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American National Bankshares Inc. Reports First Quarter 2019 Earnings

  • Q1 2019 net income of $6.0 million

  • Q1 2019 diluted EPS of $0.69

  • Q1 2019 net interest margin of 3.50%

  • Q1 2019 average shareholders’ equity of $224.7 million is 12.06% of average assets

  • Q1 2019 merger related expense $451,000

DANVILLE, Va., April 18, 2019 (GLOBE NEWSWIRE) -- American National Bankshares Inc. (“American National”) (Nasdaq: AMNB), parent company of American National Bank and Trust Company (“American National Bank”), today announced net income for the first quarter of 2019 of $6,003,000 compared to $5,812,000 for the first quarter of 2018, a $191,000 or 3.3% increase. Basic and diluted net income per common share was $0.69 for the first quarter of 2019 compared to $0.67 for the 2018 quarter. Net income for the first quarter of 2019 produced a return on average assets of 1.29%, a return on average equity of 10.69%, and a return on average tangible equity of 13.44% (non-GAAP).

On April 1, 2019, American National completed its merger with Roanoke, Virginia based HomeTown Bankshares Corporation (“HomeTown”). The merger, valued at approximately $84.2 million, significantly expanded American National’s operations in Roanoke and added a new presence in the New River Valley.

Financial Performance and Overview
Jeffrey V. Haley, President and Chief Executive Officer, reported, “We were pleased with our first quarter of 2019. Earnings were $6.0 million compared to $5.8 million for the comparable quarter of 2018, a 3.3% increase. The major driver of the increase was increased net interest income, resulting from higher average yields and higher loan volume. The increase was offset by $451,000 in one-time merger related expenses related to the HomeTown acquisition.

“The balance sheet showed modest growth over the past year. Average loan volume for the first quarter of 2019 was up $14.3 million or 1.1% compared to the 2018 quarter. First quarter of 2019 compared to first quarter of 2018, loans were up $38.8 million or 2.9%. We have seen loan growth in most of our markets, but it has been offset by payoffs and some slowing of demand for credit.

“Average interest bearing deposits for the 2019 quarter were $25.5 million or 2.2% less than the comparable quarter of 2018. First quarter of 2019 compared to first quarter of 2018, total deposits are virtually unchanged. However, we are very pleased at the $25.4 million (6.3%) growth in noninterest bearing demand deposits over the past year.

“In this uncertain interest rate environment, our continuing challenge is to maintain quality growth in assets and deposits and, at the same time, maintain and improve our net interest margin. Our net interest margin for the 2019 quarter was 3.50%, a four basis point increase from the 2018 quarter.”

Haley concluded, “We’re very excited about 2019. We had a good first quarter. We consummated the merger with HomeTown on April 1. We are diligently working toward a systems conversion in late April so the two banks will be completely integrated. We believe this will lay the groundwork for increased growth and earnings for American National in 2019 and beyond.”

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

Average shareholders’ equity was 12.06% of average assets for the quarter ended March 31, 2019, compared to 11.52% for the quarter ended March 31, 2018.

Book value per common share was $26.21 at March 31, 2019, compared to $24.19 at March 31, 2018.

Tangible book value per common share was $21.10 (non-GAAP) at March 31, 2019, compared to $19.00 (non-GAAP) at March 31, 2018.

Credit Quality Measurements
Non-performing assets (composed of $197,000 of 90 day past due loans, $1,111,000 of non-accrual loans and $646,000 of other real estate owned) represented 0.10% of total assets at March 31, 2019, compared to 0.20% at March 31, 2018.

Annualized net charge-offs to average loans were zero basis points (0.00%) for the 2019 first quarter, unchanged from the same quarter in 2018.

Other real estate owned was $646,000 at March 31, 2019, compared to $1,716,000 at March 31, 2018, a decrease of $1,070,000 or 62.4%.

