10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020

☐ 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 incorporation or organization)	(I.R.S. Employer 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)

(Not applicable)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	AMNB	Nasdaq Global Select Market

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

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

Large accelerated filer  ☐	Accelerated filer  ☒
Non-accelerated filer  ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.              ☐

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

Yes ☐ No ☒

At May 1, 2020, the Company had 10,957,552 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 March 31, 2020 (unaudited) and December 31, 2019	3
		Consolidated Statements of Income for the three months ended March 31, 2020 and 2019 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (unaudited)	5
		Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2020 and 2019 (unaudited)	6
		Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)	7
		Notes to Consolidated Financial Statements (unaudited)	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	43
	Item 4.	Controls and Procedures	44
Part II.		OTHER INFORMATION
	Item 1.	Legal Proceedings	45
	Item 1A.	Risk Factors	45
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 3.	Defaults Upon Senior Securities	46
	Item 4.	Mine Safety Disclosures	46

	Item 5.	Other Information	46
	Item 6.	Exhibits	47
SIGNATURES			48

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

American National Bankshares Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	(Unaudited) March 31, 2020			(*) December 31, 2019
Assets
Cash and due from banks	$	39,602		$	32,505
Interest-bearing deposits in other banks		69,968			47,077
Securities available for sale, at fair value		342,769			379,195
Restricted stock, at cost		8,682			8,630
Loans held for sale		2,666			2,027
Loans, net of unearned income		1,854,928			1,830,815
Less allowance for loan losses		(14,065	)		(13,152	)
Net loans		1,840,863			1,817,663
Premises and equipment, net		39,632			39,848
Other real estate owned, net of valuation allowance of $407 in 2020 and $153 in 2019		984			1,308
Goodwill		85,048			84,002
Core deposit intangibles, net		7,301			7,728
Bank owned life insurance		27,970			27,817
Accrued interest receivable and other assets		29,580			30,750
Total assets	$	2,495,065		$	2,478,550
Liabilities
Demand deposits -- noninterest bearing	$	567,772		$	578,606
Demand deposits -- interest bearing		343,291			328,015
Money market deposits		524,234			504,651
Savings deposits		181,564			177,505
Time deposits		453,806			471,770
Total deposits		2,070,667			2,060,547
Customer repurchase agreements		42,114			40,475
Subordinated debt		7,513			7,517
Junior subordinated debt		28,054			28,029
Accrued interest payable and other liabilities		23,424			21,724
Total liabilities		2,171,772			2,158,292
Shareholders' equity
Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding		—			—
Common stock, $1 par, 20,000,000 shares authorized, 10,957,502 shares outstanding at March 31, 2020 and 11,071,540 shares outstanding at December 31, 2019		10,898			11,019
Capital in excess of par value		153,817			158,244
Retained earnings		157,064			151,478
Accumulated other comprehensive income (loss), net		1,514			(483	)
Total shareholders' equity		323,293			320,258
Total liabilities and shareholders' equity	$	2,495,065		$	2,478,550

(*) -  Derived from audited consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

3

American National Bankshares Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share data) (Unaudited)

	Three Months Ended March 31,
	2020			2019
Interest and Dividend Income:
Interest and fees on loans	$	21,321		$	15,638
Interest and dividends on securities:
Taxable		2,037			1,821
Tax-exempt		112			287
Dividends		132			84
Other interest income		264			266
Total interest and dividend income		23,866			18,096
Interest Expense:
Interest on deposits		3,312			2,472
Interest on short-term borrowings		129			172
Interest on subordinated debt		122			—
Interest on junior subordinated debt		384			384
Total interest expense		3,947			3,028
Net Interest Income		19,919			15,068
Provision for loan losses		953			16
Net Interest Income After Provision for Loan Losses		18,966			15,052
Noninterest Income:
Trust fees		1,012			914
Service charges on deposit accounts		721			594
Other fees and commissions		941			708
Mortgage banking income		549			406
Securities gains, net		814			323
Brokerage fees		211			147
Income from Small Business Investment Companies		55			168
Losses on premises and equipment, net		(82	)		—
Other		274			191
Total noninterest income		4,495			3,451
Noninterest Expense:
Salaries		6,059			4,664
Employee benefits		1,301			1,230
Occupancy and equipment		1,366			1,084
FDIC assessment		95			125
Bank franchise tax		426			290
Core deposit intangible amortization		427			55
Data processing		763			532
Software		356			324
Other real estate owned, net		(9	)		13
Merger related expenses		—			451
Other		2,550			2,161
Total noninterest expense		13,334			10,929
Income Before Income Taxes		10,127			7,574
Income Taxes		1,585			1,571
Net Income	$	8,542		$	6,003
Net Income Per Common Share:
Basic	$	0.77		$	0.69
Diluted	$	0.77		$	0.69
Weighted Average Common Shares Outstanding:
Basic		11,025,185			8,745,174
Diluted		11,031,310			8,745,723

The accompanying notes are an integral part of the consolidated financial statements.

4

American National Bankshares Inc.

Consolidated Statements of Comprehensive Income

(Dollars in thousands) (Unaudited)

	Three Months Ended March 31,
	2020			2019
Net income	$	8,542		$	6,003
Other comprehensive income:
Unrealized gains on securities available for sale		6,189			3,969
Tax effect		(1,336	)		(889	)
Reclassification adjustment for gains on sales or calls of securities available for sale		(814	)		(4	)
Tax effect		176			1
Unrealized losses on cash flow hedges		(2,829	)		(725	)
Tax effect		611			162
Other comprehensive income		1,997			2,514
Comprehensive income	$	10,539		$	8,517

The accompanying notes are an integral part of the consolidated financial statements.

5

American National Bankshares Inc.

Consolidated Statements of Changes in Shareholders' Equity

Three Months Ended March 31, 2020 and 2019

(Dollars in thousands, except per share data) (Unaudited)

	Common Stock			Capital in Excess of Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Shareholders' Equity
Balance, December 31, 2018	$	8,668		$	78,172		$	141,537		$	(5,835	)	$	222,542
Net income		—			—			6,003			—			6,003
Other comprehensive income		—			—			—			2,514			2,514
Stock options exercised (13,200 shares)		13			277			—			—			290
Vesting of restricted stock (20,285 shares)		20			(20	)		—			—			—
Equity based compensation (23,032 shares)		4			309			—			—			313
Cash dividends paid, $0.25 per share		—			—			(2,189	)		—			(2,189	)
Balance, March 31, 2019	$	8,705		$	78,738		$	145,351		$	(3,321	)	$	229,473
Balance, December 31, 2019	$	11,019		$	158,244		$	151,478		$	(483	)	$	320,258
Net income		—			—			8,542			—			8,542
Other comprehensive income		—			—			—			1,997			1,997
Stock repurchased (140,526 shares)		(141	)		(4,840	)		—			—			(4,981	)
Stock options exercised (1,743 shares)		2			27			—			—			29
Vesting of restricted stock (12,245 shares)		12			(12	)		—			—			—
Equity based compensation (24,745 shares)		6			398			—			—			404
Cash dividends paid, $0.27 per share		—			—			(2,956	)		—			(2,956	)
Balance, March 31, 2020	$	10,898		$	153,817		$	157,064		$	1,514		$	323,293

The accompanying notes are an integral part of the consolidated financial statements.

6

American National Bankshares Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands) (Unaudited)

	Three Months Ended March 31,
	2020			2019
Cash Flows from Operating Activities:
Net income	$	8,542		$	6,003
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		953			16
Depreciation		521			405
Net accretion of acquisition accounting adjustments		(957	)		(255	)
Core deposit intangible amortization		427			55
Net amortization of securities		202			311
Net gain on sale or call of securities available for sale		(814	)		(4	)
Net change in fair value of equity securities		—			(319	)
Gain on sale of loans held for sale		(549	)		(406	)
Proceeds from sales of loans held for sale		25,655			15,366
Originations of loans held for sale		(25,745	)		(15,572	)
Net gain on other real estate owned		(27	)		(8	)
Valuation allowance on other real estate owned		—			6
Net loss on sale or disposal of premises and equipment		82			—
Equity based compensation expense		404			313
Earnings on bank owned life insurance		(153	)		(106	)
Deferred income tax expense		800			222
Net change in interest receivable		173			76
Net change in other assets		(352	)		(602	)
Net change in interest payable		80			51
Net change in other liabilities		(1,481	)		(873	)
Net cash provided by operating activities		7,761			4,679
Cash Flows from Investing Activities:
Proceeds from sales of equity securities		—			81
Proceeds from sales of securities available for sale		5,811			—
Proceeds from maturities, calls and paydowns of securities available for sale		94,731			18,586
Purchases of securities available for sale		(58,129	)		(6,565	)
Net change in restricted stock		(52	)		(52	)
Net increase in loans		(23,295	)		(2,321	)
Purchases of premises and equipment		(907	)		(393	)
Proceeds from sales of other real estate owned		144			225
Net cash provided by investing activities		18,303			9,561
Cash Flows from Financing Activities:
Net change in demand, money market, and savings deposits		28,084			(20,932	)
Net change in time deposits		(17,891	)		14,495
Net change in customer repurchase agreements		1,639			702
Common stock dividends paid		(2,956	)		(2,189	)
Repurchase of common stock		(4,981	)		—
Proceeds from exercise of stock options		29			290
Net cash provided by (used in) financing activities		3,924			(7,634	)
Net Increase in Cash and Cash Equivalents		29,988			6,606
Cash and Cash Equivalents at Beginning of Period		79,582			64,255
Cash and Cash Equivalents at End of Period	$	109,570		$	70,861

The accompanying notes are an integral part of the consolidated financial statements.

7

AMERICAN NATIONAL BANKSHARES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Accounting Policies

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 ("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 consolidated 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, other-than-temporary impairment of securities, accounting for merger and acquisition activity, accounting for acquired loans with specific credit-related deterioration, and the valuation of deferred tax assets and liabilities.  The novel coronavirus (“COVID-19”) spread rapidly across the world in the first quarter of 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operations in March and will likely adversely affect our operations in the further quarters of 2020, although such effects may vary significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic will most likely affect future earnings, cash flows and overall financial condition of the Company.  These uncertainties include the nature and duration of the financial effects felt by our customers impacting their ability to perform in accordance with their underlying loan agreements, the Company’s ability to generate demand for non-loan related products and services, as well as potential declines in real estate values resulting from the market disruption which may impair the recorded values of collateral-dependent loans and other real estate owned. Further, these factors, in addition to those pervasive to the industry and overall U.S. economy, may necessitate an overall valuation of our franchise in such a way an impairment charge to the carrying value of goodwill would be required. Accordingly, significant estimates used in the preparation of our financial statements including those associated with the evaluation of the allowance for loan losses as well as other valuation-based estimates may be subject to significant adjustments in future periods.  The greater the duration and severity of the pandemic the more likely that estimates will be materially impacted by its effects.

All significant inter-company transactions and accounts are eliminated in consolidation, with the exception of the AMNB Statutory Trust I and the MidCarolina Trusts, as detailed in Note 11.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of the interim periods. The results of operations for the interim periods are not necessarily indicative of the results that may occur for any other period. Certain reclassifications have been made to prior period balances to conform to the current period presentation. These reclassifications did not have an impact on net income and were considered immaterial. These statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Adoption of New Accounting Standards

In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020. The adoption of ASU 2017-04 did not have a material effect on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. Certain disclosure requirements in Topic 820 were also removed or modified. ASU 2018-13 was effective for the Company on January 1, 2020. The adoption of ASU 2018-13 did not have a material effect on the Company's consolidated financial statements.

Recent Accounting Pronouncements and other Authoritative Accounting Guidance

On March 20, 2020, the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."  This was in response to the COVID-19 pandemic affecting societies and economies around the world.  This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the effects of COVID-19.  The guidance explains that, in consultation with the FASB staff, the federal banking agencies have concluded that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not troubled debt restructurings ("TDRs").  The Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed by the U.S. Congress on March 27, 2020.  Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.  Through March 31, 2020, the Bank had applied this guidance and modified loans to over 450 customers on loan balances of approximately $200 million.  The Bank implemented a Disaster Assistance Program ("DAP") to provide relief to its borrowers under this guidance. The majority of modifications involved three-month deferments of principal and interest.  This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time.

The CARES Act included an initial allocation of $349 billion for loans to be issued by financial institutions through the Small Business Administration ("SBA").  This program is known as the Paycheck Protection Program ("PPP").  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.  Payments are deferred for the first six months of the loan.  The loans are 100% guaranteed by the SBA.  The SBA pays the bank a processing fee ranging from 1% to 5%, based on the size of the loan.  The SBA began accepting submissions for these loans on April 3, 2020, and the SBA reached its initial limit on April 16, 2020.  Prior to the initial limit being reached, the SBA approved 1,321 applications submitted by the Bank for loans in excess of $228 million, representing 96% of applications received and processed by the Bank.  There was an additional $310 billion in funding authorized, and applications were accepted beginning April 27, 2020.  In total, the SBA approved 1,913 applications submitted by the Bank totaling $267 million for an acceptance rate of  99.8% for both rounds. From a funding perspective, the Bank expects to utilize core and wholesale funding for liquidity needs related to the DAP loan program and both the Federal Reserve discount window and their newly created Paycheck Protection Program Liquidity Facility ("PPPLF") to fund the PPP.

8

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03.  These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters.  Smaller reporting companies who file with the U.S. Securities and Exchange Commission ("SEC"), including the Company, and all other entities who do not file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company will continue to validate its models that will be used upon future adoption of the standard. The implementation of this ASU will likely result in increases to the Company's reserves when implemented.

In August 2018, the FASB issued ASU 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed: the projected benefit obligation ("PBO") and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation ("ABO") and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently assessing the impact that ASU 2018-14 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes." The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers' application of certain income tax-related guidance. This ASU is part of the FASB's simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-12 will have on its consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815." The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, such as the Company, the amendments in the ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin ("SAB") 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, "Financial Instruments - Credit Losses." It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.

On March 12, 2020, the SEC finalized amendments to the definitions of its "accelerated filer" and "large accelerated filer" definitions. The amendments increase the threshold criteria for meeting these filer classifications and are effective on April 27, 2020. Any changes in filer status are to be applied beginning with the filer’s first annual report filed with the SEC subsequent to the effective date. Prior to these changes, the Company was required to comply with section 404(b) of the Sarbanes Oxley Act concerning auditor attestation over internal control over financial reporting as an "accelerated filer" as it had more than $75 million in public float but less than $700 million at the end of the Company’s most recent second quarter. The rule change expands the definition of "smaller reporting companies" to include entities with public float of less than $700 million and less than $100 million in annual revenues. If an entity’s annual revenues exceed $100 million, its category will change back to "accelerated filer". The classifications of "accelerated filer" and "large accelerated filer" require a public company to obtain an auditor attestation concerning the effectiveness of internal control over financial reporting ("ICFR") and include the opinion on ICFR in its annual report on Form 10-K.  Smaller reporting companies also have additional time to file quarterly and annual financial statements. All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of ICFR, but the external auditor attestation of ICFR is not required for smaller reporting companies. The Company expects its annual revenues to exceed $100 million and to remain an "accelerated filer."  Therefore, this change is not expected to have a significant impact on the Company’s annual reporting and audit requirements.

Note 2 - Acquisitions

On April 1, 2019, the Company completed its acquisition of Roanoke-based HomeTown Bankshares Corporation ("HomeTown") and its wholly owned subsidiary bank, HomeTown Bank. Pursuant and subject to the terms of the merger agreement, as a result of the merger, the holders of shares of HomeTown common stock received 0.4150 shares of the Company's common stock for each share of HomeTown common stock held immediately prior to the effective date of the merger.

9

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition, in accordance with Accounting Standards Codification ("ASC") 350, Intangibles-Goodwill and Other. The following table provides an assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):

Consideration Paid:
Common shares issued (2,361,686)	$	82,470
Issuance of replacement stock options/restricted stock		753
Cash paid in lieu of fractional shares		27
Value of consideration		83,250
Assets acquired:
Cash and cash equivalents		26,283
Investment securities		34,876
Restricted stock		2,588
Loans		444,324
Premises and equipment		12,034
Deferred income taxes		2,960
Core deposit intangible		8,200
Other real estate owned		1,188
Bank owned life insurance		8,246
Other assets		14,244
Total assets		554,943
Liabilities assumed:
Deposits		483,626
Short-term FHLB advances		14,883
Long-term FHLB advances		778
Subordinated debt		7,530
Other liabilities		6,052
Total liabilities		512,869
Net assets acquired		42,074
Goodwill resulting from merger with HomeTown	$	41,176

The following table details the changes in fair vale of net assets acquired and liabilities assumed from the amounts reported in the Form 10-K for the year ended December 31, 2019 (dollars in thousands):

Goodwill at December 31, 2019	$	40,130
Effect of adjustments to:
Premises and equipment		520
Other real estate owned		254
Other liabilities		272
Goodwill at March 31, 2020	$	41,176

The increase in goodwill made during the first quarter of 2020 was due to adjustments to the valuations of several acquired buildings and other real estate owned ("OREO") obtained on the date of merger.  The additional goodwill adjustment for other liabilities related to a reassessment of the interest rate prevailing for supplemental early retirement plan obligations at the merger date.

The acquired loans were recorded at fair value at the acquisition date without carryover of HomeTown's previously established allowance for loan losses. The fair value of the loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and leases and then applying a market-based discount rate to those cash flows. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type, purpose, and lien position. Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans), and past due status. For valuation purposes, these pools were further disaggregated by maturity, pricing characteristics (e.g., fixed-rate, adjustable-rate) and re-payment structure (e.g., interest only, fully amortizing, balloon). Fair values determined at the acquisition date were preliminary and subject to refinement during the one-year measurement period as additional information was obtained regarding facts and circumstances about expected cash flows that existed as of the acquisition date.

The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (acquired impaired), and loans that do not meet these criteria, which are accounted for under ASC 310-20, Receivables - Nonrefundable Fees and Other Costs (acquired performing).

10

The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):

Contractually required principal and interest at acquisition	$	45,551
Contractual cash flows not expected to be collected (nonaccretable difference)		8,296
Expected cash flows at acquisition		37,255
Interest component of expected cash flows (accretable yield)		4,410
Fair value of acquired loans accounted for under FASB ASC 310-30	$	32,845

Direct costs related to the acquisition were expensed as incurred. There were no merger related expenses during the three months ended March 31, 2020. During the three months ended March 31, 2019, merger expenses totaled $451,000. During the year ended December 31, 2019, the Company incurred $11.8 million in merger and acquisition integration expenses related to the merger, including $9.1 million in data processing termination and conversion costs, $1.7 million in legal and professional fees, $0.4 million in salary related expense, and $0.6 million in other noninterest expenses. The majority of these expenses were related to integration and are deductible for tax purposes.

The following table presents unaudited pro forma information as if the acquisition of HomeTown had occurred on January 1, 2018. These results combine the historical results of HomeTown in the Company's Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are not indicative of what would have occurred had the acquisition taken place on January 1, 2018. In particular, no adjustments have been made to eliminate the amount of HomeTown's provision for loan losses that would not have been necessary had the acquired loans been recorded at fair value as of January 1, 2018. Pro forma adjustments below include the elimination of merger-related costs for 2019. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are not reflected in the pro forma amounts below (dollars in thousands):

	Unaudited Pro forma Three Months Ended
	March 31, 2019
Total revenues (1)	$	21,097
Net income		5,876

__________________________

(1) Includes net interest income and noninterest income.

Note 3 – Securities

The amortized cost and fair value of investments in debt securities at March 31, 2020 were as follows (dollars in thousands):

	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Securities available for sale:
U.S. Treasury	$	14,992	$	8	$	—	$	15,000
Federal agencies and GSEs		56,191		1,864		23		58,032
Mortgage-backed and CMOs		209,513		6,271		320		215,464
State and municipal		41,484		1,153		5		42,632
Corporate		11,513		158		30		11,641
Total securities available for sale	$	333,693	$	9,454	$	378	$	342,769

The Company had no remaining equity securities at March 31, 2020. The Company had equity securities with a fair value of $2,069,000 at March 31, 2019 and recognized in income a $319,000 change in the fair value of equity securities during the first three months of 2019. During the 2019 period, the Company sold $81,000 in equity securities at fair value.

The amortized cost and fair value of investments in debt securities at December 31, 2019 were as follows (dollars in thousands):

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Securities available for sale:
U.S. Treasury	$	14,992	$	—	$	5	$	14,987
Federal agencies and GSEs		126,829		1,504		219		128,114
Mortgage-backed and CMOs		182,732		1,901		393		184,240
State and municipal		41,427		769		42		42,154
Corporate		9,514		186		—		9,700
Total securities available for sale	$	375,494	$	4,360	$	659	$	379,195

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Restricted Stock

Due to restrictions placed upon the Bank's common stock investment in the Federal Reserve Bank of Richmond ("FRB") and Federal Home Loan Bank of Atlanta ("FHLB"), these securities have been classified as restricted equity securities and carried at cost. The restricted securities are not subject to the investment security classification requirements and are included as a separate line item on the Company's consolidated balance sheets. The FRB requires the Bank to maintain stock with a par value equal to 3.00% of its outstanding capital and an additional 3.00% is on call.  The FHLB requires the Bank to maintain stock in an amount equal to 4.25% of outstanding borrowings and a specific percentage of the Bank's total assets. The cost of restricted stock at March 31, 2020 and December 31, 2019 was as follows (dollars in thousands):

	March 31, 2020		December 31, 2019
FRB stock	$	6,425	$	6,415
FHLB stock		2,257		2,215
Total restricted stock	$	8,682	$	8,630

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 March 31, 2020.  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, at March 31, 2020, are as follows (dollars in thousands):

	Total				Less than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Federal agencies and GSEs	$	6,534	$	23	$	—	$	—	$	6,534	$	23
Mortgage-backed and CMOs		24,558		320		24,001		311		557		9
State and municipal		1,710		5		1,710		5		—		—
Corporate		2,978		30		—		—		2,978		30
Total	$	35,780	$	378	$	25,711	$	316	$	10,069	$	62

Federal agencies and GSEs: The unrealized losses on the Company's investment in 13 government sponsored entities ("GSE") securities were caused by interest rate increases. All of these securities were in an unrealized loss position for 12 months or more. 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 March 31, 2020.

Mortgage-backed securities: The unrealized losses on the Company's investment in six GSE mortgage-backed securities were caused by interest rate increases. Three of these securities were in an unrealized loss position for 12 months or more. 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 March 31, 2020.

Collateralized Mortgage Obligations: The unrealized losses associated with four private GSE collateralized mortgage obligations ("CMOs") were due to normal market fluctuations. None of these securities were in an unrealized loss position for 12 months or more. 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 March 31, 2020.

State and municipal securities:  The unrealized losses on three 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 March 31, 2020.

Corporate securities:  The unrealized losses on four corporate securities were caused by interest rate increases and not credit deterioration. 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  March 31, 2020.

Restricted stock: When evaluating restricted 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 restricted stock to be other-than-temporarily impaired at March 31, 2020, and no impairment has been recognized.

12

The table below shows estimated fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities had been in a continuous unrealized loss position, at December 31, 2019 (dollars in thousands):

	Total				Less than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Treasury	$	14,987	$	5	$	14,987	$	5	$	—	$	—
Federal agencies and GSEs		69,095		219		31,779		44		37,316		175
Mortgage-backed and CMOs		89,391		393		66,324		266		23,067		127
State and municipal		4,262		42		3,108		37		1,154		5
Total	$	177,735	$	659	$	116,198	$	352	$	61,537	$	307

Other-Than-Temporarily-Impaired Securities

As of March 31, 2020 and December 31, 2019, there were no securities classified as other-than-temporarily impaired.

Realized Gains and Losses

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities available for sale during the three months ended March 31, 2020 and 2019 (dollars in thousands):

	Three Months Ended March 31, 2020
Realized gains (losses):
Gross realized gains	$	814
Gross realized losses		—
Net realized gains	$	814
Proceeds from sales of securities	$	5,811

	Three Months Ended March 31, 2019
Realized gains (losses):
Gross realized gains	$	—
Gross realized losses		—
Net realized gains	$	—
Proceeds from sales of securities	$	—

Note 4 – Loans

Loans, excluding loans held for sale, at March 31, 2020 and December 31, 2019, were comprised of the following (dollars in thousands):

	March 31, 2020		December 31, 2019
Commercial	$	331,507	$	339,077
Commercial real estate:
Construction and land development		141,154		137,920
Commercial real estate		953,363		899,199
Residential real estate:
Residential		301,284		324,315
Home equity		118,030		119,423
Consumer		9,590		10,881
Total loans	$	1,854,928	$	1,830,815

Acquired Loans 

The outstanding principal balance and the carrying amount of these loans, including loans accounted for under ASC 310-30, included in the consolidated balance sheets at March 31, 2020 and December 31, 2019 are as follows (dollars in thousands):

	March 31, 2020		December 31, 2019
Outstanding principal balance	$	345,450	$	393,618
Carrying amount		329,839		377,130

The outstanding principal balance and related carrying amount of acquired impaired loans, for which the Company applies ASC 310-30 to account for interest earned, as of the indicated dates are as follows (dollars in thousands):

	March 31, 2020		December 31, 2019
Outstanding principal balance	$	50,815	$	53,600
Carrying amount		40,353		43,028

13

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies ASC 310-30, for the three months ended March 31, 2020 and the year ended December 31, 2019 (dollars in thousands):

	March 31, 2020			December 31, 2019
Balance at January 1	$	7,893		$	4,633
Additions from merger with HomeTown		—			4,410
Accretion		(784	)		(3,304	)
Reclassification from nonaccretable difference		1,330			736
Other changes, net*		(69	)		1,418
	$	8,370		$	7,893

* This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate acquired impaired loans, and discounted payoffs that occurred in the period.

Past Due Loans

The following table shows an analysis by portfolio segment of the Company's past due loans at March 31, 2020 (dollars in thousands):

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	404	$	68	$	31	$	958	$	1,461	$	330,046	$	331,507
Commercial real estate:
Construction and land development		—		37		—		9		46		141,108		141,154
Commercial real estate		216		216		121		513		1,066		952,297		953,363
Residential:
Residential		255		139		278		942		1,614		299,670		301,284
Home equity		262		—		29		154		445		117,585		118,030
Consumer		122		9		—		3		134		9,456		9,590
Total	$	1,259	$	469	$	459	$	2,579	$	4,766	$	1,850,162	$	1,854,928

The following table shows an analysis by portfolio segment of the Company's past due loans at December 31, 2019 (dollars in thousands):

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	325	$	163	$	52	$	857	$	1,397	$	337,680	$	339,077
Commercial real estate:
Construction and land development		58		—		—		11		69		137,851		137,920
Commercial real estate		217		434		—		274		925		898,274		899,199
Residential:
Residential		639		260		282		685		1,866		322,449		324,315
Home equity		49		90		27		113		279		119,144		119,423
Consumer		73		13		—		4		90		10,791		10,881
Total	$	1,361	$	960	$	361	$	1,944	$	4,626	$	1,826,189	$	1,830,815

14

Impaired Loans

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at March 31, 2020 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	49	$	49	$	—	$	49	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		476		473		—		489		9
Residential:
Residential		953		959		—		782		12
Home equity		39		39		—		40		1
Consumer		—		—		—		—		—
	$	1,517	$	1,520	$	—	$	1,360	$	23
With a related allowance recorded:
Commercial	$	839	$	833	$	247	$	787	$	11
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		259		259		138		130		4
Residential
Residential		250		250		26		252		3
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	1,348	$	1,342	$	411	$	1,169	$	18
Total:
Commercial	$	888	$	882	$	247	$	836	$	12
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		735		732		138		619		13
Residential:
Residential		1,203		1,209		26		1,034		15
Home equity		39		39		—		40		1
Consumer		—		—		—		—		—
	$	2,865	$	2,862	$	411	$	2,529	$	41

In the table above, recorded investment may exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

15

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at December 31, 2019 (dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	49	$	49	$	—	$	16	$	5
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		502		500		—		424		39
Residential:
Residential		611		612		—		652		38
Home equity		41		41		—		45		6
Consumer		—		—		—		—		—
	$	1,203	$	1,202	$	—	$	1,137	$	88
With a related allowance recorded:
Commercial	$	735	$	730	$	204	$	191	$	41
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential:
Residential		254		254		26		225		16
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	989	$	984	$	230	$	416	$	57
Total:
Commercial	$	784	$	779	$	204	$	207	$	46
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		502		500		—		424		39
Residential:
Residential		865		866		26		877		54
Home equity		41		41		—		45		6
Consumer		—		—		—		—		—
	$	2,192	$	2,186	$	230	$	1,553	$	145

In the table above, recorded investment may exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

During the three months ended March 31, 2020, there was one residential real estate loan modified as a TDR. This TDR was included in the impaired loan balances and was a payment deferral with a pre-and post-modification outstanding recorded investment of $82,000. There were no loans modified as TDRs during the three months ended March 31, 2019.

During the three months ended March 31, 2020 and 2019, the Company had no loans that subsequently defaulted within 12 months of modification. The Company defines defaults as one or more payments that occur more than 90 days past the due date, charge-off or foreclosure subsequent to modification.

On March 20, 2020, the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."  This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the the effects of COVID-19.  The guidance goes on to explain that in consultation with the FASB staff that the federal banking agencies conclude that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not TDRs.  The CARES Act was passed by Congress on March 27, 2020.  Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.  Through May 5, 2020 the Bank had applied this guidance and modified loans to over 500 customers on loan balances of approximately $334 million.  The Bank implemented a DAP to provide relief to its borrowers under this guidance. The majority of modifications involved three-month deferments of principal and interest.

The CARES Act included an initial allocation of $349 billion for loans to be issued by financial institutions through the SBA.  This program is known as the PPP.  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.  Payments are deferred for the first six months of the loan.  The loans are 100% guaranteed by the SBA.  The SBA pays the bank a processing fee ranging from 1% to 5%, based on the size of the loan.  The SBA began accepting submissions for these loans on April 3, 2020, and the SBA reached its initial limit on April 16, 2020.  Prior to the initial limit being reached, the SBA approved 1,321 applications submitted by the Bank for loans in excess of $228 million, representing 96% of applications received and processed by the Bank.  There was an additional $310 billion in funding authorized, and applications were accepted beginning April 27, 2020.  In total, the SBA approved 1,913 applications submitted by the Bank totaling $267 million for an acceptance rate of  99.8% for both rounds. From a funding perspective, the Bank expects to utilize core and wholesale funding for liquidity needs related to the DAP loan program and both the Federal Reserve discount window and their newly created PPPLF to fund the PPP.

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. At March 31, 2020, the commercial real estate portfolio included concentrations of $73 million, $48 million and $180 million in hotel, restaurants,  and retail respectively.  These concentrations total 16% of total loans.

Residential Real Estate in Process of Foreclosure

The Company had $155,000 and $161,000 in residential real estate loans in the process of foreclosure at March 31, 2020 and December 31, 2019, respectively. The Company had $237,000 and $285,000 in residential OREO at March 31, 2020 and December 31, 2019, respectively.

16

Risk Grades

The following table shows the Company's loan portfolio broken down by internal risk grading as of March 31, 2020 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Commercial		Construction and Land Development		Commercial Real Estate Other		Residential		Home Equity
Pass	$	320,901	$	133,933	$	914,331	$	293,905	$	117,580
Special Mention		8,859		4,045		19,561		4,526		—
Substandard		1,012		3,176		19,471		2,853		450
Doubtful		735		—		—		—		—
Total	$	331,507	$	141,154	$	953,363	$	301,284	$	118,030

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	9,587
Nonperforming		3
Total	$	9,590

The following table shows the Company's loan portfolio broken down by internal risk grading as of December 31, 2019 (dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Commercial		Construction and Land Development		Commercial Real Estate Other		Residential		Home Equity
Pass	$	328,488	$	130,694	$	860,615	$	316,454	$	118,960
Special Mention		8,710		4,133		22,117		4,370		—
Substandard		1,144		3,093		16,467		3,491		463
Doubtful		735		—		—		—		—
Total	$	339,077	$	137,920	$	899,199	$	324,315	$	119,423

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	10,877
Nonperforming		4
Total	$	10,881

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 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 that 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.

