Jan 25 2007 newsrelease

Date:	January 25, 2007

Contact:	Neal A. Petrovich, Senior Vice President and Chief Financial Officer
	434-773-2242 *petrovichn@amnb.com*

Traded:	NASDAQ Global Select 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, today announced fourth quarter 2006 net income of $2.9 million, a 9.0% increase over the fourth quarter of 2005. Earnings per share were $0.47 on both a basic and diluted basis compared to $0.49 in the year-earlier quarter.

For the full year, net income was $11.4 million, an increase of 14.3% over 2005. Basic earnings per share improved 4.4%, from $1.83 in 2005 to $1.91 in 2006, and diluted earnings per share increased 5.0%, from $1.81 to $1.90.

“To increase our per share earnings over 2005, while successfully acquiring Community First Financial Corporation and dealing with a difficult interest rate environment and competitive banking climate is very positive,” stated Charles H. Majors, President and Chief Executive Officer. “We had not anticipated this immediate accretion to earnings following our closing with Community First; however, it confirms our ability to execute successfully on our growth and expansion strategy. I am also pleased to report significant improvement in our credit quality, as indicated by a reduction in nonperforming loans from 1.02% of total loans at December 31, 2005 to 0.63% at December 31, 2006.”

Fourth quarter 2006 earnings were impacted by several factors, including:

·	a negative provision for loan losses in the amount of $547,000, due to an improvement in credit quality;

·	other noninterest expense of $123,000 to record a reserve for unfunded loan commitments;

·	an increase in salary expense of $240,000 over the third quarter of 2006, to record the total expense of the 2006 employee profit sharing and incentive programs; and

·	income tax expense of $160,000 to reduce the net value of a deferred tax asset related to the Company’s holdings of FNMA and FHLMC preferred stock.

Other fourth quarter highlights include:

·	the adoption of Financial Accounting Standard Number 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” which resulted in a $1.5 million reduction, net of tax, of shareholders’ equity through Accumulated Other Comprehensive Income; and

·	a 41% reduction in nonperforming assets from September 30, 2006 to December 31, 2006.

Net Interest Income and Provision for Loan Losses

Compared to the fourth quarter of 2005, net interest income increased $1.1 million, or 18.6%. The improvement was due largely to the acquisition of Community First, which significantly increased the Company’s interest-earning assets.

Compared to the third quarter of 2006, net interest income declined $333,000 or 4.4%, due to an increase in funding costs and a reduction in earning assets. Net interest income after the provision for loan losses; however, increased $339,000 or 4.6%, due to the negative provision for loan losses in the fourth quarter of 2006.

The net interest margin, on a taxable equivalent basis, was 4.15% during the fourth quarter of 2006, as compared with 4.26% during the third quarter of 2006 and 4.24% during the fourth quarter of 2005. "The shape of the yield curve and the highly competitive market for bank deposits has put pressure on margins at banks including American National," stated Majors. "This was evident in the recent quarter when funding costs rose while earning asset yields did not." For the full year, net interest income increased $4.7 million, or 19.7% from 2005 to 2006. Net interest income in 2006 was impacted positively by the acquisition of Community First and negatively by interest expense recorded on the related issuance of Trust Preferred Securities.

Noninterest Income

Noninterest income rose 9.8% from $2.0 million in the fourth quarter of 2005 to $2.2 million in the fourth quarter of 2006. The increase was due in large part to growth in trust fees, income from bank owned life insurance acquired from Community First, and increases in deposit account service charge income and mortgage banking revenue.

Noninterest Expense

Noninterest expense increased $1.0 million or 21.6% from the fourth quarter of 2005 to 2006, due in large part to the impact of the Community First acquisition. Additionally, fourth quarter 2006 noninterest expense included $123,000 for the establishment of a reserve for unfunded loan commitments and higher than normal expense for employee profit sharing and incentive programs. Noninterest expense increased $3.2 million or 18.6% for the full year 2006 as compared to 2005, due primarily to the effects of the Community First acquisition and an increase in pension and other employee benefit expenses.

Balance Sheet

Average earning assets increased from $594.1 million in the fourth quarter of 2005 to $714.1 million in the recently completed quarter, primarily as a result of loans acquired from Community First. Average loans were $543.2 million during the fourth quarter of 2006, compared with $413.3 million in the year-earlier quarter.

Average earning assets declined $15.4 million or 2.1% from the third to the fourth quarter of 2006, due largely to a decrease in the investment portfolio driven by a reduction in average deposits. Average deposits declined $14.6 million, or 2.4%.

