American National Bankshares Inc. Reports Second Quarter 2017 Earnings

DANVILLE, VA--(Marketwired - July 20, 2017) -

• Loan growth of $230.7 million (21.8%) during last four quarters
• Q2 2017 net income of $4.3 million and diluted EPS of $0.49
• Net interest margin of 3.54% for Q2 2017
• Average shareholders' equity of $206.8 million is 11.91% of average assets

/EINPresswire.com/ -- American National Bankshares Inc. ("American National") (NASDAQ: AMNB), parent company of American National Bank and Trust Company, today announced net income of $4,279,000 compared to $4,088,000 for the second quarter of 2016, a $191,000 or 4.7% increase. Basic net income per common share was $0.50 for the 2017 quarter compared to $0.47 for the 2016 quarter. Diluted net income per common share was $0.49 for the 2017 quarter compared to $0.47 for the 2016 quarter. Net income for the second quarter of 2017 produced annualized return on average assets of 0.99%, on average equity of 8.28%, and on average tangible equity of 10.93%.

Net income for the first six months of 2017 was $8,342,000 compared to $8,216,000 for the comparable period of 2016, a $126,000 or 1.5% increase. Basic net income per common share was $0.97 for the 2017 period compared to $0.95 for the 2016 period. Diluted net income per common share was $0.96 for the 2017 period compared to $0.95 for the 2016 period.

Financial Performance and Overview

Jeffrey V. Haley, President and Chief Executive Officer, reported, "We are pleased to report continued strong growth in our balance sheet. Over the past year, loans have increased $230.7 million or 21.8%. In the past six months, loans have increased $123.9 million or 10.6%. We are very encouraged that active business development and improving local economic conditions are resulting in this high quality growth. However, the continuing challenge for us, in this hyper-competitive environment, is achieving reasonable risk adjusted yield on our lending.

"Loans require liquidity. Deposits have grown $164.5 million or 12.7% over the past year. In the past six months, deposits have grown $92.2 million or 6.7%. This growth is mostly in non-maturity, core deposits, the heart of our balance sheet. We continue striving to grow these core deposits and their affiliated relationships, but, like the asset side of the balance sheet, the challenge is to do that in a cost effective yet competitive manner. Our cost of interest bearing deposits for the second quarter was 0.52%, compared to 0.54% for the 2016 quarter.

"On the earnings side, net income for the second quarter was $4,279,000 compared to $4,088,000, an increase of $191,000 or 4.7%.

"Net interest income was up by $1,752,000 (14.4%) in the second quarter of 2017 compared to the second quarter of 2016, driven primarily by growth in loans.

"Provision for loan losses was up $300,000 in the second quarter of 2017, compared to the second quarter of 2016. The need for additional provision expense directly related to continued strong loan growth.

"Noninterest expense increased in the 2017 quarter by $1,055,000 (10.9%). The higher level of expense primarily related to our entry into two new markets in the fourth quarter of 2016."

Haley concluded, "We are delighted with our balance sheet growth in loans and deposits over the past year. Slightly less than half our growth has been in our new markets, Roanoke and Winston-Salem. We expect growth will continue, but at a somewhat reduced pace. We acknowledge that rising interest rates and hyper-competitive market forces together will put continued pressure on our net interest margin. We are enthusiastic about our ability to manage these challenges and prevail in the community bank marketplace. American National Bank continues to be optimistic about the future of community banking."

Capital

American National's capital ratios remain strong and exceed all regulatory requirements.

For the quarter ended June 30, 2017, average shareholders' equity was 11.91% of average assets, compared to 12.67% for the quarter ended June 30, 2016.

Book value per common share was $23.96 at June 30, 2017, compared to $23.54 at June 30, 2016.

Tangible book value per common share was $18.72 at June 30, 2017, compared to $18.20 at June 30, 2016.

Credit Quality Measurements

Non-performing assets represented 0.31% of total assets at June 30, 2017, compared to 0.29% at June 30, 2016.

