American National Bankshares Inc. Reports Second Quarter 2019 Earnings and Third Quarter Dividend Increase

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Merger with HomeTown Bankshares Corp. consummated April 1, 2019Merger related expense (pretax) for Q2 2019 of $10.9 million Net loss of $1.2 million and diluted EPS of ($0.11) for Q2 2019Net interest margin of 3.82% for Q2 2019Increased cash dividend declared for Q3 and represents an 8% increase DANVILLE, Va., July 18, 2019 (GLOBE NEWSWIRE) -- American National Bankshares Inc. (“American National”) (NASDAQ:  AMNB), parent company of American National Bank and Trust Company, today announced a net loss of $1,230,000 for the second quarter 2019 compared to net income of $5,980,000 for the second quarter of 2018, a $7,210,000 or 120.6% decrease. Income for the second quarter of 2019 was impacted adversely by $10,871,000 in one-time merger expense related to the HomeTown acquisition. Basic and diluted net income per common share was a loss of $0.11 for the 2019 quarter compared to net income per common share of $0.69 for the 2018 quarter. Net loss for the second quarter of 2019 produced annualized returns on average assets of (0.20%), on average equity of (1.60%), and on average tangible equity of (1.62%). Net income for the first six months of 2019 was $4,773,000 compared to $11,792,000 for the comparable period of 2018, a $7,019,000 or 59.5% decrease. Basic and diluted net income per common share was $0.48 for the 2019 period compared to $1.36 for the 2018 period. Income for the six-month period of 2019 was impacted adversely by $11,322,000 in one-time merger expense related to the HomeTown acquisition. HomeTown Bankshares Corporation MergerOn April 1, 2019, American National completed its merger with Roanoke, Virginia based HomeTown Bankshares Corporation (“HomeTown”). The merger, valued at approximately $83.3 million, significantly expanded American National’s operations in Roanoke and added a new presence in the New River Valley.  DividendsAmerican National also announced that its Board of Directors has declared a quarterly cash dividend of $0.27 per common share, payable September 20, 2019, to shareholders of record September 6, 2019. This represents an 8% increase in the cash dividend from the current $0.25 per common share per quarter. American National considers the payment of appropriate dividends to be a vital part of its capital planning and management program. The Company adheres to a dividend policy based on a review of earnings, growth, capital and such other factors that the Board of Directors considers relevant to the dividend decision process. Financial Performance and OverviewJeffrey V. Haley, President and Chief Executive Officer, said, “The merger with HomeTown Bankshares brought us some of the best community bankers in the Roanoke market, $444 million in loans, and $484 million in deposits. American National is now the largest community bank in the Roanoke market. “Income for the 2019 quarter was a loss of $1.2 million. On a pretax basis the loss for the 2019 quarter was $1.6 million. This was directly related to the $10.9 million in nonrecurring merger related expense. “Net interest income for the 2019 quarter compared to the 2018 quarter significantly increased, it was up $6.2 million or 41.9%. “This improvement in net interest income was primarily related to an increase in the average balance of loans for the 2019 quarter compared to the 2018 quarter. Loan average balances for the 2019 quarter were up $494.7 million or 37.4% over the 2018 quarter. Loan yields for the 2019 quarter were 51 basis points higher than the 2018 quarter. Of the increase in balances, $444.3 million represents loans acquired in the HomeTown merger and $50.4 million (3.8%) represents growth in the other parts of our franchise. “End of period loan balance for June 30, 2019, compared to December 31, 2018, increased $478.8 million. Of this increase, $444.3 million was related to the HomeTown merger and $34.5 million (2.5%) represents growth throughout the rest of our franchise. “Average interest bearing deposits for the 2019 quarter compared to the 2018 quarter also increased substantially, up $317.9 million or 27.7% with