American National Bankshares Inc. Reports First Quarter 2013 Earnings

April 18, 2013

DANVILLE, VA--(Marketwired - Apr 18, 2013) - American National Bankshares Inc. (AMNB)

  • Q1 net income of $4.1 million and diluted EPS of $0.53
  • Net interest margin of 4.19% for Q1 2013
  • Nonperforming assets 0.85% of total assets
  • Tangible common equity to tangible assets 9.73%

American National Bankshares Inc. (AMNB), parent company of American National Bank and Trust Company, today announced first quarter 2013 net income of $4,151,000 compared to $4,175,000 for the first quarter of 2012, a $24,000 or 0.6% decrease. Diluted earnings per share were $0.53 for the 2013 quarter and the 2012 quarter. This quarterly net income produced for 2013 a return on average assets of 1.28%, a return on average equity of 10.22%, and a return on average tangible equity of 14.98%.

Earnings for both the 2013 and 2012 quarters were favorably impacted by the July 2011 merger between American National and MidCarolina Financial Corporation ("MidCarolina").

Financial Performance and Overview
Jeffrey V. Haley, President and Chief Executive Officer, reported, "American National had a strong first quarter for 2013. 

"During the past 12 months there was not significant change in our balance sheet as we worked to complete our asset quality improvement strategy for the loan portfolio we acquired from the MidCarolina merger. At March 31, 2013, American National had $792,513,000 in loans compared to $816,471,000 at March 31, 2012, a decrease of $23,958,000 or 2.9%. We believe the asset improvement strategy has been successful; over the past year our nonperforming assets as a percent of total assets have declined to 0.85% from 1.50%. 

"One of the results of this strategy is slower loan growth for a period of time. Nonetheless, we are encouraged because our loan portfolio has seen some small growth in both the Virginia and North Carolina markets this quarter compared to year end. Loans during the first quarter 2013 have increased $3,808,000 or 0.5%.

"At March 31, 2013, American National had $1,037,748,000 in deposits compared to $1,074,730,000 at March 31, 2012, a decrease of $36,982,000 or 3.4%. This is mostly the result of an effort to reduce wholesale funding acquired with the MidCarolina merger. However, we are continuously working to grow core deposits and their affiliated relationships. The challenge in this ongoing low rate environment is to do that in a cost effective and yet competitive manner. Our cost of deposits for the first quarter 2013 is 0.71%, down from 0.84% for the 2012 first quarter.

"On the income statement side, our earnings for the first quarter were very good, $4,151,000. This is only slightly down from the same quarter of 2012. On a diluted per share basis earnings were $0.53 per share for both the 2013 quarter and the 2012 quarter.

"There were a number of factors driving earnings this quarter.

"The impact of the fair value accounting from the MidCarolina merger continues to be significant, though decreasing quarter to quarter. We had a pretax benefit of $1,657,000 for the first quarter of 2013, compared to $2,302,000 for the first quarter of 2012. This is mostly related to the acquired loan portfolio and we expect this benefit will continue to accrete rapidly to income.

"Provision expense was $439,000 lower for the 2013 quarter than the comparable 2012 quarter. The provision expense has been positively impacted by continued significant loan recoveries and improving asset quality metrics. During the four quarters, our allowance for loan losses, as a percentage of gross loans, has increased 15 basis points to 1.58%.

"In noninterest income, we made a $330,000 refund this quarter related to an error in a trust agreement going back two decades. This error was detected during a review and has been resolved and recorded as a reduction in trust income. On the positive side, secondary market mortgage income was $187,000 higher this quarter than a year earlier. In addition, we realized $198,000 in gains on securities sales.

"In noninterest expense, we realized some savings from reductions in full time equivalent employees, which are down 24 over the past year. These reductions were effected by retirements and normal attrition. In addition, the 2012 quarter included substantial expenses associated with the MidCarolina merger and with the management information system conversion, which are not recurring expenses.