Annualized net recoveries to average loans were six basis points (0.06%) for the second quarter compared to net charge offs of two basis points (0.02%) for the same quarter in 2016.

Other real estate owned was $1,686,000 compared to $1,289,000 at June 30, 2016, an increase of $397,000 or 30.8%.

Acquisition Related Financial Impact

The purchase accounting adjustments related to our two recent acquisitions have had and continue to have a positive impact on net interest income and income before income taxes for American National. The impact of the adjustments is summarized below (dollars in thousands):

Increases to:
For the quarter ended June 30,			2017			2016
Net Interest Income		$	595		$	352
Income Before Income Taxes		$	392		$	64
For the six months ended June 30,			2017			2016
Net Interest Income		$	1,029		$	1,353
Income Before Income Taxes		$	661		$	777

During the second quarter of 2017, the Company received a substantial payoff and a pay-down of two purchased credit impaired loans that resulted in $220,000 in cash-basis accretion income.

Net Interest Income

Net interest income before the provision for loan losses increased to $13,912,000 in the second quarter of 2017 from $12,160,000 in the second quarter of 2016, an increase of $1,752,000 or 14.4%.

For the 2017 quarter, the net interest margin was 3.54% compared to 3.45% for the same quarter in 2016, an increase of nine basis points (0.09%). The increase in net interest income related to higher volumes of earning assets.

Provision for Loan Losses and Allowance for Loan Losses

Provision expense for the second quarter of 2017 was $350,000 compared to $50,000 for the second quarter of 2016.

The allowance for loan losses as a percentage of total loans was 1.06% at June 30, 2017 compared to 1.20% at June 30, 2016.

There was significant growth in loans outstanding in the second quarter 2017, a net of $68.7 million or 5.6%. The need for additions to the allowance for loan losses was mitigated by improvement in various qualitative factors used in the determination of the allowance, notably national and local economic conditions and continued favorable asset quality metrics.

Noninterest Income

Noninterest income totaled $3,348,000 in the second quarter of 2017, compared with $3,367,000 in the second quarter of 2016, a decrease of $19,000 or 0.6%. There was little net change in total revenue during the quarter.

Noninterest Expense

Noninterest expense totaled $10,711,000 in the second quarter of 2017, compared to $9,656,000 in the second quarter of 2016, an increase of $1,055,000 or 10.9%. The major driver of the increase was salaries related to the de novo operations in Roanoke and Winston-Salem. Overall salaries expense increased $702,000 or 17.4%. Total full time equivalent employees were 328 at the end of the second quarter of 2017, compared to 302 at the end of the comparable quarter of 2016.

About American National

American National is a multi-state bank holding company with total assets of approximately $1.8 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 27 banking offices and two loan production offices. American National Bank also manages an additional $818 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; changes in technology and information security; 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 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.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
Unaudited
				June 30
ASSETS				2017				2016
Cash and due from banks				$	23,765			$	21,625
Interest-bearing deposits in other banks					62,164				51,716
Securities available for sale, at fair value					280,503				362,800
Restricted stock, at cost					5,501				5,362
Loans held for sale					2,379				4,692
Loans					1,288,693				1,057,959
	Less allowance for loan losses				(13,632	)			(12,674	)
		Net Loans			1,275,061				1,045,285
Premises and equipment, net					26,265				22,878
Other real estate owned, net					1,686				1,289
Goodwill					43,872				43,872
Core deposit intangibles, net					1,351				2,107
Bank owned life insurance					18,381				17,885
Accrued interest receivable and other assets					23,545				22,140
		Total assets		$	1,764,473			$	1,601,651
Liabilities
	Demand deposits -- noninterest-bearing			$	390,603			$	321,442
	Demand deposits -- interest-bearing				218,714				205,440
	Money market deposits				339,106				252,118
	Savings deposits				125,237				116,047
	Time deposits				389,181				403,338
		Total deposits			1,462,841				1,298,385
	Short-term borrowings:
		Customer repurchase agreements			48,282				53,369
	Long-term borrowings				9,991				9,969
	Junior subordinated debt				27,775				27,673
	Accrued interest payable and other liabilities				8,531				9,551
		Total liabilities			1,557,420				1,398,947
Shareholders' equity
	Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding				-				-
	Common stock, $1 par, 20,000,000 shares authorized, 8,642,913 shares outstanding at June 30, 2017 and 8,609,160 shares outstanding at June 30, 2016 and				8,595				8,572
	Capital in excess of par value				75,691				74,753
	Retained earnings				123,795				115,648
	Accumulated other comprehensive income (loss), net				(1,028	)			3,731
		Total shareholders' equity			207,053				202,704
		Total liabilities and shareholders' equity		$	1,764,473			$	1,601,651

