SOURCE: American National Bankshares Inc.

American National Bankshares Inc.

October 26, 2011 19:05 ET

American National Bankshares Inc. Reports Third Quarter 2011 Earnings

DANVILLE, VA--(Marketwire - Oct 26, 2011) - American National Bankshares Inc. (NASDAQ: AMNB)

  • First quarter post-merger with MidCarolina of combined operation
  • Q3 net income of $4.1 million and diluted EPS of $0.52 per share
  • Net interest margin of 4.41%
  • Average shareholders' equity of $149 million represents 11.40% of average assets

American National Bankshares Inc. (NASDAQ: AMNB) ("American National"), parent company of American National Bank and Trust Company ("American National Bank"), today announced third quarter 2011 net income available to common shareholders ("net income") of $4,078,000, compared to $2,228,000 for the same quarter in 2010. Basic and diluted earnings per share were $0.52 for the 2011 quarter, compared to $0.36 for the 2010 quarter. This net income produced returns on average assets and average equity of 1.26% and 11.08%, respectively.

Net income for the first nine months of 2011 was $6,868,000, compared to $6,427,000 for the comparable period of 2010. Basic and diluted earnings per share were $1.02 for the 2011 period, compared to $1.05 for the 2010 period.

Earnings for the quarter and nine months in 2011 were favorably impacted by the July 1, 2011, merger between American National and MidCarolina Financial Corporation ("MidCarolina"). Unless otherwise noted, most of the material changes between periods are related to the merger.

Financial Performance and Overview
Charles H. Majors, President and Chief Executive Officer, stated, "July 1, 2011, was the first day of our third quarter and a monumental day in the history of American National. We consummated the merger with MidCarolina and overnight grew our community bank from $800 million to $1.3 billion in assets. In that same moment we added significantly to the depth and breadth of our market footprint, our pool of talented bankers and staff, and our ability to serve customers.

"Building and growing a community bank for the 21st century is not an easy or simple mission, but we start from a base of over a century of safe, sound and prudent banking in our home Virginia market. We are delighted to grow that base with our new partners in North Carolina and eagerly anticipate the myriad of business opportunities they will bring the combined bank over the coming years.

"We are pleased with earnings for the first quarter of the merged bank. However, the accounting rules that govern business combinations are complex and esoteric. The short version is that they require the assets and liabilities of the acquired company, in our case MidCarolina, to be valued at 'fair value'. Most of the assets and liabilities of a community bank are financial in nature and the fair value process, in today's economic environment, can result in significant fair value adjustments that are effectively purchase discounts.

"Much of this fair value discount will be added to our earnings over the next few years. The first indication of this is our earnings, under generally accepting accounting principles ('GAAP'), for the third quarter were $4,078,000, compared to $2,228,000 for the same quarter in 2010, an 83% increase.

"If those earnings are adjusted to remove the impact of the merger (the fair value impact and the merger related costs), our third quarter earnings would have been $3,326,000 compared to $2,228,000 for the same quarter of 2010, a 49% increase. The accountants would call this a 'non-GAAP' measure.

"This fair value accounting impact to income is front end loaded and will reduce rapidly in size during the next several years over the life of these assets, which are mostly loans. However, the merger is immediately accretive to earnings, even without any benefit from fair value accounting.

Majors concluded, "This was a remarkable quarter for American National. But, as we hope everyone understands, we are building and growing a community bank not just for the next few quarters, but for the new century, and we are optimistic that America National's best years are ahead of us."

Capital
American National's capital ratios remain strong and well over all regulatory requirements. For the quarter ended September 30, 2011, average shareholders' equity was 11.40% of average assets and the ratio of average tangible equity to average tangible assets was 8.29%.

Book value per common share was $19.40 at September 30, 2011, compared to $18.10 for the same date in 2010.

Tangible book value per common share was $13.65 at September 30, 2011, compared to $14.20 for the same date in 2010.

Credit Quality Measurements
Nonperforming assets ($13.5 million of non-accrual loans and $5.9 million of foreclosed real estate) represented 1.48% of total assets at September 30, 2011, compared to 0.96% at September 30, 2010.

Annualized net charge offs to average loans were nine basis points (0.09%) for the September 2011 quarter, compared to two basis points (0.02%) for the same quarter in 2010.

