SOURCE: American National Bankshares Inc.

American National Bankshares Inc.

January 22, 2015 16:01 ET

American National Bankshares Inc. Reports Fourth Quarter and Year End 2014 Earnings

DANVILLE, VA--(Marketwired - Jan 22, 2015) - American National Bankshares Inc. (NASDAQ: AMNB)

  • Q4 net income of $2.9 million and diluted EPS of $0.37
  • Net interest margin of 3.59% for Q4 2014
  • Nonperforming assets 0.46% of total assets
  • Average shareholders' equity of $174 million is 13.04% of average assets
  • Loan growth was $24 million (3.0%) for Q4; $46 million (5.8%) for 2014
  • MainStreet BankShares Inc. ("MainStreet") merger related expense was $512,000 for Q4; $780,000 for 2014.

American National Bankshares Inc. (NASDAQ: AMNB), parent company of American National Bank and Trust Company, today announced fourth quarter 2014 net income of $2,890,000 compared to $3,143,000 for the fourth quarter of 2013, a $253,000 or 8.0% decrease. Diluted earnings per share were $0.37 for the 2014 quarter compared to $0.40 for the 2013 quarter. Net income for the fourth quarter of 2014 produced a return on average assets of 0.86%, a return on average equity of 6.63%, and a return on average tangible equity of 9.12%.

Net income for 2014 was $12,741,000 compared to $15,747,000 for 2013, a $3,006,000 or 19.1% decrease. Diluted earnings per share were $1.62 for 2014 compared to $2.00 for 2013.

Earnings for 2014 and 2013 were favorably impacted by the July 2011 merger between American National and MidCarolina Financial Corporation ("MidCarolina"). However, that benefit is rapidly diminishing as loan related accretion income declines period to period. Total pretax impact of the MidCarolina merger for the 2014 quarter was $378,000 compared to $1,344,000 for the 2013 quarter. Total pretax impact of the MidCarolina merger for 2014 was $1,744,000 compared to $6,265,000 for 2013.

Financial Performance and Overview
Jeffrey V. Haley, President and Chief Executive Officer, reported, "American National had a great year in 2014.

"The lead story for 2014 is growth in our loan portfolio. At December 31, 2014, American National had $840,925,000 in loans compared to $794,671,000 at December 31, 2013, an increase of $46,254,000 or 5.8%. This is the largest organic growth rate we've experienced in the past five years.

"At December 31, 2014, American National had $1,075,837,000 in deposits compared to $1,057,675,000 at December 31, 2013, an increase of $18,162,000 or 1.7%. The deposit growth was good in non-maturity (core) deposits. We are continuously attempting to grow core deposits and their affiliated relationships, but the challenge in this ongoing low rate environment is to do that in a cost effective and competitive manner. Our cost of interest bearing deposits for the fourth quarter was 0.56%, compared to 0.63% for the 2013 quarter. In 2015, we expect to see increasing competition for core and time deposits as banks experience higher growth rates in earning assets.

"On the income statement side, our net income for the fourth quarter was $2,890,000, down from $3,143,000 in the 2013 quarter, a decrease of $253,000 or 8.0%.

"We had several large drivers that impacted quarterly results. The pretax net income impact of the MidCarolina merger declined $966,000, the expected result of continuing declines in accretion income; we provided an additional $250,000 in loan loss provision, related to loan growth; we had an $859,000 decrease in employee benefits expense, mostly related to the volatility of pension related costs; we had a $750,000 decrease in foreclosed real estate expense; and we incurred $512,000 in merger related costs related to the MainStreet acquisition.

"Our net income for 2014 was $12,741,000, down from $15,747,000 for 2013, a decrease of $3,006,000 or 19.1%. Results for the year were impacted in a very similar manner to quarterly results.

"I have been and continue to be an optimist about the future of American National. Growth in our balance sheet over the past year reinforces and validates that optimism. The recently closed merger with MainStreet and its subsidiary bank, Franklin Community Bank, also reinforces that optimism. We are very excited about the opportunities that merger presents to us."

Haley concluded, "We are continuing our quest for high quality organic growth, and at the same time preparing American National for the next appropriate strategic acquisition opportunity that may arise." 

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

For the quarter ended December 31, 2014, average shareholders' equity was 13.04% of average assets, compared to 12.67% at December 31, 2013.

Book value per common share was $22.07 at December 31, 2014, compared to $21.23 at December 31, 2013.

