SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
June 30, 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 August 3, 1999 there were outstanding 5,445,996 Common Shares,
$1 stated value, of the Registrant.
Page 1 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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 - 11
Item 2 Management's Discussion and Analysis of-
Financial Condition and Results of Operations.. 12 - 16
Item 3 Quantitative and Qualitative Disclosures
About Market Risk.............................. 15 - 16
Part II - Other Information:
Item 4 - Submission of Matters to a Vote of
Security Holders............................... 17
Item 6 - Exhibits and Reports on Form 8-K............... 17
Signatures................................................. 18
Page 2 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)
- ------------------------------------------------------------------------------
June 30, December 31,
1999 1998
ASSETS ------- --------
Cash and due from banks ...................... $34,039 $31,449
Federal funds sold............................ 12,725 5,200
Interest-bearing deposit accounts............. 10,822 3,003
-------- --------
Cash and cash equivalents................... 57,586 39,652
Investment securities:
Available for sale.......................... 70,344 88,896
Held to maturity............................ 9,131
-------- --------
Total investment securities .............. 70,344 98,027
Loans:
Loans....................................... 620,361 536,236
Allowance for loan losses................. (5,332) (4,822)
-------- --------
Net loans................................. 615,029 531,414
Loans held for sale .......................... 691 311
Premises and equipment........................ 13,615 13,443
Federal Reserve & Federal Home Loan Bank Stock 5,313 5,031
Other real estate............................. 655 345
Interest receivable........................... 5,161 5,564
Goodwill and core deposit intangibles ........ 11,467 11,963
Other assets.................................. 3,815 2,814
-------- --------
Total assets.............................. $783,676 $708,564
======== ========
LIABILITIES
Deposits
Noninterest bearing......................... $84,242 $68,329
Interest bearing............................ 567,105 522,471
-------- --------
Total deposits 651,347 590,800
Short-term borrowings......................... 12,633 5,841
Notes payable................................. 3,000
Federal Home Loan Bank advances............... 39,998 36,145
Interest payable.............................. 1,932 2,063
Other liabilities............................. 3,118 3,306
-------- --------
Total liabilities......................... 712,028 638,155
-------- --------
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-5,445,996 and
5,398,131 shares.......................... 5,446 5,399
Capital surplus............................... 12,503 12,376
Capital surplus-stock options................. 256 256
Retained earnings............................. 53,722 51,463
Accumulated other comprehensive income........ (279) 915
-------- --------
Total stockholders' equity................ 71,648 70,409
-------- --------
Total liabilities and stockholders' equity $783,676 $708,564
======== ========
Page 3 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
- ------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Interest Income ---- ---- ---- ----
Loans, including fees:
Taxable........... $12,414 $10,631 $23,894 $21,205
Tax exempt........ 74 65 144 110
Investment securities:
Taxable........... 642 650 1,455 1,320
Tax exempt........ 412 696 887 1,381
Federal funds sold.. 167 99 304 213
Other interest
income............ 149 122 282 204
Total interest ------ ------ ------ ------
income........ 13,858 12,263 26,966 24,433
------ ------ ------ ------
Interest Expense
Deposits............ 5,258 4,661 10,292 9,416
Short-term
borrowings........ 111 95 182 164
FHLB advances....... 573 688 1,103 1,313
Total interest ------ ------ ------ ------
expense....... 5,942 5,444 11,577 10,893
------ ------ ------ ------
NET INTEREST INCOME... 7,916 6,819 15,389 13,540
Provision for loan
losses............ 364 144 694 288
------ ------ ------ ------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES....... 7,552 6,675 14,695 13,252
Page 4 of 18 Pages
<PAGE>
(continued) ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
- ------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Other Income:
Fiduciary activities 1,705 1,598 3,336 3,067
Service charges on
deposit accounts.. 520 412 956 787
Other customer fees. 207 160 407 287
Investment securities
gains, net........ 63 92 26
Net loans sold gains 109 87 168 163
Other operating
income............ 225 163 446 318
Total other ------ ------ ------ ------
income........ 2,829 2,420 5,405 4,648
------ ------ ------ ------
Other Expenses:
Salaries and
employee benefits. 3,889 2,990 7,617 6,061
Premises and
equipment expense. 1,164 1,053 2,330 2,022
Advertising......... 254 214 476 439
Printing, supplies
and stationery.... 193 209 408 404
Professional fees... 66 81 189 180
Deposit insurance
