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American National Bankshares Inc. Reports Third Quarter 2017 Earnings

  • Organic loan growth of $212.0 million (19.6%) during last four quarters

  • Q3 2017 net income of $4.8 million and diluted EPS of $0.55

  • Net interest margin of 3.56% for Q3 2017

  • Average shareholders’ equity of $209.0 million is 11.79% of average assets

DANVILLE, Va., Oct. 19, 2017 (GLOBE NEWSWIRE) -- American National Bankshares Inc. (“American National”) (NASDAQ:AMNB), parent company of American National Bank and Trust Company, today announced net income of $4,787,000 for the third quarter of 2017 compared to $3,963,000 for the third quarter of 2016, an $824,000 or 20.8% increase. Diluted net income per common share was $0.55 for the 2017 quarter compared to $0.46 for the 2016 quarter. Net income for the third quarter of 2017 produced annualized returns on average assets of 1.08%, on average equity of 9.16%, and on average tangible equity of 11.81%.

Net income for the first nine months of 2017 was $13,129,000 compared to $12,179,000 for the comparable period of 2016, a $950,000 or 7.8% increase. Basic and diluted net income per common share was $1.52 for the 2017 period compared to $1.41 for the 2016 period.

Financial Performance and Overview

Jeffrey V. Haley, President and Chief Executive Officer, reported, “We are delighted to report strong growth in our balance sheet. Over the past year, loans have increased $212.0 million or 19.6%. However, the continuing challenge for us, in this hyper-competitive environment, is achieving reasonable risk adjusted yields on our lending.

“Loans require liquidity. Deposits have grown $174.2 million or 13.3% over the past year. This growth is mostly in non-maturity core deposits (noninterest bearing and money market accounts), which are the heart of our balance sheet. We continue striving to grow these core deposits and their affiliated relationships, but like the asset side of the balance sheet, the challenge is to do that in a cost effective yet competitive manner. Our cost of interest bearing deposits for the third quarter was 0.57%, compared to 0.53% for the 2016 quarter.

“On the earnings side, net income for the third quarter was $4,787,000 compared to $3,963,000, an increase of $824,000 or 20.8%.

“Net interest income was up by $1,874,000 (15.0%) in the third quarter of 2017 compared to the third quarter of 2016. The increase was driven by growth in loans, three prime rate increases, and $333,000 in additional cash basis accretion income, which is unpredictable and non-recurring in nature.

“Provision for loan losses was up $340,000 in the third quarter of 2017, compared to the third quarter of 2016. The need for additional provision expense related to continued loan growth, an increase in reserves for impaired loans and the charge off of two purchased credit impaired loans, but was mitigated by continued strong asset quality metrics.

“Noninterest income increased $684,000 (21.9%) in the third quarter of 2017, compared to the third quarter of 2016. This category was positively impacted by a $337,000 gain from the sale of a bank owned commercial lot acquired in the MidCarolina acquisition and non-recurring trust fees of $160,000.

“Noninterest expense increased in the 2017 quarter by $843,000 (8.5%). The higher level of expense was primarily related to our entry into two new markets in the fourth quarter of 2016.”

Haley concluded, “We are pleased with our growth in loans and deposits over the past year. Slightly less than half our growth continues from our new markets, Roanoke and Winston-Salem. Our de novo offices have exceeded our initial growth expectations for year one. However, like many other banks, we did see a general slowdown in the third quarter. Our loans grew $6.4 million (0.5%). This is consistent with a national trend in reduced commercial lending, noted in a recent Wall Street Journal article, and was magnified for us by several large loan payoffs. Furthermore, some loan requests have not been consistent with our risk profile requirements. We expect growth will continue, but at a reduced pace compared to the year over year rate. We acknowledge that rising interest rates and hyper-competitive market forces together will put continued pressure on our net interest margin. We will manage these challenges and prevail in the community bank marketplace.”

Capital

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

For the quarter ended September 30, 2017, average shareholders’ equity was 11.79% of average assets, compared to 12.67% for the quarter ended September 30, 2016.

