SOURCE: American National Bankshares Inc.

American National Bankshares Inc.

July 21, 2011 17:47 ET

American National Bankshares Inc. Reports Second Quarter 2011 Earnings and Announces Third Quarter Cash Dividend

DANVILLE, VA--(Marketwire - Jul 21, 2011) - American National Bankshares Inc. (NASDAQ: AMNB)

  • Q2 net income of $1 million and EPS of $0.16 per share
  • One-time merger expenses impact earnings
  • Net interest margin of 3.65%
  • Average shareholders' equity of $111 million represents 13.1% of assets
  • Dividend declared for Q3 2011 of $0.23 per common share

American National Bankshares Inc. (NASDAQ: AMNB) ("American National"), parent company of American National Bank and Trust Company ("American National Bank"), today announced second quarter 2011 net income of $1 million compared to $2 million for the same quarter in 2010. Basic and diluted earnings per share were $0.16 for the 2011 quarter compared to $0.33 for the 2010 quarter. This net income produced returns on average assets and average equity of 0.48% and 3.65%, respectively.

Net income for the first six months of 2011 was $2.8 million compared to $4.2 million for the comparable period of 2010. Basic and diluted earnings per share were $0.45 for the 2011 period compared to $0.69 for the 2010 period.

Earnings for the quarter and six months in 2011 were adversely impacted by one-time merger related expenses, associated with the July 1, 2011, merger between American National and MidCarolina Financial Corporation ("MidCarolina"). Of those expenses, $835,000 was incurred during the second quarter and a total of $1,143,000 was incurred during the six months.

Financial Performance and Overview
Charles H. Majors, President and Chief Executive Officer, stated, "American National had an eventful second quarter 2011, climaxing with the merger with MidCarolina on July 1, 2011. We are delighted with our new partners in North Carolina and believe this represents a quantum step in the corporate history of American National.

"Our lower than usual operating results were not unexpected, given market conditions and one-time costs of the merger. Our income for the second quarter was $1 million, almost a 50% decrease compared to the same quarter in 2010. This reduction was driven by a decline in net interest income and expenses associated with our merger with MidCarolina. The decrease in net interest income reflects continued market-driven competition for loans, declining bond yields, and compression of our net interest margin. The merger related costs, one-time in nature, are an investment in a new and even better American National.

"Trust income was up $77,000 or 9.6% for the 2011 quarter compared to the 2010 quarter, as a result of asset growth and improvement in the stock market.

"Service charge income declined $83,000 or 17.2%, mostly as a result of declining overdraft fee income, a trend we've seen over the past few years and expect to continue.

"Secondary market mortgage income declined $72,000 or 21.0%, because of decreasing volume. We anticipated a continued slowdown in this revenue stream in the remainder of 2011.

"Our noninterest expenses for the 2011 quarter increased $1,154,000 or 19.6%, compared to the 2010 quarter. This was mostly related to $835,000 in merger related expenses.

"During 2010 and into 2011, we have experienced historically low interest rates and an ongoing deleveraging in the economy. Even in this environment, our loan portfolio has declined only by $5.3 million or 1% over the past year.

"We are pleased with the growth in our deposits. They have grown by $28.8 million or 4.6% in the last year. This will help provide needed liquidity as the economy begins to recover and as we move to integrate MidCarolina into American National. We expect that growth to continue during 2011 and plan to make every effort to grow our transaction deposit accounts.

"Our credit quality measurements continue to be strong. We expect some unfavorable changes in the combined metrics as we move into the third quarter and continue the transition with MidCarolina, but we are determined to vigorously preserve, protect and improve asset quality in our Virginia and North Carolina markets.

Majors concluded, "American National is now more than 100 years old. There have been many economic cycles during those decades, some prosperous, some very challenging. Right now Virginia and North Carolina, as well as the entire country, face some serious economic problems, many of which are exacerbated by macro-economic and political circumstances beyond our individual control. But we are building an exemplary community bank for the 21st century. We are doing this with our recent merger with MidCarolina. We are doing this by synthesizing modern technology with traditional core business principles -- safe and sound banking, strong asset quality, abundant capital, and an overarching dedication to our customers and shareholders."

Capital
American National's capital ratios are among the highest in its peer group. For the quarter ended June 30, 2011, average shareholders' equity was 13.06% of average assets and the ratio of tangible equity to tangible assets was 10.65%.