premiums.......... 35 26 77 53
Goodwill and core
deposit intangibles
amortization...... 247 127 496 256
Merger expenses..... 369 369
Other operating
expenses.......... 1,113 992 2,119 1,892
Total other ------ ------ ------ ------
expenses....... 7,330 5,692 14,081 11,307
------ ------ ------ ------
INCOME BEFORE INCOME
TAX EXPENSE......... 3,051 3,403 6,019 6,593
Income tax expense 1,150 1,125 2,190 2,195
------ ------ ------ ------
NET INCOME............ $1,901 $2,278 $3,829 $4,398
====== ====== ====== ======
NET INCOME PER SHARE:
Basic .............. $0.35 $0.42 $0.71 $0.82
Diluted ............ $0.35 $0.41 $0.70 $0.80
Cash Dividends........ $0.19 $0.17 $0.38 $0.34
Page 5 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
- ------------------------------------------------------------------------------
1999 1998
---- ----
Balance, January 1 .............................. $70,409 $65,738
Comprehensive income:
Net income...................................... 3,829 4,398
Other comprehensive income, net of tax:
Unrealized losses on securities
available for sale.
Unrealized holding losses arising
during period............................. (1,138) (223)
Reclassification adjustment for
gains included in net income.............. (56) (16)
------ ------
Net unrealized losses....................... (1,194) (239)
------ ------
Comprehensive income............................ 2,635 4,159
Cash dividends ($.38 and $.34 per share).......... (1,902) (1,749)
Exercise of stock options ........................ 246 278
Stock tendered in exercise of stock options....... (129) (194)
Tax benefit on stock options exercised............ 149 196
Stock issued under dividend reinvestment
and stock purchase plan......................... 240 246
------- -------
Balance, June 30 ................................. $71,648 $68,674
======= =======
Page 6 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended
June 30,
1999 1998
OPERATING ACTIVITIES: ---- ----
Net income...................................... $3,829 $4,398
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses..................... 694 288
Depreciation.................................. 1,121 1,000
Securities amortization....................... (39) 21
Amortization of goodwill, other intangibles
and fair value adjustments.................. 496 256
Net loans sold gains.......................... (168) (163)
Mortgage loans originated for sale............ (18,388) (21,585)
Proceeds from sale of mortgage loans.......... 18,176 21,306
Net change in:
Interest receivable......................... 403 88
Interest payable............................ (131) 361
Other adjustments............................. 612 (1,284)
----- -----
Net cash provided by operating activities... 6,605 4,686
----- -----
INVESTING ACTIVITIES:
Purchases of available for sale securities...... (5,163) (10,428)
Purchases of held to maturity securities........ (1,000)
Proceeds from available for sale securities
maturities and sales.......................... 31,592 6,491
Proceeds from maturities of held to maturity.... 1,100
Net increase in loans........................... (83,583) (7,851)
Purchases of premises and equipment............. (1,293) (1,445)
------ ------
Net cash used by investing activities...... (58,447) (13,133)
------ ------
FINANCING ACTIVITIES:
Net change in noninterest-bearing,
NOW, money market and savings deposits........ 21,076 7,243
Net change in certificates of
deposits and other time deposits.............. 39,471 (744)
Net change in short-term borrowings............. 6,792 952
Proceeds from Federal Home Loan Bank advances... 5,000 15,530
Repayment of Federal Home Loan Bank advances.... (1,147) (10,000)
Cash dividends.................................. (1,902) (1,749)
Stock sold:
Exercise of stock options..................... 246 278
Dividend reinvestment and stock purchase plan. 240 246
Net cash provided ------ ------
by financing activities................. 69,776 11,756
------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS........... 17,934 3,309
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 39,652 27,292
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $57,586 $30,601
======= =======
Additional Cash Flows Information:
Interest paid................................... $11,708 $10,531
Income tax paid................................. 1,926 2,376
Page 7 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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, Peoples Loan & Trust Bank,
Winchester and The Farmers State Bank, Union City, Ohio, for interim financial
reporting, are consistent with the accounting policies followed for annual
financial reporting. The accompanying financial statements are unaudited,
however, all adjustments, consisting only of normal recurring adjustments,
which are, in the opinion of management necessary for a fair presentation of
the results for the periods reported, have been included in the accompanying
consolidated condensed financial statements. The results of operations for the
six months ended June 30, 1999 are not necessarily indicative of those expected
for the remainder of the year.
