American National Bankshares Inc. Reports Third Quarter

DANVILLE, VA--(Marketwired - October 20, 2016) - American National Bankshares Inc. ("American National") (NASDAQ: AMNB)

Organic loan growth of $102.2 million (10.4%) during last four quarters
De novo initiatives in Roanoke and Winston-Salem
Q3 2016 net income of $4.0 million and diluted EPS of $0.45
Net interest margin of 3.50% for Q3 2016
Average shareholders' equity of $203.5 million is 12.67% of average assets

American National Bankshares Inc. ("American National") (NASDAQ: AMNB), parent company of American National Bank and Trust Company, today announced net income of $3,963,000 for the third quarter of 2016 compared to $4,037,000 for the third quarter of 2015, a $74,000 or 1.8% decrease. Diluted net income per common share was $0.45 for the 2016 quarter compared to $0.47 for the 2015 quarter. Net income for the third quarter of 2016 produced annualized returns on average assets of 0.99%, on average equity of 7.79%, and on average tangible equity of 10.41%.

Net income for the first nine months of 2016 was $12,179,000 compared to $10,432,000 for the comparable period of 2015, a $1,747,000 or 16.7% increase. Basic and diluted net income per common share was $1.41 for the 2016 period compared to $1.20 for the 2015 period.

Financial Performance and Overview
Jeffrey V. Haley, President and Chief Executive Officer, reported, "We are excited about our results for 2016 and even more excited about our prospects for 2017. We recently announced the hiring of a team of bankers in Roanoke and a team of bankers in Winston-Salem. We believe these two de novo efforts will complement our existing organic growth and expand our footprint in North Carolina and Virginia. We anticipate these new initiatives will have a material and positive impact to the bank's balance sheet, especially over the next five quarters.

"In the meantime, the legacy bank is growing well. Loans have increased $102.2 million or 10.4% during the past year. We are encouraged that a combination of active business development and improving local market economic conditions are resulting in this high quality growth. However, the continuing challenge for us in this competitive environment is achieving reasonable risk adjusted yield on lending.

"Deposits, which are needed to fund loans, have grown $79.5 million or 6.5% over the past year. This growth is mostly in non-maturity, core deposits, the heart of our balance sheet. We continue working to grow these core deposits and their affiliated relationships, but the challenge in this ongoing low rate environment is to do so in a cost effective yet competitive manner. Our cost of interest bearing deposits for the third quarter was 0.53%, compared to 0.52% for the 2015 quarter.

"Earnings for the quarter were good, $3,963,000 compared to $4,037,000, a decrease of $74,000 or 1.8%. The major driver for this slight decrease was increased salaries expense, largely related to the de novo Roanoke start up."

Haley concluded, "We believe American National has tremendous growth potential, in our new and our existing markets. We think that the next year can be transformational for us. We believe we can achieve this dynamic change and maintain the same fundamental corporate character, i.e. asset quality and strong capital, that has served the bank so well over the past decade."

Capital
American National's capital ratios remain strong and exceed all regulatory requirements.

For the quarter ended September 30, 2016, average shareholders' equity was 12.67% of average assets, compared to 12.95% for the quarter ended September 30, 2015.

Book value per common share was $23.66 at September 30, 2016, compared to $22.81 at September 30, 2015.

Tangible book value per common share was $18.34 at September 30, 2016, compared to $17.32 at September 30, 2015.

Credit Quality Measurements
Non-performing assets ($3,846,000 of non-performing loans and $1,145,000 of other real estate owned) represented 0.31% of total assets at September 30, 2016, compared to 0.44% at September 30, 2015.

Annualized net charge offs to average loans were one basis point (0.01%) for the 2016 third quarter, compared to seven basis points (0.07%) for the same quarter in 2015.

Other real estate owned was $1,145,000 compared to $1,333,000 at September 30, 2015, a decrease of 188,000 or 14.1%.