“Loan and deposit growth rates have been impacted by several factors," stated Majors. "We reduced our problem loan balances, in many cases by moving the loans out of the Bank. This negatively affected our loan growth, but positively impacted earnings and credit quality. We experienced normal post-acquisition deposit runoff and allowed high-rate certificates of deposit issued by Community First to mature. Lastly, a highly competitive banking climate and soft economic conditions in our older markets impacted growth. With the effects of the Community First acquisition and loan portfolio clean-up work essentially behind us, we are optimistic that growth rates will improve in 2007.”

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

	December 31
ASSETS		2006			2005

Cash and due from banks	$	24,375		$	18,300
Interest-bearing deposits in other banks		1,749			9,054

Securities available for sale, at fair value		148,748			147,274
Securities held to maturity		13,873			18,355
Total securities		162,621			165,629

Loans held for sale		1,662			714

Loans, net of unearned income		542,228			417,087
Less allowance for loan losses		(7,264	)		(6,109	)
Net Loans		534,964			410,978

Bank premises and equipment, net		12,438			7,769
Goodwill		22,468			-
Core deposit intangibles, net		2,829			132
Accrued interest receivable and other assets		14,614			10,927

Total assets	$	777,720		$	623,503

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Demand deposits -- noninterest-bearing	$	106,885		$	85,965
Demand deposits -- interest-bearing		107,170			90,629
Money market deposits		50,948			42,425
Savings deposits		69,517			80,315
Time deposits		274,008			192,317
Total deposits		608,528			491,651

Repurchase agreements		33,368			37,203
FHLB borrowings		15,087			17,238
Trust preferred capital notes		20,619			-
Accrued interest payable and other liabilities		5,126			3,992
Total liabilities		682,728			550,084

Shareholders' equity:
Common stock, $1 par, 10,000,000 shares authorized,
6,161,865 shares outstanding at December 31, 2006 and
5,441,758 shares outstanding at December 31, 2005		6,162			5,442
Capital in excess of par value		26,414			9,588
Retained earnings		64,584			59,109
Accumulated other comprehensive income (loss), net		(2,168	)		(720	)
Total shareholders' equity		94,992			73,419

Total liabilities and shareholders' equity	$	777,720		$	623,503

American National Bankshares Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
	Three Months Ended						Twelve Months Ended
	December 31						December 31
		2006			2005			2006		2005
Interest Income
Interest and fees on loans	$	10,106		$	6,876		$	37,361	$	25,825
Interest and dividends on securities:
Taxable		1,210			981			5,034		4,090
Tax-exempt		430			479			1,743		2,010
Dividends		94			60			312		215
Other interest income		85			186			620		339
Total interest income		11,925			8,582			45,070		32,479
Interest Expense
Deposits		3,805			2,034			13,349		6,902
Repurchase agreements		364			284			1,384		901
Other borrowings		240			218			921		937
Trust preferred capital notes		343			-			1,007		-
Total interest expense		4,752			2,536			16,661		8,740
Net Interest Income		7,173			6,046			28,409		23,739
Provision for (Recovery of) Loan Losses		(547	)		(255	)		58		465

Net Interest Income After Provision
for Loan Losses		7,720			6,301			28,351		23,274

Noninterest Income
Trust and investment services		891			794			3,374		3,012
Service charges on deposit accounts		650			627			2,654		2,446
Other fees and commissions		275			277			1,163		1,078
Mortgage banking income		201			187			709		665
Securities gains, net		15			8			62		53
Other		120			67			496		642
Total noninterest income		2,152			1,960			8,458		7,896
Noninterest Expense
Salaries		2,654			2,306			9,520		8,453
Pension and other employee benefits		535			495			2,506		1,975
Occupancy and equipment		812			611			2,977		2,476
Bank franchise tax		170			135			651		543
Core deposit intangible amortization		107			40			414		353
Other		1,130			859			4,196		3,279
Total noninterest expense		5,408			4,446			20,264		17,079
Income Before Income Tax Provision		4,464			3,815			16,545		14,091
Income Tax Provision		1,547			1,138			5,119		4,097
Net Income	$	2,917		$	2,677		$	11,426	$	9,994

Net Income Per Common Share
Basic	$	0.47		$	0.49		$	1.91	$	1.83
Diluted	$	0.47		$	0.49		$	1.90	$	1.81

Average Common Shares Outstanding
Basic		6,163,307			5,437,127			5,986,262		5,465,090
Diluted		6,196,671			5,471,516			6,020,071		5,506,998

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
		2006			2005		Change			2006			2005		Change
EARNINGS
Interest income	$	11,925		$	8,582		39.0	%	$	45,070		$	32,479		38.8	%
Interest expense		4,752			2,536		87.4			16,661			8,740		90.6
Net interest income		7,173			6,046		18.6			28,409			23,739		19.7
Provision for loan losses		(547	)		(255	)	114.5			58			465		(87.5	)
Noninterest income		2,152			1,960		9.8			8,458			7,896		7.1
Noninterest expense		5,408			4,446		21.6			20,264			17,079		18.6
Income taxes		1,547			1,138		35.9			5,119			4,097		24.9
Net income		2,917			2,677		9.0			11,426			9,994		14.3