17

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 at and for the indicated dates and periods are presented below (dollars in thousands):

	Three Months Ended March 31, 2020			Year Ended December 31, 2019			Three Months Ended March 31, 2019
Allowance for Loan Losses
Balance, beginning of period	$	13,152		$	12,805		$	12,805
Provision for loan losses		953			456			16
Charge-offs		(105	)		(333	)		(69	)
Recoveries		65			224			54
Balance, end of period	$	14,065		$	13,152		$	12,806
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	329		$	217		$	217
Provision for (recovery of) unfunded commitments		(13	)		112			12
Balance, end of period	$	316		$	329		$	229

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

The following table presents changes in the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at and for the three months ended March 31, 2020 (dollars in thousands):

	Commercial			Commercial Real Estate		Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2019	$	2,657		$	7,416	$	3,023		$	56		$	13,152
Provision for (recovery of) loan losses		(6	)		939		16			4			953
Charge-offs		(20	)		—		(42	)		(43	)		(105	)
Recoveries		22			3		8			32			65
Balance at March 31, 2020	$	2,653		$	8,358	$	3,005		$	49		$	14,065
Balance at March 31, 2020:
Allowance for Loan Losses
Individually evaluated for impairment	$	247		$	138	$	26		$	—		$	411
Collectively evaluated for impairment		2,391			8,192		2,768			49			13,400
Acquired impaired loans		15			28		211			—			254
Total	$	2,653		$	8,358	$	3,005		$	49		$	14,065
Loans
Individually evaluated for impairment	$	888		$	735	$	1,242		$	—		$	2,865
Collectively evaluated for impairment		329,892			1,062,709		409,534			9,575			1,811,710
Acquired impaired loans		727			31,073		8,538			15			40,353
Total	$	331,507		$	1,094,517	$	419,314		$	9,590		$	1,854,928

The following table presents changes in the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at and for the year ended December 31, 2019 (dollars in thousands):

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2018	$	2,537		$	7,246		$	2,977		$	45		$	12,805
Provision for loan losses		119			167			58			112			456
Charge-offs		(12	)		(6	)		(70	)		(245	)		(333	)
Recoveries		13			9			58			144			224
Balance at December 31, 2019	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Balance at December 31, 2019:
Allowance for Loan Losses
Individually evaluated for impairment	$	204		$	—		$	26		$	—		$	230
Collectively evaluated for impairment		2,448			7,386			2,794			56			12,684
Acquired impaired loans		5			30			203			—			238
Total	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Loans
Individually evaluated for impairment	$	784		$	502		$	906		$	—		$	2,192
Collectively evaluated for impairment		337,312			1,004,296			433,121			10,866			1,785,595
Acquired impaired loans		981			32,321			9,711			15			43,028
Total	$	339,077		$	1,037,119		$	443,738		$	10,881		$	1,830,815

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The allowance for loan losses is allocated to loan segments based upon historical loss factors, risk grades on individual 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, other lending staff and loan review; national, regional, and local economic trends and conditions; legal, regulatory and collateral factors; and concentrations of credit.

The provision for loan losses for the 2020 period was increased as a direct result of early stage declines in economic factors associated with the increases in unemployment claims and a decrease in retail sales in the wake of the COVID-19 pandemic.  The Bank has been actively working with borrowers at risk who are impacted by the stay-at-home orders in accordance with its DAP including short-term deferments of payment and interest and short-term acceptance of interest only payments.  Many of the Bank's customers have applied for and received the PPP loans.  The Bank believes the increased provision expense in the first quarter of 2020 along with these DAP measures will help to mitigate future losses but is likely to experience delinquencies and loan losses as a result of COVID-19 during the remainder of 2020.

Note 6 – Goodwill and Other Intangible Assets

The Company records as goodwill the excess of the purchase price over the fair value of the identifiable net assets acquired. Impairment testing is performed annually, as well as when an event triggering impairment may have occurred. The Company performs its annual analysis as of June 30 each fiscal year. Accounting guidance permits preliminary assessment of qualitative factors to determine whether more substantial impairment testing is required. The Company chose to bypass the preliminary assessment and utilized a two-step process for impairment testing of goodwill. The first step tests for impairment, while the second step, if necessary, measures the impairment. No indicators of impairment were identified as of June 30, 2019.  Due to the COVID-19 pandemic market conditions, the Company performed a qualitative assessment of goodwill as of March 31, 2020 and determined the fair value exceeded the carrying value.  Changes in the economic environment, operations, or other adverse events could result in future impairment charges which could have a material adverse impact on the Company's operating results.  

Core deposit intangibles resulting from the acquisition of MidCarolina Financial Corporation ("MidCarolina") in July 2011 were $6,556,000 and are being amortized on an accelerated basis over 108 months. Core deposit intangibles resulting from the acquisitions of MainStreet BankShares, Inc. in January 2015 and HomeTown in April 2019 were $10,039,000 and are being amortized on an accelerated basis over 120 months.

The changes in the carrying amount of goodwill and intangibles for the three months ended March 31, 2020, are as follows (dollars in thousands):

	Goodwill		Intangibles
Balance at December 31, 2019	$	84,002	$	7,728
Measurement period adjustments		1,046		—
Amortization		—		(427	)
Impairment		—		—
Balance at March 31, 2020	$	85,048	$	7,301

Note 7 – Leases

On January 1, 2019, the Company adopted ASU No. 2016-02 "Leases (Topic 842)" and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and, consistent with such elections, did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. The implementation of the new standard resulted in recognition of a right-of-use asset and lease liability of $4,413,000 at the date of adoption, which is related to the Company's lease of premises used in operations. In connection with the HomeTown merger, the Company added $1,816,000 to the right-of-use asset and $1,736,000 to the lease liability. The right-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Company's consolidated balance sheets.

Lease liabilities represent the Company's obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company's incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company's right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

The Company's long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term, and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations

The following tables present information about the Company's leases, as of and for the three months ended March 31, 2020 (dollars in thousands):

	March 31, 2020			December 31, 2019
Lease liabilities	$	5,168		$	5,369
Right-of-use assets	$	5,133		$	5,340
Weighted average remaining lease term (years)		8.08			8.17
Weighted average discount rate		3.22	%		3.21	%

	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Lease cost
Operating lease cost	$	249	$	211
Short-term lease cost		1		1
Total lease cost	$	250	$	212
Cash paid for amounts included in the measurement of lease liabilities	$	243	$	209

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A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):

Lease payments due	As of March 31, 2020
Nine months ending December 31, 2020	$	716
Twelve months ending December 31, 2021		943
Twelve months ending December 31, 2022		920
Twelve months ending December 31, 2023		817
Twelve months ending December 31, 2024		499
Twelve months ending December 31, 2025		473
Thereafter		1,549
Total undiscounted cash flows		5,917
Discount		(749	)
Lease liabilities	$	5,168

Note 8 – Short-term Borrowings

Short-term borrowings may consist of customer repurchase agreements, overnight borrowings from the FHLB, and federal funds purchased.  The Company has federal funds lines of credit established with one correspondent bank in the amount of $50,000,000 and another correspondent bank in the amount of $10,000,000, and has access to the FRB's discount window. Customer repurchase agreements are collateralized by securities of the U.S. Government or GSEs.  They mature daily.  The interest rates 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 at March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31, 2020		December 31, 2019
Customer repurchase agreements	$	42,114	$	40,475

Note 9 – 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  March 31, 2020, $859,083,000 in eligible collateral was pledged under the blanket floating lien agreement which covers both short-term and long-term borrowings.

There were no long-term borrowings with FHLB as of March 31, 2020 or December 31, 2019.

In the regular course of conducting its business, the Company takes deposits from political subdivisions of the states of Virginia and North Carolina. At March 31, 2020, the Bank's public deposits totaled $254,846,000. 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 March 31, 2020, the Company had $205,000,000 in letters of credit with the FHLB outstanding, as well as $85,818,000 in agency, state, and municipal securities, pledged to provide collateral for such deposits.

Note 10 – Subordinated Debt 

On April 1, 2019, in connection with the HomeTown merger, the Company assumed $7,500,000 in aggregate principal amount of fixed-to-floating rate subordinated notes issued to various institutional accredited investors. The notes have a maturity date of December 30, 2025 and have an annual fixed interest rate of 6.75% until December 30, 2020. Thereafter, the notes will have a floating interest rate based on LIBOR. Interest will be paid semi-annually, in arrears, on June 30 and December 30 of each year during the time that the notes remain outstanding through the fixed interest rate period or earlier redemption date. Interest will be paid quarterly, in arrears, on March 30, June 30, September 30 and December 30 throughout the floating interest rate period or earlier redemption date.

The indebtedness evidenced by the notes, including principal and interest, is unsecured and subordinate and junior in right of the Company's payments to general and secured creditors and depositors of the bank. The notes are redeemable, without penalty, on or after December 30, 2020 and, in certain limited circumstances, prior to that date. The notes limit the Company from declaring or paying any dividend, or making any distribution on capital stock or other equity securities of any kind of the Company if the Company is not "well capitalized" for regulatory purposes, immediately prior to the declaration of such dividend or distribution, except for dividends payable solely in shares of common stock of the Company.

The carrying value of the subordinated debt includes a fair value adjustment of $13,000 at March 31, 2020. The original fair value adjustment of $30,000 was recorded as a result of the acquisition of HomeTown on April 1, 2019, and is being amortized into interest expense through the redeemable date.

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Note 11 – Junior Subordinated Debt

On April 7, 2006, AMNB Statutory Trust I, a Delaware statutory trust and a wholly owned unconsolidated subsidiary of the Company, issued $20,000,000 of preferred securities (the "Trust 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 September 30, 2011. 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 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 "Junior Subordinated Debt"), issued pursuant to junior subordinated debentures entered into between the Company and Wilmington Trust Company, as trustee. The proceeds of the Junior Subordinated Debt were used to fund the cash portion of the merger consideration to the former shareholders of Community First Financial Corporation in connection with the Company's acquisition of that company in 2006, and for general corporate purposes.

On July 1, 2011, in connection with the MidCarolina merger, the Company assumed $8,764,000 in junior subordinated debt to MidCarolina Trust I and MidCarolina Trust II, two separate Delaware statutory trusts (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 a full and unconditional guarantee by the Company of the MidCarolina Trusts' obligations. The MidCarolina Trusts were not consolidated in the Company's financial statements.

In accordance with ASC 810-10-15-14, Consolidation – Overall – Scope and Scope Exceptions, 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 as of March 31, 2020 and December 31, 2019 (dollars in thousands):

				Principal Amount
Issuing Entity	Date Issued	Interest Rate	Maturity Date	March 31, 2020		December 31, 2019
AMNB Statutory Trust I	4/7/2006	LIBOR plus 1.35%	6/30/2036	$	20,619	$	20,619
MidCarolina Trust I	10/29/2002	LIBOR plus 3.45%	11/7/2032		4,447		4,433
MidCarolina Trust II	12/3/2003	LIBOR plus 2.95%	10/7/2033		2,988		2,977
				$	28,054	$	28,029

The principal amounts reflected above for the MidCarolina Trusts are net of fair value adjustments of $708,000 and $621,000 at March 31, 2020 and $722,000 and $632,000 at  December 31, 2019, respectively. The original fair value adjustments of $1,197,000 and $1,021,000 were recorded as a result of the acquisition of MidCarolina on July 1, 2011, and are being amortized into interest expense over the remaining lives of the respective borrowings

Note 12 - Derivative Financial Instruments and Hedging Activities

The Company uses derivative financial instruments ("derivatives") primarily to manage risks to the Company associated with changing interest rates. The Company's derivatives are hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge).

The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows on variable rate borrowings such as the Company's trust preferred capital notes. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging variable-rate interest payments on a notional amount equal to the principal amount of the borrowings for fixed-rate interest payments, with such interest rates set based on benchmarked interest rates.

All interest rate swaps were entered into with counterparties that met the Company's credit standards and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in these derivative contracts is not significant.

Terms and conditions of the interest rate swaps vary and amounts receivable or payable are recognized as accrued under the terms of the agreements. The Company assesses the effectiveness of each hedging relationship on a periodic basis. In accordance with ASC 815, Derivatives and Hedging, the effective portions of the derivatives' unrealized gains or losses are recorded as a component of other comprehensive income. Based on the Company's assessment, its cash flow hedges are highly effective, but to the extent that any ineffectiveness exists in the hedge relationships, the amounts would be recorded in interest income and interest expense in the Company's consolidated statements of income.

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The following tables present information on the Company's derivative financial instruments as of March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31, 2020
	Notional Amount		Positions		Assets		Liabilities		Cash Collateral Pledged
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	28,500		3	$	—	$	5,487	$	5,750

	December 31, 2019
	Notional Amount		Positions		Assets		Liabilities		Cash Collateral Pledged
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	28,500		3	$	—	$	2,658	$	3,450

Note 13 – Stock Based Compensation 

The Company's 2018 Equity Compensation Plan (the "2018 Plan") was adopted by the Board of Directors of the Company on February 20, 2018, and approved by shareholders on May 15, 2018, at the Company's 2018 Annual Meeting of Shareholders. The 2018 Plan provides for the granting of restricted stock awards, incentive and non-statutory options, and other equity-based awards to employees and directors at the discretion of the Compensation Committee of the Board of Directors.  The 2018 Plan authorizes the issuance of up to 675,000 shares of common stock. The 2018 Plan replaced the Company's stock incentive plan that was approved by the shareholders at the 2008 Annual Meeting that expired in February 2018 (the "2008 Plan").

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 three months ended March 31, 2020 is as follows:

	Option Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2019		13,944		$	16.63
Granted		—			—
Exercised		(1,743	)		16.63
Forfeited		—			—
Expired		—			—
Outstanding and exercisable at March 31, 2020		12,201		$	16.63		4.72	$	89

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. No stock options have been granted since 2009. Replacement stock option awards representing 40,753 shares of the Company's common stock were issued in conjunction with the HomeTown acquisition in 2019.  As of March 31, 2020, there were no nonvested stock option grants and no unrecognized compensation expense.  The outstanding options have a remaining final maturity date of December 2024.

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 value of the Company's common 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. The majority of the restricted stock granted cliff vests at the end of a 36-month period beginning on the date of the grant. The remainder vests one-third each year beginning on the date of the grant. Nonvested restricted stock activity for the three months ended March 31, 2020 is summarized in the following table.

Restricted Stock	Shares			Weighted Average Grant Date Value Per Share
Nonvested at December 31, 2019		57,271		$	34.84
Granted		19,327			37.26
Vested		(13,284	)		34.12
Forfeited		(664	)		27.28
Nonvested at March 31, 2020		62,650		$	35.82

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As of March 31, 2020 and December 31, 2019, there was $1,212,000 and $751,000  respectively, in unrecognized compensation cost related to nonvested restricted stock granted under the 2008 Plan and the 2018 Plan. The weighted average period over which this cost is expected to be recognized is 1.82 years. The share based compensation expense for nonvested restricted stock was $199,000 and $166,000 during the first three months of 2020 and 2019, respectively.

The Company offers its outside directors alternatives with respect to director compensation. For 2020, the regular quarterly board retainer will be received in the form of shares of immediately vested, but restricted stock with a market value of $10,000. Monthly meeting fees can be received as $800 per meeting in cash or $1,000 in immediately vested, but restricted stock. Only outside directors receive board fees. The Company issued 6,082 and 4,106 shares and recognized share based compensation expense of $205,000 and $147,000 during the first three months of 2020 and 2019, respectively.

Note 14 – Earnings Per Common Share

The following shows the weighted average number of shares used in computing earnings per common share and the effect on the weighted average number of shares of potentially dilutive common stock. Potentially dilutive common stock had no effect on income available to common shareholders. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period including voting rights and sharing in nonforfeitable dividends. The following table presents basic and diluted earnings per share for the three month periods ended March 31, 2020 and 2019.

	Three Months Ended March 31,
	2020				2019
	Shares		Per Share Amount		Shares		Per Share Amount
Basic earnings per share		11,025,185	$	0.77		8,745,174	$	0.69
Effect of dilutive securities - stock options		6,125		—		549		—
Diluted earnings per share		11,031,310	$	0.77		8,745,723	$	0.69

Outstanding stock options on common stock whose effects are anti-dilutive are not included in computing diluted earnings per share. There were no anti-dilutive stock options for the three month periods ended March 31, 2020 and 2019.

Note 15 – Employee Benefit Plans

The following information for the three months ended March 31, 2020 and 2019 pertains to the Company's non-contributory defined benefit pension plan which was frozen in 2009.  If lump sum payments exceed the service cost plus interest cost, an additional settlement charge will apply (dollars in thousands):

Components of Net Periodic Benefit Cost	Three Months Ended March 31,
	2020			2019
Service cost	$	—		$	—
Interest cost		38			58
Expected return on plan assets		(71	)		(68	)
Recognized loss due to settlement		30			26
Recognized net actuarial loss		35			65
Net periodic cost	$	32		$	81

Note 16 – Fair Value Measurements

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 ASC 820, Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or 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 fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability 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.

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 The following describes the valuation techniques used by the Company to measure certain financial assets and financial 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). If no observable market data is available, valuations are based upon third party model based techniques (Level 3). There were no securities recorded with a Level 3 valuation at March 31, 2020 or December 31, 2019.

Derivative asset (liability) - cash flow hedges: Cash flow hedges are recorded at fair value on a recurring basis. Cash flow hedges are valued by a third party using significant assumptions that are observable in the market and can be corroborated by market data. All of the Company's cash flow hedges are classified as Level 2.

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

	Fair Value Measurements at March 31, 2020 Using
	Balance at March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2020		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
U.S. Treasury	$	15,000	$	—	$	15,000	$	—
Federal agencies and GSEs		58,032		—		58,032		—
Mortgage-backed and CMOs		215,464		—		215,464		—
State and municipal		42,632		—		42,632		—
Corporate		11,641		—		11,641		—
Total securities available for sale	$	342,769	$	—	$	342,769	$	—
Liabilities:
Derivative - cash flow hedges	$	5,487	$	—	$	5,487	$	—

	Fair Value Measurements at December 31, 2019 Using
	Balance at December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2019		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
U.S. Treasury	$	14,987	$	—	$	14,987	$	—
Federal agencies and GSEs		128,114		—		128,114		—
Mortgage-backed and CMOs		184,240		—		184,240		—
State and municipal		42,154		—		42,154		—
Corporate		9,700		—		9,700		—
Total securities available for sale	$	379,195	$	—	$	379,195	$	—
Liabilities:
Derivative - cash flow hedges	$	2,658	$	—	$	2,658	$	—

Certain assets are measured at fair value on a nonrecurring basis in accordance with 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 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 three month period ended March 31, 2020 or the year ended December 31, 2019. Gains and losses on the sale of loans are recorded within mortgage banking income on the consolidated statements of income.

24

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 agreements will not be collected when due. The measurement of the loss associated with impaired loans can be based on either the observable market price of the loan, the present value of projected cash flows or the fair value of the collateral. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company's collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal, of one year or less, conducted by an independent, licensed appraiser using observable market data (Level 2). The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company's judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a TDR. However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than one year old and not solely based on observable market comparables or management determines the fair value of the collateral is further impaired below the appraised value, then a Level 3 valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal, of one year or less, 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 receivable 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:  Measurement for fair values for OREO are the same as impaired loans. Any fair value adjustments are recorded in the period incurred as a valuation allowance against OREO with the associated expense included in OREO expense, net on the consolidated statements of income.

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

	Fair Value Measurements at March 31, 2020 Using
	Balance at March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2020		Level 1		Level 2		Level 3
Assets:
Impaired loans, net of valuation allowance	$	937	$	—	$	—	$	937
Other real estate owned, net		984		—		—		984

	Fair Value Measurements at December 31, 2019 Using
	Balance at December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2019		Level 1		Level 2		Level 3
Assets:
Impaired loans, net of valuation allowance	$	759	$	—	$	—	$	759
Other real estate owned, net		1,308		—		—		1,308

Quantitative Information About Level 3 Fair Value Measurements as of March 31, 2020 and December 31, 2019:

Assets	Valuation Technique	Unobservable Input	Range; Weighted Average (1)
Impaired loans	Discounted appraised value	Selling cost	8.00%
	Discounted cash flow analysis	Market rate for borrower (discount rate)	3.25% - 9.80%; 5.05%
Other real estate owned, net	Discounted appraised value	Selling cost	8.00%

  __________________________

  (1) Unobservable inputs were weighted by the relative fair value of the impaired loans.

ASC 825, Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

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The carrying values and the exit pricing concept fair values of the Company's financial instruments at March 31, 2020 are as follows (dollars in thousands):

	Fair Value Measurements at March 31, 2020 Using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	109,570	$	109,570	$	—	$	—	$	109,570
Securities available for sale		342,769		—		342,769		—		342,769
Restricted stock		8,682		—		8,682		—		8,682
Loans held for sale		2,666		—		2,666		—		2,666
Loans, net of allowance		1,840,863		—		—		1,823,069		1,823,069
Bank owned life insurance		27,970		—		27,970		—		27,970
Accrued interest receivable		6,452		—		6,452		—		6,452
Financial Liabilities:
Deposits	$	2,070,667	$	—	$	2,074,243	$	—	$	2,074,243
Repurchase agreements		42,114		—		42,114		—		42,114
Subordinated debt		7,513		—		7,593		—		7,593
Junior subordinated debt		28,054		—		—		21,162		21,162
Accrued interest payable		1,293		—		1,293		—		1,293
Derivative - cash flow hedges		5,487		—		5,487		—		5,487

The carrying values and the exit pricing concept fair values of the Company's financial instruments at December 31, 2019 are as follows (dollars in thousands):

	Fair Value Measurements at December 31, 2019 Using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	79,582	$	79,582	$	—	$	—	$	79,582
Securities available for sale		379,195		—		379,195		—		379,195
Restricted stock		8,630		—		8,630		—		8,630
Loans held for sale		2,027		—		2,027		—		2,027
Loans, net of allowance		1,817,663		—		—		1,818,655		1,818,655
Bank owned life insurance		27,817		—		27,817		—		27,817
Accrued interest receivable		6,625		—		6,625		—		6,625
Financial Liabilities:
Deposits	$	2,060,547	$	—	$	2,062,823	$	—	$	2,062,823
Repurchase agreements		40,475		—		40,475		—		40,475
Subordinated debt		7,517		—		8,525		—		8,525
Junior subordinated debt		28,029		—		—		22,697		22,697
Accrued interest payable		1,213		—		1,213		—		1,213
Derivative - cash flow hedges		2,658		—		2,658		—		2,658

26

Note 17 – 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 the community banking segment.

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 segment receives fees for investment and administrative services.

Amounts shown in the "Other" column includes activities of the Company which are primarily debt service and corporate items. 

Segment information as of and for the three months ended March 31, 2020 and 2019 (unaudited), is shown in the following tables (dollars in thousands):

	Three Months Ended March 31, 2020
	Community Banking		Trust and Investment Services		Other			Intersegment Eliminations			Total
Interest income	$	23,735	$	—	$	131		$	—		$	23,866
Interest expense		3,441		—		506			—			3,947
Noninterest income		3,264		1,223		8			—			4,495
Income (loss) before income taxes		10,202		610		(685	)		—			10,127
Net income (loss)		8,569		515		(542	)		—			8,542
Depreciation and amortization		945		3		—			—			948
Total assets		2,478,357		123		364,610			(348,025	)		2,495,065
Goodwill		85,048		—		—			—			85,048
Capital expenditures		903		4		—			—			907

	Three Months Ended March 31, 2019
	Community Banking		Trust and Investment Services		Other			Intersegment Eliminations			Total
Interest income	$	17,999	$	—	$	97		$	—		$	18,096
Interest expense		2,644		—		384			—			3,028
Noninterest income		2,060		1,061		330			—			3,451
Income (loss) before income taxes		7,520		480		(426	)		—			7,574
Net income (loss)		5,997		380		(374	)		—			6,003
Depreciation and amortization		458		2		—			—			460
Total assets		1,857,245		27		259,009			(247,877	)		1,868,404
Goodwill		43,872		—		—			—			43,872
Capital expenditures		386		7		—			—			393

Note 18 – Supplemental Cash Flow Information

Supplemental cash flow information as of and for the three months ended March 31, 2020 and 2019 is shown in the following table (dollars in thousands):

	Three Months Ended March 31,
	2020			2019
Supplemental Schedule of Cash and Cash Equivalents:
Cash and due from banks	$	39,602		$	28,912
Interest-bearing deposits in other banks		69,968			41,949
Cash and Cash Equivalents	$	109,570		$	70,861
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	3,867		$	2,978
Income taxes		(70	)		—
Noncash investing and financing activities:
Transfer of loans to other real estate owned		47			—
Increase in operating lease right-of-use asset		—			4,413
Increase in operating lease liability		—			4,413
Unrealized gains on securities available for sale		5,375			3,965
Unrealized losses on cash flow hedges		(2,829	)		(725	)

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Note 19 – Accumulated Other Comprehensive Income (Loss)

Changes in each component of accumulated other comprehensive income (loss) ("AOCI") for the three months ended March 31, 2020 and 2019 (unaudited) were as follows (dollars in thousands):

For the Three Months Ended	Net Unrealized Gains (Losses) on Securities			Unrealized Losses on Cash Flow Hedges			Adjustments Related to Pension Benefits			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018	$	(3,973	)	$	(624	)	$	(1,238	)	$	(5,835	)
Net unrealized gains on securities available for sale, net of tax, $889		3,080			—			—			3,080
Reclassification adjustment for realized gains on securities, net of tax, $(1)		(3	)		—			—			(3	)
Net unrealized losses on cash flow hedges, net of tax, $(162)		—			(563	)		—			(563	)
Balance at March 31, 2019	$	(896	)	$	(1,187	)	$	(1,238	)	$	(3,321	)
Balance at December 31, 2019	$	2,902		$	(2,084	)	$	(1,301	)	$	(483	)
Net unrealized gains on securities available for sale, net of tax, $1,336		4,853			—			—			4,853
Reclassification adjustment for realized gains on securities, net of tax, $(176)		(638	)		—			—			(638	)
Net unrealized losses on cash flow hedges, net of tax, $(611)		—			(2,218	)		—			(2,218	)
Balance at March 31, 2020	$	7,117		$	(4,302	)	$	(1,301	)	$	1,514

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

 For the Three Months Ended March 31, 2020 and 2019

(dollars in thousands)

For the Three Months Ended March 31, 2020	Amount Reclassified from AOCI			Affected Line Item in the Statement of Where Net Income is Presented
Details about AOCI Components
Available for sale securities:
Realized gains on sales and calls of securities	$	814		Securities gains, net
		(176	)	Income taxes
Total reclassifications	$	638		Net of tax

For the Three Months Ended March 31, 2019	Amount Reclassified from AOCI			Affected Line Item in the Statement of Where Net Income is Presented
Details about AOCI Components
Available for sale securities:
Realized gains on calls of securities	$	4		Securities gains, net
		(1	)	Income taxes
Total reclassifications	$	3		Net of tax

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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, some of which are discussed in more detail in Item 1A – Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2019, may affect the operations, performance, business strategy, and results of the Company. Those factors include, but are not limited to, the following:

• the impact of the recent COVID-19 pandemic and the associated efforts to limit the spread of the virus;

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

• the adequacy of the level of our allowance for loan losses and the amount of loan loss provisions required in future periods;

• 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 and tax laws;

• cybersecurity threats or attacks, the implementation of new technologies, and the ability to develop and maintain reliable and secure electronic systems;

• the ability to retain key personnel;

• the failure of assumptions underlying the allowance for loan losses; and

• risks associated with mergers and acquisitions and other expansion activities.

COVID-19 Impact and Response

In March 2020, the outbreak of COVID-19 was recognized as a global pandemic.  The spread of the virus has created a global health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the United States and globally. Governmental responses have included orders closing businesses not deemed essential and directing individuals to restrict their movements, observe social distancing and shelter in place.  These actions, together with responses to the pandemic by all parties have resulted in rapid decreases in commercial and consumer activity, temporary closures of many businesses that have led to a loss of revenues and a rapid increase in unemployment, disrupted supply chains, market downturns and volatility, changes in consumer behavior, related emergency response legislation and an expectation that the Board of Governors of the Federal Reserve System ("Federal Reserve") will maintain a low interest rate environment for the foreseeable future.

The Company has implemented a business continuity plan and protocols to continue to maintain a high level of care for its employees, customers and communities.  The Company has transitioned to a majority of its employees working remotely and assisting customers by appointment only in branches or directing them to drive-thrus or ATMs.  It has cancelled all business travel and has the majority of non-branch personnel working remotely.  It now holds all company meetings through virtual platforms.

On March 20, 2020, the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."   This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the the effects of COVID-19.  The guidance explains that, in consultation with the Financial Accounting Standards Board ("FASB") staff, the federal banking agencies have concluded that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not troubled debt restructurings ("TDRs").  The Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed by the U.S. Congress on March 27, 2020.  Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.  Through March 31, 2020, the Bank had applied this guidance and modified loans to over 450 customers on loan balances of approximately $200 million.  The Bank implemented a Disaster Assistance Program ("DAP") to provide relief to its borrowers under this guidance. The majority of modifications involved three-month deferments of principal and interest.

The CARES Act included an initial allocation of $349 billion for loans to be issued by financial institutions through the Small Business Administration ("SBA").  This program is known as the Paycheck Protection Program ("PPP").  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part.  Payments are deferred for the first six months of the loan.  The loans are 100% guaranteed by the SBA.  The SBA pays the bank a processing fee ranging from 1% to 5%, based on the size of the loan.The SBA began accepting submissions for these loans on April 3, 2020, and the SBA reached its initial limit on April 16, 2020.  Prior to the initial limit being reached, the SBA approved 1,321 applications for loans in excess of $228 million, representing 96% of applications received and processed by the Bank. There was an additional $310 billion in funding authorized, and applications submitted by the Bank were accepted beginning April 27, 2020.  In total, the SBA approved 1,913 applications totaling $267 million for an acceptance rate of  99.8% for both rounds. From a funding perspective, the Bank expects to utilize core and wholesale funding for liquidity needs related to the DAP loan program and both the Federal Reserve discount window and their newly created Paycheck Protection Program Liquidity Facility to fund the PPP.

  COVID-19 and the participation and in the PPP and the DAP programs, could significantly impact the Company's liquidity.  Management believes that these sources provide sufficient and timely liquidity, both on and off the balance sheet to support the programs and operations. 

Reclassification

In certain circumstances, reclassifications have been made to prior period information to conform to the 2020 presentation. There were no material reclassifications.

29

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 evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company's critical accounting policies and estimates with the Audit Committee of the Board of Directors. The Company's critical accounting policies, which are summarized below, relate to (1) the allowance for loan losses, (2) mergers and acquisitions, (3) acquired loans with specific credit-related deterioration, (4) goodwill and intangible assets, (5) deferred tax assets and liabilities, and (6) other-than-temporary impairment of securities. A summary of the Company's significant accounting policies is set forth in Note 1 to the Consolidated Financial Statements contained in the Form 10-K for the year ended December 31, 2019.

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.

Allowance for Loan Losses

The purpose of the allowance for loan losses ("ALLL") is to provide for probable losses inherent 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 goal of the Company is to maintain an appropriate, systematic, and consistently applied process to determine the amounts of the ALLL and the provision for loan loss expense.

The Company uses certain practices to manage its credit risk. These practices include (1) appropriate lending limits for loan officers, (2) a loan approval process, (3) careful underwriting of loan requests, including analysis of borrowers, cash flows, collateral, and market risks, (4) regular monitoring of the portfolio, including diversification by type and geography, (5) review of loans by the Loan Review department, which operates independently of loan production, (6) regular meetings of the Credit Committee to discuss portfolio and policy changes and make decisions on large or unusual loan requests, and (7) regular meetings of the Asset Quality Committee which reviews the status of individual loans.

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

Calculation and analysis of the ALLL is prepared quarterly by the Finance Department. The Company's Credit Committee, Risk and Compliance Committee, Audit Committee, and the Board of Directors review the allowance for adequacy.

The Company's ALLL has two basic components:  the formula allowance and the specific allowance. Each of these components is determined based upon estimates and judgments.