Credit Quality Measurements
Nonperforming assets ($3.4 million of non-accrual loans and $3.5 million of foreclosed real estate) were below industry averages and represented 0.82% of total assets at June 30, 2011, compared to 0.93% at June 30, 2010.

The allowance for loans losses was $8.7 million or 1.70% of loans at June 30, 2011 compared to 1.57% at June 30, 2010.

Net Interest Income
Net interest income decreased to $6,599,000 in the second quarter of 2011 from $6,858,000 in the second quarter of 2010, a decrease of $259,000 or 3.8%. American National has mitigated the impact of the current historically low rate environment by actively managing the cost of its interest bearing liabilities.

For the second quarter, American National's net interest margin has decreased 20 basis points (0.20%) to 3.65% compared to the same quarter in 2010.

For the six month period, the net interest margin has decreased 21 basis points (0.21%) to 3.65%.

Noninterest Income
Noninterest income totaled $1,988,000 in the second quarter of 2011, compared with $2,043,000 in the second quarter of 2010, a decrease of $55,000 or 2.7%. Noninterest income in the 2011 quarter was negatively impacted by decrease in demand for secondary market mortgage loans, related to the overall slowdown in the real estate market. The 2011 quarter was also negatively impacted by a $349,000 write down in other real estate owned.

Noninterest Expense
Noninterest expense totaled $7,028,000 in the second quarter of 2011, compared to $5,874,000 in the second quarter of 2010, an increase of $1,154,000 or 19.6%. The second quarter of 2011 was adversely impacted by $835,000 in merger related expenses.

Dividend Declaration
American National announced today that its Board of Directors has declared a quarterly cash dividend of $0.23 per share, payable September 16, 2011, to shareholders of record of American National's common stock on September 2, 2011.

American National considers the payment of appropriate dividends 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.