Tangible book value per common share was $16.86 at December 31, 2014, compared to $15.89 at December 31, 2013.

Credit Quality Measurements
Non-performing assets ($4,112,000 of non-performing loans and $2,119,000 of foreclosed real estate) represented 0.46% of total assets at December 31, 2014, compared to 0.65% at December 31, 2013. 

Annualized net charge offs to average loans were twenty two basis points (0.22%) for the 2014 fourth quarter, compared to 4 basis points (0.04%) for the same quarter in 2013. The quarterly increase was mostly related to a partial charge off of a single commercial loan relationship that had previously been identified by management and for which the bank held a specifically allocated reserve equal to the charge off amount.

Net charge offs to average loans were seven basis points (0.07%) for 2014 compared to net recoveries of two basis points (-0.02%) for 2013.

The allowance for loan losses as a percentage of total loans was 1.48% at December 31, 2014 compared to 1.59% at December 31, 2013. The allowance has been impacted by loan growth of over $46 million or 5.8% during the year and mitigated by improving economic indicators and continued strong asset quality metrics.

Other real estate owned was $2,119,000 at December 31, 2014, compared to $3,422,000 at December 31, 2013, a decrease of $1,303,000 or 38.1%.

Merger related financial impact
The fair value adjustments related to the 2011 merger with MidCarolina continue to have a favorable, but rapidly declining, impact on earnings. The following chart shows the financial impact of the MidCarolina merger on pretax earnings for the quarters and the years presented.

             
$ in thousands   Three months ended     Twelve months ended  
    December 31,     December 31,  
    2014     2013     2014     2013  
Net interest income impact                                
  Loan accretion   $ 313       689       1,608       4,601  
  Loan accretion - PCI loans     323       922       1,185       2,635  
  Debt     (31 )     (30 )     (124 )     154  
    Net interest income   $ 605     $ 1,581     $ 2,669     $ 7,390  
                                 
Non interest expense impact                                
  Amortization of core deposit intangible   $ (227 )   $ (237 )   $ (925 )   $ (1,125 )
                                 
Pre-tax income impact   $ 378     $ 1,344     $ 1,744     $ 6,265  
                                 
PCI - purchased credit impaired                                
                                 

Quarterly pretax income was negatively impacted $966,000 and pretax income for the year was negatively impacted $4,521,000. Management anticipates that the impact of the MidCarolina merger will continue to diminish in 2015.

The MainStreet merger is expected to result in much less accretion income than the MidCarolina merger, due to MainStreet's asset size and the reduction in the credit mark because of the improvement in overall credit conditions over the past three years.

Net Interest Income
Net interest income before provision for loan losses decreased to $10,455,000 in the fourth quarter of 2014 from $11,505,000 in fourth quarter of 2013, a reduction of $1,050,000 or 9.1%. 

For the 2014 quarter, the net interest margin was 3.59% compared to 4.00% for the same quarter in 2013, a decrease of 41 basis points (10.25%). This decline was driven by falling yields on earning assets, lower levels of accretion income, and was partially mitigated by reduced cost of interest bearing liabilities.

Provision expense
Provision expense for the fourth quarter of 2014 was $250,000 compared to zero for the fourth quarter of 2013.

The need for additional provision expense has driven primarily by an over $24 million or 3.0% loan growth since the third quarter 2014, though it was partially mitigated by improving economic conditions and continuing strong asset quality metrics.

Noninterest Income
Noninterest income totaled $2,792,000 in the fourth quarter of 2014, compared with $2,604,000 in the fourth quarter of 2013, an increase of $188,000 or 7.2%. The increase was mostly related to an improvement in brokerage income and SBIC related income distributions.

Noninterest Expense
Noninterest expense totaled $8,943,000 in the fourth quarter of 2014, compared to $9,904,000 in the fourth quarter of 2013, a decrease of $961,000 or 9.7%. 

Employee benefits expense was favorably impacted by a $747,000 reduction in pension expense. Pension expense is impacted by market interest rates and participant decisions regarding distributions, which are difficult to predict.

Foreclosed real estate expense was favorably impacted by a $750,000 reduction in costs. This favorable variance was related in part to the decrease in the overall volume of foreclosed real estate, which declined $1,303,000 or 38.1% during the year.

Merger related expense related to the MainStreet acquisition was $512,000 during the 2014 quarter. Management anticipates that merger related expenses will be larger in the first and second quarters of 2015.

