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American National Bankshares Inc. Reports First Quarter 2011 Earnings

4/20/2011

Company Release - 04/20/2011 18:00

DANVILLE, VA -- (MARKET WIRE) -- 04/20/11 -- American National Bankshares Inc. (NASDAQ: AMNB)

 

--  Q1 net income of $1,778,000 and diluted EPS of $0.29 per share
--  Q1 net interest margin 3.66%.
--  Average shareholders' equity of $109 million represents 13.03% of
    average assets

 

American National Bankshares Inc. (NASDAQ: AMNB), parent company of American National Bank and Trust Company, today announced net income of $1,778,000 for the first quarter 2011, compared to $2,185,000 for the first quarter 2010, an 18.6% decrease. Basic and diluted earnings per share were $0.29 for the 2011 quarter compared to $0.36 for the 2010 quarter. This quarterly net income produced a return on average assets of 0.85%, a return on average equity of 6.51%, and a return on tangible equity of 8.64%.

Financial Performance and Overview

Charles H. Majors, President and Chief Executive Officer, stated, "American National had an eventful first quarter 2011. We were not satisfied with the first quarter operating results, but we were not surprised. Our income for the quarter was $1.78 million, an 18.6% decrease compared to the same quarter in 2010. This decline was driven by two major factors: a decline in net interest income and expenses associated with our pending merger with MidCarolina Financial Corporation. The decrease in net interest income reflects market driven competition for loans, declining bond yields, and compression of our net interest margin. We consider the merger related costs to be the beginning of an investment in a new and even better American National Bankshares Inc.

"Trust income was up $116,000 or 14.3% for the 2011 quarter, as a result of asset growth and improvement in the stock market.

"Service charge income declined $58,000 or 12.1% mostly as a result of declining overdraft fee income, a trend we've seen over the past few years and expect to continue.

"Secondary market mortgage income declined $99,000 or 40.2%, because of decreasing volume. We anticipated a slowdown in this revenue in 2011.

"Our noninterest expenses for the 2011 quarter increased $260,000 or 4.7%, compared to 2010 quarter. This mostly related to $309,000 in expenses associated with our pending merger with MidCarolina Financial.

"During 2010 we experienced historically low interest rates and an ongoing deleveraging in the economy. But, during the year we saw a bottoming out of our loan portfolio and small increases in volume starting in the second quarter and continuing through year end. Year over year our loan portfolio has grown slightly, by $1.3 million or 0.2%. We are anticipating modest, single digit growth in the balance of 2011.

"We are pleased with the growth in our deposits over the past year. They have grown by $49.9 million or 8.2%. This will help provide needed liquidity as the economy begins to recover and as we move closer to the anticipated consummation of our merger with MidCarolina. We expect that growth to continue during 2011 and plan to make every effort to grow our balances more for transaction accounts.

"Our credit quality measurements continue to be strong relative to our peers. We are maintaining our allowance ratios and, unlike many recent announcements, we are not releasing reserves to boost net income to offset soft loan demand and tightened margins."

Majors concluded, "We believe we are at the early stages of an economic recovery. We expect it will be slow and erratic, but our Bank is ready, willing and able to help our market areas move quickly to increasing levels of economic activity. As we move forward in this year, we are very optimistic about the opportunities for market area growth and business development that will come from our pending merger with MidCarolina Financial Corporation, which we hope to have approved by shareholders and regulators during the second quarter of 2011."

Capital

American National's capital ratios are among the highest in its peer group. For the first quarter of 2011, average shareholders' equity was 13.03% of average assets.

Credit Quality Measurements

Nonperforming assets ($3.4 million of non-accrual loans and $3.5 million of foreclosed real estate) were below industry averages and represented 0.83% of total assets at March 31, 2011, compared to 0.89% at March 31, 2010.

The allowance for loans losses was $8.3 million or 1.60% of loans at March 31, 2011, compared to $8.1 million or 1.57% at March 31, 2010.

