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American National Bankshares Inc. Reports Fourth Quarter 2010 Earnings

1/24/2011

Company Release - 01/24/2011 16:30

DANVILLE, VA -- (MARKET WIRE) -- 01/24/11 -- American National Bankshares Inc. (NASDAQ: AMNB)

 

--  Q4 net income of $1,851,000 and diluted EPS of $0.30 per share
--  Q4 net interest margin 3.67%
--  Average shareholders' equity of $111 million represents 13.12% of
    average assets

 

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

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

Financial Performance and Overview

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

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

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

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

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

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

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

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

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

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

Capital

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

Credit Quality Measurements

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

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

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

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

Net Interest Income

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

Noninterest Income

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

Noninterest Expense

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

Merger with MidCarolina Financial Corporation

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

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

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

About American National

American National Bankshares Inc. is a bank holding company with assets of $834 million. Headquartered in Danville, Virginia, it is the holding company of American National Bank and Trust Company, a community bank serving Southern and Central Virginia and the northern portion of Central North Carolina with eighteen banking offices. The Bank also manages an additional $417 million of assets in its Trust and Investment Services Division. Additional information is available on the Bank's website at www.amnb.com. The shares of American National Bankshares Inc. are traded on the NASDAQ Global Select Market under the symbol "AMNB."

Forward-Looking Statements

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

 

            American National Bankshares Inc. and Subsidiaries
                        Consolidated Balance Sheets
          (Dollars in thousands, except share and per share data)
                                Unaudited


                                                          December 31
                                                      --------------------
ASSETS                                                  2010       2009
                                                      ---------  ---------

Cash and due from banks                               $   9,547  $  13,250
Interest-bearing deposits in other banks                  8,967     10,693

Securities available for sale, at fair value            228,295    188,795
Securities held to maturity                               3,334      6,529
                                                      ---------  ---------
      Total securities                                  231,629    195,324
                                                      ---------  ---------

Restricted stock, at cost                                 4,062      4,362
Loans held for sale                                       3,135      2,490

Loans                                                   520,781    527,991
  Less allowance for loan losses                         (8,420)    (8,166)
                                                      ---------  ---------
      Net Loans                                         512,361    519,825
                                                      ---------  ---------

Premises and equipment, net                              19,509     19,195
Other real estate owned, net                              3,716      3,414
Goodwill                                                 22,468     22,468
Core deposit intangibles, net                             1,320      1,698
Accrued interest receivable and other assets             16,950     16,254
                                                      ---------  ---------

      Total assets                                    $ 833,664  $ 808,973
                                                      =========  =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Demand deposits -- noninterest-bearing             $ 105,240  $ 101,735
   Demand deposits -- interest-bearing                   90,012     97,025
   Money market deposits                                 59,891     75,554
   Savings deposits                                      62,522     61,873
   Time deposits                                        322,433    268,086
                                                      ---------  ---------
      Total deposits                                    640,098    604,273

   Short-term borrowings:
      Customer repurchase agreements                     47,084     65,929
      Other short-term borrowings                         6,110          -
   Long-term borrowings                                   8,488      8,638
   Trust preferred capital notes                         20,619     20,619
   Accrued interest payable and other liabilities         3,178      3,125
                                                      ---------  ---------
      Total liabilities                                 725,577    702,584
                                                      ---------  ---------

Shareholders' equity:
   Common stock, $1 par, 20,000,000 shares
    authorized, 6,127,735 shares outstanding at
    December 31, 2010 and 6,110,335 shares outstanding
    at December 31, 2009                                  6,128      6,110
   Capital in excess of par value                        27,268     26,962
   Retained earnings                                     74,850     72,208
   Accumulated other comprehensive income (loss), net      (159)     1,109
                                                      ---------  ---------
      Total shareholders' equity                        108,087    106,389
                                                      ---------  ---------

      Total liabilities and shareholders' equity      $ 833,664  $ 808,973
                                                      =========  =========




            American National Bankshares Inc. and Subsidiaries
                    Consolidated Statements of Income
          (Dollars in thousands, except share and per share data)
                                Unaudited