On April 22, 1999, the Company completed its acquisition of Farmers State
Bancorp (Farmers), Union City, Ohio, and its subsidiary, The Farmers State
Bank. 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 was accounted for using the
pooling-of-interest method of accounting. Accordingly, Company results
reported herein include the financial position and results of operations of the
Company combined with the financial position and results of operations of
Farmers as if the merger had occurred on January 1, 1998.
- ------------------------------------------------------------------------------
NOTE 2--INVESTMENT SECURITIES:
1999
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
June 30 Cost Gains Losses Value
-----------------------------------------------------------------------------
Available for sale:
U.S. Treasury....... $7,587 $59 $7,646
Federal agencies.... 21,553 4 592 20,965
State and municipal. 30,306 658 168 30,796
Mortgage backed
securities........ 10,508 412 10,096
Marketable equity
securities........ 841 841
Total investment --------------------------------------------------
securities...... $70,795 $721 $1,172 $70,344
==================================================
1998
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
-----------------------------------------------------------------------------
Available for sale:
U.S. Treasury....... $8,909 $193 $9,102
Federal agencies.... 32,074 128 81 32,121
State and municipal. 35,876 1,335 3 37,208
Mortgage backed
securities........ 10,039 7 78 9,968
Marketable equity
securities........ 397 397
Corporate obligation 100 100
Total available --------------------------------------------------
for sale........ $87,395 $1,663 $162 $88,896
--------------------------------------------------
Held to maturity:
U.S. Treasury....... $5,745 $98 $5,843
Federal agencies.... 1,500 10 1,510
State and municipal. 1,886 28 1,914
Total held to --------------------------------------------------
maturity........ $9,131 $136 $9,267
--------------------------------------------------
Total securities.. $96,526 $1,799 $162 $98,163
==================================================
Page 8 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 3--LOANS AND ALLOWANCE:
June 30, December 31,
1999 1998
Loans ---- ----
Commercial and industrial loans............... $114,946 $113,943
Term federal funds sold....................... 5,900 8,623
Real estate loans:
One-to-four family properties............... 230,414 210,447
Other....................................... 161,820 139,237
Individuals' loans for household and other
personal expenditures....................... 97,503 56,731
Tax exempt loans.............................. 4,296 4,711
Other loans................................... 5,482 2,544
-------- --------
Total loans.............................. $620,361 $536,236
======== ========
Nonperforming loans
Nonaccruing loans............................. $1,124 $1,257
Accruing loans contractually past due
90 days or more other than nonaccruing...... 721 973
Restructured loans............................ 189 243
------ ------
Total nonperforming loans................ $2,034 $2,473
====== ======
Six Months Ended
June 30,
1999 1998
Allowance for loan losses ------ ------
Balances, beginning of period................. $4,822 $4,606
Provision for losses.......................... 694 288
Recoveries on loans........................... 147 51
Loans charged off............................. (331) (303)
------ ------
Balances, end of period....................... $5,332 $4,642
====== ======
- ------------------------------------------------------------------------------
NOTE 4--DEPOSITS:
June 30, December 31,
1999 1998