Annualized net charge offs were 0.39% for the first quarter 2011 compared to 0.26% for the first quarter in 2010.

Net Interest Income

Net interest income, on a taxable equivalent basis, decreased to $7,004,000 in the first quarter of 2011 from $7,174,000 in first quarter of 2010, a decrease of 2.4%. Net interest income has been adversely impacted by low market interest rates and shifts between categories of earning assets. The Bank has mitigated the impact by reducing the cost of its interest bearing liabilities. The Company's net interest margin declined to 3.66% from 3.90%, a decrease of 24 basis points (0.24%) from the first quarter 2010.

Noninterest Income

Noninterest income totaled $1,949,000 in the first quarter of 2011 compared with $1,921,000 in the first quarter of 2010, a 1.5% increase. Most of that increase was attributable to increased trust income.

Noninterest Expense

Noninterest expense totaled $5,757,000 in the first quarter of 2011, compared to $5,497,000 in the first quarter of 2010, a 4.7% increase. The major factor impacting noninterest expense were expenses associated with the pending merger with MidCarolina Financial. During the first quarter, the Company incurred merger-related costs of $309,000, reflected in other noninterest expenses, which accounted for virtually all the increase in costs. Much of these merger related expenses are not tax deductible.

Merger with MidCarolina Financial Corporation

On December 16, 2010, American National announced the signing of an agreement which calls for MidCarolina Financial Corporation to merge with American National in an all stock transaction. In connection with the proposed transaction, American National has filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-4, which has not yet been declared effective, to register the shares of American National stock to be issued to the shareholders of MidCarolina. The registration statement includes a joint proxy statement/prospectus that will be sent to the shareholders of American National and MidCarolina after the registration statement is declared effective seeking the requisite approvals under the merger agreement. In addition, each of American National and MidCarolina may file other relevant documents concerning the proposed transaction with the SEC.

AMERICAN NATIONAL AND MIDCAROLINA URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AMERICAN NATIONAL, MIDCAROLINA AND THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of these documents, when they become available, through the website maintained by the SEC at www.sec.gov. Free copies of the joint proxy statement/prospectus, when it becomes available, also may be obtained by directing a request by telephone or mail to American National Bankshares Inc., 628 Main Street, Danville, Virginia 24541, Attention: Investor Relations (telephone: (434) 792-5111) or MidCarolina Financial Corporation, 3101 South Church Street, Burlington, North Carolina 27216, Attention: Investor Relations (telephone: (336) 538-1600) or by accessing American National's website at www.amnb.com under "Investments" or MidCarolina's website at www.midcarolinabank.com under "Investor Relations." The information on American National's and MidCarolina's websites is not, and shall not be deemed to be, a part of this report or incorporated into other filings either company makes with the SEC.

American National and MidCarolina and their respective directors, executive officers and members of management may be deemed to be participants in the solicitation of proxies from the shareholders of American National and/or MidCarolina in connection with the merger. Information about the directors and executive officers of American National is set forth in the proxy statement for American National's 2011 annual meeting of shareholders filed with the SEC on April 15, 2011. Information about the directors and executive officers of MidCarolina is set forth in Amendment No. 1 to MidCarolina's Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on April 12, 2011. Additional information regarding the interests of these participants and other persons who may be deemed participants in the merger may be obtained by reading the joint proxy statement/prospectus regarding the merger when it becomes available.

About American National

American National Bankshares Inc. is a bank holding company with assets of $841 million. Headquartered in Danville, Virginia, it is the holding company of American National Bank and Trust Company, a community bank serving Southern and Central Virginia and the northern portion of Central North Carolina with eighteen banking offices. The Bank also manages an additional $430 million of assets in its Trust and Investment Services Division. Additional information is available on the Bank's website at www.amnb.com. The shares of American National Bankshares Inc. are traded on the NASDAQ Global Select Market under the symbol "AMNB."

