American National Bankshares Reports Third Quarter Earnings

DANVILLE, Va., Oct. 22, 2020 (GLOBE NEWSWIRE) -- American National Bankshares Inc. AMNB ("American National" or the "Company") today reported third quarter 2020 earnings of $7.2 million, or $0.66 per diluted common share. Those results compare to $8.7 million, or $0.78 per diluted common share, during the same quarter in the prior year, and net income of $5.5 million, or $0.50 per diluted common share, recognized for the second quarter of 2020. Earnings for the first nine months of 2020 were $21.3 million, or $1.93 per diluted common share, compared to $13.5 million, or $1.30 per diluted common share for the same period of 2019. Earnings for the nine months of 2019 were impacted by $11.3 million in merger related expenses.

President and Chief Executive Officer Jeffrey V. Haley commented, "We are pleased to report a strong quarter given the continuing challenges our nation and economy face with the pandemic. Capital, liquidity and credit quality all remain strong. Earnings and overall profitability continue to be relatively strong, and core deposit growth continued during the quarter at a robust pace."

Third quarter 2020 highlights include:

• Earnings produced a return on average assets of 1.01% for the third quarter of 2020, compared to 0.80% in the previous quarter and 1.43% for the same quarter in the prior year.
  
  
• Average deposits grew 4.7% during the quarter and 21.0% over the same quarter of 2019; the cost of deposits decreased to 0.52% in the third quarter, compared to 0.64% in the previous quarter and 1.00% in the same quarter of the prior year.
  
  
• Net interest margin was 3.26% for the quarter, up from 3.22% in the second quarter of 2020 and down from 3.75% in the same quarter of the prior year (non-GAAP).
  
  
• Noninterest revenues increased $457 thousand, or 11.9%, when compared to the previous quarter, and increased $121 thousand, or 2.9%, compared to the same quarter in the prior year.
  
  
• Noninterest expense increased $1.7 million, or 13.7%, when compared to the previous quarter, and increased $348 thousand, or 2.5% when compared to the same quarter in the prior year.
  
  
• The third quarter provision for loan losses totaled $2.6 million, which compares to a provision of $4.8 million for the previous quarter, and a recovery of $12 thousand in the same quarter in the prior year. The allowance for loan losses as a percentage of loans held for investment increased to 1.01% at period end. Excluding Paycheck Protection Program ("PPP") loans, the allowance as a percentage of loans increased to 1.16% at period end.
  
  
• Nonperforming assets as a percentage of total assets remained stable at 0.16% at September 30, 2020 and at June 30, 2020, and up from 0.15% at September 30, 2019.
  
  
• Annualized net charge-offs were 0.01% for the third quarter of 2020, compared to zero for the corresponding quarter in the prior year and down from 0.06% for the second quarter of 2020.
  
  
• During the third quarter of 2020, the Company continued to participate in the Small Business Administration's PPP under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which was intended to provide economic relief to small businesses that have been adversely impacted by the COVID-19 global pandemic. The Company had outstanding net PPP loans of $266.0 million at September 30, 2020, which compares to $264.0 million at June 30, 2020. The Company had net unamortized PPP loan origination fees with a balance of $6.8 million at September 30, 2020, which compares to $7.8 million at June 30, 2020.
  

NET INTEREST INCOME

Net interest income for the third quarter of 2020 was $21.5 million, an increase of $1.2 million, or 6.1%, from the prior quarter and an increase of $873 thousand, or 4.2%, from the third quarter of 2019. The third quarter of 2020 included $800,000 in cash basis accretion income related to the collection of a purchased loan previously charged off in a prior American National bank acquisition. The fully taxable equivalent ("FTE") net interest margin for the quarter was 3.26%, up from 3.22% in the prior quarter and down from 3.75% in the same period a year ago (non-GAAP). The increase from second quarter was attributable to the increase in cash basis accretion during the period, partially offset by the full quarter impact of lower yielding PPP loans and the continuing effects of a significantly lower rate environment. The decrease from the same quarter in the prior period was attributable to lower yielding PPP loans coupled with a significantly lower rate environment.

The Company's FTE net interest margin includes the impact of acquisition accounting fair value adjustments. During the third quarter of 2020, net accretion related to acquisition accounting amounted to $861 thousand, compared to $948 thousand for the same period in 2019 and $801 thousand in the prior quarter. Estimated remaining net accretion from acquisitions for the periods indicated is as follows (dollars in thousands):

ASSET QUALITY

Nonperforming assets ("NPAs") totaled $4.6 million as of September 30, 2020 and June 30, 2020, and up from $3.7 million at September 30, 2019. NPAs as a percentage of total assets were 0.16% at September 30, 2020 and June 30, 2020, compared to 0.15% at September 30, 2019.

