SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to
___________
COMMISSION FILE NUMBER 0-26870
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AMERICAN NATIONAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1943817
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
211 North Liberty Street, Baltimore, Maryland 21201-3978
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(Address of principal executive offices) (zip code)
Registrant's telephone number,
including area code: (410)-752-0400
----------------------
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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date: Common Stock, $0.01 par value--3,603,646 shares as of
November 21, 1996.
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AMERICAN NATIONAL BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial 1
Condition at October 31, 1996 (unaudited) and
July 31, 1996
Consolidated Statements of Operations 2
(unaudited) for the Three Months ended
October 31, 1996 and 1995
Consolidated Statements of Cash Flows 3
(unaudited) for the Three Months ended
October 31, 1996 and 1995
Notes to Unaudited Consolidated 5
Financial Statements
Item 2. Management's Discussion and 9
Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION 14
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<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Financial Condition (Unaudited)
<CAPTION>
Assets October 31, 1996 July 31, 1996
- ------------------------------------- ---------------- -------------
(In thousands)
<S> <C> <C>
Cash:
On hand and due from banks $ 2,947 $ 2,671
Interest-bearing deposits 1,993 1,837
Federal funds sold 295 394
Securities available for sale 36,986 40,266
Investment securities 27,209 24,109
Mortgage-backed securities 104,069 100,195
Loans receivable, net 298,261 278,042
Federal Home Loan Bank stock, at cost 3,871 3,141
Investments in real estate, net 5,526 5,670
Investments in and advances to real
estate joint ventures 1,532 1,270
Property and equipment, net 1,193 1,198
Prepaid expenses and other assets 593 612
Income taxes receivable 295 -
Deferred income taxes 1,869 1,866
-------------- --------------
$ 486,639 $ 461,271
============== ==============
Liabilities and Stockholders' Equity
- --------------------------------------
Liabilities:
Deposits $ 314,365 $ 313,083
Borrowed funds 44,940 34,445
Advances from the Federal Home Loan
Bank of Atlanta 76,036 62,824
Drafts payable 993 859
Advance payments by borrowers for taxes
and insurance 2,403 1,760
Accrued expenses and other liabilities 3,369 1,030
-------------- --------------
Total Liabilities 442,106 414,001
Stockholders' Equity:
Serial preferred stock 1,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 8,000,000
shares authorized, 3,980,500 shares
issued and 3,603,646 shares outstanding
at October 31, 1996 40 40
Additional paid-in capital 30,658 30,705
Unearned common stock acquired by
management recognition and retention
plans (48) (77)
Unearned employee stock ownership plan
(ESOP) shares (1,585) (1,629)
Treasury stock at cost, 376,854 shares (4,241) (2,040)
Retained income - substantially restricted 21,152 21,970
Net unrealized holding loss on securities,
net of income taxes (1,443) (1,699)
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Total Stockholders' Equity 44,533 47,270
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$ 486,639 $ 461,271
============= =============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Three months ended October 31,
1996 1995
----------- ----------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans receivable $ 6,038 $ 5,110
Mortgage-backed securities 2,110 2,590
Investment securities 585 275
Other 177 196
--------- ---------
Total interest income 8,910 8,171
Interest expense:
Deposits 3,828 4,117
Borrowed funds 1,566 1,278
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Total interest expense 5,394 5,395
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Net interest income 3,516 2,776
Provision for loan losses 210 290
--------- ---------
Net interest income after
provision for loan losses 3,306 2,486
Noninterest income:
Fees and service charges 192 150
Gain (loss) on sales of:
Loans receivable, net - 3
Mortgage-backed securities, net (64) 2
Other 45 38
--------- ---------
Total noninterest income 173 193
Noninterest expenses:
Salaries and employee benefits 1,133 1,058
Net occupancy 314 349
Professional services 72 88
Advertising 211 167
Federal deposit insurance premiums 2,252 205
Furniture, fixtures and equipment 109 72
Loss on investment in real estate 34 53
Equity in net loss of real estate
joint ventures - 30