a 30 basis point higher cost. This reflects increased competition for deposits, especially evident in our new HomeTown market. Of the increase, $364.1 million represents deposits acquired in the HomeTown merger. Legacy deposits were down slightly for the same period. “Average noninterest bearing deposits for the 2019 quarter compared to the 2018 quarter also increased substantially; they were up $140.3 million or 33.4%. Of this increase, $119.5 million represents deposits acquired in the HomeTown merger; the remaining $20.8 million (5.0%) represents growth in other parts of our franchise. “The market for loans and deposits continues to be very competitive. Market competition drives yields on loans down and rates on deposits up. This puts continuing pressure on our net interest margin. Our challenge is to maintain quality growth in assets and deposits and at the same time protect our net interest margin. Our margin for the 2019 quarter was 3.82%, a 32 basis point increase from the 2018 quarter.” Haley concluded, “We are optimistic about the future of community banking, but realistic enough to know that it is not a given, it must be earned. For American National that earning is what we strive for every day – through continued asset quality, continued relevance to existing and new customers with modern banking products and services, continued organic and acquisition growth, and continued superior returns to our shareholders.”  CapitalAmerican National’s capital ratios remain strong and exceed all regulatory requirements. For the quarter ended June 30, 2019, average shareholders’ equity was 12.62% of average assets, compared to 11.62% for the quarter ended June 30, 2018. Book value per common share was $28.00 at June 30, 2019, compared to $24.50 at June 30, 2018. Tangible book value per common share was $19.63 at June 30, 2019, compared to $19.34 at June 30, 2018. Credit Quality MeasurementsNonperforming assets represented 0.14% of total assets at June 30, 2019, compared to 0.18% at June 30, 2018. Annualized net charge offs to average loans were zero basis points (0.00%) for the second quarter of 2019 compared to one basis point (0.01%) for the same quarter in 2018. Other real estate owned was $1,433,000 compared to $1,124,000 at June 30, 2018, an increase of $309,000 or 27.5%. Merger Related Financial ImpactThe 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 June 30,  2019  2018  Net Interest Income $1,118 $377  Income Before Income Taxes $660 $300        For the six months ended June 30,  2019  2018  Net Interest Income $1,373 $804  Income Before Income Taxes $860 $650  In the table above, the impact for the quarter ended June 30, 2019 related to the HomeTown merger on net interest income was $884,000 and on income before taxes was $481,000. The second quarter of 2019 includes $225,000 in cash basis accretion income related to the early payoff of several acquired loans, compared to $231,000 for the comparable quarter of 2018. For the six month period ended June 30, 2019, cash basis accretion income was $396,000, compared to $486,000 for the same period in 2018.  Net Interest IncomeNet interest income before the provision for loan losses increased to $20,989,000 in the second quarter of 2019 from $14,788,000 in the second quarter of 2018, an increase of $6,201,000 or 41.9%. For the 2019 quarter, the net interest margin was 3.82% compared to 3.50% for the same quarter in 2018, an increase of 32 basis points. The major drivers affecting margin between the 2019 quarter and the 2018 quarter were: Positively – a $504.1 million increase (29.5%) in average earning assets, mostly loans, at a 56 basis point higher yield.Positively – a $140.3 million increase (33.4%) in average noninterest bearing deposits.Negatively – a $317.9 million increase (27.7%) in the average balance of interest bearing deposits, at a 30 basis point higher cost. Most of these increases were directly related to the HomeTown merger. Provision for Loan Losses and Allowance for Loan LossesProvision expense for the second quarter of 2019 was a recovery of $10,000 compared to a recovery of $30,000 for the second quarter of 2018, a decrease of $20,000. The provision for both quarters 