10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED  June 30, 2012.

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM   TO.

Commission file number:  0-12820

AMERICAN NATIONAL BANKSHARES INC.

(Exact name of registrant as specified in its charter)

VIRGINIA	54-1284688
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
628 Main Street
Danville, Virginia	24541
(Address of principal executive offices)	(Zip Code)

(434) 792-5111

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months.

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o                                                                Accelerated filer  x                                                      Non-accelerated filer  o

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes                      ¨           No                      x

At August 6, 2012, the Company had 7,836,056 shares of Common Stock outstanding, $1 par value.

AMERICAN NATIONAL BANKSHARES INC.
Index			Page
Part I.		FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	3
		Consolidated Statements of Income for the three months ended June 30, 2012 and 2011	4
		Consolidated Statements of Income for the six months ended June 30, 2012 and 2011	5
		Consolidated Statements of Comprehensive Income for the three months and six months ended June 30, 2012 and 2011	6
		Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2012 and 2011	7
		Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011	8
		Notes to Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	54
	Item 4.	Controls and Procedures	54
Part II.		OTHER INFORMATION
	Item 1.	Legal Proceedings	55
	Item 1A.	Risk Factors	55
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
	Item 3.	Defaults Upon Senior Securities	55
	Item 4.	Mine Safety Disclosures	55
	Item 5.	Other Information	55
	Item 6.	Exhibits	55
SIGNATURES

2

Part I.  Financial Information

Item 1. Financial Statements

American National Bankshares Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share data)
	(Unaudited)			(Audited)
	June 30,			December 31,
Assets	2012			2011
Cash and due from banks	$	18,529		$	22,561
Interest-bearing deposits in other banks		10,380			6,332
Securities available for sale, at fair value		334,523			333,366
Restricted stock, at cost		6,268			6,019
Loans held for sale		9,215			6,330
Loans, net of unearned income		808,069			824,758
Less allowance for loan losses		(12,099	)		(10,529	)
Net loans		795,970			814,229
Premises and equipment, net		25,314			25,674
Other real estate owned, net		4,731			5,353
Goodwill		39,352			38,899
Core deposit intangibles, net		5,502			6,595
Bank owned life insurance		13,273			13,058
Accrued interest receivable and other assets		27,835			26,290
Total assets	$	1,290,892		$	1,304,706
Liabilities
Demand deposits -- noninterest bearing	$	196,727		$	179,148
Demand deposits -- interest bearing		149,229			189,212
Money market deposits		170,505			182,347
Savings deposits		78,842			74,193
Time deposits		447,182			433,854
Total deposits		1,042,485			1,058,754
Short-term borrowings:
Customer repurchase agreements		46,113			45,575
Other short-term borrowings		-			3,000
Long-term borrowings		10,142			10,206
Trust preferred capital notes		27,267			27,212
Accrued interest payable and other liabilities		6,461			7,130
Total liabilities		1,132,468			1,151,877
Shareholders' equity
Preferred stock, $5 par, 2,000,000 shares authorized,
none outstanding		-			-
Common stock, $1 par, 20,000,000 shares authorized,
7,836,056 shares outstanding at June 30, 2012 and
7,806,869 shares outstanding at December 31, 2011		7,836			7,807
Capital in excess of par value		56,825			56,395
Retained earnings		86,642			81,797
Accumulated other comprehensive income, net		7,121			6,830
Total shareholders' equity		158,424			152,829
Total liabilities and shareholders' equity	$	1,290,892		$	1,304,706
The accompanying notes are an integral part of the consolidated financial statements.

3

American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share and per share data) (Unaudited)
	Three Months Ended
	June 30
	2012			2011
Interest and Dividend Income:
Interest and fees on loans	$	12,683		$	6,618
Interest and dividends on securities:
Taxable		1,056			1,085
Tax-exempt		1,077			827
Dividends		52			26
Other interest income		18			14
Total interest and dividend income		14,886			8,570
Interest Expense:
Interest on deposits		1,729			1,587
Interest on short-term borrowings		51			82
Interest on long-term borrowings		84			5
Interest on trust preferred capital notes		206			297
Total interest expense		2,070			1,971
Net Interest Income		12,816			6,599
Provision for Loan Losses		733			336
Net Interest Income After Provision for Loan Losses		12,083			6,263
Noninterest Income:
Trust fees		966			878
Service charges on deposit accounts		413			400
Other fees and commissions		445			338
Mortgage banking income		519			271
Securities gains (losses), net		160			(19	)
Other		297			120
Total noninterest income		2,800			1,988
Noninterest Expense:
Salaries		3,809			2,546
Employee benefits		799			624
Occupancy and equipment		1,048			696
FDIC assessment		213			197
Bank franchise tax		182			176
Core deposit intangible amortization		546			95
Foreclosed real estate, net		171			456
Merger related expenses		(202	)		835
Other		2,267			1,403
Total noninterest expense		8,833			7,028
Income Before Income Taxes		6,050			1,223
Income Taxes		1,776			211
Net Income	$	4,274		$	1,012
Net Income Per Common Share:
Basic	$	0.55		$	0.16
Diluted	$	0.54		$	0.16
Average Common Shares Outstanding:
Basic		7,832,162			6,154,396
Diluted		7,849,142			6,161,265
The accompanying notes are an integral part of the consolidated financial statements.

4

American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share and per share data) (Unaudited)
	Six Months Ended
	June 30
	2012		2011
Interest and Dividend Income:
Interest and fees on loans	$	25,803	$	13,297
Interest and dividends on securities:
Taxable		2,135		2,254
Tax-exempt		2,159		1,543
Dividends		103		53
Other interest income		28		84
Total interest and dividend income		30,228		17,231
Interest Expense:
Interest on deposits		3,566		3,167
Interest on short-term borrowings		94		162
Interest on long-term borrowings		168		58
Interest on trust preferred capital notes		412		640
Total interest expense		4,240		4,027
Net Interest Income		25,988		13,204
Provision for Loan Losses		1,466		673
Net Interest Income After Provision for Loan Losses		24,522		12,531
Noninterest Income:
Trust fees		1,848		1,806
Service charges on deposit accounts		901		821
Other fees and commissions		902		654
Mortgage banking income		1,050		418
Securities gains (losses), net		160		(18	)
Other		1,173		278
Total noninterest income		6,034		3,959
Noninterest Expense:
Salaries		7,920		5,031
Employee benefits		1,877		1,165
Occupancy and equipment		2,013		1,395
FDIC assessment		446		402
Bank franchise tax		365		351
Core deposit intangible amortization		1,093		189
Foreclosed real estate, net		18		522
Merger related expenses		49		1,144
Other		4,979		2,608
Total noninterest expense		18,760		12,807
Income Before Income Taxes		11,796		3,683
Income Taxes		3,347		893
Net Income	$	8,449	$	2,790
Net Income Per Common Share:
Basic	$	1.08	$	0.45
Diluted	$	1.08	$	0.45
Average Common Shares Outstanding:
Basic		7,827,195		6,149,029
Diluted		7,839,364		6,157,032
The accompanying notes are an integral part of the consolidated financial statements.

5

American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
June 30, 2012
(Dollars in thousands)  (Unaudited)
	Three Months Ended
	June 30
	2012			2011
Net income	$	4,274		$	1,012
Other comprehensive income:
Unrealized gains on securities available for sale		1,285			3,195
Income tax (benefit)		(450	)		(1,119	)
Reclassification adjustment for (gains) losses on securities		(160	)		19
Income tax expense (benefit)		56			(6	)
Other comprehensive income		731			2,089
Comprehensive income	$	5,005		$	3,101
	Six Months Ended
	June 30
	2012			2011
Net income	$	8,449		$	2,790
Other comprehensive income:
Unrealized gains on securities available for sale		608			4,155
Income tax (benefit)		(213	)		(1,455	)
Reclassification adjustment for (gains) losses on securities		(160	)		18
Income tax expense (benefit)		56			(6	)
Other comprehensive income		291			2,712
Comprehensive income	$	8,740		$	5,502
The accompanying notes are an integral part of the consolidated financial statements.

6

American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended June 30, 2012 and 2011
(Dollars in thousands) (Unaudited)
								Accumulated
			Capital in					Other			Total
	Common		Excess of		Retained			Comprehensive			Shareholders'
	Stock		Par Value		Earnings			Income (Loss)			Equity
Balance, December 31, 2010	$	6,128	$	27,268	$	74,850		$	(159	)	$	108,087
Net income		-		-		2,790			-			2,790
Other comprehensive income		-		-		-			2,712			2,712
Stock options exercised		11		162		-			-			173
Stock option expense		-		32		-			-			32
Equity based compensation		18		208		-			-			226
Cash dividends declared, $0.46 per share		-				(2,830	)		-			(2,830	)
Balance, June 30, 2011	$	6,157	$	27,670	$	74,810		$	2,553		$	111,190
Balance, December 31, 2011	$	7,807	$	56,395	$	81,797		$	6,830		$	152,829
Net income		-		-		8,449			-			8,449
Other comprehensive income		-		-		-			291			291
Stock options exercised		3		42		-			-			45
Equity based compensation		26		388		-			-			414
Cash dividends declared, $0.46 per share		-				(3,604	)		-			(3,604	)
Balance, June 30, 2012	$	7,836	$	56,825	$	86,642		$	7,121		$	158,424
The accompanying notes are an integral part of the consolidated financial statements.

7

American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2012 and 2011
(Dollars in thousands)  (Unaudited)
	2012			2011
Cash Flows from Operating Activities:
Net income	$	8,449		$	2,790
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses		1,466			673
Depreciation		865			598
Core deposit intangible amortization		1,093			189
Net amortization (accretion) of securities		1,667			581
Net accretion of fair value adjustments		(5,306	)
Net (gain) loss on sale or call of securities		(160	)		18
Gain on loans held for sale		(926	)		(360	)
Proceeds from sales of loans held for sale		41,030			20,059
Originations of loans held for sale		(42,989	)		(18,651	)
Net (gain) loss on foreclosed real estate		(381	)		76
Valuation allowance on foreclosed real estate		219			359
Net gain on sale of premises and equipment		(495	)		-
Stock-based compensation expense		-			32
Equity based compensation		414			226
Deferred income tax expense (benefit)		2,238			(355	)
Net change in interest receivable		(12	)		172
Net change in other assets		(4,596	)		190
Net change in interest payable		(71	)		(179	)
Net change in other liabilities		(597	)		1,270
Net cash provided by operating activities		1,908			7,688
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale		4,209			2,099
Proceeds from maturities and calls of securities available for sale		33,574			44,617
Proceeds from maturities and calls of securities held to maturity		-			961
Purchases of securities available for sale		(39,999	)		(45,852	)
Net change in restricted stock		(249	)		-
Net decrease in loans		19,186			5,677
Proceeds from sale of premises and equipment		563			31
Purchases of premises and equipment		(573	)		(249	)
Proceeds from sales of foreclosed real estate		3,489			442
Net cash provided by investing activities		20,200			7,726
Cash Flows from Financing Activities:
Net change in demand, money market, and savings deposits		(29,597	)		24,022
Net change in time deposits		13,602			(5,170	)
Net change in customer repurchase agreements		538			3,245
Net change in other short-term borrowings		(3,000	)		(6,110	)
Net change in long-term borrowings		(76	)		(8,075	)
Net change in trust preferred capital notes		-			-
Common stock dividends paid		(3,604	)		(2,830	)
Proceeds from exercise of stock options		45			173
Net cash (used in) provided by financing activities		(22,092	)		5,255
Net Increase in Cash and Cash Equivalents		16			20,669
Cash and Cash Equivalents at Beginning of Period		28,893			18,514
Cash and Cash Equivalents at End of Period	$	28,909		$	39,183
The accompanying notes are an integral part of the consolidated financial statements.

8

AMERICAN NATIONAL BANKSHARES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

The consolidated financial statements include the accounts of American National Bankshares Inc. (the “Company”) and its wholly owned subsidiary, American National Bank and Trust Company (the “Bank”).  The Bank offers a wide variety of retail, commercial, secondary market mortgage lending, and trust and investment services which also include non-deposit products such as mutual funds and insurance policies.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill and intangible assets, pension obligations, other than temporary impairment, the fair value of financial instruments, and the valuation of foreclosed real estate.

In April 2006, AMNB Statutory Trust I, a Delaware statutory trust (the “AMNB Trust”) and a wholly owned subsidiary of the Company, was formed for the purpose of issuing preferred securities (the “Trust Preferred Securities”) in a private placement pursuant to an applicable exemption from registration.  Proceeds from the securities were used to fund the acquisition of Community First Financial Corporation (“Community First”) which occurred in April 2006.

On July 1, 2011, the Company completed its merger with MidCarolina Financial Corporation (“MidCarolina”).  MidCarolina was headquartered in Burlington, North Carolina, and engaged in banking operations through its subsidiary bank, MidCarolina Bank.

In July 2011, and in connection with its acquisition of MidCarolina, the Company assumed the liabilities of the MidCarolina I and MidCarolina Trust II, two separate Delaware statutory trusts (the “MidCarolina Trusts”), which were also formed for the purpose of issuing preferred securities.  Refer to Note 9 for further details concerning these entities.

All significant inter-company transactions and accounts are eliminated in consolidation, with the exception of the AMNB Trust and the MidCarolina Trusts, as detailed in Note 9.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company’s financial position as of June 30, 2012; the consolidated statements of income for the three and six months ended June 30, 2012 and 2011; the consolidated statements of comprehensive income for the three and six months ended June 30, 2012 and 2011; the consolidated statements of changes in shareholders’ equity for the six months ended June 30, 2012 and 2011; and the consolidated statements of cash flows for the six months ended June 30, 2012 and 2011.  Operating results for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may occur for the year ending December 31, 2012.  Certain reclassifications have been made to prior period balances to conform to the current period presentation. These statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2011.

Note 2 –Merger with MidCarolina

On July 1, 2011, the Company completed its merger with MidCarolina Financial Corporation pursuant to the Agreement and Plan of Reorganization, dated December 15, 2010, between the Company and MidCarolina (the “merger agreement”).  MidCarolina was headquartered in Burlington, North Carolina, and engaged in banking operations through its subsidiary bank, MidCarolina Bank.  The transaction has significantly expanded the Company’s footprint in North Carolina, adding eight branches in Alamance and Guilford Counties.

Pursuant to the terms of the merger agreement, as a result of the merger, the holders of shares of MidCarolina common stock received 0.33 shares of the Company’s common stock for each share of MidCarolina common stock held immediately prior to the effective date of the merger. Each option to purchase a share of MidCarolina common stock outstanding immediately prior to the effective date of the merger was converted into an option to purchase shares of Company common stock, adjusted for the 0.33 exchange ratio. Additionally, the holders of shares of noncumulative perpetual Series A preferred stock of MidCarolina received one share of a newly authorized noncumulative perpetual Series A preferred stock of the Company for each MidCarolina preferred share held immediately before the merger.  The Company’s Series A preferred stock was issued with terms, preferences, rights and limitations that are identical in all material respects to the MidCarolina Series A preferred stock.

9

The Company issued 1,626,157 shares of additional common stock in connection with the MidCarolina merger. This represents 20.8% of the outstanding shares of the Company as of June 30, 2012.

In connection with the transaction, MidCarolina Bank was merged with and into the Bank.

On November 15, 2011, the Company repurchased all 5,000 shares of the Series A preferred stock issued in the merger. The shares had a $1,000 liquidation preference per share. While the Series A preferred stock was subject to redemption at 104.5% of par during the twelve month period beginning August 15, 2011, the Company paid 62% of par, or an aggregate purchase price of $3.1 million, to repurchase all 5,000 outstanding shares from the sole holder of the securities.

The merger with MidCarolina was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the merger date. The excess of consideration paid over the fair value of net assets acquired was originally recorded as goodwill in the amount of approximately $16.4 million, which will not be amortizable and is not deductible for tax purposes.  The Company allocated the total balance of goodwill to its community banking segment. The Company also recorded $6.6 million in core deposit intangibles which will be amortized over nine years using a declining balance method.

In connection with the merger, the consideration paid, and the fair value of identifiable assets acquired and liabilities assumed as of the merger date are summarized in the following table.

(dollars in thousands)
Consideration Paid:
Common shares issued (1,626,157)	$	29,905
Cash paid to Shareholders		12
Fair Value of Options		132
Preferred shares issued (5,000)		5,000
Value of consideration		35,049
Assets acquired:
Cash and cash equivalents		34,783
Investment securities		51,442
Loans held for sale		113
Loans, net of unearned income		328,123
Premises and equipment, net		5,708
Deferred income taxes		15,310
Core deposit intangible		6,556
Other real estate owned		3,538
Other assets		13,535
Total assets		459,108
Liabilities assumed:
Deposits		420,248
FHLB advances		9,858
Other borrowings		6,546
Other liabilities		4,291
Total Liabilities		440,943
Net assets acquired		18,165
Goodwill resulting from merger with MidCarolina	$	16,884

The following table details the changes in the fair value of net assets acquired and liabilities assumed from the amounts originally reported in the Form 10-K for the period ending December 31, 2011 (in thousands).

10

Goodwill at December 31, 2011	$	16,431
Effect of adjustments to:
Other liabilities		453
Goodwill at June 30, 2012	$	16,884

        The increase in goodwill made during the first quarter of 2012 was due to a change in estimated tax refunds due to MidCarolina.

        In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was that of acquired loans. The Company acquired the $367.4 million loan portfolio at a fair value discount of $39.9 million. The performing portion of the portfolio estimated fair value was $286.5 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310-20 (formerly SFAS 91).

Certain loans, those for which specific credit-related deterioration since origination was identified, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.

The following table details the acquired loans that are accounted for in accordance with FASB ASC 310-30 (formerly Statement of Position (“SOP”) 03-3) as of July 1, 2011 (in thousands).

Contractually required principal and interest at acquisition	$	56,681
Contractual cash flows not expected to be collected (nonaccretable difference)		17,472
Expected cash flows at acquisition		39,209
Interest component of expected cash flows (accretable discount)		1,663
Fair value of acquired loans accounted for under FASB ASC 310-30	$	37,546

In accordance with U.S. GAAP, there was no carryover of the allowance for loan losses that had been previously recorded by MidCarolina.

In connection with the merger with MidCarolina, the Company acquired an investment portfolio with a fair value of $51.4 million. The fair value of the investment portfolio was determined by taking into account market prices obtained from independent valuation sources.

In connection with the merger with MidCarolina, the Company recorded a deferred income tax asset of $15.3 million related to MidCarolina’s valuation allowance on foreclosed real estate and bad debt expenses, as well as other tax attributes of the acquired company, along with the effects of fair value adjustments resulting from applying the acquisition method of accounting.

In connection with the merger with MidCarolina, the Company acquired other real estate owned with a fair value of $3.5 million. Other real estate owned was measured at fair value less estimated cost to sell.

In connection with the merger with MidCarolina, the Company acquired premises and equipment with a fair value of $5.7 million. Property appraisals for all owned locations were obtained. The fair value adjustment will be amortized as expense over the remaining lives of the properties. The Company also acquired several lease obligations in connection with the merger. The unfavorable lease position will be amortized over the remaining lives of the leases.

The fair value of savings and transaction deposit accounts acquired from MidCarolina was assumed to approximate their carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates. The portfolio was segregated into pools based on segments: retail, individual retirement accounts brokered, and Certificate of Deposit Account Registry Service (often referred to as “CDARS”). For each segment, the projected cash flows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each segment is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. This valuation adjustment will be accreted to reduce interest expense over the remaining maturities of the respective pools.

11

        The fair value of the Federal Home Loan Bank of Atlanta (“FHLB”) advances was determined based on the discounted cash flows of future payments. This adjustment to the face value of the borrowings will be amortized to increase interest expense over the remaining lives of the respective borrowings.

The fair value of junior subordinated debentures (Other Borrowings) was determined based on the fair value of similar debt or equity instruments with reasonably comparable terms. This adjustment to the face value of the borrowings will be amortized to increase interest expense over the remaining lives of the respective borrowings.

Direct costs related to the acquisition were expensed as incurred. During the entire year of 2011, the Company incurred $1,600,000 in merger and acquisition expenses. During 2012, the Company incurred $49,000 in merger related expense, mostly related to the deconversion of MidCarolina to the Company’s operating system.

The following table presents unaudited pro forma information as if the merger with MidCarolina had occurred on January 1, 2010. This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and other intangibles and related income tax effects. The pro forma information does not necessarily reflect the results of operations that would have occurred had the merger with MidCarolina occurred in 2010.  In particular, expected operational cost savings are not reflected in the pro forma amounts.

	Six Months Ended
	Pro Forma
	June 30,
(dollars in thousands)	2011
Net interest income	$	27,429
Provision for loan loss		(3,073	)
Non-interest income		5,014
Non-interest expense		(21,506	)
Income taxes		(2,359	)
Net income	$	5,505

12

Note 3 – Securities

The amortized cost and estimated fair value of investments in debt and equity securities at June 30, 2012 and December 31, 2011 were as follows:

	June 30, 2012
(in thousands)	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available for sale:
Federal agencies and GSEs	$	36,823	$	357	$	3	$	37,177
Mortgage-backed and CMOs		95,222		1,866		206		96,882
State and municipal		180,058		11,979		15		192,022
Corporate		8,385		63		6		8,442
Total securities available for sale	$	320,488	$	14,265	$	230	$	334,523

	December 31, 2011
(in thousands)	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available for sale:
Federal agencies and GSEs	$	32,071	$	608	$	-	$	32,679
Mortgage-backed and CMOs		102,444		1,874		414		103,904
State and municipal		182,952		11,454		1		194,405
Corporate		2,312		66		-		2,378
Total securities available for sale	$	319,779	$	14,002	$	415	$	333,366

Temporarily Impaired Securities

The following table shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012.  The reference point for determining when securities are in an unrealized loss position is month-end.  Therefore, it is possible that a security’s market value exceeded its amortized cost on other days during the past twelve-month period.

Available for sale securities that have been in a continuous unrealized loss position are as follows:

	Total				Less than 12 Months				12 Months or More
(in thousands)	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Federal agencies and GSEs	$	2,038	$	3	$	2,038	$	3	$	-	$	-
Mortgage-backed		17,215		120		17,215		120		-		-
CMOs		2,586		86		2,586		86		-		-
State and municipal		2,423		15		2,022		15		401		1
Corporate		2,419		6		2,419		6		-		-
Total	$	26,681	$	230	$	26,280	$	229	$	401	$	1

GSE debt securities: The unrealized losses on investments in one GSEs (“government sponsored entities”) was caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

13

GSE residential mortgage-backed securities:  The unrealized losses on the Company's investment in 11 GSE mortgage-backed securities were caused by interest rate increases. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

Collateralized Mortgage Obligations (“CMOs”): The unrealized loss associated with one CMO was caused by interest rate increases. The contractual cash flows of these investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

State and municipal securities:  The unrealized losses on four investments in state and municipal securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

Corporate securities:  The unrealized losses on two investments in corporate securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

The Company’s investment in FHLB stock totaled $3,408,000 at June 30, 2012.  FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock, other than the FHLB or member institutions.  Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.  The Company does not consider this investment to be other-than-temporarily impaired at June 30, 2012 and no impairment has been recognized.  FHLB stock is shown in restricted stock on the balance sheet and is not a part of the available for sale securities portfolio.

The table below shows gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position, at December 31, 2011.

	Total				Less than 12 Months				12 Months or More
(in thousands)	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Mortgage-backed	$	28,431	$	266	$	28,431	$	266	$	-	$	-
Private label CMOs		3,375		148		3,306		115		69		33
State and municipal		401		1		401		1		-		-
Total	$	32,207	$	415	$	32,138	$	382	$	69	$	33

Other-Than-Temporary-Impaired Securities

       As of June 30, 2012 and December 31, 2011, there were no securities classified as other-than-temporary impaired.

14

Note 4 - Loans

Loans, excluding loans held for sale, were comprised of the following:

	June 30,		December 31,
(in thousands)	2012		2011
Commercial	$	128,846	$	134,166
Commercial real estate:
Construction and land development		50,913		54,433
Commercial real estate		354,441		351,961
Residential real estate:
Residential		170,893		179,812
Home equity		95,522		96,195
Consumer		7,454		8,191
Total loans	$	808,069	$	824,758

Interest income, including accretion, on loans acquired from MidCarolina for the three months ended June 30, 2012 was approximately $7.7 million and $12.9 million for the six months ended June 30, 2012. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
(in thousands)	2012		2011
Oustanding principal balance	$	275,667	$	321,002
Carrying amount		255,840		293,569

The outstanding principal balance and related carrying amount of acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), to account for interest earned, at June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
(in thousands)	2012		2011
Oustanding principal balance	$	32,307	$	45,760
Carrying amount		24,633		34,027

The following table presents changes in the accretable discount on acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), for the six months ended June 30, 2012. The accretion reflected below includes $1,686,000 related to loan payoffs.

	Accretable
(in thousands)	Discount
Balance at December 31, 2011	$	1,056
Accretion		(1,738	)
Reclassification from nonaccretable difference		1,917
Balance at June 30, 2012	$	1,235

15

The following table shows an analysis by portfolio segment of the Company’s past due loans at June 30, 2012.

					90 Days +
	30- 59		60-89		Past Due		Non-		Total
	Days		Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
Commercial	$	170	$	128	$	-	$	1,095	$	1,393	$	127,453	$	128,846
Commercial real estate:
Construction and land development		-		-		-		1,257		1,257		49,656		50,913
Commercial real estate		981		1,596		-		1,996		4,573		349,868		354,441
Residential:
Residential		719		176		-		3,095		3,990		166,903		170,893
Home equity		308		13		-		551		872		94,650		95,522
Consumer		17		50		-		1		68		7,386		7,454
Total	$	2,195	$	1,963	$	-	$	7,995	$	12,153	$	795,916	$	808,069

The following table shows an analysis by portfolio segment of the Company’s past due loans at December 31, 2011.

					90 Days +
	30- 59		60-89		Past Due		Non-		Total
	Days		Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
Commercial	$	98	$	99	$	-	$	1,820	$	2,017	$	132,149	$	134,166
Commercial real estate:
Construction and land development		1,086		1,163		-		5,819		8,066		46,367		54,433
Commercial real estate		1,052		471		-		2,115		3,638		348,323		351,961
Residential:
Residential		1,519		741		-		3,476		5,735		174,077		179,812
Home equity		270		243		197		244		954		95,241		96,195
Consumer		126		7		-		49		181		8,010		8,191
Total	$	4,151	$	2,724	$	197	$	13,523	$	20,591	$	804,167	$	824,758

16

The following table presents the Company’s impaired loan balances by portfolio segment excluding loans acquired with deteriorated credit quality at June 30, 2012.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	214	$	382	$	-	$	210	$	-
Commercial real estate:
Construction and land development		2,081		701		-		1,407		15
Commercial real estate		153		153		-		765		5
Residential:
Residential		1,029		1,327		-		1,149		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	3,477	$	2,563	$	-	$	3,531	$	20
With an related allowance recorded:
Commercial		259		259		158		14		7
Commercial real estate:
Construction and land development		-		-		-		-		-
Commercial real estate		233		233		69		19		8
Residential		289		289		114		48		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	781	$	781	$	341	$	81	$	15
Total:
Commercial	$	473	$	641	$	158	$	224	$	7
Commercial real estate:
Construction and land development		2,081		701		-		1,407		15
Commercial real estate		386		386		69		784		13
Residential:
Residential		1,318		1,616		114		1,197		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	4,258	$	3,344	$	341	$	3,612	$	35

17

The following table presents the Company’s impaired loan balances by portfolio segment excluding loans acquired with deteriorated credit quality at December 31, 2011.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		364		391		-		292		-
Commercial real estate		279		279		-		207		17
Residential:
Residential		1,185		1,276		-		376		2
Home equity		89		89		-		50		3
Consumer		49		56		-		17		-
	$	1,966	$	2,091	$	-	$	990	$	22
With an related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial real estate:
Construction and land development		363		363		49		139		-
Commercial real estate		888		888		80		75		-
Residential:
Residential		21		21		1		7		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	1,272	$	1,272	$	130	$	221	$	-
Total:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		727		754		49		431		-
Commercial real estate		1,167		1,167		80		282		17
Residential:
Residential		1,206		1,297		1		383		2
Home equity		89		89		-		50		3
Consumer		49		56		-		17		-
	$	3,238	$	3,363	$	130	$	1,211	$	22

The following table shows the detail of loans modified as troubled debt restructurings (“TDRs”) included in the impaired loan balances for the three and six month periods ended June 30, 2012.

	Loans Modified as a TDR for the
	Three Months Ended June 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Oustanding Recorded
(dollars in thousands)	Contracts		Investment		Investment
Commercial		1	$	11	$	11
Commercial real estate:
Construction and land development		2		1,411		1,411
Commercial real estate		1		4		4
Total		4	$	1,426	$	1,426

18

	Loans Modified as a TDR for the
	Six Months Ended June 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Oustanding Recorded
(dollars in thousands)	Contracts		Investment		Investment
Commercial		1	$	11	$	11
Commercial real estate:
Construction and land development		7		2,188		2,081
Commercial real estate		1		4		4
Total		9	$	2,203	$	2,096

None of the loans modified as a TDR within the previous twelve months have subsequently defaulted during the six month period ending June 30, 2012.

