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 24, 2010
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
Not Applicable
(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:
	þ	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
	o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
	o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
	o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13a-4(c))

Item 2.02 Results of Operations and Financial Condition

On January 24, 2011, American National Bankshares Inc. reports fourth quarter and year-to-date earnings for 2010.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits: 

99.1    January 24, 2011 News Release

99.2     Quarterly Balance Sheets, Statements of Income, Net Interest Income Analysis and Selected Financial Data

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 24, 2011                                                                                                     /s/ William W. Traynham                       &# 160;                 

Senior Vice President and Chief Financial Officer

EX-99.1

Date:	January 24, 2011
Contact:	William W. Traynham, Chief Financial Officer
	434-773-2242
	traynhamw@amnb.com
Traded:	NASDAQ Global Select Market	Symbol:	AMNB

AMERICAN NATIONAL BANKSHARES INC. REPORTS FOURTH QUARTER 2010 EARNINGS

·   Q4 net income of $1,851,000 and diluted EPS of $0.30 per share

·   Q4 net interest margin 3.67%

·   Average shareholders’ equity of $111 million represents 13.12% of average assets

Danville, VA -- American National Bankshares Inc. (NASDAQ:  AMNB), parent company of American National Bank and Trust Company, today announced  fourth quarter 2010 net income of $1,851,000 compared to $2,169,000 for the fourth quarter in 2009, a 14.7% decrease.  Basic earnings per share were $0.30 for the 2010 quarter compared to $0.36 for the 2009 quarter.  Diluted earnings per share were $0.30 for the 2010 quarter compared to $0.35 for the 2009 quarter. This quarterly net income produced a return on average assets of 0.88%, a return on average equity of 6.69%, and a return on tangible equity of 8.83%.

Net income was $8,278,000 for 2010 compared to $6,810,000 for 2009, a 21.6% increase. Earnings per share, basic and diluted, were $1.35 for 2010 compared to $1.12, basic and diluted, for 2009. This net income produced a return on average assets of 1.00%, a return on average equity of 7.59%, and a return on tangible equity of 10.05%.

Financial Performance and Overview

      Charles H. Majors, President and Chief Executive Officer, stated, “American National had an eventful and productive fourth quarter and 2010.  Our income for the quarter was $1.85 million, a 14.7% decrease compared to the same quarter in 2009. This decline was driven by a variety of factors, most notably initial expenses associated with our pending merger with MidCarolina Financial Corporation.  We consider those costs to be the beginning of an investment in a new and even better American National Bankshares Inc.

                “For the year just ended, our net income was $8.28 million, a 21.6% increase over 2009.

 “Trust income was up $238,000 or 7.5% for 2010 as a result of asset growth and improvement in the stock market.

“Service charge income declined $188,000 or 9.0% mostly as a result of declining overdraft fee income, a trend we’ve seen over the past few years and expect to continue.

“Secondary market mortgage operations had another good a year in 2010 based on a short extension of the new home buyer tax credit, continuing low interest rates and a growing demand for refinanced loans. We anticipate a slowdown in this revenue in 2011.

“The largest single factor impacting the change in noninterest income between years was a $1.2 million write down early in 2009 related to the value of foreclosed real estate.

“Our noninterest expenses for 2010 decreased $490,000 or 2.1%, compared to 2009. This improvement was mostly related to lower costs in salaries and benefits.

“During 2010, we continued to experience historically low interest rates and an ongoing deleveraging in the economy. However, during the year we saw a bottoming out of our loan portfolio and small increases in volume starting in the second quarter and continuing through year end. Overall, for the year, the loan portfolio shrank $7.1 million or 1.4%. We are anticipating modest, single digit growth in 2011.

“Also during 2010, we experienced over $35 million or 5.9% growth in deposits, most in retail time deposits. We expect that growth to continue in 2011 and plan to make every effort to grow our balances more for transaction and noninterest bearing accounts.

Majors concluded, “We are just beginning to see signs of an economic recovery. We expect it will be slow and probably uneven, but our Bank is ready, willing and able to help our market areas move quickly to increasing levels of economic activity. As we begin a new year with some careful optimism about business activity, we are very optimistic about the opportunities for market area growth and business development that will come from our pending merger with MidCarolina Financial Corporation, which we hope to have approved by shareholders and regulators later in 2011.”

