cost for computation of yields.
* Interest yields on state and municipal securities are presented on a fully
taxable equivalent basis using a 34% rate after adjustment for effect of
non-deductible interest expense attributed to such investments.
DEPOSITS
The following table shows the average amount of deposits and the average rate of
interest paid thereon for the years indicated.
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand $50,659 $ 48,556 $ 42,816
NOW accounts 77,878 2.1% 74,511 2.5% 71,954 2.5%
Money market investment accounts 54,501 3.3 40,304 3.2 40,383 3.1
Savings 27,013 2.3 26,592 2.5 28,174 2.5
Certificates of deposit 231,920 5.2 219,853 5.3 217,350 5.4
-------------- -------------- --------------
Totals $441,871 $409,816 $400,677
============== ============== ==============
</TABLE>
(8)
<PAGE>
As of December 31, 1998, certificates of deposit and other time deposits of
$100,000 or more mature as follows:
<TABLE>
<CAPTION>
3-6 6-12 Over
3 Months Months Months 12 Months Total
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit $43,185 $11,723 $ 6,162 $ 8,249 $69,319
Per cent 62.3% 16.9% 8.9% 11.9% 100.0%
</TABLE>
RATIOS
Various ratios of the Company are as follows:
<TABLE>
<CAPTION>
December 31 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on assets 1.40% 1.41% 1.27%
Return on equity 13.52 13.34 12.29
Dividend payout ratio 43.11 42.11 41.98
Equity to assets ratio 10.37 10.56 10.34
</TABLE>
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Short-term borrowings
Federal funds purchased $ 6,375 $ 6,600
Securities sold under repurchase agreements $ 4,321 3,980 7,203
U. S. Treasury demand notes 1,486 2,980 3,873
---------------------------------------------------
Totals $ 5,807 $13,335 $17,676
===================================================
</TABLE>
Securities sold under repurchase agreements are borrowings maturing within one
year and are secured by U. S. Treasury and Federal agencies securities.
(9)
<PAGE>
Pertinent information with respect to short-term borrowings is summarized below:
<TABLE>
<CAPTION>
December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate on outstanding balance
Securities sold under repurchase agreements 4.3% 5.1% 5.1%
Total short-term borrowings 4.2 5.9 5.9
Weighted average interest rate paid on short-term
borrowings during the year 5.1 5.5 5.2
Highest amount outstanding at any month end
during the year (in thousands)
Securities sold under repurchase agreements $5,353 $ 6,932 $ 7,203
Total short-term borrowings 14,211 19,523 17,676
Average short-term borrowings outstanding
during the year (in thousands) 7,138 11,277 9,267
</TABLE>
REGULATION AND SUPERVISION OF THE REGISTRANT
The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended ("BHCA"), and is registered as such with the
Board of Governors of the Federal Reserve System ("Federal Reserve"). The
Registrant is examined, regulated and supervised by the Federal Reserve and is
required to file annual reports and other information regarding its business and
operations and the business and operations of its subsidiaries with the Federal
Reserve. The Federal Reserve has the authority to issue cease-and-desist orders
against a bank holding company and nonbank subsidiaries if it determines that
activities of such entities represent an unsafe and unsound practice or a
violation of law.
Under the BHCA, a bank holding company is, with limited exceptions, prohibited
from acquiring direct or indirect ownership or control of voting stock of any
company which is not a bank and from engaging in any activity other than
managing or controlling banks. A bank holding company may, however, own shares
of a company engaged in activities which the Federal Reserve has determined to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
Acquisitions by the Registrant of banks and savings associations are subject to
federal and state regulation. Any acquisition by the Registrant of more than
five percent of the voting stock of any bank requires prior approval of the
Federal Reserve. Acquisition of savings associations is also subject to the
approval of the Office of Thrift Supervision ("OTS").
Federal law imposes, with certain limited exceptions, a "cross-guarantee" on the
part of commonly controlled depository institutions. Under this provision, if
one depository institution subsidiary of a multi-unit holding company, such as
the Registrant, fails or requires Federal Deposit Insurance Corporation ("FDIC")
assistance, the FDIC may assess a commonly controlled depository institution for
the loss or estimated loss suffered by the FDIC. While the FDIC's claim is
junior to the claims of nonaffiliated depositors, holders of secured
liabilities, general creditors, and subordinated creditors, it is superior to
the claims of stockholders and any affiliate of the depository institution. In
addition, under Federal Reserve policy the Registrant is expected to act as a
source of financial strength to, and commit resources to support, each of its
affiliate banks. As a result, the Registrant may be required to commit resources
to its affiliate banks in circumstances where it might not otherwise do so.
(10)
<PAGE>
REGULATION AND SUPERVISION OF THE SUBSIDIARY BANKS
American National and ANTIM are supervised, regulated and examined by the
Comptroller of the Currency. Peoples is supervised, regulated and examined by
the Indiana Department of Financial Institutions and, as state non-member bank,
by the FDIC. A cease and desist order may be issued by the Comptroller of the
Currency against American National and by the Indiana Department of Financial
Institutions and FDIC against Peoples, if the respective agency finds that the
activities of such institution represents an unsafe and unsound banking practice
or violation of law. In addition, under certain circumstances, the FDIC may also
issue a cease-and-desist order against any subsidiary financial institution of
the Registrant.
With certain exceptions, a bank, a savings and loan association, and a
subsidiary or affiliate thereof, may not extend credit, lease or sell property
or furnish any services or fix or vary the consideration for the foregoing on
the condition that (i) the customer must obtain or provide some additional
credit, property or services from, or to, any of them, or (ii) the customer may
not obtain some other credit, property or service from a competitor, except to
the extent reasonable conditions are imposed to assure the soundness of credit
extended.
The deposits of American National and Peoples are insured by the Bank Insurance
Fund ("BIF") of the FDIC. The deposits of Muncie Federal, previously a separate
entity (merged into American National in 1993), continue to be insured by the
Savings Association Insurance Fund ("SAIF") of the FDIC. The insurance rates
paid by banks range from 0 to 27 basis points. Insurance premiums paid by banks
to SAIF are also at a range from 0 to 27 basis points. The FDIC is authorized to
make limited adjustments to the BIF rate schedule without notice or rulemaking
as deemed necessary by the FDIC to maintain the BIF designated reserve ratio.
Increases in the rate schedule could adversely impact, and decreases would
positively impact, the Registrant and its subsidiary banks.
Branching by banks in Indiana is subject to the jurisdiction, and requires the
prior approval, of the bank's primary federal regulatory authority and, if the
branching bank is a state bank, of the Indiana Department of Financial
Institutions. Under Indiana law, American National and Peoples may branch
anywhere in the state.
The Registrant is a legal entity separate and distinct from its subsidiary
banks. There are various legal limitations on the extent to which the subsidiary
banks can supply funds to the Registrant. The principal source of the
Registrant's funds consists of dividends from its subsidiaries. State and
Federal laws restrict the amount of dividends which may be paid by banks and
savings associations. In addition, the subsidiary banks are subject to certain
restrictions on extensions of credit to the Registrant or any of its
subsidiaries, on investments in the stock or other securities of the Registrant
or in any of its subsidiaries and in taking such stock or securities as
collateral for loans.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
directs that each federal banking agency prescribe standards for depository
institutions relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth and quality, management compensation, minimum earnings sufficient to
absorb losses, and such other standards as the agency deems appropriate. The
federal banking agencies have issued guidelines establishing standards for
safety and soundness for operational and managerial standards and compensation
standards, and has proposed guidelines for asset quality and earnings. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance. Failure
to submit an acceptable compliance plan, or failure to adhere to a compliance
plan that has been accepted by the appropriate regulator, would constitute
grounds for further enforcement action.
Under FDICIA, as implemented by final regulations adopted by the FDIC,
FDIC-insured state banks are prohibited, subject to certain exceptions, from
directly or indirectly acquiring or retaining any equity investments of a type,
or in an amount, that are not permissible for a national bank. FDICIA, as
implemented by FDIC regulations, also prohibits FDIC-insured state banks and
their subsidiaries,
(11)
<PAGE>
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible investments
and activities must be divested or discontinued within certain time frames set
by the FDIC in accordance with FDICIA. These restrictions are not currently
expected to have a material impact on the operations of Peoples.
The federal banking regulators have adopted regulations to implement the prompt
corrective action provisions of FDICIA, effective as of December 19, 1992. Among
other things, the regulations define the relevant capital measures for the five
capital categories. An institution is deemed to be "well capitalized" if it has
a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital
ratio of 8% or greater, and a leverage ratio of 5% or greater, and is not
subject to a regulatory order, agreement or directive to meet and maintain a
specific capital level for any capital measure. An institution is deemed to be
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, a Tier 1 risk-based capital ratio of 4% or greater, and generally a
leverage ratio of 4% or greater. An institution is deemed to be
"undercapitalized" if it has a total risk-based capital ratio of less than 8%, a
Tier 1 risk-based capital ratio of less than 4%, or generally a leverage ratio
of less than 4%, and "significantly undercapitalized" if it has a total
risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution is deemed to
be "critically undercapitalized" if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. A bank's compliance with such plan is
required to be guaranteed by any company that controls the undercapitalized
institution as described above. If an "undercapitalized" bank fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks are subject to one or more of a number of
requirements and restrictions, including an order by the appropriate federal
banking regulator to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and cease receipt of deposits
from correspondent banks, and restrictions on compensation of executive
officers. "Critically undercapitalized" institutions may not, beginning 60 days
after becoming "critically undercapitalized", make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any transaction outside the ordinary course of
business. In addition, "critically undercapitalized" institutions are subject to
appointment of a receiver or conservator.
Additionally, under FDICIA, a bank holding company is required to guarantee the
compliance of any insured depository institution subsidiary that may become
"undercapitalized" (as defined in the statute) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized, or (ii) the amount
that is necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan.
CAPITAL REQUIREMENTS
The Registrant and its subsidiary banks must meet certain minimum capital
requirements mandated by the Federal Reserve, the Comptroller of the Currency,
the FDIC and state banking regulators in Indiana. These regulatory agencies
require bank holding companies and banks to maintain certain minimum ratios of
primary capital to total assets and total capital to total assets. As of January
1, 1991, the Federal Reserve required bank holding companies to maintain a
minimum Tier 1 leverage ratio of 3 percent capital to total assets; however, for
all but the most highly rated institutions which do not anticipate significant
growth, the minimum Tier 1 leverage ratio is 3 percent plus an additional
cushion of 100 to 200 basis points. As of December 31, 1998, the Registrant's
leverage ratio of capital to total assets was 7.9 percent.
The Federal Reserve, the Comptroller of the Currency and the FDIC each have
approved the imposition of "risk-adjusted" capital ratios on bank holding
companies and financial institutions. At least half of the
(12)
<PAGE>
total required capital, or 4%, must be "Tier 1 capital," consisting principally
of common shareholders' equity, noncumulative perpetual preferred stock, a
limited amount of cumulative perpetual preferred stock and minority interest in
the equity accounts of consolidated subsidiaries, less certain goodwill items.
The remainder ("Tier 2 capital") may consist of a limited amount of subordinated
debt and intermediate-term preferred stock, certain hybrid capital instruments
and other debt securities, cumulative perpetual preferred stock, and a limited
amount of the general loan loss allowance.
The Registrant and each of its subsidiaries had capital to assets ratios and
risk-adjusted capital ratios at December 31, 1998 in excess of the applicable
regulatory minimum requirements. The following table summarizes the Registrant's
risk-adjusted capital ratios under Federal Reserve guidelines at December 31,
1998:
Registrant Regulatory
Consolidated Minimum
Ratio Requirement
------------ -----------
Tier 1 Capital to Risk-Weighted Assets Ratio 11.4% 4%
Total Capital to Risk-Weighted Assets Ratio 12.3% 8%
The Comptroller of the Currency and the FDIC include, in evaluations of a bank's
capital adequacy, an assessment of the bank's exposure to declines in the
economic value of the bank's capital due to changes in interest rates. In 1996,
the FDIC, along with the Comptroller of the Currency and the Federal Reserve,
issued a joint policy statement to provide guidance on sound practices for
managing interest rate risk. The statement sets forth the factors the federal
regulatory examiners will use to determine the adequacy of a bank's capital for
interest rate risk. These qualitative factors include the adequacy and
effectiveness of the bank's internal interest rate risk management process and
the level of interest rate exposure. Other qualitative factors that will be
considered include the size of the bank, the nature and complexity of its
activities, the adequacy of its capital and earnings in relation to the bank's
overall risk profile, and its earning exposure to interest rate movements. The
interagency supervisory policy statement describes the responsibilities of a
bank's board of directors in implementing a risk management process and the
requirements of the bank's senior management in ensuring the effective
management of interest rate risk. Further, the statement specifies the elements
that a risk management process must contain.
The Federal Reserve, the Comptroller of the Currency, and the FDIC have issued
final regulations further revising their risk-based capital standards to include
a supervisory framework for measuring market risk. The effect of these
regulations is that any bank holding company or bank which has significant
exposure to market risk must measure such risk using its own internal model,
subject to the requirements contained in the regulations, and must maintain
adequate capital to support that exposure. These regulations apply to any bank
holding company or bank whose trading activity equals 10% or more of its total
assets, or whose trading activity equals $1 billion or more. Examiners may
require a bank holding company or bank that does not meet the applicability
criteria to comply with the capital requirements if necessary for safety and
soundness purposes. These regulations contain supplemental rules to determine
qualifying and excess capital, calculate risk-weighted assets, calculate market
risk equivalent assets and calculate risk-based capital ratios adjusted for
market risk.
INTERSTATE BANKING
The Riegle Community Development and Regulatory Improvement Act of 1994 allows
bank holding companies to acquire banks anywhere in the United States subject to
certain state restrictions and permits an insured bank to merge with an insured
bank in another state without regard to whether such merger is prohibited by
state law. Additionally, an out-of-state bank may acquire the branches of an
insured bank in another state without acquiring the entire bank; provided,
however, that the law of the state where the branch is located permits such an
acquisition. Indiana permits interstate branching (both denovo and by
(13)
<PAGE>
acquisition), subject to certain conditions, as contemplated by the Act. Bank
holding companies may merge existing bank subsidiaries located in different
states into one bank.
An insured bank subsidiary may act as an agent for an affiliated bank or thrift
in offering limited banking services (receive deposits, renew time deposits,
close loans, service loans and receive payments on loans obligations) both
within the same state and across state lines.
ADDITIONAL MATTERS
In addition to the matters discussed above, the Registrant's affiliate banks are
subject to additional regulation of their activities, including a variety of
consumer protection regulations affecting their lending, deposit and collection
activities and regulations affecting secondary mortgage market activities. Both
federal and state law extensively regulate various aspects of the banking
business such as reserve requirements, truth-in-lending and truth-in-savings
disclosure, equal credit opportunity, fair credit reporting, community
reinvestment activities, trading in securities and other aspects of banking
operations. Current federal law also requires banks, among other things, to make
deposited funds available within specified time periods. The extensive
regulation, supervision and examination of financial institutions by the bank
regulatory agencies is intended primarily for the protection of the insurance
fund and depositors. Moreover, such regulation imposes substantial restrictions
on the operations and activities of such institutions, and grants to regulators
broad discretion in connection with their supervisory and enforcement activities
and examination policies, including policies with respect to classification of
assets and establishment of adequate loan loss reserves. Any changes in such
regulations, whether by legislation or regulatory action, could have a material
impact on the subsidiary banks and their operations. The Registrant cannot
predict what, if any, future actions may be taken by legislative or regulatory
authorities or what impact any such actions may have on the operations of the
subsidiary banks.
The earnings of financial institutions are also affected by general economic
conditions and prevailing interest rates, both domestic and foreign, and by the
monetary and fiscal policies of the United States Government and its various
agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking industry
are being considered and in the future may be considered by the United States
Congress, state legislatures and various regulatory agencies, including those
referred to above. It cannot be predicted with certainty whether such
legislation of administrative action will be enacted or the extent to which the
banking industry in general or the Registrant and its affiliate banks in
particular would be affected thereby.
YEAR 2000 SAFETY AND SOUNDNESS
The FDIC, Comptroller of the Currency, Federal Reserve, and OTS issued
"interagency guidelines establishing Year 2000 standards for safety and
soundness" in 1998, which are consistent with the key principles contain in the
safety and soundness guidance on the risks posed to financial institutions by
the Year 2000 problem issued by the Federal Institutions Examination Council.
The guidance underscores that Year 2000 preparation is not only an information
systems issue, but also an enterprise-wide challenge that must be addressed at
the highest level of a financial institution. The guidance sets out the
responsibilities of senior management and boards of directors in managing their
Year 2000 projects. Among the responsibilities of institution managers and
directors is that of managing the internal and external risks presented by
providers of data-processing products and services, business partners,
counterparties and major loan customers. Under the guidance, senior management
must provide the board of directors with status reports, at least quarterly, on
efforts to reach Year 2000 goals both internally and by the institution's major
vendors. Senior managers and directors must allocate sufficient resources to
ensure that high priority is given to seeing that remediation plans are
fulfilled, and that the project receives the quality personnel and timely
support it requires. The guidance does not require financial institutions to
obtain Year 2000 certification from their vendors. Rather, an institution must
implement its own internal testing or verification processes for vendor products
and services to ensure that its different computer systems function properly
together.
(14)
<PAGE>
ITEM 2. PROPERTIES
- -----------------------------------------------------------------------------
As of December 31, 1998, the Registrant operated through thirty-two affiliated
offices. American National operates seventeen branch offices, nine of which are
in Muncie, four in Anderson, two in Zionsville, and one in Yorktown and in
Portland. Peoples operates eight full-service offices, including branches in
Winchester, Saratoga, Richmond, Farmland, Parker City and Lynn. Other offices
are operated by ANTIM, and ANBFPS. All such offices are owned by the
subsidiaries with the exception of seven branches of American National, one
branch of Peoples and the three facilities of ANTIM.
ITEM 3. LEGAL PROCEEDINGS
- -----------------------------------------------------------------------------
As a part of the ordinary course of business, the Registrant's subsidiaries are
parties to lawsuits involving claims to the ownership of funds and involving the
collection of delinquent accounts. All such litigation is incidental to the
business of the financial institutions. Management believes that no litigation
is threatened or pending in which the Registrant or its subsidiaries face
potential loss or exposure which will materially affect the Registrant's
stockholders' equity or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------------------------
None
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- -----------------------------------------------------------------------------
Market for the Registrant's common equity and related stockholder matters
included in the 1998 Annual Report to Shareholders of the Registrant on page 3
is incorporated herein by reference.
As of December 31, 1998, the Registrant had approximately 708 stockholders of
record.
ITEM 6. SELECTED FINANCIAL DATA
- -----------------------------------------------------------------------------
Selected financial data under the heading "Financial Highlights" included in the
1998 Annual Report to Shareholders of the Registrant on page 4 is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operation included in the 1998 Annual Report to Shareholders of the Registrant
on pages 36 through 55 is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -----------------------------------------------------------------------------
Quantitative and qualitative disclosures about market risk included in the 1998
Annual Report to Shareholders of the Registrant on pages 50 through 52 is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------------------------------
Consolidated financial statements as of and for the three-year period ended
December 31, 1998 and the independent auditor's report included in the 1998
Annual Report to Shareholders of the Registrant on pages 10 through 35 are
incorporated herein by reference.
(15)
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- -----------------------------------------------------------------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------------------------
The information to be provided under this item is incorporated by reference
herein from pages 2 and 3 of the Registrant's definitive proxy statement dated
March 25, 1999 as filed with the Commission pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
- -----------------------------------------------------------------------------
The information to be provided under this item is incorporated by reference
herein from pages 6 through 13 of the Registrant's definitive proxy statement
dated March 25, 1999 as filed with the Commission pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------------
The information to be provided under this item is incorporated by reference
herein from pages 2, 4, and 5 of the Registrant's definitive proxy statement
dated March 25, 1999 as filed with the Commission pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -----------------------------------------------------------------------------
The information to be provided under this item is incorporated by reference
herein from page 5 of the Registrant's definitive proxy statement dated March
25, 1999 as filed with the Commission pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
- -----------------------------------------------------------------------------
(a)(1) The following consolidated financial statements of the Registrant and
subsidiaries are incorporated by reference in Item 8:
Annual
Report
Page
Number
------
Independent Auditor's Report 10
Consolidated Balance Sheet as of December 31, 1998 and 1997 11
Consolidated Statement of Income for the years ended
December 31, 1998, 1997 and 1996 12
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996 13
(16)
<PAGE>
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 14
Notes to Consolidated Financial Statements 15-35
(2) All financial statement schedules have been omitted because they are not
applicable or the required information is shown in the consolidated
financial statements or notes thereto.
(3) Listing of Exhibits:
Exhibit Number Description
-------------- -----------
2.01 Restated and Amended Plan and Agreement of
Reorganization (Incorporated herein by
reference to Exhibit 2.01 of Form S-1
Registration Statement, Commission File No.
33-36958).
2.02 Restated and Amended Plan of Merger-Conversion
(Incorporated herein by reference to Exhibit
2.02 of Form S-1 Registration Statement,
Commission File No. 33-36958).
2.03 Agreement of Merger and Reorganization, as
amended by Amendment and Waiver (Incorporated
herein by reference to Exhibit 2.03 of the
Registrant's Form 8-K filed on February 4,
1994).
3.01 Articles of Incorporation of the Registrant,
as amended (Incorporated herein by reference
to Exhibit 3.01 of the Registrant's 1995 Form
10-K Annual Report).
3.02 Bylaws of the Registrant, as amended.
3.03 Bylaws Amendment of the Registrant Adopted on
August 10, 1998.
10.01 ANB Corporation Stock Option Plan
(Incorporated herein by reference to Exhibit
4.3 of Form S-8 Registration Statement,
Commission File No. 33-95868 filed on August
18, 1995).
10.02 Nonqualified Stock Option Plan of ANB
Corporation for Former Directors of Muncie
Federal Savings and Loan Association
(Incorporated herein by reference to Exhibit
28 of the Registrant's Form 10-Q as of March
31, 1991).
10.03 Agreement to Merge by and between American
National Bank and Trust Company and Muncie
Federal Savings Bank dated June 16, 1992
(Incorporated herein by reference to Exhibit
10.12 of the Registrant's 1992 Form 10-K
Annual Report).
10.04 1993 Amended and Restated Employment Agreement
dated September 7, 1993 by and among James R.
Schrecongost, ANB Corporation and a subsidiary
of ANB Corporation (Incorporated herein by
reference to Exhibit 10.13 of the Registrant's
1993 Form 10-K Annual Report).
10.05 1993 Amended and Restated Employment Agreement
dated September 7, 1993 by and among Larry E.
Thomas, ANB Corporation and a subsidiary of
ANB Corporation (Incorporated herein by
reference to Exhibit 10.15 of the Registrant's
1993 Form 10-K Annual Report).
10.06 1993 Amended and Restated Employment Agreement
dated September 7, 1993 by and among David W.
Spade, ANB Corporation and a subsidiary of ANB
Corporation (Incorporated herein by reference
to Exhibit 10.16 of the Registrant's 1993 Form
10-K Annual Report).
(17)
<PAGE>
(3) Listing of Exhibits:
Exhibit Number Description
-------------- -----------
10.07 1993 Amended and Restated Employment Agreement
dated September 8, 1993 by and among Paul L.
Sehnert, Jr., ANB Corporation and a subsidiary
of ANB Corporation (Incorporated herein by
reference to Exhibit 10.17 of the Registrant's
1993 Form 10-K Annual Report).
10.08 1994 Amended and Restated Employment Agreement
dated November 30, 1994 by and among Chris L.
Talley, ANB Corporation and a subsidiary of
ANB Corporation (Incorporated herein by
reference to Exhibit 10.19 of the Registrant's
1994 Form 10-K Annual Report).
10.09 1994 Amended and Restated Employment Agreement
dated November 30, 1994 by and among Philip R.
Hirschfeld, ANB Corporation and a subsidiary
of ANB Corporation (Incorporated herein by
reference to Exhibit 10.20 of the Registrant's
1994 Form 10-K Annual Report).
10.10 ANB Corporation 1995 Stock Option Plan
(Incorporated herein by reference to Exhibit
4.3 of Form S-8 Registration Statement,
Commission File No. 33-95866 filed on August
18, 1995).
10.11 ANB Corporation 1996 Directors' Stock Option
Plan (Incorporated herein by reference to
Exhibit 10.13 of the Registrant's 1996 Form
10-K Annual Report).
10.12 Employment Agreement dated December 1, 1997 by
and among Jerome J. Gassen, ANB Corporation
and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit
10.13 of the Registrant's 1997 Form 10-K
Annual Report).
10.13 Employment and Noncompetition Agreement dated
September 16, 1997 by and among R. Michael
Miner, ANB Corporation and a subsidiary of
ANB Corporation (Incorporated herein by
reference to Exhibit 10.14 of the Registrant's
1997 Form 10-K Annual Report).
10.14 Employment and Noncompetition Agreement dated
October 17, 1997 by and among Mark W.
Cremonie, ANB Corporation and a subsidiary of
ANB Corporation (Incorporated herein by
reference to Exhibit 10.15 of the Registrant's
1997 Form 10-K Annual Report).
10.15 Agreement and Plan of Merger between the
Registrant and Farmers State Bancorp
(Incorporated herein by reference to Exhibit 2
and included as Appendix A of Form S-4
Registration Statement, Commission File No.
333-71221 filed January 26, 1999).
10.16 Employment and Noncompetition Agreement dated
December 1, 1998 by and among Douglas E. Carl,
ANB Corporation and a subsidiary of ANB
Corporation.
10.17 Employment and Noncompetition Agreement dated
December 1, 1998 by and among Larry A. Myers,
ANB Corporation and a subsidiary of ANB
Corporation.
(18)
<PAGE>
(3) Listing of Exhibits:
Exhibit Number Description
-------------- -----------
13 1998 Annual Report to Shareholders of ANB
Corporation (Incorporated in part into this
Form 10-K by reference).
21 Subsidiaries of the Registrant.
23 Consent of Olive LLP.
27 Financial Data Schedule (Included in
electronic version only).
99 Annual financial statements and independent
auditor's report for Stock Investment Plan of
ANB Corporation for the year ended December
31, 1998.
(b) During the fourth quarter of 1998, the Registrant did not file any reports
on Form 8-K.
(c) See the listing of exhibits in Item 14(a)(3).
(d) No financial statement schedules are required to be submitted.
(19)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, as of the 25th day of
March, 1999.
ANB CORPORATION
(Registrant)
By: /s/ James R. Schrecongost,
-----------------------------------------
James R. Schrecongost, Vice Chairman,
President, and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated below as of the 25th day of March, 1999.
Name Title
- -------------------------------------------------------------------------------
/s/ Kelly N. Stanley Chairman of the Board of Directors
- ------------------------------
Kelly N. Stanley
/s/ James R. Schrecongost Vice Chairman, President, and
- ------------------------------
James R. Schrecongost Chief Executive Officer
/s/ Larry E. Thomas Treasurer (Chief Financial Officer
- ------------------------------
Larry E. Thomas and Principal Accounting Officer)
/s/ Ben E. Delk Director
- ------------------------------
Ben E. Delk
/s/ Madelyn K. Ferris Director
- ------------------------------
Madelyn K. Ferris
Director
- ------------------------------
R. David Hoover
(20)
<PAGE>
Name Title
- -------------------------------------------------------------------------------
Director
- ------------------------------
William L. Peterson
/s/ Donald A. Ross Director
- ------------------------------
Donald A. Ross
/s/ Chris L. Talley Director
- ------------------------------
Chris L. Talley
/s/ Leon V. Towne Director
- ------------------------------
Leon V. Towne
(21)
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
2.01 Restated and Amended Plan and Agreement of Reorganization
(Incorporated herein by reference to Exhibit 2.01 of Form
S-1 Registration Statement, Commission File No. 33-36958).
2.02 Restated and Amended Plan of Merger-Conversion
(Incorporated herein by reference to Exhibit 2.02 of Form
S-1 Registration Statement, Commission File No. 33-36958).
2.03 Agreement of Merger and Reorganization, as amended by
Amendment and Waiver (Incorporated herein by reference to
Exhibit 2.03 of the Registrant's Form 8-K filed on
February 4, 1994).
3.01 Articles of Incorporation of the Registrant, as amended
(Incorporated herein by reference to Exhibit 3.01 of the
Registrant's 1995 Form 10-K Annual Report).
3.02 Bylaws of the Registrant, as amended.
3.03 Bylaws Amendment of the Registrant Adopted on August 10,
1998.
10.01 ANB Corporation Stock Option Plan (Incorporated herein by
reference to Exhibit 4.3 of Form S-8 Registration
Statement, Commission File No. 33-95868 filed on August
18, 1995).
10.02 Nonqualified Stock Option Plan of ANB Corporation for
Former Directors of Muncie Federal Savings and Loan
Association (Incorporated herein by reference to Exhibit
28 of the Registrant's Form 10-Q as of March 31, 1991).
10.03 Agreement to Merge by and between American National Bank
and Trust Company and Muncie Federal Savings Bank dated
June 16, 1992 (Incorporated herein by reference to
Exhibit 10.12 of the Registrant's 1992 Form 10-K Annual
Report).