        The following table shows the Company’s commercial loan portfolio broken down by internal risk grading as of June 30, 2012.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade
			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity
Pass	$	126,558	$	39,464	$	333,636	$	153,437	$	92,960
Special Mention		1,097		2,170		12,261		10,932		1,366
Substandard		1,191		9,279		8,544		6,524		1,196
Doubtful		-		-		-		-		-
Total	$	128,846	$	50,913	$	354,441	$	170,893	$	95,522
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer
Performing	$	7,365
Nonperforming		89
Total	$	7,454

Loans classified in the Pass category typically are fundamentally sound and risk factors are reasonable and acceptable.

Loans classified in the Special Mention category typically have been criticized internally, by loan review or the loan officer, or by external regulators under the current credit policy regarding risk grades.

Loans classified in the Substandard category typically have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are typically characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loans classified in the Doubtful category typically have all the weaknesses inherent in loans classified as substandard, plus the added characteristic the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur that may salvage the debt.

19

Consumer loans are classified as performing or nonperforming.  A loan is nonperforming when payments of interest and principal are past due 90 days or more, or payments are less than 90 days past due, but there are other good reasons to doubt that payment will be made in full.

The following table shows the Company’s commercial loan portfolio broken down by internal risk grading as of December 31, 2011.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade
			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity
Pass	$	130,603	$	35,265	$	321,370	$	161,158	$	93,193
Special Mention		1,349		3,401		19,072		10,166		1,606
Substandard		2,214		15,767		11,519		8,488		1,396
Doubtful		-		-		-		-		-
Total	$	134,166	$	54,433	$	351,961	$	179,812	$	96,195
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer
Performing	$	8,050
Nonperforming		141
Total	$	8,191

Note 5 – Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

Changes in the allowance for loan losses and the reserve for unfunded lending commitments as of the indicated dates and periods are presented below:

The reserve for unfunded loan commitments is included in other liabilities.

(in thousands)	Six Months Ended June 30, 2012			Year Ended December 31, 2011			Six Months Ended June 30, 2011
Allowance for Loan Losses
Balance, beginning of period	$	10,529		$	8,420		$	8,420
Provision for loan losses		1,466			3,170			673
Charge-offs		(863	)		(1,863	)		(705	)
Recoveries		967			802			356
Balance, end of period	$	12,099		$	10,529		$	8,744
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	200		$	218		$	218
Provision for loan losses		6			(18	)		9
Charge-offs		-			-			-
Balance, end of period	$	206		$	200		$	227

20

The following table presents the Company’s allowance for loan losses by portfolio segment and the related loan balance total by segment at June 30, 2012.

				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Total
(in thousands)
Allowance for Loan Losses
Balance as of December 31, 2011	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Charge-offs		(287	)		(232	)		(314	)		(30	)		(863	)
Recoveries		554			312			63			38			967
Provision		204			796			443			23			1,466
Balance as of June 30, 2012	$	1,707		$	6,595		$	3,604		$	193		$	12,099
Balances at June 30, 2012:
Allowance for Loan Losses
Individually evaluated for impairment	$	158		$	69		$	114		$	-		$	341
Collectively evaluated for impairment		1,549			6,526			3,490			193			11,758
Total	$	1,707		$	6,595		$	3,604		$	193		$	12,099
Loans
Individually evaluated for impairment	$	473		$	2,467		$	1,318		$	-		$	4,258
Collectively evaluated for impairment		125,553			389,281			256,860			7,454			779,148
Loans acquired with deteriorated credit quality		2,820			13,606			8,237			-			24,663
Total	$	128,846		$	405,354		$	266,415		$	7,454		$	808,069

The following table presents the Company’s allowance for loan losses by portfolio segment and the related loan balance total by segment at December 31, 2011.

				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Total
(in thousands)
Allowance for Loan Losses
Balance as of December 31, 2010	$	751		$	4,631		$	2,921		$	117		$	8,420
Charge-offs		(163	)		(702	)		(871	)		(127	)		(1,863	)
Recoveries		373			306			50			73			802
Provision		275			1,484			1,312			99			3,170
Balance as of December 31, 2011	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Balance as of December 31, 2011:
Allowance for Loan Losses
Individually evaluated for impairment	$	-		$	129		$	1		$	-		$	130
Collectively evaluated for impairment		1,236			5,590			3,411			162			10,399
Total	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Loans
Individually evaluated for impairment	$	-		$	1,894		$	1,295		$	49		$	3,238
Collectively evaluated for impairment		131,754			381,175			266,421			8,143			787,493
Loans acquired with deteriorated credit quality		2,411			23,325			8,291			-			34,027
Total	$	134,165		$	406,394		$	276,007		$	8,192		$	824,758

The allowance for loan losses is allocated to loan segments based upon historical loss factors, risk grades on individual loans, portfolio analyses of smaller balance, homogenous loans, and qualitative factors.  Qualitative factors include trends in delinquencies, nonaccrual loans, and loss rates; trends in volume and terms of loans, effects of changes in risk selection, underwriting standards, and lending policies; experience of lending officers and other lending staff; national and local economic trends and conditions; and concentrations of credit.

21

Note 6 – Goodwill and Other Intangible Assets

Goodwill is subject to at least an annual assessment for impairment by applying a fair value test.  An annual fair value-based test was performed in 2011 that determined the market value of the Company’s shares exceeded the consolidated carrying value, including goodwill; therefore, there has been no impairment recognized in the value of goodwill.

Core deposit intangibles resulting from the Community First acquisition in April 2006 were $3,112,000 and are being amortized over 99 months.  Core deposit intangibles resulting from the MidCarolina acquisition in July 2011 were $6,556,000 and are being amortized over 108 months.

The changes in the carrying amount of goodwill and intangibles for the six months ended June 30, 2012, are as follows (in thousands):

	Goodwill		Intangibles
Balance December 31, 2011	$	38,899	$	6,595
Additions		453		-
Amortization		-		(1,093	)
Impairment		-		-
Balance June 30, 2012	$	39,352	$	5,502

Note 7 – Short-term Borrowings

Short-term borrowings consist of customer repurchase agreements, overnight borrowings from the FHLB, and Federal Funds purchased.  Customer repurchase agreements are collateralized by securities of the U.S. Government or its agencies or GSEs.  They mature daily.  The interest rates are generally fixed but may be changed at the discretion of the Company. The securities underlying these agreements remain under the Company’s control.  FHLB overnight borrowings contain floating interest rates that may change daily at the discretion of the FHLB.  Federal Funds purchased are unsecured overnight borrowings from other financial institutions.  Short-term borrowings consisted of the following as of June 30, 2012 and December 31, 2011 (in thousands):

	June 30, 2012		December 31, 2011
Customer repurchase agreements	$	46,113	$	45,575
FHLB overnight borrowings		-		3,000
	$	46,113	$	48,575

Note 8 – Long-term Borrowings

Under the terms of its collateral agreement with the FHLB, the Company provides a blanket lien covering all of its residential first mortgage loans, second mortgage loans, home equity lines of credit, and commercial real estate loans.  In addition, the Company pledges as collateral its capital stock in the FHLB and deposits with the FHLB.  The Company has a line of credit with the FHLB equal to 30% of the Company’s assets, subject to the amount of collateral pledged.  As of June 30, 2012, $518,174,000 in eligible collateral was pledged under the blanket floating lien agreement which covers both short-term and long-term borrowings.  Long-term borrowings consisted of the following fixed rate, long term advances as of June 30, 2012 and December 31, 2011 (dollars in thousands):

June 30, 2012						December 31, 2011
Due by	Advance Amount		Weighted Average Rate			Due by	Advance Amount		Weighted Average Rate
April 2014	$	262		3.78	%	April 2014	$	337		3.78	%
November  2017		9,880		2.98		November 2017		9,869		2.98
	$	10,142		3.01	%		$	10,206		3.01	%

22

The advance due in November 2017 is net of a valuation allowance of $120,000. The original valuation allowance recorded on July 1, 2011 was a result of the merger with MidCarolina. The adjustment to the face value will be amortized into interest expense over the life of the borrowing.

In the regular course of conducting its business, the Company takes deposits from political subdivisions of the States of Virginia and North Carolina. At June 30, 2012, the Bank’s public deposits totaled $117,989,000. The Company is required to provide collateral to secure the deposits that exceed the insurance coverage provided by the Federal Deposit Insurance Corporation. This collateral can be provided in the form of certain types of government or agency bonds or letters of credit from the FHLB. At June 30, 2012, the Company had $72,000,000 in letters of credit with the FHLB outstanding, as well as $75,824,000 in government and agency securities to provide collateral for such deposits.

Note 9 – Trust Preferred Capital Notes

On April 7, 2006, the AMNB Trust, a Delaware statutory trust and a wholly owned subsidiary of the Company, issued $20,000,000 of preferred securities in a private placement pursuant to an applicable exemption from registration.  The Trust Preferred Securities mature on June 30, 2036, but may be redeemed at the Company’s option beginning on June 30, 2011.  Initially, the securities required quarterly distributions by the AMNB Trust to the holder of the Trust Preferred Securities at a fixed rate of 6.66%.  Effective June 30, 2011, the rate resets quarterly at the three-month LIBOR plus 1.35%.  Distributions are cumulative and will accrue from the date of original issuance, but may be deferred by the Company from time to time for up to 20 consecutive quarterly periods.  The Company has guaranteed the payment of all required distributions on the Trust Preferred Securities.

The proceeds of the Trust Preferred Securities received by the AMNB Trust, along with proceeds of $619,000 received by the trust from the issuance of common securities by the trust to the Company, were used to purchase $20,619,000 of the Company’s junior subordinated debt securities (the “Trust Preferred Capital Notes”), issued pursuant to a junior subordinated debentures entered into between the Company and Wilmington Trust Company, as trustee.  The proceeds of the Trust Preferred Capital Notes were used to fund the cash portion of the merger consideration to the former shareholders of Community First in connection with the Company’s acquisition of that company, and for general corporate purposes.

On July 1, 2011, in connection with the MidCarolina merger, the Company assumed $8,764,000 in junior subordinated debentures to the MidCarolina Trusts, to fully and unconditionally guarantee the preferred securities issued by the MidCarolina Trusts. These long term obligations, which currently qualify as Tier 1 capital, constitute and full and unconditional guarantee by the Company of the MidCarolina Trusts’ obligations. The MidCarolina Trusts are not consolidated in the Company’s financial statements.

In accordance with FASB ASC 810-10-15-14, the Company did not eliminate through consolidation the Company’s $619,000 equity investment in AMNB Statutory Trust I or the $264,000 equity investment in the MidCarolina Trusts.  Instead, the Company reflected this equity investment in the “Accrued interest receivable and other assets” line item in the consolidated balance sheets.

A description of the junior subordinated debt securities outstanding payable to the trusts is shown below:

								(Amounts in thousands)
								Principal Amount
	Date		Interest			Maturity
Issuing Entity	Issued		Rate			Date		June 30, 2012		December 31, 2011
AMNB Trust I		04-07-06	Libor plus				06-30-36	$	20,619	$	20,619
				1.35	%
MidCarolina I		10-29-02	Libor plus				11-07-32		4,014		3,986
				3.45	%
MidCarolina II		12-03-03	Libor plus				10-07-33		2,634		2,607
				2.95	%
								$	27,267	$	27,212

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The principal amounts reflected for the MidCarolina Trusts are net of valuation allowances of $1,141,000 and $975,000, respectively. The original valuation allowances of $1,197,000 and $1,021,000 were recorded as a result of the merger with MidCarolina on July 1, 2011 and are being amortized into interest expense over the remaining lives of the respective borrowings.

Note 10 – Stock Based Compensation

The Company’s 2008 Stock Incentive Plan (“2008 Plan”) was adopted by the Board of Directors of the Company on February 19, 2008 and approved by shareholders on April 22, 2008 at the Company’s 2008 Annual Meeting of Shareholders.  The 2008 Plan provides for the granting of restricted stock awards and incentive and non-statutory options to employees and directors on a periodic basis, at the discretion of the Board of Directors or a Board designated committee.  The 2008 Plan authorizes the issuance of up to 500,000 shares of common stock. The 2008 Plan replaced the Company’s stock option plan that was approved by the shareholders at the 1997 Annual Meeting, which plan terminated in 2006.

Stock Options

Accounting guidance requires that compensation cost relating to share-based payment transactions be recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued.

A summary of stock option transactions for the six months ended June 30, 2012 is as follows:

	Option  Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate  Intrinsic  Value  ($000)
Outstanding at December 31, 2011		268,639		$	23.94
Granted		-			-
Exercised		(2,761	)		16.37
Forfeited		-			-
Outstanding at June 30, 2012		265,878		$	24.02	3.98 years	$	467
Exercisable at June 30, 2012		265,878		$	24.02	3.98 years	$	467

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options’ vesting period.  As of June 30, 2012, there was no unrecognized compensation expenses related to nonvested stock option grants.

Restricted Stock

The Company from time-to-time grants shares of restricted stock to key employees and non-employee directors.  These awards help align the interests of these employees and directors with the interests of the shareholders of the Company by providing economic value directly related to increases in the value of the Company’s common stock.  The value of the stock awarded is established as the fair market value of the stock at the time of the grant.  The Company recognizes expense, equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock granted cliff vests over 24 to 36 months based on the term of the award.

Nonvested restricted stock activity for the six months ended June 30, 2012 is summarized in the following table. 

Restricted Stock	Shares		Weighted Average Grant Date Value
Nonvested at January 1, 2012		38,349	$	20.53
Granted		15,290		19.30
Vested		8,712		21.36
Forfeited		-		-
Nonvested at June 30, 2012		44,927	$	19.95

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As of June 30, 2012 and December 31, 2011, there was $525,000 and $404,000 in unrecognized compensation cost related to nonvested restricted stock granted under the 2008 Plan.  The weighted average period over which this this cost   is expected to be recognized is 1.40 years.   The share based compensation expense for nonvested restricted stock was $174,000 and $120,000 during the first six months of 2012 and 2011, respectively.

Starting in 2010, the Company began offering its directors an option with respect to director compensation. For 2012, the regular monthly retainer can be received in the form of either (i) $1,000 in cash or (ii) shares of immediately vested but restricted stock with a market value of $1,563. Monthly meeting fees can also be received as $600 per meeting in cash or $750 in immediately vested, but restricted stock.  For 2012, 12 of 13 directors elected to receive stock in lieu of cash for their monthly retainer board meeting fees. Only outside directors receive board fees. The Company issued 11,136 and 5,476 shares and recognized share based compensation expense of $240,000 and $107,000 during the first six months of 2012 and 2011, respectively.

Note 11 – Earnings Per Share

      The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of potentially dilutive common stock.  Potentially dilutive common stock had no effect on income available to common shareholders.

      Stock options on common stock which were not included in computing diluted earnings per share for the six month periods ended June 30, 2012 and 2011, because their effects were antidilutive, averaged 196,394 and 82,177, respectively.

	Three Months Ended
	June 30,
	2012					2011
			Per					Per
			Share					Share
	Shares		Amount			Shares		Amount
Basic		7,832,162	$	.55			6,154,396	$	.16
Effect of dilutive securities - stock options		16,980		(.01	)		6,869		-
Diluted		7,849,142	$	.54			6,161,265	$	.16

	Six Months Ended
	June 30,
	2012				2011
			Per				Per
			Share				Share
	Shares		Amount		Shares		Amount
Basic		7,827,195	$	1.08		6,149,029	$	.45
Effect of dilutive securities - stock options		12,169		-		8,003		-
Diluted		7,839,364	$	1.08		6,157,032	$	.45

         Stock options on common stock which were not included in computing diluted earnings per share for the six month periods ended June 30, 2012 and 2011, because their effects were antidilutive, averaged 196,394 and 82,177, respectively.

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Note 12 – Employee Benefit Plans

        The following is information pertaining to the Company’s non-contributory defined benefit pension plan.

Components of Net Periodic Benefit Cost	Three Months Ended						Six Months Ended
(in thousands)	June 30,						June 30,
	2012			2011			2012			2011
Service cost	$	-		$	27		$	-		$	54
Interest cost		97			101			194			202
Expected return on plan assets		(135	)		(131	)		(270	)		(262	)
Recognized net actuarial loss		83			40			166			80
Net periodic benefit cost	$	45		$	37		$	90		$	74

        The plan was frozen in 2009.

Note 13 – Segment and Related Information

The Company has two reportable segments, community banking and trust and investment services.

Community banking involves making loans to and generating deposits from individuals and businesses.  All assets and liabilities of the Company are allocated to community banking.  Investment income from securities is also allocated to the community banking segment.  Loan fee income, service charges from deposit accounts, and non-deposit fees such as automated teller machine fees and insurance commissions generate additional income for community banking.

Trust and investment services include estate planning, trust account administration, investment management, and retail brokerage.  Investment management services include purchasing equity, fixed income, and mutual fund investments for customer accounts. The trust and investment services division receives fees for investment and administrative services.

Amounts shown in the “Other” column includes activities of the Company which are primarily debt service on trust preferred securities and corporate items.  Intersegment eliminations primarily consist of the Company’s interest income on deposits held by the Bank.

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Segment information as of and for the three and six months ended June 30, 2012 and 2011, is shown in the following table.

	Three Months Ended June 30, 2012
			Trust and
(in thousands)	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	14,886	$	-	$	2		$	(2	)	$	14,886
Interest expense		1,865		-		207			(2	)		2,070
Noninterest income		1,715		1,079		6			-			2,800
Income before income taxes		5,704		650		(304	)		-			6,050
Net income		4,014		461		(201	)		-			4,274
Depreciation and amortization		984		5		-			-			989
Total assets		1,289,971		-		921			-			1,290,892
Capital expenditures		-		-		-			-			-
	Three Months Ended June 30, 2011
			Trust and
	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	8,570	$	-	$	12		$	(12	)	$	8,570
Interest expense		1,686		-		297			(12	)		1,971
Noninterest income		1,064		915		9			-			1,988
Income before income taxes		1,781		583		(1,141	)		-			1,223
Net income		1,619		384		(991	)		-			1,012
Depreciation and amortization		384		5		-			-			389
Total assets		841,369		-		4,647			-			846,016
Capital expenditures		146		-		-			-			146
	Six Months Ended June 30, 2012
			Trust and
	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	30,228	$	-	$	5		$	(5	)	$	30,228
Interest expense		3,832		-		413			(5	)		4,240
Noninterest income		3,961		2,062		11			-			6,034
Income before income taxes		11,187		1,208		(599	)		-			11,796
Net income		7,984		865		(400	)					8,449
Depreciation and amortization		1,948		10		-			-			1,958
Total assets		1,289,971		-		921			-			1,290,892
Capital expenditures		573		-		-			-			573

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Note 14 – Fair Value of Financial Instruments

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the fair value measurements and disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).  Federal Reserve Bank of Richmond and FHLB stocks are carried at cost since no ready market exists and there is no quoted market value.  The Company is required to own stock in these entities as long as it is a member.  Therefore, they have been excluded from the table below.

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The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis during the period (in thousands):

			Fair Value Measurements at June 30, 2012 Using
	Balance as of June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2012		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Federal agencies and GSEs	$	37,177	$	-	$	37,177	$	-
Mortgage-backed and CMOs		96,882		-		96,882		-
State and municipal		192,022		-		192,022		-
Corporate		8,442		-		8,105		337
Total	$	334,523	$	-	$	334,186	$	337

			Fair Value Measurements at December 31, 2011 Using
	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2011		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Federal agencies and GSEs	$	32,679	$	-	$	32,679	$	-
Mortgage-backed and CMOs		103,904		-		103,904		-
State and municipal		194,405		-		194,405		-
Corporate		2,378		-		2,054		324
Total	$	333,366	$	-	$	333,042	$	324

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Total Realized / Unrealized Gains
			(Losses) Included in
	Balances as of January 1, 2012		Net Income		Other Comprehensive Income		Purchases, Sales, Issuances and Settlements, Net	Transfer In (Out) of Level 3		Balances as of June 30, 2012
Securities available for sale:
Corporate	$	324	$	13	$	-	-	$	-	$	337
Total assets	$	324	$	13	$	-	-	$	-	$	337

         Certain assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

Loans held for sale: Loans held for sale are carried at estimated fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the period ended June 30, 2012. Gains and losses on the sale of loans are recorded within income from mortgage banking on the Consolidated Statements of Income.

29

Impaired loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other real estate owned (“OREO”):  Property acquired in satisfaction of loans is carried at the lower of cost or market value.  The value of real estate is determined utilizing an income or market valuation approach less cost to sell based on an appraisal conducted by an independent, licensed appraiser outside of the company using observable market data (Level 2).  However, if the real estate is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3.  OREO is measured at fair value on a nonrecurring basis.  Any initial fair value adjustment is charged against the allowance for loan loss.  Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Consolidated Statements of Income.

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis during the period (in thousands):

			Fair Value Measurements at June 30, 2012 Using
	Balance as of June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2012		Level 1		Level 2		Level 3
Assets:
Loans held for sale	$	9,215	$	-	$	9,215	$	-
Impaired loans, net of valuation allowance		440		-		440		-
Other real estate owned		4,731		-		4,731		-

			Fair Value Measurements at December 31, 2011 Using
	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2011		Level 1		Level 2		Level 3
Assets:
Loans held for sale	$	6,330	$	-	$	6,330	$	-
Impaired loans, net of valuation allowance		1,142		-		1,142		-
Other real estate owned		5,353		-		5,353		-

30

The carrying values and estimated fair values of the Company’s financial instruments as of June 30, 2012 are as follows (in thousands):

			Fair Value Measurements at June 30, 2012 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	28,909	$	28,909	$	-	$	-	$	28,909
Securities avaiable for sale		334,523		-		334,186		337		334,523
Loans held for sale		9,215		-		9,215		-		9,215
Loans, net of allowance		795,970		-		787,894		-		787,894
Bank owned life insurance		13,273		-		13,273		-		13,273
Accrued Iinterest receivable		5,106		-		5,106		-		5,106
Financial Liabilities:
Deposits	$	1,042,485	$	-	$	1,020,830	$	-	$	1,020,830
Repurchase agreements		46,113		-		46,113		-		46,113
Other borrowings		10,142		-		11,078		-		11,078
Trust preferred capital notes		27,267		-		23,032		-		23,032
Accrued interest payable		758		-		758		-		758

The Company has one Level 3 security, a trust preferred security issued by a community bank. It is a Level 3 security under the three-tier fair value hierarchy because of an absence of observable inputs for these and similar securities in the debt markets.  The Company acquired this security in connection with merger with MidCarolina and obtained an independent third party appraisal of the fair value at July 1, 2011. Because of the lack of observable inputs, the valuation was completed using a discounted cash flow computation, adjusted for an estimated default rate determined by reviewing industry statistics. The merger date initial fair value estimate of the security was 67.28% of its $500,000 par, or $336,000. Approximately $147,000 of this impairment was attributed to factors other than credit, and $17,000 was attributable to credit factors.

The carrying values and estimated fair values of the Company’s financial instruments as of December 31, 2011 are as follows (in thousands):

			Fair Value Measurements at December 31, 2011 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	28,893	$	28,893	$	-	$	-	$	28,893
Securities avaiable for sale		333,366		-		333,042		324		333,366
Loans held for sale		6,330		-		6,330		-		6,330
Loans, net of allowance		814,229		-		811,573		-		811,573
Bank owned life insurance		13,058		-		13,058		-		13,058
Accrued Iinterest receivable		5,091		-		5,091		-		5,091
Financial Liabilities:
Deposits	$	1,058,754	$	-	$	1,066,448	$	-	$	1,066,448
Repurchase agreements		45,575		-		45,575		-		45,575
Other borrowings		13,206		-		13,064		-		13,064
Trust preferred capital notes		27,212		-		27,184		-		27,184
Accrued interest payable		857		-		857		-		857

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The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and cash equivalents.  The carrying amount is a reasonable estimate of fair value.

Securities.  Fair values are based on quoted market prices or dealer quotes.

Loans held for sale.  The carrying amount is a reasonable estimate of fair value.

Loans.  For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  Fair values for fixed-rate loans are estimated based upon discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Bank owned life insurance. Bank owned life insurance represents insurance policies on officers, directors, and past directors of the Company.  The cash values of the policies are estimates using information provided by insurance carriers.  These policies are carried at their cash surrender value, which approximates the fair value.

Accrued interest receivable.  The carrying amount is a reasonable estimate of fair value.

Deposits.  The fair value of demand deposits, savings deposits, and money market deposits equals the carrying value. The fair value of fixed-rate certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposit instruments would be offered to depositors for the same remaining maturities.

Repurchase agreements.  The carrying amount is a reasonable estimate of fair value.

Other borrowings.  The fair values of other borrowings are estimated using discounted cash flow analyses based on the interest rates for similar types of borrowing arrangements.

Trust preferred capital notes.  Fair value is calculated by discounting the future cash flows using the estimated current interest rates at which similar securities would be issued.

Accrued interest payable.  The carrying amount is a reasonable estimate of fair value.

Off-balance sheet instruments.  The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At June 30, 2012 and December 31, 2011, the fair value of off balance sheet instruments was deemed immaterial, and therefore was not included in the previous table.

The Company assumes interest rate risk (the risk that interest rates will change) in its normal operations.  As a result, the fair values of the Company’s financial instruments will change when interest rates change and that change may be either favorable or unfavorable to the Company.

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Note 15 – Supplemental Cash Flow Information

	Six Months Ended
			June 30,
	2012		2011
Supplemental Schedule of Cash and Cash Equivalents:
Cash and due from banks	$	18,529	$	15,873
Interest-bearing deposits in other banks		10,380		23,310
	$	28,909	$	39,183
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	4,547	$	4,183
Income taxes		.		1,141
Noncash investing and financing activities:
Transfer of loans to other real estate owned		2,705		674
Unrealized gain on securities available for sale		448		4,173

Note 16 – Recent Accounting Pronouncements

In April 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements.”  The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion.  The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.  Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”  This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements.  The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS).  The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application.  Early application is not permitted.  The Company has included the required disclosures in its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.”  The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  The amendments require that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share.  The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011.  Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures.  The Company has included the required disclosures in its consolidated financial statements.

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In September 2011, the FASB issued ASU 2011-08, “Intangible – Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.”  The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.  Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.  The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued.  The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities.”  This ASU requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”  The amendments are being made to allow FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has included the required disclosures in its consolidated financial statements.

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for previously announced accounting pronouncements.

34

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The purpose of this discussion is to focus on important factors affecting the financial condition and results of operations of the Company.  The discussion and analysis should be read in conjunction with the Consolidated Financial Statements.

Forward-Looking Statements

This report contains forward-looking statements with respect to the financial condition, results of operations and business of American National Bankshares Inc. (the “Company”) and its wholly owned subsidiary, American National Bank and Trust Company (the “Bank”). These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of management of the Company and on information available to management at the time these statements and disclosures were prepared.  Forward-looking statements are subject to numerous assumptions, estimates, risks, and uncertainties that could cause actual conditions, events, or results to differ materially from those stated or implied by such forward-looking statements.

A variety of factors may affect the operations, performance, business strategy, and results of the Company.  Those factors include but are not limited to the following:

·   Financial market volatility including the level of interest rates could affect the values of financial instruments and the amount of net interest income earned;

·   General economic or business conditions, either nationally or in the market areas in which the Company does business, may be less favorable than expected, resulting in deteriorating credit quality, reduced demand for credit, or a weakened ability to generate deposits;

·   Competition among financial institutions may increase and competitors may have greater financial resources and develop products and technology that enable those competitors to compete more successfully than the Company;

·   Businesses that the Company is engaged in may be adversely affected by legislative or regulatory changes, including changes in accounting standards;

·   The ability to retain key personnel;

·   The failure of assumptions underlying the allowance for loan losses;  and

·   The potential for negative financial or operational impact of the completed merger with MidCarolina Financial Corporation and other mergers and acquisitions.

Reclassification

In certain circumstances, reclassifications have been made to prior period information to conform to the 2012 presentation.

CRITICAL ACCOUNTING POLICIES

The accounting and reporting policies followed by the Company conform with U.S. generally accepted accounting principles (“GAAP”) and they conform to general practices within the banking industry.  The Company’s critical accounting policies, which are summarized below, relate to (1) the allowance for loan losses, (2) acquired loans with specific credit-related deterioration and (3) goodwill impairment.

The financial information contained within the Company’s financial statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred.  A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset, or relieving a liability.  In addition, GAAP itself may change from one previously acceptable method to another method.

35

Allowance for Loan Losses

The allowance for loan losses is an estimate of the losses inherent in the loan portfolio at the balance sheet date.  The allowance is based on two basic principles of accounting: Financial Accounting Standards Board (“FASB”) Topic 450-25 Contingencies - Recognition which requires that losses be accrued when they are probable of occurring and estimable and FASB Topic 310-10 Receivables – Overall – Subsequent Measurement which requires that losses on impaired loans be accrued based on the differences between the value of collateral, present value of future cash flows, or values observable in the secondary market, and the loan balance.