Acquisition Related Financial Impact
The acquisition accounting adjustments related to our 2011 and 2015 acquisitions have had and continue to have a positive impact on net interest income and income before income tax. The impact of these adjustments is summarized below (dollars in thousands):

For the quarter ended March 31,

2019

2018

Net Interest Income

$

255

$

427

Income Before Income Taxes

$

200

$

350

The first quarter of 2019 includes $217,000 in cash basis accretion income related to the early payoff of several acquired loans, compared to $255,000 for the comparable quarter of 2018.

The positive financial impact of these merger related accounting adjustments will continue to decline in upcoming quarters. However, starting in the second quarter of 2019, American National anticipates a significant positive impact from merger related accounting adjustments associated with the acquisition of HomeTown.

Net Interest Income
Net interest income before the provision for loan losses increased to $15,068,000 in the first quarter of 2019 from $14,543,000 in the first quarter of 2018, an increase of $525,000 or 3.6%.

For the 2019 quarter, the net interest margin was 3.50% compared to 3.46% for the same quarter in 2018, an increase of four basis points.

The major drivers affecting margin were:

  • Positively – a $38.4 million (2.3%) increase in average earning assets, at a 23 basis point higher yield.

  • Positively – a $19.8 million (4.9%) increase in average noninterest bearing deposits.

  • Negatively – a $25.5 million (2.2%) decrease in the average balance of interest bearing deposits, at a 25 basis point higher cost.

Provision for Loan Losses and Allowance for Loan Losses
Provision expense for the first quarter of 2019 was $16,000 compared to a recovery of ($44,000) for the first quarter of 2018, an increase of $60,000. The $16,000 provision related to adjustments on the specific reserves for the impaired loan loss allowance.

The allowance for loan losses as a percentage of total loans was 0.94% at March 31, 2019 compared to 1.03% at March 31, 2018. There was a modest increase in the loans outstanding in the first quarter of 2019; loans were up from year-end $2.6 million or 0.2%. However, the need for additional loan loss provision was mitigated by continued high asset quality, low charge offs, and improvement in various qualitative factors, notably economic, political and regulatory, used in the determination of the allowance.

Noninterest Income
Noninterest income totaled $3,451,000 in the first quarter of 2019, compared with $3,333,000 in the first quarter of 2018, an increase of $118,000 or 3.5%.

Mortgage banking income decreased $44,000 (9.8%) compared to the first quarter of 2018.

Securities gains increased $202,000 (166.9%) compared to the first quarter of 2018. Gains in the 2019 quarter were almost entirely related to unrealized changes in the market value of equity securities held by the company.

Noninterest Expense
Noninterest expense totaled $10,929,000 in the first quarter of 2019, compared to $10,702,000 in the first quarter of 2018, an increase of $227,000 or 2.1%.

The major factor affecting expense was salaries, which decreased $333,000 or 6.7%, largely related to a revised accrual of estimated employee benefits during the prior quarter. Total full-time equivalent employees were 299 at the end of the first quarter of 2019, down from 326 for the first quarter of 2018. The reduction was the result of a combination of retirements and delayed hiring decisions, in anticipation of the pending HomeTown merger.

Merger related expenses, which are related to the HomeTown acquisition and are nonrecurring in nature, totaled $451,000 during the first quarter of 2019. Management anticipates significant additional merger related expenses in the second quarter, mostly related to data processing contract termination and conversion related expense.

The effective income tax rate for the 2019 quarter was 20.7%, compared to 19.5% for the same quarter of 2018.

About American National
American National is a multi-state bank holding company with total assets of approximately $2.5 billion following the acquisition of HomeTown, which was effective April 1, 2019. 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 Virginia and North Carolina with 30 banking offices. American National Bank also manages an additional $836 million of trust, investment and brokerage assets in its Trust and Investment Services Division. Additional information about American National and American National Bank is available on American National Bank's website at www.amnb.com.

