KBRA Affirms Ratings for The ANB Corporation

24 May 2024   |   New York


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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A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.

Doc ID: 1004445

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