AMERICAN NATIONAL BANKSHARES INC.
628 Main Street
Danville, Virginia 24541
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held April 26, 2005
Notice is hereby given that the Annual Meeting of Shareholders of American
National Bankshares Inc. (the "Corporation") will be held as follows:
Place: The Wednesday Club
1002 Main Street
Danville, Virginia 24541
Date: April 26, 2005
Time: 11:30 a.m.
The Annual Meeting is being held for the following purposes:
1. To elect three (3) Directors of the Corporation to serve for a
three-year term as Class III Directors; and
2. To elect one (1) Director of the Corporation to serve for a one-year
term as Class I Director; and
3. To transact any other business that may properly come before the
meeting or any adjournment thereof.
Only shareholders at the close of business on March 7, 2005 are entitled to
notice of and to vote at the Annual Meeting.
It is important that your shares are represented at the meeting.
Accordingly, please sign, date and mail the enclosed proxy in the enclosed
postage-paid envelope, whether or not you plan to attend the meeting. If you do
attend the Annual Meeting, you may revoke your proxy and vote your shares in
person.
By Order of the Board of Directors
/s/Neal A. Petrovich
--------------------------------------------
Neal A. Petrovich
Secretary
Danville, Virginia
March 21, 2005
AMERICAN NATIONAL BANKSHARES INC.
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PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
APRIL 26, 2005
INTRODUCTION
This Proxy Statement is furnished in conjunction with the solicitation by
the Board of Directors of American National Bankshares Inc. (the "Corporation")
of the accompanying proxy to be used at the Annual Meeting of Shareholders of
the Corporation (the "Annual Meeting") and at any adjournments thereof. The
meeting will be held on Tuesday, April 26, 2005, 11:30 a.m., at The Wednesday
Club, 1002 Main Street, Danville, Virginia 24541, for the purposes set forth
below and in the Notice of Annual Meeting of Shareholders. The approximate
mailing date of this Proxy Statement and the enclosed proxy is March 21, 2005.
Voting Rights of Shareholders
Only shareholders of record at the close of business on March 7, 2005 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. As of the close of business on March 7, 2005, there were 5,501,358
shares of the Corporation's common stock outstanding and entitled to vote at the
Annual Meeting. The Corporation has no other class of stock outstanding. Each
share of common stock entitles the record holder thereof to one vote upon each
matter to be voted upon at the Annual Meeting.
A majority of the votes entitled to be cast, represented in person or by
proxy, will constitute a quorum for the transaction of business. Shares for
which the holder has elected to abstain or to withhold the proxies' authority to
vote on a matter, and broker non-votes, will count toward a quorum, but will not
be included in determining the number of votes cast with respect to such matter.
Revocation and Voting of Proxies
Execution of a proxy will not affect a shareholder's right to attend the
Annual Meeting and to vote in person. Any shareholder who has executed and
returned a proxy may revoke it by attending the Annual Meeting and requesting to
vote in person. A shareholder may also revoke his proxy at any time before it is
exercised by filing a written notice with the Corporation or by submitting a
proxy bearing a later date. Proxies will extend to, and will be voted at, any
adjourned session of the Annual Meeting.
Solicitation of Proxies
The cost of solicitation of proxies will be borne by the Corporation.
Solicitation is being made by mail, and if necessary, may be made in person or
by telephone, or special letter by officers and employees of the Corporation or
its banking subsidiary, American National Bank & Trust Company (the "Bank"),
acting on a part-time basis and for no additional compensation.
1
PROPOSALS ONE AND TWO - ELECTION OF DIRECTORS
The Corporation's Board of Directors currently consists of 12 persons. The
Board is divided into three classes (I, II and III), each class to be nearly
equal in number as possible. The term of office for the Class III Directors will
expire at the Annual Meeting and the nominees to serve as Class III Directors
are set forth below. Each of the Class III nominees currently serves as a
director of the Corporation. If elected, the Class III nominees will serve until
the 2008 Annual Meeting of Shareholders, and until their respective successors
are duly elected and qualified. The Board has also nominated Richard G.
Barkhouser, a current director of the Corporation, to serve as a Class I
Director for a one-year term until the 2006 Annual Meeting, at which time he
will retire in accordance with the director retirement policy of the
Corporation.
The persons named in the accompanying proxy will vote for the election of
the nominees named below unless authority is withheld. If for any reason the
persons named as nominees below should become unavailable to serve, an event
that management does not anticipate, proxies will be voted for such other
persons as the Board of Directors may designate.
The Board of Directors recommends the nominees, as set forth below, for
election. The Board of Directors recommends that shareholders vote FOR these
nominees. The election of each nominee requires the affirmative vote of a
plurality of the shares of the Corporation's common stock cast in the election
of Directors.