Capital

American National’s capital ratios are among the highest in its peer group.  For the fourth quarter of 2010, average shareholders’ equity was 13.12% of average assets.

Credit Quality Measurements

Nonperforming assets ($2.6 million of non-accrual loans and $3.7 million of foreclosed real estate) were below industry averages and represented 0.76% of total assets at December 31, 2010, compared to 0.87% at December 31, 2009.  During the fourth quarter, total nonperforming assets decreased $1.6 million.

The allowance for loans losses was $8.4 million or 1.62% of loans at December 31, 2010, compared to $8.2 million or 1.55% at December 31, 2009.

Annualized net charge offs were 0.47% for the fourth quarter 2010 compared to 0.31% for 2009 quarter.

Net charge offs were 0.24% for the entire year 2010 compared to 0.24% for 2009.

Net Interest Income

Net interest income, on a taxable equivalent basis, decreased to $7,065,000 in the fourth quarter of 2010 from $7,208,000 in fourth quarter of 2009, a decrease of 1.98%.  Net interest income has been adversely impacted by low market interest rates and shifts between categories of earning assets. The Bank has mitigated the impact by reducing the cost of its interest bearing liabilities. The Company’s net interest margin declined 21 basis points (0.21%) for the fourth quarter 2010 compared to the fourth quarter 2009. However, for the year, the margin declined three basis points (0.03%) from the prior year.

Noninterest Income

Noninterest income totaled $2,602,000 in the fourth quarter of 2010 compared with $1,937,000 in the fourth quarter of 2009, a 34.3% increase.  Much of that increase was attributable to a $450,000 in gain on the sale of bank owned real estate, reflected in other income.

Noninterest Expense

Noninterest expense totaled $6,202,000 in the fourth quarter of 2010, compared to $5,524,000 in the fourth quarter of 2009, a 12.3% increase.  The major factor impacting noninterest expense was initial costs associated with the pending merger with MidCarolina Financial. During the fourth quarter, the Bank incurred merger-related costs of $358,000, reflected in other noninterest expenses, which accounted for more than half the increase in costs. Most of these merger related expenses are not tax deductible, so a higher income tax provision resulted.

Merger with MidCarolina Financial Corporation

On December 16, 2010, American National announced the signing of an agreement which calls for MidCarolina Financial Corporation to merge with American National in an all stock transaction.  In connection with the proposed transaction, American National will file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 to register the shares of American National stock to be issued to the shareholders of MidCarolina. The registration statement will include a joint proxy statement/prospectus which will be sent to the shareholders of American National and MidCarolina seeking the requisite approvals under the merger Agreement. In addition, each of American National and MidCarolina may file other relevant documents concerning the proposed transaction with the SEC.

AMERICAN NATIONAL AND MIDCAROLINA URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AMERICAN NATIONAL, MIDCAROLINA AND THE PROPOSED TRANSACTION. Investors and security holders may obtain free copies of these documents, when they become available, through the website maintained by the SEC at www.sec.gov. Free copies of the joint proxy statement/prospectus, when it becomes available, also may be obtained by directing a request by telephone or mail to American N ational Bankshares Inc., 628 Main Street, Danville, Virginia 24541, Attention: Investor Relations (telephone: (434) 792-5111) or MidCarolina Financial Corporation, 3101 South Church Street, Burlington, North Carolina 27216, Attention: Investor Relations (telephone: (336) 538-1600) or by accessing American National’s website at www.amnb.com under “Investments” or MidCarolina’s website at www.midcarolinabank.com under “Investor Relations.” The information on American National’s and MidCarolina’s websites is not, and shall not be deemed to be, a part of this report or incorporated into other filings either company makes with the SEC.