Acquisition Related Financial Impact
The acquisition accounting adjustments related to our two recent acquisitions have had and continue to have a positive impact on net interest income and income before income tax for American National. The impact of these adjustments is summarized below (dollars in thousands):


Acquisition related financial impact

For the quarter ended September 30,	2016	2015
Net interest income	$356	$548
Income before Income taxes	$143	$248

For the nine months ended September 30,	2016	2015
Net interest income	$1,709	$2,503
Income before Income taxes	$920	$1,602

Net Interest Income
Net interest income before the provision for loan losses increased to $12,464,000 in the third quarter of 2016 from $12,061,000 in the third quarter of 2015, an increase of $403,000 or 3.3%.

For the 2016 quarter, the net interest margin was 3.50% compared to 3.64% for the same quarter in 2015, a decrease of 14 basis points (0.14%). The decrease in net interest margin was driven by lower yields on earning assets and reduced levels of accretion income.

Provision for Loan Losses and Allowance for Loan Losses
Provision expense for the third quarter of 2016 was $100,000 compared to zero for the third quarter of 2015.

There has been significant growth in the loans outstanding over the past four quarters. The need for additions to the allowance for loan losses was reduced by improvement in various qualitative factors used in the determination of the allowance, notably asset quality and economic conditions. As noted in the Credit Quality Measurements discussion, non-performing assets, charge-offs, and other real estate owned are all improved over the past year.

The allowance for loan losses as a percentage of total loans was 1.18% at September 30, 2016 compared to 1.29% at September 30, 2015.

Noninterest Income
Noninterest income totaled $3,120,000 in the third quarter of 2016, compared with $3,055,000 in the third quarter of 2015, an increase of $65,000 or 2.1%. Mortgage banking income was the most notable change, as it increased to $512,000, up 36.2% over the prior year quarter.

Noninterest Expense
Noninterest expense totaled $9,867,000 in the third quarter of 2016, compared to $9,388,000 in the third quarter of 2015, an increase of $479,000 or 5.1%. The increase in expenses included compensation and start-up expenses related to the de novo branch in Roanoke.

About American National
American National is a multi-state bank holding company with total assets of approximately $1.6 billion. Headquartered in Danville, Virginia, American National is the parent company of American National Bank and Trust Company. American National Bank is a community bank serving Virginia and North Carolina with 25 banking offices and two loan production offices. American National Bank also manages an additional $780 million of trust, investment and brokerage assets in its Trust and Investment Services Division. Additional information about the company and the bank is available on the bank's website at www.amnb.com.

Shares of American National are traded on the NASDAQ Global Select Market under the symbol "AMNB."

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of federal securities laws. Certain of the statements involve significant risks and uncertainties. The statements herein are based on certain assumptions and analyses by American National 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 in technology and information security; and changes regarding acquisitions and dispositions. Consequently, all forward-looking statements made herein are qualified by these cautionary statements and the cautionary language in American National's most recent Form 10-K report and other documents filed with the Securities and Exchange Commission. American National 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.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share data)
Unaudited

			September 30
ASSETS			2016			2015

Cash and due from banks			$	37,679		$	19,280
Interest-bearing deposits in other banks				35,138			46,637
Federal funds sold				-			-

Securities available for sale, at fair value				351,439			358,306
Restricted stock, at cost				6,006			5,308
Loans held for sale				4,776			2,998

Loans				1,083,201			980,984
	Less allowance for loan losses			(12,757	)		(12,611	)
		Net Loans		1,070,444			968,373

Premises and equipment, net				22,846			23,854
Other real estate owned, net				1,145			1,333
Goodwill				43,872			44,333
Core deposit intangibles, net				1,894			2,983
Bank owned life insurance				17,998			17,491
Accrued interest receivable and other assets				22,297			21,541

		Total assets	$	1,615,534		$	1,512,437


Liabilities
	Demand deposits -- noninterest-bearing		$	339,797		$	305,110
	Demand deposits -- interest-bearing			196,696			220,562
	Money market deposits			255,748			191,534
	Savings deposits			119,476			108,992
	Time deposits			394,291			400,323
		Total deposits		1,306,008			1,226,521