The Company’s allowance for loan losses has two basic components:  the formula allowance and the specific allowance.  Each component is determined based upon estimates. With regard to commercial loans, the formula allowance uses historical loss experience as an indicator of future losses, along with various qualitative factors, including levels and trends in delinquencies, nonaccrual loans, charge-offs and recoveries, trends in volume and terms of loans, effects of changes in underwriting standards, experience of lending staff, economic conditions, and portfolio concentrations. In the formula allowance, the migrated historical loss rate is combined with the qualitative factors, resulting in an adjusted loss factor for each risk-grade category of loans.  With regard to consumer loans, the allowance calculations are calculated based on historical losses for each product category without regard to risk grade. This loss rate is combined with qualitative factors resulting in an adjusted loss factor for each product category.   The period-end balances for each loan risk-grade category are multiplied by the adjusted loss factor.  The formula allowance is calculated for a range of outcomes.  The specific allowance uses various techniques to arrive at an estimate of loss for specifically identified impaired loans. The use of these computed values is inherently subjective and actual losses could be greater or less than the estimates.

The reserve for unfunded loan commitments is an estimate of the losses inherent in off-balance-sheet loan commitments at the balance sheet date.  It is calculated by multiplying an estimated loss factor by an estimated probability of funding, and then by the period-end amounts for unfunded commitments.  The reserve for unfunded loan commitments is included in other liabilities.

Acquired Loans with Specific Credit-Related Deterioration

Acquired loans with specific credit deterioration are accounted for by the Company in accordance with FASB Accounting Standards Codification 310-30. Certain acquired loans, those for which specific credit-related deterioration, since origination, is identified, are recorded at fair value reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on a reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.

Goodwill Impairment

The Company tests goodwill on an annual basis or more frequently if events or circumstances indicate that there may have been impairment.  If the carrying amount of goodwill exceeds its implied fair value, the Company would recognize an impairment loss in an amount equal to that excess.  The goodwill impairment test requires management to make judgments in determining the assumptions used in the calculations.  The goodwill impairment testing conducted by the Company in 2012 indicated that goodwill is not impaired and is properly recorded in the financial statements.

Non-GAAP Presentations

The analysis of net interest income in this document is performed on a taxable equivalent basis to facilitate performance comparisons among various taxable and tax-exempt assets.

Internet Access to Corporate Documents

The Company provides access to its Securities and Exchange Commission (“SEC”) filings through a link on the Investors Relations page of the Company’s web site at www.amnb.com.  Reports available include the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after the reports are filed electronically with the SEC.  The information on the Company’s website is not incorporated into this report or any other filing the Company makes with the SEC.The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.

36

ACQUISITION OF MIDCAROLINA FINANCIAL CORPORATION

On July 1, 2011, the Company completed its merger with MidCarolina Financial Corporation (“MidCarolina”) pursuant to the Agreement and Plan of Reorganization, dated December 15, 2010, between the Company and MidCarolina. MidCarolina was headquartered in Burlington, North Carolina, and engaged in banking operations through its subsidiary bank, MidCarolina Bank.  The transaction has significantly expanded the Company’s footprint in North Carolina, adding eight branches in Alamance and Guilford Counties.

Pursuant to the terms of the merger agreement with MidCarolina, as a result of the merger, the holders of shares of MidCarolina common stock received 0.33 shares of the Company’s common stock for each share of MidCarolina common stock held immediately prior to the effective date of the merger. Each option to purchase a share of MidCarolina common stock outstanding immediately prior to the effective date of the merger was converted into an option to purchase shares of Company common stock, adjusted for the 0.33 exchange ratio. Additionally, the holders of shares of noncumulative perpetual Series A preferred stock of MidCarolina received one share of a newly authorized noncumulative perpetual Series A preferred stock of the Company for each MidCarolina preferred share held immediately before the merger.  The Company’s Series A preferred stock was issued with terms, preferences, rights and limitations that are identical in all material respects to the MidCarolina Series A preferred stock

The Company issued 1,626,157 shares of additional common stock in connection with the MidCarolina merger. This represents 20.8% of the outstanding shares of the Company’s common stock as of June 30, 2012.

In connection with the transaction, MidCarolina Bank was merged with and into the Bank.

On November 15, 2011, the Company repurchased all 5,000 shares of the Series A preferred stock issued in the merger. The shares had a $1,000 liquidation preference per share. While the Series A preferred stock was subject to redemption at 104.5% of par during the twelve month period beginning August 15, 2011, the Company paid 62% of par, or an aggregate purchase price of $3.1 million, to repurchase all 5,000 outstanding shares from the sole holder of the securities.

       The acquisition has been accretive to earnings. Most of the material changes in balance sheet and income statement categories during this reporting period are directly related to the impact of the MidCarolina merger.

MANAGEMENT INFORMATION SYSTEM CHANGES

       In connection with the merger with MidCarolina, the Company converted its management information systems from an in-house data processing system to an outsourced processing strategy.  Both banks’ management information systems were fully integrated and converted to Jack Henry & Associates Silverlake processing system in mid-February 2012.

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RESULTS OF OPERATIONS

Earnings Performance

Three months ended June 30, 2012 and 2011

For the quarter ended June 30, 2012, the Company reported net income of $4,274,000 compared to $1,012,000 for the comparable quarter in 2011. The $3,262,000 or 322.3% increase in earnings was primarily due the positive impact of the July 2011 merger with MidCarolina.  The merger generated $2,796,000 in fair value and merger related adjustments, which represents approximately 46% of consolidated pretax income.

SUMMARY INCOME STATEMENT
(Dollars in thousands)
For the three months ended June 30,	2012			2011			$ Change			% Change
Interest income	$	14,886		$	8,570		$	6,316			73.7	%
Interest expense		(2,070	)		(1,971	)		(99	)		5.0	%
Net interest income		12,816			6,599			6,217			94.2	%
Provision for loan losses		(733	)		(336	)		(397	)		118.2	%
Noninterest income		2,800			1,988			812			40.8	%
Noninterest expense		(8,833	)		(7,028	)		(1,805	)		25.7	%
Income tax expense		(1,776	)		(211	)		(1,565	)		741.7	%
Net income	$	4,274		$	1,012		$	3,262			322.3	%

Six months ended June 30, 2012 and 2011

For the six month period ended June 30, 2012, the Company reported net income of $8,449,000 compared to $2,790,000 for the comparable period in 2011. The $5,659,000 or 202.8% increase in earnings was primarily due the positive impact of the July 2011 merger with MidCarolina.  The 2011 period was negatively impacted by costs associated with the merger. The merger generated $5,098,000 in fair value and merger related adjustments, which represents approximately 43% of consolidated pretax income.

SUMMARY INCOME STATEMENT
(Dollars in thousands)
For the six months ended June 30,	2012			2011			$ Change			% Change
Interest income	$	30,228		$	17,231		$	12,997			75.4	%
Interest expense		(4,240	)		(4,027	)		(213	)		5.3	%
Net interest income		25,988			13,204			12,784			96.8	%
Provision for loan losses		(1,466	)		(673	)		(793	)		117.8	%
Noninterest income		6,034			3,959			2,075			52.4	%
Noninterest expense		(18,760	)		(12,807	)		(5,953	)		46.5	%
Income tax expense		(3,347	)		(893	)		(2,454	)		274.8	%
Net income	$	8,449		$	2,790		$	5,659			202.8	%

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Net Interest Income

Net interest income is the difference between interest income on earning assets, primarily loans and securities, and interest expense on interest bearing liabilities, primarily deposits and other funding sources.  Fluctuations in interest rates as well as volume and mix changes in earning assets and interest bearing liabilities can materially impact net interest income.  The following discussion of net interest income is presented on a taxable equivalent basis to facilitate performance comparisons among various taxable and tax-exempt assets, such as certain state and municipal securities.  A tax rate of 35% was used in adjusting interest on tax-exempt assets to a fully taxable equivalent basis.  Net interest income divided by average earning assets is referred to as the net interest margin. The net interest spread represents the difference between the average rate earned on earning assets and the average rate paid on interest bearing liabilities.

Three months ended June 30, 2012 and 2011

Net interest income on a taxable equivalent basis increased $6,350,000 or 90.0%, for the second quarter of 2012 compared to the same quarter of 2011.  This was due primarily to the impact of the merger with MidCarolina.

For the second quarter of 2012, the Company’s yield on interest-earning assets was 5.28% compared to 4.67% for the second quarter of 2011.  The cost of interest-bearing liabilities was 0.88% compared to 1.28%. The interest rate spread was 4.40% compared to 3.39%.  The net interest margin, on a fully taxable equivalent basis, was 4.57% compared to 3.65%. The increase in yield on earning assets was primarily driven by the impact of the MidCarolina merger and loan related accretion, which included approximately $800,000 in additional accretion related to the sale of several significant purchased credit impaired loans.

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The following presentation is an analysis of net interest income and related yields and rates, on a taxable equivalent basis, for the three months ended June 30, 2012 and 2011.  Nonaccrual loans are included in average balances.  Interest income on nonaccrual loans, if recognized, is recorded on a cash basis or when the loan returns to accrual status.

Net Interest Income Analysis
For the Three Months Ended June 30, 2012 and 2011
(in thousands, except rates)
					Interest
	Average Balance				Income/Expense				Yield/Rate
	2012		2011		2012		2011		2012			2011
Loans:
Commercial	$	130,697	$	79,595	$	1,727	$	909		5.30	%		4.58	%
Real estate		681,870		430,872		10,859		5,620		6.37			5.22
Consumer		7,294		6,678		139		120		7.64			7.21
Total loans		819,861		517,145		12,725		6,649		6.21			5.15
Securities:
Federal agencies		41,517		35,919		155		256		1.49			2.85
Mortgage-backed & CMOs		99,391		56,133		486		466		1.96			3.32
State and municipal		182,499		137,843		1,975		1,585		4.33			4.60
Other		12,589		5,830		117		57		3.72			3.91
Total securities		335,996		235,725		2,733		2,364		3.25			4.01
Deposits in other banks		17,630		20,880		18		14		0.41			0.27
Total interest-earning assets		1,173,487		773,750		15,476		9,027		5.28			4.67
Non-earning assets		134,897		75,033
Total assets	$	1,308,384	$	848,783
Deposits:
Demand	$	155,550	$	98,224		54		17		0.14			0.07
Money market		172,439		61,714		127		67		0.30			0.44
Savings		78,608		63,716		30		22		0.15			0.14
Time		448,076		325,743		1,518		1,481		1.36			1.82
Total deposits		854,673		549,397		1,729		1,587		0.81			1.16
Customer repurchase agreements		48,742		47,220		49		82		0.40			0.70
Other short-term borrowings		1,878		-		2		-		0.43			-
Long-term borrowings		37,419		21,062		290		302		3.10			5.74
Total interest-bearing
liabilities		942,712		617,679		2,070		1,971		0.88			1.28
Noninterest bearing
demand deposits		199,754		116,928
Other liabilities		8,528		3,317
Shareholders' equity		157,390		110,859
Total liabilities and
shareholders' equity	$	1,308,384	$	848,783
Interest rate spread										4.40	%		3.39	%
Net interest margin										4.57	%		3.65	%
Net interest income (taxable equivalent basis)						13,406		7,056
Less: Taxable equivalent adjustment						590		457
Net interest income					$	12,816	$	6,599

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Changes in Net Interest Income (Rate/Volume Analysis)
(in thousands)
	Three Months Ended June 30
	2012 vs. 2011
	Interest			Change
	Increase			Attributable to
Interest income	(Decrease)			Rate			Volume
Loans:
Commercial	$	818		$	161		$	657
Real Estate		5,239			1,441			3,798
Consumer		19			8			11
Total loans		6,076			1,610			4,466
Securities:
Federal agencies		(101	)		(136	)		35
Mortgage-backed		20			(243	)		263
State and municipal		390			(98	)		488
Other securities		60			(3	)		63
Total securities		369			(480	)		849
Deposits in other banks		4			6			(2	)
Total interest income		6,449			1,136			5,313
Interest expense
Deposits:
Demand		37			23			14
Money market		60			(27	)		87
Savings		8			2			6
Time		37			(435	)		472
Total deposits		142			(437	)		579
Customer repurchase agreements		(33	)		(36	)		3
Other borrowings		(10	)		(191	)		181
Total interest expense		99			(664	)		763
Net interest income	$	6,350		$	1,800		$	4,550

Six months ended June 30, 2012 and 2011

Net interest income on a taxable equivalent basis increased $13,103,000 or 93.2%, for the six months ended June 30, 2012 compared to the comparable period in 2011. This was due primarily to the impact of the merger with MidCarolina.

For the first six months of 2012, the Company’s yield on interest-earnings assets was 5.35% compared to 4.71% for the first six months of 2011. The cost of interest-bearing liabilities was 0.89% compared to 1.32%. The interest rate spread was 4.46% compared to 3.39%. The net interest margin, on a fully taxable equivalent basis, was 4.63% compared to 3.65%. The increase in yield on earning assets was primarily driven by the impact of the MidCarolina merger and loan related accretion, which included approximately $1,700,000 in additional accretion related to the payoff and sale of several significant purchased credit impaired loans.

The following presentation is an analysis of net interest income and related yields and rates, on a taxable equivalent basis, for the six months ended June 30, 2012 and 2011.  Nonaccrual loans are included in average balances.  Interest income on nonaccrual loans, if recognized, is recorded on a cash basis or when the loan returns to accrual status.

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Net Interest Income Analysis
For the Six Months Ended June 30, 2012 and 2011
(in thousands, except rates)
					Interest
	Average Balance				Income/Expense				Yield/Rate
	2012		2011		2012		2011		2012			2011
Loans:
Commercial	$	137,057	$	78,765	$	3,538	$	1,789		5.18	%		4.58	%
Real estate		674,964		431,775		21,977		11,315		6.51			5.24
Consumer		10,181		7,089		366		256		7.21			7.28
Total loans		822,202		517,629		25,881		13,360		6.30			5.17
Securities:
Federal agencies		36,178		39,612		317		579		1.75			2.92
Mortgage-backed & CMOs		99,255		57,706		1,015		956		2.05			3.31
State and municipal		181,683		127,934		3,951		2,993		4.35			4.68
Other		10,462		5,933		211		115		4.03			3.88
Total securities		327,578		231,185		5,494		4,643		3.35			4.02
Deposits in other banks		24,624		20,730		28		84		0.23			0.82
Total interest-earning assets		1,174,404		769,544		31,403		18,087		5.35			4.71
Non-earning assets		135,949		73,338
Total assets	$	1,310,353	$	842,882
Deposits:
Demand	$	163,014	$	97,465		110		35		0.14			0.07
Money market		179,180		62,416		288		150		0.32			0.48
Savings		77,557		63,114		59		43		0.15			0.14
Time		447,720		322,776		3,109		2,939		1.39			1.84
Total deposits		867,471		545,771		3,566		3,167		0.82			1.17
Customer repurchase agreements		47,986		45,500		92		162		0.38			0.72
Other short-term borrowings		997		68		2		-		0.47			0.47
Long-term borrowings		37,420		24,439		580		698		3.10			5.71
Total interest-bearing
liabilities		953,874		615,778		4,240		4,027		0.89			1.32
Noninterest bearing
demand deposits		191,517		113,890
Other liabilities		8,925		3,168
Shareholders' equity		156,037		110,046
Total liabilities and
shareholders' equity	$	1,310,353	$	842,882
Interest rate spread										4.46	%		3.39	%
Net interest margin										4.63	%		3.65	%
Net interest income (taxable equivalent basis)						27,163		14,060
Less: Taxable equivalent adjustment						1,175		856
Net interest income					$	25,988	$	13,204

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Changes in Net Interest Income (Rate/Volume Analysis)
(in thousands)
	Six Months Ended June 30
	2012 vs. 2011
	Interest			Change
	Increase			Attributable to
Interest income	(Decrease)			Rate			Volume
Loans:
Commercial	$	1,749		$	272		$	1,477
Real Estate		10,662			3,209			7,453
Consumer		110			(1	)		111
Total loans		12,521			3,480			9,041
Securities:
Federal agencies		(262	)		(215	)		(47	)
Mortgage-backed		59			(457	)		516
State and municipal		958			(224	)		1,182
Other securities		96			5			91
Total securities		851			(891	)		1,742
Deposits in other banks		(56	)		(69	)		13
Total interest income		13,316			2,520			10,796
Interest expense
Deposits:
Demand		75			42			33
Money market		138			(64	)		202
Savings		16			5			11
Time		170			(800	)		970
Total deposits		399			(817	)		1,216
Repurchase agreements		(70	)		(78	)		8
Other borrowings		(116	)		(411	)		295
Total interest expense		213			(1,306	)		1,519
Net interest income	$	13,103		$	3,826		$	9,277

Noninterest Income

All comparisons discussed below are between the second quarter of 2012 and the second quarter of 2011. The major changes between periods are related to the impact of the July 2011 merger with MidCarolina, unless otherwise noted.

Noninterest income increased to $2,800,000 in 2012 from $1,988,000 in 2011, an increase of $812,000 or 40.8%.   The major factors impacting that change are discussed below.

Fees from the management of trusts, estates, and asset management accounts increased to $966,000 in 2012 from $878,000 in 2011, an increase of $88,000 or 10.0%.  A substantial portion of trust fees are earned based on account market values, so changes in the equity markets may have a large impact on income.

Service charges on deposit accounts were $413,000 in 2012 compared to $400,000 in 2011, an increase of $13,000 or 3.3%.

Other fees and commissions were $445,000 in 2012 compared to $338,000 in 2011, an increase of $107,000 or 31.7%.

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Mortgage banking income was $519,000 in 2012 compared to $271,000 in 2011, an increase of $248,000 or 91.5%. Mortgage banking has benefited from the historically low interest rates and from the merger.

Securities gains (losses), net were $160,000 in gains in 2012 compared to $(19,000) in losses in 2011.

Other income was $297,000 in 2012 compared to $120,000 in 2011, an increase of $177,000 or 147.5%. The largest drivers of that increase were bank owned life insurance, which increased $74,000, and brokerage income, which increased $75,000.

Noninterest Expense

All comparisons discussed below are between the second quarter of 2012 and the second quarter of 2011. The major changes between periods are related to the impact of the July 2011 merger with MidCarolina, unless otherwise noted.

Noninterest expense was $8,833,000 for 2012 compared to $7,028,000 for 2011, an increase of $1,805,000 or 25.7%.  The major factors impacting that change are discussed below.

Salaries were $3,809,000 for 2012 compared to $2,546,000 for 2011, an increase of $1,263,000 or 49.6%.

Employee benefits were $799,000 for 2012 compared to $624,000 for 2011, an increase of $175,000 or 28.0%.

Occupancy expense was $1,048,000 for 2012 compared to $696,000 for 2011, an increase of $352,000 or 50.6%.

The Federal Deposit Insurance Corporation (“FDIC”) assessment for deposit insurance was $213,000 for 2012 compared to $197,000 for 2011, an increase of $16,000 or 8.1%.The increase was mitigated by an over accrual in the 2011 period and a change in the method of premium computation by the FDIC.

Bank franchise tax expense was $182,000 for 2012 compared to $176,000 for 2011, an increase of $6,000 or 3.4%

Core deposit intangible amortization was $546,000 for 2012 compared to $95,000 for 2011, an increase of $451,000.  This change was entirely related to the impact of the MidCarolina merger.

Foreclosed real estate, net, was $171,000 for 2012 compared to $456,000 for 2011, a $285,000 improvement.

Merger related expenses were a credit of $202,000 for 2012 compared to $835,000 for 2011.  The second quarter credit was the result of finalizing initial accruals to actual expense for the merger.

Other expenses were $2,267,000 for 2012 compared to $1,403,000 for 2011, an increase of $864,000 or 61.6%. This increase was driven by a variety of increased costs post-merger, most notably supplies, up $122,000, loan related expense, up $100,000, advertising, up $75,000, as well as numerous other items, increased by smaller amounts.

Income Taxes

The effective tax rate for the second quarter of 2012 was 29.4% compared to 17.3% for the second quarter of 2011.

The effective tax rate for the six months ended June 30, 2012 was 28.4% compared to 24.3% for the same period of 2011.

The effective tax rate is lower than the statutory rate of 35% due to income that is not taxable for Federal income tax purposes.  The primary non-taxable income is that of state and municipal securities and industrial revenue bonds or loans.

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Fair Value Impact to net Income

The following table presents the actual effect for the quarter ended June 30, 2012 of the accretable and amortizable fair value adjustments attributable to the MidCarolina merger on July 1, 2011 on net interest income and net income:

(in thousands)	Income Statement Effect	Remaining Premium/ (Discount) Balance on December 31, 2011			For the three months ended June 30, 2012			For the Six months ended June 30, 2012			Remaining Premium/ (Discount) Balance on June 30, 2012
Interest income/(expense):
Loans	Income	$	(15,908	)	$	1,646		$	3,361		$	(12,394	)	(1	)
Accretable portion of loans acquired with deteriorated credit quality	Income		(1,056	)		804			1,737			(1,235	)	(2	)
Time deposits	Income		(110	)		33			66			(44	)
Time deposits - brokered	Income		(694	)		104			208			(486	)
FHLB advances	Expense		(131	)		(6	)		(12	)		(119	)
Trust preferred securities	Expense		(2,171	)		(29	)		(54	)		(2,117	)
Net Interest Income						2,552			5,306
Non-interest (expense)
Amortization of core deposit intangible	Expense	$	5,652			(452	)		(904	)	$	4,748
Net non-interest expense						(452	)		(904	)
Change in pretax income					$	2,100		$	4,402
(1) - Remaining discount balance includes $153,000 in charge-offs against the mark
(2) - Remaining discount balance includes $1,900,000 in reclassifications from the non-accretable difference

Accretion related to purchased credit impaired loans includes $1,725,000 in accretion income associated with loan payoffs during the six month period.

Impact of Inflation and Changing Prices

The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories.  The most significant effect of inflation is on noninterest expense, which tends to rise during periods of inflation.  Changes in interest rates have a greater impact on a financial institution’s profitability than do the effects of higher costs for goods and services.  Through its balance sheet management practices, the Company has the ability to react to those changes and measure and monitor its interest rate and liquidity risk.  During the reported periods, inflation and interest rates have been low.

CHANGES IN FINANCIAL POSITION

BALANCE SHEET ANALYSIS

Securities

The securities portfolio generates income, plays a major role in the management of interest rate sensitivity, provides a source of liquidity, is used to meet collateral requirements for public deposits, and facilitates commercial customers’ repurchase agreements.  The portfolio consists primarily of high credit quality, very liquid securities.  Federal agency and U. S. government sponsored enterprises, mortgage-backed securities, state and municipal securities, and corporates comprise the portfolio.

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The available for sale securities portfolio was $334,523,000 at June 30, 2012 compared to $333,366,000 at December 31, 2011, an increase of $1,157,000 or 0.3%.  At June 30, 2012, the available for sale portfolio had an amortized cost of $320,488,000, resulting in a net unrealized gain of $14,035,000.

The Company is aware of the historically low current interest rate environment and has elected to maintain an investment strategy of purchasing high quality taxable securities of relatively short duration and longer term, high quality, tax exempt securities, whose market values are not as volatile in rising rate environments as similarly termed taxable investments. The Company will attempt to deploy its cash to the maximum extent practical and prudent, consistent with its liquidity and asset liability strategy.

Loans

        The loan portfolio consists primarily of commercial and residential real estate loans, commercial loans to small and medium-sized businesses, construction and land development loans, and home equity loans.

         Loans were $808,069,000 at June 30, 2012 compared to $824,758,000 at December 31, 2011, a decrease of $16,689,000 or 2.0%.  The net decrease in loans is primarily related to expected reductions in the loan portfolio acquired in the MidCarolina merger..

         Loans held for sale totaled $9,215,000 at June 30, 2012, and $6,330,000 at December 31, 2011, an increase of $2,885,000 or 45.6%.

         Management of the loan portfolio is organized around segments. Each segment is comprised of various loan types that are reflective of operational and regulatory management and reporting requirements. The following table presents the Company’s loan portfolio by segment as of June 30, 2012 and December 31, 2011.

	June 30,		December 31,
(in thousands)	2012		2011
Commercial	$	128,846	$	134,166
Commercial real estate:
Construction and land development		50,913		54,433
Commercial real estate		354,441		351,961
Residential real estate:
Residential		170,893		179,812
Home equity		95,522		96,195
Consumer		7,454		8,191
Total loans	$	808,069	$	824,758

Allowance for Loan Losses

The purpose of the allowance for loan losses is to provide for probable losses in the loan portfolio.  The allowance is increased by the provision for loan losses and by recoveries of previously charged-off loans.  Loan charge-offs decrease the allowance.

The Company uses certain practices to manage its credit risk.  These practices include (a) appropriate lending limits for loan officers, (b) a loan approval process, (c) careful underwriting of loan requests, including analysis of borrowers, collateral, and market risks, (d) regular monitoring of the portfolio, including diversification by type and geography, (e) review of loans by the Loan Review department, which operates independently of loan production, (f) regular meetings of the Credit Committees to discuss portfolio and policy changes and make decisions on large or unusual loan requests, and (g) regular meetings of the Asset Quality Committee which reviews the status of individual loans.

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Risk grades are assigned as part of the origination process. From time to time risk grades may be modified as warranted by the facts and circumstances surrounding the credit.

Calculations of the allowance for loan losses are prepared quarterly by the Loan Review department.  The Company’s Credit Committee, Audit Committee, and the Board of Directors review the allowance for adequacy.  In determining the adequacy of the allowance, factors which are considered include, but are not limited to,  historical loss experience, the size and composition of the loan portfolio, loan risk ratings, nonperforming loans, impaired loans, other problem credits, the value and adequacy of collateral and guarantors, and national, regional and local economic conditions and trends.

The Company’s allowance for loan losses has two basic components:  the formula allowance and the specific allowance.  Each of these components is determined based upon estimates. The formula allowance uses historical loss experience as an indicator of future losses, along with various qualitative factors, including levels and trends in delinquencies, nonaccrual loans, charge-offs and recoveries, trends in volume and terms of loans, effects of changes in underwriting standards, experience of lending staff, economic conditions, and portfolio concentrations. In the formula allowance, the migrated historical loss rate is combined with the qualitative factors, resulting in an adjusted loss factor for each risk-grade category of loans.  Allowance calculations for consumer loans are calculated based on historical losses for each product category without regard to risk grade. This loss rate is combined with qualitative factors resulting in an adjusted loss factor for each product category.   The period-end balances for each loan risk-grade category are multiplied by the adjusted loss factor.  The formula allowance is calculated for a range of outcomes.  The specific allowance uses various techniques to arrive at an estimate of loss for specifically identified impaired loans. The use of these computed values is inherently subjective and actual losses could be greater or less than the estimates.

No single statistic, formula, or measurement determines the adequacy of the allowance.  Management makes subjective and complex judgments about matters that are inherently uncertain, and different amounts would be reported under different conditions or using different assumptions.  For analytical purposes, management allocates a portion of the allowance to specific loan categories and specific loans.  However, the entire allowance is used to absorb credit losses inherent in the loan portfolio, including identified and unidentified losses.

The relationships and ratios used in calculating the allowance, including the qualitative factors, may change from period to period.  Furthermore, management cannot provide assurance that in any particular period the Company will not have sizeable credit losses in relation to the amount reserved.  Management may find it necessary to significantly adjust the allowance, considering current factors at the time, including economic conditions, industry trends, and ongoing internal and external examination processes.  In addition, the Company is developing historical charge-off and recovery data on new loan production in the North Carolina market and renewals of previously existing performing loans in that market. The allowance is also subject to regular regulatory examinations and determinations as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer banks.

At June 30, 2012, the allowance for loan losses was $12,099,000 compared to $10,529,000 at December 31, 2011.  The allowance for loan losses as a percentage of loans was 1.50% and 1.28%, respectively.  During the first six months of 2012, the allowance for loan losses increased by $1,570,000 or 14.9% and the loan portfolio contracted by $16,689,000 or 2.0%. As noted above, the Company considers numerous quantitative and qualitative factors in determining its allowance. Since July 2011, in the wake of the merger with MidCarolina, the Bank must also consider the velocity of accretion of the fair value, credit mark in relation to the amortization of the related loan balances. A large percentage of the Bank’s North Carolina loan portfolio is commercial real estate, with relatively short maturities, with balloon payments, and relatively long amortization periods. This structure results in more rapid accretion of the mark than amortization of loan principal. While this is not a proximate cause in and of itself for additional provision, it does result in an increased volume of loans that must be evaluated for potential loss as they are renewed, on current market terms, and become part of the regular portfolio..

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The following table presents the Company’s loan loss and recovery experience for the periods indicated (in thousands).

Summary of Loan Loss Experience
(in thousands)
	Six Months Ended			Year Ended
	June 30,			December 31,
	2012			2011
Balance at beginning of period	$	10,529		$	8,420
Charge-offs:
Construction and land development		191			529
Commercial real estate		41			173
Residential real estate		285			641
Home equity		29			230
Total real estate		546			1,573
Commercial and industrial		287			163
Consumer		30			127
Total charge-offs		863			1,863
Recoveries:
Construction and land development		79			36
Commercial real estate		233			270
Residential real estate		58			40
Home equity		5			10
Total real estate		375			356
Commercial and industrial		554			373
Consumer		38			73
Total recoveries		967			802
Net charge-offs (recoveries)		(104	)		1,061
Provision for loan losses		1,466			3,170
Balance at end of period	$	12,099		$	10,529

The provision for loan losses for the six month period in 2012 was $1,466,000 and the provision for 2011 was $3,170,000. The provision expense is determined in recognition of the larger size, complexity, and risk of the loan portfolio after the MidCarolina merger.