About American National
As of January 1, 2015, with the closing of the acquisition of MainStreet BankShares, Inc., American National Bankshares Inc. is a multi-state bank holding company with total assets of approximately $1.5 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 southern and central Virginia and north central North Carolina with 27 banking offices and two loan production offices. American National Bank and Trust Company also manages an additional $661 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 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. and Subsidiaries  
Consolidated Balance Sheets  
(Dollars in thousands, except share and per share data)  
Unaudited  
             
    December 31  
ASSETS   2014     2013  
                 
Cash and due from banks   $ 29,272     $ 19,808  
Interest-bearing deposits in other banks     38,031       47,873  
                 
Securities available for sale, at fair value     344,716       346,124  
Restricted stock, at cost     4,534       4,889  
Loans held for sale     616       2,760  
                 
Loans     840,925       794,671  
  Less allowance for loan losses     (12,427 )     (12,600 )
    Net Loans     828,498       782,071  
                 
Premises and equipment, net     23,025       23,674  
Other real estate owned, net     2,119       3,422  
Goodwill     39,043       39,043  
Core deposit intangibles, net     2,045       3,159  
Bank owned life insurance     15,193       14,746  
Accrued interest receivable and other assets     19,400       19,943  
                 
    Total assets   $ 1,346,492     $ 1,307,512  
                 
                 
Liabilities                
  Demand deposits -- noninterest-bearing   $ 254,458     $ 229,347  
  Demand deposits -- interest-bearing     193,432       167,736  
  Money market deposits     174,000       185,270  
  Savings deposits     90,130       85,724  
  Time deposits     363,817       389,598  
    Total deposits     1,075,837       1,057,675  
                   
  Customer repurchase agreements     53,480       39,478  
  Long-term borrowings     9,935       9,951  
  Trust preferred capital notes     27,521       27,419  
  Accrued interest payable and other liabilities     5,939       5,438  
    Total liabilities     1,172,712       1,139,961  
                 
Shareholders' equity                
  Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding     -       -  
  Common stock, $1 par, 20,000,000 shares authorized, 7,872,362 shares outstanding at December 31, 2014 and 7,890,697 shares outstanding at December 31, 2013     7,872       7,891  
  Capital in excess of par value     57,650       58,050  
  Retained earnings     104,594       99,090  
  Accumulated other comprehensive income, net     3,664       2,520  
    Total shareholders' equity     173,780       167,551  
                   
    Total liabilities and shareholders' equity   $ 1,346,492     $ 1,307,512  
                 
                 
                 
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
    2014   2013     2014   2013
Interest and Dividend Income:                          
  Interest and fees on loans   $ 9,859   $ 10,964     $ 39,257   $ 44,817
  Interest and dividends on securities:                          
    Taxable     925     956       3,775     3,530
    Tax-exempt     954     1,060       3,971     4,213
    Dividends     75     69       296     245
  Other interest income     56     45       156     151
    Total interest and dividend income     11,869     13,094       47,455     52,956
                           
Interest Expense:                          
  Interest on deposits     1,144     1,317       4,654     5,460
  Interest on short-term borrowings     1     2       9     40
  Interest on long-term borrowings     82     83       325     329
  Interest on trust preferred capital notes     187     187       742     754
    Total interest expense     1,414     1,589       5,730     6,583
                           
Net Interest Income     10,455     11,505       41,725     46,373
  Provision for loan losses     250     -       400     294
                           
Net Interest Income After Provision for Loan Losses     10,205     11,505       41,325     46,079
                           
Noninterest Income:                          
  Trust fees     1,065     1,080       4,196     3,689
  Service charges on deposit accounts     450     460       1,735     1,750
  Other fees and commissions     487     471       1,903     1,864
  Mortgage banking income     246     295       1,126     2,008
  Securities gains (losses), net     1     (11 )     505     192
  Other     543     309       1,711     1,324
    Total noninterest income     2,792     2,604       11,176     10,827
                           
Noninterest Expense:                          
  Salaries     3,798     3,507       14,688     14,059
  Employee benefits     367     1,226       2,988     3,848
  Occupancy and equipment     948     893       3,727     3,614
  FDIC assessment     161     162       647     647
  Bank franchise tax     232     186       901     745
  Core deposit intangible amortization     226     330       1,114     1,501
  Data processing     394     356       1,448     1,248
  Software     274     264       1,019     923
  Foreclosed real estate, net     92     842       240     1,523
  Merger related expenses     512     -       780     -
  Other     1,939     2,138       7,006     6,997
    Total noninterest expense     8,943     9,904       34,558     35,105
                           
