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 April 30, 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.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1943817
- - --------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
211 North Liberty Street, Baltimore, Maryland 21201-3978
- - ------------------------------------------------------------------------------
(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
-------- --------
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--3,980,500 shares as of June
3, 1996.
<PAGE>
AMERICAN NATIONAL BANCORP, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial 1
Condition at April 30, 1996 (unaudited)
and July 31, 1995
Consolidated Statements of Operations 2
(unaudited) for the Three Months ended
April 30, 1996 and 1995 and for the Nine
months ended April 30, 1996 and 1995
Consolidated Statements of Cash Flows 3
(unaudited) for the Nine Months ended
April 30, 1996 and 1995
Notes to Unaudited Consolidated 5
Financial Statements
Item 2. Management's Discussion and 8
Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION 14
<PAGE>
<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Financial Condition (Unaudited)
<CAPTION>
Assets April 30, 1996 July 31, 1995
- - ------------------------------------- -------------- --------------
(In thousands)
<S> <C> <C>
Cash:
On hand and due from banks $ 3,039 $ 2,170
Interest-bearing deposits 8,056 2,240
Federal funds sold 93 950
Securities available for sale 57,001 3,030
Investment securities 9,879 13,918
Mortgage-backed securities 89,020 156,775
Loans receivable, net 268,075 232,089
Federal Home Loan Bank stock, at cost 2,914 2,914
Investments in real estate, net 5,311 5,828
Investments in and advances to real
estate joint ventures 1,238 2,215
Property and equipment, net 1,021 965
Prepaid expenses and other assets 647 624
Income taxes receivable 650 380
Deferred income taxes 2,075 2,076
-------------- --------------
$ 449,019 $ 426,174
============== ==============
Liabilities and Stockholders' Equity
- - --------------------------------------
Liabilities:
Deposits $ 316,502 $ 314,613
Borrowed funds 32,721 34,338
Advances from the Federal Home Loan
Bank of Atlanta 42,983 44,137
Drafts payable 1,599 1,288
Advance payments by borrowers for taxes
and insurance 5,414 1,852
Accrued expenses and other liabilities 789 987
-------------- --------------
Total Liabilities 400,008 397,215
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 outstanding at April 30, 1996 40 2,052
Additional paid-in capital 30,704 7,652
Unearned employee stock ownership plan
(ESOP) shares (1,673) -
Retained income - substantially restricted 21,730 20,662
Common stock acquired by management
recognition and retention plans (90) (132)
Net unrealized holding loss - debt and
equity securities (1,700) (1,275)
------------- -------------
Total Stockholders' Equity 49,011 28,959
------------- -------------
$ 449,019 $ 426,174
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<CAPTION>
Nine months ended April 30,
1996 1995
---------------------------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans receivable $ 15,962 $ 14,008
Mortgage-backed securities 7,436 7,754
Investment securities 764 612
Other 585 540
--------- ---------
Total interest income 24,747 22,914
Interest expense:
Deposits 11,930 10,841
Borrowed funds 3,478 3,078
--------- ---------
Total interest expense 15,408 13,919
--------- ---------
Net interest income 9,339 8,995
Provision for loan losses 562 3,092
--------- ---------
Net interest income after
provision for loan losses 8,777 5,903
Noninterest income:
Fees and service charges 449 438
Gain (loss) on sales of:
Loans receivable, net 16 17
Mortgage-backed securities, net 30 -
Investment securities, net (14) -
Other 134 222
--------- ---------
Total noninterest income 615 677
Noninterest expenses:
Salaries and employee benefits 3,228 3,026
Net occupancy 1,021 975
Professional services 286 262
Advertising 517 330
Federal deposit insurance premiums 586 608
Furniture, fixtures and equipment 226 216
Operation of investment in real estate 300 202
Equity in net loss of real estate
joint ventures 112 208
Other 1,215 1,034
--------- ---------
Total noninterest expenses 7,491 6,861