                                 Three Months Ended   Twelve Months Ended
                                    December 31           December 31
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
  Interest and Dividend Income:
   Interest and fees on loans   $   6,960  $   7,445  $  28,180  $  31,062
   Interest and dividends on
    securities:
     Taxable                        1,198      1,259      5,042      4,853
     Tax-exempt                       647        437      2,288      1,673
     Dividends                         24         25         95         95
   Other interest income               92         91        360        378
                                ---------  ---------  ---------  ---------
       Total interest and
        dividend income             8,921      9,257     35,965     38,061
                                ---------  ---------  ---------  ---------

 Interest Expense:
   Interest on deposits             1,704      1,771      6,708      8,399
   Interest on short-term
    borrowings                         85        127        382        675
   Interest on long-term
    borrowings                         64         66        256        342
   Interest on trust preferred
    capital notes                     343        343      1,373      1,373
                                ---------  ---------  ---------  ---------
      Total interest expense        2,196      2,307      8,719     10,789
                                ---------  ---------  ---------  ---------

 Net Interest Income                6,725      6,950     27,246     27,272
   Provision for loan losses          485        328      1,490      1,662
                                ---------  ---------  ---------  ---------

Net Interest Income After
 Provision for Loan Losses          6,240      6,622     25,756     25,610
                                ---------  ---------  ---------  ---------

 Noninterest Income:
   Trust fees                         936        815      3,391      3,153
   Service charges on deposit
    accounts                          457        536      1,897      2,085
   Other fees and commissions         307        264      1,163      1,014
   Mortgage banking income            543        390      1,560      1,605
   Securities gains, net               84          1        126          3
   Foreclosed real estate
    (losses), net                    (304)      (253)      (583)    (1,475)
   Other                              579        184        977        658
                                ---------  ---------  ---------  ---------
      Total noninterest income      2,602      1,937      8,531      7,043
                                ---------  ---------  ---------  ---------

 Noninterest Expense:
   Salaries                         2,789      2,314     10,379     10,048
   Employee benefits                  618        750      2,455      3,201
   Occupancy and equipment            725        762      2,934      2,927
   FDIC assessment                    206        202        803      1,186
   Bank franchise tax                 167        159        670        642
   Core deposit intangible
    amortization                       94         94        377        377
   Other                            1,603      1,243      5,210      4,937
                                ---------  ---------  ---------  ---------
      Total noninterest expense     6,202      5,524     22,828     23,318
                                ---------  ---------  ---------  ---------

 Income Before Income Taxes         2,640      3,035     11,459      9,335
 Income Taxes                         789        866      3,181      2,525
                                ---------  ---------  ---------  ---------
  Net Income                    $   1,851  $   2,169  $   8,278  $   6,810
                                =========  =========  =========  =========

Net Income Per Common Share:
    Basic                       $    0.30  $    0.36  $    1.35  $    1.12
    Diluted                     $    0.30  $    0.35  $    1.35  $    1.12
 Average Common Shares
  Outstanding:
    Basic                       6,126,817  6,108,340  6,123,870  6,097,810
    Diluted                     6,141,123  6,116,800  6,131,650  6,102,895



American National Bankshares Inc. and Subsidiaries
Financial Highlights

(In thousands, except
 share, ratio and
 nonfinancial data,
 unaudited)           4th Qtr    3rd Qtr    4th Qtr      YTD        YTD
                       2010       2010       2009       2010       2009
                     ---------  ---------  ---------  ---------  ---------
EARNINGS
   Interest income   $   8,921  $   8,982  $   9,257  $  35,965  $  38,061
   Interest expense      2,196      2,223      2,307      8,719     10,789
   Net interest
    income               6,725      6,759      6,950     27,246     27,272
   Provision for
    loan losses            485        435        328      1,490      1,662
   Noninterest
    income               2,602      2,246      1,937      8,531      7,043
   Noninterest
    expense              6,202      5,536      5,524     22,828     23,318
   Income taxes            789        806        866      3,181      2,525
   Net income            1,851      2,228      2,169      8,278      6,810

PER COMMON SHARE
   Earnings per
    share - basic    $    0.30  $    0.36  $    0.36  $    1.35  $    1.12
   Earnings per
    share - diluted       0.30       0.36       0.35       1.35       1.12
   Cash dividends
    declared              0.23       0.23       0.23       0.92       0.92
   Book value per
    share                17.64      18.10      17.41      17.64      17.41
   Book value per
    share - tangible
    (a)                  13.76      14.20      13.46      13.76      13.46
   Closing market
    price                23.55      21.94      21.90      23.55      21.90