American National and MidCarolina and their respective directors, executive officers and members of management may be deemed to be participants in the solicitation of proxies from the shareholders of American National and/or MidCarolina in connection with the merger. Information about the directors and executive officers of American National is set forth in the proxy statement for American National’s 2010 annual meeting of shareholders filed with the SEC on April 2, 2010. Information about the directors and executive officers of MidCarolina is set forth in the proxy statement for MidCarolina’s 2010 annual meeting of shareholders filed with the SEC on April 23, 2010. Additional information regarding the interests of these participants and other persons who may be deemed participants in the merger may be obtained by reading the joint proxy statement/prospectus regarding the merger when it becomes available.

About American National

American National Bankshares Inc. is a bank holding company with assets of $834 million.  Headquartered in Danville, Virginia, it is the holding company of American National Bank and Trust Company, a community bank serving Southern and Central Virginia and the northern portion of Central North Carolina with eighteen banking offices.  The Bank also manages an additional $417 million of assets in its Trust and Investment Services Division.  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.”

Forward-Looking Statements

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 Company 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; significant changes in securities markets; and changes regarding acquisitions and dispositions.  Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Company’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.

EX-99.2

American National Bankshares Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
Unaudited
	December 31
ASSETS	2010			2009
Cash and due from banks	$	9,547		$	13,250
Interest-bearing deposits in other banks		8,967			10,693
Securities available for sale, at fair value		228,295			188,795
Securities held to maturity		3,334			6,529
Total securities		231,629			195,324
Restricted stock, at cost		4,062			4,362
Loans held for sale		3,135			2,490
Loans		520,781			527,991
Less allowance for loan losses		(8,420	)		(8,166	)
Net Loans		512,361			519,825
Premises and equipment, net		19,509			19,195
Other real estate owned, net		3,716			3,414
Goodwill		22,468			22,468
Core deposit intangibles, net		1,320			1,698
Accrued interest receivable and other assets		16,950			16,254
Total assets	$	833,664		$	808,973
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- noninterest-bearing	$	105,240		$	101,735
Demand deposits -- interest-bearing		90,012			97,025
Money market deposits		59,891			75,554
Savings deposits		62,522			61,873
Time deposits		322,433			268,086
Total deposits		640,098			604,273
Short-term borrowings:
Customer repurchase agreements		47,084			65,929
Other short-term borrowings		6,110			-
Long-term borrowings		8,488			8,638
Trust preferred capital notes		20,619			20,619
Accrued interest payable and other liabilities		3,178			3,125
Total liabilities		725,577			702,584
Shareholders' equity:
Common stock, $1 par, 20,000,000 shares authorized,
6,127,735 shares outstanding at December 31, 2010 and
6,110,335 shares outstanding at December 31, 2009		6,128			6,110
Capital in excess of par value		27,268			26,962
Retained earnings		74,850			72,208
Accumulated other comprehensive income (loss), net		(159	)		1,109
Total shareholders' equity		108,087			106,389
Total liabilities and shareholders' equity	$	833,664		$	808,973

American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
Unaudited
	Three Months Ended						Twelve Months Ended
	December 31						December 31
	2010			2009			2010			2009
Interest and Dividend Income:
Interest and fees on loans	$	6,960		$	7,445		$	28,180		$	31,062
Interest and dividends on securities:
Taxable		1,198			1,259			5,042			4,853
Tax-exempt		647			437			2,288			1,673
Dividends		24			25			95			95
Other interest income		92			91			360			378
Total interest and dividend income		8,921			9,257			35,965			38,061
Interest Expense:
Interest on deposits		1,704			1,771			6,708			8,399
Interest on short-term borrowings		85			127			382			675
Interest on long-term borrowings		64			66			256			342
Interest on trust preferred capital notes		343			343			1,373			1,373
Total interest expense		2,196			2,307			8,719			10,789
Net Interest Income		6,725			6,950			27,246			27,272
Provision for loan losses		485			328			1,490			1,662
Net Interest Income After Provision
for Loan Losses		6,240			6,622			25,756			25,610
Noninterest Income:
Trust fees		936			815			3,391			3,153
Service charges on deposit accounts		457			536			1,897			2,085
Other fees and commissions		307			264			1,163			1,014
Mortgage banking income		543			390			1,560			1,605
Securities gains, net		84			1			126			3
Foreclosed real estate (losses), net		(304	)		(253	)		(583	)		(1,475	)
Other		579			184			977			658
Total noninterest income		2,602			1,937			8,531			7,043
Noninterest Expense:
Salaries		2,789			2,314			10,379			10,048
Employee benefits		618			750			2,455			3,201
Occupancy and equipment		725			762			2,934			2,927
FDIC assessment		206			202			803			1,186
Bank franchise tax		167			159			670			642
Core deposit intangible amortization		94			94			377			377
Other		1,603			1,243			5,210			4,937
Total noninterest expense		6,202			5,524			22,828			23,318
Income Before Income Taxes		2,640			3,035			11,459			9,335
Income Taxes		789			866			3,181			2,525
Net Income	$	1,851		$	2,169		$	8,278		$	6,810
Net Income Per Common Share:
Basic	$	0.30		$	0.36		$	1.35		$	1.12
Diluted	$	0.30		$	0.35		$	1.35		$	1.12
Average Common Shares Outstanding:
Basic		6,126,817			6,108,340			6,123,870			6,097,810
Diluted		6,141,123			6,116,800			6,131,650			6,102,895