Haley concluded, "We are pleased with our first quarter earnings. We are also pleased and encouraged by the positive direction of our asset quality, performance, and balance sheet growth metrics. Nevertheless, we cannot forget that the world for community banking is challenging in all areas: economic, regulatory, technological, and operational, and is likely to remain this way. Even with these challenges, and perhaps in large measure due to them, we believe that there are and will continue to be opportunities for banks with strong capital, superior asset quality and imagination. American National Bankshares is doing everything possible to be one of those select banks." 

Capital
American National's capital ratios remain strong and exceed all regulatory requirements. 

Average shareholders' equity was 12.53% of average assets at March 31, 2013, compared to 11.79% at March 31, 2012.

Book value per common share was $20.99 at March 31, 2013, compared to $19.80 at March 31, 2012.

Tangible book value per common share was $15.48 at March 31, 2013, compared to $14.00 at March 31, 2012.

Tangible common equity to tangible assets was 9.73% at March 31, 2013, compared to 8.58% at March 31, 2012.

Credit Quality Measurements
Non-performing assets, consisting of $5,185,000 of non-performing loans and $5,822,000 of foreclosed real estate, represented 0.85% of total assets at March 31, 2013, compared to 1.50% at March 31, 2012. 

Annualized net charge offs were in a net recovery position for both the 2013 and 2012 first quarters. Net recoveries for the first quarter of 2013 were six basis points (0.06%) of average loans, compared to 21 basis points (0.21%) for the first quarter of 2012.

Net Interest Income
Net interest income before provision for loan losses decreased to $11,682,000 in the first quarter of 2013 from $13,172,000 in first quarter of 2012, a decrease of $1,490,000 or 11.3%. 

For the 2013 quarter, the net interest margin was 4.19% compared to 4.68% for the same quarter in 2012, a decrease of 49 basis points (0.49%). 

The decline in net interest income and net interest margin was driven by falling yields on earning assets, impacted by declining market rates and lower accretion income, and by lower levels of outstanding loan balances. It is partially mitigated by reduced cost of interest bearing liabilities.

Provision expense
Provision expense for the first quarter of 2013 was $294,000 compared to $733,000 for the first quarter of 2012, a decrease of $439,000 or 59.9%.

The allowance for loan losses as a percentage of total loans was 1.58% at March 31, 2013, compared to 1.43% at March 31, 2012. The primary driver of this increase has been renewals of performing acquired loans aggregating approximately $80 million over the past year, which are now part of the regular allowance analysis. It has been mitigated by improving asset quality and loan recoveries.

Noninterest Income 
Noninterest income totaled $2,770,000 in the first quarter of 2013, compared with $3,234,000 in the first quarter of 2012, a decrease of $464,000 or 14.3%.

There were a number of factors impacting both periods and this change.

For the 2013 quarter, these included: a $330,000 refund to a trust account to correct a long-standing error; a $198,000 gain on the sale of securities; and a $187,000 increase in mortgage banking fees.

For the 2012 quarter, the largest factor was a $495,000 gain on the sale of surplus real estate, a vacant bank branch office.

Noninterest Expense
Noninterest expense totaled $8,318,000 in the first quarter of 2013, compared to $9,927,000 in the first quarter of 2012, a decrease of $1,609,000 or 16.2%. 

There were a number of factors impacting both periods.

For the 2013 quarter, there were significant cost reductions in the salaries and benefits areas. Full time equivalent employees were reduced by 24 (7.6%) over the past year through a combination of retirements and normal attrition.

For the 2012 quarter, there were significant non-recurring expenses associated with the July 2011 merger with MidCarolina and the management information systems conversion in February 2012.

