SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 30, 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 November 8, 1999 there were outstanding 5,487,202 Common Shares,
$1 stated value, of the Registrant.
Page 1 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 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 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)
- -----------------------------------------------------------------------------
September 30, December 31,
1999 1998
ASSETS ------- --------
Cash and due from banks ...................... $27,104 $31,449
Federal funds sold............................ 5,500 5,200
Interest-bearing deposit accounts............. 377 3,003
-------- --------
Cash and cash equivalents................... 32,981 39,652
Investment securities:
Available for sale.......................... 111,289 88,896
Held to maturity............................ 9,131
-------- --------
Total investment securities .............. 111,289 98,027
Loans:
Loans....................................... 653,678 536,236
Allowance for loan losses................. (5,532) (4,822)
-------- --------
Net loans................................. 648,146 531,414
Loans held for sale .......................... 112 311
Premises and equipment........................ 13,601 13,443
Federal Reserve & Federal Home Loan Bank Stock 5,543 5,031
Other real estate............................. 788 345
Interest receivable........................... 5,464 5,564
Goodwill and core deposit intangibles ........ 11,220 11,963
Other assets.................................. 4,732 2,814
-------- --------
Total assets.............................. $833,876 $708,564
======== ========
LIABILITIES
Deposits
Noninterest bearing......................... $73,285 $68,329
Interest bearing............................ 603,357 522,471
-------- --------
Total deposits 676,642 590,800
Short-term borrowings......................... 16,973 5,841
Notes payable................................. 4,300
Federal Home Loan Bank advances............... 56,718 36,145
Interest payable.............................. 2,394 2,063
Other liabilities............................. 3,274 3,306
-------- --------
Total liabilities......................... 760,301 638,155
-------- --------
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-5,484,702 and
5,398,131 shares.......................... 5,485 5,399
Capital surplus............................... 13,366 12,376
Capital surplus-stock options................. 256 256
Retained earnings............................. 55,097 51,463
Accumulated other comprehensive income........ (629) 915
-------- --------
Total stockholders' equity................ 73,575 70,409
-------- --------
Total liabilities and stockholders' equity $833,876 $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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Interest Income ---- ---- ---- ----
Loans, including fees:
Taxable........... $13,185 $10,866 $37,079 $32,071
Tax exempt........ 77 65 221 175
Investment securities:
Taxable........... 1,012 706 2,467 2,026
Tax exempt........ 404 679 1,291 2,060
Federal funds sold.. 91 71 395 284
Other interest
income............ 212 173 494 377
Total interest ------ ------ ------ ------
income........ 14,981 12,560 41,947 36,993
------ ------ ------ ------
Interest Expense
Deposits............ 5,844 4,886 16,136 14,302
Short-term
borrowings........ 224 127 406 291
FHLB advances....... 757 677 1,860 1,990
Total interest ------ ------ ------ ------
expense....... 6,825 5,690 18,402 16,583
------ ------ ------ ------
NET INTEREST INCOME... 8,156 6,870 23,545 20,410
Provision for loan
losses............ 396 144 1,090 432
------ ------ ------ ------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES....... 7,760 6,726 22,455 19,978
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Other Income:
Fiduciary activities 1,856 1,460 5,192 4,527
Service charges on
deposit accounts.. 544 439 1,500 1,226
Other customer fees. 211 151 618 438
Investment securities
gains, net........ 37 58 129 84
Net loans sold gains 46 47 214 210
Other operating
income............ 200 185 646 503
Total other ------ ------ ------ ------
income........ 2,894 2,340 8,299 6,988
------ ------ ------ ------
Other Expenses:
Salaries and
employee benefits. 3,870 3,133 11,487 9,194
Premises and
equipment expense. 1,155 973 3,485 2,995
Advertising......... 221 208 697 647
Printing, supplies
and stationery.... 182 164 590 568
Professional fees... 87 115 276 295
Deposit insurance
premiums.......... 67 25 144 78
Goodwill and core
deposit intangibles
amortization...... 247 127 743 383
Merger expenses..... 33 402
Other operating
expenses.......... 998 838 3,117 2,730
Total other ------ ------ ------ ------
expenses....... 6,860 5,583 20,941 16,890
------ ------ ------ ------
INCOME BEFORE INCOME
TAX EXPENSE......... 3,794 3,483 9,813 10,076
Income tax expense 1,378 1,174 3,568 3,369
------ ------ ------ ------
NET INCOME............ $2,416 $2,309 $6,245 $6,707
====== ====== ====== ======
NET INCOME PER SHARE:
Basic .............. $0.44 $0.43 $1.15 $1.25
Diluted ............ $0.43 $0.42 $1.13 $1.22
Cash Dividends........ $0.19 $0.19 $0.57 $0.53
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 $65,738
Comprehensive income:
Net income...................................... 6,245 6,707
Other comprehensive income, net of tax:
Unrealized losses on securities
available for sale.