The names of the nominees for election and the other continuing members of
the Board of Directors, their principal occupations, their age as of December
31, 2004, and certain other information with respect to such persons are as
follows:
Director
Name Principal Occupation Age Since
----------------------------- ------------------------------------------------------ --- --------
Nominees for Directors of Class III to continue in office until 2008
H. Dan Davis * Retired Executive Vice President of the Corporation 67 1996
and Senior Vice President of the Bank; Retired as
Consultant to the Corporation and the Bank in March
2003
Lester A. Hudson, Jr., Ph.D. Professor and Wayland H. Cato Chair of Leadership, 65 1984
McColl Graduate School of Business, Queens University
of Charlotte, Charlotte, NC, since August, 2003; prior
thereto, Professor of Strategy, Clemson University,
Clemson, SC
Charles H. Majors * President and Chief Executive Officer of the 59 1981
Corporation and the Bank
Nominee for Director of Class I to continue in office until 2006
Richard G. Barkhouser President, Barkhouser Motors, Inc., 73 1980
Danville, VA, automobile dealership
2
Director
Name Principal Occupation Age Since
----------------------------- ------------------------------------------------------ --- --------
Directors of Class II to continue in office until 2007
Fred A. Blair President, Blair Construction, Inc., 58 1992
Gretna, VA, commercial building contractor
E. Budge Kent, Jr. * Executive Vice President of the Corporation; 65 1979
Executive Vice President and Chief Trust and
Investment Officer of the Bank
Fred B. Leggett, Jr. Retired Chairman and Chief Executive Officer, 67 1994
Leggett Stores, Danville, VA, retail department stores
Claude B. Owen, Jr. Retired Chairman and Chief Executive Officer, 59 1984
DIMON Incorporated, Danville, VA, leaf tobacco dealer
Directors of Class I to continue in office until 2006
Willie G. Barker, Jr. President, Barklea, Inc., Danville, VA, tobacco 67 1996
warehouse
Ben J. Davenport, Jr. Chairman, First Piedmont Corporation, 62 1992
Chatham, VA, waste management
Michael P. Haley Chairman, MW Manufacturers Inc., 54 2002
Rocky Mount, VA, window manufacturer,
since January, 2005; prior thereto, President and
Chief Executive Officer from June 2001 to January
2005;
prior thereto, President, American of Martinsville,
Martinsville, VA, furniture manufacturer
Franklin W. Maddux, M.D. Physician; Chairman, Danville Urologic Clinic, Inc., 47 2002
healthcare; President, Gamewood, Inc., information
technology services, both Danville, VA
Board Independence
The Corporation's Board of Directors has determined that, except for
current or former executive officers of the Corporation who are Directors
(Messrs. Davis, Kent, and Majors), each Director is independent within the
Nasdaq director independence standards, as currently in effect, and within the
3
Corporation's director independence standards, as established and monitored by
the Corporation's Corporate Governance and Nominating Committee. An * next to
each name above indicates those Directors not considered independent.
Board Members Serving on Other Publicly Traded Company Boards of Directors
Certain of the Corporation's Directors are also directors of other publicly
traded companies. Ben J. Davenport has been a director of Intertape Polymer
Group Inc. since 1994. Lester A. Hudson, Jr. has been a director of American
Electric Power Company, Inc. since 1987. Michael P. Haley has been a director
of Stanley Furniture Company, Inc. since 2003, and Province Healthcare Company
since 2004.
Board of Directors and Committees
Directors are expected to devote sufficient time, energy and attention to
ensure diligent performance of their duties, including attendance at Board and
committee meetings. The Board of Directors of the Corporation met seven times
during 2004. Executive sessions of independent Directors were convened on three
occasions in 2004. The Chairman of the Corporate Governance and Nominating
Committee presides at such sessions. Directors are encouraged to attend
shareholders' meetings, and eight Directors attended the 2004 Annual Meeting of
Shareholders. The Board of Directors of the Bank, which consists of all members
of the Corporation's Board, met fourteen times during 2004.
The Boards of Directors of the Corporation and the Bank have established
various committees, including the Audit and Compliance Committee, the Corporate
Governance and Nominating Committee, and the Human Resources and Compensation
Committee. All incumbent Directors and Director nominees attended more than 75%
of the aggregate total number of meetings of the Boards of Directors and
committees on which they served in 2004, with the exception of Michael P. Haley,
who attended 70% of the total number of meetings. Information on the above
committees and the committee members is detailed below:
The Audit and Compliance Committee met five times in 2004. This committee
currently consists of Messrs. Barker, Blair and Haley. Mr. Blair serves as the
Chairman. The committee reviews significant audit, accounting and compliance
principles, policies and practices, is directly responsible for engaging and
monitoring the independent auditors of the Corporation and the Bank, and
provides oversight of the internal auditing and compliance functions. A more
detailed description of the functions of this committee is contained under the
heading "Report of the Audit and Compliance Committee." All of the members of
this committee are considered independent within the meaning of Securities and
Exchange Commission ("SEC") regulations, the listing standards of Nasdaq, and
the Corporation's Corporate Governance Guidelines. Mr. Haley, a member of the
committee, is qualified as an audit committee financial expert within the
meaning of SEC regulations and the Board has determined that he has accounting
and related financial management expertise within the meaning of the listing
standards of Nasdaq. The charter of the Audit and Compliance Committee is
available at the Corporation's website at www.amnb.com. For access to the
charter, select the "American National Bankshares Inc." icon, then select
"Governance Documents."
The Corporate Governance and Nominating Committee met three times in 2004.
Current members of the committee are Messrs. Barkhouser, Maddux and Owen. Mr.
Barkhouser serves as the Chairman. The committee is responsible for developing
and implementing policies and practices relating to corporate governance,
including reviewing and monitoring implementation of the Corporation's Corporate
Governance Guidelines. In addition, the committee develops and reviews
background information on candidates for the Board and makes recommendations to
the Board regarding such candidates. The committee also supervises the Board's
annual review of Director independence and oversees the Board's performance
4
self-evaluation. All the members of this committee are considered independent
within the meaning of SEC regulations, the standards of Nasdaq, and the
Corporation's Corporate Governance Guidelines. The charter of the Corporate
Governance and Nomination Committee is available at the Corporation's website at
www.amnb.com. For access to the charter, select the "American National
Bankshares Inc." icon, then select "Governance Documents."