Net Interest Income
Net interest income before provision for loan losses increased to $12,343,000 in the third quarter of 2011 from $6,759,000 in the third quarter of 2010, an improvement of $5,584,000 or 82.6%.

For the third quarter, American National's net interest margin increased 67 basis points (0.67%) to 4.41% compared to the same quarter in 2010.

For the nine month period, the net interest margin increased 16 basis points (0.16%) to 3.98% compared to the same period in 2010.

Noninterest Income
Noninterest income totaled $2,698,000 in the third quarter of 2011, compared with $2,241,000 in the third quarter of 2010, an increase of $457,000 or 20.4%. Approximately 60% of this gain was attributable to increases in trust income and a gain on the sale of real estate in Danville. The remainder of the increase was related to the merger.

Noninterest Expense
Noninterest expense totaled $8,564,000 in the third quarter of 2011, compared to $5,531,000 in the third quarter of 2010, an increase of $3,033,000 or 54.8%. The third quarter of 2011 was negatively impacted by $390,000 in merger related expenses.

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 $490 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
September 30
ASSETS 2011 2010
Cash and due from banks $ 23,450 $ 10,860
Interest-bearing deposits in other banks 30,086 16,338
Securities available for sale, at fair value 311,517 209,434
Securities held to maturity 2,383 4,501
Total securities 313,900 213,935
Restricted stock, at cost 6,404 4,161
Loans held for sale 3,359 3,952
Loans 817,858 519,421
Less allowance for loan losses (9,086 ) (8,542 )
Net Loans 808,772 510,879
Premises and equipment, net 26,263 20,142
Other real estate owned, net 5,920 3,987
Goodwill 37,709 22,468
Core deposit intangibles, net 7,142 1,415
Accrued interest receivable and other assets 42,134 16,080
Total assets $ 1,305,139 $ 824,217
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- noninterest-bearing $ 170,398 $ 101,578
Demand deposits -- interest-bearing 188,480 91,301
Money market deposits 199,172 53,388
Savings deposits 72,428 62,841
Time deposits 433,999 316,522
Total deposits 1,064,477 625,630
Short-term borrowings:
Customer repurchase agreements 43,758 54,285
Long-term borrowings 10,238 8,525
Trust preferred capital notes 27,190 20,619
Accrued interest payable and other liabilities 8,115 4,290
Total liabilities 1,153,778 713,349
Shareholders' equity:
Preferred stock, $5 par, 2,000,000 shares authorized, 1,000,000 shares outstanding at September 30, 2011 and none outstanding at September 30, 2010

5,000


-
Common stock, $1 par, 20,000,000 shares authorized, 7,802,976 shares outstanding at September 30, 2011 and 6,126,374 shares outstanding at September 30, 2010

7,803


6,126
Capital in excess of par value 56,094 27,200
Retained earnings 77,092 74,409
Accumulated other comprehensive income, net 5,372 3,133
Total shareholders' equity 151,361 110,868
Total liabilities and shareholders' equity $ 1,305,139 $ 824,217

American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
Unaudited
Three Months Ended Nine Months Ended
September 30 September 30
2011 2010 2011 2010
Interest and Dividend Income:
Interest and fees on loans $ 12,510 $ 6,994 $ 25,807 $ 21,220
Interest and dividends on securities:
Taxable 1,192 1,253 3,446 3,844
Tax-exempt 1,014 621 2,557 1,641
Dividends 35 24 88 71
Other interest income 28 90 112 268
Total interest and dividend income 14,779 8,982 32,010 27,044
Interest Expense:
Interest on deposits 2,079 1,722 5,246 5,004
Interest on short-term borrowings 82 93 244 297
Interest on long-term borrowings 86 65 144 192
Interest on trust preferred capital notes 189 343 829 1,030
Total interest expense 2,436 2,223 6,463 6,523
Net Interest Income 12,343 6,759 25,547 20,521
Provision for loan losses 525 435 1,198 1,005
Net Interest Income After Provision for Loan Losses
11,818