Book value per common share was $24.31 at September 30, 2017, compared to $23.66 at September 30, 2016.

Tangible book value per common share was $19.09 at September 30, 2017, compared to $18.34 at September 30, 2016.

Credit Quality Measurements

Non-performing assets ($2,498,000 of non-performing loans, $538,000 of 90 day past due and accruing loans, and $2,101,000 of other real estate owned) represented 0.29% of total assets at September 30, 2017, compared to 0.31% at September 30, 2016.

Annualized net charge offs to average loans were seven basis points (0.07%) for the 2017 third quarter, compared to one basis point (0.01%) for the same quarter in 2016.

Other real estate owned was $2,101,000 compared to $1,145,000 at September 30, 2016, an increase of $956,000 or 83.5%.

Acquisition Related Financial Impact

The acquisition accounting adjustments related to our two recent acquisitions have had and continue to have a positive impact on net interest income and income before income tax for American National. The impact of these adjustments is summarized below (dollars in thousands):

For the quarter ended September 30, 2017 2016
Net Interest Income $ 557 $ 356
Income Before Income Taxes $ 477 $ 143
For the nine months ended September 30, 2017 2016
Net Interest Income $ 1,586 $ 1,709
Income Before Income Taxes $ 1,138 $ 920

The third quarter of 2017 includes $333,000 in cash basis accretion income related to the early payoff of several acquired loans.

Net Interest Income

Net interest income before the provision for loan losses increased to $14,338,000 in the third quarter of 2017 from $12,464,000 in the third quarter of 2016, an increase of $1,874,000 or 15.0%.

For the 2017 quarter, the net interest margin was 3.56% compared to 3.50% for the same quarter in 2016, an increase of six basis points (0.06%). The increase in net interest margin was driven by higher yields on earning assets.

Provision for Loan Losses and Allowance for Loan Losses

Provision expense for the third quarter of 2017 was $440,000 compared to $100,000 for the third quarter of 2016.

There has been significant growth in the loans outstanding over the past four quarters. The need for additional provision expense related to continued loan growth, an increase in reserves for impaired loans and the charge off of two purchased credit impaired loans, but was mitigated by continued strong asset quality metrics.

The allowance for loan losses as a percentage of total loans was 1.07% at September 30, 2017 compared to 1.18% at September 30, 2016.

Noninterest Income

Noninterest income totaled $3,804,000 in the third quarter of 2017, compared with $3,120,000 in the third quarter of 2016, an increase of $684,000 or 21.9%. Trust fees were up $160,000 or 17.1%, driven mostly by non-recurring revenue sources. Other fees were up $64,000 or 9.7%, mostly driven by increased volume in debit card transactions. Mortgage banking was up $100,000 or 19.5%, mostly driven by higher volumes of secondary market mortgages. This category was positively impacted by a $337,000 gain from the sale of a bank owned commercial lot acquired in the MidCarolina acquisition.

Noninterest Expense

Noninterest expense totaled $10,710,000 in the third quarter of 2017, compared to $9,867,000 in the third quarter of 2016, an increase of $843,000 or 8.5%. Most of the increase was driven by the startup of operations in Roanoke and Winston-Salem. In addition, we have added personnel expense related to bank wide growth objectives and advance planning for key position, near term succession issues.