About American National
American National Bankshares Inc. is a multi-state bank holding company with total assets of approximately $1.3 billion. Headquartered in Danville, Virginia, American National is the parent company of American National Bank and Trust Company. American National Bank is a community bank serving southern and central Virginia and north central North Carolina with 25 banking offices and two loan production offices. American National Bank and Trust Company also manages an additional $583 million of trust, investment and brokerage assets in its Trust and Investment Services Division. Additional information about the company and the bank is available on the bank's website at www.amnb.com.

Shares of American National are traded on the NASDAQ Global Select Market under the symbol "AMNB."

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of federal securities laws. Certain of the statements involve significant risks and uncertainties. The statements herein are based on certain assumptions and analyses by American National and are factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: changes in interest rates; changes in accounting principles, policies or guidelines; significant changes in the economic scenario; significant changes in regulatory requirements; significant changes in securities markets; and changes regarding acquisitions and dispositions. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in American National's most recent Form 10-K report and other documents filed with the Securities and Exchange Commission. American National Bankshares Inc. does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

   
   
American National Bankshares Inc. and Subsidiaries  
Consolidated Balance Sheets  
(Dollars in thousands, except share and per share data)  
Unaudited  
             
    March 31  
ASSETS   2013     2012  
             
Cash and due from banks   $ 15,365     $ 28,197  
Interest-bearing deposits in other banks     42,280       26,649  
                 
Securities available for sale, at fair value     341,176       337,376  
Restricted stock, at cost     4,876       6,019  
Loans held for sale     4,395       3,774  
                 
Loans     792,513       816,471  
  Less allowance for loan losses     (12,528 )     (11,691 )
    Net Loans     779,985       804,780  
                 
Premises and equipment, net     24,297       25,833  
Other real estate owned, net     5,822       6,369  
Goodwill     39,043       39,352  
Core deposit intangibles, net     4,240       6,048  
Bank owned life insurance     14,391       13,922  
Accrued interest receivable and other assets     18,193       24,941  
                 
    Total assets   $ 1,294,063     $ 1,323,260  
                 
                 
Liabilities                
  Demand deposits -- noninterest-bearing   $ 210,201     $ 199,066  
  Demand deposits -- interest-bearing     154,407       168,757  
  Money market deposits     173,724       174,110  
  Savings deposits     83,966       78,650  
  Time deposits     415,450       454,147  
    Total deposits     1,037,748       1,074,730  
                 
  Short-term borrowings:                
    Customer repurchase agreements     46,666       48,651  
    Other short-term borrowings     -       -  
  Long-term borrowings     10,047       10,175  
  Trust preferred capital notes     27,343       27,237  
  Accrued interest payable and other liabilities     7,227       7,443  
    Total liabilities     1,129,031       1,168,236  
                 
Shareholders' equity                
  Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding     -       -  
  Common stock, $1 par, 10,000,000 shares authorized, 7,862,701 shares outstanding at March 31, 2013 and 7,830,247 shares outstanding at March 31, 2012 and     7,863       7,830  
  Capital in excess of par value     57,341       56,633  
  Retained earnings     92,933       84,171  
  Accumulated other comprehensive income, net     6,895       6,390  
    Total shareholders' equity     165,032       155,024  
                 
    Total liabilities and shareholders' equity   $ 1,294,063     $ 1,323,260  
                 
                 
   
   
American National Bankshares Inc. and Subsidiaries  
Consolidated Statements of Income  
(Dollars in thousands, except share and per share data)  
Unaudited  
           
    Three Months Ended  
    March 31  
    2013   2012  
Interest and Dividend Income:          
  Interest and fees on loans   $ 11,395   $ 13,120  
  Interest and dividends on securities:              
    Taxable     878     1,079  
    Tax-exempt     1,052     1,082  
    Dividends     55     51  
  Other interest income     29     10  
    Total interest and dividend income     13,409     15,342  
               
Interest Expense:              
  Interest on deposits     1,436     1,837  
  Interest on short-term borrowings     21     43  
  Interest on long-term borrowings     82     84  
  Interest on trust preferred capital notes     188     206  
    Total interest expense     1,727     2,170  
               