Net loans charge-offs (recoveries) totaled $(104,000) for the six month period in 2012 and $1,061,000 in 2011. Recoveries exceeded charge-offs in the six month period due to a large recovery of approximately $600,000 of a loan previously charged-off by MidCarolina.  Annualized net charge-offs (recoveries) to average loans during the same periods totaled (0.03)% and 0.14%, respectively.

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Asset Quality Indicators

        The following table provides qualitative indicators relevant to the Company’s loan portfolio.

Asset Quality Ratios
	June 30,			December 31,
	2012			2011
Allowance to loans (1)		1.50	%		1.28	%
Net charge-offs (recoveries) to allowance (2)		(1.72	)		10.08
Net charge-offs (recoveries) to average loans (2)		(0.03	)		0.16
Nonperforming assets to total assets (1)		0.99			1.46
Nonperforming loans to loans (1)		0.99			1.66
Provision to net charge-offs (recoveries) (2)		(1409.62	)		298.77
Provision to average loans (2)		0.36			0.47
Allowance to nonperforming loans (1)		151.33			76.74
(1) - at quarter or year-end
(2) - annualized

Nonperforming Assets (Loans and Other Real Estate Owned)

Nonperforming loans include loans on which interest is no longer accrued, accruing loans that are contractually past due 90 days or more as to principal and interest payments, and any loans classified as troubled debt restructurings that are not on nonaccrual.  Nonperforming loans to total loans were 0.99% at June 30, 2012 and 1.66% at December 31, 2011.

Nonperforming assets include nonperforming loans and other real estate.  Nonperforming assets represented 0.99% of total assets at June 30, 2012, down from 1.46% at December 31, 2011.  Included in nonperforming assets were $2,413,000 in troubled debt restructurings at June 30, 2012 and $656,000 at December 31, 2011.

It is the policy of the Company that any loan that becomes 90 days past due will, in most cases, be placed on nonaccrual loan status, accrued interest reversed out of income, and further interest accrual ceased. Any payments received on such loans will be credited to principal. Loans will only be restored to full accrual status after six consecutive months of payments that were each less than 30 days delinquent.  The $7,995,000 in nonaccrual loans shown on the following table includes $4,258,000 in impaired loans.  These loans are exclusive of $24,633,000 in loans acquired from MidCarolina with deteriorated credit quality.  The remainder represents loans which were not deemed impaired because, based on performance and existing circumstances, management did not believe loss was probable and, accordingly, did not classify these loans as impaired.

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The following table presents the Company’s nonperforming assets.

Nonperforming Assets
(in thousands)
	June 30,		December 31,
	2012		2011
Nonaccrual loans:
Real estate	$	6,899	$	11,654
Commercial		1,095		1,820
Consumer		1		49
Total nonaccrual loans		7,995		13,523
Loans past due 90 days
and accruing interest:
Real estate		-		197
Total past due loans		-		197
Total nonperforming loans		7,995		13,720
Foreclosed real estate		4,731		5,353
Total nonperforming assets	$	12,726	$	19,073

Impaired Loans

       A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The following table shows loans that were considered impaired.

       Included in the impaired loan totals were $2,413,000 in troubled debt restructured loans at June 30, 2012 and $656,000 at December 31, 2011.

Impaired Loans
(in thousands)
	June 30,		December 31,
	2012		2011
Accruing	$	1,315	$	313
Nonaccruing		1,532		2,925
Total impaired loans	$	2,847	$	3,238

Other Real Estate Owned (Foreclosed Assets)

       Foreclosed assets were carried on the consolidated balance sheets at $4,731,000 and $5,353,000 as of June 30, 2012 and December 31, 2011, respectively. Foreclosed assets are initially recorded at fair value, less estimated costs to sell, at the date of foreclosure. Loan losses resulting from foreclosure are charged against the allowance for loan losses at that time. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of the new cost basis or fair value, less estimated costs to sell with any additional write-downs charged against earnings.   For significant assets, these valuations are typically outside annual appraisals.

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The following table shows the Company’s Other Real Estate Owned.

Other Real Estate Owned
(in thousands)
	June 30,		December 31,
	2012		2011
Construction and land development	$	3,729	$	3,001
Farmland		-		-
1-4 family residential		608		1,267
Multifamily (5 or more) residential		-		-
Commercial real estate		394		1,085
	$	4,731	$	5,353

Deposits

The Company’s deposits consist primarily of checking, money market, savings, and consumer time deposits.  Total deposits were $1,042,485,000 at June 30, 2012 compared to $1,058,754,000 at December 31, 2011, a decrease of $16,269,000 or 1.5%.

Shareholders’ Equity

The Company’s capital management strategy is to be classified as “well capitalized” under regulatory capital ratios and provide as high as possible total return to our shareholders.

Shareholders’ equity was $158,424,000 at June 30, 2012 compared to $152,829,000 at December 31, 2011, an increase of $5,595,000 or 3.7%.

The Company paid cash dividends of $0.23 per share during the second quarter of 2012 while the aggregate basic and diluted earnings per share for the same period were $0.55 and $0.54 per share, respectively. The Company paid cash dividends of $0.46 per share for the first half of 2012 while the basic and diluted earnings per share were $1.08.

Banking regulators have defined minimum regulatory capital ratios that the Company and its banking subsidiary are required to maintain.  These ratios take into account risk factors identified by those regulatory authorities associated with the assets and off-balance sheet activities of financial institutions.  The guidelines require percentages, or “risk weights,” be applied to those assets and off-balance sheet assets in relation to their perceived risk.  Under the guidelines, capital strength is measured in two tiers.  Tier I capital consists primarily of shareholders’ equity and trust preferred capital notes, while Tier II capital consists of qualifying allowance for loan losses. “Total” capital is the combination of Tier I and Tier II capital.  Another regulatory indicator of capital adequacy is the leverage ratio, which is computed by dividing Tier I capital by average quarterly assets less intangible assets.

The regulatory guidelines require that minimum total capital (Tier I plus Tier II) of 8% be held against total risk-adjusted assets, at least half of which (4%) must be Tier I capital.  At June 30, 2012, the Company's Tier I and total capital ratios were 14.87% and 16.12%, respectively.  At December 31, 2011, these ratios were 14.36% and 15.55%, respectively.  The ratios for both periods were in excess of the regulatory requirements.  The Company's leverage ratio was 10.81% and 10.23% at June 30, 2012 and December 31, 2011, respectively.  The leverage ratio has a regulatory minimum of 4%, with most institutions required to maintain a ratio of 4-5%, depending upon risk profiles and other factors.

As mandated by bank regulations, the following five capital categories are identified for insured depository institutions:  "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized."  These regulations require the federal banking regulators to take prompt corrective action with respect to insured depository institutions that do not meet minimum capital requirements. Under the regulations, well capitalized institutions must have Tier I risk-based capital ratios of at least 6%, total risk-based capital ratios of at least 10%, and leverage ratios of at least 5%, and not be subject to capital directive orders. Management believes, as of June 30, 2012, that the Company met the requirements to be considered “well capitalized.”

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As of July 2012, the banking regulators have published a notice of proposed regulations based on the Basel III international agreement. This NPR, if enacted in its current form, will have a significant impact on how regulatory capital is defined and computed, and how risk weighted assets are determined. At this point it is too early to determine the full impact of the proposed regulations, but it is reasonable to anticipate that there will be significant fluctuation in regulatory capital ratios throughout the industry.

Liquidity

Liquidity is the ability of the Company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities.  Liquidity management involves maintaining the Company’s ability to meet the daily cash flow requirements of its customers, whether they are borrowers requiring funds to meet their credit needs or depositors desiring to withdraw funds.  Additionally, the parent company requires cash for various operating needs including dividends to shareholders, stock repurchases, the servicing of debt, and the payment of general corporate expenses.  The Company manages its exposure to fluctuations in interest rates through policies approved by the Asset/Liability Investment Committee and Board of Directors, both of which receive periodic reports of the Company’s interest rate risk position.  The Company uses a simulation and budget model to manage the future liquidity needs of the Company.

Liquidity sources include cash and amounts due from banks, deposits in other banks, loan repayments, increases in deposits, lines of credit from the Federal Home Loan Bank of Atlanta (“FHLB”) and  the Federal Reserve Bank’s discount window, federal funds lines of credit from two correspondent banks, and maturities and sales of securities.  Management believes that these sources provide sufficient and timely liquidity.

The Company has a line of credit with the FHLB, equal to 30% of the Company’s assets, subject to the amount of collateral pledged.  Under the terms of its collateral agreement with the FHLB, the Company provides a blanket lien covering all of its residential first mortgage loans and home equity lines of credit.  In addition, the Company pledges as collateral its capital stock in and deposits with the FHLB.  At June 30, 2012, principal advance obligations to the FHLB consisted of $10,142,000 in fixed-rate, long-term advances compared to $10,206,000 in long-term advances and $3,000,000 in short-term advances at December 31, 2011.  The Company also had outstanding $72,700,000 in letters of credit at June 30, 2012 and $72,000,000 in letters of credit at December 31, 2011. The letters of credit provide the Bank with alternate collateral for securing public entity deposits above Federal Deposit Insurance Corporation insurance levels, thereby providing less need for collateral pledging from the securities portfolio.

The Company had fixed-rate term advance borrowing contracts with the FHLB as of June 30, 2012, with the following final maturities:

Amount		Maturity Date
$	263,000	March 2014
	9,879,000	November 2017
$	10,142,000

The Company has federal funds lines of credit established with two correspondent banks in the amounts of $15,000,000 and $10,000,000, and has access to the Federal Reserve Bank’s discount window.  There were no amounts outstanding under these facilities at June 30, 2012.

As a result of the merger with MidCarolina, the Company acquired a relationship with Promontory Network, the sponsoring entity for the Certificate of Deposit Account Registry Service (“CDARS”). Through CDARS, the Company is able to provide deposit customers with access to aggregate FDIC insurance in amounts far exceeding $250,000.  This gives the Company the ability, as and when needed, to attract and retain large deposits from insurance and other safety conscious customers.  CDARS are classified as brokered deposits, however they are generally derived from customers with whom our institution has or wishes to have a direct and ongoing relationship.  As a result, management considers these deposits functionally in the same category as core deposits. With CDARS, the Company has the option to keep deposits on balance sheet or sell them to other members of the network.   Additionally, subject to certain limits, the Bank can use CDARS purchase cost-effective funding without collateralization and in lieu of generating funds through traditional brokered CDs or the FHLB.  In this manner, CDARS can provide the Company with another funding option. Thus, CDARS serves as a deposit-gathering tool and liquidity management tool.

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Off-Balance-Sheet Activities

The Company enters into certain financial transactions in the ordinary course of performing traditional banking services that result in off-balance sheet transactions.  Other than subsidiaries to issue trust preferred securities, the Company does not have any off-balance sheet subsidiaries.  Off-balance sheet transactions were as follows (in thousands):

	June 30, 2012		December 31, 2011
Commitments to extend credit	$	175,122	$	191,957
Standby letters of credit		4,929		2,961
Mortgage loan rate-lock commitments		7,442		5,387

Commitments to extend credit to customers represent legally binding agreements with fixed expiration dates or other termination clauses.  Since many of the commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future funding requirements.  Standby letters of credit are conditional commitments issued by the Company guaranteeing the performance of a customer to a third party.  Those guarantees are primarily issued to support public and private borrowing arrangements.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Management

Effectively managing market risk is essential to achieving the Company’s financial objectives.  Market risk reflects the risk of economic loss resulting from changes in interest rates and market prices.  The Company is not subject to currency exchange risk or commodity price risk.  The Company’s primary market risk exposure is interest rate risk; however, market risk also includes liquidity risk.  Both are discussed below.

Interest Rate Risk Management

Interest rate risk and its impact on net interest income is a primary market risk exposure.  The Company manages its exposure to fluctuations in interest rates through policies approved by its Asset/Liability Investment Committee and Board of Directors, both of which receive and review periodic reports of the Company’s interest rate risk position.

 The Company uses simulation analysis to measure the sensitivity of projected earnings to changes in interest rates.  Simulation takes into account current balance sheet volumes and the scheduled repricing dates and maturities of assets and liabilities.  It incorporates numerous assumptions including growth, changes in the mix of assets and liabilities, prepayments, and average rates earned and paid.  Based on this information, management uses the model to project net interest income under multiple interest rate scenarios.

A balance sheet is considered asset sensitive when its earning assets (loans and securities) reprice faster than its liabilities (deposits and borrowings).  An asset sensitive balance sheet will produce more net interest income when interest rates rise and less net interest income when they decline.  Based on the Company’s simulation analysis, management believes the Company’s interest sensitivity position is asset sensitive.  The simulation projects that if rates increase over a 12 month period by one percent, net interest income is expected to increase by 2.7%. Management has no expectation that market rates will decline in the near term, given the prevailing economy.

There have been no material changes to market risk as disclosed in the Company’s 2011 Annual Report on Form

10-K.  Refer to those disclosures for further information.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934), as amended (the "Exchange Act"), as of June 30, 2012. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms.  There were no significant changes in the Company's internal controls over financial reporting that occurred during the quarter ended June 30, 2012 that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1.  Legal Proceedings

The nature of the business of the Company ordinarily results in a certain amount of litigation. The Company is     involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that these proceedings will not have a material adverse effect on the consolidated financial position or consolidated results of operations of the Company.

Item1A. Risk Factors

There have been no material changes to the risk factors disclosed in the Company’s 2011 Annual Report on   Form 10-K filed with the Securities and Exchange Commission on March 15, 2012.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

    None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

   (a)  Required 8-K disclosures

    None

   (b)  Changes in Nominating Process

   None

Item 6. Exhibits

11.0 Refer to EPS calculation in the Notes to Financial Statements

31.1 Section 302 Certification of Charles H. Majors, Chairman and Chief Executive Officer

31.2 Section 302 Certification of William W. Traynham, Senior Vice President and Chief Financial Officer

32.1 Section 906 Certification of Charles H. Majors, Chairman and Chief Executive Officer

32.2 Section 906 Certification of William W. Traynham, Senior Vice President and Chief Financial Officer

SIGNATURES

 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 thereunto duly authorized.

AMERICAN NATIONAL BANKSHARES INC.

	/s/ Charles H. Majors
	Charles H. Majors
Date – August 9, 2012	Chairman and Chief Executive Officer
	/s/ William W. Traynham
	William W. Traynham
	Senior Vice President and
Date – August 9, 2012	Chief Financial Officer

55

EX-31.1

Exhibit 31.1 CERTIFICATIONS

I, Charles H. Majors, certify that:

1. I have reviewed this quarterly report on Form 10-Q of American National Bankshares Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2012

/s/ Charles H. Majors

Charles H. Majors,

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2 CERTIFICATIONS

I, William W. Traynham, certify that:

1.      I have reviewed this quarterly report on Form 10-Q of American National Bankshares Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.      The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.      The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2012

/s/ William W. Traynham

William W. Traynham,

Senior Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of American National Bankshares Inc. (the "Company") for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles H. Majors, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)      the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)      the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Charles H. Majors

Charles H. Majors

Chairman and Chief Executive Officer

August 9, 2012

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED   PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of American National Bankshares Inc. (the "Company") for the period ended June 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William W. Traynham, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)      the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)      the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William W. Traynham

William W. Traynham

Senior Vice President and

Chief Financial Officer

August 9, 2012

XML

Merger with MidCarolina (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Jul. 01, 2011
Merger with MidCarolina [Abstract]
Effective date of completion of merger					Jul. 01, 2011
Date of acquisition agreement					Dec. 15, 2010
Number of branches added during expansion of business					8
Number of shares received by the stockholder of acquiree entity in exchange of acquirer entity's common stock (in shares)					0.33
Shares exchange ratio on acquisition					0.33
Number of additional common stock issued in connection with merger (in shares)			1,626,157
Percentage of outstanding common stock in connection with merger (in hundredths)	20.80%		20.80%
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Amortization period of core deposit			9 years
Liabilities assumed:
Goodwill resulting from merger with MidCarolina	$ 39,352,000		$ 39,352,000		$ 38,899,000
Changes in the fair value of net assets acquired and liabilities assumed [Abstract]
Goodwill, beginning of period			38,899,000
Effect of adjustments to:
Goodwill, end of period	39,352,000		39,352,000		38,899,000
Acquired loan portfolio at fair value					367,400,000
Discount on acquired loan portfolio at fair value					39,900,000
Performing portion of acquired loan portfolio estimated at fair value					286,500,000
Direct costs related to acquisition expense	(202,000)	835,000	49,000	1,144,000	1,600,000
Details the acquired loans that are accounted for in accordance with FASB ASC 310-30 [Abstract]
Contractually required principal and interest at acquisition						56,681,000
Contractual cash flows not expected to be collected (nonaccretable difference)						17,472,000
Expected cash flows at acquisition						39,209,000
Interest component of expected cash flows (accretable discount)						1,663,000
Fair value of acquired loans accounted for under FASB ASC 310-30						37,546,000
Unaudited pro forma information related to merger [Abstract]
Net interest income				27,429,000
Provision for loan loss				(3,073,000)
Non-interest income				5,014,000
Non-interest expense				(21,506,000)
Income taxes				(2,359,000)
Net income				5,505,000
MidCarolina [Member]
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Amortization period of core deposit			108 months
Consideration Paid:
Common shares issued (1,626,157)	29,905,000		29,905,000
Cash paid to Shareholders	12,000		12,000
Fair Value of Options	132,000		132,000
Preferred shares issued (5,000)	5,000,000		5,000,000
Value of consideration	35,049,000		35,049,000
Assets acquired:
Cash and cash equivalents	34,783,000		34,783,000
Investment securities	51,442,000		51,442,000
Loans held for sale	113,000		113,000
Loans, net of unearned income	328,123,000		328,123,000
Premises and equipment, net	5,708,000		5,708,000
Deferred income taxes	15,310,000		15,310,000
Core deposit intangible	6,556,000		6,556,000
Other real estate owned	3,538,000		3,538,000
Other assets	13,535,000		13,535,000
Total assets	459,108,000		459,108,000
Liabilities assumed:
Deposits	420,248,000		420,248,000
FHLB advances	9,858,000		9,858,000
Other borrowings	6,546,000		6,546,000
Other liabilities	4,291,000		4,291,000
Total Liabilities	440,943,000		440,943,000
Net assets acquired	18,165,000		18,165,000
Goodwill resulting from merger with MidCarolina	16,884,000		16,884,000
Changes in the fair value of net assets acquired and liabilities assumed [Abstract]
Goodwill, beginning of period			16,431,000
Effect of adjustments to:
Other liabilities			453,000
Goodwill, end of period	16,884,000		16,884,000
Series A preferred stock [Member] | MidCarolina [Member]
Business Acquisition, Equity Interests Issued or Issuable [Line Items]
Number of perpetual Series A preferred stock received in exchange on merger (in shares)					1
Number of Series A preferred stock repurchased, earlier issued (in shares)					5,000
Preferred stock, liquidation preference in connection of merger (in dollars per share)					$ 1,000
Percentage of redemption preferred stock at par (in hundredths)					104.50%
Percentage of value of par paid by entity (in hundredths)					62.00%
Aggregate purchase price to repurchase shares					$ 3,100,000

XML

Fair Value of Financial Instruments (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Securities available for sale:
Securities available for sale	$ 334,523,000	$ 333,366,000
Fair value measurements using significant unobservable inputs (Level 3) [Rollforward]
Balances, beginning of period	324,000
Total Realized / Unrealized Gains (Losses) Included in Net Income	13,000
Total Realized / Unrealized Gains (Losses) Included in Other Comprehensive Income	0
Purchases, Sales, Issuances and Settlements, Net	0
Transfer In (Out) of Level 3	0
Balances, end of period	337,000	324,000
Number of years an appraisal of real estate property, minimum	2 years
Financial Assets:
Securities available for sale	334,523,000	333,366,000
Financial Liabilities:
Number of level 3 securities	1
Percentage of fair value estimation of security (in hundredths)		67.28%
Par value on which estimation of fair value of security is based		500,000
Estimated amount of fair value of security		336,000
Amount of impairment attributed to factors other than credit		147,000
Amount of impairment attributable to credit factors		17,000
Carrying Value [Member]
Securities available for sale:
Securities available for sale	334,523,000	333,366,000
Assets:
Loans held for sale	9,215,000	6,330,000
Financial Assets:
Cash and cash equivalents	28,909,000	28,893,000
Securities available for sale	334,523,000	333,366,000
Loans held for sale	9,215,000	6,330,000
Loans, net of allowance	795,970,000	814,229,000
Bank owned life insurance	13,273,000	13,058,000
Accrued interest receivable	5,106,000	5,091,000
Financial Liabilities:
Deposits	1,042,485,000	1,058,754,000
Repurchase agreements	46,113,000	45,575,000
Other borrowings	10,142,000	13,206,000
Trust preferred capital notes	27,267,000	27,212,000
Accrued interest payable	758,000	857,000
Fair Value [Member]
Securities available for sale:
Securities available for sale	334,523,000	333,366,000
Assets:
Loans held for sale	9,215,000	6,330,000
Financial Assets:
Cash and cash equivalents	28,909,000	28,893,000
Securities available for sale	334,523,000	333,366,000
Loans held for sale	9,215,000	6,330,000
Loans, net of allowance	787,894,000	811,573,000
Bank owned life insurance	13,273,000	13,058,000
Accrued interest receivable	5,106,000	5,091,000
Financial Liabilities:
Deposits	1,020,830,000	1,066,448,000
Repurchase agreements	46,113,000	45,575,000
Other borrowings	11,078,000	13,064,000
Trust preferred capital notes	23,032,000	27,184,000
Accrued interest payable	758,000	857,000
Federal agencies and GSEs [Member]
Securities available for sale:
Securities available for sale	37,177,000	32,679,000
Financial Assets:
Securities available for sale	37,177,000	32,679,000
Mortgage-backed and CMOs [Member]
Securities available for sale:
Securities available for sale	96,882,000	103,904,000
Financial Assets:
Securities available for sale	96,882,000	103,904,000
State and municipal [Member]
Securities available for sale:
Securities available for sale	192,022,000	194,405,000
Financial Assets:
Securities available for sale	192,022,000	194,405,000
Corporate [Member]
Securities available for sale:
Securities available for sale	8,442,000	2,378,000
Fair value measurements using significant unobservable inputs (Level 3) [Rollforward]
Balances, beginning of period	324,000
Total Realized / Unrealized Gains (Losses) Included in Net Income	13,000
Total Realized / Unrealized Gains (Losses) Included in Other Comprehensive Income	0
Purchases, Sales, Issuances and Settlements, Net	0
Transfer In (Out) of Level 3	0
Balances, end of period	337,000
Financial Assets:
Securities available for sale	8,442,000	2,378,000
Recurring [Member]
Securities available for sale:
Securities available for sale	334,523,000	333,366,000
Financial Assets:
Securities available for sale	334,523,000	333,366,000
Recurring [Member] | Federal agencies and GSEs [Member]
Securities available for sale:
Securities available for sale	37,177,000	32,679,000
Financial Assets:
Securities available for sale	37,177,000	32,679,000
Recurring [Member] | Mortgage-backed and CMOs [Member]
Securities available for sale:
Securities available for sale	96,882,000	103,904,000
Financial Assets:
Securities available for sale	96,882,000	103,904,000
Recurring [Member] | State and municipal [Member]
Securities available for sale:
Securities available for sale	192,022,000	194,405,000
Financial Assets:
Securities available for sale	192,022,000	194,405,000
Recurring [Member] | Corporate [Member]
Securities available for sale:
Securities available for sale	8,442,000	2,378,000
Financial Assets:
Securities available for sale	8,442,000	2,378,000
Nonrecurring [Member]
Assets:
Loans held for sale	9,215,000	6,330,000
Impaired loans, net of valuation allowance	440,000	1,142,000
Other real estate owned	4,731,000	5,353,000
Financial Assets:
Loans held for sale	9,215,000	6,330,000
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Fair Value [Member]
Securities available for sale:
Securities available for sale	0	0
Assets:
Loans held for sale	0	0
Financial Assets:
Cash and cash equivalents	28,909,000	28,893,000
Securities available for sale	0	0
Loans held for sale	0	0
Loans, net of allowance	0	0
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Financial Liabilities:
Deposits	0	0
Repurchase agreements	0	0
Other borrowings	0	0
Trust preferred capital notes	0	0
Accrued interest payable	0	0
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Recurring [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Recurring [Member] | Federal agencies and GSEs [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Recurring [Member] | Mortgage-backed and CMOs [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Recurring [Member] | State and municipal [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Recurring [Member] | Corporate [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Quoted Prices in Active Markets for Identical Assets, Level 1 [Member] | Nonrecurring [Member]
Assets:
Loans held for sale	0	0
Impaired loans, net of valuation allowance	0	0
Other real estate owned	0	0
Financial Assets:
Loans held for sale	0	0
Significant Other Observable Inputs, Level 2 [Member] | Fair Value [Member]
Securities available for sale:
Securities available for sale	334,186,000	333,042,000
Assets:
Loans held for sale	9,215,000	6,330,000
Financial Assets:
Cash and cash equivalents	0	0
Securities available for sale	334,186,000	333,042,000
Loans held for sale	9,215,000	6,330,000
Loans, net of allowance	787,894,000	811,573,000
Bank owned life insurance	13,273,000	13,058,000
Accrued interest receivable	5,106,000	5,091,000
Financial Liabilities:
Deposits	1,020,830,000	1,066,448,000
Repurchase agreements	46,113,000	45,575,000
Other borrowings	11,078,000	13,064,000
Trust preferred capital notes	23,032,000	27,184,000
Accrued interest payable	758,000	857,000
Significant Other Observable Inputs, Level 2 [Member] | Recurring [Member]
Securities available for sale:
Securities available for sale	334,186,000	333,042,000
Financial Assets:
Securities available for sale	334,186,000	333,042,000
Significant Other Observable Inputs, Level 2 [Member] | Recurring [Member] | Federal agencies and GSEs [Member]
Securities available for sale:
Securities available for sale	37,177,000	32,679,000
Financial Assets:
Securities available for sale	37,177,000	32,679,000
Significant Other Observable Inputs, Level 2 [Member] | Recurring [Member] | Mortgage-backed and CMOs [Member]
Securities available for sale:
Securities available for sale	96,882,000	103,904,000
Financial Assets:
Securities available for sale	96,882,000	103,904,000
Significant Other Observable Inputs, Level 2 [Member] | Recurring [Member] | State and municipal [Member]
Securities available for sale:
Securities available for sale	192,022,000	194,405,000
Financial Assets:
Securities available for sale	192,022,000	194,405,000
Significant Other Observable Inputs, Level 2 [Member] | Recurring [Member] | Corporate [Member]
Securities available for sale:
Securities available for sale	8,105,000	2,054,000
Financial Assets:
Securities available for sale	8,105,000	2,054,000
Significant Other Observable Inputs, Level 2 [Member] | Nonrecurring [Member]
Assets:
Loans held for sale	9,215,000	6,330,000
Impaired loans, net of valuation allowance	440,000	1,142,000
Other real estate owned	4,731,000	5,353,000
Financial Assets:
Loans held for sale	9,215,000	6,330,000
Significant Unobservable Inputs, Level 3 [Member] | Fair Value [Member]
Securities available for sale:
Securities available for sale	337,000	324,000
Assets:
Loans held for sale	0	0
Financial Assets:
Cash and cash equivalents	0	0
Securities available for sale	337,000	324,000
Loans held for sale	0	0
Loans, net of allowance	0	0
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Financial Liabilities:
Deposits	0	0
Repurchase agreements	0	0
Other borrowings	0	0
Trust preferred capital notes	0	0
Accrued interest payable	0	0
Significant Unobservable Inputs, Level 3 [Member] | Recurring [Member]
Securities available for sale:
Securities available for sale	337,000	324,000
Financial Assets:
Securities available for sale	337,000	324,000
Significant Unobservable Inputs, Level 3 [Member] | Recurring [Member] | Federal agencies and GSEs [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Significant Unobservable Inputs, Level 3 [Member] | Recurring [Member] | Mortgage-backed and CMOs [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Significant Unobservable Inputs, Level 3 [Member] | Recurring [Member] | State and municipal [Member]
Securities available for sale:
Securities available for sale	0	0
Financial Assets:
Securities available for sale	0	0
Significant Unobservable Inputs, Level 3 [Member] | Recurring [Member] | Corporate [Member]
Securities available for sale:
Securities available for sale	337,000	324,000
Financial Assets:
Securities available for sale	337,000	324,000
Significant Unobservable Inputs, Level 3 [Member] | Nonrecurring [Member]
Assets:
Loans held for sale	0	0
Impaired loans, net of valuation allowance	0	0
Other real estate owned	0	0
Financial Assets:
Loans held for sale	$ 0	$ 0

XML

Long-term Borrowings (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Long-term Borrowings [Abstract]
Percentage of entity's assets equal to line of credit facility (in hundredths)	30.00%
Collateral pledged under blanket floating lien agreement	$ 518,174,000
Debt Instrument [Line Items]
Advance Amount	10,142,000	10,206,000
Weighted Average Rate (in hundredths)	3.01%	3.01%
Valuation allowance, net, related to federal home loan bank, advances	120,000
Public deposit accounts	117,989,000
April 2014 [Member]
Debt Instrument [Line Items]
Due by	Apr. 30, 2014	Apr. 30, 2014
Advance Amount	262,000	337,000
Weighted Average Rate (in hundredths)	3.78%	3.78%
November 2017 [Member]
Debt Instrument [Line Items]
Due by	Nov. 30, 2017	Nov. 30, 2017
Advance Amount	9,880,000	9,869,000
Weighted Average Rate (in hundredths)	2.98%	2.98%
Federal Home Loan Bank Advances [Member]
Debt Instrument [Line Items]
Collateral for deposits	72,000,000
US government and agency securities [Member]
Debt Instrument [Line Items]
Collateral for deposits	$ 75,824,000

XML

Supplemental Cash Flow Information (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011	Dec. 31, 2010
Supplemental Schedule of Cash and Cash Equivalents:
Cash and due from banks	$ 18,529	$ 15,873	$ 22,561
Interest-bearing deposits in other banks	10,380	23,310	6,332
Cash and Cash Equivalents	28,909	39,183	28,893	18,514
Cash paid for:
Interest on deposits and borrowed funds	4,547	4,183
Income taxes	72	1,141
Noncash investing and financing activities:
Transfer of loans to other real estate owned	2,705	674
Unrealized gain on securities available for sale	$ 448	$ 4,173

XML

Goodwill and Other Intangible Assets (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Acquired Finite-Lived Intangible Assets [Line Items]
Amortization period of intangible			9 years
Goodwill [Roll Forward]
Goodwill, beginning of period			$ 38,899,000
Goodwill, Additions			453,000
Goodwill, Amortization			0
Goodwill, Impairment			0
Goodwill, end of period	39,352,000		39,352,000
Intangibles [Roll Forward]
Intangibles, Balance, beginning of period			6,595,000
Intangibles, Additions			0
Intangibles, Amortization	(546,000)	(95,000)	(1,093,000)	(189,000)
Intangibles, Impairment			0
Intangibles Balance, end of period	5,502,000		5,502,000
MidCarolina [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Core deposit intangible	6,556,000		6,556,000
Amortization period of intangible			108 months
Goodwill [Roll Forward]
Goodwill, beginning of period			16,431,000
Goodwill, end of period	16,884,000		16,884,000
Community First [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Core deposit intangible	$ 3,112,000		$ 3,112,000
Amortization period of intangible			99 months

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Stock Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Stock Based Compensation [Abstract]

Schedule of summary of stock option transactions

A summary of stock option transactions for the six months ended June 30, 2012 is as follows:

	Option  Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate  Intrinsic  Value  ($000)
Outstanding at December 31, 2011		268,639		$	23.94
Granted		-			-
Exercised		(2,761	)		16.37
Forfeited		-			-
Outstanding at June 30, 2012		265,878		$	24.02	3.98 years	$	467
Exercisable at June 30, 2012		265,878		$	24.02	3.98 years	$	467

Schedule of Nonvested restricted stock activity

Nonvested restricted stock activity for the six months ended June 30, 2012 is summarized in the following table. 

