SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 31, 1999 0-18925
----------------- ----------------------
For the quarter ended Commission file number
ANB CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
INDIANA 35-1612066
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 West Charles Street, Muncie, Indiana 47305
-------------------------------------------------
Address of principal executive offices
765-747-7575
-----------------------------------------
Registrant's telephone number & area code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As of May 6, 1999 there were outstanding 5,440,298 Common Shares,
$1 stated value, of the Registrant.
Page 1 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
Part I - Financial Information:
Item 1 - Financial Statements Page
----
Consolidated Condensed Balance Sheet........... 3
Consolidated Condensed Statement of Income..... 4 - 5
Consolidated Condensed Statement of Changes in
Stockholders' Equity........................... 6
Consolidated Condensed Statement of Cash
Flows.......................................... 7
Notes to Consolidated Condensed Financial
Statements..................................... 8 - 10
Item 2 Management's Discussion and Analysis of-
Financial Condition and Results of Operations.. 11 - 15
Item 3 Quantitative and Qualitative Disclosures
About Market Risk.............................. 14 - 15
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K............... 16
Signatures................................................. 17
Page 2 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
- -------------------------------------------------------------------------------
March 31, December 31,
1999 1998
ASSETS ------- --------
Cash and due from banks ...................... $19,000 $28,740
Federal funds sold............................. 18,300 4,000
Interest-bearing deposit accounts............. 2,557 3,003
-------- --------
Cash and cash equivalents................... 39,857 35,743
Securities available for sale:
Taxable..................................... 29,808 41,054
Tax exempt.................................. 30,719 35,428
-------- --------
Total securities available for sale....... 60,527 76,482
Loans:
Loans....................................... 507,946 470,107
Allowance for loan losses................. (3,718) (3,587)
-------- --------
Net loans................................. 504,228 466,520
Loans held for sale .......................... 999 311
Premises and equipment........................ 12,618 12,329
Federal Reserve & Federal Home Loan Bank Stock 5,031 5,031
Other real estate............................. 598 345
Interest receivable........................... 3,884 4,625
Goodwill and core deposit intangibles ........ 11,714 11,963
Other assets.................................. 3,038 2,591
-------- --------
Total assets.............................. $642,494 $615,940
======== ========
LIABILITIES
Deposits
Noninterest bearing......................... $60,251 $63,062
Interest bearing............................ 465,342 445,372
-------- --------
Total deposits 525,593 508,434
Short-term borrowings......................... 8,044 5,807
Notes payable................................. 1,500
Federal Home Loan Bank advances............... 40,998 36,145
Interest payable.............................. 1,659 1,839
Other liabilities............................. 3,472 3,119
-------- --------
Total liabilities......................... 581,266 555,344
-------- --------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Preferred stock, without par value:
Authorized-250,000 shares, none issued
Common stock, $1 stated value:
Authorized-20,000,000 shares
Issued and outstanding-4,576,618 and
4,567,586 shares.......................... 4,577 4,568
Capital surplus............................... 8,871 8,748
Capital surplus-stock options................. 255 256
Retained earnings............................. 46,965 46,222
Accumulated other comprehensive income........ 560 802
-------- --------
Total stockholders' equity................ 61,228 60,596
-------- --------
Total liabilities and stockholders' equity $642,494 $615,940
======== ========
Page 3 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended
March 31,
1999 1998
Interest Income ---- ----
Loans, including fees:
Taxable....................................... $10,120 $9,144
Tax exempt.................................... 67 42
Securities available for sale:
Taxable....................................... 548 401
Tax exempt.................................... 434 653
Federal funds sold.............................. 109 86
Other interest
income........................................ 130 82
Total interest ------ ------
income.................................... 11,408 10,408
------ ------
Interest Expense
Deposits........................................ 4,235 3,867
Short-term
borrowings.................................... 70 67
FHLB advances................................... 530 625
Total interest ------ ------
expense................................... 4,835 4,559
------ ------
NET INTEREST INCOME............................... 6,573 5,849
Provision for loan
losses........................................ 300 129
------ ------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES................................... 6,273 5,720
Page 4 of 17 Pages
<PAGE>
(continued) ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended
March 31,
1999 1998
---- ----
Other Income:
Fiduciary activities............................ 1,626 1,467
Service charges on
deposit accounts.............................. 371 318
Other customer fees............................. 179 109
Investment securities
gains, net.................................... 29 25
Net loans sold gains............................ 59 76
Other operating
income........................................ 203 152