Net Interest Income     11,682     13,172  
  Provision for loan losses     294     733  
               
Net Interest Income After Provision              
  for Loan Losses     11,388     12,439  
               
Noninterest Income:              
  Trust fees     588     882  
  Service charges on deposit accounts     409     488  
  Other fees and commissions     459     457  
  Mortgage banking income     718     531  
  Securities gains (losses), net     198     -  
  Other     398     876  
    Total noninterest income     2,770     3,234  
               
Noninterest Expense:              
  Salaries     3,439     4,111  
  Employee benefits     899     1,078  
  Occupancy and equipment     916     965  
  FDIC assessment     161     233  
  Bank franchise tax     187     183  
  Core deposit intangible amortization     420     547  
  Foreclosed real estate, net     243     (153 )
  Merger related expenses     -     251  
  Other     2,053     2,712  
    Total noninterest expense     8,318     9,927  
               
Income Before Income Taxes     5,840     5,746  
Income Taxes     1,689     1,571  
Net Income   $ 4,151   $ 4,175  
               
Net Income Per Common Share:              
  Basic   $ 0.53   $ 0.53  
  Diluted   $ 0.53   $ 0.53  
Average Common Shares Outstanding:              
  Basic     7,861,991     7,822,228  
  Diluted     7,871,508     7,833,061  
               
               
 
 
American National Bankshares Inc. and Subsidiaries                  
Financial Highlights                  
                       
(In thousands, except share, ratio and nonfinancial data, unaudited)                      
    1st Qtr   4th Qtr   1st Qtr   YTD   YTD  
    2013   2012   2012   2013   2012  
EARNINGS                      
  Interest income   $ 13,409   $ 14,032   $ 15,342   $ 13,409   $ 15,342  
  Interest expense     1,727     1,855     2,170     1,727     2,170  
  Net interest income     11,682     12,177     13,172     11,682     13,172  
  Provision for loan losses     294     334     733     294     733  
  Noninterest income     2,770     2,686     3,234     2,770     3,234  
  Noninterest expense     8,318     9,003     9,927     8,318     9,927  
  Income taxes     1,689     1,608     1,571     1,689     1,571  
  Net income     4,151     3,918     4,175     4,151     4,175  
                                 
PER COMMON SHARE                                
  Earnings per share - basic   $ 0.53   $ 0.50   $ 0.53   $ 0.53   $ 0.53  
  Earnings per share - diluted     0.53     0.50     0.53     0.53     0.53  
  Cash dividends declared     0.23     0.23     0.23     0.23     0.23  
  Book value per share     20.99     20.80     19.80     20.99     19.80  
  Book value per share - tangible (a)     15.48     15.23     14.00     15.48     14.00  
  Closing market price     21.56     20.19     21.30     21.56     21.30  
                                 
FINANCIAL RATIOS                                
  Return on average assets     1.28 %   1.21 %   1.27 %   1.28 %   1.27 %
  Return on average equity     10.22     9.59     10.80     10.22     10.80  
  Return on average tangible equity (b)     14.98     14.12     16.70     14.98     16.70  
  Average equity to average assets     12.53     12.60     11.79     12.53     11.79  
  Tangible equity to tangible assets (a)     9.73     9.64     8.58     9.73     8.58  
  Net interest margin, taxable equivalent     4.19     4.37     4.68     4.19     4.68  
  Efficiency ratio     55.83     58.36     61.65     55.83     61.65  
  Effective tax rate     28.92     29.10     27.34     28.92     27.34  
                                 