Other 396 372
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Total noninterest expenses 4,521 2,394
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Income (loss) before income taxes (1,042) 285
Income tax provision (benefit) (354) 102
---------- ----------
Net income (loss) $ (688) $ 183
========== ==========
Loss per common share: $ (0.19) N/A
========== ==========
Proforma earnings per common share N/A 0.11
========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Three months ended October 31,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (688) $ 183
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 133 124
Amortization of loan fees (89) (90)
Amortization of premiums and
discounts, net 91 (117)
Provision for losses on loans
and investments in real estate 210 300
Loss (gain) on sales of assets, net 64 (5)
Loans originated for sale (2,032) 53
Sales of loans originated for sale 255 587
Deferred income taxes (165) 48
Decrease (increase) in prepaid
expenses and other assets 19 (87)
Increase in accrued expenses
and other liabilities 2,339 87
Increase in income taxes receivable (295) -
Other, net (40) 76
---------- ----------
Net cash provided by (used in) operating
activities (198) 1,159
---------- ----------
Cash flows from investing activities:
Repayments of mortgage-backed securities
available for sale 961 -
Sales of mortgage-backed securities
available for sale 4,254 1,502
Purchases of mortgage-backed securities
available for sale (1,780) (3,767)
Maturities of investment securities - 4,000
Purchases of investment securities (3,000) (8,265)
Repayments of mortgage-backed securities 1,050 3,453
Purchases of mortgage-backed securities (4,984) -
Loan principal repayments 13,889 11,984
Loan originations (24,875) (20,430)
Loan purchases (7,683) (1,201)
Increase in deferred loan fees, net 235 144
Decrease in investments in real estate 184 270
(Increase) decrease in investments in
and advances to real estate joint
ventures (262) 59
Purchases of property and equipment (128) (62)
Federal Home Loan Bank stock purchases, net (730) -
----------- -----------
Net cash used in investing activities (22,869) (12,313)
----------- -----------
(continued)
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AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Three months ended October 31,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits 1,282 (2,487)
Net increase (decrease) in borrowed
funds 10,495 (163)
Proceeds from Federal Home Loan Bank
advances 21,895 48,158
Repayment of Federal Home Loan Bank
advances (8,683) (55,242)
Increase in drafts payable 134 5,813
Increase in advance payments by borrowers
for taxes and insurance 643 678
Proceeds from issuance of common stock,
net of expenses - 19,294
Proceeds from exercised options 58 -
Cash dividends paid (108) (92)
Purchase of treasury stock (2,316) -
----------- -----------
Net cash provided by financing activities 23,400 15,959
Net increase in cash and cash equivalents 333 4,805
Cash and cash equivalents at beginning of
period 4,902 5,360
----------- -----------
Cash and cash equivalents at end of period $ 5,235 $ 10,165
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed
funds $ 5,358 $ 5,260
Income taxes paid, net 100 -
========== ============
Noncash activities: Loans transferred to
real estate acquired through foreclosure $ 40 $ 2,126
========== ===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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AMERICAN NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
October 31, 1996
(1) Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include
all adjustments, consisting of normal recurring adjustments, which are
necessary, in the opinion of management, to fairly reflect the Company's
financial position, results of operations and cash flows for the periods
presented. The statements have been prepared using the accounting policies
described in the July 31, 1996 Annual Financial Statements. The results of
operations for the three months ended October 31, 1996 are not necessarily
indicative of the results which may be expected for the entire year.
(2) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
American National Bancorp, Inc., (the "Company"), and its wholly owned
subsidiary, American National Savings Bank, F.S.B. (the "Bank") and its
subsidiaries. All significant intercompany balances and transactions have
been eliminated in consolidation.
(3) Reclassification of Prior Year's Statements
-------------------------------------------
Certain amounts in the 1996 financial statements have been
reclassified to conform with the 1996 presentation.