American National Bankshares Inc. and Subsidiaries
Financial Highlights
(In thousands, except share, ratio and
nonfinancial data, unaudited)	4th Qtr			3rd Qtr			4th Qtr			YTD			YTD
	2010			2010			2009			2010			2009
EARNINGS
Interest income	$	8,921		$	8,982		$	9,257		$	35,965		$	38,061
Interest expense		2,196			2,223			2,307			8,719			10,789
Net interest income		6,725			6,759			6,950			27,246			27,272
Provision for loan losses		485			435			328			1,490			1,662
Noninterest income		2,602			2,246			1,937			8,531			7,043
Noninterest expense		6,202			5,536			5,524			22,828			23,318
Income taxes		789			806			866			3,181			2,525
Net income		1,851			2,228			2,169			8,278			6,810
PER COMMON SHARE
Earnings per share - basic	$	0.30		$	0.36		$	0.36		$	1.35		$	1.12
Earnings per share - diluted		0.30			0.36			0.35			1.35			1.12
Cash dividends declared		0.23			0.23			0.23			0.92			0.92
Book value per share		17.64			18.10			17.41			17.64			17.41
Book value per share - tangible (a)		13.76			14.20			13.46			13.76			13.46
Closing market price		23.55			21.94			21.90			23.55			21.90
FINANCIAL RATIOS
Return on average assets		0.88	%		1.07	%		1.07	%		1.00	%		0.84	%
Return on average equity		6.69			8.11			8.24			7.59			6.57
Return on average tangible equity (b)		8.83			10.69			11.03			10.05			8.94
Average equity to average assets		13.12			13.14			12.93			13.18			12.79
Net interest margin, taxable equivalent		3.67			3.74			3.88			3.78			3.81
Efficiency ratio		65.70			59.54			58.79			61.53			63.46
Effective tax rate		29.89			26.57			28.53			27.76			27.05
PERIOD-END BALANCES
Securities	$	235,691		$	218,096		$	199,686		$	235,691		$	199,686
Loans held for sale		3,135			3,952			2,490			3,135			2,490
Loans, net of unearned income		520,781			519,421			527,991			520,781			527,991
Goodwill and other intangibles		23,788			23,883			24,166			23,788			24,166
Assets		833,664			824,217			808,973			833,664			808,973
Assets - tangible (a)		809,876			800,334			784,807			809,876			784,807
Deposits		640,098			625,630			604,273			640,098			604,273
Customer repurchase agreements		47,084			54,285			65,929			47,084			65,929
Other short-term borrowings		6,110			-			-			6,110			-
Long-term borrowings		29,107			29,144			29,257			29,107			29,257
Shareholders' equity		108,087			110,868			106,389			108,087			106,389
Shareholders' equity - tangible (a)		84,299			86,985			82,223			84,299			82,223
AVERAGE BALANCES
Securities	$	215,208		$	214,532		$	167,546		$	203,296		$	153,237
Loans held for sale		5,629			4,991			4,394			4,159			5,436
Loans, net of unearned income		521,832			519,101			540,103			520,315			553,831
Interest-earning assets		770,649			762,742			744,007			754,833			741,308
Goodwill and other intangibles		23,844			23,935			24,217			23,982			24,360
Assets		843,922			836,033			814,232			827,422			810,140
Assets - tangible (a)		820,078			812,098			790,015			803,440			785,780
Interest-bearing deposits		537,662			530,191			499,725			522,614			507,014
Deposits		647,526			633,692			604,506			625,822			606,700
Customer repurchase agreements		52,068			59,126			70,014			59,270			63,115
Other short-term borrowings		251			92			91			87			1,037
Long-term borrowings		29,136			29,174			29,287			29,192			30,849
Shareholders' equity		110,688			109,885			105,302			109,060			103,625
Shareholders' equity - tangible (a)		86,844			85,950			81,085			85,078			79,265
CAPITAL
Average shares outstanding - basic		6,126,817			6,125,359			6,108,340			6,123,870			6,097,810
Average shares outstanding - diluted		6,141,123			6,131,129			6,116,800			6,131,650			6,102,895
Shares repurchased		-			-			-			-			7,600
Average price of shares repurchased	$	-		$	-		$	-		$	-		$	15.92
ALLOWANCE FOR LOAN LOSSES
Beginning balance	$	8,542		$	8,135		$	8,260		$	8,166		$	7,824
Provision for loan losses		485			435			328			1,490			1,662
Charge-offs		(662	)		(137	)		(485	)		(1,531	)		(1,601	)
Recoveries		55			109			63			295			281
Ending balance	$	8,420		$	8,542		$	8,166		$	8,420		$	8,166
LOANS
Construction and land development	$	37,168		$	42,602		$	40,371		$	37,168		$	40,371
Commercial real estate		210,393			206,142			208,066			210,393			208,066
Residential real estate		119,398			118,554			121,639			119,398			121,639
Home equity		61,064			64,847			64,678			61,064			64,678
Commercial and industrial		85,051			80,818			86,312			85,051			86,312
Consumer		7,707			6,458			6,925			7,707			6,925
Total	$	520,781		$	519,421		$	527,991		$	520,781		$	527,991
NONPERFORMING ASSETS AT PERIOD-END
Nonperforming loans:
90 days past due	$	-		$	-		$	-		$	-		$	-
Nonaccrual		2,597			3,910			3,642			2,597			3,642
Foreclosed real estate		3,716			3,987			3,414			3,716			3,414
Nonperforming assets	$	6,313		$	7,897		$	7,056		$	6,313		$	7,056
ASSET QUALITY RATIOS
Annualized net chargeoffs to average loans		0.47	%		0.02	%		0.31	%		0.24	%		0.24	%
Nonperforming assets to total assets		0.76			0.96			0.87			0.76			0.87
Nonperforming loans to total loans		0.50			0.75			0.69			0.50			0.69
Allowance for loan losses to total loans		1.62			1.64			1.55			1.62			1.55
Allowance for loan losses to nonperforming loans		324.22			218.47			224.22			324.22			224.22
OTHER DATA
Fiduciary assets at period-end (c)	$	368,018		$	370,016		$	358,124		$	368,018		$	358,124
Retail brokerage assets at period-end (c)	$	49,311		$	47,507		$	54,696		$	49,311		$	54,696
Number full-time equivalent employees (d)		242			242			238			242			238
Number of full service offices		18			18			18			18			18
Number of loan production offices		1			1			2			1			2
Number of ATM's		26			26			24			26			24
Notes:
(a) - Excludes goodwill and other intangible assets
(b) - Excludes amortization expense, net of tax, of intangible assets
(c) - Market value
(d) - Average for quarter
N/A - Percentage change is not applicable or not meaningful