About American National
American National Bankshares Inc. is a multi-state bank holding company with total assets of approximately $1.3 billion following the July 1, 2011, completion of the MidCarolina merger. 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 southern and central Virginia and north central North Carolina with 26 banking offices. The banking offices in Alamance and Guilford counties in North Carolina operate as MidCarolina Bank, a division of American National Bank. American National Bank and Trust Company also manages an additional $527 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; 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 Bankshares Inc. 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. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
Unaudited
June 30
ASSETS 2011 2010
Cash and due from banks $ 15,873 $ 11,398
Interest-bearing deposits in other banks 23,310 22,705
Securities available for sale, at fair value 231,393 211,574
Securities held to maturity 2,381 4,823
Total securities 233,774 216,397
Restricted stock, at cost 3,666 4,362
Loans held for sale 2,087 2,879
Loans 514,081 519,416
Less allowance for loan losses (8,744 ) (8,135 )
Net Loans 505,337 511,281
Premises and equipment, net 19,129 19,658
Other real estate owned, net 3,513 3,730
Goodwill 22,468 22,468
Core deposit intangibles, net 1,132 1,509
Accrued interest receivable and other assets 15,727 16,257
Total assets $ 846,016 $ 832,644
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- noninterest-bearing $ 115,329 $ 100,099
Demand deposits -- interest-bearing 95,453 92,771
Money market deposits 67,273 81,247
Savings deposits 63,632 64,425
Time deposits 317,263 291,609
Total deposits 658,950 630,151
Customer repurchase agreements 50,329 61,665
Long-term borrowings 413 8,563
Trust preferred capital notes 20,619 20,619
Accrued interest payable and other liabilities 4,515 2,886
Total liabilities 734,826 723,884
Shareholders' equity:
Common stock, $1 par, 20,000,000 shares authorized, 6,156,563 shares outstanding at June 30, 2011 and 6,124,892 shares outstanding at June 30, 2010 and 6,157 6,125
Capital in excess of par value 27,670 27,131
Retained earnings 74,810 73,590
Accumulated other comprehensive income, net 2,553 1,914
Total shareholders' equity 111,190 108,760
Total liabilities and shareholders' equity $ 846,016 $ 832,644
American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
2011 2010 2011 2010
Interest and Dividend Income:
Interest and fees on loans $ 6,618 $ 7,071 $ 13,297 $ 14,226
Interest and dividends on securities:
Taxable 1,085 1,275 2,254 2,591
Tax-exempt 827 554 1,543 1,020
Dividends 26 24 53 47
Other interest income 14 87 84 178
Total interest and dividend income 8,570 9,011 17,231 18,062
Interest Expense:
Interest on deposits 1,587 1,647 3,167 3,282
Interest on short-term borrowings 82 99 162 204
Interest on long-term borrowings 5 63 58 127
Interest on trust preferred capital notes 297 344 640 687
Total interest expense 1,971 2,153 4,027 4,300
Net Interest Income 6,599 6,858 13,204 13,762
Provision for loan losses 336 285 673 570
Net Interest Income After Provision for Loan Losses 6,263 6,573 12,531 13,192
Noninterest Income:
Trust fees 878 801 1,806 1,613
Service charges on deposit accounts 400 483 821 962
Other fees and commissions 338 288 654 566
Mortgage banking income 271 343 418 589
Securities gains (losses), net (19 ) 4 (18 ) (25 )
Other 120 124 278 262
Total noninterest income 1,988 2,043 3,959 3,967
Noninterest Expense:
Salaries 2,546 2,596 5,031 4,994
Employee benefits 624 633 1,165 1,273
Occupancy and equipment 696 698 1,395 1,477
FDIC assessment 197 199 402 394
Bank franchise tax 176 168 351 335
Core deposit intangible amortization 95 95 189 189
Foreclosed real estate, net 413 281 435 284
Other 2,281 1,204 3,839 2,428
Total noninterest expense 7,028 5,874 12,807 11,374
Income Before Income Taxes 1,223 2,742 3,683 5,785
Income Taxes 211 728 893 1,586
Net Income $ 1,012 $ 2,014 $ 2,790 $ 4,199
Net Income Per Common Share:
Basic $ 0.16 $ 0.33 $ 0.45 $ 0.69
Diluted $ 0.16 $ 0.33 $ 0.45 $ 0.69
Average Common Shares Outstanding:
Basic 6,154,396 6,123,790 6,149,029 6,121,615
Diluted 6,161,265 6,129,943 6,157,032 6,127,137
American National Bankshares Inc. and Subsidiaries
Financial Highlights
(In thousands, except share, ratio and nonfinancial data, unaudited)
2nd Qtr 1st Qtr 2nd Qtr YTD YTD
2011 2011 2010 2011 2010
EARNINGS
Interest income $ 8,570 $ 8,661 $ 9,011 $ 17,231 $ 18,062
Interest expense 1,971 2,056 2,153 4,027 4,300
