American National Bankshares (US:AMNB)2022-11-08 19:55Part I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial position weakened with decreased assets, net income, and shareholders' equity due to unrealized securities losses Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | $3,049,320 | $3,334,597 | | Net Loans | $2,100,226 | $1,927,902 | | Securities Available for Sale | $641,884 | $692,467 | | Interest-bearing deposits in other banks | $59,541 | $487,773 | | Total Liabilities | $2,735,930 | $2,979,805 | | Total Deposits | $2,690,870 | $2,890,353 | | Total Shareholders' Equity | $313,390 | $354,792 | | Accumulated other comprehensive loss, net | ($57,651) | ($5,075) | Consolidated Statements of Income Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $24,007 | $23,093 | $65,950 | $67,287 | | Provision for loan losses | $615 | $482 | $438 | ($870) | | Noninterest Income | $4,760 | $5,123 | $15,197 | $16,187 | | Noninterest Expense | $16,448 | $14,843 | $47,252 | $43,545 | | Net Income | $9,256 | $10,178 | $26,395 | $32,233 | | Diluted EPS | $0.87 | $0.94 | $2.47 | $2.95 | Consolidated Statements of Comprehensive (Loss) Income - The company experienced a significant shift from comprehensive income to comprehensive loss, primarily due to large unrealized losses on available-for-sale securities1214 Comprehensive (Loss) Income (in thousands) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $9,256 | $10,178 | $26,395 | $32,233 | | Other comprehensive loss | ($18,633) | ($1,536) | ($52,576) | ($3,941) | | Comprehensive (Loss) Income | ($9,377) | $8,642 | ($26,181) | $28,292 | Consolidated Statements of Cash Flows - The significant decrease in cash and cash equivalents in 2022 was driven by a net increase in loans and a net decrease in deposits, contrasting with 2021 where a large increase in deposits provided substantial cash22 Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $31,891 | $37,860 | | Net cash used in investing activities | ($191,500) | ($104,321) | | Net cash (used in) provided by financing activities | ($256,281) | $210,492 | | Net (Decrease) Increase in Cash | ($415,890) | $144,031 | Notes to Consolidated Financial Statements - The company is a multi-state bank holding company with 26 banking offices in Virginia and North Carolina, offering traditional banking, trust, and investment services25 - The company plans to adopt ASU 2016-13 (CECL model) for measuring credit losses, with an effective date after December 15, 202229 - Subsequent to the quarter end, on October 18, 2022, the Board of Directors approved the termination of its defined benefit pension plan, effective December 31, 2022144 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Rising interest rates boosted net interest margin but hurt noninterest income, while loan growth contrasted with declining deposits Results of Operations - Q3 2022 net interest income increased by 4.0% YoY to $24.0 million, and the net interest margin expanded to 3.20% from 3.09% in Q3 2021168171172 - Noninterest income for Q3 2022 decreased by 7.1% YoY, primarily due to a $601 thousand (60.8%) drop in mortgage banking income184185 - Noninterest expense for Q3 2022 rose by 10.8% YoY, largely due to a $1.4 million (17.5%) increase in salaries and employee benefits189190 - The efficiency ratio deteriorated to 55.98% in Q3 2022 from 51.02% in Q3 2021194195 Changes in Financial Position - The available-for-sale securities portfolio decreased by 7.3% to $641.9 million, with the net unrealized loss growing significantly to $73.5 million from $2.2 million at year-end 2021205 - Total loans grew by $172.8 million, or 8.9%, to $2.1 billion at September 30, 2022, from December 31, 2021207 - Asset quality remains strong, with nonperforming assets at 0.05% of total assets, down from 0.07% at year-end 2021169219 - Shareholders' equity decreased by 11.7% to $313 million since year-end 2021, primarily due to a $71.4 million increase in net unrealized losses in the available-for-sale portfolio227 Liquidity and Capital Resources - The company maintains multiple liquidity sources, including on-balance sheet cash and securities, and off-balance sheet sources like a line of credit with the FHLB233234235 - The company and its bank subsidiary remain well-capitalized, exceeding all regulatory capital adequacy requirements as of September 30, 2022228 Regulatory Capital Ratios | Ratio | Company (Sep 30, 2022) | Bank (Sep 30, 2022) | | :--- | :--- | :--- | | Common equity tier 1 capital ratio | 11.80% | 12.69% | | Tier 1 capital ratio | 12.98% | 12.69% | | Total capital ratio | 13.80% | 13.51% | | Tier 1 leverage ratio | 9.92% | 9.70% | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, with an asset-sensitive balance sheet poised to benefit from rising rates - The company's balance sheet is considered asset sensitive, meaning it is positioned to benefit from rising interest rates243 Estimated Change in Net Interest Income (Next 12 Months) | Change in Interest Rates | Change in NII (Amount) | Change in NII (Percent) | | :--- | :--- | :--- | | Up 2.00% | $2,375 thousand | 2.4% | | Up 1.00% | $1,270 thousand | 1.3% | | Down 1.00% | ($3,619) thousand | (3.6)% | Estimated Change in Economic Value of Equity | Change in Interest Rates | Change in EVE (Amount) | Change in EVE (Percent) | | :--- | :--- | :--- | | Up 2.00% | $87,878 thousand | 18.3% | | Up 1.00% | $48,186 thousand | 10.0% | | Down 1.00% | ($69,915) thousand | (14.6)% | Controls and Procedures Executive management confirmed the effectiveness of disclosure controls and procedures with no significant internal control changes - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2022251 Part II. OTHER INFORMATION Legal Proceedings The company faces routine legal proceedings not expected to have a material adverse financial impact - The company is involved in routine litigation incidental to its business, which is not expected to have a material adverse effect on its financial condition253 Risk Factors No material changes were reported to the risk factors disclosed in the 2021 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the company's 2021 Form 10-K254 Unregistered Sales of Equity Securities and Use of Proceeds The company continued its stock repurchase program in Q3 2022, with $5.6 million remaining available for buybacks - The company has a stock repurchase plan authorizing up to $13 million in share buybacks, valid through December 31, 2022255 Q3 2022 Share Repurchases | Month (2022) | Shares Purchased | Average Price Paid | Remaining Authority (in thousands) | | :--- | :--- | :--- | :--- | | July | 5,400 | $35.21 | $7,482 | | August | 30,201 | $35.15 | $6,366 | | September | 24,503 | $32.95 | $5,613 | | Total Q3 | 60,104 | $34.26 | $5,613 |