Unrealized holding losses arising
during period............................. (1,466) 214
Reclassification adjustment for
gains included in net income.............. (78) (51)
------ ------
Net unrealized losses....................... (1,544) 163
------ ------
Comprehensive income............................ 4,701 6,870
Cash dividends ($.57 and $.53 per share).......... (2,943) (2,714)
Stock reacquired.................................. (421)
Exercise of stock options ........................ 924 305
Stock tendered in exercise of stock options....... (129) (202)
Tax benefit on stock options exercised............ 281 226
Stock issued under dividend reinvestment
and stock purchase plan......................... 332 364
------- -------
Balance, September 30 ............................ $73,575 $70,166
======= =======
Page 6 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
- -----------------------------------------------------------------------------
Nine Months Ended
September 30,
1999 1998
OPERATING ACTIVITIES: ---- ----
Net income...................................... $6,245 $6,707
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses..................... 1,090 432
Depreciation.................................. 1,680 1,508
Securities amortization....................... (39) 40
Amortization of goodwill, other intangibles
and fair value adjustments.................. 743 383
Net loans sold gains.......................... (214) (210)
Mortgage loans originated for sale............ (22,627) (26,254)
Proceeds from sale of mortgage loans.......... 23,040 26,294
Net change in:
Interest receivable......................... 100 (111)
Interest payable............................ 331 697
Other adjustments............................. 1,234 (1,638)
------ -----
Net cash provided by operating activities... 11,583 7,848
------ -----
INVESTING ACTIVITIES:
Purchases of available for sale securities...... (58,097) (34,952)
Purchases of held to maturity securities........ (1,000)
Proceeds from available for sale securities
maturities and sales.......................... 42,616 18,584
Proceeds from maturities of held to maturity.... 2,135
Net increase in loans........................... (117,095) (29,093)
Purchases of premises and equipment............. (1,838) (2,443)
Investment in affiliate......................... (4,000)
Cash received in branch acquisitions............ 80,474
Net cash provided (used) ------- ------
by investing activities................... (138,414) 33,705
------- ------
FINANCING ACTIVITIES:
Net change in noninterest-bearing,
NOW, money market and savings deposits........ 16,424 651
Net change in certificates of
deposits and other time deposits.............. 69,418 (2,209)
Net change in short-term borrowings............. 15,432 (6,751)
Proceeds from Federal Home Loan Bank advances... 29,000 20,530
Repayment of Federal Home Loan Bank advances.... (8,427) (18,000)
Cash dividends.................................. (2,943) (2,714)
Stock sold:
Exercise of stock options..................... 924 305
Dividend reinvestment and stock purchase plan. 332 364
Stock repurchases............................... (421)
Net cash provided (used) ------- ------
by financing activities................. 120,160 (8,245)
------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS........... (6,671) 33,308
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 39,652 27,292
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $32,981 $60,600
======= =======
Additional Cash Flows Information:
Interest paid................................... $18,071 $15,886
Income tax paid................................. 3,241 3,450
Page 7 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 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 state-
ments are unaudited, however, all adjustments, consisting only of normal
recurring adjustments, which are, in the opinion of management necessary for
a fair presentation of the results for the periods reported, have been
included in the accompanying consolidated condensed financial statements.
