American National Bankshares Reports First Quarter Earnings

DANVILLE, Va., April 25, 2023 (GLOBE NEWSWIRE) -- American National Bankshares Inc. (Nasdaq: AMNB) (“American National” or the “Company”) today reported first quarter 2023 earnings of $9.2 million, or $0.86 per diluted common share. Those results compare to earnings of $9.0 million, or $0.84 per diluted common share, during the same quarter in the prior year, and earnings of $8.0 million, or $0.76 per diluted common share, for the fourth quarter of 2022. Earnings produced a return on average tangible common equity of 15.95% for the first quarter of 2023, compared to 14.50% in the previous quarter and 14.14% for the same quarter in the prior year (non-GAAP).

President and Chief Executive Officer, Jeffrey V. Haley, commented, “I could not be prouder of our Company’s resiliency in the face of unfortunate turmoil in the banking industry over the course of the past few weeks. The failure of two large regional banks certainly created challenges for the regional and community banking industry, but our industry remains strong and American National remains strong. Our customers have continued to place trust in us, and we continue to serve their needs. Our balance sheet maintains strong liquidity and capital, and we were able to deliver a solid quarter of earnings performance for our shareholders. While economic activity in our markets is still fairly strong, we are seeing indications of slowing and have consciously narrowed our lending focus in the face of an uncertain economic future. We have placed additional emphasis on deposit gathering but continue to see a shift in funding mix and rising funding costs associated with higher market rates and fiscal policy. While certainly this represents a headwind, we are confident in our ability to pivot and continue to build franchise value.”

First quarter 2023 highlights include:

• Average loans held for investment grew $17.8 million, or 3.3% annualized, during the first quarter as compared to the previous quarter.
  
  
• Average deposits declined by 8.8% annualized during the quarter, while period-end deposits increased $15.9 million, or 2.5% annualized.
  
  
• Fully taxable equivalent (“FTE”) net interest margin was 3.20% for the quarter, down 13 basis points from 3.33% in the fourth quarter of 2022 and up 57 basis points from 2.63% in the same quarter of the prior year (non-GAAP).
  
  
• Noninterest revenues increased $762 thousand, or 21.1%, when compared to the previous quarter, and decreased $1.2 million, or 21.9%, compared to the same quarter in the prior year.
  
  
• Noninterest expense decreased $1.2 million, or 7.0% when compared to the previous quarter, and increased $299 thousand, or 1.9%, when compared to the same quarter in the prior year.
  
  
• On January 1, 2023, the Company adopted the current expected credit losses (“CECL”) standard for estimating credit losses, which resulted in increases of $5.2 million in the allowance for credit losses (“ACL”), $305 thousand in the reserve liability for unfunded commitments, $1.2 million in deferred tax assets and decreased retained earnings by $4.2 million.
  
  
• The Company recognized a provision for credit losses on loans in the first quarter of 2023 of $329 thousand compared to $1.2 million in the fourth quarter of 2022 and a negative provision in the first quarter of 2022 of $758 thousand.
  
  
• Annualized net charge-offs (recoveries) as a percentage of average loans outstanding were 0.04% for the first quarter of 2023, compared to 0.15% in the previous quarter and (0.01%) in the same quarter in the prior year.
  
  
• Nonperforming assets as a percentage of total assets were 0.06% at March 31, 2023 and March 31, 2022 and 0.05% at December 31, 2022.
  

NET INTEREST INCOME

Net interest income for the first quarter of 2023 decreased by $1.1 million, or 4.4%, to $23.2 million compared to $24.3 million for the fourth quarter of 2022. The first quarter of 2023 compared to the same quarter of 2022 reflected an increase of $2.8 million, or 13.5%. The FTE net interest margin for the quarter was 3.20%, down from 3.33% in the prior quarter and up from 2.63% 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 22 basis points quarter-over-quarter, while the cost of average interest-bearing liabilities rose 55 basis points due to an acceleration in deposit repricing, shift of the deposit mix into interest-bearing accounts and increased reliance on short-term borrowings. The cost of interest-bearing deposits increased to 0.88% in the first quarter, compared to 0.39% in the previous quarter and 0.12% in the same quarter of the prior year. The improvement in net interest margin relative to the first quarter of 2022 is a reflection of an increase in the yield on average earning assets of 116 basis points partially offset by a 97 basis point rise in the cost of average interest-bearing liabilities.

ASSET QUALITY

Nonperforming assets (“NPAs”) totaled $2.0 million as of March 31, 2023 and 2022, respectively, up $564 thousand from December 31, 2022. NPAs as a percentage of total assets were 0.06% at March 31, 2023 and 2022, respectively, compared to 0.05% at December 31, 2022. The Company recorded a provision for credit losses for the first quarter of 2023 of $329 thousand compared to $1.2 million in the previous quarter and a negative provision of $758 thousand in the first quarter of the previous year. The first quarter of 2023 and fourth quarter of 2022 provisions were the result of loan growth and replenishment of the allowance for net charge-off activity. The negative provision expense for the first quarter of 2022 was the result of improvement in economic conditions, ongoing low charge-off and delinquency rates, and overall strong asset quality metrics from the prior quarter.

