SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2001
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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Commission file number 0-12820
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AMERICAN NATIONAL BANKSHARES INC.
---------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1284688
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
628 Main Street
Danville, Virginia 24541
---------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
(804) 792-5111
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No .
---- -----
The number of shares outstanding of the issuer's common stock as of May 11, 2001
was 6,021,772.
AMERICAN NATIONAL BANKSHARES INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2001
and December 31, 2000....................................................... 3
Consolidated Statements of Income for the three months
ended March 31, 2001 and 2000............................................... 4
Consolidated Statements of Cash Flows for the three months
ended March 31, 2001 and 2000............................................... 5
Notes to Consolidated Financial Statements.................................... 6-8
Item 2. Management's Discussion and Analysis of the Financial Condition
and Results of Operations..................................................... 9-12
Part II. Other Information............................................................... 13
SIGNATURES ................................................................................ 13
2
Consolidated Balance Sheets
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
March 31 December 31
2001 2000
---------- -----------
ASSETS
Cash and due from banks.........................................................$ 13,679 $ 16,393
Interest-bearing deposits in other banks........................................ 16,243 8,678
Investment securities:
Securities available for sale (at market value)............................. 117,852 120,353
Securities held to maturity (market value of $42,082 at
March 31, 2001 and $42,920 at December 31, 2000).......................... 41,289 42,576
---------- ----------
Total investment securities................................................... 159,141 162,929
---------- ----------
Loans, net of unearned income .................................................. 353,565 339,756
Less allowance for loan losses.................................................. (4,937) (4,746)
---------- ----------
Net loans..................................................................... 348,628 335,010
---------- ----------
Bank premises and equipment, at cost, less accumulated
depreciation of $8,808 in 2001 and $8,421 in 2000............................. 7,933 7,868
Accrued interest receivable and other assets.................................... 10,052 10,511
---------- ----------
Total assets..................................................................$ 555,676 $ 541,389
========== ==========
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- non-interest bearing.......................................$ 53,108 $ 54,496
Demand deposits -- interest bearing........................................... 55,994 58,273
Money market deposits......................................................... 40,152 32,480
Savings deposits.............................................................. 61,983 61,586
Time deposits................................................................. 228,089 219,753
---------- ----------
Total deposits................................................................ 439,326 426,588
---------- ----------
Repurchase agreements........................................................... 30,184 31,730
FHLB borrowings................................................................. 16,000 16,000
Accrued interest payable and other liabilities.................................. 5,273 3,733
---------- ----------
Total liabilities............................................................. 490,783 478,051
---------- ----------
Shareholders' equity:
Preferred stock, $5 par, 200,000 shares authorized,
none outstanding............................................................ - -
Common stock, $1 par, 10,000,000 shares authorized,
6,021,772 shares outstanding at March 31, 2001
and 6,063,772 shares outstanding at December 31, 2000....................... 6,022 6,064
Capital in excess of par value................................................ 9,763 9,831
Retained earnings............................................................. 47,954 47,120
Accumulated other comprehensive income -
net unrealized gains on securities available for sale....................... 1,154 323
---------- ----------
Total shareholders' equity.................................................... 64,893 63,338
---------- ----------
Total liabilities and shareholders' equity....................................$ 555,676 $ 541,389
========== ==========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
3
Consolidated Statements of Income
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
- ------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
--------------------
2001 2000
------- -------
Interest Income:
Interest and fees on loans....................................................$ 7,710 $ 6,436
Interest on deposits in other banks........................................... 121 52
Income on investment securities:
U S Government.............................................................. - 109
Federal agencies............................................................ 1,565 1,649
State and municipal......................................................... 480 488
Other investments........................................................... 427 333
------- -------
Total interest income......................................................... 10,303 9,067
------- -------
Interest Expense:
Interest on deposits:
Demand...................................................................... 165 264
Money market................................................................ 391 189
Savings..................................................................... 326 427
Time........................................................................ 3,293 2,519
Interest on repurchase agreements............................................. 328 274
Interest on other borrowings.................................................. 212 277
------- -------
Total interest expense........................................................ 4,715 3,950
------- -------