FINANCIAL RATIOS
   Return on average
    assets                0.88%      1.07%      1.07%      1.00%      0.84%
   Return on average
    equity                6.69       8.11       8.24       7.59       6.57
   Return on average
    tangible equity
    (b)                   8.83      10.69      11.03      10.05       8.94
   Average equity to
    average assets       13.12      13.14      12.93      13.18      12.79
   Net interest
    margin, taxable
    equivalent            3.67       3.74       3.88       3.78       3.81
   Efficiency ratio      65.70      59.54      58.79      61.53      63.46
   Effective tax
    rate                 29.89      26.57      28.53      27.76      27.05

PERIOD-END BALANCES
   Securities        $ 235,691  $ 218,096  $ 199,686  $ 235,691  $ 199,686
   Loans held for
    sale                 3,135      3,952      2,490      3,135      2,490
   Loans, net of
    unearned income    520,781    519,421    527,991    520,781    527,991
   Goodwill and
    other
    intangibles         23,788     23,883     24,166     23,788     24,166
   Assets              833,664    824,217    808,973    833,664    808,973
   Assets - tangible
    (a)                809,876    800,334    784,807    809,876    784,807
   Deposits            640,098    625,630    604,273    640,098    604,273
   Customer
    repurchase
    agreements          47,084     54,285     65,929     47,084     65,929
   Other short-term
    borrowings           6,110          -          -      6,110          -
   Long-term
    borrowings          29,107     29,144     29,257     29,107     29,257
   Shareholders'
    equity             108,087    110,868    106,389    108,087    106,389
   Shareholders'
    equity -
    tangible (a)        84,299     86,985     82,223     84,299     82,223

AVERAGE BALANCES
   Securities        $ 215,208  $ 214,532  $ 167,546  $ 203,296  $ 153,237
   Loans held for
    sale                 5,629      4,991      4,394      4,159      5,436
   Loans, net of
    unearned income    521,832    519,101    540,103    520,315    553,831
   Interest-earning
    assets             770,649    762,742    744,007    754,833    741,308
   Goodwill and
    other
    intangibles         23,844     23,935     24,217     23,982     24,360
   Assets              843,922    836,033    814,232    827,422    810,140
   Assets - tangible
    (a)                820,078    812,098    790,015    803,440    785,780
   Interest-bearing
    deposits           537,662    530,191    499,725    522,614    507,014
   Deposits            647,526    633,692    604,506    625,822    606,700
   Customer
    repurchase
    agreements          52,068     59,126     70,014     59,270     63,115
   Other short-term
    borrowings             251         92         91         87      1,037
   Long-term
    borrowings          29,136     29,174     29,287     29,192     30,849
   Shareholders'
    equity             110,688    109,885    105,302    109,060    103,625
   Shareholders'
    equity -
    tangible (a)        86,844     85,950     81,085     85,078     79,265

CAPITAL
   Average shares
    outstanding -
    basic            6,126,817  6,125,359  6,108,340  6,123,870  6,097,810
   Average shares
    outstanding -
    diluted          6,141,123  6,131,129  6,116,800  6,131,650  6,102,895
   Shares
    repurchased              -          -          -          -      7,600
   Average price of
    shares
    repurchased      $       -  $       -  $       -  $       -  $   15.92

ALLOWANCE FOR LOAN
 LOSSES
   Beginning balance $   8,542  $   8,135  $   8,260  $   8,166  $   7,824
   Provision for
    loan losses            485        435        328      1,490      1,662
   Charge-offs            (662)      (137)      (485)    (1,531)    (1,601)
   Recoveries               55        109         63        295        281
                     ---------  ---------  ---------  ---------  ---------
   Ending balance    $   8,420  $   8,542  $   8,166  $   8,420  $   8,166

LOANS
   Construction and
    land development $  37,168  $  42,602  $  40,371  $  37,168  $  40,371
   Commercial real
    estate             210,393    206,142    208,066    210,393    208,066
   Residential real
    estate             119,398    118,554    121,639    119,398    121,639
   Home equity          61,064     64,847     64,678     61,064     64,678
   Commercial and
    industrial          85,051     80,818     86,312     85,051     86,312
   Consumer              7,707      6,458      6,925      7,707      6,925
                     ---------  ---------  ---------  ---------  ---------
   Total             $ 520,781  $ 519,421  $ 527,991  $ 520,781  $ 527,991