	Short-term borrowings:
		Customer repurchase agreements		44,090			43,579
		Other short-term borrowings		15,000			-
	Long-term borrowings			9,974			9,952
	Junior subordinated debt			27,698			27,597
	Accrued interest payable and other liabilities			9,051			8,337
		Total liabilities		1,411,821			1,315,986

Shareholders' equity
	Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding			-			-
	Common stock, $1 par, 20,000,000 shares authorized, 8,610,741 shares outstanding at September 30, 2016 and 8,630,329 shares outstanding at September 30, 2015			8,573			8,611
	Capital in excess of par value			74,839			75,524
	Retained earnings			117,543			109,030
	Accumulated other comprehensive income, net			2,758			3,286
		Total shareholders' equity		203,713			196,451

		Total liabilities and shareholders' equity	$	1,615,534		$	1,512,437

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

				Three Months Ended					Nine Months Ended
				September 30					September 30
				2016		2015			2016		2015
Interest and Dividend Income:
	Interest and fees on loans			$	12,032	$	11,474		$	35,789	$	35,011
	Interest on federal funds sold				-		1			-		6
	Interest and dividends on securities:
		Taxable			1,112		1,052			3,346		3,021
		Tax-exempt			767		899			2,407		2,799
		Dividends			74		91			258		258
	Other interest income				78		25			203		123
			Total interest and dividend income		14,063		13,542			42,003		41,218

Interest Expense:
	Interest on deposits				1,291		1,205			3,902		3,583
	Interest on short-term borrowings				4		2			6		7
	Interest on long-term borrowings				81		82			243		243
	Interest on junior subordinated debt				223		192			644		564
			Total interest expense		1,599		1,481			4,795		4,397

Net Interest Income					12,464		12,061			37,208		36,821
	Provision for loan losses				100		-			200		700

Net Interest Income After Provision for Loan Losses					12,364		12,061			37,008		36,121

Noninterest Income:
	Trust fees				938		1,006			2,829		2,963
	Service charges on deposit accounts				514		521			1,520		1,543
	Other fees and commissions				663		592			1,991		1,787
	Mortgage banking income				512		376			1,169		987
	Securities gains, net				73		6			662		553
	Brokerage fees				209		255			636		681
	Income from Small Business Investment Companies				-		99			238		427
	Other				211		200			739		528
			Total noninterest income		3,120		3,055			9,784		9,469

Noninterest Expense:
	Salaries				4,626		4,179			12,872		12,634
	Employee benefits				1,034		1,029			3,203		3,215
	Occupancy and equipment				1,004		1,094			3,162		3,290
	FDIC assessment				138		185			519		565
	Bank franchise tax				257		220			769		675
	Core deposit intangible amortization				213		300			789		901
	Data processing				437		366			1,340		1,311
	Software				301		290			872		850
	Other real estate owned, net				105		(126	)		314		60
	Organizational expenses				23		-			23		-
	Merger related expenses				-		87			-		1,948
	Other				1,729		1,764			5,578		5,628
			Total noninterest expense		9,867		9,388			29,441		31,077

Income Before Income Taxes					5,617		5,728			17,351		14,513
Income Taxes					1,654		1,691			5,172		4,081
Net Income				$	3,963	$	4,037		$	12,179	$	10,432

Net Income Per Common Share:
	Basic			$	0.46	$	0.47		$	1.41	$	1.20
	Diluted			$	0.45	$	0.47		$	1.41	$	1.20
Weighted Average Common Shares Outstanding:
	Basic				8,702,919		8,668,618			8,641,862		8,698,394
	Diluted				8,712,931		8,676,571			8,650,148		8,706,870

American National Bankshares Inc.
Financial Highlights

(In thousands, except share, ratio and
nonfinancial data, unaudited)			3rd Qtr			2nd Qtr			3rd Qtr			YTD			YTD
			2016			2016			2015			2016			2015
EARNINGS
	Interest income		$	14,063		$	13,769		$	13,542		$	42,003		$	41,218
	Interest expense			1,599			1,609			1,481			4,795			4,397
	Net interest income			12,464			12,160			12,061			37,208			36,821
	Provision for loan losses			100			50			-			200			700
	Noninterest income			3,120			3,367			3,055			9,784			9,469
	Noninterest expense			9,867			9,656			9,388			29,441			31,077
	Income taxes			1,654			1,733			1,691			5,172			4,081
	Net income			3,963			4,088			4,037			12,179			10,432