6,324

24,349

19,516
Noninterest Income:
Trust fees 921 842 2,727 2,455
Service charges on deposit accounts 575 478 1,396 1,440
Other fees and commissions 429 290 1,083 856
Mortgage banking income 374 428 792 1,017
Securities gains (losses), net - 67 (18 ) 42
Other 399 136 677 398
Total noninterest income 2,698 2,241 6,657 6,208
Noninterest Expense:
Salaries 3,676 2,596 8,707 7,590
Employee benefits 731 564 1,896 1,837
Occupancy and equipment 916 732 2,311 2,209
FDIC assessment 94 203 496 597
Bank franchise tax 206 168 557 503
Core deposit intangible amortization 546 94 735 283
Foreclosed real estate, net (261 ) (5 ) 174 279
Merger related expenses 390 - 1,534 -
Other 2,266 1,179 4,961 3,607
Total noninterest expense 8,564 5,531 21,371 16,905
Income Before Income Taxes 5,952 3,034 9,635 8,819
Income Taxes 1,823 806 2,716 2,392
Net Income 4,129 2,228 6,919 6,427
Dividends on preferred stock 51 - 51 -
Net income available to common shareholders $ 4,078 $ 2,228 $ 6,868 $ 6,427
Net Income Per Common Share:
Basic $ 0.52 $ 0.36 $ 1.02 $ 1.05
Diluted $ 0.52 $ 0.36 $ 1.02 $ 1.05
Average Common Shares Outstanding:
Basic 7,800,614 6,125,359 6,705,607 6,122,876
Diluted 7,806,668 6,131,129 6,712,960 6,128,481

