Date: | July 27, 2006 | ||
Contact: | Neal A. Petrovich, Senior Vice President and Chief Financial Officer | ||
434-773-2242 petrovichn@amnb.com | |||
Traded: | NASDAQ Global Select Market | Symbol: | AMNB |
AMERICAN NATIONAL BANKSHARES INC. ANNOUNCES INCREASED EARNINGS FOR SECOND QUARTER
Danville, VA -- American National Bankshares Inc. (NASDAQ: AMNB), parent company of American National Bank and Trust Company, announced second quarter 2006 net income of $3.0 million, a 23.8% increase over the second quarter of 2005. Basic earnings per share increased 11.4% to $0.49, from $0.44 in the year earlier quarter; diluted earnings per share increased 9.1% to $0.48, from $0.44 in the second quarter of 2005.
The recently completed quarter includes the results of the acquisition of Community First Financial Corporation (“Community First”) which occurred on April 1, 2006. The merger was accounted for as a purchase under generally accepted accounting principles. Accordingly, all assets and liabilities of Community First were recorded at estimated fair market value as of the merger date. In accordance with these accounting principles, certain valuation adjustments, such as the ones pertaining to loans and deposits, are being amortized over the estimated lives of those assets and liabilities.
“The financial results for the second quarter are extremely gratifying,” stated Charles H. Majors, President and Chief Executive Officer, “but even more gratifying is the fact that we completed the acquisition and the related systems conversion during the quarter with no major problems. For this, I express my sincere gratitude to the employees of our company who worked so hard to make the conversion a success. I also wish to welcome our new customers. We intend to earn their continued business by offering quality financial services with exceptional customer service. I welcome our new shareholders and trust that they will benefit from their investment in American National. Lastly, I welcome Dr. Frank C. Crist, who previously served as chairman of Community First Financial Corporation, to the board of directors.”
Net Interest Income
Comparing the second quarter of 2006 to the second quarter of 2005, net interest income, the Company’s largest source of revenue, increased $1.8 million, or 30.5%. The improvement was due largely to the impact of the Community First acquisition, which significantly increased the Company’s interest-earning assets. Average interest-earning assets increased from $597.2 million in the second quarter of 2005 to $749.7 million in the recently completed quarter. Second quarter 2006 interest income included a positive impact of $134,000 related to the valuation of Community First’s loans. Similarly, interest expense for the quarter was reduced by $66,000 related to the valuation of certain Community First deposits. Beginning April 1, 2006, the loan valuation is being amortized over fifty-two months and the deposit valuation over thirteen months. Excluding these purchase accounting adjustments, net interest income increased $1.6 million or 27.1%. The Company’s net interest margin, on a fully taxable equivalent basis, was 4.24% during the second quarter of 2006. Excluding the effects of the aforementioned purchase accounting adjustments for loans and deposits, the net interest margin was 4.13%, compared to 4.14% during both the same quarter of 2005 and the first quarter of 2006.
To meet its funding needs for the Community First acquisition, the Company issued $20.6 million of trust preferred securities during the second quarter of 2006. These securities bear interest at a fixed rate of 6.66% for five years, after which the interest rate will vary quarterly based on changes in the ninety-day LIBOR index. The Company may repay all or a portion of the securities after five years. Interest expense associated with these securities was $320,000 during the quarter.
For the first six months of 2006, net interest income was $13.7 million, up from $11.8 million for the first half of 2005. The increase is attributable to the acquisition of Community First and to general increases in interest rates.
Noninterest Income
Noninterest income rose 15.8% from $2.0 million in the second quarter of 2005 to $2.3 million in the second quarter of 2006. The increase is primarily the result of higher trust and investment services fees, increased mortgage banking income, and the effect of the Community First acquisition. Noninterest income for the first half of 2006 was $4.2 million, up $143,000 or 3.6% over the first half of 2005. During the first quarter of 2005, the Company received $320,000 of nonrecurring income from the sale of its membership in a debit card processor.
Noninterest Expense
Noninterest expense increased $1.1 million from the second quarter of 2005 to 2006, due in large part to the impact of the Community First acquisition, the Company’s initial expansion into the Lynchburg, Virginia market in 2005, and an increase in pension and other employee benefit expense. All personnel and other costs associated with operating the four Community First banking offices are included in the recently completed quarter. Approximate nonrecurring merger expenses incurred during the quarter were $118,000, and consisted primarily of consulting fees and severance payments to former Community First employees. Amortization expense during the second quarter of 2006 related to the Community First core deposit intangible asset was $94,000. Beginning April 1, 2006, this asset is being amortized over ninety-nine months.