Net Interest Income............................................................. 5,588 5,117
Provision for Loan Losses....................................................... 262 215
------- -------
Net Interest Income After Provision
For Loan Losses............................................................... 5,326 4,902
------- -------
Non-Interest Income:
Trust and investment services................................................. 660 692
Service charges on deposit accounts........................................... 296 250
Other fees and commissions.................................................... 187 128
Mortgage banking income....................................................... 83 62
Securities gains, net......................................................... 170 -
Other income.................................................................. 51 43
------- -------
Total non-interest income..................................................... 1,447 1,175
------- -------
Non-Interest Expense:
Salaries...................................................................... 1,630 1,462
Pension and other employee benefits........................................... 355 281
Occupancy and equipment....................................................... 579 507
Postage and printing.......................................................... 135 123
Core deposit intangible amortization ......................................... 112 112
Other......................................................................... 651 638
------- -------
Total non-interest expense.................................................... 3,462 3,123
------- -------
Income Before Income Tax Provision.............................................. 3,311 2,954
Income Tax Provision............................................................ 993 839
------- -------
Net Income......................................................................$ 2,318 $ 2,115
======= =======
- ----------------------------------------------------------------------------------------------------
Net Income Per Common Share:
Basic...........................................................................$ .38 $ .35
Diluted.........................................................................$ .38 $ .35
- ----------------------------------------------------------------------------------------------------
Average Common Shares Outstanding:
Basic...........................................................................6,044,183 6,103,741
Diluted.........................................................................6,061,538 6,114,595
- ------------------------------------------------------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these statements.
4
Consolidated Statements of Cash Flows
American National Bankshares Inc. and Subsidiary
(In Thousands)
(Unaudited)
- --------------------------------------------------------------------------------------------------------
Three Months Ended
------------------------
March 31
2001 2000
--------- ---------
Cash Flows from Operating Activities:
Net income....................................................................$ 2,318 $ 2,115
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses................................................... 262 215
Depreciation................................................................ 289 250
Core deposit intangible amortization........................................ 112 112
Amortization (accretion) of premiums and discounts
on investment securities.................................................. (5) (10)
Gain on sale of securities.................................................. (170) -
Gain on sale of loans....................................................... (83) (62)
Deferred income taxes benefit............................................... (109) (84)
Increase in interest receivable............................................. (18) (429)
Decrease (increase) in other assets......................................... 46 (289)
Increase in interest payable................................................ 42 54
Increase in other liabilities............................................... 1,498 720
--------- ---------
Net cash provided by operating activities................................... 4,182 2,592
--------- ---------
Cash Flows from Investing Activities:
Proceeds from maturities, calls, and sales of securities ..................... 15,890 1,468
Purchases of securities available for sale.................................... (10,668) (6,894)
Net increase in loans......................................................... (13,797) (8,685)
Purchases of property and equipment........................................... (354) (44)
--------- ---------
Net cash used in investing activities......................................... (8,929) (14,155)
--------- ---------
Cash Flows from Financing Activities:
Net increase (decrease) in demand, money market,
and savings deposits........................................................ 4,402 6,818
Net increase in time deposits................................................. 8,336 4,685
Net decrease in federal funds purchased
and repurchase agreements................................................... (1,546) (425)
Net increase in Federal Home Loan Bank borrowings............................. - 90
Cash dividends paid........................................................... (904) (824)
Repurchase of stock........................................................... (690) -
Proceeds from exercise of stock options....................................... - 1
--------- ---------
Net cash provided by financing activities..................................... 9,598 10,345
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents........................... 4,851 (1,218)
Cash and Cash Equivalents at Beginning of Period................................ 25,071 17,291
--------- ---------
Cash and Cash Equivalents at End of Period......................................$ 29,922 $ 16,073
========= =========
Supplemental Schedule of Cash and Cash Equivalents:
Cash:
Cash and due from banks.....................................................$ 13,679 $ 14,267
Interest-bearing deposits in other banks.................................... 16,243 1,806
--------- ---------
$ 29,922 $ 16,073
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid.................................................................$ 4,673 $ 3,897
Income taxes paid.............................................................$ 19 $ 5
The accompanying notes to consolidated financial statements are an integral part of these statements.
