SOURCE: American National Bankshares Inc.

American National Bankshares Inc.

October 21, 2014 16:05 ET

American National Bankshares Inc. Reports Third Quarter 2014 Earnings

DANVILLE, VA--(Marketwired - Oct 21, 2014) - American National Bankshares Inc. (NASDAQ: AMNB)

  • Q3 net income of $3.2 million and diluted EPS of $0.40
  • Net interest margin of 3.68% for Q3 2014
  • Nonperforming assets 0.52% of total assets
  • Tangible common equity to tangible assets 10.32%

American National Bankshares Inc. (NASDAQ: AMNB), parent company of American National Bank and Trust Company, today announced third quarter 2014 net income of $3,168,000 compared to $4,243,000 for the third quarter of 2013, a $1,075,000 or 25.3% decrease. The change was related to the anticipated continuing decline of the 2011 MidCarolina related merger benefit. Diluted earnings per share were $0.40 for the 2014 quarter and $0.54 for the comparable 2013 quarter. This quarterly net income produced for 2014 a return on average assets of 0.97%, a return on average equity of 7.35%, and a return on average tangible equity of 10.12%.

Net income for the first nine months of 2014 was $9,851,000 compared to $12,604,000 for the comparable period of 2013, a $2,753,000 or 21.8% decrease. Diluted earnings per share were $1.25 for the 2014 period compared to $1.60 for the 2013 period.

Earnings for the 2014 and 2013 quarters and nine month periods were favorably impacted by the July 2011 merger between American National and MidCarolina Financial Corporation ("MidCarolina"). However, as anticipated, the magnitude of that favorable impact is rapidly declining and was much greater in the 2013 periods than the 2014 periods.

Financial Performance and Overview
Jeffrey V. Haley, President and Chief Executive Officer, reported, "Growth, organic and by acquisition, has been and continues to be one of our key strategic objectives. We are pleased this quarter to have both, but most notably we are delighted to report good progress on our recently announced plans to acquire MainStreet BankShares, Inc., parent company of Franklin Community Bank. This acquisition will expand our footprint into the Roanoke MSA and add three banking offices in the Franklin County and Smith Mountain Lake area. We expect the merger will close in early 2015 and will bring our total assets to approximately $1.5 billion.

"Changing focus from the future to the very recent past, at September 30, 2014, American National had $816,588,000 in loans compared to $798,996,000 at September 30, 2013, an increase of $17,592,000 or 2.2%.

"We consider the increase in loan volume and demand, even though modest, to be an indicator of slowly improving local and regional economic and business conditions.

"At September 30, 2014, American National had $1,051,060,000 in deposits compared to $1,071,083,000 at September 30, 2013, a decrease of $20,023,000 or 1.9%.

"The decline in deposits is primarily related to lower levels of time deposits. We adjust our pricing strategy appropriately with current market conditions and the liquidity requirements for our bank. Our primary focus on the liability side of the balance sheet is growing core deposits and their affiliated relationships. The challenge in this low rate environment is to fund our bank in a cost effective and yet competitive manner. Our cost of deposits for the third quarter 2014 was 0.55%, down from 0.64% for the third quarter 2013.

"Our earnings for the third quarter were $3,168,000. This is down 25.3% from the same quarter of 2013. On a diluted per share basis earnings were $0.40 per share for the 2014 quarter compared to $0.54 per share for the 2013 quarter.

"Earnings continue to be impacted by the mid-2011 merger with MidCarolina. The impact of the fair value accounting from the merger continues to be favorable, though rapidly and significantly decreasing quarter to quarter as we move into our fourth year post-merger. We had a pretax merger related benefit of $337,000 for the third quarter of 2014, compared to $1,522,000 for the third quarter of 2013. This is mostly related to the acquired loan portfolio and we expect this benefit will continue to diminish in magnitude rapidly over the next few quarters.

"Loan loss provision expense was zero for the 2014 and 2013 quarters. No additional provision was necessary due to continuing improvement in various asset quality metrics.

"Noninterest income increased $214,000 or 7.7%. Mortgage banking income fell $122,000 or 26.3% with the decline in the overall market. This was more than offset by an increase in net securities gains of $311,000. These gains are one-time in nature.

"Noninterest expense increased $372,000 or 4.4%. This was mostly related to $268,000 in merger related expense associated with our recently announced plans to acquire MainStreet BankShares, Inc. We anticipate having additional nonrecurring merger related expenses in the fourth quarter of 2014 and the first quarter of 2015."

