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American National Bankshares Inc. Reports Third Quarter 2019 Earnings

  • Q3 2019 net income of $8.7 million and diluted EPS of $0.78
  • Net interest margin of 3.75% for Q3 2019
  • Average shareholders’ equity of $315.0 million is 12.98% of average assets
  • Nonperforming assets to total assets 0.15% for Q3 2019

DANVILLE, Va., Oct. 17, 2019 (GLOBE NEWSWIRE) -- American National Bankshares Inc. (“American National”) (NASDAQ:  AMNB), parent company of American National Bank and Trust Company, today announced net income of $8,692,000 for the third quarter of 2019 compared to $5,785,000 for the third quarter of 2018, a $2,907,000 or 50.3% increase.  Basic and diluted net income per common share was $0.78 for the 2019 quarter compared to $0.66 for the 2018 quarter. Net income for the third quarter of 2019 produced annualized returns on average assets of 1.43%, on average equity of 11.04%, and on average tangible equity of 16.31%.

Net income for the first nine months of 2019 was $13,465,000 compared to $17,577,000 for the comparable period of 2018, a $4,112,000 or 23.4% decrease. Basic and diluted net income per common share was $1.30 for the 2019 period compared to $2.02 for the 2018 period. The nine-month period for 2019 was adversely impacted by $11.3 million in one time, merger related expenses associated with the HomeTown Bankshares Corporation (“HomeTown”) acquisition in April 2019.

Financial Performance and Overview

Jeffrey V. Haley, President and Chief Executive Officer, said, “Net income for the third quarter of 2019 was $8.7 million. This was a $2.9 million or 50.3% increase over the comparable quarter of 2018. This increase was primarily related to the April 1, 2019 merger with HomeTown.

“Net interest income for the 2019 quarter compared to the 2018 quarter significantly increased, it was up $5.9 million or 39.8%.

“The improvement in net interest income was related to a higher average balance of loans for the 2019 quarter compared to the 2018 quarter. Loan average balances for the 2019 quarter were up $491.3 million or 36.9% over the 2018 quarter. Loan yields for the 2019 quarter were 40 basis points higher than the 2018 quarter.

“End of period loan balances for September 30, 2019, compared to December 31, 2018, increased $447.0 million. Of this increase, $444.3 million was the result of the HomeTown merger and $2.7 million represents other growth in the franchise.

“September 30, 2019 loan balances compared to June 30, 2019 balances fell $31.8 million (1.7%). These balances were adversely impacted by unexpected customer pay downs. They resulted from sales of businesses, debt reduction from cash, movement into the permanent, non-recourse market, and other drivers. These unexpected pay downs aggregated roughly $36 million during the 2019 quarter.

“Average interest bearing deposits for the 2019 quarter compared to the 2018 quarter also increased substantially, up $325.0 million or 29.0% with a 27 basis point higher cost. This cost increase reflects increased deposit competition throughout our franchise.

“End of period interest bearing deposit balances for September 30, 2019, compared to December 31, 2018, increased $307.0 million. Of this increase, $364.2 million was the result of the HomeTown merger and $57.2 million represents deposit reduction throughout the franchise.

“Average noninterest bearing deposits for the 2019 quarter compared to the 2018 quarter also increased; they were up $144.7 million or 34.1%.

“End of period noninterest bearing deposit balances for September 30, 2019, compared to December 31, 2018, increased $168.7 million (38.7%). Of this increase, $119.5 million was the result of the HomeTown merger and $49.2 million represents deposit growth throughout the remainder of the franchise.”

Haley concluded, “The market is very challenging. We were dealing with rising interest rates a year ago. We are dealing with declining interest rates as we approach the end of 2019.  This means continued pressure on our net interest margin. Strategically, American National will maintain its focus on maintaining high asset quality, strive to shorten the duration of our time deposits and, where prudent, extend the duration of our earning assets. One of the few certainties we have is that economic cycles ebb and flow. American National has over a century of history and experience dealing with all sorts of economic environments and we will continue to do so. By doing so, we will continue to provide our customers with the best in banking products and services and produce a strong return for our shareholders.”
   