American National Bankshares Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
				Three Months Ended						Six Months Ended
				June 30						June 30
				2017			2016			2017			2016
Interest and Dividend Income:
	Interest and fees on loans			$	13,752		$	11,642		$	26,456		$	23,757
	Interest and dividends on securities:
		Taxable			1,133			1,150			2,287			2,234
		Tax-exempt			509			817			1,144			1,640
		Dividends			84			93			163			184
	Other interest income				125			67			234			125
		Total interest and dividend income			15,603			13,769			30,284			27,940
Interest Expense:
	Interest on deposits				1,352			1,314			2,552			2,611
	Interest on short-term borrowings				14			1			42			2
	Interest on long-term borrowings				81			81			161			162
	Interest on junior subordinated debt				244			213			483			421
		Total interest expense			1,691			1,609			3,238			3,196
Net Interest Income					13,912			12,160			27,046			24,744
	Provision for loan losses				350			50			650			100
Net Interest Income After Provision
for Loan Losses					13,562			12,110			26,396			24,644
Noninterest Income:
	Trust fees				908			961			1,820			1,891
	Service charges on deposit accounts				501			514			985			1,006
	Other fees and commissions				733			656			1,445			1,328
	Mortgage banking income				462			365			991			657
	Securities gains, net				331			222			590			588
	Brokerage fees				192			223			384			427
	Income from Small Business Investment Companies				6			72			32			238
	Other				215			354			372			529
		Total noninterest income			3,348			3,367			6,619			6,664
Noninterest Expense:
	Salaries				4,733			4,031			9,532			8,246
	Employee benefits				1,130			1,055			2,313			2,169
	Occupancy and equipment				1,148			1,059			2,216			2,158
	FDIC assessment				134			193			263			381
	Bank franchise tax				263			256			519			512
	Core deposit intangible amortization				203			288			368			576
	Data processing				502			459			989			903
	Software				271			274			550			571
	Other real estate owned, net				68			76			111			209
	Other				2,259			1,965			4,291			3,849
		Total noninterest expense			10,711			9,656			21,152			19,574
Income Before Income Taxes					6,199			5,821			11,863			11,734
Income Taxes					1,920			1,733			3,521			3,518
Net Income				$	4,279		$	4,088		$	8,342		$	8,216
Net Income Per Common Share:
	Basic			$	0.50		$	0.47		$	0.97		$	0.95
	Diluted			$	0.49		$	0.47		$	0.96		$	0.95
Average Common Shares Outstanding:
	Basic				8,640,648			8,610,156			8,636,954			8,610,998
	Diluted				8,659,165			8,619,833			8,655,173			8,616,873

