22 Jun 2023   |   New York

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On May 25, 2023, KBRA affirmed the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Terrell, Texas based The ANB Corporation ("the company"). In addition, KBRA affirmed the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for The American National Bank of Texas ("the bank"), the main subsidiary. The Outlook of all long-term ratings was revised to Negative from Stable.

The Negative Outlook is largely predicated on the company’s weakened earnings profile due to a concentration of longer term, low-yielding investment securities (~40% of earning assets) and rising funding costs experienced in 1Q23. Also, earnings are expected to be lower throughout the remainder of 2023. In addition, ANB is deploying the cash flow from the investment securities into higher yielding loans over the shorter term which has broadly impacted their overall capital positioning (9.7% CET1 and 0.8% TCE including AOCI adjustments at 1Q23), further increasing the disparity between similarly rated peers. However, the ratings are supported by the company’s tenured senior management, highlighted by the durability of an exceptionally low-cost deposit franchise and a lower risk profile on the earning asset base. Total deposit costs have historically run well below peers (cost of total deposits were ~25 bps through 1Q23) supported by NIB making up over 40% of total deposits at 1Q23. The historically strong funding profile was adversely impacted by ANB’s recent advances on wholesale funding sources accounting for nearly 15% of total funding at 1Q23. However, the company has not experienced material deposit outflows since 1Q23. KBRA further notes the relatively manageable level of uninsured deposits (excluding collateralized deposits) which totaled ~$1.4 billion, or near 30% of total deposits at 1Q23. The company has sufficient coverage of these deposits with sources of liquidity comprising 150% of uninsured/uncollateralized deposits. KBRA evaluates ANB’s capital position as adequate for the rating category (TCE of ~8% excluding adjustments within AOCI), taken in the context of its overall risk profile, and has comfortably supported growth. Additionally, the company has historically been able to generate sufficient levels of capital and reflects significant cash levels at the holding company. Liquidity management has been conservative with a loan-to-deposit ratio consistently below 70% since 2018 (63% at 1Q23). The proportionally lower percentage of loans to earnings assets leads to a noticeably lower risk profile for the bank (risk-weighted density ~68% in 1Q23). NPA and NCO ratios have also tracked better than peers both historically and in recent periods. Although partially attributable to the benign credit environment, the company’s favorable loss history is reflective of disciplined underwriting practices, solid borrower credit profiles, and robust economies of operation within the Dallas-Fort Worth, TX MSA.

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