--------- ---------
Income (loss) before income taxes 1,901 (281)
Income tax provision (benefit) 614 (114)
--------- ----------
Net income (loss) $ 1,287 $ (167)
========= ==========
Earnings per common share:
From date of conversion N/A $ N/A
========= ===========
Proforma $ 0.40 N/A
========= ===========
<CAPTION>
Three months ended April 30,
1996 1995
---------------------------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans receivable $ 5,508 $ 5,055
Mortgage-backed securities 2,395 2,642
Investment securities 213 214
Other 208 184
--------- ---------
Total interest income 8,324 8,095
Interest expense:
Deposits 3,841 3,776
Borrowed funds 1,059 1,175
--------- ---------
Total interest expense 4,900 4,951
--------- ---------
Net interest income 3,424 3,144
Provision for loan losses 62 942
--------- ---------
Net interest income after
provision for loan losses 3,362 2,202
Noninterest income:
Fees and service charges 157 131
Gain (loss) on sales of:
Loans receivable, net 2 17
Mortgage-backed securities, net 13 -
Investment securities, net (18) -
Other 56 89
--------- ---------
Total noninterest income 210 237
Noninterest expenses:
Salaries and employee benefits 1,077 999
Net occupancy 347 330
Professional services 103 99
Advertising 166 113
Federal deposit insurance premiums 182 199
Furniture, fixtures and equipment 79 72
Operation of investment in real estate 188 81
Equity in net loss of real estate
joint ventures 0 226
Other 410 325
--------- ---------
Total noninterest expenses 2,552 2,444
--------- ----------
Income (loss) before income taxes 1,020 (5)
Income tax provision (benefit) 347 25
--------- ----------
Net income (loss) $ 673 $ (30)
========= ==========
Earnings per common share:
From date of conversion $ 0.18 $ N/A
========= ===========
Proforma N/A N/A
========= ===========
</TABLE>
Earnings per share information is not applicable as the Company did not
complete its stock offering until October 31, 1995.
See accompanying notes to unaudited consolidated financial statements.
-2-
<PAGE>
<TABLE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Nine months ended April 30,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,287 $ (167)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 397 359
Amortization of loan fees (303) (299)
Amortization of premiums and
discounts, net (154) (18)
Provision for losses on loans
and investments in real estate 720 3,130
Gain on sales of assets, net (32) (17)
Loans originated for sale (3,258) (1,801)
Sales of loans originated for sale 2,801 811
Decrease (increase) in deferred
income taxes 506 (144)
Decrease (increase) in prepaid
expenses and other assets (23) 331
(Decrease) increase in accrued
expenses and other liabilities (198) 96
Decrease (increase) in income taxes
receivable (270) 19
Other, net 89 25
---------- ----------
Net cash provided by operating activities 1,562 2,325
---------- ----------
Cash flows from investing activities:
Sales of investment securities available
for sale 969 -
Purchases of investment securities
available for sale (2,000) -
Repayments of mortgage-backed securities
available for sale 2,502 351
Sales of mortgage-backed securities
available for sale 41,041 -
Purchases of mortgage-backed securities
available for sale (10,988) (2,979)
Maturities of investment securities 11,000 -
Purchases of investment securities (13,265) (4,983)
Repayments of mortgage-backed securities 6,750 11,690
Purchases of mortgage-backed securities (19,198) (12,370)
Loan principal repayments 31,824 21,950
Loan originations (58,849) (36,749)
Loan purchases (11,363) (10,446)
Increase in deferred loan fees, net 442 464
Decrease in investments in real estate 2,722 956
Decrease in investments in and advances
to real estate joint ventures 865 1,312
Purchases of property and equipment (452) (353)
----------- -----------
Net cash used in investing activities (18,000) (31,157)
----------- -----------
(continued)
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<PAGE>
AMERICAN NATIONAL BANCORP, INC. and SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Nine months ended April 30,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 1,889 4,760
Net increase (decrease) in borrowed
funds (1,617) 25,670
Proceeds from Federal Home Loan Bank