The Human Resources and Compensation Committee met four times in 2004. This
committee currently consists of Messrs. Barkhouser, Davenport and Hudson. Mr.
Hudson serves as the Chairman. The Human Resources and Compensation Committee
recommends to the independent Directors the compensation of the Chief Executive
Officer and approves all other executive officers' compensation and recommends
to the Board promotions, Directors' compensation and related personnel matters.
Each Director who served on the Human Resources and Compensation Committee
during 2004 qualifies as a "non-employee director" as such term is defined in
Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and is an "independent director" as such term is defined
in Marketplace Rule 4200(a)(15) of the rules of the National Association of
Securities Dealers, Inc. (the "NASD"). A more detailed description of the
functions of this committee is contained under the heading "Report of the Human
Resources and Compensation Committee on Executive Compensation." The charter of
the Human Resources and Compensation Committee is available at the Corporation's
website at www.amnb.com. For access to the charter, select the "American
National Bankshares Inc." icon, then select "Governance Documents."
Board Compensation
In 2004, all non-officer Directors received a monthly retainer of $800 for
their service on the Board of Directors of the Corporation and an attendance fee
of $400 for each committee meeting and Bank Board meeting attended. Officer
members of the Board of Directors are not paid separately for their service on
the Board or its committees. Non-officer Directors are excluded from the Bank's
retirement plan and, therefore, do not qualify for pension benefits.
Director Nominations Process
The Corporation's Board of Directors has adopted, as a part of its
Corporate Governance Guidelines, a process related to Director nominations (the
"Nominations Process"). The purpose of the Nominations Process is to describe
the manner by which candidates for possible inclusion in the Corporation's
recommended slate of Director nominees (the "Candidates") are selected. The
Nominations Process is administered by the Corporate Governance and Nominating
Committee (the "Governance Committee") of the Board.
The Governance Committee considers candidates for Board membership
suggested by its members and other Board members, as well as management and
shareholders. A shareholder who wishes to recommend a prospective nominee for
the Board may, at any time, notify the Corporation's President and Chief
Executive Officer or any member of the Governance Committee in writing with
whatever supporting material the shareholder considers appropriate. The
Governance Committee will also consider whether to recommend to the Board the
nomination of any person nominated by a shareholder pursuant to the provisions
of the Corporation's bylaws relating to shareholder proposals as described below
under "Shareholder Communications and Proposals."
Once the Governance Committee has identified a candidate, the Committee
makes an initial determination as to whether to conduct a full evaluation of the
candidate. The initial determination is based on whatever information is
provided to the Committee with the recommendation of the candidate, as well as
the Committee members' knowledge of the candidate, which may be supplemented by
5
inquiries to the person making such recommendation or others. The preliminary
determination is based primarily on the need for additional board members to
fill vacancies or expand the size of the Board and the likelihood that the
candidate can satisfy the evaluation factors described below. The Committee may
seek additional information about the candidate's background and experience. The
Committee then evaluates the candidate against the criteria in the Corporation's
Corporate Governance Guidelines, including independence, age, diversity,
availability for time commitment, skills such as an understanding of the
financial services industry, general business knowledge and experience, all in a
context of an assessment of the perceived needs of the Board at that point in
time. In connection with this evaluation, the Committee determines whether to
interview the candidate, and if warranted, one or more members of the Committee
will conduct such interview. After completing the evaluation, the Committees
makes a recommendation to the full Board as to the persons who should be
nominated by the Board, and the Board determines the nominees after considering
the recommendation of the Committee.
6
SECURITY OWNERSHIP
As of March 7, 2005, no shareholder beneficially owned 5% or more of the
Corporation's common stock other than Ambro and Company, the nominee name which
American National Bank and Trust Company uses to register the securities it
holds in a fiduciary capacity for customers. Ambro and Company beneficially
owned 826,227 shares of the Corporation's common stock, or 15.02% of the
outstanding shares, as of March 7, 2005. Of this amount, 256,472 shares may be
voted by existing co-fiduciaries. The Bank may not vote the remaining shares,
but co-fiduciaries may be qualified for the sole purpose of voting all or a
portion of these remaining shares at the Annual Meeting. The address of Ambro
and Company is P.O. Box 191, Danville, Virginia 24543.
The following table sets forth, as of March 7, 2005, the beneficial
ownership of the Corporation's common stock by all Directors and nominees for
Director, all named executive officers of the Corporation (see "Summary
Compensation Table") and all Directors and executive officers of the Corporation
as a group.