PER COMMON SHARE
Earnings per share - basic	$	0.47		$	0.49		(4.1	)%	$	1.91		$	1.83		4.4	%
Earnings per share - diluted		0.47			0.49		(4.1	)		1.90			1.81		5.0
Cash dividends paid		0.22			0.21		4.8			0.87			0.83		4.8
Book value per share										15.42			13.49		14.3
Book value per share - tangible (a)										11.31			13.47		(16.0	)
Closing market price										23.32			23.25		0.3

FINANCIAL RATIOS
Return on average assets		1.49	%		1.73	%	(24	)bp		1.51	%		1.61	%	(10	)bp
Return on average equity		12.18			14.79		(261	)		12.72			13.95		(123	)
Return on average tangible equity (b)		16.97			14.97		200			16.60			14.35		225
Average equity to average assets		12.26			11.67		59			11.85			11.57		28
Net interest margin (FTE)		4.15			4.24		(9	)		4.20			4.17		3
Efficiency ratio		58.10			53.96		414			54.85			52.24		261

PERIOD END BALANCES
Securities									$	162,621		$	165,629		(1.8	)%
Loans held for sale										1,662			714		132.8
Loans, net of unearned income										542,228			417,087		30.0
Goodwill and other intangibles										25,297			132		N/A
Assets										777,720			623,503		24.7
Assets - tangible (a)										752,423			623,372		20.7
Deposits										608,528			491,651		23.8
Repurchase agreements										33,368			37,203		(10.3	)
FHLB borrowings										15,087			17,238		(12.5	)
Trust preferred capital notes										20,619			-		N/A
Shareholders' equity										94,992			73,419		29.4
Shareholders' equity - tangible (a)										69,695			73,288		(4.9	)

AVERAGE BALANCES
Securities	$	164,384		$	162,315		1.3	%	$	173,580		$	170,439		1.8	%
Total loans		543,239			413,308		31.4			513,493			414,580		23.9
Interest-earning assets		714,128			594,118		20.2			699,995			594,801		17.7
Goodwill and other intangibles		25,401			147		N/A			19,263			265		N/A
Assets		781,786			620,388		26.0			757,802			619,074		22.4
Assets - tangible (a)		756,385			620,241		22.0			738,539			618,809		19.3
Interest-bearing deposits		497,690			400,460		24.3			486,745			397,914		22.3
Deposits		601,934			486,605		23.7			588,862			482,584		22.0
Repurchase agreements		39,661			41,182		(3.7	)		40,970			42,757		(4.2	)
Other borrowings		38,834			17,267		124.9			33,087			19,474		69.9
Shareholders' equity		95,809			72,405		32.3			89,824			71,638		25.4
Shareholders' equity - tangible (a)		70,408			72,258		(2.6	)		70,561			71,373		(1.1	)

CAPITAL
Average shares outstanding - basic		6,163,307			5,437,127		13.4	%		5,986,262			5,465,090		9.5	%
Average shares outstanding - diluted		6,196,671			5,471,516		13.3			6,020,071			5,506,998		9.3
Shares repurchased		4,900			4,390		11.6			39,100			98,840		(60.4	)
Average price of shares repurchased	$	23.56		$	22.48		4.8		$	23.32		$	24.32		(4.1	)

ALLOWANCE FOR LOAN LOSSES
Beginning balance	$	8,170		$	8,515		(4.1	)%	$	6,109		$	7,982		(23.5	)%
Allowance acquired in merger										1,598			-		N/A
Provision for loan losses		(547	)		(255	)	114.5			58			465		(87.5	)
Charge-offs		(448	)		(2,200	)	(79.6	)		(913	)		(2,577	)	(64.6	)
Recoveries		89			49		81.6			412			239		72.4
Ending balance	$	7,264		$	6,109		18.9		$	7,264		$	6,109		18.9

NONPERFORMING ASSETS
Nonperforming loans:
90 days past due									$	-		$	56		N/A	%
Nonaccrual										3,425			4,217		(18.8	)
Foreclosed real estate										99			188		(47.3	)
Nonperforming assets									$	3,524		$	4,461		(21.0	)

ASSET QUALITY RATIOS (c)
Net chargeoffs to average loans		0.26	%		2.08	%	(182	)bp		0.10	%		0.56	%	(46	)bp
Nonperforming assets to total assets										0.45			0.72		(27	)
Nonperforming loans to total loans										0.63			1.02		(39	)
Allowance for loan losses to total loans										1.34			1.46		(12	)
Allowance for loan losses
to nonperforming loans										2.12	x		1.43	x	69


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