8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) January 26, 2006

American National Bankshares Inc.
(Exact name of registrant as specified in its charter)
Virginia	0-12820	54-1284688
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

628 Main Street, Danville, VA		24541
(Address of principal executive offices)		(Zip Code)
Registrant’s telephone number, including area code		434-792-5111
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13a-4(c))

Item 2.02Results of Operations and Financial Condition

On January 26, 2006, American National Bankshares Inc. issued a news release announcing fourth quarter and year end results for the period ended December 31, 2005.

Item 9.01 Financial Statements and Exhibits

(c) Exhibits

99.1News Release announcing Fourth Quarter Earnings for 2005.

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: January 26, 2006	/s/	Neal A. Petrovich
		Executive Vice President and Chief Financial Officer

EX-99.1

Date:	January 26, 2006
Contact:	Neal A. Petrovich, Executive Vice President and Chief Financial Officer
	434-773-2242petrovichn@amnb.com
Traded:	NASDAQ National Market	Symbol:	AMNB

AMERICAN NATIONAL BANKSHARES INC. ANNOUNCES FOURTH QUARTER EARNINGS

Danville, VA -- American National Bankshares Inc. (NASDAQ: AMNB), parent company of American National Bank and Trust Company, reported fourth quarter net income of $2.68 million, or $.49 per share on both a basic and diluted basis. Earnings were positively impacted by a $255,000 reduction in the allowance for loan losses, growth in net interest income, and increases in noninterest income. Additionally, the Bank sold its largest nonperforming loan at a discount during the quarter, resulting in a significant reduction in nonperforming assets and impaired loans. The discounted amount was recorded as a charge-off against the allowance for loan losses; however, the reserve for this potential loss was recorded and expensed in the fourth quarter of 2004. Net income for that quarter was $780,000, and was impacted by the additional loan loss provision as well as an impairment charge of $985,000 on FHLMC and FNMA preferred stock held in the Bank’s investment portfolio. For the full year, net income was $9.99 million in 2005, up from $8.01 million in 2004. Basic earnings per share improved from $1.43 in 2004 to $1.83 in 2005, and diluted earnings per share increased from $1.42 to $1.81.

As stated above, during the fourth quarter of 2005, the Bank sold its largest nonperforming loan, which was secured by a hotel located in a major North Carolina metropolitan area. The loan was sold at a discount and the remaining balance was charged-off. Primarily as a result of this action, nonperforming assets declined from $8.33 million or 1.35% of total assets at December 31, 2004, to $4.46 million or 0.72% of total assets at December 31, 2005. “While the resolution of this loan resulted in a significant charge-off, we are pleased to have this matter behind us and are equally pleased with the resulting improvement in our asset quality measurements,” stated Charles H. Majors, President and Chief Executive Officer. Net loan charge-offs for the quarter totaled $2.15 million, of which $2.13 million was related to this one loan. The specific reserve established for this loan exceeded the amount charged-off by approximately $415,000, and was a primary factor in recording a negative loan loss provision of $255,000 during the quarter.

Fourth Quarter Earnings Comparison

Comparing the fourth quarter of 2005 with the fourth quarter of 2004, net income increased from $780,000 to $2.68 million. Net interest income increased $193,000 or 3.3%, due primarily to interest rate movements and an increase in noninterest-bearing deposits. Noninterest income increased $99,000 or 5.3%, excluding the impact of the preferred stock impairment in 2004. This improvement is attributable to increases in trust fees, deposit service charges, retail brokerage activity, and mortgage banking revenue. Noninterest expense increased from $3.42 million in the 2004 final quarter to $4.45 million in the recently completed quarter. Profit sharing accruals were reversed in the 2004 quarter when the special loan loss provision was recorded. Noninterest expense during the 2005 quarter included approximately $215,000 in expenses related to the Bank’s new office in Lynchburg, Virginia, which was opened during 2005. The provision for loan losses was $2.37 million in the fourth quarter of 2004 compared to negative $255,000 for the 2005 quarter. As stated above, a specific reserve for the hotel loan was established during the last quarter of 2004, resulting in a significant increase in loan loss provision expense. The negative provision for loan losses in the recently completed quarter was largely attributable to the resolution of this loan.

Full Year Earnings Comparison

Comparing the full year 2005 with 2004, net income increased from $8.01 million to $9.99 million. Net interest income improved $1.10 million or 4.8%, due primarily to interest rate changes and growth in noninterest-bearing deposits. Excluding the prior year impact of the preferred stock impairment, noninterest income increased $401,000 or 5.4%, due to increases in trust fees, deposit service charges, retail brokerage activity, mortgage banking revenue, and $375,000 in income from the sale of a debit card and ATM processor, of which the Bank was a member. Noninterest income in 2004 was impacted by a $150,000 gain on the sale of a former branch office. Noninterest expense increased from $15.01 million to $17.08 million. The 2005 figure includes approximately $720,000 related to the new office in Lynchburg, opened during 2005. The 2004 figure was impacted by the elimination of profit sharing accruals described earlier. The provision for loan losses declined from $3.09 million in 2004 to $465,000 in 2005, due largely to the results of the hotel loan described above.

