American National Bankshares Reports Second Quarter Earnings

DANVILLE, Va., July 25, 2023 (GLOBE NEWSWIRE) -- American National Bankshares Inc. (Nasdaq: AMNB) (“American National” or the “Company”) today reported second quarter 2023 earnings of $7.1 million, or $0.67 per diluted common share. Those results compare to earnings of $8.1 million, or $0.76 per diluted common share, during the same quarter in the prior year, and earnings of $9.2 million, or $0.86 per diluted common share, for the first quarter of 2023. Earnings for the six months ended June 30, 2023 were $16.3 million, or $1.53 per diluted common share, compared to $17.1 million, or $1.60 per diluted common share, for the same period of 2022.

President and Chief Executive Officer, Jeffrey V. Haley, commented, “The quarter was in line with our expectations as the impact of the rapid rise in interest rates over the past fifteen months accelerated the cost of liabilities on our balance sheet, resulting in reduced margins. Credit quality remained strong, expenses were in line and several of our fee-based business lines had nice revenue growth. The balance sheet was stable during the quarter, with good growth in loans and deposits.

“We jointly announced this morning that we have entered into a definitive merger agreement for Atlantic Union Bankshares Corporation (“Atlantic Union”) to acquire American National in an all-stock transaction. We are excited about this partnership, having had a peer relationship with Atlantic Union for many years. We believe their culture and business strategy around employee engagement and customer focus are aligned with our own. The synergies, product enhancements and additional operating leverage should generate incremental financial performance on a combined basis over the long term. Combining the two organizations will strengthen Atlantic Union by deepening its presence in Southwest and Southside Virginia, as well as provide a meaningful entry into the contiguous Piedmont Triad and Raleigh regions of north-central North Carolina.”   

Second quarter 2023 highlights include:

• Average loans held for investment grew $31.4 million, or 5.7% annualized, during the second quarter as compared to the previous quarter.
  
  
• Average deposits declined by 0.5% annualized during the quarter, while period-end deposits increased $39.7 million, or 6.1% annualized.
  
  
• Fully taxable equivalent (“FTE”) net interest margin was 2.88% for the quarter, down 32 basis points from 3.20% in the first quarter of 2023 and up 12 basis points from 2.76% in the same quarter of the prior year (non-GAAP).
  
  
• Noninterest revenues decreased $17 thousand, or less than 1%, when compared to the previous quarter, and decreased $482 thousand, or 10.0%, compared to the same quarter in the prior year.
  
  
• Noninterest expense increased $534 thousand, or 3.4%, when compared to the previous quarter, and increased $727 thousand, or 4.7%, when compared to the same quarter in the prior year.
  
  
• The Company recognized a provision for credit losses on loans in the second quarter of 2023 of $268 thousand compared to $329 thousand in the first quarter of 2023 and $581 thousand in the same quarter of 2022.
  
  
• Annualized net charge-offs (recoveries) as a percentage of average loans outstanding were (0.05%) for the second quarter of 2023, compared to 0.04% in the previous quarter and 0.01% in the same quarter in the prior year.
  
  
• Nonperforming assets as a percentage of total assets were 0.04% at June 30, 2023, down from 0.06% at March 31, 2023 and down from 0.05% at June 30, 2022.
  

NET INTEREST INCOME

Net interest income for the second quarter of 2023 decreased by $2.1 million, or 8.9%, to $21.1 million compared to $23.2 million for the previous quarter. The second quarter of 2023 compared to the same quarter of 2022 reflected a decrease of $342 thousand, or 1.6%. The FTE net interest margin for the second quarter of 2023 was 2.88%, down from 3.20% in the prior quarter but up from 2.76% in the same quarter a year ago (non-GAAP). The margin contraction relative to the previous quarter resulted from funding costs increasing more than earning asset yields. The yield on average earning assets increased 11 basis points quarter-over-quarter, while the cost of average interest-bearing liabilities rose 67 basis points due to an acceleration in deposit repricing and shift of the deposit mix from demand deposits to higher cost money market and time deposits. Similarly, the 112-basis point increase in average earning asset yields was substantially offset by the 162-basis point increase in the cost of average interest-bearing liabilities when comparing second quarter 2023 to the same quarter of 2022. The cost of interest-bearing deposits increased to 1.59% in the second quarter, compared to 0.88% in the previous quarter and 0.14% in the same quarter of the prior year.