American National Bankshares Inc.
Financial Highlights
Unaudited
	(Dollars in thousands, except per share data)
				2nd Qtr				1st Qtr				2nd Qtr				YTD				YTD
				2017				2017				2016				2017				2016
EARNINGS
	Interest income			$	15,603			$	14,681			$	13,769			$	30,284			$	27,940
	Interest expense				1,691				1,547				1,609				3,238				3,196
	Net interest income				13,912				13,134				12,160				27,046				24,744
	Provision for loan losses				350				300				50				650				100
	Noninterest income				3,348				3,271				3,367				6,619				6,664
	Noninterest expense				10,711				10,441				9,656				21,152				19,574
	Income taxes				1,920				1,601				1,733				3,521				3,518
	Net income				4,279				4,063				4,088				8,342				8,216
PER COMMON SHARE
	Income per share - basic			$	0.50			$	0.47			$	0.47			$	0.97			$	0.95
	Income per share - diluted				0.49				0.47				0.47				0.96				0.95
	Cash dividends paid				0.24				0.24				0.24				0.48				0.48
	Book value per share				23.96				23.64				23.54				23.96				23.54
	Book value per share - tangible (a)				18.72				18.38				18.20				18.72				18.20
	Closing market price				36.95				37.25				25.18				36.95				25.18
FINANCIAL RATIOS
	Return on average assets				0.99	%			0.96	%			1.03	%			0.97	%			1.05	%
	Return on average equity				8.28				7.99				8.11				8.13				8.19
	Return on average tangible equity (b)				10.93				10.56				10.99				10.75				11.13
	Average equity to average assets				11.91				11.97				12.67				11.94				12.76
	Tangible equity to tangible assets (a)				9.41				9.51				10.07				9.41				10.07
	Net interest margin, taxable equivalent				3.54				3.44				3.45				3.49				3.56
	Efficiency ratio (c)				61.76				62.97				60.91				62.35				61.14
	Effective tax rate				30.97				28.27				29.77				29.68				29.98
PERIOD-END BALANCES
	Securities			$	286,004			$	298,059			$	368,162			$	286,004			$	368,162
	Loans held for sale				2,379				1,872				4,692				2,379				4,692
	Loans, net of unearned income				1,288,693				1,219,958				1,057,959				1,288,693				1,057,959
	Goodwill and other intangibles				45,223				45,426				45,979				45,223				45,979
	Assets				1,764,473				1,715,805				1,601,651				1,764,473				1,601,651
	Assets - tangible (a)				1,719,250				1,670,379				1,555,672				1,719,250				1,555,672
	Deposits				1,462,841				1,416,104				1,298,385				1,462,841				1,298,385
	Customer repurchase agreements				48,282				47,776				53,369				48,282				53,369
	Long-term borrowings				37,766				37,734				37,642				37,766				37,642
	Shareholders' equity				207,053				204,241				202,704				207,053				202,704
	Shareholders' equity - tangible (a)				161,830				158,815				156,725				161,830				156,725
AVERAGE BALANCES
	Securities (d)			$	295,863			$	324,588			$	361,064			$	310,146			$	354,038
	Loans held for sale				2,426				2,414				2,087				2,420				2,071
	Loans, net of unearned income				1,258,346				1,195,560				1,047,993				1,227,127				1,032,345
	Interest-earning assets				1,610,132				1,574,460				1,464,692				1,592,395				1,444,611
	Goodwill and other intangibles				45,337				45,517				46,150				45,427				46,296
	Assets				1,736,686				1,699,730				1,592,261				1,718,310				1,571,692