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, portfolio concentrations, regulatory, legal, competition, quality of loan review system, and value of underlying collateral. In the formula allowance for commercial and commercial real estate loans, the historical loss rate is combined with the qualitative factors, resulting in an adjusted loss factor for each risk-grade category of loans. The period-end balances for each loan risk-grade category are multiplied by the adjusted loss factor. Allowance calculations for residential real estate and 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 specific allowance uses various techniques to arrive at an estimate of loss for specifically identified impaired loans. These include:

• The present value of expected future cash flows discounted at the loan's effective interest rate.  The effective interest rate on a loan is the rate of return implicit in the loan (that is, the contractual interest rate adjusted for any net deferred loan fees or costs and any premium or discount existing at the origination or acquisition of the loan);

• The loan's observable market price; or

• The fair value of the collateral, net of estimated costs to dispose, if the loan is collateral dependent.

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 as facts and circumstances evolve. Furthermore, management cannot provide assurance that in any particular period the Bank will not have sizable credit losses in relation to the amount reserved. Management may find it necessary to significantly adjust the allowance, considering current factors at the time.

30

Mergers and Acquisitions

Business combinations are accounted for under the FASB Accounting Standards Codification ("ASC") 805, Business Combinations, using the acquisition method of accounting. The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date. To determine the fair values, the Company will rely on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analysis or other valuation techniques. Under the acquisition method of accounting, the Company will identify the acquirer and the closing date and apply applicable recognition principles and conditions.

Acquisition-related costs are costs the Company incurs to effect a business combination. Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees. Some other examples of costs to the Company include systems conversions, integration planning consultants and advertising costs. The Company will account for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities will be recognized in accordance with other applicable GAAP. These acquisition-related costs have been and will be included within the consolidated statements of income classified within the noninterest expense caption.

Acquired Loans with Specific Credit-Related Deterioration

Acquired loans with specific credit deterioration are accounted for by the Company in accordance with ASC 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality. 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. In accounting for acquired impaired loans, such loans are not classified as nonaccrual when they become 90 days past due. They are considered to be accruing because their interest income relates to the accretable yield and not to contractual interest payments.

Goodwill and Intangible Assets

The Company performs its annual analysis as of June 30 each fiscal year. Accounting guidance permits preliminary assessment of qualitative factors to determine whether more substantial impairment testing is required. The Company chose to bypass the preliminary assessment and utilized a two-step process for impairment testing of goodwill. The first step tests for impairment, while the second step, if necessary, measures the impairment. No indicators of impairment were identified during the three months ended March 31, 2020 or 2019.

Deferred Tax Assets and Liabilities

The realization of deferred income tax assets is assessed and a valuation allowance is recorded if it is "more likely than not" that all or a portion of the deferred tax asset will not be realized. "More likely than not" is defined as greater than a 50% chance. Management considers all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed.

Other-than-temporary Impairment of Securities

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (1) the Company intends to sell the security or (2) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that it will be required to sell the security before recovery, the Company must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income.

Non-GAAP Presentations

Non-GAAP presentations are provided because the Company believes these may be valuable to investors. These include (1) the analysis of net interest income presented on a taxable equivalent basis to facilitate performance comparisons among various taxable and tax-exempt assets and (2) the calculation of the efficiency ratio.

Internet Access to Corporate Documents

The Company provides access to its Securities and Exchange Commission ("SEC") filings through a link on the Investor Relations page of the Company's web site at www.amnb.com. Reports available include annual reports 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.

Completed Acquisition

On April 1, 2019, the Company announced the completion of its acquisition of HomeTown Bankshares Corporation ("HomeTown").  The combination deepens the Company's footprint in the Roanoke, Virginia metropolitan area and creates a presence in the New River Valley with an office in Christiansburg, Virginia. After completion of the merger and with two office consolidations and one office closure, the Company has seven offices in the combined Roanoke/New River Valley market area. As a result of the merger, the holders of shares of HomeTown common stock received 0.4150 shares of the Company's common stock for each share of HomeTown common stock held immediately prior to the effective date of the merger. Following completion of the merger, HomeTown's subsidiary bank, HomeTown Bank, was merged with and into the Bank.

31

RESULTS OF OPERATIONS

Executive Overview

First quarter 2020 financial highlights include the following:

● Earnings produced a return on average assets of 1.37% for the first quarter of 2020, compared to 1.20% in the previous quarter and 1.29% for the same quarter in the prior year.

● Net loans receivable increased $24.1 million for the quarter, or 5.3% annualized.

● Net interest margin was 3.52% for the quarter, down from 3.62% in the fourth quarter of 2019 and up from 3.50% in the same quarter of the prior year *.   

● Noninterest revenues increased $629 thousand, or 16.3%, when compared to the previous quarter, and increased $1.0 million, or 30.3%, to $4.5 million from $3.5 million in the same quarter in the prior year.

● The first quarter provision for loan losses totaled $953 thousand, which compares to a provision of $462 thousand for the previous quarter, and $16 thousand in the same quarter in the prior year.

● Nonperforming assets as a percentage of total assets remained level at 0.16% at March 31, 2020, compared with 0.15% at December 31, 2019, and up from 0.10% at March 31, 2019.

● Annualized net charge-offs were 0.01% for the first quarter of 2020, compared to zero for the corresponding quarter in the prior year and down from 0.02% for the fourth quarter of 2019.

* Refer to the Non-GAAP Financial Measures section within this section for further information on these non-GAAP financial measurements.

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 21% 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 weighted rate earned on average earning assets and the weighted rate paid on average interest-bearing liabilities

Three months ended March 31, 2020 and 2019

Net interest income on a taxable equivalent basis increased $4,809,000 or 31.7% for the first quarter of 2020 compared to the same quarter of 2019. This improvement in net interest income was primarily related to an increase in earning asset balances and overall higher loan yields for the 2020 quarter compared to the 2019 quarter. Average loan balances for the 2020 quarter were up $477,930,000 or 35.3% over the 2019 quarter, primarily due to the HomeTown acquisition. Loan yields for the quarter were three basis points higher than the 2019 quarter.

For the first quarter of 2020, the Company's yield on interest-earning assets was 4.21%, compared to 4.20% for the first quarter of 2019. The cost of interest-bearing liabilities was 1.01% compared to 1.02%. The interest rate spread was 3.20% compared to 3.18%. The net interest margin, on a fully taxable equivalent basis, was 3.52% compared to 3.50%, an increase of two basis points (0.02%). The increase in net interest margin was driven by a $538,033,000 (31.0%) increase in average earning assets, enhanced by a $154,553,000 (36.8%) increase in average noninterest bearing deposits, and partially offset by a $363,961,000 (32.2%) increase in average interest bearing deposits.

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 March 31, 2020 and 2019.  Nonaccrual loans are included in average balances. Interest income on nonaccrual loans is only recognized when the loan returns to accrual status or at full payment of principal.

32

Net Interest Income Analysis (dollars in thousands)

	Three Months Ended March 31,
	Average Balance				Income/Expense				Yield/Rate
	2020		2019		2020		2019		2020			2019
Loans:
Commercial	$	332,920	$	265,578	$	3,543	$	2,891		4.28	%		4.41	%
Real estate		1,489,319		1,083,800		17,663		12,716		4.74			4.69
Consumer		10,042		4,973		157		75		6.29			6.12
Total loans		1,832,281		1,354,351		21,363		15,682		4.67			4.64
Securities:
U.S. Treasury		9,049		—		36		—		1.59			—
Federal agencies and GSEs		103,311		139,465		576		850		2.23			2.44
Mortgage-backed and CMOs		197,774		111,701		1,144		693		2.31			2.48
State and municipal		40,825		78,597		288		538		2.82			2.74
Other securities		18,771		14,071		264		178		5.63			5.06
Total securities		369,730		343,834		2,308		2,259		2.50			2.63
Deposits in other banks		72,909		38,702		264		266		1.46			2.79
Total interest-earning assets		2,274,920		1,736,887		23,935		18,207		4.21			4.20
Non-earning assets		216,671		126,325
Total assets	$	2,491,591	$	1,863,212
Deposits:
Demand	$	331,357	$	238,430		123		14		0.15			0.02
Money market		515,339		395,704		1,188		1,153		0.93			1.18
Savings		178,896		134,060		53		10		0.12			0.03
Time		469,973		363,410		1,948		1,295		1.67			1.45
Total deposits		1,495,565		1,131,604		3,312		2,472		0.89			0.89
Customer repurchase agreements		41,519		42,705		129		171		1.25			1.62
Other short-term borrowings		3		61		—		1		1.01			6.56
Long-term borrowings		35,554		27,937		506		384		5.69			5.50
Total interest-bearing liabilities		1,572,641		1,202,307		3,947		3,028		1.01			1.02
Noninterest bearing demand deposits		574,362		419,809
Other liabilities		21,015		16,419
Shareholders' equity		323,573		224,677
Total liabilities and shareholders' equity	$	2,491,591	$	1,863,212
Interest rate spread										3.20	%		3.18	%
Net interest margin										3.52	%		3.50	%
Net interest income (taxable equivalent basis)						19,988		15,179
Less: Taxable equivalent adjustment						69		111
Net interest income					$	19,919	$	15,068

33

Changes in Net Interest Income (Rate/Volume Analysis)

(in thousands)

	Three Months Ended March 31,
	2020 vs. 2019
				Change
	Increase			Attributable to
	(Decrease)			Rate			Volume
Interest income
Loans:
Commercial	$	652		$	(66	)	$	718
Real estate		4,947			139			4,808
Consumer		82			3			79
Total loans		5,681			76			5,605
Securities:
U.S. Treasury		36			—			36
Federal agencies and GSEs		(274	)		(68	)		(206	)
Mortgage-backed and CMOs		451			(50	)		501
State and municipal		(250	)		16			(266	)
Other securities		86			22			64
Total securities		49			(80	)		129
Deposits in other banks		(2	)		(165	)		163
Total interest income		5,728			(169	)		5,897
Interest expense
Deposits:
Demand		109			102			7
Money market		35			(271	)		306
Savings		43			39			4
Time		653			233			420
Total deposits		840			103			737
Customer repurchase agreements		(42	)		(37	)		(5	)
Other short-term borrowings		(1	)		(1	)		—
Long-term borrowings		122			14			108
Total interest expense		919			79			840
Net interest income (taxable equivalent basis)	$	4,809		$	(248	)	$	5,057

Noninterest Income

Three months ended March 31, 2020 and 2019

For the quarter ended March 31, 2020, noninterest income increased $1,044,000 or 30.3% compared to the comparable 2019 quarter. Details of individual accounts are shown in the table below.

	Three Months Ended March 31,
	(Dollars in thousands)
	2020			2019		$ Change			% Change
Noninterest income:
Trust fees	$	1,012		$	914	$	98			10.7	%
Service charges on deposit accounts		721			594		127			21.4
Other fees and commissions		941			708		233			32.9
Mortgage banking income		549			406		143			35.2
Securities gains, net		814			323		491			152.0
Brokerage fees		211			147		64			43.5
Income from SBICs		55			168		(113	)		(67.3	)
Losses on premises and equipment, net		(82	)		—		(82	)		(100.0	)
Other		274			191		83			43.5
Total noninterest income	$	4,495		$	3,451	$	1,044			30.3

Service charge income increased $127,000 in the first quarter of 2020 compared to the first quarter of 2019, primarily due to the HomeTown acquisition. Other fees and commissions increased $233,000 in the 2020 quarter compared to the 2019 quarter, mostly on the strength of debit card fee revenue. Mortgage banking income increased $143,000 in the 2020 quarter compared to the 2019 quarter, primarily due to increased volume. Net securities gains increased $491,000 in the 2020 quarter compared to the same quarter in 2019.

34

Noninterest Expense

Three months ended March 31, 2020 and 2019

For the three months ended March 31, 2020, noninterest expense increased $2,405,000 or 22.0%. Details of individual accounts are shown in the table below.

	Three Months Ended March 31,
	(Dollars in thousands)
	2020			2019		$ Change			% Change
Noninterest Expense
Salaries	$	6,059		$	4,664	$	1,395			29.9	%
Employee benefits		1,301			1,230		71			5.8
Occupancy and equipment		1,366			1,084		282			26.0
FDIC assessment		95			125		(30	)		(24.0	)
Bank franchise tax		426			290		136			46.9
Core deposit intangible amortization		427			55		372			676.4
Data processing		763			532		231			43.4
Software		356			324		32			9.9
Other real estate owned, net		(9	)		13		(22	)		(169.2	)
Merger related expenses		—			451		(451	)		(100.0	)
Other		2,550			2,161		389			18.0
Total noninterest expense	$	13,334		$	10,929	$	2,405			22.0

Salaries expense increased $1,395,000 in the 2020 quarter as compared to the 2019 quarter. Total full-time equivalent employees ("FTEs") were 355 at the end of the first quarter of 2020, up from 299 at the end of the first quarter of 2019, for an increase of 56 FTEs due primarily to the HomeTown acquisition. Occupancy and equipment expense increased $282,000 in the 2020 quarter compared to the 2019 quarter, primarily due to the HomeTown acquisition. The Federal Deposit Insurance Corporation ("FDIC") assessment expense in the 2020 quarter was positively impacted by the Small Bank Assessment Credit, which reduced insurance expense $75,000. Core deposit intangible amortization increased $372,000 in the 2020 quarter compared to the same quarter in 2019 due to the HomeTown acquisition. Merger related expenses, which are related to the HomeTown acquisition and are nonrecurring in nature, totaled $451,000 during the first quarter of 2019.

Non-GAAP Financial Measures

The efficiency ratio is calculated by dividing noninterest expense excluding (1) gains or losses on the sale of other real estate owned ("OREO"), (2) core deposit intangible amortization and (3) merger related expense by net interest income including tax equivalent income on nontaxable loans and securities and noninterest income and excluding (a) gains or losses on securities and (b) gains or losses on sale or disposal of premises and equipment. The efficiency ratio for the 2020 quarter was 54.46% compared to 56.95% for the 2019 quarter. This is a non-GAAP financial measure that the Company believes provides investors with important information regarding operational efficiency. Such information is not prepared in accordance with GAAP and should not be construed as such. Management believes, however, such financial information is meaningful to the reader in understanding operating performance, but cautions that such information not be viewed as a substitute for GAAP. The Company, in referring to its net income, is referring to income under GAAP. The components of the efficiency ratio calculation are summarized in the following table (dollars in thousands):

	Three Months Ended March 31,
	2020			2019
Efficiency Ratio
Noninterest expense	$	13,334		$	10,929
Add: gain on sale of OREO		27			2
Subtract: core deposit intangible amortization		(427	)		(55	)
Subtract: merger related expense		—			(451	)
	$	12,934		$	10,425
Net interest income	$	19,919		$	15,068
Tax equivalent adjustment		69			111
Noninterest income		4,495			3,451
Subtract: gain on securities		(814	)		(323	)
Add: loss on fixed assets		82			—
	$	23,751		$	18,307
Efficiency ratio		54.46	%		56.95	%

35

Net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets. Because a portion of interest income earned by the Company is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio. Tax equivalent net interest income is calculated by adding the tax benefit realized from interest income that is nontaxable to total interest income then subtracting total interest expense. The tax rate utilized in calculating the tax benefit for both the 2020 and 2019 quarters is 21%. The reconciliation of tax equivalent net interest income, which is not a measurement under GAAP, to net interest income, is reflected in the table below (dollars in thousands):

	Three Months Ended March 31,
	2020			2019
Reconciliation of Net Interest Income to Tax-Equivalent Net Interest Income
Non-GAAP measures:
Interest income - loans	$	21,363		$	15,682
Interest income - investments and other		2,572			2,525
Interest expense - deposits		(3,312	)		(2,472	)
Interest expense - customer repurchase agreements		(129	)		(171	)
Interest expense - other short-term borrowings		—			(1	)
Interest expense - long-term borrowings		(506	)		(384	)
Total net interest income	$	19,988		$	15,179
Less non-GAAP measures:
Tax benefit realized on non-taxable interest income - loans	$	(42	)	$	(44	)
Tax benefit realized on non-taxable interest income - municipal securities		(27	)		(67	)
GAAP measures	$	19,919		$	15,068

Income Taxes

The effective tax rate for the first quarter of 2020 was 15.65% compared to 20.74% for the first quarter of 2019. The decreased rate for the first quarter of 2020 compared to the rate for the first quarter of 2019 is a result of tax benefits recognized. As a result of the enactment of the CARES Act in the first quarter of 2020, the Company recognized a tax benefit for the net operating loss ("NOL") five-year carryback provision for the NOL acquired in the HomeTown merger. An income tax benefit was realized for the difference between the current corporate income tax rate of 21% and the higher federal corporate tax rate of 35% prior to 2018.

The effective tax rate is ordinarily lower than the statutory rate of 21% due to the benefit of tax-exempt interest and excess tax benefits recognized on the exercise of stock options and the vesting of restricted stock.

Fair Value Impact to Net Interest Margin

The Company's fully taxable equivalent net interest margin includes the impact of acquisition accounting fair value adjustments.  The net accretion impact for the first quarter of 2019 and the first quarter of 2020, as well as the remaining estimated net accretion impact are reflected in the following table (dollars in thousands):

	Loan		Deposit		Borrowings
	Accretion		Accretion		Amortization			Total
For the quarter ended March 31, 2019	$	281	$	—	$	(26	)	$	255
For the quarter ended March 31, 2020		905		73		(21	)		957
For the remaining nine months of 2020 (estimated)		1,667		108		(63	)		1,712
For the years ending (estimated):
2021		1,793		78		(102	)		1,769
2022		1,196		50		(102	)		1,144
2023		767		30		(102	)		695
2024		472		5		(102	)		375
2025		376		2		(102	)		276
Thereafter (estimated)		1,905		3		(743	)		1,165

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. Price inflation has been consistently modest over the past several years.

36

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, and is used to meet collateral requirements. The securities portfolio consists primarily of high credit quality investments, mostly federal agency, mortgage-backed, and state and municipal securities.

The available for sale securities portfolio was $342,769,000 at March 31, 2020, compared to $379,195,000 at December 31, 2019, a decrease of $36,426,000 or 9.6%. At March 31, 2020, the available for sale portfolio had an amortized cost of $333,693,000 resulting in a net unrealized gain of $9,076,000. At December 31, 2019, the available for sale portfolio had an amortized cost of $375,494,000, resulting in a net unrealized gain of $3,701,000. The Company had no remaining equity securities at March 31, 2020. During the three months ended March 31, 2019, the Company recognized a $319,000 change in the fair value of equity securities.

During the three months ended March 31, 2020, the Company sold $5,000,000 in par value bonds and realized a net gain of $814,000. This compares to the three months ended March 31, 2019, when the Company did not sell any available for sale securities. The Company had no remaining equity securities at March 31, 2020. During the three months ended March 31, 2019, the Company sold $81,000 in equity securities at fair value.

The Company is cognizant of the continuing historically low and currently decreasing rate environment and has elected to execute an asset liability strategy of purchasing high quality taxable securities with relatively low optionality and short and balanced duration in order to reinvest at, eventually, higher rate securities or, preferably, into loans. The objective is to improve yield and duration on the portfolio in advance of any major market moves. During 2020, this strategy will remain in place until market rates stabilize and begin to increase.

The Company is participating in the PPP administered by the SBA and  has implemented a DAP as discussed on page 29 to assist its customers during this crisis. 

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. At March 31, 2020, the commercial real estate portfolio included concentrations of $73 million, $48 million and $180 million in hotel, restaurants, and retail, respectively.  These concentrations total 16% of total loans.

Total loans were $1,854,928,000 at March 31, 2020, compared to $1,830,815,000 at December 31, 2019, an increase of $24,113,000 or 1.3% due to organic growth.

Average loans were $1,832,281,000 for the first quarter of 2020, compared to $1,354,351,000 for the first quarter of 2019, an increase of $477,930,000 or 35.3% primarily related to the HomeTown acquisition but also due to organic growth.

Loans held for sale totaled $2,666,000 at March 31, 2020 and $2,027,000 at December 31, 2019. Secondary loan production volume was $25,745,000 for the three month period ended March 31, 2020 and $15,572,000 for the same period of 2019. These loans were approximately 55% purchase and 45% refinancing.

Management of the loan portfolio is organized around portfolio segments. Each segment is comprised of various loan types that are reflective of operational and regulatory reporting requirements. The following table presents the Company's loan portfolio by segment as of March 31, 2020 and December 31, 2019 (dollars in thousands):

	March 31, 2020		December 31, 2019
Commercial	$	331,507	$	339,077
Commercial real estate:
Construction and land development		141,154		137,920
Commercial real estate		953,363		899,199
Residential real estate:
Residential		301,284		324,315
Home equity		118,030		119,423
Consumer		9,590		10,881
Total loans	$	1,854,928	$	1,830,815

Provision for Loan Losses

The Company had a provision for loan losses of $953,000 for the three month period ended March 31, 2020, compared to a provision of $16,000 for the same period ended March 31, 2019. The increase over the prior year period is a direct result of early stage declines in economic factors associated with increases in unemployment claims and a decrease in retail sales in the wake of the COVID-19 pandemic. The provision for loan losses is dependent on our ability to manage asset quality.  The Company continues to monitor the effects of COVID-19 on national and local economies but expects provision for loan losses to increase in the near term as a result of the pandemic.  It also reflects $197,000 in impairments recorded during the quarter, compared to $15,000 in the same quarter of the prior year. Net charge-offs for the three months ended March 31, 2020 were $40,000 compared to $15,000 for the 2019 quarter.   

37

Allowance for Loan Losses

The purpose of the ALLL is to provide for probable losses inherent 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.

At March 31, 2020, the ALLL was $14,065,000, compared to $13,152,000 at December 31, 2019. The ALLL as a percentage of total loans at such dates was 0.76% and 0.72%, respectively. 

As part of the Company's methodology to evaluate the adequacy of its ALLL, the Company computed its ASC 450 loan balance by reducing total loans by acquired loans and loans that were evaluated for impairment individually. The FASB ASC 450 loan loss reserve balance is the total ALLL reduced by allowances associated with these other pools of loans.

The general allowance, ASC 450 (FAS 5) reserves to FASB ASC 450 loans, was 0.88% at March 31, 2020, compared to 0.87% at December 31, 2019. On a dollar basis, the reserve was $13,400,000 at March 31, 2020, compared to $12,684,000 at December 31, 2019. This segment of the allowance represents by far the largest portion of the loan portfolio and the largest aggregate risk.  

The specific allowance, ASC 310-40 (FAS 114) reserves to FASB ASC 310-40 loans, was 14.34% at March 31, 2020, compared to 10.51% at December 31, 2019. On a dollar basis, the reserve was $411,000 at March 31, 2020, compared to $230,000 at December 31, 2019. There is ongoing turnover in the composition of the impaired loan population, which increased by a net $673,000 over December 31, 2019.

The specific allowance does not include reserves related to acquired loans with deteriorated credit quality. This reserve was $254,000 at March 31, 2020 compared to $238,000 at December 31, 2019. This is the only portion of the reserve related to acquired impaired loans. Cash flow expectations for these loans are reviewed on a quarterly basis and unfavorable changes in those estimates relative to the initial estimates can result in the need for additional loan loss provision. The following table presents the Company's loan loss and recovery experience for the periods indicated (dollars in thousands):

	Three Months Ended March 31, 2020		Year Ended December 31, 2019
Balance at beginning of period	$	13,152	$	12,805
Charge-offs:
Construction and land development		—		—
Commercial real estate		—		6
Residential real estate		41		20
Home equity		1		50
Total real estate		42		76
Commercial and industrial		20		12
Consumer		43		245
Total charge-offs		105		333
Recoveries:
Construction and land development		—		—
Commercial real estate		3		9
Residential real estate		4		40
Home equity		4		18
Total real estate		11		67
Commercial and industrial		22		13
Consumer		32		144
Total recoveries		65		224
Net charge-offs		40		109
Provision for loan losses		953		456
Balance at end of period	$	14,065	$	13,152

38

Asset Quality Indicators

The following table provides qualitative indicators relevant to the Company's loan portfolio for the three month period and year indicated below.

Asset Quality Ratios

	March 31, 2020			December 31, 2019
Allowance to loans		0.76	%		0.72	%
ASC 450 (FAS 5) ALLL to ASC 450 loans		0.88			0.87
Net charge-offs to allowance (1)		1.14			0.83
Net charge-offs to average loans (1)		0.01			0.01
Nonperforming assets to total assets		0.16			0.15
Nonperforming loans to loans		0.16			0.13
Provision to net charge-offs (1)		2,382.50			418.35
Provision to average loans (1)		0.21			0.03
Allowance to nonperforming loans		462.97			570.59

__________________________

(1) - Annualized.

Nonperforming Assets (Loans and Other Real Estate Owned)

Nonperforming loans include loans on which interest is no longer accrued and accruing loans that are contractually past due 90 days or more. Nonperforming loans include loans originated and loans acquired.

Nonperforming loans to total loans were 0.16% at March 31, 2020 and 0.13% at December 31, 2019.

Nonperforming assets include nonperforming loans and OREO. Nonperforming assets represented 0.16% and 0.15% of total assets at March 31, 2020 and December 31, 2019, respectively. As of March 31, 2020, there was no increase in nonperforming assets as a result of the pandemic.  The Company continues to monitor the significant impact to its borrowers caused by COVID-19 and anticipates increases in nonperforming assets as a result but the total cannot be determined at this time.

In most cases, it is the policy of the Company that any loan that becomes 90 days past due will automatically 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. In some cases a loan in process of renewal may become 90 days past due. In these instances the loan may still be accruing because of a delayed renewal process in which the customer has not been billed. In accounting for acquired impaired loans, such loans are not classified as nonaccrual when they become 90 days past due. They are considered to be accruing because their interest income relates to the accretable yield and not to contractual interest payments.

Loans will only be restored to full accrual status after six consecutive months of payments that were each less than 30 days delinquent. The Company strictly adheres with this policy before restoring a loan to normal accrual status.

The following table presents the Company's nonperforming assets as of March 31, 2020 and December 31, 2019 (dollars in thousands):

Nonperforming Assets

	March 31, 2020		December 31, 2019
Nonaccrual loans:
Real estate	$	1,618	$	1,083
Commercial		958		857
Consumer		3		4
Total nonaccrual loans		2,579		1,944
Loans past due 90 days and accruing interest:
Real estate		428		309
Commercial		31		52
Consumer		—		—
Total past due 90 days and accruing interest		459		361
Total nonperforming loans		3,038		2,305
Other real estate owned		984		1,308
Total nonperforming assets	$	4,022	$	3,613

39

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, exclusive of acquired impaired loans, as of March 31, 2020 and December 31, 2019 (dollars in thousands):

Impaired Loans

	March 31, 2020		December 31, 2019
Accruing	$	971	$	969
Nonaccruing		1,894		1,223
Total impaired loans	$	2,865	$	2,192

Troubled Debt Restructurings ("TDRs")

TDRs exist whenever the Company makes a concession to a customer based on the customer's financial distress that would not have otherwise been made in the normal course of business.

There were $1,050,000 in TDRs at March 31, 2020 compared to $1,058,000 at December 31, 2019. These loans are included in the impaired loan table above.

On March 20, 2020, the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."  This was in response to the COVID-19 pandemic affecting societies and economies around the world.  This guidance encourages financial institutions to work prudently with borrowers that may be unable to meet their contractual obligations because of the the effects of COVID-19.  The guidance goes on to explain that in consultation with the FASB staff that the federal banking agencies conclude that short-term modifications (e.g. six months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are not TDRs.  The CARES Act was passed by Congress on March 27, 2020.  Section 4013 of the CARES Act also addressed COVID-19 related modifications and specified that COVID-19 related modifications on loans that were current as of December 31, 2019 are not TDRs.  Through March 31, 2020, the Bank had applied this guidance and modified loans to over 450 customers on loan balances of approximately $200 million.  From April 1, 2020 to May 6, 2020, there were additional modifications on $134 million of loans. The majority of modifications involved three-month deferments of principal and interest.

Other Real Estate Owned

Other real estate owned was $984,000 and $1,308,000 as of March 31, 2020 and December 31, 2019, respectively. OREO is initially recorded at fair value, less estimated costs to sell, at the date of foreclosure. Loan losses resulting from foreclosure are charged against the ALLL 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. The following table shows the Company's OREO as of March 31, 2020 and December 31, 2019 (dollars in thousands):

Other Real Estate Owned

	March 31, 2020		December 31, 2019
Construction and land development	$	484	$	600
1-4 family residential		237		285
Commercial real estate		263		423
	$	984	$	1,308

Deposits

The Company's deposits consist primarily of checking, money market, savings, and consumer and commercial time deposits. Total deposits were $2,070,667,000 at March 31, 2020 compared to $2,060,547,000 at December 31, 2019, an increase of $10,120,000 or 0.5%. 

Average interest bearing deposits were $1,495,565,000 for the first quarter of 2020, compared to $1,131,604,000 for the first quarter of 2019, an increase of $363,961,000 or 32.2%. This increase is primarily attributable to deposits acquired in the HomeTown acquisition. Average noninterest bearing deposits for the 2020 quarter were $574,362,000, compared to $419,809,000 for the 2019 quarter, an increase of $154,553,000 or 36.8%. This increase is due to the HomeTown merger and organic growth.

The Company's primary focus on the liability side of the balance sheet is growing core deposits and their affiliated relationships. The challenge in this changing rate environment is to fund the Bank in a cost effective and competitive manner. The Company's cost of deposits for the first quarter of 2020 and the first quarter of 2019 was 0.89%.

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 shareholders.  The Company's capital strategy has not changed in response to COVID-19 except to suspend the stock repurchase program for the near term.

Shareholders' equity was $323,293,000 at March 31, 2020 compared to $320,258,000 at December 31, 2019, an increase of $3,035,000 or 0.9%.

The Company paid cash dividends of $0.27 per share during the first three months of 2020 while the aggregate basic and diluted earnings per share for the same period was $0.77.

40

Effective January 1, 2015, the Company and the Bank became subject to the rules implementing the Basel III capital framework and certain related provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Basel III Capital Rules”). The Basel III Capital Rules require the Company and the Bank to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%), (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average assets. The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. In addition, to be well capitalized under the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act, the Bank must have the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a Tier 1 capital to risk-weighted assets ratio of at least 8.0%; (iii) a total capital to risk-weighted assets ratio of at least 10.0%; and (iv) a leverage ratio of at least 5.0%.

On August 28, 2018, the Federal Reserve issued an interim final rule required by the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) that expands the applicability of the Federal Reserve’s Small Bank Holding Company Policy Statement (“SBHC Policy Statement”) to bank holding companies with total consolidated assets of less than $3 billion (up from the prior $1 billion threshold). Under the SBHC Policy Statement, qualifying bank holding companies, such as the Company, have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III Capital Rules. However, the Company does not currently intend to issue a material amount of debt or take any other action that would cause its capital ratios to fall below the minimum ratios required by the Basel III Capital Rules. The SBHC Policy Statement does not apply to the Bank, and the Bank must comply with the Basel III Capital Rules

On September 17, 2019, the federal banking agencies jointly issued a final rule required by the EGRRCPA that will permit qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to elect to opt into the Community Bank Leverage Ratio ("CBLR") framework. Under the final rule, banks and bank holding companies that opt into the CBLR framework and maintain a CBLR of greater than 9% would not be subject to other risk-based and leverage capital requirements under the Basel III Capital Rules and will be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. In addition, a community bank that falls out of compliance with the framework will have a two-quarter grace period to come back into full compliance, provided its leverage ratio remains above 8%, and will be deemed well-capitalized during the grace period. The CBLR framework was first available for banking organizations to use in their March 31, 2020 regulatory reports.

On April 6, 2020, the federal bank regulatory agencies announced the issuance of two interim final rules that make changes to the CBLR framework and implement Section 4012 of the CARES Act. One interim final rule provides that, as of the second quarter of 2020, a banking organization with a leverage ratio of 8% or greater (and that meets the other existing qualifying criteria) may elect to use the CBLR framework. This rule also establishes a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls below 8% so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition back to the leverage ratio requirement of 9%. Under this rule, the required leverage ratio will be 8% beginning in the second quarter and for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. This rule also maintains a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1% below the applicable ratio. This transition will allow community banking organizations to focus on supporting lending to creditworthy households and businesses given the recent strains on the U.S. economy caused by COVID-19. The Company and the Bank do not currently expect to opt into the CBLR framework.

The following table provides information on the regulatory capital ratios for the Company and the Bank at March 31, 2020 and December 31, 2019. Management believes, as of March 31, 2020, that the Company and the Bank more than satisfy all capital adequacy requirements to which they are subject.