Shares of
Common Stock Percent
Name of Beneficial Owner Beneficially Owned (1) of Class
------------------------ ---------------------- --------
Willie G. Barker, Jr. ............................ 28,200 (2)
Richard G. Barkhouser ............................ 188,200 (3) 3.42%
Fred A. Blair .................................... 4,909 (3) (2)
Ben J. Davenport, Jr. ............................ 25,499 (2)
H. Dan Davis ..................................... 129,514 (3) 2.35%
R. Helm Dobbins .................................. 14,200 (4) (2)
Dabney T. P. Gilliam, Jr. ........................ 21,019 (4) (2)
Michael P. Haley ................................. 1,061 (2)
Jeffrey V. Haley . ............................... 27,219 (3) (4) (2)
Lester A. Hudson, Jr. ............................ 9,804 (2)
E. Budge Kent, Jr. ............................... 54,861 (3) (4) (2)
Fred B. Leggett, Jr. ............................. 10,058 (3) (2)
Charles H. Majors ................................ 103,253 (3) (4) 1.85%
Dr. Franklin W. Maddux ........................... 2,400 (3) (2)
Claude B. Owen, Jr. .. ........................... 15,632 (3) (2)
All Directors and executive officers
as a group ..................................... 646,329 (3) (4) 11.39%
-------------------------------------
(1) For purposes of this table, beneficial ownership has been determined
in accordance with the provisions of Rule 13d-3 of the Exchange Act
under which, in general, a person is deemed to be the beneficial owner
of a security if he has or shares the power to vote or direct the
voting of the security or the power to dispose of or direct the
disposition of the security, or if he has the right to acquire
beneficial ownership of the security within 60 days.
(2) Represents less than one percent ownership
(3) Includes shares held by affiliated corporations, close relatives and
children, and shares held jointly with spouses or as custodians or
trustees, as follows: Mr. Barkhouser, 23,376 shares; Mr. Blair, 300
shares; Mr. Davis, 40,704 shares; Mr. Jeffrey Haley, 339 shares; Mr.
Kent, 1,433 shares; Mr. Leggett, 9,268 shares; Mr. Majors, 3,345
shares; Dr. Maddux, 1,100 shares; and Mr. Owen, 4,200 shares.
(4) Includes shares that may be acquired pursuant to currently exercisable
stock options: Mr. Dobbins, 14,000 shares; Mr. Gilliam, 20,850 shares;
Mr. Jeffrey Haley 24,200 shares; Mr. Kent, 23,000 shares; Mr. Majors,
82,200 shares; all Directors and executive officers as a group,
174,250 shares.
7
REPORT OF THE HUMAN RESOURCES AND COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION
The Human Resources and Compensation Committee of the Board of Directors is
responsible for establishing and approving the compensation of executive
officers of the Corporation. Each Director who served on the Human Resources and
Compensation Committee during 2004 qualifies as a "non-employee director" as
such term is defined in Rule 16b-3 promulgated under the Exchange Act, and as an
"independent director" as such term is defined in NASD Rule 4200(a)(15).
This committee considers a variety of factors and criteria in arriving at
its decisions and recommendations for compensation. In making its decisions and
recommendations regarding compensation, the Committee attempts to align the
interests of the Corporation's executive officers with those of the Corporation
and its shareholders. The Committee believes that increases in earnings per
share, dividends and net equity improve shareholder market value and,
accordingly, compensation should be structured to enhance the profitability of
the Corporation and the total return to the shareholders.
Executive officer compensation generally consists of salary, participation
in the Bank's profit sharing plan, stock options, incentive compensation and
benefits. During 2003, executive officers other than Mr. Majors participated in
an incentive compensation program based on the Corporation achieving certain
financial performance goals relative to a peer group of banks. A total of $9,967
was accrued and paid during 2004 under this program.
For 2004, eligibility for the profit sharing and incentive compensation
plans, approved by the Board of Directors upon recommendation by the Human
Resources and Compensation Committee, was based upon increases in earnings per
share. Earnings per share did not reach the minimum threshold set in the plans,
so the executive officers did not receive profit sharing or incentive
compensation in 2004. The executive officers may be eligible to receive profit
sharing and incentive compensation if certain performance and profitability
goals are attained in 2005. Certain key executive officers are eligible to
participate in the Executive Compensation Continuation Plan described below
under "Executive Compensation". The Bank, a wholly owned subsidiary of the
Corporation, directly pays all compensation and no officer receives any
compensation from the Corporation.
The Committee conducts an annual evaluation of the performance and
effectiveness of the Chief Executive Officer. The Committee evaluated the
performance of the Chief Executive Officer based on the financial performance of
the Corporation, achievements in implementing the strategic plan of the
Corporation and the Bank, and the personal observations of the Chief Executive
Officer's performance by the members of the Committee. No particular weight was
given to any aspect of the performance of the Chief Executive Officer, but his
performance in 2004 was evaluated as very positive during a challenging year.
In considering compensation for the Chief Executive Officer and the other
executive officers of the Corporation, the Committee relied on an evaluation of
the officers' level of responsibility and performance and on comparative
compensation information, including the Virginia Bankers Association's Salary
Survey of Virginia Banks and the SNL Bank Compensation Review. In considering
executive officer compensation other than the Chief Executive Officer, the
Committee also receives and takes into account the individual compensation
recommendations from the Chief Executive Officer.
After considering the above information and evaluating the performance of
the Corporation's executive officers during 2004, the Committee recommended the
Chief Executive Officer's 2005 compensation for approval by the independent
8
members of the Board of Directors. The Committee also approved the other
executive officers' 2005 compensation.
The Committee's policy on the tax deductibility of compensation for the
Chief Executive Officer and other executive officers is to maximize the
deductibility, to the extent possible, while preserving the Corporation's
flexibility to maintain a competitive compensation program. The Corporation
expects all executive compensation paid or awarded during 2004 to be fully
deductible.
Human Resources and Compensation Committee
Richard G. Barkhouser
Ben J. Davenport, Jr.
Lester A. Hudson, Jr.
Compensation Committee Interlocks and Insider Participation
No member of the Human Resources and Compensation Committee of the Board of
Directors is a current or former officer or employee of the Corporation. No
member of the Committee or executive officer of the Corporation has a
relationship that would constitute an interlocking relationship with executive
officers or directors of another entity.