Net interest income 6,599 6,605 6,858 13,204 13,762
Provision for loan losses 336 337 285 673 570
Noninterest income 1,988 1,971 2,043 3,959 3,967
Noninterest expense 7,028 5,779 5,874 12,807 11,374
Income taxes 211 682 728 893 1,586
Net income 1,012 1,778 2,014 2,790 4,199
PER COMMON SHARE
Earnings per share - basic $ 0.16 $ 0.29 $ 0.33 $ 0.45 $ 0.69
Earnings per share - diluted 0.16 0.29 0.33 0.45 0.69
Cash dividends declared 0.23 0.23 0.23 0.46 0.46
Book value per share 18.06 17.77 17.76 18.06 17.76
Book value per share - tangible (a) 14.23 13.92 13.84 14.23 13.84
Closing market price 18.39 22.51 21.39 18.39 21.39
FINANCIAL RATIOS
Return on average assets 0.48 % 0.85 % 0.98 % 0.66 % 1.03 %
Return on average equity 3.65 6.51 7.45 5.07 7.79
Return on average tangible equity (b) 5.00 8.64 9.91 6.79 10.36
Average equity to average assets 13.06 13.03 13.21 13.06 13.23
Net interest margin, taxable equivalent 3.65 3.66 3.85 3.65 3.86
Efficiency ratio 73.00 64.16 60.55 68.59 60.39
Effective tax rate 17.25 27.72 26.55 24.25 27.42
PERIOD-END BALANCES
Securities $ 237,440 $ 233,379 $ 220,759 $ 237,440 $ 220,759
Loans held for sale 2,087 1,309 2,879 2,087 2,879
Loans, net of unearned income 514,081 516,629 519,416 514,081 519,416
Goodwill and other intangibles 23,600 23,694 23,977 23,600 23,977
Assets 846,016 845,238 832,644 846,016 832,644
Assets - tangible (a) 822,416 821,544 808,667 822,416 808,667
Deposits 658,950 663,483 630,151 658,950 630,151
Customer repurchase agreements 50,329 43,871 61,665 50,329 61,665
Other short-term borrowings - - - - -
Long-term borrowings 21,032 25,069 29,182 21,032 29,182
Shareholders' equity 111,190 109,372 108,760 111,190 108,760
Shareholders' equity - tangible (a) 87,590 85,678 84,783 87,590 84,783
AVERAGE BALANCES
Securities $ 235,725 $ 226,595 $ 198,289 $ 231,185 $ 191,530
Loans held for sale 1,984 1,508 3,529 1,747 2,990
Loans, net of unearned income 515,161 516,610 519,485 515,882 520,162
Interest-earning assets 773,750 765,291 746,879 769,544 742,776
Goodwill and other intangibles 23,651 23,750 24,029 23,700 24,077
Assets 848,783 838,151 818,740 842,882 814,658
Assets - tangible (a) 825,132 814,401 794,711 819,182 790,581
Interest-bearing deposits 549,397 542,104 514,963 545,771 511,115
Deposits 666,325 652,922 615,456 659,661 610,791
Customer repurchase agreements 47,220 43,762 62,072 45,500 63,005
Other short-term borrowings - 136 - - -
Long-term borrowings 21,062 27,855 29,212 24,439 29,230
Shareholders' equity 110,859 109,224 108,127 110,046 107,814
Shareholders' equity - tangible (a) 87,208 85,474 84,098 86,346 83,737
CAPITAL
Average shares outstanding - basic 6,154,396 6,143,602 6,123,790 6,149,029 6,121,615
Average shares outstanding - diluted 6,161,265 6,152,738 6,129,943 6,157,032 6,127,137
Shares repurchased - - - - -
Average price of shares repurchased $ - $ - $ - $ - $ -
ALLOWANCE FOR LOAN LOSSES
Beginning balance $ 8,257 $ 8,420 $ 8,112 $ 8,420 $ 8,166
Provision for loan losses 336 337 285 673 570
Charge-offs (134 ) (571 ) (305 ) (705 ) (732 )
Recoveries 285 71 43 356 131
Ending balance $ 8,744 $ 8,257 $ 8,135 $ 8,744 $ 8,135
LOANS
Construction and land development $ 35,756 $ 36,516 $ 40,039 $ 35,756 $ 40,039
Commercial real estate 208,685 207,502 202,602 208,685 202,602
Residential real estate 114,510 118,603 119,410 114,510 119,410
Home equity 61,218 61,674 63,992 61,218 63,992
Commercial and industrial 87,449 84,702 86,924 87,449 86,924
Consumer 6,463 7,632 6,449 6,463 6,449
Total $ 514,081 $ 516,629 $ 519,416 $ 514,081 $ 519,416
NONPERFORMING ASSETS AT PERIOD-END
Nonperforming loans:
90 days past due $ - $ - $ 8 $ - $ 8
Nonaccrual 3,464 3,417 4,005 3,464 4,005
Foreclosed real estate 3,513 3,532 3,730 3,513 3,730
Nonperforming assets $ 6,977 $ 6,949 $ 7,743 $ 6,977 $ 7,743
ASSET QUALITY RATIOS
Annualized net chargeoffs to average loans (0.12 )% 0.39 % 0.20 % 0.14 % 0.23 %
Nonperforming assets to total assets 0.82 0.82 0.93 0.82 0.93
Nonperforming loans to total loans 0.67 0.66 0.77 0.67 0.77
Allowance for loan losses to total loans 1.70 1.60 1.57 1.70 1.57
Allowance for loan losses to nonperforming loans 252.42 241.64 202.72 252.42 202.72
OTHER DATA
Fiduciary assets at period-end (c) $ 368,579 $ 380,259 $ 342,519 $ 368,579 $ 342,519
Retail brokerage assets at period-end (c) $ 49,636 $ 50,175 $ 45,912 $ 49,636 $ 45,912
Number full-time equivalent employees (d) 244 242 242 244 242
Number of full service offices 18 18 18 18 18
Number of loan production offices 1 1 1 1 1
Number of ATM's 26 26 26 26 26