10.04 1993 Amended and Restated Employment Agreement dated
September 7, 1993 by and among James R. Schrecongost, ANB
Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.13 of
the Registrant's 1993 Form 10-K Annual Report).
10.05 1993 Amended and Restated Employment Agreement dated
September 7, 1993 by and among Larry E. Thomas, ANB
Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.15 of the
Registrant's 1993 Form 10-K Annual Report).
10.06 1993 Amended and Restated Employment Agreement dated
September 7, 1993 by and among David W. Spade, ANB
Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.16 of the
Registrant's 1993 Form 10-K Annual Report).
(22)
<PAGE>
Exhibit Number Description
- -------------- -----------
10.07 1993 Amended and Restated Employment Agreement dated
September 8, 1993 by and among Paul L. Sehnert, Jr., ANB
Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.17 of the
Registrant's 1993 Form 10-K Annual Report).
10.08 1994 Amended and Restated Employment Agreement dated
November 30, 1994 by and among Chris L. Talley, ANB
Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.19 of the
Registrant's 1994 Form 10-K Annual Report).
10.09 1994 Amended and Restated Employment Agreement dated
November 30, 1994 by and among Philip R. Hirschfeld, ANB
Corporation and a subsidiary of ANB Corporation
(Incorporated herein by reference to Exhibit 10.20 of the
Registrant's 1994 Form 10-K Annual Report).
10.10 ANB Corporation 1995 Stock Option Plan (Incorporated herein
by reference to Exhibit 4.3 of Form S-8 Registration
Statement, Commission File No. 33-95866 filed on August 18,
1995).
10.11 ANB Corporation 1996 Directors' Stock Option Plan
(Incorporated herein by reference to Exhibit 10.13 of the
Registrant's 1996 Form 10-K Annual Report).
10.12 Employment Agreement dated December 1, 1997 by and among
Jerome J. Gassen, ANB Corporation and a subsidiary of ANB
Corporation (Incorporated herein by reference to Exhibit
10.13 of the Registrant's 1997 Form 10-K Annual Report).
10.13 Employment and Noncompetition Agreement dated September 16,
1997 by and among R. Michael Miner, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.14 of the Registrant's 1997 Form
10-K Annual Report).
10.14 Employment and Noncompetition Agreement dated October 17,
1997 by and among Mark W. Cremonie, ANB Corporation and a
subsidiary of ANB Corporation (Incorporated herein by
reference to Exhibit 10.15 of the Registrant's 1997 Form
10-K Annual Report).
10.15 Agreement and Plan of Merger between the Registrant and
Farmers State Bancorp (Incorporated herein by reference to
Exhibit 2 and included as Appendix A of Form S-4
Registration Statement, Commission File No. 333-71221 filed
January 26, 1999).
10.16 Employment and Noncompetition Agreement dated December 1,
1998 by and among Douglas E. Carl, ANB Corporation and a
subsidiary of ANB Corporation.
10.17 Employment and Noncompetition Agreement dated December 1,
1998 by and among Larry A. Myers, ANB Corporation and a
subsidiary of ANB Corporation.
13 1998 Annual Report to Shareholders of ANB Corporation
(Incorporated in part into this Form 10-K by reference).
21 Subsidiaries of the Registrant.
23 Consent of Olive LLP.
(23)
<PAGE>
27 Financial Data Schedule (Included in electronic version
only).
99 Annual financial statements and independent auditor's
report for Stock Investment Plan of ANB Corporation for the
year ended December 31, 1998.
(24)
BYLAWS
OF
ANB CORPORATION
<PAGE>
INDEX
ARTICLE ONE - Name, Offices and Resident Agent...........................1
Section 1. Name..............................................1
Section 2. Offices...........................................1
Section 3. Resident Agent....................................1
ARTICLE TWO - Seal and Fiscal Year.......................................1
Section 1. Corporate Seal....................................1
Section 2. Fiscal Year.......................................1
ARTICLE THREE - Capital Stock............................................2
Section 1. Number of Shares and Classes of Capital Stock.....2
Section 2. Consideration for No Par Value Shares.............2
Section 3. Consideration for Treasury Shares.................2
Section 4. Payment for Shares................................2
Section 5. Certificate for Shares............................2
Section 6. Facsimile Signatures..............................2
Section 7. Transfer of Shares................................3
Section 8. Cancellation......................................3
Section 9. Transfer Agent and Registrar......................3
Section 10. Lost, Stolen or Destroyed Certificates............3
Section 11. Registered Shareholders...........................3
Section 12. Options to Officers and Employees.................3
ARTICLE FOUR - Meetings of Shareholders..................................4
Section 1. Place of Meeting..................................4
Section 2. Annual Meeting....................................4
Section 3. Special Meetings..................................4
Section 4. Notice of Meetings................................4
Section 5. Addresses of Shareholders.........................5
Section 6. Voting at Meetings................................5
(a) Quorum........................................5
(b) Voting Rights.................................5
(c) Proxies.......................................5
(d) Required Vote.................................5
Section 7. Voting List.......................................5
Section 8. Fixing of Record Date to Determine Shareholders
Entitled to Vote..................................6
Section 9. Nominations for Director..........................6
ARTICLE FIVE - Board of Directors........................................6
Section 1. Election, Number and Term of Office...............6
Section 2. Vacancies.........................................7
Section 3. Annual Meeting of Directors.......................7
Section 4. Regular Meetings..................................7
Section 5. Special Meeting...................................7
Section 6. Quorum............................................7
Section 7. Consent Action by Directors.......................8
Section 8. Removal of Directors..............................8
Section 9. Dividends.........................................8
<PAGE>
Section 10. Fixing of Record Date to Determine Shareholders
Entitled
to Receive Corporate Benefits.....................8
Section 11. Interest of Directors in Contracts................9
Section 12. Committees........................................9
Section 13. Retirement of Directors..........................10
ARTICLE SIX - Officers..................................................10
Section 1. Principal Officers...............................10
Section 2. Election and Term of Office......................10
Section 3. Removal..........................................10
Section 4. Subordinate Officers.............................10
Section 5. Resignations.....................................11
Section 6. Vacancies........................................11
Section 7. Chairman of the Board............................11
Section 8. Vice Chairman of the Board.......................11
Section 9. Chief Executive Officer..........................11
Section 10. President........................................11
Section 11. Vice-Presidents..................................11
Section 12. Treasurer........................................12
Section 13. Secretary........................................12
Section 14. Auditor..........................................12
Section 15. Salaries.........................................12
Section 16. Voting Corporation's Securities..................12
ARTICLE SEVEN - Indemnification.........................................13
Section 1. Indemnification of Directors, Officers,
Employees and Agents.............................13
ARTICLE EIGHT - Miscellaneous...........................................14
Section 1. Contracts, Drafts, Checks, Etc...................14
ARTICLE NINE - Amendments .............................................14
Section 1. Regular Bylaws...................................14
Section 2. Anti-takeover Bylaws.............................14
Section 3. Notice of Proposed Amendment.....................15
<PAGE>
BYLAWS
OF
ANB CORPORATION
ARTICLE ONE
Name, Offices and Resident Agent
Section 1. Name. The name of the Corporation is ANB Corporation, and said
Corporation is hereinafter referred to as the "Corporation."
Section 2. Office. The post office address and location of the principal office
of the Corporation is 110 East Main Street, Muncie, Indiana 47305. The Board of
Directors may from time to time establish other offices of the Corporation or
branches of the Corporation's business at whatever place or places seem to be
expedient.
Section 3. Resident Agent. The name of the resident agent of the
Corporation is Larry E. Thomas. The post office address of such resident
agent is 110 East Main Street, Muncie, Indiana 47305.
ARTICLE TWO
Seal and Fiscal Year
Section 1. Corporate Seal. The seal of the Corporation shall be circular in form
and mounted upon a metal die, suitable for impressing the same upon paper. About
the upper periphery of the seal shall appear the words "ANB Corporation" and
about the lower periphery thereof the words "Muncie, Indiana". In the center of
the seal shall appear the word "Seal". The following is an impression of the
seal adopted by the Board of Directors:
( Impression )
( of )
( Seal )
Any officer of the Corporation shall have the authority to affix the corporate
seal or to attest the same.
Section 2. Fiscal Year. The fiscal year of the Corporation begins on the first
day of January and ends on the last day of December of the same year except that
the first year of the Corporation begins on July 10, 1984.
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ARTICLE THREE
Capital Stock
Section 1. Number of Shares and Classes of Capital Stock. The total number of
shares of capital stock which the Corporation shall have authority to issue
shall be as stated in the Articles of Incorporation.
Section 2. Consideration for No Par Value Shares. The shares of stock of the
Corporation without par value shall be issued or sold in such manner and for
such amount of consideration as may be fixed from time to time by the Board of
Directors. Upon payment of the consideration fixed by the Board of Directors,
such shares of stock shall be fully paid and nonassessable.
Section 3. Consideration for Treasury Shares. Treasury shares may be disposed
of by the Corporation for such consideration as may be determined from time to
time by the Board of Directors.
Section 4. Payment for Shares. The consideration for the issuance of shares of
capital stock of the Corporation may be paid, in whole or in part, in money, in
other property, tangible or intangible, or in labor actually performed for, or
services actually rendered to the Corporation; provided, however, that the part
of the surplus of the Corporation which is transferred to stated capital upon
the issuance of shares as a share dividend shall be deemed to be the
consideration for the issuance of such shares. When payment of the consideration
for which a share was authorized to be issued shall have been received by the
Corporation, or when surplus shall have been transferred to stated capital upon
the issuance of a share dividend, such share shall be declared and taken to be
fully paid and not liable to any further call or assessment, and the holder
thereof shall not be liable for any further payments thereon. In the absence of
actual fraud in the transaction, the judgment of the Board of Directors as to
the value of such property, labor or services received as consideration, or the
value placed by the Board of Directors upon the corporate assets in the event of
a share dividend, shall be conclusive. Promissory notes, uncertified checks, or
future services shall not be accepted in payment or part payment for the capital
stock of the Corporation.
Section 5. Certificate for Shares. Each holder of capital stock of the
Corporation shall be entitled to a stock certificate, signed by the President or
a Vice President and the Secretary or any Assistant Secretary of the
Corporation, with the seal of the Corporation thereto affixed, stating the name
of the registered holder, the number of shares represented by such certificate,
the par value of each share of stock or that such shares of stock are without
par value, and that such shares are fully paid and nonassessable. If such shares
are not fully paid, the certificates shall be legibly stamped to indicate the
per cent which has been paid, and as further payments are made, the certificate
shall be stamped accordingly.
Section 6. Facsimile Signatures. If a certificate is countersigned by the
written signature of a transfer agent other than the Corporation or its employee
the signatures of the officers of the Corporation may be facsimiles. If a stock
certificate representing shares of the capital stock of the Corporation is
manually signed by an officer of the Corporation designated to sign such
certificate pursuant to Article Three, Section 5 of these Bylaws, the signature
of the other officer of the Corporation required to sign such certificate may be
a facsimile. If a certificate is countersigned by the written signature of a
registrar other than the Corporation or its employee, the signatures of the
registrar and the officers of the Corporation may be facsimiles. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is
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issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of its issue.
(Section 6 was amended by vote of the Board of Directors on November 16, 1995.)
Section 7. Transfer of Shares. The shares of capital stock of the Corporation
shall be transferable only on the books of the Corporation upon surrender of the
certificate or certificates representing the same, properly endorsed by the
registered holder or by his duly authorized attorney or accompanied by proper
evidence of succession, assignment or authority to transfer. A stock certificate
book shall be maintained in which all assignments and transfers of stock shall
be made.
Section 8. Cancellation. Every certificate surrendered to the Corporation for
exchange or transfer shall be canceled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such existing
certificate shall have been so canceled, except in cases provided for in Section
10 of this Article Three.
Section 9. Transfer Agent and Registrar. The Board of Directors may appoint a
transfer agent and a registrar for each class of capital stock of the
Corporation and may require all certificates representing such share to bear the
signature of such transfer agent and registrar. Shareholders shall be
responsible for notifying the Corporation or transfer agent and registrar for
the class of stock held by such shareholder in writing of any changes in their
addresses from time to time, and failure so to do shall relieve the Corporation,
its shareholders, directors, officers, transfer agent and registrar of liability
for failure to direct notices, dividends, or other documents or property to an
address other than the one appearing upon the records of the transfer agent and
registrar of the Corporation.
Section 10. Lost, Stolen or Destroyed Certificates. The Corporation may cause a
new certificate or certificates to be issued in place of any certificate or
certificates heretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or his legal representative, to give the Corporation a bond in such sum and in
such form as it may direct to indemnify against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new certificate. The
Corporation, in its discretion, may authorize the issuance of such new
certificates without any bond when in its judgment it is proper to do so.
Section 11. Registered Shareholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of such shares to receive dividends, to vote as such owner, to hold liable for
calls and assessments, and to treat as owner in all other respects, and shall
not be bound to recognize any equitable or other claims to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Indiana.
Section 12. Options to Officers and Employees. The issuance, including the
consideration, of rights or options to directors, officers or employees of the
Corporation, and not to the shareholders generally, to purchase from the
Corporation shares of its capital stock shall be approved by the affirmative
vote of the holders of a majority of the shares entitled to vote thereon or
shall be authorized by and consistent with a plan approved by such a vote of the
shareholders.
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ARTICLE FOUR
Meetings of Shareholders
Section 1. Place of Meeting. Meetings of shareholders of the Corporation shall
be held at such place, within or without the State of Indiana, as may from time
to time be designated by the Board of Directors, or as may be specified in the
notices or waivers of notice of such meetings.
Section 2. Annual Meeting. The annual meeting of shareholders for the election
of Directors, and for the transaction of such other business as may properly
come before the meeting, shall be held on the third Wednesday in March of each
year, if such day is not a holiday, and if a holiday, then on the first
following day that is not a holiday, or in lieu of such day may be held on such
other day as the Board of Directors may set by resolution, but not later than
the end of the fifth month following the close of the fiscal year of the
Corporation. Failure to hold the annual meeting at the designated time shall not
work any forfeiture or a dissolution of the Corporation, and shall not affect
otherwise valid corporate acts. The President of the Corporation shall then make
report to the shareholders regarding the condition of the Corporation and shall
review the business of the preceding year.
Section 3. Special Meetings. A special meeting of the shareholders, for any
purpose or purposes, unless otherwise prescribed by law, may be called by the
Board of Directors or the President and shall be called by the Board of
Directors or the President at the request in writing of persons who hold of
record not less than 1/4 of all shares outstanding and entitled to vote on any
proposal to be submitted at the meeting. Such request shall state the purpose or
purposes of the proposed meeting and shall be delivered either in person or by
registered or certified mail, return receipt requested, to the President. The
Board of Directors shall, no later than 45 days after the Corporation's receipt
of such request, set the date, time and place of such meeting and fix a record
date for determination of the shareholders entitled to vote at the meeting and
to receive notice thereof. The Secretary shall thereafter cause notice of such
meeting to be given to the shareholders entitled thereto, no later than the 60th
day after the Corporation's receipt of the shareholder's request for a meeting.
Such meeting shall be held not less than 15 nor more than 90 days after the
receipt of such request.
(Section 3 was amended by vote of the Board of Directors on February 12, 1986.)
Section 4. Notice of Meetings. A written or printed notice, stating the place,
day and hour of the meeting and, in case of a special meeting or when required
by any other provision of The Indiana General Corporation Act or of the Articles
of Incorporation, as now or hereafter amended, or these Bylaws, the purpose or
purposes for which the meeting is called. The notice shall be delivered or
mailed by the Secretary, or by the officers or persons calling the meeting, to
each shareholder of record entitled by the Articles of Incorporation, as now or
hereafter amended, and by The Indiana General Corporation Act to vote at such
meeting, at such address as appears upon the records of the Corporation, at
least ten (10) days before the date of the meeting. Notice of any such meeting
may be waived in writing by any shareholder, if the waiver sets forth in
reasonable detail the purpose or purposes for which the meeting is called and
the time and place thereof. Attendance at any meeting in person, or by proxy,
shall constitute a waiver of notice of such meeting. Each shareholder, who has
in the manner above provided waived notice of a shareholders' meeting, or who
personally attends a shareholders' meeting, or is represented thereat by a proxy
authorized to appear by an instrument of proxy, shall be conclusively presumed
to have been given due notice of such meeting. Notice of any adjourned meeting
of shareholders shall not be required to be given if the time and place thereof
are announced at the meeting at which the
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adjournment is taken except as may be expressly required by law.
Section 5. Addresses of Shareholders. The address of any shareholder appearing
upon the records of the Corporation shall be deemed to be the latest address of
such shareholder appearing on the records maintained by the Corporation or its
transfer agent for the class of stock held by such shareholder.
Section 6. Voting at Meetings.
(a) Quorum. The holders of record of a majority of the issued and
outstanding stock of the Corporation entitled to vote at such
meeting, present in person or by proxy, shall constitute a quorum
at all meetings of shareholders for the transaction of business,
except where otherwise provided by law, the Articles of
Incorporation or these Bylaws. In the absence of a quorum any
officer entitled to preside at, or act as secretary of, such
meeting shall have the power to adjourn the meeting from time to
time until a quorum shall be constituted. At any such adjourned
meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the original
meeting, but only those shareholders entitled to vote at the
original meeting shall be entitled to vote at any adjournment or
adjournments thereof unless a new record date is fixed by the
Board of Directors for the adjourned meeting.
(b) Voting Rights. Except as otherwise provided by law or by the
provisions of the Articles of Incorporation, every shareholder
shall have the right at every shareholders' meeting to one vote
for each share of stock having voting power, registered in his
name on the books of the Corporation on the date for the
determination of shareholders entitled to vote, on all matters
coming before the meeting, including the election of directors.
(c) Proxies. At any meeting of shareholders, every shareholder having
the right to vote shall be entitled to vote in person, or by proxy
executed in writing by the shareholder or a duly authorized
attorney in fact and bearing a date not more than eleven months
prior to its execution, unless a longer time is expressly provided
therein. Proxies shall be valid for one meeting only, to be
specified therein, and any adjournment of said meeting. Proxies
shall be dated and shall be filed with the records of said
meeting. No director, officer, employee, or attorney for this
Corporation shall act as proxy.
(d) Required Vote. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power
present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one
upon which, by express provision of The Indiana General
Corporation Act or of the Articles of Incorporation or by these
Bylaws, a greater vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 7. Voting List. The Corporation or its transfer agent shall make, at
least five days before each election of directors, a complete list of the
shareholders entitled by the Articles of Incorporation, as now or hereafter
amended, to vote at such election, arranged in alphabetical order, with the
address and number of shares so entitled to vote held by each, which list shall
be on file at the principal office of the Corporation and subject to inspection
by any shareholder. Such list shall be produced and kept open at the time and
place of election and shall be subject to the inspection of any shareholder
during the holding of such election. The original stock register or transfer
book, or a duplicate thereof kept in the State of Indiana, shall be the only
evidence as to who are the shareholders entitled to examine such list or the
stock ledger or transfer book or to
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<PAGE>
vote at any meeting of the shareholders.
Section 8. Fixing of Record Date to Determine Shareholders Entitled to Vote. The
Board of Directors may prescribe a period not exceeding 50 days prior to
meetings of the shareholders, during which no transfer of stock on the books of
the Corporation may be made; or, in lieu of prohibiting the transfer of stock
may fix a day and hour not more than 50 days prior to the holding of any meeting
of shareholders at the time as of which shareholders entitled to notice of, and
to vote at, such meeting shall be determined, and all persons who are holders of
record of voting stock at such time, and no others, shall be entitled to notice
of, and to vote at, such meeting. In the absence of such a determination, such
date shall be 10 days prior to the date of such meetings.
Section 9. Nominations for Director. Nominations for election to the Board of
Directors may be made by the Board of Directors or by any shareholder of any
outstanding class of capital stock of the Corporation entitled to vote for the
election of directors. Nominations, other than those made by or on behalf of the
existing management of the Corporation, shall be made in writing and shall be
delivered or mailed to the President of the Corporation not less than 10 days
nor more than 50 days prior to any meeting of shareholders called for the
election of directors. Such notification shall contain the following information
to the extent known to the notifying shareholder: (a) the name and address of
each proposed nominee; (b) the principal occupation of each proposed nominee;
(c) the name and residence address of the notifying shareholder; and (d) the
number of shares of capital stock of the Corporation owned by the notifying
shareholder. Nominations not made in accordance herewith may, in his discretion,
be disregarded by the chairman of the meeting, and upon his instructions, the
vote tellers may disregard all votes cast for each such nominee.
(Section 10 dealing with Shareholders' Preemptive Rights was amended by deletion
in its entirety by vote of the Board of Directors on February 12, 1986.)
ARTICLE FIVE
Board of Directors
Section 1. Election, Number and Term of Office. Directors shall be elected at
the annual meeting of shareholders, or, if not so elected, shall be elected at a
special meeting of shareholders called for that purpose, by the holders of the
shares of stock entitled by the Articles of Incorporation to elect Directors.
The number of Directors of the Corporation to be elected by the holder of
the shares of stock entitled by the Articles of Incorporation to elect Directors
shall consist of not less than 5 nor more than 25 shareholders. The number of
Directors to be elected shall be determined periodically, and at least as often
as one time per year, by the Board of Directors.
The Directors shall be classified, with respect to the time for which
they severally hold office, into three classes as nearly equal in number as
possible. One class shall be originally elected at the 1986 annual meeting of
shareholders for a term expiring at the annual meeting of shareholders to be
held in 1987. Another class shall be originally elected at the 1986 annual
meeting of shareholders for a term expiring at the annual meeting of
shareholders to be held in 1988. The third class shall be originally elected at
the 1986 meeting of shareholders for a term expiring at the annual meeting of
shareholders to be held in 1989. Each Director shall hold office until his or
her successor is elected and qualified. At each annual meeting of shareholders,
the successor of each Director whose term expires at that meeting shall be
elected to hold office for a term
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expiring at the annual meeting of shareholders to be held in the third year
following the year of his election, and until such Director's successor shall
have been elected and qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
Director.
(Section 1 was amended by vote of the Board of Directors on March 19, 1986,
January 19, 1994 and August 21, 1996.)
Section 2. Vacancies. Any vacancy on the Board of Directors caused by an
increase in the number of Directors shall be filled by the affirmative vote of a
majority of the remaining Directors. Any Director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of Directors in which the new directorship was created and until such
Director's successor shall have been elected and qualified.
Any vacancy occurring in the Board of Directors caused by resignation,
death, removal or other incapacity of a Director shall be filled by the
affirmative vote of a majority of the remaining Directors. Any Director elected
in accordance with the preceding sentence shall hold office for the remainder of
the term of the person for whom the vacancy occurred and until such Director's
successor shall have been elected and qualified.
If the vote of the Directors to fill a vacancy shall result in a tie,
such vacancy, at the discretion of the Board of Directors, may be filled by the
vote of the shareholders at a special meeting called expressly for that purpose.
(Section 2 was amended by vote of the Board of Directors on March 19, 1986.)
Section 3. Annual Meeting of Directors. The Board of Directors shall meet on the
fourth Wednesday in March of each year, if such day is not a holiday, and if a
holiday, then on the first following date that is not a holiday, or in lieu of
such, on such other day, as the Board of Directors may by resolution set, which
day is no later than the end of the fifth month following the close of the
fiscal year of the Corporation for the purpose of organization, election of
officers, and consideration of any other business that may properly come before
the meeting. No notice of any kind to either old or new members of the Board of
Directors for such annual meeting shall be necessary.
(Section 3 was amended by vote of the Board of Directors on November 16, 1988.)
Section 4. Regular Meetings. Regular meetings of the Board of Directors shall be
held at such times and places, either within or without the State of Indiana, as
may be fixed by the Directors. Such regular meetings of the Board of Directors
may be held without notice or upon such notice as may be fixed by the Directors.
Section 5. Special Meeting. Special meetings of the Board of Directors may be
called by the Chairman of the Board, the President, or by not less than a
majority of the member of the Board of Directors. Notice of the time and place,
either within or without the State of Indiana, of a special meeting shall be
served upon or telephoned to each Director at least twenty-four hours, or
mailed, telegraphed or cabled to each Director at his usual place of business or
residence at least forty-eight hours, prior to the time of the meeting.
Directors in lieu of such notice, may sign a written waiver of notice either
before the time of the meeting, at the meeting or after the meeting. Attendance
by a director in person at any special meeting shall constitute a waiver of
notice.
Section 6. Quorum. A majority of the actual number of Directors elected and
qualified, from time to time, shall be necessary to constitute a quorum for the
transaction of any
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business except the filling of vacancies, and the act of a majority of the
directors present at the meeting, at which a quorum is present, shall be the act
of the Board of Directors, unless the act of a greater number is required by The
Indiana General Corporation Act, by the Articles of Incorporation, or by these
Bylaws. A director, who is present at a meeting of the Board of Directors, at
which action on any corporate matter is taken, shall be conclusively presumed to
have assented to the action taken, unless (a) his or her dissent shall be
affirmatively stated at and before the adjournment of such meeting (in which
event the fact of such dissent shall be entered by the secretary of the meeting
in the minutes of the meeting), or (b) he or she shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. The right of dissent provided for by either clause
(a) or clause (b) of the immediately preceding sentence shall not be available
in respect of any matter acted upon at any meeting, to a Director who voted at
the meeting in favor of such matter and did not change his or her vote prior to
the time that the result of the vote on such matter was announced by the
chairman of such meeting.
A member of the Board of Directors may participate in a meeting of the
Board by means of a conference telephone or similar communications equipment by
which all directors participating in the meeting can communicate with each
other, and participation by these means constitutes presence in person at the
meeting. A director cannot vote by proxy at a meeting of the Board of Directors.
Section 7. Consent Action by Directors. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if prior to such action a written consent to such
action is signed by all members of the Board of Directors or such committee, as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or committee.
Section 8. Removal of Directors. Any or all members of the Board of Directors
may be removed, only with cause, at a meeting of the shareholders called
expressly for that purpose by the affirmative vote of the holders of 2/3 of the
voting power of the then outstanding shares of voting stock of the corporation
entitled to vote on the election of Directors, voting together as a single
class.
(Section 8 was amended by vote of the Board of Directors on March 19, 1986.)
Section 9. Dividends. The Board of Directors shall have power, subject to any
restrictions contained in The Indiana General Corporation Act or in the Articles
of Incorporation and out of funds legally available therefor, to declare and pay
dividends upon the outstanding capital stock of the Corporation as and when they
deem expedient. Before declaring any dividend, there maybe set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time in their absolute discretion deem proper for
working capital, or as a reserve or reserves to meet contingencies or for such
other purposes as the Board of Directors determines. The Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 10. Fixing of Record Date to Determine Shareholders Entitled to Receive
Corporate Benefits. The Board of Directors may fix a day and hour not exceeding
50 days preceding the date fixed for payment of any dividend or for the delivery
of evidence of rights, or for the distribution of other corporate benefits, or
for a determination of shareholders for any other purpose, as a record time for
the determination of the shareholders entitled to receive any such dividend,
rights or distribution, and in such case only shareholders of record at the time
so fixed shall be entitled to receive such dividend, rights or distribution. If
no record date is fixed for the determination of shareholders
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entitled to receive payment of a dividend, the end of the day of which the
resolution of the Board of Directors declaring such dividend is adopted shall be
the record date for such determination.
Section 11. Interest of Directors in Contracts. Any contract or other
transaction between the Corporation or any corporation in which this Corporation
owns a majority of the capital stock shall be valid and binding, notwithstanding
that the directors or officers of this Corporation are identical or that some or
all of the directors or officers, or both, are also directors or officers of
such other corporation.
Any contract, or other transaction between the Corporation and one or
more of its directors or members or employees, or between the Corporation and
any firm of which one or more of its directors are members or employees or in
which they are interested, or between the Corporation and any corporation or
association of which one or more of its directors are stockholders, members,
directors, officers, or employees, or in which they are interested, shall be
valid for all purposes notwithstanding the presence of such director or
directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and notwithstanding his
or their participating in such action, if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of Directors shall
authorize, approve and ratify such contract or transaction by a vote of a
majority of the directors present, such interested director or directors to be
counted in determining whether a quorum is present, but not to be counted in
calculating the majority of such quorum necessary to carry such vote. This
Section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
Section 12. Committees. The Board of Directors may, by resolution adopted by a
majority of the actual number of Directors elected and qualified, from time to
time, designate from among its members an Executive Committee and one or more
other committees, each of which, to the extent provided in the resolution, the
Articles of Incorporation, or these Bylaws, may exercise all of the authority of
the Board of Directors of the Corporation, including, but not limited to, the
authority to issue and sell or approve any contract to issue and sell,
securities or shares of the Corporation or designate the terms of a series of a
class of securities or shares of the Corporation. The terms which may be affixed
by each such committee include, but are not limited to, the price, dividend
rate, and provisions of redemption, a sinking fund, conversion, voting, or
preferential rights or other features of securities or class or series of a
class of shares. Each such committee may have full power to adopt a final
resolution which sets forth those terms and to authorize a statement of such
terms to be filed with the Secretary of State. However, no such committee has
the authority to declare dividends or distributions, amend the Articles of
Incorporation or the Bylaws, approve a plan of merger or consolidation even if
such plan does not require shareholder approval, reduce earned or capital
surplus, authorize or approve the reacquisition of shares unless pursuant to a
general formula or method specified by the Board of Directors, or recommend to
the shareholders a voluntary dissolution of the Corporation or a revocation
thereof. No member of any such committee shall continue to be a member thereof
after he ceases to be a Director of the Corporation. The calling and holding of
meetings of any such committee and its method of procedure shall be determined
by the Board of Directors. A member of the Board of Directors shall not be
liable for any action taken by any such committee if he is not a member of that
committee and has acted in good faith and in a manner he reasonably believes is
in the best interest of the Corporation. A member of a committee may participate
in a meeting of the committee by means of a conference telephone or similar
communications equipment by which all members participating in the meeting can
communicate with each other, and participation by these means constitutes
presence in person at the meeting.
