KBRA Affirms Ratings for The ANB Corporation

KBRA affirms 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” or “ANB”). Additionally, KBRA affirms 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 lead subsidiary, The American National Bank of Texas ("the bank"). The Outlook for all long-term ratings remains Negative.

Key Credit Considerations

The Negative Outlook is largely predicated on the company’s weakened earnings profile due to a concentration of longer term, low-yielding investment securities (~33% of earning assets) and NIM compression primarily due to rising funding costs. Also, ANB’s core capital ratios (1.3% TCE and 10.1% CET1) have declined well below peer averages due to the large AOCL associated with the investment securities portfolio and the increase in risk weighted density as the company remixes its earning assets into higher yielding loans to boost earnings. However, the ratings are supported by the company’s tenured senior management, lower risk earning asset base, a durable branch-based deposit franchise which reflects a lower interest rate sensitivity (1.37% total costs of deposits at 1Q24) aided by 37% NIB accounts, as well as a conservatively underwritten credit portfolio with a historically strong track record of low NPAs and NCOs. While total deposit costs are over 100 bps lower than KBRA publicly rated banks, ANB’s total funding costs (1.93% at 1Q24) have been negatively impacted by its growth in noncore funding (29% of total funding) to support loan growth as the deposit balances have been stable excluding seasonality. KBRA considers ANB’s capital position to be acceptable for the rating category (TCE of ~7% excluding AOCL), taken in the context of its overall risk profile (risk-weighted density 66% at 1Q24), and a solid LLR that provides additional cushion for future potential credit losses. Additionally, the company has historically been able to generate sufficient levels of capital and reflects significant cash levels at the holding company. 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.

Rating Sensitivities

A reversion to a Stable Outlook would require improvement in the company’s earnings profile and a rebuild of its capital ratios more consistent with rated peers while maintaining solid credit performance. However, a more aggressive approach to regulatory capital management, core deposit losses leading to higher than peer levels of noncore funding, or deterioration in asset quality that materially impedes the bank’s earnings performance could negatively impact ratings over the shorter term.

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Methodologies