	Percentage At March 31, 2020						Percentage At December 31, 2019
Risk-Based Capital Ratios:	Company			Bank			Company			Bank
Common equity tier 1 capital ratio		11.52	%		12.51	%		11.56	%		12.38	%
Tier 1 capital ratio		12.93			12.51			12.98			12.38
Total capital ratio		14.02			13.23			14.04			13.06
Leverage Capital Ratio:
Tier 1 leverage ratio		10.75			10.41			10.75			10.25

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Stock Repurchase Program

On January 19, 2018, the Company filed a Form 8-K with the SEC to announce the approval by its Board of Directors of a stock repurchase program. The program authorized the repurchase of up to 300,000 shares of the Company's common stock over a two-year period that ended on December 31, 2019.

On December 19, 2019, the Company filed a Form 8-K with the SEC to announce the approval by its Board of Directors of another stock repurchase program. The program authorizes the repurchase of up to 400,000 shares of the Company's common stock through December 31, 2020.

In the three month period ended March 31, 2020, the Company repurchased 140,526 shares at an average cost of $35.44 per share, for a total cost of $4,981,000. The Company did not repurchase any shares in the three month period ended March 31, 2019.  This program has been suspended for the near term due to COVID-19.

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 in a timely manner.  Liquidity management involves maintaining the Company's ability to meet the daily cash flow requirements of its customers, whether they are borrowers requiring funds or depositors desiring to withdraw funds. Additionally, the Company requires cash for various operating needs including dividends to shareholders, 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 Committee ("ALCO") and Board of Directors, both of which receive periodic reports of the Company's interest rate risk and liquidity position. The Company uses a computer simulation model to assist in the management of the future liquidity needs of the Company. 

Liquidity sources include on balance sheet and off balance sheet sources.

Balance sheet liquidity sources include cash, amounts due from banks, loan repayments, and increases in deposits. The Company also maintains a large, high quality, very liquid bond portfolio, which is generally 50% to 60% unpledged and would, accordingly, be available for sale if necessary.

Off balance sheet sources include lines of credit from the Federal Home Loan Bank of Atlanta ("FHLB"), federal funds lines of credit, and access to the Federal Reserve Bank of Richmond's discount window.

The Company has a line of credit with the FHLB, equal to 30% of the Bank'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, second mortgage loans, home equity lines of credit, and commercial real estate loans. In addition, the Company pledges as collateral its capital stock in and deposits with the FHLB. The Company had $205,000,000 outstanding in letters of credit at March 31, 2020 and $170,000,000 outstanding at December 31, 2019. These letters of credit provide the Bank with alternate collateral for securing public entity deposits above FDIC insurance levels, thereby providing less need for collateral pledging from the securities portfolio, and thereby maximizing on balance sheet liquidity.

Short-term borrowings are discussed in Note 8 and long-term borrowings are discussed in Note 9 in the Consolidated Financial Statements included in this report.

The Company has federal funds lines of credit established with one correspondent bank in the amount of $50,000,000 and another correspondent bank in the amount of $10,000,000, and has access to the Federal Reserve Bank of Richmond's discount window.

The Company has 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 exceeding $250,000. This gives the Company the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. 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 to 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 an additional liquidity management tool. Under the EGRRCPA signed into law on May 24, 2018, a well-capitalized bank with a CAMELS rating of 1 or 2 may hold reciprocal deposits up to the lesser of 20 percent of its total liabilities or $5 billion without those deposits being treated as brokered deposits. Deposits through the CDARS program as of March 31, 2020 and December 31, 2019, were $18,245,000 and $14,864,000, respectively.

COVID-19 and the participation in the PPP and the DAP programs could significantly impact the Company's liquidity.   Management believes that these sources provide sufficient and timely liquidity, both on and off the balance sheet to support the programs and operations. 

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 at March 31, 2020 and at December 31, 2019 were as follows (dollars in thousands):

	March 31, 2020		December 31, 2019
Commitments to extend credit	$	532,610	$	557,364
Standby letters of credit		12,640		13,611
Mortgage loan rate-lock commitments		26,390		10,791

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 generally 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 in the following sections.

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 the ALCO and Board of Directors, both of which receive and review periodic reports of the Company's interest rate risk position.

The Company uses computer 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 instrument level optionality, 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 or to a greater extent than its liabilities (deposits and borrowings). An asset sensitive balance sheet will produce relatively 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 at March 31, 2020 is asset sensitive. Management expects that the general direction of market interest rates will be stable to decreasing for the remainder of 2020.

Earnings Simulation

The following table shows the estimated impact of changes in interest rates on net interest income as of March 31, 2020 (dollars in thousands), assuming gradual and parallel changes in interest rates, and consistent levels of assets and liabilities. Net interest income for the following twelve months is projected to increase when interest rates are higher than current rates.

Estimated Changes in Net Interest Income

	March 31, 2020
	Change in Net Interest Income
Change in interest rates	Amount			Percent
Up 4.00%	$	11,362			14.8	%
Up 3.00%		8,541			11.1
Up 2.00%		5,651			7.4
Up 1.00%		2,743			3.6
Flat		—			—
Down 0.25%		(550	)		(0.7	)
Down 1.00%		(1,800	)		(2.3	)

Management cannot predict future interest rates or their exact effect on net interest income. Computations of future effects of hypothetical interest rate changes are based on numerous assumptions and should not be relied upon as indicative of actual results. Certain limitations are inherent in such computations. Assets and liabilities may react differently than projected to changes in market interest rates. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while rates on other types of assets and liabilities may lag changes in market interest rates. Interest rate shifts may not be parallel.

Any changes in interest rates can cause substantial changes in the amount of prepayments of loans and mortgage-backed securities, which may in turn affect the Company's interest rate sensitivity position. Additionally, credit risk may rise if an interest rate increase adversely affects the ability of borrowers to service their debt. Decrease in yields due to the economic downturn in the wake of the COVID-19 pandemic have been projected in the model simulation.

Economic Value Simulation

Economic value simulation is used to calculate the estimated fair value of assets and liabilities over different interest rate environments. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate environments is an indication of the longer-term earnings capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses instantaneous rate shocks to the balance sheet.

43

The following table reflects the estimated change in net economic value over different rate environments using economic value simulation for the balances at the quarterly period ended March 31, 2020 (dollars in thousands):

Estimated Changes in Economic Value of Equity

	March 31, 2020
Change in interest rates	Amount		$ Change			% Change
Up 4.00%	$	381,679	$	156,510			69.5	%
Up 3.00%		356,414		131,245			58.3
Up 2.00%		324,259		99,090			44.0
Up 1.00%		280,987		55,818			24.8
Flat		225,169		—			—
Down 0.25%		208,574		(16,595	)		(7.4	)
Down 1.00%		129,464		(95,705	)		(42.5	)

Due to the historically low interest rate environment, no measurement was considered necessary for a further decline in interest rates. Due to the significant drop in short-term interest rates as a result of the economic impact of the COVID-19 pandemic, the valuation of the deposit portfolio decreased significantly in addition to the earning asset portfolio.

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 March 31, 2020.  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 March 31, 2020, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

44

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.

ITEM 1A.  RISK FACTORS

The Company has previously described the primary risk factors in Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 9, 2020.  It updates these risks as circumstances change and the discussion below supplements the previous disclosures. 

The COVID-19 pandemic could adversely affect the Company and the adverse impacts on its business, financial position, and operations could be significant.  The ultimate impact will depend on future developments, which are highly uncertain and cannot be predicted.
 

The COVID-19 pandemic has created global economic disruptions and disruptions to the lives of people around the world.  Governments, businesses, and the public are taking unprecedented actions to contain the spread of COVID-19 and to mitigate its effects, including quarantines, travel bans, shelter-in-place orders, closures of businesses and schools, fiscal stimulus, and legislation designed to deliver monetary aid and other relief.  While the scope, duration, and full effects are rapidly evolving and not fully known, the pandemic and related efforts to contain it have disrupted global economic activity, adversely affected the functioning of financial markets, impacted interest rates, increased economic and market uncertainty, and disrupted trade and supply chains.  If these effects continue for a prolonged time period or result in sustained economic stress or recession, many of the risk factors identified in the Company's December 31, 2019 Form 10-K could be exacerbated and such effects could have a material adverse impact on it in terms of credit quality, collateral values, ability of customers to repay loans, product demand, funding, operations, interest rate risk and human capital.  

Measures enacted to contain the virus, including business shutdowns and shelter-in-place orders along with actions taken by individuals to ensure their safety, have resulted in significant changes to the corporate risk profile.  These actions have led to loss of revenues for the Company's business customers, extreme increases in national and state unemployment, disrupted global supply chains, market downturns and volatility, disruptions in consumer behavior and emergency response legislation, and an expectation that Federal Reserve policy will maintain a low interest rate environment for the foreseeable future.  These changes have a significant adverse effect on the markets in which the Company operates and the demand for its products and services.

The Company has taken comprehensive steps to protect the health of its employees and customers by implementing business continuity plan protocols.  For its customers, it has closed branch lobbies but remains open to meet with customers by appointment only and maintained banking hours at branches throughout its footprint.  It  has continued to provide financial support to the communities it serves.  For its employees, the Company has cancelled all business travel, enabled approximately 65% of the workforce to work remotely and implemented safety protocols at each location for employees whose role requires they come into the office. These steps have not materially impacted the ability to serve its customers, conduct business or support its employees.  There is no guarantee these actions will be sufficient to successfully mitigate the risks presented by the COVID-19 pandemic and additional actions may be required.  Future actions deemed necessary by local, state or national leaders could hinder its ability to operate going forward.  Its business operations may be disrupted if key personnel or significant portions of the Company's employees are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.  The Company's ability to serve its customers could be impacted if actions taken by vendors or business partners are unable to continue providing services the Company depends on.

COVID-19 continues to be a threat to the world.  The extent, severity and duration of the current and future actions are unprecedented and, until normal economic conditions resume, the Company is unable to accurately predict or measure the effects.  For this reason, the extent to which the COVID-19 pandemic affects its business, operations and financial conditions, as well as its regulatory capital and liquidity ratios is highly uncertain and unpredictable and depends on, among other things, new information that may emerge from the actions discussed above to combat the threats posed by the virus. If the pandemic is prolonged, the adverse impact on the markets served and on its business, operations and financial condition could deepen.  

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 19, 2018, the Company filed a Form 8-K with the SEC to announce the approval by its Board of Directors of a stock repurchase program. The program authorized the repurchase of up to 300,000 shares of the Company's common stock over a two-year period that ended on December 31, 2019. 

On December 19, 2019, the Company filed a Form 8-K with the SEC to announce the approval by its Board of Directors of another stock repurchase program. The program authorizes the repurchase of up to 400,000 shares of the Company's common stock through December 31, 2020. Repurchases may be made through open market purchases or in privately negotiated transactions, and shares repurchased will be returned to the status of authorized and unissued shares of common stock. The actual timing, number, and value of shares repurchased under the program will be determined by management.

Shares of the Company's common stock were repurchased during the three months ended March 31, 2020, as detailed below. Under the share repurchase program, the Company has the remaining authority to repurchase up to 259,474 shares of the Company's common stock as of March 31, 2020.  However, this program has been suspended for the near term due to COVID-19.

Period Beginning on First Day of Month Ended	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs
January 31, 2020		7,434	$	35.41		7,434		392,566
February 29, 2020		117,267		35.96		117,267		275,299
March 31, 2020		15,825		31.64		15,825		259,474
Total		140,526	$	35.44		140,526

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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

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ITEM 6.  EXHIBITS

31.1 Section 302 Certification of Jeffrey V. Haley, President and Chief Executive Officer.

31.2 Section 302 Certification of Jeffrey W. Farrar, Executive Vice President, Chief Operating Officer and Chief Financial Officer.

32.1 Section 906 Certification of Jeffrey V. Haley, President and Chief Executive Officer.

32.2 Section 906 Certification of Jeffrey W. Farrar, Executive Vice President, Chief Operating Officer and Chief Financial Officer.

101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019, (ii) the Consolidated Statements of Income for the three months ended March 31, 2020 and March 31, 2019, (iii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and March 31, 2019, (iv) the Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2020 and March 31, 2019, (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and March 31, 2019, and (vi) the Notes to the Consolidated Financial Statements (furnished herewith).

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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.

	By:	/s/ Jeffrey V. Haley
		Jeffrey V. Haley
		President and Chief Executive Officer
Date - May 8, 2020		(principal executive officer)
	By:	/s/ Jeffrey W. Farrar
		Jeffrey W. Farrar
		Executive Vice President,
		Chief Operating Officer and
		Chief Financial Officer
Date - May 8, 2020		(principal financial officer)
	By:	/s/ Cathy W. Liles
		Cathy W. Liles
		Senior Vice President and
		Chief Accounting Officer
Date - May 8, 2020		(principal accounting officer)

48

EX-31.1

Exhibit 31.1 CERTIFICATIONS

I, Jeffrey V. Haley, 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 the 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: May 8, 2020

/s/ Jeffrey V. Haley

Jeffrey V. Haley,

President and Chief Executive Officer

EX-31.2

Exhibit 31.2 CERTIFICATIONS

I, Jeffrey W. Farrar, 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 the 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: May 8, 2020

/s/ Jeffrey W. Farrar

Jeffrey W. Farrar,

Executive Vice President, Chief Operating Officer 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 March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey V. Haley, 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/ Jeffrey V. Haley

Jeffrey V. Haley

President and Chief Executive Officer

May 8, 2020

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 March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey W. Farrar, Executive 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/ Jeffrey W. Farrar

Jeffrey W. Farrar

Executive Vice President, Chief Operating Officer and Chief Financial Officer

May 8, 2020

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Note 19 - Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

Note

19

– Accumulated Other Comprehensive Income (Loss)

Changes in each component of accumulated other comprehensive income (loss) ("AOCI") for the

three

months ended

March 31, 2020

and

2019

(unaudited) were as follows (dollars in thousands):

For the Three Months Ended	Net Unrealized Gains (Losses) on Securities			Unrealized Losses on Cash Flow Hedges			Adjustments Related to Pension Benefits			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018	$	(3,973	)	$	(624	)	$	(1,238	)	$	(5,835	)
Net unrealized gains on securities available for sale, net of tax, $889		3,080			—			—			3,080
Reclassification adjustment for realized gains on securities, net of tax, $(1)		(3	)		—			—			(3	)
Net unrealized losses on cash flow hedges, net of tax, $(162)		—			(563	)		—			(563	)
Balance at March 31, 2019	$	(896	)	$	(1,187	)	$	(1,238	)	$	(3,321	)
Balance at December 31, 2019	$	2,902		$	(2,084	)	$	(1,301	)	$	(483	)
Net unrealized gains on securities available for sale, net of tax, $1,336		4,853			—			—			4,853
Reclassification adjustment for realized gains on securities, net of tax, $(176)		(638	)		—			—			(638	)
Net unrealized losses on cash flow hedges, net of tax, $(611)		—			(2,218	)		—			(2,218	)
Balance at March 31, 2020	$	7,117		$	(4,302	)	$	(1,301	)	$	1,514

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)

 For the 

Three Months Ended

March 31, 2020

 and

2019

(dollars in thousands)

For the Three Months Ended March 31, 2020	Amount Reclassified from AOCI			Affected Line Item in the Statement of Where Net Income is Presented
Details about AOCI Components
Available for sale securities:
Realized gains on sales and calls of securities	$	814		Securities gains, net
		(176	)	Income taxes
Total reclassifications	$	638		Net of tax

For the Three Months Ended March 31, 2019	Amount Reclassified from AOCI			Affected Line Item in the Statement of Where Net Income is Presented
Details about AOCI Components
Available for sale securities:
Realized gains on calls of securities	$	4		Securities gains, net
		(1	)	Income taxes
Total reclassifications	$	3		Net of tax

28

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Note 15 - Employee Benefit Plans

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Retirement Benefits [Text Block]

Note

15

– Employee Benefit Plans

The following information for the

three

months ended

March 31, 2020

and

2019

pertains to the Company's non-contributory defined benefit pension plan which was frozen in

2009.

  If lump sum payments exceed the service cost plus interest cost, an additional settlement charge will apply (dollars in thousands):

Components of Net Periodic Benefit Cost	Three Months Ended March 31,
	2020			2019
Service cost	$	—		$	—
Interest cost		38			58
Expected return on plan assets		(71	)		(68	)
Recognized loss due to settlement		30			26
Recognized net actuarial loss		35			65
Net periodic cost	$	32		$	81

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Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Stock options exercised, shares (in shares)	1,743	13,200
Vesting of restricted stock, shares (in shares)	12,245	20,285
Equity based compensation, shares (in shares)	24,745	23,032
Cash dividends paid, per share (in dollars per share)	$ 0.27	$ 0.25
Stock repurchased, shares (in shares)	140,526

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Other real estate owned, valuation allowance	$ 407	$ 153
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)	10,957,502	11,071,540

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Note 6 - Goodwill and Other Intangible Assets (Details Textual) - USD ($)	1 Months Ended
	Apr. 30, 2019	Jul. 31, 2011
MidCarolina Financial Corporation [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles		$ 6,556,000
Finite-Lived Intangible Asset, Useful Life (Month)		9 years
MainStreet BancShares, Inc and HomeTown Bankshares Corporation [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Finite-Lived Intangibles	$ 10,039,000
Finite-Lived Intangible Asset, Useful Life (Month)	10 years

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Note 4 - Loans - Past Due Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Past due	$ 4,766	$ 4,626
90 days past due and still accruing	459	361
Nonaccrual loans	2,579	1,944
Current	1,850,162	1,826,189
Loans and Leases Receivable, Net of Deferred Income, Total	1,854,928	1,830,815
Financial Asset, 30 to 59 Days Past Due [Member]
Past due	1,259	1,361
Financial Asset, 60 to 89 Days Past Due [Member]
Past due	469	960
Commercial Portfolio Segment [Member]
Past due	1,461	1,397
90 days past due and still accruing	31	52
Nonaccrual loans	958	857
Current	330,046	337,680
Loans and Leases Receivable, Net of Deferred Income, Total	331,507	339,077
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due	404	325
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due	68	163
Commercial Real Estate Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	1,094,517	1,037,119
Commercial Real Estate Portfolio Segment [Member] | Construction and Land Development [Member]
Past due	46	69
90 days past due and still accruing
Nonaccrual loans	9	11
Current	141,108	137,851
Loans and Leases Receivable, Net of Deferred Income, Total	141,154	137,920
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate [Member]
Past due	1,066	925
90 days past due and still accruing	121
Nonaccrual loans	513	274
Current	952,297	898,274
Loans and Leases Receivable, Net of Deferred Income, Total	953,363	899,199
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Construction and Land Development [Member]
Past due		58
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Real Estate [Member]
Past due	216	217
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Construction and Land Development [Member]
Past due	37
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Real Estate [Member]
Past due	216	434
Residential Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	419,314	443,738
Residential Portfolio Segment [Member] | Residential [Member]
Past due	1,614	1,866
90 days past due and still accruing	278	282
Nonaccrual loans	942	685
Current	299,670	322,449
Loans and Leases Receivable, Net of Deferred Income, Total	301,284	324,315
Residential Portfolio Segment [Member] | Home Equity Line of Credit [Member]
Past due	445	279
90 days past due and still accruing	29	27
Nonaccrual loans	154	113
Current	117,585	119,144
Loans and Leases Receivable, Net of Deferred Income, Total	118,030	119,423
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Residential [Member]
Past due	255	639
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Home Equity Line of Credit [Member]
Past due	262	49
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Residential [Member]
Past due	139	260
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Home Equity Line of Credit [Member]
Past due		90
Consumer Portfolio Segment [Member]
Past due	134	90
90 days past due and still accruing
Nonaccrual loans	3	4
Current	9,456	10,791
Loans and Leases Receivable, Net of Deferred Income, Total	9,590	10,881
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Past due	122	73
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Past due	$ 9	$ 13

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Note 19 - Accumulated Other Comprehensive Income (Loss) - Changes in AOCI (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Balance	$ 320,258	$ 222,542
Balance	323,293	229,473
AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Balance	2,902	(3,973)
Net unrealized gains (losses) on securities available for sale, net of tax	4,853	3,080
Reclassification adjustment for realized gains on securities, net of tax	(638)	(3)
Net unrealized losses on cash flow hedges, net of tax
Balance	7,117	(896)
Accumulated Gain (Loss), Net, Cash Flow Hedge, Parent [Member]
Balance	(2,084)	(624)
Net unrealized gains (losses) on securities available for sale, net of tax
Reclassification adjustment for realized gains on securities, net of tax
Net unrealized losses on cash flow hedges, net of tax	(2,218)	(563)
Balance	(4,302)	(1,187)
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Balance	(1,301)	(1,238)
Net unrealized gains (losses) on securities available for sale, net of tax
Reclassification adjustment for realized gains on securities, net of tax
Net unrealized losses on cash flow hedges, net of tax
Balance	(1,301)	(1,238)
AOCI Attributable to Parent [Member]
Balance	(483)	(5,835)
Net unrealized gains (losses) on securities available for sale, net of tax	4,853	3,080
Reclassification adjustment for realized gains on securities, net of tax	(638)	(3)
Net unrealized losses on cash flow hedges, net of tax	(2,218)	(563)
Balance	$ 1,514	$ (3,321)

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Note 7 - Leases - Maturity of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Nine months ending December 31, 2020	$ 716
Twelve months ending December 31, 2021	943
Twelve months ending December 31, 2022	920
Twelve months ending December 31, 2023	817
Twelve months ending December 31, 2024	499
Twelve months ending December 31, 2025	473
Thereafter	1,549
Total undiscounted cash flows	5,917
Discount	(749)
Lease liabilities	$ 5,168	$ 5,369

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Note 17 - Segment and Related Information (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	Three Months Ended March 31, 2020
	Community Banking		Trust and Investment Services		Other			Intersegment Eliminations			Total
Interest income	$	23,735	$	—	$	131		$	—		$	23,866
Interest expense		3,441		—		506			—			3,947
Noninterest income		3,264		1,223		8			—			4,495
Income (loss) before income taxes		10,202		610		(685	)		—			10,127
Net income (loss)		8,569		515		(542	)		—			8,542
Depreciation and amortization		945		3		—			—			948
Total assets		2,478,357		123		364,610			(348,025	)		2,495,065
Goodwill		85,048		—		—			—			85,048
Capital expenditures		903		4		—			—			907

	Three Months Ended March 31, 2019
	Community Banking		Trust and Investment Services		Other			Intersegment Eliminations			Total
Interest income	$	17,999	$	—	$	97		$	—		$	18,096
Interest expense		2,644		—		384			—			3,028
Noninterest income		2,060		1,061		330			—			3,451
Income (loss) before income taxes		7,520		480		(426	)		—			7,574
Net income (loss)		5,997		380		(374	)		—			6,003
Depreciation and amortization		458		2		—			—			460
Total assets		1,857,245		27		259,009			(247,877	)		1,868,404
Goodwill		43,872		—		—			—			43,872
Capital expenditures		386		7		—			—			393

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Note 2 - Acquisitions (Details Textual) - USD ($)		3 Months Ended		12 Months Ended
	Apr. 01, 2019	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Business Combination, Acquisition Related Costs			$ 451,000
HomeTown Bankshares Corporation [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares Issued Per Share Of Common Stock (in dollars per share)	$ 0.415
Business Combination, Acquisition Related Costs		$ 0	$ 451,000	$ 11,800,000
HomeTown Bankshares Corporation [Member] | Data Processing Termination and Conversion Costs [Member]
Business Combination, Acquisition Related Costs				9,100,000
HomeTown Bankshares Corporation [Member] | Legal and Professional Fees [Member]
Business Combination, Acquisition Related Costs				1,700,000
HomeTown Bankshares Corporation [Member] | Salary Related Expense [Member]
Business Combination, Acquisition Related Costs				400,000
HomeTown Bankshares Corporation [Member] | Other Noninterest Expense [Member]
Business Combination, Acquisition Related Costs				$ 600,000

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Note 17 - Segment and Related Information (Details Textual)	3 Months Ended
	Mar. 31, 2020
Number of Reportable Segments	2

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Note 13 - Stock Based Compensation - Stock Option Transactions (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		123 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020
Outstanding, option shares (in shares)	13,944
Outstanding, weighted average exercise price (in dollars per share)	$ 16.63
Granted, option shares (in shares)	0		0
Granted, weighted average exercise price (in dollars per share)
Exercised, option shares (in shares)	(1,743)	(13,200)
Exercised, weighted average exercise price (in dollars per share)	$ 16.63
Forfeited, option shares (in shares)
Forfeited, weighted average exercise price (in dollars per share)
Expired, option shares (in shares)
Expired, weighted average exercise price (in dollars per share)
Outstanding and exercisable, option shares (in shares)	12,201		12,201
Outstanding and exercisable, weighted average exercise price (in dollars per share)	$ 16.63		$ 16.63
Outstanding and exercisable, weighted average remaining contractual term (Year)	4 years 262 days
Outstanding and exercisable, aggregate intrinsic value	$ 89		$ 89

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Note 14 - Earnings Per Common Share (Details Textual) - shares shares in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)	0	0

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Note 8 - Short-term Borrowings (Details Textual) - Federal Funds [Member]	Mar. 31, 2020 USD ($)
One Correspondent Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 50,000,000
Second Correspondent Bank [Member]
Line of Credit Facility, Maximum Borrowing Capacity	$ 10,000,000

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Note 11 - Junior Subordinated Debt (Details Textual)	Apr. 07, 2006 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Jul. 01, 2011 USD ($)
Proceeds from Issuance of Long-term Debt, Total	$ 20,000,000
Number of Consecutive Quarterly Periods for Deferral of Distributions on Trust Preferred Securities, Maximum	20
Proceeds from Issuance of Common Stock	$ 619,000
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust, Total	$ 20,619,000
MidCarolina Trusts [Member]
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust, Total				$ 8,764,000
Equity Method Investments		$ 264,000
AMNB Statutory Trust I [Member]
Equity Method Investments		619,000
MidCarolina Trust I [Member]
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust, Fair Value Adjustment		708,000	$ 722,000	1,197,000
MidCarolina Trust II [Member]
Junior Subordinated Debenture Owed to Unconsolidated Subsidiary Trust, Fair Value Adjustment		$ 621,000	$ 632,000	$ 1,021,000

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Note 16 - Fair Value Measurements - Financial Assets and Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Securities available for sale	$ 342,769	$ 379,195
Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
US Treasury Securities [Member]
Securities available for sale	15,000	14,987
US Government-sponsored Enterprises Debt Securities [Member]
Securities available for sale	58,032	128,114
US States and Political Subdivisions Debt Securities [Member]
Securities available for sale	42,632	42,154
Corporate Debt Securities [Member]
Securities available for sale	11,641	9,700
Fair Value, Recurring [Member]
Securities available for sale	342,769	379,195
Fair Value, Recurring [Member] | Cash Flow Hedging [Member]
Derivative - cash flow hedges	5,487	2,658
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Cash Flow Hedging [Member]
Derivative - cash flow hedges
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	342,769	379,195
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Cash Flow Hedging [Member]
Derivative - cash flow hedges	5,487	2,658
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Cash Flow Hedging [Member]
Derivative - cash flow hedges
Fair Value, Recurring [Member] | US Treasury Securities [Member]
Securities available for sale	15,000	14,987
Fair Value, Recurring [Member] | US Treasury Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Fair Value, Recurring [Member] | US Treasury Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	15,000	14,987
Fair Value, Recurring [Member] | US Treasury Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Fair Value, Recurring [Member] | US Government-sponsored Enterprises Debt Securities [Member]
Securities available for sale	58,032	128,114
Fair Value, Recurring [Member] | US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Fair Value, Recurring [Member] | US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	58,032	128,114
Fair Value, Recurring [Member] | US Government-sponsored Enterprises Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Fair Value, Recurring [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale	215,464	184,240
Fair Value, Recurring [Member] | Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Fair Value, Recurring [Member] | Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	215,464	184,240
Fair Value, Recurring [Member] | Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Securities available for sale	42,632	42,154
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	42,632	42,154
Fair Value, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale
Fair Value, Recurring [Member] | Corporate Debt Securities [Member]
Securities available for sale	11,641	9,700
Fair Value, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale
Fair Value, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	11,641	9,700
Fair Value, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale

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Note 4 - Loans (Details Textual)			3 Months Ended
	Apr. 27, 2020 USD ($)	Apr. 16, 2020 USD ($)	Mar. 31, 2020 USD ($)	Mar. 31, 2019	May 05, 2020 USD ($)	Dec. 31, 2019 USD ($)
Financing Receivable, Modifications, Number of Contracts			0
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts			0	0
Financing Receivable, Number of Customers With Payment Deferrals			450
Financing Receivable, Deferred Payments			$ 200,000,000
Loans and Leases Receivable, Net of Deferred Income, Total			1,854,928,000			$ 1,830,815,000
Mortgage Loans in Process of Foreclosure, Amount			155,000			161,000
Real Estate Acquired Through Foreclosure			237,000			285,000
Subsequent Event [Member] | First Round of Paycheck Protection Program Loans [Member]
Number of Paycheck Protection Program Loans Originated Through the CARES Act		1,321
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act		$ 228,000,000
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act, Percent Approval		96.00%
Subsequent Event [Member] | Second Round of Paycheck Protection Program Loans [Member]
Number of Paycheck Protection Program Loans Originated Through the CARES Act	1,913
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act	$ 267,000,000
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act, Percent Approval	99.80%
Subsequent Event [Member] | Effect of COVID-19 [Member]
Financing Receivable, Number of Customers With Payment Deferrals					500
Financing Receivable, Deferred Payments					$ 334,000,000
Residential Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total			$ 419,314,000			443,738,000
Residential Portfolio Segment [Member] | Residential [Member]
Financing Receivable, Modifications, Number of Contracts			1
Financing Receivable, Troubled Debt Restructuring, Postmodification			$ 82,000
Loans and Leases Receivable, Net of Deferred Income, Total			301,284,000			324,315,000
Commercial Real Estate Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total			$ 1,094,517,000			$ 1,037,119,000
Financing Receivable, Percent of Portfolio			16.00%
Commercial Real Estate Portfolio Segment [Member] | Hotel Loans [Member]
Loans and Leases Receivable, Net of Deferred Income, Total			$ 73,000,000
Commercial Real Estate Portfolio Segment [Member] | Other Commercial Real Estate Loans [Member]
Loans and Leases Receivable, Net of Deferred Income, Total			48,000,000
Commercial Real Estate Portfolio Segment [Member] | Restaurant Loans [Member]
Loans and Leases Receivable, Net of Deferred Income, Total			$ 180,000,000

XML

Note 3 - Securities - Amortized Cost and Fair Value of Investments in Debt Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Securities available for sale, amortized cost	$ 333,693	$ 375,494
Securities available for sale, unrealized gains	9,454	4,360
Securities available for sale, unrealized losses	378	659
Debt Securities, Available-for-sale, Total	342,769	379,195
US Treasury Securities [Member]
Securities available for sale, amortized cost	14,992	14,992
Securities available for sale, unrealized gains	8
Securities available for sale, unrealized losses		5
Debt Securities, Available-for-sale, Total	15,000	14,987
US Government-sponsored Enterprises Debt Securities [Member]
Securities available for sale, amortized cost	56,191	126,829
Securities available for sale, unrealized gains	1,864	1,504
Securities available for sale, unrealized losses	23	219
Debt Securities, Available-for-sale, Total	58,032	128,114
Collateralized Mortgage Backed Securities [Member]
Securities available for sale, amortized cost	209,513	182,732
Securities available for sale, unrealized gains	6,271	1,901
Securities available for sale, unrealized losses	320	393
Debt Securities, Available-for-sale, Total	215,464	184,240
US States and Political Subdivisions Debt Securities [Member]
Securities available for sale, amortized cost	41,484	41,427
Securities available for sale, unrealized gains	1,153	769
Securities available for sale, unrealized losses	5	42
Debt Securities, Available-for-sale, Total	42,632	42,154
Corporate Debt Securities [Member]
Securities available for sale, amortized cost	11,513	9,514
Securities available for sale, unrealized gains	158	186
Securities available for sale, unrealized losses	30
Debt Securities, Available-for-sale, Total	$ 11,641	$ 9,700

XML

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

3 Months Ended

Mar. 31, 2020

Notes Tables

Financing Receivable, Allowance for Credit Loss [Table Text Block]

	Three Months Ended March 31, 2020			Year Ended December 31, 2019			Three Months Ended March 31, 2019
Allowance for Loan Losses
Balance, beginning of period	$	13,152		$	12,805		$	12,805
Provision for loan losses		953			456			16
Charge-offs		(105	)		(333	)		(69	)
Recoveries		65			224			54
Balance, end of period	$	14,065		$	13,152		$	12,806
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	329		$	217		$	217
Provision for (recovery of) unfunded commitments		(13	)		112			12
Balance, end of period	$	316		$	329		$	229

	Commercial			Commercial Real Estate		Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2019	$	2,657		$	7,416	$	3,023		$	56		$	13,152
Provision for (recovery of) loan losses		(6	)		939		16			4			953
Charge-offs		(20	)		—		(42	)		(43	)		(105	)
Recoveries		22			3		8			32			65
Balance at March 31, 2020	$	2,653		$	8,358	$	3,005		$	49		$	14,065
Balance at March 31, 2020:
Allowance for Loan Losses
Individually evaluated for impairment	$	247		$	138	$	26		$	—		$	411
Collectively evaluated for impairment		2,391			8,192		2,768			49			13,400
Acquired impaired loans		15			28		211			—			254
Total	$	2,653		$	8,358	$	3,005		$	49		$	14,065
Loans
Individually evaluated for impairment	$	888		$	735	$	1,242		$	—		$	2,865
Collectively evaluated for impairment		329,892			1,062,709		409,534			9,575			1,811,710
Acquired impaired loans		727			31,073		8,538			15			40,353
Total	$	331,507		$	1,094,517	$	419,314		$	9,590		$	1,854,928

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2018	$	2,537		$	7,246		$	2,977		$	45		$	12,805
Provision for loan losses		119			167			58			112			456
Charge-offs		(12	)		(6	)		(70	)		(245	)		(333	)
Recoveries		13			9			58			144			224
Balance at December 31, 2019	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Balance at December 31, 2019:
Allowance for Loan Losses
Individually evaluated for impairment	$	204		$	—		$	26		$	—		$	230
Collectively evaluated for impairment		2,448			7,386			2,794			56			12,684
Acquired impaired loans		5			30			203			—			238
Total	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Loans
Individually evaluated for impairment	$	784		$	502		$	906		$	—		$	2,192
Collectively evaluated for impairment		337,312			1,004,296			433,121			10,866			1,785,595
Acquired impaired loans		981			32,321			9,711			15			43,028
Total	$	339,077		$	1,037,119		$	443,738		$	10,881		$	1,830,815

XML

Note 11 - Junior Subordinated Debt (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

				Principal Amount
Issuing Entity	Date Issued	Interest Rate	Maturity Date	March 31, 2020		December 31, 2019
AMNB Statutory Trust I	4/7/2006	LIBOR plus 1.35%	6/30/2036	$	20,619	$	20,619
MidCarolina Trust I	10/29/2002	LIBOR plus 3.45%	11/7/2032		4,447		4,433
MidCarolina Trust II	12/3/2003	LIBOR plus 2.95%	10/7/2033		2,988		2,977
				$	28,054	$	28,029

XML

Note 7 - Leases

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

Note

7

– Leases

On

January 1, 2019,

the Company adopted ASU

No.