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Section 13. Retirement/Resignation of Directors. No person shall be nominated or
elected to serve as a director who shall have attained the age of seventy (70)
years during the calendar year preceding the annual meeting at which directors
are to be elected. A director who attains the age of seventy (70) during such
director's term of office shall be eligible to serve only until the annual
meeting of shareholders of the corporation next following such director's
seventieth birthday.
A director who no longer maintains a principal residence in the market
area of the Corporation shall resign from the board of directors at the regular
meeting of the board of directors next following such director's change in
principal residence. The board of directors may, at its option, accept or reject
such resignation.
A director whose principal occupation or profession has changed since the
time of such director's most recent election to the board of directors, shall
resign from the board of directors at the regular meeting of the board of
directors next following such director's change in principal occupation or
profession. The board of directors may, at its option, accept or reject such
resignation.
(Section 13 was amended by vote of the Board of Directors on September 21, 1994
and August 10, 1998.)
ARTICLE SIX
Officers
Section 1. Principal Officers. The principal officers of the Corporation shall
be a Chairman of the Board, a Chief Executive Officer, a President, one or more
Vice-Presidents, a Treasurer and a Secretary. The Corporation may also have, at
the discretion of the Board of Directors, a principal officer designated as Vice
Chairman of the Board. The Corporation may also have, at the discretion of the
Board of Directors, such other subordinate officers as may be appointed in
accordance with the provisions of these Bylaws. Any two or more offices may be
held by the same person, except the duties of President and Secretary shall not
be performed by the same person. No person shall be eligible for the office of
Chairman of the Board, Chief Executive Officer, Vice Chairman of the Board or
President who is not a director of the Corporation.
(Section 1 was amended by vote of the Board of Directors on March 18, 1992.)
Section 2. Election and Term of Office. The principal officers of the
Corporation shall be chosen annually by the Board of Directors at the annual
meeting thereof. Each such officer shall hold office until his successor shall
have been duly chosen and qualified, or until his death, or until he shall
resign, or shall have been removed in the manner hereinafter provided.
Section 3. Removal. Any principal officer may be removed, either with or without
cause, at any time, by resolution adopted at any meeting of the Board of
Directors by a majority of the actual number of Directors elected and qualified
from time to time.
Section 4. Subordinate Officers. In addition to the principal officers
enumerated in Section 1 of this Article Six, the Corporation may have one or
more Assistant Treasurers, one or more Assistant Secretaries and such other
officers, agents and employees as the Board of Directors may deem necessary,
each of whom shall hold office for such period, may be removed with or without
cause, have such authority, and perform such duties as the President, or the
Board of Directors may from time to time determine. The Board of Directors may
delegate to any principal officer the power to appoint and to remove any
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such subordinate officers, agents or employees.
(Section 4 was amended by vote of the Board of Directors on March 18, 1992.)
Section 5. Resignations. Any officer may resign at any time by giving written
notice to the Chairman of the Board or to the Board of Directors or to the
President or to the Secretary. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. Any vacancy in any office for any cause may be filled
for the unexpired portion of the term in the manner prescribed in these Bylaws
for election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board, who shall be chosen
from among the Directors, shall preside at all meetings of shareholders and at
all meetings of the Board of Directors. He or she shall perform such other
duties and have such other power as, from time to time, may be assigned by the
Board of Directors.
Section 8. Vice Chairman of the Board. The Vice Chairman of the Board, who shall
be chosen from among the Directors, shall preside at all meetings of
shareholders and at all meetings of the Board of Directors in the absence or
disability of the Chairman of the Board. The Vice Chairman shall perform such
other duties and have such other power as, from time to time, may be assigned by
the Board of Directors.
(Section 8 was added by vote of the Board of Directors on March 18, 1992.)
Section 9. Chief Executive Officer. The Chief Executive Officer, who shall be
chosen from among the directors, shall be the Chief Executive Officer of the
Corporation. The Chief Executive Officer shall be an ex-officio member of all
standing committees. In the absence or disability of the Chairman of the Board
and the Vice Chairman of the Board, the Chief Executive Officer shall preside at
all meetings of shareholders and all meetings of the Board of Directors. The
Chief Executive Officer shall perform such other duties and have such other
power as, from time to time, are assigned by the Board of Directors.
(Section 9 was amended by vote of the Board of Directors March 18, 1992.)
Section 10. President. The President, who shall be chosen from among the
Directors, shall have general supervision of the affairs of the Corporation,
subject to the control of the Board of Directors. The President shall be an
ex-officio member of all standing committees. In the absence or disability of
the Chairman of the Board and of the Vice Chairman of the Board and of the Chief
Executive Officer, the President shall preside at all meetings of shareholders
and at all meetings of the Board of Directors. Subject to the control and
direction of the Board of Directors, the President may enter into any contract
or execute and deliver any instrument in the name and on behalf of the
Corporation. In general, the President shall perform all duties and have all
powers incident to the office of President, and all such other duties and powers
as, from time to time, may be assigned by the Board of Directors.
(Section 10 was amended by vote of the Board of Directors on March 18, 1992.)
Section 11. Vice-Presidents. The Executive Vice-President, if any, shall perform
such duties not inconsistent with these Bylaws as may be specifically designated
by the President or the Chief Executive Officer or the Board of Directors and in
the absence of the President, may perform the duties and exercise the authority
of the President. The Vice-Presidents, in the order of their seniority, unless
otherwise determined by the Board of Directors,
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shall, in the absence or disability of the President and Executive
Vice-President (if any) perform the duties and powers of the President. They
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer, or the President may from time to time
assign.
Section 12. Treasurer. The Treasurer shall have charge and custody of, and be
responsible for, all funds and securities of the Corporation and shall deposit
all such funds in the name of the Corporation in such banks or other
depositories as shall be selected by the Board of Directors. The Treasurer
shall, upon request, exhibit at all reasonable times the books of account and
records to any of the directors of the Corporation during business hours at the
office of the Corporation where such books and records shall be kept; shall
render upon request by the Board of Directors a statement of the condition of
the finances of the Corporation at any meeting of the Board of Directors or at
the annual meeting of the shareholders; shall receive, and give receipt for,
moneys due and payable to the Corporation from any source whatsoever; and in
general, shall perform all duties incident to the office of Treasurer and such
other duties as from time to time may be assigned by the President or the Board
of Directors. The Treasurer shall give such bond, if any, for the faithful
discharge of the assigned duties as the Board of Directors may require.
Section 13. Secretary. The Secretary shall keep or cause to be kept in the books
provided for that purpose the minutes of the meetings of the shareholders and of
the Board of Directors; shall duly give and serve all notices required to be
given in accordance with the provisions of these Bylaws and by The Indiana
General Corporation Act; shall be custodian of the records and of the seal of
the Corporation and see that the seal is affixed to all documents, the execution
of which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these Bylaws; and, in general, shall perform
all duties incident to the office of Secretary and such other duties as may,
from time to time, be assigned by the President or the Board of Directors.
Section 14. Auditor. The Auditor shall be responsible directly to the Board of
Directors for the safeguarding of all operations of the Corporation and for the
systems of internal audit and protective controls. He shall make such other
examinations and audit as the Audit Committee of the Board shall direct and
shall perform such other duties as prescribed by the Chief Executive Officer.
The Auditor shall have the duty to report to the Chief Executive Officer on all
matters concerning the safeguarding of the operations as he shall deem necessary
or upon request of the Chief Executive Officer. It shall be the duty of the
Auditor to report independently to the Audit Committee of the Board and to the
Board of Directors at such intervals as the Board of Directors shall specify on
all matters concerning the safeguarding of the operations of the Bank which
should properly be brought to the attention of the Board of Directors.
(Section 14 was added by vote of the Board of Directors on March 18, 1992.)
Section 15. Salaries. The salaries of the principal officers shall be fixed from
time to time by the Board of Directors, and the salaries of any subordinate
officers may be fixed by the President.
Section 16. Voting Corporation's Securities. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the Vice Chairman of the Board,
the Chief Executive Officer, the President and Secretary, and each of them, are
appointed attorneys and agents of the Corporation, and shall have full power and
authority in the name and on behalf of the Corporation, to attend, to act, and
to vote all stock or other securities entitled to be voted at any meetings of
security holders of corporations, or associations in which the Corporation may
hold securities, in person or by proxy, as a stockholder or otherwise, and at
such meetings shall possess and may exercise any and all rights and
12
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powers incident to the ownership of such securities, and which as the owner
thereof the Corporation might have possessed and exercised, if present, or to
consent in writing to any action by any such other corporation or association.
The Board of Directors by resolution from time to time may confer like powers
upon any other person or persons.
(Section 16 was amended by vote of the Board of Directors on March 18, 1992.)
ARTICLE SEVEN
Indemnification
Section 1. Indemnification of Directors, Officers, Employees and Agents. Every
person who is or was a director, officer, employee or agent of this Corporation
or of any other corporation for which he or she is or was serving in any
capacity at the request of this Corporation shall be indemnified by this
Corporation against any and all liability and expense that may be incurred by
said person in connection with or resulting from or arising out of any claim,
action, suit or proceeding; provided, however, that such person is wholly
successful with respect thereto or acted in good faith in what he or she
reasonably believed to be in or not opposed to the best interests of this
corporation and, in addition, in any criminal action or proceeding in which said
person had no reasonable cause to believe that the conduct was unlawful. As used
herein, "claim, action, suit or proceeding" shall include any claim, action,
suit or proceeding (whether brought by or in the right of this Corporation or
such other corporation or otherwise), civil, criminal, administrative or
investigative, whether actual or threatened or in connection with an appeal
relating thereto, in which a director, officer, employee or agent of this
Corporation may become involved, as a party or otherwise,
(i) by reason of his being or having been a director, officer,
employee, or agent of this Corporation or such other corporation
or arising out of his status as such or
(ii) by reason of any past or future action taken or not taken by him
in any such capacity, whether or not he continues to be such at
the time such liability or expense is incurred.
The terms "liability" and "expense" shall include, but shall not be limited to,
attorneys' fees and disbursements, amounts of judgments, fines or penalties, and
amounts paid in settlement by or on behalf of a director, officer, employee, or
agent, but shall not in any event include any liability or expenses on account
of profits realized by said person in the purchase or sale of securities of the
Corporation in violation of the law. The termination of any claim, action, suit
or proceeding, by judgment, settlement (whether with or without court approval)
or conviction or upon a plea of guilty or of nolo contendere, or its equivalent,
shall not create a presumption that a director, officer, employee, or agent did
not meet the standards of conduct set forth in this paragraph.
Any such director, officer, employee, or agent who has been wholly
successful with respect to any such claim, action, suit or proceeding shall be
entitled to indemnification as a matter or right. Except as provided in the
preceding sentence, any indemnification hereunder shall be made only if
(i) the Board of Directors acting by a quorum consisting of directors
who are not parties to or who have been wholly successful with
respect to such claim, action, suit or proceeding shall find that
the director, officer, employee, or agent has met the standards of
conduct set forth in the preceding paragraph; or
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(ii) independent legal counsel shall deliver to the Corporation their
written opinion that such director, officer, employee, or agent
has met such standards of conduct.
If several claims, issues or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though said
person is not entitled as to other matters.
The Corporation may advance expenses to or, where appropriate, may at its
expense undertake the defense of any such director, officer, employee, or agent
upon receipt of an undertaking by or on behalf of such person to repay such
expenses if it should ultimately be determined that said person is not entitled
to indemnification hereunder.
The provisions of this Section shall be applicable to claims, actions,
suits or proceedings made or commenced after the adoption hereof, whether
arising from acts or omissions to act during, before or after the adoption
hereof.
The rights of indemnification provided hereunder shall be in addition to
any rights to which any person concerned may otherwise be entitled by contract
or as a matter of law and shall inure to the benefit of the heirs, executors and
administrators of any such person.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation against any liability asserted against
and incurred in any capacity or arising out of said persons status as such,
whether or not the Corporation would have the power to indemnify said person
against such liability under the provisions of this Section or otherwise.
ARTICLE EIGHT
Miscellaneous
Section 1. Contracts, Drafts, Checks, Etc. All contracts, checks, drafts and
other instruments shall be signed by the Chief Executive Officer or the
President or a Vice President or the Treasurer or an Assistant Treasurer or such
other individuals as may be designated by the Board of Directors.
ARTICLE NINE
Amendments
Section 1. Regular Bylaws. The power to make, alter, amend or repeal these
Bylaws is vested in the Board of Directors, but the affirmative vote of a
majority of the actual number of Directors elected and qualified, from time to
time, shall be necessary to effect the alteration, amendment or repeal of these
Bylaws.
(Section 1 was added by vote of the Board of Directors on March 19, 1986.)
Section 2. Anti-takeover Bylaws. Unless the continuing Directors on the Board as
defined in the Articles of Incorporation have unanimously recommended the
Amendment, no Amendment shall be adopted which shall repeal, modify, amend,
alter or diminish in any
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way the provisions of Article Four, Section 3; Article Five, Sections 1, 2 and 8
and Article Nine without the affirmative vote of 2/3 of the majority of the
continuing Directors as defined in the Articles of Incorporation.
(Section 2 was added by vote of the Board of Directors on March 19, 1986.)
Section 3. Notice of Proposed Amendment. Ten (10) days written notice of any
proposed amendment to the Bylaws shall be given to each member of the Board of
Directors unless said notice is waived in writing by each Director.
(Section 3 was added by vote of the Board of Directors on March 19, 1986.)
STATE OF INDIANA, DELAWARE COUNTY, SS:
I hereby certify that the foregoing are the Bylaws of ANB Corporation as
adopted by the Board of Directors on September 12, 1984 and as amended by the
Board of Directors on February 12, 1986, March 19, 1986, November 16, 1988,
March 18, 1992, January 19, 1994, September 21, 1994, November 16, 1995, August
21, 1996 and August 10, 1998.
ANB CORPORATION
By /s/ James W. Convy
----------------------------
(James W. Convy) CORPORATE SECRETARY
15
EXHIBIT 3.03--BYLAWS AMENDMENT OF THE REGISTRANT ADOPTED ON AUGUST 10, 1998.
- ----------------------------------------------------------------------------
ARTICLE FIVE, Section 13, Retirement/Resignation of Directors:
No person shall be nominated or elected to serve as a director who shall have
attained the age of seventy (70) years during the calendar year preceding the
annual meeting at which directors are to be elected. A director who attains the
age of seventy (70) during such director's term of office shall be eligible to
serve only until the annual meeting of shareholders of the corporation next
following such director's seventieth birthday.
A director who no longer maintains a principal residence in the market area of
the Corporation shall resign from the board of directors at the regular meeting
of the board of directors next following such director's change in principal
residence. The board of directors may, at its option, accept or reject such
resignation.
A director whose principal occupation or profession has changed since the time
of such director's most recent election to the board of directors, shall resign
from the board of directors at the regular meeting of the board of directors
next following such director's change in principal occupation or profession. The
board of directors may, at its option, accept or reject such resignation.
Exhibit 10.16
EMPLOYMENT AGREEMENT
This Agreement is made and entered into this 1st day of December, 1998,
by and between American National Bank and Trust Company of Muncie, Indiana,
located at 110 E. Main Street, Muncie, Indiana 47305 (hereinafter referred to as
Bank), and ANB Corporation, an Indiana corporation which owns Bank (hereinafter
referred to as Corporation), with its principal office located at 120 W. Charles
Street, Muncie, Indiana 47305 and Douglas E. Carl, (hereinafter referred to as
Executive) of 1507 Ironwood Drive, Marion, IN 46952.
WITNESSETH THAT:
WHEREAS, Executive is employed as an officer of the Bank and has
devoted his ability, time, effort and energies to the affairs of the Bank; and
WHEREAS, the Bank considers the continuance of proficient and
experienced management to be essential to protecting and enhancing the best
interest of the Bank, Corporation and its shareholders; and
WHEREAS, the Bank and Corporation desire to assure themselves of
retaining the services of the Executive (including his services without
distraction by uncertainty and risk of unemployment) in the event of a proposed
Change of Control (as hereinafter defined) of the Bank and/or the Corporation;
and
WHEREAS, the Bank and Corporation desire to compensate the Executive
should his employment terminate under certain hereinafter enumerated
circumstances after a Change of Control, and to clarify that no such
compensation is payable in the event Executive is terminated for Cause, as
defined in this Agreement.
NOW THEREFORE, IN CONSIDERATION of the foregoing recitals, the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the above recitals are included as a part of this agreement.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the terms in this Article shall have
the following meaning throughout this Agreement:
(A) Cause: "Cause" to terminate Executive's employment exists when the
Executive:
(1) willfully and continually fails to substantially
perform his duties with the Bank and/or Corporation;
or
(2) substantially fails to meet the performance goals, or
reasonable policies and regulations established by
the Bank and/or Corporation; or
(3) is adjudged guilty of any crime involving a breach of
fiduciary duties to the Bank and/or Corporation; or
(4) willfully violates the Bank's or the Corporation's
Code of Conduct or any rules and regulations relating
to any existing banking law; or
<PAGE>
(5) acts in a manner which is detrimental to the Bank's
or Corporation's best interests, its reputation in
the community, or its standing in the banking
industry.
(B) Change of Control: A "Change of Control" occurs if:
(1) any person, partnership, corporation, trust or
similar group, other than the Corporation or Bank as
the case may be, acquires more than
twenty-fivepercent (25%) of the voting securities of
the Corporation or the Bank in a transaction or
series of transactions; or
(2) at any time a majority of the Board of Directors of
the Corporation or the Bank are not Continuing
Directors as defined under the Articles of
Incorporation of the Corporation or the Bank.
(C) Date of Termination: "Date of Termination" shall mean the date
stated in the Notice of Termination or thirty (30) days from the date of
delivery of such notice, whichever comes first.
(D) Disability: "Disability" shall mean the definition of such term as
used in the disability policy then in effect for the Bank and a determination of
full disability by the parties; provided that in the event there is no
disability insurance then in force, "disability" shall mean incapacity due to
physical or mental illness, which will have caused Executive to have been unable
to perform his duties with the Bank and/or Corporation on a full time basis for
180 consecutive calendar days.
(E) Notice of Termination: "Notice of Termination" shall mean a written
notice, communicated to the other parties hereto, which shall indicate the
specific termination provisions of this Agreement relied upon and set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provisions so indicated.
(F) Retirement: "Retirement" shall mean termination of employment by
the Bank and/or Corporation or by the Executive in accordance with Bank's or
Corporation's normal retirement policy generally applicable to its salaried
employees in effect at the time of Change of Control.
(G) Unreasonable Changes: An "Unreasonable Change" occurs if any of the
following events occur:
(1) without Executive's express written consent and after
a Change of Control, the assignment to him of any
duties materially inconsistent with his position,
duties, and responsibility with the Bank and/or
Corporation immediately prior to a Change of Control;
(2) without Executive's express written consent and after
a Change of Control, a reduction by the Bank and/or
Corporation in the Executive' annual salary;
(3) without Executive's express written consent and after
a Change of Control, the Bank and/or Corporation
requires Executive to be relocated anywhere other
than the offices in Muncie, Indiana, and Bank and/or
Corporation fail to pay all reasonable moving
expenses incurred by him relating to a change of his
principal residence in connection with such
relocation including an obligation by the Bank and/or
Corporation to
<PAGE>
provide a customary home guarantee purchase of the
Executive's residence, the value of the home to be
determined by at least one real estate appraiser
designated by him and satisfactory to the Bank and/or
Corporation;
(4) without Executive's express written consent and after
a Change of Control (1) the failure by the Bank
and/or Corporation to continue in effect (or to
substitute plans providing him with no less than
substantially similar benefits) any compensation plan
or benefit plans including, but not limited to, any
retirement or pension plan, savings plan, life
insurance plan, health and accident or disability
plan in which Executive is participating at the time
of a Change of Control; or (2) in the event the Bank
and/or Corporation institutes new or revised
compensation or benefit plans which provide more
favorable benefits than the plans in which Executive
is participating at the time of a Change of Control,
the failure of the Bank and/or Corporation to entitle
Executive to participate in and receive benefits
under any such new or revised plans providing more
favorable benefits; or (3) the taking of any action
by the Bank that would adversely affect Executive's
participation in or materially reduce his benefits
under any of such plans described in either (1) or
(2) of this paragraph;
(5) without Executive's express written consent and after
a Change of Control, the taking of any action by the
Bank and/or Corporation to deprive Executive of any
material fringe benefit enjoyed by him at the time of
the Change of Control, or the failure by the Bank
and/or Corporation to provide him with the number of
paid vacation days to which he is entitled on the
basis of years of service with the Bank and/or
Corporation and in accordance with the Bank's and/or
Corporation's normal vacation policy in effect at the
time of Change of Control; or
(6) the failure of the Bank and/or Corporation to obtain
the assumption of this Agreement by any successor as
contemplated in this Agreement.
ARTICLE II
EMPLOYMENT AND TERM
Bank hereby employs Executive as its President. The term of this
Agreement shall commence on the date hereof and this Agreement shall remain in
continuous effect until a Notice of Termination is given to the contrary by
either party to the other, subject to the provisions of Article III hereof;
provided, however, if a Change of Control shall occur on or before the date on
which Notice of Termination is received, the term of this Agreement shall extend
and be binding upon all parties hereto and their successors and assigns for a
period of two (2) years from the date on which such Change of Control occurs.
ARTICLE III
TERMINATION
(A) In the absence of a Change of Control or threat of Change of
Control:
(1) the Bank and/or Corporation may terminate the
Executive without regard to the provisions of this
Agreement and this Agreement shall have no
<PAGE>
relevance to the issues surrounding said termination;
and
(2) Executive may terminate his employment with the Bank
and/or Corporation without regard to the provisions
of this Agreement, and this Agreement shall have no
relevance to the issues surrounding said termination.
(B) In the event any person, persons or entity commences a tender or
exchange offer, or circulates a proxy to the Corporation's shareholders designed
to effect a Change of Control, Executive agrees that he will not voluntarily
leave his employment with the Bank and/or Corporation and will continue to
perform his regular duties, until such person, persons or entity has abandoned
or terminated its efforts to effect a Change of Control. In the event any
person, persons or entity successfully concludes a tender or exchange offer, or
has successfully circulated a proxy to the Corporation's shareholders effecting
a Change of Control, Executive agrees that he will not voluntarily leave his
employment with the Bank and/or Corporation and will continue to perform his
regular duties, subject to the provisions of Articles III and IV of this
Agreement.
(C) If, following a Change of Control, the Executive's employment shall
be terminated for Cause, the Bank and Corporation shall pay him his full salary
through the Date of Termination at the rate in effect on the date of the Notice
of Termination, and the Bank and Corporation shall have no further obligations
under this Agreement. If, following a Change of Control, the Executive's
employment shall be terminated as a result of death, disability, or Retirement,
compensation to the Executive shall be made pursuant to the Bank's and
Corporation's then existing policies on death, disability or retirement, and the
Bank and the Corporation shall have no further obligations under this Agreement.
(D) If a Change of Control occurs and within a twenty-four (24) month
period thereafter an Unreasonable Change occurs to Executive's employment
relationship, the Executive shall be entitled to resign with justification, and
shall be entitled to the benefits provided in sub-paragraph (E) of this Article.
If the Executive invokes the rights pertaining to resignation with
justification, the Executive's notice of resignation shall state that the
Executive's resignation is in the best interests of the Bank and/or Corporation
considering the circumstances of the Change of Control and Unreasonable Change,
and that it is not his intent to resign for the sole purpose of collecting
compensation without working for it.
(E) If, within twenty-four (24) months of a Change of Control, the Bank
and/or Corporation shall terminate Executive's employment other than for death,
disability, Retirement or Cause, or if Executive shall resign in accordance with
sub-paragraph (D) of this Article, the Bank and/or Corporation shall:
(1) pay Executive his salary after the Change of Control
through the Date of Termination plus the aggregate
amount of any bonus accrued but unpaid as of such
Date of Termination; and,
(2) pay Executive an amount in cash which, when added to
the present value of all other compensation, benefits
and payments required to be included in the
calculation under Section 280G of the Internal
Revenue Code and regulations thereunder, shall equal
299% of the `base amount' as defined under Section
280G of the Internal Revenue Code in effect on
December 31, 1992. Such amounts shall be payable in
equal installments over thirty-six (36) months from
the Date of Termination at the same frequencies as
salaries paid to other salaried employees of the Bank
and/or Corporation; provided, however, if Executive
obtains employment, the Bank's and/or Corporation's
obligation to pay such amount above thirty-six (36)
months shall continue but shall be reduced
<PAGE>
to that amount necessary which, when added to
Executive's salary for his new employment, will
maintain the Executive at the equal monthly
installment amount payable by the Bank and
Corporation described above; and,
(3) continue the Executive's participation in the life,
accident, disability and health insurance plans of
the Bank and/or Corporation, or shall provide
equivalent benefits, at no cost to the Executive
until the third anniversary of the Date of
Termination, or if earlier, at the Executive's
commencement of full-time employment with a new
employer; provided, however, that in the event
Executive shall die before the expiration of the
period during which the Bank and/or Corporation would
be required to continue Executive's participation in
such insurance plans, the participation of the
Executive's surviving spouse and family in the Bank's
and/or Corporation's insurance plans shall continue
in accordance with the Bank's and/or Corporation's
standard policy for a spouse and family of a
surviving employee in effect at the time of the
Change of Control; and,
(F) Notwithstanding anything contained herein to the contrary, in no
event shall any payment or part thereof be made to the Executive which would be
considered an "excess parachute payment" within the meaning of section Section
280G(b)(1) of the Internal Revenue Code of 1986, as amended.
The provisions of this sub-paragraph of Article III shall survive
termination of this Agreement and termination of the Executive's employment
under this Agreement.
ARTICLE IV
SOURCE OF PAYMENTS
All payments provided in this Agreement shall be paid in cash from the
general funds of the Bank and/or the Corporation and no special or separate fund
shall be established and no other segregation of assets shall be made to assure
payment. The Executive shall have no right, title, or interest whatsoever in or
to any investments which the Bank and/or Corporation may make to aid the Bank
and/or Corporation in meeting its obligations hereunder. Nothing contained in
this Agreement, and no action taken to fund its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship, between
the Bank and/or Corporation and Executive or any other person. To the extent
that any person acquires a right to receive payments from the Bank and/or
Corporation hereunder, such right shall be no greater than the right of an
unsecured creditor of the Bank and/or the Corporation.
ARTICLE V
INDEMNIFICATION AND INSURANCE
In the event Executive is or was a party or is threatened to be made a
party, to any threatened, pending or completed legal action, suit or proceeding
by reason of the fact that he is or was an officer, director, agent or employee
of the Bank or Corporation or is or was serving at the request of the Bank or
Corporation as an officer, director, agent, or employee of another corporation
or other entity, he shall be fully indemnified by the Bank or Corporation to the
maximum extent permitted by the Articles of Association of Bank or Corporation.
The Executive's costs of defense shall be borne by the Bank or Corporation to
the maximum extent permitted by the Articles of Association of Bank or
Corporation. The right of indemnification
<PAGE>
herein provided shall not be deemed exclusive of any other rights to which
Executive may be entitled as a matter of law and any rights of indemnity under
any policy of insurance carried by the Bank or Corporation. Following a Change
of Control, the Bank or Corporation shall not terminate, or cause or allow to be
terminated, any policy of insurance carried by the Bank or Corporation providing
rights of indemnity to Executive in connection with his service as an officer,
director, agent or employee of the Bank or Corporation, or in connection with
such service rendered at the request of the Bank or Corporation, prior to the
expiration date provided under the terms of such policy, unless the Bank or
Corporation is carrying at such time a substitute policy providing substantially
similar rights of indemnity to Executive. The Bank or Corporation shall provide,
or shall cause any policy of insurance carried by the Bank or Corporation to
provide, rights of indemnity to Executive which are at least equivalent to the
most favorable rights provided to an officer, director, agent or employee of the
Bank or Corporation or the acquiring entity in connection with service rendered
to the Bank or Corporation or the acquiring entity.