Forward-Looking Statements

This press release may contain "forward-looking statements," within the meaning of federal securities laws that involve significant risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Company 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 the Company'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


                                                            March 31
                                                      --------------------
ASSETS                                                  2011       2010
                                                      ---------  ---------

Cash and due from banks                               $  10,248  $  11,059
Interest-bearing deposits in other banks                 25,397     25,531

Securities available for sale, at fair value            226,171    190,949
Securities held to maturity                               3,146      5,802
                                                      ---------  ---------
      Total securities                                  229,317    196,751
                                                      ---------  ---------

Restricted stock, at cost                                 4,062      4,362
Loans held for sale                                       1,309      2,208

Loans                                                   516,629    515,366
  Less allowance for loan losses                         (8,257)    (8,112)
                                                      ---------  ---------
      Net Loans                                         508,372    507,254
                                                      ---------  ---------

Premises and equipment, net                              19,308     19,145
Other real estate owned, net                              3,532      3,815
Goodwill                                                 22,468     22,468
Core deposit intangibles, net                             1,226      1,603
Accrued interest receivable and other assets             15,999     16,458
                                                      ---------  ---------

      Total assets                                    $ 841,238  $ 810,654
                                                      =========  =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Demand deposits -- noninterest-bearing             $ 113,260  $ 101,190
   Demand deposits -- interest-bearing                   96,686     98,968
   Money market deposits                                 57,530     79,225
   Savings deposits                                      63,236     64,721
   Time deposits                                        328,771    265,517
                                                      ---------  ---------
      Total deposits                                    659,483    609,621
                                                      ---------  ---------

   Short-term borrowings:
      Customer repurchase agreements                     43,871     60,372
      Other short-term borrowings                             -          -
   Long-term borrowings                                   4,450      8,600
   Trust preferred capital notes                         20,619     20,619
   Accrued interest payable and other liabilities         3,443      4,260
                                                      ---------  ---------
      Total liabilities                                 731,866    703,472
                                                      ---------  ---------

Shareholders' equity:
   Common stock, $1 par, 10,000,000 shares
    authorized, 6,153,433 shares outstanding at
    March 31, 2011 and 6,123,275 shares outstanding
    at March 31, 2010                                     6,153      6,123
   Capital in excess of par value                        27,541     27,063
   Retained earnings                                     75,214     72,985
   Accumulated other comprehensive income (loss), net       464      1,011
                                                      ---------  ---------
      Total shareholders' equity                        109,372    107,182
                                                      ---------  ---------

      Total liabilities and shareholders' equity      $ 841,238  $ 810,654
                                                      =========  =========



            American National Bankshares Inc. and Subsidiaries
                    Consolidated Statements of Income
          (Dollars in thousands, except share and per share data)
                                Unaudited


                                                       Three Months Ended
                                                            March 31
                                                      --------------------
                                                        2011       2010
                                                      ---------  ---------
 Interest and Dividend Income:
   Interest and fees on loans                         $   6,679  $   7,155
   Interest and dividends on securities:
     Taxable                                              1,169      1,316
     Tax-exempt                                             716        466
     Dividends                                               27         23
   Other interest income                                     70         91
                                                      ---------  ---------
       Total interest and dividend income                 8,661      9,051
                                                      ---------  ---------

Interest Expense:
   Interest on deposits                                   1,580      1,635
   Interest on short-term borrowings                         80        105
   Interest on long-term borrowings                          53         64
   Interest on customer repurchase agreements
   Interest on trust preferred capital notes                343        343
                                                      ---------  ---------
      Total interest expense                              2,056      2,147
                                                      ---------  ---------

 Net Interest Income                                      6,605      6,904
   Provision for loan losses                                337        285
                                                      ---------  ---------

Net Interest Income After Provision
    for Loan Losses                                       6,268      6,619
                                                      ---------  ---------