9
COMPARATIVE STOCK PERFORMANCE
The following table compares the Corporation's cumulative total return to
its shareholders with the returns of two indexes for the five-year period ended
December 31, 2004. The cumulative total return was calculated taking into
consideration changes in stock price, cash dividends, stock dividends and stock
splits since December 31, 1999. The two indexes are the NASDAQ Index, and the
Carson Medlin Company's Independent Bank Index, consisting of 22 independent
banks located in Alabama, Florida, Georgia, North Carolina, South Carolina,
Tennessee, Virginia and West Virginia.
2000 2001 2002 2003 2004
------ ------ ------ ------ ------
American National Bankshares Inc. $ 82 $ 109 $ 157 $ 162 $ 155
Independent Bank Index 94 114 141 190 221
NASDAQ Index 60 48 33 49 54
10
EXECUTIVE COMPENSATION
The following table provides information on the total compensation paid or
accrued during the years indicated below to the President and Chief Executive
Officer and the four other most highly compensated executive officers of the
Corporation (the "named executive officers").
Summary Compensation Table
Long-Term
Compensation
--------------
Annual Compensation (1) Securities
Name, Age at December 31, 2004, --------------------------- Underlying All Other
and Principal Postion Year Salary ($) Bonus ($)(2) Options (#)(3) Compensation ($)(4)
----------------------------------------------- ---- ---------- ------------ -------------- -------------------
Charles H. Majors, 59 2004 $269,200 $ - 25,000 $ 8,627
President & Chief Executive Officer 2003 258,077 20,952 10,000 8,477
of the Corporation and the Bank 2002 235,000 68,710 10,000 7,977
E. Budge Kent, Jr., 65 2004 $133,252 $ 2,568 4,000 $ 10,632
Executive Vice President of the 2003 128,410 10,841 4,000 7,416
Corporation; Executive Vice President and Chief 2002 124,950 11,543 1,000 7,305
Trust & Investment Officer of the Bank
Dabney T. P. Gilliam, Jr., 50 2004 $112,857 $ 2,174 5,000 $ 4,286
Senior Vice President of the Corporation; 2003 108,692 9,387 5,000 3,927
Senior Vice President, Chief Banking Officer 2002 105,000 9,700 5,000 3,815
and Senior Loan Officer of the Bank
Jeffrey V. Haley, 44 2004 $107,680 $ 2,074 5,000 $ 3,679
Senior Vice President of the Corporation; 2003 103,692 8,967 5,000 3,651
Senior Vice President & Chief 2002 100,000 9,238 4,000 3,417
Administrative Officer of the Bank
R. Helm Dobbins, 53 (5) 2004 $103,538 $ 1,077 5,000 $ 2,557
Senior Vice President of the Corporation; 2003 53,846 4,601 9,000 9,264
Senior Vice President & Chief Credit Officer of 2002 - - - -
the Bank
----------------------------------
(1) No officer received perquisites or other personal benefits in an amount
greater than the lesser of (a) $50,000 or (b) 10% of such officer's total
salary plus bonus.
(2) Includes accrued payments of profit sharing (bonus) and incentive
compensation. Incentive compensation represented payments to officers based
on the Corporation achieving certain stock or financial performance goals
and on the officer meeting stated individual goals. The total incentive
compensation expense for employees for 2004 amounted to $9,967. No profit
sharing expense was accrued in 2004 other than $14,028 accrued for employees
of ANB Mortgage Corp., under a separate plan.
(3) The Corporation grants options pursuant to the Corporation's Stock Option
Plan, which was approved by shareholders at the 1997 annual meeting.
(4) Includes for 2004: (i) $6,150, $3,998, $3,386, $3,230 and $1,560 accrued on
behalf of Messrs. Majors, Kent, Gilliam, Haley and Dobbins, respectively,
under the Bank's 401(k) plan; and (ii) $2,477, $6,634, $900, $449 and $997
in taxable compensation for term life insurance over $50,000 paid by the
Bank on behalf of Messrs. Majors, Kent, Gilliam, Haley and Dobbins,
respectively. In 2003, Mr. Dobbins received $8,744 in relocation related
compensation.
(5) Mr. Dobbins became employed by the Corporation and the Bank in June 2003.
From 1998 to 2003, he served as Executive Vice President and Chief Credit
Officer of Citizens Bank and Trust Co., Chillicothe, Missouri.
11
Stock Option Plan
The Corporation maintains a stock option plan (the "Plan") that is designed
to attract and retain qualified personnel in key positions, provide employees
with a proprietary interest in the Corporation as an incentive to contribute to
the success of the Corporation and the Bank and reward employees for outstanding
performance and the attainment of targeted goals. The Plan provides for the
grant of incentive stock options intended to comply with the requirements of
Section 422 of the Internal Revenue Code of 1986 ("incentive stock options"), as
well as non-qualified stock options.
The Plan was approved by shareholders at the April 1997 Annual Meeting, and
is administered by a committee of the Board of Directors of the Corporation
comprised of independent Directors. Unless sooner terminated, the Plan is in
effect until December 31, 2006. Under the Plan, the committee determines which
employees will be granted options, whether such options will be incentive or
non-qualified options, the number of shares subject to each option, whether such
options may be exercised by delivering other shares of common stock and when
such options become exercisable. In general, the per share exercise price of an
incentive stock option must be at least equal to the fair market value of a
share of common stock on the date the option is granted.