PER COMMON SHARE
	Income per share - basic		$	0.46		$	0.47		$	0.47		$	1.41		$	1.20
	Income per share - diluted			0.45			0.47			0.47			1.41			1.20
	Cash dividends paid			0.24			0.24			0.23			0.72			0.69
	Book value per share			23.66			23.54			22.81			23.66			22.81
	Book value per share - tangible (a)			18.34			18.20			17.32			18.34			17.32
	Closing market price			27.95			25.18			23.45			27.95			23.45

FINANCIAL RATIOS
	Return on average assets			0.99	%		1.03	%		1.07	%		1.03	%		0.91	%
	Return on average equity			7.79			8.11			8.25			8.06			7.09
	Return on average tangible equity (b)			10.41			10.99			11.42			10.89			9.90
	Average equity to average assets			12.67			12.67			12.95			12.73			12.90
	Tangible equity to tangible assets (a)			10.06			10.07			10.18			10.06			10.18
	Net interest margin, taxable equivalent			3.50			3.45			3.64			3.54			3.69
	Efficiency ratio (c)			61.25			60.91			61.25			61.18			66.00
	Effective tax rate			29.45			29.77			29.52			29.81			28.12

PERIOD-END BALANCES
	Securities		$	357,445		$	368,162		$	363,614		$	357,445		$	363,614
	Loans held for sale			4,776			4,692			2,998			4,776			2,998
	Loans, net of unearned income			1,083,201			1,057,959			980,984			1,083,201			980,984
	Goodwill and other intangibles			45,766			45,979			47,316			45,766			47,316
	Assets			1,615,534			1,601,651			1,512,437			1,615,534			1,512,437
	Assets - tangible (a)			1,569,768			1,555,672			1,465,121			1,569,768			1,465,121
	Deposits			1,306,008			1,298,385			1,226,521			1,306,008			1,226,521
	Customer repurchase agreements			44,090			53,369			43,579			44,090			43,579
	Other short-term borrowings			15,000			-			-			15,000			-
	Long-term borrowings			37,672			37,642			37,549			37,672			37,549
	Shareholders' equity			203,713			202,704			196,451			203,713			196,451
	Shareholders' equity - tangible (a)			157,947			156,725			149,135			157,947			149,135

AVERAGE BALANCES
	Securities		$	354,780		$	361,064		$	357,427		$	354,287		$	350,831
	Loans held for sale			3,761			2,087			2,873			2,638			2,223
	Loans, net of unearned income			1,064,606			1,047,993			982,212			1,043,177			969,826
	Interest-earning assets			1,477,208			1,464,692			1,380,576			1,455,556			1,386,714
	Goodwill and other intangibles			45,872			46,150			47,446			46,153			47,703
	Assets			1,605,387			1,592,261			1,511,464			1,583,006			1,520,235
	Assets - tangible (a)			1,559,515			1,546,111			1,464,018			1,536,853			1,472,532
	Interest-bearing deposits			973,431			972,385			923,840			965,391			935,893
	Deposits			1,301,874			1,295,520			1,223,328			1,286,034			1,227,005
	Customer repurchase agreements			50,013			47,607			45,444			47,353			49,985
	Other short-term borrowings			1,521			-			57			512			19
	Long-term borrowings			37,655			37,624			37,531			37,624			37,500
	Shareholders' equity			203,451			201,685			195,660			201,560			196,135
	Shareholders' equity - tangible (a)			157,579			155,535			148,214			155,407			148,432

American National Bankshares Inc.
Financial Highlights

(In thousands, except share, ratio and
nonfinancial data, unaudited)			3rd Qtr			2nd Qtr			3rd Qtr			YTD			YTD
			2016			2016			2015			2016			2015
CAPITAL
	Weighted average shares outstanding - basic			8,702,919			8,610,156			8,668,618			8,641,862			8,698,394
	Weighted average shares outstanding - diluted			8,712,931			8,619,833			8,676,571			8,650,148			8,706,870