Total other ------ ------
income.................................... 2,467 2,147
------ ------
Other Expenses:
Salaries and
employee benefits............................. 3,455 2,752
Premises and
equipment expense............................. 1,087 881
Advertising..................................... 213 214
Printing, supplies
and stationery................................ 195 171
Professional fees............................... 116 78
Deposit insurance
premiums...................................... 37 25
Goodwill and core
deposit intangibles
amortization.................................. 249 129
Other operating
expenses...................................... 905 778
Total other ------ ------
expenses................................... 6,257 5,028
------ ------
INCOME BEFORE INCOME
TAX EXPENSE..................................... 2,483 2,839
Income tax expense............................ 872 948
------ ------
NET INCOME........................................ $1,611 $1,891
====== ======
NET INCOME PER SHARE:
Basic .......................................... $0.35 $0.42
Diluted ........................................ $0.35 $0.41
Cash Dividends.................................... $0.19 $0.17
Page 5 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
- -------------------------------------------------------------------------------
1999 1998
---- ----
Balance, January 1 .............................. $60,596 $56,233
Comprehensive income:
Net income...................................... 1,611 1,891
Other comprehensive income, net of tax:
Unrealized losses on securities
available for sale.
Unrealized holding losses arising
during period............................. (224) (88)
Reclassification adjustment for
gains included in net income.............. (18) (15)
------ ------
Net unrealized losses....................... (242) (103)
------ ------
Comprehensive income............................ 1,369 1,788
Cash dividends ($.19 and $.17 per share).......... (869) (773)
Exercise of stock options ........................ 114 217
Stock tendered in exercise of stock options....... (129) (148)
Tax benefit on stock options exercised............ 35 144
Stock issued under dividend reinvestment
and stock purchase plan......................... 112 119
------- -------
Balance, March 31 ................................ $61,228 $57,580
======= =======
Page 6 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
- -------------------------------------------------------------------------------
Three Months Ended
March 31,
1999 1998
OPERATING ACTIVITIES: ---- ----
Net income...................................... $1,611 $1,891
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses..................... 300 129
Depreciation.................................. 533 425
Securities amortization....................... (6) 3
Amortization of goodwill, other intangibles
and fair value adjustments.................. 249 129
Net loans sold gains.......................... (59) (76)
Mortgage loans originated for sale............ (7,614) (10,994)
Proceeds from sale of mortgage loans.......... 6,988 10,011
Net change in:
Interest receivable......................... 741 677
Interest payable............................ (180) 241
Other adjustments............................. 679 684
----- -----
Net cash provided by operating activities... 3,242 3,120
----- -----
INVESTING ACTIVITIES:
Purchases of available for sale securities...... (2,219) (5,928)
Proceeds from available for sale securities
maturities and sales.......................... 18,410 3,841
Net increase in loans........................... (38,009) (2,453)
Purchases of premises and equipment............. (822) (1,132)
------ ------
Net cash used by investing activities...... (22,640) (5,672)
------ ------
FINANCING ACTIVITIES:
Net change in noninterest-bearing,
NOW, money market and savings deposits........ 8,976 (2,423)
Net change in certificates of
deposits and other time deposits.............. 8,183 5,044
Net change in short-term borrowings............. 2,237 (8,460)
Proceeds from Federal Home Loan Bank advances... 5,000 14,955
Repayment of Federal Home Loan Bank advances.... (147) (9,000)
Cash dividends.................................. (869) (773)
Stock sold:
Exercise of stock options..................... 20 213
Dividend reinvestment and stock purchase plan. 112 119
Net cash provided (used) ------ ------
by financing activities................. 23,512 (325)
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS........... 4,114 (2,877)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 35,743 22,653
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $39,857 $19,776
======= =======
Additional Cash Flows Information:
Interest paid................................... $5,015 $4,318
Income tax paid................................. 220 210
Page 7 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- -------------------------------------------------------------------------------
NOTE 1--GENERAL:
The significant accounting policies followed by ANB Corporation (Company)
and its subsidiaries, American National Bank and Trust Company of Muncie,
American National Trust and Investment Management Company and Peoples
Loan & Trust Bank, Winchester, for interim financial reporting, are
consistent with the accounting policies followed for annual financial
reporting. The accompanying financial statements are unaudited, however,
all adjustments, consisting only of normal recurring adjustments, which
are, in the opinion of management necessary for a fair presentation of
the results for the periods reported, have been included in the accompanying
consolidated condensed financial statements. The results of operations for
the three months ended March 31, 1999 are not necessarily indicative of
those expected for the remainder of the year.