Deposits ---- ----
Noninterest bearing......................... $84,242 $68,329
NOW accounts................................ 90,975 97,291
Money market deposit accounts............... 90,171 79,821
Savings deposits............................ 37,832 36,703
Certificates and other time deposits
of $100,000 or more....................... 120,149 76,998
Other certificates and time deposits........ 227,978 231,658
-------- --------
Total deposits........................... $651,347 $590,800
======== ========
- ------------------------------------------------------------------------------
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:
Six Months Ended
June 30,
1999 1998
---- ----
Accumulated comprehensive income
Balance, January 1 ........................... $915 $1,464
Net unrealized losses......................... (1,194) (239)
------ ------
Balance, June 30 ............................ ($279) $1,225
====== ======
Income tax expense (benefit):
Unrealized holding losses..................... ($747) ($147)
Reclassification adjustments.................. $36 $10
Page 9 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 6--EARNINGS PER SHARE
Earnings per share ("EPS") were computed as follows:
1999 1998
------------------------- -------------------------
Weighted- Weighted-
Quarter Ended Average Per Share Average Per Share
June 30 Income Shares Amount Income Shares Amount
-------------------------------------------------- --------------------------
Basic Earnings Per Share
Income available to
common stockholders...$1,901 5,433,869 $0.35 $2,278 5,388,752 $0.42
Effect of dilutive ==== ====
stock options......... - 64,427 - 122,722
----- --------- ----- ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion............$1,901 5,498,296 $0.35 $2,278 5,511,474 $0.41
===== ========= ==== ===== ========= ====
Six Months Ended June 30
------------------------
Basic Earnings Per Share
Income available to
common stockholders...$3,829 5,419,648 $0.71 $4,398 5,380,034 $0.82
Effect of dilutive ==== ====
stock options......... - 74,324 - 125,074
----- --------- ----- ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion............$3,829 5,493,972 $0.70 $4,398 5,505,108 $0.80
===== ========= ==== ===== ========= ====
- ------------------------------------------------------------------------------
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:
Six months ended: BANKING TRUST ELIMINATIONS
June 30, 1999 SERVICES SERVICES COMPANY (1) TOTAL
- ------------------------------------------------------------------------------
Total interest income....... $26,905 $61 $26,966
Total non-interest income... 2,093 3,402 $5,015 ($5,105) 5,405
Total interest expense...... 11,577 11,577
Total non-interest expense.. 9,722 2,694 2,195 (530) 14,081
Income before income tax.... 7,005 769 2,820 (4,575) 6,019
Income tax expense(benefit). 2,480 310 (600) 2,190
Total assets................ 776,438 5,232 75,064 (73,058) 783,676
Capital expenditures........ 902 346 45 1,293
Goodwill acquired...........
Depreciation & amortization. 1,174 194 249 1,617
Six months ended: BANKING TRUST
June 30, 1998 SERVICES SERVICES COMPANY ELIMINATIONS TOTAL
- ------------------------------------------------------------------------------
Total interest income....... $24,325 $108 $24,433
Total non-interest income... 1,635 3,099 $4,961 ($5,047) 4,648
Total interest expense...... 10,893 10,893
Total non-interest expense.. 7,668 2,505 1,560 (426) 11,307
Income before income tax.... 7,111 702 3,401 (4,621) 6,593
Income tax expense(benefit). 2,408 290 (503) 2,195
Total assets................ 623,523 7,742 59,333 (59,293) 631,305
Capital expenditures........ 540 638 267 1,445
Goodwill acquired...........