 Noninterest Income:
   Trust fees                                               928        812
   Service charges on deposit accounts                      421        479
   Other fees and commissions                               316        278
   Mortgage banking income                                  147        246
   Securities gains (losses), net                             1        (29)
   Foreclosed real estate (losses), net                     (22)        (3)
   Other                                                    158        138
                                                      ---------  ---------
      Total noninterest income                            1,949      1,921
                                                      ---------  ---------

 Noninterest Expense:
   Salaries                                               2,485      2,398
   Employee benefits                                        541        640
   Occupancy and equipment                                  699        779
   FDIC assessment                                          205        195
   Bank franchise tax                                       175        167
   Core deposit intangible amortization                      94         94
   Other                                                  1,558      1,224
                                                      ---------  ---------
      Total noninterest expense                           5,757      5,497
                                                      ---------  ---------

 Income Before Income Taxes                               2,460      3,043
 Income Taxes                                               682        858
                                                      ---------  ---------
 Net Income                                           $   1,778  $   2,185
                                                      =========  =========

Net Income Per Common Share:
    Basic                                             $    0.29  $    0.36
    Diluted                                           $    0.29  $    0.36
Average Common Shares Outstanding:
    Basic                                             6,143,602  6,119,415
    Diluted                                           6,152,738  6,124,306



American National Bankshares Inc. and Subsidiaries
Financial Highlights

(In thousands, except share,
 ratio and nonfinancial data,
   unaudited)         1st Qtr    4th Qtr    1st Qtr      YTD        YTD
                       2011       2010       2010       2011       2010
                     ---------  ---------  ---------  ---------  ---------
EARNINGS
   Interest income   $   8,661  $   8,889  $   9,051  $   8,661  $   9,051
   Interest expense      2,056      2,196      2,147      2,056      2,147
   Net interest
    income               6,605      6,693      6,904      6,605      6,904
   Provision for
    loan losses            337        485        285        337        285
   Noninterest
    income               1,949      2,602      1,921      1,949      1,921
   Noninterest
    expense              5,757      6,170      5,497      5,757      5,497
   Income taxes            682        789        858        682        858
   Net income            1,778      1,851      2,185      1,778      2,185

PER COMMON SHARE
   Earnings per
    share - basic    $    0.29  $    0.30  $    0.36  $    0.29  $    0.36
   Earnings per
    share - diluted       0.29       0.30       0.36       0.29       0.36
   Cash dividends
    declared              0.23       0.23       0.23       0.23       0.23
   Book value per
    share                17.77      17.64      17.50      17.77      17.50
   Book value per
    share - tangible
    (a)                  13.92      13.76      13.57      13.92      13.57
   Closing market
    price                22.51      23.55      20.15      22.51      20.15

FINANCIAL RATIOS
   Return on average
    assets                0.85%      0.88%      1.08%      0.85%      1.08%
   Return on average
    equity                6.51       6.69       8.14       6.51       8.14
   Return on average
    tangible equity
    (b)                   8.64       8.83      10.83       8.64      10.83
   Average equity to
    average assets       13.03      13.12      13.24      13.03      13.24
   Net interest
    margin, taxable
    equivalent            3.66       3.67       3.90       3.66       3.90
   Efficiency ratio      64.16      65.70      60.22      64.16      60.22
   Effective tax
    rate                 27.72      29.89      28.20      27.72      28.20

PERIOD-END BALANCES
   Securities        $ 233,379  $ 235,691  $ 201,113  $ 233,379  $ 201,113
   Loans held for
    sale                 1,309      3,135      2,208      1,309      2,208
   Loans, net of
    unearned income    516,629    520,781    515,366    516,629    515,366
   Goodwill and
    other
    intangibles         23,694     23,788     24,071     23,694     24,071
   Assets              841,238    833,664    810,654    841,238    810,654
   Assets - tangible
    (a)                817,544    809,876    786,583    817,544    786,583
   Deposits            659,483    640,098    609,621    659,483    609,621
   Customer
    repurchase
    agreements          43,871     47,084     60,372     43,871     60,372
   Other short-term
    borrowings               -      6,110          -          -          -
   Long-term
    borrowings          25,069     29,107     29,219     25,069     29,219
   Shareholders'
    equity             109,372    108,087    107,182    109,372    107,182
   Shareholders'
    equity -
    tangible (a)        85,678     84,299     83,111     85,678     83,111