- -------------------------------------------------------------------------------
NOTE 2--INVESTMENT SECURITIES:
1999
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
March 31 Cost Gains Losses Value
------------------------------------------------------------------------------
Available for sale:
U.S. Treasury....... $1,250 $10 $1,260
Federal agencies.... 16,679 20 149 16,550
State and municipal. 29,573 1,157 11 30,719
Mortgage backed
securities........ 11,109 1 100 11,010
Marketable equity
securities........ 988 988
---------------------------------------------------
Total investment
securities...... $59,599 $1,188 $260 $60,527
===================================================
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 obligation 100 100
---------------------------------------------------
Total investment
securities...... $75,153 $1,472 $143 $76,482
===================================================
Page 8 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
- -------------------------------------------------------------------------------
NOTE 3--LOANS AND ALLOWANCE:
March 31, December 31,
1999 1998
Loans ---- ----
Commercial and industrial loans............... $109,052 $105,690
Term federal funds sold....................... 7,700 8,623
Real estate loans:
One-to-four family properties............... 193,467 186,965
Other....................................... 126,331 116,562
Individuals' loans for household and other
personal expenditures....................... 62,321 45,720
Tax exempt loans.............................. 4,242 4,090
Other loans................................... 4,833 2,457
-------- --------
Total loans.............................. $507,946 $470,107
======== ========
Nonperforming loans
Nonaccruing loans............................. $1,015 $1,237
Accruing loans contractually past due
90 days or more other than nonaccruing...... 73 206
Restructured loans............................ 144 147
------ ------
Total nonperforming loans................ $1,232 $1,590
====== ======
Three Months Ended
March 31,
1999 1998
Allowance for loan losses ------ ------
Balances, beginning of period................. $3,587 $3,497
Provision for losses.......................... 300 129
Recoveries on loans........................... 27 11
Loans charged off............................. (196) (100)
------ ------
Balances, end of period....................... $3,718 $3,537
====== ======
- -------------------------------------------------------------------------------
NOTE 4--DEPOSITS:
March 31, December 31,
1999 1998
Deposits ---- ----
Noninterest bearing......................... $60,251 $63,062
NOW accounts................................ 80,362 85,816
Money market deposit accounts............... 93,139 77,359
Savings deposits............................ 29,884 28,423
Certificates and other time deposits
of $100,000 or more....................... 86,720 69,319
Other certificates and time deposits........ 175,237 184,455
-------- --------
Total deposits........................... $525,593 $508,434
======== ========
- -------------------------------------------------------------------------------
NOTE 5--COMPREHENSIVE INCOME:
Comprehensive income includes unrealized gains on securities available
for sale, net of tax. Accumulated other comprehensive income and income tax
on such income reported are as follows:
Three Months Ended
March 31,
1999 1998
---- ----
Accumulated comprehensive income
Balance, January 1 ........................... $802 $1,390
Net unrealized losses......................... (242) (103)
------ ------
Balance, March 31 ............................ $560 $1,287
====== ======
Income tax expense (benefit):
Unrealized holding losses..................... ($148) ($58)
Reclassification adjustments.................. $11 $10
Page 9 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1999
- -------------------------------------------------------------------------------
NOTE 6--EARNINGS PER SHARE
Earnings per share ("EPS") were computed as follows:
1999 1998
------------------------- -------------------------
Weighted- Weighted-
Quarter Ended Average Per Share Average Per Shar
March 31 Income Shares Amount Income Shares Amount
-------------------------------------------------- -------------------------
Basic Earnings Per Share
Income available to