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 0.70% at June 30, 2019 compared to 1.01% at June 30, 2018. The primary driver for the decrease in this ratio was the HomeTown merger which increased loan balances $444.3 million. In conformity with generally accepted accounting standards, these loans were accounted for at fair value at the merger date and were recorded at the total outstanding principal balance of the loans net of a $10.7 million credit mark (included in the gross loan balances as a separate allowance) and a $4.0 million liquidity mark. However, the need for additional loan loss provision for the remainder of the loan portfolio 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 IncomeNoninterest income totaled $3,682,000 in the second quarter of 2019, compared with $3,563,000 in the second quarter of 2018, an increase of $119,000 or 3.3%. Service charge income increased $132,000 or 22.3%, mainly related to the HomeTown merger. Other fees and commissions increased $336,000 or 49.5%. This revenue category was up in virtually all of our markets, but the largest driver was check card income in our new Roanoke and New River region. Mortgage banking income increased $95,000 or 19.3% based on increased volume related to some dips in mortgage interest rates. Securities gains decreased $142,000 or 49.1%, related to the sale of most of our equity investments in 2019, thus reducing the accounting volatility in this revenue category. Noninterest ExpenseNoninterest expense totaled $26,316,000 in the second quarter of 2019, compared to $11,002,000 in the second quarter of 2018, an increase of $15,314,000 or 139.2%. The major factor causing the increase in noninterest expense was merger related expense. These are related to the HomeTown merger, are nonrecurring in nature, and totaled $10,871,000 during the second quarter of 2019. The largest component of merger expenses was $8,900,000 in costs related to data processing contract termination and conversion. The second major factor was salaries and benefits. Salaries increased $1,953,000 or 38.3% and benefits increased $314,000 or 28.3%. Most of this increase was related to a 48 full-time equivalent increase in staff compared to the prior year quarter. The effective income tax rate for the 2019 quarter was a benefit of 24.8%, compared to provision of 19.0% for the same quarter of 2018. The 2019 quarter was impacted by $10,871,000 in merger related expense, which generated a $1,635,000 pretax loss. About American NationalAmerican National is a multi-state bank holding company with total assets of approximately $2.4 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 $862 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 MeasuresThis 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 StatementsStatements 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.   American National Bankshares Inc.  Consolidated Balance Sheets (Dollars in thousands, except per share data)Unaudited       June 30   2019   2018 Assets    Cash and due from banks $34,460  $24,042 Interest-bearing deposits in other banks  20,454   9,300      Equity securities, at fair value  125   2,177 Securities available for sale, at fair value  334,326   341,247 Restricted stock, at cost  7,796   5,463 Loans held for sale  3,165   2,296      Loans  1,836,241   1,339,379 Less allowance for loan losses  (12,786)  (13,508)Net Loans  1,823,455   1,325,871      Premises and equipment, net  39,038   25,879 Other real estate owned, net  1,433   1,124 Goodwill  84,633   43,872 Core deposit intangibles, net  8,613   1,037 Bank owned life insurance  27,451   18,674 Accrued interest receivable and other assets  33,133   23,549      Total assets $2,418,082  $1,824,531           Liabilities    Demand deposits -- noninterest-bearing $554,400  $420,795 Demand deposits -- interest-bearing  326,105   251,056 Money market deposits  451,343   383,963 Savings deposits  178,723   132,839 Time deposits  488,526   372,093 Total deposits  1,999,097   1,560,746      Short-term borrowings:    Customer repurchase agreements  37,222   6,776 Other short-term borrowings  13,528   5,500 Subordinated debt  7,526   - Junior subordinated debt  27,978   27,876 Accrued interest payable and other