American National Bankshares Inc. and Subsidiary
Consolidated Balance Sheets
June 30, 2007 and 2006
(Dollars in thousands, except share data)
(Unaudited)
	2007			2006
ASSETS
Cash and due from banks	$	21,735		$	19,352
Interest bearing deposits in other banks		17,053			16,425
Securities available for sale, at fair value		121,083			157,636
Securities held to maturity		13,148			15,501
Total securities		134,231			173,137
Loans held for sale		2,306			1,005
Loans, net of unearned income		551,744			551,434
Less allowance for loan losses		(7,493	)		(8,208	)
Net loans		544,251			543,226
Bank premises and equipment, net		12,899			12,640
Goodwill		22,468			22,517
Core deposit intangibles, net		2,641			3,071
Accrued interest receivable and other assets		13,553			19,195
Total assets	$	771,137		$	810,568
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- noninterest bearing	$	107,206		$	109,161
Demand deposits -- interest bearing		110,482			119,767
Money market deposits		50,749			48,111
Savings deposits		66,948			81,078
Time deposits		260,359			274,505
Total deposits		595,744			632,622
Repurchase agreements		43,615			43,667
FHLB borrowings		10,012			17,163
Trust preferred capital notes		20,619			20,619
Accrued interest payable and other liabilities		3,898			4,666
Total liabilities		673,888			718,737
Shareholders' equity:
Common stock, $1 par, 10,000,000 shares authorized,
6,145,617 shares outstanding at June 30, 2007 and
6,162,490 shares outstanding at June 30, 2006		6,146			6,162
Capital in excess of par value		26,422			26,353
Retained earnings		67,122			61,423
Accumulated other comprehensive income (loss), net		(2,441	)		(2,107	)
Total shareholders' equity		97,249			91,831
Total liabilities and shareholders' equity	$	771,137		$	810,568

American National Bankshares Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
(Unaudited)
	Three Months Ended				Six Months Ended
	June 30				June 30
	2007		2006		2007		2006
Interest Income:
Interest and fees on loans	$	10,408	$	10,089	$	20,487	$	17,045
Interest and dividends on securities:
Taxable		1,028		1,358		2,164		2,510
Tax-exempt		420		430		843		881
Dividends		82		78		171		135
Other interest income		168		191		339		423
Total interest income		12,106		12,146		24,004		20,994
Interest Expense:
Interest on deposits		3,860		3,538		7,643		5,845
Interest on repurchase agreements		449		335		875		644
Interest on trust preferred capital notes		344		320		687		320
Interest on other borrowings		170		242		376		455
Total interest expense		4,823		4,435		9,581		7,264
Net Interest Income		7,283		7,711		14,423		13,730
Provision for loan losses		-		354		303		480
Net Interest Income After Provision for Loan Losses		7,283		7,357		14,120		13,250
Noninterest Income:
Trust fees		924		885		1,803		1,640
Service charges on deposit accounts		625		737		1,247		1,308
Mortgage banking income		329		203		519		336
Brokerage fees		159		109		248		234
Other fees and commissions		198		183		398		367
Securities gains, net		64		17		89		38
Other		132		133		339		245
Total noninterest income		2,431		2,267		4,643		4,168
Noninterest Expense:
Salaries		2,514		2,527		4,904		4,511
Employee benefits		737		673		1,385		1,322
Occupancy and equipment		850		744		1,679		1,390
Bank franchise tax		165		170		333		310
Core deposit intangible amortization		95		134		189		173
Other		1,087		1,108		2,128		2,033
Total noninterest expense		5,448		5,356		10,618		9,739
Income Before Income Tax Provision		4,266		4,268		8,145		7,679
Income Tax Provision		1,235		1,266		2,410		2,271
Net Income	$	3,031	$	3,002	$	5,735	$	5,408
Net Income Per Common Share:
Basic	$	0.49	$	0.49	$	0.93	$	0.93
Diluted	$	0.49	$	0.48	$	0.93	$	0.93
Average Common Shares Outstanding:
Basic		6,150,216		6,172,522		6,153,496		5,805,287
Diluted		6,177,165		6,207,543		6,181,107		5,840,871

Financial Highlights
American National Bankshares Inc. and Subsidiary
(Dollars in thousands, except share and per share data)
(Unaudited)
	As of and for the									As of and for the
	Three Months Ended June 30									Six Months Ended June 30
	2007			2006			Change			2007			2006		Change
EARNINGS
Interest income	$	12,106		$	12,146		(0.3	)%	$	24,004		$	20,994		14.3	%