advances 171,597 109,498
Repayment of Federal Home Loan Bank
advances (172,751) (117,308)
Increase (decrease) in drafts payable 311 (635)
Increase in advance payments by borrowers
for taxes and insurance 3,562 4,132
Proceeds from issuance of common stock,
net of expenses 21,040 -
Common stock acquired by ESOP (1,746) -
Release of ESOP shares 73 -
Cash dividends paid (92) (278)
----------- -----------
Net cash provided by financing activities 22,266 25,839
Net increase (decrease) in cash and cash
equivalents 5,828 (2,993)
Cash and cash equivalents at beginning of
period 5,360 7,109
----------- -----------
Cash and cash equivalents at end of period $ 11,188 $ 4,116
=========== ===========
Supplemental information:
Interest paid on deposits and borrowed
funds $ 15,151 $ 13,849
Income taxes paid (refunded), net 297 (6)
========== ============
Noncash activities: Loans transferred to
real estate acquired through foreclosure $ 2,363 $ 681
========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
-4-
<PAGE>
AMERICAN NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements (Unaudited)
April 30, 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, 1995 Annual Financial Statements. The results of
operations for the three and nine months ended April 30, 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 1995 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
-5-
<PAGE>
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.
In November, 1995, the Financial Accounting Standards Board announced
its intention to allow a one-time change in the classification of securities,
providing such change was effected by December 31, 1995. Management utilized
this opportunity and designated part of its mortgage-backed and investment
securities portfolio as available for sale.
(6) Earnings Per Common Share
-------------------------
Earnings per share were computed by dividing net income for the three
months ended April 30, 1996 by the weighted average number of shares of common
stock outstanding during the period of 3,808,597 for the three months ended
April 30, 1996. 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; however, these options, had a
less than 3% dilutive effect and, therefore, are not reflected in the per
share data.
The pro forma net income per share for the nine months ended April
30, 1996 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 and
nine months ended April 30, 1995, as the Company did not complete its Stock
Offering until October 31, 1995.
(7) Dividends on Common Stock of the Bank
-------------------------------------
On October 18, 1995, the Bank declared a quarterly cash dividend of
$0.10 per share. The dividends were payable to stockholders of record as of
October 29, 1995 and were paid on November 16, 1995. American National
Bankshares, M.H.C., the 54.8% majority stockholder, which owned 1,125,000
shares of stock in the Bank, waived receipt of its quarterly dividend, thereby
reducing the actual dividend payout to approximately $92,600.
(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
allocated and unallocated shares are used for debt service. Shares are
released to participants based on compensation.
-6-
<PAGE>
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 $44,000 and
$73,000 for the three and nine months ended April 30, 1996, respectively. The
fair value of unearned ESOP shares at April 30, 1996 totalled $1.7 million.
At April 30, 1996, there were 7,274 ESOP shares committed to be released and
167,296 suspense shares.
(9) Stock-Based Compensation
------------------------
In November, 1995 the Financial Accounting Statndards 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. Earlier application is permitted. 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
has not determined when it will adopt the provisions of Statement 123 and has
not estimated the effect of adoption on the Company's financial condition or
results of operations.
-7-
<PAGE>
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, 1995 and material changes in the results of
operations for the three and nine months ended April 30, 1996 as compared to
the same periods 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 1995 Annual Report to Stockholders.
