This is a conforming paper copy pursuant to Rule # 901(d) of
Regulation S-T.
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 June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-12820
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 August 12, 1996 was 3,279,798.
AMERICAN NATIONAL BANKSHARES INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995......................................... 3
Condensed Consolidated Statements of Income for the three months
ended June 30, 1996 and 1995.................................. 4
Condensed Consolidated Statements of Income for the six months
ended June 30, 1996 and 1995.................................. 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995.................................. 6
Notes to Condensed Consolidated Financial Statements............ 7-8
Item 2. Management's Discussion and Analysis of the Financial Condition
and Results of Operations.....................................9-11
Part II. Other Information............................................... 12
SIGNATURES ................................................................ 12
EXHIBITS - Financial Data Schedule......................................... 13
2
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30 December 31
1996 1995
(Unaudited) (See note)
ASSETS
CASH AND DUE FROM BANKS................................$ 9,570 $ 10,394
FEDERAL FUNDS SOLD..................................... 5,000 1,100
INTEREST-BEARING DEPOSITS IN BANKS..................... 3,261 1,295
INVESTMENT SECURITIES:
Securities available for sale (at market value)...... 78,762 49,307
Securities held to maturity (market value of $66,093
at June 30, 1996 and $99,195 at December 31, 1995). 66,389 98,102
---------- ----------
Total investment securities..... 145,151 147,409
---------- ----------
LOANS.................................................. 222,832 216,355
Less: Unearned income.......... -727 -914
Reserve for loan loss -2,882 -2,757
---------- ----------
Net loans....................... 219,223 212,684
---------- ----------
OTHER ASSETS........................................... 16,435 15,597
---------- ----------
Total assets....................$ 398,640 $ 388,479
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
LIABILITIES:
Demand deposits - non-interest bearing..............$ 36,339 $ 32,578
Demand deposits - interest bearing.................. 40,299 41,602
Money market deposits............................... 19,585 22,409
Savings deposits.................................... 65,448 66,084
Time deposits....................................... 169,466 164,670
---------- ----------
Total deposits.................. 331,137 327,343
Repurchase agreements............................... 16,312 9,572
Accrued interest payable and other liabilities...... 2,320 2,651
---------- ----------
Total liabilities............... 349,769 339,566
---------- ----------
SHAREHOLDERS' INVESTMENT:
Common stock, $1 par, 10,000,000 shares authorized,
3,279,798 shares outstanding at June 30, 1996 and
shares outstanding at December 31, 1995.......... 3,280 3,214
Capital in excess of par value...................... 10,632 9,967
Retained earnings................................... 35,563 35,104
Net unrealized (depreciation) appreciation.......... -604 628
---------- ----------
Total shareholders' investment.. 48,871 48,913
Total liabilities and ---------- ----------
shareholders' investment......$ 398,640 $ 388,479
========== ==========
The accompanying notes are an integral part of these balance sheets.
Note: The balance sheet at December 31, 1995 has been derived from the audited financial
statements at that date .
3
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30
1996 1995
INTEREST INCOME:
Interest and fees on loans............................$ 4,917 $ 4,527
Interest on federal funds sold and other.............. 131 14
Income on investment securities:
U. S. Government.................................... 1,599 748
Federal Agencies.................................... 194 590
State and municipal (tax exempt).................... 220 174
Other............................................... 88 85
-------- --------
Total interest income............... 7,149 6,138
-------- --------
INTEREST EXPENSE:
Interest on deposits:
Demand.............................................. 341 256
Money Market........................................ 127 155
Savings............................................. 492 539
Time................................................ 2,380 1,592
Interest on repurchase agreements..................... 140 92
-------- --------
Total interest expense.............. 3,480 2,634
-------- --------
NET INTEREST INCOME...................................... 3,669 3,504
PROVISION FOR LOAN LOSSES................................ 122 121
NET INTEREST INCOME AFTER PROVISION -------- --------
FOR LOAN LOSSES....................................... 3,547 3,383
-------- --------
NON-INTEREST INCOME:
Trust department...................................... 567 346
Service charges on deposit accounts................... 144 106
Fees and insurance premiums........................... 29 27
Other................................................. 54 108
-------- --------
Total non-interest income........... 794 587
-------- --------
NON-INTEREST EXPENSE:
Salaries ............................................. 993 934
Pension and other employee benefits................... 217 229
Occupancy and equipment expense....................... 268 245
FDIC insurance expense................................ 40 159
Postage and printing.................................. 96 52
Merger related expense................................ 17 --
Other................................................. 455 464
-------- --------
Total non-interest expense.......... 2,086 2,083
-------- --------
INCOME BEFORE INCOME TAX PROVISION....................... 2,255 1,887
INCOME TAX PROVISION .................................... 697 584
-------- --------
NET INCOME...............................................$ 1,558 $ 1,303
======== ========
NET INCOME PER SHARE, based on weighted average
shares outstanding at June 30, 1996 and June 30, 1995
of 3,279,798 and 3,213,640, respectively.............. $.48 $.41
CASH DIVIDENDS PAID per share............................ $.18 $.24
The accompanying notes are an integral part of these statements.