Interest expense		4,823			4,435		8.7			9,581			7,264		31.9
Net interest income		7,283			7,711		(5.6	)		14,423			13,730		5.0
Provision for loan losses		-			354		(100.0	)		303			480		(36.9	)
Noninterest income		2,431			2,267		7.2			4,643			4,168		11.4
Noninterest expense		5,448			5,356		1.7			10,618			9,739		9.0
Income taxes		1,235			1,266		(2.4	)		2,410			2,271		6.1
Net income		3,031			3,002		1.0			5,735			5,408		6.0
PER COMMON SHARE
Earnings per share - basic	$	0.49		$	0.49		0.0	%	$	0.93		$	0.93		0.0	%
Earnings per share - diluted		0.49			0.48		2.1			0.93			0.93		0.0
Cash dividends declared		0.23			0.22		4.5			0.45			0.43		4.7
Book value per share		15.82			14.90		6.2			15.82			14.90		6.2
Book value per share - tangible (a)		11.74			10.75		9.2			11.74			10.75		9.2
Closing market price		22.50			23.13		(2.7	)		22.50			23.13		(2.7	)
FINANCIAL RATIOS
Return on average assets		1.57	%		1.48	%	9	bp		1.48	%		1.50	%	(2	)bp
Return on average equity		12.47			13.38		(91	)		11.89			13.32		(143	)
Return on average tangible equity (b)		17.20			19.52		(232	)		16.47			16.28		19
Average equity to average assets		12.61			11.07		154			12.45			11.25		120
Net interest margin (FTE)		4.26			4.24		2			4.19			4.19		0
Efficiency ratio		56.68			54.01		267			56.20			53.96		224
PERIOD END BALANCES
Securities	$	134,231		$	173,137		(22.5	)%	$	134,231		$	173,137		(22.5	)%
Loans held for sale		2,306			1,005		129.5			2,306			1,005		129.5
Loans, net of unearned income		551,744			551,434		0.1			551,744			551,434		0.1
Goodwill and other intangibles		25,109			25,588		(1.9	)		25,109			25,588		(1.9	)
Assets		771,137			810,568		(4.9	)		771,137			810,568		(4.9	)
Assets - tangible (a)		746,028			784,980		(5.0	)		746,028			784,980		(5.0	)
Deposits		595,744			632,622		(5.8	)		595,744			632,622		(5.8	)
Repurchase agreements		43,615			43,667		(0.1	)		43,615			43,667		(0.1	)
FHLB borrowings		10,012			17,163		(41.7	)		10,012			17,163		(41.7	)
Trust preferred capital notes		20,619			20,619		0.0			20,619			20,619		0.0
Shareholders' equity		97,249			91,831		5.9			97,249			91,831		5.9
Shareholders' equity - tangible (a)		72,140			66,243		8.9			72,140			66,243		8.9
AVERAGE BALANCES
Securities	$	143,106		$	183,393		(22.0	)%	$	150,004		$	177,796		(15.6	)%
Total loans		550,310			550,706		(0.1	)		547,253			481,818		13.6
Interest earning assets		706,285			749,709		(5.8	)		710,321			678,053		4.8
Goodwill and other intangibles		25,146			26,268		(4.3	)		25,193			13,260		90.0
Assets		770,710			810,627		(4.9	)		774,667			721,685		7.3
Assets - tangible (a)		745,564			784,359		(4.9	)		749,474			708,425		5.8
Interest bearing deposits		487,322			525,889		(7.3	)		490,546			469,624		4.5
Deposits		588,346			638,020		(7.8	)		591,723			570,098		3.8
Repurchase agreements		46,032			41,594		10.7			46,142			40,772		13.2
Other borrowings		33,884			37,878		(10.5	)		35,294			27,070		30.4
Shareholders' equity		97,183			89,729		8.3			96,434			81,194		18.8
Shareholders' equity - tangible (a)		72,037			63,461		13.5			71,241			67,934		4.9
CAPITAL
Average shares outstanding - basic		6,150,216			6,172,522		(0.4	)%		6,153,496			5,805,287		6.0	%
Average shares outstanding - diluted		6,177,165			6,207,543		(0.5	)		6,181,107			5,840,871		5.8
Shares repurchased		12,700			17,300		(26.6	)		24,300			31,200		(22.1	)
Average price of shares repurchased	$	22.66		$	23.25		(2.5	)	$	22.89		$	23.28		(1.7	)
ALLOWANCE FOR LOAN LOSSES
Beginning balance	$	7,590		$	6,164		23.1	%	$	7,264		$	6,109		18.9	%
Allowance acquired in merger		-			1,598		(100.0	)		-			1,598		(100.0	)
Provision for loan losses		-			354		(100.0	)		303			480		(36.9	)
Charge-offs		(155	)		(75	)	106.7			(204	)		(226	)	(9.7	)
Recoveries		58			167		(65.3	)		130			247		(47.4	)
Ending balance	$	7,493		$	8,208		(8.7	)	$	7,493		$	8,208		(8.7	)
NONPERFORMING ASSETS
Nonperforming loans:
90 days past due	$	-		$	226		(100.0	)%	$	-		$	226		(100.0	)%
Nonaccrual		3,192			4,297		(25.7	)		3,192			4,297		(25.7	)
Foreclosed real estate		85			435		(80.5	)		85			435		(80.5	)
Nonperforming assets	$	3,277		$	4,958		(33.9	)	$	3,277		$	4,958		(33.9	)
ASSET QUALITY RATIOS
Net chargeoffs (recoveries) to average loans		0.07	%		(0.07	)%	14	bp		0.03	%		(0.01	)%	4	bp