Financial Condition
- - -------------------
Total assets increased by $22.8 million, or 5.4%, to $449.0 million
at April 30, 1996 from $426.2 million at July 31, 1995. Assets increased
primarily as a result of the stock offering that closed on October 31, 1995
and resulted in $19.3 million of net proceeds. Loans receivable increased by
$36.0 million, or 15.5% to $268.1 million from $232.1 million at July 31, 1995
largely due to increased originations and purchases of loans. Securities
available for sale increased $54.0 million to $57.0 million at April 30, 1996
from $3.0 million at July 31, 1995. Mortgage-backed securities decreased by
$67.8 million, or 43.2%, to $89.0 million at April 30, 1996, from $156.8
million at July 31, 1995. Investment securities decreased by $4.0 million, or
29.0%, to $9.9 million, at April 30, 1996, from $13.9 million at July 31,
1995. The increase in securities available for sale and the decrease in
mortgage-backed securities and investment securities was due primarily to the
reclassification of securities to the available for sale portfolio in
December, 1995. In November, 1995, the Financial Accounting Standards Board
announced its intention to allow a one-time change in the classification of
securities, providing such change was effected by December 31, 1995.
Management utilized this opportunity and designated part of its mortgage-
backed and investment securities portfolio as available for sale.
Deposits increased by $1.9 million, or .6%, to $316.5 million at
April 30, 1996 from $314.6 million at July 31, 1995, as a result of
competitive rates offered on short-term certificates of deposit.
Total stockholders' equity increased by $20.0 million to $49.0
million at April 30, 1996 compared to $29.0 million at July 31, 1995. This
increase was the result of $19.3 million of net proceeds from the stock
offering and net income of $1.3 million, partially offset by a $425,000
increase in the net unrealized holding loss-debt and equity securities and the
Bank's quarterly dividend of approximately $93,000.
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.
-8-
<PAGE>
Interest Income. Interest income totalled $8.3 million and $24.7
million for the three and nine months ended April 30, 1996, compared to $8.1
million and $22.9 million for the three and nine months ended April 30, 1995,
respectively. The $229,000 increase for the three months ended April 30, 1996
compared to the three months ended April 30, 1995 resulted from a $27.9
million, or 6.7%, increase in average interest earning assets to $443.2
million for the three months ended April 30, 1996, from $415.3 million during
the three months ended April 30, 1995, offset by a decrease in the yield on
average interest earning assets to 7.5% for the three months ended April 30,
1996, from 7.8% for the three months ended April 30, 1995. The increase in
average interest earning assets resulted from a $24.1 million, or 10.9%,
increase in average mortgage loans to $244.7 million from $220.6 million.
The $1.8 million increase in interest income for the nine months
ended April 30, 1996 compared to the nine months ended April 30, 1995 was due
to an increase of $24.4 million in average interest earning assets and an
increase in the yield on average interest earning assets of 14 basis points
from 7.49% for the nine months ended April 30, 1995 to 7.63% for the nine
months ended April 30, 1996.
The principal reasons for the increase in the yield on interest-
earning assets for the nine months ended April 30, 1996 compared to the same
period ended April 30, 1995, were the increases in the yields on mortgage
loans of 25 basis points, consumer and other loans of 47 basis points, and
investment securities of 19 basis points. Such increases resulted from the
upward repricing of the monthly adjustable loans and the new loans and
securities added to the portfolio.
Interest Expense. Interest expense totalled $4.9 million and $15.4
million for the three and nine months ended April 30, 1996, compared to $5.0
million and $13.9 million for the three and nine months ended April 30, 1995.
The $1.5 million increase for the nine months ended April 30, 1996 compared to
the nine months ended April 30, 1995 was due to an increase of $14.8 million
in average interest-bearing liabilities. The Company utilized deposits, FHLB
advances and other borrowings to fund originations and purchases of loans and
securities.
Net Interest Income. Net interest income totalled $3.4 million and
$9.3 million for the three and nine months ended April 30, 1996 compared to
$3.1 million and $9.0 million for the three and nine months ended April 30,
1995. The increase in net interest income for the three and nine months was
primarily due to an increase in average net interest-earning assets for the
quarter ended April 30, 1996 compared to the same period ended 1995 due mainly
to the net proceeds of the stock offering completed October 31, 1995.