(4) Conversion and Reorganization
------------------------------
In June 1995, the Board of Directors of American National Bankshares,
M.H.C. (MHC), a mutual holding company, and the Bank approved a plan of
conversion and reorganization which resulted in the merger of the MHC into the
Bank and the formation of a new Delaware stock chartered holding company,
American National Bancorp, Inc. The conversion was completed on October 31,
1995.
In the offering, 2,182,125 shares of common stock were sold at a
subscription price of $10.00 per share resulting in net proceeds of
approximately $19.3 million after taking into consideration the $1.7 million
for the establishment of an ESOP and $782,000 in expenses. In addition to the
shares sold in the offering, 927,000 shares of the Company's stock were issued
in exchange for shares of the Bank's stock previously held by public
shareholders at an exchange ratio of 1.94 shares for each share of the Bank's
common stock resulting in 3,980,500 total shares of the Company's stock
outstanding as of October 31, 1995.
(5) Securities Available For Sale
------------------------------
Debt securities that the Company has the positive intent and ability
to hold to maturity must be reported at amortized cost. Debt and equity
securities that are purchased and held principally for the purpose of selling
in the near term must be reported at fair value, with unrealized gains and
losses included in earnings. All other debt and equity securities must be
considered available for sale and must be reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of stockholders' equity (net of tax effects).
On August 8, 1994, the Bank transferred approximately $36.3 million
of its collateralized mortgage obligations (CMO), net of unrealized loss of
approximately $1.8 million, from the available for sale portfolio to held to
maturity. On that date, certain accounting issues were resolved permitting
the
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Bank to transfer substantially all of these securities from the available for
sale portfolio to the held to maturity portfolio as originally intended. The
unrealized loss at the time of the transfer is being amortized over the
remaining lives of the securities as an adjustment of yield. The unrealized
loss, net of taxes, was $1.1 million and as a component of stockholders'
equity is being reduced through the amortization.
(6) Earnings Per Common Share
-------------------------
Earnings per share were computed by dividing net income for the three
months ended October 31, 1996 by the weighted average number of shares of
common stock outstanding (3,538,806). ESOP shares that have not been
committed to be released are not considered outstanding for the computation of
earnings per share in accordance with Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). Shares granted
but not yet issued under the Company's stock option plans are considered
common stock equivalents for earnings per share calculations.
The pro forma net income per share for the three months ended October
31, 1995 has been calculated as if the 2,182,125 shares issued had been sold
on August 1, 1995. The net proceeds of the offering are assumed to have been
invested at a net effective yield of 7.86%, (the approximate weighted average
yield on all interest earning assets during the period from August 1, 1995 to
October 31, 1995) for the period from August 1, 1995 to October 31, 1995, and
income so calculated, reduced for income taxes at an assumed effective tax
rate of 38.6%, was added to reported net income for the period to obtain the
pro forma net income used in the calculation.
Earnings per share information is not applicable for the three months
ended October 31, 1995, as the Company did not complete its Stock Offering
until October 31, 1995.
(7) Dividends on Common Stock
-------------------------
On October 15, 1996, the Company declared a quarterly cash dividend
of $0.03 per share. The dividends were payable to stockholders of record as
of October 31, 1996 and were paid on November 15, 1996.
(8) Employee Stock Ownership Plan (ESOP)
------------------------------------
In connection with the Conversion and Reorganization, the Company
formed an ESOP. The ESOP covers employees which have completed at least one
year of service and have attained the age of 21. The ESOP borrowed $1.7
million from the Company and purchased 174,570 shares, equal to 8% of the
total number of shares issued in the offering. The Bank makes scheduled
quarterly contributions to the ESOP sufficient to service the debt. The cost
of shares not committed to be released and unallocated (suspense shares) is
reported as a reduction in stockholders' equity. Dividends, if any, on
unallocated shares are used for debt service. Shares are released to
participants based on compensation.
