American National Bankshares Inc. Reports Second Quarter 2016 Earnings
Traded: NASDAQ Global Select Market Symbol: AMNB
- Organic loan growth of $75.1 million (7.6%) during last four quarters
- Q2 2016 net income of $4.1 million and diluted EPS of $0.47
- Net interest margin of 3.45% for Q2 2016
- Average shareholders’ equity of $201.7 million is 12.67% of average assets
Danville, VA — American National Bankshares Inc. (“American National”) (NASDAQ: AMNB), parent company of American National Bank and Trust Company, today announced net income of $4,088,000 compared to $2,880,000 for the second quarter of 2015, a $1,208,000 or 41.9% increase. Basic and diluted net income per common share was $0.47 for the 2016 quarter compared to $0.33 for the 2015 quarter. Net income for the second quarter of 2016 produced annualized returns on average assets of 1.03%, on average equity of 8.11%, and on average tangible equity of 10.99%.
Net income for the first six months of 2016 was $8,216,000 compared to $6,395,000 for the comparable period of 2015, a $1,821,000 or 28.5% increase. Basic and diluted net income per common share was $0.95 for the 2016 period compared to $0.73 for the 2015 period.
Financial Performance and Overview
Jeffrey V. Haley, President and Chief Executive Officer, reported, “We are seeing improving economic conditions in our markets and this is resulting in increased demand for credit. Loans have increased $75.1 million or 7.6% during the past year. In the past six months, loans have increased $52.4 million or 5.2%. We are very encouraged that a combination of active business development and gradually improving local market economic conditions are resulting in this high quality growth. However, the continuing challenge for our industry in this competitive environment is achieving reasonable risk adjusted yield on our earning assets.
“Loans don’t exist in isolation; they require liquidity. Deposits have grown $64.4 million or 5.2% over the past year. In the past six months, deposits have grown $35.7 million or 2.8%. This growth is mostly in non-maturity, core deposits, the heart of our balance sheet. We continue working to grow these core deposits and their affiliated relationships, but the challenge in this ongoing low rate environment is to do that in a cost effective yet competitive manner. Our cost of interest bearing deposits for the second quarter was 0.54%, compared to 0.50% for the 2015 quarter.
“On the earnings side, net income for the second quarter was $4,088,000 compared to $2,880,000, an increase of $1,208,000 or 41.9%.
“The major driver was the noninterest expense, which was reduced $1,986,000 or 17.1%. This mostly related to non-recurring MainStreet acquisition expenses, which totaled $1,502,000 in the second quarter 2015.
“We also saw significant expense reduction in salaries, which declined $277,000 or 6.4% compared to the second quarter of 2015. Full time equivalent employees for the current quarter were 302, down from 322 for the prior year quarter. The magnitude of the decrease was directly related to the completion and integration of the MainStreet acquisition.”
Haley concluded, “The first half of 2016 has been very productive for American National. Average loan balances this quarter are $75.2 million or 7.7% greater than the second quarter of 2015. American National will continue to grow its balance sheet and maintain high asset quality. However, capital will remain a strategic priority.”
American National’s capital ratios remain strong and exceed all regulatory requirements.
For the quarter ended June 30, 2016, average shareholders’ equity was 12.67% of average assets, compared to 12.85% for the quarter ended June 30, 2015.
Book value per common share was $23.54 at June 30, 2016, compared to $22.43 at June 30, 2015.
Tangible book value per common share was $18.20 at June 30, 2016, compared to $16.96 at June 30, 2015.
Credit Quality Measurements
Non-performing assets ($3,412,000 of non-performing loans and $1,289,000 of other real estate owned) represented 0.29% of total assets at June 30, 2016, compared to 0.39% at June 30, 2015.
Annualized net charge offs to average loans was two basis points (0.02%) for the 2016 second quarter, compared to six basis points (0.06%) for the same quarter in 2015.
Other real estate owned was $1,289,000 compared to $2,113,000 at June 30, 2015, a decrease of $824,000 or 39.0%.
Acquisition Related Financial Impact
The acquisition 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 tax for American National. The impact of the adjustments is summarized below (dollars in thousands):
|Acquisition related financial impact|
|For the quarter ended June 30,||2016||2015|
|Net interest income||$352||$843|
|Income before Income taxes||$64||$543|
|For the period ended June 30,||2016||2015|
|Net interest income||$1,353||$1,955|
|Income before Income taxes||$777||$1,354|
During the first quarter of 2016, the Company received two substantial payoffs of purchased credit impaired loans from our 2011 MidCarolina acquisition that resulted in $460,000 in cash-basis accretion income.
Net Interest Income
Net interest income before the provision for loan losses decreased to $12,160,000 in the second quarter of 2016 from $12,382,000 in the second quarter of 2015, a decrease of $222,000 or 1.8%.
For the 2016 quarter, the net interest margin was 3.45% compared to 3.69% for the same quarter in 2015, a decrease of 24 basis points (0.24%). The decrease in net interest income and margin was mostly driven by reduced levels of accretion income.
Provision for Loan Losses and Allowance for Loan Losses
Provision expense for the second quarter of 2016 was $50,000 compared to $100,000 for the second quarter of 2015.
The allowance for loan losses as a percentage of total loans was 1.20% at June 30, 2016 compared to 1.30% at June 30, 2015.
There was significant growth in the loans outstanding in the second quarter 2016, a net of $23.4 million or 2.3%. The need for additions to the allowance for loan losses was reduced by improvement in various qualitative factors used in the determination of the allowance, notably asset quality and local economic conditions. As noted in the Credit Quality discussion, non-performing assets, charge-offs, and other real estate owned are all improved over the past year.
Noninterest income totaled $3,367,000 in the second quarter of 2016, compared with $3,258,000 in the second quarter of 2015, an increase of $109,000 or 3.3%. There was very little change in most revenue categories during the quarter.
Noninterest expense totaled $9,656,000 in the second quarter of 2016, compared to $11,642,000 in the second quarter of 2015, a decrease of $1,986,000 or 17.1%.
The major driver of the decrease was nonrecurring merger related expenses, from the January 2015 MainStreet acquisition, which accounted for $1,502,000 or 75.6% of the decrease.
Salaries expense was down $277,000 or 6.4% for the second quarter of 2016 compared to the comparable period. This mostly related to a reduction in the number of full time equivalent employees to 302 from 322.