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 Company's allowance for loan losses was $4.4 million, or
1.5%, of total loans receivable, at April 30, 1996, compared to $6.4 million,
or 3.5%, of total loans receivable, at July 31, 1995. Nonperforming assets
decreased from $9.5 million, or 2.2%, of total assets at July 31, 1995, to
$4.6 million, or 1.0%, of total assets at April 30, 1996. The Company's
provision for loan losses was $62,000 and $562,000 for the three and nine
months ended April 30, 1996, compared to $942,000 and $3.1 million for the
three and nine months ended April 30, 1995. The decrease in the provision for
loan losses related to the partial write off of loans on four commercial
properties in fiscal year 1995 which comprised the Company's largest lending
relationship. Since then, three of the properties were sold and settled, and
management believes the remaining property should settle in sixty days. The
provision for loan losses reflects management's assessment of information
with respect to such commercial real estate loans and its current view of
the risks in the Company's loan portfolio based on an evaluation
-9-
<PAGE>
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 $210,000 and $615,000 for
the three and nine months ended April 30, 1996, compared to $237,000 and
$677,000 for the three and nine months ended April 30, 1995. The $27,000 and
$62,000 decrease for the three and nine months ended April 30, 1996,
respectively, was due primarily to a decrease in revenue from the Bank's
subsidiary, American National Insurance Agency during the three and nine
months ended April 30, 1996 partially offset by the increase in service fees
charged.
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 $2.6 million and $7.5 million for the three and nine months
ended April 30, 1996 compared to $2.4 million and $6.9 million for the three
and nine months ended April 30, 1995. The increase in non-interest expense
for the three and nine months ended April 30, 1996 was the result of increased
advertising expense for mortgage and consumer loans and deposits, salary
increases, as well as costs associated with a public company, including the
formation of an Employee Stock Ownership Plan ("ESOP").
Net Income. Net income was $673,000 or $.18 per share for the three
months ended April 30, 1996, compared to a net loss of $30,000 for the three
months ended April 30, 1995. The $703,000 increase in net income was
primarily due to an increase in net interest income of $280,000, a decrease in
the provision for loan losses of $880,000, offset by an increase in
noninterest expense of $108,000 and an increase in income tax expense of
$322,000. Net income was $1.3 million for the nine months ended April 30,
1996 compared to a net loss of $167,000 for the nine months ended April 30,
1995. The $1.5 million increase in net income was primarily due to a decrease
in the provision for loan losses of $2.5 million and an increase in net
interest income of $344,000, offset by an increase in noninterest expenses of
$630,000 and an increase in income tax expense of $728,000.
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 11.9%
during the month of April 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 April 30, 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, 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.
-10-
<PAGE>
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 8.86%, 8.86%,
and 18.64%, respectively, at April 30, 1996. In addition, at April 30, 1996,
the Bank exceeded all fully phased in capital requirements.
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.
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 March 31, 1996 OTS calculation of the IRR component,
the Bank's IRR was less than 2% of the market value of its assets. Therefore,
the Bank would not have been required to maintain a risk-based capital ratio
in excess of the current 8% requirement. 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 April 30, 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
April 30, 1996 July 31, 1995
-------------- -------------
(Dollars in Thousands)
<S> <C> <C>
Nonperforming loans:
One to four-family residential
real estate $ 495 $ 1,023
Multifamily residential real
estate 1,458 1,479
Commercial real estate 2,091 5,907
Consumer loans 205 198
-------- --------
Total nonperforming loans 4,249 8,607
Total real estate owned <F1> 396 890
-------- --------
Total nonperforming assets 4,645 9,497
Restructured loans <F2> 1,643 1,870
-------- --------
Total nonperforming assets and
restructured loans $ 6,288 $11,367
======== =======
Total nonperforming loans to total loans
receivable 1.47% 3.52%
Total nonperforming loans to total assets .95% 2.02%
Total nonperforming loans and real estate
owned to total assets 1.03% 2.23%
<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>
Recent Regulatory Developments
- - ------------------------------
The Bank's deposits are currently insured by the SAIF which is
administered by the FDIC. Under the FDIC's "risk-based" system each
institution is assigned a deposit insurance premium assessment rate which
currently ranges from 0.23% to 0.31% of insured deposits. The Bank's current
assessment rate is .23%. Until recently, the risk-based deposit insurance
premiums paid by institutions insured by the SAIF and the Bank Insurance Fund
(the "BIF") had been assessed based on identical rate schedules having the
above range of premium assessment rates. The SAIF and BIF are each required
by statute to attain, and thereafter to maintain, a reserve to deposits ratio
of 1.25%. The BIF attained its required reserve level in late May 1995,
because of the BIF's greater premium revenues and the fact that a substantial
portion of the SAIF premiums is required to be used to repay certain bonds
(the "FICO Bonds") issued for the purpose of funding the resolution of failed
thrift institutions. The SAIF is not expected to attain its reserve ratio
prior to at least 2007.