The allowance for credit losses on loans increased $5.2 million from the fourth quarter of 2022 resulting from the Day 1 adjustment for the adoption of CECL to $24.9 million at March 31, 2023 as compared to $19.6 million at December 31, 2022. The reserve for unfunded commitments increased $305 thousand to $682 thousand as a result of the Day 1 adoption of CECL. Annualized net charge-offs (recoveries) as a percentage of average loans outstanding were 0.04% for the first quarter of 2023, compared to 0.15% in the previous quarter and (0.01%) in the same quarter in the prior year. The ACL as a percentage of loans held for investment was 1.13% at March 31, 2023, compared to 0.89% at December 31, 2022, and 0.90% at March 31, 2022.

NONINTEREST INCOME

Noninterest income increased $762 thousand, or 21.1%, to $4.4 million for the quarter ended March 31, 2023 from $3.6 million in the prior quarter and decreased $1.2 million, or 21.9%, from the same quarter in the prior year. The increase in the first quarter of 2023 from the fourth quarter of 2022 was primarily the result of increased income from small business investment companies of $590 thousand and income from insurance commissions of $265 thousand included in other fees and commissions.

The first quarter of 2023 compared to the first quarter of 2022 reflected a decrease in the majority of line items, with the most significant decrease in mortgage banking income of $529 thousand, or 78.6%, and a decrease in income from insurance investments of $418 thousand, or 93.5%, partially offset by increased interchange fees of $129 thousand, or 13.1%, and $216 thousand, or 81.2%, in other fees and commissions.

NONINTEREST EXPENSE

Noninterest expense for the first quarter of 2023 amounted to $15.6 million, down $1.2 million, or 7.0%, when compared to the $16.8 million for the previous quarter and up $299 thousand, or 1.9%, from $15.3 million during the same quarter in the previous year. The decrease in the first quarter compared to the fourth quarter of 2022 was the result of reduced incentive accruals in salaries and employee benefits of $638 thousand partially offset by a $262 thousand increase in payroll taxes and retirement contributions; reduced costs in the first quarter associated with deferred compensation programs of $203 thousand; and one-time seasonal expenses and fraud losses included in the fourth quarter of 2022 of $300 thousand and $184 thousand, respectively.

The first quarter 2023 increase compared to the same quarter of 2022 was primarily due to a higher salary base partially offset by reduced incentive and commission expense.

INCOME TAXES

The effective tax rate for the three months ended March 31, 2023 was 21.19%, compared to 18.90% for the prior quarter and 21.49% for the same quarter in the prior year. The Company recognized a tax benefit in the fourth quarter in the prior year resulting from investment partnership income tax returns reducing the effective tax rate for that period. The decrease in effective tax rate from the March 31, 2022 quarter was attributable to changes in pre-tax earnings and the levels of permanent tax differences.

BALANCE SHEET

Total assets at March 31, 2023 were $3.1 billion, an increase of $9.8 million or 1.3% annualized from December 31, 2022 and a decrease of $270.6 million, or 8.1%, from March 31, 2022.

At March 31, 2023, loans held for investment (net of deferred fees and costs) were $2.2 billion, an increase of $13.1 million, or 2.4% annualized, from December 31, 2022. Loans held for investment (net of deferred fees and costs) increased $211.5 million, or 10.6%, from March 31, 2022.

Investment securities available for sale amounted to $586.4 million at March 31, 2023, a decrease of $21.7 million, or 3.6%, from December 31, 2022, and a decrease of $99.8 million, or 14.5%, compared to March 31, 2022. The unrealized loss on available for sale securities was $62.4 million at March 31, 2023 compared to $71.0 million at December 31, 2022 and $33.0 million at March 31, 2022. The improvement relative to the prior quarter was primarily the result of declines in market yields for longer term securities. 65% of the market value of the securities portfolio is unencumbered and could be used to provide additional liquidity if needed.

Deposits amounted to $2.6 billion at March 31, 2023, with growth of $15.9 million, or 2.5% annualized, from December 31, 2022 and decreased $314.0 million, or 10.7%, compared to March 31, 2022. Deposit accounts that were uninsured amounted to 39.9% of total deposits (29.3% excluding collateralized municipal deposits) at March 31, 2023.

Borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”) totaled $25.0 million at March 31, 2023, down from $100.5 million at December 31, 2022. The Company had no FHLB borrowings at March 31, 2022. The Company’s remaining credit availability from the FHLB was $723.3 million as of March 31, 2023, $485.8 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 8.06% at March 31, 2023 compared to 7.82% at December 31, 2022 and compared to 7.54% at March 31, 2022 (non-GAAP). The Company’s preliminary common equity Tier 1, Tier 1, total, and Tier 1 leverage capital ratios were 11.75%, 12.90%, 13.93% and 10.46%, respectively, at March 31, 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 effects of or changes in: 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, including the COVID-19 pandemic; 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.

Contact:
Jeffrey W. Farrar
Senior Executive Vice President, COO & CFO
(434)773-2274
farrarj@amnb.com