AVERAGE BALANCES
   Securities        $ 226,595  $ 215,208  $ 184,696  $ 226,595  $ 184,696
   Loans held for
    sale                 1,508      5,629      2,444      1,508      2,444
   Loans, net of
    unearned income    516,610    521,832    518,403    516,610    520,847
   Interest-earning
    assets             765,291    770,649    736,183    765,291    736,183
   Goodwill and
    other
    intangibles         23,750     23,844     24,125     23,750     24,125
   Assets              838,151    843,922    810,620    838,151    810,620
   Assets - tangible
    (a)                814,401    820,078    786,495    814,401    786,495
   Interest-bearing
    deposits           542,104    537,662    507,209    542,104    507,209
   Deposits            652,922    647,526    606,085    652,922    606,085
   Customer
    repurchase
    agreements          43,762     52,068     63,947     43,762     63,947
   Other short-term
    borrowings             136        251          -        136          -
   Long-term
    borrowings          27,855     29,136     29,248     27,855     29,248
   Shareholders'
    equity             109,224    110,688    107,336    109,224    107,336
   Shareholders'
    equity -
    tangible (a)        85,474     86,844     83,211     85,474     83,211

CAPITAL
   Average shares
    outstanding -
    basic            6,143,602  6,126,817  6,119,415  6,143,602  6,119,415
   Average shares
    outstanding -
    diluted          6,152,738  6,141,123  6,124,306  6,152,738  6,124,306
   Shares
    repurchased              -          -          -          -          -
   Average price of
    shares
    repurchased      $       -  $       -  $       -  $       -  $       -

ALLOWANCE FOR LOAN
 LOSSES
   Beginning balance $   8,420  $   8,542  $   8,166  $   8,420  $   8,166
   Provision for
    loan losses            337        485        285        337        285
   Charge-offs            (571)      (662)      (427)      (571)      (427)
   Recoveries               71         55         88         71         88
                     ---------  ---------  ---------  ---------  ---------
   Ending balance    $   8,257  $   8,420  $   8,112  $   8,257  $   8,112

LOANS
   Construction and
    land development $  36,516  $  37,168  $  39,421  $  36,720  $  39,421
   Commercial real
    estate             207,502    210,393    205,642    207,290    205,642
   Residential real
    estate             118,603    119,398    119,776    118,610    119,776
   Home equity          61,674     61,064     63,302     61,674     63,302
   Commercial and
    industrial          84,702     85,051     80,331     84,702     80,331
   Consumer              7,632      7,707      6,894      7,632      6,894
                     ---------  ---------  ---------  ---------  ---------
   Total             $ 516,629  $ 520,781  $ 515,366  $ 516,628  $ 515,366

NONPERFORMING ASSETS
 AT PERIOD-END
   Nonperforming loans:
   90 days past due  $       -  $       -  $       -  $       -  $       -
   Nonaccrual            3,417      2,597      3,436      3,417      3,436
   Foreclosed real
    estate               3,532      3,716      3,815      3,532      3,815
                     ---------  ---------  ---------  ---------  ---------
   Nonperforming
    assets           $   6,949  $   6,313  $   7,251  $   6,949  $   7,251

ASSET QUALITY RATIOS
   Annualized net
    chargeoffs to
    average loans         0.39%      0.47%      0.26%      0.39%      0.26%
   Nonperforming
    assets to total
    assets                0.83       0.76       0.89       0.83       0.89
   Nonperforming
    loans to total
    loans                 0.66       0.50       0.67       0.66       0.67
   Allowance for
    loan losses to
    total loans           1.60       1.62       1.57       1.60       1.57
   Allowance for
    loan losses to
    nonperforming
    loans               241.64     324.22     236.09     241.64     236.09