The FDIC recently adopted a new assessment rate schedule of 4 to 31
basis points for BIF members beginning on or about March 31, 1995. Under the
new schedule, approximately 91% of BIF members would pay the lowest assessment
rate of 4 basis points. With respect to SAIF member institutions, the FDIC
adopted a final rule to retain the existing assessment rate schedule
applicable to SAIF
-12-
<PAGE>
member institutions of 23 to 31 basis points. As a result, there is a
significant disparity between the assessment rate for BIF and SAIF
members. As long as the deposit rate premium disparity continues, SAIF-
insured institutions will be placed at a significant competitive disadvantage
due to their higher premium costs, and the financial condition of the SAIF
could worsen if its deposit base shrinks as a result of the disparity.
A number of proposals for assisting the SAIF in attaining its
required reserve level, and thereby permitting SAIF deposit insurance premiums
to be reduced to levels at or near those paid by BIF-insured institutions,
have been introduced in Congress. As of the date hereof, legislation in the
House and Senate would provide for a one-time surcharge on SAIF-insured
institutions of approximately 85 to 90 basis points on SAIF insured deposits
to enable the SAIF to attain its required reserve level. The legislation
would also have required the elimination of the Federal thrift institution
charter, coupled with the requirement that each federally chartered thrift
institution convert to a national bank or a state chartered bank, savings
bank, or savings and loan association by January 1, 1998; merger of the BIF
and the SAIF as of that date; the elimination of the OTS as a separate
regulatory agency; treatment of thrift holding companies as bank holding
companies for federal regulatory purposes; and elimination of certain tax bad
debt reserve deductions currently available to qualifying thrift institutions.
As of June 3, 1996, Congress failed to pass legislation to resolve the
BIF/SAIF premium disparity in connection with budget-related legislation. It
is unclear whether there will be another opportunity for BIF/SAIF legislation
in the near future, if at all, although the White House and the regulators
have pledged to aggressively seek a vehicle for prompt action. The Company is
not able to predict whether or in what form any of the legislation currently
being discussed will be adopted or the effect that such adoption will have on
the Company's operations. A significant increase in the SAIF insurance
premiums or a significant surcharge to recapitalize the SAIF, however, would
likely have an adverse effect on the operating expenses and results of
operations of the Bank and the Company and would reduce the Bank's regulatory
capital. If the proposed assessment of $.85 to $.90 per $100 of assessable
deposits were effected based on deposits as of June 30, 1995, the Bank's pro
rata share would amount to approximately $2.7 million to $2.8 million before
taxes, respectively.
-13-
<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 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
No Form 8-K reports were filed during the period ended April 30,
1996.
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<PAGE>
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: June 12, 1996 By: /s/ A. Bruce Tucker
------------- ----------------------------------
A. Bruce Tucker
PRESIDENT and
CHIEF EXECUTIVE OFFICER
Date: June 12, 1996 By: /s/ James M. Uveges
-------------- ---------------------------------
James M. Uveges
SENIOR VICE PRESIDENT and
CHIEF FINANCIAL OFFICER
-15-
<PAGE>