Income Before Income Taxes     4,054     4,205       17,943     21,801
Income Taxes     1,164     1,062       5,202     6,054
Net Income   $ 2,890   $ 3,143     $ 12,741   $ 15,747
                           
Net Income Per Common Share:                          
  Basic   $ 0.37   $ 0.40     $ 1.62   $ 2.00
  Diluted   $ 0.37   $ 0.40     $ 1.62   $ 2.00
Average Common Shares Outstanding:                          
  Basic     7,855,872     7,887,811       7,867,198     7,872,870
  Diluted     7,866,111     7,901,198       7,877,576     7,884,561
                             
                             
                             
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  
    2014   2014   2013   2014   2013  
EARNINGS                                
  Interest income   $ 11,869   $ 11,852   $ 13,094   $ 47,455   $ 52,956  
  Interest expense     1,414     1,392     1,589     5,730     6,583  
  Net interest income     10,455     10,460     11,505     41,725     46,373  
  Provision for loan losses     250     -     -     400     294  
  Noninterest income     2,792     2,981     2,604     11,176     10,827  
  Noninterest expense     8,943     8,827     9,904     34,558     35,105  
  Income taxes     1,164     1,446     1,062     5,202     6,054  
  Net income     2,890     3,168     3,143     12,741     15,747  
                                 
PER COMMON SHARE                                
  Earnings per share - basic   $ 0.37   $ 0.40   $ 0.40   $ 1.62   $ 2.00  
  Earnings per share - diluted     0.37     0.40     0.40     1.62     2.00  
  Cash dividends paid     0.23     0.23     0.23     0.92     0.92  
  Book value per share     22.07     22.08     21.23     22.07     21.23  
  Book value per share - tangible (a)     16.86     16.81     15.89     16.86     15.89  
  Closing market price     24.81     22.75     26.25     24.81     26.25  
                                 
FINANCIAL RATIOS                                
  Return on average assets     0.86 %   0.97 %   0.95 %   0.97 %   1.20 %
  Return on average equity     6.63     7.35     7.50     7.40     9.52  
  Return on average tangible equity (b)     9.12     10.12     10.86     10.31     13.75  
  Average equity to average assets     13.04     13.18     12.67     13.12     12.65  
  Tangible equity to tangible assets (a)     10.16     10.32     9.91     10.16     9.91  
  Net interest margin, taxable equivalent     3.59     3.68     4.00     3.66     4.10  
  Efficiency ratio (e)     64.60     64.35     62.28     63.41     57.57  
  Effective tax rate     28.71     31.34     25.26     28.99     27.77  
                                 
PERIOD-END BALANCES                                
  Securities   $ 349,250   $ 333,063   $ 351,013   $ 349,250   $ 351,013  
  Loans held for sale     616     811     2,760     616     2,760  
  Loans, net of unearned income     840,925     816,588     794,671     840,925     794,671  
  Goodwill and other intangibles     41,088     41,314     42,202     41,088     42,202  
  Assets     1,346,492     1,319,157     1,307,512     1,346,492     1,307,512  
  Assets - tangible (a)     1,305,404     1,277,843     1,265,310     1,305,404     1,265,310  
  Deposits     1,075,837     1,051,060     1,057,675     1,075,837     1,057,675  
  Customer repurchase agreements     53,480     51,945     39,478     53,480     39,478  
  Long-term borrowings     37,456     37,425     37,370     37,456     37,370  
  Shareholders' equity     173,780     173,165     167,551     173,780     167,551  
  Shareholders' equity - tangible (a)     132,692     131,851     125,349     132,692     125,349  
                                 
AVERAGE BALANCES                                
  Securities   $ 331,785   $ 329,455   $ 350,974   $ 338,468   $ 338,605  
  Loans held for sale     982     1,998     1,669     1,672     4,948  
  Loans, net of unearned income     815,271     815,564     793,007     803,187     789,406  
  Interest-earning assets     1,220,818     1,191,761     1,206,058     1,196,095     1,186,816  
  Goodwill and other intangibles     41,222     41,455     42,404     41,620     42,949  
  Assets     1,338,240     1,309,120     1,322,242     1,312,472     1,307,154  
  Assets - tangible (a)     1,297,018     1,267,665     1,279,838     1,270,852     1,264,205  
  Interest-bearing deposits     816,965     806,267     829,753     818,381     829,212  
  Deposits     1,069,995     1,044,913     1,063,920     1,052,530     1,050,192  
  Customer repurchase agreements     50,493     45,725     47,220     43,724     47,816  
  Long-term borrowings     37,438     37,406     37,380     37,398     37,437  
  Shareholders' equity     174,453     172,493     167,545     172,207     165,338  
  Shareholders' equity - tangible (a)     133,231     131,038     125,141     130,587     122,389  
                                 
