American National Bankshares (AMNB) 8-K American National Bankshares Inc. Announces Third Quarter Earnings

Date:October 28, 2005

Contact:Neal A. Petrovich, Senior Vice President and Chief Financial Officer

434-773-2242petrovichn@amnb.com

Traded:NASDAQ National MarketSymbol:AMNB

AMERICAN NATIONAL BANKSHARES INC. ANNOUNCES THIRD QUARTER EARNINGS

Danville, VA -- American National Bankshares Inc. (NASDAQ: AMNB), parent company of American National Bank and Trust Company, reported third quarter earnings of $.42 per share on both a basic and diluted basis, equaling the per share earnings from the third quarter of 2004. Net income was $2.31 million for the recently completed quarter, compared with $2.34 million in the third quarter of 2004.

For the first nine months of 2005, net income was $7.32 million, up from $7.23 million in the comparable 2004 period. Basic earnings per share improved 3.9%, from $1.29 in the 2004 period to $1.34 in the 2005 period. Diluted earnings per share also improved 3.9%, from $1.28 during the first nine months of 2004 to $1.33 in 2005. Return on average assets increased from 1.52% for the first nine months of 2004 to 1.58% for the first nine months of 2005, and return on average equity improved from 13.42% to 13.67%.

Included in the recent quarter were expenses of approximately $193,000 associated with the company’s opening of a full service office in Lynchburg, Virginia. Initially opened as a loan production operation, the office was expanded into a full service location during the third quarter. The office now provides commercial and consumer lending, deposit, trust and investment services to the Lynchburg market. “These types of investments in people and facilities are a necessary component of our expansion plans”, commented Charles H. Majors, President and Chief Executive Officer. On October 19, 2005, the company announced plans to further expand into the Lynchburg area by acquiring Community First Financial Corporation. “We view the Lynchburg market as a natural extension of our market area, and one with the growth characteristics we desire”, stated Majors.

Net interest income was $5.93 million for the third quarter of 2005, up 5.5% from the third quarter of 2004, due to interest rate increases and loan growth. The interest margin, on a fully taxable equivalent basis, improved to 4.21% in the third quarter of 2005, due to interest rate increases, loan growth, and a change in the mix of deposits towards lower cost accounts. The interest margin for the third quarter of 2004 was 3.94%.

Noninterest income for the third quarter of 2005 totaled $1.91 million, a 10.1% increase over the third quarter of 2004. This improvement was due primarily to increases in mortgage banking, retail brokerage, and deposit account service charge activity.

As mentioned earlier, American National recently announced plans to acquire Community First Financial Corporation, the parent company of Community First Bank, which operates four offices serving the City of Lynchburg, Virginia and the counties of Bedford, Campbell and Nelson. The bank had reported assets of $165 million at June 30, 2005. The acquisition is subject to certain conditions, including Community First shareholder approval and regulatory approval, and is expected to close in the first quarter of 2006. Mr. Majors commented, “While the effects of this transaction are expected to negatively impact earnings growth in the near-term, we believe it will positively impact net income beginning in the fourth quarter of 2006, as cost savings are more fully realized.”

About American National

American National Bankshares Inc. is the holding company of American National Bank and Trust Company, a community bank with fifteen full service offices and one loan production office. Full service offices are located in Danville, Chatham, Collinsville, Gretna, Martinsville, Henry County, South Boston, and Lynchburg, Virginia, and in Yanceyville, North Carolina. The Bank also operates a loan production office in Greensboro, North Carolina. American National Bank and Trust Company provides a full array of financial products and services, including commercial, mortgage, and consumer banking; trust and investment services; and insurance. Services are also provided through nineteen ATMs, “AmeriLink” Internet banking, and 24-hour “Access American” phone banking. Additional information is available on the Bank’s website at www.amnb.com. The shares of American National Bankshares Inc. are traded on the NASDAQ National Market under the symbol “AMNB”.