liabilities  20,814   10,285 Total liabilities  2,106,165   1,611,183      Shareholders' equity    Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding  -   - Common stock, $1 par, 20,000,000 shares authorized, 11,141,355 shares outstanding at June 30, 2019 and 8,708,127 shares outstanding at June 30, 2018  11,089   8,654 Capital in excess of par value  160,572   77,496 Retained earnings  141,339   135,108 Accumulated other comprehensive loss, net  (1,083)  (7,910)Total shareholders' equity  311,917   213,348      Total liabilities and shareholders' equity $2,418,082  $1,824,531         American National Bankshares Inc. Consolidated Statements of Income(Dollars in thousands, except per share data)Unaudited           Three Months Ended Six Months Ended  June 30 June 30   2019   2018   2019   2018 Interest and Dividend Income:         Interest and fees on loans $22,629  $14,766  $38,267  $29,423 Interest and dividends on securities:        Taxable  1,980   1,540   3,801   2,864 Tax-exempt  239   423   526   842 Dividends  105   78   189   158 Other interest income  258   185   524   373 Total interest and dividend income  25,211   16,992   43,307   33,660          Interest Expense:        Interest on deposits  3,520   1,873   5,992   3,698 Interest on short-term borrowings  178   2   350   12 Interest on long-term borrowings  14   -   14   - Interest on subordinated debt  122   -   122   - Interest on junior subordinated debt  388   329   772   619 Total interest expense  4,222   2,204   7,250   4,329          Net Interest Income   20,989   14,788   36,057   29,331 Provision for (recovery of) loan losses  (10)  (30)  6   (74)                  Net Interest Income After Provision for Loan Losses   20,999   14,818   36,051   29,405          Noninterest Income:         Trust fees  933   945   1,847   1,874 Service charges on deposit accounts  724   592   1,318   1,204 Other fees and commissions  1,015   679   1,723   1,321 Mortgage banking income  586   491   992   941 Securities gains, net  147   289   470   410 Brokerage fees  186   209   333   431 Income from Small Business Investment Companies  (137)  171   31   326 Gains (losses) on premises and equipment, net  (87)  -   (87)  3 Other  315   187   506   386 Total noninterest income  3,682   3,563   7,133   6,896          Noninterest Expense:         Salaries  7,048   5,095   11,712   10,092 Employee benefits  1,425   1,111   2,655   2,286 Occupancy and equipment  1,431   1,100   2,515   2,228 FDIC assessment  169   132   294   278 Bank franchise tax  412   291   702   572 Core deposit intangible amortization  458   77   513   154 Data processing  717   467   1,249   889 Software  321   354   645   659 Other real estate owned, net  (44)  25   (31)  55 Merger related expenses  10,871   -   11,322   - Other  3,508   2,350   5,669   4,491 Total noninterest expense  26,316   11,002   37,245   21,704          Income (Loss) Before Income Taxes  (1,635)  7,379   5,939   14,597 Income Taxes  (405)  1,399   1,166   2,805 Net Income (Loss)  $(1,230) $5,980  $4,773  $11,792          Net Income (Loss) Per Common Share:         Basic $(0.11) $0.69  $0.48  $1.36 Diluted $(0.11) $0.69  $0.48  $1.36 Weighted Average Common Shares Outstanding:         Basic  11,126,800   8,692,107   9,942,566   8,680,739 Diluted  11,126,800   8,704,726   9,952,115   8,695,860             American National Bankshares Inc.Financial HighlightsUnaudited          (Dollars in thousands, except per share data)          2nd Qtr 1st Qtr 2nd Qtr YTD YTD  2019    2019   2018   2019    2018 EARNINGS         Interest income$   25,211   $18,096  $16,992  $   43,307   $33,660 Interest expense 4,222    3,028   2,204   7,250    4,329 Net interest income 20,989    15,068   14,788   36,057    29,331 Provision for (recovery of) loan losses   (10)  16   (30)    6    (74)Noninterest income 3,682    3,451   3,563   7,133    6,896 Noninterest expense 26,316    10,929   11,002   37,245    21,704 Income taxes   (405)  1,571   1,399   1,166    2,805 Net income   (1,230)  6,003   5,980   4,773    11,792           PER COMMON SHARE          Income per share - basic$   (0.11) $0.69  $0.69  $   0.48   $1.36 Income per share - diluted   (0.11)  0.69   0.69     0.48    1.36 