ARTICLE VI
SUCCESSORS
In recognition of the value of continued employment of Executive
following a Change of Control, and in recognition of the need for a smooth
transition of management of the Bank and/or Corporation following a Change of
Control, and in recognition of the need for certainty in the employment status
of Executive at the time of a Change of Control, the parties expressly agree as
follows:
The Bank and the Corporation will use their best efforts, collectively
and individually, to avoid assisting, permitting or soliciting a Change of
Control, unless the person, persons or entity successfully concluding a tender
or exchange offer, or successfully circulating a proxy to the Corporation's
shareholders effecting a Change of Control shall first have assumed all
obligations and liabilities under this Agreement, and have expressly agreed to
be obligated to perform all of the terms and conditions stated in this Agreement
following the completion of the Change of Control.
ARTICLE VII
GUARANTEE BY CORPORATION AND BANK
In consideration of the value of the continued employment of Executive
by the Bank and the Corporation, and the benefits derived by the Bank and the
Corporation from Executive's employment by the Bank and the Corporation, the
Corporation and the Bank hereby unconditionally and fully guarantee and endorse
the obligations of the other hereunder, and agree to be fully bound by the terms
of this Agreement in the event that the other fails to perform, honor or
otherwise complete fully its obligations hereunder.
ARTICLE VIII
MISCELLANEOUS
The following terms shall govern this Agreement:
(A) This Agreement may not be changed orally, but only by agreement in
writing signed by the parties; the waiver by any party of compliance with
provisions of this Agreement by any other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
(B) The article captions are inserted merely for the purpose of
identification and shall be given no significance in determining the meaning of
any article.
<PAGE>
(C) This Agreement shall be interpreted and governed by the laws of the
State of Indiana.
(D) This Agreement shall be binding and inure to the benefit of the
parties hereto, and any successors and assigns of the Bank and the Corporation,
and to any successors, assigns, heirs and the personal representatives of the
Executive.
(E) The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. It is the intent
of the parties that this Agreement be construed and interpreted toward its
validity and that this Agreement shall be deemed modified only to the minimum
extent necessary to sustain any questioned provision.
IN WITNESS WHEREOF, the Bank and the Corporation have caused this
Employment Agreement to be executed by duly authorized officers of the
respective entities and the seals of the Bank and the Corporation to be affixed
hereto, and the Executive has hereunto subscribed his name, the 1st day of
December, 1998.
"CORPORATION" "BANK"
ANB CORPORATION AMERICAN NATIONAL BANK &
TRUST COMPANY OF MUNCIE, INDIANA
BY: /s/ Kelly N. Stanley BY: /s/ Donald A. Ross
------------------------------ ------------------------------
Printed: Kelly N. Stanley Printed: Donald A. Ross
Its: Chairman of the Board Its: Chairman of the Board
"EXECUTIVE"
/s/ Douglas E. Carl
- ---------------------------------
Printed: Douglas E. Carl
Exhibit 10.17
EMPLOYMENT AGREEMENT
This Agreement is made and entered into this 1st day of December, 1998,
by and between American National Bank and Trust Company of Muncie, Indiana,
located at 110 E. Main Street, Muncie, Indiana 47305 (hereinafter referred to as
Bank), and ANB Corporation, an Indiana corporation which owns Bank (hereinafter
referred to as Corporation), with its principal office located at 120 W. Charles
Street, Muncie, Indiana 47305 and Larry A. Myers, (hereinafter referred to as
Executive) of 805 W. Macalan Drive, Marion, IN 46952-2040.
WITNESSETH THAT:
WHEREAS, Executive is employed as an officer of the Bank and has
devoted his ability, time, effort and energies to the affairs of the Bank; and
WHEREAS, the Bank considers the continuance of proficient and
experienced management to be essential to protecting and enhancing the best
interest of the Bank, Corporation and its shareholders; and
WHEREAS, the Bank and Corporation desire to assure themselves of
retaining the services of the Executive (including his services without
distraction by uncertainty and risk of unemployment) in the event of a proposed
Change of Control (as hereinafter defined) of the Bank and/or the Corporation;
and
WHEREAS, the Bank and Corporation desire to compensate the Executive
should his employment terminate under certain hereinafter enumerated
circumstances after a Change of Control, and to clarify that no such
compensation is payable in the event Executive is terminated for Cause, as
defined in this Agreement.
NOW THEREFORE, IN CONSIDERATION of the foregoing recitals, the mutual
promises contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree that the above recitals are included as a part of this agreement.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the terms in this Article shall have
the following meaning throughout this Agreement:
(A) Cause: "Cause" to terminate Executive's employment exists when the
Executive:
(1) willfully and continually fails to substantially
perform his duties with the Bank and/or Corporation;
or
(2) substantially fails to meet the performance goals, or
reasonable policies and regulations established by
the Bank and/or Corporation; or
(3) is adjudged guilty of any crime involving a breach of
fiduciary duties to the Bank and/or Corporation; or
(4) willfully violates the Bank's or the Corporation's
Code of Conduct or any rules and regulations relating
to any existing banking law; or
<PAGE>
(5) acts in a manner which is detrimental to the Bank's
or Corporation's best interests, its reputation in
the community, or its standing in the banking
industry.
(B) Change of Control: A "Change of Control" occurs if:
(1) any person, partnership, corporation, trust or
similar group, other than the Corporation or Bank as
the case may be, acquires more than
twenty-fivepercent (25%) of the voting securities of
the Corporation or the Bank in a transaction or
series of transactions; or
(2) at any time a majority of the Board of Directors of
the Corporation or the Bank are not Continuing
Directors as defined under the Articles of
Incorporation of the Corporation or the Bank.
(C) Date of Termination: "Date of Termination" shall mean the date
stated in the Notice of Termination or thirty (30) days from the date of
delivery of such notice, whichever comes first.
(D) Disability: "Disability" shall mean the definition of such term as
used in the disability policy then in effect for the Bank and a determination of
full disability by the parties; provided that in the event there is no
disability insurance then in force, "disability" shall mean incapacity due to
physical or mental illness, which will have caused Executive to have been unable
to perform his duties with the Bank and/or Corporation on a full time basis for
180 consecutive calendar days.
(E) Notice of Termination: "Notice of Termination" shall mean a written
notice, communicated to the other parties hereto, which shall indicate the
specific termination provisions of this Agreement relied upon and set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provisions so indicated.
(F) Retirement: "Retirement" shall mean termination of employment by
the Bank and/or Corporation or by the Executive in accordance with Bank's or
Corporation's normal retirement policy generally applicable to its salaried
employees in effect at the time of Change of Control.
(G) Unreasonable Changes: An "Unreasonable Change" occurs if any of the
following events occur:
(1) without Executive's express written consent and after
a Change of Control, the assignment to him of any
duties materially inconsistent with his position,
duties, and responsibility with the Bank and/or
Corporation immediately prior to a Change of Control;
(2) without Executive's express written consent and after
a Change of Control, a reduction by the Bank and/or
Corporation in the Executive' annual salary;
(3) without Executive's express written consent and after
a Change of Control, the Bank and/or Corporation
requires Executive to be relocated anywhere other
than the offices in Muncie, Indiana, and Bank and/or
Corporation fail to pay all reasonable moving
expenses incurred by him relating to a change of his
principal residence in connection with such
relocation including an obligation by the Bank and/or
Corporation to
<PAGE>
provide a customary home guarantee purchase of the
Executive's residence, the value of the home to be
determined by at least one real estate appraiser
designated by him and satisfactory to the Bank and/or
Corporation;
(4) without Executive's express written consent and after
a Change of Control (1) the failure by the Bank
and/or Corporation to continue in effect (or to
substitute plans providing him with no less than
substantially similar benefits) any compensation plan
or benefit plans including, but not limited to, any
retirement or pension plan, savings plan, life
insurance plan, health and accident or disability
plan in which Executive is participating at the time
of a Change of Control; or (2) in the event the Bank
and/or Corporation institutes new or revised
compensation or benefit plans which provide more
favorable benefits than the plans in which Executive
is participating at the time of a Change of Control,
the failure of the Bank and/or Corporation to entitle
Executive to participate in and receive benefits
under any such new or revised plans providing more
favorable benefits; or (3) the taking of any action
by the Bank that would adversely affect Executive's
participation in or materially reduce his benefits
under any of such plans described in either (1) or
(2) of this paragraph;
(5) without Executive's express written consent and after
a Change of Control, the taking of any action by the
Bank and/or Corporation to deprive Executive of any
material fringe benefit enjoyed by him at the time of
the Change of Control, or the failure by the Bank
and/or Corporation to provide him with the number of
paid vacation days to which he is entitled on the
basis of years of service with the Bank and/or
Corporation and in accordance with the Bank's and/or
Corporation's normal vacation policy in effect at the
time of Change of Control; or
(6) the failure of the Bank and/or Corporation to obtain
the assumption of this Agreement by any successor as
contemplated in this Agreement.
ARTICLE II
EMPLOYMENT AND TERM
Bank hereby employs Executive as its President. The term of this
Agreement shall commence on the date hereof and this Agreement shall remain in
continuous effect until a Notice of Termination is given to the contrary by
either party to the other, subject to the provisions of Article III hereof;
provided, however, if a Change of Control shall occur on or before the date on
which Notice of Termination is received, the term of this Agreement shall extend
and be binding upon all parties hereto and their successors and assigns for a
period of two (2) years from the date on which such Change of Control occurs.
ARTICLE III
TERMINATION
(A) In the absence of a Change of Control or threat of Change of
Control:
(1) the Bank and/or Corporation may terminate the
Executive without regard to the provisions of this
Agreement and this Agreement shall have no
<PAGE>
relevance to the issues surrounding said termination;
and
(2) Executive may terminate his employment with the Bank
and/or Corporation without regard to the provisions
of this Agreement, and this Agreement shall have no
relevance to the issues surrounding said termination.
(B) In the event any person, persons or entity commences a tender or
exchange offer, or circulates a proxy to the Corporation's shareholders designed
to effect a Change of Control, Executive agrees that he will not voluntarily
leave his employment with the Bank and/or Corporation and will continue to
perform his regular duties, until such person, persons or entity has abandoned
or terminated its efforts to effect a Change of Control. In the event any
person, persons or entity successfully concludes a tender or exchange offer, or
has successfully circulated a proxy to the Corporation's shareholders effecting
a Change of Control, Executive agrees that he will not voluntarily leave his
employment with the Bank and/or Corporation and will continue to perform his
regular duties, subject to the provisions of Articles III and IV of this
Agreement.
(C) If, following a Change of Control, the Executive's employment shall
be terminated for Cause, the Bank and Corporation shall pay him his full salary
through the Date of Termination at the rate in effect on the date of the Notice
of Termination, and the Bank and Corporation shall have no further obligations
under this Agreement. If, following a Change of Control, the Executive's
employment shall be terminated as a result of death, disability, or Retirement,
compensation to the Executive shall be made pursuant to the Bank's and
Corporation's then existing policies on death, disability or retirement, and the
Bank and the Corporation shall have no further obligations under this Agreement.
(D) If a Change of Control occurs and within a twenty-four (24) month
period thereafter an Unreasonable Change occurs to Executive's employment
relationship, the Executive shall be entitled to resign with justification, and
shall be entitled to the benefits provided in sub-paragraph (E) of this Article.
If the Executive invokes the rights pertaining to resignation with
justification, the Executive's notice of resignation shall state that the
Executive's resignation is in the best interests of the Bank and/or Corporation
considering the circumstances of the Change of Control and Unreasonable Change,
and that it is not his intent to resign for the sole purpose of collecting
compensation without working for it.
(E) If, within twenty-four (24) months of a Change of Control, the Bank
and/or Corporation shall terminate Executive's employment other than for death,
disability, Retirement or Cause, or if Executive shall resign in accordance with
sub-paragraph (D) of this Article, the Bank and/or Corporation shall:
(1) pay Executive his salary after the Change of Control
through the Date of Termination plus the aggregate
amount of any bonus accrued but unpaid as of such
Date of Termination; and,
(2) pay Executive an amount in cash which, when added to
the present value of all other compensation, benefits
and payments required to be included in the
calculation under Section 280G of the Internal
Revenue Code and regulations thereunder, shall equal
299% of the `base amount' as defined under Section
280G of the Internal Revenue Code in effect on
December 31, 1992. Such amounts shall be payable in
equal installments over thirty-six (36) months from
the Date of Termination at the same frequencies as
salaries paid to other salaried employees of the Bank
and/or Corporation; provided, however, if Executive
obtains employment, the Bank's and/or Corporation's
obligation to pay such amount above thirty-six (36)
months shall continue but shall be reduced
<PAGE>
to that amount necessary which, when added to
Executive's salary for his new employment, will
maintain the Executive at the equal monthly
installment amount payable by the Bank and
Corporation described above; and,
(3) continue the Executive's participation in the life,
accident, disability and health insurance plans of
the Bank and/or Corporation, or shall provide
equivalent benefits, at no cost to the Executive
until the third anniversary of the Date of
Termination, or if earlier, at the Executive's
commencement of full-time employment with a new
employer; provided, however, that in the event
Executive shall die before the expiration of the
period during which the Bank and/or Corporation would
be required to continue Executive's participation in
such insurance plans, the participation of the
Executive's surviving spouse and family in the Bank's
and/or Corporation's insurance plans shall continue
in accordance with the Bank's and/or Corporation's
standard policy for a spouse and family of a
surviving employee in effect at the time of the
Change of Control; and,
(F) Notwithstanding anything contained herein to the contrary, in no
event shall any payment or part thereof be made to the Executive which would be
considered an "excess parachute payment" within the meaning of section Section
280G(b)(1) of the Internal Revenue Code of 1986, as amended.
The provisions of this sub-paragraph of Article III shall survive
termination of this Agreement and termination of the Executive's employment
under this Agreement.
ARTICLE IV
SOURCE OF PAYMENTS
All payments provided in this Agreement shall be paid in cash from the
general funds of the Bank and/or the Corporation and no special or separate fund
shall be established and no other segregation of assets shall be made to assure
payment. The Executive shall have no right, title, or interest whatsoever in or
to any investments which the Bank and/or Corporation may make to aid the Bank
and/or Corporation in meeting its obligations hereunder. Nothing contained in
this Agreement, and no action taken to fund its provisions, shall create or be
construed to create a trust of any kind, or a fiduciary relationship, between
the Bank and/or Corporation and Executive or any other person. To the extent
that any person acquires a right to receive payments from the Bank and/or
Corporation hereunder, such right shall be no greater than the right of an
unsecured creditor of the Bank and/or the Corporation.
ARTICLE V
INDEMNIFICATION AND INSURANCE
In the event Executive is or was a party or is threatened to be made a
party, to any threatened, pending or completed legal action, suit or proceeding
by reason of the fact that he is or was an officer, director, agent or employee
of the Bank or Corporation or is or was serving at the request of the Bank or
Corporation as an officer, director, agent, or employee of another corporation
or other entity, he shall be fully indemnified by the Bank or Corporation to the
maximum extent permitted by the Articles of Association of Bank or Corporation.
The Executive's costs of defense shall be borne by the Bank or Corporation to
the maximum extent permitted by the Articles of Association of Bank or
Corporation. The right of indemnification
<PAGE>
herein provided shall not be deemed exclusive of any other rights to which
Executive may be entitled as a matter of law and any rights of indemnity under
any policy of insurance carried by the Bank or Corporation. Following a Change
of Control, the Bank or Corporation shall not terminate, or cause or allow to be
terminated, any policy of insurance carried by the Bank or Corporation providing
rights of indemnity to Executive in connection with his service as an officer,
director, agent or employee of the Bank or Corporation, or in connection with
such service rendered at the request of the Bank or Corporation, prior to the
expiration date provided under the terms of such policy, unless the Bank or
Corporation is carrying at such time a substitute policy providing substantially
similar rights of indemnity to Executive. The Bank or Corporation shall provide,
or shall cause any policy of insurance carried by the Bank or Corporation to
provide, rights of indemnity to Executive which are at least equivalent to the
most favorable rights provided to an officer, director, agent or employee of the
Bank or Corporation or the acquiring entity in connection with service rendered
to the Bank or Corporation or the acquiring entity.
ARTICLE VI
SUCCESSORS
In recognition of the value of continued employment of Executive
following a Change of Control, and in recognition of the need for a smooth
transition of management of the Bank and/or Corporation following a Change of
Control, and in recognition of the need for certainty in the employment status
of Executive at the time of a Change of Control, the parties expressly agree as
follows:
The Bank and the Corporation will use their best efforts, collectively
and individually, to avoid assisting, permitting or soliciting a Change of
Control, unless the person, persons or entity successfully concluding a tender
or exchange offer, or successfully circulating a proxy to the Corporation's
shareholders effecting a Change of Control shall first have assumed all
obligations and liabilities under this Agreement, and have expressly agreed to
be obligated to perform all of the terms and conditions stated in this Agreement
following the completion of the Change of Control.
ARTICLE VII
GUARANTEE BY CORPORATION AND BANK
In consideration of the value of the continued employment of Executive
by the Bank and the Corporation, and the benefits derived by the Bank and the
Corporation from Executive's employment by the Bank and the Corporation, the
Corporation and the Bank hereby unconditionally and fully guarantee and endorse
the obligations of the other hereunder, and agree to be fully bound by the terms
of this Agreement in the event that the other fails to perform, honor or
otherwise complete fully its obligations hereunder.
ARTICLE VIII
MISCELLANEOUS
The following terms shall govern this Agreement:
(A) This Agreement may not be changed orally, but only by agreement in
writing signed by the parties; the waiver by any party of compliance with
provisions of this Agreement by any other party shall not operate or be
construed as a waiver of any subsequent breach by such party.
(B) The article captions are inserted merely for the purpose of
identification and shall be given no significance in determining the meaning of
any article.
<PAGE>
(C) This Agreement shall be interpreted and governed by the laws of the
State of Indiana.
(D) This Agreement shall be binding and inure to the benefit of the
parties hereto, and any successors and assigns of the Bank and the Corporation,
and to any successors, assigns, heirs and the personal representatives of the
Executive.
(E) The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect. It is the intent
of the parties that this Agreement be construed and interpreted toward its
validity and that this Agreement shall be deemed modified only to the minimum
extent necessary to sustain any questioned provision.
IN WITNESS WHEREOF, the Bank and the Corporation have caused this
Employment Agreement to be executed by duly authorized officers of the
respective entities and the seals of the Bank and the Corporation to be affixed
hereto, and the Executive has hereunto subscribed his name, the 1st day of
December, 1998.
"CORPORATION" "BANK"
ANB CORPORATION AMERICAN NATIONAL BANK &
TRUST COMPANY OF MUNCIE, INDIANA
BY: /s/ Kelly N. Stanley BY: /s/ Donald A. Ross
------------------------------ ------------------------------
Printed: Kelly N. Stanley Printed: Donald A. Ross
Its: Chairman of the Board Its: Chairman of the Board
"EXECUTIVE"
/s/ Larry A. Myers
- ---------------------------------
Printed: Larry A. Myers
Our Promise
We believe that banking services are best delivered personally and locally. With
us, you'll feel secure, comfortable and appreciated. You'll get your questions
answered. We'll meet your financial needs as you move through life. And we'll
show you the respect and concern you'd expect from a good neighbor: someone like
yourself.
<PAGE>
Our Mission Statement
The mission of ANB Corporation is to provide a broad range of financial services
to its market, to maximize a long-term return to stockholders through capital
appreciation and dividends, and to provide a challenging work environment with
appropriate compensation.
ANB Corporation will accomplish its mission through its affiliated companies by
taking an active financial and civic role in its local communities. The
organization shall deal fairly under all circumstances, and shall endeavor to be
the most professional and responsive financial institution in the market.
ANB Corporation will continue to grow profitably by attaining excellence in the
fulfillment of customer financial service needs. Growth may also be accomplished
via acquisition or merger when such actions are in the best interests of all ANB
Corporation shareholders.
<PAGE>
Shareholder Information
ANB Corporation is a multi-bank holding company engaged in the business of
commercial banking, trust and asset management. Headquartered in Muncie,
Indiana, the business of the company is conducted primarily through three
affiliate companies: American National Bank & Trust Company of Muncie; American
National Trust & Investment Management Company and Peoples Loan & Trust Bank.
American National Bank is a national banking association with its principal
office in Muncie, Delaware County, Indiana. It has one wholly owned subsidiary,
ANB Financial Planning Services. American National Trust is a nationally
chartered trust bank headquartered in Muncie, with regional offices in several
other Indiana communities. Indiana Capital Management and Indiana Trust Co. are
affiliated with American National Trust. Peoples Loan & Trust is a state banking
association with its home office in Winchester, Randolph County, Indiana.
Allen County Marion County
Indiana Capital Management Indiana Capital Management
Boone County Randolph County
American National Bank (2 offices) American National Trust
Peoples Loan & Trust Bank (6 offices)
Delaware County
American National Bank (10 offices) St. Joseph County
American National Trust Indiana Trust & Investment
ANB Financial Planning Services Management Co. (minority
interest owned by American
Jay County National Trust)
American National Bank
Wayne County
Madison County Peoples Loan & Trust Bank (2 offices)
American National Bank (4 offices)
American National Trust
Map of Indiana locations appears here.
2
<PAGE>
ANNUAL MEETING MARKET MAKERS
Tuesday, April 27, 1999 NatCity Investments Inc.
Horizon Convention Center McDonald & Company Sec., Inc.
401 South High Street Howe Barnes Investments, Inc.
Muncie, Indiana 47305 Robert W. Baird & Co., Inc.
ABN AMRO Chicago Corporation
CORPORATE ADDRESS Stifel, Nicolaus & Co., Inc.
ANB Corporation
120 West Charles Street
Muncie, Indiana 47305
STOCK TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Annual Report (Form 10-K)
Upon written request, the Company will provide without charge to each
shareholder, a copy of the annual report on Form 10-K as filed with the
Securities and Exchange Commission for the year ended December 31, 1998. Address
all requests to: Larry E. Thomas, Chief Financial Officer and Treasurer, at the
corporate office address.
Company Stock Prices and Dividends
The Company's common stock trades on The NASDAQ Stock Market under the symbol
ANBC. At December 31, 1998, the Company had 4,567,586 shares of its common stock
outstanding, and there were 708 shareholders of record.
The following table sets forth the high and low prices of the Company's common
stock as reported by Bloomberg Financial Services in 1998 and 1997. The prices
do not include retail mark-ups, mark-downs or commissions and may not represent
actual transactions. The prices have been adjusted for stock splits. The table
also sets forth the cash dividends declared on Company common stock since
January 1, 1997. All dividends have been adjusted to give effect to stock
splits.
Stock Price Dividends
High Low Per Share
1998 1997 1998 1997 1998 1997
First Quarter $ 28.63 $ 19.75 $ 26.00 $ 18.50 $ 0.17 $ 0.15
Second Quarter 29.00 19.50 27.88 18.00 0.17 0.15
Third Quarter 28.13 21.88 25.63 19.50 0.19 0.17
Fourth Quarter 25.75 26.25 22.50 21.50 0.19 0.17
The primary source of funds for the payment of cash dividends by the Company is
dividends received from its subsidiaries. The subsidiaries have certain dividend
restrictions, which are common to the banking industry, that limit the payment
of dividends. The Company has no reason to believe these restrictions will, in
any way, impair the payment of future cash dividends.
The Company currently anticipates that it will continue to pay quarterly cash
dividends on its common stock. The payment of dividends in the future is at the
discretion of the Company's Board of Directors and will depend on the Company's
operating results and financial condition, the availability of funds, regulatory
limitations, tax considerations and other factors.
3
<PAGE>
Financial Highlights
ANB Corporation Selected Financial Data
(Dollars in Thousands, Except for Per Share Amounts)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
FOR THE YEAR:
Net interest income $ 23,953 $ 22,504 $ 21,028 $ 19,824 $ 17,411
Provision for loan losses 1,142 955 1,089 1,084 277
Net interest income
after provision for loan losses 22,811 21,549 19,939 18,740 17,134
Net income 7,775 7,007 6,006 5,285 4,770
Dividends 3,282 2,887 2,472 2,090 1,866
Average shares outstanding:
Basic 4,555,738 4,508,408 4,501,155 4,551,822 4,549,010
Diluted 4,666,931 4,606,268 4,595,300 4,638,155 4,633,144
PER SHARE:*
Basic net income $ 1.71 $ 1.55 $ 1.33 $ 1.16 $ 1.05
Diluted net income 1.67 1.52 1.31 1.14 1.03
Dividends 0.72 0.64 0.55 0.46 0.41
Stockholders' equity 13.27 12.41 11.43 10.92 9.85
Market stock price at year end 23.88 26.13 20.00 15.75 12.00
AT YEAR END:
Total assets $ 615,940 $ 525,490 $ 493,847 $ 483,236 $ 441,586
Loans, net 466,520 405,274 372,681 346,016 326,105
Deposits 508,434 411,262 405,845 415,351 380,132
Federal Home Loan Bank advances 36,145 39,615 14,000 2,395 395
Stockholders' equity 60,596 56,233 51,341 49,471 44,910
</TABLE>
*Per share amounts have been restated to give retroactive effect to the 1995
stock split.
4
<PAGE>
Report from Management
To Our Shareholders
We are pleased to report that record net income, unparalleled market expansion,
significant loan and deposit growth and new highs in trust assets were all
realized in 1998. It is gratifying that our efforts to re-invent the concept of
community banking have been successful. Throughout the year, our bank and trust
affiliates enjoyed success in attracting and retaining new business and
individual client relationships.
Record Profit Performance
Net income in 1998 surpassed the record set in 1997 by 11.0%. This was no small
accomplishment since 1997 net income rose by 16.7% over the prior year. Diluted
net income per share grew by 9.9% despite a singular, but significant loan loss
late in the year. Net interest margins came under downward pressure most of the
year, but still remained above other bank holding companies in our peer group.
Enhanced Return on Equity
Our corporate goal of improving return on shareholders' equity was realized
during 1998. Return on equity of 13.52% was up from 13.34% in 1997. Although the
trend is moving upward, we ultimately have targeted a higher return in the range
of 15% to 17% within the next few years. Re-leveraging our historically strong
capital base is an important component toward achieving our goal. Progress
toward this goal was made during the year just completed.
Loan & Deposit Growth Set New Marks
Record deposit growth was recorded during 1998 as a result of our expansion into
new markets and the resulting positive customer response to our local and
personal delivery of financial services. Origination of quality loans became a
focus in the commercial lending departments of all affiliates. This resulted in
total loan increases of $61 million, representing a 15.1% growth factor.
PHOTO OF CHAIRMAN KELLY N. STANLEY AND VICE CHAIRMAN JAMES R. SCHRECONGOST
APPEARS HERE
[BAR CHARTS APPEAR HERE]
5
<PAGE>
Market Expansion
As mentioned earlier, unparalleled market expansion occurred during 1998. The
growth pattern established last year has extended into 1999. Six branch offices
with deposits of approximately $90 million were purchased in September, 1998.
These new branches allowed us to deliver our distinctive brand of retail banking
into the Anderson and Zionsville communities. Customer reception in those two
new communities exceeded our expectations and reaffirmed our belief that there
is great opportunity to gain market share in communities that have experienced
turnover in local ownership.
In October, we announced that Farmers State Bank of Union City, Ohio would join
ANB Corporation. Farmers State Bank, a $92 million institution, will be the
fourth banking company to join ANB Corporation and the first to be located in
another state. The transaction is expected to be completed soon after you read
this report.
During the last month of 1998, American National Bank announced the opening of a
de novo office in Marion, Indiana. Seven officers and eight staff members
resigned their positions with regional banks located in the area to launch the
American National brand of community banking into Marion. Although the office
did not formally open until February, the response has been overwhelming.
[GROWTH OF INVESTMENT BAR CHART APPEARS HERE]
If you had purchased 100 shares for $7,700 in 1985, your investment would have
grown to $63,667 by 1998 - an increase of 727% in just over 13 years.
[BAR CHARTS APPEAR HERE]
6
<PAGE>
We anticipate that it will make a significant contribution to future
profitability.
Record High Trust Assets
Our trust affiliate, American National Trust & Investment Management Co., and
its subsidiary, Indiana Capital Management, solidified their position as one of
Indiana's largest trust providers by increasing client assets to $1.7 billion by
year end. When combined with Indiana Trust & Investment Management Co., our
partially owned affiliate in Mishawaka, Indiana, total trust assets exceeded $2
billion. Investment results during 1998 again outperformed respective
benchmarks, including equity returns in the top 10% of peer group comparisons.
Stock Performance
The broader stock market experienced tremendous volatility during the year and
financial stocks fell out of favor somewhat as preferences shifted to computer
and technology stocks and large cap issues. We are disappointed in the 1998
market performance of ANBC shares, especially in view of our frequent
communication with the financial community and our strong financial performance.
We are hopeful that investors will understand that our performance and prospects
for the future are far greater than what is reflected in the current share
price.
The Future
The management and board of directors of ANB Corporation remain focused on the
long term. Together, we have initiated strategies that will help drive future
earnings increases and enhance long-term shareholder value. We remain committed
to the quality of service associated with our philosophy of community banking
and sincerely appreciate your confidence.