	Assets - tangible (a)				1,691,349				1,654,213				1,546,111				1,672,883				1,525,396
	Interest-bearing deposits				1,047,828				1,021,110				972,385				1,034,542				961,328
	Deposits				1,433,852				1,392,117				1,295,520				1,413,100				1,278,027
	Customer repurchase agreements				49,239				45,106				47,607				47,184				46,008
	Other short-term borrowings				-				11,833				-				5,884				-
	Long-term borrowings				37,748				37,717				37,624				37,733				37,609
	Shareholders' equity				206,774				203,459				201,685				205,126				200,605
	Shareholders' equity - tangible (a)				161,437				157,942				155,535				159,699				154,309
American National Bankshares Inc.
Financial Highlights
Unaudited
	(Dollars in thousands, except per share data)
				2nd Qtr				1st Qtr				2nd Qtr				YTD				YTD
				2017				2017				2016				2017				2016
CAPITAL
	Average common shares outstanding - basic				8,640,648				8,633,219				8,610,156				8,636,954				8,610,998
	Average common shares outstanding - diluted				8,659,165				8,651,139				8,619,833				8,655,173				8,616,873
ALLOWANCE FOR LOAN LOSSES
	Beginning balance			$	13,108			$	12,801			$	12,675			$	12,801			$	12,601
	Provision for loan losses				350				300				50				650				100
	Charge-offs				(85	)			(49	)			(119	)			(134	)			(158	)
	Recoveries				259				56				68				315				131
	Ending balance			$	13,632			$	13,108			$	12,674			$	13,632			$	12,674
LOANS
	Construction and land development			$	132,322			$	130,691			$	89,451			$	132,322			$	89,451
	Commercial real estate				590,093				538,069				438,164				590,093				438,164
	Residential real estate				211,305				216,035				216,857				211,305				216,857
	Home equity				113,580				110,844				107,007				113,580				107,007
	Commercial and industrial				236,418				219,455				201,381				236,418				201,381
	Consumer				4,975				4,864				5,099				4,975				5,099
	Total			$	1,288,693			$	1,219,958			$	1,057,959			$	1,288,693			$	1,057,959
NONPERFORMING ASSETS AT PERIOD-END
	Nonperforming loans:
		90 days past due and accruing		$	1,611			$	1,061			$	166			$	1,611			$	166
		Nonaccrual			2,117				2,428				3,246				2,117				3,246
	Other real estate owned				1,686				1,664				1,289				1,686				1,289
	Nonperforming assets			$	5,414			$	5,153			$	4,701			$	5,414			$	4,701
ASSET QUALITY RATIOS
	Allowance for loan losses to total loans				1.06	%			1.07	%			1.20	%			1.06	%			1.20	%
	Allowance for loan losses to nonperforming loans				365.67				375.70				371.45				365.67				371.45
	Nonperforming assets to total assets				0.31				0.30				0.29				0.31				0.29
	Nonperforming loans to total loans				0.29				0.29				0.32				0.29				0.32
	Annualized net charge-offs (recoveries) to average loans				(0.06	)			0.00				0.02				(0.03	)			0.01
OTHER DATA
	Fiduciary assets at period-end (e) (f)			$	520,861			$	519,901			$	491,517			$	520,861			$	491,517
	Retail brokerage assets at period-end (e) (f)			$	297,463			$	292,505			$	269,066			$	297,463			$	269,066
	Number full-time equivalent employees (g)				328				326				302				328				302
	Number of full service offices				27				27				25				27				25
	Number of loan production offices				2				2				2				2				2
	Number of ATM's				34				34				33				34				33