American National Bankshares Inc. and Subsidiaries
Financial Highlights
(In thousands, except share, ratio and nonfinancial data, unaudited) 3rd Qtr 2nd Qtr 3rd Qtr YTD YTD
2011 2011 2010 2011 2010
EARNINGS
Interest income $ 14,779 $ 8,570 $ 8,982 $ 32,010 $ 27,044
Interest expense 2,436 1,971 2,223 6,463 6,523
Net interest income 12,343 6,599 6,759 25,547 20,521
Provision for loan losses 525 336 435 1,198 1,005
Noninterest income 2,698 1,988 2,241 6,657 6,208
Noninterest expense 8,564 7,028 5,531 21,371 16,905
Income taxes 1,823 211 806 2,716 2,392
Net income 4,129 1,012 2,228 6,919 6,427
PER COMMON SHARE
Earnings per share - basic $ 0.52 $ 0.16 $ 0.36 $ 1.02 $ 1.05
Earnings per share - diluted 0.52 0.16 0.36 1.02 1.05
Cash dividends declared 0.23 0.23 0.23 0.69 0.69
Book value per share 19.40 18.06 18.10 19.40 18.10
Book value per share - tangible (a) 13.65 14.23 14.20 13.65 14.20
Closing market price 18.00 18.39 21.94 18.00 21.94
FINANCIAL RATIOS
Return on average assets 1.26 % 0.48 % 1.07 % 0.92 % 1.04 %
Return on average equity 11.08 3.65 8.11 7.49 7.90
Return on average tangible equity (b) 17.24 5.00 10.69 10.73 10.47
Average equity to average assets 11.40 13.06 13.14 12.33 13.20
Net interest margin, taxable equivalent 4.41 3.65 3.74 3.98 3.82
Efficiency ratio 57.03 73.00 59.54 63.24 60.10
Effective tax rate 30.63 17.25 26.57 28.19 27.12
PERIOD-END BALANCES
Securities $ 320,304 $ 237,440 $ 218,096 $ 320,304 $ 218,096
Loans held for sale 3,359 2,087 3,952 3,359 3,952
Loans, net of unearned income 817,858 514,081 519,421 817,858 519,421
Goodwill and other intangibles 44,851 23,600 23,883 44,851 23,883
Assets 1,305,139 846,016 824,217 1,305,139 824,217
Assets - tangible (a) 1,260,288 822,416 800,334 1,260,288 800,334
Deposits 1,064,477 658,950 625,630 1,064,477 625,630
Customer repurchase agreements 43,758 50,329 54,285 43,758 54,285
Other short-term borrowings - - - - -
Long-term borrowings 37,428 21,032 29,144 37,428 29,144
Shareholders' equity 151,361 111,190 110,868 151,361 110,868
Shareholders' equity - tangible (a) 106,510 87,590 86,985 106,510 86,985
AVERAGE BALANCES
Securities $ 296,095 $ 235,725 $ 214,532 $ 253,059 $ 199,282
Loans held for sale 2,641 1,984 4,991 2,048 3,664
Loans, net of unearned income 827,720 515,161 519,101 619,812 519,805
Interest-earning assets 1,171,982 773,750 762,742 904,023 749,505
Goodwill and other intangibles 44,437 23,651 23,935 30,688 24,029
Assets 1,306,796 848,783 836,033 999,219 821,861
Assets - tangible (a) 1,262,359 825,132 812,098 968,531 797,832
Interest-bearing deposits 896,873 549,397 530,191 664,091 517,543
Deposits 1,067,491 666,325 633,692 797,099 618,508
Customer repurchase agreements 45,356 47,220 59,126 45,452 61,698
Other short-term borrowings 2 - 92 45 31
Long-term borrowings 37,439 21,062 29,174 28,820 29,211
Shareholders' equity 149,033 110,859 109,885 123,184 108,512
Shareholders' equity - tangible (a) 104,596 87,208 85,950 92,496 84,483
CAPITAL
Average shares outstanding - basic 7,800,614 6,154,396 6,125,359 6,705,607 6,122,876
Average shares outstanding - diluted 7,806,668 6,161,265 6,131,129 6,712,960 6,128,481
Shares repurchased - - - - -
Average price of shares repurchased $ - $ - $ - $ - $ -
ALLOWANCE FOR LOAN LOSSES
Beginning balance $ 8,744 $ 8,257 $ 8,135 $ 8,420 $ 8,166
Provision for loan losses 525 336 435 1,198 1,005
Charge-offs (252 ) (134 ) (137 ) (957 ) (869 )
Recoveries 69 285 109 425 240
Ending balance $ 9,086 $ 8,744 $ 8,542 $ 9,086 $ 8,542
LOANS
Construction and land development $ 57,111 $ 35,756 $ 42,602 $ 57,111 $ 42,602
Commercial real estate 346,715 208,685 206,142 346,715 206,142
Residential real estate 174,493 114,510 118,554 174,493 118,554
Home equity 99,727 61,218 64,847 99,727 64,847
Commercial and industrial 131,704 87,449 80,818 131,704 80,818
Consumer 8,108 6,463 6,458 8,108 6,458
Total $ 817,858 $ 514,081 $ 519,421 $ 817,858 $ 519,421
NONPERFORMING ASSETS AT PERIOD-END
Nonperforming loans:
90 days past due $ - $ - $ - $ - $ -
Nonaccrual 13,455 3,464 3,910 13,455 3,910
Foreclosed real estate 5,920 3,513 3,987 5,920 3,987
Nonperforming assets $ 19,375 $ 6,977 $ 7,897 $ 19,375 $ 7,897
ASSET QUALITY RATIOS
Annualized net chargeoffs to average loans 0.09 % (0.12 )% 0.02 % 0.11 % 0.16 %
Nonperforming assets to total assets 1.48 0.82 0.96 1.48 0.96
Nonperforming loans to total loans 1.65 0.67 0.75 1.65 0.75
Allowance for loan losses to total loans 1.11 1.70 1.64 1.11 1.64
Allowance for loan losses to
nonperforming loans 67.53 252.42 218.47 67.53 218.47
OTHER DATA
Fiduciary assets at period-end (c) $ 340,941 $ 368,579 $ 370,016 $ 340,941 $ 370,016
Retail brokerage assets at period-end (c) $ 149,284 $ 49,636 $ 47,507 $ 149,284 $ 47,507
Number full-time equivalent employees (d) 306 244 242 306 242
Number of full service offices 25 18 18 25 18
Number of loan production offices 1 1 1 1 1
Number of ATM's 31 26 26 31 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 September 30, 2011 and 2010
(in thousands, except rates)
Unaudited
Interest
Average Balance Income/Expense Yield/Rate
2011 2010 2011 2010 2011 2010
Loans:
Commercial $ 136,204 $ 76,618 $ 1,603 $ 934 4.67 % 4.84 %
Real estate 685,628 441,069 10,778 5,968 6.29 5.41
Consumer 8,529 6,405 163 126 7.58 7.80
Total loans 830,361 524,092 12,544 7,028 6.04 5.36
Securities:
Federal agencies 32,448 60,079 186 459 2.29 3.06
Mortgage-backed & CMO's 87,785 53,839 615 493 2.80 3.66
State and municipal 168,134 94,419 1,896 1,217 4.51 5.16
Other 7,728 6,195 78 55 4.04 3.55
Total securities 296,095 214,532 2,775 2,224 3.75 4.15
Deposits in other banks 45,526 24,118 28 90 0.24 1.48
Total interest-earning assets 1,171,982 762,742 15,347 9,342 5.23 4.89
Non-earning assets 134,814 73,291
Total assets $ 1,306,796 $ 836,033
Deposits:
Demand $ 171,744 $ 90,731 132 16 0.30 0.07
Money market 208,962 70,011 232 94 0.44 0.53
Savings 72,088 63,562 26 22 0.14 0.14
Time 444,079 305,887 1,689 1,590 1.51 2.06
Total deposits 896,873 530,191 2,079 1,722 0.92 1.29
Customer repurchase agreements 45,356 59,126 82 93 0.72 0.62
Other short-term borrowings 2 92 0 0 0.75 0.43
Long-term borrowings 37,439 29,174 275 408 2.94 5.59
Total interest-bearing
liabilities