Capital
American National’s capital ratios remain strong and exceed all regulatory requirements. 

For the quarter ended September 30, 2019, average shareholders’ equity was 12.98% of average assets, compared to 11.87% for the quarter ended September 30, 2018.

Book value per common share was $28.54 at September 30, 2019, compared to $24.79 at September 30, 2018.

Tangible book value per common share was $20.19 at September 30, 2019, compared to $19.65 at September 30, 2018.

Credit Quality Measurements
Nonperforming assets ($1,446,000 of nonaccrual loans, $874,000 of 90 days past due and accruing loans, and $1,353,000 of other real estate owned) represented 0.15% of total assets at September 30, 2019, compared to 0.18% at September 30, 2018. 

Annualized net charge-offs to average loans were zero basis points (0.00%) for the 2019 third quarter compared to a net recovery of three basis points (0.03%) for the same quarter in 2018.

Other real estate owned was $1,353,000 compared to $916,000 at September 30, 2018, an increase of $437,000 or 47.7%.

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

         
For the quarter ended September 30,    2019    2018
Net Interest Income   $   948   $   198
Income Before Income Taxes   $   500   $   142
         
For the nine months ended September 30,    2019    2018
Net Interest Income   $   2,321   $   1,002
Income Before Income Taxes   $   1,360   $   792

In the table above, the impact for the quarter ended September 30, 2019 related to the HomeTown merger on net interest income was $764,000 and on income before taxes was $371,000.  The impact for the nine months ended September 30, 2019 related to the HomeTown merger on net interest income was $1,648,000 and on income before taxes was $852,000.

The third quarter of 2019 includes $148,000 in cash basis accretion income related to the early payoff of several acquired loans, compared to $59,000 for the comparable quarter of 2018. 

For the nine-month period ended September 30, 2019, cash basis accretion income was $544,000, compared to $545,000 for the same period in 2018. 

Net Interest Income
Net interest income before the provision for loan losses increased to $20,622,000 in the third quarter of 2019 from $14,751,000 in the third quarter of 2018, an increase of $5,871,000 or 39.8%.  

For the 2019 quarter, the net interest margin was 3.75% compared to 3.51% for the same quarter in 2018, an increase of 24 basis points (0.24%).  

The major drivers affecting the net interest margin were:

  • Positively – a $514.0 million (30.3%) increase in average earning assets, mostly loans, at a 44 basis point higher yield.
  • Positively – a $144.7 million (34.1%) increase in average noninterest bearing demand deposits.
  • Negatively – a $325.0 million (29.0%) increase in average interest bearing deposits at a 27 basis point higher cost.

Most of these increases were directly related to the HomeTown merger.

Provision for Loan Losses and Allowance for Loan Losses
Provision expense for the third quarter of 2019 was a negative $12,000 compared to a negative $23,000 for the third quarter of 2018. Both quarters’ negative provision were related to adjustments on specific reserves for several acquired impaired loans.

The allowance for loan losses as a percentage of total loans was 0.71% at September 30, 2019 compared to 1.02% at September 30, 2018. The major driver of the change was the HomeTown merger on April 1, 2019, which resulted in American National acquiring $444.3 million in loans.

Net loans outstanding fell during the third quarter by $31.8 million or 1.7%. This significantly reduced the need for an increase to the allowance.

Noninterest Income
Noninterest income totaled $4,171,000 in the third quarter of 2019, compared with $3,380,000 in the third quarter of 2018, an increase of $791,000 or 23.4%.  The major driver was other fees and commissions, which increased $347,000 or 52.9%, mostly on the strength of debit card fee revenue, primarily related to the Hometown acquisition.