Net Interest Income Analysis
For the Three Months Ended December 31, 2010 and 2009
(in thousands, except yields and rates)
					Interest				Average
	Average Balance				Income/Expense				Yield/Rate
	2010		2009		2010		2009		2010			2009
Loans:
Commercial	$	75,012	$	80,712	$	900	$	986		4.76	%		4.89	%
Real estate		445,017		452,136		5,949		6,338		5.35			5.61
Consumer		7,432		7,255		144		148		7.69			8.16
Total loans		527,461		540,103		6,993		7,472		5.30			5.53
Securities:
Federal agencies & GSE		48,184		61,858		382		555		3.17			3.59
Mortgage-backed & CMO's		57,251		38,002		484		482		3.38			5.07
State and municipal		103,692		59,358		1,255		839		4.84			5.65
Other		6,081		8,328		55		76		3.62			3.65
Total securities		215,208		167,546		2,176		1,952		4.04			4.66
Deposits in other banks		27,980		36,358		92		91		1.30			1.00
Total interest-earning assets		770,649		744,007		9,261		9,515		4.80			5.12
Non-earning assets		73,273		70,225
Total assets	$	843,922	$	814,232
Deposits:
Demand	$	93,133	$	94,764		18		27		0.08			0.11
Money market		60,500		72,342		86		74		0.56			0.41
Savings		63,010		62,026		22		33		0.14			0.21
Time		321,019		270,593		1,578		1,637		1.95			2.42
Total deposits		537,662		499,725		1,704		1,771		1.26			1.42
Customer repurchase agreements		52,068		70,014		85		127		0.65			0.73
Other short-term borrowings		251		91		0		0		0.14			0.39
Long-term borrowings		29,136		29,287		407		409		5.59			5.59
Total interest-bearing liabilities		619,117		599,117		2,196		2,307		1.41			1.54
Noninterest bearing demand deposits		109,864		104,781
Other liabilities		4,253		5,032
Shareholders' equity		110,688		105,302
Total liabilities and
shareholders' equity	$	843,922	$	814,232
Interest rate spread										3.39	%		3.58	%
Net interest margin										3.67	%		3.88	%
Net interest income (taxable equivalent basis)						7,065		7,208
Less: Taxable equivalent adjustment						340		258
Net interest income					$	6,725	$	6,950