For the first half of 2006, noninterest expense was $9.7 million, up 18.6% from $8.2 million during the first half of 2005. Approximate nonrecurring merger expenses during the first six months of 2006 were $172,000.
Deposits and Loans
Average deposits were $638.0 million during the recently completed quarter, up from $480.6 million during the comparable 2005 period. Average loans were $550.7 million during the second quarter of 2006, compared with $420.6 million in the second quarter of 2005. For the first half of 2006, average loans increased 15.9% over 2005. The increases in loans and deposits are primarily the result of the Community First acquisition.
Allowance for Loan Losses and Credit Quality
The allowance for loan losses represented 1.49% of loans at June 30, 2006, down significantly from 2.01% at June 30, 2005, and down slightly from 1.50% at March 31, 2006. Nonperforming assets were $5.0 million or 0.61% of assets at June 30, 2006, compared with 1.40% one year earlier and 0.69% at March 31, 2006.
About American National
American National Bankshares Inc. is the holding company of American National Bank and Trust Company, a community bank with eighteen full service offices serving the areas of Danville, Pittsylvania County, Martinsville, Henry County, South Boston, Halifax County, Lynchburg, Bedford, Bedford County, Campbell County, and portions of Nelson County in Virginia, along with portions of Caswell County in North Carolina. The Bank also operates a loan production office in Greensboro, North Carolina.
American National Bank and Trust Company provides a full array of financial products and services, including commercial, mortgage, and consumer banking; trust and investment services; and insurance. Services are also provided through twenty-three ATMs, “AmeriLink” Internet banking, and 24-hour “Access American” phone banking. 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.”
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 Corporation 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; and significant changes in securities markets. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Corporation’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 Subsidiary | |||||||
Consolidated Balance Sheets | |||||||
(Dollars in thousands, except share data) | |||||||
| Unaudited | |||||||
| June 30 | |||||||
ASSETS | 2006 | 2005 | |||||
| Cash and due from banks | $ | 19,352 | $ | 14,363 | |||
| Interest-bearing deposits in other banks | 16,425 | 7,030 | |||||
| Securities available for sale, at fair value | 157,636 | 147,633 | |||||
| Securities held to maturity | 15,501 | 19,221 | |||||
| Total securities | 173,137 | 166,854 | |||||
| Loans held for sale | 1,005 | 1,470 | |||||
| Loans, net of unearned income | 551,434 | 416,528 | |||||
| Less allowance for loan losses | (8,208 | ) | (8,378 | ) | |||
| Net Loans | 543,226 | 408,150 | |||||
| Bank premises and equipment, net | 12,640 | 7,610 | |||||
| Goodwill | 22,517 | - | |||||
| Core deposit intangibles, net | 3,071 | 259 | |||||
| Accrued interest receivable and other assets | 19,195 | 11,117 | |||||
| Total assets | $ | 810,568 | $ | 616,853 | |||
LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Liabilities: | |||||||
| Demand deposits -- noninterest-bearing | $ | 109,161 | $ | 91,653 | |||
| Demand deposits -- interest-bearing | 119,767 | 76,541 | |||||
| Money market deposits | 48,111 | 39,289 | |||||
| Savings deposits | 81,078 | 81,157 | |||||
| Time deposits | 274,505 | 190,552 | |||||
| Total deposits | 632,622 | 479,192 | |||||