Nonperforming assets to total assets (c)		0.42			0.61		(19	)		0.42			0.61		(19	)
Nonperforming loans to total loans (c)		0.58			0.82		(24	)		0.58			0.82		(24	)
Allowance for loan losses to total loans (c)		1.36			1.49		(13	)		1.36			1.49		(13	)
Allowance for loan losses to
nonperforming loans (c)		2.35	X		1.81	X	54			2.35	X		1.81	X	54
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 in basis points
FTE - Fully taxable equivalent basis

Net Interest Income Analysis
For the Three Months Ended June 30, 2007 and 2006
(in thousands, except yields and rates)
(Unaudited)
	Average Balance				Interest Income/Expense				Yield/Rate
	2007		2006		2007		2006		2007			2006
Loans:
Commercial	$	91,852	$	94,281	$	1,819	$	1,796		7.92	%		7.62	%
Real estate		448,024		442,307		8,364		7,967		7.47			7.20
Consumer		10,434		14,118		247		345		9.47			9.77
Total loans		550,310		550,706		10,430		10,108		7.58			7.34
Securities:
Federal agencies		68,991		104,464		748		1,035		4.34			3.96
Mortgage-backed & CMO's		20,501		21,333		247		245		4.82			4.59
State and municipal		45,623		46,296		628		640		5.51			5.53
Other		7,991		11,300		116		167		5.81			5.91
Total securities		143,106		183,393		1,739		2,087		4.86			4.55
Deposits in other banks		12,869		15,610		168		183		5.22			4.69
Total interest earning assets		706,285		749,709		12,337		12,378		6.99			6.60
Nonearning assets		64,425		60,918
Total assets	$	770,710	$	810,627
Deposits:
Demand	$	111,064	$	111,817		416		400		1.50			1.43
Money market		52,279		50,240		356		292		2.72			2.32
Savings		67,716		82,119		230		258		1.36			1.26
Time		256,263		281,713		2,858		2,588		4.46			3.67
Total deposits		487,322		525,889		3,860		3,538		3.17			2.69
Repurchase agreements		46,032		41,594		449		335		3.90			3.22
Other borrowings		33,884		37,878		514		562		6.07			5.93
Total interest bearing liabilities		567,238		605,361		4,823		4,435		3.40			2.93
Noninterest bearing demand deposits		101,024		112,131
Other liabilities		5,265		3,406
Shareholders' equity		97,183		89,729
Total liabilities and shareholders' equity	$	770,710	$	810,627
Interest rate spread										3.59	%		3.67	%
Net interest margin										4.26	%		4.24	%
Net interest income (taxable equivalent basis)						7,514		7,943
Less: Taxable equivalent adjustment						231		232
Net interest income					$	7,283	$	7,711

Net Interest Income Analysis
For the Six Months Ended June 30, 2007 and 2006
(in thousands, except yields and rates)
(Unaudited)
	Average Balance				Interest Income/Expense				Yield/Rate
	2007		2006		2007		2006		2007			2006
Loans:
Commercial	$	90,415	$	82,496	$	3,512	$	3,034		7.77	%		7.36	%
Real estate		446,448		387,129		16,529		13,475		7.40			6.96
Consumer		10,390		12,193		489		574		9.41			9.42
Total loans		547,253		481,818		20,530		17,083		7.50			7.09
Securities:
Federal agencies		75,587		97,342		1,605		1,842		4.25			3.78
Mortgage-backed & CMO's		20,253		21,478		488		490		4.82			4.56
State and municipal		45,792		46,854		1,262		1,313		5.51			5.60
Other		8,372		12,122		245		313		5.85			5.16
Total securities		150,004		177,796		3,600		3,958		4.80			4.45
Deposits in other banks		13,064		18,439		339		423		5.19			4.59
Total interest earning assets		710,321		678,053		24,469		21,464		6.89			6.33
Nonearning assets		64,346		43,632
Total assets	$	774,667	$	721,685
Deposits:
Demand	$	110,592	$	104,474		840		703		1.52			1.35
Money market		52,210		45,852		705		513		2.70			2.24
Savings		68,318		80,198		465		445		1.36			1.11
Time		259,426		239,100		5,633		4,184		4.34			3.50
Total deposits		490,546		469,624		7,643		5,845		3.12			2.49
Repurchase agreements		46,142		40,772		875		644		3.79			3.16
Other borrowings		35,294		27,070		1,063		775		6.02			5.73
Total interest bearing liabilities		571,982		537,466		9,581		7,264		3.35			2.70
Noninterest bearing demand deposits		101,177		100,474
Other liabilities		5,074		2,551
Shareholders' equity		96,434		81,194
Total liabilities and shareholder's equity	$	774,667	$	721,685
Interest rate spread										3.54	%		3.63	%
Net interest margin										4.19	%		4.19	%
Net interest income (taxable equivalent basis)						14,888		14,200
Less: Taxable equivalent adjustment						465		470
Net interest income					$	14,423	$	13,730