979,670

618,583

2,436

2,223

0.99

1.43
Noninterest bearing
demand deposits

170,618

103,501
Other liabilities 7,475 4,064
Shareholders' equity 149,033 109,885
Total liabilities and
shareholders' equity
$
1,306,796
$
836,033
Interest rate spread 4.24 % 3.46 %
Net interest margin 4.41 % 3.74 %
Net interest income (taxable equivalent basis) 12,911 7,119
Less: Taxable equivalent adjustment 568 360
Net interest income $ 12,343 $ 6,759

Net Interest Income Analysis
For the Nine Months Ended September 30, 2011 and 2010
(in thousands, except rates)
Unaudited
Interest
Average Balance Income/Expense Yield/Rate
2011 2010 2011 2010 2011 2010
Loans:
Commercial $ 98,121 $ 78,180 $ 3,392 $ 2,826 4.62 % 4.83 %
Real estate 516,165 438,736 22,093 18,096 5.71 5.50
Consumer 7,574 6,553 419 397 7.40 8.10
Total loans 621,860 523,469 25,904 21,319 5.56 5.43
Securities:
Federal agencies 37,197 63,929 765 1,535 2.74 3.20
Mortgage-backed & CMO's 67,843 47,795 1,571 1,473 3.09 4.11
State and municipal 141,481 80,625 4,889 3,223 4.61 5.33
Other 6,538 6,933 193 185 3.94 3.56
Total securities 253,059 199,282 7,418 6,416 3.91 4.29
Deposits in other banks 29,104 26,754 112 268 0.51 1.34
Total interest-earning assets 904,023 749,505 33,434 28,003 4.93 4.98
Non-earning assets 95,196 72,356
Total assets $ 999,219 $ 821,861
Deposits:
Demand $ 122,497 $ 94,607 167 58 0.18 0.08
Money market 111,801 77,691 382 285 0.46 0.49
Savings 66,138 63,644 69 66 0.14 0.14
Time 363,655 281,601 4,628 4,595 1.70 2.18
Total deposits 664,091 517,543 5,246 5,004 1.06 1.29
Customer repurchase agreements 45,452 61,698 244 297 0.72 0.64
Other short-term borrowings 45 31 0 0 0.47 0.43
Long-term borrowings 28,820 29,211 973 1,222 4.50 5.58
Total interest-bearing liabilities
738,408

608,483

6,463

6,523

1.17

1.43
Noninterest bearing demand deposits
133,008

100,965
Other liabilities 4,619 3,901
Shareholders' equity 123,184 108,512
Total liabilities and shareholders' equity
$999,219

$821,861
Interest rate spread 3.76 % 3.55 %
Net interest margin 3.98 % 3.82 %
Net interest income (taxable equivalent basis) 26,971 21,480
Less: Taxable equivalent adjustment 1,424 959
Net interest income $ 25,547 $ 20,521