ALLOWANCE FOR LOAN LOSSES
	Beginning balance		$	12,674		$	12,675		$	12,793		$	12,601		$	12,427
	Provision for loan losses			100			50			-			200			700
	Charge-offs			(86	)		(119	)		(253	)		(245	)		(883	)
	Recoveries			69			68			71			201			367
	Ending balance		$	12,757		$	12,674		$	12,611		$	12,757		$	12,611

LOANS
	Construction and land development		$	91,688		$	89,451		$	68,692		$	91,688		$	68,692
	Commercial real estate			454,797			438,164			424,404			454,797			424,404
	Residential real estate			218,632			216,857			219,415			218,632			219,415
	Home equity			108,617			107,007			98,249			108,617			98,249
	Commercial and industrial			204,184			201,381			164,025			204,184			164,025
	Consumer			5,283			5,099			6,199			5,283			6,199
	Total		$	1,083,201		$	1,057,959		$	980,984		$	1,083,201		$	980,984

NONPERFORMING ASSETS AT PERIOD-END
	Nonperforming loans:
		90 days past due and accruing	$	-		$	-		$	-		$	-		$	-
		Nonaccrual		3,846			3,412			5,360			3,846			5,360
	Other real estate owned			1,145			1,289			1,333			1,145			1,333
	Nonperforming assets		$	4,991		$	4,701		$	6,693		$	4,991		$	6,693

ASSET QUALITY RATIOS
	Allowance for loan losses to total loans			1.18	%		1.20	%		1.29	%		1.18	%		1.29	%
	Allowance for loan losses to nonperforming loans			331.70			371.45			235.28			331.70			235.28
	Nonperforming assets to total assets			0.31			0.29			0.44			0.31			0.44
	Nonperforming loans to total loans			0.36			0.32			0.55			0.36			0.55
	Annualized net charge-offs (recoveries) to average loans			0.01			0.02			0.07			0.01			0.07


OTHER DATA
	Fiduciary assets at period-end (d) (e)		$	502,390		$	491,517		$	486,173		$	502,390		$	486,173
	Retail brokerage assets at period-end (d) (e)		$	278,089		$	269,066		$	247,258		$	278,089		$	247,258
	Number full-time equivalent employees (f)			309			302			310			309			310
	Number of full service offices			25			25			25			25			25
	Number of loan production offices			2			2			2			2			2
	Number of ATM's			33			33			34			33			34

Notes:

	(a) - Excludes goodwill and other intangible assets.
	(b) - Excludes amortization expense, net of tax, of intangible assets.
	(c) - The efficiency ratio is calculated by dividing noninterest expense excluding gains or losses on the sale of OREO by net interest income including tax equivalent income on nontaxable loans and securities and noninterest income and excluding (i) gains or losses on securities and (ii) gains or losses on sale of premises and equipment.
	(d) - Market value.
	(e) - Assets are not owned by the Company and are not reflected in the consolidated balance sheet.
	(f) - Average for quarter.

Net Interest Income Analysis
For the Three Months Ended September 30, 2016 and 2015
(in thousands, except yields/rates)

							Interest
			Average Balance				Income/Expense				Yield/Rate

			2016		2015		2016		2015		2016		2015
Loans:
	Commercial		$	200,448	$	164,551	$	2,022	$	1,801	4.01	%	4.34	%
	Real estate			862,740		814,500		9,939		9,557	4.61		4.69
	Consumer			5,179		6,034		136		150	10.45		9.86
		Total loans		1,068,367		985,085		12,097		11,508	4.52		4.67

Securities:
	Federal agencies & GSEs			99,375		103,303		428		431	1.72		1.67
	Mortgage-backed & CMOs			81,945		57,100		411		282	2.01		1.98
	State and municipal			158,010		180,799		1,370		1,650	3.47		3.65
	Other			15,450		16,225		132		140	3.42		3.45
		Total securities		354,780		357,427		2,341		2,503	2.64		2.80

Federal funds sold				-		76		-		1	0.00		5.22
Deposits in other banks				54,061		37,988		78		25	0.57		0.26