Notes:
	(a) - Excludes goodwill and other intangible assets.
	(b) - Excludes amortization expense, net of tax, of intangible assets.
	(c) - The efficiency ratio is calculated by dividing noninterest expense excluding gains or losses on the sale of OREO by net interest income including tax equivalent income on nontaxable loans and securities and noninterest income and excluding
	(i) gains or losses on securities and (ii) gains or losses on sale of premises and equipment.
	(d) - Average does not include unrealized gains and losses.
	(e) - Market value.
	(f) - Assets are not owned by the Company and are not reflected in the consolidated balance sheet.
	(g) - Average for quarter.

Net Interest Income Analysis
For the Three Months Ended June 30, 2017 and 2016
(Dollars in thousands)
Unaudited
										Interest
				Average Balance						Income/Expense						Yield/Rate
				2017			2016			2017			2016			2017			2016
Loans:
	Commercial			$	229,690		$	200,000		$	2,241		$	1,976		3.91	%		3.97	%
	Real estate				1,026,010			844,914			11,502			9,591		4.48			4.54
	Consumer				5,072			5,166			89			140		7.04			10.90
		Total loans			1,260,772			1,050,080			13,832			11,707		4.39			4.46
Securities:
	Federal agencies & GSEs				96,339			100,205			454			446		1.89			1.78
	Mortgage-backed & CMOs				80,003			81,379			412			425		2.06			2.09
	State and municipal				104,115			164,788			938			1,472		3.60			3.57
	Other				15,406			14,692			179			130		4.65			3.54
		Total securities			295,863			361,064			1,983			2,473		2.68			2.74
Deposits in other banks					53,497			53,548			125			67		0.94			0.50
	Total interest-earning assets				1,610,132			1,464,692			15,940			14,247		3.96			3.89
Non-earning assets					126,554			127,569
		Total assets		$	1,736,686		$	1,592,261
Deposits:
	Demand			$	219,743		$	229,639			11			43		0.02			0.08
	Money market				322,737			221,508			342			91		0.43			0.17
	Savings				125,134			117,408			9			14		0.03			0.05
	Time				380,214			403,830			990			1,166		1.04			1.16
		Total deposits			1,047,828			972,385			1,352			1,314		0.52			0.54
Customer repurchase agreements					49,239			47,607			14			1		0.11			0.01
Long-term borrowings					37,748			37,624			325			294		3.44			3.13
	Total interest-bearing liabilities				1,134,815			1,057,616			1,691			1,609		0.60			0.61
Noninterest bearing demand deposits					386,024			323,135
Other liabilities					9,073			9,825
Shareholders' equity					206,774			201,685
		Total liabilities and shareholders' equity		$	1,736,686		$	1,592,261
Interest rate spread																3.36	%		3.28	%
Net interest margin																3.54	%		3.45	%
Net interest income (taxable equivalent basis)											14,249			12,638
Less: Taxable equivalent adjustment											337			478
Net interest income										$	13,912		$	12,160

Net Interest Income Analysis
For the Six Months Ended June 30, 2017 and 2016
(Dollars in thousands)
Unaudited
										Interest
				Average Balance						Income/Expense						Yield/Rate
				2017			2016			2017			2016			2017			2016
Loans:
	Commercial			$	224,833		$	194,137		$	4,294		$	3,830		3.85	%		3.99	%
	Real estate				999,484			834,943			22,126			19,681		4.43			4.71
	Consumer				5,230			5,336			181			371		6.98			14.06
		Total loans			1,229,547			1,034,416			26,601			23,882		4.33			4.63
Securities:
	Federal agencies & GSEs				96,651			94,244			896			824		1.85			1.75
	Mortgage-backed & CMOs				79,033			78,635			825			825		2.09			2.10
	State and municipal				117,681			165,349			2,090			2,964		3.55			3.59
	Other				16,781			15,810			365			278		4.35			3.52
		Total securities			310,146			354,038			4,176			4,891		2.69			2.76
Deposits in other banks					52,702			56,157			234			125		0.90			0.45
	Total interest-earning assets				1,592,395			1,444,611			31,011			28,898		3.90			4.01
Non-earning assets					125,915			127,081
		Total assets		$	1,718,310		$	1,571,692
Deposits:
	Demand			$	217,847		$	230,504			21			80		0.02			0.07
	Money market				314,235			213,391			583			166		0.37			0.16
	Savings				124,694			117,529			19			28		0.03			0.05
	Time				377,766			399,904			1,929			2,337		1.03			1.18
		Total deposits			1,034,542			961,328			2,552			2,611		0.50			0.55
Customer repurchase agreements					47,184			46,008			15			2		0.06			0.01
Other short-term borrowings					5,884			-			27			-		0.92			-
Long-term borrowings					37,733			37,609			644			583		3.41			3.10
	Total interest-bearing liabilities				1,125,343			1,044,945			3,238			3,196		0.58			0.62
Noninterest bearing demand deposits					378,558			316,699
Other liabilities					9,283			9,443
Shareholders' equity					205,126			200,605
	Total liabilities and shareholders' equity			$	1,718,310		$	1,571,692
Interest rate spread																3.32	%		3.39	%
Net interest margin																3.49	%		3.56	%
Net interest income (taxable equivalent basis)											27,773			25,702
Less: Taxable equivalent adjustment											727			958
Net interest income										$	27,046		$	24,744