Non-GAAP Financial Measures
This release contains financial information determined by methods other than in accordance with generally accepted accounting principles (“GAAP”). American National’s management uses these non-GAAP financial measures in its analysis of American National’s performance. These measures typically adjust GAAP performance measures to exclude the effects of the amortization of intangibles and include the tax benefit associated with revenue items that are tax-exempt, as well as adjust income available to common shareholders for certain significant activities or transactions that are infrequent in nature. Management believes presentations of these non-GAAP financial measures provide useful supplemental information that is essential to a proper understanding of the operating results of American National’s core businesses. These non-GAAP disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. For a reconciliation of non-GAAP financial measures, see “Reconciliation of Non-GAAP Financial Measures” at the end of this release.

Forward-Looking Statements
Statements made in this release, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this release and are based on current expectations and involve a number of assumptions. American National intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. American National’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors that could have a material effect on the operations and future prospects of American National include but are not limited to: (1) expected revenue synergies and cost savings from the recently completed merger with HomeTown may not be fully realized or realized within the expected timeframe; (2) the businesses of American National and/or HomeTown may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (3) revenues following the merger may be lower than expected; (4) customer and employee relationships and business operations may be disrupted by the merger; (5) changes in interest rates, general economic conditions, legislation and regulation, and monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury, Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System; (6) the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows, competition, and demand for financial services in American National’s market areas; (7) the implementation of new technologies, and the ability to develop and maintain secure and reliable electronic systems; (8) accounting principles, policies, and guidelines; and (9) other risk factors detailed from time to time in filings made by American National with the Securities and Exchange Commission. American National undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

Contact:

William W. Traynham, Chief Financial Officer
434-773-2242
traynhamw@amnb.com


American National Bankshares Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

Unaudited

March 31

2019

2018

Assets

Cash and due from banks

$

28,912

$

18,772

Interest-bearing deposits in other banks

41,949

57,881

Equity securities, at fair value

2,069

2,320

Securities available for sale, at fair value

324,289

310,348

Restricted stock, at cost

5,299

5,221

Loans held for sale

1,252

1,792

Loans

1,360,063

1,321,221

Less allowance for loan losses

(12,806

)

(13,575

)

Net Loans

1,347,257

1,307,646

Premises and equipment, net

30,900

25,759

Other real estate owned, net

646

1,716

Goodwill

43,872

43,872

Core deposit intangibles, net

871

1,114

Bank owned life insurance

19,047

18,566

Accrued interest receivable and other assets

22,041

22,567

Total assets

$

1,868,404

$

1,817,574

Liabilities

Demand deposits -- noninterest-bearing

$

425,579

$

400,225

Demand deposits -- interest-bearing

242,802

233,973

Money market deposits

379,668

409,290

Savings deposits

135,289

134,171

Time deposits

376,452

381,592

Total deposits

1,559,790

1,559,251

Short-term borrowings:

Customer repurchase agreements

35,945

10,466

Long-term borrowings

4,238

-

Junior subordinated debt

27,953

27,851

Accrued interest payable and other liabilities

11,005

10,166

Total liabilities

1,638,931

1,607,734

Shareholders' equity

Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding

-

-

Common stock, $1 par, 20,000,000 shares authorized, 8,756,569 shares outstanding at March 31, 2019 and 8,675,033 shares outstanding at March 31, 2018

8,705

8,621

Capital in excess of par value

78,738

76,525

Retained earnings

145,351

131,299

Accumulated other comprehensive loss, net

(3,321

)

(6,605

)

Total shareholders' equity

229,473

209,840

Total liabilities and shareholders' equity

$

1,868,404

$

1,817,574


American National Bankshares Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share data)

Unaudited

Three Months Ended

March 31

2019

2018

Interest and Dividend Income:

Interest and fees on loans

$

15,638

$

14,657

Interest and dividends on securities:

Taxable

1,821

1,324

Tax-exempt

287

419

Dividends

84

80

Other interest income

266

188

Total interest and dividend income

18,096

16,668

Interest Expense:

Interest on deposits

2,472

1,825

Interest on short-term borrowings

172

10

Interest on junior subordinated debt

384

290

Total interest expense

3,028

2,125

Net Interest Income

15,068

14,543

Provision for (recovery of) loan losses

16

(44

)