OTHER DATA
   Fiduciary assets
    at period-end
    (c)              $ 380,259  $ 368,018  $ 363,205  $ 380,259  $ 363,205
   Retail brokerage
    assets at
    period-end (c)   $  50,175  $  49,311  $  51,848  $  50,175  $  51,848
   Number full-time
    equivalent
    employees (d)          242        242        235        242        235
   Number of full
    service offices         18         18         18         18         18
   Number of loan
    production
    offices                  1          1          1          1          1
   Number of ATM's          26         26         26         26         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 March 31, 2011 and 2010
                       (in thousands, except rates)


                                            Interest
                      Average Balance    Income/Expense      Yield/Rate
                      ----------------- ----------------- ----------------
                        2011     2010     2011     2010     2011     2010
                      -------- -------- -------- -------- -------  -------
Loans:
  Commercial          $ 77,925 $ 79,279 $    880 $    953    4.52%    4.81%
  Real estate          432,688  434,795    5,695    6,095    5.26     5.61
  Consumer               7,505    6,773      136      134    7.25     7.91
                      -------- -------- -------- -------- -------  -------
    Total loans        518,118  520,847    6,711    7,182    5.18     5.52
                      -------- -------- -------- -------- -------  -------

Securities:
  Federal agencies &
   GSE                  43,345   65,751      323      551    2.98     3.35
  Mortgage-backed
   &CMO's               59,297   43,783      490      501    3.31     4.58
  State and municipal  117,916   67,538    1,408      927    4.78     5.49
  Other                  6,037    7,624       58       69    3.84     3.62
                      -------- -------- -------- -------- -------  -------
    Total securities   226,595  184,696    2,279    2,048    4.02     4.44
                      -------- -------- -------- -------- -------  -------

Deposits in other
 banks                  20,578   30,640       70       91    1.36     1.19
                      -------- -------- -------- -------- -------  -------

Total interest
 earning assets        765,291  736,183    9,060    9,321    4.74     5.06
                                        -------- -------- -------  -------

Nonearning assets       72,860   74,437
                      -------- --------

    Total assets      $838,151 $810,620
                      ======== ========

Deposits:
  Demand              $ 96,698 $ 97,062       18       21    0.07     0.09
  Money market          63,125   80,809       83       90    0.53     0.45
  Savings               62,505   62,801       21       22    0.13     0.14
  Time                 319,776  266,537    1,458    1,502    1.82     2.25
                      -------- -------- -------- -------- -------  -------
    Total deposits     542,104  507,209    1,580    1,635    1.17     1.29

Customer repurchase
 agreements             43,762   63,947       80      105    0.73     0.66
Other short-term
 borrowings                136        -        -        -    0.47        -
Long-term borrowings    27,855   29,248      396      407    5.69     5.57
                      -------- -------- -------- -------- -------  -------

  Total interest
   bearing
   liabilities         613,857  600,404    2,056    2,147    1.34     1.43
                                        -------- -------- -------  -------

Noninterest bearing
  demand deposits      110,818   98,876
Other liabilities        4,252    4,004
Shareholders' equity   109,224  107,336
                      -------- --------
    Total liabilities
     and shareholders'
     equity           $838,151 $810,620
                      ======== ========

Interest rate spread                                         3.40%    3.63%
                                                          =======  =======
Net interest margin                                          3.66%    3.90%
                                                          =======  =======

Net interest income
 (taxable equivalent
 basis)                                    7,004    7,174
Less: Taxable
 equivalent
 adjustment                                  399      270
                                        -------- --------
Net interest income                     $  6,605 $  6,904
                                        ======== ========

 

Source: American National Bankshares Inc.

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