This press release may contain “forward-looking statements,” within the meaning of federal securities laws that involve significant risks and uncertainties. Statements herein are based on certain assumptions and analyses by the Corporation and are factors it believes are appropriate in the circumstances. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: changes in interest rates; changes in accounting principles, policies, or guidelines; significant changes in the economic scenario; significant changes in regulatory requirements; and significant changes in securities markets. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in the Corporation’s most recent Form 10-K report and other documents filed with the Securities and Exchange Commission. American National Bankshares Inc. does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

American National Bankshares Inc. and Subsidiary
Consolidated Balance Sheets
(Dollars in thousands, except share data)
Unaudited
	September 30
ASSETS	2005			2004
Cash and due from banks	$	17,457		$	13,676
Interest-bearing deposits in other banks		6,407			2,809
Securities available for sale, at fair value		146,922			177,664
Securities held to maturity		19,050			21,328
Total securities		165,972			198,992
Loans held for sale		1,379			1,203
Loans, net of unearned income		409,219			394,710
Less allowance for loan losses		(8,515	)		(5,599	)
Net Loans		400,704			389,111
Bank premises and equipment, net		7,660			7,660
Core deposit intangibles, net		171			597
Accrued interest receivable and other assets		11,465			9,391
Total assets	$	611,215		$	623,439
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Demand deposits -- noninterest-bearing	$	90,880		$	81,670
Demand deposits -- interest-bearing		79,553			71,242
Money market deposits		42,035			51,139
Savings deposits		80,688			82,649
Time deposits		184,142			197,317
Total deposits		477,298			484,017
Repurchase agreements		41,873			45,696
FHLB borrowings		17,275			19,425
Accrued interest payable and other liabilities		2,855			2,873
Total liabilities		539,301			552,011
Shareholders' equity:
Common stock, $1 par, 10,000,000 shares authorized,
5,437,789 shares outstanding at September 30, 2005 and
5,522,299 shares outstanding at September 30, 2004		5,438			5,522
Capital in excess of par value		9,463			9,433
Retained earnings		57,661			56,217
Accumulated other comprehensive income, net		(648	)		256
Total shareholders' equity		71,914			71,428
Total liabilities and shareholders' equity	$	611,215		$	623,439

American National Bankshares Inc. and Subsidiary
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
	Three Months Ended				Nine Months Ended
	September 30				September 30
	2005		2004		2005		2004
Interest Income:
Interest and fees on loans	$	6,535	$	5,572	$	18,949	$	16,885
Interest and dividends on securities:
Taxable		969		1,276		3,109		3,827
Tax-exempt		507		500		1,531		1,496
Dividends		50		37		155		124
Other interest income		83		24		153		68
Total interest income		8,144		7,409		23,897		22,400
Interest Expense:
Interest on deposits		1,736		1,414		4,868		4,501
Interest on repurchase agreements		250		126		617		377
Interest on other borrowings		224		243		719		734
Total interest expense		2,210		1,783		6,204		5,612
Net Interest Income		5,934		5,626		17,693		16,788
Provision for Loan Losses		180		255		720		725
Net Interest Income After Provision
for Loan Losses		5,754		5,371		16,973		16,063
Noninterest Income:
Trust and investment services		731		737		2,218		2,208
Service charges on deposit accounts		628		590		1,819		1,795
Other fees and commissions		277		201		801		669
Mortgage banking income		213		116		478		460
Securities gains, net		-		-		45		119
Other		62		92		575		383
Total noninterest income		1,911		1,736		5,936		5,634
Noninterest Expense:
Salaries		2,226		1,855		6,147		5,469
Pension and other employee benefits		509		427		1,480		1,261
Occupancy and equipment		631		580		1,865		1,844
Bank franchise tax		136		139		408		417
Core deposit intangible amortization		88		112		313		337
Other		832		733		2,420		2,268
Total noninterest expense		4,422		3,846		12,633		11,596
Income Before Income Tax Provision		3,243		3,261		10,276		10,101
Income Tax Provision		933		922		2,959		2,868
Net Income	$	2,310	$	2,339	$	7,317	$	7,233
Net Income Per Common Share:
Basic	$	0.42	$	0.42	$	1.34	$	1.29
Diluted	$	0.42	$	0.42	$	1.33	$	1.28
Average Common Shares Outstanding:
Basic		5,441,664		5,587,042		5,474,514		5,615,946
Diluted		5,481,179		5,632,715		5,518,928		5,666,120