Net Interest Income After Provision for (Recovery of) Loan Losses

15,052

14,587

Noninterest Income:

Trust fees

914

929

Service charges on deposit accounts

594

612

Other fees and commissions

708

642

Mortgage banking income

406

450

Securities gains, net

323

121

Brokerage fees

147

222

Income from Small Business Investment Companies

168

155

Other

191

202

Total noninterest income

3,451

3,333

Noninterest Expense:

Salaries

4,664

4,997

Employee benefits

1,230

1,175

Occupancy and equipment

1,084

1,128

FDIC assessment

125

146

Bank franchise tax

290

281

Core deposit intangible amortization

55

77

Data processing

532

422

Software

324

305

Other real estate owned, net

13

30

Merger related expenses

451

-

Other

2,161

2,141

Total noninterest expense

10,929

10,702

Income Before Income Taxes

7,574

7,218

Income Taxes

1,571

1,406

Net Income

$

6,003

$

5,812

Net Income Per Common Share:

Basic

$

0.69

$

0.67

Diluted

$

0.69

$

0.67

Weighted Average Common Shares Outstanding:

Basic

8,745,174

8,669,728

Diluted

8,745,723

8,687,351

American National Bankshares Inc.
Financial Highlights
Unaudited

(Dollars in thousands, except per share data)

1st Qtr

4th Qtr

1st Qtr

2019

2018

2018

EARNINGS

Interest income

$

18,096

$

17,891

$

16,668

Interest expense

3,028

2,879

2,125

Net interest income

15,068

15,012

14,543

Provision for (recovery of) loan losses

16

(6

)

(44

)

Noninterest income

3,451

2,998

3,333

Noninterest expense

10,929

11,638

10,702

Income taxes

1,571

1,376

1,406

Net income

6,003

5,002

5,812

PER COMMON SHARE

Income per share - basic

$

0.69

$

0.57

$

0.67

Income per share - diluted

0.69

0.57

0.67

Cash dividends paid

0.25

0.25

0.25

Book value per share

26.21

25.52

24.19

Book value per share - tangible (a)

21.10

20.38

19.00

Closing market price

34.92

29.31

37.60

FINANCIAL RATIOS

Return on average assets

1.29

%

1.08

%

1.28

%

Return on average equity

10.69

9.16

11.10

Return on average tangible equity (a)

13.44

11.63

14.29

Average equity to average assets

12.06

11.78

11.52

Tangible equity to tangible assets (a)

10.13

9.78

9.30

Net interest margin, taxable equivalent

3.50

3.48

3.46

Efficiency ratio (a)

56.95

58.15

59.36

Effective tax rate

20.74

21.57

19.48

PERIOD-END BALANCES

Securities

$

331,657

$

339,730

$

317,889

Loans held for sale

1,252

640

1,792

Loans, net of unearned income

1,360,063

1,357,476

1,321,221

Goodwill and other intangibles

44,743

44,798

44,986

Assets

1,868,404

1,862,866

1,817,574

Assets - tangible (a)

1,823,661

1,818,068

1,772,588

Deposits

1,559,790

1,566,227

1,559,251

Customer repurchase agreements

35,945

35,243

10,466

Long-term borrowings

32,191

27,927

27,851

Shareholders' equity

229,473

222,542

209,840

Shareholders' equity - tangible (a)

184,730

177,744

164,854

AVERAGE BALANCES

Securities (b)

$

343,834

$

332,230

$

312,783

Loans held for sale

1,830

1,201

2,037

Loans, net of unearned income

1,352,521

1,335,469

1,338,058

Interest-earning assets

1,736,887

1,736,453

1,698,451

Goodwill and other intangibles

44,778

44,831

45,031

Assets

1,863,212

1,854,492

1,818,429

Assets - tangible (a)

1,818,434

1,809,661

1,773,398

Interest-bearing deposits

1,131,604

1,116,911

1,157,122

Deposits

1,551,413

1,558,864

1,557,149

Customer repurchase agreements

42,705

37,905

12,247

Other short-term borrowings

61

-

2,183

Long-term borrowings

32,197

27,914

27,836

Shareholders' equity

224,677

218,430

209,433

Shareholders' equity - tangible (a)

179,899

173,599

164,402

American National Bankshares Inc.