The results of operations for the nine months ended September 30, 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
September 30 Cost Gains Losses Value
- -----------------------------------------------------------------------------
Available for sale:
U.S. Treasury....... $6,180 $40 $1 $6,219
Federal agencies.... 25,688 690 24,998
State and municipal. 28,608 127 90 28,645
Mortgage backed
securities........ 51,199 3 422 50,780
Marketable equity
securities........ 550 550
Corporate obligation 96 1 97
Total investment --------------------------------------------------
securities...... $112,321 $171 $1,203 $111,289
==================================================
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:
September 30, December 31,
1999 1998
Loans ---- ----
Commercial and industrial loans............... $113,922 $113,943
Term federal funds sold....................... 3,500 8,623
Real estate loans:
One-to-four family properties............... 241,188 210,447
Other....................................... 175,036 139,237
Individuals' loans for household and other
personal expenditures....................... 110,992 56,731
Tax exempt loans.............................. 5,680 4,711
Other loans................................... 3,360 2,544
-------- --------
Total loans.............................. $653,678 $536,236
======== ========
Nonperforming loans
Nonaccruing loans............................. $1,230 $1,257
Accruing loans contractually past due
90 days or more other than nonaccruing...... 484 973
Restructured loans............................ 184 243
------ ------
Total nonperforming loans................ $1,898 $2,473
====== ======
Nine Months Ended
September 30,
1999 1998
Allowance for loan losses ------ ------
Balances, beginning of period................. $4,822 $4,606
Provision for losses.......................... 1,090 432
Recoveries on loans........................... 162 62
Loans charged off............................. (542) (497)
------ ------
Balances, end of period....................... $5,532 $4,603
====== ======
- -----------------------------------------------------------------------------
NOTE 4--DEPOSITS:
September 30, December 31,
1999 1998
Deposits ---- ----
Noninterest bearing......................... $73,285 $68,329
NOW accounts................................ 93,887 97,291
Money market deposit accounts............... 94,483 79,821
Savings deposits............................ 36,913 36,703
Certificates and other time deposits
of $100,000 or more....................... 147,996 76,998
Other certificates and time deposits........ 230,078 231,658
-------- --------
Total deposits........................... $676,642 $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:
Nine Months Ended
September 30,
1999 1998
---- ----
Accumulated comprehensive income
Balance, January 1 ........................... $915 $1,464
Net unrealized gains(losses).................... (1,544) 163
------ ------
Balance, September 30 .......................... ($629) $1,627
====== ======
Income tax expense (benefit):
Unrealized holding gains(losses)................ ($962) $140
Reclassification adjustments.................. $51 $33
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
September 30 Income Shares Amount Income Shares Amount
- -------------------------------------------------- --------------------------
Basic Earnings Per Share
Income available to
common stockholders...$2,416 5,459,073 $0.44 $2,309 5,391,673 $0.43
Effect of dilutive ==== ====
stock options......... - 127,880 - 114,217
----- --------- ----- ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion............$2,416 5,586,953 $0.43 $2,309 5,505,890 $0.42
===== ========= ==== ===== ========= ====
Nine Months Ended September 30
- ------------------------------
Basic Earnings Per Share
Income available to
common stockholders...$6,245 5,434,834 $1.15 $6,707 5,383,947 $1.25
Effect of dilutive ==== ====
stock options......... - 92,175 - 121,443
----- --------- ----- ---------
Dilutive Earnings Per Share
Income available to
common stockholders
and assumed
conversion............$6,245 5,527,009 $1.13 $6,707 5,505,390 $1.22
===== ========= ==== ===== ========= ====
- -----------------------------------------------------------------------------
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:
Nine months ended: BANKING TRUST ELIMINATIONS
September 30, 1999 SERVICES SERVICES COMPANY (1) TOTAL
- -------------------------------------------------------------------------------
Total interest income....... $41,855 $82 $10 $41,947
Total non-interest income... 3,201 5,273 8,120 ($8,295) 8,299
Total interest expense...... 18,352 50 18,402
Total non-interest expense.. 14,534 4,111 3,151 (855) 20,941
Income before income tax.... 11,080 1,244 4,929 (7,440) 9,813
Income tax expense(benefit). 3,974 502 (908) 3,568
Total assets................ 830,697 5,660 78,332 (80,813) 833,876
Capital expenditures........ 1,315 355 168 1,838
Goodwill acquired...........