“We are pleased with our company’s 2005 results,” stated Majors. “We generated a 13.95% return on our shareholders’ equity, improved our asset quality indicators, entered the Lynchburg market, and announced the pending acquisition of Community First Financial Corporation to expand our presence there. We look forward to 2006 and beyond.”

About American National

American National Bankshares Inc. is the holding company of American National Bank and Trust Company, a community bank with fifteen full service offices and one loan production office. Full service offices are located in Danville, Chatham, Collinsville, Gretna, Martinsville, Henry County, South Boston, and Lynchburg, Virginia, and in Yanceyville, North Carolina. The Bank also operates a loan production office in Greensboro, North Carolina. On October 19, 2005, American National entered into a definitive agreement to acquire Community First Financial Corporation (OTCBB: CYFC), the parent company of Community First Bank, which operates four offices serving the city of Lynchburg, Virginia and the counties of Bedford, Campbell, and Nelson. Pending required approvals, the transaction is expected to close in April 2006.

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 nineteen 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 National 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
	December 31
ASSETS		2005			2004
Cash and due from banks	$	18,300		$	12,371
Interest-bearing deposits in other banks		9,054			197
Securities available for sale, at fair value		147,274			165,958
Securities held to maturity		18,355			22,205
Total securities		165,629			188,163
Loans held for sale		714			971
Loans, net of unearned income		417,087			407,269
Less allowance for loan losses		(6,109	)		(7,982	)
Net Loans		410,978			399,287
Bank premises and equipment, net		7,769			7,517
Core deposit intangibles, net		132			484
Accrued interest receivable and other assets		10,927			10,075
Total assets	$	623,503		$	619,065
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- noninterest-bearing	$	85,965		$	75,256
Demand deposits -- interest-bearing		90,629			80,793
Money market deposits		42,425			52,031
Savings deposits		80,315			83,216
Time deposits		192,317			193,976
Total deposits		491,651			485,272
Repurchase agreements		37,203			38,945
FHLB borrowings		17,238			21,338
Accrued interest payable and other liabilities		3,992			2,510
Total liabilities		550,084			548,065
Shareholders' equity:
Common stock, $1 par, 10,000,000 shares authorized,
5,441,758 shares outstanding at December 31, 2005 and
5,521,164 shares outstanding at December 31, 2004		5,442			5,521
Capital in excess of par value		9,588			9,474
Retained earnings		59,109			55,780
Accumulated other comprehensive income, net		(720	)		225
Total shareholders' equity		73,419			71,000
Total liabilities and shareholders' equity	$	623,503		$	619,065

American National Bankshares Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
	Three Months Ended December 31						Twelve Months Ended December 31
		2005			2004			2005		2004
Interest Income:
Interest and fees on loans	$	6,876		$	5,906		$	25,825	$	22,791
Interest and dividends on securities:
Taxable		981			1,201			4,090		5,028
Tax-exempt		479			510			2,010		2,006
Dividends		60			39			215		163
Other interest income		186			64			339		132
Total interest income		8,582			7,720			32,479		30,120
Interest Expense:
Interest on deposits		2,034			1,478			6,902		5,979
Interest on repurchase agreements		284			151			901		528
Interest on other borrowings		218			238			937		972
Total interest expense		2,536			1,867			8,740		7,479
Net Interest Income		6,046			5,853			23,739		22,641
Provision for Loan Losses		(255	)		2,370			465		3,095
Net Interest Income After Provision
for Loan Losses		6,301			3,483			23,274		19,546
Noninterest Income:
Trust and investment services		794			768			3,012		2,976
Service charges on deposit accounts		627			616			2,446		2,411
Other fees and commissions		277			219			1,078		888
Mortgage banking income		187			152			665		612
Securities gains, net		8			38			53		157
Impairment of securities		-			(985	)		-		(985	)
Other		67			68			642		451
Total noninterest income		1,960			876			7,896		6,510
Noninterest Expense:
Salaries		2,306			1,326			8,453		6,795
Pension and other employee benefits		495			438			1,975		1,699
Occupancy and equipment		611			613			2,476		2,457
Bank franchise tax		135			138			543		555
Core deposit intangible amortization		40			113			353		450
Other		859			787			3,279		3,055
Total noninterest expense		4,446			3,415			17,079		15,011
Income Before Income Tax Provision		3,815			944			14,091		11,045
Income Tax Provision		1,138			164			4,097		3,032
Net Income	$	2,677		$	780		$	9,994	$	8,013
Net Income Per Common Share:
Basic	$	0.49		$	0.14		$	1.83	$	1.43
Diluted	$	0.49		$	0.14		$	1.81	$	1.42
Average Common Shares Outstanding:
Basic		5,437,127			5,520,041			5,465,090		5,591,839
Diluted		5,471,516			5,570,386			5,506,998		5,642,056