In connection with the formation of the ESOP, the Company adopted SOP
93-6. SOP 93-6 requires that (1) compensation expense be recognized based on
the average fair value of the ESOP shares committed to be released; (2)
dividends on unallocated shares used to pay debt service be reported as a
reduction of debt or accrued interest payable and that dividends on allocated
shares be charged to retained earnings; and (3) ESOP shares which have not
been committed to be released are not considered outstanding for purposes of
computing earnings per share and book value per share.
Compensation expense related to the ESOP amounted to $54,000 for the
three months ended October 31, 1996. The fair value of unearned ESOP shares
at October 31, 1996 totalled $1.9 million. At October 31, 1996, there were
13,093 ESOP
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shares committed to be released and 158,568 suspense shares. ESOP shares
totaling 2,909 were allocated as of December 31, 1995.
(9) Stock-Based Compensation
------------------------
In November 1995, the Financial Accounting Standards Board (SFAS)
issued SFAS No. 123 "Accounting for Awards of Stock-Based Compensation to
Employees" (Statement 123). Statement 123 is effective for years beginning
after December 15, 1995. The Statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees" (Opinion 25). Under the fair value based
method, compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. Under the intrinsic value-based method, compensation cost is
the excess, if any, of the quoted market price of the stock at grant date or
other measurement date over the amount an employee must pay to acquire the
stock. Most fixed stock option plans -- the most common type of stock
compensation plan--have no intrinsic value at grant date, and under Opinion 25
no compensation cost is recognized for them. Compensation cost is recognized
for other types of stock-based compensation plans under Opinion 25, including
plans with variable, usually performance-based, features. This Statement
requires that an employer's financial statements include certain disclosures
about stock-based employee compensation arrangements regardless of the method
used to account for them. Management adopted the provisions of Statement 123
as of August 1, 1996 using the intrinsic value-based method and will provide
disclosure about its stock based employee compensation plans in its 1997
financial statements as required by Statement 123.
(10) Employee Stock Benefit Plans
----------------------------
At its Annual Meeting on November 21, 1996, stockholders approved the
Company's 1996 Recognition and Retention Plan (RRP) and the 1996 Stock Option
Plan (the Stock Plan).
The RRP authorizes the grant of stock to directors and officers of
the Company for 87,285 shares. Shares shall vest at the rate of 20% of the
initially awarded amount per year with the first installment being earned on
the first trading day of 1998 and succeeding installments being earned on the
first trading day of the following year.
The Stock Plan authorized the grant of stock to directors and
officers for an aggregate of 218,213 of authorized, but unissued shares.
Options are exercisable at the market price at the time of grant on a
cumulative basis at a rate of 20 percent per year commencing one year from the
date of grant and expire 10 years from the date of grant.
(11) Recapitalization of Savings Institutions Insurance Fund ("SAIF")
----------------------------------------------------------------
On September 30, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which, among other things,
imposes a special one-time assessment on SAIF member institutions, including
the Bank, to recapitalize the SAIF. As required by the Funds Act, the Federal
Deposit Insurance Corporation ("FDIC") imposed a special assessment of 65.7
basis points on SAIF assessable deposits held as of March 31, 1995, payable
November 27, 1996. The Company made a one-time charge of the special
assessment for $2.1 million on a pretax basis, $1.4 million net of income tax
benefits, in the first quarter.
The Funds Act also spreads the obligations for payment of the
Financing Corporation ("FICO") bonds across all SAIF and Bank Insurance Fund
("BIF") members. Beginning on January 1, 1997, BIF deposits will be assessed
for FICO
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payments at a rate of 20% of the rate assessed on SAIF deposits. Based on
current estimates by the FDIC, BIF deposits will be assessed a FICO payment of
1.3 basis points, while SAIF deposits will pay an estimated 6.5 basis points
on the FICO bonds. Full pro rata sharing of the FICO payments between BIF and
SAIF members will occur on the earlier of January 1, 2000 or the date the BIF
and SAIF are merged. The Funds Act specifies that the BIF and SAIF will be
merged on January 1, 1999 provided no savings associations remain as of that
time.
