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)			October 25, 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 October 25, 2006, American National Bankshares Inc. issued a news release announcing third quarter results for the period ended September 30, 2006.

Item 9.01 Financial Statements and Exhibits

(c) Exhibits

99.1News Release announcing Thrid Quarter Earnings for 2006.

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: October 25, 2006/s/ Neal A. Petrovich    

                 Senior Vice President and Chief Financial Officer

EX-99.1

Date:	October 25, 2006
Contact:	Neal A. Petrovich, Senior Vice President and Chief Financial Officer
	434-773-2242petrovichn@amnb.com
Traded:	NASDAQ Global Select Market	Symbol:	AMNB

AMERICAN NATIONAL BANKSHARES INC. ANNOUNCES INCREASED EARNINGS FOR THIRD QUARTER

Danville, VA -- American National Bankshares Inc. (NASDAQ: AMNB), parent company of American National Bank and Trust Company, announced third quarter 2006 net income of $3.1 million, a 34.2% increase over the third quarter of 2005. Earnings per share were $0.50 on both a basic and diluted basis, representing a 19.0% increase over the year earlier quarter.

“I am pleased to such significant increases in our earnings,” stated Charles H. Majors, President and Chief Executive Officer. “The successful acquisition of Community First Financial Corporation on April 1, 2006, and the effective integration of its offices have positively impacted earnings earlier than anticipated and provide the Company with greater growth opportunities going forward.”

EARNINGS

Net Interest Income

Comparing the third quarter of 2006 to the third quarter of 2005, net interest income, the Company’s largest source of revenue, increased $1.6 million, or 26.5%. The improvement was due largely to the acquisition of Community First, which significantly increased the Company’s interest-earning assets. Third quarter 2006 net interest income included $200,000 related to purchase accounting adjustments for Community First’s loans and certificates of deposit. Excluding these purchase accounting adjustments, net interest income increased $1.4 million or 23.1%. Compared to the second quarter of 2006, net interest income declined $205,000 or 2.7%, due to a reduction in earning assets.

The Company’s net interest margin, on a fully taxable equivalent basis, was 4.26% during the third quarter of 2006, as compared with 4.24% during the second quarter of 2006 and 4.21% during the third quarter of 2005. Excluding the effects of the aforementioned purchase accounting adjustments, the net interest margin was 4.14% in the recently completed quarter.

Noninterest Income

Noninterest income rose 11.9% from $1.9 million in the third quarter of 2005 to $2.1 million in the third quarter of 2006. The increase is primarily the result of higher trust fees and deposit account service charge income. Noninterest income decreased $129,000 or 5.7% over the second quarter of 2006, due to fluctuations in trust fees, lower mortgage banking activity, and a decrease in deposit account service charge income.

Noninterest Expense

Noninterest expense increased $695,000 from the third quarter of 2005 to 2006, due in large part to the impact of the Community First acquisition and an increase in pension and other employee benefit expenses. Comparing the second and third quarters of 2006, noninterest expense declined $239,000 or 4.5%, due primarily to salary and other cost savings from the Community First acquisition.

BALANCE SHEET

Earning Assets

Average earning assets increased from $589.8 million in the third quarter of 2005 to $729.6 million in the recently completed quarter, primarily as a result of loans acquired from Community First. Average loans were $546.0 million during the third quarter of 2006, compared with $413.6 million in the third quarter of 2005.

Average earning assets declined $20.2 million, or 2.7% from the second to the third quarter of 2006, due to an $8.4 million decline in the investment portfolio, a $7.1 million reduction in deposit balances maintained at other financial institutions, and a $4.7 million decrease in average loans.

Deposits

Average deposits were $616.5 million during the recently completed quarter, up from $476.6 million during the comparable 2005 period; the increase is primarily related to the acquisition of Community First. Average deposits declined $21.5 million or 3.4% from the second quarter of 2006. This decrease includes the maturity of brokered certificates of deposit acquired from Community First and seasonal decreases in municipal deposits.

Allowance for Loan Losses and Credit Quality

The allowance for loan losses was $8.2 million or 1.49% of loans at September 30, 2006, down significantly from 2.08% at September 30, 2005, and the same as the levels recorded at June 30, 2006. Nonperforming assets were $5.9 million or 0.75% of assets at September 30, 2006, compared with 1.49% one year earlier and 0.61% at June 30, 2006. Included in the September 30, 2006 amount were $1.3 million of loans ninety days or more past due but still accruing interest. Of this amount, $1.0 million relates to a loan which has since been paid.

About American National

American National Bankshares Inc. is the holding company of American National Bank and Trust Company, a community bank with eighteen full service offices serving the areas of Danville, Pittsylvania County, Martinsville, Henry County, South Boston, Halifax County, Lynchburg, Bedford, Bedford County, Campbell County, and portions of Nelson County in Virginia, along with portions of Caswell County in North Carolina. The Bank also operates a loan production office in Greensboro, North Carolina.