2016

-

02

"Leases (Topic

842

)" and all subsequent ASUs that modified Topic

842.

The Company elected the prospective application approach provided by ASU

2018

-

11

and did

not

adjust prior periods for ASC

842.

The Company also elected certain practical expedients within the standard and, consistent with such elections, did

not

reassess whether any expired or existing contracts are or contain leases, did

not

reassess the lease classification for any expired or existing leases, and did

not

reassess any initial direct costs for existing leases. The implementation of the new standard resulted in recognition of a right-of-use asset and lease liability of

$4,413,000

 at the date of adoption, which is related to the Company's lease of premises used in operations. In connection with the HomeTown merger, the Company added

$1,816,000

 to the right-of-use asset and

$1,736,000

to the lease liability. The right-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Company's consolidated balance sheets.

Lease liabilities represent the Company's obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company's incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company's right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

The Company's long-term lease agreements are classified as operating leases. Certain of these leases offer the option to extend the lease term, and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do

not

provide for residual value guarantees and have

no

restrictions or covenants that would impact dividends or require incurring additional financial obligations

The following tables present information about the Company's leases, as of and for the 

three

months ended

March 31, 2020

(dollars in thousands):

	March 31, 2020			December 31, 2019
Lease liabilities	$	5,168		$	5,369
Right-of-use assets	$	5,133		$	5,340
Weighted average remaining lease term (years)		8.08			8.17
Weighted average discount rate		3.22	%		3.21	%

	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Lease cost
Operating lease cost	$	249	$	211
Short-term lease cost		1		1
Total lease cost	$	250	$	212
Cash paid for amounts included in the measurement of lease liabilities	$	243	$	209

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows (dollars in thousands):

Lease payments due	As of March 31, 2020
Nine months ending December 31, 2020	$	716
Twelve months ending December 31, 2021		943
Twelve months ending December 31, 2022		920
Twelve months ending December 31, 2023		817
Twelve months ending December 31, 2024		499
Twelve months ending December 31, 2025		473
Thereafter		1,549
Total undiscounted cash flows		5,917
Discount		(749	)
Lease liabilities	$	5,168

XML

Note 3 - Securities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note

3

– Securities

The amortized cost and fair value of investments in debt securities at

March 31, 2020

were as follows (dollars in thousands):

	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Securities available for sale:
U.S. Treasury	$	14,992	$	8	$	—	$	15,000
Federal agencies and GSEs		56,191		1,864		23		58,032
Mortgage-backed and CMOs		209,513		6,271		320		215,464
State and municipal		41,484		1,153		5		42,632
Corporate		11,513		158		30		11,641
Total securities available for sale	$	333,693	$	9,454	$	378	$	342,769

The Company had

no

remaining equity securities at

March 31, 2020

. The Company had equity securities with a fair value of

$2,069,000

at 

March 31, 2019

 and recognized in income a

$319,000

change in the fair value of equity securities during the

first

 

three

months of

2019

. During the

2019

period, the Company sold

$81,000

in equity securities at fair value.

The amortized cost and fair value of investments in debt securities at

December 31, 2019

were as follows (dollars in thousands):

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Securities available for sale:
U.S. Treasury	$	14,992	$	—	$	5	$	14,987
Federal agencies and GSEs		126,829		1,504		219		128,114
Mortgage-backed and CMOs		182,732		1,901		393		184,240
State and municipal		41,427		769		42		42,154
Corporate		9,514		186		—		9,700
Total securities available for sale	$	375,494	$	4,360	$	659	$	379,195

Restricted Stock

Due to restrictions placed upon the Bank's common stock investment in the Federal Reserve Bank of Richmond ("FRB") and Federal Home Loan Bank of Atlanta ("FHLB"), these securities have been classified as restricted equity securities and carried at cost. The restricted securities are

not

subject to the investment security classification requirements and are included as a separate line item on the Company's consolidated balance sheets. The FRB requires the Bank to maintain stock with a par value equal to

3.00%

of its outstanding capital and an additional

3.00%

is on call.  The FHLB requires the Bank to maintain stock in an amount equal to

4.25%

of outstanding borrowings and a specific percentage of the Bank's total assets. The cost of restricted stock at

March 31, 2020

and 

December 31, 2019

was as follows (dollars in thousands):

	March 31, 2020		December 31, 2019
FRB stock	$	6,425	$	6,415
FHLB stock		2,257		2,215
Total restricted stock	$	8,682	$	8,630

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

March 31, 2020

.  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, at

March 31, 2020

, are as follows (dollars in thousands):

	Total				Less than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Federal agencies and GSEs	$	6,534	$	23	$	—	$	—	$	6,534	$	23
Mortgage-backed and CMOs		24,558		320		24,001		311		557		9
State and municipal		1,710		5		1,710		5		—		—
Corporate		2,978		30		—		—		2,978		30
Total	$	35,780	$	378	$	25,711	$	316	$	10,069	$	62

Federal agencies and GSEs:

The unrealized losses on the Company's investment in

13

government sponsored entities ("GSE") securities were caused by interest rate increases. All of these securities were in an unrealized loss position for

12

months or more. 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

March 31, 2020

.

Mortgage-backed securities:

The unrealized losses on the Company's investment in

six

 GSE mortgage-backed securities were caused by interest rate increases. Three of these securities were in an unrealized loss position for

12

months or more. 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

March 31, 2020

.

Collateralized Mortgage Obligations:

The unrealized losses associated with

four

private GSE collateralized mortgage obligations ("CMOs") were due to normal market fluctuations.

None

of these securities were in an unrealized loss position for

12

months or more. 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

March 31, 2020

.

State and municipal securities:

  The unrealized losses on

three

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

March 31, 2020

.

Corporate securities:

  The unrealized losses on

four

corporate securities were caused by interest rate increases and

not

credit deterioration. 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 

March 31, 2020

.

Restricted stock:

When evaluating restricted 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 restricted stock to be other-than-temporarily impaired at

March 31, 2020

, and

no

impairment has been recognized.

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

December 31, 2019

(dollars in thousands):

	Total				Less than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Treasury	$	14,987	$	5	$	14,987	$	5	$	—	$	—
Federal agencies and GSEs		69,095		219		31,779		44		37,316		175
Mortgage-backed and CMOs		89,391		393		66,324		266		23,067		127
State and municipal		4,262		42		3,108		37		1,154		5
Total	$	177,735	$	659	$	116,198	$	352	$	61,537	$	307

Other-Than-Temporarily-Impaired Securities

As of

March 31, 2020

and

December 31, 2019

, there were

no

securities classified as other-than-temporarily impaired.

Realized Gains and Losses

The following table presents the gross realized gains and losses on and the proceeds from the sale of securities available for sale during the 

three

months ended

March 31, 2020

and

2019

(dollars in thousands):

	Three Months Ended March 31, 2020
Realized gains (losses):
Gross realized gains	$	814
Gross realized losses		—
Net realized gains	$	814
Proceeds from sales of securities	$	5,811

	Three Months Ended March 31, 2019
Realized gains (losses):
Gross realized gains	$	—
Gross realized losses		—
Net realized gains	$	—
Proceeds from sales of securities	$	—

XML

Note 11 - Junior Subordinated Debt

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Trust Preferred Capital Notes [Text Block]

Note

11

– Junior Subordinated Debt

On

April 7, 2006,

AMNB Statutory Trust I, a Delaware statutory trust and a wholly owned unconsolidated subsidiary of the Company, issued

$20,000,000

of preferred securities (the "Trust 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

September 30, 2011. 

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 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 "Junior Subordinated Debt"), issued pursuant to junior subordinated debentures entered into between the Company and Wilmington Trust Company, as trustee. The proceeds of the Junior Subordinated Debt were used to fund the cash portion of the merger consideration to the former shareholders of Community First Financial Corporation in connection with the Company's acquisition of that company in

2006,

and for general corporate purposes.

On

July 1, 2011,

in connection with the MidCarolina merger, the Company assumed

$8,764,000

in junior subordinated debt to MidCarolina Trust I and MidCarolina Trust II,

two

separate Delaware statutory trusts (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 a full and unconditional guarantee by the Company of the MidCarolina Trusts' obligations. The MidCarolina Trusts were

not

consolidated in the Company's financial statements.

In accordance with ASC

810

-

10

-

15

-

14,

Consolidation – Overall – Scope and Scope Exceptions, 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 as of 

March 31, 2020

and

December 31, 2019

(dollars in thousands):

				Principal Amount
Issuing Entity	Date Issued	Interest Rate	Maturity Date	March 31, 2020		December 31, 2019
AMNB Statutory Trust I	4/7/2006	LIBOR plus 1.35%	6/30/2036	$	20,619	$	20,619
MidCarolina Trust I	10/29/2002	LIBOR plus 3.45%	11/7/2032		4,447		4,433
MidCarolina Trust II	12/3/2003	LIBOR plus 2.95%	10/7/2033		2,988		2,977
				$	28,054	$	28,029

The principal amounts reflected above for the MidCarolina Trusts are net of fair value adjustments of

$708,000

and

$621,000

at

March 31, 2020

and

$722,000

and

$632,000

at  

December 31, 2019

, respectively. The original fair value adjustments of

$1,197,000

and

$1,021,000

were recorded as a result of the acquisition of MidCarolina on

July 1, 2011,

and are being amortized into interest expense over the remaining lives of the respective borrowings

XML

Note 14 - Earnings Per Common Share - Basic and Diluted Earnings Per Share (Details) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Basic earnings per share (in shares)	11,025,185	8,745,174
Basic earnings per share (in dollars per share)	$ 0.77	$ 0.69
Effect of dilutive securities - stock options (in shares)	6,125	549
Diluted earnings per share (in shares)	11,031,310	8,745,723
Diluted earnings per share (in dollars per share)	$ 0.77	$ 0.69

XML

Note 8 - Short-term Borrowings - Short-term Borrowings (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Customer repurchase agreements	$ 42,114	$ 40,475

XML

Note 11 - Junior Subordinated Debt - Outstanding Payables (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019	Apr. 07, 2006
Principal amount			$ 20,619,000
Principal amount			$ 20,619,000
Junior Subordinated Debt [Member]
Principal amount	$ 28,054,000	$ 28,029,000
Principal amount	28,054,000	28,029,000
Junior Subordinated Debt [Member] | AMNB Statutory Trust I [Member]
Principal amount	20,619,000	20,619,000
Principal amount	20,619,000	20,619,000
Junior Subordinated Debt [Member] | MidCarolina Trust I [Member]
Principal amount	4,447,000	4,433,000
Principal amount	4,447,000	4,433,000
Junior Subordinated Debt [Member] | MidCarolina Trust II [Member]
Principal amount	2,988,000	2,977,000
Principal amount	$ 2,988,000	$ 2,977,000
London Interbank Offered Rate (LIBOR) [Member] | Junior Subordinated Debt [Member] | AMNB Statutory Trust I [Member]
Interest rate	1.35%
London Interbank Offered Rate (LIBOR) [Member] | Junior Subordinated Debt [Member] | MidCarolina Trust I [Member]
Interest rate	3.45%
London Interbank Offered Rate (LIBOR) [Member] | Junior Subordinated Debt [Member] | MidCarolina Trust II [Member]
Interest rate	2.95%

XML

Note 16 - Fair Value Measurements - Assets Measured on a Nonrecurring Basis (Details) - Fair Value, Nonrecurring [Member] - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Impaired loans, net of valuation allowance	$ 937	$ 759
Other real estate owned, net	984	1,308
Fair Value, Inputs, Level 1 [Member]
Impaired loans, net of valuation allowance
Other real estate owned, net
Fair Value, Inputs, Level 2 [Member]
Impaired loans, net of valuation allowance
Other real estate owned, net
Fair Value, Inputs, Level 3 [Member]
Impaired loans, net of valuation allowance	937	759
Other real estate owned, net	$ 984	$ 1,308

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Note 17 - Segment and Related Information - Segment Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Interest income	$ 23,866	$ 18,096
Interest expense	3,947	3,028
Total noninterest income	4,495	3,451
Income (loss) before income taxes	10,127	7,574
Net income	8,542	6,003
Depreciation and amortization	948	460
Total assets	2,495,065	1,868,404	$ 2,478,550
Goodwill	85,048	43,872	$ 84,002
Capital expenditures	907	393
Corporate, Non-Segment [Member]
Interest income	131	97
Interest expense	506	384
Total noninterest income	8	330
Income (loss) before income taxes	(685)	(426)
Net income	(542)	(374)
Depreciation and amortization
Total assets	364,610	259,009
Goodwill
Capital expenditures
Intersegment Eliminations [Member]
Interest income
Interest expense
Total noninterest income
Income (loss) before income taxes
Net income
Depreciation and amortization
Total assets	(348,025)	(247,877)
Goodwill
Capital expenditures
Community Banking [Member] | Operating Segments [Member]
Interest income	23,735	17,999
Interest expense	3,441	2,644
Total noninterest income	3,264	2,060
Income (loss) before income taxes	10,202	7,520
Net income	8,569	5,997
Depreciation and amortization	945	458
Total assets	2,478,357	1,857,245
Goodwill	85,048	43,872
Capital expenditures	903	386
Trust and Investment Services [Member] | Operating Segments [Member]
Interest income
Interest expense
Total noninterest income	1,223	1,061
Income (loss) before income taxes	610	480
Net income	515	380
Depreciation and amortization	3	2
Total assets	123	27
Goodwill
Capital expenditures	$ 4	$ 7

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Note 13 - Stock Based Compensation - Nonvested Restricted Stock Activity (Details) - Restricted Stock [Member]	3 Months Ended
	Mar. 31, 2020 $ / shares shares
Nonvested, shares (in shares) | shares	57,271
Nonvested, weighted average grant date value per share (in dollars per share) | $ / shares	$ 34.84
Granted, shares (in shares) | shares	19,327
Granted, weighted average grant date value per share (in dollars per share) | $ / shares	$ 37.26
Vested, shares (in shares) | shares	(13,284)
Vested, weighted average grant date value per share (in dollars per share) | $ / shares	$ 34.12
Forfeited, shares (in shares) | shares	(664)
Forfeited, weighted average grant date value per share (in dollars per share) | $ / shares	$ 27.28
Nonvested, shares (in shares) | shares	62,650
Nonvested, weighted average grant date value per share (in dollars per share) | $ / shares	$ 35.82

XML

Note 3 - Securities - Sale of Securities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Gross realized gains	$ 814
Gross realized losses
Net realized gains	814
Proceeds from sales of securities available for sale	$ 5,811

XML

Note 3 - Securities (Details Textual) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Equity Securities, FV-NI	$ 0	$ 2,069,000
Equity Securities, FV-NI, Unrealized Gain		319,000
Proceeds from the Sale of Equity Securities		$ 81,000	$ 81,000
Par Value of Restricted Stock Out of Outstanding Capital Required by FRB	3.00%
Par Value of Federal Reserve Banks Restricted Stock Outstanding Capital Subject to Call	3.00%
Par Value of Restricted Stock Out of Outstanding Capital Required by FHLB	4.25%
Other than Temporary Impairment Losses, Investments, Total	$ 0		$ 0
US Government-sponsored Enterprises Debt Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	13
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	$ 0
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	$ 0
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	6
Collateralized Mortgage Backed Securities [Member]
Debt Securities, Available-for-sale, Continuous Unrealized Loss Position, 12 Months or Longer, Number of Positions	0
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	$ 0
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	4
US States and Political Subdivisions Debt Securities [Member]
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	$ 0
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	3
Corporate Debt Securities [Member]
Other-than-temporary Impairment Loss, Debt Securities, Available-for-sale, Total	$ 0
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	4

XML

Note 6 - Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

	Goodwill		Intangibles
Balance at December 31, 2019	$	84,002	$	7,728
Measurement period adjustments		1,046		—
Amortization		—		(427	)
Impairment		—		—
Balance at March 31, 2020	$	85,048	$	7,301

XML

Note 12 - Derivative Financial Instruments and Hedging Activities (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Interest Rate Derivatives [Table Text Block]

	March 31, 2020
	Notional Amount		Positions		Assets		Liabilities		Cash Collateral Pledged
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	28,500		3	$	—	$	5,487	$	5,750

	December 31, 2019
	Notional Amount		Positions		Assets		Liabilities		Cash Collateral Pledged
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	28,500		3	$	—	$	2,658	$	3,450

XML

Note 10 - Subordinated Debt

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Subordinated Borrowings Disclosure [Text Block]

Note

10

– Subordinated Debt

 

On

April 1, 2019,

in connection with the HomeTown merger, the Company assumed

$7,500,000

in aggregate principal amount of fixed-to-floating rate subordinated notes issued to various institutional accredited investors. The notes have a maturity date of

December 

30,

2025

and have an annual fixed interest rate of

6.75%

until

December 30, 2020.

Thereafter, the notes will have a floating interest rate based on LIBOR. Interest will be paid semi-annually, in arrears, on

June 30

and

December 30

of each year during the time that the notes remain outstanding through the fixed interest rate period or earlier redemption date. Interest will be paid quarterly, in arrears, on

March 30,

June 30,

September 30

and

December 30

throughout the floating interest rate period or earlier redemption date.

The indebtedness evidenced by the notes, including principal and interest, is unsecured and subordinate and junior in right of the Company's payments to general and secured creditors and depositors of the bank. The notes are redeemable, without penalty, on or after

December 30, 2020

and, in certain limited circumstances, prior to that date. The notes limit the Company from declaring or paying any dividend, or making any distribution on capital stock or other equity securities of any kind of the Company if the Company is

not

"well capitalized" for regulatory purposes, immediately prior to the declaration of such dividend or distribution, except for dividends payable solely in shares of common stock of the Company.

The carrying value of the subordinated debt includes a fair value adjustment of

$13,000

at

March 31, 2020

. The original fair value adjustment of

$30,000

was recorded as a result of the acquisition of HomeTown on

April 1, 2019,

and is being amortized into interest expense through the redeemable date.

XML

Note 6 - Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

Note

6

– Goodwill and Other Intangible Assets

The Company records as goodwill the excess of the purchase price over the fair value of the identifiable net assets acquired. Impairment testing is performed annually, as well as when an event triggering impairment

may

have occurred. The Company performs its annual analysis as of

June 30

each fiscal year. Accounting guidance permits preliminary assessment of qualitative factors to determine whether more substantial impairment testing is required. The Company chose to bypass the preliminary assessment and utilized a

two

-step process for impairment testing of goodwill. The

first

step tests for impairment, while the

second

step, if necessary, measures the impairment. 

No

indicators of impairment were identified as of

June 

30,

2019.

  Due to the COVID-

19

pandemic market conditions, the Company performed a qualitative assessment of goodwill as of

March 31, 2020

and determined the fair value exceeded the carrying value.  Changes in the economic environment, operations, or other adverse events could result in future impairment charges which could have a material adverse impact on the Company's operating results.  

Core deposit intangibles resulting from the acquisition of MidCarolina Financial Corporation ("MidCarolina") in

July 2011

were

$6,556,000

and are being amortized on an accelerated basis over

108

months. Core deposit intangibles resulting from the acquisitions of MainStreet BankShares, Inc. in

January 2015

and HomeTown in

April 2019

were

$10,039,000

and are being amortized on an accelerated basis over

120

months.

The changes in the carrying amount of goodwill and intangibles for the

three

months ended

March 31, 2020

, are as follows (dollars in thousands):

	Goodwill		Intangibles
Balance at December 31, 2019	$	84,002	$	7,728
Measurement period adjustments		1,046		—
Amortization		—		(427	)
Impairment		—		—
Balance at March 31, 2020	$	85,048	$	7,301

XML

Note 2 - Acquisitions

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Business Combination Disclosure [Text Block]

Note

2

- Acquisitions

On

April 1, 2019,

the Company completed its acquisition of Roanoke-based HomeTown Bankshares Corporation ("HomeTown") and its wholly owned subsidiary bank, HomeTown Bank. Pursuant and subject to the terms of the merger agreement, as a result of the merger, the holders of shares of HomeTown common stock received

0.4150

shares of the Company's common stock for each share of HomeTown common stock held immediately prior to the effective date of the merger.

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. Fair values are preliminary and subject to refinement for up to 

one

year after the closing date of the acquisition, in accordance with Accounting Standards Codification ("ASC")

350,

Intangibles-Goodwill and Other. The following table provides an assessment of the consideration transferred, assets acquired, and liabilities assumed as of the date of the acquisition (dollars in thousands):

Consideration Paid:
Common shares issued (2,361,686)	$	82,470
Issuance of replacement stock options/restricted stock		753
Cash paid in lieu of fractional shares		27
Value of consideration		83,250
Assets acquired:
Cash and cash equivalents		26,283
Investment securities		34,876
Restricted stock		2,588
Loans		444,324
Premises and equipment		12,034
Deferred income taxes		2,960
Core deposit intangible		8,200
Other real estate owned		1,188
Bank owned life insurance		8,246
Other assets		14,244
Total assets		554,943
Liabilities assumed:
Deposits		483,626
Short-term FHLB advances		14,883
Long-term FHLB advances		778
Subordinated debt		7,530
Other liabilities		6,052
Total liabilities		512,869
Net assets acquired		42,074
Goodwill resulting from merger with HomeTown	$	41,176

The following table details the changes in fair vale of net assets acquired and liabilities assumed from the amounts reported in the Form

10

-K for the year ended

December 31, 2019 (

dollars in thousands):

Goodwill at December 31, 2019	$	40,130
Effect of adjustments to:
Premises and equipment		520
Other real estate owned		254
Other liabilities		272
Goodwill at March 31, 2020	$	41,176

The increase in goodwill made during the

first

quarter of

2020

was due to adjustments to the valuations of several acquired buildings and other real estate owned ("OREO") obtained on the date of merger.  The additional goodwill adjustment for other liabilities related to a reassessment of the interest rate prevailing for supplemental early retirement plan obligations at the merger date.

The acquired loans were recorded at fair value at the acquisition date without carryover of HomeTown's previously established allowance for loan losses. The fair value of the loans was determined using market participant assumptions in estimating the amount and timing of both principal and interest cash flows expected to be collected on the loans and leases and then applying a market-based discount rate to those cash flows. In this regard, the acquired loans were segregated into pools based on loan type and credit risk. Loan type was determined based on collateral type, purpose, and lien position. Credit risk characteristics included risk rating groups (pass rated loans and adversely classified loans), and past due status. For valuation purposes, these pools were further disaggregated by maturity, pricing characteristics (e.g., fixed-rate, adjustable-rate) and re-payment structure (e.g., interest only, fully amortizing, balloon). Fair values determined at the acquisition date were preliminary and subject to refinement during the

one

-year measurement period as additional information was obtained regarding facts and circumstances about expected cash flows that existed as of the acquisition date.

The acquired loans were divided into loans with evidence of credit quality deterioration, which are accounted for under ASC

310

-

30,

Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality (acquired impaired), and loans that do

not

meet these criteria, which are accounted for under ASC

310

-

20,

Receivables - Nonrefundable Fees and Other Costs (acquired performing).

The following table presents the acquired impaired loans receivable at the acquisition date (dollars in thousands):

Contractually required principal and interest at acquisition	$	45,551
Contractual cash flows not expected to be collected (nonaccretable difference)		8,296
Expected cash flows at acquisition		37,255
Interest component of expected cash flows (accretable yield)		4,410
Fair value of acquired loans accounted for under FASB ASC 310-30	$	32,845

Direct costs related to the acquisition were expensed as incurred. There were

no

merger related expenses during the

three

months ended

March 31, 2020

. During the 

three

months ended

March 31, 2019

, merger expenses totaled

$451,000.

 During the year ended

December 31, 2019

, the Company incurred

$11.8

million in merger and acquisition integration expenses related to the merger, including

$9.1

million in data processing termination and conversion costs,

$1.7

million in legal and professional fees,

$0.4

million in salary related expense, and

$0.6

million in other noninterest expenses. The majority of these expenses were related to integration and are deductible for tax purposes.

The following table presents unaudited pro forma information as if the acquisition of HomeTown had occurred on

January 1, 2018.

These results combine the historical results of HomeTown in the Company's Consolidated Statements of Income and, while certain adjustments were made for the estimated impact of certain fair value adjustments and other acquisition-related activity, they are

not

indicative of what would have occurred had the acquisition taken place on

January 1, 2018.

In particular,

no

adjustments have been made to eliminate the amount of HomeTown's provision for loan losses that would

not

have been necessary had the acquired loans been recorded at fair value as of

January 1, 2018.

Pro forma adjustments below include the elimination of merger-related costs for 

2019

. The Company expects to achieve further operating cost savings and other business synergies as a result of the acquisition which are

not

reflected in the pro forma amounts below (dollars in thousands):

	Unaudited Pro forma Three Months Ended
	March 31, 2019
Total revenues (1)	$	21,097
Net income		5,876

__________________________

(

1

) Includes net interest income and noninterest income.

XML

Note 18 - Supplemental Cash Flow Information

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

Note

18

– Supplemental Cash Flow Information

Supplemental cash flow information as of and for the 

three

months ended

March 31, 2020

and

2019

is shown in the following table (dollars in thousands):

	Three Months Ended March 31,
	2020			2019
Supplemental Schedule of Cash and Cash Equivalents:
Cash and due from banks	$	39,602		$	28,912
Interest-bearing deposits in other banks		69,968			41,949
Cash and Cash Equivalents	$	109,570		$	70,861
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	3,867		$	2,978
Income taxes		(70	)		—
Noncash investing and financing activities:
Transfer of loans to other real estate owned		47			—
Increase in operating lease right-of-use asset		—			4,413
Increase in operating lease liability		—			4,413
Unrealized gains on securities available for sale		5,375			3,965
Unrealized losses on cash flow hedges		(2,829	)		(725	)

XML

Note 14 - Earnings Per Common Share

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Earnings Per Share [Text Block]

Note

14

– Earnings Per Common Share

The following shows the weighted average number of shares used in computing earnings per common share and the effect on the weighted average number of shares of potentially dilutive common stock. Potentially dilutive common stock had

no

effect on income available to common shareholders. Nonvested restricted shares are included in the computation of basic earnings per share as the holder is entitled to full shareholder benefits during the vesting period including voting rights and sharing in nonforfeitable dividends. The following table presents basic and diluted earnings per share for the

three

month periods ended

March 31, 2020

and

2019

.

	Three Months Ended March 31,
	2020				2019
	Shares		Per Share Amount		Shares		Per Share Amount
Basic earnings per share		11,025,185	$	0.77		8,745,174	$	0.69
Effect of dilutive securities - stock options		6,125		—		549		—
Diluted earnings per share		11,031,310	$	0.77		8,745,723	$	0.69

Outstanding stock options on common stock whose effects are anti-dilutive are

not

included in computing diluted earnings per share. There were

no

anti-dilutive stock options for the

three

month periods ended

March 31, 2020

and

2019

.