Financial Highlights
American National Bankshares Inc. and Subsidiary
(Dollars in thousands,
except share data, unaudited)	Three Months Ended December 31								Twelve Months Ended December 31
		2005			2004		Change			2005			2004		Change
EARNINGS
Interest income	$	8,582		$	7,720		11.2	%	$	32,479		$	30,120		7.8	%
Interest expense		2,536			1,867		35.8			8,740			7,479		16.9
Net interest income		6,046			5,853		3.3			23,739			22,641		4.8
Provision for loan losses		(255	)		2,370		(110.8	)		465			3,095		(85.0	)
Noninterest income		1,960			876		123.7			7,896			6,510		21.3
Noninterest expense		4,446			3,415		30.2			17,079			15,011		13.8
Income taxes		1,138			164		593.9			4,097			3,032		35.1
Net income		2,677			780		243.2			9,994			8,013		24.7
PER COMMON SHARE
Earnings per share - basic	$	0.49		$	0.14		250.0	%	$	1.83		$	1.43		28.0	%
Earnings per share - diluted		0.49			0.14		250.0			1.81			1.42		27.5
Cash dividends paid		0.21			0.20		5.0			0.83			0.79		5.1
Book value										13.49			12.86		4.9
Closing market price										23.25			24.21		(4.0	)
FINANCIAL RATIOS
Return on average assets		1.73	%		0.49	%	124	bp		1.61	%		1.26	%	35	bp
Return on average shareholders' equity		14.79			4.34		1,045			13.95			11.15		280
Average equity to average assets		11.67			11.32		35			11.57			11.34		23
Net interest margin (FTE)		4.24			4.02		22			4.17			3.90		27
Efficiency ratio		53.96			42.87		1,109			52.24			48.51		373
PERIOD END BALANCES
Securities									$	165,629		$	188,163		(12.0	)%
Loans held for sale										714			971		(26.5	)
Loans, net of unearned income										417,087			407,269		2.4
Assets										623,503			619,065		0.7
Deposits										491,651			485,272		1.3
Repurchase agreements										37,203			38,945		(4.5	)
FHLB borrowings										17,238			21,338		(19.2	)
Shareholders' equity										73,419			71,000		3.4
AVERAGE BALANCES
Securities	$	162,315		$	190,281		(14.7	)%	$	170,439		$	195,128		(12.7	)%
Total loans		413,308			406,073		1.8			414,580			403,695		2.7
Interest-earning assets		594,118			610,363		(2.7	)		594,801			608,915		(2.3	)
Assets		620,388			634,892		(2.3	)		619,074			633,951		(2.3	)
Interest-bearing deposits		400,460			414,418		(3.4	)		397,914			415,402		(4.2	)
Deposits		486,605			495,515		(1.8	)		482,584			491,525		(1.8	)
Repurchase agreements		41,182			44,821		(8.1	)		42,757			46,787		(8.6	)
FHLB borrowings		17,267			19,624		(12.0	)		19,474			20,931		(7.0	)
Shareholders' equity		72,405			71,858		0.8			71,638			71,862		(0.3	)
CAPITAL
Average shares outstanding - basic		5,437,127			5,520,041		(1.5	)%		5,465,090			5,591,839		(2.3	)%
Average shares outstanding - diluted		5,471,516			5,570,386		(1.8	)		5,506,998			5,642,056		(2.4	)
Shares repurchased		4,390			5,000		(12.2	)		98,840			159,968		(38.2	)
Average price of shares repurchased	$	22.48		$	25.25		(11.0	)	$	24.32		$	23.67		2.7
ALLOWANCE FOR LOAN LOSSES
Beginning balance	$	8,515		$	5,599		52.1	%	$	7,982		$	5,292		50.8	%
Provision for loan losses		(255	)		2,370		(110.8	)		465			3,095		(85.0	)
Charge-offs		(2,200	)		(67	)	3,183.6			(2,577	)		(655	)	293.4
Recoveries		49			80		(38.8	)		239			250		(4.4	)
Ending balance	$	6,109		$	7,982		(23.5	)	$	6,109		$	7,982		(23.5	)
NONPERFORMING ASSETS
Nonperforming loans:
90 days past due									$	56		$	-		NA	%
Nonaccrual										4,217			8,113		(48.0	)
Foreclosed real estate										188			221		(14.9	)
Nonperforming assets									$	4,461		$	8,334		(46.5	)
ASSET QUALITY RATIOS **
Net chargeoffs to average loans		2.08	%		(0.01	)%	209	bp		0.56	%		0.10	%	46	bp
Nonperforming assets to total assets										0.72			1.35		(63	)
Nonperforming loans to total loans										1.02			1.99		(97	)
Allowance for loan losses to total loans										1.46			1.96		(50	)
Allowance for loan losses
to nonperforming loans										1.43	x		0.98	x	45
Notes:
bp - Change is measured as difference in basis points.
** - Balance sheet amounts used in calculations are based on period end balances.