As a result of the Funds Act, the FDIC recently proposed to lower
SAIF assessments to 0 to 27 basis points effective January 1, 1997, a range
comparable to that of BIF members. However, SAIF members will continue to
make the higher FICO payments described above. Management cannot predict the
level of FDIC insurance assessments on an on-going basis, whether the savings
association charter will be eliminated or whether the BIF and SAIF will
eventually be merged.
(12) Impact of New Accounting Standards
----------------------------------
In June 1996, the FASB issued Statement of Financial Accounting
Standards 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (SAFS 125). SFAS 125 is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively. This
Statement will require, among other things, that the Company record at fair
value, assets and liabilities resulting from a transfer of financial assets.
The Company will adopt the provisions of SFAS 125 as of January 1, 1997, and
management believes that the adoption of SFAS 125 will not have a material
effect on the Company's financial condition or results of operations.
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AMERICAN NATIONAL BANCORP, INC.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis covers material changes in the
financial condition since July 31, 1996 and material changes in the results of
operations for the three months ended October 31, 1996 as compared to the same
period in 1995. This discussion should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the 1996 Annual Report to Stockholders.
Financial Condition
- -------------------
Total assets increased by $25.3 million, or 5.5%, to $486.6 million
at October 31, 1996 from $461.3 million at July 31, 1996. Assets increased
primarily due to an increase in mortgage loans originated and purchased.
Loans receivable increased by $20.3 million, or 7.3% to $298.3 million from
$278.0 million at July 31, 1996. Securities available for sale decreased $3.3
million, or 8.2%, to $37.0 million at October 31, 1996 from $40.3 million at
July 31, 1996 due to the sale of securities. Mortgage-backed securities
increased by $3.9 million, or 3.9%, to $104.1 million at October 31, 1996,
from $100.2 million at July 31, 1996. Investment securities increased by $3.1
million, or 12.9%, to $27.2 million, at October 31, 1996, from $24.1 million
at July 31, 1996, primarily due to the purchase of $3.0 million in FHLB 3-
month callable notes.
Deposits increased by $1.3 million, or 0.4%. Borrowed funds
increased by $10.5 million, or 30.5%, and advances from the Federal Home Loan
Bank of Atlanta increased $13.2 million, or 21.0%. These increases are due to
the funding of loan originations and loan and security purchases.
Total stockholders' equity decreased by $2.8 million to $44.5 million
at October 31, 1996 compared to $47.3 million at July 31, 1996. This decrease
was a result of the Company repurchasing 189,074 shares of common stock for
$2.3 million or $12.25 per share, a net loss for the quarter of $688,000, and
a quarterly dividend of approximately $108,000 for the quarter ended October
31, 1996, partially offset by a decrease in the net unrealized holding loss on
securities of $256,000.
Results of Operations
- ---------------------
The consolidated earnings of the Company depend primarily on the
difference between the interest earned on its loan, mortgage-backed securities
and investment portfolios and the interest paid on deposits and borrowings.
This difference is known as "net interest income". The Company's net income
also is affected by its provision for losses on loans and investments in real
estate, as well as the amount of non-interest income, including loan fees and
service charges, and non-interest expense, such as salaries and employee
benefits, deposit insurance premiums, occupancy and equipment costs and income
taxes. Earnings of the Company also are affected significantly by general
economic and competitive conditions, particularly changes in market interest
rates, government policies and actions of regulatory authorities.