About American National

American National is a multi-state bank holding company with total assets of approximately $1.8 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 26 banking offices and two loan production offices. American National Bank also manages an additional $825 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; changes in technology and information security; 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 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.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
Unaudited
September 30
ASSETS 2017 2016
Cash and due from banks $26,949 $37,679
Interest-bearing deposits in other banks 76,271 35,138
Securities available for sale, at fair value 272,205 351,439
Restricted stock, at cost 5,509 6,006
Loans held for sale 3,386 4,776
Loans 1,295,154 1,083,201
Less allowance for loan losses (13,858) (12,757)
Net Loans 1,281,296 1,070,444
Premises and equipment, net 25,923 22,846
Other real estate owned, net 2,101 1,145
Goodwill 43,872 43,872
Core deposit intangibles, net 1,271 1,894
Bank owned life insurance 18,491 17,998
Accrued interest receivable and other assets 23,267 22,297
Total assets $1,780,541 $1,615,534
Liabilities
Demand deposits -- noninterest-bearing $402,100 $339,797
Demand deposits -- interest-bearing 225,279 196,696
Money market deposits 336,752 255,748
Savings deposits 124,025 119,476
Time deposits 392,049 394,291
Total deposits 1,480,205 1,306,008
Short-term borrowings:
Customer repurchase agreements 43,240 44,090
Other short-term borrowings - 15,000
Long-term borrowings 9,996 9,974
Junior subordinated debt 27,800 27,698
Accrued interest payable and other liabilities 9,086 9,051
Total liabilities 1,570,327 1,411,821
Shareholders' equity
Preferred stock, $5 par, 2,000,000 shares authorized,
none outstanding - -
Common stock, $1 par, 20,000,000 shares authorized,
8,647,345 shares outstanding at September 30, 2017 and
8,610,741 shares outstanding at September 30, 2016 8,600 8,573
Capital in excess of par value 75,943 74,839
Retained earnings 126,507 117,543
Accumulated other comprehensive income (loss), net (836) 2,758
Total shareholders' equity 210,214 203,713
Total liabilities and shareholders' equity $1,780,541 $1,615,534


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
2017 2016 2017 2016
Interest and Dividend Income:
Interest and fees on loans $14,394 $12,032 $40,850 $35,789
Interest and dividends on securities:
Taxable 1,108 1,112 3,395 3,346
Tax-exempt 460 767 1,604 2,407
Dividends 77 74 240 258
Other interest income 235 78 469 203
Total interest and dividend income 16,274 14,063 46,558 42,003
Interest Expense:
Interest on deposits 1,529 1,291 4,081 3,902
Interest on short-term borrowings 52 4 94 6
Interest on long-term borrowings 82 81 243 243
Interest on junior subordinated debt 273 223 756 644
Total interest expense 1,936 1,599 5,174 4,795
Net Interest Income 14,338 12,464 41,384 37,208
Provision for loan losses 440 100 1,090 200
Net Interest Income After Provision
for Loan Losses 13,898 12,364 40,294 37,008
Noninterest Income:
Trust fees 1,098 938 2,918 2,829
Service charges on deposit accounts 513 514 1,498 1,520
Other fees and commissions 727 663 2,172 1,991
Mortgage banking income 612 512 1,603 1,169
Securities gains, net - 73 590 661
Brokerage fees 219 209 603 636
Income from Small Business Investment Companies 86 - 118 238
Gains (losses) on premises and equipment, net 337 (1) 337 (9)
Other 212 212 584 749
Total noninterest income 3,804 3,120 10,423 9,784
Noninterest Expense:
Salaries 5,072 4,626 14,604 12,872
Employee benefits 1,112 1,034 3,425 3,203
Occupancy and equipment 1,151 1,004 3,367 3,162
FDIC assessment 138 138 401 519
Bank franchise tax 276 257 795 769
Core deposit intangible amortization 80 213 448 789
Data processing 475 437 1,464 1,340
Software 303 301 853 872
Other real estate owned, net 62 105 173 314
Other 2,041 1,752 6,332 5,601
Total noninterest expense 10,710 9,867 31,862 29,441
Income Before Income Taxes 6,992 5,617 18,855 17,351
Income Taxes 2,205 1,654 5,726 5,172
Net Income $4,787 $3,963 $13,129 $12,179
Net Income Per Common Share:
Basic $0.55 $0.46 $1.52 $1.41
Diluted $0.55 $0.46 $1.52 $1.41
Average Common Shares Outstanding:
Basic 8,644,310 8,608,323 8,639,433 8,610,100
Diluted 8,663,246 8,618,335 8,657,891 8,618,386