5
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly American National Bankshares'
financial position as of March 31, 2001, the results of its operations and its
cash flows for the three months then ended. Operating results for the
three-month period ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ended December 31, 2001.
The consolidated financial statements include the amounts and results
of operations of American National Bankshares Inc. ("the Corporation") and its
wholly owned subsidiary, American National Bank and Trust Company ("the Bank")
and the Bank's two subsidiaries, ANB Mortgage Corp. and ANB Services Corp. A
summary of the Corporation's significant accounting policies is set forth in
Note 1 to the Consolidated Financial Statements in the Corporation's 2000 Annual
Report on Form 10-K.
This report contains forward-looking statements with respect to the
financial condition, results of operations and business of the Corporation and
Bank. These forward-looking statements involve risks and uncertainties and are
based on the beliefs and assumptions of management of the Corporation and Bank
and on information available at the time these statements and disclosures were
prepared. Factors that may cause actual results to differ materially from those
expected include the following:
o General economic conditions may deteriorate and negatively impact the
ability of borrowers to repay loans and depositors to maintain balances.
o Changes in interest rates could reduce net interest income.
o Competitive pressures among financial institutions may increase.
o Legislative or regulatory changes, including changes in accounting
standards, may adversely affect the businesses that the Corporation and
Bank are engaged in.
o New products developed or new methods of delivering products could result
in a reduction in business and income for the Corporation and Bank.
o Adverse changes may occur in the securities market.
2. Investment Securities
---------------------
The Corporation classifies investment securities in one of three
categories: held to maturity, available for sale and trading.
Debt securities acquired with both the intent and ability to be held to
maturity are classified as held to maturity and reported at amortized cost.
Securities which may be used to meet liquidity needs arising from
unanticipated deposit and loan fluctuations, changes in regulatory capital and
investment requirements, or unforeseen changes in market conditions, including
interest rates, market values or inflation rates, are classified as available
for sale. Securities available for sale are reported at estimated fair value,
with unrealized gains and losses reported as a separate component of
shareholders' equity, net of tax. Gains or losses realized from the sale of
securities available for sale are determined by specific identification and are
included in non-interest income.
The Corporation does not permit the purchase or sale of trading account
securities.
Premiums and discounts on investment securities are amortized using the
interest method.
3. Commitments and Contingencies
-----------------------------
The Bank has credit availability of 15% of assets, approximately
$83,000,000 with the Federal Home Loan Bank of Atlanta at March 31, 2001. As of
March 31, 2001 and December 31, 2000, there was $16,000,000 outstanding under
this availability.
6
Commitments to extend credit, which amount to $103,174,000 at March 31,
2001 and $85,489,000 at December 31, 2000, represent legally binding agreements
to lend to customers with fixed expiration dates or other termination clauses.
Since many of the commitments are expected to expire without being funded, the
total commitment amounts do not necessarily represent future liquidity
requirements.
There were $10,833,000 commitments at March 31, 2001 and $800,000
commitments at December 31, 2000 to purchase securities when issued.
Standby letters of credit are conditional commitments issued by the
Bank guaranteeing the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. At March 31, 2001 and December 31, 2000 the Bank had $1,098,000
and $1,531,000, respectively, in outstanding standby letters of credit.
4. New Accounting Pronouncements
-----------------------------
The Corporation adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income", during the first quarter of
1998. This statement establishes standards for reporting a measure of all
changes in equity of an enterprise that result from transactions and economic
events of the period other than transactions with owners ("economic income").
SFAS No. 130 requires an enterprise to report comprehensive income in the notes
to the financial statements on an interim basis. The following is a detail of
comprehensive income for the quarters ended March 31, 2001 and 2000:
2001 2000
---- ----
Net Income $2,318,000 $2,115,000
Unrealized holding gains (losses) arising
during period (net of tax expense) 831,000 (396,000)
----------- -----------
Total Comprehensive Income $3,149,000 $1,719,000
=========== ===========
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards requiring balance sheet recognition of all derivative instruments at
fair value. SFAS No. 133 was subsequently amended by SFAS No. 137 in June 1999
and by SFAS No. 138 in June 2000. The statement, as amended, specifies that
changes in the fair value of derivative instruments be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows derivative gains and losses to offset related
results on hedged items in the income statement. Companies must formally
document, designate and assess the effectiveness of transactions utilizing hedge
accounting. The statement is effective for fiscal years beginning after June 15,
2000. Adoption did not have a material impact on the Corporation.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". This statement revises the criteria for
accounting for securitizations, other financial-assets transfers and collateral
and introduces new disclosures. This statement is effective for fiscal years
ending after March 31, 2001. The adoption of this statement is not expected to
have a material effect on the Corporation's consolidated financial statements.