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Interest Income. Interest income totalled $8.9 million for the three
months ended October 31, 1996, compared to $8.2 million for the three months
ended October 31, 1995, an increase of $739,000, or 9.0%. This increase
resulted from a $49.8 million, or 12.0%, increase in average interest earning
assets to $465.5 million for the three months ended October 31, 1996 from
$415.7 million during the three months ended October 31, 1995, partially
offset by a decrease in the yield on average interest earning assets to 7.7%
for the three months ended October 31, 1996, from 7.9% for the three months
ended October 31, 1995. The increase in average interest earning assets
resulted from a $58.8 million, or 25.5%, increase in average loans to $289.0
million from $230.2 million and a $16.5 million, or 102.5%, increase in
average investments to $32.6 million from $16.1 million. This increase was
partially offset by a $24.6 million, or 15.5%, decrease in average mortgage-
backed securities. The decrease in the yield on interest-earning assets to
7.7% for the three months ended October 31, 1996 from 7.9% for the three
months ended October 31, 1995 was due to decreases in the weighted average
yield on mortgage loans, consumer loans, mortgage-backed securities and other
interest-earning assets offset by an increase in investment securities.
Interest Expense. Interest expense, which totalled $5.4 million for
the three months ended October 31, 1996 was virtually unchanged from the three
months ended October 31, 1995. Interest expense on deposits decreased
$289,000, or 7.0%, due to a decrease in average deposits of $6.3 million, from
$318.2 million to $311.9 million, partially offset by the 27 basis point
decrease in the average cost of deposits. Interest expense on borrowed funds
increased $288,000, or 22.5%, due to an increase in average borrowings of
$27.3 million and an increase in the average cost of borrowings of 52 basis
points.
Net Interest Income. Net interest income totalled $3.5 million for
the three months ended October 31, 1996, an increase of $740,000, or 26.7%,
from net interest income of $2.8 million for the three months ended October
31, 1995. The increase in net interest income was primarily due to the
results of operations disclosed above, which resulted in an increase in the
ratio of average interest-earning assets to interest-bearing liabilities to
110.65% from 104.02% and a 7 basis point increase in the Company's interest
rate spread to 2.53% from 2.46%.
Provision for Loan Losses. The Company maintains an allowance for
loan losses based upon management's periodic evaluation of known and inherent
risks in the loan portfolio, the Company's past loan loss experience, adverse
situations that may affect borrowers' ability to repay loans, estimated value
of underlying loan collateral, and current and expected future economic
conditions. The allowance for loan losses was $4.8 million, or 1.6%, of net
loans receivable, at October 31, 1996, compared to $4.4 million, or 1.6% of
net loans receivable at July 31, 1996. Nonperforming assets decreased from
$4.7 million, or 1.0%, of total assets at July 31, 1996, to $4.4 million, or
.90% of total assets at October 31, 1996. The provision for loan losses
decreased by $80,000 to $210,000 for the three months ended October 31, 1996
from $290,000 for the three months ended October 31, 1995. This decrease
reflects management's assessment of loans and its current view of the risk in
the Company's loan portfolio based on an evaluation of specific loans in its
portfolio, estimated collateral values, historical loss experience, current
economic trends, and the existing level of the Company's allowance for loan
losses.
Noninterest Income. Noninterest income, consisting primarily of
deposit fees, loan servicing fees, and gains and losses on sales of loans,
mortgage-backed securities and investments, totalled $173,000 for the three
months ended October 31, 1996, compared to $193,000 for the three months ended
October 31, 1995, a decrease of $20,000 or 10.4%. The decrease was primarily
due to a loss on the sale of mortgage-backed securities for the three months
ended October 31, 1996, partially offset by an increase in service charges
collected.
Noninterest Expense. Noninterest expense, consisting primarily of
salaries and employee benefits, occupancy and equipment, federal deposit
insurance premiums and provision for losses on investments in real estate
("REO"), totalled
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$4.5 million for the three months ended October 31, 1996 compared to $2.4
million for the three months ended October 31, 1995. The $2.1 million
increase was due primarily to the Federal Deposit Insurance Corporation one-
time special assessment to recapitalize the Savings Association Insurance
Fund.