Restricted Stock	Shares		Weighted Average Grant Date Value
Nonvested at January 1, 2012		38,349	$	20.53
Granted		15,290		19.30
Vested		8,712		21.36
Forfeited		-		-
Nonvested at June 30, 2012		44,927	$	19.95

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Merger with MidCarolina (Tables)

6 Months Ended

Jun. 30, 2012

Merger with MidCarolina [Abstract]

Schedule of consideration paid, and the fair value of identifiable assets acquired and liabilities assumed

In connection with the merger, the consideration paid, and the fair value of identifiable assets acquired and liabilities assumed as of the merger date are summarized in the following table.

(dollars in thousands)
Consideration Paid:
Common shares issued (1,626,157)	$	29,905
Cash paid to Shareholders		12
Fair Value of Options		132
Preferred shares issued (5,000)		5,000
Value of consideration		35,049
Assets acquired:
Cash and cash equivalents		34,783
Investment securities		51,442
Loans held for sale		113
Loans, net of unearned income		328,123
Premises and equipment, net		5,708
Deferred income taxes		15,310
Core deposit intangible		6,556
Other real estate owned		3,538
Other assets		13,535
Total assets		459,108
Liabilities assumed:
Deposits		420,248
FHLB advances		9,858
Other borrowings		6,546
Other liabilities		4,291
Total Liabilities		440,943
Net assets acquired		18,165
Goodwill resulting from merger with MidCarolina	$	16,884

Schedule of changes in the fair value of net assets acquired and liabilities assumed

The following table details the changes in the fair value of net assets acquired and liabilities assumed from the amounts originally reported in the Form 10-K for the period ending December 31, 2011 (in thousands).

Goodwill at December 31, 2011	$	16,431
Effect of adjustments to:
Other liabilities		453
Goodwill at June 30, 2012	$	16,884

Schedule of acquired loans that are accounted for in accordance with FASB ASC 310-30

The following table details the acquired loans that are accounted for in accordance with FASB ASC 310-30 (formerly Statement of Position ("SOP") 03-3) as of July 1, 2011 (in thousands).

Contractually required principal and interest at acquisition	$	56,681
Contractual cash flows not expected to be collected (nonaccretable difference)		17,472
Expected cash flows at acquisition		39,209
Interest component of expected cash flows (accretable discount)		1,663
Fair value of acquired loans accounted for under FASB ASC 310-30	$	37,546

Schedule of unaudited pro forma information related to merger

The following table presents unaudited pro forma information as if the merger with MidCarolina had occurred on January 1, 2010. This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and other intangibles and related income tax effects. The pro forma information does not necessarily reflect the results of operations that would have occurred had the merger with MidCarolina occurred in 2010.  In particular, expected operational cost savings are not reflected in the pro forma amounts.

	Six Months Ended
	Pro Forma
	June 30,
(dollars in thousands)	2011
Net interest income	$	27,429
Provision for loan loss		(3,073	)
Non-interest income		5,014
Non-interest expense		(21,506	)
Income taxes		(2,359	)
Net income	$	5,505

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Stock Based Compensation (Details) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Stock Based Compensation [Abstract]
Maximum number of common stock authorizes for issuance (in shares)	500,000
Option Shares [Abstract]
Outstanding at beginning of period (in shares)	268,639
Granted (in shares)	0
Exercised (in shares)	(2,761)
Forfeited (in shares)	0
Outstanding at end of period (in shares)	265,878
Exercisable at end of period (in shares)	265,878
Weighted Average Exercise Price [Abstract]
Outstanding at beginning of period (in dollars per share)	$ 23.94
Granted (in dollars per share)	$ 0
Exercised (in dollars per share)	$ 16.37
Forfeited (in dollars per share)	$ 0
Outstanding at end of period (in dollars per share)	$ 24.02
Exercisable at end of period (in dollars per share)	$ 24.02
Weighted Average Remaining Contractual Term [Abstract]
Outstanding at end of period	3 years 11 months 22 days
Exercisable at end of period	3 years 11 months 22 days
Aggregate Intrinsic Value [Abstract]
Outstanding at end of period	$ 467,000
Exercisable at end of period	467,000
Unrecognized compensation expense	0
Weighted Average Grant Date Fair Value [Roll Forward]
Regular monthly retainer a director could receive in cash	1,000
Regular monthly retainer if restricted stock vested	1,563
Monthly meeting fees a director could receive in cash	600
Monthly meeting fees a director could receive if restricted stock vested	750
Number of directors elected to receive stock in lieu of cash	12
Number of directors	13
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Minimum vesting period of granted restricted stock	24 months
Maximum vesting period of granted restricted stock	36 months
Shares [Roll Forward]
Nonvested at beginning of period (in shares)	38,349
Granted (in shares)	15,290
Vested (in shares)	8,712
Forfeited (in shares)	0
Nonvested at end of period (in shares)	44,927
Weighted Average Grant Date Fair Value [Roll Forward]
Nonvested at end of period (in dollars per share)	$ 20.53
Granted (in dollars per share)	$ 19.30
Vested (in dollars per share)	$ 21.36
Forfeited (in dollars per share)	$ 0
Nonvested at end of period (in dollars per share)	$ 19.95
Unrecognized compensation expense	525,000		404,000
Weighted average period for recognition of unrecognized compensation cost	1 year 4 months 24 days
Share based compensation expense	174,000	120,000
Number of shares issued (in shares)	11,136	5,476
Recognized share based compensation expense	$ 240,000	$ 107,000

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Loans, Receivables Past Due (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Analysis by portfolio segment of the entity's past due loans [Abstract]
30-59 Days Past Due	$ 2,195	$ 4,151
60-89 Days Past Due	1,963	2,724
90 Days + Past Due and Still Accruing	0	197
Non-Accrual Loans	7,995	13,523
Total Past Due	12,153	20,591
Current	795,916	804,167
Total Loans	808,069	824,758
Commercial [Member]
Analysis by portfolio segment of the entity's past due loans [Abstract]
30-59 Days Past Due	170	98
60-89 Days Past Due	128	99
90 Days + Past Due and Still Accruing	0	0
Non-Accrual Loans	1,095	1,820
Total Past Due	1,393	2,017
Current	127,453	132,149
Total Loans	128,846	134,166
Commercial real estate, portfolio [Member] | Construction and land development [Member]
Analysis by portfolio segment of the entity's past due loans [Abstract]
30-59 Days Past Due	0	1,086
60-89 Days Past Due	0	1,163
90 Days + Past Due and Still Accruing	0	0
Non-Accrual Loans	1,257	5,819
Total Past Due	1,257	8,066
Current	49,656	46,367
Total Loans	50,913	54,433
Commercial real estate, portfolio [Member] | Commercial real estate [Member]
Analysis by portfolio segment of the entity's past due loans [Abstract]
30-59 Days Past Due	981	1,052
60-89 Days Past Due	1,596	471
90 Days + Past Due and Still Accruing	0	0
Non-Accrual Loans	1,996	2,115
Total Past Due	4,573	3,638
Current	349,868	348,323
Total Loans	354,441	351,961
Residential real estate, portfolio [Member] | Residential [Member]
Analysis by portfolio segment of the entity's past due loans [Abstract]
30-59 Days Past Due	719	1,519
60-89 Days Past Due	176	741
90 Days + Past Due and Still Accruing	0	0
Non-Accrual Loans	3,095	3,476
Total Past Due	3,990	5,735
Current	166,903	174,077
Total Loans	170,893	179,812
Residential real estate, portfolio [Member] | Home equity [Member]
Analysis by portfolio segment of the entity's past due loans [Abstract]
30-59 Days Past Due	308	270
60-89 Days Past Due	13	243
90 Days + Past Due and Still Accruing	0	197
Non-Accrual Loans	551	244
Total Past Due	872	954
Current	94,650	95,241
Total Loans	95,522	96,195
Consumer [Member]
Analysis by portfolio segment of the entity's past due loans [Abstract]
30-59 Days Past Due	17	126
60-89 Days Past Due	50	7
90 Days + Past Due and Still Accruing	0	0
Non-Accrual Loans	1	49
Total Past Due	68	181
Current	7,386	8,010
Total Loans	$ 7,454	$ 8,191

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments [Abstract]

Schedule of fair value assets and liabilities measured on recurring and nonrecurring basis

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis during the period (in thousands):

			Fair Value Measurements at June 30, 2012 Using
	Balance as of June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2012		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Federal agencies and GSEs	$	37,177	$	-	$	37,177	$	-
Mortgage-backed and CMOs		96,882		-		96,882		-
State and municipal		192,022		-		192,022		-
Corporate		8,442		-		8,105		337
Total	$	334,523	$	-	$	334,186	$	337

			Fair Value Measurements at December 31, 2011 Using
	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2011		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Federal agencies and GSEs	$	32,679	$	-	$	32,679	$	-
Mortgage-backed and CMOs		103,904		-		103,904		-
State and municipal		194,405		-		194,405		-
Corporate		2,378		-		2,054		324
Total	$	333,366	$	-	$	333,042	$	324

The following table summarizes the Company's assets that were measured at fair value on a nonrecurring basis during the period (in thousands):

			Fair Value Measurements at June 30, 2012 Using
	Balance as of June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2012		Level 1		Level 2		Level 3
Assets:
Loans held for sale	$	9,215	$	-	$	9,215	$	-
Impaired loans, net of valuation allowance		440		-		440		-
Other real estate owned		4,731		-		4,731		-

			Fair Value Measurements at December 31, 2011 Using
	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2011		Level 1		Level 2		Level 3
Assets:
Loans held for sale	$	6,330	$	-	$	6,330	$	-
Impaired loans, net of valuation allowance		1,142		-		1,142		-
Other real estate owned		5,353		-		5,353		-

Schedule of fair value measurements using significant unobservable inputs (Level 3)

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Total Realized / Unrealized Gains
			(Losses) Included in
	Balances as of January 1, 2012		Net Income		Other Comprehensive Income		Purchases, Sales, Issuances and Settlements, Net	Transfer In (Out) of Level 3		Balances as of June 30, 2012
Securities available for sale:
Corporate	$	324	$	13	$	-	-	$	-	$	337
Total assets	$	324	$	13	$	-	-	$	-	$	337

Schedule of carrying values and estimated fair values of the entity's financial instruments

The carrying values and estimated fair values of the Company's financial instruments as of June 30, 2012 are as follows (in thousands):

			Fair Value Measurements at June 30, 2012 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	28,909	$	28,909	$	-	$	-	$	28,909
Securities avaiable for sale		334,523		-		334,186		337		334,523
Loans held for sale		9,215		-		9,215		-		9,215
Loans, net of allowance		795,970		-		787,894		-		787,894
Bank owned life insurance		13,273		-		13,273		-		13,273
Accrued Iinterest receivable		5,106		-		5,106		-		5,106
Financial Liabilities:
Deposits	$	1,042,485	$	-	$	1,020,830	$	-	$	1,020,830
Repurchase agreements		46,113		-		46,113		-		46,113
Other borrowings		10,142		-		11,078		-		11,078
Trust preferred capital notes		27,267		-		23,032		-		23,032
Accrued interest payable		758		-		758		-		758

The carrying values and estimated fair values of the Company's financial instruments as of December 31, 2011 are as follows (in thousands):

			Fair Value Measurements at December 31, 2011 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	28,893	$	28,893	$	-	$	-	$	28,893
Securities avaiable for sale		333,366		-		333,042		324		333,366
Loans held for sale		6,330		-		6,330		-		6,330
Loans, net of allowance		814,229		-		811,573		-		811,573
Bank owned life insurance		13,058		-		13,058		-		13,058
Accrued Iinterest receivable		5,091		-		5,091		-		5,091
Financial Liabilities:
Deposits	$	1,058,754	$	-	$	1,066,448	$	-	$	1,066,448
Repurchase agreements		45,575		-		45,575		-		45,575
Other borrowings		13,206		-		13,064		-		13,064
Trust preferred capital notes		27,212		-		27,184		-		27,184
Accrued interest payable		857		-		857		-		857

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Employee Benefit Plans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Components of Net Periodic Benefit Cost [Abstract]
Service cost	$ 0	$ 27	$ 0	$ 54
Interest cost	97	101	194	202
Expected return on plan assets	(135)	(131)	(270)	(262)
Recognized net actuarial loss	83	40	166	80
Net periodic benefit cost	$ 45	$ 37	$ 90	$ 74

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Short-term Borrowings (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Short-term Borrowings [Abstract]
Customer repurchase agreements	$ 46,113	$ 45,575
FHLB overnight borrowings	0	3,000
Short-term borrowings, Total	$ 46,113	$ 48,575

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Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

Note 1 - Basis of Presentation

The consolidated financial statements include the accounts of American National Bankshares Inc. (the "Company") and its wholly owned subsidiary, American National Bank and Trust Company (the "Bank").  The Bank offers a wide variety of retail, commercial, secondary market mortgage lending, and trust and investment services which also include non-deposit products such as mutual funds and insurance policies.

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill and intangible assets, pension obligations, other than temporary impairment, the fair value of financial instruments, and the valuation of foreclosed real estate.

In April 2006, AMNB Statutory Trust I, a Delaware statutory trust (the "AMNB Trust") and a wholly owned subsidiary of the Company, was formed for the purpose of issuing preferred securities (the "Trust Preferred Securities") in a private placement pursuant to an applicable exemption from registration.  Proceeds from the securities were used to fund the acquisition of Community First Financial Corporation ("Community First") which occurred in April 2006.

On July 1, 2011, the Company completed its merger with MidCarolina Financial Corporation ("MidCarolina").  MidCarolina was headquartered in Burlington, North Carolina, and engaged in banking operations through its subsidiary bank, MidCarolina Bank.

In July 2011, and in connection with its acquisition of MidCarolina, the Company assumed the liabilities of the MidCarolina I and MidCarolina Trust II, two separate Delaware statutory trusts (the "MidCarolina Trusts"), which were also formed for the purpose of issuing preferred securities.  Refer to Note 9 for further details concerning these entities.

All significant inter-company transactions and accounts are eliminated in consolidation, with the exception of the AMNB Trust and the MidCarolina Trusts, as detailed in Note 9.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the Company's financial position as of June 30, 2012; the consolidated statements of income for the three and six months ended June 30, 2012 and 2011; the consolidated statements of comprehensive income for the three and six months ended June 30, 2012 and 2011; the consolidated statements of changes in shareholders' equity for the six months ended June 30, 2012 and 2011; and the consolidated statements of cash flows for the six months ended June 30, 2012 and 2011.  Operating results for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may occur for the year ending December 31, 2012.  Certain reclassifications have been made to prior period balances to conform to the current period presentation. These statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's Form 10-K for the year ended December 31, 2011.

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Loans, impaired loan (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Recorded Investment [Abstract]
Impaired loan, with no related allowance, recorded investment	$ 3,477	$ 3,477	$ 1,966
Impaired loan, with an related allowance, recorded investment	781	781	1,272
Impaired loan, total, recorded investment	4,258	4,258	3,238
Unpaid Principal Balance [Abstract]
Impaired loan, with no related allowance, unpaid principal balance	2,563	2,563	2,091
Impaired loan, with an related allowance, unpaid principal balance	781	781	1,272
Impaired loan, total, unpaid principal balance	3,344	3,344	3,363
Related Allowance [Abstract]
Impaired loan, with no related allowance	0	0	0
Impaired loan, with related allowance	341	341	130
Impaired loan, total, related allowance	341	341	130
Average Recorded Investment [Abstract]
Impaired loan, with no related allowance, average recorded investment		3,531	990
Impaired loan, with an related allowance, average recorded investment		81	221
Impaired loan, total, average recorded investment		3,612	1,211
Interest Income Recognized [Abstract]
Impaired loan, with no related allowance, interest income recognized		20	22
Impaired loan, with an related allowance, interest income recognized		15	0
Impaired loan, total, interest income recognized		35	22
Loans modified as troubled debt restructurings included in impaired loan balances [Abstract]
Number of Contracts	4	9
Pre-Modification Outstanding Recorded Investment	1,426	2,203
Post-Modification Outstanding Recorded Investment	1,426	2,096
Commercial [Member]
Recorded Investment [Abstract]
Impaired loan, with no related allowance, recorded investment	214	214	0
Impaired loan, with an related allowance, recorded investment	259	259	0
Impaired loan, total, recorded investment	473	473	0
Unpaid Principal Balance [Abstract]
Impaired loan, with no related allowance, unpaid principal balance	382	382	0
Impaired loan, with an related allowance, unpaid principal balance	259	259	0
Impaired loan, total, unpaid principal balance	641	641	0
Related Allowance [Abstract]
Impaired loan, with no related allowance	0	0	0
Impaired loan, with related allowance	158	158	0
Impaired loan, total, related allowance	158	158	0
Average Recorded Investment [Abstract]
Impaired loan, with no related allowance, average recorded investment		210	48
Impaired loan, with an related allowance, average recorded investment		14	0
Impaired loan, total, average recorded investment		224	48
Interest Income Recognized [Abstract]
Impaired loan, with no related allowance, interest income recognized		0	0
Impaired loan, with an related allowance, interest income recognized		7	0
Impaired loan, total, interest income recognized		7	0
Loans modified as troubled debt restructurings included in impaired loan balances [Abstract]
Number of Contracts	1	1
Pre-Modification Outstanding Recorded Investment	11	11
Post-Modification Outstanding Recorded Investment	11	11
Commercial real estate, portfolio [Member] | Construction and land development [Member]
Loans modified as troubled debt restructurings included in impaired loan balances [Abstract]
Number of Contracts	2	7
Pre-Modification Outstanding Recorded Investment	1,411	2,188
Post-Modification Outstanding Recorded Investment	1,411	2,081
Commercial real estate, portfolio [Member] | Commercial real estate [Member]
Loans modified as troubled debt restructurings included in impaired loan balances [Abstract]
Number of Contracts	1	1
Pre-Modification Outstanding Recorded Investment	4	4
Post-Modification Outstanding Recorded Investment	4	4
Commercial real estate, portfolio [Member] | Construction and land development [Member]
Recorded Investment [Abstract]
Impaired loan, with no related allowance, recorded investment	2,081	2,081	364
Impaired loan, with an related allowance, recorded investment	0	0	363
Impaired loan, total, recorded investment	2,081	2,081	727
Unpaid Principal Balance [Abstract]
Impaired loan, with no related allowance, unpaid principal balance	701	701	391
Impaired loan, with an related allowance, unpaid principal balance	0	0	363
Impaired loan, total, unpaid principal balance	701	701	754
Related Allowance [Abstract]
Impaired loan, with no related allowance	0	0	0
Impaired loan, with related allowance	0	0	49
Impaired loan, total, related allowance	0	0	49
Average Recorded Investment [Abstract]
Impaired loan, with no related allowance, average recorded investment		1,407	292
Impaired loan, with an related allowance, average recorded investment		0	139
Impaired loan, total, average recorded investment		1,407	431
Interest Income Recognized [Abstract]
Impaired loan, with no related allowance, interest income recognized		15	0
Impaired loan, with an related allowance, interest income recognized		0	0
Impaired loan, total, interest income recognized		15	0
Commercial real estate, portfolio [Member] | Commercial real estate [Member]
Recorded Investment [Abstract]
Impaired loan, with no related allowance, recorded investment	153	153	279
Impaired loan, with an related allowance, recorded investment	233	233	888
Impaired loan, total, recorded investment	386	386	1,167
Unpaid Principal Balance [Abstract]
Impaired loan, with no related allowance, unpaid principal balance	153	153	279
Impaired loan, with an related allowance, unpaid principal balance	233	233	888
Impaired loan, total, unpaid principal balance	386	386	1,167
Related Allowance [Abstract]
Impaired loan, with no related allowance	0	0	0
Impaired loan, with related allowance	69	69	80
Impaired loan, total, related allowance	69	69	80
Average Recorded Investment [Abstract]
Impaired loan, with no related allowance, average recorded investment		765	207
Impaired loan, with an related allowance, average recorded investment		19	75
Impaired loan, total, average recorded investment		784	282
Interest Income Recognized [Abstract]
Impaired loan, with no related allowance, interest income recognized		5	17
Impaired loan, with an related allowance, interest income recognized		8	0
Impaired loan, total, interest income recognized		13	17
Residential real estate, portfolio [Member] | Residential [Member]
Recorded Investment [Abstract]
Impaired loan, with no related allowance, recorded investment	1,029	1,029	1,185
Impaired loan, with an related allowance, recorded investment	289	289	21
Impaired loan, total, recorded investment	1,318	1,318	1,206
Unpaid Principal Balance [Abstract]
Impaired loan, with no related allowance, unpaid principal balance	1,327	1,327	1,276
Impaired loan, with an related allowance, unpaid principal balance	289	289	21
Impaired loan, total, unpaid principal balance	1,616	1,616	1,297
Related Allowance [Abstract]
Impaired loan, with no related allowance	0	0	0
Impaired loan, with related allowance	114	114	1
Impaired loan, total, related allowance	114	114	1
Average Recorded Investment [Abstract]
Impaired loan, with no related allowance, average recorded investment		1,149	376
Impaired loan, with an related allowance, average recorded investment		48	7
Impaired loan, total, average recorded investment		1,197	383
Interest Income Recognized [Abstract]
Impaired loan, with no related allowance, interest income recognized		0	2
Impaired loan, with an related allowance, interest income recognized		0	0
Impaired loan, total, interest income recognized		0	2
Residential real estate, portfolio [Member] | Home equity [Member]
Recorded Investment [Abstract]
Impaired loan, with no related allowance, recorded investment	0	0	89
Impaired loan, with an related allowance, recorded investment	0	0	0
Impaired loan, total, recorded investment	0	0	89
Unpaid Principal Balance [Abstract]
Impaired loan, with no related allowance, unpaid principal balance	0	0	89
Impaired loan, with an related allowance, unpaid principal balance	0	0	0
Impaired loan, total, unpaid principal balance	0	0	89
Related Allowance [Abstract]
Impaired loan, with no related allowance	0	0	0
Impaired loan, with related allowance	0	0	0
Impaired loan, total, related allowance	0	0	0
Average Recorded Investment [Abstract]
Impaired loan, with no related allowance, average recorded investment		0	50
Impaired loan, with an related allowance, average recorded investment		0	0
Impaired loan, total, average recorded investment		0	50
Interest Income Recognized [Abstract]
Impaired loan, with no related allowance, interest income recognized		0	3
Impaired loan, with an related allowance, interest income recognized		0	0
Impaired loan, total, interest income recognized		0	3
Consumer [Member]
Recorded Investment [Abstract]
Impaired loan, with no related allowance, recorded investment	0	0	49
Impaired loan, with an related allowance, recorded investment	0	0	0
Impaired loan, total, recorded investment	0	0	49
Unpaid Principal Balance [Abstract]
Impaired loan, with no related allowance, unpaid principal balance	0	0	56
Impaired loan, with an related allowance, unpaid principal balance	0	0	0
Impaired loan, total, unpaid principal balance	0	0	56
Related Allowance [Abstract]
Impaired loan, with no related allowance	0	0	0
Impaired loan, with related allowance	0	0	0
Impaired loan, total, related allowance	0	0	0
Average Recorded Investment [Abstract]
Impaired loan, with no related allowance, average recorded investment		0	17
Impaired loan, with an related allowance, average recorded investment		0	0
Impaired loan, total, average recorded investment		0	17
Interest Income Recognized [Abstract]
Impaired loan, with no related allowance, interest income recognized		0	0
Impaired loan, with an related allowance, interest income recognized		0	0
Impaired loan, total, interest income recognized		$ 0	$ 0

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Schedule of changes in carrying amount of goodwill and intangibles

The changes in the carrying amount of goodwill and intangibles for the six months ended June 30, 2012, are as follows (in thousands):

	Goodwill		Intangibles
Balance December 31, 2011	$	38,899	$	6,595
Additions		453		-
Amortization		-		(1,093	)
Impairment		-		-
Balance June 30, 2012	$	39,352	$	5,502

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Allowance for Loan Losses and Reserve for Unfunded Lending Commitments (Tables)

6 Months Ended

Jun. 30, 2012

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments [Abstract]

Schedule of changes in the allowance for loan losses

Changes in the allowance for loan losses and the reserve for unfunded lending commitments as of the indicated dates and periods are presented below:

The reserve for unfunded loan commitments is included in other liabilities.

(in thousands)	Six Months Ended June 30, 2012			Year Ended December 31, 2011			Six Months Ended June 30, 2011
Allowance for Loan Losses
Balance, beginning of period	$	10,529		$	8,420		$	8,420
Provision for loan losses		1,466			3,170			673
Charge-offs		(863	)		(1,863	)		(705	)
Recoveries		967			802			356
Balance, end of period	$	12,099		$	10,529		$	8,744
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	200		$	218		$	218
Provision for loan losses		6			(18	)		9
Charge-offs		-			-			-
Balance, end of period	$	206		$	200		$	227

The following table presents the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at June 30, 2012.

				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Total
(in thousands)
Allowance for Loan Losses
Balance as of December 31, 2011	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Charge-offs		(287	)		(232	)		(314	)		(30	)		(863	)
Recoveries		554			312			63			38			967
Provision		204			796			443			23			1,466
Balance as of June 30, 2012	$	1,707		$	6,595		$	3,604		$	193		$	12,099
Balances at June 30, 2012:
Allowance for Loan Losses
Individually evaluated for impairment	$	158		$	69		$	114		$	-		$	341
Collectively evaluated for impairment		1,549			6,526			3,490			193			11,758
Total	$	1,707		$	6,595		$	3,604		$	193		$	12,099
Loans
Individually evaluated for impairment	$	473		$	2,467		$	1,318		$	-		$	4,258
Collectively evaluated for impairment		125,553			389,281			256,860			7,454			779,148
Loans acquired with deteriorated credit quality		2,820			13,606			8,237			-			24,663
Total	$	128,846		$	405,354		$	266,415		$	7,454		$	808,069

The following table presents the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at December 31, 2011.