7
5. Segment and Related Information
-------------------------------
The Corporation adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", in 1998. Reportable segments include
community banking and trust and investment services. Community banking involves
making loans to and generating deposits from individuals and businesses in the
markets where the Bank has offices. All assets and liabilities of the Bank are
allocated to community banking. Investment income from fixed income investments
is a major source of income in addition to loan interest income. Service charges
from deposit accounts and non-deposit fees such as automatic teller machine fees
and insurance commissions generate additional income for community banking.
Trust and investment services includes estate and trust planning and
administration and investment management for various entities. The trust and
investment services division of the Bank manages trusts, estates and purchases
equity, fixed income and mutual fund investments for customer accounts. The
trust and investment services division receives fees for investment and
administrative services. Fees are also received by this division for individual
retirement accounts managed for the community banking segment.
Segment information for the three months ended March 31, 2001 and 2000 is
shown in the following table (in thousands). The "Other" column includes
corporate related items, results of insignificant operations and, as it relates
to segment profit (loss), income and expense not allocated to reportable
segments.
Three Months Ended March 31, 2001
- ------------------------------------------------------------------------------------------------------------------------
Trust and
Community Investment Intersegment
Banking Services Other Eliminations Total
--------- ---------- ----- ------------ -----
Interest income $ 10,303 $ - $ 6 $ (6) $ 10,303
Interest expense 4,715 - 6 (6) 4,715
Non-interest income - external customers 655 660 132 - 1,447
Non-interest income - internal customers - 14 - (14) -
Operating income before income taxes 2,954 404 2,308 (2,355) 3,311
Depreciation and amortization 382 17 2 - 401
Total assets 555,524 - 66,476 (66,324) 555,676
Capital expenditures 338 16 - - 354
Three Months Ended March 31, 2000
- ------------------------------------------------------------------------------------------------------------------------
Trust and
Community Investment Intersegment
Banking Services Other Eliminations Total
--------- ---------- ----- ------------ -----
Interest income $ 9,067 $ - $ 6 $ (6) $ 9,067
Interest expense 3,950 - 6 (6) 3,950
Non-interest income - external customers 409 693 73 - 1,175
Non-interest income - internal customers - 13 - (13) -
Operating income before income taxes 2,539 489 2,065 (2,139) 2,954
Depreciation and amortization 349 9 4 - 362
Total assets 503,951 - 58,141 (57,863) 504,229
Capital expenditures 41 - 3 - 44
8
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EARNINGS and CAPITAL
The Corporation's net income for the first quarter of 2001 was
$2,318,000, an increase of 9.6% over the $2,115,0000 earned during the first
quarter of 2000. On a basic and diluted per share basis, net income totaled $.38
for the quarter, up 8.6% from $.35 in 2000. On an annualized basis, return on
average total assets was 1.70% for the first quarter of 2001 compared to 1.71%
for the first quarter of 2000. Return on average common shareholders' equity
decreased to 14.64% in the first quarter of 2001 from 14.77% for the first
quarter of 2000.
The Corporation's growth in earnings resulted from two principal
factors. First, net interest income after provision improved $424,000, or 8.6%,
from growth of $46,475,000 in average interest-earning assets and growth of
$38,973,000 in average interest-bearing liabilities in the first quarter of 2001
compared to the first quarter of 2000. Second, non-interest income increased
$272,000, or 23.1%, in the 2001 first quarter compared to the 2000 first
quarter.
TRENDS and FUTURE EVENTS
During the first quarter of 2001, net loans increased $13,618,000, or
4.1%, and were funded by increased deposits of $12,738,000, or 3.0%. Investment
securities decreased $3,788,000, or 2.3%, during the first quarter of 2001.