common stockholders...$1,611 4,569,787 $0.35 $1,891 4,540,421 $0.42
Effect of dilutive ==== ====
stock options......... - 82,273 - 123,282
----- --------- ----- ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion............$1,611 4,652,060 $0.35 $1,891 4,663,703 $0.41
===== ========= ==== ===== ========= ====
- -------------------------------------------------------------------------------
NOTE 7--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:
Three months ended: BANKING TRUST ELIMINATIONS
March 31, 1999 SERVICES SERVICES COMPANY (1) TOTAL
------------------------------------------------------------------------------
Total interest income....... $11,362 $46 $11,408
Total non-interest income... 839 1,675 $2,206 ($2,253) 2,467
Total interest expense...... 4,835 4,835
Total non-interest expense.. 4,291 1,347 861 (242) 6,257
Income before income tax.... 2,775 374 1,345 (2,011) 2,483
Income tax expense(benefit). 987 151 (266) 872
Total assets................ 635,424 5,179 63,135 (61,244) 642,494
Capital expenditures........ 576 206 40 822
Goodwill acquired...........
Depreciation & amortization. 549 94 139 782
Three months ended: BANKING TRUST
March 31, 1998 SERVICES SERVICES COMPANY ELIMINATIONS TOTAL
------------------------------------------------------------------------------
Total interest income....... $10,353 $55 $10,408
Total non-interest income... 702 1,488 $2,452 ($2,495) 2,147
Total interest expense...... 4,559 4,559
Total non-interest expense.. 3,225 1,170 835 (202) 5,028
Income before income tax.... 3,142 373 1,617 (2,293) 2,839
Income tax expense(benefit). 1,065 157 (274) 948
Total assets................ 520,271 7,683 58,168 (58,701) 527,421
Capital expenditures........ 331 627 174 1,132
Goodwill acquired...........
Depreciation & amortization. 368 67 119 554
(1) Eliminations include intercompany dividends and undistributed income
of Company subsidiaries from parent company only statements; Company
revenues of $199 thousand for 1999 and $159 thousand for 1998 from
banking subsidiaries and revenues between segments of $43 thousand
for both 1999 and 1998.
- -------------------------------------------------------------------------------
NOTE 8--ACQUISITION
On April 22, 1999, the Company completed its acquisition of Farmers State
Bancorp (Farmers), Union City, Ohio. Shareholders of Farmers received
5.4 shares of common stock of the Company for each issued and outstanding
share of common stock of Farmers, or a total of approximately 841,000 shares.
The merger will be accounted for using the pooling-of-interest method of
accounting. Total assets, total deposits and stockholders' equity of
Farmers approximated $90.0 million, $79.3 million and $10.0 million at
March 31, 1999.
Page 10 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
And
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
General =====================
-------
The following discussion and analysis is designed to provide a more
comprehensive review of the operating results and financial position than
could be obtained from an analysis of the financial statements alone. It
should, however, be read in conjunction with the financial statements and
notes included elsewhere herein.
Forward-Looking Statements
--------------------------
Except for historical information contained herein, the discussion in this
Form 10-Q quarterly report includes certain forward-looking statements based
upon management expectations. Factors which could cause future results to
differ from these expectations include the following: general economic
conditions; legislative and regulatory initiatives; monetary and fiscal
policies of the federal government; deposit flows; the costs of funds;
general market rates of interest; interest rates on competing investments;
demand for loan products, demand for financial services; changes in account-
ing policies or guidelines; and changes in the quality or composition of the
Company's loan and investment portfolios.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
Net Income
----------
Net income for the first three months of 1999 was $1.611 million compared
to $1.891 million for the first three months of 1998, a decline of 14.8%
or $280 thousand. Diluted net income per share for the first three months
of 1999 was $.35 a decrease of $.06 or 14.6% from the $.41 per share which
was reported for the first three months of 1998.