Stock options shall become vested and exercisable in the manner specified
by the committee. In general, each stock option or portion thereof shall be
exercisable at any time on or after it vests and is exercisable until ten years
after its date of grant.
Stock Option Grants in 2004
The following table provides information concerning stock options granted
to the named executive officers during 2004.
Potential Realizable Value
at Assumed Annual Rates of
Number of % of Total Stock Price
Securities Options Exercise Appreciation for
Underlying Granted to or Base Option Term
Options Employees in Price Expiration ----------------------------
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
------------------------- ----------- ------------ --------- ---------- ------------ -----------
Charles H. Majors 25,000 44.81% $ 24.50 12/21/14 $ 385,198 $ 976,167
E. Budge Kent, Jr. 4,000 7.17% 24.50 12/21/14 61,632 156,187
Dabney T. P. Gilliam, Jr. 5,000 8.96% 24.50 12/21/14 77,040 195,233
Jeffrey V. Haley 5,000 8.96% 24.50 12/21/14 77,040 195,233
R. Helm Dobbins 5,000 8.96% 24.50 12/21/14 77,040 195,233
12
Stock Option Exercises in 2004 and Year-End Option Values
The following table shows certain information with respect to the number
and value of unexercised options held at year-end by the named executive
officers.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at Options at
Acquired December 31, 2004 (#) December 31, 2004 ($) (1)
on Value ---------------------------- ----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------------- ------------ ------------ ----------- ------------- ----------- -------------
Charles H. Majors 3,000 $ 28,245 82,200 - $ 341,162 $ -
E. Budge Kent, Jr. 200 2,126 23,000 - 117,868 -
Dabney T. P. Gilliam, Jr. - - 20,850 - 56,474 -
Jeffrey V. Haley - - 24,200 - 95,390 -
R. Helm Dobbins - - 14,000 - 840 -
---------------------------
(1) The value of unexercised in-the-money options is calculated by multiplying
the number of unexercised options at December 31, 2004 by the difference in
the closing price of the Corporation's common stock reported at the close of
business on December 31, 2004 ($24.21 per share) and the exercise price of
the unexercised in-the-money options.
Retirement Plan
The Bank's retirement plan is a non-contributory defined benefit pension
plan which covers salaried and regular hourly employees of the Bank who are 21
years of age or older and who have had at least one year of service. Advanced
funding is accomplished by using the actuarial cost method known as the
collective aggregate cost method.
As of December 31, 2004, the normal retirement benefit formula was 1.3% per
year of service multiplied by compensation, plus .65% per year of service
multiplied by compensation in excess of social security covered compensation,
with years of service limited to 35. At normal retirement, the monthly benefit
is calculated based on any consecutive five-year period that will produce the
highest average rate of basic monthly compensation. Basic monthly compensation
includes salary but excludes incentive and bonus compensation. This is based on
a straight life annuity assuming full benefit at age 65. Annual compensation at
December 31, 2004 was also limited to $205,000 by Internal Revenue Service
regulations. Cash benefits under the plan generally commence on retirement at
age 65, death, or termination of employment. Partial vesting of the retirement
benefits under the plan occurs after three years of service and full vesting
occurs after seven years of service. As of December 31, 2004, the named
executive officers have completed the following years of credited service under
the Bank's retirement plan: Mr. Majors, 12; Mr. Kent, 35; Mr. Gilliam, 5; Mr.
Haley, 8; and Mr. Dobbins, 1.
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The following table illustrates the estimated annual benefits payable to an
employee retiring on December 31, 2004 at normal retirement age in the following
specified compensation and years of service classifications:
5 Year Years of Credited Service
Average -----------------------------------------------------------------------------------
Salary 15 20 25 30 35
-------- -------- -------- -------- -------- --------
$ 50,000 $ 10,112 $ 13,483 $ 16,854 $ 20,225 $ 23,595
75,000 17,425 23,233 29,041 34,850 40,658
100,000 24,737 32,983 41,229 49,475 57,720
125,000 32,050 42,733 53,416 64,100 74,783
150,000 39,362 52,483 65,604 78,725 91,845
175,000 46,675 62,233 77,791 93,350 108,908
200,000 53,987 71,983 89,979 107,975 125,970
205,000 55,450 73,933 92,416 110,900 129,383
Deferred Compensation Plan
The Board of Directors of the Bank adopted the Executive Compensation
Continuation Plan, a non-contributory deferred compensation plan, in 1982. Under
the plan, certain key executives who, in the opinion of the Board of Directors,
are making substantial contributions to the overall growth and success of the
Corporation and the Bank and who must be retained in order to expand and
continue satisfactory long-term growth are eligible to receive benefits afforded
by the plan. Under agreements with eligible key executives pursuant to this
plan, if any such executive dies or retires while employed by the Corporation,
such executive or his designated beneficiary will receive annual payments
commencing at death or retirement and continuing for 10 years. Messrs. Majors
and Kent, respectively, or their designated beneficiaries, will receive an
annual benefit of $50,000 and $25,000 per year for 10 years commencing at each
officer's retirement or death.
Termination and Change in Control Arrangements
The Corporation recognizes that, as a publicly held corporation in the
financial services industry, there exists the possibility of a change in the
control of the Corporation. In order to minimize such uncertainty among senior
management and to promote continuity in the event of a control change
transaction, the Corporation has entered into agreements with each of the named
executive officers.