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance at Dec. 31, 2018	$ 8,668	$ 78,172	$ 141,537	$ (5,835)	$ 222,542
Net income			6,003		6,003
Other comprehensive income				2,514	2,514
Stock options exercised	13	277			290
Vesting of restricted stock	20	(20)
Equity based compensation	4	309			313
Cash dividends paid			(2,189)		(2,189)
Balance at Mar. 31, 2019	8,705	78,738	145,351	(3,321)	229,473
Balance at Dec. 31, 2019	11,019	158,244	151,478	(483)	320,258
Net income			8,542		8,542
Other comprehensive income				1,997	1,997
Stock options exercised	2	27			29
Vesting of restricted stock	12	(12)
Equity based compensation	6	398			404
Cash dividends paid			(2,956)		(2,956)
Stock repurchased	(141)	(4,840)			(4,981)
Balance at Mar. 31, 2020	$ 10,898	$ 153,817	$ 157,064	$ 1,514	$ 323,293

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Assets
Cash and due from banks	$ 39,602	$ 32,505
Interest-bearing deposits in other banks	69,968	47,077
Securities available for sale, at fair value	342,769	379,195
Restricted stock, at cost	8,682	8,630
Loans held for sale	2,666	2,027
Loans, net of unearned income	1,854,928	1,830,815
Less allowance for loan losses	(14,065)	(13,152)
Net loans	1,840,863	1,817,663
Premises and equipment, net	39,632	39,848
Other real estate owned, net of valuation allowance of $407 in 2020 and $153 in 2019	984	1,308
Goodwill	85,048	84,002
Core deposit intangibles, net	7,301	7,728
Bank owned life insurance	27,970	27,817
Accrued interest receivable and other assets	29,580	30,750
Total assets	2,495,065	2,478,550
Liabilities
Demand deposits -- noninterest bearing	567,772	578,606
Demand deposits -- interest bearing	343,291	328,015
Money market deposits	524,234	504,651
Savings deposits	181,564	177,505
Time deposits	453,806	471,770
Total deposits	2,070,667	2,060,547
Customer repurchase agreements	42,114	40,475
Subordinated debt	7,513	7,517
Junior subordinated debt	28,054	28,029
Accrued interest payable and other liabilities	23,424	21,724
Total liabilities	2,171,772	2,158,292
Shareholders' equity
Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding
Common stock, $1 par, 20,000,000 shares authorized, 10,957,502 shares outstanding at March 31, 2020 and 11,071,540 shares outstanding at December 31, 2019	10,898	11,019
Capital in excess of par value	153,817	158,244
Retained earnings	157,064	151,478
Accumulated other comprehensive income (loss), net	1,514	(483)
Total shareholders' equity	323,293	320,258
Total liabilities and shareholders' equity	$ 2,495,065	$ 2,478,550

XML

Note 7 - Leases - Lease Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Lease liabilities	$ 5,168		$ 5,369
Right-of-use assets	$ 5,133		$ 5,340
Weighted average remaining lease term (years) (Year)	8 years 29 days		8 years 62 days
Weighted average discount rate	3.22%		3.21%
Operating lease cost	$ 249	$ 211
Short-term lease cost	1	1
Total lease cost	250	212
Cash paid for amounts included in the measurement of lease liabilities	$ 243	$ 209

XML

Note 5 - Allowance for Loan Losses and Reserve for Unfunded Lending Commitments - Changes in Allowance for Loan Losses and Reserve for Unfunded Lending Commitments (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019	Mar. 31, 2020	Dec. 31, 2019
Balance	$ 13,152	$ 12,805	$ 12,805
Provision for (recovery of) loan losses	953	16	456
Charge-offs	(105)	(69)	(333)
Recoveries	65	54	224
Balance	14,065	12,806	13,152
Individually evaluated for impairment				$ 411	$ 230
Collectively evaluated for impairment				13,400	12,684
Allowance for loan losses	13,152	12,806	12,805	14,065	13,152
Individually evaluated for impairment				2,865	2,192
Collectively evaluated for impairment				1,811,710	1,785,595
Loans and Leases Receivable, Net of Deferred Income, Total				1,854,928	1,830,815
Unfunded Loan Commitment [Member]
Balance, beginning of period	329	217	217
Provision for (recovery of) unfunded commitments	(13)	12	112
Balance, end of period	316	229	329
Financial Asset Acquired with Credit Deterioration [Member]
Balance	238
Balance	254		238
Allowance for loan losses	238		238	254	238
Loans and Leases Receivable, Net of Deferred Income, Total				40,353	43,028
Commercial Portfolio Segment [Member]
Balance	2,657	2,537	2,537
Provision for (recovery of) loan losses	(6)		119
Charge-offs	(20)		(12)
Recoveries	22		13
Balance	2,653		2,657
Individually evaluated for impairment				247	204
Collectively evaluated for impairment				2,391	2,448
Allowance for loan losses	2,653	2,537	2,537	2,653	2,657
Individually evaluated for impairment				888	784
Collectively evaluated for impairment				329,892	337,312
Loans and Leases Receivable, Net of Deferred Income, Total				331,507	339,077
Commercial Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance	5
Balance	15		5
Allowance for loan losses	5		5	15	5
Loans and Leases Receivable, Net of Deferred Income, Total				727	981
Commercial Real Estate Portfolio Segment [Member]
Balance	7,416	7,246	7,246
Provision for (recovery of) loan losses	939		167
Charge-offs			(6)
Recoveries	3		9
Balance	8,358		7,416
Individually evaluated for impairment				138
Collectively evaluated for impairment				8,192	7,386
Allowance for loan losses	8,358	7,246	7,246	8,358	7,416
Individually evaluated for impairment				735	502
Collectively evaluated for impairment				1,062,709	1,004,296
Loans and Leases Receivable, Net of Deferred Income, Total				1,094,517	1,037,119
Commercial Real Estate Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance	30
Balance	28		30
Allowance for loan losses	30		30	28	30
Loans and Leases Receivable, Net of Deferred Income, Total				31,073	32,321
Residential Portfolio Segment [Member]
Balance	3,023	2,977	2,977
Provision for (recovery of) loan losses	16		58
Charge-offs	(42)		(70)
Recoveries	8		58
Balance	3,005		3,023
Individually evaluated for impairment				26	26
Collectively evaluated for impairment				2,768	2,794
Allowance for loan losses	3,005	2,977	2,977	3,005	3,023
Individually evaluated for impairment				1,242	906
Collectively evaluated for impairment				409,534	433,121
Loans and Leases Receivable, Net of Deferred Income, Total				419,314	443,738
Residential Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance	203
Balance	211		203
Allowance for loan losses	203		203	211	203
Loans and Leases Receivable, Net of Deferred Income, Total				8,538	9,711
Consumer Portfolio Segment [Member]
Balance	56	45	45
Provision for (recovery of) loan losses	4		112
Charge-offs	(43)		(245)
Recoveries	32		144
Balance	49		56
Individually evaluated for impairment
Collectively evaluated for impairment				49	56
Allowance for loan losses	49	$ 45	45	49	56
Individually evaluated for impairment
Collectively evaluated for impairment				9,575	10,866
Loans and Leases Receivable, Net of Deferred Income, Total				9,590	10,881
Consumer Portfolio Segment [Member] | Financial Asset Acquired with Credit Deterioration [Member]
Balance
Balance
Allowance for loan losses
Loans and Leases Receivable, Net of Deferred Income, Total				$ 15	$ 15

XML

Note 4 - Loans - Accretable Yield on Acquired Impaired Loans (Details) - USD ($) $ in Thousands		3 Months Ended	12 Months Ended
		Mar. 31, 2020	Dec. 31, 2019
Balance		$ 7,893	$ 4,633
Additions from merger with HomeTown			4,410
Accretion		(784)	(3,304)
Reclassification from nonaccretable difference		1,330	736
Other changes, net*	[1]	(69)	1,418
Balance		$ 8,370	$ 7,893

[1] This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate acquired impaired loans, and discounted payoffs that occurred in the period.

XML

Note 18 - Supplemental Cash Flow Information - Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Cash and due from banks	$ 39,602	$ 28,912
Interest-bearing deposits in other banks	69,968	41,949
Cash and Cash Equivalents	109,570	70,861
Interest on deposits and borrowed funds	3,867	2,978
Income taxes	(70)
Transfer of loans to other real estate owned	47
Increase in operating lease right-of-use asset		4,413
Increase in operating lease liability		4,413
Unrealized gains on securities available for sale	5,375	3,965
Unrealized losses on cash flow hedges	$ (2,829)	$ (725)

XML

Note 18 - Supplemental Cash Flow Information (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]

	Three Months Ended March 31,
	2020			2019
Supplemental Schedule of Cash and Cash Equivalents:
Cash and due from banks	$	39,602		$	28,912
Interest-bearing deposits in other banks		69,968			41,949
Cash and Cash Equivalents	$	109,570		$	70,861
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest on deposits and borrowed funds	$	3,867		$	2,978
Income taxes		(70	)		—
Noncash investing and financing activities:
Transfer of loans to other real estate owned		47			—
Increase in operating lease right-of-use asset		—			4,413
Increase in operating lease liability		—			4,413
Unrealized gains on securities available for sale		5,375			3,965
Unrealized losses on cash flow hedges		(2,829	)		(725	)

XML

Note 2 - Acquisitions - Preliminary Assessment of Consideration Transferred, Assets Acquired, and Liabilities Assumed (Details) - USD ($) $ in Thousands	Apr. 01, 2019	Mar. 31, 2020	Dec. 31, 2019	Mar. 31, 2019
Goodwill resulting from merger with HomeTown		$ 85,048	$ 84,002	$ 43,872
HomeTown Bankshares Corporation [Member]
Cash paid in lieu of fractional shares	$ 27
Value of consideration	83,250
Cash and cash equivalents	26,283
Investment securities	34,876
Restricted stock	2,588
Loans	444,324
Premises and equipment	12,034
Deferred income taxes	2,960
Core deposit intangible	8,200
Other real estate owned	1,188
Bank owned life insurance	8,246
Other assets	14,244
Total assets	554,943
Deposits	483,626
Short-term FHLB advances	14,883
Long-term FHLB advances	778
Subordinated debt	7,530
Other liabilities	6,052
Total liabilities	512,869
Net assets acquired	42,074
Goodwill resulting from merger with HomeTown	41,176	$ 41,176	$ 40,130
HomeTown Bankshares Corporation [Member] | Stock Options and Restricted Stock [Member]
Common shares issued (2,361,686)	753
HomeTown Bankshares Corporation [Member] | Common Stock [Member]
Common shares issued (2,361,686)	$ 82,470

XML

Note 3 - Securities - Cost of Restricted Stock (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Total restricted stock	$ 8,682	$ 8,630
FRB Stock [Member]
Total restricted stock	6,425	6,415
FHLB Stock [Member]
Total restricted stock	$ 2,257	$ 2,215

XML

Note 2 - Acquisitions - Acquired Impaired Loans Receivable (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019	Apr. 01, 2019	Dec. 31, 2018
Interest component of expected cash flows (accretable yield)	$ 8,370	$ 7,893		$ 4,633
HomeTown Bankshares Corporation [Member]
Contractually required principal and interest at acquisition			$ 45,551
Contractual cash flows not expected to be collected (nonaccretable difference)			8,296
Expected cash flows at acquisition			37,255
Interest component of expected cash flows (accretable yield)			4,410
Fair value of acquired loans accounted for under FASB ASC 310-30			$ 32,845

XML

Note 4 - Loans - Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans and Leases Receivable, Net of Deferred Income, Total	$ 1,854,928	$ 1,830,815
Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	331,507	339,077
Commercial Real Estate Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	1,094,517	1,037,119
Commercial Real Estate Portfolio Segment [Member] | Construction and Land Development [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	141,154	137,920
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	953,363	899,199
Residential Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	419,314	443,738
Residential Portfolio Segment [Member] | Residential [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	301,284	324,315
Residential Portfolio Segment [Member] | Home Equity Line of Credit [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	118,030	119,423
Consumer Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	$ 9,590	$ 10,881

XML

Note 16 - Fair Value Measurements (Details Textual) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Debt Securities, Available-for-sale, Total	$ 342,769	$ 379,195
Fair Value, Nonrecurring [Member]
Assets, Fair Value Adjustment	0	0
Fair Value, Inputs, Level 3 [Member]
Debt Securities, Available-for-sale, Total	$ 0	$ 0

XML

Note 10 - Subordinated Debt (Details Textual) - USD ($)		3 Months Ended
	Apr. 01, 2019	Mar. 31, 2020	Dec. 31, 2019
Subordinated Debt, Ending Balance		$ 7,513,000	$ 7,517,000
Subordinated Borrowing, Interest Rate	6.75%
Subordinated Debt [Member]
Liabilities, Fair Value Adjustment		$ 13,000
HomeTown Bankshares Corporation [Member]
Subordinated Debt, Ending Balance	$ 7,500,000
HomeTown Bankshares Corporation [Member] | Subordinated Debt [Member]
Liabilities, Fair Value Adjustment	$ 30,000

XML

Note 13 - Stock Based Compensation (Details Textual) - USD ($)		3 Months Ended		123 Months Ended
	Apr. 01, 2019	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Dec. 31, 2019	Feb. 20, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in shares)		0		0
Share-based Payment Arrangement, Nonvested Award, Option, Cost Not yet Recognized, Amount		$ 0		$ 0
Regular Quarterly Retainer of Vested Restricted Stock		10,000
Monthly Meeting Fees Director Could Receive in Cash		800
Monthly Meeting Fees Director Could Receive in Vested Restricted Stock		1,000
Restricted Stock [Member]
Share Based Compensation Arrangement by Share Based Payment Award, Options, Acquired in Period (in shares)	40,753
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount		$ 1,212,000		$ 1,212,000	$ 751,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)		1 year 299 days
Share-based Payment Arrangement, Expense		$ 199,000	$ 166,000
Restricted Stock [Member] | Director [Member]
Share-based Payment Arrangement, Expense		$ 205,000	$ 147,000
Share-based Compensation Arrangement by Share-based Payment Award, Shares Issued in Period (in shares)		6,082	4,106
Restricted Stock [Member] | Cliff Vested [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period (Month)		3 years
Restricted Stock [Member] | Vesting Each Year After Cliff Vesting [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights, Percentage		33.33%
The 2018 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)						675,000

XML

Note 16 - Fair Value Measurements - Carrying and Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Securities available for sale	$ 342,769	$ 379,195
Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Reported Value Measurement [Member]
Cash and cash equivalents	109,570	79,582
Securities available for sale	342,769	379,195
Restricted stock	8,682	8,630
Loans held for sale	2,666	2,027
Loans, net of allowance	1,840,863	1,817,663
Bank owned life insurance	27,970	27,817
Accrued interest receivable	6,452	6,625
Deposits	2,070,667	2,060,547
Repurchase agreements	42,114	40,475
Subordinated debt		7,517
Accrued interest payable	1,293	1,213
Derivative - cash flow hedges	5,487	2,658
Reported Value Measurement [Member] | Subordinated Debt [Member]
Subordinated debt	7,513
Reported Value Measurement [Member] | Junior Subordinated Debt [Member]
Subordinated debt	28,054	28,029
Estimate of Fair Value Measurement [Member]
Cash and cash equivalents	109,570	79,582
Securities available for sale	342,769	379,195
Restricted stock	8,682	8,630
Loans held for sale	2,666	2,027
Loans, net of allowance	1,823,069	1,818,655
Bank owned life insurance	27,970	27,817
Accrued interest receivable	6,452	6,625
Deposits	2,074,243	2,062,823
Repurchase agreements	42,114	40,475
Subordinated debt		8,525
Accrued interest payable	1,293	1,213
Derivative - cash flow hedges	5,487	2,658
Estimate of Fair Value Measurement [Member] | Subordinated Debt [Member]
Subordinated debt	7,593
Estimate of Fair Value Measurement [Member] | Junior Subordinated Debt [Member]
Subordinated debt	21,162	22,697
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	109,570	79,582
Securities available for sale
Restricted stock
Loans held for sale
Loans, net of allowance
Bank owned life insurance
Accrued interest receivable
Deposits
Repurchase agreements
Subordinated debt
Accrued interest payable
Derivative - cash flow hedges
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member] | Subordinated Debt [Member]
Subordinated debt
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member] | Junior Subordinated Debt [Member]
Subordinated debt
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and cash equivalents
Securities available for sale	342,769	379,195
Restricted stock	8,682	8,630
Loans held for sale	2,666	2,027
Loans, net of allowance
Bank owned life insurance	27,970	27,817
Accrued interest receivable	6,452	6,625
Deposits	2,074,243	2,062,823
Repurchase agreements	42,114	40,475
Subordinated debt		8,525
Accrued interest payable	1,293	1,213
Derivative - cash flow hedges	5,487	2,658
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | Subordinated Debt [Member]
Subordinated debt	7,593
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member] | Junior Subordinated Debt [Member]
Subordinated debt
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and cash equivalents
Securities available for sale
Restricted stock
Loans held for sale
Loans, net of allowance	1,823,069	1,818,655
Bank owned life insurance
Accrued interest receivable
Deposits
Repurchase agreements
Subordinated debt
Accrued interest payable
Derivative - cash flow hedges
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member] | Subordinated Debt [Member]
Subordinated debt
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member] | Junior Subordinated Debt [Member]
Subordinated debt	$ 21,162	$ 22,697

XML

Note 8 - Short-term Borrowings

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Short-term Debt [Text Block]

Note

8

– Short-term Borrowings

Short-term borrowings

may

consist of customer repurchase agreements, overnight borrowings from the FHLB, and federal funds purchased.  The Company has federal funds lines of credit established with

one

correspondent bank in the amount of

$50,000,000

and another correspondent bank in the amount of

$10,000,000,

and has access to the FRB's discount window. Customer repurchase agreements are collateralized by securities of the U.S. Government or GSEs.  They mature daily.  The interest rates

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 at

March 31, 2020

and

December 31, 2019

(dollars in thousands):

	March 31, 2020		December 31, 2019
Customer repurchase agreements	$	42,114	$	40,475

XML

Note 4 - Loans

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note

4

– Loans

Loans, excluding loans held for sale, at

March 31, 2020

and 

December 31, 2019

, were comprised of the following (dollars in thousands):

	March 31, 2020		December 31, 2019
Commercial	$	331,507	$	339,077
Commercial real estate:
Construction and land development		141,154		137,920
Commercial real estate		953,363		899,199
Residential real estate:
Residential		301,284		324,315
Home equity		118,030		119,423
Consumer		9,590		10,881
Total loans	$	1,854,928	$	1,830,815

Acquired Loans

 

The outstanding principal balance and the carrying amount of these loans, including loans accounted for under ASC

310

-

30,

included in the consolidated balance sheets at

March 31, 2020

and 

December 31, 2019

are as follows (dollars in thousands):

	March 31, 2020		December 31, 2019
Outstanding principal balance	$	345,450	$	393,618
Carrying amount		329,839		377,130

The outstanding principal balance and related carrying amount of acquired impaired loans, for which the Company applies ASC

310

-

30

to account for interest earned, as of the indicated dates are as follows (dollars in thousands):

	March 31, 2020		December 31, 2019
Outstanding principal balance	$	50,815	$	53,600
Carrying amount		40,353		43,028

The following table presents changes in the accretable yield on acquired impaired loans, for which the Company applies ASC

310

-

30,

for the 

three

months ended

March 31, 2020

and the year ended

December 31, 2019

(dollars in thousands):

	March 31, 2020			December 31, 2019
Balance at January 1	$	7,893		$	4,633
Additions from merger with HomeTown		—			4,410
Accretion		(784	)		(3,304	)
Reclassification from nonaccretable difference		1,330			736
Other changes, net*		(69	)		1,418
	$	8,370		$	7,893

* This line item represents changes in the cash flows expected to be collected due to the impact of non-credit changes such as prepayment assumptions, changes in interest rates on variable rate acquired impaired loans, and discounted payoffs that occurred in the period.

Past Due Loans

The following table shows an analysis by portfolio segment of the Company's past due loans at

March 31, 2020

(dollars in thousands):

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	404	$	68	$	31	$	958	$	1,461	$	330,046	$	331,507
Commercial real estate:
Construction and land development		—		37		—		9		46		141,108		141,154
Commercial real estate		216		216		121		513		1,066		952,297		953,363
Residential:
Residential		255		139		278		942		1,614		299,670		301,284
Home equity		262		—		29		154		445		117,585		118,030
Consumer		122		9		—		3		134		9,456		9,590
Total	$	1,259	$	469	$	459	$	2,579	$	4,766	$	1,850,162	$	1,854,928

The following table shows an analysis by portfolio segment of the Company's past due loans at

December 31, 2019

(dollars in thousands):

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	325	$	163	$	52	$	857	$	1,397	$	337,680	$	339,077
Commercial real estate:
Construction and land development		58		—		—		11		69		137,851		137,920
Commercial real estate		217		434		—		274		925		898,274		899,199
Residential:
Residential		639		260		282		685		1,866		322,449		324,315
Home equity		49		90		27		113		279		119,144		119,423
Consumer		73		13		—		4		90		10,791		10,881
Total	$	1,361	$	960	$	361	$	1,944	$	4,626	$	1,826,189	$	1,830,815

Impaired Loans

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at

March 31, 2020

(dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	49	$	49	$	—	$	49	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		476		473		—		489		9
Residential:
Residential		953		959		—		782		12
Home equity		39		39		—		40		1
Consumer		—		—		—		—		—
	$	1,517	$	1,520	$	—	$	1,360	$	23
With a related allowance recorded:
Commercial	$	839	$	833	$	247	$	787	$	11
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		259		259		138		130		4
Residential
Residential		250		250		26		252		3
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	1,348	$	1,342	$	411	$	1,169	$	18
Total:
Commercial	$	888	$	882	$	247	$	836	$	12
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		735		732		138		619		13
Residential:
Residential		1,203		1,209		26		1,034		15
Home equity		39		39		—		40		1
Consumer		—		—		—		—		—
	$	2,865	$	2,862	$	411	$	2,529	$	41

In the table above, recorded investment

may

exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

The following table presents the Company's impaired loan balances by portfolio segment, excluding acquired impaired loans, at

December 31, 2019

(dollars in thousands):

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	49	$	49	$	—	$	16	$	5
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		502		500		—		424		39
Residential:
Residential		611		612		—		652		38
Home equity		41		41		—		45		6
Consumer		—		—		—		—		—
	$	1,203	$	1,202	$	—	$	1,137	$	88
With a related allowance recorded:
Commercial	$	735	$	730	$	204	$	191	$	41
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential:
Residential		254		254		26		225		16
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	989	$	984	$	230	$	416	$	57
Total:
Commercial	$	784	$	779	$	204	$	207	$	46
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		502		500		—		424		39
Residential:
Residential		865		866		26		877		54
Home equity		41		41		—		45		6
Consumer		—		—		—		—		—
	$	2,192	$	2,186	$	230	$	1,553	$	145

In the table above, recorded investment

may

exceed unpaid principal balance due to acquired loans with a premium and loans with unearned costs that exceed unearned fees.

During the

three

months ended

March 31, 2020

, there was

one

residential real estate loan modified as a TDR. This TDR was included in the impaired loan balances and was a payment deferral with a pre-and post-modification outstanding recorded investment of

$82,000.

There were

no

loans modified as TDRs during the

three

months ended

March 31, 2019

.

During the

three

months ended

March 31, 2020

and

2019

, the Company had

no

loans that subsequently defaulted within

12

months of modification. The Company defines defaults as

one

or more payments that occur more than

90

days past the due date, charge-off or foreclosure subsequent to modification.

On

March 20, 2020,

the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."  This guidance encourages financial institutions to work prudently with borrowers that

may

be unable to meet their contractual obligations because of the the effects of COVID-

19.

  The guidance goes on to explain that in consultation with the FASB staff that the federal banking agencies conclude that short-term modifications (e.g.

six

months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are

not

TDRs.  The CARES Act was passed by Congress on

March 27, 2020. 

Section

4013

of the CARES Act also addressed COVID-

19

related modifications and specified that COVID-

19

related modifications on loans that were current as of

December 31, 2019

are

not

TDRs.  Through

May 5, 2020

the Bank had applied this guidance and modified loans to over

500

customers on loan balances of approximately

$334

million.  The Bank implemented a DAP to provide relief to its borrowers under this guidance. The majority of modifications involved

three

-month deferments of principal and interest.

The CARES Act included an initial allocation of

$349

billion for loans to be issued by financial institutions through the SBA.  This program is known as the PPP.  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of

1.00%

and a term of

two

years, if

not

forgiven, in whole or in part.  Payments are deferred for the

first

six

months of the loan.  The loans are

100%

guaranteed by the SBA.  The SBA pays the bank a processing fee ranging from

1%

to

5%,

based on the size of the loan.  The SBA began accepting submissions for these loans on

April 3, 2020,

and the SBA reached its initial limit on

April 16, 2020. 

Prior to the initial limit being reached, the SBA approved

1,321

applications submitted by the Bank for loans in excess of

$228

million, representing

96%

of applications received and processed by the Bank.  There was an additional

$310

billion in funding authorized, and applications were accepted beginning

April 27, 2020. 

In total, the SBA approved

1,913

applications submitted by the Bank totaling

$267

million for an acceptance rate of 

99.8%

for both rounds. From a funding perspective, the Bank expects to utilize core and wholesale funding for liquidity needs related to the DAP loan program and both the Federal Reserve discount window and their newly created PPPLF to fund the PPP.

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. At

March 31, 2020,

the commercial real estate portfolio included concentrations of

$73

million,

$48

million and

$180

million in hotel, restaurants,  and retail respectively.  These concentrations total

16%

of total loans.

Residential Real Estate in Process of Foreclosure

The Company had

$155,000

and

$161,000

in residential real estate loans in the process of foreclosure at

March 31, 2020

and

December 31, 2019

, respectively. The Company had

$237,000

and

$285,000

in residential OREO at

March 31, 2020

and

December 31, 2019

, respectively.

Risk Grades

The following table shows the Company's loan portfolio broken down by internal risk grading as of

March 31, 2020

(dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Commercial		Construction and Land Development		Commercial Real Estate Other		Residential		Home Equity
Pass	$	320,901	$	133,933	$	914,331	$	293,905	$	117,580
Special Mention		8,859		4,045		19,561		4,526		—
Substandard		1,012		3,176		19,471		2,853		450
Doubtful		735		—		—		—		—
Total	$	331,507	$	141,154	$	953,363	$	301,284	$	118,030

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	9,587
Nonperforming		3
Total	$	9,590

The following table shows the Company's loan portfolio broken down by internal risk grading as of

December 31, 2019

(dollars in thousands):

Commercial and Consumer Credit Exposure

Credit Risk Profile by Internally Assigned Grade

	Commercial		Construction and Land Development		Commercial Real Estate Other		Residential		Home Equity
Pass	$	328,488	$	130,694	$	860,615	$	316,454	$	118,960
Special Mention		8,710		4,133		22,117		4,370		—
Substandard		1,144		3,093		16,467		3,491		463
Doubtful		735		—		—		—		—
Total	$	339,077	$	137,920	$	899,199	$	324,315	$	119,423

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Consumer
Performing	$	10,877
Nonperforming		4
Total	$	10,881

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 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 that 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.

XML

Note 14 - Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended March 31,
	2020				2019
	Shares		Per Share Amount		Shares		Per Share Amount
Basic earnings per share		11,025,185	$	0.77		8,745,174	$	0.69
Effect of dilutive securities - stock options		6,125		—		549		—
Diluted earnings per share		11,031,310	$	0.77		8,745,723	$	0.69

XML

Note 4 - Loans (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	March 31, 2020		December 31, 2019
Commercial	$	331,507	$	339,077
Commercial real estate:
Construction and land development		141,154		137,920
Commercial real estate		953,363		899,199
Residential real estate:
Residential		301,284		324,315
Home equity		118,030		119,423
Consumer		9,590		10,881
Total loans	$	1,854,928	$	1,830,815

Schedule of Outstanding and Carrying Amount of Certain Loans Acquired in Transfer [Table Text Block]

	March 31, 2020		December 31, 2019
Outstanding principal balance	$	345,450	$	393,618
Carrying amount		329,839		377,130

	March 31, 2020		December 31, 2019
Outstanding principal balance	$	50,815	$	53,600
Carrying amount		40,353		43,028

Schedule of Changes in Accretable Yield on Acquired Loans [Table Text Block]

	March 31, 2020			December 31, 2019
Balance at January 1	$	7,893		$	4,633
Additions from merger with HomeTown		—			4,410
Accretion		(784	)		(3,304	)
Reclassification from nonaccretable difference		1,330			736
Other changes, net*		(69	)		1,418
	$	8,370		$	7,893

Financing Receivable, Past Due [Table Text Block]

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	404	$	68	$	31	$	958	$	1,461	$	330,046	$	331,507
Commercial real estate:
Construction and land development		—		37		—		9		46		141,108		141,154
Commercial real estate		216		216		121		513		1,066		952,297		953,363
Residential:
Residential		255		139		278		942		1,614		299,670		301,284
Home equity		262		—		29		154		445		117,585		118,030
Consumer		122		9		—		3		134		9,456		9,590
Total	$	1,259	$	469	$	459	$	2,579	$	4,766	$	1,850,162	$	1,854,928

	30- 59 Days Past Due		60-89 Days Past Due		90 Days + Past Due and Still Accruing		Non Accrual Loans		Total Past Due		Current		Total Loans
Commercial	$	325	$	163	$	52	$	857	$	1,397	$	337,680	$	339,077
Commercial real estate:
Construction and land development		58		—		—		11		69		137,851		137,920
Commercial real estate		217		434		—		274		925		898,274		899,199
Residential:
Residential		639		260		282		685		1,866		322,449		324,315
Home equity		49		90		27		113		279		119,144		119,423
Consumer		73		13		—		4		90		10,791		10,881
Total	$	1,361	$	960	$	361	$	1,944	$	4,626	$	1,826,189	$	1,830,815

Impaired Financing Receivables [Table Text Block]

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	49	$	49	$	—	$	49	$	1
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		476		473		—		489		9
Residential:
Residential		953		959		—		782		12
Home equity		39		39		—		40		1
Consumer		—		—		—		—		—
	$	1,517	$	1,520	$	—	$	1,360	$	23
With a related allowance recorded:
Commercial	$	839	$	833	$	247	$	787	$	11
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		259		259		138		130		4
Residential
Residential		250		250		26		252		3
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	1,348	$	1,342	$	411	$	1,169	$	18
Total:
Commercial	$	888	$	882	$	247	$	836	$	12
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		735		732		138		619		13
Residential:
Residential		1,203		1,209		26		1,034		15
Home equity		39		39		—		40		1
Consumer		—		—		—		—		—
	$	2,865	$	2,862	$	411	$	2,529	$	41

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Commercial	$	49	$	49	$	—	$	16	$	5
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		502		500		—		424		39
Residential:
Residential		611		612		—		652		38
Home equity		41		41		—		45		6
Consumer		—		—		—		—		—
	$	1,203	$	1,202	$	—	$	1,137	$	88
With a related allowance recorded:
Commercial	$	735	$	730	$	204	$	191	$	41
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Residential:
Residential		254		254		26		225		16
Home equity		—		—		—		—		—
Consumer		—		—		—		—		—
	$	989	$	984	$	230	$	416	$	57
Total:
Commercial	$	784	$	779	$	204	$	207	$	46
Commercial real estate:
Construction and land development		—		—		—		—		—
Commercial real estate		502		500		—		424		39
Residential:
Residential		865		866		26		877		54
Home equity		41		41		—		45		6
Consumer		—		—		—		—		—
	$	2,192	$	2,186	$	230	$	1,553	$	145

Financing Receivable Credit Quality Indicators [Table Text Block]

	Commercial		Construction and Land Development		Commercial Real Estate Other		Residential		Home Equity
Pass	$	320,901	$	133,933	$	914,331	$	293,905	$	117,580
Special Mention		8,859		4,045		19,561		4,526		—
Substandard		1,012		3,176		19,471		2,853		450
Doubtful		735		—		—		—		—
Total	$	331,507	$	141,154	$	953,363	$	301,284	$	118,030

	Consumer
Performing	$	9,587
Nonperforming		3
Total	$	9,590

	Commercial		Construction and Land Development		Commercial Real Estate Other		Residential		Home Equity
Pass	$	328,488	$	130,694	$	860,615	$	316,454	$	118,960
Special Mention		8,710		4,133		22,117		4,370		—
Substandard		1,144		3,093		16,467		3,491		463
Doubtful		735		—		—		—		—
Total	$	339,077	$	137,920	$	899,199	$	324,315	$	119,423

	Consumer
Performing	$	10,877
Nonperforming		4
Total	$	10,881

XML

Note 8 - Short-term Borrowings (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Short-term Debt [Table Text Block]

	March 31, 2020		December 31, 2019
Customer repurchase agreements	$	42,114	$	40,475

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Cash Flows from Operating Activities:
Net income	$ 8,542,000	$ 6,003,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	953,000	16,000	$ 456,000
Depreciation	521,000	405,000
Net accretion of acquisition accounting adjustments	(957,000)	(255,000)
Core deposit intangible amortization	427,000	55,000
Net amortization of securities	202,000	311,000
Net gain on sale or call of securities available for sale	(814,000)	(4,000)
Net change in fair value of equity securities		(319,000)
Gain on sale of loans held for sale	(549,000)	(406,000)
Proceeds from sales of loans held for sale	25,655,000	15,366,000
Originations of loans held for sale	(25,745,000)	(15,572,000)
Net gain on other real estate owned	(27,000)	(8,000)
Valuation allowance on other real estate owned		6,000
Net loss on sale or disposal of premises and equipment	82,000
Equity based compensation expense	404,000	313,000
Earnings on bank owned life insurance	(153,000)	(106,000)
Deferred income tax expense	800,000	222,000
Net change in interest receivable	173,000	76,000
Net change in other assets	(352,000)	(602,000)
Net change in interest payable	80,000	51,000
Net change in other liabilities	(1,481,000)	(873,000)
Net cash provided by operating activities	7,761,000	4,679,000
Cash Flows from Investing Activities:
Proceeds from sales of equity securities		81,000	81,000
Proceeds from sales of securities available for sale	5,811,000
Proceeds from maturities, calls and paydowns of securities available for sale	94,731,000	18,586,000
Purchases of securities available for sale	(58,129,000)	(6,565,000)
Net change in restricted stock	(52,000)	(52,000)
Net increase in loans	(23,295,000)	(2,321,000)
Purchases of premises and equipment	(907,000)	(393,000)
Proceeds from sales of other real estate owned	144,000	225,000
Net cash provided by investing activities	18,303,000	9,561,000
Cash Flows from Financing Activities:
Net change in demand, money market, and savings deposits	28,084,000	(20,932,000)
Net change in time deposits	(17,891,000)	14,495,000
Net change in customer repurchase agreements	1,639,000	702,000
Common stock dividends paid	(2,956,000)	(2,189,000)
Repurchase of common stock	(4,981,000)
Proceeds from exercise of stock options	29,000	290,000
Net cash provided by (used in) financing activities	3,924,000	(7,634,000)
Net Increase in Cash and Cash Equivalents	29,988,000	6,606,000
Cash and Cash Equivalents at Beginning of Period	79,582,000	64,255,000	64,255,000
Cash and Cash Equivalents at End of Period	$ 109,570,000	$ 70,861,000	$ 79,582,000

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Interest and Dividend Income:
Interest and fees on loans	$ 21,321	$ 15,638
Interest and dividends on securities:
Taxable	2,037	1,821
Tax-exempt	112	287
Dividends	132	84
Other interest income	264	266
Total interest and dividend income	23,866	18,096
Interest Expense:
Interest on deposits	3,312	2,472
Interest on short-term borrowings	129	172
Interest on subordinated debt	122
Interest on junior subordinated debt	384	384
Total interest expense	3,947	3,028
Net Interest Income	19,919	15,068
Provision for loan losses	953	16
Net Interest Income After Provision for Loan Losses	18,966	15,052
Noninterest Income:
Securities gains, net	814	323
Brokerage fees	211	147
Income from Small Business Investment Companies	55	168
Losses on premises and equipment, net	(82)
Other	274	191
Total noninterest income	4,495	3,451
Noninterest Expense:
Salaries	6,059	4,664
Employee benefits	1,301	1,230
Occupancy and equipment	1,366	1,084
FDIC assessment	95	125
Bank franchise tax	426	290
Core deposit intangible amortization	427	55
Data processing	763	532
Software	356	324
Other real estate owned, net	(9)	13
Merger related expenses		451
Other	2,550	2,161
Total noninterest expense	13,334	10,929
Income Before Income Taxes	10,127	7,574
Income Taxes	1,585	1,571
Net Income	$ 8,542	$ 6,003
Net Income Per Common Share:
Basic (in dollars per share)	$ 0.77	$ 0.69
Diluted (in dollars per share)	$ 0.77	$ 0.69
Weighted Average Common Shares Outstanding:
Basic (in shares)	11,025,185	8,745,174
Diluted (in shares)	11,031,310	8,745,723
Fiduciary and Trust [Member]
Noninterest Income:
Noninterest Income	$ 1,012	$ 914
Deposit Account [Member]
Noninterest Income:
Noninterest Income	721	594
Financial Service, Other [Member]
Noninterest Income:
Noninterest Income	941	708
Mortgage Banking [Member]
Noninterest Income:
Noninterest Income	$ 549	$ 406

XML

Note 16 - Fair Value Measurements

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note

16

– Fair Value Measurements

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 ASC

820,

Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or 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 fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market for the asset or liability 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 financial 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

). If

no

observable market data is available, valuations are based upon

third

party model based techniques (Level

3

). There were

no

securities recorded with a Level

3

valuation at

March 31, 2020

or

December 31, 2019

.

