AMNB American National Bankshares Inc

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 OverviewJeffrey 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.”

CapitalAmerican 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 MeasurementsNon-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 ImpactThe 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 IncomeNet 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 LossesProvision 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 IncomeNoninterest 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 ExpenseNoninterest 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 NationalAmerican 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 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.

Contact:		William W. Traynham, Chief Financial Officer434-773-2242traynhamw@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 HighlightsUnaudited

(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