				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Total
(in thousands)
Allowance for Loan Losses
Balance as of December 31, 2010	$	751		$	4,631		$	2,921		$	117		$	8,420
Charge-offs		(163	)		(702	)		(871	)		(127	)		(1,863	)
Recoveries		373			306			50			73			802
Provision		275			1,484			1,312			99			3,170
Balance as of December 31, 2011	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Balance as of December 31, 2011:
Allowance for Loan Losses
Individually evaluated for impairment	$	-		$	129		$	1		$	-		$	130
Collectively evaluated for impairment		1,236			5,590			3,411			162			10,399
Total	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Loans
Individually evaluated for impairment	$	-		$	1,894		$	1,295		$	49		$	3,238
Collectively evaluated for impairment		131,754			381,175			266,421			8,143			787,493
Loans acquired with deteriorated credit quality		2,411			23,325			8,291			-			34,027
Total	$	134,165		$	406,394		$	276,007		$	8,192		$	824,758

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Recent Accounting Pronouncements (Details)	6 Months Ended
	Jun. 30, 2012
Recent Accounting Pronouncements [Abstract]
Minimum percentage of likelihood for more-likely-than-not threshold (in hundredths)	50.00%

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Loans, Credit exposure (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 808,069	$ 824,758
Threshold limit to consider loan as nonperforming	90 days
Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	128,846	134,166
Commercial Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	50,913	54,433
Commercial Real Estate Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	354,441	351,961
Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	170,893	179,812
Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	95,522	96,195
Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	7,454	8,191
Pass [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	126,558	130,603
Pass [Member] | Commercial Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	39,464	35,265
Pass [Member] | Commercial Real Estate Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	333,636	321,370
Pass [Member] | Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	153,437	161,158
Pass [Member] | Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	92,960	93,193
Special Mention [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,097	1,349
Special Mention [Member] | Commercial Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	2,170	3,401
Special Mention [Member] | Commercial Real Estate Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	12,261	19,072
Special Mention [Member] | Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	10,932	10,166
Special Mention [Member] | Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,366	1,606
Substandard [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,191	2,214
Substandard [Member] | Commercial Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	9,279	15,767
Substandard [Member] | Commercial Real Estate Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	8,544	11,519
Substandard [Member] | Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	6,524	8,488
Substandard [Member] | Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	1,196	1,396
Doubtful [Member] | Commercial [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Doubtful [Member] | Commercial Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Doubtful [Member] | Commercial Real Estate Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Doubtful [Member] | Residential [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Doubtful [Member] | Home equity [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	0	0
Performing [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	7,365	8,050
Nonperforming [Member] | Consumer [Member]
Financing Receivable, Recorded Investment [Line Items]
Total Loans	$ 89	$ 141

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Short-term Borrowings (Tables)

6 Months Ended

Jun. 30, 2012

Short-term Borrowings [Abstract]

Schedule of short-term borrowings

Short-term borrowings consist of customer repurchase agreements, overnight borrowings from the FHLB, and Federal Funds purchased.  Customer repurchase agreements are collateralized by securities of the U.S. Government or its agencies or GSEs.  They mature daily.  The interest rates are generally fixed but may be changed at the discretion of the Company. The securities underlying these agreements remain under the Company's control.  FHLB overnight borrowings contain floating interest rates that may change daily at the discretion of the FHLB.  Federal Funds purchased are unsecured overnight borrowings from other financial institutions.  Short-term borrowings consisted of the following as of June 30, 2012 and December 31, 2011 (in thousands):

	June 30, 2012		December 31, 2011
Customer repurchase agreements	$	46,113	$	45,575
FHLB overnight borrowings		-		3,000
	$	46,113	$	48,575

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Long-term Borrowings (Tables)

6 Months Ended

Jun. 30, 2012

Long-term Borrowings [Abstract]

Schedule of long term advances with federal home loan bank

Under the terms of its collateral agreement with the FHLB, the Company provides a blanket lien covering all of its residential first mortgage loans, second mortgage loans, home equity lines of credit, and commercial real estate loans.  In addition, the Company pledges as collateral its capital stock in the FHLB and deposits with the FHLB.  The Company has a line of credit with the FHLB equal to 30% of the Company's assets, subject to the amount of collateral pledged.  As of June 30, 2012, $518,174,000 in eligible collateral was pledged under the blanket floating lien agreement which covers both short-term and long-term borrowings.  Long-term borrowings consisted of the following fixed rate, long term advances as of June 30, 2012 and December 31, 2011 (dollars in thousands):

June 30, 2012						December 31, 2011
Due by	Advance Amount		Weighted Average Rate			Due by	Advance Amount		Weighted Average Rate
April 2014	$	262		3.78	%	April 2014	$	337		3.78	%
November  2017		9,880		2.98		November 2017		9,869		2.98
	$	10,142		3.01	%		$	10,206		3.01	%

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash Flows from Operating Activities:
Net income	$ 8,449	$ 2,790
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,466	673
Depreciation	865	598
Core deposit intangible amortization	1,093	189
Net amortization (accretion) of securities	1,667	581
Net accretion of fair value adjustments	(5,306)	0
Net (gain) loss on sale or call of securities	(160)	18
Gain on loans held for sale	(926)	(360)
Proceeds from sales of loans held for sale	41,030	20,059
Originations of loans held for sale	(42,989)	(18,651)
Net (gain) loss on foreclosed real estate	(381)	76
Valuation allowance on foreclosed real estate	219	359
Net gain on sale of premises and equipment	(495)	0
Stock-based compensation expense	0	32
Equity based compensation	414	226
Deferred income tax expense (benefit)	2,238	(355)
Net change in interest receivable	(12)	172
Net change in other assets	(4,596)	190
Net change in interest payable	(71)	(179)
Net change in other liabilities	(597)	1,270
Net cash provided by operating activities	1,908	7,688
Cash Flows from Investing Activities:
Proceeds from sales of securities available for sale	4,209	2,099
Proceeds from maturities and calls of securities available for sale	33,574	44,617
Proceeds from maturities and calls of securities held to maturity	0	961
Purchases of securities available for sale	(39,999)	(45,852)
Net change in restricted stock	(249)	0
Net decrease in loans	19,186	5,677
Proceeds from sale of premises and equipment	563	31
Purchases of premises and equipment	(573)	(249)
Proceeds from sales of foreclosed real estate	3,489	442
Net cash provided by investing activities	20,200	7,726
Cash Flows from Financing Activities:
Net change in demand, money market, and savings deposits	(29,597)	24,022
Net change in time deposits	13,602	(5,170)
Net change in customer repurchase agreements	538	3,245
Net change in other short-term borrowings	(3,000)	(6,110)
Net change in long-term borrowings	(76)	(8,075)
Net change in trust preferred capital notes	0	0
Common stock dividends paid	(3,604)	(2,830)
Proceeds from exercise of stock options	45	173
Net cash (used in) provided by financing activities	(22,092)	5,255
Net Increase in Cash and Cash Equivalents	16	20,669
Cash and Cash Equivalents at Beginning of Period	28,893	18,514
Cash and Cash Equivalents at End of Period	$ 28,909	$ 39,183

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Trust Preferred Capital Notes (Tables)

6 Months Ended

Jun. 30, 2012

Trust Preferred Capital Notes [Abstract]

Schedule of junior subordinated debt securities outstanding payable

A description of the junior subordinated debt securities outstanding payable to the trusts is shown below:

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Securities (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Securities available for sale [Abstract]
Amortized Cost	$ 320,488,000	$ 319,779,000
Unrealized Gains	14,265,000	14,002,000
Unrealized Losses	230,000	415,000
Estimated Fair Value	334,523,000	333,366,000
Available for sale securities, continuous unrealized loss position [Abstract]
Total, Estimated Fair Value	26,681,000	32,207,000
Total, Unrealized Loss	230,000	415,000
Less than 12 Months, Estimated Fair Value	26,280,000	32,138,000
Less than 12 Months, Unrealized Loss	229,000	382,000
12 Months or More, Estimated Fair Value	401,000	69,000
12 Months or More, Unrealized Loss	1,000	33,000
Investment in FHLB stock	3,408,000
Federal agencies and GSEs [Member]
Securities available for sale [Abstract]
Amortized Cost	36,823,000	32,071,000
Unrealized Gains	357,000	608,000
Unrealized Losses	3,000	0
Estimated Fair Value	37,177,000	32,679,000
Available for sale securities, continuous unrealized loss position [Abstract]
Total, Estimated Fair Value	2,038,000
Total, Unrealized Loss	3,000
Less than 12 Months, Estimated Fair Value	2,038,000
Less than 12 Months, Unrealized Loss	3,000
12 Months or More, Estimated Fair Value	0
12 Months or More, Unrealized Loss	0
Mortgage-backed and CMOs [Member]
Securities available for sale [Abstract]
Amortized Cost	95,222,000	102,444,000
Unrealized Gains	1,866,000	1,874,000
Unrealized Losses	206,000	414,000
Estimated Fair Value	96,882,000	103,904,000
State and municipal [Member]
Securities available for sale [Abstract]
Amortized Cost	180,058,000	182,952,000
Unrealized Gains	11,979,000	11,454,000
Unrealized Losses	15,000	1,000
Estimated Fair Value	192,022,000	194,405,000
Available for sale securities, continuous unrealized loss position [Abstract]
Total, Estimated Fair Value	2,423,000	401,000
Total, Unrealized Loss	15,000	1,000
Less than 12 Months, Estimated Fair Value	2,022,000	401,000
Less than 12 Months, Unrealized Loss	15,000	1,000
12 Months or More, Estimated Fair Value	401,000	0
12 Months or More, Unrealized Loss	1,000	0
Number of available for sale securities in unrealized loss positions	4
Corporate [Member]
Securities available for sale [Abstract]
Amortized Cost	8,385,000	2,312,000
Unrealized Gains	63,000	66,000
Unrealized Losses	6,000	0
Estimated Fair Value	8,442,000	2,378,000
Available for sale securities, continuous unrealized loss position [Abstract]
Total, Estimated Fair Value	2,419,000
Total, Unrealized Loss	6,000
Less than 12 Months, Estimated Fair Value	2,419,000
Less than 12 Months, Unrealized Loss	6,000
12 Months or More, Estimated Fair Value	0
12 Months or More, Unrealized Loss	0
Number of available for sale securities in unrealized loss positions	2
CMOs [Member]
Available for sale securities, continuous unrealized loss position [Abstract]
Total, Estimated Fair Value	2,586,000
Total, Unrealized Loss	86,000
Less than 12 Months, Estimated Fair Value	2,586,000
Less than 12 Months, Unrealized Loss	86,000
12 Months or More, Estimated Fair Value	0
12 Months or More, Unrealized Loss	0
Number of available for sale securities in unrealized loss positions	1
Mortgage-backed [Member]
Available for sale securities, continuous unrealized loss position [Abstract]
Total, Estimated Fair Value	17,215,000	28,431,000
Total, Unrealized Loss	120,000	266,000
Less than 12 Months, Estimated Fair Value	17,215,000	28,431,000
Less than 12 Months, Unrealized Loss	120,000	266,000
12 Months or More, Estimated Fair Value	0	0
12 Months or More, Unrealized Loss	0	0
Private label CMOs [Member]
Available for sale securities, continuous unrealized loss position [Abstract]
Total, Estimated Fair Value		3,375,000
Total, Unrealized Loss		148,000
Less than 12 Months, Estimated Fair Value		3,306,000
Less than 12 Months, Unrealized Loss		115,000
12 Months or More, Estimated Fair Value		69,000
12 Months or More, Unrealized Loss		$ 33,000
GSE debt securities [Member]
Available for sale securities, continuous unrealized loss position [Abstract]
Number of available for sale securities in unrealized loss positions	1
GSEs residential mortgage-backed securities [Member]
Available for sale securities, continuous unrealized loss position [Abstract]
Number of available for sale securities in unrealized loss positions	11

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Segment and Related Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Segment and Related Information [Abstract]
Number of reportable segments			2
Segment Reporting Information [Line Items]
Interest income	$ 14,886	$ 8,570	$ 30,228	$ 17,231
Interest expense	2,070	1,971	4,240	4,027
Noninterest Income	2,800	1,988	6,034	3,959
Income before income taxes	6,050	1,223	11,796	3,683
Net income	4,274	1,012	8,449	2,790
Depreciation and amortization	989	389	1,958
Total assets	1,290,892	846,016	1,290,892	846,016	1,304,706
Capital expenditures	0	146	573
Community Banking [Member]
Segment Reporting Information [Line Items]
Interest income	14,886	8,570	30,228
Interest expense	1,865	1,686	3,832
Noninterest Income	1,715	1,064	3,961
Income before income taxes	5,704	1,781	11,187
Net income	4,014	1,619	7,984
Depreciation and amortization	984	384	1,948
Total assets	1,289,971	841,369	1,289,971	841,369
Capital expenditures	0	146	573
Trust and Investment Services [Member]
Segment Reporting Information [Line Items]
Interest income	0	0	0
Interest expense	0	0	0
Noninterest Income	1,079	915	2,062
Income before income taxes	650	583	1,208
Net income	461	384	865
Depreciation and amortization	5	5	10
Total assets	0	0	0	0
Capital expenditures	0	0	0
Other [Member]
Segment Reporting Information [Line Items]
Interest income	2	12	5
Interest expense	207	297	413
Noninterest Income	6	9	11
Income before income taxes	(304)	(1,141)	(599)
Net income	(201)	(991)	(400)
Depreciation and amortization	0	0	0
Total assets	921	4,647	921	4,647
Capital expenditures	0	0	0
Intersegment Eliminations [Member]
Segment Reporting Information [Line Items]
Interest income	(2)	(12)	(5)
Interest expense	(2)	(12)	(5)
Noninterest Income	0	0	0
Income before income taxes	0	0	0
Net income	0	0
Depreciation and amortization	0	0	0
Total assets	0	0	0	0
Capital expenditures	$ 0	$ 0	$ 0

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Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Assets
Cash and due from banks	$ 18,529	$ 22,561
Interest-bearing deposits in other banks	10,380	6,332
Securities available for sale, at fair value	334,523	333,366
Restricted stock, at cost	6,268	6,019
Loans held for sale	9,215	6,330
Loans, net of unearned income	808,069	824,758
Less allowance for loan losses	(12,099)	(10,529)
Net loans	795,970	814,229
Premises and equipment, net	25,314	25,674
Other real estate owned, net	4,731	5,353
Goodwill	39,352	38,899
Core deposit intangibles, net	5,502	6,595
Bank owned life insurance	13,273	13,058
Accrued interest receivable and other assets	27,835	26,290
Total assets	1,290,892	1,304,706
Liabilities
Demand deposits -- noninterest bearing	196,727	179,148
Demand deposits -- interest bearing	149,229	189,212
Money market deposits	170,505	182,347
Savings deposits	78,842	74,193
Time deposits	447,182	433,854
Total deposits	1,042,485	1,058,754
Short-term borrowings:
Customer repurchase agreements	46,113	45,575
Other short-term borrowings	0	3,000
Long-term borrowings	10,142	10,206
Trust preferred capital notes	27,267	27,212
Accrued interest payable and other liabilities	6,461	7,130
Total liabilities	1,132,468	1,151,877
Shareholders' equity
Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding	0	0
Common stock, $1 par, 20,000,000 shares authorized, 7,836,056 shares outstanding at June 30, 2012 and 7,806,869 shares outstanding at December 31, 2011	7,836	7,807
Capital in excess of par value	56,825	56,395
Retained earnings	86,642	81,797
Accumulated other comprehensive income, net	7,121	6,830
Total shareholders' equity	158,424	152,829
Total liabilities and shareholders' equity	$ 1,290,892	$ 1,304,706

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Allowance for Loan Losses and Reserve for Unfunded Lending Commitments (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended		12 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Allowance for Loan Losses [Roll Forward]
Balance, beginning of period	$ 10,529	$ 8,420	$ 8,420
Provision for loan losses	1,466	673	3,170
Charge-offs	(863)	(705)	(1,863)
Recoveries	967	356	802
Balance, end of period	12,099	8,744	10,529
Individually evaluated for impairment	341		130
Collectively evaluated for impairment	11,758		10,399
Reserve for Unfunded Lending Commitments [Abstract]
Balance, beginning of period	200	218	218
Provision for loan losses	6	9	(18)
Charge-offs	0	0	0
Balance, end of period	206	227	200
Loans [Abstract]
Individually evaluated for impairment	4,258		3,238
Collectively evaluated for impairment	779,148		787,493
Loans acquired with deteriorated credit quality	24,663		34,027
Total Loans	808,069		824,758
Commercial [Member]
Allowance for Loan Losses [Roll Forward]
Balance, beginning of period	1,236	751	751
Provision for loan losses	204		275
Charge-offs	(287)		(163)
Recoveries	554		373
Balance, end of period	1,707		1,236
Individually evaluated for impairment	158		0
Collectively evaluated for impairment	1,549		1,236
Loans [Abstract]
Individually evaluated for impairment	473		0
Collectively evaluated for impairment	125,553		131,754
Loans acquired with deteriorated credit quality	2,820		2,411
Total Loans	128,846		134,166
Commercial real estate, portfolio [Member]
Allowance for Loan Losses [Roll Forward]
Balance, beginning of period	5,719	4,631	4,631
Provision for loan losses	796		1,484
Charge-offs	(232)		(702)
Recoveries	312		306
Balance, end of period	6,595		5,719
Individually evaluated for impairment	69		129
Collectively evaluated for impairment	6,526		5,590
Loans [Abstract]
Individually evaluated for impairment	2,467		1,894
Collectively evaluated for impairment	389,281		381,175
Loans acquired with deteriorated credit quality	13,606		23,325
Total Loans	405,354		406,394
Residential real estate, portfolio [Member]
Allowance for Loan Losses [Roll Forward]
Balance, beginning of period	3,412	2,921	2,921
Provision for loan losses	443		1,312
Charge-offs	(314)		(871)
Recoveries	63		50
Balance, end of period	3,604		3,412
Individually evaluated for impairment	114		1
Collectively evaluated for impairment	3,490		3,411
Loans [Abstract]
Individually evaluated for impairment	1,318		1,295
Collectively evaluated for impairment	256,860		266,421
Loans acquired with deteriorated credit quality	8,237		8,291
Total Loans	266,415		276,007
Consumer [Member]
Allowance for Loan Losses [Roll Forward]
Balance, beginning of period	162	117	117
Provision for loan losses	23		99
Charge-offs	(30)		(127)
Recoveries	38		73
Balance, end of period	193		162
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	193		162
Loans [Abstract]
Individually evaluated for impairment	0		49
Collectively evaluated for impairment	7,454		8,143
Loans acquired with deteriorated credit quality	0		0
Total Loans	$ 7,454		$ 8,191

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, unless otherwise specified	Common Stock [Member]	Capital in Excess of Par Value [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2010	$ 6,128	$ 27,268	$ 74,850	$ (159)	$ 108,087
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	0	2,790	0	2,790
Other comprehensive income	0	0	0	2,712	2,712
Stock options exercised	11	162	0	0	173
Stock option expense	0	32	0	0	32
Equity based compensation	18	208	0	0	226
Cash dividends declared	0		(2,830)	0	(2,830)
Balance at Jun. 30, 2011	6,157	27,670	74,810	2,553	111,190
Balance at Dec. 31, 2011	7,807	56,395	81,797	6,830	152,829
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	0	0	8,449	0	8,449
Other comprehensive income	0	0	0	291	291
Stock options exercised	3	42	0	0	45
Equity based compensation	26	388	0	0	414
Cash dividends declared	0		(3,604)	0	(3,604)
Balance at Jun. 30, 2012	$ 7,836	$ 56,825	$ 86,642	$ 7,121	$ 158,424

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Employee Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Schedule of components of net periodic benefit cost

        The following is information pertaining to the Company's non-contributory defined benefit pension plan.

Components of Net Periodic Benefit Cost	Three Months Ended						Six Months Ended
(in thousands)	June 30,						June 30,
	2012			2011			2012			2011
Service cost	$	-		$	27		$	-		$	54
Interest cost		97			101			194			202
Expected return on plan assets		(135	)		(131	)		(270	)		(262	)
Recognized net actuarial loss		83			40			166			80
Net periodic benefit cost	$	45		$	37		$	90		$	74

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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

Note 14 - Fair Value of Financial Instruments

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the fair value measurements and disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The recent fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 -	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 -	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 -	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2).  Federal Reserve Bank of Richmond and FHLB stocks are carried at cost since no ready market exists and there is no quoted market value.  The Company is required to own stock in these entities as long as it is a member.  Therefore, they have been excluded from the table below.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis during the period (in thousands):

			Fair Value Measurements at June 30, 2012 Using
	Balance as of June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2012		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Federal agencies and GSEs	$	37,177	$	-	$	37,177	$	-
Mortgage-backed and CMOs		96,882		-		96,882		-
State and municipal		192,022		-		192,022		-
Corporate		8,442		-		8,105		337
Total	$	334,523	$	-	$	334,186	$	337

			Fair Value Measurements at December 31, 2011 Using
	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2011		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
Federal agencies and GSEs	$	32,679	$	-	$	32,679	$	-
Mortgage-backed and CMOs		103,904		-		103,904		-
State and municipal		194,405		-		194,405		-
Corporate		2,378		-		2,054		324
Total	$	333,366	$	-	$	333,042	$	324

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
			Total Realized / Unrealized Gains
			(Losses) Included in
	Balances as of January 1, 2012		Net Income		Other Comprehensive Income		Purchases, Sales, Issuances and Settlements, Net	Transfer In (Out) of Level 3		Balances as of June 30, 2012
Securities available for sale:
Corporate	$	324	$	13	$	-	-	$	-	$	337
Total assets	$	324	$	13	$	-	-	$	-	$	337

         Certain assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

Loans held for sale: Loans held for sale are carried at estimated fair value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the period ended June 30, 2012. Gains and losses on the sale of loans are recorded within income from mortgage banking on the Consolidated Statements of Income.

Impaired loans: Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business's financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the Allowance for Loan Losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

Other real estate owned ("OREO"):  Property acquired in satisfaction of loans is carried at the lower of cost or market value.  The value of real estate is determined utilizing an income or market valuation approach less cost to sell based on an appraisal conducted by an independent, licensed appraiser outside of the company using observable market data (Level 2).  However, if the real estate is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3.  OREO is measured at fair value on a nonrecurring basis.  Any initial fair value adjustment is charged against the allowance for loan loss.  Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the Consolidated Statements of Income.

The following table summarizes the Company's assets that were measured at fair value on a nonrecurring basis during the period (in thousands):

			Fair Value Measurements at June 30, 2012 Using
	Balance as of June 30,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2012		Level 1		Level 2		Level 3
Assets:
Loans held for sale	$	9,215	$	-	$	9,215	$	-
Impaired loans, net of valuation allowance		440		-		440		-
Other real estate owned		4,731		-		4,731		-

			Fair Value Measurements at December 31, 2011 Using
	Balance as of December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2011		Level 1		Level 2		Level 3
Assets:
Loans held for sale	$	6,330	$	-	$	6,330	$	-
Impaired loans, net of valuation allowance		1,142		-		1,142		-
Other real estate owned		5,353		-		5,353		-

The carrying values and estimated fair values of the Company's financial instruments as of June 30, 2012 are as follows (in thousands):

			Fair Value Measurements at June 30, 2012 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	28,909	$	28,909	$	-	$	-	$	28,909
Securities avaiable for sale		334,523		-		334,186		337		334,523
Loans held for sale		9,215		-		9,215		-		9,215
Loans, net of allowance		795,970		-		787,894		-		787,894
Bank owned life insurance		13,273		-		13,273		-		13,273
Accrued Iinterest receivable		5,106		-		5,106		-		5,106
Financial Liabilities:
Deposits	$	1,042,485	$	-	$	1,020,830	$	-	$	1,020,830
Repurchase agreements		46,113		-		46,113		-		46,113
Other borrowings		10,142		-		11,078		-		11,078
Trust preferred capital notes		27,267		-		23,032		-		23,032
Accrued interest payable		758		-		758		-		758

The Company has one Level 3 security, a trust preferred security issued by a community bank. It is a Level 3 security under the three-tier fair value hierarchy because of an absence of observable inputs for these and similar securities in the debt markets.  The Company acquired this security in connection with merger with MidCarolina and obtained an independent third party appraisal of the fair value at July 1, 2011. Because of the lack of observable inputs, the valuation was completed using a discounted cash flow computation, adjusted for an estimated default rate determined by reviewing industry statistics. The merger date initial fair value estimate of the security was 67.28% of its $500,000 par, or $336,000. Approximately $147,000 of this impairment was attributed to factors other than credit, and $17,000 was attributable to credit factors.

The carrying values and estimated fair values of the Company's financial instruments as of December 31, 2011 are as follows (in thousands):

			Fair Value Measurements at December 31, 2011 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	28,893	$	28,893	$	-	$	-	$	28,893
Securities avaiable for sale		333,366		-		333,042		324		333,366
Loans held for sale		6,330		-		6,330		-		6,330
Loans, net of allowance		814,229		-		811,573		-		811,573
Bank owned life insurance		13,058		-		13,058		-		13,058
Accrued Iinterest receivable		5,091		-		5,091		-		5,091
Financial Liabilities:
Deposits	$	1,058,754	$	-	$	1,066,448	$	-	$	1,066,448
Repurchase agreements		45,575		-		45,575		-		45,575
Other borrowings		13,206		-		13,064		-		13,064
Trust preferred capital notes		27,212		-		27,184		-		27,184
Accrued interest payable		857		-		857		-		857

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:

Cash and cash equivalents.  The carrying amount is a reasonable estimate of fair value.

Securities.  Fair values are based on quoted market prices or dealer quotes.

Loans held for sale.  The carrying amount is a reasonable estimate of fair value.

Loans.  For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  Fair values for fixed-rate loans are estimated based upon discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Bank owned life insurance. Bank owned life insurance represents insurance policies on officers, directors, and past directors of the Company.  The cash values of the policies are estimates using information provided by insurance carriers.  These policies are carried at their cash surrender value, which approximates the fair value.

Accrued interest receivable.  The carrying amount is a reasonable estimate of fair value.

Deposits.  The fair value of demand deposits, savings deposits, and money market deposits equals the carrying value. The fair value of fixed-rate certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposit instruments would be offered to depositors for the same remaining maturities.

Repurchase agreements.  The carrying amount is a reasonable estimate of fair value.

Other borrowings.  The fair values of other borrowings are estimated using discounted cash flow analyses based on the interest rates for similar types of borrowing arrangements.

Trust preferred capital notes.  Fair value is calculated by discounting the future cash flows using the estimated current interest rates at which similar securities would be issued.

Accrued interest payable.  The carrying amount is a reasonable estimate of fair value.

Off-balance sheet instruments.  The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At June 30, 2012 and December 31, 2011, the fair value of off balance sheet instruments was deemed immaterial, and therefore was not included in the previous table.

The Company assumes interest rate risk (the risk that interest rates will change) in its normal operations.  As a result, the fair values of the Company's financial instruments will change when interest rates change and that change may be either favorable or unfavorable to the Company.

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Segment and Related Information (Tables)

6 Months Ended

Jun. 30, 2012

Segment and Related Information [Abstract]

Schedule of segment information

Segment information as of and for the three and six months ended June 30, 2012 and 2011, is shown in the following table.

	Three Months Ended June 30, 2012
			Trust and
(in thousands)	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	14,886	$	-	$	2		$	(2	)	$	14,886
Interest expense		1,865		-		207			(2	)		2,070
Noninterest income		1,715		1,079		6			-			2,800
Income before income taxes		5,704		650		(304	)		-			6,050
Net income		4,014		461		(201	)		-			4,274
Depreciation and amortization		984		5		-			-			989
Total assets		1,289,971		-		921			-			1,290,892
Capital expenditures		-		-		-			-			-
	Three Months Ended June 30, 2011
			Trust and
	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	8,570	$	-	$	12		$	(12	)	$	8,570
Interest expense		1,686		-		297			(12	)		1,971
Noninterest income		1,064		915		9			-			1,988
Income before income taxes		1,781		583		(1,141	)		-			1,223
Net income		1,619		384		(991	)		-			1,012
Depreciation and amortization		384		5		-			-			389
Total assets		841,369		-		4,647			-			846,016
Capital expenditures		146		-		-			-			146
	Six Months Ended June 30, 2012
			Trust and
	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	30,228	$	-	$	5		$	(5	)	$	30,228
Interest expense		3,832		-		413			(5	)		4,240
Noninterest income		3,961		2,062		11			-			6,034
Income before income taxes		11,187		1,208		(599	)		-			11,796
Net income		7,984		865		(400	)					8,449
Depreciation and amortization		1,948		10		-			-			1,958
Total assets		1,289,971		-		921			-			1,290,892
Capital expenditures		573		-		-			-			573

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 16 - Recent Accounting Pronouncements

In April 2011, the FASB issued Accounting Standards Update ("ASU") 2011-03, "Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements."  The amendments in this ASU remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee and (2) the collateral maintenance implementation guidance related to that criterion.  The amendments in this ASU are effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date.  Early adoption is not permitted. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In May 2011, the FASB issued ASU 2011-04, "Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs."  This ASU is the result of joint efforts by the FASB and International Accounting Standards Board (IASB) to develop a single, converged fair value framework on how (not when) to measure fair value and what disclosures to provide about fair value measurements.  The ASU is largely consistent with existing fair value measurement principles in U.S. GAAP (Topic 820), with many of the amendments made to eliminate unnecessary wording differences between U.S. GAAP and International Financial Reporting Standards (IFRS).  The amendments are effective for interim and annual periods beginning after December 15, 2011 with prospective application.  Early application is not permitted.  The Company has included the required disclosures in its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220) - Presentation of Comprehensive Income."  The objective of this ASU is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity.  The amendments require that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The single statement of comprehensive income should include the components of net income, a total for net income, the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present all the components of other comprehensive income, a total for other comprehensive income, and a total for comprehensive income.  The amendments do not change the items that must be reported in other comprehensive income, the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, or the calculation or reporting of earnings per share.  The amendments in this ASU should be applied retrospectively. The amendments are effective for fiscal years and interim periods within those years beginning after December 15, 2011.  Early adoption is permitted because compliance with the amendments is already permitted. The amendments do not require transition disclosures.  The Company has included the required disclosures in its consolidated financial statements.