ASSET QUALITY

Nonperforming assets (“NPAs”) totaled $1.1 million as of June 30, 2023 down from $2.0 million at March 31, 2023 and $1.6 million at June 30, 2022. NPAs as a percentage of total assets were 0.04% at June 30, 2023, compared to 0.06% at March 31, 2023 and 0.05% at June 30, 2022. The Company recorded a provision for credit losses for the second quarter of 2023 of $268 thousand compared to $329 thousand in the previous quarter and $581 thousand in the second quarter of the previous year. The provision expense for the two quarters of 2023 was the result of stable economic conditions, ongoing low charge-off and delinquency rates, and overall strong asset quality metrics. The provision expense for the same quarter of 2022 was a function of loan growth during the period and a slight increase in specific reserves.

The allowance for credit losses – loans was $25.3 million at June 30, 2023, compared to $24.9 million at March 31, 2023 and $18.5 million at June 30, 2022. The adoption of the current expected credit losses standard on January 1, 2023 resulted in an additional allowance of $5.2 million. Annualized net charge-offs (recoveries) as a percentage of average loans outstanding were (0.05%) for the second quarter of 2023, compared to 0.04% in the previous quarter and 0.01% in the same quarter in the prior year. The allowance for credit losses as a percentage of loans held for investment was 1.13% at June 30, 2023, compared to 1.13% at March 31, 2023, and 0.91% at June 30, 2022.

NONINTEREST INCOME

Noninterest income decreased in the second quarter of 2023 by $17 thousand, or 0.4%, compared to the prior quarter and decreased $482 thousand, or 10.0%, from the same quarter in the prior year. Noninterest income totaled $4.4 million for the quarters ended June 30, 2023 and March 31, 2023 compared to $4.8 million for the quarter ended June 30, 2022.

The decrease in second quarter as compared to the previous quarter was attributable to decreases in income from small business investment companies of $219 thousand and income from insurance investments of $225 thousand, mostly offset by an increase in wealth management revenues of $158 thousand and growth in interchange fees of $77 thousand.

The second quarter of 2023 compared to the second quarter of 2022 reflected a decrease of $482 thousand or 10.0%, reflecting decreases in mortgage banking income of $232 thousand and income from small business investment companies of $570 thousand, partially offset by increased income from wealth management of $139 thousand, and interchange fees of $191 thousand.

NONINTEREST EXPENSE

Noninterest expense for the second quarter of 2023 amounted to $16.2 million, up $534 thousand, or 3.4%, when compared to $15.6 million for the previous quarter and up $727 thousand, or 4.7%, from $15.5 million during the same quarter in the previous year. The increase in the second quarter compared to the previous quarter was the net result of increased salaries and employee benefits of $288 thousand and reduced incentive accruals of $1.1 million, offset by increases in occupancy expense of $226 thousand, FDIC insurance of $285 thousand, data processing of $121 thousand, advertising and public relations expenses of $133 thousand and $548 thousand in other expenses.

The second quarter 2023 increase compared to the same quarter of 2022 was the net result of reduced incentive accruals in salaries and employee benefits of $1.2 million offset by increases in salary costs and related employment taxes of $605 thousand, $264 thousand in FDIC assessments and $519 thousand in other expenses.

INCOME TAXES

The effective tax rate for the three months ended June 30, 2023 was 21.13%, compared to 21.19% for the prior quarter and 20.90% for the same quarter in the prior year. The effective tax rate fluctuations are attributable to changes in pre-tax earnings and the levels of permanent tax differences.

BALANCE SHEET

Total assets at June 30, 2023 were $3.1 billion, an increase of $37.5 million, or 1.2% from March 31, 2023, and a decrease of $120.6 million, or 3.7%, from June 30, 2022.

At June 30, 2023, loans held for investment (net of deferred fees and costs) were $2.2 billion, an increase of $44.9 million, or 8.2% annualized, from March 31, 2023. Loans held for investment (net of deferred fees and costs) increased $213.6 million, or 10.5%, from June 30, 2022.