/s/ James R. Schrecongost
James R. Schrecongost
Vice Chairman, President
& Chief Executive Officer
[BAR CHARTS APPEAR HERE]
7
<PAGE>
Re-inventing the Community Bank
Integrating Modern Services With Real Lives
There was a time when all banks were community banks. They drew economic
strength from their home communities and gave it back in many ways. They
tailored their services to meet the localized needs of consumers, home buyers
and business borrowers. The deposits they collected and the loans they made
helped to expand the local economy. Their directors, officers and staff were
good corporate citizens. They were deeply and personally involved in local civic
and government affairs.
"Our retail banking customers like it when they walk
into their favorite banking center and the
manager knows their name before they look it up
on the computer."
But something happened that changed all that. De-regulation and relaxed
interstate banking rules caused a chain-reaction. What began as a fad of
consolidation quickly became an feeding frenzy. Large banks swallowed up small
banks. Bigger banks became mammoth banks. It was growth at any cost. Acquire or
die.
The result? Bank transactions became less personal. Face to face meetings with
local bankers were replaced with long-distance phone calls. Local decision
making gave way to centralized control from distant cities. Personal
relationships were sacrificed in the name of transactional efficiency.
So where does ANB Corporation fit in this strange new world of David versus
Goliath banking? We are doing what we do best, but we are doing it better. We
are re-inventing the concept of the community bank. At the core of this effort
is our firm belief that banking and trust services are best-delivered locally
and personally. Our growing network of financial services affiliates is adopting
the technology necessary to deliver the latest information technology while
offering real-life answers to real-life financial challenges facing our
customers.
Our retail banking customers like it when they walk into their favorite banking
center and the manager knows their name before they look it up on the computer.
Our trust clients appreciate it when their trust officer visits their home
instead of summoning them to a stuffy conference room. Our commercial lending
customers like it when their loan officer not only knows their business and
their employees, but doubles as the coach of their kid's soccer team. These are
the kinds of differences that set ANB Corporation's community-oriented
affiliates apart from their mega-bank cousins.
[PHOTO APPEARS HERE]
City Machine has been an important part of the local community since its
founding in 1935. John Wagner, left, and his brother, Jim, have been with the
company since 1955 and 1968, respectively.
8
<PAGE>
We realize, however, that our new generation of community banks need be more
than just comfortable. They need to be eminently capable. We must demonstrate
that we know and appreciate our customer's situation and point of view. And we
must generate the trust that results from showing our customers the difference
between what's good for them and merely good for business.
But what about the new generation of computer-savvy consumers? Our plan is to
take today's amazing developments in technology, business, commerce and personal
finance and apply them to the vision of individual customers. To us, it matters
very little if they're 25 or 65 years old----we will integrate modern technology
with real lives. Not by force or elimination of options, however. Customers of
ANB Corporation affiliates will always be able to transact banking and trust
business in the form with which they are most comfortable. Why? Because each
customer is too complex to cram into a cookie-cutter profile. They are far too
intricate and individual to be distilled onto a form faxed to some distant
corporate headquarters.
Holding on to community values such as these will get more difficult as time
goes on. ANB Corporation has built its network of community banks on the concept
of incorporating the latest technology while giving back to the communities
served by its affiliates. If we are to retain these basic values while
re-inventing the concept of the community bank, we must use imagination,
flexibility and commitment. We believe ANB Corporation is up to the task.
[PHOTO APPEARS HERE]
Colin Scaife and his three-year-old daughter, Alisha, love to read together and
laugh together too.
[PHOTO APPEARS HERE]
Putting their lives on the line to protect the community is all in a day's work
for Anderson firefighters Steve Sumner, Thorpe Robinette and Jim Denny.
"Customers of ANB Corporation affiliates will always
be able to transact banking and trust business in
the form with which they are most comfortable."
9
<PAGE>
Independent
Auditor's Report
To the Stockholders and
Board of Directors
ANB Corporation
Muncie, Indiana
We have audited the accompanying consolidated balance sheet of ANB Corporation
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of ANB
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Olive LLP
Indianapolis, Indiana
January 29, 1999
10
<PAGE>
Consolidated
Balance Sheet
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
<S> <C> <C>
ASSETS
Cash and due from banks........................................ $ 28,740 $ 22,262
Federal funds sold............................................. 4,000
Interest-bearing demand deposits............................... 3,003 391
---------- ----------
Cash and cash equivalents............................. 35,743 22,653
Investment securities available for sale....................... 76,482 69,072
Mortgage loans held for sale................................... 311 76
Loans, net of allowance for loan losses of $3,587 and $3,497... 466,520 405,274
Premises and equipment......................................... 12,329 11,664
Federal Reserve and Federal Home Loan Bank stock............... 5,031 4,699
Foreclosed assets.............................................. 345 518
Interest receivable............................................ 4,625 4,532
Core deposit intangibles and goodwill.......................... 11,963 5,050
Other assets................................................... 2,591 1,952
---------- ----------
Total assets.......................................... $ 615,940 $ 525,490
========== ==========
LIABILITIES
Deposits
Noninterest bearing........................................ $ 63,062 $ 54,640
Interest bearing........................................... 445,372 356,622
---------- ----------
Total deposits........................................ 508,434 411,262
Short-term borrowings.......................................... 5,807 13,335
Federal Home Loan Bank advances................................ 36,145 39,615
Interest payable............................................... 1,839 1,334
Other liabilities.............................................. 3,119 3,711
---------- ----------
Total liabilities..................................... 555,344 469,257
---------- ----------
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Preferred stock, without par value
Authorized and unissued--250,000 shares
Common stock, $1 stated value
Authorized--20,000,000 shares
Issued and outstanding--4,567,586 and 4,530,974 shares..... 4,568 4,531
Paid-in capital................................................ 8,748 7,691
Paid-in capital--stock options................................. 256 335
Retained earnings.............................................. 46,222 42,286
Accumulated other comprehensive income......................... 802 1,390
---------- ----------
Total stockholders' equity............................ 60,596 56,233
---------- ----------
Total liabilities and stockholders' equity............ $ 615,940 $ 525,490
========== ==========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
Consolidated
Statement of Income
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable
Taxable............................................... $ 37,382 $ 34,987 $ 32,310
Tax exempt............................................ 228 124 107
Investment securities
Taxable............................................... 1,820 1,648 1,837
Tax exempt............................................ 2,564 2,616 2,679
Federal funds sold........................................ 331 87 271
Other interest and dividend income........................ 693 257 220
--------- --------- ---------
Total interest income............................ 43,018 39,719 37,424
--------- --------- ---------
INTEREST EXPENSE
Deposits.................................................. 16,121 15,480 15,484
Short-term borrowings..................................... 364 625 481
Federal Home Loan Bank advances........................... 2,580 1,110 431
--------- --------- ---------
Total interest expense........................... 19,065 17,215 16,396
--------- --------- ---------
NET INTEREST INCOME............................................ 23,953 22,504 21,028
Provision for loan losses................................. 1,142 955 1,089
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............ 22,811 21,549 19,939
--------- --------- ---------
OTHER INCOME
Fiduciary activities...................................... 6,083 5,114 4,452
Service charges on deposit accounts....................... 1,460 1,431 1,359
Other customer fees....................................... 548 407 463
Investment securities gains (losses), net................. 716 (13)
Net loans sold gains...................................... 236 105 159
Other income.............................................. 863 551 567
--------- --------- ---------
Total other income............................... 9,906 7,595 7,000
--------- --------- ---------
OTHER EXPENSES
Salaries and employee benefits............................ 11,394 10,453 10,017
Premises and equipment expenses........................... 3,714 3,095 2,672
Advertising............................................... 825 524 472
Professional fees......................................... 308 386 268
Deposit insurance expense................................. 95 26 867
Printing and office supplies.............................. 697 609 561
Amortization of goodwill and core deposit intangibles..... 631 459 375
Other expenses............................................ 3,419 3,037 2,907
--------- --------- ---------
Total other expenses............................. 21,083 18,589 18,139
--------- --------- ---------
INCOME BEFORE INCOME TAX....................................... 11,634 10,555 8,800
Income tax expense........................................ 3,859 3,548 2,794
--------- --------- ---------
NET INCOME..................................................... $ 7,775 $ 7,007 $ 6,006
========= ========= =========
BASIC EARNINGS PER SHARE....................................... $ 1.71 $ 1.55 $ 1.33
========= ========= =========
DILUTED EARNINGS PER SHARE..................................... $ 1.67 $ 1.52 $ 1.31
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
Consolidated Statement
of Stockholders' Equity
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
Compensatory
Common Stock Stock Options
Accumulated
Prepaid Other
Shares Paid-in Paid-in Compensation Comprehensive Retained Comprehensive
Outstanding Amount Capital Capital Expense Income Earnings Income Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996....... 4,530,335 $4,530 $6,274 $ 466 $ (68) $ 36,358 $ 1,911 $49,471
Net income ................ $ 6,006 6,006 6,006
Unrealized losses
on securities, net
of reclassification
adjustment................ (713) (713) (713)
--------
Total comprehen-
sive income.... $ 5,293
========
Cash dividends
($.55 per share).......... (2,472) (2,472)
Exercise of stock options... 39,950 40 287 (57) 270
Stock tendered in exercise
of stock options........... (10,488) (10) (13) (157) (180)
Compensation expense
related to options
granted.................... 56 56
Compensatory stock
options cancelled.......... (12) 12
Tax benefit on stock
options exercised.......... 109 109
Stock repurchases........... (93,000) (93) (128) (1,410) (1,631)
Stock issued under dividend
reinvestment and stock
purchase plan.............. 23,759 24 401 425
--------- ------- ------ ------ ------- -------- ------- -------
BALANCES, DECEMBER 31, 1996..... 4,490,556 4,491 6,930 397 -- 38,325 1,198 51,341
Net income ................ $ 7,007 7,007 7,007
Unrealized gains
on securities, net
of reclassification
adjustment................ 192 192 192
--------
Total comprehen-
sive income..... $ 7,199
========
Cash dividends
($.64 per share).......... (2,887) (2,887)
Exercise of stock options.. 29,200 29 233 (62) 200
Stock tendered in exercise
of stock options.......... (9,132) (9) (14) (159) (182)
Tax benefit on stock
options exercised......... 136 136
Stock issued under dividend
reinvestment and stock
purchase plan............ 20,350 20 406 426
--------- ------- ------ ------ ------- -------- ------- -------
BALANCES, DECEMBER 31, 1997..... 4,530,974 4,531 7,691 335 -- 42,286 1,390 56,233
Net income ................ $ 7,775 7,775 7,775
Unrealized losses
on securities, net
of reclassification
adjustment.............. (588) (588) (588)
--------
Total comprehen-
sive income...... $ 7,187
========
Cash dividends
($.72 per share).......... (3,282) (3,282)
Exercise of stock options.. 41,300 41 396 (79) 358
Stock tendered in exercise
of stock options.......... (7,305) (7) (11) (182) (200)
Tax benefit on stock
options exercised......... 248 248
Stock repurchases.......... (15,000) (15) (23) (375) (413)
Stock issued under dividend
reinvestment and stock
purchase plan............ 17,617 18 447 465
--------- ------- ------ ------ ------- -------- ------- -------
BALANCES, DECEMBER 31, 1998..... 4,567,586 $ 4,568 $8,748 $ 256 $ -- $ 46,222 $ 802 $60,596
========= ======= ====== ====== ======= ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
Consolidated Statement
of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 7,775 $ 7,007 $ 6,006
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses............................... 1,142 955 1,089
Depreciation and amortization........................... 1,840 1,293 1,109
Amortization of goodwill and core deposit intangibles... 631 459 375
Deferred income tax..................................... (24) (355) (381)
Investment securities amortization (accretion), net..... 19 (37) (63)
Investment securities (gains) losses.................... (716) 13
Net loans sold gains.................................... (236) (105) (159)
Mortgage loans originated for sale...................... (29,739) (10,588) (10,924)
Proceeds from sale of mortgage loans.................... 29,739 10,821 11,008
Net change in
Accounts receivable for loans sold................. 163
Interest receivable................................ (93) (373) (78)
Interest payable................................... 175 (57) (235)
Other adjustments....................................... (921) 295 184
--------- --------- ---------
Net cash provided by operating activities.......... 9,592 9,328 8,094
--------- --------- ---------
INVESTING ACTIVITIES
Net change in marketable equity securities available for sale 415 (123) 251
Purchases of securities available for sale.................. (46,098) (9,533) (18,455)
Proceeds from calls and maturities of securities available
for sale................................................... 21,888 7,724 11,408
Proceeds from sales of securities available for sale........ 16,109 7,146 250
Net change in loans......................................... (62,579) (33,751) (28,203)
Purchases of premises and equipment......................... (1,962) (3,512) (878)
Proceeds from sale of foreclosed real estate................ 384 299 253
Purchase of Federal Home Loan Bank stock.................... (332) (1,986) (52)
Net cash received (paid) in acquisitions.................... 82,252 7,342 (399)
Other investing activities.................................. 106 21 24
--------- --------- ---------
Net cash provided (used) by investing activities... 10,183 (26,373) (35,801)
--------- --------- ---------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, interest-bearing demand ...........
and savings deposits............................... 26,121 2,260 (5,737)
Certificates of deposit................................. (18,984) (5,913) (3,760)
Short-term borrowings................................... (7,528) (4,341) 9,926
Proceeds from Federal Home Loan Bank advances............... 31,530 46,495 15,000
Repayment of Federal Home Loan Bank advances................ (35,000) (20,880) (3,395)
Cash dividends.............................................. (3,282) (2,887) (2,472)
Stock repurchases........................................... (413) (1,631)
Exercise of stock options................................... 406 154 199
Dividend reinvestment and stock purchase plan............... 465 426 425
--------- --------- ---------
Net cash provided (used) by financing activities... (6,685) 15,314 8,555
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.......................... 13,090 (1,731) (19,152)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................... 22,653 24,384 43,536
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR.......................... $ 35,743 $ 22,653 $ 24,384
========= ========= =========
ADDITIONAL CASH FLOWS INFORMATION
Interest paid.............................................. $ 18,560 $ 17,272 $ 16,631
Income tax paid............................................. 4,010 3,725 3,095
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
Notes to
Consolidated Financial Statements
(In Thousands Except Share Data)
Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of ANB Corporation ("Company") and its
wholly owned subsidiaries, American National Bank and Trust Company of Muncie
("American National"), Peoples Loan & Trust Bank ("Peoples"), and American
National Trust and Investment Management Company ("ANTIM"), and ANB Financial
Planning Services ("ANBFPS"), a subsidiary of American National, conform to
generally accepted accounting principles and general practices followed by the
banking industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The Company is a bank holding company whose principal activity is the ownership
and management of the banks and other subsidiaries. The bank and trust company
subsidiaries operate under national and state bank charters and provide full
banking services and trust services. Accordingly, these subsidiaries are subject
to regulation by the Office of the Comptroller of the Currency, Department of
Financial Institutions, State of Indiana, and the Federal Deposit Insurance
Corporation.
The banking subsidiaries generate commercial, mortgage and consumer loans and
receive deposits from customers located primarily in Boone, Delaware, Jay,
Madison, Randolph and Wayne Counties, Indiana and surrounding counties. The
loans are generally secured by specific items of collateral including real
property, consumer assets and business assets. American National also engages in
loan servicing for investors. ANTIM provides trust and asset management
services, and ANBFPS is engaged in the selling of financial services.
Consolidation-The consolidated financial statements include the accounts of the
Company and subsidiaries after elimination of all material intercompany
transactions.
Investment Securities-Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported separately in accumulated other comprehensive income.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
Mortgage loans held for sale are carried at the lower of aggregate cost or
market. Net unrealized losses are recognized through a valuation allowance by
charges to income.
15
<PAGE>
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. A loan is impaired when, based on
current information or events, it is probable that the Company will be unable to
collect all amounts due (principal and interest) according to the contractual
terms of the loan agreement. Loan payments with insignificant delays not
exceeding 90 days outstanding are not considered impaired. Certain nonaccrual
and substantially delinquent loans may be considered to be impaired. The Company
considers its investment in one-to-four family residential loans and installment
loans to be homogeneous and therefore excluded from separate identification of
evaluation of impairment. The accrual of interest on impaired and nonaccrual
loans is discontinued when, in management's opinion, the borrower may be unable
to meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1998 the allowance for loan losses is adequate based on information
currently available. A worsening or protracted economic decline in the areas
within which the banking subsidiaries operate would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line and the declining balance
methods based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included in
current operations.
Federal Reserve and Federal Home Loan Bank stock are required investments for
institutions that are members of the Federal Reserve ("FRB") and Federal Home
Loan Bank ("FHLB") systems. The required investment in the common stock is based
on a predetermined formula.
Foreclosed assets are carried at the lower of cost or fair value less estimated
selling costs. When foreclosed assets are acquired, any required adjustment is
charged to the allowance for loan losses. All subsequent activity is included in
current operations.
16
<PAGE>
Core deposit intangibles and goodwill are being amortized on straight-line or
accelerated methods over periods from 10 to 20 years. Such assets are
periodically evaluated as to the recoverability of their carrying value.
Stock options subsequent to 1993 are granted for a fixed number of shares with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for and will continue to account for stock option grants in
accordance with Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and, accordingly, recognizes no compensation
expense for the stock option grants.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiaries.
Earnings per share have been computed based upon the weighted average common and
potential common shares outstanding during each year.
Proposed Merger
In October 1998, the Company entered into an Agreement and Plan of Merger
(Agreement) with Farmers State Bancorp (Farmers), Union City, Ohio. Under the
Agreement, stockholders of Farmers would receive 5.4 shares of Company common
stock for each share of common stock of Farmers owned, or a total of
approximately 841,000 shares. Unaudited total assets, total deposits and
stockholders' equity approximated $92,630, $82,367 and $9,813 at December 31,
1998. It is expected that the merger will be accounted for using the
pooling-of-interests method of accounting. The proposed merger is subject to
approval by Farmers' shareholders and regulatory agencies.
Branch Acquisitions
In September 1998, the Company purchased branches in Boone and Madison counties.
These branch acquisitions were accounted for using the purchase method of
accounting. Total assets acquired, including cash of $82,252, and total
liabilities assumed, including deposits at fair value of $90,196, totaled
$90,543. The results of operations of the branches have been included since
their acquisition dates. Intangible assets are being amortized over estimated
useful lives.
In April 1997, the Company purchased a branch in Randolph County. Total assets
acquired, including cash of $7,852, and total deposit liabilities assumed
totaled $9,070.
Restriction on Cash and Due From Banks
The banking subsidiaries are required to maintain reserve funds in cash and/or
on deposit with the FRB. The reserve required at December 31, 1998, was $7,348.
17
<PAGE>
Investment Securities
1998
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
AVAILABLE FOR SALE
U.S. Treasury.................... $ 5,407 $ 84 $ 5,491
Federal agencies................. 25,073 88 $ 63 25,098
State and municipal.............. 34,137 1,293 2 35,428
Mortgage-backed securities....... 10,039 7 78 9,968
Marketable equity securities..... 397 397
Corporate obligations............ 100 100
-------- ------ ------- -------
Total investment securities.. $ 75,153 $1,472 $ 143 $76,482
======== ====== ======= =======
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
======== ====== ======= =======
Marketable equity securities consist of shares in a mutual fund which invests in
money market instruments including federal funds and repurchase agreements.
The amortized cost and fair value of securities available for sale at December
31, 1998, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call or
prepay obligations with or without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
Within one year............................ $10,848 $10,871
One to five years.......................... 18,526 18,806
Five to ten years.......................... 22,127 22,699
After ten years............................ 13,216 13,741
------- -------
64,717 66,117
Mortgage-backed securities................. 10,039 9,968
Marketable equity securities............... 397 397
------- -------
Totals................................ $75,153 $76,482
======= =======
Securities with a total carrying value of $42,813 and $35,241 were pledged at
December 31, 1998 and 1997 to secure certain deposits and for other purposes as
permitted or required by law.
Proceeds from sales of securities available for sale during 1998 and 1997 were
$16,109 and $7,146. Gross gains of $583 and $31 and gross losses of $2 and $44
were realized on the 1998 and 1997 sales. Gains from securities called included
in the consolidated statement of income were $135 for 1998.
The tax expense (benefit) for securities gains (losses) was $284 for 1998 and
$(5) for 1997.
18
<PAGE>
Loans and Allowance
DECEMBER 31 1998 1997
Commercial and industrial loans....................... $ 105,690 $ 99,378
Term federal funds sold............................... 8,623 1,500
Real estate loans
One-to-four family properties.................... 186,965 157,570
Other............................................ 116,562 105,141
Individuals' loans for household and other personal
expenditures......................................... 45,720 39,654
Tax-exempt loans...................................... 4,090 2,994
Other loans........................................... 2,457 2,534
---------- ----------
Total loans.................................. 470,107 408,771
Allowance for loan losses............................. (3,587) (3,497)
---------- ----------
Net loans.................................... $ 466,520 $ 405,274
========== ==========
DECEMBER 31 1998 1997 1996
ALLOWANCE FOR LOAN LOSSES
Balances, January 1........... $ 3,497 $ 3,400 $ 2,897
Provision for losses.......... 1,142 955 1,089
Recoveries on loans........... 109 192 66
Loans charged off............. (1,161) (1,050) (652)
-------- --------- ---------
Balances, December 31......... $ 3,587 $ 3,497 $ 3,400
======== ========= =========
Information on impaired loans is summarized below.
DECEMBER 31 1998 1997
Impaired loans with an allowance................. $ 962 $ 518
Impaired loans for which the discounted
cash flows or collateral value exceeds the
carrying value of the loan....................... 84 190
------- ------
Total impaired loans.................. $ 1,046 $ 708
======= ======
Allowance for impaired loans (included in the
Company's allowance for loan losses)............. $ 364 $ 236
======= ======
DECEMBER 31 1998 1997 1996
Average balance of impaired loans............... $ 1,176 $ 839 $ 1,152
Interest income recognized on impaired loans.... 47 46 56
Cash-basis interest included above.............. 47 46 56
19
<PAGE>
Premises and Equipment
DECEMBER 31 1998 1997
Land.................................... $ 2,399 $ 2,361
Buildings............................... 8,296 8,049
Leasehold improvements.................. 702 563
Equipment............................... 11,696 10,211
-------- --------
Total cost..................... 23,093 21,184
Accumulated depreciation................ (10,764) (9,520)
-------- --------
Net............................ $ 12,329 $ 11,664
======== ========
Deposits
DECEMBER 31 1998 1997
Demand deposits............................. $226,237 $170,985
Savings deposits............................ 28,423 25,797
Certificates and other time deposits
of $100,000 or more........................ 69,319 59,666
Other certificates and time deposits........ 184,455 154,814
-------- --------
Total deposits..................... $508,434 $411,262
======== ========
Certificates and other time deposits maturing in years ending after December 31,
1998:
1999.......................................... $ 203,173
2000.......................................... 31,695
2001.......................................... 14,107
2002.......................................... 1,994
2003.......................................... 2,805
---------
$ 253,774
=========
Short-Term Borrowings
DECEMBER 31 1998 1997
Federal funds purchased........................... $ 6,375
Securities sold under repurchase agreements....... $ 4,321 3,980
U. S. Treasury demand notes....................... 1,486 2,980
------- -------
Total short-term borrowings.............. $ 5,807 $13,335
======= =======
Securities sold under agreements to repurchase consist of obligations of the
Company to other parties. The obligations are secured by U. S. Treasury
securities, and such collateral is held in safekeeping by financial
institutions. The maximum amount of outstanding agreements at any month-end
during 1998 and 1997 totaled $5,353 and $6,932 and the monthly average of such
agreements totaled $3,771 and $5,488. The agreements at December 31, 1998 mature
on a daily basis.
20
<PAGE>
Federal Home Loan Bank Advances
FHLB advances were $36,145 and $39,615 at December 31, 1998 and 1997. Maturities
by year for advances at December 31, 1998 are $16,615 in 1999; $8,500 in 2000;
$6,140 in 2003 and $4,890 in 2008. The weighted average interest rate at
December 31, 1998 and 1997 was 5.67% and 5.93%.
These advances are secured by first mortgage loans and investment securities
totaling $197,228 and $156,217 at December 31, 1998 and 1997. Advances are
subject to restrictions or penalties in the event of prepayment.
Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of mortgage loans
serviced for others totaled $67,516 and $58,265 at December 31, 1998 and 1997.
Retained mortgage servicing rights on originated or purchased loans capitalized
by the Company are not material.
Income Tax
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
INCOME TAX EXPENSE
Currently payable
Federal............................................ $ 2,982 $ 2,971 $ 2,361
State.............................................. 901 932 814
Deferred
Federal............................................ (68) (331) (317)
State.............................................. 44 (24) (64)
------- ------- -------
Total income tax expense...................... $ 3,859 $ 3,548 $ 2,794
======= ======= =======
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34%.................... $ 3,956 $ 3,589 $ 2,992
Tax exempt interest.................................... (830) (816) (834)
Effect of state income taxes........................... 624 599 495
Nondeductible goodwill amortization.................... 128 122 121
Other.................................................. (19) 54 20
------- ------- -------
Actual tax expense............................ $ 3,859 $ 3,548 $ 2,794
======= ======= =======
</TABLE>
21
<PAGE>
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
DECEMBER 31 1998 1997
ASSETS
Allowance for loan losses............... $ 1,000 $ 733
Pensions and employee benefits.......... 601 565
Directors' fees......................... 221 209
Stock option compensation............... 109 142
Other................................... 71
------- -------
Total assets........................ 1,931 1,720
------- -------
LIABILITIES
Depreciation............................ (577) (559)
State income tax........................ (108) (123)
FHLB dividends.......................... (110) (110)
Securities available for sale........... (526) (912)
Other................................... (184)
------- -------
Total liabilities................... (1,505) (1,704)
------- -------
$ 426 $ 16
======= =======
No valuation allowance was necessary at any time during 1998, 1997 or 1996.
OTHER COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
1998
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
YEAR ENDED DECEMBER 31 AMOUNT BENEFIT AMOUNT
<S> <C> <C> <C>
UNREALIZED LOSSES ON SECURITIES
Unrealized holding losses arising during the year..... $ (393) $ 156 $ (237)
Less: reclassification adjustment
for gains realized in net income...................... 581 (230) 351
------- ------ -------
Net unrealized losses................................. $ (974) $ 386 $ (588)
======= ====== =======
1997
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
YEAR ENDED DECEMBER 31 AMOUNT BENEFIT AMOUNT
UNREALIZED GAINS ON SECURITIES
Unrealized holding gains arising during the year...... $ 305 $ (121) $ 184
Less: reclassification adjustment
for losses realized in net income..................... (13) 5 (8)
------- ------ -------
Net unrealized gains.................................. $ 318 $ (126) $ 192
======= ====== =======
1996
TAX
BEFORE-TAX (EXPENSE) NET-OF-TAX
YEAR ENDED DECEMBER 31 AMOUNT BENEFIT AMOUNT
UNREALIZED LOSSES ON SECURITIES
Unrealized holding losses arising during the year..... $(1,180) $ 467 $ (713)
======= ====== =======
</TABLE>
22
<PAGE>
Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
banking subsidiaries' exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual or notional
amount of those instruments. The banking subsidiaries use the same credit
policies in making such commitments as they do for instruments that are included
in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
DECEMBER 31 1998 1997
Commitments to extend credit........................ $ 81,683 $ 72,436
Standby letters of credit........................... 2,302 1,114
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The banking subsidiaries evaluate each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the banking subsidiaries upon extension of
credit, is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the banking
subsidiaries to guarantee the performance of a customer to a third party.
The Company has entered into agreements with eleven officers which provide for
salary continuation for a three-year period under certain circumstances
following a change of control of the Company, as defined. Under the terms of the
agreements, these payments could occur if, during a two-year period following a
change of control, such officers are terminated other than for cause or
unreasonable changes are made in their employment relationships.
In September 1997, ANTIM acquired a 15% interest in the outstanding shares of
common stock of Indiana Trust & Investment Management Company ("Indiana Trust"),
a trust company located in Mishawaka, Indiana, for a purchase price of
approximately $510, including goodwill of $313. The investment was recorded
using the equity method of accounting. ANTIM is obligated to acquire the
remaining outstanding shares of common stock of Indiana Trust for cash or
Company stock in 2002 or earlier, subject to various terms and conditions set
forth in the Stock Acquisition Agreement. The agreement contains terms and
conditions related to the determination of the purchase price of the stock, a
change in control of the Company or ANTIM, Indiana Trust shareholder changes,
its termination and other matters.
The Company and its subsidiaries are also subject to claims and lawsuits which
arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated financial
position of the Company.
Year 2000
Like all entities, the Company and subsidiaries are exposed to risks associated
with the Year 2000 Issue, which affects computer software and hardware;
transactions with customers, vendors, and other entities; and equipment
dependent upon microchips. The Company has begun, but not yet completed, the
process of identifying and remediating potential Year 2000 problems. It is not
possible for any entity to guarantee the results
23
<PAGE>
of its own remediation efforts or to accurately predict the impact of the Year
2000 Issue on third parties with which the Company and subsidiaries does
business. If remediation efforts of the Company or third parties with which the
Company and subsidiaries does business are not successful, the Year 2000 Issue
could have negative effects on the Company's financial condition and results of
operations in the near term.