In September 2011, the FASB issued ASU 2011-08, "Intangible - Goodwill and Other (Topic 350) - Testing Goodwill for Impairment."  The amendments in this ASU permit an entity to first assess qualitative factors related to goodwill to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill test described in Topic 350.  The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.  Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.  The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity's financial statements for the most recent annual or interim period have not yet been issued.  The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In December 2011, the FASB issued ASU 2011-11, "Balance Sheet (Topic 210) - Disclosures about Offsetting Assets and Liabilities."  This ASU requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 to have a material impact on its consolidated financial statements.

In December 2011, the FASB issued ASU 2011-12, "Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05."  The amendments are being made to allow FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. While FASB is considering the operational concerns about the presentation requirements for reclassification adjustments and the needs of financial statement users for additional information about reclassification adjustments, entities should continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before ASU 2011-05.  All other requirements in ASU 2011-05 are not affected by ASU 2011-12, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company has included the required disclosures in its consolidated financial statements.

Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2011 for previously announced accounting pronouncements.

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Changes in Shareholders' Equity (Unaudited) [Abstract]
Cash dividends declared (in dollars per share)	$ 0.46	$ 0.46

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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Shareholders' equity
Preferred stock, par value (in dollars per share)	$ 5	$ 5
Preferred stock, shares authorized (in shares)	2,000,000	2,000,000
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares outstanding (in shares)	7,836,056	7,806,869

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Trust Preferred Capital Notes

6 Months Ended

Jun. 30, 2012

Trust Preferred Capital Notes [Abstract]

Trust Preferred Capital Notes

Note 9 - Trust Preferred Capital Notes

On April 7, 2006, the AMNB Trust, a Delaware statutory trust and a wholly owned subsidiary of the Company, issued $20,000,000 of preferred securities in a private placement pursuant to an applicable exemption from registration.  The Trust Preferred Securities mature on June 30, 2036, but may be redeemed at the Company's option beginning on June 30, 2011.  Initially, the securities required quarterly distributions by the AMNB Trust to the holder of the Trust Preferred Securities at a fixed rate of 6.66%.  Effective June 30, 2011, the rate resets quarterly at the three-month LIBOR plus 1.35%.  Distributions are cumulative and will accrue from the date of original issuance, but may be deferred by the Company from time to time for up to 20 consecutive quarterly periods.  The Company has guaranteed the payment of all required distributions on the Trust Preferred Securities.

The proceeds of the Trust Preferred Securities received by the AMNB Trust, along with proceeds of $619,000 received by the trust from the issuance of common securities by the trust to the Company, were used to purchase $20,619,000 of the Company's junior subordinated debt securities (the "Trust Preferred Capital Notes"), issued pursuant to a junior subordinated debentures entered into between the Company and Wilmington Trust Company, as trustee.  The proceeds of the Trust Preferred Capital Notes were used to fund the cash portion of the merger consideration to the former shareholders of Community First in connection with the Company's acquisition of that company, and for general corporate purposes.

On July 1, 2011, in connection with the MidCarolina merger, the Company assumed $8,764,000 in junior subordinated debentures to the MidCarolina Trusts, to fully and unconditionally guarantee the preferred securities issued by the MidCarolina Trusts. These long term obligations, which currently qualify as Tier 1 capital, constitute and full and unconditional guarantee by the Company of the MidCarolina Trusts' obligations. The MidCarolina Trusts are not consolidated in the Company's financial statements.

In accordance with FASB ASC 810-10-15-14, the Company did not eliminate through consolidation the Company's $619,000 equity investment in AMNB Statutory Trust I or the $264,000 equity investment in the MidCarolina Trusts.  Instead, the Company reflected this equity investment in the "Accrued interest receivable and other assets" line item in the consolidated balance sheets.

A description of the junior subordinated debt securities outstanding payable to the trusts is shown below:

								(Amounts in thousands)
								Principal Amount
	Date		Interest			Maturity
Issuing Entity	Issued		Rate			Date		June 30, 2012		December 31, 2011
AMNB Trust I		04-07-06	Libor plus				06-30-36	$	20,619	$	20,619
				1.35	%
MidCarolina I		10-29-02	Libor plus				11-07-32		4,014		3,986
				3.45	%
MidCarolina II		12-03-03	Libor plus				10-07-33		2,634		2,607
				2.95	%
								$	27,267	$	27,212

The principal amounts reflected for the MidCarolina Trusts are net of valuation allowances of $1,141,000 and $975,000, respectively. The original valuation allowances of $1,197,000 and $1,021,000 were recorded as a result of the merger with MidCarolina on July 1, 2011 and are being amortized into interest expense over the remaining lives of the respective borrowings.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 06, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	AMERICAN NATIONAL BANKSHARES INC
Entity Central Index Key	0000741516
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,836,056
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2012

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Stock Based Compensation

6 Months Ended

Jun. 30, 2012

Stock Based Compensation [Abstract]

Stock Based Compensation

Note 10 - Stock Based Compensation

The Company's 2008 Stock Incentive Plan ("2008 Plan") was adopted by the Board of Directors of the Company on February 19, 2008 and approved by shareholders on April 22, 2008 at the Company's 2008 Annual Meeting of Shareholders.  The 2008 Plan provides for the granting of restricted stock awards and incentive and non-statutory options to employees and directors on a periodic basis, at the discretion of the Board of Directors or a Board designated committee.  The 2008 Plan authorizes the issuance of up to 500,000 shares of common stock. The 2008 Plan replaced the Company's stock option plan that was approved by the shareholders at the 1997 Annual Meeting, which plan terminated in 2006.

Stock Options

Accounting guidance requires that compensation cost relating to share-based payment transactions be recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued.

A summary of stock option transactions for the six months ended June 30, 2012 is as follows:

	Option  Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate  Intrinsic  Value  ($000)
Outstanding at December 31, 2011		268,639		$	23.94
Granted		-			-
Exercised		(2,761	)		16.37
Forfeited		-			-
Outstanding at June 30, 2012		265,878		$	24.02	3.98 years	$	467
Exercisable at June 30, 2012		265,878		$	24.02	3.98 years	$	467

The fair value of options is estimated at the date of grant using the Black-Scholes option pricing model and expensed over the options' vesting period.  As of June 30, 2012, there was no unrecognized compensation expenses related to nonvested stock option grants.

Restricted Stock

The Company from time-to-time grants shares of restricted stock to key employees and non-employee directors.  These awards help align the interests of these employees and directors with the interests of the shareholders of the Company by providing economic value directly related to increases in the value of the Company's common stock.  The value of the stock awarded is established as the fair market value of the stock at the time of the grant.  The Company recognizes expense, equal to the total value of such awards, ratably over the vesting period of the stock grants. Restricted stock granted cliff vests over 24 to 36 months based on the term of the award.

Nonvested restricted stock activity for the six months ended June 30, 2012 is summarized in the following table. 

Restricted Stock	Shares		Weighted Average Grant Date Value
Nonvested at January 1, 2012		38,349	$	20.53
Granted		15,290		19.30
Vested		8,712		21.36
Forfeited		-		-
Nonvested at June 30, 2012		44,927	$	19.95

As of June 30, 2012 and December 31, 2011, there was $525,000 and $404,000 in unrecognized compensation cost related to nonvested restricted stock granted under the 2008 Plan.  The weighted average period over which this this cost   is expected to be recognized is 1.40 years.   The share based compensation expense for nonvested restricted stock was $174,000 and $120,000 during the first six months of 2012 and 2011, respectively.

Starting in 2010, the Company began offering its directors an option with respect to director compensation. For 2012, the regular monthly retainer can be received in the form of either (i) $1,000 in cash or (ii) shares of immediately vested but restricted stock with a market value of $1,563. Monthly meeting fees can also be received as $600 per meeting in cash or $750 in immediately vested, but restricted stock.  For 2012, 12 of 13 directors elected to receive stock in lieu of cash for their monthly retainer board meeting fees. Only outside directors receive board fees. The Company issued 11,136 and 5,476 shares and recognized share based compensation expense of $240,000 and $107,000 during the first six months of 2012 and 2011, respectively.

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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Interest and Dividend Income:
Interest and fees on loans	$ 12,683	$ 6,618	$ 25,803	$ 13,297
Interest and dividends on securities:
Taxable	1,056	1,085	2,135	2,254
Tax-exempt	1,077	827	2,159	1,543
Dividends	52	26	103	53
Other interest income	18	14	28	84
Total interest and dividend income	14,886	8,570	30,228	17,231
Interest Expense:
Interest on deposits	1,729	1,587	3,566	3,167
Interest on short-term borrowings	51	82	94	162
Interest on long-term borrowings	84	5	168	58
Interest on trust preferred capital notes	206	297	412	640
Total interest expense	2,070	1,971	4,240	4,027
Net Interest Income	12,816	6,599	25,988	13,204
Provision for Loan Losses	733	336	1,466	673
Net Interest Income After Provision for Loan Losses	12,083	6,263	24,522	12,531
Noninterest Income:
Trust fees	966	878	1,848	1,806
Service charges on deposit accounts	413	400	901	821
Other fees and commissions	445	338	902	654
Mortgage banking income	519	271	1,050	418
Securities gains (losses), net	160	(19)	160	(18)
Other	297	120	1,173	278
Total noninterest income	2,800	1,988	6,034	3,959
Noninterest Expense:
Salaries	3,809	2,546	7,920	5,031
Employee benefits	799	624	1,877	1,165
Occupancy and equipment	1,048	696	2,013	1,395
FDIC assessment	213	197	446	402
Bank franchise tax	182	176	365	351
Core deposit intangible amortization	546	95	1,093	189
Foreclosed real estate, net	171	456	18	522
Merger related expenses	(202)	835	49	1,144
Other	2,267	1,403	4,979	2,608
Total noninterest expense	8,833	7,028	18,760	12,807
Income Before Income Taxes	6,050	1,223	11,796	3,683
Income Taxes	1,776	211	3,347	893
Net Income	$ 4,274	$ 1,012	$ 8,449	$ 2,790
Net Income Per Common Share:
Basic (in dollars per share)	$ 0.55	$ 0.16	$ 1.08	$ 0.45
Diluted (in dollars per share)	$ 0.54	$ 0.16	$ 1.08	$ 0.45
Average Common Shares Outstanding:
Basic (in shares)	7,832,162	6,154,396	7,827,195	6,149,029
Diluted (in shares)	7,849,142	6,161,265	7,839,364	6,157,032

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Loans

6 Months Ended

Jun. 30, 2012

Loans [Abstract]

Loans

Note 4 - Loans

Loans, excluding loans held for sale, were comprised of the following:

	June 30,		December 31,
(in thousands)	2012		2011
Commercial	$	128,846	$	134,166
Commercial real estate:
Construction and land development		50,913		54,433
Commercial real estate		354,441		351,961
Residential real estate:
Residential		170,893		179,812
Home equity		95,522		96,195
Consumer		7,454		8,191
Total loans	$	808,069	$	824,758

Interest income, including accretion, on loans acquired from MidCarolina for the three months ended June 30, 2012 was approximately $7.7 million and $12.9 million for the six months ended June 30, 2012. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
(in thousands)	2012		2011
Oustanding principal balance	$	275,667	$	321,002
Carrying amount		255,840		293,569

The outstanding principal balance and related carrying amount of acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), to account for interest earned, at June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
(in thousands)	2012		2011
Oustanding principal balance	$	32,307	$	45,760
Carrying amount		24,633		34,027

The following table presents changes in the accretable discount on acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), for the six months ended June 30, 2012. The accretion reflected below includes $1,686,000 related to loan payoffs.

	Accretable
(in thousands)	Discount
Balance at December 31, 2011	$	1,056
Accretion		(1,738	)
Reclassification from nonaccretable difference		1,917
Balance at June 30, 2012	$	1,235

The following table shows an analysis by portfolio segment of the Company's past due loans at June 30, 2012.

					90 Days +
	30- 59		60-89		Past Due		Non-		Total
	Days		Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
Commercial	$	170	$	128	$	-	$	1,095	$	1,393	$	127,453	$	128,846
Commercial real estate:
Construction and land development		-		-		-		1,257		1,257		49,656		50,913
Commercial real estate		981		1,596		-		1,996		4,573		349,868		354,441
Residential:
Residential		719		176		-		3,095		3,990		166,903		170,893
Home equity		308		13		-		551		872		94,650		95,522
Consumer		17		50		-		1		68		7,386		7,454
Total	$	2,195	$	1,963	$	-	$	7,995	$	12,153	$	795,916	$	808,069

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2011.

					90 Days +
	30- 59		60-89		Past Due		Non-		Total
	Days		Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
Commercial	$	98	$	99	$	-	$	1,820	$	2,017	$	132,149	$	134,166
Commercial real estate:
Construction and land development		1,086		1,163		-		5,819		8,066		46,367		54,433
Commercial real estate		1,052		471		-		2,115		3,638		348,323		351,961
Residential:
Residential		1,519		741		-		3,476		5,735		174,077		179,812
Home equity		270		243		197		244		954		95,241		96,195
Consumer		126		7		-		49		181		8,010		8,191
Total	$	4,151	$	2,724	$	197	$	13,523	$	20,591	$	804,167	$	824,758

The following table presents the Company's impaired loan balances by portfolio segment excluding loans acquired with deteriorated credit quality at June 30, 2012.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	214	$	382	$	-	$	210	$	-
Commercial real estate:
Construction and land development		2,081		701		-		1,407		15
Commercial real estate		153		153		-		765		5
Residential:
Residential		1,029		1,327		-		1,149		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	3,477	$	2,563	$	-	$	3,531	$	20
With an related allowance recorded:
Commercial		259		259		158		14		7
Commercial real estate:
Construction and land development		-		-		-		-		-
Commercial real estate		233		233		69		19		8
Residential		289		289		114		48		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	781	$	781	$	341	$	81	$	15
Total:
Commercial	$	473	$	641	$	158	$	224	$	7
Commercial real estate:
Construction and land development		2,081		701		-		1,407		15
Commercial real estate		386		386		69		784		13
Residential:
Residential		1,318		1,616		114		1,197		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	4,258	$	3,344	$	341	$	3,612	$	35

The following table presents the Company's impaired loan balances by portfolio segment excluding loans acquired with deteriorated credit quality at December 31, 2011.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		364		391		-		292		-
Commercial real estate		279		279		-		207		17
Residential:
Residential		1,185		1,276		-		376		2
Home equity		89		89		-		50		3
Consumer		49		56		-		17		-
	$	1,966	$	2,091	$	-	$	990	$	22
With an related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial real estate:
Construction and land development		363		363		49		139		-
Commercial real estate		888		888		80		75		-
Residential:
Residential		21		21		1		7		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	1,272	$	1,272	$	130	$	221	$	-
Total:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		727		754		49		431		-
Commercial real estate		1,167		1,167		80		282		17
Residential:
Residential		1,206		1,297		1		383		2
Home equity		89		89		-		50		3
Consumer		49		56		-		17		-
	$	3,238	$	3,363	$	130	$	1,211	$	22

The following table shows the detail of loans modified as troubled debt restructurings ("TDRs") included in the impaired loan balances for the three and six month periods ended June 30, 2012.

	Loans Modified as a TDR for the
	Three Months Ended June 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Oustanding Recorded
(dollars in thousands)	Contracts		Investment		Investment
Commercial		1	$	11	$	11
Commercial real estate:
Construction and land development		2		1,411		1,411
Commercial real estate		1		4		4
Total		4	$	1,426	$	1,426

	Loans Modified as a TDR for the
	Six Months Ended June 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Oustanding Recorded
(dollars in thousands)	Contracts		Investment		Investment
Commercial		1	$	11	$	11
Commercial real estate:
Construction and land development		7		2,188		2,081
Commercial real estate		1		4		4
Total		9	$	2,203	$	2,096

None of the loans modified as a TDR within the previous twelve months have subsequently defaulted during the six month period ending June 30, 2012.

        The following table shows the Company's commercial loan portfolio broken down by internal risk grading as of June 30, 2012.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade
			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity
Pass	$	126,558	$	39,464	$	333,636	$	153,437	$	92,960
Special Mention		1,097		2,170		12,261		10,932		1,366
Substandard		1,191		9,279		8,544		6,524		1,196
Doubtful		-		-		-		-		-
Total	$	128,846	$	50,913	$	354,441	$	170,893	$	95,522
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer
Performing	$	7,365
Nonperforming		89
Total	$	7,454

Loans classified in the Pass category typically are fundamentally sound and risk factors are reasonable and acceptable.

Loans classified in the Special Mention category typically have been criticized internally, by loan review or the loan officer, or by external regulators under the current credit policy regarding risk grades.

Loans classified in the Substandard category typically have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are typically characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Loans classified in the Doubtful category typically have all the weaknesses inherent in loans classified as substandard, plus the added characteristic the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur that may salvage the debt.

Consumer loans are classified as performing or nonperforming.  A loan is nonperforming when payments of interest and principal are past due 90 days or more, or payments are less than 90 days past due, but there are other good reasons to doubt that payment will be made in full.

The following table shows the Company's commercial loan portfolio broken down by internal risk grading as of December 31, 2011.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade
			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity
Pass	$	130,603	$	35,265	$	321,370	$	161,158	$	93,193
Special Mention		1,349		3,401		19,072		10,166		1,606
Substandard		2,214		15,767		11,519		8,488		1,396
Doubtful		-		-		-		-		-
Total	$	134,166	$	54,433	$	351,961	$	179,812	$	96,195
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer
Performing	$	8,050
Nonperforming		141
Total	$	8,191

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Securities

6 Months Ended

Jun. 30, 2012

Securities [Abstract]

Securities

Note 3 - Securities

The amortized cost and estimated fair value of investments in debt and equity securities at June 30, 2012 and December 31, 2011 were as follows:

	June 30, 2012
(in thousands)	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available for sale:
Federal agencies and GSEs	$	36,823	$	357	$	3	$	37,177
Mortgage-backed and CMOs		95,222		1,866		206		96,882
State and municipal		180,058		11,979		15		192,022
Corporate		8,385		63		6		8,442
Total securities available for sale	$	320,488	$	14,265	$	230	$	334,523

	December 31, 2011
(in thousands)	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available for sale:
Federal agencies and GSEs	$	32,071	$	608	$	-	$	32,679
Mortgage-backed and CMOs		102,444		1,874		414		103,904
State and municipal		182,952		11,454		1		194,405
Corporate		2,312		66		-		2,378
Total securities available for sale	$	319,779	$	14,002	$	415	$	333,366

Temporarily Impaired Securities

The following table shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2012.  The reference point for determining when securities are in an unrealized loss position is month-end.  Therefore, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.

Available for sale securities that have been in a continuous unrealized loss position are as follows:

	Total				Less than 12 Months				12 Months or More
(in thousands)	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Federal agencies and GSEs	$	2,038	$	3	$	2,038	$	3	$	-	$	-
Mortgage-backed		17,215		120		17,215		120		-		-
CMOs		2,586		86		2,586		86		-		-
State and municipal		2,423		15		2,022		15		401		1
Corporate		2,419		6		2,419		6		-		-
Total	$	26,681	$	230	$	26,280	$	229	$	401	$	1

GSE debt securities: The unrealized losses on investments in one GSEs ("government sponsored entities") was caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

GSE residential mortgage-backed securities:  The unrealized losses on the Company's investment in 11 GSE mortgage-backed securities were caused by interest rate increases. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company's investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

Collateralized Mortgage Obligations ("CMOs"): The unrealized loss associated with one CMO was caused by interest rate increases. The contractual cash flows of these investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company's investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

State and municipal securities:  The unrealized losses on four investments in state and municipal securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

Corporate securities:  The unrealized losses on two investments in corporate securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Company does not consider those investments to be other-than-temporarily impaired at June 30, 2012.

The Company's investment in FHLB stock totaled $3,408,000 at June 30, 2012.  FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock, other than the FHLB or member institutions.  Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.  The Company does not consider this investment to be other-than-temporarily impaired at June 30, 2012 and no impairment has been recognized.  FHLB stock is shown in restricted stock on the balance sheet and is not a part of the available for sale securities portfolio.

The table below shows gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position, at December 31, 2011.

	Total				Less than 12 Months				12 Months or More
(in thousands)	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Mortgage-backed	$	28,431	$	266	$	28,431	$	266	$	-	$	-
Private label CMOs		3,375		148		3,306		115		69		33
State and municipal		401		1		401		1		-		-
Total	$	32,207	$	415	$	32,138	$	382	$	69	$	33

Other-Than-Temporary-Impaired Securities

       As of June 30, 2012 and December 31, 2011, there were no securities classified as other-than-temporary impaired.

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Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2012

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

Note 15 - Supplemental Cash Flow Information

	Six Months Ended
			June 30,
	2012		2011
Supplemental Schedule of Cash and Cash Equivalents:
Cash and due from banks	$	18,529	$	15,873
Interest-bearing deposits in other banks		10,380		23,310
	$	28,909	$	39,183
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	4,547	$	4,183
Income taxes		72		1,141
Noncash investing and financing activities:
Transfer of loans to other real estate owned		2,705		674
Unrealized gain on securities available for sale		448		4,173

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Earnings Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Note 11 - Earnings Per Share

      The following shows the weighted average number of shares used in computing earnings per share and the effect on weighted average number of shares of potentially dilutive common stock.  Potentially dilutive common stock had no effect on income available to common shareholders.

      Stock options on common stock which were not included in computing diluted earnings per share for the six month periods ended June 30, 2012 and 2011, because their effects were antidilutive, averaged 196,394 and 82,177, respectively.

	Three Months Ended
	June 30,
	2012					2011
			Per					Per
			Share					Share
	Shares		Amount			Shares		Amount
Basic		7,832,162	$	.55			6,154,396	$	.16
Effect of dilutive securities - stock options		16,980		(.01	)		6,869		-
Diluted		7,849,142	$	.54			6,161,265	$	.16

	Six Months Ended
	June 30,
	2012				2011
			Per				Per
			Share				Share
	Shares		Amount		Shares		Amount
Basic		7,827,195	$	1.08		6,149,029	$	.45
Effect of dilutive securities - stock options		12,169		-		8,003		-
Diluted		7,839,364	$	1.08		6,157,032	$	.45

         Stock options on common stock which were not included in computing diluted earnings per share for the six month periods ended June 30, 2012 and 2011, because their effects were antidilutive, averaged 196,394 and 82,177, respectively.

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Short-term Borrowings

6 Months Ended

Jun. 30, 2012

Short-term Borrowings [Abstract]

Short-term Borrowings

Note 7 - Short-term Borrowings

Short-term borrowings consist of customer repurchase agreements, overnight borrowings from the FHLB, and Federal Funds purchased.  Customer repurchase agreements are collateralized by securities of the U.S. Government or its agencies or GSEs.  They mature daily.  The interest rates are generally fixed but may be changed at the discretion of the Company. The securities underlying these agreements remain under the Company's control.  FHLB overnight borrowings contain floating interest rates that may change daily at the discretion of the FHLB.  Federal Funds purchased are unsecured overnight borrowings from other financial institutions.  Short-term borrowings consisted of the following as of June 30, 2012 and December 31, 2011 (in thousands):

	June 30, 2012		December 31, 2011
Customer repurchase agreements	$	46,113	$	45,575
FHLB overnight borrowings		-		3,000
	$	46,113	$	48,575

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Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

6 Months Ended

Jun. 30, 2012

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments [Abstract]

Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

Note 5 - Allowance for Loan Losses and Reserve for Unfunded Lending Commitments

Changes in the allowance for loan losses and the reserve for unfunded lending commitments as of the indicated dates and periods are presented below:

The reserve for unfunded loan commitments is included in other liabilities.

(in thousands)	Six Months Ended June 30, 2012			Year Ended December 31, 2011			Six Months Ended June 30, 2011
Allowance for Loan Losses
Balance, beginning of period	$	10,529		$	8,420		$	8,420
Provision for loan losses		1,466			3,170			673
Charge-offs		(863	)		(1,863	)		(705	)
Recoveries		967			802			356
Balance, end of period	$	12,099		$	10,529		$	8,744
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	200		$	218		$	218
Provision for loan losses		6			(18	)		9
Charge-offs		-			-			-
Balance, end of period	$	206		$	200		$	227

The following table presents the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at June 30, 2012.

				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Total
(in thousands)
Allowance for Loan Losses
Balance as of December 31, 2011	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Charge-offs		(287	)		(232	)		(314	)		(30	)		(863	)
Recoveries		554			312			63			38			967
Provision		204			796			443			23			1,466
Balance as of June 30, 2012	$	1,707		$	6,595		$	3,604		$	193		$	12,099
Balances at June 30, 2012:
Allowance for Loan Losses
Individually evaluated for impairment	$	158		$	69		$	114		$	-		$	341
Collectively evaluated for impairment		1,549			6,526			3,490			193			11,758
Total	$	1,707		$	6,595		$	3,604		$	193		$	12,099
Loans
Individually evaluated for impairment	$	473		$	2,467		$	1,318		$	-		$	4,258
Collectively evaluated for impairment		125,553			389,281			256,860			7,454			779,148
Loans acquired with deteriorated credit quality		2,820			13,606			8,237			-			24,663
Total	$	128,846		$	405,354		$	266,415		$	7,454		$	808,069

The following table presents the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at December 31, 2011.

				Commercial			Residential
	Commercial			Real Estate			Real Estate			Consumer			Total
(in thousands)
Allowance for Loan Losses
Balance as of December 31, 2010	$	751		$	4,631		$	2,921		$	117		$	8,420
Charge-offs		(163	)		(702	)		(871	)		(127	)		(1,863	)
Recoveries		373			306			50			73			802
Provision		275			1,484			1,312			99			3,170
Balance as of December 31, 2011	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Balance as of December 31, 2011:
Allowance for Loan Losses
Individually evaluated for impairment	$	-		$	129		$	1		$	-		$	130
Collectively evaluated for impairment		1,236			5,590			3,411			162			10,399
Total	$	1,236		$	5,719		$	3,412		$	162		$	10,529
Loans
Individually evaluated for impairment	$	-		$	1,894		$	1,295		$	49		$	3,238
Collectively evaluated for impairment		131,754			381,175			266,421			8,143			787,493
Loans acquired with deteriorated credit quality		2,411			23,325			8,291			-			34,027
Total	$	134,165		$	406,394		$	276,007		$	8,192		$	824,758

The allowance for loan losses is allocated to loan segments based upon historical loss factors, risk grades on individual loans, portfolio analyses of smaller balance, homogenous loans, and qualitative factors.  Qualitative factors include trends in delinquencies, nonaccrual loans, and loss rates; trends in volume and terms of loans, effects of changes in risk selection, underwriting standards, and lending policies; experience of lending officers and other lending staff; national and local economic trends and conditions; and concentrations of credit.

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2012

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

Note 6 - Goodwill and Other Intangible Assets

Goodwill is subject to at least an annual assessment for impairment by applying a fair value test.  An annual fair value-based test was performed in 2011 that determined the market value of the Company's shares exceeded the consolidated carrying value, including goodwill; therefore, there has been no impairment recognized in the value of goodwill.

Core deposit intangibles resulting from the Community First acquisition in April 2006 were $3,112,000 and are being amortized over 99 months.  Core deposit intangibles resulting from the MidCarolina acquisition in July 2011 were $6,556,000 and are being amortized over 108 months.

The changes in the carrying amount of goodwill and intangibles for the six months ended June 30, 2012, are as follows (in thousands):

	Goodwill		Intangibles
Balance December 31, 2011	$	38,899	$	6,595
Additions		453		-
Amortization		-		(1,093	)
Impairment		-		-
Balance June 30, 2012	$	39,352	$	5,502

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Long-term Borrowings

6 Months Ended

Jun. 30, 2012

Long-term Borrowings [Abstract]

Long-term Borrowings

Note 8 - Long-term Borrowings

Under the terms of its collateral agreement with the FHLB, the Company provides a blanket lien covering all of its residential first mortgage loans, second mortgage loans, home equity lines of credit, and commercial real estate loans.  In addition, the Company pledges as collateral its capital stock in the FHLB and deposits with the FHLB.  The Company has a line of credit with the FHLB equal to 30% of the Company's assets, subject to the amount of collateral pledged.  As of June 30, 2012, $518,174,000 in eligible collateral was pledged under the blanket floating lien agreement which covers both short-term and long-term borrowings.  Long-term borrowings consisted of the following fixed rate, long term advances as of June 30, 2012 and December 31, 2011 (dollars in thousands):

June 30, 2012						December 31, 2011
Due by	Advance Amount		Weighted Average Rate			Due by	Advance Amount		Weighted Average Rate
April 2014	$	262		3.78	%	April 2014	$	337		3.78	%
November  2017		9,880		2.98		November 2017		9,869		2.98
	$	10,142		3.01	%		$	10,206		3.01	%

The advance due in November 2017 is net of a valuation allowance of $120,000. The original valuation allowance recorded on July 1, 2011 was a result of the merger with MidCarolina. The adjustment to the face value will be amortized into interest expense over the life of the borrowing.

