SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [FEE REQUIRED]
For the Fiscal Year Ended July 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [NO FEE REQUIRED]
For the transition period from _______________ to
______________________
Commission File Number: 0-26870
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
--------------------------------------------- -----
(Address of Principal Executive Offices) Zip Code
(410) 752-0400
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(Registrant's telephone number)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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 twelve
months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X].
As of September 27, 1996, there was issued and outstanding
3,603,646 shares of the Registrant's Common Stock.
The aggregate market value of the voting stock held by non-
affiliates of the Registrant, which amount includes voting stock
held by officers and directors, computed by reference to the last
sale price on September 27, 1996, as reported by the Nasdaq
National Market, was approximately $45.0 million.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Stockholders for the fiscal year ended July
30, 1996 (Parts II and IV).
2. Proxy Statement for the November 21, 1996 Annual Meeting of
Stockholders (Part III).
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PART I
ITEM 1. Business
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American National Bancorp, Inc.
American National Bancorp, Inc. (the "Company") is a Delaware
corporation that was organized in July 1995. On October 31, 1995,
the Company acquired 100% of the capital stock of American National
Savings Bank, F.S.B. (the "Bank"), sold 2,182,125 shares of common
stock in a subscription offering for a purchase price of $10.00 per
share (the "Offering"), and issued 1,798,375 shares of common stock
in exchange for 927,000 shares of the Bank's common stock held by
shareholders other than American National Bankshares, M.H.C.
(together with the Offering, the "Conversion"). Immediately
following the Conversion, the only significant assets of the
Company were the common stock of the Bank and $19.3 million of the
net proceeds from the Offering. The Company is registered as a
savings and loan holding company with the Office of Thrift
Supervision (the "OTS").
The Company employs executive officers and a support staff if
and as the need arises. Such personnel are provided by the Bank
and are not paid separate remuneration for such services. The
Company reimburses the Bank for the use of Bank personnel. The
Company leases office space from and utilizes the premises,
equipment and furniture of the Bank, and reimburses the Bank for
rent, services, equipment, supplies and facilities provided. The
Company's lending, gathering of deposits, and other operations are
discussed herein on a consolidated basis, and are primarily
conducted through the Bank. At July 31, 1996, the Company had
total consolidated assets of $461.3 million, total consolidated
deposits of $313.1 million, and consolidated stockholders' equity
of $47.3 million. The Company's executive office is located at 211
North Liberty Street, Baltimore, Maryland 21201 and its telephone
number is (410) 752-0400.
American National Savings Bank, F.S.B.
The Bank is a federally chartered stock savings bank
headquartered in Baltimore, Maryland. The Bank conducts operations
through nine full-service offices in its market area consisting of
Baltimore City and parts of the Maryland counties of Baltimore,
Howard, Harford, Anne Arundel, and Carroll. The Bank is primarily
engaged in the business of attracting deposits from the general
public in the Bank's market area, and investing such deposits
together with other funds, in loans collateralized by one- to four-
family residential real estate, mortgage-backed securities, and, to
a lesser extent, construction and land development loans, consumer
loans and investment securities. In the past, the Bank also
actively originated multifamily residential real estate loans and
commercial real estate loans; however, originations of such loans
have decreased significantly in recent years as the Bank has sought
to reduce the credit risk and losses in its loan portfolio. The
Bank also has reduced its involvement in real estate joint ventures
due to economic conditions and changes in regulatory capital
requirements.
Market Area
The Company's market area comprises Baltimore City and parts
of Baltimore, Howard, Harford, Anne Arundel and Carroll counties,
which are part of the Baltimore metropolitan area. Baltimore City
is located approximately 30 miles from Washington, D.C., and is
part of the Washington-Baltimore Metropolitan Statistical Area.
The Company's market area has a diverse base, although it has been
significantly influenced by the federal government and the defense
industry. The Federal Government continues to be one of the area's
largest employers. Headquartered within the Company's market area
are a number of Federal Government agencies, including the Social
Security Administration and the Health Care Financing
Administration. Other major employers and industries within the
Company's market area include General Motors Truck and Bus Group,
Pepsi-Cola Company, Black and Decker Corporation, Sweetheart Cup
Company, Inc., John Hopkins University, the University of Maryland-
Baltimore, McCormick and Company, Inc., Bethlehem Steel Corp.,
Martin Marietta Aero and Naval Systems, Northrop-Grumman, Fort
Meade, Proctor and Gamble Cosmetic and Fragrance Products, The
Baltimore Sun, Baltimore Gas and Electric Company, Giant Food,
Inc., Bell Atlantic, Blue Cross and Blue Shield of Maryland,
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USF&G Corporation, PHH Corporation, Crown Central Petroleum, and
The Ryland Group, Inc. The Baltimore metropolitan area also has an
active tourism industry, and is home to the Baltimore Orioles
professional baseball team and Oriole Park at Camden Yards, the
Baltimore Ravens professional football team, the Inner Harbor, and
the Baltimore Aquarium. As of 1990, the population of the
Baltimore metropolitan area was approximately two million.
Lending Activities
Loan and Mortgage-Backed Securities Portfolio Composition.
The principal components of the Company's loan portfolio are
conventional first mortgage loans secured by one- to four-family
residential real estate and, to a lesser extent, multifamily
residential real estate and commercial real estate loans. At
July 31, 1996, the Company's total loan portfolio totalled
$298.5 million, of which $168.7 million, or 56.5%, were one- to
four-family residential real estate mortgage loans, $35.9 million,
or 12.0%, were multifamily residential real estate loans, and
$37.7 million, or 12.6%, were commercial real estate loans. The
remainder of the Company's mortgage loans at July 31, 1996,
consisted of $37.5 million of construction and land development
loans. To supplement its loan portfolio, the Company also invests
in mortgage-backed securities that directly or indirectly provide
funds principally for residential mortgage loans made to home
buyers in the United States. See " Investment Activities."
Consumer loans, consisting of home-equity loans, loans
collateralized by deposit accounts and other loans totalled
$17.1 million, or 5.8%, of the Company's total loan portfolio.
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Analysis of Loan and Mortgage-Backed Securities Portfolio.
Set forth below are selected
data relating to the composition of the Company's loan portfolio by
type of loan, and
mortgage-backed securities portfolio, as of the dates indicated.
<TABLE>
<CAPTION>
At July 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ----------------- ------------------ ------------------ -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential $168,698 56.5% $135,616 55.4% $114,181 52.9% $107,883 47.1% $121,167 46.4%
Multifamily residential 35,930 12.0 39,361 16.1 38,886 18.0 43,913 19.2 51,858 19.9
Commercial 37,695 12.6 38,894 15.9 41,747 19.4 48,812 1.3 55,559 21.3
Construction (1) 37,503 12.6 16,471 6.7 9,964 4.6 16,164 7.1 17,062 6.5
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total real estate loans 279,826 93.7 230,349 4.1 204,778 94.9 216,772 94.7 245,646 94.1
Consumer loans:
Home equity 6,775 2.3 6,201 2.5 5,899 2.7 6,275 2.7 8,411 3.2
Other (2) 10,345 3.5 6,805 2.8 3,758 1.8 4,587 2.0 5,152 2.0
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total consumer loans 17,120 5.8 13,006 5.3 9,657 4.5 10,862 4.7 13,563 5.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Accrued interest receivable 1,547 .5 1,323 .6 1,278 .6 1,394 .6 1,710 .7
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total loans receivable 298,493 100.0% 244,671 100.0% 215,713 100.0% 229,028 100.0% 260,919 100.0%
-------- ----- -------- ------ -------- ----- -------- ----- -------- -----
----- ------ ----- ----- -----
Less:
Undisbursed loan proceeds 14,837 5,138 2,513 3,786 3,215
Unearned loan fees 1,202 1,083 989 1,321 1,571
Allowance for loan losses 4,412 6,361 3,669 2,326 1,468
-------- -------- -------- -------- --------
Total loans receivable, net $278,042 $232,089 $208,542 $221,595 $254,665
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Mortgage-backed securities (3) $133,466 $159,805 $160,139 $119,815 $ 97,179
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<FN>
___________________________________ __
(1) Includes land development loans of $14.2 million, $10.9 million, $5.2 million, $9.7 million and $14.1 million at July 31,
1996, 1995, 1994, 1993 and 1992, respectively.
(2) Includes passbook loans, second mortgage loans, automobile loans and unsecured lines of credit.
(3) Includes $33.3 million, $3.0 million, $42.3 million and $17.9 million of mortgage-backed securities available for sale at
July 31, 1996, 1995, 1994, and 1993, respectively.
See Note 2 to Consolidated Financial Statements.
</TABLE>
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Loan Maturity Schedule. The following table sets forth the
maturity or period of repricing of the Company's portfolio at
July 31, 1996. Demand loans, loans having no stated schedule of
repayments, and overdrafts are reported as due in one year or less.
Adjustable and floating rate loans are included in the period in
which interest rates are next scheduled to adjust rather than in
which they mature, and fixed rate loans are included in the period
in which the final contractual repayment is due.
<TABLE>
<CAPTION>
Beyond
Within 1-3 3-5 5-10 10-20 20
1 Year Years Years Years Years Years Total
------- ------- ------- ------- ------- ------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential $46,464 $15,366 $10,070 $25,594 $23,151 $48,053 $168,698
Multifamily residential 13,179 12,625 1,668 5,569 2,374 515 35,930
Commercial 9,162 13,708 4,619 2,926 5,451 1,829 37,695
Construction (1) 29,499 5,661 2,343 37,503
Consumer loans 7,342 4,239 4,478 726 335 17,120
Accrued interest receivable 1,547 1,547
------- ------- ------- ------- ------- ------- --------
Total $107,193 $51,599 $20,835 $34,815 $30,976 $53,075 $298,493
------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- --------
<FN>
_____________________________________
(1) Includes land development loans.
</TABLE>
Fixed- and Adjustable-Rate Loan Schedule. The following table sets forth at
July 31, 1996, the dollar amount of all fixed-rate and adjustable-rate loans due
or scheduled next to reprice after July 31, 1997.
<TABLE>
<CAPTION>
Fixed Adjustable Total
-------- ---------- --------
(In Thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family residential $101,548 $20,686 $122,234
Multifamily residential 11,926 10,825 22,751
Commercial 17,926 10,607 28,533
Construction (1) 8,004 8,004
Consumer loans 9,409 369 9,778
-------- ---------- --------
Total $140,809 $50,491 $191,300
-------- ---------- --------
-------- ---------- --------
<FN>
_____________________________
(1) Includes land development loans.
</TABLE>
One- to Four-Family Residential Real Estate Loans. The
Company's primary lending activity consists of the origination of
one- to four-family, owner-occupied, residential mortgage loans
collateralized by properties located in the Company's market area.
The Company generally does not originate one- to four-family
residential loans collateralized by properties outside of its
market area, although from time to time the Company may purchase
loans collateralized by properties outside the Company's market
area if such loans satisfy the Company's internal underwriting
standards. At July 31, 1996, $168.7 million, or 56.5% of the
Company's total loan portfolio consisted of one- to four-family
residential mortgage loans, and approximately $160.6 million, or
95.2%, of the Company's one- to four-family residential real estate
loans were collateralized by real estate located in the state of
Maryland.
The Company's one- to four-family residential real estate loans
generally are originated and underwritten according to standards
that qualify such loans to be included in Freddie Mac ("FHLMC") and
Fannie Mae ("FNMA") purchase and guaranty programs and that
otherwise permit resale in the secondary mortgage market. The
Company generally retains its adjustable rate mortgage ("ARM")
originations. Whether the Company can or
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will sell fixed rate loans into the secondary market, however,
depends on a number of factors including the yield and the term of
the loan, market conditions, and the Company's current interest
rate gap position. For example, in the current interest rate
environment, fixed rate loans with terms of less than 15 years and
with above-market yields are currently retained by the Company.
During the fiscal years ended July 31, 1996, 1995, and 1994, the
Company sold into the secondary market $4.2 million, $2.2 million
and $8.7 million of one- to four-family residential mortgage loans,
generally from current period originations. From time to time, the
Company may also exchange one- to four-family residential real
estate loans for FNMA securities. As of July 31, 1996, the Company
had no such securities in its portfolio.
The Company generally retains the servicing rights on loans it
has sold. The Company receives fees for these servicing
activities, which include collecting and remitting loan payments,
inspecting the properties and making certain insurance and tax
payments on behalf of the borrowers. As of July 31, 1996, the
Company serviced loans for others aggregating $50.0 million.
The Company currently offers one- to four-family residential
mortgage loans with terms typically ranging from 10 to 30 years,
and with adjustable or fixed interest rates. One- to four-family
residential real estate loans often remain outstanding for
significantly shorter periods than their contractual terms because
borrowers may refinance or prepay loans at their option. The
average length of time that the Company's one- to four-family
residential mortgage loans remain outstanding varies significantly
depending upon trends in market interest rates and other factors.
In recent years, the average maturity of the Company's mortgage
loans has decreased significantly due to the volume of refinancing
activity. Accordingly, estimates of the average length of one- to
four-family loans that remain outstanding cannot be made with any
degree of accuracy.
The Company's fixed rate mortgage loans amortize on a monthly
basis with principal and interest due each month. The Company's
fixed rate loans are generally originated with terms ranging from
10 to 30 years. The Company also offers seven year "balloon" loans
with an interest rate for the first seven years set at 25 basis
points less than the Company's 10 year fixed rate loans. At the
end of the first seven years the interest rate for the remaining 23
year term is set at a margin over the then current FNMA 30-day
purchase price.
Originations of fixed rate mortgage loans versus ARM loans are
monitored on an ongoing basis and are affected significantly by the
level of market interest rates, customer preference, the Company's
interest rate gap position, and loan products offered by the
Company's competitors. The Company's ARM loans are generally for
terms of 30 years, with interest rates that adjust annually. In
some instances, the Company offers three and five year ARM loans.
Interest rate adjustments, are limited to 2% per year and 6% over
the life of the loan. The Company's current index on its ARM loans
is the one year Treasury Bill rate, plus a margin. The Company
will originate ARM loans with initially discounted rates, often
known as "teaser rates." The Company determines whether a borrower
qualifies for an ARM loan based on the fully indexed rate of the
ARM loan at the time the loan is originated. One- to four-family
residential ARM loans totaled $57.8 million, or 19.4%, of the
Company's total loan portfolio at July 31, 1996. During the fiscal
year ended July 31, 1996, the Company purchased $10.9 million of
ARM loans collateralized by one- to four-family residential real
estate located primarily in Maryland.
The primary purpose of offering ARM loans is to make the
Company's loan portfolio more interest rate sensitive. Management
believes that although ARM loans better offset the adverse effects
of an increase in interest rates as compared to fixed-rate mortgage
loans, the increased mortgage payments required of adjustable-rate
mortgage loan borrowers in a rising interest rate environment could
potentially cause an increase in delinquencies and defaults. The
Company has not historically experienced a material difference in
the delinquency rate between its fixed-rate and adjustable-rate
one- to four-family loans.
The Company's one- to four-family residential first mortgage
loans customarily include due-on-sale clauses, which are provisions
giving the Company the right to declare a loan immediately due and
payable in the event, among other things, that the borrower sells
or otherwise disposes of the underlying real property serving as
security for the loan. Due-on-sale clauses are an important means
of adjusting the rates on the Company's fixed rate mortgage loan
portfolio, and the Company has generally exercised its rights under
these clauses.
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The Company makes one- to four-family real estate loans with
loan-to-value ratios of up to 95%. For one- to four-family real
estate loans with loan-to-value ratios of between 80% and 90%, the
Company requires the first 20% of the loan amount to be covered by
private mortgage insurance. For one- to four-family residential
real estate loans with loan-to-value ratios of between 90% and 95%,
the Company requires the first 25% of the loan amount to be covered
by private mortgage insurance. The Company requires fire and
casualty insurance, as well as a title guaranty regarding good
title, on all properties securing real estate loans made by the
Company.
Multifamily Residential Real Estate Loans. In recent years,
the Company has significantly reduced its originations of
multifamily residential real estate loans, and the total amount of
such loans in its loan portfolio has decreased. The Company
currently makes multifamily residential real estate loans only to
existing or previous customers who have made timely payments on
loans that are current, or to facilitate the sale of property
acquired by the Company through foreclosure. Loans collateralized
by multifamily residential real estate constituted approximately
$35.9 million, or 12.0%, of the Company's total loan portfolio at
July 31, 1996, compared to $51.9 million, or 19.9%, of the total
loan portfolio at July 31, 1992. At July 31, 1996, the Company's
portfolio of multifamily residential real estate loans included 5
loans with principal balances that exceeded $1.0 million.
Multifamily residential real estate originations totalled 4.9%,
3.8%, and 1.0%, of total loan originations during the fiscal years
ended July 31, 1996, 1995, and 1994, respectively. Although the
Company increased its originations of multifamily residential real
estate loans to $3.7 million during the fiscal year ended July 31,
1996, from $1.8 million during the fiscal year ended July 31, 1995,
such loans constituted only 4.9% of originations over the year, and
conformed to the Company's strategy of originating such loans only
to existing or previous customers who had made timely payments on
loans. None of the multifamily originations during the fiscal year
ended July 31, 1996, were loans to facilitate the sale of real
estate acquired by the Company through foreclosure. The Company's
multifamily real estate loans are primarily collateralized by
multifamily residences, such as apartment buildings and condominium
buildings. The Company also includes in its multifamily
residential real estate loan portfolio loans made to investors
collateralized by more than four single-family residences.
Multifamily real estate loans are offered with fixed and adjustable
rates and are structured in a number of different ways depending
upon the circumstances of the borrower and the type of multifamily
project. Fixed rate loans generally amortize over 15 to 25 years,
and generally contain call provisions permitting the Company to
require that the entire principal balance be repaid at the end of
five to seven years. Such loans are priced as five to seven year
loans. The Company's adjustable rate multifamily loans are
currently offered for terms of 15 to 30 years and are often
callable by the Company after five to ten years. The Company has
generally not exercised call provisions of multifamily residential
real estate loans that have a good payment history and are priced
at market rates or higher. Interest rates adjust monthly or
annually, subject to limitations, and are tied to a margin over the
one year Treasury index. The Company's adjustable rate multifamily
residential real estate loans currently include limitations on
interest rate increases in any one year and over the life of the
loan.
Loans collateralized by multifamily real estate generally
involve a greater degree of credit risk than one- to four-family
residential mortgage loans and carry larger loan balances. This
increased credit risk is a result of several factors, including the
concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating
and monitoring these types of loans. Furthermore, the repayment of
loans secured by multifamily real estate is typically dependent
upon the successful operation of the related real estate property.
If the cash flow from the project is reduced, the borrower's
ability to repay the loan may be impaired.
Commercial Real Estate Loans. In recent years, the Company has
significantly reduced its originations of commercial real estate
loans and the total amount of such loans in its loan portfolio.
The Company currently makes commercial real estate loans only to
existing or previous customers who have made timely payments on
loans that are current, or to facilitate the sale of commercial
real estate acquired by the Company through foreclosure. Loans
secured by commercial real estate constituted approximately
$37.7 million, or 12.6% of the Company's total loan portfolio at
July 31, 1996, compared to $55.6 million, or 21.3% of the total
loan portfolio at July 31, 1992. At July 31, 1996, the Company's
portfolio of commercial real estate loans included 12 loans with
principal balances that exceeded $1.0 million. Commercial real
estate loan originations totalled 8.6%, 3.7% and 2.0% of total loan
originations during the fiscal years ended July 31, 1996, 1995, and
1994, respectively. Although the Company
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increased its originations of commercial real estate loans to $6.6
million during the fiscal year ended July 31, 1996, from $1.7
million during the fiscal year ended July 31, 1995, such loans
conformed to the Company's strategy of originating commercial loans
only to existing or previous customers who had made timely payments
on loans. Of the Company's originations of commercial real estate
loans during the fiscal year ended July 31, 1996, $1.5 million was
for the purpose of facilitating the sale of REO. The Company's
commercial loans are secured by improved property such as shopping
centers, warehouses, office buildings, and other nonresidential
buildings. Commercial real estate loans currently are offered with
fixed and adjustable rates and are structured in a number of
different ways depending upon the circumstances of the borrower and
the nature of the project. Fixed rate loans generally amortize
over 15 to 25 years, and generally contain call provisions
permitting the Company to require that the entire principal balance
be repaid at the end of five to seven years. Such loans are priced
as five to seven year loans. The Company's adjustable rate
commercial real estate loans are currently offered for terms of 15
to 30 years and are often callable by the Company after 10 years.
The Company has generally not exercised call provisions of
commercial real estate loans that have a good payment history and
are priced at market rates or higher. Interest rates adjust
monthly or annually, and are tied to the one year Treasury index.
The Company's adjustable rate commercial real estate loans
currently include limitations on interest rate increases in any one
year and over the life of the loan.
Loans secured by commercial real estate generally involve a
greater degree of credit risk than one- to four-family residential
mortgage loans and carry larger loan balances. This increased
credit risk is a result of several factors, including the
concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income
producing properties, and the increased difficulty of evaluating
and monitoring these types of loans. Furthermore, the repayment of
loans secured by commercial real estate is typically dependent upon
the successful operation of the related real estate property. If
the cash flow from the project is reduced, the borrower's ability
to repay the loan may be impaired.
Construction and Land Development Loans. The Company offers
construction loans to individuals for the construction of their
residence as well as to builders for the construction of one- to
four-family residential units and to a much lesser extent
commercial and multifamily units. In addition, the Company offers
land loans, including loans to purchase developed single family
lots and land acquisition and development loans to develop single
family lots. At July 31, 1996, the Company's $37.5 million of
construction and land development loans included $23.3 million of
constructions loans and $14.2 million of land development loans.
As of July 31, 1996, all construction and land loans were
collateralized by properties located within the suburbs of
Baltimore and Washington, D.C.
Construction loans to individuals typically convert to
permanent loans at the end of the construction phase. The maximum
loan amount does not typically exceed 80% of appraised value, and
the Company requires private mortgage insurance where the loan
amount exceeds 80% of appraised value. Construction loans to
individuals have a maximum construction term of one year, after
which the loan may be converted to a 15 to 30 year fixed- or
adjustable-rate mortgage loan at the option of the borrower. The
interest rates typically float at a margin over the prime rate and
adjust monthly. The loan application process requires that the
builder submit accurate plans, specifications and cost projections.
In addition, the Company reviews the borrower's existing financial
condition, including total outstanding debt. Construction loans on
speculative units are restricted and in most instances homes are
required to be pre-sold before construction advances are made.
Advances are made on percentage of completion basis and all
construction inspections are performed by the Company's appraisers
prior to disbursement. Construction loans to builders generally
require the payment of interest only during the construction term.
Depending upon the number of units to be built and the absorption
rate as determined by the appraisal, loan terms can vary between 12
to 24 months.
All recent land loan originations are secured by single family
lots, although a portion of prior originations included loans for
commercial purposes. The maximum loan amount generally does not
exceed 75% of appraised value. Loans made to purchase developed
lots have terms that are negotiated on a case-by-case basis. The
Company does not make loans for speculation purposes land loans are
typically made to builders or individuals who intend to build
within a three-year period. The loan application process requires
that the developer submit accurate
<PAGE>
cost estimates, development and site plans and cash flow
projections. In addition, the Company reviews the borrower's
existing financial condition including total outstanding debt.
Land acquisition and development loans generally require the
developers to have the lots pre-sold to local or national builders.
Depending upon the number of lots to be developed and the
absorption rate as determined by the appraisal, the loan term can
vary between 12 to 36 months. Interest rates typically float at a
margin over the prime rate and adjust monthly. Loan proceeds are
advanced as land development progresses, and in all instances, the
Company's appraisers inspect the property and the work completed
before the Company will disburse funds.
Construction and land development loans involve additional
risks attributable to the fact that funds are advanced upon an
appraisal of the completed project, which is of uncertain value
prior to its completion. Because of the uncertainties inherent in
estimating construction and land development costs, as well as the
market value on the completed project and the effects of
governmental regulation of real property, it is relatively
difficult to evaluate accurately the total funds required to
complete a project and the related loan-to-value ratio. The
Company's loans typically do not exceed 80% of the appraised value
of the completed project. As a result of the foregoing,
construction and land development loans often involve the
disbursement of substantial funds with repayment dependent, in
part, on the success of the ultimate project rather than the
ability of the borrower or guarantor to repay principal and
interest. If the Company is forced to foreclose on a project prior
to or at completion due to a default, there can be no assurance
that the Company will be able to recover all of the unpaid balance
of, and accrued interest on, the loan, as well as related
foreclosure and holding costs. In addition, the Company may be
required to fund additional amounts to complete the project and may
have to hold the property for an unspecified period of time.
Consumer Loans. To a lesser extent, the Company originates
consumer loans. As of July 31, 1996, consumer loans totalled $17.1
million, or 5.8%, of the Company's total loan portfolio. The
principal types of consumer loans offered by the Company are
adjustable rate home equity lines of credit with terms up to 20
years, automobile loans with terms up to five years, loans secured
by deposit accounts and other loans consisting primarily of 5 to 15
year fixed-rate second mortgage loans, personal loans, and checking
account lines of credit. Consumer loans, other than home equity
lines of credit and automobile loans, are offered primarily on a
fixed rate basis with maturities generally of less than ten years.
The Company's home equity and residential second mortgage loans are
secured by the borrower's principal residence with a maximum
loan-to-value ratio, including the principal balances of both the
first and second mortgage loans, of 80% or less. At July 31, 1996,
home equity loans totalled $6.8 million, or 39.8% of consumer
loans, and 2.3% of the Company's total loan portfolio. At July 31,
1996, the Company had $9.2 million of contractual commitments for
lines of credit.
Consumer loans entail greater credit risk than do residential
mortgage loans but have smaller balances and tend to have higher
interest rates. See " Delinquencies and Classified
Assets Delinquent Loans, Nonperforming Assets and Restructured
Loans" for information regarding the Company's loan loss experience
and reserve policy.
Loan Originations, Solicitation, Processing, and Commitments.
Loan originations are derived from a number of sources such as
mortgage originators employed by the Company, real estate agent
referrals, existing customers, borrowers, builders, attorneys, and
walk-in customers. Upon receiving a loan application, the Company
obtains a credit report and employment verification to verify
specific information relating to the applicant's employment,
income, and credit standing. In the case of all multifamily
residential and commercial real estate loans, a third party
appraiser approved by the Company appraises the real estate
intended to collateralize the proposed loans. The Company's
internal appraisers review all third party appraisals. Either the
Company's internal appraisers or a third party appraiser performs
appraisals of one- to four-family residential properties. An
underwriter in the Company's loan department checks the loan
application file for accuracy and completeness, and verifies the
information provided. Pursuant to the Company's written loan
policies, all loans of less than $1.0 million are approved by the
Loan Committee that meets weekly and consists of four officers of
the Company, including the President and the Executive Vice
President. Such policies also require that all loans of $1.0
million or more be approved by the Loan Committee consisting of
three directors. For multifamily residential and commercial real
estate loans the Company requires that the borrower provide
operating statements, pro forma cash flow statements and, if
applicable, rent rolls. In addition, the Company reviews the
borrower's credit standing and expertise in owning and managing the
type of property that will collateralize the loan. For
construction loans, the
PAGE
<PAGE>
Company requires that the borrower provide detailed construction
plans and specifications, and pro forma cash flow statements. In
addition, the Company considers the feasibility of the project and
the pertinent experience of the borrower. Proof of fire and
casualty insurance is required at the time the loan is made and
throughout the term of the loan. After the loan is approved, a
loan commitment letter is promptly issued to the borrower.
If the loan is approved, the commitment letter specifies the
terms and conditions of the proposed loan including the amount of
the loan, interest rate, amortization term, a brief description of
the required collateral, and required insurance coverage.
Commitments are typically issued for 60-day periods. The Company
typically collects a commitment fee on conventional, construction,
and land development loans. The Company requires a title search
and, in the case of all real estate loans except home equity loans,
a title guaranty. At July 31, 1996, the Company had commitments to
originate $8.9 million of mortgage loans.
The Company also enters into commitments to extend credit. At
July 31, 1996, the Company had contractual commitments to extend
credit (exclusive of undisbursed loans in process) for lines of
credit and irrevocable letters of credit of $9.2 million and
$2.1 million, respectively. The commitments may be funded from
principal repayments of loans and mortgage-backed securities,
excess liquidity, savings deposits, and, if necessary, borrowed
funds. Commitments under lines of credit are generally longer than
one year and are subject to periodic reevaluation and cancellation.
Irrevocable letters of credit expire within two years. Because
certain of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
<PAGE>
Origination, Purchase and Sale of Loans and Mortgage-Backed
Securities. The table below shows the Company's loan origination,
purchase and sale of loans and mortgage-backed securities for the
years indicated.
<TABLE>
<CAPTION>
At July 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Total loans receivable at beginning
of year $232,089 $208,542 $221,595
Loans originated:
Real estate:
One- to four-family residential 30,297 25,559 34,752
Multi-family residential 3,711 1,785 448
Commercial 6,586 1,727 855
Construction (1) 30,421 12,501 4,082
Consumer:
Home equity 1,141 1,273 496
Other 4,269 4,237 2,849
-------- -------- --------
Total originations 76,425 47,082 43,482
Loans purchased 17,972 11,216
Transfer of mortgage loans
to foreclosed real estate (2,960) (1,400) (489)
Repayments (40,659) (27,763) (45,753)
Loan sales (4,194) (2,159) (8,710)
Other (2) (631) (3,429) (1,583)
-------- -------- --------
Net loan activity (30,472) (23,535) (13,053)
-------- -------- --------
Total loans receivable at end
of year (3) $278,042 $232,089 $208,542
-------- -------- --------
-------- -------- --------
Mortgage-backed securities at
beginning of year $159,805 $160,139 $119,815
Purchases 42,703 17,364 131,256
Sales. . . (56,036) (3,100) (49,601)
Repayments (11,823) (15,001) (39,790)
Other (4) (1,183) 403 (1,541)
-------- -------- --------
Mortgage-backed securities
at end of year (5) $133,466 $159,805 $160,139
-------- -------- --------
-------- -------- --------
<FN>
_____________________________________
(1) Includes land development loans.
(2) Consists of changes in the allowance for losses, undisbursed loan proceeds, unearned
discounts, and net deferred fees.
(3) Includes $350,000 and $1.8 million of loans held for sale at July 31, 1996 and 1995,
respectively.
(4) Consists of gain (loss) on sale of securities, discount or premium amortization, changes in
accrued interest receivable, and mark-to-market adjustment.
(5) Includes $33.3 million, $3.0 million and $42.3 million of mortgage-backed securities available
for sale at July 31, 1996, 1995 and 1994, respectively.
</TABLE>
Loan Origination Fees and Other Income. In addition to
interest earned on loans, the Company generally receives fees in
connection with loan originations. Such loan origination fees, net
of costs to originate, are deferred and amortized using an interest
method over the contractual life of the loan. Fees deferred are
recognized into income immediately upon prepayment or sale of the
related loan. At July 31, 1996, the Company had $1.2 million of
deferred loan origination fees. Such fees vary with the volume and
type of loans and commitments made and
PAGE
<PAGE>
purchased, principal repayments, and competitive conditions in the
mortgage markets, which in turn respond to the demand and
availability of money.
In addition to loan origination fees, the Company also receives
other fees, service charges, and other income that consist
primarily of deposit transaction account service charges and late
charges. The Company recognized fees and service charges of
$640,000, $592,000, and $630,000 for the fiscal years ended July
31, 1996, 1995, and 1994, respectively. Income received from loans
serviced for others was $146,000, $165,000, and $188,000, for the
fiscal years ended July 31, 1996, 1995, and 1994, respectively.
Loans to One Borrower. Federally chartered savings banks, such
as the Bank, are subject to the same limits on loans to a single or
related group of borrowers as those applicable to national banks,
which under current regulations, is limited to 15% of unimpaired
capital and unimpaired surplus on an unsecured basis, and an
additional amount equal to 10% of unimpaired capital and unimpaired
surplus if the loan is secured by readily marketable collateral
(generally, financial instruments, but not real estate). The
Bank's maximum loan to one borrower limit was $5.8 million at July
31, 1996. The Bank currently is in compliance with its loans-to-one-
borrower limitations.
The Bank's largest lending relationship at July 31, 1996,
included (i) several loans originated in 1987, 1988 and 1991,
collateralized by single family and multifamily residential units
and two small office buildings located in the Baltimore
Metropolitan area, and (ii) a fixed rate loan refinanced in 1986
with an eleven year call, collateralized by a 190 unit apartment
complex located in Easton, Maryland. In 1992 the loans were
restructured at market rates and consolidated into two loans as
part of a bankruptcy proceeding which involved other properties of
the borrower not financed by the Bank. At July 31, 1996, the loans
had a principal balance of $2.6 million and $2.7 million, and the
aggregate amount of the two loans was $5.3 million. As of July 31,
1996, the loans were current with respect to their repayment terms
and were designated as special mention.
The Bank's second largest lending relationship at July 31, 1996
included an adjustable rate and two fixed rate loans collateralized
by two retail shopping centers in the Baltimore Metropolitan area.
The loans were originated in 1995, and in June 1996 the Bank
originated a fixed rate second mortgage collateralized by one of
the shopping centers. Each loan has a ten year call date. At July
31, 1996, the loans ranged from $295,000 to $3.2 million and
totalled $4.4 million. As of July 31, 1996, the loans were current
with respect to their repayment terms.
The Bank's third largest lending relationship included the
following loans to one borrower: (i) six adjustable rate loans
originated during 1987 through 1990 collateralized by one- to four-
family residential properties located in the Baltimore Metropolitan
area in amounts ranging from $68,000 to $554,000; (ii) a fixed
rate loan originated in 1985 with a ten year call collateralized by
a multifamily apartment building in Baltimore City; and (iii) a
fixed rate loan originated in 1988 with a call date of December 31,
1996 collateralized by office and retail space in Baltimore. The
loans described in (i) above were current with respect to their
repayment terms as of July 31, 1996, and had a carrying value of
$2.2 million. The loans described in (ii) and (iii) were
restructured in 1992, at which time the Bank changed the interest
rate to a one year adjustable rate at .5% below market and
classified such loans as substandard. The Bank obtained appraisals
on the properties described in (ii) and (iii) in 1995. At July 31,
1996, the loan described in (ii) had a carrying value of $436,000,
net of specific reserves of $250,000, the loan described in (iii)
had a carrying value of $161,000, net of specific reserves of
$435,000, and both of the loans described in (ii) and (iii) were
current with respect to their restructured repayment terms.
The Bank's fourth largest lending relationship at July 31,
1996, included an adjustable rate loan and three fixed rate loans
collateralized by apartment buildings and an office building in the
Baltimore Metropolitan area. The loans were originated in 1987 and
1988. In June 1994, the Bank originated a fixed rate second
mortgage loan collateralized by all of the properties. As of July
31, 1996, the loans ranged from $346,000 to $1.2 million, and
totalled $3.5 million. As of July 31, 1996, the loans were
current with respect to their repayment terms.
The Bank's fifth largest lending relationship at July 31, 1996
included four adjustable rate loans collateralized by a retail
shopping center and three apartment buildings in the Baltimore
Metropolitan area. The
PAGE
<PAGE>
loans were originated in 1988 with a ten year call. At July 31,
1996, the loans ranged from $252,000 to $1.5 million and totalled
$2.9 million. As of July 31, 1996, the loans were current with
respect to their repayment terms.
Delinquencies and Classified Assets
Delinquencies. The Company's collection procedures provide
that when a loan is 15 days past due, a computer-generated late
charge notice is sent to the borrower requesting payment, plus a
late charge. This is followed with a letter again requesting
payment when the payment becomes 20 days past due. If delinquency
continues, at 30 days another collection letter is sent and
personal contact efforts are attempted, either in person or by
telephone, to strengthen the collection process and obtain reasons
for the delinquency. Also, plans to arrange a repayment plan are
made. If a loan becomes 60 days past due, the loan becomes subject
to possible legal action if suitable arrangements to repay have not
been made. In addition, the borrower is given information which
provides access to consumer counseling services, to the extent
required by regulations of the Department of Housing and Urban
Development. When a one- to four-family residential real estate
loan continues in a delinquent status for 90 days or more, and a
repayment schedule has not been made or kept by the borrower, a
notice of intent to foreclose is sent to the borrower, giving 30
days to cure the delinquency. If not cured, foreclosure
proceedings are initiated. For multifamily residential and
commercial real estate loans, foreclosure proceedings may be
initiated at the end of 30 or 60 days.
Nonperforming Assets. Loans are reviewed on a regular basis
and are placed on a nonaccrual status when, in the opinion of
management, the collection of interest is doubtful. Mortgage loans
are placed on nonaccrual status generally when either principal or
interest is more than 90 days past due. Interest accrued and
unpaid at the time a loan is placed on nonaccrual status is charged
against interest income.
Real estate acquired by the Company as a result of foreclosure
or by deed in lieu of foreclosure is deemed REO until such time as
it is sold. When REO is acquired, it is recorded at the lower of
the unpaid principal balance of the related loan or its estimated
fair value, less estimated selling expenses. Valuations are
periodically performed by management, and any subsequent decline in
fair value is charged to operations. Net REO totalled $766,000,
$890,000, and $655,000, at July 31, 1996, 1995, and 1994,
respectively.