The Company's diluted cash or tangible earnings per share (diluted net
income per share plus the amortization expense per share of goodwill and
core deposit intangibles) for the first three months of 1999 was $.39 per
share compared to $.43 per share for the comparable period in 1998.
For the first three months of 1999 the Company's return on average
assets and return on average equity was 1.05% and 10.85% respectively,
compared to 1.46% and 13.80% for the first three months of 1998.
For the year ended December 31, 1998 the Company's return on average
assets and return on average equity were 1.40% and 13.52 respectively.
While first quarter 1999 net income and diluted earnings per share
declined when compared to a year ago, the Company anticipates improving
levels of profitability as the year progresses, and believes net income
and diluted earnings per share for 1999 will marginally exceed the record
levels posted in 1998.
Factors which impacted the Company's net income during the first three
months of 1999 are discussed in the "Net Interest Income" and "Other
Income and Expense" sections.
Net Interest Income
-------------------
Net interest income is the difference between interest and fees earned
on earning assets and interest paid on interest bearing liabililties. It
is the largest and most critical component of the Company's earnings and
is impacted by both rates and volume of earning assets and interest-bearing
liabilities. The Company's net interest income, reported on a fully tax
equivalent basis (FTE), increased $634 thousand or 10.3% for the three
months ended March 31, 1999 when compared to the same three month period
in 1998. Total interest income, expressed on a FTE basis, increased
$910 thousand for the three month period, while total interest expense of
the Company increased only $276 thousand.
First quarter 1999 net interest income was $6.573 million compared to
$5.849 million for the same period one year ago. Net interest income for
the first quarter of 1999 was in line with the Company's 1999 operating plan.
Net interest margin (FTE) expressed as a percent of earning assets was
4.81% for the first three months of 1999, a decrease of 32 basis points
from the 5.13% reported for the first quarter of 1998. However, first
quarter 1999 net interest margin of 4.81% represents an increase of 21
basis points over the net interest margin of 4.60% posted for the fourth
quarter of 1998. During the fourth quarter of 1998 increased interest
expense associated with deposits acquired with the September 18, 1998
branch expansion in Anderson and Zionsville, adversely impacted the
Company's net interest margin. During the last six months the Company
has adjusted deposit rates on this particular group of deposits, to
fall more in line with current market conditions.
The Company continues to place high emphasis on quality loan growth,
both in existing and new markets. Loan opportunities remain strong as
evidenced by the $1.001 million or 10.9% increase in interest income on
loans for the first quarter of 1999, as compared to first quarter of 1998.
Page 11 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
Provision for Loan Losses
-------------------------
The Company's provision for loan losses increased $171 thousand for the
three months ended March 31, 1999 when compared to the same period in 1998.
For the first quarter of 1999 the provision expense was $300 thousand
compared to $129 thousand for the first quarter of 1998.
Increases in the Company's provision for loan lossess were required to
replenish the allowance for loan losses for charge-offs recorded during
the first three months of 1999 and as a result of loan grwoth.
Net charge-offs during the first three months of 1999 were $169 thousand
compared to net charge-offs of $89 thousand for the comparable period in
1998. During the first quarter of 1999 net charge-offs for the three major
loan categories; real estate, loans for personal expenditures and commercial,
were $38, $97 and $34 thousand respectively.
Net charged-off loans as a percentage of average loans was .03% at
March 31, 1999, comparable to the .02% for the same three month period
in 1998.
Other Income and Expense
------------------------
Other income represents income received which is not directly related
to the Company's interest-earning assets, except for gains and losses on
securities and loans held for sale. Total other income increased $320
thousand or 14.9% during the first three months of 1999 compared to the
same period one year ago. Fees generated from fiduciary activities
increased $159 thousand or 10.8% for the first three months of 1999 over
the same period in 1998. Increased levels of assets under management
and higher market values of those assets resulted in higher fee income.