On September 30, 1996, legislation was enacted and signed into law
which provides a resolution to the disparity in the Bank Insurance Fund
("BIF")/Savings Association Insurance Fund ("SAIF") premiums. In particular,
SAIF-insured institutions will pay a one-time assessment of 65.7 cents on
every $100 of deposits held at March 31, 1995. As a result of the new law the
Company is required to pay approximately $2,065,000. The special assessment
is tax deductible, therefore, the cost, net of income tax benefits, is
approximately $1.36 million. The Company has made a one-time charge to
earnings of this amount for the fiscal quarter ended October 31, 1996. Also,
beginning January 1, 1997, the current annual minimum premium of 23 basis
points will be reduced to approximately 6.5 basis points.
Net Income. Net loss for the three months ended October 31, 1996 was
$688,000, compared to net income of $183,000 for the three months ended
October 31, 1995. The $871,000 decrease in net income was due primarily to an
increase in noninterest expense of $2.1 million, partially offset by an
increase in net interest income of $740,000, a decrease in the provision for
loan loss of $80,000, and a decrease in the income tax provision of $456,000.
Liquidity and Capital Resources
- --------------------------------
The Bank is required to maintain minimum levels of liquid assets as
defined by Office of Thrift Supervision (OTS) regulations. This requirement,
which varies from time to time depending upon economic conditions and deposit
flows, is based upon a percentage of deposits and short-term borrowings. The
required ratio currently is 5%. The Bank's liquidity ratio averaged 6.7%
during the month of October 1996. In addition, the Bank is required to
maintain short term liquid assets of at least 1% of the Bank's average daily
balance of net withdrawable deposit accounts and current borrowings. The Bank
adjusts liquidity as appropriate to meet its asset and liability management
objectives. At October 31, 1996, the Bank was in compliance with such
liquidity requirements.
The Bank's primary sources of funds are deposits, amortization and
prepayment of loans and mortgage-backed securities, maturities of investment
securities and other short-term investments, borrowed funds, FHLB advances and
earnings and funds provided from operations. While scheduled principal
repayments on loans and mortgage-backed securities are a relatively
predictable source of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions, and competition.
The Bank manages the pricing of its deposits to maintain a desired deposit
balance. In addition, the Bank invests excess funds in federal funds, and
other short-term interest-earning and other assets, which provide liquidity to
meet lending requirements.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") requires thrift institutions to maintain certain minimum
levels of regulatory capital. The regulatory capital regulations require
minimum levels of tangible and core capital of 1.5% and 3%, respectively, of
adjusted total assets and risk-based capital of 8% of risk-weighted assets.
The Bank was in compliance with the regulatory capital requirements with
tangible, core and risk-based capital ratios of approximately 8.05%, 8.05%,
and 16.73, respectively, at October 31, 1996.
In August 1993, the Office of Thrift Supervision (OTS) adopted a
final rule incorporating an interest rate risk ("IRR") component into the
risk-based capital requirements. However, the OTS has deferred for the
present time the date on which the interest rate risk component is required to
be deducted from capital.
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<PAGE>
Under the rule, the institution's IRR is measured as the change to
its net portfolio value (NPV) as a result of a hypothetical 200 basis point
change in market interest rates. A resulting change in NPV of more than 2% of
the estimated market value of its assets will require the institution to
deduct from its capital 50% of that excess change. The rule provides that the
OTS will calculate the IRR component quarterly for each institution.
Based on the September 30, 1996 OTS calculation of the IRR component,
the Bank's IRR was greater than 2% of the market value of its assets.
Therefore, the Bank would be required to make a deduction from total capital
for purposes of calculating the Bank's risk based capital requirement if such
decrease exceeded 2% of the estimated market value of its assets for three
consecutive quarters. Also, because of the Bank's current risk based capital
level, management does not believe that compliance with the new rule will
adversely affect its operations.
The OTS has proposed an increase in the core capital requirement for
savings institutions of at least 100 to 200 basis points higher than the
current 3.0% requirement for all but the highest rated savings institutions.