The provision for loan losses was $2.6 million for the third quarter of 2020, as compared to $4.8 million for the previous quarter and a recovery of $12 thousand for the same period in the previous year. A smaller provision was needed in the third quarter compared to the second as economic factors stabilized; however, the bank continues to see stress in certain industry segments, has an active Disaster Assistance Program, and recorded higher specific reserves during the period. The allowance for loan losses was $21.1 million at September 30, 2020, compared to $18.5 million at June 30, 2020 and $12.8 million at September 30, 2019. Annualized net charge-offs as a percentage of average loans outstanding was 0.01% for the third quarter of 2020, compared to 0.06% in the previous quarter and none for the same period in the prior year. The allowance as a percentage of loans held for investment was 1.01% at September 30, 2020, compared to 0.88% at June 30, 2020 and 0.71% at September 30, 2019. Excluding PPP loans, the allowance as a percentage of loans increased to 1.16% at September 30, 2020, compared to 1.01% at June 30, 2020 and 0.71% at September 30, 2019.

American National continues to utilize a Disaster Assistance Program during the pandemic for borrowers. At September 30, 2020, American National has provided interest only and payment deferrals to customers with balances amounting to $135.2 million, representing 6.5% of total loans held for investment, which compares to $395 million or 18.8% of outstanding loans held for investment at June 30, 2020. At September 30, 2020, in accordance with Section 4013 of the CARES Act, the Company has granted $15 million in second time payment or interest deferrals, representing less than 1% of total loans held for investment.

American National continues to use an incurred loss model for its allowance methodology and has not implemented the new current expected credit losses standard ("CECL"). CECL incorporates an estimation of expected losses over the life of the loans instead of the current model which is an incurred loss model. The CECL implementation guidance was amended in October 2019 allowing for the deferral of CECL for smaller reporting companies. American National qualified under this amendment and elected to defer the implementation until January 2023.

NONINTEREST INCOME

Noninterest income increased $457 thousand or 11.9% to $4.3 million for the quarter ended September 30, 2020 from $3.8 million in the prior quarter and increased $121 thousand or 2.9% from the same period in the prior year. Mortgage banking income was higher by $137 thousand or 15.3% over the prior quarter primarily the result of increased mortgage loan refinance volumes due to the current low interest rate environment. Trust revenues were up $101 thousand or 10.6% over the previous quarter. Income from small business investment companies ("SBICs") was up $217 thousand or 182.4% over the previous quarter. Comparing the third quarter of 2020 to the third quarter of 2019, the increase was reflective of increased mortgage banking income and trust revenues, offset by decreased service charges on deposit accounts and securities gains.

NONINTEREST EXPENSE

Noninterest expense for the third quarter of 2020 amounted to $14.1 million, up $1.7 million, or 13.7%, when compared to the $12.4 million for the previous quarter and up from $13.8 million or 2.5% when compared to the same period in the previous year. The increase from the second quarter of 2020 was a result of the deferral of salary expenses of $1.6 million related to PPP originations in the second quarter. The third quarter of 2019 reflected a small bank credit from the Federal Deposit Insurance Corporation ("FDIC") assessment which accounted for the majority of the change period over period.

INCOME TAXES

The effective tax rate for the three months ended September 30, 2020 was 20.0%, compared to 20.6% for the prior quarter and 21.1% for the same period in the prior year.

BALANCE SHEET

Total assets at September 30, 2020 were $2.9 billion, an increase of $38.8 million from June 30, 2020 and $448.8 million from the same quarter one year ago. The improvement over the same period a year ago is primarily due to loan growth from the origination of PPP loans and an increase in cash and cash equivalents, partially attributable to the PPP deposits.

At September 30, 2020, loans held for investment (net of deferred fees and costs) were $2.1 billion, a decrease of $15.6 million or 3.0% annualized from June 30, 2020. Loans held for investment increased $281.6 million or 15.6%, from June 30, 2019. Excluding PPP loans, loans held for investment were only slightly higher year over year.

Deposits amounted to $2.5 billion at September 30, 2020, with growth of $38.9 million or 6.4% annualized from June 30, 2020 and $428.8 million or 21.0% annualized compared to the same quarter of 2019. The growth over the prior quarter and prior period of 2019 relates to the continued growth in new accounts and higher average cash balances. Customers have continued to maintain higher cash balances throughout the second and third quarters of 2020 as future liquidity needs remain uncertain. This buildup of cash reserves primarily accounts for the significant increase over the same period of 2019.

The Company continues to be well-capitalized as defined by regulators, with tangible common equity to tangible assets of 8.55% at September 30, 2020 as compared to 8.49% at June 30, 2020 and 9.50% at September 30, 2019.

ABOUT AMERICAN NATIONAL

American National is a multi-state bank holding company with total assets of approximately $2.9 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 25 banking offices. American National Bank also manages an additional $884 million 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

Statements 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) the impacts of the ongoing COVID-19 pandemic; (2) expected revenue synergies and cost savings from acquisitions and depositions; (3) 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; (4) 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; (5) the implementation of new technologies, and the ability to develop and maintain secure and reliable electronic systems; (6) accounting principles, policies, and guidelines; and (7) 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:
Jeffrey W. Farrar
Executive Vice President, COO & CFO
(434)773-2274
farrarj@amnb.com