Investment securities available for sale amounted to $560.7 million at June 30, 2023, a decrease of $25.7 million, or 4.4%, from March 31, 2023 and a decrease of $108.1 million, or 16.2%, compared to June 30, 2022. The unrealized loss on available for sale securities was $69.7 million at June 30, 2023 compared to $62.4 million at March 31, 2023 and $48.3 million at June 30, 2022. The increase in unrealized losses relative to the prior quarter was the result of increases in market yields for investment securities. At June 30, 2023, 57% of the market value of the securities portfolio was unencumbered and could be used to provide additional liquidity, if needed.

Deposits amounted to $2.7 billion at June 30, 2023, with growth of $55.6 million, or 4.3% annualized, from December 31, 2022 and decreased $178.4 million, or 6.3%, compared to June 30, 2022.

Borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”) totaled $25.0 million at June 30, 2023, and at March 31, 2023. The Company had no FHLB borrowings at June 30, 2022. The Company’s remaining credit availability from the FHLB was $726.5 million as of March 31, 2023, $495.1 million of which could be accessed without pledging additional collateral.

The Company continues to be well-capitalized as defined by regulators, with tangible common equity to tangible assets of 7.94% at June 30, 2023 compared to 8.06% at March 31, 2023 and compared to 7.58% at June 30, 2022 (non-GAAP). The Company’s preliminary common equity Tier 1, Tier 1, total, and Tier 1 leverage capital ratios were 11.68%, 12.81%, 13.84% and 10.60%, respectively, at June 30, 2023.

ABOUT AMERICAN NATIONAL

American National is a multi-state bank holding company with total assets of approximately $3.1 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. American National Bank also manages an additional $1.2 billion of trust, investment and brokerage assets in its Wealth Division. Additional information about American National and American National Bank is available on American National'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 in the United States (“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

Certain statements in this release may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements regarding anticipated changes in the interest rate environment, future economic conditions and the impacts of current economic uncertainties, and projections, predictions, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact. Such forward-looking statements are based on certain assumptions as of the time they are made, and are inherently subject to known and unknown risks and uncertainties, some of which cannot be predicted or quantified, that may cause actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Such statements are often characterized by the use of qualified words (and their derivatives) such as “expect,” “believe,” “estimate,” “plan,” “project,” “anticipate,” “intend,” “will,” “may,” “view,” “seek to,” “opportunity,” “potential,” “continue,” “confidence” or words of similar meaning, or other statements concerning opinions or judgment of our management about future events. Although we believe that our expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of our existing knowledge of our business and operations, there can be no assurance that actual future results, performance, or achievements of, or trends affecting, us will not differ materially from any projected future results, performance, achievements or trends expressed or implied by such forward-looking statements. Actual future results, performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the following: businesses of American National and Atlantic Union may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities or cost savings from the merger with Atlantic Union may not be fully realized or may take longer to realize than expected; deposit attrition, operating costs, customer losses and business disruption prior to and following the merger with Atlantic Union, including adverse effects on relationships with employees and customers, may be greater than expected; the regulatory and shareholder approvals required for the merger with Atlantic Union may not be obtained; the level of inflation; financial market volatility including the level of interest rates, could affect the values of financial instruments and the amount of net interest income earned; the adequacy of the level of the Company’s allowance for credit losses, the amount of credit loss provisions required in future periods, and the failure of assumptions underlying the allowance for credit losses; general economic or business conditions, either nationally or in the market areas in which the Company does business, may be less favorable than expected, resulting in deteriorating credit quality, reduced demand for credit, or a weakened ability to generate deposits; competition among financial institutions may increase, and competitors may have greater financial resources and develop products and technology that enable those competitors to compete more successfully than the Company; businesses that the Company is engaged in may be adversely affected by legislative or regulatory changes, including changes in accounting standards and tax laws; the ability to recruit and retain key personnel; cybersecurity threats or attacks, the implementation of new technologies, and the ability to develop and maintain reliable and secure electronic systems; the effects of climate change, natural disasters, and extreme weather events; geopolitical conditions, including acts or threats of terrorism and/or military conflicts, or actions taken by the U.S. or other governments in response to acts of threats or terrorism and/or military conflicts, negatively impacting business and economic conditions in the U.S. and abroad; the impact of health emergencies, epidemics or pandemics; risks related to environmental, social and governance practices; risks associated with mergers, acquisitions, and other expansion activities; and other factors described from time to time in the Company’s reports (such as our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and Exchange Commission. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.