Haley concluded, "This has been an exciting quarter for American National. We have a wonderful opportunity to grow our bank by adding a quality and compatible community bank in a contiguous market. At the same time, we're continuing to see some organic growth in our loan portfolio, though at a slower pace than during the second quarter. We are continuously open to opportunities to grow this banking franchise, organically and through acquisitions. We know the operating environment is challenging, but we are optimistic about the future. We look forward to serving our customers and continuing to build and improve one of the best community banks in America." 

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

Average shareholders' equity for the third quarter was 13.18% of average assets at September 30, 2014, compared to 12.48% for the comparable quarter of 2013.

Book value per common share was $22.08 at September 30, 2014, compared to $21.03 at September 30, 2013.

Tangible book value per common share was $16.81 at September 30, 2014, compared to $15.63 at September 30, 2013.

Tangible common equity to tangible assets was 10.32% at September 30, 2014, compared to 9.62% at September 30, 2013.

Credit Quality Measurements
Non-performing assets, consisting of $4,494,000 of non-performing loans and $2,364,000 of foreclosed real estate, represented 0.52% of total assets at September 30, 2014, compared to 0.67% at September 30, 2013. 

Annualized net charge-offs for the third quarter of 2014 were seven basis points 0.07% of average loans, compared to net charge-offs of zero basis points (0.00%) for the third quarter of 2013.

Annualized net (recoveries) charge-offs for the nine-month period ended September 30, 2014, were 0.02% compared to (0.05)% for the comparable period for 2013.

Net Interest Income
Net interest income before provision for loan losses decreased to $10,460,000 in the third quarter of 2014 from $11,493,000 in third quarter of 2013, a decrease of $1,033,000 or 9.0%. 

For the 2014 quarter, the net interest margin was 3.68% compared to 4.06% for the same quarter in 2013, a decrease of 38 basis points (0.38%). 

The decline in net interest income and net interest margin was driven by substantial decreases in accretion income and was partially mitigated by higher average loan balances and reduced cost of interest bearing liabilities.

Provision expense
Provision expense for the third quarter of 2014 and 2013 was zero.

The allowance for loan losses as a percentage of total loans was 1.55% at September 30, 2014, compared to 1.59% at September 30, 2013. The gradual decrease in the allowance was due to continued low loss experience and by improving qualitative factors, including strong asset quality metrics and some improvement in local and national economic factors.

Noninterest Income
Noninterest income totaled $2,981,000 in the third quarter of 2014, compared with $2,767,000 in the third quarter of 2013, an increase of $214,000 or 7.7%.

A variety of factors impacted noninterest income during the quarter. Mortgage banking income declined $122,000 or 26.3%, related to the overall change in the marketplace. This was offset by an increase of $311,000 in net securities gains during the quarter. These gains were a combination of selective sales for asset liability strategy reasons and calls prior to maturity.

Noninterest Expense
Noninterest expense totaled $8,827,000 in the third quarter of 2014, compared to $8,455,000 in the third quarter of 2013, an increase of $372,000 or 4.4%. 

Major factors impacting noninterest expense during the quarter included a favorable variance of $103,000 in core deposit intangible amortization; a favorable variance of $104,000 in foreclosed real estate expense; and an unfavorable variance in merger related expense of $268,000. The merger related expenses are related to the recently announced plan to acquire MainStreet BankShares, Inc. and its banking subsidiary, Franklin County Bank, N.A. These specific expenses are mostly non-deductible for income tax purposes.

About American National
American National Bankshares Inc. is a multi-state bank holding company with total assets of approximately $1.3 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 24 banking offices and two loan production offices. American National Bank and Trust Company also manages an additional $643 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 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.

Merger with MainStreet BankShares, Inc.

American National has filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-4 to register the shares of American National common stock to be issued to the shareholders of MainStreet BankShares, Inc. ("MainStreet") in connection with the proposed merger with MainStreet. The registration statement includes a preliminary proxy statement/prospectus, which is not yet final and will be amended. American National may file other relevant documents concerning the proposed merger with the SEC.