During the first quarter of 2001, the Corporation declared a quarterly
cash dividend of $.15 per share. This dividend was paid on March 23, 2001 to
shareholders of record on March 9, 2001.
The Federal Reserve Board ("FRB") increased short-term interest rates
by increasing the federal funds target rate by 1.75% and the discount rate by
1.50% over a period from August, 1999 to May, 2000, and major banks followed by
raising the prime lending rate by 1.75% during this same period. The increases
in interest rates in 1999 and 2000 were designed to moderate national economic
growth which could have been inflationary if left unchecked. The FRB decreased
short-term interest rates by lowering the federal funds target rate and the
discount rate by 2.00% in early 2001, and the major banks followed by decreasing
the prime lending rate by 2.00%. The FRB lowered interest rates to offset
economic weaknesses which could lead to a recession.
NET INTEREST INCOME
Net interest income on a fully taxable equivalent ("FTE") basis was
$5,830,000 for the first quarter of 2001 compared to $5,324,000 for the first
quarter of 2000, an increase of 9.5%. Net interest income on a FTE basis
increased due to growth of $46,475,000 in average interest-earning assets while
average interest-bearing liabilities grew only $38,973,000 which overshadowed a
small decline in the interest rate spread. Growth in non interest-bearing
deposits and retained income resulted in greater growth in average
interest-earning assets over interest-bearing liabilities.
The interest rate spread decreased to 3.72% from 3.79% and the net
yield on earning assets decreased to 4.50% from 4.51% in the first quarter of
2001 compared to the first quarter of 2000, respectively. The decreased spread
occurred because average interest-bearing liabilities grew more in the higher
cost areas of time deposits, money market accounts and repurchase agreements
while average loans grew most in the commercial area which adjusted more quickly
to declining interest rates in the first quarter of 2001 than did time deposits.
The table on the next page demonstrates fluctuations in net interest
income and the related yields for the first quarter of 2001 and 2000.
9
The following is an analysis of net interest income, on a taxable equivalent basis. Nonaccrual loans are included in
average balances. Interest income on nonaccrual loans if recognized is recorded on a cash basis. (In thousands,
except rates):
Interest
For three months ended March 31 Average Balance Income/Expense Yield/Rate
--------------------- ---------------------- ---------------------
2001 2000 2001 2000 2001 2000
-------- -------- -------- -------- -------- --------
Loans:
Commercial $121,875 $ 88,452 $ 2,742 $ 1,946 9.00% 8.80%
Mortgage 176,487 157,592 3,806 3,245 8.63 8.24
Consumer 47,366 51,969 1,196 1,258 10.10 9.68
-------- -------- -------- -------- -------- --------
Total loans 345,728 298,013 7,744 6,449 8.96 8.66
-------- -------- -------- -------- -------- --------
Investment securities:
U. S. Government - 7,000 - 109 - 6.23
Federal agencies 96,842 102,211 1,565 1,649 6.46 6.45
State and municipal 39,205 39,919 668 682 6.82 6.83
Other investments 27,718 21,045 447 333 6.45 6.33
-------- -------- -------- -------- -------- --------
Total investment securities 163,765 170,175 2,680 2,773 6.55 6.52
-------- -------- -------- -------- -------- --------
Deposits in other banks 8,898 3,728 121 52 5.44 5.58
-------- -------- -------- -------- -------- --------
Total interest-earning assets 518,391 471,916 10,545 9,274 8.14 7.86
-------- ------- -------- --------
Other non-earning assets 27,200 23,609
-------- --------
Total assets $545,591 $495,525
======== ========
Interest-bearing deposits:
Demand $ 57,018 $ 55,953 165 264 1.16 1.89
Money market 39,406 23,135 391 189 3.97 3.27
Savings 61,450 64,990 326 427 2.12 2.63
Time 224,314 198,743 3,293 2,519 5.87 5.07
-------- -------- -------- ------- -------- --------
Total interest-bearing deposits 382,188 342,821 4,175 3,399 4.37 3.97
Repurchase agreements 28,756 24,140 328 274 4.56 4.54
Other borrowings 16,274 21,284 212 277 5.21 5.21
-------- -------- -------- ------- -------- --------
Total interest-bearing
liabilities 427,218 388,245 4,715 3,950 4.41 4.07
-------- ------- -------- --------
Demand deposits 50,935 46,757
Other liabilities 4,095 3,225
Shareholders' equity 63,343 57,298
-------- --------
Total liabilities and
shareholders' equity $545,591 $495,525
======== ========
Interest rate spread 3.72% 3.79%
======== ========
Net interest income 5,830 5,324
======== =======
Taxable equivalent adjustment 242 207
======== =======
Net yield on earning assets 4.50% 4.51%
======== ========
10
ASSET QUALITY
Nonperforming assets include loans on which interest is no longer
accrued, loans classified as troubled debt restructurings and foreclosed
properties. Nonperforming assets increased to $306,000 at March 31, 2001 from
$176,000 at December 31, 2000.