Depreciation & amortization. 826 189 241 1,256
(1) Eliminations include intercompany dividends and undistributed income of
Company subsidiaries from parent company only statements; Company revenues
of $436 thousand for 1999 and $339 thousand for 1998 from banking
subsidiaries and revenues between segments of $94 thousand for 1999 and $87
thousand for 1998.
Page 10 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 8--BUSINESS COMBINATION:
On April 22, 1999, the Company completed the merger with Farmers. The
transaction was accounted for using the pooling-of-interest method of
accounting. The Company issued 841,305 shares of its common stock to share-
holders of Farmers. Merger and related costs of $369,000 were charged against
net income during the quarter ended June 30, 1999.
The financial information contained herein reflects the merger and reports the
financial condition and results of operations as though the merger occurred as
of January 1, 1998. Separate operating results of the combined enterprises for
the periods prior to the merger were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Net Interest Income:
ANB Corporation..... $7,618 $5,924 $14,192 $11,773
Farmers............. 298 895 1,197 1,767
------ ------ ------ ------
Combined.......... $7,916 $6,819 $15,389 $13,540
------ ------ ------ ------
Net Income:
ANB Corporation..... $1,894 $2,012 $3,505 $3,903
Farmers............. 7 266 324 495
------ ------ ------ ------
Combined.......... $1,901 $2,278 $3,829 $4,398
------ ------ ------ ------
Basic Earnings Per Share:
ANB Corporation..... $0.35 $0.37 $0.65 $0.73
Farmers............. 0.05 0.06 0.09
------ ------ ------ ------
Combined.......... $0.35 $0.42 $0.71 $0.82
------ ------ ------ ------
Diluted Earnings Per Share:
ANB Corporation..... $0.35 $0.36 $0.64 $0.71
Farmers............. 0.05 0.06 0.09
------ ------ ------ ------
Combined.......... $0.35 $0.41 $0.70 $0.80
------ ------ ------ ------
- ------------------------------------------------------------------------------
NOTE 9--PROPOSED MERGER
On July 28, 1999 the Company entered into an Agreement of Affiliation and
Merger (Agreement) with Old National Bancorp(OLDB). Under the Agreement,
stockholders of the Company would receive 1.25 shares of OLDB common stock for
each share of common stock of the Company. 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 the Company shareholders and by
regulatory agencies. The expected closing date is early 2000.
Page 11 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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 anticipate
or unanticipated events or circumstances after the date of such statements.
Net Income
----------
Net income for the first six months of 1999 was $3.829 million compared to
$4.398 million for the first six months of 1998, a decline of 12.9% or $569
thousand. Diluted net income per share for the first six months of 1999 was
$.70 a decrease of $.10 or 12.5% from the $.80 per share which was reported for
the first six months of 1998.
Second quarter 1999 net income declined $377 thousand from the $2.278 million
reported for the second quarter in 1998. Net income per share diluted for
second quarter 1999 was lower by $0.06 per share or 14.6% when compared to
second quarter 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 six months of 1999 was $.77 per share compared to
$.84 per share for the comparable period in 1998, a decline of $0.07 per share
or 8.3%.
During the second quarter of 1999 the Company completed its acquisition of
Farmers. Results for the second quarter and first half of 1999 include merger
related expenses of $369 thousand. When these one-time expenses are excluded
on an after tax basis, earnings per share for the second quarter of 1999 on a
fully diluted basis, when compared to the first quarter of 1999, actually
improved from $0.35 to $0.41, an increase of 17.1%. While merger expenses from
Farmers combined with increased expenses relating to the recent market
expansion adversely impacted net income and earnings per share for the first
six months of 1999, 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 level posted in 1998.
For the first six months of 1999 the Company's return on average assets and
return on average equity was 1.05% and 10.95% respectively, compared to 1.43%
and 13.50% for the first six 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.