PAGE
<PAGE>
Delinquent Loans, Nonperforming Assets, 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 July 31, 1996 At July 31,
---------------- -----------------------------------------
Number Balance 1995 1994 1993 1992
------ ------- ------- ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans:
One- to four-family residential real estate 12 $ 690 $ 1,023 $ 1,403 $ 1,164 $ 3,099
Multifamily residential real estate 5 1,580 1,479 216 2,227 4,879
Commercial real estate 2 1,374 5,907 734 2,720 1,606
Construction (1) 996 1,350
Consumer loans 8 265 198 269 186 164
------ ------- ------- ------- ------- --------
Total nonperforming loans 27 3,909 8,607 3,618 7,647 9,748
Total real estate owned (2) 7 766 890 663 1,285 2,410
------ ------- ------- ------- ------- --------
Total nonperforming assets 34 4,675 9,497 4,281 8,932 12,158
------ ------- ------- ------- ------- --------
------ ------- ------- ------- ------- --------
Restructured loans (3) 3 1,636 1,870 8,864 1,713 1,731
------ ------- ------- ------- ------- --------
Total nonperforming assets and restructured loans 37 $6,311 $11,367 $13,145 $10,645 $13,889
------ ------- ------- ------- ------- --------
------ ------- ------- ------- ------- --------
Total nonperforming loans to total
loans receivable 1.31% 3.52% 1.67% 3.34% 3.74%
Total nonperforming loans to total assets 0.85% 2.02% .90% 2.00% 2.44%
Total nonperforming loans and real estate owned
to total assets 1.01% 2.23% 1.07% 2.33% 3.05%
<FN>
____________________________________
(1) Includes land development loans.
(2) Represents property acquired by the Company through foreclosure or deed in lieu of foreclosure.
(3) All restructured loans are performing in accordance with their restructured payment terms.
</TABLE>
During the fiscal years ended July 31, 1996, 1995 and 1994,
respectively, gross interest income of $567,000, $898,000, and
$1.1 million would have been recorded on nonperforming and
restructured loans, under their original terms, if the loans had
been current throughout the period. The amount of interest income
on non-accrual loans actually included in income during the same
periods amounted to $151,000, $274,000 and $650,000.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for
Impairment of a Loan" and by Statement 118 "Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures"
(collectively referred to as "Statement 114") as of August 1, 1995.
Statement 114 requires that impaired loans be measured on the
present value of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's observable market
price or the fair value of the collateral if the loan is collateral
dependent. A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. Impaired loans are generally placed
in nonaccrual status on the earlier of the date that management
determines that the collection of principal and/or interest is in
doubt or the date that principal or interest is 90 days or more
past-due.
The Company's policy concerning restructured loans and loans to
facilitate the sale of REO is to take a realistic approach to
resolving its problem loans based on current market conditions, and
to work with each borrower on a case-by-case basis. For all such
loans, the Company obtains a current appraisal and reviews the
borrower's and guarantor's financial statements. The review
includes an analysis of the balance sheet and income statement, as
well as a review of the cash flow and operating results. In
addition, the Company considers the borrower's past performance.
The rates and terms are then established based on the viability of
the project and the cash flow generated.
PAGE
<PAGE>
Classification of Assets. Federal regulations provide for the
classification of loans and other assets such as debt and equity
securities considered by the OTS to be of lesser quality as
"substandard," "doubtful," or "loss" assets. An asset is
considered "substandard" if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the savings
institution will sustain "some loss" if the deficiencies are not
corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard," with the
added characteristic that the weaknesses present make "collection
or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable."
Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without
the establishment of a specific loss reserve is not warranted. The
Company establishes a reserve for its "loss" assets, and may
classify a portion of a loan as substandard and another portion of
the same loan as "loss."
The following table sets forth the aggregate amount of the
Bank's classified assets at the dates indicated.
<TABLE>
<CAPTION>
At July 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Substandard assets (1) $ 5,300 $ 8,757 $ 12,671
Doubtful assets
Loss assets 2,411 3,909 929
Total classified assets $ 7,711 $ 12,666 $ 13,600
<FN>
____________________________________
(1) Includes REO.
</TABLE>
Two of the loans in the Bank's third largest lending
relationship, with a carrying value of $597,000 as of July 31,
1996, were classified substandard, and $685,000 relating to such
loans was classified as loss. Such loans are described above in
" Lending Activities Loans to One Borrower." The following is a
discussion of other classified assets with net carrying values in
excess of $250,000 as of July 31, 1996. Amounts identified below
as specific reserves have been classified as "loss" in the above
table.
In 1986 the Bank granted a 30-year fixed rate loan
collateralized by office and retail space in Baltimore. In August
1993, the Bank restructured the loan from a fixed rate to a one-year
adjustable rate at .5% below market rates. As of July 31,
1996, the collateral property was approximately 75% rented. The
collateral was last appraised in 1995. As of July 31, 1996, a
total of $450,000 had been charged-off, and the loan had a carrying
value of $693,000, net of specific reserves of $750,000. The loan
is current under the restructured terms.
In 1987 the Bank originated a loan collateralized by ten
multifamily residential units located in Baltimore. In February
1992, due to periodic delinquencies, the Bank modified the monthly
payments by reducing the interest rate to 8.0%. As of July 31,
1996, a total of $41,000 had been charged-off, and the loan was
carried at $354,000. As of July 31, 1996, the loan was current as
restructured.
In 1987 and 1990, the Bank granted an adjustable rate loan and
a fixed rate second mortgage loan collateralized by a 95-unit
apartment building located in Baltimore, Maryland. In April 1995,
the Bank classified the loans as substandard due to payment
delinquencies. The borrowers have signed a contract to sell the
property and it is expected to settle by December 31, 1996. At
July 31, 1996, a total of $111,000 had been charged off and the
loans had an aggregate carrying value of $957,000, net of a
specific reserve of $498,000.
Other Loans of Concern. Assets that do not expose the Bank to
risk sufficient to warrant classification in one of the
aforementioned categories, but which possess some weaknesses, are
designated "special mention" by
PAGE
<PAGE>
management. Loans designated as special mention are generally
loans that, while current in required payments, have exhibited some
potential weaknesses that, if not corrected, could increase the
level of risk in the future. At July 31, 1996, the Bank had $5.5
million of special mention loans, including two loans to the same
borrower that constituted the Bank's largest lending relationship.
See " Lending Activities Loans to One Borrower."
Allowance for Loan Losses. Management's policy is to provide
for estimated losses on the Company's loan portfolio based on
management's evaluation of the risk inherent in the loan portfolio.
The Company regularly reviews its loan portfolio, including problem
loans, to determine whether any loans require classification or the
establishment of appropriate reserves or allowances for losses.
Such evaluation, which includes a review of all loans of which full
collectability of interest and principal may not be reasonably
assured, considers, among other matters, the estimated fair value
of the underlying collateral. Other factors considered by
management include the size and risk exposure of each segment of
the loan portfolio, present indicators such as delinquency rates
and the borrower's current financial condition, and current
economic conditions that may affect the borrower's ability to pay.
Management calculates the general allowance for loan losses in
part based on past experience, and in part based on specified
percentages of loan balances. While both general and specific loss
allowances are charged against earnings, general loan loss
allowances are added back to capital, subject to a limitation of
1.25% of risk-based assets, in computing risk-based capital under
OTS regulations.
During the fiscal years ended July 31, 1996, 1995 and 1994, the
Company added $772,000 million, $3.4 million, and $2.0 million,
respectively, to the allowance for loan losses. The Company's
allowance for loan losses totalled $4.4 million, $6.4 million and
$3.7 million, at July 31, 1996, 1995 and 1994, respectively.
Management believes that the allowances for losses on loans and
investments in real estate are adequate. While management uses
available information to recognize losses on loans and investments
in real estate, future additions to the allowances may be necessary
based on changes in economic conditions, particularly in Baltimore
City and the state of Maryland. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Company's allowances for losses on loans
and investments in real estate. Such agencies may require the
Company to recognize additions to the allowances based on their
judgments about information available to them at the time of their
examination.
PAGE
<PAGE>
Analysis of the Allowance For Loan Losses. The following table
sets forth the analysis of the allowance for loan losses for the
periods indicated.
<TABLE>
<CAPTION>
Years Ended July 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net $ 278,042 $ 232,089 $ 208,542 $ 221,595 $ 254,665
Average loans outstanding 254,090 225,633 217,662 241,437 277,049
Allowance balances (at beginning of year) 6,361 3,669 2,326 1,468 1,729
Provision for losses:
One- to four-family residential 40 184 368 396 15
Multi-family residential 249 49 100 1,543 1,488
Commercial 482 2,589 704 1,473 854
Construction 528 646 190 300
Consumer 1 36 171 9 22
------------ ------------ ------------ ------------ ------------
Total provision for losses 772 3,386 1,989 3,611 2,679
Charge-offs:
One- to four-family residential (157) (178) (8) (406) (28)
Multi-family residential (391) (54) (202) (965) (2,146)
Commercial (2,492) (517) (1,083) (752)
Construction (279) (380) (460)
Consumer (3) (5) (98) (11) (14)
------------ ------------ ------------ ------------ ------------
Total charge-offs (3,043) (1,033) (688) (2,925) (2,940)
Recoveries 322 339 42 172
------------ ------------ ------------ ------------ ------------
Allowance balance (at end of year) $ 4,412 $ 6,361 $ 3,669 $ 2,326 $ 1,468
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Allowance for loan losses as a percent
of net loans receivable at end of period 1.59% 2.74% 1.76% 1.05% .58%
Net loans charged off as a percent
of average loans outstanding 1.07% .31% .30% 1.14% 1.06%
Ratio of allowance for loan losses
to total nonperforming loans
at end of period 112.87% 73.90% 101.41% 30.42% 15.06%
Ratio of allowance for loan losses
to nonperforming loans and REO
at end of period 94.37% 66.98% 85.70% 26.04% 12.07%
</TABLE>
Allocation of Allowance for Loan Losses. The following table
sets forth the allocation of allowance for loan losses by loan
category for the years indicated.
<TABLE>
<CAPTION>
At July 31,
----------------------------------------------------------------------------
1996 1995 1994
------------------------- --------------------- --------------------------
% of % of % of
Amount Total Loans(1) Amount Total Loans(1) Amount Total Loans(1)
-------- -------------- ------ -------------- -------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of year
applicable to:
One- to four-family residential $ 523 56.5% $ 530 55.4% $ 509 52.9%
Multi-family residential 1,128 12.0 1,265 16.1 970 18.0
Commercial 2,042 12.6 3,892 15.9 1,796 19.4
Construction (2) 586 12.6 547 6.7 298 4.6
Consumer 133 5.8 127 5.3 96 4.5
Accrued interest receivable - .5 .6 .6
-------- ------ ------ ----- ------ -----
Total allowance for
loan losses $ 4,412 100.0% $6,361 100.0% $3,669 100.0%
-------- ------ ------ ----- ------ -----
-------- ------ ------ ----- ------ -----
<FN>
____________________________________
(1) Represents the percent of the Company's total loan portfolio that is composed of loans in each specific loan category.
(2) Includes land development loans.
</TABLE>
<PAGE>
Investment Activities
General. To supplement local mortgage loan originations where
available funds exceed mortgage loan demand, the Company maintains
a substantial portfolio of liquid investments with low credit risk.
These investments, however, are subject to interest rate risk.
These investments are composed primarily of mortgage-backed
securities and United States Government and agency obligations. At
July 31, 1996, mortgage-backed securities totalled $133.5 million,
or 28.9%, of the Company's total assets, and United States
Government or an agency or sponsored corporation of the United
States Government totalled $31.1 million, or 6.7%, of the Company's
total assets. By investing in these types of assets, the Company's
strategy has been to reduce significantly the credit risk of its
asset base in exchange for lower yields than would typically be
available on real estate loans. The Company's mortgage-backed
securities represent interests in, or are collateralized by, pools
of mortgage loans originated by private lenders that have been
grouped by various governmental, government-related, or private
organizations. The Company manages its interest rate risk, in
part, by maintaining a substantial amount of adjustable-rate
mortgage-backed securities in its investment portfolio. At July
31, 1996, $97.4 million, or 73.0%, of the Company's $133.5 million
of mortgage-backed securities had adjustable interest rates ("ARM
Securities").
In addition, the Bank is required under federal regulations to
maintain a minimum amount of liquid assets that may be invested in
specified short-term securities and certain other investments. The
Bank has generally maintained a portfolio of liquid assets that
exceeds regulatory requirements.
The Bank's Loan/Investment Committee meets on a regular basis
to decide whether any alterations need to be made in the investment
portfolio, based on market levels and conditions, current economic
data, political and regulatory information, and the Bank's internal
needs. Based on the parameters of the investment policy, the Bank
tries to diversify its holdings through the purchase of short- and
medium-term and fixed- and variable-rate instruments, which provide
both an adequate return as well as some insulation from interest
rate risk. All investment decisions are made by the Committee
after analysis and market price cross-checks have been completed.
Effective February 1992, the OTS adopted Thrift Bulletin 52
("TB 52"). Among other things, TB 52 sets forth certain guidelines
with respect to depository institutions' investment in certain
"high risk mortgage securities." "High-risk mortgage securities"
are defined as any mortgage derivative product that at the time of
purchase, or at any subsequent date, meets any of three tests that
are set forth in TB 52. High-risk mortgage securities may be
purchased only in limited circumstances, and if held in a
portfolio, may be reported as trading assets at market value,
available-for-sale assets at the lower of cost or market value, or
as held to maturity at cost. In certain circumstances, OTS
examiners may seek the orderly divestiture of high-risk mortgage
securities. Prior to purchasing a mortgage derivative security the
Loan/Investment Committee obtains an analysis of whether the
mortgage security meets any one of the three TB 52 tests, and falls
into the category of "high-risk mortgage security." The Committee
thereafter presents such analysis to the Board. The Bank documents
no less frequently than annually whether a change in the
characteristics of any mortgage derivative security in its
portfolio causes such security to become a "high-risk mortgage
security." As of July 31, 1996, the Bank did not hold any "high-
risk mortgage securities" in its portfolio.
Mortgage-Backed Securities. The Company's mortgage-backed
securities include pass-through securities and CMOs. Pass-through
securities provide the Company with payments consisting of both
principal and interest as mortgages in the underlying mortgage pool
are paid off by the borrowers. The average maturity of pass-
through mortgage-backed securities varies with the maturities of
the underlying mortgage instruments and with the occurrence of
unscheduled prepayments of those mortgage instruments. Mortgage-
backed securities also include $72.0 million of CMOs, which are
debt obligations collateralized by the cash flows from mortgage
loans or pools of mortgage loans.
PAGE
<PAGE>
Mortgage-backed securities may be classified into the following
principal categories, according to the issuer or guarantor:
(i) Securities that are backed by the full faith and
credit of the United States Government. Ginnie Mae ("GNMA"), the
principal United States Government guarantor of such securities, is
a wholly owned United States Government corporation within HUD.
GNMA is authorized to guarantee, with the full faith and credit of
the United States, the timely payment of principal and interest,
but not of market value, on securities issued by approved
institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages. At July 31, 1996, $3.7 million, or 2.8%, of the
Company's mortgage-backed securities consisted of such securities.
(ii) Securities that are issued by a government
sponsored agency but that are not backed by the full faith and
credit of the United States Government. The primary issuers of
these securities include Fannie Mae ("FNMA") and Freddie Mac
("FHLMC"). FNMA is a United States Government-sponsored
corporation owned entirely by private stockholders. Pass-through
securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA. FHLMC issues securities
representing interests in residential mortgage loans that it pools.
FHLMC is a United States Government-sponsored corporation that
guarantees the timely payment of interest and ultimate collection
of principal, and its stock is publicly traded. At July 31, 1996,
$129.7 million, or 97.2% of the Company's mortgage-backed
securities, consisted of such securities.
(iii) Securities that represent interests in, or are
collateralized by, pools consisting principally of residential
mortgage loans created by non-governmental issuers. These
securities generally offer a higher rate of interest than the other
two types of mortgage-backed securities because there are no direct
government guarantees of payment as in the former securities,
although certain credit enhancements may exist. Securities issued
by certain private organizations may not be readily marketable.
Private mortgage-backed securities purchased by the Company must be
rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization. At July 31,
1996, $52,000 of the Company's mortgage-backed securities,
consisted of such securities.
The Company's mortgage-backed securities include both fixed-
rate and ARM Securities. Unlike fixed-rate mortgage-backed
securities, ARM Securities have periodic adjustments in the coupons
on the underlying mortgages. Management believes that the
adjustable rate feature of the mortgages underlying the ARM
Securities generally will help to reduce sharp changes in the value
of the ARM Security in response to normal interest rate
fluctuations. As the interest rates on the mortgages underlying
the ARM Securities are reset periodically (generally one to twelve
months but as long as five years), the yields of such securities
will gradually align themselves to reflect changes in the market
rates so that the market value of such securities will remain
relatively constant as compared to fixed-rate instruments.
Management believes that this, in turn, should cause the value of
an ARM Security to fluctuate less than fixed-rate mortgage-backed
securities.
If the Company purchases mortgage-backed securities at a
premium, mortgage foreclosures and unscheduled principal
prepayments may result in some loss of the principal investment to
the extent of the premium paid. On the other hand, if mortgage-
backed securities are purchased at a discount, both a scheduled
payment of principal and an unscheduled repayment of principal will
increase current and total returns.
PAGE
<PAGE>
CMOs are securities created by segregating or partitioning cash
flows from mortgage pass-through securities or from pools of
mortgage loans. CMOs provide a broad range of mortgage investment
vehicles by tailoring cash flows from mortgages to meet the varied
risk and return preferences of investors. These securities enable
the issuer to "carve up" the cash flow from the underlying
securities and thereby create multiple classes of securities with
different maturity and risk characteristics. Each class has a
specified maturity or final distribution date. In one structure,
payments of principal, including any principal prepayments, on the
collateral are applied to the classes in the order of their
respective stated maturities or final distribution dates, so that
no payment of principal will be made on any class until all classes
having an earlier stated maturity or final distribution date have
been paid in full. In other structures, certain classes may pay
concurrently, or one or more classes may have a priority with
respect to payments on the underlying collateral up to a specified
amount. The Company has not and will not invest in any class with
residual characteristics. Additionally, the Company will not
invest in any subordinated class that is not rated in one of the
two highest rating categories by at least one nationally recognized
statistical rating organization.
<PAGE>
Mortgage-Backed Securities Portfolio. Set forth below are selected
data relating to the composition of the Company's mortgage-backed securities
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At July 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ----------------- ------------------ ------------------ -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pass-through certificates:
Adjustable $ 25,494 19.1% $ 11,934 7.5% $ 10,863 6.8% $ 13,834 11.5% $ 1,366 1.4%
Fixed (1) 35,345 26.5 88,640 55.4 97,021 60.6 46,372 38.7 83,111 85.5
Total pass-through certificates 60,839 45.6 100,574 62.9 107,884 67.4 60,206 50.2 84,477 86.9
CMOs:
Adjustable (2) 71,949 53.9 58,322 36.5 46,342 28.9 29,430 24.6
Fixed 52 142 .1 5,156 3.2 29,641 24.7 11,957 12.3
Total CMOs 72,001 53.9 58,464 36.6 51,498 32.1 59,071 49.3 11,957 12.3
Accrued interest receivable 626 0.5 767 .5 757 .5 538 .5 745 .8
Total mortgage-backed securities $133,466 100.0% $159,805 100.0% $160,139 100.0% $119,815 100.0% $ 97,179 100.0%
<FN>
___________________________________ __
(1) Includes mortgage-backed securities available for sale of $25.0 million, $6.0 million, and $17.9 million, at July 31,
1996, 1994 and 1993, respectively.
(2) Includes CMOs available for sale of $8.1 million, $3.0 million and $36.3 million at July 31, 1996, 1995 and 1994,
respectively.
</TABLE>
PAGE
<PAGE>
Investment Securities. The following table sets forth the
carrying value of the Company's investment securities portfolio,
interest-earning deposits in other institutions, federal funds
sold, securities purchased under agreements to resell, and FHLB
stock, at the dates indicated. At July 31, 1996, the market value
of the Company's investment securities, and interest-earning
deposits in other institutions, federal funds sold, and FHLB stock
was approximately $36.4 million.
<TABLE>
<CAPTION>
At July 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Investment securities:
U.S. Government and agency obligations (1) $ 30,489 $ 13,615 $ 7,701
Accrued interest receivable 615 303 181
-------- -------- --------
Total investment securities 31,104 13,918 7,882
Interest-earning deposits in other institutions 1,837 2,240 2,360
Federal funds sold 394 950 1,343
Federal Home Loan Bank stock 3,141 2,914 2,914
-------- -------- --------
Total investments $ 36,476 $ 20,022 $ 14,499
-------- -------- --------
-------- -------- --------
<FN>
________________________________
(1) Includes securities available for sale of $6.8 million and $1.0 million at July 31, 1996 and
1994, respectively.
</TABLE>
Investment Portfolio Maturities. The following table sets
forth the carrying values, annualized weighted average yield, and
market values for the Company's investment securities at July 31,
1996.
<TABLE>
<CAPTION>
At July 31, 1996
-----------------------------------------------------------------------------------------------------------
One Year One to Five to More than
Or Less Five Years Ten Years Ten Years Total Investment Securities
-----------------------------------------------------------------------------------------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Market Average
Value Yield(1) Value Yield(1) Value Yield(1) Value Yield(1) Value Value Yield(1)
-------- -------- -------- -------- -------- -------- -------- -------- -------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
securities:
U.S. Government
agency
securities(2) $ % $ 1,500 3.86% $ 14,814 7.08% $14,175 7.80% $30,489 $30,031 7.26%
Accrued
interest
receivable 615 615 615
Total $ 615 % $ 1,500 3.86% $ 14,814 7.08% $14,175 7.80% $31,104 $30,646 7.26%
<FN>
____________________________________
(1) Represents annualized weighted average yield.
(2) Includes securities available for sale.
</TABLE>
<PAGE>
Sources of Funds
General. Deposits are the major source of the Company's funds for
lending and other investment purposes. In addition to deposits, the
Company derives funds from the amortization and prepayment of loans and
mortgage-backed securities, the sale or maturity of investment
securities, operations and advances from the FHLB. Scheduled loan
principal repayments are a relatively stable source of funds, while
deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and market conditions.
Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources or on a
longer term basis for general business purposes.
Deposits. Consumer and commercial deposits are attracted
principally from within the Company's market area through the offering
of a broad selection of deposit instruments including checking and NOW
accounts, savings, money market deposit, term certificate accounts and
individual retirement accounts. The Company accepts deposits of
$100,000 or more and offers negotiated interest rates on such deposits.
Deposit account terms vary according
PAGE
<PAGE>
to the minimum balance required, the period of time during which the
funds must remain on deposit, and the interest rate, among other
factors. The maximum rate of interest which the Company must pay is not
established by regulatory authority. The Company regularly evaluates
its internal cost of funds, surveys rates offered by competing
institutions, reviews the Company's cash flow requirements for lending
and liquidity, and executes rate changes when deemed appropriate. The
Company has sought to decrease the risk associated with changes in
interest rates by advertising and pricing certificates of deposit to
provide customers with incentives to choose certificates of deposit with
longer terms. The Company typically does not obtain funds through
brokers, nor does it solicit funds outside its market area.
<PAGE>
Deposit Portfolio. Savings and other deposits in the Company as of
July 31, 1996, are composed of the following:
<TABLE>
<CAPTION>
Weighted Percentage
Average Minimum of Total
Interest Rate Minimum Term Amount Balances Deposits
- ------------- ------------ --------- ----------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
% None Checking/demand deposit $ $ 3,094 0.99%
accounts ("DDA")
1.94 None NOW Accounts 11,944 3.81
2.99 None Regular Savings 100 30,786 9.83
2.50 None Christmas Club Accounts 5 549 0.18
2.99 None Super Passbook 1,000 9,446 3.02
3.06 None Investment Manager 20,000 15,001 4.79
2.96 None Money Market 2,500 26,144 8.35
Certificates of Deposit
4.86 3 months Fixed term, fixed rate 500 8,218 2.62
4.95 6 months Fixed term, fixed rate 500 17,617 5.63
5.14 12 months Fixed term, fixed rate 500 26,673 8.52
5.24 12 months Fixed term, fixed rate 25,000 21,574 6.89
5.15 13 months Fixed term, fixed rate 500 3,663 1.17
5.80 18 months Fixed term, fixed rate 25,000 13,790 4.40
5.51 24 months Fixed term, fixed rate 500 11,265 3.60
5.69 30 months Fixed term, fixed rate 500 4,424 1.41
5.94 30 months Fixed term, fixed rate 25,000 27,449 8.77
5.33 36 months Fixed term, fixed rate 500 4,865 1.55
5.39 48 months Fixed term, fixed rate 500 3,248 1.04
6.30 60 months Fixed term, fixed rate 500 46,947 15.00
6.56 84 months Fixed term, fixed rate 500 9,794 3.13
6.63 120 months Fixed term, fixed rate 500 16,592 5.30
---------- ------
$ 313,083 100.00%
---------- ------
---------- ------
</TABLE>
PAGE
<PAGE>
The following table sets forth the change in dollar amount of
savings deposits in the various types of savings accounts offered by the
Company between the dates indicated.
<TABLE>
<CAPTION>
At July 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- -------------------------------- -------------------------------
Balance Percent(1) Change(2) Balance Percent(1) Change(2) Balance Percent(1) Change(2)
------- ---------- --------- ------- ---------- --------- ------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking DDA and
NOW Accounts (3) $ 15,038 4.8% $ 1,047 $ 13,991 4.5% $ (158) $ 14,149 4.6% $ (1,425)
Super and regular savings 40,781 13.0 (357) 41,138 13.1 (5,392) 46,530 15.1 (512)
Money market and investment
manager (4) 41,145 13.2 (7,433) 48,578 15.4 (7,989) 56,567 18.3 (6,749)
Time deposits that mature (5):
within 12 months 118,772 37.9 10,546 108,226 34.4 21,098 87,128 28.2 1,358
within 12-36 months 59,823 19.1 (3,385) 63,208 20.1 1,523 61,685 19.9 214
beyond 36 months 37,524 12.0 (1,948) 39,472 12.5 (3,458) 42,930 13.9 (1,608)
-------- ----- -------- -------- ------ -------- --------- ----- --------
Total deposits $313,083 100.0% $(1,530) $314,613 100.0% $ 5,624 $ 308,989 100.0% $ (8,722)
-------- ----- -------- -------- ------ -------- --------- ----- --------
-------- ----- -------- -------- ------ -------- --------- ----- --------
<FN>
____________________________________
(1) Represents percentage of total deposits.
(2) Represents increase (decrease) in balance from end of prior year.
(3) Includes Super NOW with a minimum average balance requirement of $2,500.
(4) Money market accounts require a minimum average balance of $2,000 and the investment manager accounts require a minimum
average balance of $20,000.
(5) Individual Retirement Accounts ("IRAs") are included in the respective certificate balances. IRAs totaled $43.0 million,
$43.1 million, and $43.9 million, as of July 31, 1996, 1995 and 1994, respectively.
</TABLE>
<PAGE>
<PAGE>
The following table sets forth the certificates of deposit in the
Company classified by rates as of the dates indicated:
<TABLE>
<CAPTION>
At July 31,
--------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
3.01- 4.00% $ 459 $ 4,541 $ 49,044
4.01- 6.00% 134,910 81,782 81,291
6.01- 8.00% 80,716 121,866 52,050
8.01-10.00% 34 2,717 9,358
-------- -------- --------
$216,119 $210,906 $191,743
-------- -------- --------
-------- -------- --------
</TABLE>
The following table sets forth the amount and maturities of
certificates of deposit at July 31, 1996.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------
Less Than 1-2 2-3 After
One Year Years Years 3 Years Total
---------- ----- ----- ------- --------
Rate (In Thousands)
<S> <C> <C> <C> <C> <C>
3.01- 4.00% $ 127 $ 92 $ 1 $ 239 $ 459
4.01- 6.00% 89,391 21,567 11,364 12,588 134,910
6.01- 8.00% 29,224 19,608 7,187 24,697 80,716
8.01-10.00% 30 4 34
$118,772 $41,271 $18,552 $37,524 $216,119
</TABLE>
<PAGE>
The following table indicates the amount of the Company's negotiable
certificates of deposit of $100,000 or more by time remaining until
maturity as of July 31, 1996.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposit
------------
(In Thousands)
<S> <C>
Three months or less $5,069
Over three months through six months 3,344
Over six months through twelve months 5,203
Over twelve months 8,803
Total $22,419
</TABLE>
The following table sets forth the activity in the savings deposits
of the Company for the years indicated:
<TABLE>
<CAPTION>
Years Ended July 31,
------------------------------------
1996 1995 1994
-------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Net withdrawals $(17,355) $(9,299) $(22,649)
Interest credited 15,825 14,923 13,927
-------- ------- --------
Net increase (decrease)
in savings deposits $ (1,530) $ 5,624 $ (8,722)
-------- ------- --------
-------- ------- --------
</TABLE> <PAGE>
<PAGE>
Borrowings
Deposits are the Company's primary source of funds. The Company,
through its subsidiary, the Bank, also obtains funds from the FHLB and
through reverse repurchase agreements. FHLB advances are collateralized
by selected assets of the Company. Such advances are made pursuant to
several different credit programs, each of which has its own interest
rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions, including the Bank, for purposes other
than meeting withdrawals, fluctuates from time to time in accordance
with the policies of the OTS and the FHLB. As of July 31, 1996, the
Company had a $95 million line of credit with the FHLB, and FHLB
advances of $62.8 million. The maximum amount of FHLB advances to a
member institution generally is reduced by borrowings from any other
source. See "Regulation and Supervision Federal Home Loan Bank System."
The Company sells securities under agreements to repurchase with
selected dealers (reverse repurchase agreements) as a means of obtaining
short-term funds as market conditions permit. In a reverse repurchase
agreement, the Company sells a fixed dollar amount of securities to a
dealer under an agreement to repurchase the securities at a specific
price within a specific period of time, typically not more than 180
days. Reverse repurchase agreements are treated as financings of the
Company and the obligations to repurchase securities sold are reflected
as a liability of the Company. The dollar amount of securities
underlying the agreements remain an asset of the Company. There were
$34.4 million in securities sold under agreements to repurchase at July
31, 1996.
The following table sets forth certain information regarding
borrowings by the Company during the periods indicated.
<TABLE>
<CAPTION>
Years Ended July 31,
-------------------------------
1996 1995 1994
------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Weighted average rate paid on:
Securities sold under
agreements to repurchase 5.71% 5.77% 3.45%
FHLB advances 5.87 6.06 6.35
Agreements to repurchase:
Maximum balance $39,011 $34,338 $14,808
Average balance 34,005 20,741 9,307
FHLB advances:
Maximum balance 62,824 60,229 50,730
Average balance 46,851 50,182 31,403
</TABLE>
Subsidiaries' Activities
The Company has four indirect subsidiaries that are wholly-owned by
the Bank, National Development Corporation ("NDC"), American National
Insurance Agency, Inc. ("ANIA") and Liberty Street, Inc. ("LSI"), which
are Maryland corporations, and ANSB Corporation ("ANSB"), which is a
Delaware corporation. ANIA acts as agent in offering annuity and
mortgage life insurance products and mutual funds to customers of the
Company. ANIA does not underwrite insurance. NDC was formed in May
1983 primarily to acquire and develop land, through joint ventures with
others, for the construction of single-family residences in the
Company's market area. ANSB was incorporated in June 1994 for the
purpose of holding investment securities for the Company. LSI was
incorporated in May 1996 for the purpose of acquiring selected real
estate at foreclosure for the Company. At July 31, 1996, the Company
had a $23.3 million equity investment in ANSB, a $457,000 equity loss in
NDC, a $42,000 equity investment in ANIA, a $73,000 equity investment in
LSI, and loans of $1.3 million to NDC, $780,000 to NDC's joint venture
Quarterfield Development Partnership ("QDP"), and no loans to ANIA or
ANSB.
PAGE
<PAGE>
For the year ended July 31, 1996, NDC had a net loss of $196,000, ANIA
had a net loss of $2,000, ANSB had net income of $2.2 million, and LSI
had a net loss of $1,000.
NDC has been winding down its operations, and as of July 31, 1996,
it was participating in one joint venture, QDP, which was formed in
January 1989 to purchase raw land in Anne Arundel County, Maryland. QDP
has developed 136 building lots to sell to builders or to construct
single family residences for sale to individuals, and as of July 31,
1996, had 10 lots, of which 5 were under contract. NDC provided QDP
with $1.3 million in equity, and the Company provided a $6.0 million
loan, and a $2.5 million line of credit. As of July 31, 1996, QDP paid
off the original $6.0 million loan. QDP also owed the Company $701,000
under the $2.5 million line of credit. The line of credit was extended
and expires on December 31, 1996, unless extended by the Company. The
amount outstanding under the line of credit fluctuates regularly, and
has been as high as $1.6 million and as low as $700,000 during the
fiscal year ended July 31, 1996.
Competition
As of June 30, 1994, 27 commercial banks, 69 credit unions, and 59
savings institutions maintained 568 branch offices in the Company's
market area. The Company encounters strong competition both in
attracting deposits and in originating real estate and other loans. Its
most direct competition for deposits has historically come from
commercial and savings banks, other savings associations, and credit
unions in its market area. The Company expects continued strong
competition from such financial institutions in the foreseeable future,
including increased competition from "super-regional" banks entering the
market by purchasing large banks and savings banks, as well as
institutions marketing "non-traditional" investments. Many of these
regional institutions have greater financial and marketing resources
available to them than does the Company. As of June 30, 1994, the
Company held approximately 1.4% of all deposits held by commercial
banks, credit unions, and savings associations in the Company's market
area. The Company competes for savings deposits by offering depositors
a high level of personal service and a wide range of competitively
priced financial services.
The competition for real estate and other loans comes principally
from commercial banks, other savings institutions, and mortgage banking
companies. The Company is one of a large number of institutions that
compete for real estate loans in the Company's market area. This
competition for loans has increased substantially in recent years. Many
of the Company's competitors have substantially greater financial and
marketing resources available to them than does the Company. The
Company competes for real estate loans primarily through the interest
rates and loan fees it charges and advertising.
REGULATION AND SUPERVISION
General
The Bank is subject to extensive regulation, examination and
supervision by the OTS, and the FDIC as the deposit insurer. The Bank
is a member of the FHLB System and its deposit accounts are insured up
to applicable limits by the SAIF, which is managed by the FDIC. The
Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. There are
periodic examinations by the OTS and the FDIC to test the Bank's
compliance with various regulatory requirements. This regulation and
supervision establishes a comprehensive framework of activities in which
an institution can engage and is intended primarily for the protection
of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with
their supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes.
Any change in such policies, whether by the OTS, the FDIC or Congress,
could have a material adverse impact on the Company, the Bank and their
operations. The Company, as a savings and loan holding company, is also
required to file certain reports with, and otherwise comply with the
rules and regulations of the OTS. Certain of the regulatory
requirements applicable to the Bank and to the Company are referred to
below or elsewhere herein.
PAGE
<PAGE>
Federal Regulation of Savings Institutions
Business Activities. The activities of savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in
certain respects, the Federal Deposit Insurance Act (the "FDI Act").
The federal banking statutes, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal
Deposit Insurance Corporation Improvement Act ("FDICIA") (i) restrict
the solicitation of brokered deposits by savings institutions that are
troubled or not well-capitalized, (ii) prohibit the acquisition of any
corporate debt security that is not rated in one of the four highest
rating categories, (iii) restrict the aggregate amount of loans secured
by non-residential real estate property to 400% of capital, (iv) permit
savings and loan holding companies to acquire up to 5% of the voting
shares of non-subsidiary savings institutions or savings and loan
holding companies without prior approval, and (v) permit bank holding
companies to acquire healthy savings institutions.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limits on loans to one borrower.
Generally, savings institutions may not make a loan or extend credit to
a single or related group of borrowers in excess of 15% of the Bank's
unimpaired capital and surplus. An additional amount may be lent, equal
to 10% of unimpaired capital and surplus, if such loan is secured by
readily marketable collateral, which is defined to include certain
securities and bullion, but generally does not include real estate. At
July 31, 1996, the Bank is in compliance with its loans to one borrower
limitations. See "Business of the Bank Lending Activities Loans to One
Borrower."
Qualified Thrift Lender Test. The HOLA requires savings
institutions to meet a qualified thrift lender ("QTL") test. Under the
QTL test, a savings association is required to maintain at least 65% of
its "portfolio assets" (total assets less (i) specified liquid assets up
to 20% of total assets, (ii) intangibles, including goodwill, and
(iii) the value of property used to conduct business) in certain
"qualified thrift investments," primarily residential mortgages and
related investments, including certain mortgage-backed and related
securities on a monthly basis in 9 out of every 12 months. A savings
association that fails the QTL test must either convert to a bank
charter or operate under certain restrictions. As of July 31, 1996, the
Bank maintained 86.1% of its portfolio assets in qualified thrift
investments and, therefore, met the QTL test.
Limitation on Capital Distributions. OTS regulations impose
limitations upon all capital distributions by savings institutions, such
as cash dividends, payments to repurchase or otherwise acquire its
shares, payments to stockholders of another institution in a cash-out
merger and other distributions charged against capital. The rule
establishes three tiers of institutions, which are based primarily on an
institution's capital level. An institution that exceeds all fully
phased-in capital requirements before and after a proposed capital
distribution ("Tier 1 Association") and has not been advised by the OTS
that it is in need of more than normal supervision, could, after prior
notice but without the approval of the OTS, make capital distributions
during a calendar year equal to the greater of: (i) 100% of its net
earnings to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess capital over
its fully phased-in capital requirements) at the beginning of the
calendar year; or (ii) 75% of its net earnings for the previous four
quarters; provided that the institution would not be undercapitalized,
as that term is defined in the OTS Prompt Corrective Action regulations,
following the capital distribution. As of July 31, 1996, the Bank had
$9.0 million of capital that could be paid as dividends under such
regulations. Any additional capital distributions would require prior
regulatory approval. In the event the Bank's capital fell below its
fully-phased in requirement or the OTS notified it that it was in need
of more than normal supervision, the Bank's ability to make capital
distributions could be restricted. In addition, the OTS could prohibit
a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that
such distribution would constitute an unsafe or unsound practice.