Depreciation & amortization. 1,741 298 384 2,423
Nine months ended: BANKING TRUST
September 30, 1998 SERVICES SERVICES COMPANY ELIMINATIONS TOTAL
- -------------------------------------------------------------------------------
Total interest income....... $36,824 $169 $36,993
Total non-interest income... 2,527 4,571 $7,543 ($7,653) 6,988
Total interest expense...... 16,583 16,583
Total non-interest expense.. 11,536 3,651 2,330 (627) 16,890
Income before income tax.... 10,800 1,088 5,213 (7,026) 10,076
Income tax expense(benefit). 3,664 447 (742) 3,369
Total assets................ 697,607 8,017 70,632 (70,939) 705,317
Capital expenditures........ 1,462 655 316 2,433
Goodwill acquired...........
Depreciation & amortization. 1,239 286 366 1,891
(1) Eliminations include intercompany dividends and undistributed income
of Company subsidiaries from parent company only statements; Company
revenues of $690 thousand for 1999 and $498 thousand for 1998 from
banking subsidiaries and revenues between segments of $165 thousand
for 1999 and $129 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. Merger expenses
of $33,000 were recorded during the quarter ended September 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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Net Interest Income:
ANB Corporation..... $8,156 $5,979 $22,348 $17,752
Farmers............. 891 1,197 2,658
------ ------ ------ ------
Combined.......... $8,156 $6,870 $23,545 $20,410
------ ------ ------ ------
Net Income:
ANB Corporation..... $2,416 $2,053 $5,921 $5,956
Farmers............. 256 324 751
------ ------ ------ ------
Combined.......... $2,416 $2,309 $6,245 $6,707
------ ------ ------ ------
Basic Earnings Per Share:
ANB Corporation..... $0.44 $0.38 $1.09 $1.11
Farmers............. 0.05 0.06 0.14
------ ------ ------ ------
Combined.......... $0.44 $0.43 $1.15 $1.25
------ ------ ------ ------
Diluted Earnings Per Share:
ANB Corporation..... $0.43 $0.37 $1.07 $1.08
Farmers............. 0.05 0.06 0.14
------ ------ ------ ------
Combined.......... $0.43 $0.42 $1.13 $1.22
------ ------ ------ ------
- -----------------------------------------------------------------------------
NOTE 9--PROPOSED MERGER
On July 29, 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
September 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 nine months of 1999 was $6.245 million compared
to $6.707 million for the first nine months of 1998, a decline of 6.9%
or $462 thousand. Diluted net income per share for the first nine months
of 1999 was $1.13, a decrease of $0.09 or 7.4% from the $1.22 per share
which was reported for the first nine months of 1998.
Third quarter 1999 net income increased $107 thousand from the $2.309
million reported for the third quarter in 1998. Net income per share
diluted for third quarter 1999 was higher by $0.01 per share or 2.4% when
compared to third 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 nine months of 1999 was $1.23 per
share compared to $1.28 per share for the comparable period in 1998, a
decline of $0.05 per share or 3.9%.
Results for the first nine months of 1999 include non-recurring merger
expenses of $402,000 or $0.06 per share related to the Farmers acquisistion.
When these one-time charges are excluded, the Company's year-to-date diluted
cash or tangible earnings per share were $1.29, compared to $1.28 for the
same period in 1998. For the third quarter 1999, diluted cash earnings per
share increased $0.03 to $0.47, an increase of 6.8% over the third quarter
of 1998.
For the first nine months of 1999 the Company's return on average assets
and return on average equity was 1.10% and 11.70% respectively, compared
to 1.43% and 13.47% for the first nine 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 nine
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 $2.792 million or 13.0% for the nine months
ended September 30, 1999 when compared to the same nine month period in 1998.
Total interest income, expressed on a FTE basis, increased $4.611 million
for the nine month period, while total interest expense of the Company rose
only $1.819 million. Net interest margin (FTE), expressed as a percent of
earning assets, was 4.59% for the first nine months of 1999, down 30 basis
points from the 4.89% reported for the first nine months of 1998.
Third quarter 1999 net interest income was $8.384 million compared to
$7.223 million for the same period one year ago, an increase of 16.1%.
Net interest margin (FTE) for the third quarter, expressed as a percentage
of earning assets was 4.43%, down 33 basis points from the same period a
year ago.
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
$5.008 million in the nine month period ending September 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. Credit
demand remains strong in the markets served by the Company.
Page 12 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 30, 1999
- -----------------------------------------------------------------------------
Provision for Loan Losses
- -------------------------
The Company's provision for loan losses increased $658 thousand for the
nine months ended September 30, 1999 when compared to the same period in
1998. For the third quarter of 1999 the provision expense was $396 thousand
compared to $144 thousand for the third 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 nine months of 1999 and as a result of continued loan growth
being experienced by the Company.