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 $1.631 million or 11.4% for the six months ended June 30, 1999
when compared to the same six month period in 1998. Total interest income,
expressed on a FTE basis, increased $2.315 million for the six month period,
while total interest expense of the Company rose only $684 thousand. Net
interest margin (FTE), expressed as a percent of earning assets, was 4.69% for
the first six months of 1999, down 25 basis points from the 4.94% reported for
the first six months of 1998.
Second quarter 1999 net interest income was $8.147 million compared to $7.180
million for the same period one year ago, an increase of 13.5%. Net interest
income for the second quarter and first six months of 1999 was in line with the
Company's 1999 operating plan.
Increased levels of loan volume have been the primary reason for achieving
higher total interest income and net interest income levels in 1999 over the
comparable period in 1998. Interest income from taxable loans increased $2.689
million in the six month period ending June 30, 1999 when compared to the same
period in 1998. The Company continues to place high emphasis on quality loan
growth, both in existing and new markets. Loan opportunities remain strong
both in new and existing markets.
Page 12 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 1999
- ------------------------------------------------------------------------------
Provision for Loan Losses
-------------------------
The Company's provision for loan losses increased $406 thousand for the six
months ended June 30, 1999 when compared to the same period in 1998. For the
second quarter of 1999 the provision expense was $364 thousand compared to $144
thousand for the second quarter of 1998.
Increases in the Company's provision for loan losses were required to
replenish the allowance for loan losses for charge-offs recorded during the
first six months of 1999 and as a result of continued loan growth being
experienced by the Company.
Net charge-offs during the first six months of 1999 were $184 thousand
compared to net charge-offs of $252 thousand for the comparable period in 1998.
During the first six months of 1999 net charge-offs for the three major loan
categories: real estate; loans for personal expenditures and commercial, were
$37, $184 and ($37) thousand respectively.
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 $757 thousand or 16.3%
during the first six months of 1999 compared to the same period one year ago.
Fees generated from fiduciary activities increased $269 thousand or 8.8%
for the first six 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
$289 thousand or 26.9% 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 higher by $66 thousand for 1999 over 1998.
Total other expenses increased $2.774 million or 24.5% in the first six
months of 1999 compared to the same period in 1998. Salaries and benefits
increased $1.556 million as expansion has resulted in the Company's full time
equivalent(FTE) base growing to 389 at June 30, 1999, compared to 324 at the
end of June 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 $19,581 for the first
six months of 1999, up $874 or 4.7% from the $18,707 calculated for the six
months ended June 30, 1998.
Premises and equipment expense increased $308 thousand or 15.2% from the
level reported for the six months ended June 30, 1999. The first six months of
1999 reflects increased depreciation expense of $121 thousand over the first
six 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 $187 thousand.
Goodwill and core deposit intangibles expense were higher by $240 thousand
over the reported level at June 30, 1998. This increase is due to the goodwill
expense associated with the acquisition of branches completed in September of
1998.
The various components making up the merger expense of $369 thousand were;
legal and accounting fees - $181 thousand; data conversion, training and
installation - $80 thousand; investment banking - $84 thousand, and NASDAQ and
other miscellaneous fees totaling $24 thousand.
The category "other operating expenses" increased $227 thousand or 12% in the
first six months of 1999 when compared to the first six months of 1998. The
1999 increase includes higher fees for various services utilized by the
Company. In addition, higher telephone and data transmission expense of $70
thousand was recorded for the first six months of 1999 when compared to the
first six months of 1998.
Income Taxes
------------
Income tax expense, including both federal income tax and the Indiana
franchise tax, decreased by $5 thousand for the first six months of 1999
compared to 1998. Income before income tax decreased $574 thousand or 8.7% for
the first six months of 1999 over 1998, however the Company's tax exempt bond
and loan income declined $460 thousand for the six months in 1999 when compared
to 1998, resulting in approximately the same income tax expense for the first
six months of 1999 as was recorded for the comparable period in 1998.