Service charges on deposit accounts combined with other customer fees
were $123 thousand or 28.8% higher than the comparable period in 1998.
General increases in deposit account check processing fees coupled with
higher levels of income associated with increased ATM and check card
activity were primary reasons for the increase.
Gains on sales of loans were lower by $17 thousand for 1999 over 1998.
Total other expenses increased $1.229 million or 24.4% in the first three
months of 1999 compared to the same period in 1998. Salaries and benefits
increased $703 thousand as expansion has resulted in the Company's full
time equivalent(FTE) base growing to 342 at March 31, 1999, compared to
278 at the end of March 1998. This increase in FTE's can be largely
attributable to the Company's branch acquisitions in September of 1998 and
the staffing of a new start-up branch in Marion, Indiana that opened
during the first quarter of 1999. Average cost of salaries and benefits
per FTE was $10,102 for the first quarter 1999, up $203 or 2.1% from the
$9,899 calculated for the quarter ended March 31, 1998.
Premises and equipment expense increased $206 thousand or 23.4% from the
level reported for the three months ended March 31, 1998. First quarter
1999 reflects increased depreciation expense of $108 thousand over the
first three months of 1998. Also, increased maintenance expense relating
to the Company's core accounting data processing system, combined with
higher occupancy expenses due to the increased number of operating branches,
accounted for most of the additional increase of $98 thousand.
Goodwill and core deposit intangibles expense were higher by $120 thousand
over the reported level at March 31, 1998. This increase is due to the
acquisition of branches completed in September of 1998.
Professional fees for the first three months of 1999 were $38 thousand
more than the same period in 1998. Additional matters requiring outside
legal and accounting expertise were incurred in 1999 over the comparable
period for 1998.
The category "other operating expenses" increased $127 thousand or 16.3%
in first quarter 1999 when compared to first quarter 1998. The 1999
increase includes higher fees for various services utilized by the Company.
In addition, higher telephone and data transmission expense of $20 thousand
was recorded for first quarter 1999 when compared to first quarter 1998.
Income Taxes
------------
Income tax expense, including both federal income tax and the Indiana
franchise tax, decreased by $76 thousand for the first three months of 1999
compared to 1998. Income before income tax decreased $356 thousand or 12.5%
for the first three months of 1999 over 1998. The effective tax rate for the
period ending March 31, 1999 was 35.1% compared to 33.4% for the
comparable period in 1998.
Page 12 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
Balance Sheet
-------------
The Company's total assets increased $26.554 million from the level
reported at year end 1998. When compared to March 31, 1998, total assets
have increased $115.073 million or 21.8%. Branch acquisitions made in
September of 1998 and a start-up branch in a new market which opened in
first quarter 1999, have been primarily responsible for the Company's
growth in total resources. When compared to first quarter 1998 first
quarter 1999 average assets increased $99.049 million or 18.9% to reach a
record $623.014 million.
Cash and cash equivalents increased $4.114 million at March 31, 1999
from the level reported at December 31, 1998. Cash and due from banks
declined $9.740 million from the levels reported at year end, while interest
bearing deposit accounts and federal funds sold increased $13.854 million.
Loans and Deposits
------------------
Loans, excluding loans held for sale and term federal funds, were
$500.246 million at March 31, 1999, an increase of $38.762 million over
the year end 1998 level of $461.484 million. At March 31, 1998, loans,
excluding loans held for sale and term federal funds, were $404.886 million.
Growth in the Company's loan portfolio from March 31, 1998 to March 31, 1999
has been $95.360 million or 23.6%. This loan growth has occured in most
major categories of the portfolio, with $53.391 million, or 56% of the total
growth experienced during the past twelve months, having occurred in the
mortgage loan component of the loan portfolio.
Real estate loans continue to be the largest asset category of the Company.
At March 31, 1999 loans made to individuals on owner occupied property
represented 30.1% of total assets and 60.5% of the Company's mortgage loan
portfolio. At March 31, 1998 loans made to individuals on owner occupied
property represented 29.6% of total assets and 58.5% of the Company's
mortgage loan portfolio. Over the last twelve months loans on owner occupied
property and commercial mortgage loans have grown $37.540 million and
$15.851 million respectively.