NONPERFORMING ASSETS
 AT PERIOD-END
   Nonperforming
    loans:
     90 days past
      due            $       -  $       -  $       -  $       -  $       -
     Nonaccrual          2,597      3,910      3,642      2,597      3,642
   Foreclosed real
    estate               3,716      3,987      3,414      3,716      3,414
                     ---------  ---------  ---------  ---------  ---------
   Nonperforming
    assets           $   6,313  $   7,897  $   7,056  $   6,313  $   7,056

ASSET QUALITY RATIOS
   Annualized net
    chargeoffs to
    average loans         0.47%      0.02%      0.31%      0.24%      0.24%
   Nonperforming
    assets to total
    assets                0.76       0.96       0.87       0.76       0.87
   Nonperforming
    loans to total
    loans                 0.50       0.75       0.69       0.50       0.69
   Allowance for
    loan losses to
    total loans           1.62       1.64       1.55       1.62       1.55
   Allowance for
    loan losses to
    nonperforming
    loans               324.22     218.47     224.22     324.22     224.22

OTHER DATA
   Fiduciary assets
    at period-end
    (c)              $ 368,018  $ 370,016  $ 358,124  $ 368,018  $ 358,124
   Retail brokerage
    assets at
    period-end (c)   $  49,311  $  47,507  $  54,696  $  49,311  $  54,696
   Number full-time
    equivalent
    employees (d)          242        242        238        242        238
   Number of full
    service offices         18         18         18         18         18
   Number of loan
    production
    offices                  1          1          2          1          2
   Number of ATM's          26         26         24         26         24

Notes:

      (a) - Excludes goodwill and other intangible assets
      (b) - Excludes amortization expense, net of tax, of intangible assets
      (c) - Market value
      (d) - Average for quarter
      N/A - Percentage change is not applicable or not meaningful



                       Net Interest Income Analysis
          For the Three Months Ended December 31, 2010 and 2009
                  (in thousands, except yields and rates)


                                            Interest
                      Average Balance    Income/Expense      Yield/Rate
                      ----------------- ----------------- ----------------
                        2010     2009     2010     2009     2010     2009
                      -------- -------- -------- -------- -------  -------
Loans:
  Commercial          $ 75,012 $ 80,712 $    900 $    986    4.76%    4.89%
  Real estate          445,017  452,136    5,949    6,338    5.35     5.61
  Consumer               7,432    7,255      144      148    7.69     8.16
                      -------- -------- -------- -------- -------  -------
    Total loans        527,461  540,103    6,993    7,472    5.30     5.53
                      -------- -------- -------- -------- -------  -------

Securities:
  Federal agencies &
   GSE                  48,184   61,858      382      555    3.17     3.59
  Mortgage-backed &
   CMO's                57,251   38,002      484      482    3.38     5.07
  State and municipal  103,692   59,358    1,255      839    4.84     5.65
  Other                  6,081    8,328       55       76    3.62     3.65
                      -------- -------- -------- -------- -------  -------
    Total securities   215,208  167,546    2,176    1,952    4.04     4.66
                      -------- -------- -------- -------- -------  -------

Deposits in other
 banks                  27,980   36,358       92       91    1.30     1.00
                      -------- -------- -------- -------- -------  -------

  Total
   interest-earning
   assets              770,649  744,007    9,261    9,515    4.80     5.12
                                        -------- -------- -------  -------

Non-earning assets      73,273   70,225
                      -------- --------

    Total assets      $843,922 $814,232
                      ======== ========

Deposits:
  Demand              $ 93,133 $ 94,764       18       27    0.08     0.11
  Money market          60,500   72,342       86       74    0.56     0.41
  Savings               63,010   62,026       22       33    0.14     0.21
  Time                 321,019  270,593    1,578    1,637    1.95     2.42
                      -------- -------- -------- -------- -------  -------
    Total deposits     537,662  499,725    1,704    1,771    1.26     1.42