Noninterest Expense
Noninterest expense totaled $13,792,000 in the third quarter of 2019, compared to $10,904,000 in the third quarter of 2018, an increase of $2,888,000 or 26.5%. The 2019 quarter was positively impacted by the Small Bank Assessment Credit, which reduced FDIC insurance expense $330,000. The major driver of the increase in expense was the merger with HomeTown in the second quarter of 2019.

About American National
American National is a multi-state bank holding company with total assets of approximately $2.5 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 Virginia and North Carolina with 28 banking offices. American National Bank also manages an additional $855 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 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
         
    September 30
      2019       2018  
Assets        
Cash and due from banks   $ 47,025     $ 32,688  
Interest-bearing deposits in other banks     95,592       37,355  
         
Equity securities, at fair value     -       2,087  
Securities available for sale, at fair value     308,490       295,777  
Restricted stock, at cost     8,621       5,239  
Loans held for sale     5,646       1,934  
         
Loans     1,804,447       1,331,153  
  Less allowance for loan losses     (12,758 )     (13,588 )
  Net Loans     1,791,689       1,317,565  
         
Premises and equipment, net     39,261       25,690  
Other real estate owned, net     1,353       916  
Goodwill     84,633       43,872  
Core deposit intangibles, net     8,165       981  
Bank owned life insurance     27,612       18,785  
Accrued interest receivable and other assets     36,442       23,602  
         
  Total assets   $ 2,454,529     $ 1,806,491  
         
         
Liabilities        
  Demand deposits -- noninterest-bearing   $ 604,498     $ 420,486  
  Demand deposits -- interest-bearing     323,871       230,984  
  Money market deposits     450,022       362,575  
  Savings deposits     176,803       135,702  
  Time deposits     486,668       373,360  
  Total deposits     2,041,862       1,523,107  
         
  Customer repurchase agreements     38,924       29,104  
  Subordinated debt     7,521       -  
  Junior subordinated debt     28,003       27,902  
  Accrued interest payable and other liabilities     20,973       10,312  
  Total liabilities     2,137,283       1,590,425  
         
Shareholders' equity        
  Preferred stock, $5 par, 2,000,000 shares authorized,        
  none outstanding     -       -  
  Common stock, $1 par, 20,000,000 shares authorized,        
  11,116,250 shares outstanding at September 30, 2019 and    
  8,714,431 shares outstanding at September 30, 2018     11,063       8,661  
  Capital in excess of par value     159,792       77,842  
  Retained earnings     147,030       138,715  
  Accumulated other comprehensive loss, net     (639 )     (9,152 )
  Total shareholders' equity     317,246       216,066  
         
  Total liabilities and shareholders' equity   $ 2,454,529     $ 1,806,491  
         


American National Bankshares Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
                 
    Three Months Ended   Nine Months Ended
    September 30   September 30 
      2019       2018       2019       2018  
 Interest and Dividend Income:                
  Interest and fees on loans   $ 22,470     $ 15,062     $ 60,737     $ 44,485  
  Interest and dividends on securities:                
  Taxable     1,890       1,568       5,691       4,432  
  Tax-exempt     134       362       660       1,204  
  Dividends     135       82       324       240  
  Other interest income     329       143       853       516  
  Total interest and dividend income     24,958       17,217       68,265       50,877  
                 
 Interest Expense:                
  Interest on deposits     3,655       2,048       9,647       5,746  
  Interest on short-term borrowings     162       29       512       41  
  Interest on long-term borrowings     -       -       14       -  
  Interest on subordinated debt     123       -       245       -  
  Interest on junior subordinated debt     396       389       1,168       1,008  
  Total interest expense     4,336       2,466       11,586       6,795  
                 
Net Interest Income     20,622       14,751       56,679       44,082  
  Recovery of loan losses     (12 )     (23 )     (6 )     (97 )
                 
Net Interest Income After Recovery                
  of Loan Losses     20,634       14,774       56,685       44,179  
                 