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 twenty-three 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 Global Select 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
	September 30
ASSETS		2006			2005
Cash and due from banks	$	24,390		$	17,457
Interest-bearing deposits in other banks		467			6,407
Securities available for sale, at fair value		155,468			146,922
Securities held to maturity		14,201			19,050
Total securities		169,669			165,972
Loans held for sale		1,158			1,379
Loans, net of unearned income		549,229			409,219
Less allowance for loan losses		(8,170	)		(8,515	)
Net Loans		541,059			400,704
Bank premises and equipment, net		12,310			7,660
Goodwill		22,489			-
Core deposit intangibles, net		2,937			171
Accrued interest receivable and other assets		18,155			11,465
Total assets	$	792,634		$	611,215
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- noninterest-bearing	$	104,403		$	90,880
Demand deposits -- interest-bearing		103,923			79,553
Money market deposits		51,401			42,035
Savings deposits		75,473			80,688
Time deposits		267,990			184,142
Total deposits		603,190			477,298
Repurchase agreements		37,152			41,873
FHLB borrowings		32,500			17,275
Trust preferred capital notes		20,619			-
Accrued interest payable and other liabilities		4,285			2,855
Total liabilities		697,746			539,301
Shareholders' equity:
Common stock, $1 par, 10,000,000 shares authorized,
6,166,050 shares outstanding at September 30, 2006 and
5,437,789 shares outstanding at September 30, 2005		6,166			5,438
Capital in excess of par value		26,426			9,463
Retained earnings		63,112			57,661
Accumulated other comprehensive income (loss), net		(816	)		(648	)
Total shareholders' equity		94,888			71,914
Total liabilities and shareholders' equity	$	792,634		$	611,215

American National Bankshares Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
	Three Months Ended				Nine Months Ended
	September 30				September 30
		2006		2005		2006		2005
Interest Income:
Interest and fees on loans	$	10,210	$	6,535	$	27,255	$	18,949
Interest and dividends on securities:
Taxable		1,314		969		3,824		3,109
Tax-exempt		432		507		1,313		1,531
Dividends		83		50		218		155
Other interest income		112		83		535		153
Total interest income		12,151		8,144		33,145		23,897
Interest Expense:
Deposits		3,699		1,736		9,544		4,868
Repurchase agreements		376		250		1,020		617
Other borrowings		226		224		681		719
Trust preferred capital notes		344		-		664		-
Total interest expense		4,645		2,210		11,909		6,204
Net Interest Income		7,506		5,934		21,236		17,693
Provision for Loan Losses		125		180		605		720
Net Interest Income After Provision
for Loan Losses		7,381		5,754		20,631		16,973
Noninterest Income:
Trust and investment services		843		731		2,483		2,218
Service charges on deposit accounts		696		628		2,004		1,819
Other fees and commissions		287		277		888		801
Mortgage banking income		172		213		508		478
Securities gains, net		9		-		47		45
Other		131		62		376		575
Total noninterest income		2,138		1,911		6,306		5,936
Noninterest Expense:
Salaries		2,355		2,226		6,866		6,147
Pension and other employee benefits		649		509		1,971		1,480
Occupancy and equipment		775		631		2,165		1,865
Bank franchise tax		171		136		481		408
Core deposit intangible amortization		134		88		307		313
Other		1,033		832		3,066		2,420
Total noninterest expense		5,117		4,422		14,856		12,633
Income Before Income Tax Provision		4,402		3,243		12,081		10,276
Income Tax Provision		1,301		933		3,572		2,959
Net Income	$	3,101	$	2,310	$	8,509	$	7,317
Net Income Per Common Share:
Basic	$	0.50	$	0.42	$	1.44	$	1.34
Diluted	$	0.50	$	0.42	$	1.43	$	1.33
Average Common Shares Outstanding:
Basic		6,165,268		5,441,664		5,926,599		5,474,514
Diluted		6,195,972		5,481,179		5,960,556		5,518,928