4
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Six Months Ended
June 30
1996 1995
INTEREST INCOME:
Interest and fees on loans............................$ 9,874 $ 8,752
Interest on federal funds sold and other.............. 199 29
Income on investment securities:
U. S. Government.................................... 2,964 1,554
Federal Agencies.................................... 632 1,202
State and municipal (tax exempt).................... 447 354
Other............................................... 185 170
--------- --------
Total interest income...... 14,301 12,061
--------- --------
INTEREST EXPENSE:
Interest on deposits:
Demand.............................................. 612 521
Money Market........................................ 325 341
Savings............................................. 986 1,133
Time................................................ 4,766 2,918
Interest on repurchase agreements..................... 267 170
--------- --------
Total interest expense..... 6,956 5,083
--------- --------
NET INTEREST INCOME...................................... 7,345 6,978
PROVISION FOR LOAN LOSSES................................ 253 214
NET INTEREST INCOME AFTER PROVISION --------- --------
FOR LOAN LOSSES....................................... 7,092 6,764
--------- --------
NON-INTEREST INCOME:
Trust department...................................... 1,012 692
Service charges on deposit accounts................... 254 210
Fees and insurance premiums........................... 55 58
Other................................................. 116 154
--------- --------
Total non-interest income.. 1,437 1,114
--------- --------
NON-INTEREST EXPENSE:
Salaries ............................................. 1,978 1,881
Pension and other employee benefits................... 421 433
Occupancy and equipment expense....................... 571 483
FDIC insurance expense................................ 79 319
Postage and printing.................................. 211 131
Merger related expense................................ 1,185 --
Other................................................. 954 901
--------- --------
Total non-interest expense. 5,399 4,148
--------- --------
INCOME BEFORE INCOME TAX PROVISION....................... 3,130 3,730
INCOME TAX PROVISION .................................... 1,708 1,168
--------- --------
NET INCOME...............................................$ 1,422 $ 2,562
========= ========
NET INCOME PER SHARE, based on weighted average
shares outstanding at June 30, 1996 and June 30, 1995
of 3,254,139 and 3,213,640, respectively.............. $.44 $.80
CASH DIVIDENDS PAID per share............................ $.33 $.27
The accompanying notes are an integral part of these statements.