Liquidity. The Bank is required to maintain an average daily
balance of liquid assets (cash, certain time deposits, bankers'
acceptances, specified U.S. Government, state or federal agency
obligations, shares of certain mutual funds and certain corporate debt
securities and commercial paper) equal to a monthly average of not less
than a specified percentage of its net withdrawable deposit accounts
plus short-term borrowings. This liquidity requirement which is
currently 5%, may be changed from time to time by the OTS to any amount
within the range of 4% to 10% depending upon economic conditions and the
savings flow of member institutions. The Bank's
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liquidity ratio averaged 7.7% during the month of July 1996. OTS
regulations also require each savings institution to maintain an average
daily balance of short-term liquid assets at a specified percentage
(currently 1%) of the total of its net withdrawable deposit accounts and
borrowings payable in one year or less. Monetary penalties may be
imposed for failure to meet these liquidity requirements. During the
month of July 1996, the Bank's short-term liquidity ratio averaged 1.6%.
The Bank has never been subject to monetary penalties for failure to
meet its liquidity requirements.
Assessments. Savings institutions are required by OTS regulation to
pay assessments to the OTS to fund the operations of the OTS. The
general assessment, paid on a quarterly basis, is computed upon the
savings institution's total assets, including consolidated subsidiaries,
as reported in the institution's latest quarterly thrift financial
report. The Bank paid assessments of $772,000, $809,000, and $831,000
for the fiscal years ended July 31, 1996, 1995 and 1994, respectively.
Community Reinvestment. Under the Community Reinvestment Act (the
"CRA"), as implemented by OTS regulations, a savings institution has a
continuing and affirmative obligation, consistent with its safe and
sound operation, to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial
institutions, nor does it limit an institution's discretion to develop
the types of products and services that it believes are best suited to
its particular community, consistent with the CRA. The CRA requires the
OTS, in connection with its examination of a savings institution, to
assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of
certain applications by such institution. The CRA rating system
identifies four levels of performance that may describe an institution's
record of meeting community needs: outstanding, satisfactory, needs to
improve and substantial non-compliance. The CRA also requires all
institutions to make public disclosure of their CRA ratings. The CRA
regulations were recently revised. Effective July 1, 1995, the OTS
assesses the CRA performance of a savings institution under lending,
service and investment tests, and based on such assessment, assigns an
institution in one of the four above-referenced ratings. The Bank
received an "Outstanding" CRA rating under the current CRA regulations
in its most recent federal examination by the OTS.
Transactions with Related Parties. The Bank's authority to engage
in transactions with related parties or "affiliates" (i.e., any company
that controls or is under common control with an institution, including
the Company and its non-savings institution subsidiaries) or to make
loans to certain insiders, is limited by Sections 23A and 23B of the
Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of
transactions with any individual affiliate to 10% of the capital and
surplus of the savings institution and also limits the aggregate amount
of transactions with all affiliates to 20% of the savings institution's
capital and surplus. Certain transactions with affiliates are required
to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is
generally prohibited. Section 23B provides that certain transactions
with affiliates, including loans and asset purchases, must be on terms
and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as
those prevailing at the time for comparable transactions with non-
affiliated companies. In addition, savings institutions are prohibited
from lending to any affiliate that is engaged in activities that are not
permissible for bank holding companies and no savings institution may
purchase the securities of any affiliate other than a subsidiary. At
July 31, 1996, the Bank was in compliance with the transactions with
affiliates rules governed by Sections 23A and 23B.
The Bank's authority to extend credit to executive officers,
directors and 10% stockholders, as well as entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the FRA,
and Regulation O thereunder. Among other things, these regulations
require such loans to be made on terms substantially the same as those
offered to unaffiliated individuals and do not involve more than the
normal risk of repayment. Regulation O also places individual and
aggregate limits on the amount of loans the Bank may make to such
persons based, in part, on the Bank's capital position, and requires
certain approval procedures to be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to
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have an adverse effect on an insured institution. Formal enforcement
action may range from the issuance of a capital directive or cease and
desist order to removal of officers and/or directors of the
institutions, receivership, conservatorship or the termination of
deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless
disregard is made, in which case penalties may be as high as $1 million
per day. Criminal penalties for most financial institution crimes
include fines of up to $1 million and imprisonment for up to 30 years.
Under the FDI Act, the FDIC has the authority to recommend to the
Director of OTS that enforcement action be taken with respect to a
particular savings institution. If action is not taken by the Director,
the FDIC has authority to take such action under certain circumstances.
The federal banking agencies have adopted a regulation and
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") to implement the safety and soundness standards required
under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address
problems at insured depository institutions before capital becomes
impaired. The standards set forth in the Guidelines address internal
controls and information systems; internal audit system; credit
underwriting; loan documentation; interest rate risk exposure; asset
growth; and compensation, fees and benefits. The agencies also adopted
a proposed rule which proposes asset quality and earnings standards
which, if adopted, would be added to the Guidelines. If the appropriate
federal banking agency determines that an institution fails to meet any
standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve
compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such
safety and soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital
standard, a 3.0% leverage ratio (or core capital ratio) and an 8.0%
risk-based capital standard. Core capital is defined as common
stockholders' equity (including retained earnings), certain non-
cumulative perpetual preferred stock and related surplus, minority
interests in equity accounts of consolidated subsidiaries less
intangibles other than certain qualifying supervisory goodwill and
certain purchased mortgage servicing rights ("PMSRs"). The OTS
regulations also require that, in meeting the tangible ratio, leverage
and risk-based capital standards, institutions must deduct investments
in and loans to subsidiaries engaged in activities not permissible for
a national bank. The activities of NDC are not permissible for national
banks, and, accordingly, the Bank's investment in and extensions of
credit to NDC must be excluded from regulatory capital. See "Business
of the Bank Subsidiaries' Activities."
The risk-based capital standard for savings institutions requires
the maintenance of Tier 2 (core) and total capital (which is defined as
core capital and supplementary capital) to risk weighted assets of 4.0%
and 8.0%, respectively. In determining the amount of risk-weighted
assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS
capital regulation based on the risks the OTS believes are inherent in
the type of asset. The components of Tier 1 (core) capital are
equivalent to those discussed earlier under the 3.0% leverage ratio
standard. The components of supplementary capital currently include
cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate
preferred stock and allowance for loan and lease losses. Allowance for
loan and lease losses includable in supplementary capital is limited to
a maximum of 1.25%. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The OTS regulatory capital rule also incorporates an interest rate
risk component. Savings associations with "above normal" interest rate
risk exposure are subject to a deduction from total capital for purposes
of calculating their risk-based capital requirements. A savings
association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance
sheet contracts) that would result from a hypothetical 200-basis point
increase or decrease in market interest rates, divided by the estimated
economic value of the association's assets. In calculating its total
capital under the risk-based rule, a savings association whose measured
interest rate risk exposure exceeds 2%, must deduct an interest rate
component equal to one-half of the difference between the institution's
measured interest rate risk and 2%, multiplied by the estimated economic
value of the institution's assets. The OTS has deferred for the present
time, the date on which the interest rate component is to be deducted
from total capital. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. The rule also provides that the Director of the OTS may
waive or defer an institution's interest rate risk component on a case-by-
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case basis. 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 capital reduction were required at July 31, 1996.
At July 31, 1996, the Bank exceeded each of the three OTS capital
requirements on a fully phased-in basis. Set forth below is a summary
of the Bank's compliance with the OTS capital standards as of July 31,
1996.
<TABLE>
<CAPTION>
At July 31, 1996
--------------------
Percent of
Amount Assets (1)
------ -----------
(Dollars in Thousands)
<S> <C> <C>
Tangible capital:
Capital level $39,800 8.64%
Requirement 6,907 1.50
Excess $32,893 7.14%
Core capital:
Capital level $39,800 8.64%
Requirement (2) 13,813 3.00
Excess $25,987 5.64%
Risk-based capital:
Capital level $41,801 18.20%
Requirement 18,380 8.00
Excess $23,421 10.20%
<FN>
(1) Tangible and core capital levels are calculated on the basis of
a percentage of total adjusted assets; risk-based capital levels are
calculated on the basis of a percentage of risk-weighted assets.
(2) The OTS has proposed a core capital requirement for savings
associations comparable to the new requirement for national banks. The
OTS proposed core capital ratio would be at least 3% of total adjusted
assets for thrifts that receive the highest supervisory rating for
safety and soundness, with a 4% to 5% core capital requirement for all
other thrifts.
</TABLE>
Prompt Corrective Regulatory Action
Under the OTS Prompt Corrective Action regulations, the OTS is
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's
degree of capitalization. Generally, a savings institution that has
total risk-based capital of less than 8.0% or a leverage ratio or a
Tier 1 core capital ratio that is less than 4.0% is considered to be
undercapitalized. A savings institution that has a total risk-based
capital ratio of less than 6.0%, a Tier 1 core risk-based capital ratio
of less than 3.0% or a leverage ratio that is less than 3.0% is
considered to be "significantly undercapitalized" and a savings
institution that has a tangible capital to assets ratio equal to or less
than 2.0% is deemed to be "critically undercapitalized." Subject to a
narrow exception, the banking regulator is required to appoint a
receiver or conservator for an institution that is "critically
undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date
an institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." In
addition, numerous mandatory supervisory actions become immediately
applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions,
and affiliate transactions. The OTS could also take any one of a number
of discretionary supervisory actions, including the issuance of a
capital directive and the replacement of senior executive officers and
directors.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the U.S. Government.
As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-
insured institutions. It also may prohibit any FDIC-insured institution
from engaging in any activity the FDIC determines by regulation or order
to pose a serious risk to the FDIC. The FDIC also has the authority to
initiate enforcement actions against savings banks, after giving the OTS
an opportunity to take such
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action, and may terminate the deposit insurance if it determines that
the institution has engaged or is engaging in unsafe or unsound
practices, or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-
based system under which all insured depository institutions are placed
into one of nine categories and assessed insurance premiums, ranging
from .23% to .31% of deposits, based upon their level of capital and
supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of
core capital to risk-weighted assets of at least 6% and a risk-based
capital ratio of at least 10%) and considered healthy would pay the
lowest premium while institutions that are less than adequately
capitalized (i.e., a core capital or core capital to risk-based capital
ratios of less than 4% or a risk-based capital ratio of less than 8%)
and considered of substantial supervisory concern would pay the highest
premium. Risk classification of all insured institutions will be made
by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less
than the designated reserve ratio of 1.25% of SAIF insured deposits. In
setting these increased assessments, the FDIC must seek to restore the
reserve ratio to that designated reserve level, or such higher reserve
ratio as established by the FDIC. The FDIC may also impose special
assessments on SAIF members to repay amounts borrowed from the United
States Treasury or for any other reason deemed necessary by the FDIC.
In September 1996, Congress enacted legislation to recapitalize the
SAIF by a one-time assessment on all SAIF-insured deposits held as of
March 31, 1995. The assessment will be 65.7 basis points per $100 in
deposits, payable on November 30, 1996. For the Bank, the assessment is
expected to be $2.1 million (or $1.4 million when adjusted for taxes),
based on the Bank's deposits on March 31, 1995 of $314.2 million. In
addition, beginning January 1, 1997, pursuant to the legislation,
interest payments on bonds ("FICO Bonds") issued in the late 1980's by
the Financing Corporation to recapitalize the now defunct Federal
Savings and Loan Insurance Corporation will be paid jointly by BIF-
insured institutions and SAIF-insured institutions. The FICO assessment
will be 1.29 basis points per $100 in BIF deposits and 6.44 basis points
per $100 in SAIF deposits. Also beginning January 31, 1997, the current
annual minimum premium of 23 basis points will be reduced to
approximately 6.44 basis points. Beginning January 1, 2000, the FICO
interest payments will be paid pro-rata by banks and thrifts based on
deposits (approximately 2.4 basis points per $100 in deposits). The BIF
and SAIF will be merged on January 1, 1999, provided the bank and saving
association charters are merged by that date. In that event, pro-rata
FICO sharing will begin on January 1, 1999.
Federal Home Loan Bank System
The Bank is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily
for member institutions. The Bank, as a member of the FHLB, is required
to acquire and hold shares of capital stock in that FHLB in an amount at
least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of
each year, or 1/20 of its advances (borrowings) from the FHLB, whichever
is greater. The Bank was in compliance with this requirement with an
investment in FHLB-Atlanta stock, at July 31, 1996, of $3.1 million.
The FHLBs are required to provide funds for the resolution of
insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of dividends that
the FHLBs pay to their members and could also result in the FHLBs
imposing a higher rate of interest on advances to their members. For
the fiscal year ended July 31, 1996, dividends from the FHLB-Atlanta to
the Bank amounted to $212,000. If dividends were reduced, or interest
on future FHLB-Atlanta advances increased, the Bank's net interest
income would likely also be reduced.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions
to maintain non-interest-earning reserves against their transaction
accounts (primarily NOW and regular checking accounts). The Federal
Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts
aggregating $54.0 million or less (subject to adjustment by the Federal
Reserve Board) the reserve requirement is 3%; and for accounts greater
than $54.0 million, the reserve requirement is $1.6 million plus 10%
(subject to adjustment by the Federal Reserve Board between 8% and 14%)
against that portion of total transaction accounts in excess of
$54.0 million. The first $4.2 million of otherwise reservable balances
(subject to adjustments
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by the Federal Reserve Board) are exempted from the reserve
requirements. The Bank is in compliance with the foregoing
requirements. The balances maintained to meet the reserve requirements
imposed by the FRB may be used to satisfy liquidity requirements imposed
by the OTS.
Holding Company Regulation
The Company is a non-diversified savings and loan holding company
within the meaning of the HOLA, as amended. As such, the Company is
registered with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has
enforcement authority over the Company and its non-savings institution
subsidiaries. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk
to the subsidiary savings institution. The Bank is required to notify
the OTS 30 days before declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally
is not restricted under existing laws as to the types of business
activities in which it may engage, provided that the Bank continues to
be a QTL. See " Federal Regulation of Savings Institutions Qualified
Thrift Lender Test" for a discussion of the QTL requirements. Upon any
nonsupervisory acquisition by the Company of another savings association
or savings bank that meets the QTL test and is deemed to be a savings
institution by the OTS, the Company would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types
of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-
insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the Bank Holding Company
Act, subject to the prior approval of the OTS, and activities authorized
by OTS regulation. The OTS is prohibited from approving any acquisition
that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, subject to two
exceptions: (i) the approval of interstate supervisory acquisitions by
savings and loan holding companies, and (ii) the acquisition of a
savings institution in another state if the laws of the state of the
target savings institution specifically permit such acquisitions.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another
savings institution or holding company thereof, without prior written
approval of the OTS. It also prohibits the acquisition or retention of,
with certain exceptions, more than 5% of a non-subsidiary savings
institution, a non-subsidiary holding company, or a non-subsidiary
company engaged in activities other than those permitted by the HOLA; or
acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire
savings institutions, the OTS must consider the financial and managerial
resources, future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance fund, the
convenience and needs of the community and competitive factors.
Federal law generally provides that no "person," acting directly or
indirectly or through or in concert with one or more other persons, may
acquire "control," as that term is defined in OTS regulations, of a
federally insured savings institution without giving at least 60 days
written notice to the OTS and providing the OTS an opportunity to
disapprove of the proposed acquisition. Such acquisitions of control
may be disapproved if it is determined, among other things, that (i) the
acquisition would substantially lessen competition; (ii) the financial
condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the
acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit
the acquisition of control by such person.
Federal Securities Laws
The Company's Common Stock is registered with the Securities and
Exchange Commission ("SEC") under the Securities Exchange Act of 1934
(the "Exchange Act"). The Company is subject to the information, proxy
solicitation, insider trading restrictions and other requirements under
the Exchange Act.
The registration under the Securities Act of 1933 (the "Securities
Act") of shares of the Common Stock which were issued in connection with
the mutual-to-stock conversion of American National Bankshares, M.H.C.
did not cover the resale of such shares. Shares of the Common Stock
purchased by persons who are not affiliates of the Company may be resold
without registration. Shares purchased by an affiliate of the Company
are subject to the resale restrictions of Rule 144 under the Securities
Act. If the Company meets the current public information
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requirements of Rule 144 under the Securities Act, each affiliate of the
Company who complies with the other conditions of Rule 144 (including
those that require the affiliate's sale to be aggregated with those of
certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any
three-month period, the greater of (i) 1% of the outstanding shares of
the Company or (ii) the average weekly volume of trading in such shares
during the preceding four calendar weeks. Provision may be made in the
future by the Company to permit affiliates to have their shares
registered for sale under the Securities Act under certain
circumstances.
FEDERAL AND STATE TAXATION
General
The Company and its subsidiaries currently file a consolidated
federal income tax return on a July 31 fiscal year basis. Consolidated
returns have the effect of eliminating intercompany distributions,
including dividends, from the computation of consolidated taxable income
for the taxable year in which the distributions occur. The following
discussion of tax matters is intended only as a summary, and while it
does not purport to be a comprehensive description of all tax rules
applicable to the Bank or the Company, all matters deemed material by
management have been discussed.
Federal Taxation
Tax Bad Debt Reserves. Savings associations such as the Bank that
meet certain definitional tests relating to the composition of assets
and other conditions prescribed by the Internal Revenue Code (the
"Code") are permitted to establish reserves for bad debts and to make
annual additions thereto which may, within specified formula limits, be
taken as a deduction in computing taxable income for federal income tax
purposes. The amount of the bad debt reserve deduction for "non-
qualifying loans" is computed under the experience method. For tax
years beginning before December 31, 1995, the amount of the bad debt
reserve deduction for "qualifying real property loans" (generally loans
secured by improved real estate) may be computed under either the
experience method or the percentage of taxable income method (based on
an annual election). If a saving association elected the latter method,
it could claim, each year, a deduction based on a percentage of taxable
income, without regard to actual bad debt experience. Under the
experience method, the bad debt reserve deduction is an amount
determined under a formula based generally upon the bad debts actually
sustained by the savings and loan association over a period of years.
Under recently enacted legislation, the percentage of taxable income
method has been repealed for years beginning after December 31, 1995,
and "large" associations, i.e., the quarterly average of the
association's total assets or of the consolidated group of which it is
a member, exceeds $500 million for the year, may no longer be entitled
to use the experience method of computing additions to their bad debt
reserve. A "large" association must use the direct write-off method for
deducting bad debts, under which charge-offs are deducted and recoveries
are taken into taxable income as incurred. If the Bank is not a "large"
association, the Bank will continue to be permitted to use the
experience method. The Bank will be required to recapture (i.e., take
into income) over a six-year period its applicable excess reserves, i.e,
the balance of its reserves for losses on qualifying loans and
nonqualifying loans, as of the close of the last tax year beginning
before January 1, 1996, over the greater of (a) the balance of such
reserves as of December 31, 1987 (pre-1988 reserves) or (b) in the case
of a bank which is not a "large" association, an amount that would have
been the balance of such reserves as of the close of the last tax year
beginning before January 1, 1996, had the bank always computed the
additions to its reserves using the experience method. Postponement of
the recapture is possible for a two-year period if an association meets
a minimum level of mortgage lending for 1996 and 1997. As of July 31,
1996, the Bank is not required to recapture any of its bad debt reserve.
If an association ceases to qualify as a "bank" (as defined in Code
Section 581) or converts to a credit union, the pre-1988 reserves and
the supplemental reserve are restored to income ratably over a six-year
period, beginning in the tax year the association no longer qualifies as
a bank. The balance of the pre-1988 reserves are also subject to
recapture in the case of certain excess distributions to (including
distributions on liquidation and dissolution), or redemptions of,
shareholders.
Corporate Alternative Minimum Tax. For taxable years beginning
after December 31, 1986, the Internal Revenue Code of 1986, as amended
(the "Code") imposes a tax on alternative minimum taxable income
("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net
operating losses. For taxable years beginning after
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December 31, 1989, the adjustment to AMTI based on book income will be
an amount equal to 75% of the amount by which a corporation's adjusted
current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986, and
before January 1, 1996, an environmental tax of .12% of the excess of
AMTI (with certain modifications) over $2.0 million is imposed on
corporations, including the Company, whether or not an Alternative
Minimum Tax ("AMT") is paid. The Company does not expect to be subject
to the AMT.
The Company was last audited by the Internal Revenue Service for tax
years through July 31, 1993. For additional information regarding
taxation, see Notes 1 and 14 of Notes to the Consolidated Financial
Statements.
State and Local Taxation
Maryland Taxation. The State of Maryland generally imposes a
franchise tax on thrift institutions computed at a rate of 7% of net
earnings. For the purpose of the 7% franchise tax, net earnings are
defined as the net income of the thrift institution as determined for
federal corporate income tax purposes, plus (i) interest income from
obligations of the United States, of any state, including Maryland, and
of any country, municipal or public corporation authority, special
district or political subdivision of any state, including Maryland,
(ii) any profit realized from the sale or exchange of bonds issued by
the State of Maryland or any of its political subdivisions, and
(iii) any deduction for state income taxes.
Delaware Taxation. As a Delaware business corporation, the Company
will be required to file annual returns and pay annual fees and an
annual franchise tax to the State of Delaware. These taxes and fees are
not expected to be material.
ITEM 2. Properties
Properties
The Company conducts its business through two offices including its
main office and an operations center located in Baltimore, Maryland, and
seven full service branch offices located in three counties. The
following table sets forth certain information concerning the main
office and each branch office of the Company at July 31, 1996. The
aggregate net book value of the Company's premises and equipment was
$1.2 million at July 31, 1996.
<TABLE>
<CAPTION>
Owned Lease
Year or Expiration
Opened Leased Date
------ ------ ------------------
<S> <C> <C> <C>
Main Office:
211 N. Liberty Street 1986 Leased March 2001
Baltimore, Maryland 21201
Branch Offices:
825 Dulaney Valley Road 1959 Leased December 1999
#275
Baltimore, Maryland 21204
4371 Ebenezer Road 1961 Leased September 2001(1)
Baltimore, Maryland 21236
6832 Reisterstown Road 1961 Leased September 2011
Baltimore, Maryland 21215
206 Harundale Mall 1962 Leased May 1999
Glen Burnie, Maryland 21061
9469 Baltimore National Pike 1990 Leased November 2000
Ellicott City, Maryland 21043
<PAGE>
<PAGE>
7848 Eastpoint Mall 1985 Leased March 2005
Baltimore, Maryland 21224
11700 Reisterstown Road 1986 Leased June 2006
Reisterstown, Maryland 21136
2 West Rolling Crossroads, #110 1987 Leased October 1997 (1)
Baltimore, Maryland 21228
Operations Center:
5801 Moravia Boulevard 1989 Leased September 1999
Suites 5815-5817
Baltimore, Maryland 21206
<FN>
____________________________________
(1) Excludes five-year renewal option.
</TABLE>
ITEM 3. Legal Proceedings
There are various claims and lawsuits in which the Company and the
Bank periodically are involved incident to their businesses. 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
During the fourth quarter of the fiscal year covered by this report,
the Company did not submit any matters to the vote of security holders.
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder
Matters
The section titled "Common Stock and Related Matters" of the 1996
Annual Report to Stockholders is incorporated herein by reference. No
other sections of such Annual Report are incorporated herein by this
reference.
ITEM 6. Selected Financial Data
The section titled "Selected Consolidated Financial and Other Data"
of the 1996 Annual Report to Stockholders is incorporated herein by
reference. No other sections of such Annual Report are incorporated
herein by this reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The section titled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of the 1996 Annual Report
to Stockholders is incorporated herein by reference. No other sections
of such Annual Report are incorporated herein by this reference.
ITEM 8. Financial Statements and Supplementary Data
The sections titled "Consolidated Statements of Financial
Condition," "Consolidated Statements of Operations," "Consolidated
Statements of Stockholders' Equity," "Consolidated Statements of Cash
Flows" and "Notes to Consolidated Financial Statements" of the 1996
Annual Report to Stockholders are incorporated herein by reference.
ITEM 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
Not Applicable
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information concerning the Directors of the Registrant is
incorporated herein by reference from the Registrant's definitive Proxy
Statement dated October 18, 1996 (the "Proxy Statement").
ITEM 11. Executive Compensation
Information concerning the Executive Compensation of the Registrant
is incorporated herein by reference from the Registrant's Proxy
Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain owners and
management is incorporated herein by reference from the section titled
"Voting Securities and Principal Holders Thereof" of Registrant's Proxy
Statement.
ITEM 13. Certain Relationships and Related Transactions
Information concerning relationships and transactions is
incorporated herein by reference from the section titled "Certain
Transactions with the Company" of the Registrant's Proxy Statement.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on From
8-K
(a)(1) Financial Statements
The following information appearing in the Registrant's 1996 Annual
Report is incorporated by reference as Exhibit 13 to this Annual Report
on Form 10-K.
Page in
Annual Report
Annual Report Sections
Report of Independent Auditors 51
Consolidated Statements of Financial Condition
as of July 31, 1996 and 1995 17
Consolidated Statements of Operations for the years ended
July 31, 1996, 1995 and 1994 18
Consolidated Statements of Stockholders' Equity for the years
ended July 31, 1996, 1995 and 1994 19
Consolidated Statements of Cash Flows for the years ended
July 31, 1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 22
(a)(2) Financial Statement Schedules
All financial statement schedules have been omitted as the required
information is inapplicable or has been included in the Notes to
Financial Statements.
(a)(3) Exhibits
Sequential Page
Reference to Prior Number Where
Filing or Exhibit Attached Exhibits
Regulation S-K Number Attached Are Located in This
Exhibit Number Document Hereto Form 10-K Report
2 Plan of acquisition, (1) Not Applicable
reorganization, arrangement,
liquidation or succession
3.1 Articles of Incorporation (1) Not Applicable
3.2 Bylaws (1) Not Applicable
4 Instruments defining the (1) Not Applicable
rights of security holders,
including debentures
9 Voting trust agreement None Not Applicable
10.1 1993 Incentive Stock (1) Not Applicable
10.2 1993 Stock Option Plan (1) Not Applicable
for Outside Directors
10.3 1993 Recognition and (1) Not Applicable
Retention Plan for Employees
10.4 1993 Recognition and (1) Not Applicable
Retention Plan for Outside
Directors
10.5 Employment Agreement of (1) Not Applicable
A. Bruce Tucker
10.6 Employment Agreement of (1) Not Applicable
Joseph Solomon
10.7 401(k) Plan, including Amendment (1) Not Applicable
10.8 Employee Stock Ownership Plan (1) Not Applicable
10.9 1996 Stock Option Plan 10.9 41
10.10 1996 Recognition and 10.10 53
Retention Plan
10.11 Employment Agreement of 10.11 62
James M. Uveges
10.12 Employment Agreement of 10.12 76
Mark S. Barker
11 Statement re: computation Not Not Applicable
of per share earnings Required
12 Statement re: computation Not Not Applicable
of ratios Required
13 Annual Report to Security 13 91
16 Letter re: change in certifying None Not Applicable
accountants
18 Letter re: change in accounting None Not Applicable
principles
21 Subsidiaries of Registrant 21 162
22 Published report regarding None Not Applicable
matters submitted to vote of
security holders
23 Consents of Experts and Counsel Not Required Not Applicable
24 Power of Attorney Not Required Not Applicable
27 Financial Data Schedule Not Required Not Applicable
28 Information from reports None Not Applicable
furnished to state
insurance regulatory
authorities
99 Additional Exhibits None Not Applicable
_______________
(1) Filed as exhibits to the Registrant's Registration Statement on Form
S-1 filed with the SEC on July 13, 1995, as amended on August 30, 1995. All
such previously filed documents are hereby incorporated by reference in
accordance with Item 601 of Regulation S-K.
(b) Reports on Form 8-K:
The Registrant has not filed a Current Report on Form 8-K during the
year ended July 31, 1996.
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICAN NATIONAL BANCORP, INC.
Date: 10/28/96 By: /s/ A. Bruce Tucker
A. Bruce Tucker, President
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
By: /s/ A. Bruce Tucker By: /s/ James M. Uveges
A. Bruce Tucker, President, James M. Uveges, Senior Vice
Chief Executive President and Chief
and Director Financial Officer
(principal accounting officer)
Date: 10/28/96 Date: 10/28/96
By: /s/ Howard K. Thompson By: /s/ Lenwood M. Ivey
Howard K. Thompson, Chairman Lenwood M. Ivey, Director
of the Board
Date: 10/28/96 Date: 10/28/96
By: /s/ David L. Pippinger By: /s/ Joseph M. Solomon
David L. Pippinger, Director Joseph M. Solomon, Director
Date: 10/28/96 Date: 10/28/96
By: /s/ Betty J. Stull By: /s/ Jimmie T. Noble
Betty J. Stull, Director Jimmie T. Noble, Director
Date: 10/28/96 Date: 10/28/96
1996 ANNUAL REPORT TO STOCKHOLDERS
AMERICAN NATIONAL BANCORP, INC.
TABLE OF CONTENTS
Page
Message of President and Chief Executive Officer . . . . . . . . . . 1
Selected Consolidated Financial and Other Data . . . . . . . . . . . 3
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . 5
American National Bancorp, Inc. Common Stock and Related Matters . .16
Consolidated Financial Statements. . . . . . . . . . . . . . . . . .17
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . .22
Independent Auditors' Report and Selected Quarterly Financial Data .51
[American National Bancorp, Inc. Letterhead]
To our Stockholders:
I am pleased to report that American National Bancorp, Inc. has
made significant progress in the nine months following the close of its
successful mutual to stock conversion on October 31, 1995. The Company
sold 2,182,125 shares of common stock at $10.00 per share and minority
stockholders of American National Savings Bank, F.S.B. (the "Bank") were
issued 1.94 shares of Company common stock in exchange for each
outstanding share of common stock of the Bank. Due to the offering and
profits, stockholders' equity increased by $18.3 million to $47.3
million at July 31, 1996.
Net income increased to $1.5 million from $10,000 in 1995. Net
interest income for 1996 increased $1.2 million to $12.9 million
compared to $11.7 million for 1995. This 9.5% increase primarily
reflects growth in assets, relatively stable net interest margins and a
decrease in the provision for loan losses.
In 1996, assets were up $35.1 million or 8.2% to $461.3 million,
and loans were up $45.9 million or 19.8% to $278.0 million. We are
beginning to see the results of the Bank's efforts to expand its lending
operations. Although our primary focus continues to be single-family
residential loans, the Company continues to promote its auto, home
equity and construction lending in order to change the mix of assets and
improve earnings. Nonperforming assets decreased to $4.7 million or 1%
of total assets at July 31, 1996, compared to $9.5 million or 2.2% of
total assets at July 31, 1995. Our capital continues to significantly
exceed all regulatory requirements and supports our firm commitment to
remain a financially sound institution.
Consistent with the Company's capital management program and its
goal to improve Return on Equity, in June 1996, we repurchased 199,025
shares and in August 1996 we repurchased 189,074 shares of American
National Bancorp's Common Stock in the open market at a cost of
approximately $2.0 million and $2.3 million, respectively. Stockholders
will continue to benefit from this repurchase plan as future profits are
spread over fewer shares. Also, on September 19, 1996, the Board of
Directors authorized the first quarterly cash dividend of three cents
($.03) per share to be paid on or about November 15, 1996 to
stockholders of record as of October 31, 1996.
Although the Company's returns on assets and equity are below
industry norms, the Company's core earnings continue to improve with
management focused on its Strategic Business Plan which targets return
on equity of approximately 12% in three years. While the future course
of interest rates cannot always be accurately predicted, we believe that
through continued hard work, this goal is achievable.
Letter to Stockholders, Continued
Our goal to increase profitability has fostered our commitment to
improve our delivery and our mix of services. The relocation of our
largest branch at the Fallstaff Shopping Center in Pikesville, to a free
standing building complete with drive-up and ATM capabilities, should
open in late October, 1996. We are also building a highly visible
office on a pad site of the Constant Friendship Shopping Center in
Harford County, one of the Company's primary lending markets. This
office should be operational by the spring of 1997. However, in late
November, 1996, we will open a temporary office in the shopping center
until our larger facility is completed. We anticipate that this
increased exposure in Harford County will not only enhance our lending
capabilities but will also be a strong source of low cost core deposits.
The Company continues to grow its market share. Marketing studies
confirm that customers who use the Bank's services continue to be very
satisfied. The Company increased the awareness of American National
Savings Bank over the past year through a very successful media
campaign. This campaign contributed, in a large part, to the $45.9
million increase in loans. The Company intends to build on this success
and has increased its advertising and marketing budgets for 1997.
We also intend to improve customer service by investing in
technology in the future. While retaining our strong customer base in
the over-age 55 category, we are working to increase our market share of
younger customers. Since these customers demand technology-based
delivery systems, the Bank is currently reviewing potential new products
including telephone banking, Internet services, and debit cards for
implementation in 1997. We will also continue to focus on building
competitive checking accounts and other core deposits.
Recent federal legislation has been enacted to recapitalize the
FDIC insurance fund. Although the one-time special assessment that the
Bank is required to make will have a short term impact on its 1997
earnings, the long term effect will be to significantly reduce the
Bank's future insurance expenses.
With our strong capital position, improved asset quality and higher
core earnings, we believe exciting opportunities lie ahead. And, with
the continued support of our stockholders, customers and employees, I am
confident that we will continue to provide quality service and enhance
our performance.
A. Bruce Tucker
President and Chief Executive
Officer
<PAGE>
Selected Consolidated Financial and Other Data
Prior to October 31, 1995, the Company had no assets or operations.
The following tables set forth certain consolidated financial and other
data of the Company at and for the year ended July 31, 1996, and of the
Bank at and for the years ended July 31, 1995, 1994, 1993 and 1992.
This information is derived in part from and should be read in
conjunction with the Consolidated Financial Statements of the Company
and the notes thereto presented elsewhere herein. For additional
information about the Company and the Bank, reference is made to
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
<CAPTION>
At July 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Selected Consolidated
Financial Condition Data: (In Thousands)
Total assets $461,271 $426,174 $400,046 $383,259 $398,863
Loans receivable, net (1) 278,042 232,089 208,542 221,595 254,665
Mortgage-backed securities 100,195 156,775 117,597 102,478 97,179
Investment securities 24,109 13,918 6,825 8,583 4,800
Securities available for sale 40,266 3,030 43,600 27,141
Cash and cash equivalents 4,902 5,360 7,109 5,112 19,134
Investments in real estate, net 5,670 5,828 5,623 6,282 7,476
Investments in and advances to
real estate joint ventures 1,270 2,215 3,676 4,576 6,883
Deposits 313,083 314,613 308,989 317,711 344,586
Borrowed funds 97,269 78,475 58,197 40,968 29,400
Stockholders' equity 47,270 28,959 29,160 21,193 20,508
<FN>
____________________________________
(1) Includes loans held for sale.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
At or for the Years Ended July 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Key Financial Ratios and Other Data:
Performance Ratios:
Return on average assets (1)(2) .35% % .33% .18% .05%
Return on average equity (1)(3) 3.63 .03 4.68 3.27 .95
Net interest rate spread (4) 2.44 2.48 2.56 2.73 2.06
Net interest margin (5) 2.93 2.87 2.89 2.97 2.44
Net interest income to
noninterest expense 128.15 125.76 120.11 127.70 103.91
Net interest income after
provision for loan losses
to total noninterest expense 120.46 89.51 98.56 86.44 75.52
Noninterest expense to average
assets 2.25 2.24 2.36 2.28 2.32
Quality Ratios:
Nonperforming loans to
total loans (6) 1.31 3.52 1.67 3.34 3.74
Nonperforming assets to
total assets (7) 1.01 2.23 1.07 2.33 3.05
Allowance for loan losses to
nonperforming loans 112.87 73.90 101.41 30.42 15.06
Allowance for loan losses to
nonperforming assets (7) 94.37 66.98 85.70 26.04 12.07
Equity Ratios:
Stockholders' equity to assets
at period end 10.25 6.80 7.29 5.53 5.14
Average stockholders' equity
to average assets 9.55 6.95 7.05 5.54 5.05
Average interest-earning assets to
average interest-bearing
liabilities 110.54 108.04 107.84 105.16 106.34
Other Data:
Number of full-service offices 9 9 9 9 9
Per Share Data:
Book value per share $13.06 $14.11 $14.21 N/A N/A
Earnings per share (8) .36 .41 N/A N/A
Pro forma net income per share (8) .47 N/A .67 N/A N/A
Dividends declared per share N/A .40 .30 N/A N/A
Dividend payout ratio N/A N/A .73 N/A N/A
<FN>
____________________________________
(1) Net income for the fiscal year ended July 31, 1993, includes $583,000 representing the cumulative
effect of change in accounting for income taxes.
(2) Return on average assets represents net income divided by average total assets.
(3) Return on average equity represents net income divided by average equity.
(4) Net interest rate spread represents the difference between average yield on interest-earning assets
and average cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of average interest-earning
assets.
(6) Nonperforming loans include nonaccrual loans and accruing loans 90 days or more delinquent.
(7) Nonperforming assets consist of nonperforming loans and foreclosed assets.
(8) See Note 13 of Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
American National Bancorp, Inc.
American National Bancorp, Inc. (the "Company") is a Delaware
corporation that was organized in July 1995. On October 31, 1995, the
Company acquired 100% of the capital stock of American National Savings
Bank, F.S.B. (the "Bank"), sold 2,182,125 shares of common stock in a
subscription offering for a purchase price of $10.00 per share (the
"Offering"), and issued 1,798,402 shares of common stock in exchange for
927,000 shares of the Bank's common stock held by shareholders other
than American National Bankshares, M.H.C. (together with the Offering,
the "Conversion"). Immediately following the Conversion, the only
significant assets of the Company were the common stock of the Bank and
$19.3 million of the proceeds from the Offering. The Company is
registered as a savings and loan holding company with the Office of
Thrift Supervision (the "OTS"). At July 31, 1996, the Company had total
consolidated assets of $461.3 million, total consolidated deposits of
$313.1 million, and consolidated stockholders' equity of $47.3 million.