Noninterest Income:                
  Trust fees     979       1,001       2,826       2,875  
  Service charges on deposit accounts     783       605       2,101       1,809  
  Other fees and commissions     1,003       656       2,726       1,977  
  Mortgage banking income     710       551       1,702       1,492  
  Securities gains (losses), net     105       (17 )     575       393  
  Brokerage fees     183       172       516       603  
  Income from Small Business Investment Companies   143       150       174       476  
  Gains (losses) on premises and equipment, net     (2 )     63       (89 )     66  
  Other     267       199       773       585  
  Total noninterest income     4,171       3,380       11,304       10,276  
                 
Noninterest Expense:                
  Salaries     6,295       5,285       18,007       15,377  
  Employee benefits     1,367       1,036       4,022       3,322  
  Occupancy and equipment     1,448       1,069       3,963       3,297  
  FDIC assessment     (175 )     134       119       412  
  Bank franchise tax     411       291       1,113       863  
  Core deposit intangible amortization     448       56       961       210  
  Data processing     589       420       1,838       1,309  
  Software     287       307       932       966  
  Other real estate owned, net     47       46       16       101  
  Merger related expenses     -       -       11,322       -  
  Other     3,075       2,260       8,744       6,751  
  Total noninterest expense     13,792       10,904       51,037       32,608  
                 
 Income Before Income Taxes     11,013       7,250       16,952       21,847  
 Income Taxes     2,321       1,465       3,487       4,270  
Net Income   $ 8,692     $ 5,785     $ 13,465     $ 17,577  
                 
Net Income Per Common Share:                
  Basic   $ 0.78     $ 0.66     $ 1.30     $ 2.02  
  Diluted   $ 0.78     $ 0.66     $ 1.30     $ 2.02  
Weighted Average Common Shares Outstanding:              
  Basic     11,127,603       8,712,443       10,341,919       8,691,423  
  Diluted     11,138,008       8,718,918       10,351,753       8,703,662  
                 



American National Bankshares Inc.
Financial Highlights
Unaudited
                   
(Dollars in thousands, except per share data) 
  3rd Qtr   2nd Qtr   3rd Qtr   YTD   YTD
    2019       2019       2018       2019       2018  
EARNINGS                  
  Interest income $ 24,958     $ 25,211     $ 17,217     $ 68,265     $ 50,877  
  Interest expense   4,336       4,222       2,466       11,586       6,795  
  Net interest income   20,622       20,989       14,751       56,679       44,082  
  Recovery of loan losses   (12 )     (10 )     (23 )     (6 )     (97 )
  Noninterest income   4,171       3,682       3,380       11,304       10,276  
  Noninterest expense   13,792       26,316       10,904       51,037       32,608  
  Income taxes   2,321       (405 )     1,465       3,487       4,270  
  Net income (loss)   8,692       (1,230 )     5,785       13,465       17,577  
                   
PER COMMON SHARE                  
  Income (loss) per share - basic $ 0.78     $ (0.11 )   $ 0.66     $ 1.30     $ 2.02  
  Income (loss) per share - diluted   0.78       (0.11 )     0.66       1.30       2.02  
  Cash dividends paid   0.27       0.25       0.25       0.77       0.75  
  Book value per share   28.54       28.00       24.79       28.54       24.79  
  Book value per share - tangible (a)   20.19       19.63       19.65       20.19       19.65  
  Closing market price   35.47       38.75       39.00       35.47       39.00  
                   
FINANCIAL RATIOS                  
  Return on average assets   1.43     (0.20 )%     1.28     0.80     1.29
  Return on average equity   11.04       (1.60 )     10.76       6.35       11.04  
  Return on average tangible equity (a)   16.31       (1.62 )     13.70       9.23       14.14  
  Average equity to average assets   12.98       12.62       11.87       12.60       11.67  
  Tangible equity to tangible assets (a)   9.50       9.41       9.72       9.50       9.72  
  Net interest margin, taxable equivalent   3.75       3.82       3.51       3.70       3.49  
  Efficiency ratio (a)   53.79       60.94       59.35       57.25       59.56  
  Effective tax rate   21.08       (24.77 )     20.21       20.57       19.55  
                   