Cash dividends paid   0.25    0.25   0.25     0.50    0.50 Book value per share   28.00    26.21   24.50     28.00    24.50 Book value per share - tangible (a)   19.63    21.10   19.34     19.63    19.34 Closing market price   38.75    34.92   40.00     38.75    40.00           FINANCIAL RATIOS         Return on average assets   (0.20)%  1.29%  1.31%  0.44 %  1.29%Return on average equity   (1.60)  10.69   11.27   3.59    11.19 Return on average tangible equity (a)   (1.62)  13.44   14.44   5.25    14.37 Average equity to average assets 12.62    12.06   11.62   12.38    11.57 Tangible equity to tangible assets (a) 9.41    10.13   9.46   9.41    9.46 Net interest margin, taxable equivalent 3.82    3.50   3.50   3.67    3.48 Efficiency ratio (a) 60.94    56.95   59.96   59.24    59.66 Effective tax rate   (24.77)  20.74   18.96   19.63    19.22           PERIOD-END BALANCES         Securities$   342,247   $331,657  $348,887  $   342,247   $348,887 Loans held for sale   3,165    1,252   2,296     3,165    2,296 Loans, net of unearned income   1,836,241    1,360,063   1,339,379     1,836,241    1,339,379 Goodwill and other intangibles   93,246    44,743   44,909     93,246    44,909 Assets   2,418,082    1,868,404   1,824,531     2,418,082    1,824,531 Assets - tangible (a)   2,324,836    1,823,661   1,779,622     2,324,836    1,779,622 Deposits   1,999,097    1,559,790   1,560,746     1,999,097    1,560,746 Customer repurchase agreements   37,222    35,945   6,776     37,222    6,776 Long-term borrowings   35,504    27,953   27,876     35,504    27,876 Shareholders' equity   311,917    229,473   213,348     311,917    213,348 Shareholders' equity - tangible (a)   218,671    184,730   168,439     218,671    168,439           AVERAGE BALANCES         Securities (b)$   354,506   $343,834  $342,486  $   349,199   $328,143 Loans held for sale   2,913    1,830   2,616     2,375    2,328 Loans, net of unearned income   1,816,203    1,352,521   1,321,812     1,585,643    1,329,890 Interest-earning assets   2,211,273    1,736,887   1,707,223     1,975,887    1,703,287 Goodwill and other intangibles   93,075    44,778   44,956     69,060    44,993 Assets   2,433,948    1,863,212   1,825,860     2,150,157    1,822,165 Assets - tangible (a)   2,340,873    1,818,434   1,780,904     2,081,097    1,777,172 Interest-bearing deposits   1,463,613    1,131,604   1,145,701     1,298,526    1,151,380 Deposits   2,023,557    1,551,413   1,565,321     1,788,789    1,561,258 Customer repurchase agreements   35,657    42,705   11,347     39,161    11,795 Other short-term borrowings   7,627    61   247     3,865    1,210 Long-term borrowings   36,301    27,937   27,861     32,142    27,848 Shareholders' equity   307,281    224,677   212,256     266,208    210,852 Shareholders' equity - tangible (a)   214,206    179,899   167,300     197,148    165,859                               American National Bankshares Inc.         Financial Highlights         Unaudited                   (Dollars in thousands, except per share data)          2nd Qtr 1st Qtr 2nd Qtr YTD YTD  2019    2019   2018   2019    2018 CAPITAL          Weighted average shares outstanding - basic 11,126,800    8,745,174   8,692,107   9,942,566    8,680,739 Weighted average shares outstanding - diluted 11,126,800    8,745,723   8,704,726   9,952,115    8,695,860           ALLOWANCE FOR LOAN LOSSES         Beginning balance$   12,806   $12,805  $13,575  $   12,805   $13,603 Provision for (recovery of) loan losses (10)  16   (30)  6    (74)Charge-offs (54)  (69)  (130)  (123)  (174)Recoveries 44    54   93   98    153 Ending balance$   12,786   $12,806  $13,508  $   12,786   $13,508           LOANS         Construction and land development$   152,876   $93,759  $96,740  $   152,876   $96,740 Commercial real estate   880,146    659,133   633,128     880,146    633,128 Residential real estate   328,400    212,665   207,374     328,400    207,374 Home equity   121,905    99,979   105,558     121,905    105,558 Commercial and industrial   340,427    289,301   291,454     340,427    291,454 Consumer   12,487    5,226   5,125     12,487    5,125 Total$  1,836,241   $1,360,063  $1,339,379  $  1,836,241   $1,339,379           NONPERFORMING ASSETS