Financial Highlights
American National Bankshares Inc. and Subsidiary
(Dollars in thousands,
except per share data, unaudited)	Three Months Ended September 30,										Nine Months Ended September 30,
	2005			2004			Change				2005			2004			Change
EARNINGS
Interest income	$	8,144		$	7,409			9.9	%		$	23,897		$	22,400			6.7	%
Interest expense		2,210			1,783			23.9				6,204			5,612			10.5
Net interest income		5,934			5,626			5.5				17,693			16,788			5.4
Provision for loan losses		180			255			(29.4	)			720			725			(0.7	)
Noninterest income		1,911			1,736			10.1				5,936			5,634			5.4
Noninterest expense		4,422			3,846			15.0				12,633			11,596			8.9
Income taxes		933			922			1.2				2,959			2,868			3.2
Net income		2,310			2,339			(1.2	)			7,317			7,233			1.2
PER COMMON SHARE
Earnings per share - basic	$	0.42		$	0.42			0.0	%		$	1.34		$	1.29			3.9	%
Earnings per share - diluted		0.42			0.42			0.0				1.33			1.28			3.9
Cash dividends paid		0.21			0.20			5.0				0.62			0.59			5.1
Book value												13.22			12.93			2.2
Closing market price												23.43			24.31			(3.6	)
FINANCIAL RATIOS
Return on average assets		1.50	%		1.50	%		0		bp		1.58	%		1.52	%		6		bp
Return on average shareholders' equity		12.88			13.11			(23	)			13.67			13.42			25
Average equity to average assets		11.66			11.47			19				11.54			11.34			20
Net interest margin (FTE)		4.21			3.94			27				4.15			3.86			29
Efficiency ratio		54.40			50.45			395				51.66			50.47			119
PERIOD END BALANCES
Securities											$	165,972		$	198,992			(16.6	)%
Loans held for sale												1,379			1,203			14.6
Loans, net of unearned income												409,219			394,710			3.7
Assets												611,215			623,439			(2.0	)
Deposits												477,298			484,017			(1.4	)
Repurchase agreements												41,873			45,696			(8.4	)
FHLB borrowings												17,275			19,425			(11.1	)
Shareholders' equity												71,914			71,428			0.7
AVERAGE BALANCES
Securities	$	166,478		$	196,568			(15.3	)%		$	173,178		$	196,754			(12.0	)%
Total loans		413,647			394,969			4.7				414,940			402,857			3.0
Interest-earning assets		589,808			598,288			(1.4	)			594,963			608,390			(2.2	)
Assets		615,162			622,321			(1.2	)			618,607			633,635			(2.4	)
Interest-bearing deposits		385,640			405,126			(4.8	)			397,057			415,733			(4.5	)
Deposits		476,562			482,169			(1.2	)			481,231			490,187			(1.8	)
Repurchase agreements		46,187			45,108			2.4				43,287			47,446			(8.8	)
FHLB borrowings		17,970			20,530			(12.5	)			20,218			21,370			(5.4	)
Shareholders' equity		71,719			71,377			0.5				71,359			71,869			(0.7	)
CAPITAL
Average shares outstanding - basic		5,441,664			5,587,042			(2.6	)%			5,474,514			5,615,946			(2.5	)%
Average shares outstanding - diluted		5,481,179			5,632,715			(2.7	)			5,518,928			5,666,120			(2.6	)
Shares repurchased		15,100			79,400							94,450			154,968
Average price of shares repurchased	$	23.73		$	23.15						$	24.41		$	23.62
ALLOWANCE FOR LOAN LOSSES
Beginning balance	$	8,378		$	5,457			53.5	%		$	7,982		$	5,292			50.8	%
Provision for loan losses		180			255			(29.4	)			720			725			(0.7	)
Charge-offs		(105	)		(169	)		(37.9	)			(377	)		(588	)		(35.9	)
Recoveries		62			56			10.7				190			170			11.8
Ending balance	$	8,515		$	5,599			52.1			$	8,515		$	5,599			52.1
NONPERFORMING ASSETS
Nonperforming loans:
90 days past due											$	-		$	-			NA	%
Nonaccrual												9,000			4,307			109.0
OREO												125			231			(45.9	)
Nonperforming assets											$	9,125		$	4,538			101.1
ASSET QUALITY RATIOS **
Net chargeoffs to average loans												0.06	%		0.14	%		(8	)	bp
Nonperforming assets to total assets												1.49			0.73			76
Nonperforming loans to total loans												2.20			1.09			111
Allowance for loan losses to total loans												2.08			1.42			66
Allowance for loan losses
to nonperforming loans												0.95	x		1.30	x		(35	)
Notes:
bp - Change is measured as difference in basis points.
** - Balance sheet amounts used in calculations are based on period end balances.