Loan growth has been achieved under the Company's strategic plan and has
been accomplished in accordance with credit policies designed to ensure
continued strong asset quality.
Total deposits of the Company at March 31, 1999 increased $17.159
million from the level reported at year end 1998. Noninterest-bearing
deposits decreased by $2.811 million at March 31,1999 as measured against
year-end 1998, while total interest bearing deposits increased $19.970
million. Most of the increase in total deposits can be directly attributable
to the deposits acquired in the September 18, 1998 purchase of six branches
from another financial institution.
Average interest bearing deposits were higher by $88.813 million or 24.2%
for the three months ended March 31, 1999 when compared to the same
period in 1998.
Allowance for Loan Losses and Nonperforming Loans
-------------------------------------------------
The Company's nonperforming loans, which include nonaccrual, past due
90 days, and restructured loans, decreased $56 thousand from year end 1998.
At March 31, 1999 total nonperforming loans were $1.232 million or .19%
of total assets, compared to .25% of total assets at year end 1998. Total
nonperforming loans represented .24% of total loans at March 31, 1999,
compared to .33% for both March 31, 1998 and December 31, 1998.
The allowance for loan losses at March 31, 1999 increased $131 thousand
from year end 1998. Loans charged off for the period ending March 31,
1998, increased by $96 thousand when compared to the same period in 1998.
The allowance for loan losses equaled 302% of nonperforming loans at
March 31, 1999 compared to 226% and 260% for December 31, 1998 and
March 31, 1998.
Based on the components of the loan portfolio, an analysis of historical
net charge-offs, and other economic considerations, management considers
the allowance for loan losses to be adequate.
Page 13 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
Liquidity, Rate Sensitivity and Market Risk
-------------------------------------------
The Company manages liquidity by closely monitoring the funds available
to meet the financial needs and credit demands of its customer base. The
Company expects to have adequate funds available to satisfy loan demand
as provided through both deposit growth and net income. Additionally the
Company has established federal funds lines with correspondent banks and
may borrow from the Federal Reserve Bank or the Federal Home Loan Bank.
The Company's interest rate sensitivity position is influenced by the
various maturities of its interest earning assets and interest bearing
liabilities. The Company monitors its maturity distribution of assets and
liabilities to ensure an adequate balance is maintained. Company policy
requires management to keep rate sensitivity positions within pre-established
guidelines, so as to control the interest rate risk exposure.
The Company is liability sensitive at the one-year time frame, indicating
that net interest income could be adversely impacted during periods of
increasing interest rates, since rate sensitive liabilities would be
repricing at a more rapid rate than interest sensitive assets. The Company
measures the impact of changes in interest rates on a regular basis.
Market risk is the risk of loss in financial instruments arising from
adverse changes in market rates and prices. Interest rate risk is the
primary source of market risk for the Company. Interest rate risk is always
present in the Company's balance sheet, impacting the Company's performance
and value. The Company's Asset/Liability Management committees monitor and
manage interest rate risk on an ongoing basis.
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. When interest rates change, the interest income and
expense streams associated with the Company's financial instruments change,
thereby impacting net interest income. The Company uses a rate sensitivity
gap and rate shock analysis model for estimating the impact on net interest
income in the event of market interest rate changes. The timing mismatch
between the repricing of assets and liabilities is at the core of interest
rate risk. If repricing opportunities of assets and liabilities were
identical, there would be no risk and the spread between the two would remain
constant if assets and liabilities were priced from the same index or yield
curve. However, in reality the mismatch exists, and it is the Company's
challenge to quantify and manage the timing difference of the interest
spread.