Foreclosed properties were $30,000 at March 31,2001 and December 31,
2000.
Loans in a nonaccrual status at March 31, 2001 were $276,000 compared
with $146,000 at December 31, 2000. Loans on accrual status and past due 90 days
or more at March 31, 2001 were $164,000 compared with $239,000 at December 31,
2000.
Total nonperforming loans and loans past due 90 days or more, on an accrual
status, as a percentage of net loans was .12% at March 31, 2001 and .11% at
December 31, 2000. These nonperforming loan ratios are considered low by
industry standards. Net charge-offs for the quarter, annualized, as a percentage
of average loans decreased to .08% in 2001 from .09% in the 2000 quarter. These
charge-off ratios are low by industry standards.
During the first quarter of 2001 the gross amount of interest income
that would have been recorded on nonaccrual loans and restructured loans at
March 31, 2001, if all such loans had been accruing interest at the original
contractual rate, was $8,000. No interest payments were recorded during the
reporting period as interest income for all such nonperforming loans.
PROVISION and RESERVE FOR LOAN LOSSES
The provision for loan losses was $262,000 for the first quarter of
2001 and $215,000 for the first quarter of 2000. The reserve for loan losses
totaled $4,937,000 at March 31, 2001 an increase of 4.0% over the $4,746,000
recorded at December 31, 2000. The ratio of reserves to loans, less unearned
discount, was 1.40% at March 31, 2001 and 1.40% at December 31, 2000. In
Management's opinion, the current reserve for loan losses is adequate.
NON-INTEREST INCOME
Non-interest income for the first quarter of 2001 was $1,447,000, an
increase of 23.1% from the $1,175,000 reported in the first quarter of 2000. The
major reasons for the 2001 first quarter growth in non-interest income were
$170,000 in gains from securities called, an increase of $46,000, or 18.4%, in
service charges on deposit accounts, an increase of $59,000, or 46.1%, in other
fees and commissions, and an increase of $21,000, or 33.9%, in mortgage banking
income. The gains on securities called resulted from a planned investment
strategy of purchasing discount callable U.S. Government Agency obligations in
higher interest rate environments. Without the gains on securities called,
non-interest income increased 8.7% during the first quarter of 2001 compared to
the first quarter of 2000. Trust and investment services income declined 4.6% to
$660,000 during the first quarter 2001 compared to the year ago quarter due to
declining asset values under management resulting from the recent downturn in
the equities markets. The Bank's trust department managed accounts whose market
values approximated $345,000,000 at March 31, 2001 compared to $353,000,000 at
March 31, 2000.
NON-INTEREST EXPENSE
Non-interest expense for the first quarter of 2001 was $3,462,000, a
10.9% increase from the $3,123,000 reported for the same period in 2001. The
2001 increase was primarily due to a new branch office in South Boston,
Virginia, which opened in December 2000, merit salary increases which were
effective January 1, 2001, and higher pension and health care costs.
The efficiency ratio, a productivity measure used to determine how well
non-interest expense is managed, was 47.1% and 46.3% for the first quarter of
2001 and 2000, respectively. A lower efficiency ratio generally indicates better
expense efficiency. Leaders in expense efficiency in the banking industry have
achieved ratios in the low-to-high 40% range while the majority of the industry
remains in the 55-65% range. The efficiency ratio is calculated by dividing
non-interest expense, excluding intangible amortization, by the sum of taxable
equivalent net interest income and non-interest income, excluding securities
gains.