The Company's executive office is located at 211 North Liberty Street,
Baltimore, Maryland 21201 and its telephone number is (410) 752-0400.
American National Savings Bank, F.S.B.
American National Savings Bank, F.S.B. (the "Bank") is a federally
chartered stock savings bank headquartered in Baltimore, Maryland. The
Bank conducts operations through nine full-service offices in its market
area consisting of Baltimore City and parts of the Maryland counties of
Baltimore, Howard, Harford, Anne Arundel, and Carroll. The Bank is
primarily engaged in the business of attracting deposits from the
general public in the Bank's market area, and investing such deposits
together with other funds, in loans collateralized by one- to four-
family residential real estate, mortgage-backed securities, and, to a
lesser extent, construction and land development loans, consumer loans
and investment securities. In the past, the Bank also actively
originated multifamily residential real estate loans and commercial real
estate loans; however, originations of such loans have decreased
significantly in recent years as the Bank has sought to reduce the
credit risk and losses in its loan portfolio. The Bank also has reduced
its involvement in real estate joint ventures due to economic conditions
and changes in regulatory capital requirements.
General
The Company's results of operations are primarily dependent on its
net interest income, which is the difference between interest income
earned on its loans, mortgage-backed securities, and investment
portfolios, and its cost of funds consisting of interest paid on
deposits and borrowed funds. The Company's net income also is affected
by its provisions for losses on loans and investments in real estate, as
well as the amount of noninterest income, including fees and service
charges, gains or losses on sales of loans, mortgage-backed securities,
investment securities, and other noninterest income, and noninterest
expense, including salary and employee benefits, net occupancy, federal
deposit insurance premiums, operations of investment in real estate,
other noninterest expense, and income taxes. During the fiscal years
ended July 31, 1996, 1995, and 1994, net interest income constituted
97.8%, 92.6%, and 84.0% of gross earnings (i.e., net interest income and
noninterest income), and noninterest income constituted 2.2%, 7.4%, and
16.0% of gross earning, respectively. Net income of the Company is also
affected significantly by general economic and competitive conditions,
particularly changes in market interest rates, government policies, and
actions of regulatory authorities.
Financial Condition
Total assets increased by $35.1 million, or 8.2%, to $461.3 million
at July 31, 1996 from $426.2 million at July 31, 1995 due to the second
step stock offering which closed October 31, 1995. Loans receivable
increased by $45.9 million, or 19.8%, to $278.0 million at July 31, 1996
from $232.1 million at July 31, 1995 largely due to increased
originations and purchases of loans. Securities available for sale
increased $37.3 million, to $40.3 million at July 31, 1996 from $3.0
million at July 31, 1995. Mortgage-backed securities decreased $56.6
million, or 36.1%, to $100.2 million at July 31, 1996 from $156.8
million at July 31, 1995. The increase in securities available for sale
and the decrease in mortgage-backed 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. Investment securities increased $10.2 million, or
73.2%, to $24.1 million at July 31, 1996 due to the purchase of higher
yielding callable securities, offset by the transfer of securities into
the available for sale portfolio in December 1995.
Advances from the Federal Home Loan Bank of Atlanta increased $18.7
million, or 42.3%, to $62.8 million at July 31, 1996 from $44.1 million
at July 31, 1995 in order to fund loan settlements and purchases.
Total stockholders' equity increased by $18.3 million to $47.3
million at July 31, 1996 compared to $29.0 million at July 31, 1995.
This increase was the result of $20.0 million of proceeds from the stock
offering, net of expenses, and net income for the year of $1.5 million,
partially offset by the Company's establishment of an Employee Stock
Ownership Plan (the "ESOP") which borrowed $1.7 million from the
proceeds, the repurchase of 5% of its outstanding shares, or 199,025
shares, in open market transactions, and an increase in the net
unrealized holding loss on securities of $424,000.
Results of Operations
General. The Company reported net income of $1.5 million, $10,000,
and $1.3 million for the fiscal years ended July 31, 1996, 1995, and
1994. The $1.5 million increase for the fiscal year ended July 31, 1996
resulted from the decrease in the provision for loan losses of $2.6
million and an increase in net interest income of $1.1 million,
partially offset by a decrease in noninterest income of $647,000, an
increase in noninterest expense of $699,000 and an increase in income
tax expense of $647,000. Net income for the fiscal year ended July 31,
1994 included substantial gains on sales of loans, mortgage-backed
securities, and investment securities, which income is not considered to
be core earnings and there is no assurance that these gains will occur
in future periods, or that there will not be losses on sales of loans,
mortgage-backed securities, and investment securities in future periods.
Net income represented a return on average assets of .35%, .00% and
.33%, and a return on average equity of 3.63%, .03%, and 4.68% for the
fiscal years ended July 31, 1996, 1995, and 1994, respectively.
Interest Income. Interest income totaled $33.4 million for the
fiscal year ended July 31, 1996, compared to $31.0 million for the
fiscal year ended July 31, 1995. The $2.4 million, or 7.9%, increase in
interest income for the fiscal year ended July 31, 1996 compared to the
fiscal year ended July 31, 1995 was due to an increase of $27.4 million
in average interest earning assets to $438.5 million from $411.1 million
and a 9 basis point increase in the yield on average interest earning
assets to 7.62% from 7.53%. The increase in average interest earning
assets resulted primarily from a $27.0 million, or 12.6%, increase in
average mortgage loans to $240.7 million from $213.7 million and a $5.6
million, or 42.7%, increase in investment securities to $18.7 million
from $13.1 million, partially offset by a $7.2 million, or 4.5%,
decrease in mortgage-backed securities.
Interest income totaled $31.0 million for the fiscal year ended
July 31, 1995, compared to $27.3 million for the fiscal year ended July
31, 1994. The $3.7 million, or 13.6%, increase in interest income for
the fiscal year ended July 31, 1995 compared to the fiscal year ended
July 31, 1994 was due to a 41 basis point increase in the yield on
average interest earning assets to 7.53% from 7.12%, and an increase of
$27.3 million in average interest earning assets to $411.1 million from
$383.8 million. The principal reason for the increase in the yield on
interest-earning assets was a 98 basis point increase in the yield on
average mortgage-backed securities. Such increase resulted from the
upward repricing of the Bank's adjustable rate securities portfolio
which, at July 31, 1995, comprised 44.0% of the Bank's portfolio of
mortgage-backed securities. The yield on the Bank's average mortgage
loans decreased by 10 basis points to 8.48% from 8.58%. The increase in
average interest-earnings assets resulted primarily from a $7.9 million,
or 3.8%, increase in average mortgage loans to $213.7 million from
$205.8 million, a $20.2 million, or 14.2% increase in mortgage-backed
securities to $162.2 million from $142.0 million, and a $4.9 million
increase in investment securities, partially offset by a $5.7 million
decrease in other interest-earnings assets. The increase in interest-
earning assets reflected management's decision to leverage the Bank's
capital in order to increase net interest income.
Interest Expense. Interest expense totaled $20.6 million for the
fiscal year ended July 31, 1996, compared to $19.2 million for the
fiscal year ended July 31, 1995. The $1.4 million increase was due to a
$16.2 million, or 4.3%, increase in average interest-bearing liabilities
to $396.7 million from $380.5 million, and a 13 basis point increase in
the average cost of interest-bearing liabilities to 5.18% form 5.05%.
Total average deposits increased $6.3 million, or 2.0% and total
borrowed funds increased $9.9 million, or 14.0%.
Interest expense totaled $19.2 million for the fiscal year ended
July 31, 1995, compared to $16.2 million for the fiscal year ended July
31, 1994. The $3.0 million increase for the fiscal year ended July 31,
1995 compared to the fiscal year ended July 31, 1994 was due to a
$24.6 million, or 6.9%, increase in average interest-bearing liabilities
to $380.5 million from $355.9 million, and a 49 basis point increase in
the average cost of interest-bearing liabilities to 5.05% from 4.56%.
The increase in average interest bearing liabilities resulted from the
Bank's strategy of leveraging its capital in order to increase net
interest income. In order to leverage its capital, the Bank increased
its average borrowings to $70.9 million from $40.7 million. The Bank's
borrowings included Federal Home Loan Bank ("FHLB") advances and
securities sold under agreements to repurchase.
Net Interest Income. Net interest income increased by $1.2 million,
or 9.5%, to $12.9 million for the fiscal year ended July 31, 1996 from
$11.7 million for the fiscal year ended July 31, 1995. The increase in
net interest income was primarily due to the results of operations
discussed above, which resulted in an increase in the ratio of average
interest-earning assets to average interest-bearing liabilities to
110.54% from 108.04%, partially offset by a 4 basis point decrease in
the Bank's interest rate spread to 2.44% from 2.48%.
Net interest income increased by $662,000, or 6.0%, to
$11.7 million for the fiscal year ended July 31, 1995 from $11.1 million
for the fiscal year ended July 31, 1994. The increase in net interest
income was primarily due to the results of operations discussed above,
which resulted in an increase in the ratio of average interest-earning
assets to average interest-bearing liabilities to 108.04% from 107.84%,
partially offset by an 8 basis point decrease in the Bank's interest
rate spread to 2.48% from 2.56%.
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, the volume and type of lending presently being conducted by
the Company, adverse situations that may affect borrowers' ability to
repay loans, estimated value of underlying loan collateral, current
economic conditions in the Company's market area, and other relevant
factors. Management calculates the general allowance for loan losses in
part based on past experience, and in part based on specified
percentages of loan balances. The allowance is reviewed by management
and the Board of Directors, both of which believe that the Company's
allowance for loan losses is reasonable and adequate to cover losses
reasonably expected in its loan portfolio. Although management uses the
best information available and its best judgment in providing for
possible losses, no assurance can be given as to whether future
adjustments may be necessary. The Company's allowance for loan losses
was $4.4 million. or 1.5% of total loans receivable at July 31, 1996,
compared to $6.4 million, or 2.6%, of total loans receivable at July 31,
1995. During the fiscal year ended July 31, 1996, the Company's
provision for loan losses was $772,000, compared to $3.4 million for the
fiscal year ended July 31, 1995. The decrease in the provision for loan
losses for the fiscal year ended July 31, 1996, compared to the fiscal
year ended July 31, 1995, reflected a reduction in nonperforming assets
to $4.7 million, or 1.0% of total assets, at July 31, 1996 from $9.5
million, or 2.2% of total assets, at July 31, 1995.
The Bank's provision for loan losses was $3.4 million for the
fiscal year ended July 31, 1995, compared to $2.0 million for the fiscal
year ended July 31, 1994. The increase in the provision for loan losses
for the fiscal year ended July 31, 1995 was attributable to a provision
of $1.6 million recorded for the quarter ended October 31, 1994, that
related to developments affecting several loans that were part of the
Bank's largest lending relationship at July 31, 1995. During the fiscal
year ended July 31, 1995, the borrower became delinquent on these loans,
and the loans were placed on nonaccrual status. The Bank has foreclosed
on several of the loans comprising this lending relationship and is
continuing its efforts to resolve these loans. These loans were the
primary reason for the increase in the Bank's nonperforming assets to
$9.5 million or 2.2% of total assets at July 31, 1995 from $4.3 million,
or 1.1%, of total assets at July 31, 1994. As of July 31, 1995, the
Bank's allowance for loan losses was $6.4 million, or 2.6%, of total
loans receivable and 73.9% of nonperforming loans, compared to the
Bank's July 31, 1994 allowance for loan losses of $3.7 million, or 1.7%
of total loans receivable and 101.4% of nonperforming loans.
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, totaled $293,000 for
the fiscal year ended July 31, 1996 compared to $940,000 for the fiscal
year ended July 31, 1995. The $647,000 decrease for the fiscal year
ended July 31, 1996 compared to the fiscal year ended July 31, 1995 was
due primarily to the sale of low yielding mortgage-backed and investment
securities at a loss, and to a decrease in revenue from the Bank's
subsidiary, American National Insurance Agency, Inc.
Noninterest income totaled $652,000 for the fiscal year ended July
31, 1995, compared to $2.0 million for the fiscal year ended July 31,
1994. The $1.3 million decrease for the fiscal year ended July 31, 1995
compared to the fiscal year ended July 31, 1994 was due primarily to
nominal sales of securities during the fiscal year ended July 31, 1995
as compared to gains of $1.1 million on the sale of mortgage-backed
securities during the fiscal year ended July 31, 1994, a decrease in the
gain on sales of loans of $159,000 and an increase in the loss on
investments in joint ventures of $174,000. The Bank sold few securities
or loans during the fiscal year ended July 31, 1995, because it held
relatively few securities in its available for sale portfolio, and
because of its strategy to increase its interest-earning assets.
Noninterest Expense. Noninterest expense, consisting primarily of
salaries and employee benefits, occupancy and equipment, federal deposit
insurance premiums and losses on investments in real estate ("REO")
totaled $10.0 million for the fiscal year ended July 31, 1996 compared
to $9.3 million for the fiscal year ended July 31, 1995. The $700,000
increase for the fiscal year ended July 31, 1996 compared to the fiscal
year ended July 31, 1995 was the result of increased advertising expense
for mortgage and consumer loans and deposits, salary increases, as well
as costs associated with the formation of the ESOP.
Noninterest expense remained relatively stable at $9.1 million for
the fiscal years ended July 31, 1995 and 1994. Decreases of $296,000 in
other noninterest expense and $41,000 in loss on investments in real
estate were partially offset by increases of $207,000 in salaries and
employee benefits, and $67,000 in advertising expense.
Income Taxes. The Company's income tax provisions (benefit) were
$801,000, $(50,000), and $695,000 in the fiscal years ended July 31,
1996, 1995, and 1994, respectively.
Deposit Insurance Premiums. The deposits of federal savings banks
such as the Bank are presently insured by the Savings Association
Insurance Fund (the "SAIF"), which along with the Bank Insurance Fund
(the "BIF"), is one of the two insurance funds administered by the
Federal Deposit Insurance Corporation. Financial institutions which are
members of the BIF have been experiencing substantially lower deposit
insurance premiums because the BIF has achieved its required level of
reserves while the SAIF has not yet achieved its required level of
reserves.
On September 30, 1996, legislation was enacted and signed into law
which provides a resolution to the disparity in BIF/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. Such
payment is due no later than November 29, 1996. As a result of the new
law the Company will be required to pay approximately $2,033,000.
Assuming the special assessment is tax deductible, the cost, net of
income tax benefits, will be approximately $1.34 million. The Company
will make a one-time charge to earnings of this amount for the fiscal
quarter ending October 31, 1996. Also, beginnning January 1, 1997, the
current annual minimum premium of 23 basis points will be reduced to
approximately 6.5 basis points.
<PAGE>
Average Balance Sheet
The following table sets forth certain information relating to the
Company's average balance sheet and reflects the average yield on assets
and average cost of liabilities for the years indicated and the average
yields earned and rates paid. Such yields and costs are derived by
dividing income or expense by the average balance of assets or
liabilities, respectively, for the years presented. Average balances
are derived from daily average balances.
<PAGE>
<TABLE>
<CAPTION>
Years Ended July 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------- -------------------------------- ------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- -------- -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1) $240,713 $20,652 8.58% $213,701 $18,120 8.48% $205,770 $17,650 8.58%
Consumer and other loans 13,377 1,102 8.24 11,932 916 7.68 11,892 809 6.80
Mortgage-backed
securities (2) 154,945 9,630 6.22 162,178 10,355 6.38 141,978 7,665 5.40
Investment securities (3) 18,749 1,255 6.70 13,139 831 6.32 8,242 432 5.24
Other (4) 10,742 779 7.25 10,158 747 7.35 15,881 769 4.85
-------- -------- ----- -------- ------- ------ -------- ------- -----
Total interest-
earning assets 438,526 33,418 7.62 411,108 30,969 7.53 383,763 27,325 7.12
Noninterest-earning assets 6,986 5,896 6,983
-------- -------- --------
Total assets $445,512 $417,004 $390,746
-------- -------- --------
-------- -------- --------
Interest-bearing liabilities:
Deposits:
Passbook accounts $ 41,468 1,230 2.97 $ 43,347 1,332 3.07 $ 46,709 1,422 3.04
NOW accounts 15,356 237 1.54 14,675 240 1.64 15,609 264 1.69
Money accounts 45,601 1,511 3.31 51,652 2,008 3.89 59,566 1,842 3.09
Certificates of deposit 213,428 12,847 6.02 199,922 11,343 5.67 193,284 10,399 5.38
-------- -------- ----- -------- ------- ------ -------- ------- -----
Total deposits 315,853 15,825 5.01 309,596 14,923 4.82 315,168 13,927 4.42
-------- -------- ----- -------- ------- ------ -------- ------- -----
Borrowings:
Advances from Federal Home
Loan Bank 46,851 2,770 5.91 50,182 3,084 6.15 31,403 1,993 6.35
Securities sold under
agreements to
repurchase 34,005 1,958 5.76 20,741 1,216 5.86 9,307 321 3.45
-------- -------- ----- -------- ------- ------ -------- ------- -----
Total borrowed funds 80,856 4,728 5.85 70,923 4,300 6.06 40,710 2,314 5.68
-------- -------- ----- -------- ------- ------ -------- ------- -----
Total interest-bearing
liabilities 396,709 20,553 5.18 380,519 19,223 5.05 355,878 16,241 4.56
Noninterest-bearing liabilities 6,245 7,512 7,313
-------- -------- --------
Total liabilities 402,954 388,031 363,191
Stockholders' equity 42,558 28,973 27,555
-------- -------- --------
Total liabilities and
stockholders' equity $445,512 $417,004 $390,746
-------- -------- --------
-------- -------- --------
Net interest income $12,865 $11,746 $11,084
------- ------- -------
------- ------- -------
Net interest rate spread (5) 2.44% 2.48% 2.56%
----- ----- -----
----- ----- -----
Net interest margin (6) 2.93% 2.86% 2.89%
----- ----- -----
----- ----- -----
Ratio of average interest-
earning assets to average
interest-bearing
liabilities 110.54% 108.04% 107.84%
------ ------ ------
------ ------ ------
<FN>
_________________________________________
(1) Includes nonperforming loans.
(2) Includes mortgage-backed securities available for sale. Separate yields for available-for-sale portfolio are not
available as the income from the available-for-sale securities has not historically been segregated from the income from
the held-to-maturity securities.
(3) Includes investment securities available for sale. Separate yields for available-for-sale portfolio are not
available as the income from the available-for-sale securities has not historically been segregated from the income
from the held-to-maturity securities.
(4) Includes interest-bearing deposits in other financial institutions, federal funds sold, securities purchased
under agreements to resell, Federal Home Loan Bank stock, and ground rents.
(5) Net interest rate spread represents the difference between the average yield on interest-earning assets and
the average cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income as a percentage of average interest-earning assets.
</TABLE>
<PAGE>
Rate/Volume Analysis
The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the years
indicated. For each category of interest-earning assets and interest-
bearing liabilities, information is provided on changes attributable to (i)
changes in average volume (changes in average volume multiplied by old
rate); (ii) changes in rates (changes in rate multiplied by old average
volume); and (iii) changes in rate-volume (changes in rate multiplied by
the change in average volume); and (iv) the net change.
<TABLE>
<CAPTION>
Years Ended July 31,
-------------------------------- --------------------------------------
1996 vs. 1995 1995 vs. 1994
-------------------------------- --------------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Total Due to Total
Rate/ Increase Rate/ Increase
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------ ---- ------ -------- ------ ---- ------ --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Mortgage loans $2,291 $214 $27 $2,532 $681 $(203) $(8) $ 470
Consumer and other loans 111 67 8 186 3 103 1 107
Mortgage-backed securities (462) (276) 13 (725) 1,091 1,400 199 2,690
Investment securities 354 49 21 424 257 89 53 399
Other interest-earning assets 43 (10) (1) 32 (276) 397 (143) (22)
------ ---- ----- -------- ------ ------ ----- --------
Total interest-earning
assets $2,337 $44 $68 $2,449 $1,756 $1,786 $102 $3,644
------ ---- ----- -------- ------ ------ ----- --------
------ ---- ----- -------- ------ ------ ----- --------
Interest expense:
Passbook $(58) $(46) $2 $(102) $(102) $13 $(1) $(90)
NOW 11 (13) (1) (3) (16) (9) 1 (24)
Money fund (235) (297) 35 (497) (244) 473 (63) 166
Certificate 766 691 47 1,504 357 568 19 944
Advances from FHLB (205) (117) 8 (314) 1,192 (63) (38) 1,091
Reverse repurchase agreements 777 (21) (14) 742 394 225 276 895
------ ---- ----- -------- ------ ------ ----- --------
Total interest-bearing
liabilities $1,056 $197 $77 $1,330 $1,581 $1,207 $194 $2,982
------ ---- ----- -------- ------ ------ ----- --------
------ ---- ----- -------- ------ ------ ----- --------
Change in net interest income $1,281 $(153) $(9) $1,119 $175 $579 $(92) $ 662
------ ---- ----- -------- ------ ------ ----- --------
------ ---- ----- -------- ------ ------ ----- --------
</TABLE>
Asset and Liability Management-Interest Rate Sensitivity Analysis
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity
"gap." An asset or liability is said to be interest rate sensitive
within a specific time period if it will mature or reprice within that
time period. The interest rate sensitivity gap is defined as the
difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive
assets. During a period of rising interest rates, a negative gap would
tend to adversely affect net interest income while a positive gap would
tend to positively affect net interest income. Similarly, during a
period of falling interest rates, a negative gap would tend to
positively affect net interest income while a positive gap would tend to
adversely affect net interest income.
The Company's deposit accounts typically react more quickly to
changes in market interest rates than interest-earning assets such as
fixed rate mortgage loans, because of the relatively shorter maturities
of deposits. When interest rates are rising, interest expense will
increase more rapidly than interest income if a higher volume of
interest-bearing liabilities than interest-earning assets reprice to
higher interest rates. In a falling interest rate environment, interest
income will decrease less rapidly than interest expense if a higher
volume of interest-bearing liabilities than interest-earning assets
reprice to lower interest rates.
Management seeks to manage the Company's interest rate risk
exposure by monitoring the levels of interest rate sensitive assets and
liabilities while maintaining an acceptable interest rate spread. To
reduce the potential volatility of the Company's earnings in a changing
interest rate environment, the Company invests in mortgage-backed
securities that have adjustable rates and/or relatively short expected
terms. At July 31, 1996, $97.4 million, or 73.0%, of the Company's
$133.5 million of mortgage-backed securities had adjustable interest
rates. The Company also originates adjustable-rate loans, and from time
to time may purchase ARM loans. During the fiscal year ended July 31,
1996, the Company purchased $11.0 million of adjustable-rate one- to
four-family mortgage loans. At July 31, 1996, $114.1 million, or 38.2%,
of the Company's total loans receivable had adjustable interest rates.
The Company also seeks to reduce the term of its interest-earning assets
by offering fixed-rate one- to four-family mortgage loans with terms of
15 years or less.
In addition, the Company manages its interest-bearing liabilities
by offering competitive interest rates on deposit accounts and pricing
certificates of deposit to provide customers with incentives to choose
certificates of deposit with longer terms. At July 31, 1996, time
deposits maturing beyond 12 months totaled $97.3 million, or 31.1%, of
the Company's total deposits.
At July 31, 1996, the Company's total interest-bearing liabilities
maturing or repricing within one year exceeded its total interest-
earning assets maturing or repricing within one year by $19.4 million,
representing a cumulative one-year gap ratio of negative 4.2%. The
Company's gap measures indicate that net interest income is moderately
exposed to increases in interest rates. In a rising interest rate
environment, the Company's net interest income may be adversely affected
as liabilities would reprice to higher market rates more quickly than
assets. This effect would be compounded because the prepayment speeds
of the Company's long-term fixed-rate assets would decrease in a rising
interest rate environment. Although the Company could reduce its
exposure to interest rate risk by investing more of its assets in short-
term securities and adjustable-rate mortgage-backed securities,
management believes that the benefits of such a strategy would be
outweighed by the loss of earnings from an increased concentration on
short-term and adjustable-rate investments, which may offer lower
yields.
The Company's analysis of the gap between its interest-earning
assets and interest-bearing liabilities within specified periods may
include the effects of certain hedging techniques that may be used by
the Company to manage interest rate risk, including primarily interest-
rate cap agreements that the Company has from time to time entered into
with national brokerage firms. An interest-rate cap agreement is an
agreement pursuant to which the seller of the cap agrees to pay the
buyer the difference between the actual interest rate and the strike
rate set forth in the contract if the actual rate is higher than the
strike rate. Pursuant to the cap agreements that the Company has used
in the past and may continue to use from time to time, the Company
receives variable interest payments based on the spread between the
variable three month London Interbank Offered Rate ("LIBOR") and the
strike rate of the caps if the variable three month LIBOR is higher than
the strike rate. The premiums paid for such agreements are amortized
over the life of the agreements. The interest differential received, if
any, on interest rate cap agreements is recorded as an adjustment to
interest expense. During the fiscal years ended July 31, 1996 and 1995,
the Company did not use interest rate cap agreements. During the fiscal
year ended July 31, 1994, the net effect of the Company's interest rate
caps was to increase the Company's interest expense by $200,000.
Although the interest rate caps have reduced the Company's net interest
income in prior years, they also reduced the Company's exposure to
increases in interest rates.
The Company has an Asset-Liability Management Committee, which is
responsible for reviewing the Company's asset and liability policies.
Management presently monitors and evaluates the potential impact of
interest rate movements upon the market value of portfolio equity and
the level of net interest income on a quarterly basis. This evaluation
is performed in compliance with OTS regulations and is compared to
Board-established limits to ensure that interest rate risk is maintained
within these guidelines. The Committee meets quarterly and reports
quarterly to the Board of Directors on interest rate risks and trends,
as well as liquidity and capital ratios and regulatory requirements.
Gap Table. The following table sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding at
July 31, 1996, that are expected to reprice or mature, based upon
certain assumptions, in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown that
reprice or mature during a particular period were determined in
accordance with the earlier of term or repricing or the contractual
terms of the asset or liability.
<TABLE>
<CAPTION>
At July 31, 1996
---------------------------------------------------------------------------
Within 1-3 3-5 5-10 10-20 Over 20
1 Year Years Years Years Years Years Total
------- ------- ------ ------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Real Estate Mortgages:
Adjustable Rate $85,489 $20,655 $7,935 $ $ $ $114,079
Fixed (1) 31,310 30,017 18,905 32,772 25,083 7,209 145,296
Consumer 12,375 2,877 2,955 385 75 18,667
Mortgage-backed
securities 89,754 4,052 2,747 2,884 631 127 100,195
Investment securities 5,198 9,947 8,964 24,109
Securities available
for sale 12,976 4,756 13,976 6,085 2,453 20 40,266
Other interest-earning
assets (2) 5,372 4,904 10,276
------- ------- ------ ------- ------ ------ --------
Total interest-earning
assets 242,474 62,357 46,518 52,073 37,206 12,260 452,888
Rate sensitive liabilities:
Passbook accounts 32,217 4,487 2,136 1,638 296 7 40,781
NOW accounts 9,024 2,042 1,348 1,693 814 117 15,038
Money accounts 32,504 4,527 2,155 1,652 299 8 41,145
Certificates of deposit 118,772 59,823 19,711 17,813 216,119
Borrowings 69,394 25,625 1,500 750 97,269
------- ------- ------ ------- ------ ------ --------
Total interest-bearing
liabilities 261,911 96,504 25,350 24,296 2,159 132 410,352
------- ------- ------ ------- ------ ------ --------
Interest sensitivity gap (19,437) (34,147) 21,168 27,777 35,047 12,128 42,536
------- ------- ------ ------- ------ ------ --------
------- ------- ------ ------- ------ ------ --------
Cumulative interest-
sensitivity gap (19,437) (53,584) (32,416) (4,639) 30,408 42,536 42,536
------- ------- ------ ------- ------ ------ --------
------- ------- ------ ------- ------ ------ --------
Cumulative interest-
sensitivity gap to
total assets (4.2)% (11.6)% (7.0)% (1.0)% 6.6% 9.2%
Ratio of interest-earning
assets to interest-bearing
liabilities 92.6% 64.6% 183.5% 214.3% 1723.3% 9287.9%
Cumulative ratio of interest
sensitive assets to
interest sensitive
liabilities 92.6% 85.0% 91.6% 98.9% 107.4% 110.4%
<FN>
____________________________________
(1) Includes loans held for sale.
(2) Includes federal funds sold, interest-bearing deposits in other banks, Federal Home Loan Bank stock, and
ground rents.
</TABLE>
The above table was prepared based on the Company's historical
experience and OTS decay rate assumptions. Management believes that the
assumptions used to prepare the table approximate the standards used in
the savings industry, and considers the assumptions appropriate and
reasonable. However, certain shortcomings are inherent in the analysis
presented by the foregoing table. For example, although certain assets
and liabilities may have similar maturities or periods to repricing,
they may react in different degrees to changes in market interest rates.
Also, interest rates on certain types of assets and liabilities may
fluctuate in advance of or lag behind changes in market interest rates.
Additionally, certain assets, such as ARM loans, have features that
restrict changes in interest rates on a short-term basis and over the
life of the asset. Moreover, in the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table.
Net Portfolio Value. The OTS has adopted a rule that incorporates
an interest rate risk ("IRR") component into the risk-based capital
rules. The IRR component is a dollar amount that will be deducted from
total capital for the purpose of calculating an institution's risk-based
capital requirement and is measured in terms of the sensitivity of its
net portfolio value ("NPV") to changes in interest rates. NPV is the
difference between discounted incoming and outgoing cash flows from
assets, liabilities, and off-balance sheet contracts. An institution's
IRR is measured as the change to its 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 from the institution's Thrift Financial
Reports. The OTS has deferred for the present time the date on which
the IRR component is to be deducted from total capital. The following
table presents the Bank's NPV as of June 30, 1996, as calculated by the
OTS, based on information provided to the OTS by the Bank.
<TABLE>
<CAPTION>
Change in Change in NPV
Interest Rates Net Portfolio Value as a % of
in Basis Points ------------------------------------ Estimated Market
(Rate Shock) Amount $ Change % Change Value of Assets
(Dollars in Thousands)
<S> <C> <C> <C> <C>
400 $20,400 $(28,430) (58)% 5.89%
300 27,372 (21,459) (44) 4.45
200 35,111 (13,719) (28) 2.84
100 42,399 (6,432) (13) 1.33
Static 48,830
(100) 53,987 5,156 11 1.07
(200) 55,582 6,752 14 1.40
(300) 57,289 8,459 17 1.75
(400) 59,656 10,825 22 2.24
</TABLE>
As shown by the table above, increases in interest rates will
result in net decreases in the Bank's NPV, while decreases in interest
rates will result in smaller net increases in the Bank's NPV. Because
the table reflects the Bank's NPV decreasing by 2.84% if interest rates
increase by 200 basis points, 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. No
capital deduction was required at July 31, 1996. As is the case with
the gap table, certain shortcomings are inherent in the methodology used
in the above table. Modeling changes in NPV requires the making of
certain assumptions that may tend to oversimplify the manner in which
actual yields and costs respond to changes in market interest rates.
First, the models assume that the composition of the Bank's interest
sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being measured. Second, the models
assume that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or
repricing of specific assets and liabilities. Accordingly, although the
NPV measurements do provide an indication of the Bank's interest rate
risk exposure at a particular point in time, such measurements are not
intended to provide a precise forecast of the effect of changes in
market interest rates on the Bank's net interest income.
Liquidity and Capital Resources
The Bank is required to maintain minimum levels of liquid assets as
defined by 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 7.7% during the
month of July 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. Certain mortgage-backed securities, time
deposits, federal funds sold and other assets outstanding at July 31,
1996, 1995, and 1994, that qualify for liquidity amounted to
$11.9 million, $26.4 million, and $19.3 million, respectively. At July
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, FHLB advances
and other borrowings, 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 Company's borrowings increased to $97.3 million at July 31,
1996 and an average of $80.9 million for the fiscal year ended July 31,
1996. The $18.7 million increase was primarily in advances from the
Federal Home Loan Bank of Atlanta in order to fund loan settlements and
purchases. The Company's borrowings increased to an average of $70.9
million for the fiscal year ended July 31, 1995, from an average of
$40.7 million for the fiscal year ended July 31, 1994. The increase in
borrowings related primarily to the Company's efforts to manage its
level of interest rate risk by utilizing longer-term FHLB borrowings,
and leverage proceeds of the Minority Stock Offering. Although the
average rate paid by the Company has exceeded the average rate paid on
deposits, the Company did not use deposits to fund the growth in assets
that occurred after the Minority Stock Offering because of management's
belief that shorter-term deposits would adversely affect the Company's
exposure to increases in interest rates, that longer-term deposits would
be more expensive, and that any attempt to quickly increase deposits
would be more costly than a strategic effort to grow deposits in a
controlled manner over a period of time. The Company's deposits
increased to $313.1 million at July 31, 1996, from an average of
$309.6 million over the fiscal year ended July 31, 1995, and the Company
intends to continue its strategic effort to grow its deposit base in the
future as it leverages proceeds of the October 31, 1995 Offering.
The Company's cash flows are comprised of three primary
classifications: cash flows from operating activities, investing
activities and financing activities. Cash flows provided by operating
activities were $5.2 million, $1.8 million, and $7.0 million for the
fiscal years ended July 31, 1996, 1995, and 1994, respectively.
Net cash used in investing activities consisted primarily of
disbursements for purchases of mortgage-backed securities, loan
originations and purchases, and purchases of investment securities,
offset by proceeds from the sales and repayments of mortgage-backed
securities, loan principal repayments, and sales and maturities of
investment securities totalled $39.6 million, $29.4 million, $21.8
million, for the fiscal years ended July 31, 1996, 1995, and 1994,
respectively. Disbursements for purchases of mortgage-backed securities
totalled $42.7 million, $17.4 million, and $131.3 million for the years
ended July 31, 1996, 1995, and 1994, respectively. Disbursements for
loans originated and purchased were $94.4 million, $58.3 million and
$43.5 million for the years ended July 31, 1996, 1995, and 1994,
respectively. Disbursements for purchases of investment securities
totalled $29.2 million, $7.8 million and $6.6 million for the years
ended July 31, 1996, 1995 and 1994, respectively. Proceeds from the
sales and repayments of mortgage-backed securities totalled $67.9
million, $18.1 million, and $89.4 million for the years ended July 31,
1996, 1995, and 1994, respectively. Proceeds from loan principal
repayments totalled $40.7 million, $27.8 million, and $45.8 million for
the years ended July 31, 1996, 1995 and 1994, respectively. Proceeds
from the sales and maturities of investment securities totalled
$12.0 million, $1.9 million and $17.0 million for the years ended
July 31, 1996, 1995 and 1994, respectively.
Net cash provided by financing activities consisting primarily of
net activity in deposit accounts, proceeds from funding and repayments
of FHLB advances, and net activity in securities sold under agreements
to repurchase totalled $33.9 million, $25.8 million, and $16.7 million
for the fiscal years ended July 31, 1996, 1995 and 1994, respectively.
Additionally, on October 31, 1995, the Company completed its conversion
to a stock holding company and received net proceeds of $19.3 million.
Also, in November 1993, the Bank completed its minority stock offering
and received net proceeds of $8.3 million. The net increase (decrease)
in deposits was ($1.5) million, $5.6 million and $(8.7) million for the
years ended July 31, 1996, 1995 and 1994, respectively. The activity in
net proceeds (repayments) from FHLB advances was $18.7 million,
$(6.6) million and $24.4 million for the years ended July 31, 1996, 1995
and 1994, respectively. The net increase (decrease) in securities sold
under agreements to repurchase was $107,000, $26.9 million, and
$(7.1) million for the years ended July 31, 1996, 1995 and 1994,
respectively.
Federal regulations require 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 8.64%, 8.64% and 18.2%, respectively, at
July 31, 1996.
The Bank has other sources of liquidity, including a $95 million
line of credit with the FHLB. At July 31, 1996, the Bank's FHLB
advances totaled $62.8 million.
Impact of Inflation and Changing Prices
The consolidated financial statements of the Company and notes
thereto, presented elsewhere herein, have been prepared in accordance
with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative
purchasing power of money over time and due to inflation. The impact of
inflation is reflected in the increased cost of the Company's
operations. Unlike most industrial companies, nearly all the assets and
liabilities of the Company are monetary. As a result, interest rates
have a greater impact on the Company's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and
services.
Impact of New Accounting Standards
Accounting for Impairment of Long-Lived Assets. In March 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS 121 is effective for fiscal years
beginning after December 15, 1995. Earlier application is permitted.
SFAS 121 will require, among other things, that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Management adopted the provisions of SFAS 121 as of August 1, 1996, and
the adoption of SFAS 121 will not have a material impact on the
Company's financial statements.
Mortgage Servicing Rights. In May 1995, the FASB issued Statement
of Financial Accounting Standards No. 122 Accounting for Mortgage
Servicing Rights (SFAS 122). SFAS 122 is effective for years beginning
after December 15, 1995. The Statement requires among other provisions,
that the Company capitalize the estimated fair value of servicing rights
on loans originated for sale, and amortize such amount over the
estimated servicing life of the loan. The Company adopted the provisions
of SFAS 122 as of August 1, 1996. Adoption of SFAS 122 will not have a
material impact on the Company's financial statements.