5
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30
1996 1995
Cash Flows from Operating Activities:
Net income............................................................. $1,422 2,562
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses.......................................... 253 214
Depreciation....................................................... 236 225
Amortization of intangibles........................................ 146 _
Amortization of premiums and (discounts)
on investment securities......................................... 38 31
(Gain) loss on sale of securities.................................. 338 -22
Deferred income taxes provision.................................... 445 -40
Reconciliation of fiscal year of merged company to calendar year... -379 -
(Increase) decrease in interest receivable......................... -685 102
Increase in other assets........................................... -126 -390
Increase in interest payable....................................... 497 138
Increase (decrease) in other liabilities........................... -237 739
--------- ---------
Net cash provided by operating activities.......................... 1,948 3,559
--------- ---------
Cash Flows from Investing Activities:
Proceeds from maturities, calls, and sales of securities ............ 41,310 12,992
Purchases of securities available for sale........................... -23,126 -504
Purchases of securities held to maturity............................. -17,228 -
Purchases of other stock............................................. -188 -18
Net increase in loans................................................ -6,143 -16,111
Purchases of property and equipment.................................. -221 -120
--------- ---------
Net cash used in investing activities................................ -5,596 -3,761
--------- ---------
Cash Flows from Financing Activities:
Net decrease in demand, money market, and savings deposits........... -1,004 -22,288
Net increase in certificates of deposit.............................. 3,579 17,860
Net decrease in borrowings from Federal Home Loan Bank................ 0 -1,500
Net increase in federal funds purchased
and repurchase agreements........................................ 6,740 225
Cash dividends paid.................................................. -1,082 -879
Cash paid in lieu of fractional shares............................... -3 -
Proceeds from exercise of stock options.............................. 460 -
--------- ---------
Net cash provided by (used in) financing activities.................. 8,690 -6,582
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents................. 5,042 -6,784
Cash and Cash Equivalents at Beginning of Period..................... 12,789 17,036
--------- ---------
Cash and Cash Equivalents at End of Period........................... $17,831 $10,252
========= =========
Supplemental Schedule of Cash and Cash Equivalents:
Cash:
Cash and due from banks.............................................. 9,570 8,331
Federal funds sold................................................... 5,000 900
Interest-bearing deposits in other banks............................. 3,261 1,021
--------- ---------
$17,831 $10,252
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid........................................................ 6,458 4,953
Income taxes paid.................................................... 1,275 1,022
6
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly American National
Bankshares Inc. financial position as of June 30, 1996, the results of its
operations and its cash flows for the six months then ended. Operating
results for the three and six month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. A summary of the Corporation's significant accounting
policies is set forth in Note 1 to the Consolidated Financial Statements in
the Corporation's Annual Report to Shareholders for 1995.
2. Investment Securities
Management determines the appropriate classification of securities at
the time of purchase. Securities classified as held for investment are those
securities that management intends to hold to maturity, subject to continued
credit-worthiness of the issuer, and that the Bank has the ability to hold on
a long-term basis. Accordingly, these securities are stated at cost,
adjusted for amortization of premium and accretion of discount on the level
yield method. Securities designated as available for sale have been adjusted
to their respective market values and a corresponding adjustment made to
shareholders' investment at June 30, 1996 and December 31, 1995.
3. Commitments and Contingencies
The Bank has an established credit availability in the amount of
$29,000,000 with the Federal Home Loan Bank of Atlanta. As of June 30, 1996
and December 31, 1995, there were no borrowings outstanding under this
availability.
Commitments to extend credit, which amount to $51,921,000 at June 30,
1996 and $35,416,000 at December 31, 1995, represent legally binding
agreements to lend to a customer 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.
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 June 30, 1996 and December 31, 1995 the Bank had $791,000
and $632,000 in outstanding standby letters of credit.
4. New Accounting Pronouncements
During 1995, the FASB issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
This Statement establishes accounting standards for long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be
held and to be disposed of. The statement requires such assets to be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Any resulting
impairment loss is required to be reported in the period in which the
recognition criteria are first applied and met. The Bank adopted the
provisions of the statement on January 1, 1996. The implementation did not
have a material impact on the consolidated financial position or consolidated
results of operations.
During 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights". This statement is not applicable to the current
operations of the Bank. In June of 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". The statement, which becomes effective for
transactions occurring after December 31, 1996, provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on the financial components approach
that focuses on control. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes all assets it does not
control and derecognizes liabilities when extinguished. The statement also
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. Management
does not anticipate that the implementation of the statement will have a
material impact on the consolidated financial position or consolidated
results of operations of American National Bankshares Inc.
5. Merger and Acquisitions
In August 1995, the Corporation acquired the branch office of Crestar
Bank in Gretna, Virginia. In addition to the branch facilities at Gretna,
the Corporation acquired $2,150,000 in loans and assumed deposits of
$36,295,000. This transaction was accounted for as a purchase.
On March 14, 1996, the Corporation completed the acquisition of Mutual
Savings Bank, F.S.B. (Mutual) upon the approval of the shareholders of each
company. The Corporation exchanged 879,805 common shares, at an exchange
ratio of .705 of a share of the Corporation's common stock, for each of
Mutual's 1,248,100 common shares.