Net Interest Income Analysis
For the Years Ended 2010 and 2009
(in thousands, except yields and rates)
					Interest				Average
	Average Balance				Income/Expense				Yield/Rate
	2010		2009		2010		2009		2010			2009
Loans:
Commercial	$	77,382	$	88,551	$	3,726	$	4,213		4.82	%		4.76	%
Real estate		440,318		463,093		24,045		26,294		5.46			5.68
Consumer		6,774		7,623		541		659		7.99			8.64
Total loans		524,474		559,267		28,312		31,166		5.40			5.57
Securities:
Federal agencies & GSE		59,960		52,694		1,917		2,139		3.20			4.06
Mortgage-backed & CMO's		50,178		40,363		1,957		2,100		3.90			5.20
State and municipal		86,439		52,687		4,478		2,972		5.18			5.64
Other		6,719		7,493		240		261		3.57			3.48
Total securities		203,296		153,237		8,592		7,472		4.23			4.88
Deposits in other banks		27,063		28,804		360		378		1.33			1.31
Total interest-earning assets		754,833		741,308		37,264		39,016		4.94			5.26
Non-earning assets		72,589		68,832
Total assets	$	827,422	$	810,140
Deposits:
Demand	$	94,236	$	98,576		76		290		0.08			0.29
Money market		73,358		72,918		371		527		0.51			0.72
Savings		63,484		62,219		88		148		0.14			0.24
Time		291,536		273,301		6,173		7,434		2.12			2.72
Total deposits		522,614		507,014		6,708		8,399		1.28			1.66
Customer repurchase agreements		59,270		63,115		382		670		0.64			1.06
Other short-term borrowings		87		1,037		0		5		0.42			0.48
Long-term borrowings		29,192		30,849		1,629		1,715		5.58			5.56
Total interest-bearing liabilities		611,163		602,015		8,719		10,789		1.43			1.79
Noninterest bearing demand deposits		103,208		99,686
Other liabilities		3,991		4,814
Shareholders' equity		109,060		103,625
Total liabilities and
shareholders' equity	$	827,422	$	810,140
Interest rate spread										3.51	%		3.47	%
Net interest margin										3.78	%		3.81	%
Net interest income (taxable equivalent basis)						28,545		28,227
Less: Taxable equivalent adjustment						1,299		955
Net interest income					$	27,246	$	27,272