Stock-Based Compensation. In November 1995, the FASB issued
Statement of Financial Accounting Standards No. 123 Accounting for
Awards of Stock-Based Compensation to Employees (SFAS 123). SFAS 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 an employee stock option or similar equity
instrument, and 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
the 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. SFAS 123 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 SFAS 123 as of
August 1, 1996 using the intrinsic value-based method and believes that
the adoption will not have a material impact on the Company's financial
statements. The Company will provide disclosure about its stock based
employee compensation plans in its 1997 financial statements, as
required by SFAS 123.
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities. In June 1996, the FASB issued Statement of Financial
Accounting Standards 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (SFAS 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.
AMERICAN NATIONAL BANCORP, INC.
COMMON STOCK AND RELATED MATTERS
On October 31, 1995, the Company acquired all of the outstanding
common stock of the Bank, sold 2,182,125 shares of Company common stock
for a purchase price of $10.00 per share and issued 1,798,402 shares of
Company common stock in exchange for the Bank's outstanding common stock
held by shareholders other than American National Bankshares, M.H.C. On
that date, the Company's common stock began to trade on the Nasdaq
National Market using the Bank's previous symbol, "ANBK." As of
September 27, 1996, the Company had 846 stockholders of record and
3,603,646 outstanding shares of common stock. This does not reflect the
number of persons whose stock is in nominee or "street" name accounts
through brokers.
The following table sets forth the high and low trading prices of
the Company's common stock subsequent to the completion of the Offering.
No dividends have been declared on the Common Stock since the Offering.
In September 1996, the Company's Board of Directors authorized a
quarterly cash dividend of $.03 per share which will be paid on or about
November 15, 1996, to stockholders of record as of October 31, 1996.
<TABLE>
<CAPTION>
Three Months Ended High Low
------------------ ------ ------
<S> <C> <C>
January 31, 1996 $10.25 $9.375
April 30, 1996 10.25 9.50
July 31, 1996 10.625 9.50
</TABLE>
Payment of dividends on the Common Stock is subject to determination
and declaration by the Board of Directors and depends upon a number of
factors, including capital requirements, regulatory limitations on the
payment of dividends, the Company's results of operations and financial
condition, tax considerations and general economic conditions.
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
July 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------- --------
(In
Thousands)
<S> <C> <C>
Cash:
On hand and due from banks $2,671
2,170
Interest-bearing deposits 1,837
2,240
Federal funds sold 394
950
Securities available for sale, amortized cost
of $41,370, and $2,922, respectively (note 2) 40,266
3,030
Investment securities, fair value of $23,651 and
$13,652, respectively (note 3) 24,109
13,918
Mortgage-backed securities, fair value of $97,627
and $152,621, respectively (notes 4 and 11) 100,195
156,775
Loans receivable, net (notes 5 and 11) 278,042
232,089
Federal Home Loan Bank stock, at cost (note 17) 3,141
2,914
Investments in real estate, net (note 6) 5,670
5,828
Investments in and advances to real
estate joint ventures (note 7) 1,270
2,215
Property and equipment, net (note 8) 1,198
965
Prepaid expenses and other assets 612
624
Income taxes receivable -
380
Deferred income taxes (note 12) 1,866
2,076
------- --------
461,271
426,174
------- --------
------- --------
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 9) $313,083
314,613
Securities sold under agreements to
repurchase (note 10) 34,445
34,338
Advances from the Federal Home Loan
Bank of Atlanta (note 11) 62,824
44,137
Drafts payable 859
1,288
Advance payments by borrowers for taxes
and insurance 1,760
1,852
Accrued expenses and other liabilities 1,030
987
------- --------
Total liabilities 414,001
397,215
------- --------
Stockholders' equity (notes 13 and 17):
Serial preferred stock, 10,000,000 shares
authorized, none issued. - -
Common stock, $1 par value, 20,000,000 shares
authorized, 2,052,000 shares issued and
outstanding at July 31, 1995 -
2,052
Common stock, $.01 par value, 8,000,000
shares authorized, 3,980,500
shares issued and 3,781,475 shares
outstanding at July 31, 1996 40 -
Additional paid-in capital 30,705
7,652
Unearned common stock acquired by
management recognition
and retention plans (77)
(132)
Unearned employee stock ownership plan (ESOP) shares (1,629)
-
Treasury stock at cost, 199,025 shares (2,040)
-
Retained income - substantially restricted 21,970
20,662
Net unrealized holding loss on securities,
net of income taxes (1,699)
(1,275)
------- --------
Total stockholders' equity 47,270
28,959
-------- --------
Commitments (notes 5, 8, 13 and 14) $461,271
426,174
------- --------
------- --------
</TABLE>
<PAGE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Interest income:
Loans receivable $21,754 19,036 18,459
Mortgage-backed securities 9,630 10,355 7,665
Investment securities 1,255 831 432
Other 779 747 769
Total interest income 33,418 30,969 27,325
Interest expense:
Deposits (note 9) 15,825 14,923 13,927
Borrowed funds 4,728 4,300 2,314
Total interest expense 20,553 19,223 16,241
Net interest income 12,865 11,746 11,084
Provision for loan losses 772 3,386 1,989
Net interest income after
provision for loan losses 12,093 8,360 9,095
Noninterest income:
Fees and service charges 640 592 630
Gain (loss) on sales of:
Loans receivable, net 41 20 179
Mortgage-backed
securities, net (558) (5) 1,100
Investment securities, net (14) 15 (46)
Other 184 318 254
Total noninterest income 293 940 2,117
Noninterest expenses:
Salaries and employee benefits 4,276 4,066 3,859
Net occupancy 1,341 1,300 1,313
Professional services 380 399 367
Advertising 684 442 375
Federal deposit insurance
premiums 772 809 831
Furniture, fixtures and
equipment 324 286 282
Equity in net loss of real
estate joint ventures (note 7) 193 288 114
Loss on investments in real
estate (note 6) 390 330 371
Other 1,679 1,420 1,716
Total noninterest expenses 10,039 9,340 9,228
Income (loss) before
income taxes 2,347 (40) 1,984
Income tax provision
(benefit) (note 12) 801 (50) 695
Net income $ 1,546 10 1,289
Net income per share of common
stock (note 13):
From date of conversion .36 - .41
Pro forma .47 N/A .67
<PAGE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended July 31, 1996, 1995 and 1994
</TABLE>
<TABLE>
<CAPTION>
Net
Unearned unrealized
common holding
stock gains
Additional acquired Unearned (losses) on
Common paid-in by ESOP Treasury Retained securities,
stock capital MRRP shares stock income net Total
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993 $ - - - - - 21,193 - 21,193
Unrealized holding gain on
securities available for sale,
net of income taxes, recognized
upon adoption of Statement 115
(note 1) - - - - - - 924 924
Change in net unrealized holding
losses on securities, net of
income taxes (note 2) - - - - - - (2,372) (2,372)
Proceeds from common stock
offering, net of conversion
costs (note 13) 2,025 7,409 - - - (1,125) - 8,309
Common stock acquired by
management recognition and
retention plan (MRRP)
(note 13) 27 243 (270) - - - - -
Cash dividends declared (note 13) - - - - - (276) - (276)
MRRP - - 93 - - - - 93
Net income - 1994 - - - - - 1,289 - 1,289
Balance at July 31, 1994 2,052 7,652 (177) - - 21,081 (1,448) 29,160
Change in net unrealized gains
on securities, net of
income taxes (note 2) - - - - - - 115 115
Amortization of net unrealized
holding loss (note 4) - - - - - (58) 58 -
Cash dividends declared (note 13) - - - - - (371) - (371)
MRRP - - 45 - - - - 45
Net income - 1995 - - - - - 10 - 10
Balance at July 31, 1995 2,052 7,652 (132) - - 20,662 (1,275) 28,959
Changes in net unrealized
losses on securities,
net of income taxes
(note 2) - - - - - - (570) (570)
Amortization of net unrealized
holding loss (note 4) - - - - - (146) 146 -
Proceeds from common stock
offering, net of expenses
(note 13) (2,012) 23,052 - - - - - 21,040
Cash dividends declared (note 13) - - - - - (92) - (92)
MRRP - - 55 - - - - 55
Borrowings for employee
stock ownership plan
(ESOP) (note 15) - - - (1,746) - - - (1,746)
Compensation expense - ESOP - 1 - 117 - - - 118
Purchase of common stock - - - - (2,040) - - (2,040)
Net income - 1996 - - - - - 1,546 - 1,546
Balance at July 31, 1996 $ 40 30,705 (77) (1,629) (2,040) 21,970 (1,699) 47,270
</TABLE>
American National Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended July 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,546 10 1,289
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 532 483 475
Noncash compensation under
stock-based benefit plans 173 45 93
Amortization of loan fees (398) (437) (727)
Amortization of premiums and
discounts, net 177 (38) 505
Provision for losses on loans
and investments in real estate 930 3,430 2,180
(Gain) loss on sales of
assets, net 531 (30) (1,232)
Loans originated for sale (2,754) (3,990) (5,489)
Sales of loans originated
for sale 4,194 2,159 8,710
Deferred income taxes 409 (138) (7)
Decrease in prepaid expenses
and other assets 12 202 356
Increase in accrued expenses
and other liabilities 43 163 200
Decrease (increase) in income
taxes receivable 380 (112) 830
Federal Home Loan Bank stock
purchases, net (227) - -
Federal Home Loan Bank stock
dividends - - (72)
Other, net (338) 66 (77)
------- ------ -------
Net cash provided by
operating activities 5,210 1,813 7,034
------- ------ -------
Cash flows from investing activities:
Sales of investment securities
available for sale 969 1,015 14,016
Maturities of investment securities
available for sale - 842 1,000
Purchases of investment securities
available for sale (2,000) (842) (1,409)
Sales of mortgage-backed
securities available for sale 56,036 3,100 49,601
Repayments of mortgage-backed
securities available for sale 4,082 432 14,990
Purchases of mortgage-backed
securities available
for sale (10,989) (3,894) (45,156)
Maturities of investment
securities 11,000 - 2,000
Purchases of investment
securities (27,176) (6,983) (5,208)
Repayments of mortgage-backed
securities 7,741 14,569 24,800
Purchases of mortgage-backed
securities (31,714)(13,470) (86,100)
Loan principal repayments 40,659 27,763 45,753
Loan originations (73,671)(43,092) (37,993)
Loan purchases (17,972)(11,216) -
Increase in deferred loan
fees, net 515 533 388
Decrease in investments
in real estate $2,960 1,151 979
Decrease in investments in
and advances to real estate
joint ventures 752 1,173 786
Purchases of property and
equipment (764) (438) (230)
Net cash used in
investing activities (39,572)(29,357) (21,783)
Cash flows from financing activities:
Net (decrease) increase in deposits (1,530) 5,624 (8,722)
Net increase (decrease) in
securities sold under
agreements to repurchase 107 26,871 (7,139)
Proceeds from Federal Home
Loan Bank advances 215,147 123,698 88,600
Repayment of Federal Home Loan
Bank advances (196,460)(130,291) (64,232)
(Decrease) increase in
drafts payable (429) 111 65
(Decrease) increase in advance
payments by borrowers for
taxes and insurance (92) 153 47
Proceeds from common stock
offering 21,040 - 8,309
Common stock acquired by ESOP (1,746) - -
Dividends paid on common stock (93) (371) (182)
Purchase of treasury stock (2,040) - -
Net cash provided by
financing activities 33,904 25,795 16,746
Net (decrease) increase in cash
and cash equivalents (458) (1,749) 1,997
Cash and cash equivalents at
beginning of year 5,360 7,109 5,112
Cash and cash equivalents
at end of year $ 4,902 5,360 7,109
Supplemental information:
Interest paid on deposits
and borrowed funds $20,457 19,152 16,192
Income taxes (received)
paid, net $ (104) 165 (128)
Noncash activities:
Loans transferred to real
estate acquired through
foreclosure $ 2,960 1,400 489
</TABLE>
American National Bancorp, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1996, 1995, and 1994
(1) Description of Business, Summary of Significant Accounting Policies
and Other Matters
Description of Business
American National Bancorp, Inc. (the Company) is the holding
company of American National Savings Bank, F.S.B. (the Bank). The Bank
provides a full range of banking services to individual and corporate
customers through its subsidiaries and branch offices in Maryland. The
Bank is subject to competition from other financial and mortgage
institutions. The Bank is subject to the regulations of certain
agencies of the federal government and undergoes periodic examination by
those agencies.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, the Bank and the Bank's
subsidiaries, American National Insurance Agency, Inc. (ANIA), ANSB
Corporation and National Development Corporation (NDC). ANIA acts as
agent in offering annuity and mortgage life insurance products to
customers of the Company. ANSB Corporation was incorporated in June
1994 for the purpose of holding investment securities for the Company.
NDC is a partner in various real estate joint ventures formed for the
purpose of acquiring and developing real estate for sale. All
significant intercompany accounts and transactions have been eliminated
in consolidation.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the statements of
financial condition and income and expenses for the period. Actual
results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change in the
near term relate to the determination of the allowance for loan losses
and the valuation of investments in real estate. In connection with
these determinations, management obtains independent appraisals for
significant properties and prepares fair value analyses as appropriate.
Management believes that the allowances for losses on loans and
investments in real estate are adequate. While management uses
available information to recognize losses on loans and investments in
real estate, future additions to the allowances may be necessary based
on changes in economic conditions, particularly in the State of
Maryland. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowances
for losses on loans and investments in real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their
examination.
<PAGE>
(1) Description of Business, Summary of Significant Accounting
Policies and Other Matters, Continued
Investment and Mortgage-Backed Securities
Debt securities that the Company has the positive intent and
ability to hold to maturity are reported at amortized cost. Debt and
equity securities that are purchased and held principally for the
purpose of selling in the near term are reported at fair value, with
unrealized gains and losses included in earnings. All other debt and
equity securities are considered available for sale and are 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).
If a decline in value of an individual security classified as held
to maturity or available for sale is judged to be other than temporary,
the cost basis of that security is reduced to its fair value and the
amount of the write-down is included in earnings. Fair value is
determined based on bid prices published in financial newspapers or bid
quotations received from securities dealers. For purposes of computing
realized gains or losses on the sales of investments, cost is determined
using the specific identification method. Premiums and discounts on
investment and mortgage-backed securities are amortized over the term of
the security using methods that approximate the interest method.
On August 8, 1994 the Company transferred approximately $36.3
million of its collateralized mortgage obligations (CMOs), 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 Company 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 at the date of transfer. The unrealized loss
has been recorded as a component of stockholders' equity and is being
reduced in subsequent periods 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 as available-for-
sale approximately $87.1 million of investment and mortgage-backed
securities previously classified as held to maturity with an unrealized
loss of approximately $348,000.
Loans Held for Sale
Loans held for sale are carried at the lower of cost or market on
an aggregate basis.
Investments in and Advances to Real Estate Joint Ventures
Investments in and advances to real estate joint ventures are
accounted for using the equity method. The carrying values are subject
to subsequent adjustment to the extent they exceed net realizable value.
Interest income and fees on loans to real estate joint ventures are
deferred. Such interest and fees, in excess of related capitalized
interest cost, are recognized as the loans are repaid.
<PAGE>
(1) Description of Business, Summary of Significant Accounting
Policies and Other Matters, Continued
Investments in and Advances to Real Estate Joint Ventures,
continued
Interest costs are capitalized based on the Company's average cost
of funds and its average investment in and advances to real estate joint
ventures with development in progress. Interest capitalized was
approximately $56,000, $95,000, and $160,000 for the years ended
July 31, 1996, 1995, and 1994, respectively.
Investments in Real Estate
Ground rents are carried at cost.
Real estate acquired through foreclosure is recorded at the lower
of cost or estimated fair value less estimated costs to sell.
Management estimates fair value based on appraisals and/or cash flow
analyses. Costs relating to improving such properties are capitalized
and costs relating to holding such properties are charged to expense.
Property and Equipment
Property and equipment are carried at cost less accumulated
depreciation and amortization. Depreciation and amortization of
property and equipment are recorded on a straight-line basis over the
estimated useful lives of the assets or leases as appropriate.
Additions and improvements are capitalized and charges for repairs and
maintenance are expensed when incurred. Gains or losses on sales of
property and equipment are recognized upon sale.
Loans Receivable
Origination and commitment fees and direct origination costs are
deferred and amortized to income over the contractual lives of the
related loans using the interest method. Under certain circumstances,
commitment fees are recognized over the commitment period or upon
expiration of the commitment. Unamortized loan fees are recognized in
income when the related loans are sold or prepaid.
Interest on potential problem loans is not accrued when, in the
opinion of management, the full collection of principal or interest is
in doubt. Any amounts ultimately collected on such loans is recorded as
a reduction of principal, as interest income or combination thereof
depending on management's evaluation of the recoverability of the loan
principal.
Provisions for loan losses are charged to operations based on
management's review of the loan portfolio and analyses of the borrowers'
ability to repay, past loan loss and collection experience, risk
characteristics of individual loans or groups of similar loans and
underlying collateral, current and prospective economic conditions and
status of nonperforming loans. Loans or portions thereof are charged-
off when considered, in the opinion of management, uncollectible.
<PAGE>
(1) Description of Business, Summary of Significant Accounting
Policies and Other Matters, Continued
Provision for Loan Losses, continued
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of
a Loan" and by Statement 118 "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures" (collectively referred to as
"Statement 114") as of August 1, 1995. Statement 114 addresses the
accounting by creditors for impairment of certain loans. It is
generally applicable for all loans except large groups of smaller-
balance homogenous loans, including residential mortgage loans and
consumer installment loans that are collectively evaluated for
impairment. It also applies to all loans that are restructured in a
troubled debt restructuring involving a modification of terms. However,
if a loan that was restructured in a troubled debt restructuring
involving a modification of terms before the effective date of
Statement 114 is not impaired based on the terms specified by the
restructuring agreement, a creditor may continue to account for the loan
in accordance with the provisions of Statement 15, "Accounting for
Troubled Debt Restructurings" prior to its amendment by Statement 114.
Statement 114 requires that impaired loans be measured on the
present value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A
loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
Impaired loans are generally placed in nonaccrual status on the
earlier of the date that management determines that the collection of
principal and/or interest is in doubt or the date that principal or
interest is 90 days or more past-due.
An allocated valuation allowance, if any, is included in the Bank's
allowance for credit losses. An impaired loan is charged-off when the
loan, or a portion thereof, is considered uncollectible or transferred
to real estate owned.
The Bank recognized interest income for impaired loans consistent
with its method for nonaccrual loans. Specifically, interest payments
received are recognized as interest income or, if the ultimate
collectibility of principal is in doubt, are applied to principal.
Changes resulting from the implementation of SFAS Nos. 114 and 118
did not materially impact the financial condition or results of
operations of the Company as of and for the year ended July 31, 1996.
Income Taxes
Deferred income taxes are recognized, with certain exceptions, for
temporary differences between the financial reporting basis and income
tax basis of assets and liabilities based on enacted tax rates expected
to be in effect when such amounts are realized or settled. Deferred tax
assets (including tax loss carryforwards) are recognized only to the
extent that it is more likely than not that such amounts will be
realized based on consideration of available evidence, including tax
planning strategies and other factors.
<PAGE>
(1) Summary of Significant Accounting Policies and Other Matters,
Continued
Income Taxes, continued
A continuing exception allows qualified thrift lenders not to
provide a deferred tax liability on certain bad debt reserves for tax
purposes that arose in fiscal years beginning before July 31, 1988.
Such bad debt reserves for the Company, which are included in retained
income, amounted to approximately $11.5 million at July 31, 1996 with an
income tax effect of approximately $4.4 million. As specified in
legislation enacted by Congress and signed by the President on August
20, 1996, this bad debt reserve would become taxable if the Bank fails
to meet certain conditions.
Changes in tax laws or rates on deferred tax assets and liabilities
are recognized in the period that includes the enactment date.
Statement of Cash Flows
For purposes of the consolidated statements of cash flows, the
Company considers all highly liquid investments with maturities at date
of purchase of three months or less to be cash equivalents. Cash
equivalents consist of federal funds sold and certain securities
purchased under agreements to resell.
Interest Rate Cap Agreements
The Company may use interest rate cap agreements to hedge interest
rate risk associated with its money market and short-term certificate of
deposit accounts. The premiums paid for such agreements are amortized
over the life of the agreements using the straight-line method. The
interest differential received, if any, on interest rate cap agreements
is recorded as an adjustment to interest expense.
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
<PAGE>
(2) Securities Available for Sale
The amortized cost and fair value of securities available for sale
are summarized as follows at July 31:
<TABLE>
<CAPTION>
1996
------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
<S> <C> <C> <C> <C>
U.S. government and agency obligations $7,069 - (262) 6,807
Federal National Mortgage Association
(FNMA) mortgage-backed securities 17,552 - (654) 16,898
Federal Home Loan Mortgage
Corporation (FHLMC) mortgage-
backed securities 4,527 - (166) 4,361
Government National Mortgage
Association (GNMA) mortgage-
backed securities 3,698 37 - 3,735
FNMA collateralized mortgage
obligations 6,510 33 (88) 6,455
FHLMC collateralized mortgage
obligations 1,676 - (4) 1,672
------- --- ------ -------
41,032 70 (1,174) 39,928
Accrued interest receivable 338 - - 338
------- --- ------ -------
$41,370 70 (1,174) 40,266
------- --- ------ -------
------- --- ------ -------
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
<S> <C> <C> <C> <C>
FHLMC Collateralized Mortgage
Obligations $2,909 108 - 3,017
Accrued interest receivable 13 - - 13
$ 2,922 108 - 3,030
</TABLE>
The proceeds from the sales of securities available for sale and
the gross realized gains and losses were $4.75 million, $228,000 and
$800,000, respectively, for the year ended July 31, 1996, $4.1 million,
$25,000 and $15,000, respectively, for the year ended July 31, 1995 and
$63.6 million, $1.3 million and $221,000, respectively, for the year
ended July 31, 1994.
<PAGE>
(2) Securities Available for Sale, Continued
A summary of maturities of securities available for sale as of July
31, 1996:
<TABLE>
<CAPTION>
Amortized
cost Fair value
<S> <C> <C>
Due within 12 months $2,989 3,002
Due beyond 12 months
but within 5 years 19,236 18,530
Due beyond 5 years
but within 10 years 5,839 5,601
Beyond 10 years 13,306 13,133
$ 41,370 40,266
</TABLE>
(3) Investment Securities
The amortized cost and fair value of investment securities are
summarized as follows at July 31:
<TABLE>
<CAPTION>
1996
------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
<S> <C> <C> <C> <C>
U. S. government and agency
obligations due:
1 through 5 years $1,500 - (82) 1,418
5 through 10 years 9,947 - (28) 9,919
Greater than 10 years 12,235 - (348) 11,887
------ --- ---- -------
23,682 - (458) 23,224
Accrued interest receivable 427 - - 427
------ --- ---- -------
$24,109 - (458) 23,651
</TABLE>
<TABLE>
<CAPTION>
1995
------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
<S> <C> <C> <C> <C>
U. S. government and agency
obligations due:
1 through 5 years $4,486 - (133) 4,353
5 through 10 years 5,129 - (149) 4,980
Greater than 10 years 4,000 16 - 4,016
------ --- ---- -------
13,615 16 (282) 13,349
Accrued interest receivable 303 - - 303
------ --- ---- -------
$13,918 16 (282) 13,652
------ --- ---- -------
------ --- ---- -------
</TABLE>
There were no sales of investment securities held to maturity
during the years ended July 31, 1996, 1995 and 1994.
<PAGE>
(4) Mortgage-Backed Securities
The amortized cost and fair value of mortgage-backed securities are
summarized as follows at July 31:
<TABLE>
<CAPTION>
1996
------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
<S> <C> <C> <C> <C>
FNMA $ 27,623 - (450) 27,173
FHLMC 8,222 - (92) 8,130
FNMA Collateralized Mortgage Obligations 28,091 - (919) 27,172
FHLMC Collateralized Mortgage
Obligations 35,731 - (1,107) 34,624
Other Collateralized Mortgage Obligations 52 - - 52
------ --- ------ -------
99,719 - (2,568) 97,151
Accrued interest receivable 476 - - 476
------ --- ------ -------
$100,195 - (2,568) 97,627
------ --- ------ -------
------ --- ------ -------
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
cost gains losses value
(In Thousands)
<S> <C> <C> <C> <C>
FNMA $ 65,372 59 (1,992) 63,439
GNMA 13,710 258 (5) 13,963
FHLMC 21,359 121 (214) 21,266
FNMA Collateralized Mortgage Obligations 21,635 29 (1,152) 20,512
FHLMC Collateralized Mortgage
Obligations 33,803 222 (1,481) 32,544
Other Collateralized Mortgage Obligations 142 1 - 143
-------- ---- ------ --------
156,021 690 (4,844) 151,867
Accrued interest receivable 754 - - 754
-------- ---- ------ --------
$ 156,775 690 (4,844) 152,621
-------- ---- ------ --------
-------- ---- ------ --------
</TABLE>
There were no sales of mortgage-backed securities held to maturity
during the years ended July 31, 1996, 1995 and 1994.
<PAGE>
(4) Mortgage-Backed Securities, Continued
A summary of maturities of mortgage-backed securities as of July
31, 1996:
<TABLE>
<CAPTION>
Amortized
cost Fair value
<S> <C> <C>
Due within 12 months $533 533
Due beyond 12 months but within 5 years 5,378 5,217
Due beyond 5 years but within 10 years 6,939 6,651
Beyond 10 years 87,345 85,226
--------- -------
$ 100,195 97,627
--------- -------
--------- -------
</TABLE>
The amortized cost of mortgage-backed securities at July 31, 1996
includes unrealized holding losses totaling approximately $1.6 million
for securities transferred from the available for sale portfolio.
The Company had pledged as collateral for advances under its short-
term line of credit from the Federal Home Loan Bank of Atlanta, FNMA
mortgage-backed securities and FHLMC and FNMA CMOs with amortized cost
and fair values of $29.7 million and $28.8 million, respectively, at
July 31, 1996 and FHLMC and FNMA mortgage-backed securities and FHLMC
and FNMA CMOs with amortized cost and fair values of $36.5 million and
$35.1 million, respectively, at July 31, 1995. In addition, FNMA and
FHLMC CMOs and mortgage-backed securities were pledged as collateral for
reverse repurchase agreements with amortized cost and fair values of
$47.2 million and $45.6 million, respectively, at July 31, 1996; and
$38.5 million and $36.8 million, respectively, at July 31, 1995.
(5) Loans Receivable
Substantially all of the Company's loans receivable are mortgage
loans secured by residential and commercial real estate properties
located in the state of Maryland. Loans are extended only after
evaluation by management of customers' creditworthiness and other
relevant factors on a case-by-case basis. The Company generally does
not lend more than 90% of the appraised value of a property and requires
private mortgage insurance on residential mortgages with loan-to-value
ratios in excess of 80%. In addition, the Company generally obtains
personal guarantees of repayment from borrowers and/or others for
construction, commercial and multi-family residential loans and
disburses the proceeds of construction and similar loans only as work
progresses on the related projects.
<PAGE>
(5) Loans Receivable, Continued
Residential lending is generally considered to involve less risk
than other forms of lending, although payment experience on these loans
is dependent to some extent on economic and market conditions in the
Company's primary lending area. Commercial and construction loan
repayments are generally dependent on the operations of the related
properties or the financial condition of its borrower or guarantor.
Accordingly, repayment of such loans can be more susceptible to adverse
conditions in the real estate market and the regional economy.
Loans receivable are summarized as follows at July 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
First mortgage loans:
One-to-four family residential $156,374 123,413
Multi-family residential 35,930 39,361
Commercial 37,695 38,894
Construction 23,320 5,617
Land development 14,183 10,854
FHA insured and VA guaranteed 11,974 10,372
Loans held for sale 350 1,831
-------- --------
Total first mortgage loans 279,826 230,342
Consumer and other loans 13,026 10,644
Second mortgage loans 3,434 1,961
Loans secured by deposit accounts 508 222
Participation in loans fully guaranteed by
Agency for International Development 152 179
Accrued interest receivable 1,547 1,323
-------- --------
298,493 244,671
-------- --------
Less:
Unearned loan fees, net 1,202 1,083
Undisbursed portion of loans in process 14,837 5,138
Allowance for loan losses 4,412 6,361
-------- --------
20,451 12,582
-------- --------
Loans receivable, net $ 278,042 232,089
-------- --------
-------- --------
</TABLE>
Nonperforming and restructured loans are summarized as follows at
July 31:
<PAGE>
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Nonaccruing loans $3,773 8,437
Accruing loans 90 days or more delinquent 136 170
Restructured loans 1,636 1,870
$ 5,545 10,477
</TABLE>
<PAGE>
(5) Loans Receivable, Continued
Interest income that would have been recorded under the original
terms of nonaccruing and restructured loans and the interest income
actually recognized are summarized below for the years ended July 31:
<TABLE>
<CAPTION>
1996 1995 1994
----- ------ ------
<S> <C> <C> <C>
(In Thousands)
Interest income that would have
been recorded $567 898 1,072
Interest income recognized 151 274 650
----- ----- ------
Interest income foregone $ 416 624 422
----- ----- ------
----- ----- ------
</TABLE>
The Company is not committed to lend additional funds to debtors
whose loans have been restructured.
In addition to the loans included above as nonperforming and
restructured, the Company, through its normal asset review process, has
identified certain loans which management believes involve a degree of
risk warranting additional attention. Included in loans at July 31,
1996 are approximately $5.5 million of such loans which, while current
in required payments, have exhibited some potential weaknesses that, if
not corrected, could increase the level of risk in the future. In
addition, at July 31, 1996 management has identified approximately
$807,000 of loans which have exhibited weaknesses in the paying capacity
of the borrower or the collateral pledged which may result in a loss if
such deficiencies are not corrected.
Included in the Company's nonperforming loans above are certain
impaired loans as defined by Statement 114. Impaired loans and the
allocated valuation allowances at July 31, 1996 were:
<PAGE>
<TABLE>
<CAPTION>
Loan Valuation
balance allowance
(In thousands)
<S> <C> <C>
Impaired with valuation allowance $2,953 1,368
Impaired without valuation allowance - -
------ ------
Total impaired loans $2,953 1,368
------ ------
------ ------
</TABLE>
The allocated valuation allowance for impaired loans at July 31,
1996, and activity related thereto for the year ended July 31, 1996 is
included in the allowance for loan losses summary.
The average recorded investment in impaired loans and the amount of
interest income recognized for the year ended July 31, 1996 were (in
thousands):
Average recorded investment in impaired loans $3,988
Interest income recognized during impairment -
<PAGE>
(5) Loans Receivable, Continued
Activity in the allowance for loan losses is summarized as follows
for the years ended July 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $6,361 3,669 2,326
Provision charged to expense 772 3,386 1,989
Charge-offs (3,043) (1,033) (688)
Recoveries 322 339 42
------- ------ ------
Balance at end of year $ 4,412 6,361 3,669
------- ------ ------
------- ------ ------
</TABLE>
Loans serviced for others, which are not included in the Company's
assets, were approximately $50.0 million, $50.3 million and $55.8
million at July 31, 1996, 1995 and 1994, respectively. A fee is charged
for such servicing based on the unpaid principal balances.
Commitments to extend credit are agreements to lend to customers,
provided that terms and conditions established in the related contracts
are met. The Company had the following contractual commitments to
extend credit, exclusive of undisbursed loans in process at July 31:
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
Fixed Floating Fixed Floating
Rate Rate Rate Rate
------ -------- ----- --------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage loans $3,480 5,440 4,896 345
Lines of credit - 9,219 - 7,629
Irrevocable letters of credit - 2,097 - 1,895
------ ------ ----- ------
------ ------ ----- ------
The interest rate ranges on fixed rate mortgage loan commitments
were 7.125% to 9.25% at July 31, 1996 and 6.75% to 8.875% at July 31,
1995.
Commitments for mortgage loans generally expire in 60 days.
Commitments under lines of credit are generally longer than one year and
are subject to periodic re-evaluation and cancellation. Irrevocable
letters of credit expire within two years. Since certain of the
commitments may expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
commitments may be funded from principal repayments on loans and
mortgage-backed securities, excess liquidity, savings deposits and, if
necessary, borrowed funds.
Substantially all of the Company's commitments at July 31, 1996 and
1995 are for loans which would be secured by real estate with appraised
values in excess of the commitment amounts. The Company's exposure to
credit loss under these contracts in the event of nonperformance by the
other parties, assuming that the collateral proves to be of no value, is
represented by the contractual amount of those instruments.
<PAGE>
(6) Investments in Real Estate
Investments in real estate are summarized as follows at July 31:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Ground rents $4,904 4,938
Acquired through foreclosure 766 890
------- ------
Investments in real estate, net $ 5,670 5,828
------- ------
------- ------
</TABLE>
Changes in the allowance for losses on investments in real estate
are summarized as follows at July 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $ - 8 -
Provision charged to expense 158 44 191
Charge-offs (158) (52) (183)
---- ---- -----
Balance at end of year $ - - 8
---- ---- -----
---- ---- -----
</TABLE>
Loss on investments in real estate consists of the following for
the years ended July 31:
1996 1995 1994
------- ------ ------
(In Thousands)
[S] [C] [C] [C]
Operation of investments
in real estate $ 232 286 180
Provision for losses on
investments in real estate 158 44 191
----- ---- ----
$ 390 330 371
----- ---- ----
----- ---- ----
<PAGE>
(7) Investments in and Advances to Real Estate Joint Ventures
National Development Corporation is a partner in various real
estate joint ventures formed for the purpose of acquiring and developing
real estate for sale. Combined condensed financial information for the
joint ventures is presented below as of and for the years ended July 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Assets:
Real estate under development $1,378 2,688
Other 204 431
------- ------
$ 1,582 3,119
------- ------
------- ------
Liabilities:
Due to American National Savings
Bank, F.S.B. $701 1,618
Due to others 382 763
Partners' equity:
National Development Corporation 499 738
Other - -
------- ------
$ 1,582 3,119
------- ------
------- ------
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Operations
Sales $3,085 3,234 5,270
Costs of sales 2,918 3,067 4,686
------- ------ ------
167 167 584
Other income 9 8 12
Other expense (415) (837) (811)
------- ------ ------
Net loss $ (239) (662) (215)
------- ------ ------
------- ------ ------
</TABLE>
<PAGE>
(8) Property and Equipment
Property and equipment are summarized as follows at July 31:
<TABLE>
<CAPTION>
Estimated
1996 1995 useful lives
------ ------ ------------
(In Thousands)
<S> <C> <C> <C>
Leasehold improvements $3,133 2,920 5 - 15 years
Furniture and equipment 3,233 2,701 3 - 10 years
Automobiles 78 57 3 years
------ ------
6,444 5,678
Less accumulated
depreciation and
amortization 5,246 4,713
------ ------
Property and
equipment, net $ 1,198 965
------ ------
------ ------
</TABLE>
At July 31, 1996 the Company was obligated under noncancellable
long-term operating leases for the main office, operations center and
eight of its branch offices. The leases, five of which have renewal
options, expire on various dates extending to 2007 and have aggregate
minimum lease payments for succeeding fiscal years approximately as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997 $1,051
1998 1,034
1999 998
2000 893
2001 800
Subsequent to 2001 1,600
-------
Total minimum lease payments $ 6,376
-------
-------
</TABLE>
Rent expense for the years ended July 31, 1996, 1995 and 1994 was
approximately $980,000, $949,000, and $982,000, respectively.
<PAGE>
(9) Deposits
Deposits are summarized as follows at July 31:
Weighted average rate
<TABLE>
<CAPTION>
1996 1995
Type of ------------------- -------------------
service 1996 1995 Amount % Amount %
------- ---- ---- -------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate 6.00% 6.16% $216,119 69.0% $210,906 67.0%
Noncertificate:
Passbook 3.04 3.13 40,781 13.0 41,138 13.1
NOW 1.56 1.65 15,038 4.8 13,991 4.5
Money Fund 3.03 4.27 41,145 13.2 48,578 15.4
-------- ----- -------- -----
$ 313,083 100.0% $ 314,613 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
Certificate accounts maturing:
Under 12 months $118,772 55.0% $108,226 51.3%
13 months to 24 months 41,271 19.1 38,388 18.2
25 months to 36 months 18,552 8.6 24,820 11.8
37 months to 48 months 10,172 4.7 13,668 6.5
49 months to 60 months 9,539 4.4 9,296 4.4
Beyond 60 months 17,813 8.2 16,508 7.8
-------- ----- -------- -----
$ 216,119 100.0% $210,906 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
The aggregate amount of certificates of deposit with a minimum
denomination of $100,000 was approximately $22.4 million and $21.0
million at July 31, 1996 and 1995, respectively.
Interest expense on deposits is summarized as follows for the years
ended July 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Certificate $12,847 11,343 10,399
Passbook 1,230 1,332 1,422
NOW 237 240 264
Money Fund 1,511 2,008 1,842
$15,825 14,923 13,927
</TABLE>
<PAGE>
(9) Deposits, Continued
The Company may use interest rate caps in the management of its
interest rate risk. Interest rate caps purchased by the Company enable
it to limit its interest rate risk by transferring a portion of the risk
of increasing interest rates on money fund and short-term certificate
accounts to the issuer of the interest rate caps. The Company's
interest rate caps provide for the Company to receive variable interest
rate payments based on the spread between the variable three-month
London InterBank Offered Rate (LIBOR) and the strike price of the caps
if the variable three-month LIBOR is higher than the strike rate. The
Company held no interest rate caps at July 31, 1996 and 1995 and held
interest rate caps with a notional principal amount of $30 million at
July 31, 1994. The range of the strike rates on the Company's interest
rate caps was 5.5% at July 31, 1994. In the opinion of management, at
July 31, 1994, the likelihood of the variable three-month LIBOR rate
exceeding the strike rates during the remaining term of the interest
rate caps was remote. Accordingly, the remaining premiums were charged
to expense in 1994. Amortization expense was $200,000 in 1994.