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  
    2014   2014   2013   2014   2013  
CAPITAL                                
  Average shares outstanding - basic     7,855,872     7,841,078     7,887,811     7,867,198     7,872,870  
  Average shares outstanding - diluted     7,866,111     7,851,735     7,901,198     7,877,576     7,884,561  
                                 
ALLOWANCE FOR LOAN LOSSES                                
  Beginning balance   $ 12,620   $ 12,763   $ 12,684   $ 12,600   $ 12,118  
  Provision for loan losses     250     -     0     400     294  
  Charge-offs     (566 )   (230 )   (208 )   (964 )   (837 )
  Recoveries     123     87     124     391     1,025  
  Ending balance   $ 12,427   $ 12,620   $ 12,600   $ 12,427   $ 12,600  
                                 
LOANS                                
  Construction and land development   $ 50,863   $ 47,060   $ 41,822   $ 50,863   $ 41,822  
  Commercial real estate     391,472     371,743     364,616     391,472     364,616  
  Residential real estate     175,293     175,091     171,917     175,293     171,917  
  Home equity     91,075     90,952     87,797     91,075     87,797  
  Commercial and industrial     126,981     126,437     122,553     126,981     122,553  
  Consumer     5,241     5,305     5,966     5,241     5,966  
  Total   $ 840,925   $ 816,588   $ 794,671   $ 840,925   $ 794,671  
                                 
NONPERFORMING ASSETS AT PERIOD-END                                
  Nonperforming loans:                                
    90 days past due and accruing   $ -   $ -   $ -   $ -   $ -  
    Nonaccrual     4,112     4,494     5,071     4,112     5,071  
  Foreclosed real estate     2,119     2,364     3,422     2,119     3,422  
  Nonperforming assets   $ 6,231   $ 6,858   $ 8,493   $ 6,231   $ 8,493  
                                 
ASSET QUALITY RATIOS                                
  Allowance for loan losses to total loans     1.48     1.55     1.59     1.48     1.59  
  Allowance for loan losses to nonperforming loans     302.21     280.82     248.47     302.21     248.47  
  Nonperforming assets to total assets     0.46     0.52     0.65     0.46     0.65  
  Nonperforming loans to total loans     0.49     0.55     0.64     0.49     0.64  
  Annualized net charge-offs (recoveries) to average loans     0.22 %   0.07 %   0.04 %   0.07 %   (0.02 )%
                                 
                                 
OTHER DATA                                
  Fiduciary assets at period-end (c)   $ 450,498   $ 441,753   $ 442,583   $ 450,498   $ 442,583  
  Retail brokerage assets at period-end (c)   $ 210,265   $ 201,327   $ 185,810   $ 210,265   $ 185,810  
  Number full-time equivalent employees (d)     284     292     290     284     290  
  Number of full service offices     24     24     25     24     25  
  Number of loan production offices     2     2     2     2     2  
  Number of ATMs     31     30     31     31     31  
                                 
                                 
                                 
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
  (e) - 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 excluding (a) gains or losses on securities and (b) gains or losses on sale of premises and equipment.
   
   
   
Net Interest Income Analysis  
For the Three Months Ended December 31, 2014 and 2013  
(in thousands, except rates)  
                             
            Interest            
    Average Balance   Income/Expense   Yield/Rate  
                             
    2014   2013   2014   2013   2014     2013  
Loans:                                    
  Commercial   $ 122,414   $ 118,431   $ 1,340   $ 1,376   4.34 %   4.61 %
  Real estate     689,167     670,720     8,436     9,498   4.90     5.66  
  Consumer     4,672     5,525     93     87   7.90     6.25  
    Total loans     816,253     794,676     9,869     10,961   4.83     5.51  
                                     
Securities:                                    
  Federal agencies     77,015     66,613     235     164   1.22     0.98  
  Mortgage-backed & CMOs     58,281     70,821     337     402   2.31     2.27  
  State and municipal     182,501     196,643     1,759     1,946   3.86     3.96  
  Other     13,988     16,897     115     124   3.29     2.94  
    Total securities     331,785     350,974     2,446     2,636   2.95     3.00  
                                     