PERIOD-END BALANCES                  
  Securities $ 317,111     $ 342,247     $ 303,103     $ 317,111     $ 303,103  
  Loans held for sale   5,646       3,165       1,934       5,646       1,934  
  Loans, net of unearned income   1,804,447       1,836,241       1,331,153       1,804,447       1,331,153  
  Goodwill and other intangibles   92,798       93,246       44,853       92,798       44,853  
  Assets   2,454,529       2,418,082       1,806,491       2,454,529       1,806,491  
  Assets - tangible (a)   2,361,731       2,324,836       1,761,638       2,361,731       1,761,638  
  Deposits   2,041,862       1,999,097       1,523,107       2,041,862       1,523,107  
  Customer repurchase agreements   38,924       37,222       29,104       38,924       29,104  
  Long-term borrowings   35,524       35,504       27,902       35,524       27,902  
  Shareholders' equity   317,246       311,917       216,066       317,246       216,066  
  Shareholders' equity - tangible (a)   224,448       218,671       171,213       224,448       171,213  
                   
AVERAGE BALANCES                  
  Securities (b) $ 323,202     $ 354,506     $ 335,320     $ 340,439     $ 330,561  
  Loans held for sale   3,904       2,913       3,282       2,890       2,650  
  Loans, net of unearned income   1,817,732       1,816,203       1,327,060       1,663,856       1,328,936  
  Interest-earning assets   2,207,935       2,211,273       1,693,912       2,054,087       1,700,128  
  Goodwill and other intangibles   93,077       93,075       44,887       77,154       44,958  
  Assets   2,426,678       2,433,948       1,811,631       2,243,343       1,818,615  
  Assets - tangible (a)   2,333,601       2,340,873       1,766,744       2,166,189       1,773,657  
  Interest-bearing deposits   1,443,947       1,463,613       1,118,929       1,347,532       1,140,443  
  Deposits   2,012,653       2,023,557       1,542,945       1,864,230       1,555,086  
  Customer repurchase agreements   39,470       35,657       11,896       39,265       11,829  
  Other short-term borrowings   1,986       7,627       2,176       3,502       1,536  
  Long-term borrowings   35,806       36,301       27,886       33,107       27,861  
  Shareholders' equity   314,980       307,281       215,054       282,644       212,268  
  Shareholders' equity - tangible (a)   221,903       214,206       170,167       205,490       167,310  
                   
American National Bankshares Inc. 
Financial Highlights
Unaudited
                   
 (Dollars in thousands, except per share data) 
  3rd Qtr   2nd Qtr   3rd Qtr   YTD   YTD
    2019       2019       2018       2019       2018  
CAPITAL                  
  Weighted average shares outstanding - basic   11,127,603       11,126,800       8,712,443       10,341,919       8,691,423  
  Weighted average shares outstanding - diluted   11,138,008       11,126,800       8,718,918       10,351,753       8,703,662  
                   
ALLOWANCE FOR LOAN LOSSES                  
  Beginning balance $ 12,786     $ 12,806     $ 13,508     $ 12,805     $ 13,603  
  Recovery of loan losses   (12 )     (10 )     (23 )     (6 )     (97 )
  Charge-offs   (66 )     (54 )     (28 )     (189 )     (202 )
  Recoveries   50       44       131       148       284  
  Ending balance $ 12,758     $ 12,786     $ 13,588     $ 12,758     $ 13,588  
                   
LOANS                  
  Construction and land development $ 143,788     $ 152,876     $ 99,546     $ 143,788     $ 99,546  
  Commercial real estate   883,219       880,146       632,022       883,219       632,022  
  Residential real estate   318,833       328,400       205,277       318,833       205,277  
  Home equity   122,074       121,905       ...