Net charge-offs during the first nine months of 1999 were $380 thousand
compared to net charge-offs of $435 thousand for the comparable period in
1998. During the first nine months of 1999 net charge-offs for the three
major loan categories: real estate; loans for personal expenditures and
commercial, were $116 thousand, $242 thousand and 22 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 $1.311
million or 18.8% during the first nine months of 1999 compared to the
same period one year ago. Fees generated from fiduciary activities
increased $665 thousand or 14.7% for the first nine 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 $454 thousand or 27.3% 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.
The category "other operating income" increased $143 thousand for the
nine months of 1999 when compared to the same period in 1998. Increased
fee income of $153 thousand received by the Company's financial planning
affiliate combined with slightly lower fees relating to loan servicing
account for most of the net increase.
Total other expenses increased $4.051 million or 24.0% in the first nine
months of 1999 compared to the same period in 1998. Salaries and benefits
increased $2.293 million as expansion has resulted in the Company's full
time equivalent(FTE) base growing to 384 at September 30, 1999, compared
to 351 at September 30, 1998. Additional salary and benefit expense was
recorded for the nine months ending September 30, 1999 as a result of
branch acquisitions in Anderson and Zionsville completed late in the
third quarter of 1998. Also, increases in the Company's group medical
insurance premiums along with increases in various other components in
the area of fringe benefits contributed to the overall increase.
Premises and equipment expense increased $490 thousand or 16.4% from the
level reported for the nine months ended September 30, 1999. The first nine
months of 1999 reflects increased depreciation expense of $172 thousand over
the first nine 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 $318 thousand.
Goodwill and core deposit intangibles expense were higher by $360 thousand
over the reported level at September 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 $402 thousand were;
legal and accounting fees - $214 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 $387 thousand or 14.2%
in the first nine months of 1999 when compared to the first nine 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 $112 thousand was recorded for the first nine months of 1999 when
compared to the first nine months of 1998.
Income Taxes
- ------------
Income tax expense, including both federal income tax and the Indiana
franchise tax, increased by $199 thousand for the first nine months of 1999
compared to 1998. Income before income tax decreased $263 thousand or 2.6%
for the first nine months of 1999 over 1998, however the Company's tax
exempt bond and loan income declined $723 thousand for the nine months in
1999 when compared to 1998, resulting in a greater income tax expense for
the first nine months of 1999 over the same period in 1998.
The effective tax rate for the nine month period ending September 30, 1999
was 36.4% versus 33.4% for the comparable period in 1998.
Page 13 of 18 Pages
<PAGE>
ANB CORPORATION
FORM 10-Q
September 30, 1999
- -----------------------------------------------------------------------------
Balance Sheet
- -------------
The Company's total assets increased $125.312 million from the level
reported at year end 1998. When compared to September 30, 1998, total
assets have increased $128.559 million or 18.2%.
Average assets for the first nine months of 1999 rose to $757.959 million,
an increase of $128.394 million or 20.4% from the level reported at
September 30, 1998.
Cash and cash equivalents decreased $6.671 million at September 30, 1999
from the level reported at December 31, 1998. Cash and due from banks
decreased $4.345 million from the levels reported at year end, while
interest bearing deposit accounts combined with federal funds sold decreased
$2.326 million.
Loans and Deposits
- ------------------
Loans, excluding loans held for sale and term federal funds, were
$650.178 million at September 30, 1999, an increase of $122.565 million
over the year end 1998 level of $527.613 million. At September 30, 1998,
loans, excluding loans held for sale and term federal funds, were
$497.787 million. Growth in the Company's loan portfolio from September 30,
1998 to September 30, 1999 has been $152.391 million or 30.6%. This loan
growth has occurred in most major categories of the portfolio, with $90.003
million or 59.1% of total growth experienced during the past twelve months,
having occurred in the mortgage loan component of the loan portfolio.
Real estate loans continue to be the largest asset category of the Company.
At September 30, 1999 loans made to individuals on owner occupied property
represented 28.9% of total assets and 57.9% of the Company's mortgage loan
portfolio. At September 30, 1998 loans made to individuals on owner occupied
property represented 27% of total assets and 58.3% of the Company's mortgage
loan portfolio. Over the last twelve months loans on owner occupied property
and commercial mortgage loans have grown $51.071 million and $38.932 million
respectively. Growth in the Companys mortgage loan portfolio over the past
twelve months represents approximately 59% of total loan growth experienced.