11
INCOME TAX PROVISION
The income tax provision for the first quarter of 2001 was $993,000, an
increase of $154,000 from the $839,000 reported a year earlier. The effective
tax rate for the first quarter of 2001 was 30.0% compared to 28.4% for the first
quarter of 2000.
CAPITAL MANAGEMENT
Federal regulatory risk-based capital ratio guidelines require
percentages to be applied to various assets including off-balance-sheet assets
in relation to their perceived risk. Tier I capital includes shareholders'
equity and Tier II capital includes certain components of nonpermanent preferred
stock and subordinated debt. The Corporation has no nonpermanent preferred stock
or subordinated debt. Banks and bank holding companies must have a Tier I
capital ratio of at least 4% and a total ratio, including Tier I and Tier II
capital, of at least 8%. As of March 31, 2001 the Corporation had a ratio of
15.12% for Tier I and a ratio of 16.25% for total capital. At December 31, 2000
these ratios were 16.02% and 17.09%, respectively.
A cash dividend of $.15 per share was paid on 6,030,772 shares of
common stock outstanding on March 23, 2001 to shareholders of record March 9,
2001. This dividend totaled $904,000.
The Corporation's Board of Directors authorized the repurchase of up to
300,000 shares of the Corporation's common stock between August 16, 2000 and
August 15, 2001. The repurchases, which may be made through open market
purchases or in privately negotiated transactions, were 42,000 shares during the
first quarter of 2001 and have been 82,000 shares since August 16, 2000.
MARKET RISK MANAGEMENT
The effective management of market risk is essential to achieving the
Corporation's objectives. As a financial institution, interest rate risk and its
impact on net interest income is the primary market risk exposure. The
Asset/Liability Investment Committee ("ALCO") is primarily responsible for
establishing asset and liability strategies and for monitoring and controlling
liquidity and interest rate risk. ALCO uses computer simulation analysis to
measure the sensitivity of earnings and market value of equity to changes in
interest rates.
The projected changes in net interest income and market value of
portfolio equity ("MVE") to changes in interest rates are calculated and
monitored by ALCO as indicators of interest rate risk. The projected changes in
net interest income and MVE to changes in interest rates at March 31, 2001 were
not materially different from December 31, 2000 and were in compliance with
established policy guidelines. Based on numerous assumptions, including no
changes in the mix of and no growth in assets or liabilities, net interest
income for the next twelve months is projected to increase slightly when
interest rates are higher and decrease slightly when interest rates are lower.
The Bank's net liquid assets to net liabilities ratio was 19.9% at
March 31, 2001 and 21.5% at December 31, 2000. Both of these ratios are
considered to reflect adequate liquidity for the respective periods.
Management monitors and plans the Corporation's liquidity position for
future periods. Liquidity is provided from cash and due from banks,
interest-bearing deposits in other banks, repayments from loans, seasonal
increases in deposits, lines of credit from two correspondent banks and two
federal agency banks and a planned structured continuous maturity of
investments. Management believes that these factors provide sufficient and
timely liquidity for the foreseeable future.
12
PART II
OTHER INFORMATION
Item:
1. Legal Proceedings
The nature of the business of the Corporation's banking subsidiary
ordinarily results in a certain amount of litigation. The subsidiary of the
Corporation is involved in various legal proceedings, all of which are
considered incidental to the normal conduct of business. Management believes
that the liabilities arising from these proceedings will not have a material
adverse effect on the consolidated financial position or consolidated results of
operations of the Corporation.
2. Changes in securities
None
3. Defaults upon senior securities
None
4. Results of votes of security holders
None
5. Other information
None
6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
On April 3, 2001, the Corporation filed a current report on Form 8-K
under Item 5 to report amended Bylaws as of March 20, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN NATIONAL BANKSHARES INC.
/s/ Charles H. Majors
---------------------
Charles H. Majors
Date - May 11, 2001 President and Chief Executive Officer
/s/ T. Allen Liles
------------------
T. Allen Liles
Senior Vice-President and
Date - May 11, 2001 Secretary-Treasurer (Chief Financial Officer)
13