Financial Highlights
American National Bankshares Inc. and Subsidiary
(Dollars in thousands,
except share data, unaudited)	Three Months Ended September 30,									Nine Months Ended September 30,
		2006			2005		Change				2006			2005		Change
EARNINGS
Interest income	$	12,151		$	8,144		49.2	%		$	33,145		$	23,897		38.7	%
Interest expense		4,645			2,210		110.2				11,909			6,204		92.0
Net interest income		7,506			5,934		26.5				21,236			17,693		20.0
Provision for loan losses		125			180		(30.6	)			605			720		(16.0	)
Noninterest income		2,138			1,911		11.9				6,306			5,936		6.2
Noninterest expense		5,117			4,422		15.7				14,856			12,633		17.6
Income taxes		1,301			933		39.4				3,572			2,959		20.7
Net income		3,101			2,310		34.2				8,509			7,317		16.3
PER COMMON SHARE
Earnings per share - basic	$	0.50		$	0.42		19.0	%		$	1.44		$	1.34		7.5	%
Earnings per share - diluted		0.50			0.42		19.0				1.43			1.33		7.5
Cash dividends paid		0.22			0.21		4.8				0.65			0.62		4.8
Book value per share											15.39			13.22		16.4
Book value per share - tangible (a)											11.27			13.19		(14.6	)
Closing market price											23.68			23.43		1.1
FINANCIAL RATIOS
Return on average assets		1.56	%		1.50	%	6		bp		1.50	%		1.58	%	(8	)	bp
Return on average equity		13.24			12.88		36				12.67			13.67		(100	)
Return on average tangible equity (b)		18.75			13.27		548				16.12			14.15		197
Average equity to average assets		11.76			11.66		10				11.85			11.54		31
Net interest margin (FTE)		4.26			4.21		5				4.17			4.15		2
Efficiency ratio		53.35			54.40		(105	)			53.74			51.66		208
PERIOD END BALANCES
Securities										$	169,669		$	165,972		2.2	%
Loans held for sale											1,158			1,379		(16.0	)
Loans, net of unearned income											549,229			409,219		34.2
Goodwill and other intangibles											25,426			131		N/A
Assets											792,634			611,215		29.7
Assets - tangible (a)											767,208			611,084		25.5
Deposits											603,190			477,298		26.4
Repurchase agreements											37,152			41,873		(11.3	)
FHLB borrowings											32,500			17,275		88.1
Trust preferred capital notes											20,619			-		N/A
Shareholders' equity											94,888			71,914		31.9
Shareholders' equity - tangible (a)											69,462			71,743		(3.2	)
AVERAGE BALANCES
Securities	$	175,050		$	166,478		5.1	%		$	177,927		$	173,178		2.7	%
Total loans		545,991			413,647		32.0				509,866			414,940		22.9
Interest-earning assets		729,551			589,808		23.7				702,881			594,963		18.1
Goodwill and other intangibles		25,505			197		N/A				17,382			305		N/A
Assets		796,446			615,162		29.5				755,301			618,607		22.1
Assets - tangible (a)		770,941			614,965		25.4				737,919			618,302		19.3
Interest-bearing deposits		509,483			385,640		32.1				486,706			397,057		22.6
Deposits		616,547			476,562		29.4				588,883			481,231		22.4
Repurchase agreements		42,670			46,187		(7.6	)			41,683			43,287		(3.7	)
Other borrowings		38,114			17,970		112.1				31,476			20,218		55.7
Shareholders' equity		93,647			71,719		30.6				89,531			71,359		25.5
Shareholders' equity - tangible (a)		68,142			71,522		(4.7	)			72,149			71,054		1.5
CAPITAL
Average shares outstanding - basic		6,165,268			5,441,664		13.3	%			5,926,599			5,474,514		8.3	%
Average shares outstanding - diluted		6,195,972			5,481,179		13.0				5,960,556			5,518,928		8.0
Shares repurchased		3,000			15,100		(80.1	)			34,200			94,450		(63.8	)
Average price of shares repurchased	$	23.35		$	23.73		(1.6	)		$	23.29		$	24.41		(4.6	)
ALLOWANCE FOR LOAN LOSSES
Beginning balance	$	8,208		$	8,378		(2.0	)%		$	6,109		$	7,982		(23.5	)%
Allowance acquired in merger										$	1,598
Provision for loan losses		125			180		(30.6	)			605			720		(16.0	)
Charge-offs		(239	)		(105	)	127.6				(465	)		(377	)	23.3
Recoveries		76			62		22.6				323			190		70.0
Ending balance	$	8,170		$	8,515		(4.1	)		$	8,170		$	8,515		(4.1	)
NONPERFORMING ASSETS
Nonperforming loans:
90 days past due										$	1,276		$	-		N/A	%
Nonaccrual											4,345			9,000		(51.7	)
Foreclosed real estate											312			125		149.6
Nonperforming assets										$	5,933		$	9,125		(35.0	)
ASSET QUALITY RATIOS (c)
Net chargeoffs to average loans		0.12	%		0.04	%	8		bp		0.04	%		0.06	%	(2	)	bp
Nonperforming assets to total assets											0.75			1.49		(74	)
Nonperforming loans to total loans											1.02			2.20		(118	)
Allowance for loan losses to total loans											1.49			2.08		(59	)
Allowance for loan losses
to nonperforming loans											1.45	x		0.95	x	50
Notes:
(a) - Excludes goodwill and other intangible assets
(b) - Excludes amortization expense, net of tax, of intangible assets
(c) - Balance sheet amounts used in calculations are based on period end balances
bp - Change is measured as difference in basis points
FTE - Fully taxable equivalent basis
N/A - Percentage change is not applicable or not meaningful