The OTS has not taken final action on the proposal; however, it has reserved
the right to apply this higher standard to any insured financial institution
when considering an institution's capital adequacy.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of
1991 included prompt corrective action provisions for which implementing
regulations became effective on December 19, 1992. FDICIA also includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reduction in insurance coverage for certain
kinds of deposits, increased supervision by the federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital categories,
in declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." Institutions categorized as "undercapitalized" or worse
are subject to certain defined restrictions, including the requirement to file
a capital plan with its primary federal regulator, prohibitions on the payment
of dividends and management fees, restrictions on executive compensation, and
increased supervisory monitoring, among other things. To be considered "well
capitalized," an institution must generally have a leverage ratio of at least
5%, a tier one risk-based capital ratio of at least 6% and a total risk-based
capital ratio of at least 10%. The Bank is in the "well capitalized" category
at October 31, 1996.
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<PAGE>
Delinquent Loans, Nonperforming Asset, and Restructured Loans. The
following table sets forth information regarding nonperforming loans, real
estate owned by the Company, and restructured loans within the meaning of SFAS
15, at the dates indicated.
<TABLE>
<CAPTION>
At At
October 31, 1996 July 31, 1996
---------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Nonperforming loans:
One to four-family residential
real estate $ 643 $ 690
Multifamily residential real
estate 1,567 1,580
Commercial real estate 1,348 1,374
Consumer loans 210 265
-------- --------
Total nonperforming loans 3,768 3,909
Total real estate owned <F1> 625 766
-------- --------
Total nonperforming assets 4,393 4,675
Restructured loans <F2> 1,630 1,636
-------- --------
Total nonperforming assets and
restructured loans $ 6,023 $ 6,311
======== =======
Total nonperforming loans to total loans
receivable 1.16% 1.31%
Total nonperforming loans to total assets .77% .85%
Total nonperforming loans and real estate
owned to total assets .90% 1.01%
<FN>
<F1> Represents property acquired by the Company through foreclosure or deed
in lieu of foreclosure.
<F2> All restructured loans are performing in accordance with their
restructured payment terms.
</FN>
</TABLE>
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
There are various claims and lawsuits in which the Company is
periodically involved incidental to the Company's business. In the opinion of
management, no material loss is expected from any of such pending claims or
lawsuits.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
a. The annual meeting of the stockholders of the Company was held on
November 21, 1996.
b. and c. There were 3,603,646 shares of Common Stock of the Company eligible
to be voted at the Annual Meeting and shares were represented at
the meeting by the holders thereof, which constituted a quorum.
The items voted on at the Annual Meeting and the votes for each
proposal were as follows:
1. Election of Directors for a Three-Year Term.
NOMINEE FOR WITHHELD
------- --- --------
Howard K. Thompson 3,452,392 109,865
Betty J. Stull 3,453,934 108,323
Lenwood M. Ivey 3,453,497 108,760
Following the annual meeting, the directors of the Company
continuing as directors included: A. Bruce Tucker, Jimmie T.
Noble, David L. Pippenger and Joseph M. Solomon.
2. Proposal to approve the American National Bancorp, Inc.
1996 Stock Option Plan.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
2,022,262 603,440 28,201 908,354
3. Proposal to approve the American National Bancorp, Inc.
1996 Recognition and Retention Plan.
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
2,001,950 605,933 47,020 907,354
4. Proposal to ratify the appointment of KPMG Peat Marwick LLP
as auditors for the Company for the fiscal year ending July
31, 1997.
FOR AGAINST ABSTAIN
--- ------- -------
3,533,021 17,784 11,452
There were no broker non-votes at the meeting.
Each of the proposals were adopted by the stockholders of the
Company.
d. Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
No Form 8-K reports were filed during the period ended October 31,
1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
AMERICAN NATIONAL BANCORP, INC.
Date: December 13, 1996 By: /s/ A. Bruce Tucker
----------------- ------------------------------
A. Bruce Tucker
PRESIDENT and
CHIEF EXECUTIVE OFFICER
Date: December 13, 1996 By: /s/ James M. Uveges
----------------- ------------------------------
James M. Uveges
SENIOR VICE PRESIDENT and
CHIEF FINANCIAL OFFICER
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