The remaining 41% has been divided between loans to individuals; 37% or
$56.834 million and commercial/industrial loans; 4% or $5.555 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 September 30, 1999 increased $85.842
million from the level reported at year end 1998. Noninterest-bearing
deposits increased by $4.956 million at September 30,1999 as measured against
year-end 1998, while total interest bearing deposits increased $80.886
million. Total NOW, money market accounts and savings deposits increased
$11.468 million at September 30, 1999 when compared to December 31, 1998,
while certificates of deposit were higher by $69.418 million.
Average interest bearing deposits were higher by $110.600 million or
24.7% for the nine months ended September 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 $575 thousand from year end 1998.
At September 30, 1999 total nonperforming loans were $1.898 million or .23%
of total assets, compared to .35% of total assets at year end 1998. Total
nonperforming loans represented .29% of total loans at September 30, 1999,
compared to .46% on December 31, 1998.
The allowance for loan losses at September 30, 1999 increased $710 thousand
from year end 1998. Loans charged off for the period ending September 30,
1999, increased by $45 thousand when compared to the same period in 1998.
The allowance for loan losses equaled 291% of nonperforming loans at
September 30, 1999 compared to 195% 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
September 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 September 30, 1999, the Company woul
experience a decline in earnings, due to a decrease in net interest income of
approximately $1.850 million over a one year time period. At September 30,
1998 with a 100 basis points increase in rates, net interest income would hav
decreased by approximately $377 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 $73.575 million on September 30, 1999. Book value per share was $13.41
at September 30, 1999 compared to $13.04 at year end 1998. Excluding net
unrealized gains on securities available for sale, per share book value
increased $0.66 a share to $13.53 at September 30, 1999 from year end 1998.
Tangible book value per share on September 30, 1999 was $12.06 compared to
$11.30 for the year end 1998 and $11.12 on September 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 nine 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 nine months ended September 30, 1999 a total of 13,916 shares were
issued under the Company's Dividend Reinvestment and Stock Purchase Plan.
A total of 351 shareholders or about 52% of the Company's shareholders of
record participate in the Plan.
At September 30, 1999 the Company's Tier I risk based capital ratio was
10.63% and its leverage capital ratio was 7.95%. 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
September 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
September 30, 1999
- -----------------------------------------------------------------------------
PART II. OTHER INFORMATION
--------------------------
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
September 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
Date: November 8, 1999 BY: /s/ James R. Schrecongost
----------------------------
James R. Schrecongost
Vice Chairman, President and CEO
Date: November 8, 1999 BY: /s/ Larry E. Thomas
----------------------------
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 27,104
<INT-BEARING-DEPOSITS> 377
<FED-FUNDS-SOLD> 5,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,289
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 653,678
<ALLOWANCE> 5,532
<TOTAL-ASSETS> 833,876
<DEPOSITS> 676,642
<SHORT-TERM> 49,108
<LIABILITIES-OTHER> 5,668
<LONG-TERM> 28,883
0
0
<COMMON> 5,485
<OTHER-SE> 68,090
<TOTAL-LIABILITIES-AND-EQUITY> 833,876
<INTEREST-LOAN> 37,300
<INTEREST-INVEST> 3,758
<INTEREST-OTHER> 889
<INTEREST-TOTAL> 41,947
<INTEREST-DEPOSIT> 16,136
<INTEREST-EXPENSE> 18,402
<INTEREST-INCOME-NET> 23,545
<LOAN-LOSSES> 1,090
<SECURITIES-GAINS> 129
<EXPENSE-OTHER> 20,941
<INCOME-PRETAX> 9,813
<INCOME-PRE-EXTRAORDINARY> 6,245
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,245
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 4.59
<LOANS-NON> 1,230
<LOANS-PAST> 484
<LOANS-TROUBLED> 184
<LOANS-PROBLEM> 946
<ALLOWANCE-OPEN> 4,822
<CHARGE-OFFS> 542
<RECOVERIES> 162
<ALLOWANCE-CLOSE> 5,532
<ALLOWANCE-DOMESTIC> 5,532
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