Financial Highlights

Unaudited

(Dollars in thousands, except per share data)

1st Qtr

4th Qtr

1st Qtr

2019

2018

2018

CAPITAL

Weighted average shares outstanding - basic

8,745,174

8,717,572

8,669,728

Weighted average shares outstanding - diluted

8,745,723

8,723,388

8,687,351

ALLOWANCE FOR LOAN LOSSES

Beginning balance

$

12,805

$

13,588

$

13,603

Provision for (recovery of) loan losses

16

(6

)

(44

)

Charge-offs

(69

)

(818

)

(44

)

Recoveries

54

41

60

Ending balance

$

12,806

$

12,805

$

13,575

LOANS

Construction and land development

$

93,759

$

97,240

$

93,031

Commercial real estate

659,133

655,800

624,164

Residential real estate

212,665

209,438

207,256

Home equity

99,979

103,933

108,024

Commercial and industrial

289,301

285,972

284,257

Consumer

5,226

5,093

4,489

Total

$

1,360,063

$

1,357,476

$

1,321,221

NONPERFORMING ASSETS AT PERIOD-END

Nonperforming loans:

90 days past due and accruing

$

197

$

72

$

273

Nonaccrual

1,111

1,090

1,598

Other real estate owned

646

869

1,716

Nonperforming assets

$

1,954

$

2,031

$

3,587

ASSET QUALITY RATIOS

Allowance for loan losses to total loans

0.94

%

0.94

%

1.03

%

Allowance for loan losses to nonperforming loans

979.05

1,101.98

725.55

Nonperforming assets to total assets

0.10

0.11

0.20

Nonperforming loans to total loans

0.10

0.09

0.14

Annualized net charge-offs (recoveries) to average loans

0.00

0.23

0.00

OTHER DATA

Fiduciary assets at period-end (c) (d)

$

533,063

$

494,034

$

509,668

Retail brokerage assets at period-end (c) (d)

$

303,045

$

274,552

$

316,064

Number full-time equivalent employees (e)

299

305

326

Number of full service offices

24

24

26

Number of loan production offices

-

2

2

Number of ATMs

33

33

34

Notes:

(a) - This financial measure is not calculated in accordance with GAAP. For a reconciliation of non-GAAP financial measures, see "Reconciliation of Non-GAAP Financial Measures" at the end of this release.
(b) - Average does not include unrealized gains and losses.
(c) - Market value.
(d) - Assets are not owned by American National and are not reflected in the consolidated balance sheet.
(e) - Average for quarter.


Net Interest Income Analysis

For the Three Months Ended March 31, 2019 and 2018

(Dollars in thousands)

Unaudited

Interest

Average Balance

Income/Expense

Yield/Rate

2019

2018

2019

2018

2019

2018

Loans:

Commercial

$

265,578

$

258,552

$

2,891

$

2,444

4.41

%

3.83

%

Real estate

1,083,800

1,077,243

12,716

12,189

4.69

4.53

Consumer

4,973

4,300

75

76

6.12

7.17

Total loans

1,354,351

1,340,095

15,682

14,709

4.64

4.40

Securities:

Federal agencies & GSEs

139,465

103,199

850

517

2.44

2.00

Mortgage-backed & CMOs

111,701

108,826

693

600

2.48

2.21

State and municipal

78,597

86,336

538

634

2.74

2.94

Other

14,071

14,422

178

175

5.06

4.85

Total securities

343,834

312,783

2,259

1,926

2.63

2.46

Deposits in other banks

38,702

45,573

266

188

2.79

1.67

Total interest-earning assets

1,736,887

1,698,451

18,207

16,823

4.20

3.97

Non-earning assets

126,325

119,978

Total assets

$

1,863,212

$

1,818,429

Deposits:

Demand

$

238,430

$

232,383

14

11

0.02

0.02

Money market

395,704

410,171

1,153

783

1.18

0.77

Savings

134,060

130,708

10

9

0.03

0.03

Time

363,410

383,860

1,295

1,022

1.45

1.08

Total deposits

1,131,604

1,157,122

2,472

1,825

0.89

0.64

Customer repurchase agreements

42,705

12,247

171

1

1.62

0.03

Other short-term borrowings

61

2,183

1

9

6.56

1.65

Long-term borrowings

27,937

27,836

384

290

5.50

4.17

Total interest-bearing liabilities

1,202,307

1,199,388

3,028

2,125

1.02

0.72

Noninterest bearing demand deposits

419,809

400,027

Other liabilities

16,419

9,581

Shareholders' equity

224,677

209,433

Total liabilities and shareholders' equity

$

1,863,212

$

1,818,429

Interest rate spread

3.18

%

3.25

%

Net interest margin

3.50

%

3.46

%

Net interest income (taxable equivalent basis)

15,179

14,698

Less: Taxable equivalent adjustment

111

155

Net interest income

$

15,068

$

14,543


American National Bankshares Inc.

Reconciliation of Non-GAAP Financial Measures

Unaudited

(Dollars in thousands, except per share data)

1st Qtr

4th Qtr

1st Qtr

2019

2018

2018

EFFICIENCY RATIO

Noninterest expense

$

10,929

$

11,638

$

10,702

Add/subtract: loss/(gain) on sale of OREO

2

(11

)

5

Subtract: core deposit intangible amortization

(55

)

(55

)

(77

)

Subtract: merger related expense

(451

)

(872

)

-

$

10,425

$

10,700

$

10,630

Net interest income

$

15,068

$

15,012

$

14,543

Tax equivalent adjustment

111

114

155

Noninterest income

3,451

2,998

3,333

Add/subtract: (gain)/loss on securities

(323

)

270

(121

)

Add/subtract: (gain)/loss on fixed assets

-

6

(3

)

$

18,307

$

18,400

$

17,907

Efficiency ratio

56.95

%

58.15

%

59.36

%

TAX EQUIVALENT NET INTEREST INCOME

Non-GAAP measures:

Interest income - loans

$

15,682

$

15,525

$

14,709

Interest income - investments and other

2,525

2,480

2,114

Interest expense - deposits

(2,472

)

(2,340

)

(1,825

)

Interest expense - customer repurchase agreements

(171

)

(145

)

(1

)

Interest expense - other short-term borrowings

(1

)

-

(9

)

Interest expense - long-term borrowings

(384

)

(394

)

(290

)

Total net interest income

$

15,179

$

15,126

$

14,698

Less non-GAAP measures:

Tax benefit on nontaxable interest - loans

(44

)

(44

)

(52

)

Tax benefit on nontaxable interest - securities

(67

)

(70

)

(103

)

GAAP measures

$

15,068

$

15,012

$

14,543

RETURN ON AVERAGE TANGIBLE EQUITY

Return on average equity (GAAP basis)

10.69

%

9.16

%

11.10

%

Impact of excluding average goodwill and other intangibles

2.75

2.47

3.19

Return on average tangible equity (non-GAAP)

13.44

%

11.63

%

14.29

%

TANGIBLE EQUITY TO TANGIBLE ASSETS

Equity to assets ratio (GAAP basis)

12.28

%

11.95

%

11.55

%

Impact of excluding goodwill and other intangibles

2.15

2.17

2.25

Tangible equity to tangible assets ratio (non-GAAP)

10.13

%

9.78

%

9.30

%

TANGIBLE BOOK VALUE

Book value per share (GAAP basis)

$

26.21

$

25.52

$

24.19

Impact of excluding goodwill and other intangibles

5.11

5.14

5.19

Tangible book value per share (non-GAAP)

$

21.10

$

20.38

$

19.00