	Total interest-earning assets			1,477,208		1,380,576		14,516		14,037	3.93		4.06

Non-earning assets				128,179		130,888

		Total assets	$	1,605,387	$	1,511,464

Deposits:
	Demand		$	200,469	$	221,700		10		20	0.02		0.04
	Money market			253,269		191,689		118		63	0.19		0.13
	Savings			117,737		109,919		9		13	0.03		0.05
	Time			401,956		400,532		1,154		1,109	1.14		1.10
		Total deposits		973,431		923,840		1,291		1,205	0.53		0.52

Customer repurchase agreements				50,013		45,444		1		2	0.01		0.02
Other short-term borrowings				1,521		57		3		0	0.79		0.35
Long-term borrowings				37,655		37,531		304		274	3.23		2.92
	Total interest-bearing liabilities			1,062,620		1,006,872		1,599		1,481	0.60		0.58

Noninterest bearing demand deposits				328,443		299,488
Other liabilities				10,873		9,444
Shareholders' equity				203,451		195,660
		Total liabilities and shareholders' equity	$	1,605,387	$	1,511,464

Interest rate spread											3.33	%	3.48	%
Net interest margin											3.50	%	3.64	%

Net interest income (taxable equivalent basis)								12,917		12,556
Less: Taxable equivalent adjustment								453		495
Net interest income							$	12,464	$	12,061


Net Interest Income Analysis
For the Nine Months Ended September 30, 2016 and 2015
(in thousands, except yields/rates)

							Interest
			Average Balance				Income/Expense				Yield/Rate

			2016		2015		2016		2015		2016		2015
Loans:
	Commercial		$	196,256	$	153,234	$	5,852	$	5,387	3.98	%	4.70	%
	Real estate			844,276		807,875		29,620		29,117	4.68		4.81
	Consumer			5,283		10,940		507		595	12.82		7.27
		Total loans		1,045,815		972,049		35,979		35,099	4.59		4.82

Securities:
	Federal agencies & GSEs			95,967		88,427		1,252		1,000	1.74		1.51
	Mortgage-backed & CMOs			79,746		61,434		1,235		994	2.06		2.16
	State and municipal			162,885		185,587		4,336		5,133	3.55		3.69
	Other			15,689		15,383		410		388	3.48		3.36
		Total securities		354,287		350,831		7,233		7,515	2.72		2.86

Federal funds sold				-		6,992		-		6	0.00		0.11
Deposits in other banks				55,454		56,842		203		123	0.49		0.29

	Total interest-earning assets			1,455,556		1,386,714		43,415		42,743	3.98		4.11

Non-earning assets				127,450		133,521

		Total assets	$	1,583,006	$	1,520,235

Deposits:
	Demand		$	220,419	$	223,858		90		60	0.05		0.04
	Money market			226,780		196,693		284		195	0.17		0.13
	Savings			117,599		109,008		37		39	0.04		0.05
	Time			400,593		406,334		3,491		3,289	1.16		1.08
		Total deposits		965,391		935,893		3,902		3,583	0.54		0.51

Customer repurchase agreements				47,353		49,985		3		7	0.01		0.02
Other short-term borrowings				512		19		3		0	0.78		0.35
Long-term borrowings				37,624		37,500		887		807	3.14		2.87
	Total interest-bearing liabilities			1,050,880		1,023,397		4,795		4,397	0.61		0.57

Noninterest bearing demand deposits				320,643		291,112
Other liabilities				9,923		9,591
Shareholders' equity				201,560		196,135
		Total liabilities and shareholders' equity	$	1,583,006	$	1,520,235

Interest rate spread											3.37	%	3.54	%
Net interest margin											3.54	%	3.69	%

Net interest income (taxable equivalent basis)								38,620		38,346
Less: Taxable equivalent adjustment								1,412		1,525
Net interest income							$	37,208	$	36,821

Contact Information:

Contact:
William W. Traynham
Chief Financial Officer
434-773-2242
traynhamw@amnb.com

American National Bankshares Inc. Reports Third Quarter 2016 Earnings