| Repurchase agreements | 43,667 | 44,241 | |||||
| FHLB borrowings | 17,163 | 19,313 | |||||
| Trust preferred capital notes | 20,619 | - | |||||
| Accrued interest payable and other liabilities | 4,666 | 2,814 | |||||
| Total liabilities | 718,737 | 545,560 | |||||
| Shareholders' equity: | |||||||
| Common stock, $1 par, 10,000,000 shares authorized, | |||||||
| 6,162,490 shares outstanding at June 30, 2006 and | |||||||
| 5,445,186 shares outstanding at June 30, 2005 | 6,162 | 5,445 | |||||
| Capital in excess of par value | 26,353 | 9,382 | |||||
| Retained earnings | 61,423 | 56,810 | |||||
| Accumulated other comprehensive income (loss), net | (2,107 | ) | (344 | ) | |||
| Total shareholders' equity | 91,831 | 71,293 | |||||
| Total liabilities and shareholders' equity | $ | 810,568 | $ | 616,853 | |||
American National Bankshares Inc. and Subsidiary | |||||||||||||
Consolidated Statements of Income | |||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||
| Unaudited | |||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||
| June 30 | June 30 | ||||||||||||
| 2006 | 2005 | 2006 | 2005 | ||||||||||
Interest Income: | |||||||||||||
| Interest and fees on loans | $ | 10,089 | $ | 6,382 | $ | 17,045 | $ | 12,414 | |||||
| Interest and dividends on securities: | |||||||||||||
| Taxable | 1,358 | 1,021 | 2,510 | 2,140 | |||||||||
| Tax-exempt | 430 | 497 | 881 | 1,024 | |||||||||
| Dividends | 78 | 59 | 135 | 105 | |||||||||
| Other interest income | 191 | 28 | 423 | 70 | |||||||||
| Total interest income | 12,146 | 7,987 | 20,994 | 15,753 | |||||||||
Interest Expense: | |||||||||||||
| Deposits | 3,538 | 1,612 | 5,845 | 3,132 | |||||||||
| Repurchase agreements | 335 | 214 | 644 | 367 | |||||||||
| Other borrowings | 242 | 251 | 455 | 495 | |||||||||
| Trust preferred capital notes | 320 | - | 320 | - | |||||||||
| Total interest expense | 4,435 | 2,077 | 7,264 | 3,994 | |||||||||
Net Interest Income | 7,711 | 5,910 | 13,730 | 11,759 | |||||||||
| Provision for Loan Losses | 354 | 240 | 480 | 540 | |||||||||
Net Interest Income After Provision | |||||||||||||
| for Loan Losses | 7,357 | 5,670 | 13,250 | 11,219 | |||||||||
Noninterest Income: | |||||||||||||
| Trust and investment services | 885 | 767 | 1,640 | 1,487 | |||||||||
| Service charges on deposit accounts | 737 | 632 | 1,308 | 1,191 | |||||||||
| Other fees and commissions | 292 | 273 | 601 | 524 | |||||||||
| Mortgage banking income | 203 | 165 | 336 | 265 | |||||||||
| Securities gains, net | 17 | - | 38 | 45 | |||||||||
| Other | 133 | 121 | 245 | 513 | |||||||||
| Total noninterest income | 2,267 | 1,958 | 4,168 | 4,025 | |||||||||
Noninterest Expense: | |||||||||||||
| Salaries | 2,527 | 2,049 | 4,511 | 3,921 | |||||||||
| Pension and other employee benefits | 673 | 503 | 1,322 | 971 | |||||||||
| Occupancy and equipment | 744 | 633 | 1,390 | 1,234 | |||||||||
| Bank franchise tax | 170 | 134 | 310 | 272 | |||||||||
| Core deposit intangible amortization | 134 | 113 | 173 | 225 | |||||||||
| Other | 1,108 | 788 | 2,033 | 1,588 | |||||||||
| Total noninterest expense | 5,356 | 4,220 | 9,739 | 8,211 | |||||||||
| Income Before Income Tax Provision | 4,268 | 3,408 | 7,679 | 7,033 | |||||||||
| Income Tax Provision | 1,266 | 984 | 2,271 | 2,026 | |||||||||
Net Income | $ | 3,002 | $ | 2,424 | $ | 5,408 | $ | 5,007 | |||||
Net Income Per Common Share: | |||||||||||||
| Basic | $ | 0.49 | $ | 0.44 | $ | 0.93 | $ | 0.91 | |||||
| Diluted | $ | 0.48 | $ | 0.44 | $ | 0.93 | $ | 0.90 | |||||
Average Common Shares Outstanding: | |||||||||||||