Dividends and Capital Restrictions
Without prior approval, current regulations allow American National, Peoples and
ANTIM to pay dividends to the Company not exceeding net profits (as defined) for
the current year plus those for the previous two years. As a result of these
restrictions, net assets of these subsidiaries not available for payment of
dividends to the Company were approximately $49,926 as of December 31, 1998.
Total net assets of these subsidiaries at such date were $57,835. As a practical
matter, the subsidiaries' dividends are restricted to a lesser amount because of
the need to maintain adequate capital structures.
Stock Transactions
In July 1998, the Company approved a stock repurchase program of its common
stock to provide shares for issuance under its stock option and dividend
reinvestment plans. After repurchasing 15,000 shares for $413, the plan was
cancelled in December 1998. The Company repurchased 93,000 shares of its common
stock in 1996 under a previous stock repurchase program.
Pursuant to the stock option plans, the Company redeemed 7,305; 9,132 and 10,488
shares of its common stock and issued 41,300; 29,200 and 39,950 shares of common
stock in 1998, 1997 and 1996, respectively. Tax benefits of $248, $136 and $109
related to the exercise of stock options were credited to paid-in capital in
1998, 1997 and 1996.
The Company approved a Dividend Reinvestment and Stock Purchase Plan in 1994
enabling stockholders to elect to have their cash dividends on all shares held
automatically reinvested in additional shares of the Company's common stock. In
addition, stockholders may elect to make optional cash payments up to an
aggregate of $5,000 per quarter for the purchase of additional shares of common
stock. The stock is credited to participant accounts at fair market value.
Dividends are reinvested on a quarterly basis on the applicable dividend payment
date that began with the October 1994 dividend payment. The plan made 200,000
shares available for purchase. At December 31, 1998, 106,020 shares of common
stock remained available for purchase under the plan.
Regulatory Capital
The Company and banking subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies and are assigned to a
capital category. The assigned capital category is largely determined by three
ratios that are calculated according to the regulations: total risk-adjusted
capital, Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to
measure capital relative to assets and credit risk associated with those assets
and off-balance sheet exposures of the entity. The capital category assigned to
an entity can also be affected by qualitative judgments made by regulatory
agencies about the risk inherent in the entity's activities that are not part of
the calculated ratios.
There are five capital categories defined in the regulations, ranging from well
capitalized to critically undercapitalized. Classification of a bank in any of
the undercapitalized categories can result in actions by regulators that could
have a material effect on a bank's operations. At December 31, 1998 and 1997,
the banking subsidiaries are categorized as well capitalized and met all subject
capital adequacy requirements, except for American National at December 31,
1998, which was categorized as adequately capitalized for the total
risk-adjusted capital ratio. There are no conditions or events since December
31, 1998, that management believes have changed the Company's or bank
subsidiaries' classification.
24
<PAGE>
The Company's and subsidiary banks' actual and required capital amounts and
ratios are as follows:
<TABLE>
<CAPTION>
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL(1) CAPITALIZED(1)
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
AS OF DECEMBER 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Total capital(1) (to risk-weighted assets)
Consolidated....................... $ 51,397 12.3% $ 33,355 8.0% N/A
American National.................. 27,070 9.4% 23,012 8.0% $ 28,765 10.0%
Peoples............................ 14,866 10.9% 10,868 8.0% 13,585 10.0%
Tier I capital(1) (to risk-weighted assets)
Consolidated....................... 47,810 11.4% 16,677 4.0% N A
American National.................. 24,782 8.6% 11,506 4.0% 17,259 6.0%
Peoples............................ 13,567 10.0% 5,434 4.0% 8,151 6.0%
Tier I capital(1) (to average assets)
Consolidated....................... 47,810 7.9% 24,077 4.0% N/A
American National.................. 24,782 5.8% 17,172 4.0% 21,465 5.0%
Peoples............................ 13,567 8.2% 6,632 4.0% 8,290 5.0%
AS OF DECEMBER 31, 1997
Total capital(1) (to risk-weighted assets)
Consolidated....................... $ 53,280 14.3% $ 29,807 8.0% N/A
American National.................. 31,663 12.3% 20,551 8.0% $ 25,689 10.0%
Peoples............................ 13,467 11.8% 9,094 8.0% 11,367 10.0%
Tier I capital(1) (to risk-weighted assets)
Consolidated....................... 49,783 13.3% 14,972 4.0% N/A
American National.................. 29,380 11.4% 10,276 4.0% 15,414 6.0%
Peoples............................ 12,254 10.8% 4,547 4.0% 6,820 6.0%
Tier I capital(1) (to average assets)
Consolidated....................... 49,783 9.8% 20,320 4.0% N/A
American National.................. 29,380 8.3% 14,082 4.0% 17,602 5.0%
Peoples............................ 12,254 8.1% 6,060 4.0% 7,575 5.0%
</TABLE>
(1) As defined by regulatory agencies
25
<PAGE>
Employee Benefit Plans
The Company's defined-benefit pension plan covers substantially all of its
employees. The following table sets forth the plan's funded status and amounts
recognized in the consolidated financial statements:
<TABLE>
<CAPTION>
DECEMBER 31 1998 1997
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................... $ 8,055 $ 7,296
Service cost.............................................. 433 443
Interest cost............................................. 572 535
Actuarial loss............................................ 794 378
Benefits paid............................................. (315) (597)
------- -------
Benefit obligation at end of year......................... 9,539 8,055
------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ 9,024 8,056
Actual return on plan assets.............................. 1,210 1,538
Employer contribution..................................... 27
Benefits paid............................................. (315) (597)
------- -------
Fair value of plan assets at end of year.................. 9,919 9,024
------- -------
Funded status............................................. 380 969
Unrecognized net actuarial loss (gain).................... 122 (258)
Unrecognized prior service cost........................... (373) (407)
Unrecognized transition asset............................. (364) (434)
------- -------
Accrued benefit cost...................................... $ (235) $ (130)
======= =======
Plan assets at fair value related to the Company
Company common stock.................................. $ 870 $ 879
Collective investment funds managed by ANTIM.......... 518 893
</TABLE>
26
<PAGE>
YEAR ENDED DECEMBER 31 1998 1997 1996
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................ $ 433 $ 443 $ 454
Interest cost............................... 572 535 496
Expected return on plan assets.............. (797) (711) (640)
Amortization of transition adjustment....... (70) (70) (70)
Amortization of prior service cost.......... (34) (34) (34)
Recognized net actuarial loss............... 25
------ ------ ------
Net periodic benefit cost................... $ 104 $ 163 $ 231
====== ====== ======
ASSUMPTIONS USED IN THE ACCOUNTING WERE:
Discount rate............................... 7.25% 7.25% 7.50%
Rate of increase in compensation............ 4.50% 4.50% 4.50%
Expected long-term rate of return on assets. 9.00% 9.00% 9.00%
The Company has a retirement savings 401(k) plan in which substantially all
employees may participate. The Company matches employees' contributions at the
rate of 50 percent for the first 4 percent of base salary contributed by
participants. The Company also has a stock investment plan under which employees
may, at their option, purchase stock of the Company. The Company contributes 20
percent of employees' contributions. The expense for these plans was $170 for
1998, $164 for 1997 and $158 for 1996.
Related Party Transactions
The Banks have entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties were as follows:
Balances, January 1, 1998................................. $ 17,550
Changes in composition of related parties................. (1,373)
New loans, including renewals............................. 4,106
Payments, etc., including renewals........................ (8,854)
Balances, December 31, 1998............................... $ 11,429
Deposits from related parties held by the subsidiary banks at December 31, 1998
totaled $5,440.
27
<PAGE>
Segment Information
The Company currently operates in two industry segments. The primary business
involves providing banking services of generating loans and receiving deposits
from customers. The Company, through ANTIM, its trust company subsidiary, also
provides trust and asset management services. The following is a summary of
selected data for the various business segments:
<TABLE>
<CAPTION>
BANKING TRUST ELIMI-
SERVICES SERVICES COMPANY(1) NATIONS(2) TOTAL
<S> <C> <C> <C> <C> <C>
1998
Total interest income................. $ 42,788 $ 230 $ 43,018
Total non-interest income............. 3,927 6,143 $ 9,947 $ (10,111) 9,906
Total interest expense................ 19,065 19,065
Total non-interest expense............ 13,891 4,913 3,149 (870) 21,083
Income before income tax.............. 12,617 1,460 6,798 (9,241) 11,634
Income tax expense (benefit).......... 4,237 599 (977) 3,859
Total assets.......................... 610,715 8,121 61,119 (64,015) 615,940
Capital expenditures.................. 892 698 543 (171) 1,962
Goodwill acquired..................... 6,688 6,688
Depreciation and amortization......... 1,599 383 489 2,471
1997
Total interest income................. $ 39,456 $ 263 $ 39,719
Total non-interest income............. 2,620 5,179 $ 8,015 $ (8,219) 7,595
Total interest expense................ 17,215 17,215
Total non-interest expense............ 13,307 4,225 1,495 (438) 18,589
Income before income tax.............. 10,598 1,218 6,520 (7,781) 10,555
Income tax expense (benefit).......... 3,538 497 (487) 3,548
Total assets.......................... 516,646 7,604 56,871 (55,631) 525,490
Capital expenditures.................. 1,588 197 1,727 3,512
Goodwill acquired..................... 890 313 1,203
Depreciation and amortization......... 1,367 261 124 1,752
1996
Total interest income................. $ 37,202 $ 222 $ 37,424
Total non-interest income............. 2,780 4,409 $ 6,711 $ (6,900) 7,000
Total interest expense................ 16,396 16,396
Total non-interest expense............ 13,791 3,716 997 (365) 18,139
Income before income tax.............. 8,707 914 5,714 (6,535) 8,800
Income tax expense (benefit).......... 2,710 376 (292) 2,794
Total assets.......................... 487,519 7,140 51,505 (52,317) 493,847
Capital expenditures.................. 778 96 13 (9) 878
Goodwill acquired..................... 372 372
Depreciation and amortization......... 1,214 225 45 1,484
</TABLE>
(1) From parent company only statements
(2) Eliminations include intercompany dividends and undistributed income of
Company subsidiaries from parent company only statements; Company revenues
of $697 for 1998, $218 for 1997 and $120 for 1996 from banking subsidiaries
and revenues between segments of $173 for 1998, $220 for 1997 and $245 for
1996.
28
<PAGE>
Stock Option Plans
Under the Company's stock option plans, which are accounted for in accordance
with Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock
Issued to Employees", and related interpretations, the Company grants selected
executives and other key employees and directors stock option awards. The
exercise price of each option since 1994 was equal to the market price of the
Company's stock on the date of grant; therefore, no compensation expense was
recognized. The excess of fair market value over the option price at date of
grant for grants prior to 1994 granted at 75% of fair market value was recorded
as prepaid compensation expense and allocated to paid-in capital. The Company
recorded amortization of prepaid compensation expense of $56,000 for 1996 as a
charge to income.
Under terms of the ANB Corporation Stock Option Plan ("1990 Plan") for key
employees, 300,000 shares of Company common stock shall be available for grant,
and the option price upon exercise shall not be less than 75% of fair market
value of such stock at date of grant.
Options granted shall be exercisable in four annual installments, on a
cumulative basis, beginning one year after date of grant, or upon a change in
control of the Company as defined in the 1990 Plan, a purchase of Company stock
pursuant to a tender offer or exchange offer, or a merger or sale of assets in
which the Company does not survive as an independent entity. The period for
exercising options shall not exceed ten years. There were 9,800 shares available
for grant under the 1990 Plan as of December 31, 1998.
Under terms of the ANB Corporation 1995 Stock Option Plan ("1995 Plan") for key
employees, 300,000 shares of Company common stock shall be available for
granting both incentive ("ISO's") and non-qualified stock options. The option
price to be paid upon exercise shall be not less than fair market value at date
of grant. The period for exercising options shall not exceed ten years from the
date of grant. The options shall be exercisable in four annual installments, on
a cumulative basis, beginning one year after date of grant, after reaching age
65, upon circumstances or earlier times determined by the Compensation Committee
or upon a change in control as defined in the 1995 Plan. There were 120,500
shares available for grant under the 1995 Plan as of December 31, 1998.
Under terms of the ANB Corporation 1996 Directors' Stock Option Plan
("Directors' Plan"), 96,000 shares of Company stock shall be available for
granting non-qualified stock options. The option price to be paid upon exercise
shall be not less than fair market value at date of grant. The period for
exercising options shall not exceed ten years from the date of grant. Options
granted shall be exercisable in four annual installments, on a cumulative basis,
beginning one year after date of grant. Exercise rights terminate thirty days
after status as a director terminates other than for retirement after age 70,
death or disability. There were 16,000 options available for grant under the
Directors' Plan as of December 31, 1998.
29
<PAGE>
Although the Company has elected to follow APB Opinion No. 25, Statement of
Financial Accounting Standards ("SFAS") No. 123 requires pro forma disclosures
of net income and earnings per share as if the Company had accounted for its
employee stock options under that Statement. The fair value of each option grant
was estimated on the grant date using an option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Risk-free interest rates..................................... 4.7 and 5.6% 5.8 and 6.6% 6.2 and 6.5%
Dividend yields.............................................. 2.7% 2.9% 3.0%
Expected volatility factors of market price of common stock.. 13.0% 11.0% 11.0%
Weighted-average expected life of the options................ 6 years 6 years 6 years
</TABLE>
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this Statement is as follows:
1998 1997 1996
Net income.................. As reported $ 7,775 $ 7,007 $ 6,006
Pro forma 7,634 6,940 5,983
Basic earnings per share.... As reported 1.71 1.55 1.33
Pro forma 1.68 1.54 1.33
Diluted earnings per share.. As reported 1.67 1.52 1.31
Pro forma 1.64 1.51 1.30
During the initial phase-in period of SFAS No. 123, the effects of applying this
Statement are not likely to be representative of the effects on reported net
income for future years because options vest over several years and additional
awards generally are made each year.
30
<PAGE>
The following is a summary of the status of the Company's stock option plans and
changes in those plans as of and for the years ended December 31, 1998, 1997,
and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........ 375,000 $ 14.11 329,450 $ 11.37 305,150 $ 8.97
Granted................................. 73,500 25.85 76,000 23.29 70,000 19.14
Exercised............................... (41,300) 8.69 (29,200) 6.86 (39,950) 6.75
Cancelled............................... (2,500) 15.58 (1,250) 18.78 (5,750) 10.52
------- ------- -------
Outstanding at end of year.............. 404,700 16.79 375,000 14.11 329,450 11.37
======= ======= =======
Options exercisable at year end......... 229,700 214,625 189,700
Weighted-average fair value
of options
granted during the year................. $ 4.37 $ 3.96 $ 3.38
</TABLE>
As of December 31, 1998, other information in exercise price ranges for options
outstanding and exercisable is as follows:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE RANGES OF SHARES LIFE PRICE OF SHARES PRICE
<S> <C> <C> <C> <C> <C>
$05.44 - 06.56................. 75,300 2.3 years $ 6.09 75,300 $ 6.09
$08.80 - 12.38................. 74,500 4.9 years 10.70 74,500 10.70
$15.44 - 20.38................. 136,400 7.7 years 17.94 68,650 17.51
$24.06 - 28.75................. 118,500 9.5 years 26.10 11,250 26.50
-------- --------
Total..................... 404,700 6.7 years 16.79 229,700 12.00
======== ========
</TABLE>
31
<PAGE>
Earnings Per Share
Earnings per share ("EPS") were computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996
WEIGHTED- PER WEIGHTED- PER WEIGHTED- PER
AVERAGE SHARE AVERAGE SHARE AVERAGE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic Earnings Per Share
Income available to
common stockholders....... $ 7,775 4,555,738 $ 1.71 $7,007 4,508,408 $ 1.55 $6,006 4,501,155 $ 1.33
======= ======= =======
Effect Of Dilutive
Stock Options............. -- 111,193 -- 97,860 -- 94,145
-------- --------- ------ --------- ------ ---------
Diluted Earnings Per Share
Income available to
common stockholders and
assumed conversions..... $ 7,775 4,666,931 $ 1.67 $7,007 4,606,268 $ 1.52 $6,006 4,595,300 $ 1.31
======== ========= ======= ====== ========= ======= ====== ========= =======
</TABLE>
Options to purchase 28,000 shares of common stock at $28.75 per share and 45,000
shares at $26.50 per share were outstanding at December 31, 1998 and 1997,
respectively, but were not included in the computation of diluted EPS because
the options' exercise price was greater than the average market price of the
common shares.
Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents-The fair value of cash and cash equivalents
approximates carrying value.
Investment Securities-Fair values are based on quoted market prices.
Loans-For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans are estimated using discounted cash flow
analyses and using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
FRB and FHLB Stock-Fair value of FRB and FHLB stock is based on the price at
which it may be resold to the FRB and FHLB.
Interest Receivable/Payable-The fair values of accrued interest
receivable/payable approximate carrying values.
Deposits-The fair values of noninterest-bearing, interest-bearing demand and
savings accounts are equal to the amount payable on demand at the balance sheet
date. The carrying amounts for variable rate, fixed-term certificates of deposit
approximate their fair values at the balance sheet date. Fair values for
fixed-rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on such time deposits.
Short-term Borrowings-The interest rates on short-term borrowings approximate
market rates, and thus the fair values approximate carrying values.
FHLB Advances-The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current FHLB advance rates for
periods comparable to the remaining terms to maturity of these advances.
32
<PAGE>
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
DECEMBER 31 AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $ 35,743 $ 35,743 $ 22,653 $ 22,653
Investment securities available for sale..... 76,482 76,482 69,072 69,072
Loans including loans held for sale, net..... 466,831 471,344 405,350 406,760
Stock in FRB and FHLB........................ 5,031 5,031 4,699 4,699
Interest receivable.......................... 4,625 4,625 4,532 4,532
LIABILITIES
Deposits..................................... 508,434 509,932 411,262 411,770
Short-term borrowings........................ 5,807 5,807 13,335 13,335
FHLB advances................................ 36,145 36,512 39,615 39,629
Interest payable............................. 1,839 1,839 1,334 1,334
</TABLE>
Condensed Financial Information (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
Condensed Balance Sheet
DECEMBER 31 1998 1997
ASSETS
Cash on deposit.................................... $ 584 $ 630
Investment securities available for sale........... 15 15
Investment in subsidiaries......................... 57,835 54,137
Core deposit intangibles and goodwill.............. 47 75
Premises and equipment............................. 1,735 1,653
Other assets....................................... 903 361
-------- --------
Total assets................................... $ 61,119 $ 56,871
======== ========
LIABILITIES ............................................ $ 523 $ 638
STOCKHOLDERS' EQUITY.................................... 60,596 56,233
-------- --------
Total liabilities and stockholders' equity..... $ 61,119 $ 56,871
======== ========
33
<PAGE>
Condensed Statement of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C>
INCOME
Dividends from subsidiaries............................. $ 4,954 $ 4,159 $ 10,261
Other income............................................ 706 234 120
------- ------- --------
Total income........................................ 5,660 4,393 10,381
------- ------- --------
EXPENSES
Amortization of core deposit intangibles, goodwill
and fair value adjustments.......................... 34 38 43
Salaries and employee benefits.......................... 1,823 915 626
Compensation expense for stock options.................. 56
Premises and equipment.................................. 778 161 8
Professional fees....................................... 75 85 62
Other expenses.......................................... 439 296 202
------- ------- --------
Total expenses...................................... 3,149 1,495 997
------- ------- --------
Income before income tax and equity in undistributed
income of subsidiaries.................................. 2,511 2,898 9,384
Income tax benefit...................................... 977 487 292
------- ------- --------
Income before equity in undistributed income of subsidiaries. 3,488 3,385 9,676
Equity in undistributed (distribution in excess of)
income of subsidiaries ............................. 4,287 3,622 (3,670)
------- ------- --------
NET INCOME .................................................. $ 7,775 $ 7,007 $ 6,006
======= ======= ========
</TABLE>
34
<PAGE>
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1998 1997 1996
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 7,775 $ 7,007 $ 6,006
Adjustments to reconcile net income to net cash provided
by operating activities
Equity in undistributed income of subsidiaries......... (4,287) (3,622) 3,670
Noncash dividend....................................... (6,426)
Depreciation........................................... 461 92 8
Other adjustments...................................... (628) 525 (63)
-------- ------- --------
Net cash provided by operating activities......... 3,321 4,002 3,195
-------- ------- --------
INVESTING ACTIVITIES
Net change in marketable equity securities available for sale (1) (14)
Purchases of premises and equipment........................ (543) (1,727) (13)
-------- ------- --------
Net cash used by investing activities............. (543) (1,728) (27)
-------- ------- --------
FINANCING ACTIVITIES
Cash dividends............................................. (3,282) (2,887) (2,472)
Stock repurchases.......................................... (413) (1,631)
Exercise of stock options.................................. 406 154 199
Dividend reinvestment and stock purchase plan.............. 465 426 425
-------- ------- --------
Net cash used by financing activities............. (2,824) (2,307) (3,479)
-------- ------- --------
NET CHANGE IN CASH ON DEPOSIT................................ (46) (33) (311)
CASH ON DEPOSIT AT BEGINNING OF YEAR......................... 630 663 974
-------- ------- --------
CASH ON DEPOSIT AT END OF YEAR............................... $ 584 $ 630 $ 663
======== ======= ========
</TABLE>
35
<PAGE>
Management's Discussion and Analysis of the Financial
Condition and Results of Operations of the Company
The following discussion and analysis is intended to cover the significant
factors affecting the Company's consolidated financial statements from January
1, 1996, to December 31, 1998. It is designed to provide a more comprehensive
review of the operating results and financial position than could be obtained
from an analysis of the financial statements alone. It should, however, be read
in conjunction with the financial statements and notes included elsewhere
herein.
Analysis of Results of Operations
Net Income. 1998 was the most profitable year in the history of the Company. Net
income for 1998 rose to $7.775 million, an increase of $768 thousand or 11.0%
over the previous high of $7.007 million which was reported in 1997. Net income
results for 1997 were higher by 16.7% or $1.001 million when compared to the
$6.006 million net income recorded in 1996.
Basic net income per common share for 1998, 1997, and 1996 was $1.71, $1.55, and
$1.33 respectively. Basic net income per common share increased 10.3% for 1998
over 1997, following an increase of 16.5% in 1997 when compared to 1996.
Diluted net income per common share for 1998, 1997, and 1996 was $1.67, $1.52,
and $1.31 respectively. Diluted net income per common share increased 9.9% for
1998 over 1997, following an increase of 16.0% in 1997 when compared to 1996.
The compound annual growth rate in diluted earnings per share has been 13.6% for
the three year period beginning January 1, 1996 and ending December 31, 1998.
A significant contributor in 1998 to the Company's record earnings was the
continued quality growth in the loan portfolio, and the resulting higher level
of net interest income generated. Net interest income grew by 6.4% in 1998 over
1997, while net interest margin, stated on a fully taxable equivalent basis,
declined 23 basis points from the record high of 5.14% reached in 1997. Also
having a positive impact on 1998 results were a 18.9% increase in fees generated
by the Company's fiduciary activities and sales and calls of investment
securities resulting in gains of $716 thousand.
The following table presents certain key performance ratios for the last three
years:
1998 1997 1996
Return on average assets..................... 1.40% 1.41% 1.27%
Return on average equity..................... 13.52% 13.34% 12.29%
Efficiency ratio*............................ 59.27% 57.98% 58.96%
Average earning assets to average assets..... 92.69% 93.09% 93.26%
Net interest spread**........................ 4.31% 4.46% 4.41%
Net interest margin**........................ 4.91% 5.14% 5.07%
* Excludes one-time special assessment of $589 thousand in 1996.
** Fully taxable equivalent basis
36
<PAGE>
Other factors impacting the net income of the Company are discussed below.
Net Interest Income. 1998 can be best described as a successful year for the
Company from a balance sheet growth perspective. Throughout the year aggressive
loan portfolio expansion goals were met on a regular basis. It should also be
noted that in addition to portfolio lending, the Company originated $30 million
of single-family fixed-rate mortgage loans that were sold in the secondary
market. Initially, the portfolio production was funded primarily with borrowed
money, until the Company's lead bank took advantage of an opportunity to acquire
six bank branch offices that held approximately $90 million in deposits. This
new source of liquidity not only provided the base for continued loan portfolio
growth, but more importantly it represented the establishment of an immediate
significant presence in two new markets with an expanded customer base to
cross-sell other financial products and services.
This significant asset growth achieved by the Company in 1998 was critical to
its efforts to raise net interest income in the continuing difficult flat yield
curve interest rate environment that had developed a year earlier. With most
financial institutions employing aggressive growth strategies to drive earnings,
fierce price competition resulted in a net interest margin squeeze that deeply
impacted the financial institutions industries.
Throughout 1998, the United States economy appeared somewhat immune to the
foreign economic turbulence that had permeated the globe. In an effort to
further protect the nation from potential problems related to changing
conditions both at home and abroad, beginning in late September and continuing
through mid-November, the Federal Reserve enacted a series of three federal
funds rate cuts. The Company's banks followed the lead of the larger regional
banks and quickly followed suit with identical cuts to their prime lending rate,
a move necessary to remain competitive, but at the cost of creating further
pressure on net interest margin for the near term.
In anticipation of these challenging economic conditions, the Company is
continuously developing alternative strategies to deal with the expected effect
on the volume and nature of loan demand, as well as deposit activity. The
Company strives to remain prepared to react to even minor changes in its
economic environment, and attempts to fine tune strategies in tandem with
changes in its market. This proactive approach is designed to support a macro
strategy of focusing on loan portfolio growth as the primary driver of earnings,
with funding alternatives being evaluated on an incremental cost basis with full
consideration given to the ancillary benefits that can be derived from adding to
the Company's retail customer deposit base.
The Company's strategies continued to produce the desired results, as net
interest income was once again raised substantially over the record level of the
prior year, 1997.
An increase or decrease in net interest income, the Company's primary source of
revenue, is the combined result of volume and rate changes for both earning
assets and interest-bearing liabilities. As stated earlier, loan volume
continued to be the principal factor in another record level of net interest
income. The new production was funded through multiple strategies involving
principally borrowings and then acquired deposits, in addition to the capital
provided by earnings. In a limited capacity, borrowings from the Federal Home
Loan Bank ("FHLB") often serve as an attractive alternative funding source from
a marginal cost perspective, but long term highly profitable balance sheet
growth requires new retail customers and their typically lower cost deposit
balances.
Although net interest spread (average yield on earning assets net of average
cost of interest-bearing liabilities) decreased somewhat in 1998 from the prior
year results, the Company relied on moderate growth in net average earning
assets (average earning assets net of average interest-bearing liabilities)
coupled with its significant balance sheet growth to continue to push net
interest income to a new record level.
37
<PAGE>
Net interest income on a tax-equivalent basis for 1998 of $25.281 million
exceeded the 1997 total of $23.798 million by $1.483 million, or 6.2%. The 1997
total represented a similar improvement over the prior year, $1.451 million, or
6.5%, increase over 1996 net interest income on a tax-equivalent basis of
$22.347 million. The growth for 1997 was primarily a function of growth in net
average earning assets coupled with an improvement in the net interest spread.
It should be noted, though, that the consistent net interest income growth for
the Company in recent years, as well as for the rest of the industry, was also
somewhat dependent upon generally favorable conditions for economic growth.
Total interest income on a tax-equivalent basis of $44.346 million for 1998 was
$3.333 million, or 8.1%, higher than the $41.013 million earned in 1997. The
increase was due to the greater volume of business, represented by a $51.122
million, or 11.0%, growth in average earning assets from $463.130 million to
$514.252 million. The yield on average earning assets fell 24 basis points from
8.86% for 1997 to 8.62% for 1998. The lower yield in 1998 reflected a lower
interest rate environment compared to the prior year.
In 1997, total interest income on a tax-equivalent basis rose 5.9% from the
$38.743 earned in 1996. The 1997 improvement was accomplished through a $22.389
million, or 5.1%, growth in average earning assets coupled with a 7 basis points
increase in yield to 8.86%. Relatively comparable yields on earning assets for
the most recent three years were a function of the generally low interest rate
volatility environment.
The deposits purchased in September of 1998 were the primary factor in average
interest-bearing deposits for the year rising $29.952 million, an 8.3% increase,
to $391.212 million from $361.260 million for 1997. The growth for 1997, all
internally generated, was $3.399 million, a modest gain of 0.9% over the 1996
average of $357.861 million.
In early 1998, the Company accelerated its use of Federal Home Loan Bank
advances to fund the expansion of the loan portfolio, which ultimately resulted
in average total borrowed money for the year growing $20.664 million to $50.761
million, a 68.7% increase over $30.097 million in average borrowings for 1997.
The greater reliance on borrowings to fund loans, while also providing
additional benefit as an interest rate risk management tool, began in 1997 when
the total of average borrowed money increased by $13.587 million, or 82.3%, to
$30.097 million, compared to only $16.510 million for 1996.
The increase in total interest expense for 1998 was primarily a function of
volume growth, as the average cost of funds dropped 9 basis points to 4.31%. One
component of that cost, money market investment accounts, did grow in both
volume and rate as customers migrated to this product attracted by both its
competitive rate and liquidity attribute. Total interest expense for 1998 of
$19.065 million was $1.850 million, or 10.7%, above the 1997 total of $17.215
million.