PERIOD-END BALANCES                                
  Securities   $ 346,052   $ 340,533   $ 343,395   $ 346,052   $ 343,395  
  Loans held for sale     4,395     13,852     3,774     4,395     3,774  
  Loans, net of unearned income     792,513     788,705     816,471     792,513     816,471  
  Goodwill and other intangibles     43,283     43,703     45,400     43,283     45,400  
  Assets     1,294,063     1,283,687     1,323,260     1,294,063     1,323,260  
  Assets - tangible (a)     1,250,780     1,239,984     1,277,860     1,250,780     1,277,860  
  Deposits     1,037,748     1,027,667     1,074,730     1,037,748     1,074,730  
  Customer repurchase agreements     46,666     49,942     48,651     46,666     48,651  
  Other short-term borrowings     -     -     -     -     -  
  Long-term borrowings     37,390     37,396     37,412     37,390     37,412  
  Shareholders' equity     165,032     163,246     155,024     165,032     155,024  
  Shareholders' equity - tangible (a)     121,749     119,543     109,624     121,749     109,624  
                                 
AVERAGE BALANCES                                
  Securities   $ 326,348   $ 320,718   $ 319,159   $ 326,348   $ 319,159  
  Loans held for sale     8,910     10,535     5,500     8,910     5,500  
  Loans, net of unearned income     782,346     789,611     819,044     782,346     819,044  
  Interest-earning assets     1,171,424     1,167,206     1,175,322     1,171,424     1,175,322  
  Goodwill and other intangibles     43,552     43,970     45,400     43,552     45,400  
  Assets     1,296,250     1,296,709     1,311,794     1,296,250     1,311,794  
  Assets - tangible (a)     1,252,698     1,252,739     1,266,394     1,252,698     1,266,394  
  Interest-bearing deposits     823,822     821,286     880,270     823,822     880,270  
  Deposits     1,038,135     1,043,192     1,063,551     1,038,135     1,063,551  
  Customer repurchase agreements     50,296     45,510     47,229     50,296     47,229  
  Other short-term borrowings     -     2     115     -     115  
  Long-term borrowings     37,399     37,406     37,421     37,399     37,421  
  Shareholders' equity     162,378     163,384     154,685     162,378     154,685  
  Shareholders' equity - tangible (a)     118,826     119,414     109,285     118,826     109,285  
                                 
CAPITAL                                
  Average shares outstanding - basic     7,861,991     7,844,545     7,822,228     7,861,991     7,822,228  
  Average shares outstanding - diluted     7,871,508     7,854,083     7,833,061     7,871,508     7,833,061  
                                 
ALLOWANCE FOR LOAN LOSSES                                
  Beginning balance   $ 12,118   $ 11,998   $ 10,529   $ 12,118   $ 10,529  
  Provision for loan losses     294     334     733     294     733  
  Charge-offs     (287 )   (404 )   (340 )   (287 )   (340 )
  Recoveries     403     190     769     403     769  
  Ending balance   $ 12,528   $ 12,118   $ 11,691   $ 12,528   $ 11,691  
                                 
LOANS                                
  Construction and land development   $ 45,327   $ 48,812   $ 52,446   $ 45,327   $ 52,446  
  Commercial real estate     361,406     355,433     347,815     361,406     347,815  
  Residential real estate     163,920     161,033     182,010     163,920     182,010  
  Home equity     88,356     91,313     95,071     88,356     95,071  
  Commercial and industrial     127,028     126,192     131,711     127,028     131,711  
  Consumer     6,476     5,922     7,418     6,476     7,418  
  Total   $ 792,513   $ 788,705   $ 816,471   $ 792,513   $ 816,471  
                                 
NONPERFORMING ASSETS AT PERIOD-END                                
  Nonperforming loans:                                
    90 days past due   $ -   $ -   $ 183   $ -   $ 183  
    Nonaccrual     5,185     5,316     13,337     5,185     13,337  
  Foreclosed real estate     5,822     6,193     6,369     5,822     6,369  
  Nonperforming assets   $ 11,007   $ 11,509   $ 19,889   $ 11,007   $ 19,889  
                                 