The transaction was accounted for as a pooling of interests. The
financial position and results of operations of the Corporation and Mutual
were combined and the fiscal year of Mutual was conformed to the
Corporation's fiscal year. In addition prior periods have been restated to
give effect to the merger.
In March 1996 the shareholders of the Corporation approved an amendment
to the articles of incorporation to increase the number of authorized shares
of the Corporation's common stock from 3,000,000 shares to 10,000,000 shares.
On July 25, 1996 the Corporation signed a purchase and assumption
agreement with FirstSouth Bank of Burlington, North Carolina. The agreement
provides for the purchase of the Yanceyville North Carolina branch office of
FirstSouth Bank by American National Bank and Trust Company. American
National Bank and Trust Company will assume approximately $22,000,000 in
deposits and will purchase loans of approximately $4,600,000 in addition to
the building, fixtures and equipment. In consideration of the transaction,
American National Bank and Trust Company will pay a premium on the deposits
of $1,516,000 or approximately 6.9%. The acquisition will be recorded as a
purchase transaction and the premium of $1,516,000 will be recorded as a core
deposit intangible asset. Subject to receipt of regulatory approval, the
transaction is expected to be consummated in the fourth quarter of 1996.
AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
EARNINGS and CAPITAL
On March 14, 1996, the Corporation completed the merger of Mutual
Savings Bank, F.S.B. (Mutual) into American National Bankshares Inc. (ANB).
For comparative reporting purposes the financial results for the three and
six month periods ended June 30, 1996 include income and expenses of both
Mutual and ANB during this period and are compared to the combined financial
results of Mutual's three and six month periods ended March 31, 1995 and
ANB's three and six month periods ended June 30, 1995.
The Corporation's net income, excluding the effect of cost associated
with the merger and all related income tax effects, for the six months ended
June 30, 1996 was $2,986,000, an increase of $424,000 or 17% over the
$2,562,000 earned in the first six months of 1995. The results of the second
quarter ended June 30, 1996 show net income of $1,596,000, excluding the
effect of cost associated with merger and all related income tax effects,
which was an increase of $293,000 or 22% over the income earned in the same
period of 1995. The increase in earnings for both periods was primarily
attributable to an increase in trust revenue during both periods and an
increase in net interest income as a result of new loans and improved yields
on investments.
The components of the cost associated with the merger include a federal
income tax recapture on untaxed loan loss reserves of Mutual and consulting,
legal, accounting, conversion, regulatory and other related fees and expense.
Also included in the merger related expense is a loss on the sale of
securities. These were securities held by Mutual and were not compatible
with ANB's investment program.
Net income per common share for the first six months of 1996 was $.44
compared with $.80 earned during the same period of 1995. Net income per
common share for the second quarter ended June 30, 1996 was $.48 compared
with $.41 earned during the same period of 1995. On an annualized basis,
return on average total assets, before merger related expense, was 1.52% for
the six month period ended June 30, 1996 and 1.54% for the same period of
1995. Return on average total assets, before merger related expense, during
the second quarter ended June 30, 1996 was 1.62% compared to 1.57% for the
same period of 1995. Return on average common shareholders' equity, before
merger related expense, was 12.15% for the first six months of 1996 compared
to 10.42% for the first six months of 1995 and 13.04% for the second quarter
of 1996 compared to 11.17% for the same quarter of 1995.
TRENDS AND FUTURE EVENTS
During the first half of 1996, the volume of net loans increased by
$6,539,000 or 3%. This increase is the result of a strong loan demand and is
indicative of the continuance of a healthy local economy. The increase in
loans was funded from the proceeds of maturing investment securities, cash
and the sale of repurchase agreements. Total investment securities decreased
during the first half of 1996 by $2,258,000 or 2%.
Total deposits increased $3,794,000 or 1% during the first half of 1996
and repurchase agreements increased $6,740,000 or 70% during the same period.
The increase in repurchase agreements was primarily attributable to one large
commercial customer. Historically the deposit growth is relatively flat in
the first half of each year and tends to accelerate in the second half of the
year.
During the first quarter of 1996, the Corporation changed its policy
from paying dividends semi-annually to a quarterly schedule. On March 29,
1996, the Board of Directors paid the Corporation's first quarterly dividend
of $.15 per share on 3,279,798 shares of common stock outstanding. On May
22, 1996 a dividend of $.18 per share was declared and was paid on June 28,
1996.