The terms of the agreements are only effective upon a change of control and
for three years thereafter. A "change of control" is defined with reference to a
change in the composition of the Board of Directors, a change in the ownership
of a majority of the Corporation's voting stock or a sale of a majority of the
Corporation's assets. The agreements provide that each executive officer's base
salary and profit sharing and incentive compensation cannot be reduced during
such three-year period. The agreements also provide for the executive officers
to receive continued salary and benefits if their employment is terminated
without cause during the term of the agreements. If employment is terminated
during the first year after a control change, Mr. Majors will receive continued
salary and benefits for 24 months after such termination and the other executive
officers will receive continued salary and benefits until the second anniversary
of the change of control. If the termination of employment occurs more than 12
months after the control change, Mr. Majors will receive continued salary and
benefits until the third anniversary of the control change and the other
executive officers will receive continued salary and benefits until the earlier
of the first anniversary of termination of employment or the third anniversary
of the control change. Other executive officers include the named officers
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Messrs. Kent, Gilliam, Haley, and Dobbins as well as Neal A. Petrovich, Senior
Vice President of the Corporation and Senior Vice President and Chief Financial
Officer of the Bank.
The agreements also provide for continued salary and benefits if the
executive officer resigns under certain circumstances. Beginning in the fourth
month after a control change and through the twelfth month after the
transaction, each executive officer may resign for any reason and receive
continued salary and benefits for 24 months (in the case of Mr. Majors) or 12
months (in the case of the other executives). After the first anniversary of the
control change, an executive officer may resign and receive continued salary and
benefits for the same period (but not beyond the third anniversary of the
control change) if his resignation is on account of a reduction in the
executive's compensation, a required relocation of his office more than thirty
miles from Danville, Virginia or a reduction in the duties or title assigned to
him as of the first anniversary of the control change.
In all events, the amounts payable under the agreements are governed by two
limitations. First, no amounts will be paid under an agreement for any period
after the executive attains age 65. Second, no amounts will be paid under the
agreements to the extent that the benefits would exceed the Internal Revenue
Code's limit on "parachute" payments.
RELATED PARTY TRANSACTIONS
Some of the Directors and officers of the Corporation and the companies
with which they are associated were customers of, and had banking transactions
with, the Bank in the ordinary course of the Bank's business during 2004. All
loans and commitments to lend included in such transactions were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and, in
the opinion of the management of the Corporation, do not involve more than a
normal risk of collectibility or present other unfavorable features.
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE
The Audit and Compliance Committee assists the Board of Directors in its
oversight of (1) the integrity of the Corporation's financial statements and its
financial reporting and disclosure practices, (2) the appointment, compensation,
retention and oversight of the independent accountants engaged to prepare or
issue an audit report on the financial statements of the Corporation, (3) the
soundness of the Corporation's systems of internal controls regarding finance
and accounting compliance, (4) the independence and performance of the
Corporation's internal audit staff, and (5) compliance with significant
applicable legal, ethical, and regulatory requirements. The committee strives to
provide an open avenue of communication between the Board of Directors,
management, the internal auditor, the compliance officer, and the independent
accountants.
All of the members of this committee are considered independent within the
meaning of SEC regulations, the listing standards of Nasdaq, and the
Corporation's Governance Guidelines. All are considered an "independent
director", as defined by NASD Rule 4200(a)(15).
Mr. Michael P. Haley, a member of the committee, is qualified as an audit
committee financial expert within the meaning of SEC regulations and the Board
has determined he has accounting and related financial management expertise
within the meaning of the listing standards of Nasdaq.
The Audit and Compliance Committee has reviewed and discussed with
management the Corporation's audited consolidated financial statements as of and
for the year ended December 31, 2004. The committee has discussed with Yount,
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Hyde and Barbour, P.C., the Corporation's independent accountants during fiscal
year 2004, the matters required to be discussed by Statement of Auditing
Standards No. 61, Communications with Audit Committees, as amended, by the
Auditing Standards Board of the American Institute of Certified Public
Accountants. The committee received from Yount, Hyde and Barbour, P.C. and
reviewed the written disclosures and the letter required by Independence
Standards Board Standard No. 1, Independence Discussions with Audit Committees,
and has discussed with Yount, Hyde and Barbour, P.C. the auditing firm's
independence.
Based on the reviews and discussions referred to above, the Audit and
Compliance Committee recommended to the Board of Directors that the
Corporation's audited consolidated financial statements be included in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2004
and be filed with the SEC.
The Audit and Compliance Committee pre-approves all audit, audit related,
and tax services on an annual basis, and in addition, authorizes individual
engagements that exceed pre-established thresholds. Any additional engagement
that falls below the pre-established thresholds must be reported by management
at the Audit and Compliance Committee meeting immediately following the
initiation of such an engagement.
A copy of the Audit and Compliance Committee charter, as amended, is
available at the Corporation's website at www.amnb.com. For access to the
charter, select the "American National Bankshares Inc." icon, then select
"Governance Documents."
Audit and Compliance Committee
Willie G. Barker, Jr.
Fred A. Blair
Michael P. Haley
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit and Compliance Committee of the Board of Directors of the
Corporation annually considers and recommends to the Board the selection of the
Corporation's independent public accountants. On November 8, 2004, the Audit and
Compliance Committee selected Yount, Hyde and Barbour, P.C. to serve as the
Corporation's independent public accountants for the fiscal year ending December
31, 2005. Yount, Hyde and Barbour, P.C. has served as the Corporation's
independent public accountants since May 2002.