| Basic | 6,172,522 | 5,472,021 | 5,805,287 | 5,491,211 | |||||||||
| Diluted | 6,207,543 | 5,517,736 | 5,840,871 | 5,538,074 | |||||||||
Financial Highlights | |||||||||||||||||||||||
American National Bankshares Inc. and Subsidiary | |||||||||||||||||||||||
| (Dollars in thousands, | |||||||||||||||||||||||
| except share data, unaudited) | Three Months Ended June 30 | Six Months Ended June 30 | |||||||||||||||||||||
| 2006 | 2005 | Change | 2006 | 2005 | Change | ||||||||||||||||||
| EARNINGS | |||||||||||||||||||||||
| Interest income | $ | 12,146 | $ | 7,987 | 52.1 | % | $ | 20,994 | $ | 15,753 | 33.3 | % | |||||||||||
| Interest expense | 4,435 | 2,077 | 113.5 | 7,264 | 3,994 | 81.9 | |||||||||||||||||
| Net interest income | 7,711 | 5,910 | 30.5 | 13,730 | 11,759 | 16.8 | |||||||||||||||||
| Provision for loan losses | 354 | 240 | 47.5 | 480 | 540 | (11.1 | ) | ||||||||||||||||
| Noninterest income | 2,267 | 1,958 | 15.8 | 4,168 | 4,025 | 3.6 | |||||||||||||||||
| Noninterest expense | 5,356 | 4,220 | 26.9 | 9,739 | 8,211 | 18.6 | |||||||||||||||||
| Income taxes | 1,266 | 984 | 28.7 | 2,271 | 2,026 | 12.1 | |||||||||||||||||
| Net income | 3,002 | 2,424 | 23.8 | 5,408 | 5,007 | 8.0 | |||||||||||||||||
| PER COMMON SHARE | |||||||||||||||||||||||
| Earnings per share - basic | $ | 0.49 | $ | 0.44 | 11.4 | % | $ | 0.93 | $ | 0.91 | 2.2 | % | |||||||||||
| Earnings per share - diluted | 0.48 | 0.44 | 9.1 | 0.93 | 0.90 | 3.3 | |||||||||||||||||
| Cash dividends paid | 0.22 | 0.21 | 4.8 | 0.43 | 0.41 | 4.9 | |||||||||||||||||
| Book value per share | 14.90 | 13.09 | 13.8 | ||||||||||||||||||||
| Book value per share - tangible (a) | 10.75 | 13.05 | (17.6 | ) | |||||||||||||||||||
| Closing market price | 23.13 | 23.58 | (1.9 | ) | |||||||||||||||||||
| FINANCIAL RATIOS | |||||||||||||||||||||||
| Return on average assets | 1.48 | % | 1.56 | % | (8 | ) | bp | 1.50 | % | 1.61 | % | (11 | ) | bp | |||||||||
| Return on average equity | 13.38 | 13.58 | (20 | ) | 13.32 | 14.07 | (75 | ) | |||||||||||||||
| Return on average tangible equity (b) | 19.52 | 14.09 | 543 | 16.28 | 14.60 | 168 | |||||||||||||||||
| Average equity to average assets | 11.07 | 11.52 | (45 | ) | 11.25 | 11.47 | (22 | ) | |||||||||||||||
| Net interest margin (FTE) | 4.24 | 4.14 | 10 | 4.19 | 4.12 | 7 | |||||||||||||||||
| Efficiency ratio | 54.01 | 51.87 | 214 | 53.96 | 50.31 | 365 | |||||||||||||||||
| PERIOD END BALANCES | |||||||||||||||||||||||
| Securities | $ | 173,137 | $ | 166,854 | 3.8 | % | |||||||||||||||||
| Loans held for sale | 1,005 | 1,470 | (31.6 | ) | |||||||||||||||||||
| Loans, net of unearned income | 551,434 | 416,528 | 32.4 | ||||||||||||||||||||
| Goodwill and other intangibles | 25,588 | 259 | N/A | ||||||||||||||||||||
| Assets | 810,568 | 616,853 | 31.4 | ||||||||||||||||||||
| Assets - tangible (a) | 784,980 | 616,594 | 27.3 | ||||||||||||||||||||
| Deposits | 632,622 | 479,192 | 32.0 | ||||||||||||||||||||
| Repurchase agreements | 43,667 | 44,241 | (1.3 | ) | |||||||||||||||||||
| FHLB borrowings | 17,163 | 19,313 | (11.1 | ) | |||||||||||||||||||
| Trust preferred capital notes | 20,619 | - | N/A | ||||||||||||||||||||
| Shareholders' equity | 91,831 | 71,293 | 28.8 | ||||||||||||||||||||
| Shareholders' equity - tangible (a) | 66,243 | 71,034 | (6.7 | ) | |||||||||||||||||||
| AVERAGE BALANCES | |||||||||||||||||||||||
| Securities | $ | 183,393 | $ | 172,577 | 6.3 | % | $ | 177,796 | $ | 176,586 | 0.7 | % | |||||||||||
| Total loans | 550,706 | 420,612 | 30.9 | 481,818 | 415,598 | 15.9 | |||||||||||||||||