Derivative asset (liability) - cash flow hedges:

Cash flow hedges are recorded at fair value on a recurring basis. Cash flow hedges are valued by a

third

party using significant assumptions that are observable in the market and can be corroborated by market data. All of the Company's cash flow hedges are classified as Level

2.

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

	Fair Value Measurements at March 31, 2020 Using
	Balance at March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2020		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
U.S. Treasury	$	15,000	$	—	$	15,000	$	—
Federal agencies and GSEs		58,032		—		58,032		—
Mortgage-backed and CMOs		215,464		—		215,464		—
State and municipal		42,632		—		42,632		—
Corporate		11,641		—		11,641		—
Total securities available for sale	$	342,769	$	—	$	342,769	$	—
Liabilities:
Derivative - cash flow hedges	$	5,487	$	—	$	5,487	$	—

	Fair Value Measurements at December 31, 2019 Using
	Balance at December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2019		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
U.S. Treasury	$	14,987	$	—	$	14,987	$	—
Federal agencies and GSEs		128,114		—		128,114		—
Mortgage-backed and CMOs		184,240		—		184,240		—
State and municipal		42,154		—		42,154		—
Corporate		9,700		—		9,700		—
Total securities available for sale	$	379,195	$	—	$	379,195	$	—
Liabilities:
Derivative - cash flow hedges	$	2,658	$	—	$	2,658	$	—

Certain assets are measured at fair value on a nonrecurring basis in accordance with 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 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 

three

month period ended

March 31, 2020

or the year ended

December 31, 2019

. Gains and losses on the sale of loans are recorded within mortgage banking income 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 agreements will

not

be collected when due. The measurement of the loss associated with impaired loans can be based on either the observable market price of the loan, the present value of projected cash flows or the fair value of the collateral. Collateral

may

be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the Company's collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal, of

one

year or less, conducted by an independent, licensed appraiser using observable market data (Level

2

). The present value of projected cash flows method results in a Level

3

categorization because the calculation relies on the Company's judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a TDR. However, if the collateral is a house or building in the process of construction or if an appraisal of the property is more than

one

year old and

not

solely based on observable market comparables or management determines the fair value of the collateral is further impaired below the appraised value, then a Level

3

valuation is considered to measure the fair value. The value of business equipment is based upon an outside appraisal, of

one

year or less, 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 receivable 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:

  Measurement for fair values for OREO are the same as impaired loans. Any fair value adjustments are recorded in the period incurred as a valuation allowance against OREO with the associated expense included in OREO expense, net on the consolidated statements of income.

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

	Fair Value Measurements at March 31, 2020 Using
	Balance at March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2020		Level 1		Level 2		Level 3
Assets:
Impaired loans, net of valuation allowance	$	937	$	—	$	—	$	937
Other real estate owned, net		984		—		—		984

	Fair Value Measurements at December 31, 2019 Using
	Balance at December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2019		Level 1		Level 2		Level 3
Assets:
Impaired loans, net of valuation allowance	$	759	$	—	$	—	$	759
Other real estate owned, net		1,308		—		—		1,308

Quantitative Information About Level

3

Fair Value Measurements as of

March 31, 2020

and

December 31, 2019

:

Assets	Valuation Technique	Unobservable Input	Range; Weighted Average (1)
Impaired loans	Discounted appraised value	Selling cost	8.00%
	Discounted cash flow analysis	Market rate for borrower (discount rate)	3.25% - 9.80%; 5.05%
Other real estate owned, net	Discounted appraised value	Selling cost	8.00%

  __________________________

 

(

1

) Unobservable inputs were weighted by the relative fair value of the impaired loans.

ASC

825,

Financial Instruments, requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are

not

required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC

825

excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

Accordingly, the aggregate fair value amounts presented

may

not

necessarily represent the underlying fair value of the Company.

The carrying values and the exit pricing concept fair values of the Company's financial instruments at

March 31, 2020

are as follows (dollars in thousands):

	Fair Value Measurements at March 31, 2020 Using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	109,570	$	109,570	$	—	$	—	$	109,570
Securities available for sale		342,769		—		342,769		—		342,769
Restricted stock		8,682		—		8,682		—		8,682
Loans held for sale		2,666		—		2,666		—		2,666
Loans, net of allowance		1,840,863		—		—		1,823,069		1,823,069
Bank owned life insurance		27,970		—		27,970		—		27,970
Accrued interest receivable		6,452		—		6,452		—		6,452
Financial Liabilities:
Deposits	$	2,070,667	$	—	$	2,074,243	$	—	$	2,074,243
Repurchase agreements		42,114		—		42,114		—		42,114
Subordinated debt		7,513		—		7,593		—		7,593
Junior subordinated debt		28,054		—		—		21,162		21,162
Accrued interest payable		1,293		—		1,293		—		1,293
Derivative - cash flow hedges		5,487		—		5,487		—		5,487

The carrying values and the exit pricing concept fair values of the Company's financial instruments at

December 31, 2019

are as follows (dollars in thousands):

	Fair Value Measurements at December 31, 2019 Using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	79,582	$	79,582	$	—	$	—	$	79,582
Securities available for sale		379,195		—		379,195		—		379,195
Restricted stock		8,630		—		8,630		—		8,630
Loans held for sale		2,027		—		2,027		—		2,027
Loans, net of allowance		1,817,663		—		—		1,818,655		1,818,655
Bank owned life insurance		27,817		—		27,817		—		27,817
Accrued interest receivable		6,625		—		6,625		—		6,625
Financial Liabilities:
Deposits	$	2,060,547	$	—	$	2,062,823	$	—	$	2,062,823
Repurchase agreements		40,475		—		40,475		—		40,475
Subordinated debt		7,517		—		8,525		—		8,525
Junior subordinated debt		28,029		—		—		22,697		22,697
Accrued interest payable		1,213		—		1,213		—		1,213
Derivative - cash flow hedges		2,658		—		2,658		—		2,658

XML

Note 12 - Derivative Financial Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note

12

- Derivative Financial Instruments and Hedging Activities

The Company uses derivative financial instruments ("derivatives") primarily to manage risks to the Company associated with changing interest rates. The Company's derivatives are hedging instruments in a qualifying hedge accounting relationship (cash flow or fair value hedge).

The Company designates derivatives as cash flow hedges when they are used to manage exposure to variability in cash flows on variable rate borrowings such as the Company's trust preferred capital notes. The Company uses interest rate swap agreements as part of its hedging strategy by exchanging variable-rate interest payments on a notional amount equal to the principal amount of the borrowings for fixed-rate interest payments, with such interest rates set based on benchmarked interest rates.

All interest rate swaps were entered into with counterparties that met the Company's credit standards and the agreements contain collateral provisions protecting the at-risk party. The Company believes that the credit risk inherent in these derivative contracts is

not

significant.

Terms and conditions of the interest rate swaps vary and amounts receivable or payable are recognized as accrued under the terms of the agreements. The Company assesses the effectiveness of each hedging relationship on a periodic basis. In accordance withASC

815,

Derivatives and Hedging, the effective portions of the derivatives' unrealized gains or losses are recorded as a component of other comprehensive income. Based on the Company's assessment, its cash flow hedges are highly effective, but to the extent that any ineffectiveness exists in the hedge relationships, the amounts would be recorded in interest income and interest expense in the Company's consolidated statements of income.

The following tables present information on the Company's derivative financial instruments as of

March 31, 2020

and

December 31, 2019

(dollars in thousands):

	March 31, 2020
	Notional Amount		Positions		Assets		Liabilities		Cash Collateral Pledged
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	28,500		3	$	—	$	5,487	$	5,750

	December 31, 2019
	Notional Amount		Positions		Assets		Liabilities		Cash Collateral Pledged
Cash flow hedges:
Interest rate swaps:
Variable-rate to fixed-rate swaps with counterparty	$	28,500		3	$	—	$	2,658	$	3,450

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

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 ("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 consolidated 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, other-than-temporary impairment of securities, accounting for merger and acquisition activity, accounting for acquired loans with specific credit-related deterioration, and the valuation of deferred tax assets and liabilities.  The novel coronavirus (“COVID-

19”

) spread rapidly across the world in the

first

quarter of

2020

and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operations in

March

and will likely adversely affect our operations in the further quarters of

2020,

although such effects

may

vary significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic will most likely affect future earnings, cash flows and overall financial condition of the Company.  These uncertainties include the nature and duration of the financial effects felt by our customers impacting their ability to perform in accordance with their underlying loan agreements, the Company’s ability to generate demand for non-loan related products and services, as well as potential declines in real estate values resulting from the market disruption which

may

impair the recorded values of collateral-dependent loans and other real estate owned. Further, these factors, in addition to those pervasive to the industry and overall U.S. economy,

may

necessitate an overall valuation of our franchise in such a way an impairment charge to the carrying value of goodwill would be required. Accordingly, significant estimates used in the preparation of our financial statements including those associated with the evaluation of the allowance for loan losses as well as other valuation-based estimates

may

be subject to significant adjustments in future periods.  The greater the duration and severity of the pandemic the more likely that estimates will be materially impacted by its effects.

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

11.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of the interim periods. The results of operations for the interim periods are

not

necessarily indicative of the results that

may

occur for any other period. Certain reclassifications have been made to prior period balances to conform to the current period presentation. These reclassifications did

not

have an impact on net income and were considered immaterial. These statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form

10

-K for the year ended

December 31, 2019

.

New Accounting Pronouncements, Policy [Policy Text Block]

Adoption of New Accounting Standards

In

January 2017,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

2017

-

04,

"Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment." ASU

2017

-

04

simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the

first

step in the previous

two

-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step

2,

which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU

2017

-

04

was effective for the Company on

January 1, 2020.

The adoption of ASU

2017

-

04

did

not

have a material effect on the Company's consolidated financial statements.

In

August 2018,

the FASB issued ASU

2018

-

13,

"Fair Value Measurement (Topic

820

): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." ASU

2018

-

13

modifies the disclosure requirements on fair value measurements by requiring that Level

3

fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity

may

disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level

3

fair value measurements. Certain disclosure requirements in Topic

820

were also removed or modified. ASU

2018

-

13

was effective for the Company on

January 1, 2020. 

The adoption of ASU

2018

-

13

did

not

have a material effect on the Company's consolidated financial statements.

Recent Accounting Pronouncements and other Authoritative Accounting Guidance

On

March 20, 2020,

the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."  This was in response to the COVID-

19

pandemic affecting societies and economies around the world.  This guidance encourages financial institutions to work prudently with borrowers that

may

be unable to meet their contractual obligations because of the effects of COVID-

19.

  The guidance explains that, in consultation with the FASB staff, the federal banking agencies have concluded that short-term modifications (e.g.

six

months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are

not

troubled debt restructurings ("TDRs").  The Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed by the U.S. Congress on

March 27, 2020. 

Section

4013

of the CARES Act also addressed COVID-

19

related modifications and specified that COVID-

19

related modifications on loans that were current as of

December 31, 2019

are

not

TDRs.  Through

March 31, 2020,

the Bank had applied this guidance and modified loans to over

450

customers on loan balances of approximately

$200

million.  The Bank implemented a Disaster Assistance Program ("DAP") to provide relief to its borrowers under this guidance. The majority of modifications involved

three

-month deferments of principal and interest.  This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time.

The CARES Act included an initial allocation of

$349

billion for loans to be issued by financial institutions through the Small Business Administration ("SBA").  This program is known as the Paycheck Protection Program ("PPP").  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of

1.00%

and a term of

two

years, if

not

forgiven, in whole or in part.  Payments are deferred for the

first

six

months of the loan.  The loans are

100%

guaranteed by the SBA.  The SBA pays the bank a processing fee ranging from

1%

to

5%,

based on the size of the loan.  The SBA began accepting submissions for these loans on

April 3, 2020,

and the SBA reached its initial limit on

April 16, 2020. 

Prior to the initial limit being reached, the SBA approved

1,321

applications submitted by the Bank for loans in excess of

$228

million, representing

96%

of applications received and processed by the Bank.  There was an additional

$310

billion in funding authorized, and applications were accepted beginning

April 27, 2020. 

In total, the SBA approved

1,913

applications submitted by the Bank totaling

$267

million for an acceptance rate of 

99.8%

for both rounds. From a funding perspective, the Bank expects to utilize core and wholesale funding for liquidity needs related to the DAP loan program and both the Federal Reserve discount window and their newly created Paycheck Protection Program Liquidity Facility ("PPPLF") to fund the PPP.

In

June 2016,

the FASB issued ASU

2016

-

13,

"Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments." The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU

2016

-

13

as codified in Topic

326,

including ASU’s

2019

-

04,

2019

-

05,

2019

-

10,

2019

-

11,

2020

-

02,

and

2020

-

03.

  These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters.  Smaller reporting companies who file with the U.S. Securities and Exchange Commission ("SEC"), including the Company, and all other entities who do

not

file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after

December 15, 2022. 

The Company will continue to validate its models that will be used upon future adoption of the standard. The implementation of this ASU will likely result in increases to the Company's reserves when implemented.

In

August 2018,

the FASB issued ASU

2018

-

14,

"Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic

715

-

20

): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph

715

-

20

-

50

-

3,

which state that the following information for defined benefit pension plans should be disclosed: the projected benefit obligation ("PBO") and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation ("ABO") and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after

December 15, 2020.

Early adoption is permitted. The Company is currently assessing the impact that ASU

2018

-

14

will have on its consolidated financial statements.

In

December 2019,

the FASB issued ASU

2019

-

12,

"Income Taxes (Topic

740

) - Simplifying the Accounting for Income Taxes." The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic

740

(eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers' application of certain income tax-related guidance. This ASU is part of the FASB's simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU

2019

-

12

will have on its consolidated financial statements.

In

January 2020, 

the FASB issued ASU

2020

-

01,

"Investments - Equity Securities (Topic

321

), Investments - Equity Method and Joint Ventures (Topic

323

), and Derivatives and Hedging (Topic

815

) - Clarifying the Interactions between Topic

321,

Topic

323,

and Topic

815."

The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU

2016

-

01

made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, such as the Company, the amendments in the ASU are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years. Early adoption is permitted. The Company does

not

expect the adoption of ASU

2020

-

01

to have a material impact on its consolidated financial statements.

In 

March 2020,

the FASB issued ASU

2020

-

04

“Reference Rate Reform (Topic

848

): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of

March 12, 2020

through

December 31, 2022. 

The Company is assessing ASU

2020

-

04

and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

Effective 

November 25, 2019,

the SEC adopted Staff Accounting Bulletin ("SAB")

119.

SAB

119

updated portions of SEC interpretative guidance to align with FASB ASC

326,

"Financial Instruments - Credit Losses." It covers topics including (

1

) measuring current expected credit losses; (

2

) development, governance, and documentation of a systematic methodology; (

3

) documenting the results of a systematic methodology; and (

4

) validating a systematic methodology.

On 

March 12, 2020,

the SEC finalized amendments to the definitions of its "accelerated filer" and "large accelerated filer" definitions. The amendments increase the threshold criteria for meeting these filer classifications and are effective on

April 27, 2020.

Any changes in filer status are to be applied beginning with the filer’s

first

annual report filed with the SEC subsequent to the effective date. Prior to these changes, the Company was required to comply with section

404

(b) of the Sarbanes Oxley Act concerning auditor attestation over internal control over financial reporting as an "accelerated filer" as it had more than

$75

million in public float but less than

$700

million at the end of the Company’s most recent

second

quarter. The rule change expands the definition of "smaller reporting companies" to include entities with public float of less than

$700

million and less than

$100

million in annual revenues. If an entity’s annual revenues exceed

$100

million, its category will change back to "accelerated filer". The classifications of "accelerated filer" and "large accelerated filer" require a public company to obtain an auditor attestation concerning the effectiveness of internal control over financial reporting ("ICFR") and include the opinion on ICFR in its annual report on Form

10

-K.  Smaller reporting companies also have additional time to file quarterly and annual financial statements. All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of ICFR, but the external auditor attestation of ICFR is

not

required for smaller reporting companies. The Company expects its annual revenues to exceed

$100

million and to remain an "accelerated filer."  Therefore, this change is

not

expected to have a significant impact on the Company’s annual reporting and audit requirements.

XML

Note 2 - Acquisitions - Changes in Fair Value of Net Assets Acquired and Liabilities (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($)
Goodwill at December 31, 2019	$ 84,002
Goodwill at March 31, 2020	85,048
HomeTown Bankshares Corporation [Member]
Goodwill at December 31, 2019	40,130
Premises and equipment	520
Other real estate owned	254
Other liabilities	272
Goodwill at March 31, 2020	$ 41,176

XML

Note 16 - Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	Fair Value Measurements at March 31, 2020 Using
	Balance at March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2020		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
U.S. Treasury	$	15,000	$	—	$	15,000	$	—
Federal agencies and GSEs		58,032		—		58,032		—
Mortgage-backed and CMOs		215,464		—		215,464		—
State and municipal		42,632		—		42,632		—
Corporate		11,641		—		11,641		—
Total securities available for sale	$	342,769	$	—	$	342,769	$	—
Liabilities:
Derivative - cash flow hedges	$	5,487	$	—	$	5,487	$	—

	Fair Value Measurements at December 31, 2019 Using
	Balance at December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2019		Level 1		Level 2		Level 3
Assets:
Securities available for sale:
U.S. Treasury	$	14,987	$	—	$	14,987	$	—
Federal agencies and GSEs		128,114		—		128,114		—
Mortgage-backed and CMOs		184,240		—		184,240		—
State and municipal		42,154		—		42,154		—
Corporate		9,700		—		9,700		—
Total securities available for sale	$	379,195	$	—	$	379,195	$	—
Liabilities:
Derivative - cash flow hedges	$	2,658	$	—	$	2,658	$	—

Fair Value Measurements, Nonrecurring [Table Text Block]

	Fair Value Measurements at March 31, 2020 Using
	Balance at March 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2020		Level 1		Level 2		Level 3
Assets:
Impaired loans, net of valuation allowance	$	937	$	—	$	—	$	937
Other real estate owned, net		984		—		—		984

	Fair Value Measurements at December 31, 2019 Using
	Balance at December 31,		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Description	2019		Level 1		Level 2		Level 3
Assets:
Impaired loans, net of valuation allowance	$	759	$	—	$	—	$	759
Other real estate owned, net		1,308		—		—		1,308

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

Assets	Valuation Technique	Unobservable Input	Range; Weighted Average (1)
Impaired loans	Discounted appraised value	Selling cost	8.00%
	Discounted cash flow analysis	Market rate for borrower (discount rate)	3.25% - 9.80%; 5.05%
Other real estate owned, net	Discounted appraised value	Selling cost	8.00%

Fair Value, by Balance Sheet Grouping [Table Text Block]

	Fair Value Measurements at March 31, 2020 Using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	109,570	$	109,570	$	—	$	—	$	109,570
Securities available for sale		342,769		—		342,769		—		342,769
Restricted stock		8,682		—		8,682		—		8,682
Loans held for sale		2,666		—		2,666		—		2,666
Loans, net of allowance		1,840,863		—		—		1,823,069		1,823,069
Bank owned life insurance		27,970		—		27,970		—		27,970
Accrued interest receivable		6,452		—		6,452		—		6,452
Financial Liabilities:
Deposits	$	2,070,667	$	—	$	2,074,243	$	—	$	2,074,243
Repurchase agreements		42,114		—		42,114		—		42,114
Subordinated debt		7,513		—		7,593		—		7,593
Junior subordinated debt		28,054		—		—		21,162		21,162
Accrued interest payable		1,293		—		1,293		—		1,293
Derivative - cash flow hedges		5,487		—		5,487		—		5,487

	Fair Value Measurements at December 31, 2019 Using
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Fair Value
	Value		Level 1		Level 2		Level 3		Balance
Financial Assets:
Cash and cash equivalents	$	79,582	$	79,582	$	—	$	—	$	79,582
Securities available for sale		379,195		—		379,195		—		379,195
Restricted stock		8,630		—		8,630		—		8,630
Loans held for sale		2,027		—		2,027		—		2,027
Loans, net of allowance		1,817,663		—		—		1,818,655		1,818,655
Bank owned life insurance		27,817		—		27,817		—		27,817
Accrued interest receivable		6,625		—		6,625		—		6,625
Financial Liabilities:
Deposits	$	2,060,547	$	—	$	2,062,823	$	—	$	2,062,823
Repurchase agreements		40,475		—		40,475		—		40,475
Subordinated debt		7,517		—		8,525		—		8,525
Junior subordinated debt		28,029		—		—		22,697		22,697
Accrued interest payable		1,213		—		1,213		—		1,213
Derivative - cash flow hedges		2,658		—		2,658		—		2,658

XML

Note 1 - Accounting Policies (Details Textual) $ in Millions	Apr. 27, 2020 USD ($)	Apr. 16, 2020 USD ($)	Mar. 31, 2020 USD ($)
Financing Receivable, Number of Customers With Payment Deferrals			450
Financing Receivable, Deferred Payments			$ 200
First Round of Paycheck Protection Program Loans [Member] | Subsequent Event [Member]
Number of Paycheck Protection Program Loans Originated Through the CARES Act		1,321
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act		$ 228
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act, Percent Approval		96.00%
Second Round of Paycheck Protection Program Loans [Member] | Subsequent Event [Member]
Number of Paycheck Protection Program Loans Originated Through the CARES Act	1,913
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act	$ 267
Financing Receivable, Paycheck Protection Program Loans Originated Through the CARES Act, Percent Approval	99.80%

XML

Note 6 - Goodwill and Other Intangible Assets - Carrying Amount of Goodwill and Intangibles (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Goodwill at December 31, 2019	$ 84,002
Balance, intangibles	7,728
Measurement period adjustments, goodwill	1,046
Measurement period adjustments, intangibles
Amortization, intangibles	(427)	$ (55)
Impairment, goodwill
Impairment, intangibles
Goodwill at March 31, 2020	85,048	$ 43,872
Balance, intangibles	$ 7,301

XML

Note 4 - Loans - Impaired Loan Balances by Portfolio Segment (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Recorded investment, with no related allowance recorded	$ 1,517	$ 1,203
Unpaid principal balance, with no related allowance recorded	1,520	1,202
Average recorded investment, with no related allowance recorded	1,360	1,137
Interest income recognized, with no related allowance recorded	23	88
Recorded investment, with a related allowance recorded	1,348	989
Unpaid principal balance, with a related allowance recorded	1,342	984
Related allowance	411	230
Average recorded investment, with a related allowance recorded	1,169	416
Interest income recognized, with a related allowance recorded	18	57
Recorded investment	2,865	2,192
Unpaid principal balance	2,862	2,186
Average recorded investment	2,529	1,553
Interest income recognized	41	145
Commercial Portfolio Segment [Member]
Recorded investment, with no related allowance recorded	49	49
Unpaid principal balance, with no related allowance recorded	49	49
Average recorded investment, with no related allowance recorded	49	16
Interest income recognized, with no related allowance recorded	1	5
Recorded investment, with a related allowance recorded	839	735
Unpaid principal balance, with a related allowance recorded	833	730
Related allowance	247	204
Average recorded investment, with a related allowance recorded	787	191
Interest income recognized, with a related allowance recorded	11	41
Recorded investment	888	784
Unpaid principal balance	882	779
Average recorded investment	836	207
Interest income recognized	12	46
Commercial Real Estate Portfolio Segment [Member] | Construction and Land Development [Member]
Recorded investment, with no related allowance recorded
Unpaid principal balance, with no related allowance recorded
Average recorded investment, with no related allowance recorded
Interest income recognized, with no related allowance recorded
Recorded investment, with a related allowance recorded
Unpaid principal balance, with a related allowance recorded
Related allowance
Average recorded investment, with a related allowance recorded
Interest income recognized, with a related allowance recorded
Recorded investment
Unpaid principal balance
Average recorded investment
Interest income recognized
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate [Member]
Recorded investment, with no related allowance recorded	476	502
Unpaid principal balance, with no related allowance recorded	473	500
Average recorded investment, with no related allowance recorded	489	424
Interest income recognized, with no related allowance recorded	9	39
Recorded investment, with a related allowance recorded	259
Unpaid principal balance, with a related allowance recorded	259
Related allowance	138
Average recorded investment, with a related allowance recorded	130
Interest income recognized, with a related allowance recorded	4
Recorded investment	735	502
Unpaid principal balance	732	500
Average recorded investment	619	424
Interest income recognized	13	39
Residential Portfolio Segment [Member] | Residential [Member]
Recorded investment, with no related allowance recorded	953	611
Unpaid principal balance, with no related allowance recorded	959	612
Average recorded investment, with no related allowance recorded	782	652
Interest income recognized, with no related allowance recorded	12	38
Recorded investment, with a related allowance recorded	250	254
Unpaid principal balance, with a related allowance recorded	250	254
Related allowance	26	26
Average recorded investment, with a related allowance recorded	252	225
Interest income recognized, with a related allowance recorded	3	16
Recorded investment	1,203	865
Unpaid principal balance	1,209	866
Average recorded investment	1,034	877
Interest income recognized	15	54
Residential Portfolio Segment [Member] | Home Equity Line of Credit [Member]
Recorded investment, with no related allowance recorded	39	41
Unpaid principal balance, with no related allowance recorded	39	41
Average recorded investment, with no related allowance recorded	40	45
Interest income recognized, with no related allowance recorded	1	6
Recorded investment, with a related allowance recorded
Unpaid principal balance, with a related allowance recorded
Related allowance
Average recorded investment, with a related allowance recorded
Interest income recognized, with a related allowance recorded
Recorded investment	39	41
Unpaid principal balance	39	41
Average recorded investment	40	45
Interest income recognized	1	6
Consumer Portfolio Segment [Member]
Recorded investment, with no related allowance recorded
Unpaid principal balance, with no related allowance recorded
Average recorded investment, with no related allowance recorded
Interest income recognized, with no related allowance recorded
Recorded investment, with a related allowance recorded
Unpaid principal balance, with a related allowance recorded
Related allowance
Average recorded investment, with a related allowance recorded
Interest income recognized, with a related allowance recorded
Recorded investment
Unpaid principal balance
Average recorded investment
Interest income recognized

XML

Note 19 - Accumulated Other Comprehensive Income (Loss) - Changes in AOCI (Details) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net unrealized gains (losses) on securities available for sale, tax	$ 1,336	$ 889
Reclassification adjustment for realized gains on securities, tax	(176)	(1)
Unrealized losses on cash flow hedges, tax	$ (611)	$ (162)

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net income	$ 8,542	$ 6,003
Other comprehensive income:
Unrealized gains on securities available for sale	6,189	3,969
Tax effect	(1,336)	(889)
Reclassification adjustment for gains on sales or calls of securities available for sale	(814)	(4)
Tax effect	176	1
Unrealized losses on cash flow hedges	(2,829)	(725)
Tax effect	611	162
Other comprehensive income	1,997	2,514
Comprehensive income	$ 10,539	$ 8,517

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 01, 2020
Document Information [Line Items]
Entity Registrant Name	AMERICAN NATIONAL BANKSHARES INC.
Entity Central Index Key	0000741516
Trading Symbol	amnb
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		10,957,552
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Note 1 - Accounting Policies

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note

1

– Accounting Policies

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 ("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 consolidated 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, other-than-temporary impairment of securities, accounting for merger and acquisition activity, accounting for acquired loans with specific credit-related deterioration, and the valuation of deferred tax assets and liabilities.  The novel coronavirus (“COVID-

19”

) spread rapidly across the world in the

first

quarter of

2020

and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operations in

March

and will likely adversely affect our operations in the further quarters of

2020,

although such effects

may

vary significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic will most likely affect future earnings, cash flows and overall financial condition of the Company.  These uncertainties include the nature and duration of the financial effects felt by our customers impacting their ability to perform in accordance with their underlying loan agreements, the Company’s ability to generate demand for non-loan related products and services, as well as potential declines in real estate values resulting from the market disruption which

may

impair the recorded values of collateral-dependent loans and other real estate owned. Further, these factors, in addition to those pervasive to the industry and overall U.S. economy,

may

necessitate an overall valuation of our franchise in such a way an impairment charge to the carrying value of goodwill would be required. Accordingly, significant estimates used in the preparation of our financial statements including those associated with the evaluation of the allowance for loan losses as well as other valuation-based estimates

may

be subject to significant adjustments in future periods.  The greater the duration and severity of the pandemic the more likely that estimates will be materially impacted by its effects.

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

11.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the results of the interim periods. The results of operations for the interim periods are

not

necessarily indicative of the results that

may

occur for any other period. Certain reclassifications have been made to prior period balances to conform to the current period presentation. These reclassifications did

not

have an impact on net income and were considered immaterial. These statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Company's Annual Report on Form

10

-K for the year ended

December 31, 2019

.

Adoption of New Accounting Standards

In

January 2017,

the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")

2017

-

04,

"Intangibles - Goodwill and Other (Topic

350

): Simplifying the Test for Goodwill Impairment." ASU

2017

-

04

simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the

first

step in the previous

two

-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step

2,

which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU

2017

-

04

was effective for the Company on

January 1, 2020.

The adoption of ASU

2017

-

04

did

not

have a material effect on the Company's consolidated financial statements.

In

August 2018,

the FASB issued ASU

2018

-

13,

"Fair Value Measurement (Topic

820

): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." ASU

2018

-

13

modifies the disclosure requirements on fair value measurements by requiring that Level

3

fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity

may

disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level

3

fair value measurements. Certain disclosure requirements in Topic

820

were also removed or modified. ASU

2018

-

13

was effective for the Company on

January 1, 2020. 