The effective tax rate for the six month period ending June 30, 1999 was
36.4% versus 33.3% for the comparable period in 1998.
Page 13 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 1999
- ------------------------------------------------------------------------------
Balance Sheet
-------------
The Company's total assets increased $75.112 million from the level reported
at year end 1998. When compared to June 30, 1998, total assets have increased
$152.371 million or 24.1%. 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. Average
assets for the first six months of 1999 rose to $735.459 million, an increase
of $114.986 million from the level reported at June 30, 1998.
Cash and cash equivalents increased $17.934 million at June 30, 1999 from the
level reported at December 31, 1998. Cash and due from banks increased $2.59
million from the levels reported at year end, while interest bearing deposit
accounts and federal funds sold increased $15.344 million.
Loans and Deposits
------------------
Loans, excluding loans held for sale and term federal funds, were $614.461
million at June 30, 1999, an increase of $86.848 million over the year end 1998
level of $527.613 million. At June 30, 1998, loans, excluding loans held for
sale and term federal funds, were $477.360 million. Growth in the Company's
loan portfolio from June 30, 1998 to June 30, 1999 has been $137.101 million or
28.7%. This loan growth has occured in most major categories of the portfolio,
with $78.714 million, or 57.4% of the total growth experienced during the past
twelve months, having occurred in the mortgage loan component of the loan
portfolio.
Real estate loans continue to be the largest asset category of the Company.
At June 30, 1999 loans made to individuals on owner occupied property
represented 29.4% of total assets and 58.7% of the Company's mortgage loan
portfolio. At June 30, 1998 loans made to individuals on owner occupied
property represented 28.6% of total assets and 57.6% of the Company's mortgage
loan portfolio. Over the last twelve months loans on owner occupied property
and commercial mortgage loans have grown $49.878 million and $28.836 million
respectively. Growth in the Companys mortgage loan portfolio over the past
twelve months represents approximately 57% of total loan growth experienced.
The remaining 43% has been divided between loans to individuals; 34% or $46.480
million and commercial/industrial loans; 9% or 11.907 million.
Loan growth has been achieved under the Company's strategic plan and has been
accomplished in accordance with credit policies designed to ensure continued
strong asset quality.
Total deposits of the Company at June 30, 1999 increased $60.547 million from
the level reported at year end 1998. Noninterest-bearing deposits increased by
$15.913 million at June 30,1999 as measured against year-end 1998, while total
interest bearing deposits increased $44.634 million. Total NOW, money market
accounts and savings deposits increased $5.163 million at June 30, 1999 when
compared to December 31, 1998, while certificates of deposit were higher by
$39.471 million.
Average interest bearing deposits were higher by $102.233 million or 23.1%
for the six months ended June 30, 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 $439 thousand from year end 1998. At
June 30, 1999 total nonperforming loans were $2.034 million or .26% of total
assets, compared to .34% of total assets at year end 1998. Total nonperforming
loans represented .33% of total loans at June 30, 1999, compared to .46% on
December 31, 1998.
The allowance for loan losses at June 30, 1999 increased $690 thousand from
year end 1998. Loans charged off for the period ending June 30, 1998,
increased by $28 thousand when compared to the same period in 1998.
The allowance for loan losses equaled 262% of nonperforming loans at June 30,
1999 compared to 188% for December 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 14 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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 June 30, 1999, the Company would
experience a decline in earnings, due to a decrease in net interest income of
approximately $52 thousand over a one year time period. At June 30, 1998, with
a 100 basis points increase in rates, net interest income would have decreased
by approximately $232 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 $70.409 million at December 31, 1998 to $71.648
million on June 30, 1999. Book value per share was $13.16 at June 30, 1999
compared to $13.04 at year end 1998. Excluding net unrealized gains on
securities available for sale, per share book value increased $0.34 a share to
$13.21 at June 30, 1999 from year end 1998. Tangible book value per share on
June 30, 1999 was $11.69 compared to $11.28 for the year end 1998 and $11.71 on
June 30, 1998. (Tangible book value per share is defined as total
stockholders' equity less net unrealized gains(losses) on securities available
for sale and goodwill core/deposit intangibles net; divided by total
outstanding shares.)