| Interest-earning assets | 749,709 | 597,153 | 25.5 | 678,053 | 597,583 | 13.5 | |||||||||||||||||
| Goodwill and other intangibles | 26,268 | 304 | N/A | 13,260 | 360 | N/A | |||||||||||||||||
| Assets | 810,627 | 619,758 | 30.8 | 721,685 | 620,333 | 16.3 | |||||||||||||||||
| Assets - tangible (a) | 784,359 | 619,454 | 26.6 | 708,425 | 619,973 | 14.3 | |||||||||||||||||
| Interest-bearing deposits | 525,889 | 397,602 | 32.3 | 469,624 | 402,860 | 16.6 | |||||||||||||||||
| Deposits | 638,020 | 480,625 | 32.7 | 570,098 | 483,605 | 17.9 | |||||||||||||||||
| Repurchase agreements | 41,594 | 44,274 | (6.1 | ) | 40,772 | 41,813 | (2.5 | ) | |||||||||||||||
| Other borrowings | 37,878 | 21,426 | 76.8 | 27,070 | 21,360 | 26.7 | |||||||||||||||||
| Shareholders' equity | 89,729 | 71,397 | 25.7 | 81,194 | 71,163 | 14.1 | |||||||||||||||||
| Shareholders' equity - tangible (a) | 63,461 | 71,093 | (10.7 | ) | 67,934 | 70,803 | (4.1 | ) | |||||||||||||||
| CAPITAL | |||||||||||||||||||||||
| Average shares outstanding - basic | 6,172,522 | 5,472,021 | 12.8 | % | 5,805,287 | 5,491,211 | 5.7 | % | |||||||||||||||
| Average shares outstanding - diluted | 6,207,543 | 5,517,736 | 12.5 | 5,840,871 | 5,538,074 | 5.5 | |||||||||||||||||
| Shares repurchased | 17,300 | 48,950 | (64.7 | ) | 31,200 | 79,350 | (60.7 | ) | |||||||||||||||
| Average price of shares repurchased | $ | 23.25 | $ | 24.39 | (4.7 | ) | $ | 23.28 | $ | 24.54 | (5.1 | ) | |||||||||||
| ALLOWANCE FOR LOAN LOSSES | |||||||||||||||||||||||
| Beginning balance | $ | 6,164 | $ | 8,127 | (24.2 | )% | $ | 6,109 | $ | 7,982 | (23.5 | )% | |||||||||||
| Allowance acquired in merger | 1,598 | 1,598 | |||||||||||||||||||||
| Provision for loan losses | 354 | 240 | 47.5 | 480 | 540 | (11.1 | ) | ||||||||||||||||
| Charge-offs | (75 | ) | (39 | ) | 92.3 | (226 | ) | (272 | ) | (16.9 | ) | ||||||||||||
| Recoveries | 167 | 50 | 234.0 | 247 | 128 | 93.0 | |||||||||||||||||
| Ending balance | $ | 8,208 | $ | 8,378 | (2.0 | ) | $ | 8,208 | $ | 8,378 | (2.0 | ) | |||||||||||
| NONPERFORMING ASSETS | |||||||||||||||||||||||
| Nonperforming loans: | |||||||||||||||||||||||
| 90 days past due | $ | 226 | $ | 290 | (22.1 | )% | |||||||||||||||||
| Nonaccrual | 4,297 | 8,216 | (47.7 | ) | |||||||||||||||||||
| Foreclosed real estate | 435 | 158 | 175.3 | ||||||||||||||||||||
| Nonperforming assets | $ | 4,958 | $ | 8,664 | (42.8 | ) | |||||||||||||||||
| ASSET QUALITY RATIOS (c) | |||||||||||||||||||||||
| Net chargeoffs (recoveries) to average loans | (0.07 | )% | (0.01 | )% | (6 | ) | bp | (0.01 | )% | 0.07 | % | (8 | ) | bp | |||||||||
| Nonperforming assets to total assets | 0.61 | 1.40 | (79 | ) | |||||||||||||||||||
| Nonperforming loans to total loans | 0.82 | 2.04 | (122 | ) | |||||||||||||||||||
| Allowance for loan losses to total loans | 1.49 | 2.01 | (52 | ) | |||||||||||||||||||
| Allowance for loan losses | |||||||||||||||||||||||
| to nonperforming loans | 1.81 | x | 0.98 | x | 83 | ||||||||||||||||||
| Notes: | |||||||||||||||||||||||
| (a) - Excludes goodwill and other intangible assets | |||||||||||||||||||||||
| (b) - Excludes amortization expense, net of tax, of intangible assets | |||||||||||||||||||||||
| (c) - Balance sheet amounts used in calculations are based on period end balances | |||||||||||||||||||||||
| bp - Change is measured as difference in basis points | |||||||||||||||||||||||
| FTE - Fully taxable equivalent basis | |||||||||||||||||||||||
| N/A - Percentage change is not applicable or not meaningful | |||||||||||||||||||||||