On August 25, 1996 the Corporation entered into an agreement with
FirstSouth Bank of Burlington, North Carolina to purchase the branch office
and associated ATM of FirstSouth Bank located in Yanceyville, (Caswell
County) North Carolina. American National Bank and Trust Company will assume
the deposits of this branch office, which are estimated at $22,000,000 and
purchase the loans of approximately $4,600,000 as well as the building,
furniture, fixtures and equipment. American National Bank and Trust Company
will pay a premium of $1,516,000, approximately 6.9% of the deposits assumed.
The transaction will be accounted for as a purchase and the premium will be
recorded as a core deposit intangible asset. The consummation of the
transaction is subject to normal regulatory approval and the transaction is
expected to be completed in the fourth quarter of 1996. The Yanceyville
branch office is approximately 12 miles from the City of Danville and
Management views this as a natural expansion of the Corporation's market
area. The Corporation already serves many customers who work in the greater
Danville area but reside in Caswell County.
NET INTEREST INCOME
Net interest income, the largest component of the Corporation's
earnings, is the excess of interest income over interest expense. During the
first half of 1996, net interest income increased $367,000 or 5% over the
same period of 1995. During the second quarter of 1996, net interest income
increased $165,000 or 5% over the same period of 1995. The increase in net
interest income for both periods is primarily attributable to an increase in
the volume of loans and improved yields on investments.
During the first half of 1996, interest market rates have declined
slightly. During the next twelve months the Corporation's repricing
opportunities in liabilities will exceed repricing opportunities of assets by
approximately $41,214,000, (approximately 10% of total assets), which makes
the Corporation liability sensitive. Any further declines in market interest
rates within the next twelve months may tend to increase the Corporation's
net yield on interest earning assets but Management does not expect this to
have a substantial effect upon the earnings of the Corporation during the
projected period.
ASSET QUALITY
Nonperforming assets include loans on which interest is no longer
accrued, loans classified as troubled debt restructurings and foreclosed
properties. There were no foreclosed properties held at the close of the
reporting period. Nonperforming assets were $41,000 at June 30, 1996 and
$306,000 at December 31, 1995, a decrease of $265,000 during the first half
of 1996.
During the first half of 1996 the gross amount of interest income that
would have been recorded on nonaccrual loans and restructured loans at June
30, 1996, if all such loans had been accruing interest at the original
contractual rate, was $36,000. No interest payments were recorded during the
reporting period as interest income for all such nonperforming loans.
Nonperforming assets as a percentage of net loans were .02% at June 30,
1996 and .1% at December 31, 1995.
Loans accruing interest and past due 90 days or more totaled $300,000 at
June 30, 1996 and $161,000 at December 31, 1995. This increase of $139,000
results from the past due status of several commercial loans and is not
considered significant in view of the size of the Corporation's loan
portfolio.
PROVISION and RESERVE FOR LOAN LOSSES
The provision for loan losses was $253,000 for the six months of 1996
and $122,000 for the second quarter of 1996. The reserve for loan losses
totaled $2,882,000 at June 30, 1996 an increase of 5% over the $2,757,000
recorded at December 31, 1995. The ratio of reserves to loans, less unearned
discount, was 1.30% at June 30, 1996 and 1.28% at December 31, 1995. The
ratios for both periods are lower than the ratios provided by the Corporation
in past years. As a result of the merger with Mutual Savings Bank, the mix
of loans in the Corporation's portfolio has been heavily shifted to mortgage
loans due to Mutual's high concentration of mortgages. The mortgage loan
portfolio is well secured and requires a lower allocation of the
Corporation's loan loss reserve than does the remainder of the loan
portfolio. In Management's opinion, the current reserve for loan losses is
adequate.
NON-INTEREST INCOME
Non-interest income for the second quarter ended June 30, 1996 was
$794,000, an increase of 35% over the $587,000 reported in the first quarter
of 1995. The components of the increase in the second quarter of 1996
included a 64% increase in trust revenue. The trust revenue increase,
$221,000, resulted primarily from fees associated with the sale of assets in
one large estate and fees associated with new business booked. The trust
revenue increase is not necessarily indicative of future trust earnings.