SHAREHOLDERS OF MAINSTREET AND INVESTORS ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT ON FORM S-4 AND THE PROXY STATEMENT/PROSPECTUS INCLUDED WITHIN THE REGISTRATION STATEMENT AND ALL OTHER RELEVANT DOCUMENTS TO BE FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AMERICAN NATIONAL, MAINSTREET 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 definitive 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 MainStreet BankShares, Inc., 1075 Spruce Street, Martinsville, Virginia 24112, Attention: Investor Relations (telephone: (276) 632-8054) or by accessing American National's website at www.amnb.com under "Investments" or MainStreet's website at www.msbsinc.com under "SEC Filings."

   
American National Bankshares Inc. and Subsidiaries  
Consolidated Balance Sheets  
(Dollars in thousands, except share and per share data)  
Unaudited  
             
    September 30  
ASSETS   2014     2013  
                 
Cash and due from banks   $ 22,699     $ 24,071  
Interest-bearing deposits in other banks     58,278       54,198  
                 
Securities available for sale, at fair value     328,534       347,618  
Restricted stock, at cost     4,529       4,885  
Loans held for sale     811       3,919  
                 
Loans     816,588       798,996  
  Less allowance for loan losses     (12,620 )     (12,684 )
    Net Loans     803,968       786,312  
                 
Premises and equipment, net     23,085       23,982  
Other real estate owned, net     2,364       4,215  
Goodwill     39,043       39,043  
Core deposit intangibles, net     2,271       3,489  
Bank owned life insurance     15,044       14,597  
Accrued interest receivable and other assets     18,531       17,856  
                 
    Total assets   $ 1,319,157     $ 1,324,185  
                 
                 
Liabilities                
  Demand deposits -- noninterest-bearing   $ 244,469     $ 231,583  
  Demand deposits -- interest-bearing     185,982       170,641  
  Money market deposits     173,192       181,559  
  Savings deposits     88,226       85,016  
  Time deposits     359,191       402,284  
    Total deposits     1,051,060       1,071,083  
                 
  Customer repurchase agreements     51,945       44,026  
  Long-term borrowings     9,930       9,983  
  Trust preferred capital notes     27,495       27,394  
  Accrued interest payable and other liabilities     5,562       5,873  
    Total liabilities     1,145,992       1,158,359  
                 
Shareholders' equity                
  Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding     -       -  
  Common stock, $1 par, 20,000,000 shares authorized, 7,843,454 shares outstanding at September 30, 2014 and 7,886,476 shares outstanding at September 30, 2013    
7,843
     
7,886
 
  Capital in excess of par value     57,087       57,905  
  Retained earnings     103,515       97,762  
  Accumulated other comprehensive income, net     4,720       2,273  
    Total shareholders' equity     173,165       165,826  
                 
    Total liabilities and shareholders' equity   $ 1,319,157     $ 1,324,185  
                     
                     
                 
American National Bankshares Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands, except share and per share data)
Unaudited
                 
    Three Months Ended   Nine Months Ended
    September 30   September 30
    2014   2013   2014   2013
Interest and Dividend Income:                        
  Interest and fees on loans   $ 9,864   $ 11,100   $ 29,398   $ 33,853
  Interest and dividends on securities:                        
    Taxable     918     845     2,850     2,574
    Tax-exempt     966     1,056     3,017     3,153
    Dividends     72     67     221     176
  Other interest income     32     38     100     106
      Total interest and dividend income     11,852     13,106     35,586     39,862
                         
Interest Expense:                        
  Interest on deposits     1,120     1,338     3,510     4,143
  Interest on short-term borrowings     4     3     8     38
  Interest on long-term borrowings     82     82     243     246
  Interest on trust preferred capital notes     186     190     555     567
      Total interest expense     1,392     1,613     4,316     4,994
                         
Net Interest Income     10,460     11,493     31,270     34,868
  Provision for loan losses     -     -     150     294
                         
Net Interest Income After Provision for Loan Losses    
10,460
   
11,493
   
31,120
   
34,574
                         
Noninterest Income:                        
  Trust fees     992     1,077     3,131     2,609
  Service charges on deposit accounts     441     452     1,285     1,290
  Other fees and commissions     479     471     1,416     1,393
  Mortgage banking income     342     464     880     1,713
  Securities gains, net     315     4     504     203
  Other     412     299     1,168     1,015
      Total noninterest income     2,981     2,767     8,384     8,223
                         