ASSET QUALITY RATIOS                                
  Allowance for loan losses to total loans     1.58     1.54     1.43     1.58     1.43  
  Allowance for loan losses to nonperforming loans     241.62     227.95     86.47     241.62     86.47  
  Nonperforming assets to total assets     0.85     0.90     1.50     0.85     1.50  
  Nonperforming loans to total loans     0.65     0.67     1.66     0.65     1.66  
  Annualized net charge-offs (recoveries) to average loans     (0.06 )%   0.11 %   (0.21 )%   (0.06 )%   (0.21 )%
                                 
                                 
OTHER DATA                                
  Fiduciary assets at period-end (c)   $ 418,413   $ 386,210   $ 385,660   $ 418,413   $ 385,660  
  Retail brokerage assets at period-end (c)   $ 164,961   $ 155,079   $ 151,335   $ 164,961   $ 151,335  
  Number full-time equivalent employees (d)     292     307     316     292     316  
  Number of full service offices     25     25     25     25     25  
  Number of loan production offices     2     2     2     2     2  
  Number of ATM's     31     31     31     31     31  
                                 
                                 
                                 
                                 
Notes:                                
                                 
(a) - Excludes goodwill and other intangible assets                
(b) - Excludes amortization expense, net of tax, of intangible assets                
(c) - Market value                
(d) - Average for quarter                
                                 
                                 
   
   
Net Interest Income Analysis  
For the Three Months Ended March 31, 2013 and 2012  
(in thousands, except rates)  
                             
            Interest            
    Average Balance   Income/Expense   Yield/Rate  
                             
    2013   2012   2013   2012   2013     2012  
Loans:                            
  Commercial   $ 123,615   $ 132,100   $ 1,590   $ 1,811   5.22 %   5.50 %
  Real estate     661,538     679,376     9,728     11,118   5.88     6.55  
  Consumer     6,103     13,068     110     227   7.31     6.97  
    Total loans     791,256     824,544     11,428     13,156   5.79     6.38  
                                     
Securities:                                    
  Federal agencies & GSEs     46,006     30,839     116     162   1.01     2.10  
  Mortgage-backed & CMOs     79,432     99,119     380     529   1.91     2.13  
  State and municipal     189,056     180,866     1,932     1,976   4.09     4.37  
  Other     11,854     8,335     95     94   3.21     4.51  
    Total securities     326,348     319,159     2,523     2,761   3.09     3.46  
                                     
Deposits in other banks     53,820     31,619     29     10   0.22     0.13  
                                     
  Total interest-earning assets     1,171,424     1,175,322     13,980     15,927   4.78     5.42  
                                     
Non-earning assets     124,826     136,472                        
                                     
  Total assets   $ 1,296,250   $ 1,311,794                        
                                     
Deposits:                                    
  Demand   $ 154,555   $ 170,481     32     56   0.08     0.13  
  Money market     172,481     185,920     93     161   0.22     0.35  
  Savings     82,696     76,505     20     29   0.10     0.15  
  Time     414,090     447,364     1,291     1,591   1.26     1.43  
    Total deposits     823,822     880,270     1,436     1,837   0.71     0.84  
                                     
Customer repurchase agreements     50,296     47,229     21     43   0.17     0.37  
Other short-term borrowings     -     115     -     -   -     0.00  
Long-term borrowings     37,399     37,421     270     290   2.89     3.10  
  Total interest-bearing liabilities     911,517     965,035     1,727     2,170   0.77     0.90  
                                     
Noninterest bearing demand deposits     214,313     183,281                        
Other liabilities     8,042     8,793                        
Shareholders' equity     162,378     154,685                        
    Total liabilities and shareholders' equity   $ 1,296,250   $ 1,311,794                        
                                     
Interest rate spread                           4.01 %   4.52 %
Net interest margin                           4.19 %   4.68 %
                                     
Net interest income (taxable equivalent basis)                 12,253     13,757            
Less: Taxable equivalent adjustment                 571     585            
Net interest income               $ 11,682   $ 13,172