AT PERIOD-END         Nonperforming loans:         90 days past due and accruing$   930   $197  $229  $   930   $229 Nonaccrual 969    1,111   1,861   969    1,861 Other real estate owned 1,433    646   1,124   1,433    1,124 Nonperforming assets$   3,332   $1,954  $3,214  $   3,332   $3,214           ASSET QUALITY RATIOS         Allowance for loan losses to total loans 0.70 %  0.94%  1.01%  0.70 %  1.01%Allowance for loan losses to nonperforming loans 673.30    979.05   646.32   673.30    646.32 Nonperforming assets to total assets 0.14    0.10   0.18   0.14    0.18 Nonperforming loans to total loans 0.10    0.10   0.16   0.10    0.16 Annualized net charge-offs to average loans 0.00    0.00   0.01   0.00    0.00                     OTHER DATA         Fiduciary assets at period-end (c) (d)$   547,731   $533,063  $510,552  $   547,731   $510,552 Retail brokerage assets at period-end (c) (d)$   314,051   $303,045  $326,692  $   314,051   $326,692 Number full-time equivalent employees (e)   371    299   323     371    323 Number of full service offices   28    24   26     28    26 Number of loan production offices   -    -   2     -    2 Number of ATM's   39    33   34     39    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 AnalysisFor the Three Months Ended June 30, 2019 and 2018(Dollars in thousands)Unaudited                  Interest      Average Balance Income/Expense Yield/Rate               2019 2018 2019 2018 2019 2018 Loans:            Commercial$321,263 $267,996 $3,899 $2,652 4.87%3.97%Real estate 1,485,665  1,052,105  18,578  12,087 5.00 4.60 Consumer 12,188  4,327  201  77 6.61 7.14 Total loans 1,819,116  1,324,428  22,678  14,816 4.99 4.48              Securities:            Federal agencies & GSEs 140,516  127,033  858  707 2.44 2.23 Mortgage-backed & CMOs 127,718  108,789  809  609 2.53 2.24 State and municipal 68,185  91,636  480  653 2.82 2.85 Other 18,087  15,028  233  176 5.15 4.68 Total securities 354,506  342,486  2,380  2,145 2.69 2.51              Deposits in other banks 37,651  40,309  258  185 2.75 1.84              Total interest-earning assets 2,211,273  1,707,223  25,316  17,146 4.58 4.02              Non-earning assets 222,675  118,637                      Total assets$2,433,948 $1,825,860                      Deposits:            Demand$335,879 $246,493  112  13 0.13 0.02 Money market 448,722  395,135  1,394  802 1.25 0.81 Savings 179,375  132,190  97  10 0.22 0.03 Time 499,637  371,883  1,916  1,048 1.54 1.13 Total deposits 1,463,613  1,145,701  3,519  1,873 0.96 0.66              Customer repurchase agreements 35,657  11,347  140  1 1.57 0.04 Other short-term borrowings 7,627  247  39  1 2.05 1.62 Long-term borrowings 36,301  27,861  524  329 5.77 4.72 Total interest-bearing liabilities 1,543,198  1,185,156  4,222  2,204 1.10 0.75              Noninterest bearing demand deposits 559,944  419,620         Other liabilities 23,525  8,828         Shareholders' equity 307,281  212,256         Total liabilities and shareholders' equity$2,433,948 $1,825,860                      Interest rate spread        3.48%3.27%Net interest margin        3.82%3.50%             Net interest income (taxable equivalent basis)    21,094  14,942     Less: Taxable equivalent adjustment     105  154     Net interest income    $20,989 $14,788                     Net Interest Income AnalysisFor the Six Months Ended June 30, 2019 and 2018(Dollars in thousands)Unaudited                  Interest      Average Balance Income/Expense Yield/Rate               2019 2018 2019 2018 2019 2018 Loans:            Commercial$293,575 $263,300 $6,790 $5,096 4.66%3.90%Real estate 1,285,842  1,064,605  31,294  24,277 4.87 4.56 Consumer 8,601  4,313  276  153 6.47 7.15 Total loans 1,588,018  1,332,218  38,360  29,526 4.84 4.44              Securities:            Federal agencies & GSEs 139,993  115,182  1,708  1,224 2.44 2.13 Mortgage-backed & CMOs 119,754  108,808  1,502  1,208 2.51 2.22 State and municipal 73,362  89,000  1,018  1,287 2.78 2.89 Other 16,090  15,153  411  351 5.11 4.63 Total securities 349,199  328,143  4,639  4,070 2.66 2.48              Deposits in other banks 38,670  42,926  524  373 2.73 1.75              Total interest-earning assets 1,975,887  1,703,287  