American National Bankshares Inc.
Financial Highlights
Unaudited
(Dollars in thousands, except per share data)
3rd Qtr 2nd Qtr 3rd Qtr YTD YTD
2017
2017
2016
2017
2016
EARNINGS
Interest income $ 16,274 $15,603 $14,063 $ 46,558 $42,003
Interest expense 1,936 1,691 1,599 5,174 4,795
Net interest income 14,338 13,912 12,464 41,384 37,208
Provision for loan losses 440 350 100 1,090 200
Noninterest income 3,804 3,348 3,120 10,423 9,784
Noninterest expense 10,710 10,711 9,867 31,862 29,441
Income taxes 2,205 1,920 1,654 5,726 5,172
Net income 4,787 4,279 3,963 13,129 12,179
PER COMMON SHARE
Income per share - basic$ 0.55 $0.50 $0.46 $ 1.52 $1.41
Income per share - diluted 0.55 0.49 0.46 1.52 1.41
Cash dividends paid 0.24 0.24 0.24 0.72 0.72
Book value per share 24.31 23.96 23.66 24.31 23.66
Book value per share - tangible (a) 19.09 18.72 18.34 19.09 18.34
Closing market price 41.20 36.95 27.95 41.20 27.95
FINANCIAL RATIOS
Return on average assets 1.08 % 0.99 % 0.99 % 1.01 % 1.03 %
Return on average equity 9.16 8.28 7.79 8.48 8.06
Return on average tangible equity (b) 11.81 10.93 10.41 11.11 10.89
Average equity to average assets 11.79 11.91 12.67 11.89 12.73
Tangible equity to tangible assets (a) 9.51 9.41 10.06 9.51 10.06
Net interest margin, taxable equivalent 3.56 3.54 3.50 3.51 3.54
Efficiency ratio (c) 59.14 61.76 61.25 61.23 61.18
Effective tax rate 31.54 30.97 29.45 30.37 29.81
PERIOD-END BALANCES
Securities $ 277,714 $286,004 $357,445 $ 277,714 $357,445
Loans held for sale 3,386 2,379 4,776 3,386 4,776
Loans, net of unearned income 1,295,154 1,288,693 1,083,201 1,295,154 1,083,201
Goodwill and other intangibles 45,143 45,223 45,766 45,143 45,766
Assets 1,780,541 1,764,473 1,615,534 1,780,541 1,615,534
Assets - tangible (a) 1,735,398 1,719,250 1,569,768 1,735,398 1,569,768
Deposits 1,480,205 1,462,841 1,306,008 1,480,205 1,306,008
Customer repurchase agreements 43,240 48,282 44,090 43,240 44,090
Other short-term borrowings - - 15,000 - 15,000
Long-term borrowings 37,796 37,766 37,672 37,796 37,672
Shareholders' equity 210,214 207,053 203,713 210,214 203,713
Shareholders' equity - tangible (a) 165,071 161,830 157,947 165,071 157,947
AVERAGE BALANCES
Securities (d) $ 281,246 $295,863 $354,780 $ 300,407 $354,287
Loans held for sale 3,607 2,426 3,761 2,820 2,638
Loans, net of unearned income 1,291,822 1,258,346 1,064,606 1,248,929 1,043,177
Interest-earning assets 1,646,241 1,610,132 1,477,208 1,610,541 1,455,556
Goodwill and other intangibles 45,191 45,337 45,872 45,347 46,153
Assets 1,773,636 1,736,686 1,605,387 1,736,955 1,583,006
Assets - tangible (a) 1,728,445 1,691,349 1,559,515 1,691,608 1,536,853
Interest-bearing deposits 1,066,827 1,047,828 973,431 1,045,422 965,391
Deposits 1,468,523 1,433,852 1,301,874 1,431,777 1,286,034
Customer repurchase agreements 48,461 49,239 50,013 47,614 47,353
Other short-term borrowings - - 1,521 3,902 512
Long-term borrowings 37,780 37,748 37,655 37,748 37,624
Shareholders' equity 209,026 206,774 203,451 206,440 201,560
Shareholders' equity - tangible (a) 163,835 161,437 157,579 161,093 155,407
American National Bankshares Inc.
Financial Highlights
Unaudited
(Dollars in thousands, except per share data)
3rd Qtr 2nd Qtr 3rd Qtr YTD YTD
2017
2017
2016
2017
2016
CAPITAL
Average common shares outstanding - basic 8,644,310 8,640,648 8,608,323 8,639,433 8,610,100
Average common shares outstanding - diluted 8,663,246 8,659,165 8,618,335 8,657,891 8,618,386
ALLOWANCE FOR LOAN LOSSES
Beginning balance$ 13,632 $13,108 $12,674 $ 12,801 $12,601
Provision for loan losses 440 350 100 1,090 200
Charge-offs (277) (85) (86) (411) (245)
Recoveries 63 259 69 378 201
Ending balance $ 13,858 $13,632 $12,757 $ 13,858 $12,757
LOANS
Construction and land development$ 137,869 $132,322 $91,688 $ 137,869 $91,688
Commercial real estate 602,434 590,093 454,797 602,434 454,797
Residential real estate 209,201 211,305 218,632 209,201 218,632
Home equity 110,926 113,580 108,617 110,926 108,617
Commercial and industrial 230,484 236,418 204,184 230,484 204,184
Consumer 4,240 4,975 5,283 4,240 5,283
Total $ 1,295,154 $1,288,693 $1,083,201 $ 1,295,154 $1,083,201
NONPERFORMING ASSETS AT PERIOD-END
Nonperforming loans:
90 days past due and accruing$ 538 $1,611 $320 $ 538 $320
Nonaccrual 2,498 2,117 3,526 2,498 3,526
Other real estate owned 2,101 1,686 1,145 2,101 1,145
Nonperforming assets$ 5,137 $5,414 $4,991 $ 5,137 $4,991
ASSET QUALITY RATIOS
Allowance for loan losses to total loans 1.07 % 1.06 % 1.18 % 1.07 % 1.18 %
Allowance for loan losses to
nonperforming loans 456.46 365.67 331.70 456.46 331.70
Nonperforming assets to total assets 0.29 0.31 0.31 0.29 0.31
Nonperforming loans to total loans 0.23 0.29 0.36 0.23 0.36
Annualized net charge-offs (recoveries)
to average loans 0.07 (0.06) 0.01 0.00 0.01
OTHER DATA
Fiduciary assets at period-end (e) (f)$ 517,294 $520,861 $502,390 $ 517,294 $502,390
Retail brokerage assets at period-end (e) (f)$ 307,281 $297,463 $278,089 $ 307,281 $278,089
Number full-time equivalent employees (g) 335 328 309 335 309
Number of full service offices 26 27 25 26 25
Number of loan production offices 2 2 2 2 2
Number of ATM's 34 34 33 34 33
Notes:
(a) - Excludes goodwill and other intangible assets.
(b) - Excludes amortization expense, net of tax, of intangible assets.
(c) - The efficiency ratio is calculated by dividing noninterest expense excluding gains or losses on the sale of OREO by net
interest income including tax equivalent income on nontaxable loans and securities and noninterest income and excluding (i) gains or
losses on securities and (ii) gains or losses on sale of premises and equipment.
(d) - Average does not include unrealized gains and losses.
(e) - Market value.
(f) - Assets are not owned by the Company and are not reflected in the consolidated balance sheet.
(g) - Average for quarter.