During the first six months 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 six months ended June 30, 1999 a total of 11,208 shares were issued
under the Company's Dividend Reinvestment and Stock Purchase Plan. A total of
364 shareholders or about 40% of the Company's shareholders of record
participate in the Plan.
At June 30, 1999 the Company's Tier I risk based capital ratio was 10.74% and
its leverage capital ratio was 8.13%. The Company and each of its affiliate
banks currently exceed all capital requirements mandated by regulatory
authorities.
Page 15 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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 trust 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 and 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 has been
completed in accordance with regulatory guidelines.
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 has developed a contingency plan for all critical
systems in the event that one of these should fail.
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 16 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 1999
- ------------------------------------------------------------------------------
PART II. OTHER INFORMATION
--------------------------
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on April 27, 1999.
The following matter was submitted to the shareholders:
(1) Election of three directors.
The following nominees were elected:
Votes
---------------------------
For Withhold
--- --------
Madelyn K. Ferris 3,070,057 20,760
R. David Hoover 3,043,719 47,098
Donald A. Ross 3,055,278 35,539
Other directors continuing to serve include the following:
Ben E. Delk
William L. Peterson
James R. Schrecongost
Kelly N. Stanley
Chris L. Talley
Leon V. Towne
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27, Financial Data Schedule
(b) On April 22, 1999 ANB Corporation (the "Registrant") filed an 8-K
for the acquisition of Farmers State Bancorp ("Farmers"). The
pooling transaction required the Registrant to issue 5.4 shares
for each share of common stock of Farmers. The Registrant issued
841,305 shares of its common stock and paid cash in lieu of
issuing fractional shares to the shareholders of Farmers.
Page 17 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
June 30, 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
/s/ James R. Schrecongost
Date: August 6, 1999 BY: --------------------------
James R. Schrecongost
Vice Chairman, President and CEO
/s/ Larry E. Thomas
Date: August 6, 1999 BY: --------------------------
Larry E. Thomas
Chief Financial Officer and
Principal Accounting Officer
Page 18 of 18 Pages
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 34,039
<INT-BEARING-DEPOSITS> 10,822
<FED-FUNDS-SOLD> 12,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,344
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 620,361
<ALLOWANCE> 5,332
<TOTAL-ASSETS> 783,676
<DEPOSITS> 651,347
<SHORT-TERM> 36,748
<LIABILITIES-OTHER> 5,050
<LONG-TERM> 18,883
0
0
<COMMON> 5,446
<OTHER-SE> 66,202
<TOTAL-LIABILITIES-AND-EQUITY> 783,676
<INTEREST-LOAN> 24,038
<INTEREST-INVEST> 2,342
<INTEREST-OTHER> 586
<INTEREST-TOTAL> 29,966
<INTEREST-DEPOSIT> 10,292
<INTEREST-EXPENSE> 11,577
<INTEREST-INCOME-NET> 15,389
<LOAN-LOSSES> 694
<SECURITIES-GAINS> 92
<EXPENSE-OTHER> 14,081
<INCOME-PRETAX> 6,019
<INCOME-PRE-EXTRAORDINARY> 3,829
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,829
<EPS-BASIC> 0.71
<EPS-DILUTED> 0.70
<YIELD-ACTUAL> 4.69
<LOANS-NON> 1,124
<LOANS-PAST> 721
<LOANS-TROUBLED> 189
<LOANS-PROBLEM> 946
<ALLOWANCE-OPEN> 4,822
<CHARGE-OFFS> 331
<RECOVERIES> 147
<ALLOWANCE-CLOSE> 5,332
<ALLOWANCE-DOMESTIC> 5,332
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