In 1997, total interest expense grew 5.0% from the total of $16.396 million
recorded for 1996. The increase was also primarily related to volume changes,
with the total net increase to a significant degree mitigated by rate reductions
achieved in the certificates of deposit category. Funding strategies and market
conditions resulted in a 4.40% cost of funds, a slight increase of two basis
points over the 4.38% cost for 1996.
38
<PAGE>
Net average earning assets (average earning assets net of average
interest-bearing liabilities) were increased to $72.279 million in 1998, from
$71.773 million in 1997 and $66.370 million in 1996, or annual increases of 0.7%
and 8.1%, for 1998 and 1997, respectively. The lower growth rate in 1998 was a
result of several factors, one of which was the impact from the purchase of the
six bank banches with the related premium paid for the purchased transaction.
Another factor, also one that is expected to provide significant future bottom
line benefit, was the Company's substantial investment in technology. The net
growth in net average earning assets was accomplished primarily through the
utilization of funds available from undistributed earnings and from an increase
in average total balances in non-interest bearing demand deposits during each of
the two years.
The Company's growth strategies produced a healthy increase in net interest
income in 1998, despite a 15 basis point drop in its net interest spread rate to
4.31% from the 1997 total of 4.46%, which had represented a 5 basis point gain
over the 4.41% achieved in 1996.
The following table presents net interest income components on a tax-equivalent
basis and reflects changes between periods attributable to movement in either
the average balance or average interest rate for both earnings assets and
interest-bearing liabilities. The volume differences were computed as the
difference in volume between the current and prior year multiplied times the
prior year's interest rate, while the interest rate changes were computed as the
difference in rate between the current and prior year multiplied times the
volume of the prior year. Volume/rate variances have been allocated on the basis
of the absolute relationship between volume variances and rate variances.
Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
(In Thousands on Fully Taxable Equivalent Basis)
1998 OVER 1997 1997 OVER 1996
VOLUME RATE TOTAL VOLUME RATE TOTAL
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Federal funds sold................. $ 247 $ (3) $ 244 $ (191) $ 7 $ (184)
Interest-bearing deposits.......... 284 4 288 4 (2) 2
Investment securities.............. 481 (233) 248 (262) 14 (248)
Loans.............................. 3,130 (577) 2,553 2,612 88 2,700
-------- ----- -------- ------- ------ -------
Total.......................... 4,142 (809) 3,333 2,163 107 2,270
-------- ----- -------- ------- ------ -------
INTEREST EXPENSE
NOW accounts....................... 80 (316) (236) 64 (19) 45
Money market investment accounts... 467 70 537 (2) 27 25
Savings deposits................... 10 (63) (53) (40) 2 (38)
Certificates of deposit............ 632 (240) 392 134 (169) (35)
Short-term borrowings.............. (214) (47) (261) 110 34 144
Federal Home Loan Bank advances.... 1,467 4 1,471 682 (4) 678
-------- ----- -------- ------- ------ -------
Total.......................... 2,442 (592) 1,850 948 (129) 819
-------- ----- -------- ------- ------ -------
Change in net interest income(fully
taxable equivalent basis).......... $ 1,700 $(217) 1,483 $ 1,215 $ 236 1,451
======== ===== ======= ======
Tax equivalent adjustment............... (34) 25
-------- -------
Change in net interest income........... $ 1,449 $ 1,476
======== =======
</TABLE>
39
<PAGE>
Provision for Loan Losses, Allowances for Loan Losses, and Net Charge-offs.
During 1998, 1997, and 1996, the Company provided $1.142 million, $955 thousand,
and $1.089 million, respectively, to replenish the allowance for loan losses for
charge-offs recorded, maintain an adequate balance for potential losses that may
exist in the portfolio, and provide for growth in the various components of the
Company's loan portfolio.
The allowance for loan losses at year end 1998, 1997, and 1996 was $3.587
million, $3.497 million, and $3.400 million, respectively. Total loan balances
at the end of these periods were $470.107 million, $408.771 million, and
$376.081 million, and the ratio of the allowance for loan losses to total loan
balances was 0.76%, 0.86%, and 0.90%, respectively.
The allowance for loan losses included $364 thousand at December 31, 1998, and
$236 thousand at December 31, 1997, for loans considered by the Company to be
impaired. Impaired loans totaled $1.046 million and $708 thousand at December
31, 1998 and 1997, respectively.
Net charge-offs in 1998 were $1.052 million compared to $858 thousand in 1997
and $586 thousand in 1996. The ratio of net charge-offs to average outstanding
loans for 1998, 1997, and 1996 was 0.25%, 0.22%, and 0.16%, respectively. That
compares favorably to the Company's peer group for the years 1997 and 1996, and
is higher than peer group for 1998. Late in the fourth quarter of 1998, the
Company charged off a commercial loan in the amount of approximately $620
thousand. The Company and its counsel are pursuing the borrower in an effort to
recover a portion of the loss incurred.
The Company's dollar amount of outstanding loans made to individuals and
commercial mortgagors comprised approximately 65% of the company's total loan
portfolio at year end 1998. For 1998 the Company had real estate mortgage loan
charge-offs of $43 thousand and recoveries of $46 thousand resulting in a net
recovery of $3 thousand for the year. As shown in the summary of loan loss table
below, real estate mortgage charge-offs less recoveries for the five-year period
ending December 31, 1998 were $242 thousand, or an average of approximately $48
thousand a year. The ratio of average real estate mortgage net charge-offs to
average real estate mortgage loans during this five-year period was only 0.02%.
Based on management's analysis of the composition of the loan portfolio and
current economic conditions, management considers the current allowance for loan
losses to be adequate.
40
<PAGE>
Summary of Loan Loss Experience
The following table summarizes the loan loss experience for the years indicated.
<TABLE>
<CAPTION>
(In Thousands Except for Ratios)
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance at January 1........................... $ 3,497 $ 3,400 $ 2,897 $ 2,698 $ 1,441
------- ------- ------- ------- -------
Additions resulting from acquisitions.......... 1,105
-------
Charge-offs
Commercial................................. 825 702 284 544 254
Real estate mortgage....................... 43 89 177 261 69
Loans to individuals....................... 293 259 191 267 104
------- ------- ------- ------- -------
Total charge-offs..................... 1,161 1,050 652 1,072 427
------- ------- ------- ------- -------
Recoveries
Commercial................................. 29 79 14 32 31
Real estate mortgages...................... 46 53 20 64 214
Loans to individuals....................... 34 60 32 91 57
------- ------- ------- ------- -------
Total recoveries...................... 109 192 66 187 302
------- ------- ------- ------- -------
Net charge-offs................................ 1,052 858 586 885 125
------- ------- ------- ------- -------
Provision for loan losses...................... 1,142 955 1,089 1,054 277
------- ------- ------- ------- -------
Balance at December 31......................... $ 3,587 $ 3,497 $ 3,400 $ 2,867 $ 2,698
======= ======= ======= ======= =======
Ratio of net charge-offs during the period to
average loans outstanding during the period.. 0.25% 0.22% 0.16% 0.26% 0.04%
</TABLE>
41
<PAGE>
Other Income. The following table shows the components of other income for 1998,
1997, and 1996.
(In Thousands)
1998 1997 1996
Fiduciary activities............................... $ 6,083 $ 5,114 $ 4,452
Service charges on deposit accounts................ 1,460 1,431 1,359
Other customer fees................................ 548 407 463
Other income....................................... 863 551 567
------- ------- -------
Subtotal...................................... 8,954 7,503 6,841
Investment securities gains (losses), net.......... 716 (13)
Net loans sold gains............................... 236 105 159
------- ------- -------
Total other income............................ $ 9,906 $ 7,595 $ 7,000
======= ======= =======
Other income includes income items that are not directly related to the
Company's interest-earning assets. From 1997 to 1998, other income, excluding
net investment securities gains (losses) and net loans sold gains, increased
$1.451 million, or 19.3%, following a 1996 to 1997 increase of $662 thousand, or
9.7%. The 1998 increase in other income, excluding net investment securities
gains (losses) and net loans sold gains, was predominantly the result of
increased fees from fiduciary activities, other customer fees, and other income.
In 1998 fiduciary activities fees increased $969 thousand, or 18.9%, over 1997
due to net growth in fiduciary accounts and assets under management. During the
period from 1996 to 1997, fiduciary activities fees experienced a 14.9%, or $662
thousand increase. Other customer fees increased $141 thousand, or 34.6%, from
1997 to 1998 following a decline in the 1996 to 1997 period of $56 thousand. The
1998 growth in other customer fees was primarily attributable to increased
revenue from fees associated with ATM and check card delivery. Other income
increased $312 thousand from 1997 to 1998 which was principally the result of a
recovery of $205 thousand in losses that were incurred in prior years and the
reversal of a contingency loss that had been accrued in prior years. The
increase in other income followed a decrease in other income of $16 thousand
from 1996 to 1997.
From 1997 to 1998, service charges on deposit accounts experienced a modest
growth of 2.0%, or $29 thousand. From 1996 to 1997, service charges on deposit
accounts increased $72 thousand, or 5.3%.
In 1998, market opportunities and calls of investment securities allowed the
Company to realize net investment securities gains of $716 thousand. In 1998 the
Company recorded net loans sold gains of $236 thousand which represented an
increase of $131 thousand over 1997. From 1996 to 1997 net loans sold gains
decreased $54 thousand.
42
<PAGE>
Other Expenses. The following table shows the components of other expenses for
1998, 1997, and 1996.
(In Thousands)
1998 1997 1996
Salaries and employee benefits........................ $11,394 $10,453 $10,017
Premises and equipment expenses....................... 3,714 3,095 2,672
Advertising........................................... 825 524 472
Professional fees..................................... 308 386 268
Deposit insurance expense............................. 95 26 867
Printing and office supplies.......................... 697 609 561
Amortization of goodwill and core deposit intangibles. 631 459 375
Other expenses........................................ 3,419 3,037 2,907
------- ------- -------
Total other expenses............................. $21,083 $18,589 $18,139
======= ======= =======
Other expenses are noninterest operating expenses of the Company. Total other
expenses increased $2.494 million, or 13.4%, from 1997 to 1998, and $450
thousand, or 2.5%, from 1996 to 1997.
Salaries and employee benefits increased 9.0%, or $941 thousand, from 1997 to
1998, and 4.4%, or $436 thousand, from 1996 to 1997. The 1998 increase was
primarily due to the addition of staff in the acquisition of the Anderson and
Zionsville branches by American National in September,1998. The 4.4 % increase
from 1996 to 1997 was principally due to the addition of staff due to the
acquisition of the Parker branch in April, 1997 and expansion into the
Indianapolis market by ANTIM.
Premises and equipment expenses increased $619 thousand from 1997 to 1998 and
$423 thousand from 1996 to 1997. Primarily, these increases reflect the
Company's commitment to technology with the mid-year 1997 purchase of a
corporate in-house core data processing system for the banking affiliates as
well as the fourth quarter 1997 upgrade of ANTIM's core accounting software.
Due to the Company's increased emphasis on marketing programs, as well as the
Company's expansion into the Anderson and Zionsville markets, advertising costs
increased $301 thousand from 1997 to 1998. The 1998 increase followed a modest
increase from 1996 to 1997 of $52 thousand.
Following an increase of $118 thousand from 1996 to 1997, professional fees
declined $78 thousand from 1997 to 1998. The 1996 to 1997 increase was primarily
attributable to costs associated with the acquisition of the Parker branch by
Peoples and a minority interest in Indiana Trust Company by ANTIM.
Deposit insurance premiums increased $69 thousand from 1997 to 1998 following a
1996 to 1997 decrease of $841 thousand. In 1996, the Federal Deposit Insurance
Corporation lowered the rate assessed on deposits insured by the Bank Insurance
Fund resulting in a reduction in federal deposit insurance expense.
43
<PAGE>
Printing and office supplies increased 14.4%, or $88 thousand, from 1997 to 1998
and 8.6%, or $48 thousand, from 1996 to 1997. The increases were essentially due
to general cost increases as well as the acquisition of forms and supplies for
new offices.
Amortization of goodwill and core deposit intangibles increased $172 thousand,
or 37.5% from 1997 to 1998 and $84 thousand, or 22.4%, from 1996 to 1997. The
increase in amortization of goodwill and core deposit intangibles is
attributable to the acquisition of the Anderson and Zionsville branches in 1998,
the Parker branch in 1997, and the minority interest in Indiana Trust in 1997.
Other expenses increased $382 thousand, or 12.6% from 1997 to 1998. The 1998
increase includes increased fees for various services utilized by the Company.
From 1996 to 1997 the Company recorded a moderate increase in other expenses of
$130 thousand, or 4.5%.
Income Taxes. Income tax expense for 1998, 1997, and 1996 was $3.859 million,
$3.548 million, and $2.794 million, respectively. The Company invests in
tax-exempt municipal securities as its principal strategy to reduce federal
income taxes. The Company also receives state tax credits for a portion of
interest earned on qualified loans made to urban enterprise zone businesses and
residents. The law provisions for the enterprise zone state tax credit expired
in 1998 for the Company's lead bank and will not be available for years 1999 and
beyond.
The effective tax rates for 1998, 1997, and 1996 were 33.2%, 33.6% and 31.8%,
respectively. The increase in income tax expense is generally due to increases
in income upon which applicable federal and state income taxes are calculated.
BALANCE SHEET ANALYSIS Average Balances and Interest. The Company's balance
sheet growth in 1998, driven primarily by continuing strong loan demand, spiked
sharply in September when the lead bank closed the transaction for the purchase
of six bank branch offices that held approximately $90 million in deposits.
Average total assets for 1998 of $554.782 million represented a significant
$57.284 million, or 11.5%, gain over the total of $497.498 million for 1997,
which by comparison was $24.909 million, or 5.3%, above the average total assets
of $472.589 million for 1996.
Well-designed strategic objectives, coupled with a cooperative economic climate,
once again produced solid growth in the Company's loan portfolio. Average total
loans of $425.379 million for 1998 exceeded by $35.201 million, or 9.0%, the
1997 average of $390.178 million. 1997 also was a very strong growth year, as
average total loans increased $28.979 million, or 8.0%, over the prior year
average of $361.199 million.
44
<PAGE>
The Company's portfolio of investment securities and overnight investments grew
dramatically in September with the cash acquired in the transaction that added
the six bank branch offices. The new funds revitalized a liquidity position that
had been allowed to decline in anticipation of the transaction closing. They
were placed primarily in short term investments, as management had plans to use
the funds for liability restructuring, and to support strategies expected to
further the expansion of the Company's loan portfolio. Relatedly, the total
investment portfolio, including overnight investments, average balance for 1998
of $88.873 million represented a substantial $15.921 million, or 21.8%, increase
over the 1997 total of $72.952 million. In 1997, investment portfolio funds were
redeployed to take advantage of more profitable lending opportunities, and the
total portfolio average balance fell $6.590 million, or 8.3%, from the 1996
total of $79.542 million. This multipurpose portfolio serves as a ready source
of liquidity, can be restructured to mitigate interest rate risk in other areas
of the balance sheet, and provides further diversification of the Company's
total portfolio of earning assets.
Although the purchase of the six bank branch offices was instrumental in the
11.0% growth of average earning assets to $514.252 million for 1998, the premium
paid on the acquired deposits caused a negative effect on the ratio of average
earning assets to average total assets. As a result, this key ratio decreased
slightly in 1998 to 92.7%, compared to 93.1% and 93.3% for 1997 and 1996,
respectively. Average earning assets of $463.130 million for 1997 represented a
$22.389 million, or 5.1%, increase over the 1996 average.
Average total deposits for 1998 of $441.871 million were up $32.055 million, or
7.8%, above the prior year. Approximately $25 million of the increase in the
average resulted from the purchased deposits. In 1997, average total deposits
for the year of $409.816 million represented a $9.139 million, or 2.3%, increase
over 1996.
As strong loan demand carried over into 1998, the Company encountered an
increasing need to fund loan production through wholesale funding sources and
decided to increase its use of FHLB credit products. This strategy allowed the
Company to continue to meet the home financing needs of the communities it
serves, grow its residential mortgage loan portfolio, and add longer term
liabilities to mitigate interest rate risk in the balance sheet. The new
residential mortgages also qualify as eligible collateral for additional
borrowings from the FHLB. This substantial borrowing activity in 1998 resulted
in average FHLB borrowings increasing by $24.803 million, or 131.8%, over the
1997 average to $43.623 million. In 1997, FHLB borrowings averaged $18.820
million, which was $11.577 million, or 159.8%, higher than 1996. Due to a
declining need, average short term borrowings dropped in 1998 to $7.138 million,
compared to $11.277 million and $9.267 million for 1997 and 1996, respectively.
Strategies employed by the Company's management, together with continuing
favorable economic conditions in recent years, have resulted in consistent and
respectable net interest income growth. Net interest income on a tax equivalent
basis for 1998 reached $25.281 million, compared to $23.798 million for 1997 and
$22.347 million for 1996. The results for the most recent two years reflect
increases of $1.483 million, or 6.2%, and $1.451 million, or 6.5%, for 1998 and
1997, respectively.
A summary of average earning assets and interest-bearing liabilities is set
forth below, together with the interest earned (on a tax-equivalent basis) and
paid on each major type of earning asset and interest-bearing liability account.
The average yield of the earning assets and the average rate paid on the
interest-bearing liabilities is also summarized.
45
<PAGE>
(In Thousands Except for Ratios)
<TABLE>
<CAPTION>
1998 1997 1996
INTEREST INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE (%) BALANCE EXPENSE RATE (%) BALANCE EXPENSE RATE (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold.................. $ 6,136 $ 331 5.39% $ 1,559 $ 87 5.58% $ 4,992 $ 271 5.43%
Interest-bearing deposits........... 5,477 298 5.44% 255 10 3.92% 163 8 4.91%
Investment securities
Taxable.......................... 35,576 2,215 6.23% 29,788 1,896 6.36% 32,606 2,048 6.28%
Tax-exempt....................... 41,684 3,780 9.07% 41,350 3,851 9.31% 41,781 3,947 9.45%
-------- ------- -------- ------- -------- -------
Total investment securities..... 77,260 5,995 7.76% 71,138 5,747 8.08% 74,387 5,995 8.06%
Loans*
Commercial....................... 101,172 9,947 9.83% 89,681 8,879 9.90% 86,217 8,429 9.78%
Term federal funds............... 5,726 311 5.43% 3,475 191 5.50% 5,528 295 5.34%
Real estate mortgage............. 274,287 23,327 8.50% 253,954 22,011 8.67% 228,381 19,843 8.69%
Loans to individuals............. 40,510 3,797 9.37% 41,027 3,905 9.52% 39,123 3,743 9.57%
Tax exempt....................... 3,684 340 9.23% 2,041 183 8.97% 1,950 159 8.15%
-------- ------- -------- ------- -------- -------
Total loans..................... 425,379 37,722 8.87% 390,178 35,169 9.01% 361,199 32,469 8.99%
-------- ------- -------- ------- -------- -------
Total earning assets.......... 514,252 44,346 8.62% 463,130 41,013 8.86% 440,741 38,743 8.79%
------- ------- -------
Allowance for loan losses........... (3,575) (3,295) (2,882)
Cash and due from banks............. 17,424 16,250 14,900
Premises and equipment.............. 12,319 10,543 9,475
Other assets........................ 14,362 10,870 10,355
-------- -------- --------
Total assets..................... $554,782 44,346 $497,498 41,013 $472,589 38,743
======== ------- ======== ------- ======== -------
LIABILITIES
Interest-bearing deposits
NOW accounts..................... $77,878 1,611 2.07%$ 74,511 1,847 2.48% $71,954 1,802 2.50%
Money market investment accounts. 54,401 1,815 3.34% 40,304 1,278 3.17% 40,383 1,253 3.10%
Savings deposits................. 27,013 614 2.27% 26,592 667 2.51% 28,174 705 2.50%
Certificates of deposit.......... 231,920 12,081 5.21% 219,853 11,689 5.32% 217,350 11,724 5.39%
-------- ------- -------- ------- -------- -------
Total interest-bearing deposits.. 391,212 16,121 4.12% 361,260 15,481 4.29% 357,861 15,484 4.33%
Short-term borrowings............... 7,138 364 5.10% 11,277 625 5.54% 9,267 481 5.19%
FHLB advances....................... 43,623 2,580 5.91% 18,820 1,109 5.89% 7,243 431 5.95%
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities 441,973 19,065 4.31% 391,357 17,215 4.40% 374,371 16,396 4.38%
Non-interest bearing demand deposits 50,659 48,556 42,816
Other liabilities................... 4,637 5,050 6,535
-------- -------- --------
Total liabilities............. 497,269 444,963 423,722
STOCKHOLDERS' EQUITY................... 57,513 52,535 48,867
-------- ------- -------- ------- -------- -------
Total liabilities and
stockholders' equity....... $554,782 19,065 3.71** $497,498 17,215 3.72 ** $472,589 16,396 3.72 **
======== ------- ======== ------- ======== -------
Net interest income........... $25,281 4.91% $23,798 5.14% $22,347 5.07%
======= ======= =======
Adjustment to convert tax-exempt
investment securities and loans to
fully taxable equivalent basis,
using marginal rate of 34% after
adjustment for effect of
non-deductible interest expense
attributed to such assets $ 1,328 $ 1,294 $ 1,319
======= ======= =======
</TABLE>
* Loans held for sale are included with loans. Nonaccruing loans have been
included in the average balances.
** Total interest expense divided by total earning assets
46
<PAGE>
Assets. The Company's total assets grew dramatically in 1998, primarily a result
of the purchase of six bank branch offices, and totaled $615.940 million at year
end. This new record level represented $90.450 million, or 17.2%, growth over
the December 31, 1997, total assets balance of $525.490 million. In 1997, total
assets rose to a Company high at that time, finishing the year $31.643 million,
or 6.4%, higher than the December 31, 1996, total of $493.847 million.
The investment securities portfolio of $76.482 million at December 31, 1998, was
considerably higher than the balance a year earlier of $69.072 million. The
change was primarily a result of the influx of cash from the purchased branches,
most of which was invested in short term instruments and then used to fund loans
and liability restructuring. Approximately $6 million of longer term municipal
securities were sold late in the year in anticipation of additional cash being
needed to fund the significant volume in both the mortgage loan and commercial
loan pipelines.
Investment securities classified as available-for-sale are reported at fair
value, with unrealized gains and losses excluded from earnings, but reported in
a separate component of stockholders' equity. As a result of a prior management
decision to maintain greater liquidity and flexibility within the portfolio, all
investment securities held at year ends 1998, 1997, and 1996 had been classified
as available for sale.
The product mix of the portfolio also changed materially during 1998, as the
Company increased its position in Federal agency notes from $8.253 million to
$25.073 million. The additions were mostly callable notes that offered an
initial return significantly higher than fixed maturity alternatives.
The total of $69.072 million in investment securities at December 31, 1997, was
down $4.872 million from the prior year end. The decline in the portfolio during
1997 was primarily a function of meeting loan growth opportunities with
strategies designed to enhance the return on the Company's earning assets.
The investment portfolio totals include unrealized gains net of unrealized
losses totaling $1.329 million and $2.302 million at December 31, 1998 and 1997,
respectively. As market conditions result in the recording of adjustments to the
carrying value of investment securities classified as available-for-sale,
corresponding entries, reduced by related income taxes, may increase or decrease
stockholders' equity.
Securities with a carrying value of $11.269 million, or 14.7% of the total
investment portfolio at December 31, 1998, were scheduled to mature within one
year. The following table shows the mix of the investment securities portfolio
for each of the last three years at December 31, and the maturity distribution
at year end 1998:
47
<PAGE>
(In Thousands Except for Ratios)
<TABLE>
<CAPTION>
1998 1997 1996
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury...................... $ 5,491 7.3% $14,880 21.6% $17,838 24.1%
Federal agencies................... 25,098 32.8% 8,248 11.9% 7,972 10.8%
State and municipal................ 35,428 46.3% 45,031 65.2% 44,166 59.7%
Mortgage-backed securities......... 9,968 13.0% 3,078 4.2%
Marketable equity securities....... 397 0.5% 813 1.2% 690 0.9%
Corporate obligations.............. 100 0.1% 100 0.1% 200 0.3%
------- ------ ------- ------ ------- ------
$76,482 100.0% $69,072 100.0% $73,944 100.0%
======= ====== ======= ====== ======= ======
</TABLE>
State and municipal securities decreased $9.603 million, or 21.3%, from 1997 to
1998 due to sales and calls of state and municipal securities.
<TABLE>
<CAPTION>
WITHIN OVER
1 YEAR 1-5 YEARS 5-10 YEARS 10 YEARS TOTAL
<S> <C> <C> <C> <C> <C>
U.S. Treasury.................. $ 1,360 $ 4,131 $ 5,491
Federal agencies............... 4,971 10,078 $10,049 25,098
State and municipal............ 4,441 4,596 12,650 $13,741 35,428
Mortgage-backed securities..... 1,021 907 8,040 9,968
Marketable equity securities... 397 397
Corporate obligations.......... 100 100
------- ------- ------- ------- -------
$11,269 $19,826 $23,606 $21,781 $76,482
======= ======= ======= ======= =======
Distribution Percent........... 14.7% 25.9% 30.9% 28.5% 100.0%
</TABLE>
Loans. The Company continued to rely primarily on loan portfolio growth to drive
earnings growth, with positive results being achieved throughout 1998. The
principal ingredients for another successful year of portfolio management were
effective marketing strategies, strong relationship development, and an economic
climate that presented the necessary opportunities for significant new lending
activity. The Company's efforts in 1998 produced a substantial $61.336 million,
or 15.0%, increase in portfolio size from $408.771 million at prior year end to
$470.107 million at December 31, 1998. By comparison, in 1997 the loan portfolio
growth was $32.690 million, or 8.7%, over the 1996 year end portfolio of
$376.081 million.
The portfolio growth for 1998 was concentrated mostly in real estate loans
originated for both residential and commercial properties, as borrowers took
advantage of relatively low long term interest rates, resulting in significant
refinancing activity, with some migration from adjustable rate products. Using
cash available from the purchase of the six bank branch offices, the Company was
able to selectively grow that portion of the portfolio, while continuing to sell
loans to Federal Home Loan Mortgage Corporation. The Company views growth of its
loan servicing portfolio as a strategy essential to expanding its customer base,
in addition to producing a rising fee income annuity.
In 1998 the Company grew real estate loans by $40.816 million, or 15.5%, to
$303.527 million from $262.711 million at December 31, 1997. Real estate loans
represented 64.6% and 64.3% of the total loan portfolio at December 31, 1998 and
1997, respectively. The Company's aggressive secondary market operations in 1998
produced a $9.251 million, or 15.9%, increase in mortgage loans serviced for
others from $58.265 million on December 31, 1997, to $67.516 at year end 1998.
48
<PAGE>
In 1998, commercial loan growth slowed from the prior year, being impacted by
early repayments and financing opportunities in the commercial mortgage area.
Improving cash flow for many customers resulted in lower line of credit usage,
and several major commercial loan relationships were paid as local businesses
were sold. In spite of these impediments, the Company was still able to realize
a $6.312 million, or 6.4%, increase in balances to $105.690 million, compared to
$99.378 million at December 31, 1997.
1998 followed an extremely successful growth year in 1997, during which the
Company was able to generate a significant $18.236 million, or 22.5%, increase
over the December 31, 1996, total of $81.142 million in commercial loan
balances.
The Company was also rewarded in 1998 for its considerable effort in
implementing growth strategies for the consumer loan component of the portfolio,
as total balances reached $45.720 million at December 31, 1998, a $6.066
million, or 15.3%, gain over the prior year end total of $39.654 million.
Other Assets. Emphasis on continuing to add new technology to better serve the
Company's existing customers and gain new ones, and the purchase of the six bank
branch offices were the chief factors responsible for the net book value of
premises and equipment increasing by $665 thousand to $12.329 million at
December 31, 1998. In 1997, the Company's revamping of its technology systems,
including the installation of a new core processing system and a computer
network linking all offices, resulted in significant investment costs that were
the primary factor in a $2.319 million rise in the carrying value of premises
and equipment for the year.
The $332 thousand and $1.986 million increases in 1998 and 1997, respectively,
for total Federal Reserve and FHLB stock were due to additional investments
required to support a higher credit line at the FHLB.
The balance of core deposit intangibles and goodwill was $6.913 million higher
at December 31, 1998, than a year earlier as a result of the purchase of the
bank branches.
Deposits. Through early 1998 the loan portfolio growth had been fueled primarily
by borrowings from the FHLB, and the Company's lead bank began to approach its
credit limit with that facility when the opportunity surfaced to bid on six bank
offices with approximately $90 million in deposits. Being the successful bidder
not only provided the funds to increase the pace of loan portfolio growth in
1998, but also shored up a weakened liquidity position, created an immediate
significant presence in two new markets for further business development, and
broadened the customer base to spread the rising costs for the new technology so
critical to carrying the Company into the new millennium.