Net Interest Income Analysis
For the Three Months Ended September 30, 2017 and 2016
(Dollars in thousands)
Unaudited
Interest
Average Balance Income/Expense Yield/Rate
2017 2016 2017 2016 2017 2016
Loans:
Commercial $233,455 $200,448 $2,282 $2,022 3.88%4.01%
Real estate 1,057,326 862,740 12,102 9,939 4.58 4.61
Consumer 4,648 5,179 92 136 7.85 10.45
Total loans 1,295,429 1,068,367 14,476 12,097 4.46 4.52
Securities:
Federal agencies & GSEs 92,822 99,375 445 428 1.92 1.72
Mortgage-backed & CMOs 77,663 81,945 399 411 2.06 2.01
State and municipal 95,861 158,010 862 1,370 3.60 3.47
Other 14,900 15,450 170 132 4.56 3.42
Total securities 281,246 354,780 1,876 2,341 2.67 2.64
Deposits in other banks 69,566 54,061 235 78 1.34 0.57
Total interest-earning assets 1,646,241 1,477,208 16,587 14,516 4.03 3.93
Non-earning assets 127,395 128,179
Total assets $1,773,636 $1,605,387
Deposits:
Demand $215,486 $200,469 11 10 0.02 0.02
Money market 336,501 253,269 463 118 0.55 0.19
Savings 124,949 117,737 9 9 0.03 0.03
Time 389,891 401,956 1,046 1,154 1.06 1.14
Total deposits 1,066,827 973,431 1,529 1,291 0.57 0.53
Customer repurchase agreements 48,461 50,013 53 1 0.43 0.01
Other short-term borrowings 0 1521 0 3 0.00 0.79
Long-term borrowings 37,780 37,655 354 304 3.75 3.23
Total interest-bearing
liabilities 1,153,068 1,062,620 1,936 1,599 0.67 0.60
Noninterest bearing demand deposits 401,696 328,443
Other liabilities 9,846 10,873
Shareholders' equity 209,026 203,451
Total liabilities and
shareholders' equity $1,773,636 $1,605,387
Interest rate spread 3.36%3.33%
Net interest margin 3.56%3.50%
Net interest income (taxable equivalent basis) 14,651 12,917
Less: Taxable equivalent adjustment 313 453
Net interest income $14,338 $12,464