Notes:
(a) - Excludes goodwill and other intangible assets
(b) - Excludes amortization expense, net of tax, of intangible assets
(c) - Market value
(d) - Average for quarter
Net Interest Income Analysis
For the Three Months Ended June 30, 2011 and 2010
(in thousands, except rates)
Interest
Average Balance Income/Expense Yield/Rate
2011 2010 2011 2010 2011 2010
Loans:
Commercial $ 79,595 $ 78,673 $ 909 $ 939 4.58 % 4.79 %
Real estate 430,872 437,856 5,620 6,033 5.22 5.51
Consumer 6,678 6,485 120 137 7.21 8.47
Total loans 517,145 523,014 6,649 7,109 5.15 5.44
Securities:
Federal agencies 35,919 66,019 256 525 2.85 3.18
Mortgage-backed & CMO's 56,133 45,651 466 479 3.32 4.20
State and municipal 137,843 79,622 1,585 1,079 4.60 5.42
Other 5,830 6,997 57 61 3.91 3.49
Total securities 235,725 198,289 2,364 2,144 4.01 4.33
Deposits in other banks 20,880 25,576 14 87 0.27 1.36
Total interest-earning assets 773,750 746,879 9,027 9,340 4.67 5.00
Non-earning assets 75,033 71,861
Total assets $ 848,783 $ 818,740
Deposits:
Demand $ 98,224 $ 96,098 17 21 0.07 0.09
Money market 61,714 82,372 67 101 0.44 0.49
Savings 63,716 64,561 22 22 0.14 0.14
Time 325,743 271,932 1,481 1,503 1.82 2.22
Total deposits 549,397 514,963 1,587 1,647 1.16 1.28
Customer repurchase agreements 47,220 62,072 82 99 0.70 0.64
Other short-term borrowings - - - - - -
Long-term borrowings 21,062 29,212 302 407 5.74 5.57
Total interest-bearing liabilities 617,679 606,247 1,971 2,153 1.28 1.42
Noninterest bearing demand deposits 116,928 100,493
Other liabilities 3,317 3,873
Shareholders' equity 110,859 108,127
Total liabilities and shareholders' equity $ 848,783 $ 818,740
Interest rate spread 3.39 % 3.58 %
Net interest margin 3.65 % 3.85 %
Net interest income (taxable equivalent basis) 7,056 7,187
Less: Taxable equivalent adjustment 457 329
Net interest income $ 6,599 $ 6,858
Net Interest Income Analysis
For the Six Months Ended June 30, 2011 and 2010
(in thousands, except rates)
Interest
Average Balance Income/Expense Yield/Rate
2011 2010 2011 2010 2011 2010
Loans:
Commercial $ 78,765 $ 78,974 $ 1,789 $ 1,892 4.58 % 4.83 %
Real estate 431,775 437,550 11,315 12,128 5.24 5.54
Consumer 7,089 6,628 256 271 7.28 8.25
Total loans 517,629 523,152 13,360 14,291 5.17 5.47
Securities:
Federal agencies 39,612 65,886 579 1,076 2.92 3.27
Mortgage-backed & CMO's 57,706 44,722 956 980 3.31 4.38
State and municipal 127,934 73,614 2,993 2,006 4.68 5.45
Other 5,933 7,308 115 130 3.88 3.56
Total securities 231,185 191,530 4,643 4,192 4.02 4.38
Deposits in other banks 20,730 28,094 84 178 0.82 1.28
Total interest-earning assets 769,544 742,776 18,087 18,661 4.71 5.03
Non-earning assets 73,338 72,882
Total assets $ 842,882 $ 815,658
Deposits:
Demand $ 97,465 $ 96,578 35 42 0.07 0.09
Money market 62,416 81,595 150 191 0.48 0.47
Savings 63,114 63,686 43 44 0.14 0.14
Time 322,776 269,256 2,939 3,005 1.84 2.25
Total deposits 545,771 511,115 3,167 3,282 1.17 1.29
Customer repurchase agreements 45,500 63,005 162 204 0.72 0.65
Other short-term borrowings 68 - - - 0.47 -
Long-term borrowings 24,439 29,230 698 814 5.71 5.57
Total interest-bearing liabilities 615,778 603,350 4,027 4,300 1.32 1.43
Noninterest bearing demand deposits 113,890 99,676
Other liabilities 3,168 3,818
Shareholders' equity 110,046 107,814
Total liabilities and shareholders' equity $ 842,882 $ 814,658
Interest rate spread 3.39 % 3.60 %
Net interest margin 3.65 % 3.86 %
Net interest income (taxable equivalent basis) 14,060 14,361
Less: Taxable equivalent adjustment 856 599
Net interest income $ 13,204 $ 13,762