(10) Securities Sold Under Agreements to Repurchase
The Company sells securities under agreements to repurchase
(reverse repurchase agreements). These fixed-coupon reverse repurchase
agreements are treated as financings and the obligations to repurchase
securities sold are reflected as liabilities in the statements of
financial condition. The dollar amount of securities underlying the
agreements remains in the asset accounts. The securities underlying the
agreements were delivered to the dealers which arranged the
transactions. The dealers may have loaned such securities to other
parties in the normal course of their operations and have agreed to
resell to the Company either substantially identical securities or the
same securities at the maturities of the agreements. The amortized cost
and market values of such securities were $47.2 million and
$45.6 million, respectively, as of July 31, 1996, and $38.5 million and
$36.8 million, respectively, as of July 31, 1995. At July 31, 1996 and
1995 the securities sold under agreements to repurchase involved the
purchase of the same securities. The weighted average interest rate of
the agreements was 5.60% at July 31, 1996 and the agreements mature
within one month.
Certain additional information regarding securities sold under
agreements to repurchase is as follows at July 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Maximum amount outstanding
at month-end $39,011 34,338 14,808
Approximate average balance 34,005 20,741 9,307
------- ------ ------
------- ------ ------
</TABLE>
<PAGE>
(11) Advances from the Federal Home Loan Bank of Atlanta
Advances from the Federal Home Loan Bank of Atlanta (FHLBA) are
summarized as follows at July 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
5.97% - 6.83%, due in 1995 $ - 14,000
7.49% - 7.55%, due in 1995 - 5,600
4.57% - 5.19%, due in 1996 - 4,000
5.53% - 6.50%, due in 1996 7,373 4,675
6.93% - 7.46%, due in 1996 - 4,000
4.89% - 5.58%, due in 1997 17,550 4,000
5.84% - 6.21%, due in 1997 10,500 1,000
6.27% - 7.09%, due in 1997 4,476 5,112
5.45% - 6.14%, due in 1998 9,000 -
7.32%, due in 1998 1,000 1,000
4.64% - 5.42%, due in 1999 10,675 -
6.43%, due in 2006 1,500 -
5.00%, due in 2014 750 750
------- --------
$ 62,824 44,137
-------- --------
-------- --------
</TABLE>
The Company has a $95 million credit availability agreement with
the FHLBA which is secured under a blanket floating line security
agreement or by mortgage-backed and investment securities specifically
pledged as draws are made. Under the blanket floating lien security
agreement with the FHLBA, the Company is required to maintain, as
collateral for its advances, qualifying first mortgage loans or
mortgage-backed securities in an amount equal to 133% of the advances.
In addition, its stock in FHLBA is pledged as collateral for its
advances. Interest on advances is at the FHLBA's established rate for
advances with the same maturity or at the FHLBA's variable rate.
<PAGE>
(12) Income Taxes
The income tax provision (benefit) is composed of the following for
the years ended July 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $370 126 575
State (28) (30) 127
342 96 702
Deferred:
Federal $376 (119) (6)
State 83 (27) (1)
459 (146) (7)
Income tax provision (benefit) $801 (50) 695
</TABLE>
<PAGE>
(12) Income Taxes, Continued
The tax effects of temporary differences between the financial
reporting basis and income tax basis of assets and liabilities relate to
the following at July 31:
<TABLE>
<CAPTION>
1996 1995
------ -----
(In Thousands)
<S> <C> <C>
Net unrealized holding losses on securities $1,056 807
Allowances for losses on loans and
investments in real estate 773 948
Interest and fees on loans 279 545
Equity in net income of joint ventures, net - 137
Other assets 336 299
-------- -------
Total deferred tax assets 2,444 2,736
Federal Home Loan Bank stock dividends 353 477
Other liabilities 225 183
-------- -------
Total deferred tax liabilities 578 660
-------- -------
$ 1,866 2,076
-------- -------
-------- -------
</TABLE>
A reconciliation between the income tax (benefit) provision and the
amount computed by multiplying income before income taxes by the
statutory federal income tax rate of 34% is as follows for the years
ended July 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Federal income tax
provision (benefit)
at statutory rate $798 (14) 675
Adjustments:
Bad debt deduction - - (66)
State income taxes,
net of federal
income tax benefit 36 (38) 83
Other (33) 2 3
Provision (benefit) for
income taxes $801 (50) 695
</TABLE>
<PAGE>
(13) Stockholders' Equity
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. Of
the net proceeds, $8.9 million was contributed to the Bank in exchange
for all of its outstanding common stock. 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.
Federal regulations require that upon conversion from mutual to
stock form of ownership, a "liquidation account" be established by
restricting a portion of net worth for the benefit of eligible savings
account holders who maintain their savings accounts with the Bank after
conversion. In the event of complete liquidation (and only in such
event), each savings account holder who continues to maintain his
savings account shall be entitled to receive a distribution from the
liquidation account after payment to all creditors, but before any
liquidation distribution with respect to capital stock. This account
will be proportionately reduced for any subsequent reduction in the
eligible holders' savings accounts. At conversion the liquidation
account totaled approximately $28.8 million.
In July 1992, the American National Savings Association's members
approved a plan of reorganization from a mutual savings association to
a mutual holding company. Pursuant to the plan of reorganization the
Association transferred substantially all of its assets and all of its
liabilities to a new federally-chartered stock savings association which
became a wholly-owned subsidiary of American National Bankshares, M.H.C.
(MHC), a federal mutual holding company. The reorganization was
consummated on October 29, 1992 and the Bank capitalized MHC with
$10,000.
On November 3, 1993, the Bank's initial public offering of commons
stock was completed. On such date, 927,000 shares of common stock were
issued and sold at $10.00 per share, and 1,125,000 shares of common
stock were issued to the MHC. The initial public offering resulted in
proceeds after expenses of the offering of approximately $8.3 million.
As a part of the offering, the Bank created a management recognition and
retention plan trust for employees and outside directors equal to 3% of
the shares issued in the public offering or 27,000 shares of common
stock at a price of $10.00 per share. The trust was designed to provide
directors and officers a proprietary interest in the Bank to encourage
such persons to remain with the Bank. The shares are awarded at a rate
of 25 percent per year commencing one year from the date of grant.
Compensation expense in the amount of the grant is being recognized pro
rata over the four years during which the shares are vested and payable.
<PAGE>
(13) Stockholders' Equity, Continued
Stock Option Plans
The Board of Directors and stockholders adopted the 1993 Incentive
Stock Option Plan for officers and employees of the Company (the Stock
Plan) which authorized the grant of stock options to officers and
certain employees for an aggregate of 122,866 shares of authorized but
unissued common stock. Options are exercisable at the market price at
the time of the grant on a cumulative basis in installments at a rate of
25, 50 and 25 percent per year commencing one year from the date of
grant and expire 10 years from the date of grant. All share data and
option prices have been adjusted to give retroactive effect to the 1.94
exchange ratio effective October 31, 1995 in the conversion from the
mutual to stock form of organization. A summary of changes in shares
under option and options exercisable for the years ended July 31 is
presented below:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Outstanding at beginning of year 117,046 120,926
Granted - 5,820
Cancelled - (9,700)
Outstanding at end of year 117,046 117,046
Exercisable at end of year 87,300 27,806
</TABLE>
The options outstanding are exercisable as follows at July 31,
1996:
Stock Option price Expiration
options per share year
111,226 $ 5.15 2003
5,820 5.35 2004
The Board of Directors and stockholders adopted the 1993 Stock
Option Plan for Outside Directors (the Directors' Plan) which authorized
the grant of non-statutory stock options to outside directors for an
aggregate of 51,734 shares of authorized but unissued common stock.
Options are immediately exercisable at the market price at the time of
the grant and expire 10 years from the date of grant. In connection
with the offering, the Company granted options to purchase 49,794 shares
at $5.15 per share. In fiscal 1995, the Company granted options to
purchase an additional 194 shares at $5.35 per share.
Net Income Per Common Share
Net income per share from the date of conversion, October 31, 1995
to July 31, 1996 has been computed based on 3,766,389 weighted average
shares of common stock outstanding. The pro forma net income per share
for the year ended July 31, 1996 has been calculated as if the
conversion had been completed on August 1, 1995. The net proceeds of
the offering are assumed to have been invested at a net effective yield
of 7.87%, (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 rate of
38.6%, was added to reported net income for the period to obtain the pro
forma net income used in the calculations.
<PAGE>
(13) Stockholders' Equity, Continued
Net Income Per Common Share, continued
Net income per share of common stock for the year ended July 31,
1995 and from the date of conversion, November 3, 1993 to July 31, 1994
is computed by dividing net income for the years ended July 31, 1995 and
period November 1, 1993 to July 31, 1994, respectively, by 2,052,000,
the number of shares of common stock issued and outstanding for the
period.
The pro forma net income per share for the year ended July 31, 1994
has been calculated as if the 2,052,000 shares issued had been sold on
August 1, 1993. The net proceeds of the offering are assumed to have
been invested at a net effective yield of 7.19%, (the approximate
weighted average yield on all interest earnings assets during the period
from August 1, 1993 to October 31, 1993) for the period from August 1,
1993 to November 3, 1993, 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
calculations.
Dividends on Common Stock
From January 31, 1994 to October 31, 1995 the Bank declared a
quarterly cash dividend of approximately $.10 per share. Upon approval
by the OTS, the MHC elected to waive receipt of its dividends on its
1,125,000 shares thereby reducing the actual dividends declared in 1996,
1995 and 1994 to $92,600, $371,000 and $276,000, respectively.
The most recent dividend waiver approval by the OTS has the
following terms: (i) the mutual holding company's board of directors
determines that such waiver is consistent with such directors' fiduciary
duties to the mutual holding company's members; (ii) for as long as the
savings Bank subsidiary is controlled by the mutual holding company, the
dollar amount of dividends waived by the mutual holding company are
considered as a restriction on the retained earnings of the savings
Bank, which restriction, if material, is disclosed in the public
financial statements of the savings Bank as a note to the financial
statements; (iii) the amount of any dividend waived by the mutual
holding company is available for declaration as a dividend solely to the
mutual holding company, and, in accordance with Statement of Financial
Accounting Standards No. 5, where the savings Bank determines that the
payment of such dividend to the mutual holding company is probable, an
appropriate dollar amount is recorded as a liability; (iv) the amount of
any waived dividend is considered as having been paid by the savings
Bank (and the savings Bank's capital ratios adjusted accordingly) in
evaluating proposed dividends under OTS capital distribution
regulations; and (v) in the event the mutual holding company converts to
stock form, the appraisal submitted to the OTS in connection with the
conversion application takes into account the aggregate amount of the
dividends waived by the mutual holding company.
OTS regulations impose limitations on all capital distributions.
The rule establishes three tiers of institutions. An institution that
exceeds all fully phased-in capital requirements before and after a
proposed distribution ("Tier 1 Institution"), may after prior notice but
without the approval of the OTS, make capital distributions during a
calendar year up to (i) 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year; or (ii) 75% of its
net income over the most recent four-quarter period. The Institution is
a Tier 1 Institution and accordingly had available at July 31, 1996,
approximately $9.0 million for distribution.
<PAGE>
(13) Stockholders' Equity, Continued
Dividends on Common Stock, continued
In addition, the OTS would prohibit a proposed capital distribution
by any institution which would otherwise be permitted by the regulation,
if the OTS determines that such distribution would constitute an unsafe
or unsound practice. In addition, FDICIA provides that, as a general
rule, a financial institution may not make a capital distribution if it
would be undercapitalized after making the capital distribution. Also,
an institution meeting the Tier 1 capital criteria which has been
notified that it needs more than normal supervision will be treated as
a Tier 2 or Tier 3 Institution subject to additional capital
distribution limitations unless the OTS deems otherwise.
(14) Pension and Other Benefit Plans
Substantially all full-time employees of the Company are included
in a noncontributory defined benefit pension plan.
The following tables set forth the plan's funded status at April
30, 1996 and 1995, amounts recognized in the statements of financial
condition as of July 31, 1996 and 1995 and the composition of net
pension cost for the years ended July 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of
benefit obligation:
Vested $ 1,111 1,120
Nonvested 6 13
Total accumulated
benefit obligation $ 1,117 1,133
Projected benefit obligation
for service rendered to date $ (1,607) (1,615)
Plan assets at fair value
(primarily common stocks and
U.S. Government and government
sponsored agency securities) 1,662 1,396
Plan assets greater (less) than
projected benefit obligation 55 (219)
Unrealized transition asset at
April 1, 1987 being recognized
over 26 years 81 95
Unrecognized prior service cost (118) (129)
Unrecognized net loss from past
experience different from that
assumed and effects of changes
in assumptions (57) 187
Accrued pension cost included in
other liabilities $ (39) (66)
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(In Thousands)
<S> <C> <C> <C>
Net pension cost included the
following components:
Service cost-benefits earned
during the period $101 96 109
Interest cost on projected
benefit obligation 122 118 120
Actual return on plan assets (200) (68) (41)
Net amortization and deferral 87 (48) (81)
Net pension cost $110 98 107
</TABLE>
<PAGE>
(14) Pension and Other Benefit Plans, Continued
In determining the actuarial present value of the projected benefit
obligation the weighted average discount rate used was 8.0% in 1996 and
7.5% in 1995 and the expected long-term rate of return on assets was
8.50% in 1996 and 1995. The rate of increase of future compensation
levels used was 5% in 1996 and 1995.
The Company also has a 401(k) profit sharing plan covering
substantially all full-time employees. Employee contributions are
voluntary and the employee may elect to defer from one percent to twenty
percent of base (qualifying) compensation. Employer contributions are
discretionary and there were no such contributions for the fiscal years
ended July 31, 1996, 1995 and 1994.
(15) Employee Stock Ownership Plan (ESOP)
In connection with the Conversion and Reorganization, the Company
formed an ESOP. The ESOP covers employees who have completed at least
one year of service and have attained the age of 21. The ESOP borrowed
$1.7 million for a ten year term 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 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.
In connection with the formation of the ESOP, the Company adopted
Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" (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 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 $118,000 for
the year ended July 31, 1996. The fair value of unearned ESOP shares at
July 31, 1996 totaled $1.6 million.
The ESOP shares as of July 31, 1996 were as follows:
Allocated shares 2,909
Shares earned, but unallocated 8,728
Unearned shares 162,933
174,570
(16) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" (Statement 107), requires all
entities to disclose the estimated fair value of certain on- and off-
balance sheet financial instruments.
<PAGE>
(16) Fair Value of Financial Instruments, Continued
In many instances, the assumptions used in estimating fair values
were based upon subjective assessments of market conditions and
perceived risks of the financial instruments at a certain point in time.
The fair value estimates can be subject to significant variability with
changes in assumptions. Furthermore, these fair value estimates do not
reflect any premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular financial
instrument. In addition, the tax ramifications related to the
realization of unrealized gains and losses are not permitted to be
considered in the estimation of fair value.
Fair value estimates are based solely on existing on-and off-
balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. Examples
would include portfolios of loans serviced for others, net fee income
from the Company's subsidiaries, core deposit intangibles, mortgage
banking operations, and deferred tax assets. Fair value estimates,
methods and assumptions are set forth as follows for the Company's
financial instruments.
Cash, Investments and Mortgage-Backed Securities
For cash and cash equivalents the carrying amount is a reasonable
estimate of fair value. The fair value of investment and mortgage-
backed securities is estimated based on bid prices published in
financial newspapers or bid quotations received from securities dealers.
The fair value of ground rents owned is estimated by discounting the
cash flows using the current 30 year treasury bond rate. The fair value
of Federal Home Loan Bank stock is estimated to be equal to its carrying
amount given it is not a publicly traded equity security, it has an
adjustable dividend rate, and all transactions in the stock are executed
at the stated par value.
<PAGE>
The following table summarizes the carrying amount and estimated
fair value of securities available for sale, investment securities,
mortgage-backed securities and other investments at July 31:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Securities available for sale $ 40,266 40,266 3,030 3,030
Investment securities 24,109 23,651 13,918 13,652
Mortgage-backed securities 100,195 97,627 156,775 152,621
Ground rents owned 4,903 3,863 4,938 4,025
Federal Home Loan Bank of Atlanta stock 3,141 3,141 2,914 2,914
</TABLE>
<PAGE>
(16) Fair Value of Financial Instruments, Continued
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Mortgage loans are segregated by type,
including but not limited to residential, commercial, and construction.
Consumer and other loans are segregated by type, including but not
limited to automobile loans, home equity lines of credit and commercial.
Each loan category may be segmented, as appropriate, into fixed and
adjustable interest rate terms, ranges of interest rates, performing and
nonperforming, and repricing frequency.
The fair value of each loan portfolio is calculated by discounting
both scheduled and unscheduled cash flows through the remaining
contractual maturity using the origination rate that the Company would
charge under current conditions to originate similar financial
instruments. Unscheduled cash flows take the form of estimated
prepayments and are generally based upon anticipated experience derived
from current and prospective economic and interest rate environments.
For certain types of loans, anticipated prepayment experience exists in
published tables from securities dealers. The estimated fair value of
loans held for sale is based on the terms of the related sale
commitments.
The fair value of significant nonperforming mortgage loans is based
on recent external appraisals of related real estate collateral, or
estimated cash flows and are discounted using a rate commensurate with
the credit risk associated with those cash flows. Assumptions regarding
credit risk, cash flows and discount rates are judgmentally determined
using available market information and specific borrower information.
The fair value of nonperforming consumer loans is based on the Company's
historical experience with such loans.
The following table represents the carrying value and estimated
fair value of loans receivable at July 31:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage loans $242,668 237,499 214,111 206,351
Construction and land development loans 22,666 22,666 11,333 11,083
Consumer and other loans 17,120 16,891 13,006 12,560
282,454 277,056 238,450 229,994
Less allowance for possible losses 4,412 - (6,361) -
Total loans $ 278,042 277,056 232,089 229,994
</TABLE>
<PAGE>
Deposits and Borrowings
The fair value of deposits with no stated maturity, such as
interest-bearing or non-interest-bearing checking accounts, passbook,
money fund accounts and mortgage escrow accounts, is equal to the amount
payable upon demand. The fair value of certificates of deposit is based
on the lower of redemption (net of penalty) or discounted value of
contractual cash flows. Discount rates for certificates of deposit are
estimated using the rates currently offered by the Company for deposits
of similar remaining maturities.
<PAGE>
(16) Fair Value of Financial Instruments, Continued
Deposits and Borrowings, continued
The fair value of advances from the FHLBA is based on the
discounted value of contractual cash flows. Discount rates are
estimated using the rates currently offered for advances with both
similar contractual terms and remaining maturities.
For securities sold under agreements to repurchase the carrying
amount is a reasonable estimate of fair value, as the agreements mature
within 90 days.
The following table represents the carrying value and estimated
fair value of deposits and borrowings at July 31:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
-------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage escrow accounts and
deposits with no stated maturities $98,724 98,724 105,559 105,559
Certificates of deposit 216,119 219,024 210,906 212,310
Securities sold under agreements to
repurchase 34,445 34,420 34,338 34,338
Advances from the Federal Home
Loan Bank of Atlanta 62,824 62,029 44,137 43,881
</TABLE>
(17) Regulatory Matters
The Federal Deposit Insurance Corporation, through the Savings
Association Insurance Fund, insures deposits of account holders up to
$100,000. The Bank pays an annual premium to provide for this
insurance. The Bank is also a member of the Federal Home Loan Bank
System and is required to maintain an investment in the stock of the
Federal Home Loan Bank of Atlanta equal to at least 1% of the unpaid
principal balances of its residential mortgage loans, .3% of its total
assets or 5% of its outstanding advances from the Bank, whichever is
greater. Purchases and sales of stock are made directly with the Bank
at par value.
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (as
defined in the regulations and as set forth in the table below, as
defined) of total and Tier I capital (as defined) to risk-weighted
assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of July 31, 1996, that the Bank meets
all capital adequacy requirements to which it is subject.
<PAGE>
(17) Regulatory Matters, Continued
The most recent notification from the Office of Thrift Supervision
(OTS) categorized the Bank as adequately capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the table
below. There are no conditions or events since that notification that
management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in
the table (in thousands).
(a) Percentage of capital to average assets.
(b) Percentage of capital to average assets for actual and capital
adequacy purposes and percentage of capital to risk weighed assets to be
well capitalized under prompt corrective action provisions.
(c) Percentage of capital to risk weighted assets.
<PAGE>
(18) Condensed Financial Information (Parent Company Only)
Summarized financial information for the Company are as follows as
of and for the year ended July 31, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Statement of Financial Condition
Cash $ 6,709
Equity in net assets of the Bank 42,261
Note receivable - Bank 1,629
$50,599
Accrued expenses and other liabilities $ 1
Stockholders' equity 50,598
$50,599
Statement of Income
Income from note receivable $ 107
Expenses 137
Loss before equity in net income
of subsidiary and income taxes (30)
Equity in net income of subsidiary 1,564
Income before income taxes 1,534
Income taxes (benefit) (12)
Net income $ 1,546
Statement of Cash Flows
Operating activities:
Net income $ 1,546
Adjustments to reconcile net
income to net cash provided
by operating activities:
Equity in net income of
subsidiary (1,564)
Other, net 1
Net cash used in operating
activities (17)
Investing activities:
Purchase of stock of subsidiary (8,899)
Loan to fund ESOP (1,746)
Loan repayment 117
Net cash used in investing activities (10,528)
Financing activities:
Proceeds from common stock
offering net of expenses 21,040
Common stock acquired by ESOP (1,746)
Purchase of treasury stock (2,040)
Net cash provided by financing
activities 17,254
Increase in cash and equivalents 6,709
Cash and equivalents, beginning of year -
Cash and equivalents, end of year $ 6,709
/TABLE
<PAGE>
Independent Auditors' Report
The Board of Directors
American National Bancorp, Inc.
Baltimore, Maryland:
We have audited the accompanying consolidated statements of financial
condition of American National Bancorp, Inc. and subsidiary (the
Company) as of July 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for each
of the years in the three-year period ended July 31, 1996. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
American National Bancorp, Inc. and subsidiary as of July 31, 1996 and
1995 and the results of their operations and their cash flows for each
of the years in the three-year period ended July 31, 1996, in conformity
with generally accepted accounting principles.
Baltimore, Maryland
September 5, 1996
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of selected quarterly financial data for the years ended July
31 is as follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands except per share data)
<S> <C> <C> <C> <C>
1996:
Interest income $8,171 8,252 8,324 8,671
Net interest income 2,776 3,139 3,424 3,526
Provision for
loan losses 290 210 62 210
Income before provision
or income taxes 285 596 1,020 446
Net income 183 431 673 259
Net income per common
share (from date of
conversion) $ N/A .11 .18 .07
1995:
Interest income $7,295 7,524 8,095 8,055
Net interest income 3,041 2,810 3,144 2,751
Provision for loan
losses 1,850 300 942 294
Income (loss) before
provision for income
taxes (813) 537 (5) 241
Net income (loss) (480) 343 (30) 177
Net income (loss) per
common share $ (.23) .17 (.02) .08
</TABLE>
<PAGE>
CORPORATE INFORMATION
Annual Meeting. The Annual Meeting of Stockholders will be held at 4:00
p.m., on November 21, 1996, at the Company's main office at 211 North
Liberty Street, Baltimore, Maryland.
Stock Listing. The Company's Common Stock trades over-the-counter on
the Nasdaq National Market under the symbol "ANBK."
Board of Directors
Howard K. Thompson, Chairman
A. Bruce Tucker
Lenwood M. Ivey
Jimmie T. Noble
David L. Pippenger
Joseph M. Solomon
Betty J. Stull
Officers
A. Bruce Tucker, President and Chief Executive Officer
Joseph M. Solomon, Executive Vice President and Chief Operating Officer
Mark S. Barker, Senior Vice President
Howard I. Scaggs, III, Senior Vice President
James M. Uveges, Senior Vice President and Chief Financial Officer
Susan C. Arrington, Vice President
Linda L. Farndon, Vice President
Eugene P. Helldorfer, Vice President
Robert F. Hickey, Vice President
Karen S. Harrity, Controller
Mary Jayne Engelhardt, Counsel
Special Counsel
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Washington, D.C. 20015
Independent Auditor
KPMG Peat Marwick LLP
111 South Calvert Street
Baltimore, Maryland 21202
Transfer Agent
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
(800) 368-5948
Consolidation of Multiple Accounts. Stockholders who receive multiple
dividend checks or quarterly reports probably have duplicate accounts
with the Company. These may be consolidated into a single, more
convenient account by contacting the Transfer Agent.
Annual Report on Form 10-K. A copy of the Company's Annual Report on
Form 10-K for the fiscal year ended July 31, 1996 will be furnished
without charge to stockholders upon written request to the Corporate
Secretary, American National Bancorp, Inc., 211 North Liberty Street,
Baltimore, Maryland 21201, (410) 752-0400.
Branch Locations
Baltimore - (410) 752-0400
211 North Liberty Street
Baltimore, Maryland 21201
Towson - (410) 825-5330
Towson Town Center
825 Dulaney Valley Road
Suite 275
Baltimore, Maryland 21204
Perry Hall - (410) 256-6700
Perry Hall Square Shopping Center
4371 Ebenezer Road
Baltimore, Maryland 21236
Pikesville - (410) 764-6841
Fallstaff Shopping Center
6832 Reisterstown Road
Baltimore, Maryland 21215
Glen Burnie - (410) 761-4545
Harundale Mall
206 Harundale Mall
Glen Burnie, Maryland 21061
Ellicott City - (410) 461-1500
Valley Mede Plaza
9469 Baltimore National Pike
Ellicott City, Maryland 21043
Eastpoint - (410) 285-6671
7848 Eastpoint Mall
Baltimore, Maryland 21224
Reisterstown/Owings Mills - (410) 526-4400
11700 Reisterstown Road
Reisterstown, Maryland 21136
Catonsville/Woodlawn - (410) 788-9214
2 West Rolling Crossroads, Suite 110
(North Rolling Road at Johnnycake)
Baltimore, Maryland 21228
AMERICAN NATIONAL SAVINGS BANK, F.S.B.
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the 1st day of December,
1995 by and between American National Savings Bank, F.S.B., a federally-
chartered stock savings bank (the "Bank"), with its principal
administrative office at 211 N. Liberty Street, Baltimore, Maryland
21201-3978, and James M. Uveges (the "Executive"). Any reference to
"Company" herein shall mean American National Bancorp, Inc., the stock
holding company parent of the Bank or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to
serve as Senior Vice President and Chief Financial Officer of the Bank.
During said period, Executive also agrees to serve, if elected, as an
officer and director of any subsidiary or affiliate of the Bank.
Failure to reappoint Executive as Senior Vice President and Chief
Financial Officer in accordance with the terms of Section 2(a) without
the consent of the Executive during the term of this Agreement, shall
constitute an Event of Termination.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement
shall begin as of the date first above written and shall continue for a
period of twenty-four (24) full calendar months thereafter. During said
term the Executive shall perform the normal and customary duties
associated with the position of Senior Vice President and Chief
Financial Officer. Commencing on the first anniversary date of this
Agreement, and continuing at each anniversary date thereafter, the
Agreement shall renew for an additional year such that the remaining
term shall be two (2) years unless written notice is provided to
Executive at least ten (10) days and not more than thirty (30) days
prior to any such anniversary date, that this Agreement shall not renew,
in which event this Agreement shall expire at the end of twenty-four
(24) months following such anniversary date. Prior to each notice
period for non-renewal, the disinterested members of the Board of
Directors of the Bank ("Board") will conduct a comprehensive performance
evaluation and review of the Executive for purposes of determining
whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods,
and reasonable leaves of absence, Executive shall devote substantially
all his business time, attention, skill, and efforts to the faithful
performance of his duties hereunder including activities and services
related to the organization, operation and management of the Bank;
provided, however, that, with the approval of the Board, as evidenced by
a resolution of such Board, from time to time, Executive may serve, or
continue to serve, on the boards of directors of, and hold any other
offices or positions in, business companies or business organizations,
which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of
Executive's duties pursuant to this Agreement (it being understood that
membership in social, religious, charitable or similar organizations
does not require Board approval pursuant to this Section 2(b)).
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall
constitute the salary and benefits paid for the duties described in
Section 2(b). The Bank shall pay Executive as compensation a salary of
not less than $____________ per year ("Base Salary"). Such Base Salary
shall be payable biweekly. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually. Such
review shall be conducted by a Committee designated by the Board, and
the Board may increase, but not decrease, Executive's Base Salary (any
increase in Base Salary shall become the "Base Salary" for purposes of
this Agreement). In addition to the Base Salary provided in this
Section 3(a), the Bank shall provide Executive with all such other
benefits as are provided uniformly to full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and
the Bank will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would adversely
affect Executive's rights or benefits thereunder. Without limiting the
generality of the foregoing provisions of this Section 3(b), Executive
will be entitled to participate in or receive benefits under any
employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Bank in the future to
its senior executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan of the Bank in which
Executive is eligible to participate (and he shall be entitled to a pro
rata distribution under any incentive compensation or bonus plan as to
any year in which a termination of employment occurs, other than
termination for Cause). Nothing paid to the Executive under any such
plan or arrangement will be deemed to be in lieu of other compensation
to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by this Section
3(a), the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing
his obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to
time determine in accordance with standards set by the Board of
Directors.
(d) Compensation and reimbursement to be paid pursuant to Sections
3(a), 3(b) and 3(c) shall be paid by the Bank and the Company,
respectively on a pro rata basis based upon the amount of service the
Executive devotes to the Bank and Company, respectively.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to
the terms and conditions stated in Sections 8 and 15.
(a) The provisions of this Section shall apply upon the occurrence
of an Event of Termination (as herein defined) during the Executive's
term of employment under this Agreement. As used in this Agreement, an
"Event of Termination" shall mean and include any one or more of the
following:
(i) the termination by the Bank or the Company of Executive's
full-time employment hereunder for any reason other than (A) Disability
or Retirement, as defined in Section 6 hereof, (B) following a Change in
Control, as defined in Section 5(a) hereof, or (C) Termination for Cause
as defined in Section 7 hereof; or
(ii) Executive's resignation from the Bank's employ, upon any:
(A) failure to elect or reelect or to appoint or reappoint
Executive as Senior Vice President and Chief Financial Officer
during the term of this Agreement in accordance with Section
2(a) of this Agreement,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, hereof,
(C) a relocation of Executive's principal place of employment
by more than 30 miles from its location at the effective date
of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of
the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A),
(B), (C), (D) or (E), of this Section 4(a), Executive shall have the
right to elect to terminate his employment under this Agreement by
resignation upon sixty (60) days prior written notice which must be
given by Executive within a reasonable period of time not to exceed four
calendar months after the initial event giving rise to said right to
elect, which shall be deemed to constitute an "Event of Termination."
Notwithstanding the preceding sentence, in the event of a continuing
breach of this Agreement by the Bank, the Executive, after giving due
notice within the prescribed time frame of an initial event specified
above, shall not waive any of his rights solely under this Agreement and
this Section 4 by virtue of the fact that Executive has submitted his
resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) of this Section 4(a).
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall pay Executive, or,
in the event of his subsequent death, his beneficiary or beneficiaries,
or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of the payments due for the
remaining term of the Agreement or two (2) times the average of the five
preceding years' Base Salary, including bonuses and any other cash
compensation paid to the Executive during each of such years, and the
amount of any contributions made to any employee benefit plans, on
behalf of the Executive, maintained by the Bank during such years;
provided however, that if the Bank is not in compliance with its minimum
capital requirements or if such payments would cause the Bank's capital
to be reduced below its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance.
At the election of the Executive, which election is to be made on an
annual basis during the Month of January, and which election is
irrevocable for the year in which made and upon the occurrence of an
Event of Termination, any payments shall be made in a lump sum or paid
monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment
to the Executive will be made on a monthly basis during the remaining
term of this Agreement. Such payments shall not be reduced in the event
the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Bank, in
its sole discretion, shall either (i) contribute the same amount as the
Bank contributed prior to such Event of Termination towards the purchase
for Executive of, or (ii) cause to be continued for Executive under the
Bank's existing employee benefit plans, life, medical, dental and
disability coverage substantially identical to the coverage maintained
by the Bank for Executive prior to his termination (provided nothing
herein shall be deemed to require the Bank to contribute more towards
such coverage than it contributed prior to such Event of Termination).
Such coverage shall cease upon the expiration of the greater of (i) the
remaining term of the Agreement or (ii) twenty-four (24) months.
5. CHANGE IN CONTROL
(a) No benefit shall be payable under this Section 5 unless there
shall have been a Change in Control of the Bank or Company, as set forth
below. For purposes of this Agreement, a "Change in Control" of the
Bank or Company shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act'); or
(ii) results in a Change in Control of the Bank or the Company within
the meaning of the Home Owners' Loan Act of 1933 and the Rules and
Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency), as in effect on the date hereof; or (iii) without
limitation such a Change in Control shall be deemed to have occurred at
such time as (a) any "Person' (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Bank or the Company representing 25% or more of the
Bank's or the Company's outstanding securities except for any securities
of the Bank purchased by the Company in connection with the conversion
of the Bank to the stock form and any securities purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided,
however, that this sub-section (b) shall not apply if the Incumbent
Board is replaced by the appointment by a Federal banking agency of a
conservator or receiver for the Bank and, provided further that any
person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least two-thirds of the directors
comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause
(b), considered as though he were a member of the Incumbent Board; or
(c) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company; or (d) a proxy
statement soliciting proxies from stockholders of the Company, by
someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not
issued by the Bank or the Company shall be distributed and the requisite
number of proxies approving such plan of reorganization, merger or
consolidation of the Company or Bank are received and voted in favor of
such transactions; or (e) a tender offer is made for 25% or more of the
outstanding securities of the Bank or Company and shareholders owning
beneficially or of record 25% or more of the outstanding securities of
the Bank or Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been
accepted by the tender offeror.
(b) If any of the events described in Section 5(a) hereof
constituting a Change in Control have occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), (d), (e), (f), (g)
and (h) of this Section 5 upon his subsequent termination of employment
at any time during the term of this Agreement (regardless of whether
such termination results from (i) his resignation, provided such
resignation occurs within one year of a change of control, or (ii) his
dismissal), unless such termination is because of his death, normal
retirement, termination for Cause or termination for Disability. Upon
the Change in Control, Executive shall have the right to elect to
terminate his employment with the Bank for a period of one year
following a change of control, for any reason, during the term of this
Agreement.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or
in the event of his subsequent death, his beneficiary or beneficiaries,
or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of the payments due for the
remaining term of the Agreement or two (2) times the average of the five
preceding years' Base Salary, including bonuses and any other taxable
compensation paid or attributable to the Executive during such years.
At the election of the Executive, which election is to be made on an
annual basis during the month of January, and which election is
irrevocable for the year in which made and upon the occurrence of an
Event of Termination, such payment may be made in a lump sum or paid in
equal monthly installments during the twenty-four (24) months following
the Executive's termination. In the event that no election is made,
payment to the Executive will be made on a monthly basis during the
remaining term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank, in its sole discretion,
shall either (i) contribute the same amount as the Bank contributed
prior to such termination of employment towards the purchase for
Executive of, or (ii) cause to be continued for Executive under the
Bank's existing employee benefit plans, life, medical, dental and
disability coverage substantially identical to the coverage maintained
by the Bank for Executive prior to his termination (provided nothing
herein shall be deemed to require the Bank to contribute more towards
such coverage than it contributed prior to such termination of
employment). Such coverage and payments shall cease upon the expiration
of twenty-four (24) months.
(e) Upon the occurrence of a Change in Control, Executive will be
entitled to any benefits granted to him pursuant to any Stock Option
Plan of the Bank or Company.
(f) Upon the occurrence of a Change in Control the Executive will
be entitled to any benefits awarded to him under the Bank's Recognition
and Retention Plan arising from a Change in Control.
(g) Notwithstanding the preceding paragraphs of this Section 5, in
the event that:
(i) the aggregate payments or benefits to be made or afforded
to Executive under said paragraphs (the "Termination
Benefits") would be deemed to include an "excess
parachute payment" under Section 280G of the Code or any
successor thereto, and
(ii) if such Termination Benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is one
dollar ($1.00) less than an amount equal to the total
amount of payments permissible under Section 280G of the
Code or any successor thereto.
then the Termination Benefits to be paid to Executive shall be
so reduced so as to be a Non-Triggering Amount.
(h) Notwithstanding the foregoing, there will be no reduction in
the compensation otherwise payable to Executive during any period during
which Executive is incapable of performing his duties hereunder by
reason of temporary disability; provided, however, that any amounts
actually paid to Executive pursuant to any disability insurance or other
such similar program which the Bank has provided or may provide on
behalf of its employees or pursuant to any worker's compensation or
social security disability program shall reduce the compensation to be
paid to the Executive pursuant to this paragraph.
(i) Notwithstanding the foregoing, if after the application of
subparagraph (g) above, it is determined that the Executive received an
excess parachute payment despite the reduction in the Executive's
Termination Benefits, the excess of such Termination Benefits paid to
the Executive over 2.99 times the Executive's "base amount", as defined
in Section 280G of the Code, shall be treated as a loan to the Executive
and the Executive shall be required to repay such amount to the Bank or
the Company, or the successor of the Bank or the Company, within ten
years of the date of such determination, with interest at the prime
rate, as set forth from time to time in The Wall Street Journal.
(j) The Executive shall not be entitled to any payments pursuant
to this Section 5 if the Bank is not in compliance with its minimum
capital requirements or if such payments would cause the Bank's capital
to be reduced below its minimum capital requirements, such payments
shall be deferred until such times as the Bank is in capital compliance,
provided, however, that the severance compensation paid by the Bank
shall in no event exceed the amount permitted by OTS RB27a.
6. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement"
shall mean termination in accordance with the Bank's retirement policy
or in accordance with any retirement arrangement established with
Executive's consent with respect to him. Upon termination of Executive
upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a
party.
Termination by the Bank of Executive's employment based on
"Disability" shall mean termination because of any physical or mental
impairment which qualifies Executive for disability benefits under the
applicable long-term disability plan maintained by the Bank, or if no
such plan applies, which would qualify Executive for disability benefits
under the federal social security system. In the event Executive is
unable to perform his duties under this Agreement on a full-time basis
for a period of six (6) consecutive months by reason of Disability, the
Bank may terminate this Agreement, provided that the Bank shall continue
to be obligated to pay the Executive his Base Salary, including bonuses
and any other cash compensation paid to Executive during such period,
for the remaining term of the Agreement, or one year, whichever is the
longer period of time, and provided further that any amounts actually
paid to Executive pursuant to any disability insurance or other such
similar program which the Bank has provided or may provide on behalf of
its employees or pursuant to any worker's compensation or social
security disability program shall reduce the compensation to be paid to
the Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement,
his estate, legal representatives or named beneficiaries (as directed by
Executive in writing) shall be paid Executive's Base Salary as defined
in Paragraph 3(a) at the rate in effect at the time Executive's death
for a period of one (1) year from the date of the Executive's death.
7. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of
the Executive's personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations, regulations that do not
adversely affect the Bank, the Company, or their employees, or similar
offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in
the savings institutions industry. For purposes of this paragraph, no
act or failure to act on the part of Executive shall be considered
"willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Bank. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for
Cause unless and until there shall have been delivered to him a copy of
a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice, in writing,
to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the
Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall
not have the right to receive compensation or other benefits for any
period after Termination for Cause. Any stock options granted to
Executive under any stock option plan of the Bank, the Company or any
subsidiary or affiliate thereof, shall not be exercisable from the date
of the written notice to Executive set forth above, unless and until the
matter is successfully resolved in the Executive's favor, and such stock
options shall become entirely null and void effective upon a
determination in arbitration that termination was for cause.
8. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination
of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment
is terminated for Disability, thirty (30) days after a Notice of
Termination is given (provided that he shall not have returned to the
performance of his duties on a full-time basis during such thirty (30)
day period), and (B) if his employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in the
case of a Termination for Cause, shall not be less than thirty (30) days
from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination
for Cause is given, the Executive notifies the Bank that a dispute
exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
written agreement of the parties or by a binding arbitration award, and
provided further that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the
party giving such notice pursues the resolution of such dispute with
reasonable diligence. No compensation or benefits shall be paid to
Executive during the pendency of any such dispute. In the event that it
is determined by arbitration that "cause" for termination did not exist
or such dispute is otherwise decided in Executive's favor, the Executive
shall be entitled to receive all compensation and benefits which should
have been paid under either Section 4 or 5, with interest at the prime
rate on such cash payments that should have been made during such
period.
9. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement
shall be subject to Executive's compliance with paragraph (b) of this
Section 9 during the term of this Agreement and for one (1) full year
after the expiration or termination hereof.
(b) Executive shall, upon reasonable notice, furnish such
information and assistance to the Bank as may reasonably be required by
the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a
result of which the Bank is paying Executive benefits under Section 4,
Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or
county in which the Bank and/or the Company has an office or has filed
an application for regulatory approval to establish an office,
determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive
agrees that during such period and within said cities, towns and
counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of
the Bank and/or the Company. The parties hereto, recognizing that
irreparable injury will result to the Bank and/or the Company, its
business and property in the event of Executive's breach of this Section
10(a) agree that in the event of any such breach by Executive, the Bank
and/or the Company will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof
by Executive, Executive's partners, agents, servants, employers,
employees and all persons acting for or with Executive. Executive
represents and admits that Executive's experience and capabilities are
such that Executive can obtain employment in a business engaged in other
lines and/or of a different nature than the Bank and/or the Company, and
that the enforcement of a remedy by way of injunction will not prevent
Executive from earning a livelihood. Nothing herein will be construed
as prohibiting the Bank and/or the Company from pursuing any other
remedies available to the Bank and/or the Company for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of
the business activities and plans for business activities of the Bank
and affiliates thereof, as it may exist from time to time, is a
valuable, special and unique asset of the business of the Bank.
Executive will not, during or after the term of his employment, disclose
any knowledge of the past, present, planned or considered business
activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever
(except for such disclosure as may be required to be provided to the
Securities Exchange Commission ("SEC"), the OTS, the Federal Deposit
Insurance Corporation ("FDIC"), or other federal or state banking agency
with jurisdiction over the Bank, the Company or Executive).
Notwithstanding the foregoing, Executive may disclose any knowledge of
banking, financial and/or economic principles, concepts or ideas which
are not solely and exclusively derived from the business plans and
activities of the Bank, and Executive may disclose any information
regarding the Bank or the Company which is otherwise publicly available.
In the event of a breach or threatened breach by Executive of this
Section 10, the Bank will be entitled to an injunction restraining
Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part,
has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Bank from pursuing any other
remedies available to the Bank for such breach or threatened breach,
including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Bank. The Company, however,
guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Company.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior employment agreement between the
Bank or any predecessor of the Bank and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive
is subject to receiving fewer benefits than those available to him
without reference to this Agreement.
13. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation, or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or
involuntary, to affect any such action shall be null, void, and of no
effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the
party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or
condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS
(a) The Bank's Board of Directors may terminate the Executive's
employment at any time, but any termination by the Bank's Board of
Directors, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined
in Section 7 herein above.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) (12 U.S.C. Section 1818(e)(3)) or 8(g)
(12 U.S.C. Section 1818(g)) of the Federal Deposit Insurance Act, as amended
by the Financial Institutions Reform, Recovery and Enforcement Act of
1989, the Bank's obligations under this contract shall be suspended as
of the date of service, unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Bank may in its discretion
(i) pay the Executive all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole
or in part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under Section 8(e) (12 U.S.C. Section 1818(e)) or 8(g) (12 U.S.C. Section
1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all
obligations of the Bank under this contract shall terminate as of the
effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12
U.S.C. Section 1813(x)(1)) of the Federal Deposit Insurance Act, as
amended by the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, all obligations of the Bank under this contract shall
terminate as of the date of default, but this paragraph shall not affect
any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the
contract is necessary for the continued operation of the institution,
(i) by the Director of the OTS, or his or her designee, at the time the
FDIC or the Resolution Trust Corporation ("RTC") enters into an
agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) (12 U.S.C. Section 1823(c)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1982; or (ii) by the Director of
the OTS or his or her designee, at the time the Director or his or her
designee approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the OTS to be
in an unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
16. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any
other provision of this Agreement or any part of such provision not held
so invalid, and each such other provision and part thereof shall to the
full extent consistent with law continue in full force and effect. In
the event of any conflict or discrepancies between any provision of the
Agreement and existing federal or state laws and/or regulations, such
laws and regulations shall prevail, and the Agreement shall be construed
to be consistent therewith.
17. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
18. GOVERNING LAW
This Agreement shall be governed by the laws of the State of
Maryland but only to the extent not superseded by federal law.
19. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before
a panel of three arbitrators sitting in a location selected by the Bank
within twenty-five (25) miles from the location of the Bank, in
accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction; provided, however, that Executive shall be
entitled to seek specific performance of his right to be paid until the
Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank and/or the Company, provided
that the dispute or interpretation has been settled by Executive and the
Bank and/or the Company or resolved in the Executive's favor.
21. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall
indemnify Executive (and his heirs, executors and administrators) to the
fullest extent permitted under federal law against all expenses and
liabilities reasonably incurred by him in connection with or arising out
of any action, suit or proceeding in which he may be involved by reason
of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but
not be limited to, judgments, court costs and attorneys' fees and the
cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Bank). If such action, suit or proceeding is
brought against Executive in his capacity as an officer or director of
the Bank, however, such indemnification shall not extend to matters as
to which Executive is finally adjudged to be liable for willful
misconduct in the performance of his duties. No Indemnification shall
be paid that would violate 12 U.S.C. Section 1828(K) or any regulations
promulgated thereunder, or 12 C.F.R. Section 545.121.
22. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same
extent that the Bank would be required to perform if no such succession
or assignment had taken place.
[Remainder of Page Intentionally Left Blank]
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this
Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the day and date first above
written.
ATTEST: AMERICAN NATIONAL SAVINGS BANK, F.S.B.
/s/ Judy Martinek By: /s/ A. Bruce Tucker
Secretary A. Bruce Tucker, President
ATTEST: AMERICAN NATIONAL BANCORP, INC.
/s/ Judy Martinek By: /s/ A. Bruce Tucker
Secretary A. Bruce Tucker, President
WITNESS: EXECUTIVE:
/s/ Judy Martinek By: /s/ James M. Uveges
AMERICAN NATIONAL SAVINGS BANK, F.S.B.
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the 1st day of December,
1995 by and between American National Savings Bank, F.S.B., a federally-
chartered stock savings bank (the "Bank"), with its principal
administrative office at 211 N. Liberty Street, Baltimore, Maryland
21201-3978, and Mark S. Barker (the "Executive"). Any reference to
"Company" herein shall mean American National Bancorp, Inc., the stock
holding company parent of the Bank or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Bank on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided,
the parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to
serve as Senior Vice President of the Bank. During said period,
Executive also agrees to serve, if elected, as an officer and director
of any subsidiary or affiliate of the Bank. Failure to reappoint
Executive as Senior Vice President in accordance with the terms of
Section 2(a) without the consent of the Executive during the term of
this Agreement, shall constitute an Event of Termination.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement
shall begin as of the date first above written and shall continue for a
period of twenty-four (24) full calendar months thereafter. During said
term the Executive shall perform the normal and customary duties
associated with the position of Senior Vice President. Commencing on
the first anniversary date of this Agreement, and continuing at each
anniversary date thereafter, the Agreement shall renew for an additional
year such that the remaining term shall be two (2) years unless written
notice is provided to Executive at least ten (10) days and not more than
thirty (30) days prior to any such anniversary date, that this Agreement
shall not renew, in which event this Agreement shall expire at the end
of twenty-four (24) months following such anniversary date. Prior to
each notice period for non-renewal, the disinterested members of the
Board of Directors of the Bank ("Board") will conduct a comprehensive
performance evaluation and review of the Executive for purposes of
determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods,
and reasonable leaves of absence, Executive shall devote substantially
all his business time, attention, skill, and efforts to the faithful
performance of his duties hereunder including activities and services
related to the organization, operation and management of the Bank;
provided, however, that, with the approval of the Board, as evidenced by
a resolution of such Board, from time to time, Executive may serve, or
continue to serve, on the boards of directors of, and hold any other
offices or positions in, business companies or business organizations,
which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of
Executive's duties pursuant to this Agreement (it being understood that
membership in social, religious, charitable or similar organizations
does not require Board approval pursuant to this Section 2(b)).
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall
constitute the salary and benefits paid for the duties described in
Section 2(b). The Bank shall pay Executive as compensation a salary of
not less than $____________ per year ("Base Salary"). Such Base Salary
shall be payable biweekly. During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually. Such
review shall be conducted by a Committee designated by the Board, and
the Board may increase, but not decrease, Executive's Base Salary (any
increase in Base Salary shall become the "Base Salary" for purposes of
this Agreement). In addition to the Base Salary provided in this
Section 3(a), the Bank shall provide Executive with all such other
benefits as are provided uniformly to full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from
immediately prior to the beginning of the term of this Agreement, and
the Bank will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would adversely
affect Executive's rights or benefits thereunder. Without limiting the
generality of the foregoing provisions of this Section 3(b), Executive
will be entitled to participate in or receive benefits under any
employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Bank in the future to
its senior executives and key management employees, subject to and on a
basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Executive will be entitled to incentive
compensation and bonuses as provided in any plan of the Bank in which
Executive is eligible to participate (and he shall be entitled to a pro
rata distribution under any incentive compensation or bonus plan as to
any year in which a termination of employment occurs, other than
termination for Cause). Nothing paid to the Executive under any such
plan or arrangement will be deemed to be in lieu of other compensation
to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by this Section
3(a), the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing
his obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to
time determine in accordance with standards set by the Board of
Directors.
(d) Compensation and reimbursement to be paid pursuant to Sections
3(a), 3(b) and 3(c) shall be paid by the Bank and the Company,
respectively on a pro rata basis based upon the amount of service the
Executive devotes to the Bank and Company, respectively.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to
the terms and conditions stated in Sections 8 and 15.
(a) The provisions of this Section shall apply upon the occurrence
of an Event of Termination (as herein defined) during the Executive's
term of employment under this Agreement. As used in this Agreement, an
"Event of Termination" shall mean and include any one or more of the
following:
(i) the termination by the Bank or the Company of Executive's
full-time employment hereunder for any reason other than (A) Disability
or Retirement, as defined in Section 6 hereof, (B) following a Change in
Control, as defined in Section 5(a) hereof, or (C) Termination for Cause
as defined in Section 7 hereof; or
(ii) Executive's resignation from the Bank's employ, upon any:
(A) failure to elect or reelect or to appoint or reappoint
Executive as Senior Vice President during the term of this
Agreement in accordance with Section 2(a) of this Agreement,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, hereof,
(C) a relocation of Executive's principal place of employment
by more than 30 miles from its location at the effective date
of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of
the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A),
(B), (C), (D) or (E), of this Section 4(a), Executive shall have the
right to elect to terminate his employment under this Agreement by
resignation upon sixty (60) days prior written notice which must be
given by Executive within a reasonable period of time not to exceed four
calendar months after the initial event giving rise to said right to
elect, which shall be deemed to constitute an "Event of Termination."
Notwithstanding the preceding sentence, in the event of a continuing
breach of this Agreement by the Bank, the Executive, after giving due
notice within the prescribed time frame of an initial event specified
above, shall not waive any of his rights solely under this Agreement and
this Section 4 by virtue of the fact that Executive has submitted his
resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) of this Section 4(a).
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Bank shall pay Executive, or,
in the event of his subsequent death, his beneficiary or beneficiaries,
or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of the payments due for the
remaining term of the Agreement or two (2) times the average of the five
preceding years' Base Salary, including bonuses and any other cash
compensation paid to the Executive during each of such years, and the
amount of any contributions made to any employee benefit plans, on
behalf of the Executive, maintained by the Bank during such years;
provided however, that if the Bank is not in compliance with its minimum
capital requirements or if such payments would cause the Bank's capital
to be reduced below its minimum capital requirements, such payments
shall be deferred until such time as the Bank is in capital compliance.
At the election of the Executive, which election is to be made on an
annual basis during the Month of January, and which election is
irrevocable for the year in which made and upon the occurrence of an
Event of Termination, any payments shall be made in a lump sum or paid
monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment
to the Executive will be made on a monthly basis during the remaining
term of this Agreement. Such payments shall not be reduced in the event
the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Bank, in
its sole discretion, shall either (i) contribute the same amount as the
Bank contributed prior to such Event of Termination towards the purchase
for Executive of, or (ii) cause to be continued for Executive under the
Bank's existing employee benefit plans, life, medical, dental and
disability coverage substantially identical to the coverage maintained
by the Bank for Executive prior to his termination (provided nothing
herein shall be deemed to require the Bank to contribute more towards
such coverage than it contributed prior to such Event of Termination).
Such coverage shall cease upon the expiration of the greater of (i) the
remaining term of the Agreement or (ii) twenty-four (24) months.
5. CHANGE IN CONTROL
(a) No benefit shall be payable under this Section 5 unless there
shall have been a Change in Control of the Bank or Company, as set forth
below. For purposes of this Agreement, a "Change in Control" of the
Bank or Company shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act'); or
(ii) results in a Change in Control of the Bank or the Company within
the meaning of the Home Owners' Loan Act of 1933 and the Rules and
Regulations promulgated by the Office of Thrift Supervision (or its
predecessor agency), as in effect on the date hereof; or (iii) without
limitation such a Change in Control shall be deemed to have occurred at
such time as (a) any "Person' (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Bank or the Company representing 25% or more of the
Bank's or the Company's outstanding securities except for any securities
of the Bank purchased by the Company in connection with the conversion
of the Bank to the stock form and any securities purchased by the Bank's
employee stock ownership plan and trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided,
however, that this sub-section (b) shall not apply if the Incumbent
Board is replaced by the appointment by a Federal banking agency of a
conservator or receiver for the Bank and, provided further that any
person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least two-thirds of the directors
comprising the Incumbent Board or whose nomination for election by the
Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause
(b), considered as though he were a member of the Incumbent Board; or
(c) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Company; or (d) a proxy
statement soliciting proxies from stockholders of the Company, by
someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not
issued by the Bank or the Company shall be distributed and the requisite
number of proxies approving such plan of reorganization, merger or
consolidation of the Company or Bank are received and voted in favor of
such transactions; or (e) a tender offer is made for 25% or more of the
outstanding securities of the Bank or Company and shareholders owning
beneficially or of record 25% or more of the outstanding securities of
the Bank or Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been
accepted by the tender offeror.
(b) If any of the events described in Section 5(a) hereof
constituting a Change in Control have occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), (d), (e), (f), (g)
and (h) of this Section 5 upon his subsequent termination of employment
at any time during the term of this Agreement (regardless of whether
such termination results from (i) his resignation, provided such
resignation occurs within one year of a change of control, or (ii) his
dismissal), unless such termination is because of his death, normal
retirement, termination for Cause or termination for Disability. Upon
the Change in Control, Executive shall have the right to elect to
terminate his employment with the Bank for a period of one year
following a change of control, for any reason, during the term of this
Agreement.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank shall pay Executive, or
in the event of his subsequent death, his beneficiary or beneficiaries,
or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of the payments due for the
remaining term of the Agreement or two (2) times the average of the five
preceding years' Base Salary, including bonuses and any other taxable
compensation paid or attributable to the Executive during such years.
At the election of the Executive, which election is to be made on an
annual basis during the month of January, and which election is
irrevocable for the year in which made and upon the occurrence of an
Event of Termination, such payment may be made in a lump sum or paid in
equal monthly installments during the twenty-four (24) months following
the Executive's termination. In the event that no election is made,
payment to the Executive will be made on a monthly basis during the
remaining term of the Agreement.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Bank, in its sole discretion,
shall either (i) contribute the same amount as the Bank contributed
prior to such termination of employment towards the purchase for
Executive of, or (ii) cause to be continued for Executive under the
Bank's existing employee benefit plans, life, medical, dental and
disability coverage substantially identical to the coverage maintained
by the Bank for Executive prior to his termination (provided nothing
herein shall be deemed to require the Bank to contribute more towards
such coverage than it contributed prior to such termination of
employment). Such coverage and payments shall cease upon the expiration
of twenty-four (24) months.
(e) Upon the occurrence of a Change in Control, Executive will be
entitled to any benefits granted to him pursuant to any Stock Option
Plan of the Bank or Company.
(f) Upon the occurrence of a Change in Control the Executive will
be entitled to any benefits awarded to him under the Bank's Recognition
and Retention Plan arising from a Change in Control.
(g) Notwithstanding the preceding paragraphs of this Section 5, in
the event that:
(i) the aggregate payments or benefits to be made or afforded
to Executive under said paragraphs (the "Termination
Benefits") would be deemed to include an "excess
parachute payment" under Section 280G of the Code or any
successor thereto, and
(ii) if such Termination Benefits were reduced to an amount
(the "Non-Triggering Amount"), the value of which is one
dollar ($1.00) less than an amount equal to the total
amount of payments permissible under Section 280G of the
Code or any successor thereto.
then the Termination Benefits to be paid to Executive shall be
so reduced so as to be a Non-Triggering Amount.
(h) Notwithstanding the foregoing, there will be no reduction in
the compensation otherwise payable to Executive during any period during
which Executive is incapable of performing his duties hereunder by
reason of temporary disability; provided, however, that any amounts
actually paid to Executive pursuant to any disability insurance or other
such similar program which the Bank has provided or may provide on
behalf of its employees or pursuant to any worker's compensation or
social security disability program shall reduce the compensation to be
paid to the Executive pursuant to this paragraph.
(i) Notwithstanding the foregoing, if after the application of
subparagraph (g) above, it is determined that the Executive received an
excess parachute payment despite the reduction in the Executive's
Termination Benefits, the excess of such Termination Benefits paid to
the Executive over 2.99 times the Executive's "base amount", as defined
in Section 280G of the Code, shall be treated as a loan to the Executive
and the Executive shall be required to repay such amount to the Bank or
the Company, or the successor of the Bank or the Company, within ten
years of the date of such determination, with interest at the prime
rate, as set forth from time to time in The Wall Street Journal.
(j) The Executive shall not be entitled to any payments pursuant
to this Section 5 if the Bank is not in compliance with its minimum
capital requirements or if such payments would cause the Bank's capital
to be reduced below its minimum capital requirements, such payments
shall be deferred until such times as the Bank is in capital compliance,
provided, however, that the severance compensation paid by the Bank
shall in no event exceed the amount permitted by OTS RB27a.
6. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement"
shall mean termination in accordance with the Bank's retirement policy
or in accordance with any retirement arrangement established with
Executive's consent with respect to him. Upon termination of Executive
upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a
party.
Termination by the Bank of Executive's employment based on
"Disability" shall mean termination because of any physical or mental
impairment which qualifies Executive for disability benefits under the
applicable long-term disability plan maintained by the Bank, or if no
such plan applies, which would qualify Executive for disability benefits
under the federal social security system. In the event Executive is
unable to perform his duties under this Agreement on a full-time basis
for a period of six (6) consecutive months by reason of Disability, the
Bank may terminate this Agreement, provided that the Bank shall continue
to be obligated to pay the Executive his Base Salary, including bonuses
and any other cash compensation paid to Executive during such period,
for the remaining term of the Agreement, or one year, whichever is the
longer period of time, and provided further that any amounts actually
paid to Executive pursuant to any disability insurance or other such
similar program which the Bank has provided or may provide on behalf of
its employees or pursuant to any worker's compensation or social
security disability program shall reduce the compensation to be paid to
the Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement,
his estate, legal representatives or named beneficiaries (as directed by
Executive in writing) shall be paid Executive's Base Salary as defined
in Paragraph 3(a) at the rate in effect at the time Executive's death
for a period of one (1) year from the date of the Executive's death.
7. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of
the Executive's personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations, regulations that do not
adversely affect the Bank, the Company, or their employees, or similar
offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or
omissions shall be measured against standards generally prevailing in
the savings institutions industry. For purposes of this paragraph, no
act or failure to act on the part of Executive shall be considered
"willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Bank. Notwithstanding the
foregoing, Executive shall not be deemed to have been Terminated for
Cause unless and until there shall have been delivered to him a copy of
a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice, in writing,
to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the
Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall
not have the right to receive compensation or other benefits for any
period after Termination for Cause. Any stock options granted to
Executive under any stock option plan of the Bank, the Company or any
subsidiary or affiliate thereof, shall not be exercisable from the date
of the written notice to Executive set forth above, unless and until the
matter is successfully resolved in the Executive's favor, and such stock
options shall become entirely null and void effective upon a
determination in arbitration that termination was for cause.
8. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provision
in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination
of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment
is terminated for Disability, thirty (30) days after a Notice of
Termination is given (provided that he shall not have returned to the
performance of his duties on a full-time basis during such thirty (30)
day period), and (B) if his employment is terminated for any other
reason, the date specified in the Notice of Termination (which, in the
case of a Termination for Cause, shall not be less than thirty (30) days
from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination
for Cause is given, the Executive notifies the Bank that a dispute
exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual
written agreement of the parties or by a binding arbitration award, and
provided further that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the
party giving such notice pursues the resolution of such dispute with
reasonable diligence. No compensation or benefits shall be paid to
Executive during the pendency of any such dispute. In the event that it
is determined by arbitration that "cause" for termination did not exist
or such dispute is otherwise decided in Executive's favor, the Executive
shall be entitled to receive all compensation and benefits which should
have been paid under either Section 4 or 5, with interest at the prime
rate on such cash payments that should have been made during such
period.
9. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement
shall be subject to Executive's compliance with paragraph (b) of this
Section 9 during the term of this Agreement and for one (1) full year
after the expiration or termination hereof.
(b) Executive shall, upon reasonable notice, furnish such
information and assistance to the Bank as may reasonably be required by
the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a
result of which the Bank is paying Executive benefits under Section 4,
Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or
county in which the Bank and/or the Company has an office or has filed
an application for regulatory approval to establish an office,
determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive
agrees that during such period and within said cities, towns and
counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of
the Bank and/or the Company. The parties hereto, recognizing that
irreparable injury will result to the Bank and/or the Company, its
business and property in the event of Executive's breach of this Section
10(a) agree that in the event of any such breach by Executive, the Bank
and/or the Company will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof
by Executive, Executive's partners, agents, servants, employers,
employees and all persons acting for or with Executive. Executive
represents and admits that Executive's experience and capabilities are
such that Executive can obtain employment in a business engaged in other
lines and/or of a different nature than the Bank and/or the Company, and
that the enforcement of a remedy by way of injunction will not prevent
Executive from earning a livelihood. Nothing herein will be construed
as prohibiting the Bank and/or the Company from pursuing any other
remedies available to the Bank and/or the Company for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of
the business activities and plans for business activities of the Bank
and affiliates thereof, as it may exist from time to time, is a
valuable, special and unique asset of the business of the Bank.
Executive will not, during or after the term of his employment, disclose
any knowledge of the past, present, planned or considered business
activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever
(except for such disclosure as may be required to be provided to the
Securities Exchange Commission ("SEC"), the OTS, the Federal Deposit
Insurance Corporation ("FDIC"), or other federal or state banking agency
with jurisdiction over the Bank, the Company or Executive).
Notwithstanding the foregoing, Executive may disclose any knowledge of
banking, financial and/or economic principles, concepts or ideas which
are not solely and exclusively derived from the business plans and
activities of the Bank, and Executive may disclose any information
regarding the Bank or the Company which is otherwise publicly available.
In the event of a breach or threatened breach by Executive of this
Section 10, the Bank will be entitled to an injunction restraining
Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part,
has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Bank from pursuing any other
remedies available to the Bank for such breach or threatened breach,
including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Bank. The Company, however,
guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Bank are not timely paid or provided by the Bank, such amounts and
benefits shall be paid or provided by the Company.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the
parties hereto and supersedes any prior employment agreement between the
Bank or any predecessor of the Bank and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or
compensation inuring to the Executive of a kind elsewhere provided. No
provision of this Agreement shall be interpreted to mean that Executive
is subject to receiving fewer benefits than those available to him
without reference to this Agreement.
13. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under
this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation, or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or
involuntary, to affect any such action shall be null, void, and of no
effect.
(b) This Agreement shall be binding upon, and inure to the benefit
of, Executive and the Bank and their respective successors and assigns.
14. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the enforcement of
any provision of this Agreement, except by written instrument of the
party charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated therein,
and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or
condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS
(a) The Bank's Board of Directors may terminate the Executive's
employment at any time, but any termination by the Bank's Board of
Directors, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation
or other benefits for any period after Termination for Cause as defined
in Section 7 herein above.
(b) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a
notice served under Section 8(e)(3) (12 U.S.C. Sections 1818(e)(3)) or 8(g)
(12 U.S.C. Section 1818(g)) of the Federal Deposit Insurance Act, as amended
by the Financial Institutions Reform, Recovery and Enforcement Act of
1989, the Bank's obligations under this contract shall be suspended as
of the date of service, unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Bank may in its discretion
(i) pay the Executive all or part of the compensation withheld while
their contract obligations were suspended and (ii) reinstate (in whole
or in part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under Section 8(e) (12 U.S.C. Section 1818(e)) or 8(g) (12 U.S.C. Section
1818(g)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all
obligations of the Bank under this contract shall terminate as of the
effective date of the order, but vested rights of the contracting
parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12
U.S.C. Section 1813(x)(1)) of the Federal Deposit Insurance Act, as amended
by the Financial Institutions Reform, Recovery and Enforcement Act of 1989,
all obligations of the Bank under this contract shall terminate as of
the date of default, but this paragraph shall not affect any vested
rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be
terminated, except to the extent determined that continuation of the
contract is necessary for the continued operation of the institution,
(i) by the Director of the OTS, or his or her designee, at the time the
FDIC or the Resolution Trust Corporation ("RTC") enters into an
agreement to provide assistance to or on behalf of the Bank under the
authority contained in Section 13(c) (12 U.S.C. Section 1823(c)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1982; or (ii) by the Director of the
OTS or his or her designee, at the time the Director or his or her designee
approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the OTS to be
in an unsafe or unsound condition. Any rights of the parties that have
already vested, however, shall not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12
U.S.C. Section 1828(k) and any regulations promulgated thereunder.
16. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of
any provision, is held invalid, such invalidity shall not affect any
other provision of this Agreement or any part of such provision not held
so invalid, and each such other provision and part thereof shall to the
full extent consistent with law continue in full force and effect. In
the event of any conflict or discrepancies between any provision of the
Agreement and existing federal or state laws and/or regulations, such
laws and regulations shall prevail, and the Agreement shall be construed
to be consistent therewith.
17. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely
for convenience of reference and shall not control the meaning or
interpretation of any of the provisions of this Agreement.
18. GOVERNING LAW
This Agreement shall be governed by the laws of the State of
Maryland but only to the extent not superseded by federal law.
19. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before
a panel of three arbitrators sitting in a location selected by the Bank
within twenty-five (25) miles from the location of the Bank, in
accordance with the rules of the American Arbitration Association then
in effect. Judgment may be entered on the arbitrator's award in any
court having jurisdiction; provided, however, that Executive shall be
entitled to seek specific performance of his right to be paid until the
Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to
any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Bank and/or the Company, provided
that the dispute or interpretation has been settled by Executive and the
Bank and/or the Company or resolved in the Executive's favor.
21. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall
indemnify Executive (and his heirs, executors and administrators) to the
fullest extent permitted under federal law against all expenses and
liabilities reasonably incurred by him in connection with or arising out
of any action, suit or proceeding in which he may be involved by reason
of his having been a director or officer of the Bank (whether or not he
continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and liabilities to include, but
not be limited to, judgments, court costs and attorneys' fees and the
cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Bank). If such action, suit or proceeding is
brought against Executive in his capacity as an officer or director of
the Bank, however, such indemnification shall not extend to matters as
to which Executive is finally adjudged to be liable for willful
misconduct in the performance of his duties. No Indemnification shall
be paid that would violate 12 U.S.C. Section 1828(K) or any regulations
promulgated thereunder, or 12 C.F.R. Section 545.121.
22. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same
extent that the Bank would be required to perform if no such succession
or assignment had taken place.
[Remainder of Page Intentionally Left Blank]
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this
Agreement to be executed by their duly authorized officers, and
Executive has signed this Agreement, on the day and date first above
written.
ATTEST: AMERICAN NATIONAL SAVINGS BANK, F.S.B.
/s/ Judy Martinek By: /s/ A. Bruce Tucker
Secretary A. Bruce Tucker, President
ATTEST: AMERICAN NATIONAL BANCORP, INC.
/s/ Judy Martinek By: /s/ A. Bruce Tucker
Secretary A. Bruce Tucker, President
WITNESS: EXECUTIVE:
/s/ Judy Martinek By: /s/ Mark S. Barker
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
American National American National
Bancorp, Inc. Savings Bank, F.S.B. 100% Federal
American National American National Insurance
Savings Bank, F.S.B. Agency, Inc. 100% Maryland
American National National Development
Savings Bank, F.S.B. Corporation 100% Maryland
American National ANSB Corporation 100% Delaware
Savings Bank, F.S.B.
American National Liberty Street, Inc. 100% Maryland
Savings Bank, F.S.B.
APPENDIX A
AMERICAN NATIONAL BANCORP, INC.
1996 STOCK OPTION PLAN
1. Purpose
The purpose of the American National Bancorp, Inc. 1996 Stock
Option Plan (the "Plan") is to advance the interests of the Company and
its stockholders by providing Key Employees and Outside Directors of the
Company and its Affiliates, including American National Savings Bank,
F.S.B., upon whose judgment, initiative and efforts the successful
conduct of the business of the Company and its Affiliates largely
depends, with an additional incentive to perform in a superior manner as
well as to attract people of experience and ability.
2. Definitions
"Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Company or the Bank, as such terms are defined in
Section 424(e) or 424(f), respectively, of the Code, or a successor to
a parent corporation or subsidiary corporation.
"Award" means an Award of Non-Statutory Stock Options, Incentive
Stock Options, and/or Limited Rights granted under the provisions of the
Plan.
"Bank" means American National Savings Bank, F.S.B., or a successor
corporation.
"Beneficiary" means the person or persons designated by a
Participant to receive any benefits payable under the Plan in the event
of such Participant's death. Such person or persons shall be designated
in writing on forms provided for this purpose by the Committee and may
be changed from time to time by similar written notice to the Committee.
In the absence of a written designation, the Beneficiary shall be the
Participant's surviving spouse, if any, or if none, his estate.
"Board" or "Board of Directors" means the board of directors of the
Company or its Affiliate, as applicable.
"Cause" means personal dishonesty, willful misconduct, any breach
of fiduciary duty involving personal profit, intentional failure to
perform stated duties, or the willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or a
final cease-and-desist order, any of which results in a material loss to
the Company or an Affiliate.
"Change in Control" of the Bank or the Company means a change in
control of a nature that: (i) would be required to be reported in
response to Item 1(a) of the current report on Form 8-K, as in effect on
the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change
in Control of the Bank or the Company within the meaning of the Home
Owners Loan Act, as amended ("HOLA"), and applicable rules and
regulations promulgated thereunder, as in effect at the time of the
Change in Control; or (iii) without limitation such a Change in Control
shall be deemed to have occurred at such time as (a) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of Company's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan or trust; or (b) individuals who
constitute the Board on the date hereof (the "Incumbent Board") cease
for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose
election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for
election by the Company's stockholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of
the Incumbent Board; or (c) a plan of reorganization, merger,
consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or Company is
not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by someone other
than the current management of the Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Company or
similar transaction with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to the
Plan are to be exchanged for or converted into cash or property or
securities not issued by the Company; or (e) a tender offer is made for
25% or more of the voting securities of the Company and the shareholders
owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been
accepted by the tender offeror.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board consisting of either (i)
at least two Non-Employee Directors of the Company, or (ii) the entire
Board of the Company.
"Common Stock" means shares of the common stock of the Company, par
value $.01 per share.
"Company" means American National Bancorp, Inc., or a successor
corporation.
"Continuous Service" means employment as a Key Employee and/or
service as an Outside Director without any interruption or termination
of such employment and/or service. Continuous Service shall also mean
a continuation as a member of the Board of Directors following a
cessation of employment as a Key Employee. In the case of a Key
Employee, employment shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Bank or in the case of transfers between payroll locations of the Bank
or between the Bank, its parent, its subsidiaries or its successor.
"Conversion" means the October 31, 1995, conversion of American
National Bankshares, M.H.C. from the mutual to stock form of
organization.
"Date of Grant" means the actual date on which an Award is granted
by the Committee.
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the
work customarily assigned to him, or of a Director to serve as such.
Additionally, in the case of an employee, a medical doctor selected or
approved by the Board must advise the Committee that it is either not
possible to determine when such Disability will terminate or that it
appears probable that such Disability will be permanent during the
remainder of said employee's lifetime.
"Effective Date" means the date of, or a date determined by the
Board of Directors following, approval of the Plan by the Company's
stockholders.
"Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the reported closing price of the Common Stock
as reported by the Nasdaq stock market (as published by the Wall Street
Journal, if published) on such date, or if the Common Stock was not
traded on the day prior to such date, on the next preceding day on which
the Common Stock was traded; provided, however, that if the Common Stock
is not reported on the Nasdaq stock market, Fair Market Value shall mean
the average sale price of all shares of Common Stock sold during the
30-day period immediately preceding the date on which such stock option
was granted, and if no shares of stock have been sold within such 30-day
period, the average sale price of the last three sales of Common Stock
sold during the 90-day period immediately preceding the date on which
such stock option was granted. In the event Fair Market Value cannot be
determined in the manner described above, then Fair Market Value shall
be determined by the Committee. The Committee is authorized, but is not
required, to obtain an independent appraisal to determine the Fair
Market Value of the Common Stock.
"Incentive Stock Option" means an Option granted by the Committee
to a Participant, which Option is designated as an Incentive Stock
Option pursuant to Section 8.
"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in
the Plan.
"Limited Right" means the right to receive an amount of cash based
upon the terms set forth in Section 9.
"Non-Statutory Stock Option" means an Option granted by the
Committee to (i) an Outside Director or (ii) to any other Participant
and such Option is either (A) not designated by the Committee as an
Incentive Stock Option, or (B) fails to satisfy the requirements of an
Incentive Stock Option as set forth in Section 422 of the Code and the
regulations thereunder.
"Non-Employee Director" means, for purposes of the Plan, a Director
who (a) is not employed by the Company or an Affiliate; (b) does not
receive compensation directly or indirectly as a consultant (or in any
other capacity than as a Director) greater than $60,000; (c) does not
have an interest in a transaction requiring disclosure under Item 404(a)
of Regulation S-K; or (d) is not engaged in a business relationship for
which disclosure would be required pursuant to Item 404(b) of Regulation
S-K.
"Normal Retirement" means for a Key Employee, retirement at the
normal or early retirement date set forth in the Bank's Employee Stock
Ownership Plan, or any successor plan. Normal Retirement for an Outside
Director means a cessation of service on the Board of Directors for any
reason other than removal for Cause, after reaching 60 years of age and
maintaining at least 10 years of Continuous Service.
"Offering" means the October 31, 1995 subscription offering of the
Common Stock of the Company.