Other changes in non-interest income included a 36% increase in service
charges on deposit accounts due to increased deposits and increased fee
schedules, a 7% increase in fees and insurance commissions and a 50% decrease
in other non-interest income. In the second quarter of 1995 other non-
interest income included a profit of $59,000 on the sale of investment
securities which is the primary decrease between periods.
Non-interest income for the six months ended June 30, 1996 was
$1,437,000, an increase of 29% over the $1,114,000 reported for the same
period of 1995. The components of the increase included a 46% increase in
trust revenue. The increase in trust revenue resulted from new business
booked and the sale of assets in one large estate. Other components of the
increase in non-interest income included a 21% increase in service charges on
deposit accounts primarily from an increase in fees charged and a more
comprehensive coverage and analysis of commercial accounts.
Also included is a 5% decrease in fees and insurance premiums and a 25%
decrease in other non-interest income. The change in other non-interest
income reflects additional non-interest income of $59,000 recorded in the
same period of 1995 from profit on the sale of investment securities.
NON-INTEREST EXPENSE
Non-interest expense for the second quarter of 1996 was $2,086,000,
compared with $2,083,000 reported for the same period last year. The
increase of $3,000 included an increase in salaries of 6% over the same
period last year. Pension and other employee benefits decreased 5% from the
second quarter of 1995. Occupancy and equipment expense increased 9%, FDIC
insurance expense decreased 75% due to a reduction in premiums by the FDIC
and postage and printing expense increased 85% as a result of increases in
deposit and loan accounts, special promotions and advertising by mail. Non-
recurring merger related expense increased $17,000 during the second quarter
of 1996 from additional miscellaneous charges. Other non-interest expense
decreased 2% from the same quarter of 1995.
Non-interest expense for the six months ended June 30, 1996 was
$5,399,000, a 30% increase over the $4,148,000 recorded for both ANB and
Mutual during the same period of 1995. The components of the increase
included a 5% increase in salaries, a 3% decrease in pension and other
employee benefits, an 18% increase in occupancy and equipment expense,
primarily from upgrading facilities and equipment, a 61% increase in postage
and printing expense, due to increases in deposits and loans and special
promotions and advertising by mail. Merger related expenses during the first
6 months of 1996 are non-recurring expenses and total $1,185,000. The merger
related expenses consist of consulting, legal, accounting, conversion and
regulatory fees and expense and a loss on the sale of securities acquired
from Mutual in the merger that were not compatible with the Corporation's
investment program. Other non-interest expenses increased 6% over the same
period of 1995.
INCOME TAX PROVISION
The income tax provision for the first six months of 1996 was $1,708,000
an increase of $540,000 from the $1,168,000 reported a year earlier. This
increase resulted primarily from the Corporation recording a one-time Federal
tax liability associated with Mutual's prior untaxed loan loss reserves. The
Bank has not experienced any significant change in the effective tax rate on
the operating income before merger related expense.
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
stockholders' 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 June 30, 1996
the Corporation had a ratio of 22% for Tier I and a ratio of 23% for total
capital. At December 31, 1995 these ratios were 20.1% and 21.3%,
respectively.
A cash dividend of $.15 per share, totaling $492,000, was paid on
3,279,798 shares of common stock outstanding on March 29, 1996. A cash
dividend of $.18 per share, totaling $590,000, was paid on 3,279,798 shares
of common stock outstanding on June 28, 1996.
LIQUIDITY
The Corporation's net liquid assets to net liabilities ratio was 33% at
June 30, 1996. At December 31, 1995, this ratio was 34%. Both of these
ratios are considered to be adequate liquidity for the respective periods.
Management constantly monitors and plans the Corporation's liquidity
position for future periods. Liquidity is provided from cash and due from
banks, federal funds sold, 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.
PART II
OTHER INFORMATION
Item:
1. Legal Proceedings
None
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 - Financial Data Schedule EX-27
(b) Reports on Form 8-K - One Form 8-K was filed March 29, 1996
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
President and Chief
Date - August 12, 1996 Executive Officer
/s/ David Hyler
---------------------------------
David Hyler
Senior Vice-President and
Secretary-Treasurer
Date - August 12, 1996 (Chief Financial Officer)