Net Interest Income Analysis
For the Nine Months Ended September 30, 2017 and 2016
(Dollars in thousands)
Unaudited
Interest
Average Balance
Income/Expense
Yield/Rate
2017 2016 2017 2016 2017 2016
Loans:
Commercial $227,739 $196,256 $6,577 $5,852 3.86%3.98%
Real estate 1,019,185 844,276 34,228 29,620 4.48 4.68
Consumer 4,825 5,283 272 507 7.54 12.82
Total loans 1,251,749 1,045,815 41,077 35,979 4.38 4.59
Securities:
Federal agencies & GSEs 95,360 95,967 1,340 1,252 1.87 1.74
Mortgage-backed & CMOs 78,572 79,746 1,224 1,235 2.08 2.06
State and municipal 110,328 162,885 2,952 4,336 3.57 3.55
Other 16,147 15,689 536 410 4.43 3.48
Total securities 300,407 354,287 6,052 7,233 2.69 2.72
Deposits in other banks 58,385 55,454 469 203 1.07 0.49
Total interest-earning assets 1,610,541 1,455,556 47,598 43,415 3.94 3.98
Non-earning assets 126,414 127,450
Total assets $1,736,955 $1,583,006
Deposits:
Demand $217,052 $220,419 32 90 0.02 0.05
Money market 321,738 226,780 1,046 284 0.43 0.17
Savings 124,780 117,599 28 37 0.03 0.04
Time 381,852 400,593 2,975 3,491 1.04 1.16
Total deposits 1,045,422 965,391 4,081 3,902 0.52 0.54
Customer repurchase agreements 47,614 47,353 68 3 0.19 0.01
Other short-term borrowings 3,902 512 27 3 0.92 0.78
Long-term borrowings 37,748 37,624 998 887 3.53 3.14
Total interest-bearing
liabilities 1,134,686 1,050,880 5,174 4,795 0.61 0.61
Noninterest bearing demand deposits 386,355 320,643
Other liabilities 9,474 9,923
Shareholders' equity 206,440 201,560
Total liabilities and
shareholders' equity $1,736,955 $1,583,006
Interest rate spread 3.33%3.37%
Net interest margin 3.51%3.54%
Net interest income (taxable equivalent basis) 42,424 38,620
Less: Taxable equivalent adjustment 1,040 1,412
Net interest income $41,384 $37,208


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

Source:American National Bankshares, Inc.