"Outside Director" means a Director of the Company or an Affiliate
who is not an employee of the Company or an Affiliate.
"Option" means an Award granted under Section 7 or Section 8.
"Participant" means a Key Employee or Outside Director of the
Company or its Affiliates who receives or has received an award under
the Plan.
"Termination for Cause" means the termination of employment or
termination of service on the Board caused by the individual's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, or the
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses), or a final cease-and-desist order, any
of which results in material loss to the Company or one of its
Affiliates.
3. Plan Administration Restrictions
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such
rules and regulations as it deems necessary for the proper
administration of the Plan and to make whatever determinations and
interpretations in connection with the Plan it deems necessary or
advisable. All determinations and interpretations made by the Committee
shall be binding and conclusive on all Participants in the Plan and on
their legal representatives and beneficiaries.
All transactions involving a grant, award or other acquisition from
the Company shall:
(a) be approved by the Company's full Board or by the Committee;
(b) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a
majority of the securities present, or represented and entitled to vote
at a meeting duly held in accordance with the laws of the state in
which the Company is incorporated; or the written consent of the holders
of a majority of the securities of the issuer entitled to vote provided
that such ratification occurs no later than the date of the next annual
meeting of shareholders; or
(c) result in the acquisition of an Option or Limited Right that
is held by the Participant for a period of six months following the date
of such acquisition.
4. Types of Awards
Awards under the Plan may be granted in any one or a combination
of: (a) Incentive Stock Options; (b) Non-Statutory Stock Options; and
(c) Limited Rights.
5. Stock Subject to the Plan
Subject to adjustment as provided in Section 14, the maximum number
of shares reserved for issuance under the Plan is 218,213 shares. To the
extent that Options or rights granted under the Plan are exercised, the
shares covered will be unavailable for future grants under the Plan; to
the extent that Options together with any related rights granted under
the Plan terminate, expire or are canceled without having been exercised
or, in the case of Limited Rights exercised for cash, new Awards may be
made with respect to these shares.
6. Eligibility
Key Employees of the Company and its Affiliates shall be eligible
to receive Incentive Stock Options, Non-Statutory Stock Options and/or
Limited Rights under the Plan. Outside Directors shall be eligible to
receive Non-Statutory Stock Options under the Plan.
7. Non-Statutory Stock Options
7.1 Grant of Non-Statutory Stock Options
(a) Grants to Outside Directors and Key Employees. The Committee
may, from time to time, grant Non-Statutory Stock Options to eligible
Key Employees and Outside Directors, and, upon such terms and conditions
as the Committee may determine, grant Non-Statutory Stock Options in
exchange for and upon surrender of previously granted Awards under the
Plan. Non-Statutory Stock Options granted under the Plan, including
Non-Statutory Stock Options granted in exchange for and upon surrender
of previously granted Awards, are subject to the terms and conditions
set forth in this Section 7. The maximum number of shares subject to a
Non-Statutory Option that may be awarded under the Plan to any Key
Employee shall be 100,000.
(b) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Participant specifying the
number of shares of Common Stock that may be acquired through its
exercise and containing such other terms and conditions that are not
inconsistent with the terms of the Plan.
(c) Price. The purchase price per share of Common Stock
deliverable upon the exercise of each Non-Statutory Stock Option shall
be the Fair Market Value of the Common Stock of the Company on the date
the Option is granted. Shares may be purchased only upon full payment
of the purchase price. Payment of the purchase price may be made, in
whole or in part, through the surrender of shares of the Common Stock
of the Company at the Fair Market Value of such shares determined in the
manner described in Section 2.
(d) Manner of Exercise and Vesting. Unless the Committee shall
specifically state to the contrary at the time an Award is granted, Non-
Statutory Stock Options awarded to Key Employees and Outside Directors
shall vest at the rate of 20% of the initially awarded amount per year
commencing with the vesting of the first installment one year from the
date of grant, and succeeding installments on each anniversary of the
date of grant. A vested Option may be exercised from time to time, in
whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company, or his designee.
Such notice shall be irrevocable and must be accompanied by full payment
of the purchase price in cash or shares of Common Stock at the Fair
Market Value of such shares, determined on the exercise date in the
manner described in Section 2 hereof. If previously acquired shares of
Common Stock are tendered in payment of all or part of the exercise
price, the value of such shares shall be determined as of the date of
such exercise.
(e) Terms of Options. The term during which each Non-Statutory
Stock Option may be exercised shall be determined by the Committee, but
in no event shall a Non-Statutory Stock Option be exercisable in whole
or in part more than 10 years and one day from the Date of Grant. No
Options shall be earned by a Participant unless the Participant
maintains Continuous Service until the vesting date of such Option,
except as set forth herein. The shares comprising each installment may
be purchased in whole or in part at any time after such installment
becomes purchasable. The Committee may, in its sole discretion,
accelerate the time at which any Non-Statutory Stock Option may be
exercised in whole or in part by Key Employees and/or Outside Directors.
Notwithstanding any other provision of this Plan, in the event of a
Change in Control of the Company or the Bank, all Non-Statutory Stock
Options that have been awarded shall become immediately exercisable for
three years following such Change in Control.
(f) Termination of Employment or Service. Upon the termination of
a Key Employee's employment or upon termination of an Outside Director's
service for any reason other than, Normal Retirement, death, Disability,
Change in Control or Termination for Cause, the Participant's
Non-Statutory Stock Options shall be exercisable only as to those shares
that were immediately purchasable on the date of termination and only
for one year following termination. In the event of Termination for
Cause, all rights under a Participant's Non-Statutory Stock Options
shall expire upon termination. In the event of the Normal Retirement,
death or Disability of any Participant, all Non-Statutory Stock Options
held by the Participant, whether or not exercisable at such time, shall
be exercisable by the Participant or his legal representative or
beneficiaries for five years following the date of his Normal
Retirement, death or cessation of employment due to Disability, provided
that in no event shall the period extend beyond the expiration of the
Non-Statutory Stock Option term.
(g) Transferability. In the discretion of the Board, all or any
Non-Statutory Stock Option granted hereunder may be transferable by the
Participant once the Option has vested in the Participant, provided,
however, that the Board may limit the transferability of such Option or
Options to a designated class or classes of persons.
8. Incentive Stock Options
8.1 Grant of Incentive Stock Options
The Committee may, from time to time, grant Incentive Stock Options
to Key Employees. Incentive Stock Options granted pursuant to the Plan
shall be subject to the following terms and conditions:
(a) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Key Employee specifying the
number of shares of Common Stock that may be acquired through its
exercise and containing such other terms and conditions that are not
inconsistent with the terms of the Plan.
(b) Price. Subject to Section 14 of the Plan and Section 422 of
the Code, the purchase price per share of Common Stock deliverable upon
the exercise of each Incentive Stock Option shall be not less than 100%
of the Fair Market Value of the Company's Common Stock on the date the
Incentive Stock Option is granted. However, if a Key Employee owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or its Affiliates (or under Section
424(d) of the Code is deemed to own stock representing more than 10% of
the total combined voting power of all classes of stock of the Company
or its Affiliates by reason of the ownership of such classes of stock,
directly or indirectly, by or for any brother, sister, spouse, ancestor
or lineal descendent of such Key Employee, or by or for any corporation,
partnership, estate or trust of which such Key Employee is a
shareholder, partner or Beneficiary), the purchase price per share of
Common Stock deliverable upon the exercise of each Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the
Company's Common Stock on the date the Incentive Stock Option is
granted. Shares may be purchased only upon payment of the full purchase
price. Payment of the purchase price may be made, in whole or in part,
through the surrender of shares of the Common Stock of the Company at
the Fair Market Value of such shares, determined on the exercise date,
in the manner described in Section 2.
(c) Manner of Exercise. Unless the Committee shall specifically
state to the contrary at the time an Award is granted, Incentive Stock
Options awarded to Key Employees shall vest at the rate of 20% of the
initially awarded amount per year commencing with the vesting of the
first installment one year from the date of grant, and succeeding
installments on each anniversary of the date of grant. Incentive Stock
Options granted under the Plan shall vest in a Participant at the rate
or rates determined by the Committee. The vested Options may be
exercised from time to time, in whole or in part, by delivering a
written notice of exercise to the President or Chief Executive Officer
of the Company or his designee. Such notice is irrevocable and must be
accompanied by full payment of the purchase price in cash or shares of
Common Stock at the Fair Market Value of such shares determined on the
exercise date by the manner described in Section 2.
(d) Amounts of Options. Incentive Stock Options may be granted to
any eligible Key Employee in such amounts as determined by the
Committee; provided that the amount granted is consistent with the terms
of Section 422 of the Code. Notwithstanding the above, the maximum
number of shares that may be subject to an Incentive Stock Option
awarded under the Plan to any Key Employee shall be 100,000. In
granting Incentive Stock Options, the Committee shall consider such
factors as it deems relevant, which factors may include, among others,
the position and responsibilities of the Key Employee, the length and
value of his or her service to the Bank, the Company, or the Affiliate,
the compensation paid to the Key Employee and the Committee's evaluation
of the performance of the Bank, the Company, or the Affiliate, according
to measurements that may include, among others, key financial ratios,
levels of classified assets, and independent audit findings. In the
case of an Option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the Option is
granted) of the Common Stock with respect to which Incentive Stock
Options granted are exercisable for the first time by the Participant
during any calendar year (under all plans of the Company and its
Affiliates) shall not exceed $100,000. The provisions of this Section
8.1(d) shall be construed and applied in accordance with Section 422(d)
of the Code and the regulations, if any, promulgated thereunder.
(e) Terms of Options. The term during which each Incentive Stock
Option may be exercised shall be determined by the Committee, but in no
event shall an Incentive Stock Option be exercisable in whole or in part
more than 10 years from the Date of Grant. If any Key Employee, at the
time an Incentive Stock Option is granted to him, owns stock
representing more than 10% of the total combined voting power of all
classes of stock of the Company or its Affiliate (or, under Section
424(d) of the Code, is deemed to own stock representing more than 10% of
the total combined voting power of all classes of stock, by reason of
the ownership of such classes of stock, directly or indirectly, by or
for any brother, sister, spouse, ancestor or lineal descendent of such
Key Employee, or by or for any corporation, partnership, estate or trust
of which such Key Employee is a shareholder, partner or Beneficiary),
the Incentive Stock Option granted to him shall not be exercisable after
the expiration of five years from the Date of Grant.
The Committee shall determine the date on which each Incentive
Stock Option shall become exercisable and may provide that an Incentive
Stock Option shall become exercisable in installments. The shares
comprising each installment may be purchased in whole or in part at any
time after such installment becomes purchasable, provided that the
amount able to be first exercised in a given year is consistent with the
terms of Section 422 of the Code. To the extent required by Section 422
of the Code, the aggregate Fair Market Value (determined at the time the
option is granted) of the Common Stock for which Incentive Stock Options
are exercisable for the first time by a Participant during any calendar
year (under all plans of the Company and its Affiliates) shall not
exceed $100,000.
The Committee may, in its sole discretion, accelerate the time at
which any Incentive Stock Option may be exercised in whole or in part,
provided that it is consistent with the terms of Section 422 of the
Code. Notwithstanding the above, in the event of a Change in Control of
the Company, all Incentive Stock Options that have been awarded shall
become immediately exercisable, unless the Fair Market Value of the
amount exercisable as a result of a Change in Control shall exceed
$100,000 (determined as of the Date of Grant). In such event, the first
$100,000 of Incentive Stock Options (determined as of the Date of Grant)
shall be exercisable as Incentive Stock Options and any excess shall be
exercisable as Non-Statutory Stock Options.
(f) Termination of Employment. Upon the termination of a Key
Employee's service for any reason other than Disability, Normal
Retirement, Change in Control, death or Termination for Cause, the Key
Employee's Incentive Stock Options shall be exercisable only as to those
shares that were immediately purchasable by such Key Employee at the
date of termination and only for a period of three months following
termination. In the event of Termination for Cause all rights under the
Incentive Stock Options shall expire upon termination.
Upon termination of a Key Employee's employment due to Normal
Retirement, death, Disability, or following a Change in Control, all
Incentive Stock Options held by such Key Employee, whether or not
exercisable at such time, shall be exercisable for a period of five
years following the date of his cessation of employment, provided
however, that any such Option shall not be eligible for treatment as an
Incentive Stock Option in the event such Option is exercised more than
three months following the date of his Normal Retirement or termination
of employment following a Change in Control; and provided further, that
no Option shall be eligible for treatment as an Incentive Stock Option
in the event such Option is exercised more than one year following
termination of employment due to Disability and provided further, in
order to obtain Incentive Stock Option treatment for Options exercised
by heirs or devisees of an Optionee, the Optionee's death must have
occurred while employed or within three (3) months of termination of
employment. In no event shall the exercise period extend beyond the
expiration of the Incentive Stock Option term.
(g) Transferability. No Incentive Stock Option granted under the
Plan is transferable except by will or the laws of descent and
distribution and is exercisable during his lifetime only by the Key
Employee to which it is granted.
(h) Compliance with Code. The options granted under this Section
8 are intended to qualify as Incentive Stock Options within the meaning
of Section 422 of the Code, but the Company makes no warranty as to the
qualification of any Option as an Incentive Stock Option within the
meaning of Section 422 of the Code. If an Option granted hereunder
fails for whatever reason to comply with the provisions of Section 422
of the Code, and such failure is not or cannot be cured, such Option
shall be a Non-Statutory Stock Option.
9. Limited Rights
9.1 Grant of Limited Rights
The Committee may grant a Limited Right simultaneously with the
grant of any Option to any Key Employee of the Bank, with respect to all
or some of the shares covered by such Option. Limited Rights granted
under the Plan are subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be
exercisable in whole or in part before the expiration of six months from
the date of grant of the Limited Right. A Limited Right may be
exercised only in the event of a Change in Control of the Company.
The Limited Right may be exercised only when the underlying Option
is eligible to be exercised, provided that the Fair Market Value of the
underlying shares on the day of exercise is greater than the exercise
price of the related Option.
Upon exercise of a Limited Right, the related Option shall cease to
be exercisable. Upon exercise or termination of an Option, any related
Limited Rights shall terminate. The Limited Rights may be for no more
than 100% of the difference between the exercise price and the Fair
Market Value of the Common Stock subject to the underlying Option. The
Limited Right is transferable only when the underlying Option is
transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Company an amount of cash equal to the
difference between the Fair Market Value on the Date of Grant of the
related Option and the Fair Market Value of the underlying shares on the
date the Limited Right is exercised, multiplied by the number of shares
with respect to which such Limited Right is being exercised. In the
event of a Change in Control in which pooling accounting treatment is a
condition to the transaction, the Limited Right shall be exercisable
solely for shares of stock of the Company, or in the event of a merger
transaction, for shares of the acquiring corporation or its parent, as
applicable. The number of shares to be received on the exercise of such
Limited Right shall be determined by dividing the amount of cash that
would have been available under the first sentence above by the Fair
Market Value at the time of exercise of the shares underlying the Option
subject to the Limited Right.
10. Surrender of Option
In the event of a Participant's termination of employment or
termination of service as a result of death, Disability or Normal
Retirement, the Participant (or his or her personal representative(s),
heir(s), or devisee(s)) may, in a form acceptable to the Committee make
application to surrender all or part of the Options held by such
Participant in exchange for a cash payment from the Company of an amount
equal to the difference between the Fair Market Value of the Common
Stock on the date of termination of employment or the date of
termination of service on the Board and the exercise price per share of
the Option. Whether the Company accepts such application or determines
to make payment, in whole or part, is within its absolute and sole
discretion, it being expressly understood that the Company is under no
obligation to any Participant whatsoever to make such payments. In the
event that the Company accepts such application and determines to make
payment, such payment shall be in lieu of the exercise of the underlying
Option and such Option shall cease to be exercisable.
No award under the Plan shall be transferable by the optionee other
than by will or the laws of descent and distribution and may only be
exercised during his or her lifetime by the Participant, or by a
guardian or legal representative of the Participant.
11. Rights of a Stockholder
A Participant shall have no rights as a stockholder with respect to
any shares covered by a Non-Statutory and/or Incentive Stock Option
until the date of issuance of a stock certificate for such shares.
Nothing in the Plan or in any Award granted confers on any person any
right to continue in the employ of the Company or its Affiliates or to
continue to perform services for the Company or its Affiliates or
interferes in any way with the right of the Company or its Affiliates to
terminate his services as an officer, director or employee at any time.
12. Agreement with Participants
Each Award of Options, and/or Limited Rights will be evidenced by
a written agreement, executed by the Participant and the Company or its
Affiliates that describes the conditions for receiving the Awards
including the date of Award, the purchase price, applicable periods, and
any other terms and conditions as may be required by the Board or
applicable securities law.
13. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any stock option or
Limited Rights Award to which he would then be entitled. Such
designation will be made upon forms supplied by and delivered to the
Company and may be revoked in writing. If a Participant fails
effectively to designate a Beneficiary, then his estate will be deemed
to be the Beneficiary.
14. Dilution and Other Adjustments
In the event of any change in the outstanding shares of Common
Stock of the Company by reason of any stock dividend or split, pro rata
return of capital to all shareholders, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of
shares, or other similar corporate change, or other increase or decrease
in such shares without receipt or payment of consideration by the
Company, the Committee will make such adjustments to previously granted
Awards, to prevent dilution or enlargement of the rights of the
Participant, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of
Common Stock that may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock covered by Awards already made under the Plan; or
(c) adjustments in the purchase price of outstanding Incentive
and/or Non-Statutory Stock Options, or any Limited Rights
attached to such Options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award.
With respect to Incentive Stock Options, no such adjustment shall be
made if it would be deemed a "modification" of the Award under Section
424 of the Code.
15. Withholding
There may be deducted from each distribution of cash and/or Common
Stock under the Plan the amount of tax required by any governmental
authority to be withheld.
16. Amendment of the Plan
The Board may at any time, and from time to time, modify or amend
the Plan in any respect, or modify or amend an Award received by Key
Employees and/or Outside Directors; provided, however, that no such
termination, modification or amendment may affect the rights of a
Participant, without his consent, under an outstanding Award. Any
amendment or modification of the Plan or an outstanding Award under the
Plan, including but not limited to the acceleration of vesting of an
outstanding Award for reasons other than the death, Disability, Normal
Retirement, or a Change in Control, shall be approved by the Committee
or the full Board of the Company.
17. Effective Date of Plan
The Plan shall become effective upon the date of, or a date
determined by the Board of Directors following, approval of the Plan by
the Company's stockholders.
18. Termination of the Plan
The right to grant Awards under the Plan will terminate upon the
earlier of (i) 10 years after the Effective Date, or (ii) the date on
which the exercise of Options or related rights equaling the maximum
number of shares reserved under the Plan occurs, as set forth in Section
5. The Board may suspend or terminate the Plan at any time, provided
that no such action will, without the consent of a Participant,
adversely affect his rights under a previously granted Award.
19. Applicable Law
The Plan will be administered in accordance with the laws of the
State of Maryland.
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Plan to be executed
by its duly authorized officers and the corporate seal to be affixed and
duly attested, as of the ____ day of ________, 1996.
Date Approved by Stockholders: __________
Effective Date: _____________
ATTEST: AMERICAN NATIONAL BANCORP, INC.
_________________________ ______________________________
Secretary President and Chief Executive Officer
APPENDIX B
AMERICAN NATIONAL BANCORP, INC.
1996 RECOGNITION AND RETENTION PLAN
1. Establishment of the Plan
American National Bancorp, Inc. hereby establishes the Company
Recognition and Retention Plan (the "Plan") upon the terms and
conditions hereinafter stated in the Plan.
2. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Company
and its stockholders by providing Key Employees and Outside Directors of
the Company and its Affiliates, including American National Savings
Bank, F.S.B. (the "Bank"), upon whose judgment, initiative and efforts
the successful conduct of the business of the Company and its Affiliates
largely depends, with compensation for their contributions to the
Company and its Affiliates and an additional incentive to perform in a
superior manner, as well as to attract people of experience and ability.
3. Definitions
The following words and phrases when used in this Plan with an
initial capital letter, unless the context clearly indicates otherwise,
shall have the meanings set forth below. Wherever appropriate, the
masculine pronoun shall include the feminine pronoun and the singular
shall include the plural:
"Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Company or the Bank, as such terms are defined in
Section 424(e) and (f), respectively, of the Code, or a successor to a
parent corporation or subsidiary corporation.
"Award" means the grant by the Committee of Restricted Stock, as
provided in the Plan.
"Bank" means American National Savings Bank, F.S.B., or a successor
corporation.
"Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in
writing on forms provided for this purpose by the Committee and may be
changed from time to time by similar written notice to the Committee.
In the absence of a written designation, the Beneficiary shall be the
Recipient's surviving spouse, if any, or if none, his estate.
"Board" or "Board of Directors" means the Board of Directors of the
Company or an Affiliate, as applicable. For purposes of Section 4 of
the Plan, "Board" shall refer solely to the Board of the Company.
"Cause" means personal dishonesty, willful misconduct, any breach
of fiduciary duty involving personal profit, intentional failure to
perform stated duties, or the willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or a
final cease-and-desist order, any of which results in a material loss to
the Company or an Affiliate.
"Change in Control" of the Company means a change in control of a
nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"); or (ii) results in a Change in Control of the
Company within the meaning of the Home Owners Loan Act, as amended
("HOLA"), and applicable rules and regulations promulgated thereunder,
as in effect at the time of the Change in Control; or (iii) without
limitation such a Change in Control shall be deemed to have occurred at
such time as (a) any "person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 25% or more of the combined
voting power of the Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or
trust; or (b) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board,
or whose nomination for election by the Company's stockholders was
approved by the same Nominating Committee serving under an Incumbent
Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all
the assets of the Company or similar transaction in which the Company is
not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by someone other
than the current management of the Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Company or
similar transaction with one or more corporations as a result of which
the outstanding shares of the class of securities then subject to the
Plan are to be exchanged for or converted into cash or property or
securities not issued by the Company; or (e) a tender offer is made for
25% or more of the voting securities of the Company and the shareholders
owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares
pursuant to such tender offer and such tendered shares have been
accepted by the tender offeror.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board consisting of either
(i) at least two Non-Employee Directors of the Company, or (ii) the
entire Board of the Company.
"Common Stock" means shares of the common stock of the Company, par
value $.01 per share.
"Company" means American National Bancorp, Inc., the stock holding
company of the Bank, or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or
service as an Outside Director without any interruption or termination
of such employment and/or service. Continuous Service shall also mean
a continuation as a member of the Board of Directors following a
cessation of employment as a Key Employee. In the case of a Key
Employee, employment shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the
Bank or in the case of transfers between payroll locations of the Bank
or between the Bank, its parent, its subsidiaries or its successor.
"Conversion" means the October 31, 1995, conversion of American
National Bankshares, M.H.C. from the mutual to stock form of
organization.
"Director" means a member of the Board.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the
work customarily assigned to him, or of a Director to serve as such.
Additionally, in the case of an employee, a medical doctor selected or
approved by the Board must advise the Committee that it is either not
possible to determine when such Disability will terminate or that it
appears probable that such Disability will be permanent during the
remainder of such employee's lifetime.
"Effective Date" means the date of, or a date determined by the
Board of Directors following, approval of the Plan by the Company's
stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in
the Plan.
"Non-Employee Director" means, for purposes of the Plan, a Director
who (a) is not employed by the Company or an Affiliate; (b) does not
receive compensation directly or indirectly as a consultant (or in any
other capacity than as a Director) greater than $60,000; (c) does not
have an interest in a transaction requiring disclosure under Item 404(a)
of Regulation S-K; or (d) is not engaged in a business relationship for
which disclosure would be required pursuant to Item 404(b) of Regulation
S-K.
"Normal Retirement" means for a Key Employee, retirement at the
normal or early retirement date set forth in the Bank's Employee Stock
Ownership Plan, or any successor plan. Normal Retirement for an Outside
Director means a cessation of service on the Board of Directors for any
reason other than removal for Cause, after reaching 60 years of age and
maintaining at least 10 years of Continuous Service.
"Offering" means the October 31, 1995 subscription offering of the
Common Stock of the Company.
"Outside Director" means a Director of the Company or an Affiliate
who is not an employee of the Company or an Affiliate.
"Recipient" means a Key Employee or Outside Director of the Company
or its Affiliates who receives or has received an Award under the Plan.
"Restricted Period" means the period of time selected by the
Committee for the purpose of determining when restrictions are in effect
under Section 6 with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" means shares of Common Stock that have been
contingently awarded to a Recipient by the Committee subject to the
restrictions referred to in Section 6, so long as such restrictions are
in effect.
4. Administration of the Plan.
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall have all of the powers
allocated to it in the Plan. The interpretation and construction by the
Committee of any provisions of the Plan or of any Award granted
hereunder shall be final and binding. The Committee shall act by vote
or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such
rules and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall report its actions and decisions with
respect to the Plan to the Board at appropriate times, but in no event
less than one time per calendar year.
4.02 Role of the Board. The members of the Committee shall be
appointed or approved by, and will serve at the pleasure of, the Board.
The Board may in its discretion from time to time remove members from,
or add members to, the Committee. The Board shall have all of the
powers allocated to it in the Plan, may take any action under or with
respect to the Plan that the Committee is authorized to take, and may
reverse or override any action taken or decision made by the Committee
under or with respect to the Plan, provided, however, that except as
provided in Section 6.02, the Board may not revoke any Award except in
the event of revocation for Cause or with respect to unearned Awards in
the event the Recipient of an Award voluntarily terminates employment
with the Bank prior to Normal Retirement.
4.03 Plan Administration Restrictions. All transactions involving
a grant, award or other acquisitions from the Company shall:
(a) be approved by the Company's full Board or by the Committee;
(b) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a
majority of the shares present, or represented and entitled to vote at
a meeting duly held in accordance with the laws under which the Company
is incorporated; or the written consent of the holders of a majority of
the securities of the issuer entitled to vote provided that such
ratification occurs no later than the date of the next annual meeting of
shareholders; or
(c) result in the acquisition of common stock that is held by the
Recipient for a period of six months following the date of such
acquisition.
4.04 Limitation on Liability. No member of the Board or the
Committee shall be liable for any determination made in good faith with
respect to the Plan or any Awards granted under it. If a member of the
Board or the Committee is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of anything
done or not done by him in such capacity under or with respect to the
Plan, the Bank or the Company shall indemnify such member against
expense (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a
manner he reasonably believed to be in the best interests of the Bank
and the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful.
5. Eligibility; Awards
5.01 Eligibility. Key Employees and Outside Directors are eligible
to receive Awards.
5.02 Awards to Key Employees and Outside Directors. The Committee
may determine which of the Key Employees and Outside Directors
referenced in Section 5.01 will be granted Awards and the number of
shares covered by each Award; provided, however, that in no event shall
any Awards be made that will violate the Bank's Charter and Bylaws, the
Company's Articles of Incorporation and Bylaws, or any applicable
federal or state law or regulation. Shares of Restricted Stock that are
awarded by the Committee shall, on the date of the Award, be registered
in the name of the Recipient and transferred to the Recipient, in
accordance with the terms and conditions established under the Plan.
The aggregate number of shares that shall be issued under the Plan is
87,285.
In the event Restricted Stock is forfeited for any reason, the
Committee, from time to time, may determine which of the Key Employees
and Outside Directors will be granted additional Awards to be awarded
from forfeited Restricted Stock.
In selecting those Key Employees and Outside Directors to whom
Awards will be granted and the amount of Restricted Stock covered by
such Awards, the Committee shall consider such factors as it deems
relevant, which factors may include, among others, the position and
responsibilities of the Key Employees and Outside Directors, the length
and value of their services to the Bank and its Affiliates, the
compensation paid to the Key Employees or fees paid to the Outside
Directors, and the Committee may request the written recommendation of
the Chief Executive Officer and other senior executive officers of the
Bank, the Company and its Affiliates or the recommendation of the full
Board. All allocations by the Committee shall be subject to review, and
approval or rejection, by the Board.
No Restricted Stock shall be earned unless the Recipient maintains
Continuous Service with the Bank or an Affiliate until the restrictions
lapse.
5.03 Manner of Award. As promptly as practicable after a
determination is made pursuant to Section 5.02 to grant an Award, the
Committee shall notify the Recipient in writing of the grant of the
Award, the number of shares of Restricted Stock covered by the Award,
and the terms upon which the Restricted Stock subject to the Award may
be earned. Upon notification of an Award of Restricted Stock, the
Recipient shall execute and return to the Company a restricted stock
agreement (the "Restricted Stock Agreement") setting forth the terms and
conditions under which the Recipient shall earn the Restricted Stock,
together with a stock power or stock powers endorsed in blank.
Thereafter, the Recipient's Restricted Stock and stock power shall be
deposited with an escrow agent specified by the Company who shall hold
such Restricted Stock under the terms and conditions set forth in the
Restricted Stock Agreement. Each certificate in respect of shares of
Restricted Stock Awarded under the Plan shall be registered in the name
of the Recipient.
5.04 Treatment of Forfeited Shares. In the event shares of
Restricted Stock are forfeited by a Recipient, such shares shall be
returned to the Company and shall be held and accounted for pursuant to
the terms of the Plan until such time as the Restricted Stock is re-
awarded to another Recipient, in accordance with the terms of the Plan
and the applicable state and federal laws, rules and regulations.
6. Terms and Conditions of Restricted Stock
The Committee shall have full and complete authority, subject to
the limitations of the Plan, to grant awards of Restricted Stock to Key
Employees and Outside Directors and, in addition to the terms and
conditions contained in Sections 6.01 through 6.08, to provide such
other terms and conditions (which need not be identical among
Recipients) in respect of such Awards, and the vesting thereof, as the
Committee shall determine.
6.01 General Rules. Unless the Committee shall specifically state
to the contrary at the time an Award is granted, Restricted Stock shall
be earned by a Recipient at the rate of 20% of the initially awarded
amount per year commencing 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, provided that such
Recipient maintains Continuous Service; provided, however, that no
shares shall be earned for any year in which the Bank is not meeting all
of its fully phased-in capital requirements. Subject to any such other
terms and conditions as the Committee shall provide with respect to
Awards, shares of Restricted Stock may not be sold, assigned,
transferred (within the meaning of Code Section 83), pledged or
otherwise encumbered by the Recipient, except as hereinafter provided,
during the Restricted Period. The Committee shall have the authority,
in its discretion, to accelerate the time at which any or all of the
restrictions shall lapse with respect to a Restricted Stock Award, or to
remove any or all of such restrictions.
6.02 Continuous Service; Forfeiture. Except as provided in Section
6.03, if a Recipient ceases to maintain Continuous Service for any
reason (other than death, Disability, Change in Control or Normal
Retirement), unless the Committee shall otherwise determine, all shares
of Restricted Stock theretofore awarded to such Recipient and which at
the time of such termination of Continuous Service are subject to the
restrictions imposed by Section 6.01 shall upon such termination of
Continuous Service be forfeited. Any stock dividends or declared but
unpaid cash dividends attributable to such shares of Restricted Stock
shall also be forfeited.
6.03 Exception for Termination Due to Death, Disability, Normal
Retirement or Following a Change in Control Notwithstanding the general
rule contained in Section 6.01, Restricted Stock awarded to a Recipient
whose employment with or service on the Board of the Bank or an
Affiliate terminates due to death, Disability, Normal Retirement or
following a Change in Control shall be deemed earned as of the
Recipient's last day of employment with the Company or an Affiliate, or
last day of service on the Board of the Company or an Affiliate;
provided that Restricted Stock awarded to a Key Employee who at any time
also serves as a Director, shall not be deemed earned until both
employment and service as a Director have been terminated.
6.04 Revocation for Cause. Notwithstanding anything hereinafter to
the contrary, the Board may by resolution immediately revoke, rescind
and terminate any Award, or portion thereof, previously awarded under
the Plan, to the extent Restricted Stock has not been redelivered by the
Escrow Agent to the Recipient, whether or not yet earned, in the case of
a Key Employee whose employment is terminated by the Company or an
Affiliate or an Outside Director whose service is terminated by the
Company or an Affiliate for Cause or who is discovered after termination
of employment or service on the Board to have engaged in conduct that
would have justified termination for Cause.
6.05 Restricted Stock Legend. Each certificate in respect of
shares of Restricted Stock awarded under the Plan shall be registered in
the name of the Recipient and deposited by the Recipient, together with
a stock power endorsed in blank, with the Escrow Agent and shall bear
the following (or a similar) legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the
terms and conditions (including forfeiture) contained in
the American National Bancorp, Inc. 1996 Recognition and
Retention Plan. Copies of such Plan are on file in the
offices of the Secretary of American National Bancorp,
Inc., 211 N. Liberty Street, Baltimore, Maryland 21201-3978."
6.06 Payment of Dividends and Return of Capital. After an Award
has been granted but before such Award has been earned, the Recipient
shall receive any cash dividends paid with respect to such shares, or
shall share in any pro-rata return of capital to all shareholders with
respect to the Common Stock. Stock dividends declared by the Company
and paid on Awards that have not yet been earned shall be subject to the
same restrictions as the Restricted Stock and the certificate(s) or
other instruments representing or evidencing such shares shall be
legended in the manner provided in Section 6.05 and shall be delivered
to the Escrow Agent for distribution to the Recipient when the
Restricted Stock upon which such dividends were paid are earned. Unless
the Recipient has made an election under Section 83(b) of the Code, cash
dividends or other amounts so paid on shares that have not yet been
earned by the Recipient shall be treated as compensation income to the
Recipient when paid. If dividends are paid with respect to shares of
Restricted Stock under the Plan that have been issued but not awarded,
or that have been forfeited and returned to the Company or to a trust
established to hold issued and unawarded or forfeited shares, the
Committee can determine to award such dividends to any Recipient or
Recipients under the Plan, to any other employee or director of the
Company or the Bank, or can return such dividends to the Company.
6.07 Voting of Restricted Shares. After an Award has been granted,
the Recipient as conditional owner of the Restricted Stock shall have
the right to vote such shares.
6.08 Delivery of Earned Shares. At the expiration of the
restrictions imposed by Section 6.01, the Escrow Agent shall redeliver
to the Recipient (or where the relevant provision of Section 6.02
applies in the case of a deceased Recipient, to his Beneficiary) the
certificate(s) and any remaining stock power deposited with it pursuant
to Section 5.03 and the shares represented by such certificate(s) shall
be free of the restrictions referred to Section 6.01.
7. Adjustments upon Changes in Capitalization
In the event of any change in the outstanding shares subsequent to
the Effective Date by reason of any reorganization, recapitalization,
stock split, stock dividend, combination or exchange of shares, merger,
consolidation or any change in the corporate structure or shares of the
Company, the maximum aggregate number and class of shares as to which
Awards may be granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive. Any shares of
stock or other securities received, as a result of any of the foregoing,
by a Recipient with respect to Restricted Stock shall be subject to the
same restrictions and the certificate(s) or other instruments
representing or evidencing such shares or securities shall be legended
and deposited with the Escrow Agent in the manner provided in Section
6.05.
8. Assignments and Transfers
No Award nor any right or interest of a Recipient under the Plan in
any instrument evidencing any Award under the Plan may be assigned,
encumbered or transferred (within the meaning of Code Section 83)
except, in the event of the death of a Recipient, by will or the laws of
descent and distribution until such Award is earned.
9. Key Employee Rights under the Plan
No Key Employee shall have a right to be selected as a Recipient
nor, having been so selected, to be selected again as a Recipient and no
Key Employee or other person shall have any claim or right to be granted
an Award under the Plan or under any other incentive or similar plan of
the Bank or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any Key Employee any right to be
retained in the employ of the Bank or any Affiliate.
10. Outside Director Rights under the Plan
Neither the Plan nor any action taken thereunder shall be construed
as giving any Outside Director any right to be retained in the service
of the Bank or any Affiliate.
11. Withholding Tax
Upon the termination of the Restricted Period with respect to any
shares of Restricted Stock (or at any such earlier time, if any, that an
election is made by the Recipient under Section 83(b) of the Code, or
any successor provision thereto, to include the value of such shares in
taxable income), the Bank or the Company shall have the right to require
the Recipient or other person receiving such shares to pay the Bank or
the Company the amount of any taxes that the Bank or the Company is
required to withhold with respect to such shares, or, in lieu thereof,
to retain or sell without notice, a sufficient number of shares held by
it to cover the amount required to be withheld. The Bank or the Company
shall have the right to deduct from all dividends paid with respect to
shares of Restricted Stock the amount of any taxes which the Bank or the
Company is required to withhold with respect to such dividend payments.
12. Amendment or Termination
The Board of the Company may amend, suspend or terminate the Plan
or any portion thereof at any time, provided, however, that no such
amendment, suspension or termination shall impair the rights of any
Recipient, without his consent, in any Award theretofore made pursuant
to the Plan. Any amendment or modification of the Plan or an
outstanding Award under the Plan, including but not limited to the
acceleration of vesting of an outstanding Award for reasons other than
death, Disability, Normal Retirement or termination following a Change
in Control, shall be approved by the Committee, or the full Board of the
Company.
13. Governing Law
The Plan shall be governed by the laws of the State of Maryland.
14. Term of Plan
The Plan shall become effective on the date of, or a date
determined by the Board of Directors following, approval of the Plan by
the Company's stockholders. It shall continue in effect until the
earlier of (i) fifteen years from the Effective Date unless sooner
terminated under Section 12 hereof, or (ii) the date on which all shares
of Common Stock available for award hereunder, have vested in the
Recipients of such Awards.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed
by its duly authorized officers and the corporate seal to be affixed and
duly attested, as of the ____ day of _________, 1996.
Date Approved by Shareholders: __________
Effective Date: __________
ATTEST: AMERICAN NATIONAL BANCORP, INC.
_________________________ _________________________________
Secretary President and Chief Executive Officer