In 1998, competition for deposits among financial institutions heated up and
certificate of deposit "specials" became more widely used and more aggressively
priced. The continuing climb of the stock market and attractive returns on
alternative investments available through non-bank competitors also created a
difficult environment for internally generated deposit account growth. The
Company's continuing efforts to manage the marginal cost of new retail deposits
further increased the difficulty in achieving meaningful growth in total deposit
account balances.
The deposits acquired in 1998, coupled with moderate internal growth, resulted
in total deposits at December 31, 1998, of $508.434 million, an increase of
$97.172 million, or 23.6%, more than the prior year end. By comparison, total
deposits of $411.262 million at December 31, 1997, represented a slight gain for
the year of $5.417 million, or 1.3%.
Due to a relatively low interest rate environment and a very flat yield curve
that offered minimal incentive for customers to lock in long term rates, funds
continued to migrate to daily money market deposit accounts and short term
certificates of deposit. As of December 31, 1998, 43.0% of interest-bearing
deposits were in daily accounts, compared to only 39.9% at December 31, 1997.
Additionally, 80.1% of all certificate of deposit balances at December 31, 1998,
were scheduled to mature within one year. By comparison, a year earlier 78.5% of
all certificate balances were scheduled to mature within twelve months.
49
<PAGE>
This shift in the retail deposit mix to more liquid instruments creates
significant challenges for management from both an interest rate risk and
customer retention perspective. The Asset/Liability Management committees of the
Company's banks meet on a regular basis, with special meetings called as needed,
to deal with these issues and fine tune strategies designed to meet earnings
objectives.
Borrowed Funds. As stated earlier, the Company relied heavily on FHLB borrowings
in 1997 and through early 1998 to fund the considerable growth of the loan
portfolio. There was a significant paydown of these borrowings in the last
quarter of 1998. Using the cash from the retail deposits acquired with the
purchase of the bank branches, the Company reduced total borrowings from the
FHLB to $36.145 million at December 31, 1998, $3.470 million less than a year
earlier. By contrast, the December 31, 1997, total of $39.615 million was
$25.615 million higher than the prior year end.
At times the Company will fund large long term loans with FHLB borrowings to
lock in a spread and minimize interest rate risk in the balance sheet. These and
other interest rate risk management strategies have resulted in $19.530 million,
or 54.0%, of the dollar amount of FHLB advances on the books at year end 1998
having scheduled maturity dates beyond one year.
The availability of FHLB borrowings as an alternative funding source to new
deposits also allows the Company's management to price deposits with reasonable
consideration given to controlling the marginal cost of growth.
Federal funds, repurchase agreements, and U.S. Treasury tax notes are all
borrowing instruments used to meet the short-term cash needs of the Company.
These short-term borrowings totaled $5.807 million at December 31, 1998, down
$7.528 million, or 56.5%, from a year earlier. This substantial change was also
primarily a result of the availability of funds from the purchased bank
branches.
Total borrowed funds were reduced substantially in the last quarter of 1998 to
$41.952 million at December 31, 1998, down $10.998 million, or 20.8% lower than
a year earlier.
Liquidity, Interest Rate Sensitivity, and Market Risk. The principal objective
of liquidity management is to insure the availability of sufficient funds to
meet borrowers' credit requirements and depositor withdrawal needs on a
continual basis, while maintaining a responsive program of investing excess
funds until the need arises for their use. Funds management committees are
responsible for monitoring the liquidity position on a monthly basis at each
affiliate. Outside sources for temporary primary liquidity, which include the
federal funds market and the Federal Reserve discount window, are available
should such a situation develop.
During 1998 and 1997, funds principally provided through net income, advances
from the Federal Home Loan Bank and a reduction in the Company's average daily
federal funds sold position were used by the Company to take advantage of loan
demand. In addition, in September 1998, deposits acquired in the acquisition of
the branches by American National provided additional funds to meet loan demand.
Interest rate sensitive assets and liabilities are monitored monthly by the
Asset/Liability Management committees. A rate sensitive asset is any asset that
can be repriced upward or downward within a specific time frame, and likewise, a
rate sensitive liability is any liability that can be repriced upward or
downward within the identical time frame. Measuring interest rate sensitivity is
an important fundamental to develop so that proper management of interest
margins can be achieved, thereby avoiding wide variances in net interest income
and net income. A positive or negative gap results from the measurement of rate
sensitivity, and this gap can be expressed as a percentage of total assets. The
lower the negative or positive gap, the less likely a severe earnings swing will
occur during periods of rapidly changing interest rates.
On December 31, 1998, the Company had $242.402 million in rate-sensitive assets
and $326.118 million in rate-sensitive liabilities which matured or could be
repriced within one year. For this one year time frame, the Company had a
negative rate sensitivity gap. A negative rate sensitivity gap is beneficial to
the Company's net interest income during a time when interest rates are falling,
and could adversely impact the Company's net interest income during a period in
which interest rates are rising. The Company's current negative gap for the one
year time frame expressed as a percentage of total assets is 13.6%.
The following table shows the gap position of the Company at December 31, 1998.
50
<PAGE>
(In Thousands Except for Ratios)
<TABLE>
<CAPTION>
0-3 3-6 TOTAL 6 6-12 TOTAL 12 OVER 12 CURRENT
MONTHS MONTHS MONTHS MONTHS MONTHS MONTHS BALANCE
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold................. $ 4,000 $ 4,000 $ 4,000 $ 4,000
Interest-bearing deposits in banks. 3,003 3,003 3,003 3,003
Securities available for sale
Taxable........................ 5,233 $988 6,221 $607 6,828 $34,226 41,054
Tax-exempt..................... 3,840 3,840 601 4,441 30,987 35,428
Mortgage loans held for sale....... 311 311 311 311
Loans.............................. 100,513 52,042 152,555 66,619 219,174 250,933 470,107
Federal Reserve and Federal Home
Loan Bank stock................... 4,645 4,645 4,645 386 5,031
-------- ------- -------- ------- -------- -------- --------
Totals.................... 121,545 53,030 174,575 67,827 242,402 316,532 558,934
-------- ------- -------- ------- -------- -------- --------
INTEREST-BEARING LIABILITIES
Deposits
NOW accounts................... 9,363 8,341 17,704 14,048 31,752 54,064 85,816
Money market accounts.......... 24,995 16,918 41,913 19,201 61,114 16,245 77,359
Regular savings................ 1,293 1,234 2,527 2,305 4,832 23,591 28,423
Certificates of deposit........ 124,667 38,627 163,294 42,704 205,998 47,776 253,774
Short-term borrowings.............. 5,807 5,807 5,807 5,807
Federal Home Loan Bank advances.... 3,500 1,000 4,500 12,115 16,615 19,530 36,145
-------- ------- -------- ------- -------- -------- --------
Totals.................... 169,625 66,120 235,745 90,373 326,118 161,206 487,324
-------- ------- -------- ------- -------- -------- --------
Rate sensitivity gap positive
(negative)............................. $(48,080) $(13,090) $(61,170) $(22,546) $(83,716)
======== ======= ======== ======= ========
Rate sensitivity gap as a percent of
total assets........................... (7.8%) (2.1%) (9.9%) (3.7%) (13.6%)
Percent of earning assets to
interest-bearing liabilities........... 71.7% 74.1% 74.3%
</TABLE>
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 analysis
and rate shock analysis for estimating the impact on interest margin in the
event of market interest rate changes. The timing mismatch between the
re-pricing of assets and liabilities is at the core of interest rate risk. If
re-pricing 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 off of 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.
51
<PAGE>
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
$188 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 committee; therefore, this analysis should not be relied upon as
indicative of expected operating results.
Capital. A strong capital position continues to be a primary goal of the
Company. Accordingly, capital positions are monitored on an ongoing basis to
ensure that the Company maintains adequate capital and that its affiliate banks
maintain ratios in excess of those considered by regulatory authorities to be
"well capitalized." Bank regulators have adopted regulations that define five
capital levels: well capitalized, adequately capitalized, undercapitalized,
severely undercapitalized, and critically undercapitalized.
Bank regulators have also adopted "risk adjusted" capital ratios for banks and
bank holding companies. These risk based guidelines require the assignment of
risk weightings to all assets and certain off-balance sheet items. Banks are
required to have a total risk-based capital ratio of 10% or greater to be
considered "well capitalized." At December 31, 1998, Peoples was well
capitalized with a total risk-based capital ratio of 10.9%; American National's
ratio was 9.4%, which was in excess of an adequate capital ratio of 8.0% and
less than the well capitalized ratio of 10.0%. The Company's total risk-based
capital ratio at December 31, 1998, was 12.3%.
Branch expansion by the Company's lead bank will require additional capital be
injected at the bank level to support new loan growth which is anticipated to
occur. To facilitate the additional capital needs, the Company plans to
reallocate capital among its affiliates thus achieving a more efficient and
effective use of capital. In addition, the Company is considering other outside
sources of funds available to satisfy its capital needs.
For the three years ended December 31, 1998, the Company recorded net income
totaling $20.788 million. Total stockholders' equity has grown from $49.471
million on January 1, 1996, to $60.596 million at year end 1998, an increase of
$11.125 million or 22.5% for the three-year period. Shareholders have received a
total of $8.641 million in cash dividends, which represents a dividend payout of
net income equal to 41.6% during this three-year period. In August of 1998, the
Company's Board of Directors approved increasing the quarterly dividend from
$0.17 to $0.19 a share effective with the third quarter of 1998. This 11.8%
increase in the quarterly dividend rate marked the nineteenth consecutive year
dividends have grown at a rate of 10.8% or more. The average increase in total
dividends paid per share during the last fifteen years has been 16.2%.
For 1998 the $4.363 million increase in stockholders' equity was the result of
net income of $7.775 million, a net addition of $406 thousand from activity
related to stock options, and a net addition of $465 thousand relating to
shareholder transactions in the Company's Dividend Reinvestment and Stock
Purchase Plan; less decreases of $588 thousand related to market value
accounting for investments classified as available for sale, $413 thousand stock
repurchases under the Company's repurchase program, and $3.282 million for cash
dividends.
The following table shows various capital and performance ratios for the last
three years:
52
<PAGE>
1998 1997 1996
Capital ratios
Total capital to risk-weighted assets.............. 12.3% 14.3% 14.4%
Tier I capital to risk-weighted assets............. 11.4% 13.3% 13.4%
Tier I capital to average assets (leverage ratio).. 7.9% 9.8% 9.5%
Dividend payout ratio................................... 43.1% 42.1% 42.0%
Increases in annual dividends paid...................... 12.5% 16.4% 19.6%
Total return to investors*.............................. (6.1)% 34.6% 30.9%
Market value as a % of book value.......................180.0% 210.6% 175.0%
Price/earnings multiple at year end..................... 14.3% 17.2% 15.3%
*Market value change with dividends reinvested
Year 2000. A significant issue in the banking industry and for the economy
overall relates to the year 2000. The Year 2000 ("Y2K") issue is the result of
computer programs being written using two digits rather than four digits to
define the applicable year. In 1997 the Company and each of its affiliates
formed Year 2000 committees to address Y2K issues. These committees included key
members of the operations and technology staff, representatives of functional
business units, and senior management. A plan was created and is regularly
evaluated by senior management and the respective affiliate Boards of Directors.
An inventory of all software and hardware used throughout the company was
completed, and letters were sent to all parties to track the Y2K status of
vendors providing services and equipment. The Company continues to monitor
progress of these parties and any new parties with which the Company does
business. Of the systems and applications used, a determination was made to
identify those that were "mission-critical" to the operations of the Company.
In 1997 the Company upgraded the core data processing system used by the banking
affiliates and also several other peripheral systems. In addition, ANTIM
upgraded its core accounting system. These upgrades placed the Company on the
cutting edge of technology along with the added benefit of the Year 2000
readiness that was provided by the new systems. Since the Company relies
predominately on third-party vendors for its systems, there has been no internal
software to have rewritten.
The total cost to the Company for the Year 2000 project is estimated to be
between $125 thousand and $200 thousand. Approximately $70 thousand of the total
cost relates to equipment acquisition which is depreciable under the Company's
premises and equipment policy. In 1999, additional funds have been provided in
the Company's operating budget to address Y2K issues. A substantial amount of
the costs incurred under Y2K is an acceleration of costs that would have been
incurred in the normal course of business. The total cost of Y2K readiness has
not been, and is not anticipated to be, material to the financial position,
results of operations, or cash flow of the Company.
The Company has spent considerable time testing its core processing systems for
Year 2000 compliance and is pleased to report that no Y2K deficiencies have been
found. All other "mission-critical" systems have been tested or are currently in
the testing process. To date, we have found no cause for concern with any of
these systems. Other "non-mission-critical" software and hardware is being
tested to assure that no major problems arise as we approach the new millennium.
All testing is substantially complete and will be finished by June 30, 1999.
One critical area each banking affiliate has addressed is the potential risk
associated with borrowers who have not addressed their own Year 2000 status.
Each bank has determined a risk-based assessment of its customers, and key
customers have been contacted. Those customers with some substantial risk are
being handled on a case by case basis.
Realizing that even our best efforts could still result in some minor
disruptions, the Company is in the process of developing a contingency plan for
all critical systems in the event that one of these should fail. This plan is
being written and will be completed by June 30, 1999.
53
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
Reporting Comprehensive Income. The Financial Accounting Standards Board
("FASB") issued Statement No. 130, "Reporting Comprehensive Income" establishing
standards for the reporting of comprehensive income and its components in
financial statements. Enterprises that have no items of other comprehensive
income in any period presented are excluded from the scope of this Statement.
Statement No. 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. It does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
Upon implementing this new statement, an enterprise will classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
Statement No. 130 is effective for interim and annual periods beginning after
December 15, 1997. Earlier application is permitted. The Company adopted
Statement No. 130 for 1998.
Disclosures about Segments of an Enterprise and Related Information. Statement
No. 131 established standards for the way that public business enterprises
report selected information about operating segments in financial reports issued
to shareholders. It also established standards for related disclosures about
products and services, geographic areas, and major customers.
Statement No. 131 defines operating segments as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operation decision-maker in deciding how to allocate
resources and in assessing performance.
Statement No. 131 is effective for financial statements for periods beginning
after December 15, 1997. The Company reported segment information beginning in
1998.
Accounting for Derivative Instruments and Hedging Activities. Statement No. 133
requires companies to record derivatives on the balance sheet at their fair
value. Statement No. 133 also acknowledges that the method of recording a gain
or loss depends on the use of the derivative. If certain conditions are met, a
derivative may be specifically designed as (a) a hedge of the exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The new Statement applies to all entities. If hedge accounting is
elected by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge.
Statement No. 133 amends Statement No. 52 and supersedes Statement Nos. 80, 105,
and 119. Statement No. 107 is amended to include the disclosure provision about
the concentrations of credit risk from Statement No. 105. Several Emerging
Issues Task Force consensuses are also changed or nullified by the provisions of
Statement No. 133.
Statement No. 133 will be effective for all fiscal years beginning after June
15, 1999.
54
<PAGE>
Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise. Statement No. 134
establishes accounting standards for certain activities of mortgage banking
enterprises and for other enterprises with similar mortgage operations. This
Statement amends Statement No. 65.
Statement No. 65, as previously amended by Statement Nos. 115 and 125, required
a mortgage banking enterprise to classify a mortgage-backed-security as a
trading security following the securitization of the mortgage loan held for
sale. This Statement further amends Statement No. 65 to require that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities must classify the resulting mortgage-backed security or other
retained interests based on the entity's ability and intent to sell or hold
those investments.
The determination of the appropriate classification for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise now
conforms to Statement No. 115. The only requirement the new Statement No. 134
adds is that if an entity has a sales commitment in place, the security must be
classified into trading.
This Statement is effective for the first fiscal quarter beginning after
December 15, 1998. On the date this Statement is initially applied, an entity
may reclassify mortgage-backed securities and other beneficial interest retained
after the securitization of mortgage loans held for sale from the trading
category, except for those with sales commitments in place. Those securities and
other interest shall be classified based on the entity's present ability and
intent to hold the investments.
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use. The Accounting Standards Executive Committee ("AcSEC") has issued Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". This SOP standardizes the accounting treatment of
internal use computer software.
For the purposes of this SOP, internal-use software is software that is
acquired, internally developed, or modified solely to meet the entity's internal
needs with no plan to market the software externally.
This SOP applies to all nongovernmental entities and is effective for financial
statements for fiscal years beginning after December 15, 1998. The SOP's
provisions should be applied to computer software costs incurred in those fiscal
years for all projects, including those projects in progress upon initial
application of this SOP. Earlier application is encouraged in fiscal years for
which annual financial statements have not been issued.
55
<PAGE>
ANB Corporation
Directors and Officers
Directors
Kelly N. Stanley
Chairman,
President & Chief Executive Officer
Ontario Corporation
James R. Schrecongost
Vice Chairman, President &
Chief Executive Officer
ANB Corporation
Ben E. Delk
President
Standt's Fine Jewelry
Madelyn K. Ferris
Senior Vice President
Paws Incorporated
R. David Hoover
Vice Chairman,
Chief Financial Officer &
Director
Ball Corporation
William L. Peterson
Chairman
Alltrista Corporation
Donald A. Ross
President
A.L. Ross & Sons, Inc.
Chris L. Talley
President & Chief Executive Officer
Peoples Loan & Trust Bank
Leon V. Towne
Management Advisor and Consultant
Honorary Director
Edmund F. Ball
Officers
Kelly N. Stanley Jill A. Jordan
Chairman Assistant Vice President,
Operations Manager
James R. Schrecongost
Vice Chairman, President & Cynthia L. Sollars, CPA
Chief Executive Officer Assistant Treasurer
Larry E. Thomas Suanne B. Collins
Treasurer & Chief Director of Corporate
Financial Officer Sales & Service Training
James W. Convy Teddy R. Girton
Corporate Secretary Director of Corporate
Vice President, Human Resources Loan Review
Joseph M. Davis Bettie J. Hensley
Vice President, Personnel Officer
Data Processing Manager
Thomas L. Kovach
Gary D. Demaree Corporate Marketing Manager
Vice President &
Corporate Director of Marketing Debra A. Clayborn
Assistant Auditor
Roger S. Miller
Vice President, Corporate Patricia A. Shoemaker
Operations & Technology Assistant Cashier,
Data Processing Supervisor
Douglas J. Schuba, CBA
Senior Auditor David W. Spade
Assistant Secretary
Jason A. Conley
Assistant Vice President,
Technology Officer
David M. Ivey
Assistant Vice President,
Assistant Data Processing Manager
56
<PAGE>
American National Bank
Directors and Officers
Directors
Donald A. Ross
Chairman
President
A.L. Ross & Sons, Inc.
James R. Schrecongost
Vice Chairman & Chief
Executive Officer
Vice Chairman, President
Chief Executive Officer,
ANB Corporation
Ben E. Delk
President
Standt's Fine Jewelry
W H Fike
Managing Partner
Atlas Collections, Inc.
Jerome J. Gassen
President & Chief
Operating Officer
American National Bank
Charles N. Hetrick
President & Chief
Operating Officer
Maxon Corporation
Robert L. Hoogenboom
Retired
American National Bank
Charles E. Sanders, M.D.
Partner
Medical Consultants, P.C.
W. Alan Simmons
Partner
Simmons, Carroll, Summers,
Estep & Whisler CPA
Norman L. Tirey
Retired Vice Chairman
ANB Corporation
Honorary Directors
Edmund F. Ball
John L. Cullison, M.D.
J. Roberts Dailey
Margaret J. Edwards
John W. Fisher
John P. Isenbarger
William F. Radcliff
Charles W. Rothhaar
Martin D. Schwartz
Edgar H. Seward
James O. Timbrook
Director Wendell E. Covalt, M.D.
died in 1998. The Directors and
Officers of ANB Corporation and
American National Bank gratefully
acknowledge his many years of
counsel and service to the Company.
Officers
Donald A. Ross Serona S. Bartlett
Chairman Assistant Vice President,
Mortgage Loan Officer
James R. Schrecongost
Vice Chairman & Chief Brian T. Jackson
Executive Officer Assistant Vice President,
Mortgage Loan Officer
Jerome J. Gassen
President & Chief Sherry J. Hildreth
Operating Officer Manager of Customer
Service & Proof
David W. Spade
Senior Vice President, Deborah C. Robinson
Lending Marketing Manager
John J. Letter, CPA Jan M. Harris
Senior Vice President & Mortgage Loan Officer
Controller
Ginger L. Beam
Patricia A. Davis Mortgage Loan Officer
First Vice President &
Senior Mortgage Loan Officer Judy A. Schuck
Mortgage Loan Operations Officer
Thomas R. Miller
First Vice President, Merry Schwindt
Commercial Lending Mortgage Loan Closing Officer
Terri E. Rickel S. Trent Dowling
First Vice President, Consumer Loan Officer
Loan Administration
Denise L. Williams
James W. Convy Consumer Loan Officer
Vice President,
Human Resources & Secretary Mary J. Wingate
Assistant Cashier,
David George II Money Desk Manager
Vice President,
Consumer Lending
Richard A. Hancock
Vice President, Operations
Lou Anne Denny
Vice President,
Commercial Lending
Wade R. Phelps
Vice President,
Commercial Lending
Steven R. Thorn
Vice President,
Commercial Lending
Robert K. Weaver
Vice President,
Banking Center Sales &
Operations Manager
57
<PAGE>
Banking Center Officers
Anderson, Indiana Muncie, Indiana
JoAnn G. Kelly Tamra L. Brown
Manager, Anderson East Manager, Hoyt Avenue
Michele J. Roudebush Carol S. Dobbs
Manager, Anderson South Manager, Westminster Village
T. Scott Vermillion Shelley K. Evans
Manager, Anderson North Manager, McGalliard Road
Dana L. Wallace Jennifer S. Phillips
Manager, Edgewood Assistant Vice President
Manager, Jackson Street
Marion, Indiana Yvonne Edwards-Gregory
Manager, East Memorial
Larry A. Myers
President Barbara I. Metcalf-Bell
Assistant Vice President
Douglas E. Carl Manager, Broadway Avenue
Executive Vice President
Kathleen K. Brandon
Gregory S. Kitts Manager, Country Village
Vice President, Commercial Lending
Lorie A. Clevenger
Cecilia I. Bevans Manager, Morrison Road
Vice President, Banking
Center Administration Pauline Smith
Manager, Main Street
Susan K. Stephens
Vice President, Indirect Lending
Christopher M. Oliver
Assistant Vice President,
Indirect Lending
Judith K. Morrical
Mortgage Loan Officer
Portland, Indiana
Donald C. Gillespie
Assistant Vice President
Yorktown, Indiana
Stanton E. Schad
Assistant Vice President
Zionsville, Indiana
John C. Bogan
Manager
ANB Financial Planning Services
Directors and Officers
A Subsidiary of American National Bank
Directors & Officers
Jerome J. Gassen Michael T. Downham, CFP John J. Letter, CPA
Chairman Executive Vice President Secretary & Treasurer
58
<PAGE>
American National Trust & Investment Management Company
Directors and Officers
Directors
Robert E. Kersey, Chairman
President
American Lawn Mower Company
Frank E. Ball
Retired President
Minnetrista Corporation
John W. Fisher
Retired Chairman
Ball Corporation
C. Perry Griffith, Jr.
President
Denison, Inc.
James R. Schrecongost
Vice Chairman, President &
Chief Executive Officer
ANB Corporation
John C. Schuster
Chief Investment Officer
Indiana Trust & Investment
Management Company
Paul L. Sehnert, Jr.
President & Chief
Executive Officer
American National Trust
William L. Skinner
Senior Vice President
Alltrista Corporation
Honorary Director
Edmund F. Ball
Officers
Robert E. Kersey Jay McClellan
Chairman Assistant Vice President &
Trust Officer
Paul L. Sehnert
President & Chief Judith A. Polson
Executive Officer Assistant Vice President &
Trust Officer
David S. Gooden
Senior Vice President & Shirley J. Ertel
Senior Investment Officer Trust Officer
Theodore H. Jarvis Jeff C. Mantock
Senior Vice President & Investment Officer
Senior Trust Officer
Brian C. Merrill
Terri E. Matchett nvestment Officer
Vice President &
Senior Trust Officer Brenda K. Reveal
Tax Officer
Archie B. Spangler
Vice President &
Senior Trust Officer
Corporate Cashier/Secretary
J. Neal Barnham
Vice President &
Trust Officer
Edward V. Huffman
Vice President & Trust Officer
Tracy O. Osborne
Vice President & Trust Officer
Nancy L. Reed
Vice President & Trust Officer
Officers, Indiana Capital Management
Mark W. Cremonie
Executive Vice President
R. Michael Miner
Executive Vice President
William A. Tucker, Jr.
Senior Vice President & Trust Officer
Lawrence O. Moeller
Vice President & Trust Officer
John C. Silletto
Vice President & Investment Officer
James L. Griest
Business Development Officer
59
<PAGE>
Peoples Loan & Trust Bank
Directors and Officers
Directors & Officers
Gerald Stephen
Chairman
Richard G. Applegate
Retired President
R.G. Applegate Steel Company, Inc.
Kenneth D. Bane
Retired President & Chief
Executive Officer
Star Bank
Richard L. Golliher
Retired
The Saratoga State Bank
John B. Goodrich
President
J&P Plating, Inc.
Grace E. Losh
Retired
James R. Schrecongost
Vice Chairman, President &
Chief Executive Officer
ANB Corporation
Chris L. Talley
President & Chief
Executive Officer
Peoples Loan & Trust Bank
Carl A. Thompson
Retired Farmer
Honorary Director
John W. Thompson
Director Lowell W. Fields died
in July, 1998. The Directors
and Officers of ANB Corporation
and Peoples Loan & Trust Bank
gratefully acknowledge his many
years of counsel and service to
the Company.
Officers
Gerald Stephen Linda E. Pugh
Chairman Controller
Chris L. Talley Stephen K. Welch
President & Chief Vice President
Executive Officer Manager, Lynn Office
Dean E. Edwards David E. Bartram
Executive Vice President Assistant Vice President
Manager, Richmond Offices
Philip R. Hirschfeld
Executive Vice President Janice Brehm
Wayne County Commercial Lending Mortgage Loan Officer
Janice A. Powers Debra K. Butcher
Vice President & Cashier Secretary to the Board of Directors
Kathy E. Beumer Jeffrey H. Jenkins
Vice President & Director Assistant Vice President,
of Marketing Indirect Lending
E. Daniel Cox Judy A. Scholl
Vice President Assistant Vice President,
Wayne County Commercial & Loan Administration
Agriculture Lending
Marc C. Edwards
Vice President
Manager, Saratoga Office
Ernest R. Heighway
Vice President
Wayne County Mortgage Lending
Mary Jane Miller
Vice President
Wayne County Commercial Lending
Thomas L. Powers
Vice President
Manager, Farmland/Parker Offices
60
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
- -----------------------------------------------------------------------------
Incorporation
-------------
American National Bank and Trust Company of Muncie United States
Peoples Loan & Trust Bank State of Indiana
American National Trust and Investment Management
Company United States
ANB Financial Planning Services (indirect subsidiary) State of Indiana
EXHIBIT 23--CONSENT OF OLIVE LLP
- -----------------------------------------------------------------------------
We consent to the incorporation by reference in the Registration Statements on
Form S-8's, File No's. 33-41105, 33-95866 and 33-95868, and on Form S-3, File
No. 33-83838, of our report dated January 29, 1999 contained in the 1998 Annual
Report to Shareholders of ANB Corporation, which is incorporated by reference in
this Form 10-K.
OLIVE LLP
Indianapolis, Indiana
March 25, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 28,740
<INT-BEARING-DEPOSITS> 3,003
<FED-FUNDS-SOLD> 11,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 76,482
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 470,418
<ALLOWANCE> 3,587
<TOTAL-ASSETS> 615,940
<DEPOSITS> 508,434
<SHORT-TERM> 22,422
<LIABILITIES-OTHER> 4,958
<LONG-TERM> 19,530
0
0
<COMMON> 4,568
<OTHER-SE> 56,028
<TOTAL-LIABILITIES-AND-EQUITY> 615,940
<INTEREST-LOAN> 37,610
<INTEREST-INVEST> 4,384
<INTEREST-OTHER> 1,024
<INTEREST-TOTAL> 43,018
<INTEREST-DEPOSIT> 16,121
<INTEREST-EXPENSE> 19,065
<INTEREST-INCOME-NET> 23,953
<LOAN-LOSSES> 1,142
<SECURITIES-GAINS> 716
<EXPENSE-OTHER> 21,083
<INCOME-PRETAX> 11,634
<INCOME-PRE-EXTRAORDINARY> 7,775
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,775
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.67
<YIELD-ACTUAL> 4.91
<LOANS-NON> 1,237
<LOANS-PAST> 206
<LOANS-TROUBLED> 147
<LOANS-PROBLEM> 946
<ALLOWANCE-OPEN> 3,497
<CHARGE-OFFS> 1,161
<RECOVERIES> 109
<ALLOWANCE-CLOSE> 3,587
<ALLOWANCE-DOMESTIC> 3,587
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15
</TABLE>
EXHIBIT 99--ANNUAL FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT FOR
STOCK INVESTMENT PLAN OF ANB CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1998
- -----------------------------------------------------------------------------
Exhibit to be filed by amendment - will include information required by Form
11-K.