Deposits in other banks     72,780     60,408     56     45   0.31     0.30  
                                     
  Total interest-earning assets     1,220,818     1,206,058     12,371     13,642   4.05     4.52  
                                     
Non-earning assets     117,422     116,184                        
                                     
    Total assets   $ 1,338,240   $ 1,322,242                        
                                     
Deposits:                                    
  Demand   $ 192,757   $ 163,809     15     26   0.03     0.06  
  Money market     176,353     186,391     56     84   0.13     0.18  
  Savings     89,648     85,061     12     17   0.05     0.08  
  Time     358,207     394,492     1,061     1,190   1.18     1.20  
    Total deposits     816,965     829,753     1,144     1,317   0.56     0.63  
                                     
Customer repurchase agreements     50,493     47,220     1     2   0.01     0.02  
Other short-term borrowings     -     2     -     -   -     0.75  
Long-term borrowings     37,438     37,380     269     270   2.87     2.89  
  Total interest-bearing liabilities     904,896     914,355     1,414     1,589   0.62     0.69  
                                     
Noninterest bearing demand deposits     253,030     234,167                        
Other liabilities     5,861     6,175                        
Shareholders' equity     174,453     167,545                        
    Total liabilities and shareholders' equity   $ 1,338,240   $ 1,322,242                        
                                     
Interest rate spread                           3.43 %   3.83 %
Net interest margin                           3.59 %   4.00 %
                                     
Net interest income (taxable equivalent basis)                 10,957     12,053            
Less: Taxable equivalent adjustment                 502     548            
Net interest income               $ 10,455   $ 11,505            
                                     
                                     
                                     
Net Interest Income Analysis  
For the Years Ended December 31, 2014 and 2013  
(in thousands, except yields and rates)  
                             
            Interest            
    Average Balance   Income/Expense   Yield/Rate  
                             
    2014   2013   2014   2013   2014     2013  
Loans:                                    
  Commercial   $ 122,434   $ 125,283   $ 5,436   $ 6,082   4.44 %   4.85 %
  Real estate     677,633     663,224     33,508     38,425   4.94     5.79  
  Consumer     4,792     5,847     354     403   7.39     6.89  
    Total loans     804,859     794,354     39,298     44,910   4.88     5.65  
                                     
Securities:                                    
  Federal agencies     74,390     55,435     852     532   1.15     0.96  
  Mortgage-backed & CMOs     61,377     74,909     1,453     1,442   2.37     1.93  
  State and municipal     187,595     193,254     7,307     7,750   3.90     4.01  
  Other     15,106     15,007     477     430   3.16     2.87  
    Total securities     338,468     338,605     10,089     10,154   2.98     3.00  
                                     
Deposits in other banks     52,768     53,857     156     151   0.30     0.28  
                                     
  Total interest-earning assets     1,196,095     1,186,816     49,543     55,215   4.14     4.65  
                                     
Non-earning assets     116,377     120,338                        
                                     
    Total assets   $ 1,312,472   $ 1,307,154                        
                                     
Deposits:                                    
  Demand   $ 183,994   $ 161,602     71     111   0.04     0.07  
  Money market     177,046     178,235     232     338   0.13     0.19  
  Savings     88,629     84,162     47     71   0.05     0.08  
  Time     368,712     405,213     4,304     4,940   1.17     1.22  
    Total deposits     818,381     829,212     4,654     5,460   0.57     0.66  
                                     
Customer repurchase agreements     43,724     47,816     7     40   0.02     0.08  
Other short-term borrowings     701     1     2     -   0.29     0.40  
Long-term borrowings     37,398     37,437     1,067     1,083   2.85     2.89  
                                     
  Total interest-bearing liabilities     900,204     914,466     5,730     6,583   0.64     0.72  
                                     
                                     
Noninterest bearing demand deposits     234,149     220,980                        
Other liabilities     5,912     6,370                        
Shareholders' equity     172,207     165,338                        
                                     
  Total liabilities and shareholders' equity   $ 1,312,472   $ 1,307,154                        
                                     
Interest rate spread                           3.50 %   3.93 %
Net interest margin                           3.66 %   4.10 %
                                     
Net interest income (taxable equivalent basis)                 43,813     48,632            
Less: Taxable equivalent adjustment                 2,088     2,259            
Net interest income               $ 41,725   $ 46,373