Customer repurchase
 agreements             52,068   70,014       85      127    0.65     0.73
Other short-term
 borrowings                251       91        0        0    0.14     0.39
Long-term borrowings    29,136   29,287      407      409    5.59     5.59
                      -------- -------- -------- -------- -------  -------

    Total
     interest-bearing
     liabilities       619,117  599,117    2,196    2,307    1.41     1.54
                                        -------- -------- -------  -------

Noninterest bearing
 demand deposits       109,864  104,781
Other liabilities        4,253    5,032
Shareholders' equity   110,688  105,302
                      -------- --------
    Total liabilities
     and shareholders'
     equity           $843,922 $814,232
                      ======== ========

Interest rate spread                                         3.39%    3.58%
                                                          =======  =======
Net interest margin                                          3.67%    3.88%
                                                          =======  =======

Net interest income
 (taxable equivalent
 basis)                                    7,065    7,208
Less: Taxable
 equivalent
 adjustment                                  340      258
                                        -------- --------
Net interest income                     $  6,725 $  6,950
                                        ======== ========



                       Net Interest Income Analysis
                    For the Years Ended 2010 and 2009
                  (in thousands, except yields and rates)


                                            Interest          Average
                      Average Balance    Income/Expense      Yield/Rate
                      ----------------- ----------------- ----------------
                        2010     2009     2010     2009     2010     2009
                      -------- -------- -------- -------- -------  -------
Loans:
  Commercial          $ 77,382 $ 88,551 $  3,726 $  4,213    4.82%    4.76%
  Real estate          440,318  463,093   24,045   26,294    5.46     5.68
  Consumer               6,774    7,623      541      659    7.99     8.64
                      -------- -------- -------- -------- -------  -------
    Total loans        524,474  559,267   28,312   31,166    5.40     5.57
                      -------- -------- -------- -------- -------  -------

Securities:
  Federal agencies &
   GSE                  59,960   52,694    1,917    2,139    3.20     4.06
  Mortgage-backed &
   CMO's                50,178   40,363    1,957    2,100    3.90     5.20
  State and municipal   86,439   52,687    4,478    2,972    5.18     5.64
  Other                  6,719    7,493      240      261    3.57     3.48
                      -------- -------- -------- -------- -------  -------
    Total securities   203,296  153,237    8,592    7,472    4.23     4.88
                      -------- -------- -------- -------- -------  -------

Deposits in other
 banks                  27,063   28,804      360      378    1.33     1.31
                      -------- -------- -------- -------- -------  -------

  Total
   interest-earning
   assets              754,833  741,308   37,264   39,016    4.94     5.26
                                        -------- -------- -------  -------

Non-earning assets      72,589   68,832
                      -------- --------

    Total assets      $827,422 $810,140
                      ======== ========

Deposits:
  Demand              $ 94,236 $ 98,576       76      290    0.08     0.29
  Money market          73,358   72,918      371      527    0.51     0.72
  Savings               63,484   62,219       88      148    0.14     0.24
  Time                 291,536  273,301    6,173    7,434    2.12     2.72
                      -------- -------- -------- -------- -------  -------
    Total deposits     522,614  507,014    6,708    8,399    1.28     1.66

Customer repurchase
 agreements             59,270   63,115      382      670    0.64     1.06
Other short-term
 borrowings                 87    1,037        0        5    0.42     0.48
Long-term borrowings    29,192   30,849    1,629    1,715    5.58     5.56
                      -------- -------- -------- -------- -------  -------

  Total
   interest-bearing
   liabilities         611,163  602,015    8,719   10,789    1.43     1.79
                      -------- -------- -------- -------- -------  -------

Noninterest bearing
 demand deposits       103,208   99,686
Other liabilities        3,991    4,814
Shareholders' equity   109,060  103,625
                      -------- --------
    Total liabilities
     and shareholders'
     equity           $827,422 $810,140
                      ======== ========

Interest rate spread                                         3.51%    3.47%
                                                          =======  =======
Net interest margin                                          3.78%    3.81%
                                                          =======  =======

Net interest income
 (taxable equivalent
 basis)                                   28,545   28,227
Less: Taxable
 equivalent
 adjustment                                1,299      955
                                        -------- --------
Net interest income                     $ 27,246 $ 27,272
                                        ======== ========

 

Source: American National Bankshares Inc.

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