In the regular course of conducting its business, the Company takes deposits from political subdivisions of the States of Virginia and North Carolina. At June 30, 2012, the Bank's public deposits totaled $117,989,000. The Company is required to provide collateral to secure the deposits that exceed the insurance coverage provided by the Federal Deposit Insurance Corporation. This collateral can be provided in the form of certain types of government or agency bonds or letters of credit from the FHLB. At June 30, 2012, the Company had $72,000,000 in letters of credit with the FHLB outstanding, as well as $75,824,000 in government and agency securities to provide collateral for such deposits.

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Schedule of weighted average number of shares used in computing earnings per share

      Stock options on common stock which were not included in computing diluted earnings per share for the six month periods ended June 30, 2012 and 2011, because their effects were antidilutive, averaged 196,394 and 82,177, respectively.

	Three Months Ended
	June 30,
	2012					2011
			Per					Per
			Share					Share
	Shares		Amount			Shares		Amount
Basic		7,832,162	$	.55			6,154,396	$	.16
Effect of dilutive securities - stock options		16,980		(.01	)		6,869		-
Diluted		7,849,142	$	.54			6,161,265	$	.16

	Six Months Ended
	June 30,
	2012				2011
			Per				Per
			Share				Share
	Shares		Amount		Shares		Amount
Basic		7,827,195	$	1.08		6,149,029	$	.45
Effect of dilutive securities - stock options		12,169		-		8,003		-
Diluted		7,839,364	$	1.08		6,157,032	$	.45

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Earnings Per Share (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Shares [Abstract]
Basic (in shares)	7,832,162	6,154,396	7,827,195	6,149,029
Effect of dilutive securities - stock options (in shares)	16,980	6,869	12,169	8,003
Diluted (in shares)	7,849,142	6,161,265	7,839,364	6,157,032
Per Share Amount [Abstract]
Basic (in dollars per share)	$ 0.55	$ 0.16	$ 1.08	$ 0.45
Incremental per share amount attributable to share based payment arrangements (in dollars per share)	$ (0.01)	$ 0	$ 0	$ 0
Diluted (in dollars per share)	$ 0.54	$ 0.16	$ 1.08	$ 0.45
Stock options on common stock not included in computing diluted earnings per share (in shares)			196,394	82,177

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Segment and Related Information

6 Months Ended

Jun. 30, 2012

Segment and Related Information [Abstract]

Segment and Related Information

Note 13 - Segment and Related Information

The Company has two reportable segments, community banking and trust and investment services.

Community banking involves making loans to and generating deposits from individuals and businesses.  All assets and liabilities of the Company are allocated to community banking.  Investment income from securities is also allocated to the community banking segment.  Loan fee income, service charges from deposit accounts, and non-deposit fees such as automated teller machine fees and insurance commissions generate additional income for community banking.

Trust and investment services include estate planning, trust account administration, investment management, and retail brokerage.  Investment management services include purchasing equity, fixed income, and mutual fund investments for customer accounts. The trust and investment services division receives fees for investment and administrative services.

Amounts shown in the "Other" column includes activities of the Company which are primarily debt service on trust preferred securities and corporate items.  Intersegment eliminations primarily consist of the Company's interest income on deposits held by the Bank.

Segment information as of and for the three and six months ended June 30, 2012 and 2011, is shown in the following table.

	Three Months Ended June 30, 2012
			Trust and
(in thousands)	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	14,886	$	-	$	2		$	(2	)	$	14,886
Interest expense		1,865		-		207			(2	)		2,070
Noninterest income		1,715		1,079		6			-			2,800
Income before income taxes		5,704		650		(304	)		-			6,050
Net income		4,014		461		(201	)		-			4,274
Depreciation and amortization		984		5		-			-			989
Total assets		1,289,971		-		921			-			1,290,892
Capital expenditures		-		-		-			-			-
	Three Months Ended June 30, 2011
			Trust and
	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	8,570	$	-	$	12		$	(12	)	$	8,570
Interest expense		1,686		-		297			(12	)		1,971
Noninterest income		1,064		915		9			-			1,988
Income before income taxes		1,781		583		(1,141	)		-			1,223
Net income		1,619		384		(991	)		-			1,012
Depreciation and amortization		384		5		-			-			389
Total assets		841,369		-		4,647			-			846,016
Capital expenditures		146		-		-			-			146
	Six Months Ended June 30, 2012
			Trust and
	Community		Investment					Intersegment
	Banking		Services		Other			Eliminations			Total
Interest income	$	30,228	$	-	$	5		$	(5	)	$	30,228
Interest expense		3,832		-		413			(5	)		4,240
Noninterest income		3,961		2,062		11			-			6,034
Income before income taxes		11,187		1,208		(599	)		-			11,796
Net income		7,984		865		(400	)					8,449
Depreciation and amortization		1,948		10		-			-			1,958
Total assets		1,289,971		-		921			-			1,290,892
Capital expenditures		573		-		-			-			573

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Securities (Tables)

6 Months Ended

Jun. 30, 2012

Securities [Abstract]

Schedule of amortized cost and estimated fair value of investments in debt and equity securities

The amortized cost and estimated fair value of investments in debt and equity securities at June 30, 2012 and December 31, 2011 were as follows:

	June 30, 2012
(in thousands)	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available for sale:
Federal agencies and GSEs	$	36,823	$	357	$	3	$	37,177
Mortgage-backed and CMOs		95,222		1,866		206		96,882
State and municipal		180,058		11,979		15		192,022
Corporate		8,385		63		6		8,442
Total securities available for sale	$	320,488	$	14,265	$	230	$	334,523

	December 31, 2011
(in thousands)	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available for sale:
Federal agencies and GSEs	$	32,071	$	608	$	-	$	32,679
Mortgage-backed and CMOs		102,444		1,874		414		103,904
State and municipal		182,952		11,454		1		194,405
Corporate		2,312		66		-		2,378
Total securities available for sale	$	319,779	$	14,002	$	415	$	333,366

Schedule of available for sale securities, continuous unrealized loss position

Available for sale securities that have been in a continuous unrealized loss position are as follows:

	Total				Less than 12 Months				12 Months or More
(in thousands)	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Federal agencies and GSEs	$	2,038	$	3	$	2,038	$	3	$	-	$	-
Mortgage-backed		17,215		120		17,215		120		-		-
CMOs		2,586		86		2,586		86		-		-
State and municipal		2,423		15		2,022		15		401		1
Corporate		2,419		6		2,419		6		-		-
Total	$	26,681	$	230	$	26,280	$	229	$	401	$	1

The table below shows gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position, at December 31, 2011.

	Total				Less than 12 Months				12 Months or More
(in thousands)	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
Mortgage-backed	$	28,431	$	266	$	28,431	$	266	$	-	$	-
Private label CMOs		3,375		148		3,306		115		69		33
State and municipal		401		1		401		1		-		-
Total	$	32,207	$	415	$	32,138	$	382	$	69	$	33

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Trust Preferred Capital Notes (Details) (USD $)	6 Months Ended								6 Months Ended		6 Months Ended		6 Months Ended				6 Months Ended	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2012 MidCarolina I [Member]	Jul. 01, 2011 MidCarolina I [Member]	Jun. 30, 2012 MidCarolina II [Member]	Jul. 01, 2011 MidCarolina II [Member]	Jul. 01, 2011 MidCarolina Trust [Member]	Jun. 30, 2012 Junior subordinated debt securities [Member]	Dec. 31, 2011 Junior subordinated debt securities [Member]	Jun. 30, 2012 Junior subordinated debt securities [Member] AMNB Trust I [Member]	Dec. 31, 2011 Junior subordinated debt securities [Member] AMNB Trust I [Member]	Jun. 30, 2012 Junior subordinated debt securities [Member] MidCarolina I [Member]	Dec. 31, 2011 Junior subordinated debt securities [Member] MidCarolina I [Member]	Jun. 30, 2012 Junior subordinated debt securities [Member] MidCarolina II [Member]	Dec. 31, 2011 Junior subordinated debt securities [Member] MidCarolina II [Member]	Jun. 30, 2012 AMNB Statutory Trust I [Member]	Jun. 30, 2012 MidCarolina Trust [Member]	Jun. 30, 2012 Trust preferred securities [Member]	Dec. 31, 2006 Trust preferred securities [Member]
Financial Instruments Subject to Mandatory Redemption by Settlement Terms [Line Items]
Proceeds from issuance of trust preferred securities																		$ 20,000,000
Maturity Date									Jun. 30, 2036		Nov. 07, 2032		Oct. 07, 2033				Jun. 30, 2036
Fixed interest rate of trust preferred securities (in hundredths)																	6.66%
Reference rate, trust preferred securities									Libor		Libor		Libor				three-month LIBOR
Trust preferred securities, basis spread on variable rate (in hundredths)									1.35%		3.45%		2.95%				1.35%
Number of consecutive quarterly periods for deferral of distributions on Trust Preferred Securities, Maximum																	20
Proceeds from issuance of common securities	619,000
Schedule of Equity Method Investments [Line Items]
Equity Method Investments															619,000	264,000
Debt Instrument [Line Items]
Date Issued									Apr. 07, 2006		Oct. 29, 2002		Dec. 03, 2003
Interest Rate									Libor plus 1.35%		Libor plus 3.45%		Libor plus 2.95%
Variable Rate Basis									Libor		Libor		Libor				three-month LIBOR
Basis Spread on Variable Rate (in hundredths)									1.35%		3.45%		2.95%				1.35%
Maturity Date									Jun. 30, 2036		Nov. 07, 2032		Oct. 07, 2033				Jun. 30, 2036
Principal Amount						8,764,000	27,267,000	27,212,000	20,619,000	20,619,000	4,014,000	3,986,000	2,634,000	2,607,000
Valuation allowance associated with junior subordinated debenture		$ 1,141,000	$ 1,197,000	$ 975,000	$ 1,021,000

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Loans (Details) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 808,069,000	$ 808,069,000	$ 824,758,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	3,344,000	3,344,000	3,363,000
MidCarolina [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Interest income, including accretion, on loans acquired	7,700,000	12,900,000
Outstanding principal balance and the carrying amount of loan acquired [Abstract]
Oustanding principal balance	275,667,000	275,667,000	321,002,000
Carrying amount	255,840,000	255,840,000	293,569,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	32,307,000	32,307,000	45,760,000
Carrying amount	24,633,000	24,633,000	34,027,000
Changes in the accretable discount on acquired loans [Abstract]
Balance, beginning of period		1,056,000
Accretion		(1,738,000)
Reclassification from nonaccretable difference		1,917,000
Balance, end of period	1,235,000	1,235,000
Accretion of accretable discount relating to loan payoffs		1,686,000
Commercial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	128,846,000	128,846,000	134,166,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	641,000	641,000	0
Commercial real estate, portfolio [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	405,354,000	405,354,000	406,394,000
Commercial real estate, portfolio [Member] | Construction and land development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	50,913,000	50,913,000	54,433,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	701,000	701,000	754,000
Commercial real estate, portfolio [Member] | Commercial real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	354,441,000	354,441,000	351,961,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	386,000	386,000	1,167,000
Residential real estate, portfolio [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	266,415,000	266,415,000	276,007,000
Residential real estate, portfolio [Member] | Residential [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	170,893,000	170,893,000	179,812,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	1,616,000	1,616,000	1,297,000
Residential real estate, portfolio [Member] | Home equity [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	95,522,000	95,522,000	96,195,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	0	0	89,000
Consumer [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	7,454,000	7,454,000	8,191,000
Outstanding principal balance and the carrying amount of loan acquired, impaired [Abstract]
Oustanding principal balance	$ 0	$ 0	$ 56,000

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Comprehensive Income (Unaudited) [Abstract]
Net income	$ 4,274	$ 1,012	$ 8,449	$ 2,790
Other comprehensive income (loss):
Unrealized gains on securities available for sale	1,285	3,195	608	4,155
Income tax expense (benefit)	(450)	(1,119)	(213)	(1,455)
Reclassification adjustment for (gains) losses on securities	(160)	19	(160)	18
Income tax expense (benefit)	56	(6)	56	(6)
Other comprehensive income	731	2,089	291	2,712
Comprehensive income	$ 5,005	$ 3,101	$ 8,740	$ 5,502

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Merger with MidCarolina

6 Months Ended

Jun. 30, 2012

Merger with MidCarolina [Abstract]

Merger with MidCarolina

Note 2 -Merger with MidCarolina

On July 1, 2011, the Company completed its merger with MidCarolina Financial Corporation pursuant to the Agreement and Plan of Reorganization, dated December 15, 2010, between the Company and MidCarolina (the "merger agreement").  MidCarolina was headquartered in Burlington, North Carolina, and engaged in banking operations through its subsidiary bank, MidCarolina Bank.  The transaction has significantly expanded the Company's footprint in North Carolina, adding eight branches in Alamance and Guilford Counties.

Pursuant to the terms of the merger agreement, as a result of the merger, the holders of shares of MidCarolina common stock received 0.33 shares of the Company's common stock for each share of MidCarolina common stock held immediately prior to the effective date of the merger. Each option to purchase a share of MidCarolina common stock outstanding immediately prior to the effective date of the merger was converted into an option to purchase shares of Company common stock, adjusted for the 0.33 exchange ratio. Additionally, the holders of shares of noncumulative perpetual Series A preferred stock of MidCarolina received one share of a newly authorized noncumulative perpetual Series A preferred stock of the Company for each MidCarolina preferred share held immediately before the merger.  The Company's Series A preferred stock was issued with terms, preferences, rights and limitations that are identical in all material respects to the MidCarolina Series A preferred stock.

The Company issued 1,626,157 shares of additional common stock in connection with the MidCarolina merger. This represents 20.8% of the outstanding shares of the Company as of June 30, 2012.

In connection with the transaction, MidCarolina Bank was merged with and into the Bank.

On November 15, 2011, the Company repurchased all 5,000 shares of the Series A preferred stock issued in the merger. The shares had a $1,000 liquidation preference per share. While the Series A preferred stock was subject to redemption at 104.5% of par during the twelve month period beginning August 15, 2011, the Company paid 62% of par, or an aggregate purchase price of $3.1 million, to repurchase all 5,000 outstanding shares from the sole holder of the securities.

The merger with MidCarolina was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the merger date. The excess of consideration paid over the fair value of net assets acquired was originally recorded as goodwill in the amount of approximately $16.4 million, which will not be amortizable and is not deductible for tax purposes.  The Company allocated the total balance of goodwill to its community banking segment. The Company also recorded $6.6 million in core deposit intangibles which will be amortized over nine years using a declining balance method.

In connection with the merger, the consideration paid, and the fair value of identifiable assets acquired and liabilities assumed as of the merger date are summarized in the following table.

(dollars in thousands)
Consideration Paid:
Common shares issued (1,626,157)	$	29,905
Cash paid to Shareholders		12
Fair Value of Options		132
Preferred shares issued (5,000)		5,000
Value of consideration		35,049
Assets acquired:
Cash and cash equivalents		34,783
Investment securities		51,442
Loans held for sale		113
Loans, net of unearned income		328,123
Premises and equipment, net		5,708
Deferred income taxes		15,310
Core deposit intangible		6,556
Other real estate owned		3,538
Other assets		13,535
Total assets		459,108
Liabilities assumed:
Deposits		420,248
FHLB advances		9,858
Other borrowings		6,546
Other liabilities		4,291
Total Liabilities		440,943
Net assets acquired		18,165
Goodwill resulting from merger with MidCarolina	$	16,884

The following table details the changes in the fair value of net assets acquired and liabilities assumed from the amounts originally reported in the Form 10-K for the period ending December 31, 2011 (in thousands).

Goodwill at December 31, 2011	$	16,431
Effect of adjustments to:
Other liabilities		453
Goodwill at June 30, 2012	$	16,884

        The increase in goodwill made during the first quarter of 2012 was due to a change in estimated tax refunds due to MidCarolina.

        In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating the cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was that of acquired loans. The Company acquired the $367.4 million loan portfolio at a fair value discount of $39.9 million. The performing portion of the portfolio estimated fair value was $286.5 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 310-20 (formerly SFAS 91).

Certain loans, those for which specific credit-related deterioration since origination was identified, are recorded at fair value, reflecting the present value of the amounts expected to be collected. Income recognition on these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Acquired loans deemed impaired and considered collateral dependent, with the timing of the sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.

The following table details the acquired loans that are accounted for in accordance with FASB ASC 310-30 (formerly Statement of Position ("SOP") 03-3) as of July 1, 2011 (in thousands).

Contractually required principal and interest at acquisition	$	56,681
Contractual cash flows not expected to be collected (nonaccretable difference)		17,472
Expected cash flows at acquisition		39,209
Interest component of expected cash flows (accretable discount)		1,663
Fair value of acquired loans accounted for under FASB ASC 310-30	$	37,546

In accordance with U.S. GAAP, there was no carryover of the allowance for loan losses that had been previously recorded by MidCarolina.

In connection with the merger with MidCarolina, the Company acquired an investment portfolio with a fair value of $51.4 million. The fair value of the investment portfolio was determined by taking into account market prices obtained from independent valuation sources.

In connection with the merger with MidCarolina, the Company recorded a deferred income tax asset of $15.3 million related to MidCarolina's valuation allowance on foreclosed real estate and bad debt expenses, as well as other tax attributes of the acquired company, along with the effects of fair value adjustments resulting from applying the acquisition method of accounting.

In connection with the merger with MidCarolina, the Company acquired other real estate owned with a fair value of $3.5 million. Other real estate owned was measured at fair value less estimated cost to sell.

In connection with the merger with MidCarolina, the Company acquired premises and equipment with a fair value of $5.7 million. Property appraisals for all owned locations were obtained. The fair value adjustment will be amortized as expense over the remaining lives of the properties. The Company also acquired several lease obligations in connection with the merger. The unfavorable lease position will be amortized over the remaining lives of the leases.

The fair value of savings and transaction deposit accounts acquired from MidCarolina was assumed to approximate their carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit accounts were valued by comparing the contractual cost of the portfolio to an identical portfolio bearing current market rates. The portfolio was segregated into pools based on segments: retail, individual retirement accounts brokered, and Certificate of Deposit Account Registry Service (often referred to as "CDARS"). For each segment, the projected cash flows from maturing certificates were then calculated based on contractual rates and prevailing market rates. The valuation adjustment for each segment is equal to the present value of the difference of these two cash flows, discounted at the assumed market rate for a certificate with a corresponding maturity. This valuation adjustment will be accreted to reduce interest expense over the remaining maturities of the respective pools.

        The fair value of the Federal Home Loan Bank of Atlanta ("FHLB") advances was determined based on the discounted cash flows of future payments. This adjustment to the face value of the borrowings will be amortized to increase interest expense over the remaining lives of the respective borrowings.

The fair value of junior subordinated debentures (Other Borrowings) was determined based on the fair value of similar debt or equity instruments with reasonably comparable terms. This adjustment to the face value of the borrowings will be amortized to increase interest expense over the remaining lives of the respective borrowings.

Direct costs related to the acquisition were expensed as incurred. During the entire year of 2011, the Company incurred $1,600,000 in merger and acquisition expenses. During 2012, the Company incurred $49,000 in merger related expense, mostly related to the deconversion of MidCarolina to the Company's operating system.

The following table presents unaudited pro forma information as if the merger with MidCarolina had occurred on January 1, 2010. This pro forma information gives effect to certain adjustments, including purchase accounting fair value adjustments, amortization of core deposit and other intangibles and related income tax effects. The pro forma information does not necessarily reflect the results of operations that would have occurred had the merger with MidCarolina occurred in 2010.  In particular, expected operational cost savings are not reflected in the pro forma amounts.

	Six Months Ended
	Pro Forma
	June 30,
(dollars in thousands)	2011
Net interest income	$	27,429
Provision for loan loss		(3,073	)
Non-interest income		5,014
Non-interest expense		(21,506	)
Income taxes		(2,359	)
Net income	$	5,505

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Loans (Tables)

6 Months Ended

Jun. 30, 2012

Loans [Abstract]

Schedule of loans, excluding loans held for sale

Loans, excluding loans held for sale, were comprised of the following:

	June 30,		December 31,
(in thousands)	2012		2011
Commercial	$	128,846	$	134,166
Commercial real estate:
Construction and land development		50,913		54,433
Commercial real estate		354,441		351,961
Residential real estate:
Residential		170,893		179,812
Home equity		95,522		96,195
Consumer		7,454		8,191
Total loans	$	808,069	$	824,758

Schedule stating outstanding principal balance and the carrying amount of loan acquired

Interest income, including accretion, on loans acquired from MidCarolina for the three months ended June 30, 2012 was approximately $7.7 million and $12.9 million for the six months ended June 30, 2012. The outstanding principal balance and the carrying amount of these loans included in the consolidated balance sheet at June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
(in thousands)	2012		2011
Oustanding principal balance	$	275,667	$	321,002
Carrying amount		255,840		293,569

The outstanding principal balance and related carrying amount of acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), to account for interest earned, at June 30, 2012 and December 31, 2011 are as follows:

	June 30,		December 31,
(in thousands)	2012		2011
Oustanding principal balance	$	32,307	$	45,760
Carrying amount		24,633		34,027

Schedule of changes in the accretable discount on acquired loans

The following table presents changes in the accretable discount on acquired loans, for which the Company applies ASC 310-30 (formerly SOP 03-3), for the six months ended June 30, 2012. The accretion reflected below includes $1,686,000 related to loan payoffs.

	Accretable
(in thousands)	Discount
Balance at December 31, 2011	$	1,056
Accretion		(1,738	)
Reclassification from nonaccretable difference		1,917
Balance at June 30, 2012	$	1,235

Schedule of analysis by portfolio segment of the entity's past due loans

The following table shows an analysis by portfolio segment of the Company's past due loans at June 30, 2012.

					90 Days +
	30- 59		60-89		Past Due		Non-		Total
	Days		Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
Commercial	$	170	$	128	$	-	$	1,095	$	1,393	$	127,453	$	128,846
Commercial real estate:
Construction and land development		-		-		-		1,257		1,257		49,656		50,913
Commercial real estate		981		1,596		-		1,996		4,573		349,868		354,441
Residential:
Residential		719		176		-		3,095		3,990		166,903		170,893
Home equity		308		13		-		551		872		94,650		95,522
Consumer		17		50		-		1		68		7,386		7,454
Total	$	2,195	$	1,963	$	-	$	7,995	$	12,153	$	795,916	$	808,069

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2011.

					90 Days +
	30- 59		60-89		Past Due		Non-		Total
	Days		Days		and Still		Accrual		Past				Total
(in thousands)	Past Due		Past Due		Accruing		Loans		Due		Current		Loans
Commercial	$	98	$	99	$	-	$	1,820	$	2,017	$	132,149	$	134,166
Commercial real estate:
Construction and land development		1,086		1,163		-		5,819		8,066		46,367		54,433
Commercial real estate		1,052		471		-		2,115		3,638		348,323		351,961
Residential:
Residential		1,519		741		-		3,476		5,735		174,077		179,812
Home equity		270		243		197		244		954		95,241		96,195
Consumer		126		7		-		49		181		8,010		8,191
Total	$	4,151	$	2,724	$	197	$	13,523	$	20,591	$	804,167	$	824,758

Schedule of impaired loan balances by portfolio segment

The following table presents the Company's impaired loan balances by portfolio segment excluding loans acquired with deteriorated credit quality at June 30, 2012.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	214	$	382	$	-	$	210	$	-
Commercial real estate:
Construction and land development		2,081		701		-		1,407		15
Commercial real estate		153		153		-		765		5
Residential:
Residential		1,029		1,327		-		1,149		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	3,477	$	2,563	$	-	$	3,531	$	20
With an related allowance recorded:
Commercial		259		259		158		14		7
Commercial real estate:
Construction and land development		-		-		-		-		-
Commercial real estate		233		233		69		19		8
Residential		289		289		114		48		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	781	$	781	$	341	$	81	$	15
Total:
Commercial	$	473	$	641	$	158	$	224	$	7
Commercial real estate:
Construction and land development		2,081		701		-		1,407		15
Commercial real estate		386		386		69		784		13
Residential:
Residential		1,318		1,616		114		1,197		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	4,258	$	3,344	$	341	$	3,612	$	35

The following table presents the Company's impaired loan balances by portfolio segment excluding loans acquired with deteriorated credit quality at December 31, 2011.

			Unpaid				Average		Interest
(in thousands)	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
With no related allowance recorded:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		364		391		-		292		-
Commercial real estate		279		279		-		207		17
Residential:
Residential		1,185		1,276		-		376		2
Home equity		89		89		-		50		3
Consumer		49		56		-		17		-
	$	1,966	$	2,091	$	-	$	990	$	22
With an related allowance recorded:
Commercial	$	-	$	-	$	-	$	-	$	-
Commercial real estate:
Construction and land development		363		363		49		139		-
Commercial real estate		888		888		80		75		-
Residential:
Residential		21		21		1		7		-
Home equity		-		-		-		-		-
Consumer		-		-		-		-		-
	$	1,272	$	1,272	$	130	$	221	$	-
Total:
Commercial	$	-	$	-	$	-	$	48	$	-
Commercial real estate:
Construction and land development		727		754		49		431		-
Commercial real estate		1,167		1,167		80		282		17
Residential:
Residential		1,206		1,297		1		383		2
Home equity		89		89		-		50		3
Consumer		49		56		-		17		-
	$	3,238	$	3,363	$	130	$	1,211	$	22

Schedule of detail of loans modified as troubled debt restructurings

The following table shows the detail of loans modified as troubled debt restructurings ("TDRs") included in the impaired loan balances for the three and six month periods ended June 30, 2012.

	Loans Modified as a TDR for the
	Three Months Ended June 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Oustanding Recorded
(dollars in thousands)	Contracts		Investment		Investment
Commercial		1	$	11	$	11
Commercial real estate:
Construction and land development		2		1,411		1,411
Commercial real estate		1		4		4
Total		4	$	1,426	$	1,426

	Loans Modified as a TDR for the
	Six Months Ended June 30, 2012
			Pre-Modification		Post-Modification
	Number of		Outstanding Recorded		Oustanding Recorded
(dollars in thousands)	Contracts		Investment		Investment
Commercial		1	$	11	$	11
Commercial real estate:
Construction and land development		7		2,188		2,081
Commercial real estate		1		4		4
Total		9	$	2,203	$	2,096

Schedule of commercial loan portfolio broken down by internal risk grading

        The following table shows the Company's commercial loan portfolio broken down by internal risk grading as of June 30, 2012.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade
			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity
Pass	$	126,558	$	39,464	$	333,636	$	153,437	$	92,960
Special Mention		1,097		2,170		12,261		10,932		1,366
Substandard		1,191		9,279		8,544		6,524		1,196
Doubtful		-		-		-		-		-
Total	$	128,846	$	50,913	$	354,441	$	170,893	$	95,522
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer
Performing	$	7,365
Nonperforming		89
Total	$	7,454

The following table shows the Company's commercial loan portfolio broken down by internal risk grading as of December 31, 2011.

(in thousands)
Commercial and Consumer Credit Exposure
Credit Risk Profile by Internally Assigned Grade
			Commercial		Commercial
			Real Estate		Real Estate				Home
	Commercial		Construction		Other		Residential		Equity
Pass	$	130,603	$	35,265	$	321,370	$	161,158	$	93,193
Special Mention		1,349		3,401		19,072		10,166		1,606
Substandard		2,214		15,767		11,519		8,488		1,396
Doubtful		-		-		-		-		-
Total	$	134,166	$	54,433	$	351,961	$	179,812	$	96,195
Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
	Consumer
Performing	$	8,050
Nonperforming		141
Total	$	8,191

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Supplemental Cash Flow Information (Tables)

6 Months Ended

Jun. 30, 2012

Supplemental Cash Flow Information [Abstract]

Schedule of supplemental disclosure of cash flow information

	Six Months Ended
			June 30,
	2012		2011
Supplemental Schedule of Cash and Cash Equivalents:
Cash and due from banks	$	18,529	$	15,873
Interest-bearing deposits in other banks		10,380		23,310
	$	28,909	$	39,183
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	4,547	$	4,183
Income taxes		72		1,141
Noncash investing and financing activities:
Transfer of loans to other real estate owned		2,705		674
Unrealized gain on securities available for sale		448		4,173

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Employee Benefit Plans

6 Months Ended

Jun. 30, 2012

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 12 - Employee Benefit Plans

        The following is information pertaining to the Company's non-contributory defined benefit pension plan.

Components of Net Periodic Benefit Cost	Three Months Ended						Six Months Ended
(in thousands)	June 30,						June 30,
	2012			2011			2012			2011
Service cost	$	-		$	27		$	-		$	54
Interest cost		97			101			194			202
Expected return on plan assets		(135	)		(131	)		(270	)		(262	)
Recognized net actuarial loss		83			40			166			80
Net periodic benefit cost	$	45		$	37		$	90		$	74

        The plan was frozen in 2009.