Representatives of Yount, Hyde and Barbour, P.C. will be present at the
Annual Meeting and they will have an opportunity to make a statement if they so
desire. The representatives also will be available to respond to appropriate
questions.
Fees to Independent Auditors for Fiscal 2004 and 2003
Yount, Hyde and Barbour, P.C. audited the financial statements included in
the Corporation's Annual Report on Form 10-K for the year ended December 31,
2004, reviewed the Corporation's quarterly reports on Form 10-Q, and reviewed
the Corporation's compliance with their formal review of internal controls
required by federal banking law.
The following table presents aggregate fees paid or to be paid by the
Corporation and the Bank for professional services rendered by Yount, Hyde and
Barbour, P.C. for the audit of the Corporation's annual financial statements for
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2004 and 2003 and fees billed for audit-related services, tax services and all
other services rendered by Yount, Hyde and Barbour, P.C. for 2004 and 2003.
2004 2003
------- -------
Audit Fees $63,700 $61,550
Audit-related Fees 27,500 14,000
Tax Fees 7,000 6,750
All Other Fees - -
All non-audit services provided by Yount, Hyde and Barbour, P.C. described
above were approved by the Audit and Compliance Committee, which concluded that
the provision of such services is compatible with maintaining the independence
of Yount, Hyde and Barbour, P.C. The fees listed above as audit-related fees
include the fees to perform agreed upon procedures related to (1) the Federal
Home Loan Bank of Atlanta collateral verification, (2) an annual internal
control review required under FDICIA, (3) the annual Housing and Urban
Development filing review, and (4) an annual report on the internal control
assessment made by the Company's management required under the Sarbanes-Oxley
Act. The fees listed above as tax fees are for the preparation of the annual
consolidated federal and state income tax returns.
CODE OF CONDUCT
The Board of Directors has adopted a Code of Conduct, which applies to all
Directors and employees of the Corporation and the Bank. A portion of the Code
of Conduct has special provisions for senior financial officers of the
Corporation and the Bank, which apply to the Corporation's principal executive
officer and principal financial officer as well as the Bank's Controller or
person performing similar functions for the Corporation and or the Bank. The
Code of Conduct for senior financial officers meets the requirements of a "code
of ethics" as defined by Item 406 of Regulation S-K. The Code of Conduct is
available at the Corporation's website at www.amnb.com. Select the "American
National Bankshares Inc." icon for access.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the Corporation's Directors and
executive officers are required to report their beneficial ownership of
Corporation common stock and any changes in that ownership to the SEC. Specific
dates for such reporting have been established by the SEC, and the Corporation
is required to report in this Proxy Statement any failure to file by the
established dates during 2004. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company, insiders of the
Company complied with all filing requirements during 2004 with the exception of
Messrs. Majors, Kent, Gilliam, Haley, Dobbins, and Petrovich, who each filed one
late form with respect to one transaction.
SEPARATE COPIES FOR BENEFICIAL OWNERS
Pursuant to SEC rules, institutions that hold shares in "street name" for
two or more beneficial owners with the same address are permitted to deliver a
single proxy statement and annual report to that address. Any such beneficial
owner can request a separate copy of the Proxy Statement or Annual Report by
writing the Corporation at Investor Relations, P.O. Box 191, Danville, Virginia
24543 or by telephoning 1-434-773-2220.
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SHAREHOLDER COMMUNICATIONS AND PROPOSALS
Shareholders interested in communicating directly with the Corporate
Governance and Nominating Committee, which is charged with handling all such
communication to non-management members of the Board of Directors of the
Corporation, may do so in writing to Corporate Governance and Nominating
Committee, P.O. Box 191, Danville, Virginia, 24543.
The Corporate Governance Committee has approved a process for handling
correspondence received by the Corporation and addressed to non-management
members of the Board. Under the process, the Assistant Secretary of the
Corporation will forward all mail specifically addressed to a member of the
Board of Directors. If correspondence is specifically addressed only to a
committee, the Assistant Secretary of the Corporation will forward the mail to
the Chairman of said committee. If any mail is received that is addressed only
to "Board of Directors", or "Non-Management Member of the Board of Directors",
said mail will be forwarded by the Assistant Secretary of the Corporation to the
Chairman of the Corporate Governance and Nominating Committee. Correspondence
relating to accounting, internal controls or auditing matters are brought to the
attention of the Chairman of the Audit and Compliance Committee with respect to
such matters.
To be considered for inclusion in the Corporation's proxy statement
relating to the 2006 Annual Meeting, shareholder proposals, including
recommendations for Director nominees, must be received by the Corporation at
its principal office in Danville, Virginia no later than November 21, 2005.
In addition to any other applicable requirements, for business to be
properly brought before next year's Annual Meeting by a shareholder, even if the
proposal is not to be included in the Corporation's proxy statement, the
Corporation's bylaws provide that the shareholder must give notice in writing to
the Secretary of the Corporation no later than January 20, 2006. As to each such
matter, the notice must contain (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name, record address of, and number of
shares beneficially owned by, the shareholder proposing such business and (iii)
any material interest of the shareholder in such business.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors knows of no
other matters to be presented at the Annual Meeting other than those referred to
above. However, if any other matters should properly come before the Annual
Meeting, it is the intention of the persons named in the enclosed form of proxy
to vote such proxy in accordance with their best judgment on such matters.
By Order of the Board of Directors
/s/Charles H. Majors
----------------------------------
Charles H. Majors
President and Chief Executive Officer
March 21, 2005
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