Based on the Company's model utilized, if market interest rates were to
immediately increase 100 basis points at March 31, 1999, the Company would
experience a decline in earnings, due to a decrease in net interest income of
approximately $565 thousand over a one year time period. At March 31, 1998,
with a 100 basis points increase in rates, net interest income would have
decreased by approximately $240 thousand over a one year time period. This
hypothetical estimate is based on numerous assumptions including yield curve
shape and loan amortization. In addition, maturing balances are replaced
with new balances at the new rate level and repricing balances are adjusted
to the new rate shock level. The analysis assesses the behavior of earning
assets and interest bearing liabilities and assumes that account rate
behavior correlates to economic behavior. The Company cannot make any
assurances as to the predictive nature of these assumptions, nor can it
assess the impact of such variables as prepayment and refinancing levels,
depositor withdrawals, customer product preference changes, and competitive
factors, as well as other internal and external variables. In addition,
this analysis cannot reflect actions taken by the Company's Asset/Liability
Management committees; therefore, this analysis should not be relied upon
as indicative of expected operating results.
Capital Resources
-----------------
Stockholders' equity, including net unrealized gains on securities
available for sale, increased from $60.596 million at December 31, 1998
to $61.228 million on March 31, 1999. Book value per share was $13.38
at March 31, 1999 compared to $13.27 at year end 1998. Excluding net
unrealized gains on securities available for sale, per share book value
increased $0.17 a share to $13.26 at March 31, 1999 from year end 1998.
Tangible book value per share on March 31, 1999 was $11.41 compared to
$11.20 for the year end 1998 and $11.38 on March 31, 1998. (Tangible
book value per share is defined as total stockholders' equity less net
unrealized gains on securities available for sale and goodwill/core deposit
intangibles net; divided by total outstanding shares.)
During the first quarter of 1999 the Company reallocated capital among
affiliate banks to facilitate capital needs of the lead bank as a result
of expansion into new markets. Also, the Company activated a previously
approved credit line to provide additional capital funds.
For the three months ended March 31, 1999 a total of 5,511 shares were
issued under the Company's Dividend Reinvestment and Stock Purchase Plan.
A total of 361 shareholders or about 50% of the Company's shareholders of
record participate in the Plan.
At March 31, 1999 the Company's Tier I risk based capital ratio was
10.77% and its leverage capital ratio was 8.00%. The Company and each
of its affiliate banks currently exceed all capital requirements mandated
by regulatory authorities.
Page 14 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
Year 2000 Compliance
--------------------
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 sub-
stancial 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.
Other
-----
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, including the
Company, and the address is (http://www.sec.gov).
Page 15 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
PART II. OTHER INFORMATION
--------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule
(b) No reports on Form 8-K were filed with respect to events
occurring during the three months ended March 31, 1999.
Page 16 of 17 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
March 31, 1999
- -------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANB CORPORATION
Date: May 6, 1999 BY: /s/ James R. Schrecongost
-----------------------------
James R. Schrecongost
Vice Chairman, President and CEO
Date: May 6, 1999 BY: /s/ Larry E. Thomas
-----------------------------
Larry E. Thomas
Chief Financial Officer and
Principal Accounting Officer
Page 17 of 17 Pages
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 19,000
<INT-BEARING-DEPOSITS> 2,557
<FED-FUNDS-SOLD> 18,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,527
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 507,946
<ALLOWANCE> 3,718
<TOTAL-ASSETS> 642,494
<DEPOSITS> 525,593
<SHORT-TERM> 35,659
<LIABILITIES-OTHER> 5,131
<LONG-TERM> 14,883
0
0
<COMMON> 4,577
<OTHER-SE> 56,651
<TOTAL-LIABILITIES-AND-EQUITY> 642,494
<INTEREST-LOAN> 10,187
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<INTEREST-TOTAL> 11,408
<INTEREST-DEPOSIT> 4,235
<INTEREST-EXPENSE> 4,835
<INTEREST-INCOME-NET> 6,573
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<EXPENSE-OTHER> 6,257
<INCOME-PRETAX> 2,483
<INCOME-PRE-EXTRAORDINARY> 1,611
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,611
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 4.81
<LOANS-NON> 1,015
<LOANS-PAST> 73
<LOANS-TROUBLED> 144
<LOANS-PROBLEM> 946
<ALLOWANCE-OPEN> 3,587
<CHARGE-OFFS> 196
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 3,718
<ALLOWANCE-DOMESTIC> 3,718
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