43,523  33,969 4.41 3.99              Non-earning assets 174,270  118,878                      Total assets$2,150,157 $1,822,165                      Deposits:            Demand$287,424 $239,477  126  24 0.09 0.02 Money market 422,359  402,612  2,548  1,585 1.22 0.79 Savings 156,843  131,453  107  20 0.14 0.03 Time 431,900  377,838  3,211  2,069 1.50 1.10 Total deposits 1,298,526  1,151,380  5,992  3,698 0.93 0.65              Customer repurchase agreements 39,161  11,795  311  2 1.60 0.03 Other short-term borrowings 3,865  1,210  39  10 2.02 1.65 Long-term borrowings 32,142  27,848  908  619 5.65 4.45 Total interest-bearing liabilities 1,373,694  1,192,233  7,250  4,329 1.06 0.73              Noninterest bearing demand deposits 490,263  409,878         Other liabilities 19,992  9,202         Shareholders' equity 266,208  210,852         Total liabilities and shareholders' equity$2,150,157 $1,822,165                      Interest rate spread        3.35%3.26%Net interest margin        3.67%3.48%             Net interest income (taxable equivalent basis)    36,273  29,640     Less: Taxable equivalent adjustment     216  309     Net interest income    $36,057 $29,331                       American National Bankshares Inc. Reconciliation of Non-GAAP Financial Measures Unaudited           (Dollars in thousands, except per share data)          2nd Qtr 1st Qtr 2nd Qtr YTD YTD 2019  2019 2018 2019  2018EFFICIENCY RATIO         Noninterest expense$   26,316   $10,929  $11,002  $   37,245   $21,704 Add/subtract: loss/(gain) on sale of OREO 76    2   (3)  78    2 Subtract: core deposit intangible amortization (458)  (55)  (77)  (513)  (154)Subtract: merger related expense   (10,871)  (451)  -     (11,322)    -  $   15,063   $10,425  $10,922  $   25,488   $21,552           Net interest income$   20,989   $15,068  $14,788  $   36,057   $29,331 Tax equivalent adjustment 105    111   154   216    309 Noninterest income 3,682    3,451   3,563   7,133    6,896 Add/subtract: (gain)/loss on securities (147)  (323)  (289)  (470)  (410)Add/subtract: (gain)/loss on fixed assets 87      -     -   87    (3) $   24,716   $18,307  $18,216  $   43,023   $36,123           Efficiency ratio 60.94 %  56.95%  59.96%  59.24 %  59.66%          TAX EQUIVALENT NET INTEREST INCOME         Non-GAAP measures:         Interest income - loans$   22,678   $15,682  $14,816  $   38,360   $29,526 Interest income - investments and other 2,638    2,525   2,330   5,163    4,443 Interest expense - deposits (3,519)  (2,472)  (1,873)  (5,992)  (3,698)Interest expense - customer repurchase agreements   (140)  (171)  (1)    (311)  (2)Interest expense - other short-term borrowings   (39)    (1)  (1)    (39)  (10)Interest expense - long-term borrowings (524)  (384)  (329)  (908)  (619)Total net interest income$   21,094   $15,179  $14,942  $   36,273   $29,640 Less non-GAAP measures:         Tax benefit on nontaxable interest - loans   (49)  (44)  (50)    (93)  (102)Tax benefit on nontaxable interest - securities (56)  (67)  (104)  (123)  (207)GAAP measures$   20,989   $15,068  $14,788  $   36,057   $29,331                     RETURN ON AVERAGE TANGIBLE EQUITY         Return on average equity (GAAP basis)   (1.60)%  10.69%  11.27%    3.59 %  11.19%Impact of excluding average goodwill and other intangibles   (0.02)  2.75   3.17     1.66    3.18 Return on average tangible equity (non-GAAP) (1.62)%  13.44%  14.44%  5.25 %  14.37%          TANGIBLE EQUITY TO TANGIBLE ASSETS         Equity to assets ratio (GAAP basis)   12.90 %  12.28%  11.69%    12.90 %  11.69%Impact of excluding goodwill and other intangibles   3.49    2.15   2.23     3.49    2.23 Tangible equity to tangible assets ratio (non-GAAP) 9.41 %  10.13%  9.46%  9.41 %  9.46%          TANGIBLE BOOK VALUE         Book value per share (GAAP basis)$   28.00   $26.21  $24.50  $   28.00   $24.50 Impact of excluding goodwill and other intangibles   8.37    5.11   5.16     8.37    5.16 Tangible book value per share (non-GAAP)$   19.63   $21.10  $19.34  $   19.63   $19.34            Contact:William W. Traynham, Chief Financial Officer 434-773-2242   traynhamw@amnb.com   Source: American National Bankshares, Inc.

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