The adoption of ASU

2018

-

13

did

not

have a material effect on the Company's consolidated financial statements.

Recent Accounting Pronouncements and other Authoritative Accounting Guidance

On

March 20, 2020,

the federal banking agencies issued an "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."  This was in response to the COVID-

19

pandemic affecting societies and economies around the world.  This guidance encourages financial institutions to work prudently with borrowers that

may

be unable to meet their contractual obligations because of the effects of COVID-

19.

  The guidance explains that, in consultation with the FASB staff, the federal banking agencies have concluded that short-term modifications (e.g.

six

months) made on a good faith basis to borrowers who were current as of the implementation date of a relief program are

not

troubled debt restructurings ("TDRs").  The Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed by the U.S. Congress on

March 27, 2020. 

Section

4013

of the CARES Act also addressed COVID-

19

related modifications and specified that COVID-

19

related modifications on loans that were current as of

December 31, 2019

are

not

TDRs.  Through

March 31, 2020,

the Bank had applied this guidance and modified loans to over

450

customers on loan balances of approximately

$200

million.  The Bank implemented a Disaster Assistance Program ("DAP") to provide relief to its borrowers under this guidance. The majority of modifications involved

three

-month deferments of principal and interest.  This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time.

The CARES Act included an initial allocation of

$349

billion for loans to be issued by financial institutions through the Small Business Administration ("SBA").  This program is known as the Paycheck Protection Program ("PPP").  PPP loans are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. These loans carry a fixed rate of

1.00%

and a term of

two

years, if

not

forgiven, in whole or in part.  Payments are deferred for the

first

six

months of the loan.  The loans are

100%

guaranteed by the SBA.  The SBA pays the bank a processing fee ranging from

1%

to

5%,

based on the size of the loan.  The SBA began accepting submissions for these loans on

April 3, 2020,

and the SBA reached its initial limit on

April 16, 2020. 

Prior to the initial limit being reached, the SBA approved

1,321

applications submitted by the Bank for loans in excess of

$228

million, representing

96%

of applications received and processed by the Bank.  There was an additional

$310

billion in funding authorized, and applications were accepted beginning

April 27, 2020. 

In total, the SBA approved

1,913

applications submitted by the Bank totaling

$267

million for an acceptance rate of 

99.8%

for both rounds. From a funding perspective, the Bank expects to utilize core and wholesale funding for liquidity needs related to the DAP loan program and both the Federal Reserve discount window and their newly created Paycheck Protection Program Liquidity Facility ("PPPLF") to fund the PPP.

In

June 2016,

the FASB issued ASU

2016

-

13,

"Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments." The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates to ASU

2016

-

13

as codified in Topic

326,

including ASU’s

2019

-

04,

2019

-

05,

2019

-

10,

2019

-

11,

2020

-

02,

and

2020

-

03.

  These ASUs have provided for various minor technical corrections and improvements to the codification as well as other transition matters.  Smaller reporting companies who file with the U.S. Securities and Exchange Commission ("SEC"), including the Company, and all other entities who do

not

file with the SEC are required to apply the guidance for fiscal years, and interim periods within those years, beginning after

December 15, 2022. 

The Company will continue to validate its models that will be used upon future adoption of the standard. The implementation of this ASU will likely result in increases to the Company's reserves when implemented.

In

August 2018,

the FASB issued ASU

2018

-

14,

"Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic

715

-

20

): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. Certain disclosure requirements have been deleted while the following disclosure requirements have been added: the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendments also clarify the disclosure requirements in paragraph

715

-

20

-

50

-

3,

which state that the following information for defined benefit pension plans should be disclosed: the projected benefit obligation ("PBO") and fair value of plan assets for plans with PBOs in excess of plan assets and the accumulated benefit obligation ("ABO") and fair value of plan assets for plans with ABOs in excess of plan assets. The amendments are effective for fiscal years ending after

December 15, 2020.

Early adoption is permitted. The Company is currently assessing the impact that ASU

2018

-

14

will have on its consolidated financial statements.

In

December 2019,

the FASB issued ASU

2019

-

12,

"Income Taxes (Topic

740

) - Simplifying the Accounting for Income Taxes." The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic

740

(eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers' application of certain income tax-related guidance. This ASU is part of the FASB's simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU

2019

-

12

will have on its consolidated financial statements.

In

January 2020, 

the FASB issued ASU

2020

-

01,

"Investments - Equity Securities (Topic

321

), Investments - Equity Method and Joint Ventures (Topic

323

), and Derivatives and Hedging (Topic

815

) - Clarifying the Interactions between Topic

321,

Topic

323,

and Topic

815."

The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU

2016

-

01

made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, such as the Company, the amendments in the ASU are effective for fiscal years beginning after

December 15, 2020,

and interim periods within those fiscal years. Early adoption is permitted. The Company does

not

expect the adoption of ASU

2020

-

01

to have a material impact on its consolidated financial statements.

In 

March 2020,

the FASB issued ASU

2020

-

04

“Reference Rate Reform (Topic

848

): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of

March 12, 2020

through

December 31, 2022. 

The Company is assessing ASU

2020

-

04

and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

Effective 

November 25, 2019,

the SEC adopted Staff Accounting Bulletin ("SAB")

119.

SAB

119

updated portions of SEC interpretative guidance to align with FASB ASC

326,

"Financial Instruments - Credit Losses." It covers topics including (

1

) measuring current expected credit losses; (

2

) development, governance, and documentation of a systematic methodology; (

3

) documenting the results of a systematic methodology; and (

4

) validating a systematic methodology.

On 

March 12, 2020,

the SEC finalized amendments to the definitions of its "accelerated filer" and "large accelerated filer" definitions. The amendments increase the threshold criteria for meeting these filer classifications and are effective on

April 27, 2020.

Any changes in filer status are to be applied beginning with the filer’s

first

annual report filed with the SEC subsequent to the effective date. Prior to these changes, the Company was required to comply with section

404

(b) of the Sarbanes Oxley Act concerning auditor attestation over internal control over financial reporting as an "accelerated filer" as it had more than

$75

million in public float but less than

$700

million at the end of the Company’s most recent

second

quarter. The rule change expands the definition of "smaller reporting companies" to include entities with public float of less than

$700

million and less than

$100

million in annual revenues. If an entity’s annual revenues exceed

$100

million, its category will change back to "accelerated filer". The classifications of "accelerated filer" and "large accelerated filer" require a public company to obtain an auditor attestation concerning the effectiveness of internal control over financial reporting ("ICFR") and include the opinion on ICFR in its annual report on Form

10

-K.  Smaller reporting companies also have additional time to file quarterly and annual financial statements. All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of ICFR, but the external auditor attestation of ICFR is

not

required for smaller reporting companies. The Company expects its annual revenues to exceed

$100

million and to remain an "accelerated filer."  Therefore, this change is

not

expected to have a significant impact on the Company’s annual reporting and audit requirements.

XML

Note 2 - Acquisitions (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Business Acquisitions, by Acquisition [Table Text Block]

Consideration Paid:
Common shares issued (2,361,686)	$	82,470
Issuance of replacement stock options/restricted stock		753
Cash paid in lieu of fractional shares		27
Value of consideration		83,250
Assets acquired:
Cash and cash equivalents		26,283
Investment securities		34,876
Restricted stock		2,588
Loans		444,324
Premises and equipment		12,034
Deferred income taxes		2,960
Core deposit intangible		8,200
Other real estate owned		1,188
Bank owned life insurance		8,246
Other assets		14,244
Total assets		554,943
Liabilities assumed:
Deposits		483,626
Short-term FHLB advances		14,883
Long-term FHLB advances		778
Subordinated debt		7,530
Other liabilities		6,052
Total liabilities		512,869
Net assets acquired		42,074
Goodwill resulting from merger with HomeTown	$	41,176

Schedule of Goodwill [Table Text Block]

Goodwill at December 31, 2019	$	40,130
Effect of adjustments to:
Premises and equipment		520
Other real estate owned		254
Other liabilities		272
Goodwill at March 31, 2020	$	41,176

Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Table Text Block]

Contractually required principal and interest at acquisition	$	45,551
Contractual cash flows not expected to be collected (nonaccretable difference)		8,296
Expected cash flows at acquisition		37,255
Interest component of expected cash flows (accretable yield)		4,410
Fair value of acquired loans accounted for under FASB ASC 310-30	$	32,845

Business Acquisition, Pro Forma Information [Table Text Block]

	Unaudited Pro forma Three Months Ended
	March 31, 2019
Total revenues (1)	$	21,097
Net income		5,876

XML

Note 17 - Segment and Related Information

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

Note

17

– 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 the community banking segment.

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 segment receives fees for investment and administrative services.

Amounts shown in the "Other" column includes activities of the Company which are primarily debt service and corporate items. 

Segment information as of and for the 

three

months ended

March 31, 2020

and

2019

(unaudited), is shown in the following tables (dollars in thousands):

	Three Months Ended March 31, 2020
	Community Banking		Trust and Investment Services		Other			Intersegment Eliminations			Total
Interest income	$	23,735	$	—	$	131		$	—		$	23,866
Interest expense		3,441		—		506			—			3,947
Noninterest income		3,264		1,223		8			—			4,495
Income (loss) before income taxes		10,202		610		(685	)		—			10,127
Net income (loss)		8,569		515		(542	)		—			8,542
Depreciation and amortization		945		3		—			—			948
Total assets		2,478,357		123		364,610			(348,025	)		2,495,065
Goodwill		85,048		—		—			—			85,048
Capital expenditures		903		4		—			—			907

	Three Months Ended March 31, 2019
	Community Banking		Trust and Investment Services		Other			Intersegment Eliminations			Total
Interest income	$	17,999	$	—	$	97		$	—		$	18,096
Interest expense		2,644		—		384			—			3,028
Noninterest income		2,060		1,061		330			—			3,451
Income (loss) before income taxes		7,520		480		(426	)		—			7,574
Net income (loss)		5,997		380		(374	)		—			6,003
Depreciation and amortization		458		2		—			—			460
Total assets		1,857,245		27		259,009			(247,877	)		1,868,404
Goodwill		43,872		—		—			—			43,872
Capital expenditures		386		7		—			—			393

XML

Note 13 - Stock Based Compensation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

Note

13

– Stock Based Compensation

 

The Company's

2018

Equity Compensation Plan (the

"2018

Plan") was adopted by the Board of Directors of the Company on

February 20, 2018,

and approved by shareholders on

May 15, 2018,

at the Company's

2018

Annual Meeting of Shareholders. The

2018

Plan provides for the granting of restricted stock awards, incentive and non-statutory options, and other equity-based awards to employees and directors at the discretion of the Compensation Committee of the Board of Directors.  The

2018

Plan authorizes the issuance of up to

675,000

shares of common stock. The

2018

Plan replaced the Company's stock incentive plan that was approved by the shareholders at the

2008

Annual Meeting that expired in

February 2018 (

the

"2008

Plan").

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

three

months ended

March 31, 2020

is as follows:

	Option Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2019		13,944		$	16.63
Granted		—			—
Exercised		(1,743	)		16.63
Forfeited		—			—
Expired		—			—
Outstanding and exercisable at March 31, 2020		12,201		$	16.63		4.72	$	89

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.

No

stock options have been granted since

2009.

Replacement stock option awards representing

40,753

shares of the Company's common stock were issued in conjunction with the HomeTown acquisition in

2019.

  As of

March 31, 2020

, there were

no

 nonvested stock option grants and

no

unrecognized compensation expense.  The outstanding options have a remaining final maturity date of

December 2024.

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 value of the Company's common 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. The majority of the restricted stock granted cliff vests at the end of a

36

-month period beginning on the date of the grant. The remainder vests

one

-

third

each year beginning on the date of the grant. Nonvested restricted stock activity for the

three

months ended

March 31, 2020

is summarized in the following table.

Restricted Stock	Shares			Weighted Average Grant Date Value Per Share
Nonvested at December 31, 2019		57,271		$	34.84
Granted		19,327			37.26
Vested		(13,284	)		34.12
Forfeited		(664	)		27.28
Nonvested at March 31, 2020		62,650		$	35.82

As of

March 31, 2020

and

December 31, 2019

, there was

$1,212,000

and

$751,000

  respectively, in unrecognized compensation cost related to nonvested restricted stock granted under the

2008

Plan and the

2018

Plan. The weighted average period over which this cost is expected to be recognized is

1.82

 years. The share based compensation expense for nonvested restricted stock was

$199,000

and

$166,000

during the

first

 

three

months of 

2020

and

2019

, respectively.

The Company offers its outside directors alternatives with respect to director compensation. For

2020

, the regular quarterly board retainer will be received in the form of shares of immediately vested, but restricted stock with a market value of

$10,000.

Monthly meeting fees can be received as

$800

per meeting in cash or

$1,000

 in immediately vested, but restricted stock. Only outside directors receive board fees. The Company issued

6,082

and

4,106

 shares and recognized share based compensation expense of

$205,000

and

$147,000

during the

first

 

three

months of 

2020

and

2019

, respectively.

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Note 15 - Employee Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Net Benefit Costs [Table Text Block]

Components of Net Periodic Benefit Cost	Three Months Ended March 31,
	2020			2019
Service cost	$	—		$	—
Interest cost		38			58
Expected return on plan assets		(71	)		(68	)
Recognized loss due to settlement		30			26
Recognized net actuarial loss		35			65
Net periodic cost	$	32		$	81

XML

Note 19 - Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

For the Three Months Ended	Net Unrealized Gains (Losses) on Securities			Unrealized Losses on Cash Flow Hedges			Adjustments Related to Pension Benefits			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2018	$	(3,973	)	$	(624	)	$	(1,238	)	$	(5,835	)
Net unrealized gains on securities available for sale, net of tax, $889		3,080			—			—			3,080
Reclassification adjustment for realized gains on securities, net of tax, $(1)		(3	)		—			—			(3	)
Net unrealized losses on cash flow hedges, net of tax, $(162)		—			(563	)		—			(563	)
Balance at March 31, 2019	$	(896	)	$	(1,187	)	$	(1,238	)	$	(3,321	)
Balance at December 31, 2019	$	2,902		$	(2,084	)	$	(1,301	)	$	(483	)
Net unrealized gains on securities available for sale, net of tax, $1,336		4,853			—			—			4,853
Reclassification adjustment for realized gains on securities, net of tax, $(176)		(638	)		—			—			(638	)
Net unrealized losses on cash flow hedges, net of tax, $(611)		—			(2,218	)		—			(2,218	)
Balance at March 31, 2020	$	7,117		$	(4,302	)	$	(1,301	)	$	1,514

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

For the Three Months Ended March 31, 2020	Amount Reclassified from AOCI			Affected Line Item in the Statement of Where Net Income is Presented
Details about AOCI Components
Available for sale securities:
Realized gains on sales and calls of securities	$	814		Securities gains, net
		(176	)	Income taxes
Total reclassifications	$	638		Net of tax

For the Three Months Ended March 31, 2019	Amount Reclassified from AOCI			Affected Line Item in the Statement of Where Net Income is Presented
Details about AOCI Components
Available for sale securities:
Realized gains on calls of securities	$	4		Securities gains, net
		(1	)	Income taxes
Total reclassifications	$	3		Net of tax

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Note 2 - Acquisitions - Preliminary Assessment of Consideration Transferred, Assets Acquired, and Liabilities Assumed (Details) (Parentheticals)	Apr. 01, 2019 shares
HomeTown Bankshares Corporation [Member] | Common Stock [Member]
Common shares issued, shares (in shares)	2,361,686

XML

Note 7 - Leases (Details Textual) - USD ($)	Mar. 31, 2020	Dec. 31, 2019	Apr. 01, 2019	Jan. 01, 2019
Operating Lease, Liability, Total	$ 5,168,000	$ 5,369,000
Operating Lease, Right-of-Use Asset	$ 5,133,000	$ 5,340,000
HomeTown Bankshares Corporation [Member]
Operating Lease, Liability, Total			$ 1,736,000
Operating Lease, Right-of-Use Asset			$ 1,816,000
Accounting Standards Update 2016-02 [Member]
Operating Lease, Liability, Total				$ 4,413,000
Operating Lease, Right-of-Use Asset				$ 4,413,000

XML

Note 4 - Loans - Credit Risk Profile (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Loans and Leases Receivable, Net of Deferred Income, Total	$ 1,854,928	$ 1,830,815
Consumer Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	9,590	10,881
Consumer Portfolio Segment [Member] | Performing Financial Instruments [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	9,587	10,877
Consumer Portfolio Segment [Member] | Nonperforming Financial Instruments [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	3	4
Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	331,507	339,077
Commercial Portfolio Segment [Member] | Pass [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	320,901	328,488
Commercial Portfolio Segment [Member] | Special Mention [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	8,859	8,710
Commercial Portfolio Segment [Member] | Substandard [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	1,012	1,144
Commercial Portfolio Segment [Member] | Doubtful [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	735	735
Commercial Real Estate Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	1,094,517	1,037,119
Commercial Real Estate Portfolio Segment [Member] | Construction and Land Development [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	141,154	137,920
Commercial Real Estate Portfolio Segment [Member] | Commercial Real Estate [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	953,363	899,199
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Construction and Land Development [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	133,933	130,694
Commercial Real Estate Portfolio Segment [Member] | Pass [Member] | Commercial Real Estate [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	914,331	860,615
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Construction and Land Development [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	4,045	4,133
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member] | Commercial Real Estate [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	19,561	22,117
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Construction and Land Development [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	3,176	3,093
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member] | Commercial Real Estate [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	19,471	16,467
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Construction and Land Development [Member]
Loans and Leases Receivable, Net of Deferred Income, Total
Commercial Real Estate Portfolio Segment [Member] | Doubtful [Member] | Commercial Real Estate [Member]
Loans and Leases Receivable, Net of Deferred Income, Total
Residential Portfolio Segment [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	419,314	443,738
Residential Portfolio Segment [Member] | Residential [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	301,284	324,315
Residential Portfolio Segment [Member] | Home Equity Line of Credit [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	118,030	119,423
Residential Portfolio Segment [Member] | Pass [Member] | Residential [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	293,905	316,454
Residential Portfolio Segment [Member] | Pass [Member] | Home Equity Line of Credit [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	117,580	118,960
Residential Portfolio Segment [Member] | Special Mention [Member] | Residential [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	4,526	4,370
Residential Portfolio Segment [Member] | Special Mention [Member] | Home Equity Line of Credit [Member]
Loans and Leases Receivable, Net of Deferred Income, Total
Residential Portfolio Segment [Member] | Substandard [Member] | Residential [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	2,853	3,491
Residential Portfolio Segment [Member] | Substandard [Member] | Home Equity Line of Credit [Member]
Loans and Leases Receivable, Net of Deferred Income, Total	450	463
Residential Portfolio Segment [Member] | Doubtful [Member] | Residential [Member]
Loans and Leases Receivable, Net of Deferred Income, Total
Residential Portfolio Segment [Member] | Doubtful [Member] | Home Equity Line of Credit [Member]
Loans and Leases Receivable, Net of Deferred Income, Total

XML

Note 19 - Accumulated Other Comprehensive Income (Loss) - Reclassifications Out of AOCI (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Realized gains on sales and calls of securities	$ 814	$ 323
Income taxes	1,585	1,571
Total reclassifications	8,542	6,003
Reclassification out of Accumulated Other Comprehensive Income [Member]
Total reclassifications	638	3
Reclassification out of Accumulated Other Comprehensive Income [Member] | AOCI, Accumulated Gain (Loss), Debt Securities, Available-for-sale, Parent [Member]
Realized gains on sales and calls of securities	814	4
Income taxes	$ (176)	$ (1)

XML

Note 4 - Loans - Acquired Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Outstanding principal balance	$ 345,450	$ 393,618
Carrying amount	329,839	377,130
Outstanding principal balance	50,815	53,600
Carrying amount	$ 40,353	$ 43,028

XML

Note 3 - Securities - Available for Sale Securities in a Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Total, fair value	$ 35,780	$ 177,735
Total, unrealized loss	378	659
Less than 12 months, fair value	25,711	116,198
Less than 12 months, unrealized loss	316	352
12 months or more, fair value	10,069	61,537
12 months or more, unrealized loss	62	307
US Government-sponsored Enterprises Debt Securities [Member]
Total, fair value	6,534	69,095
Total, unrealized loss	23	219
Less than 12 months, fair value		31,779
Less than 12 months, unrealized loss		44
12 months or more, fair value	6,534	37,316
12 months or more, unrealized loss	23	175
US Treasury Securities [Member]
Total, fair value		14,987
Total, unrealized loss		5
Less than 12 months, fair value		14,987
Less than 12 months, unrealized loss		5
12 months or more, fair value
12 months or more, unrealized loss
Collateralized Mortgage Backed Securities [Member]
Total, fair value	24,558	89,391
Total, unrealized loss	320	393
Less than 12 months, fair value	24,001	66,324
Less than 12 months, unrealized loss	311	266
12 months or more, fair value	557	23,067
12 months or more, unrealized loss	9	127
US States and Political Subdivisions Debt Securities [Member]
Total, fair value	1,710	4,262
Total, unrealized loss	5	42
Less than 12 months, fair value	1,710	3,108
Less than 12 months, unrealized loss	5	37
12 months or more, fair value		1,154
12 months or more, unrealized loss		$ 5
Corporate Debt Securities [Member]
Total, fair value	2,978
Total, unrealized loss	30
Less than 12 months, fair value
Less than 12 months, unrealized loss
12 months or more, fair value	2,978
12 months or more, unrealized loss	$ 30

XML

Note 2 - Acquisitions - Pro Forma Amounts (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Total revenues (1)	$ 21,097	[1]
Net income	$ 5,876

[1] Includes net interest income and noninterest income.

XML

Note 15 - Employee Benefit Plans - Components of Net Periodic Benefit Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Service cost
Interest cost	38	58
Expected return on plan assets	(71)	(68)
Recognized loss due to settlement	30	26
Recognized net actuarial loss	35	65
Net periodic cost	$ 32	$ 81

XML

Note 9 - Long-term Borrowings (Details Textual) - USD ($)	Mar. 31, 2020	Dec. 31, 2019
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged	$ 859,083,000
Long-term Federal Home Loan Bank Advances, Total	0	$ 0
Public Deposit Accounts	254,846,000
US States and Political Subdivisions Debt Securities [Member]
Deposit Liabilities, Collateral Issued, Financial Instruments	$ 85,818,000
FHLB Line of Credit [Member]
Debt Instrument, Percentage of Assets	30.00%
Letters of Credit Outstanding, Amount	$ 205,000,000

XML

Note 12 - Derivative Financial Instruments and Hedging Activities - Derivative Financial Instruments (Details) - Cash Flow Hedging [Member] - Interest Rate Swap [Member] $ in Thousands	Mar. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)
Notional amount	$ 28,500	$ 28,500
Positions	3	3
Assets
Liabilities	5,487	2,658
Cash collateral pledged	$ 5,750	$ 3,450

XML

Note 16 - Fair Value Measurements - Quantitative Information About Level 3 Fair Value Measurements (Details) - Fair Value, Inputs, Level 3 [Member] - Measurement Input, Discount Rate [Member]	Mar. 31, 2020	[1]
Valuation Technique, Discounted Appraisal Value [Member]
Impaired loans	0.08
Other real estate owned, net	0.08
Valuation Technique, Discounted Cash Flow [Member]
Impaired loans	0.0505
Valuation Technique, Discounted Cash Flow [Member] | Minimum [Member]
Impaired loans	0.0325
Valuation Technique, Discounted Cash Flow [Member] | Maximum [Member]
Impaired loans	0.098

[1] Unobservable inputs were weighted by the relative fair value of the impaired loans.

XML

Note 9 - Long-term Borrowings

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Long-term Debt [Text Block]

Note

9

– 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  

March 31, 2020

,

$859,083,000

in eligible collateral was pledged under the blanket floating lien agreement which covers both short-term and long-term borrowings.

There were

no

long-term borrowings with FHLB as of

March 31, 2020

or

December 31, 2019

.

In the regular course of conducting its business, the Company takes deposits from political subdivisions of the states of Virginia and North Carolina. At

March 31, 2020

, the Bank's public deposits totaled

$254,846,000.

 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

March 31, 2020

, the Company had

$205,000,000

in letters of credit with the FHLB outstanding, as well as

$85,818,000

in agency, state, and municipal securities, pledged to provide collateral for such deposits.

XML

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

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Allowance for Credit Losses [Text Block]

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 at and for the indicated dates and periods are presented below (dollars in thousands):

	Three Months Ended March 31, 2020			Year Ended December 31, 2019			Three Months Ended March 31, 2019
Allowance for Loan Losses
Balance, beginning of period	$	13,152		$	12,805		$	12,805
Provision for loan losses		953			456			16
Charge-offs		(105	)		(333	)		(69	)
Recoveries		65			224			54
Balance, end of period	$	14,065		$	13,152		$	12,806
Reserve for Unfunded Lending Commitments
Balance, beginning of period	$	329		$	217		$	217
Provision for (recovery of) unfunded commitments		(13	)		112			12
Balance, end of period	$	316		$	329		$	229

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

The following table presents changes in the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at and for the

three

months ended

March 31, 2020

(dollars in thousands):

	Commercial			Commercial Real Estate		Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2019	$	2,657		$	7,416	$	3,023		$	56		$	13,152
Provision for (recovery of) loan losses		(6	)		939		16			4			953
Charge-offs		(20	)		—		(42	)		(43	)		(105	)
Recoveries		22			3		8			32			65
Balance at March 31, 2020	$	2,653		$	8,358	$	3,005		$	49		$	14,065
Balance at March 31, 2020:
Allowance for Loan Losses
Individually evaluated for impairment	$	247		$	138	$	26		$	—		$	411
Collectively evaluated for impairment		2,391			8,192		2,768			49			13,400
Acquired impaired loans		15			28		211			—			254
Total	$	2,653		$	8,358	$	3,005		$	49		$	14,065
Loans
Individually evaluated for impairment	$	888		$	735	$	1,242		$	—		$	2,865
Collectively evaluated for impairment		329,892			1,062,709		409,534			9,575			1,811,710
Acquired impaired loans		727			31,073		8,538			15			40,353
Total	$	331,507		$	1,094,517	$	419,314		$	9,590		$	1,854,928

The following table presents changes in the Company's allowance for loan losses by portfolio segment and the related loan balance total by segment at and for the year ended

December 31, 2019

(dollars in thousands):

	Commercial			Commercial Real Estate			Residential Real Estate			Consumer			Total
Allowance for Loan Losses
Balance at December 31, 2018	$	2,537		$	7,246		$	2,977		$	45		$	12,805
Provision for loan losses		119			167			58			112			456
Charge-offs		(12	)		(6	)		(70	)		(245	)		(333	)
Recoveries		13			9			58			144			224
Balance at December 31, 2019	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Balance at December 31, 2019:
Allowance for Loan Losses
Individually evaluated for impairment	$	204		$	—		$	26		$	—		$	230
Collectively evaluated for impairment		2,448			7,386			2,794			56			12,684
Acquired impaired loans		5			30			203			—			238
Total	$	2,657		$	7,416		$	3,023		$	56		$	13,152
Loans
Individually evaluated for impairment	$	784		$	502		$	906		$	—		$	2,192
Collectively evaluated for impairment		337,312			1,004,296			433,121			10,866			1,785,595
Acquired impaired loans		981			32,321			9,711			15			43,028
Total	$	339,077		$	1,037,119		$	443,738		$	10,881		$	1,830,815

The allowance for loan losses is allocated to loan segments based upon historical loss factors, risk grades on individual 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, other lending staff and loan review; national, regional, and local economic trends and conditions; legal, regulatory and collateral factors; and concentrations of credit.

The provision for loan losses for the

2020

period was increased as a direct result of early stage declines in economic factors associated with the increases in unemployment claims and a decrease in retail sales in the wake of the COVID-

19

pandemic.  The Bank has been actively working with borrowers at risk who are impacted by the stay-at-home orders in accordance with its DAP including short-term deferments of payment and interest and short-term acceptance of interest only payments.  Many of the Bank's customers have applied for and received the PPP loans.  The Bank believes the increased provision expense in the

first

quarter of

2020

along with these DAP measures will help to mitigate future losses but is likely to experience delinquencies and loan losses as a result of COVID-

19

during the remainder of

2020.

XML

Note 3 - Securities (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Marketable Securities [Table Text Block]

	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Securities available for sale:
U.S. Treasury	$	14,992	$	8	$	—	$	15,000
Federal agencies and GSEs		56,191		1,864		23		58,032
Mortgage-backed and CMOs		209,513		6,271		320		215,464
State and municipal		41,484		1,153		5		42,632
Corporate		11,513		158		30		11,641
Total securities available for sale	$	333,693	$	9,454	$	378	$	342,769

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Securities available for sale:
U.S. Treasury	$	14,992	$	—	$	5	$	14,987
Federal agencies and GSEs		126,829		1,504		219		128,114
Mortgage-backed and CMOs		182,732		1,901		393		184,240
State and municipal		41,427		769		42		42,154
Corporate		9,514		186		—		9,700
Total securities available for sale	$	375,494	$	4,360	$	659	$	379,195

Schedule of Cost of Investments in Restricted Stock [Table Text Block]

	March 31, 2020		December 31, 2019
FRB stock	$	6,425	$	6,415
FHLB stock		2,257		2,215
Total restricted stock	$	8,682	$	8,630

Debt Securities, Available-for-sale, Unrealized Loss Position, Fair Value [Table Text Block]

	Total				Less than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Federal agencies and GSEs	$	6,534	$	23	$	—	$	—	$	6,534	$	23
Mortgage-backed and CMOs		24,558		320		24,001		311		557		9
State and municipal		1,710		5		1,710		5		—		—
Corporate		2,978		30		—		—		2,978		30
Total	$	35,780	$	378	$	25,711	$	316	$	10,069	$	62

	Total				Less than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Treasury	$	14,987	$	5	$	14,987	$	5	$	—	$	—
Federal agencies and GSEs		69,095		219		31,779		44		37,316		175
Mortgage-backed and CMOs		89,391		393		66,324		266		23,067		127
State and municipal		4,262		42		3,108		37		1,154		5
Total	$	177,735	$	659	$	116,198	$	352	$	61,537	$	307

Schedule of Realized Gain (Loss) [Table Text Block]

	Three Months Ended March 31, 2020
Realized gains (losses):
Gross realized gains	$	814
Gross realized losses		—
Net realized gains	$	814
Proceeds from sales of securities	$	5,811

	Three Months Ended March 31, 2019
Realized gains (losses):
Gross realized gains	$	—
Gross realized losses		—
Net realized gains	$	—
Proceeds from sales of securities	$	—

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Note 7 - Leases (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Lease, Cost [Table Text Block]

	March 31, 2020			December 31, 2019
Lease liabilities	$	5,168		$	5,369
Right-of-use assets	$	5,133		$	5,340
Weighted average remaining lease term (years)		8.08			8.17
Weighted average discount rate		3.22	%		3.21	%

	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Lease cost
Operating lease cost	$	249	$	211
Short-term lease cost		1		1
Total lease cost	$	250	$	212
Cash paid for amounts included in the measurement of lease liabilities	$	243	$	209

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Lease payments due	As of March 31, 2020
Nine months ending December 31, 2020	$	716
Twelve months ending December 31, 2021		943
Twelve months ending December 31, 2022		920
Twelve months ending December 31, 2023		817
Twelve months ending December 31, 2024		499
Twelve months ending December 31, 2025		473
Thereafter		1,549
Total undiscounted cash flows		5,917
Discount		(749	)
Lease liabilities	$	5,168

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Note 13 - Stock Based Compensation (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Stock Options Roll Forward [Table Text Block]

	Option Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2019		13,944		$	16.63
Granted		—			—
Exercised		(1,743	)		16.63
Forfeited		—			—
Expired		—			—
Outstanding and exercisable at March 31, 2020		12,201		$	16.63		4.72	$	89

Schedule of Nonvested Restricted Stock Units Activity [Table Text Block]

Restricted Stock	Shares			Weighted Average Grant Date Value Per Share
Nonvested at December 31, 2019		57,271		$	34.84
Granted		19,327			37.26
Vested		(13,284	)		34.12
Forfeited		(664	)		27.28
Nonvested at March 31, 2020		62,650		$	35.82