Noninterest Expense:                        
  Salaries     3,714     3,610     10,890     10,552
  Employee benefits     799     856     2,621     2,622
  Occupancy and equipment     933     933     2,779     2,721
  FDIC assessment     157     163     486     485
  Bank franchise tax     216     187     669     559
  Core deposit intangible amortization     227     330     888     1,171
  Data processing     361     305     1,054     892
  Software     248     198     745     659
  Foreclosed real estate, net     141     245     148     681
  Merger related expenses     268     -     268     -
  Other     1,763     1,628     5,067     4,859
      Total noninterest expense     8,827     8,455     25,615     25,201
                         
Income Before Income Taxes     4,614     5,805     13,889     17,596
Income Taxes     1,446     1,562     4,038     4,992
Net Income   $ 3,168   $ 4,243   $ 9,851   $ 12,604
                         
Net Income Per Common Share:                        
  Basic   $ 0.40   $ 0.54   $ 1.25   $ 1.60
  Diluted   $ 0.40   $ 0.54   $ 1.25   $ 1.60
Average Common Shares Outstanding:                        
  Basic     7,841,078     7,877,901     7,871,016     7,867,835
  Diluted     7,851,735     7,892,015     7,881,441     7,878,961
                           
                           
               
American National Bankshares Inc. and Subsidiaries              
Financial Highlights              
                               
(In thousands, except share, ratio and nonfinancial data, unaudited)   3rd Qtr     2nd Qtr     3rd Qtr     YTD     YTD  
    2014     2014     2013     2014     2013  
EARNINGS                                        
  Interest income   $ 11,852     $ 11,780     $ 13,106     $ 35,586     $ 39,862  
  Interest expense     1,392       1,429       1,613       4,316       4,994  
  Net interest income     10,460       10,351       11,493       31,270       34,868  
  Provision for loan losses     -       150       -       150       294  
  Noninterest income     2,981       2,700       2,767       8,384       8,223  
  Noninterest expense     8,827       8,365       8,455       25,615       25,201  
  Income taxes     1,446       1,303       1,562       4,038       4,992  
  Net income     3,168       3,233       4,243       9,851       12,604  
                                         
PER COMMON SHARE                                        
  Earnings per share - basic   $ 0.40     $ 0.41     $ 0.54     $ 1.25     $ 1.60  
  Earnings per share - diluted     0.40       0.41       0.54       1.25       1.60  
  Cash dividends paid     0.23       0.23       0.23       0.69       0.69  
  Book value per share     22.08       21.95       21.03       22.08       21.03  
  Book value per share - tangible (a)     16.81       16.65       15.63       16.81       15.63  
  Closing market price     22.75       21.73       23.20       22.75       23.20  
                                         
FINANCIAL RATIOS                                        
  Return on average assets     0.97 %     1.00 %     1.30 %     1.01 %     1.29 %
  Return on average equity     7.35       7.53       10.40       7.66       10.21  
  Return on average tangible equity (b)     10.12       10.67       14.90       10.72       14.76  
  Average equity to average assets     13.18       13.22       12.48       13.15       12.64  
  Tangible equity to tangible assets (a)     10.32       10.37       9.62       10.32       9.62  
  Net interest margin, taxable equivalent     3.68       3.68       4.06       3.69       4.14  
  Efficiency ratio (e)     64.35       62.87       56.60       63.01       56.02  
  Effective tax rate     31.34       28.73       26.91       29.07       28.37  
                                         
PERIOD-END BALANCES                                        
  Securities   $ 333,063     $ 354,783     $ 352,502     $ 333,063     $ 352,502  
  Loans held for sale     811       118       3,919       811       3,919  
  Loans, net of unearned income     816,588       813,057       798,996       816,588       798,996  
  Goodwill and other intangibles     41,314       41,541       42,532       41,314       42,532  
  Assets     1,319,157       1,300,648       1,324,185       1,319,157       1,324,185  
  Assets - tangible (a)     1,277,843       1,259,107       1,281,653       1,277,843       1,281,653  
  Deposits     1,051,060       1,035,800       1,071,083       1,051,060       1,071,083  
  Customer repurchase agreements     51,945       38,420       44,026       51,945       44,026  
  Long-term borrowings     37,425       37,394       37,377       37,425       37,377  
  Shareholders' equity     173,165       172,083       165,826       173,165       165,826  
  Shareholders' equity - tangible (a)     131,851       130,542       123,294       131,851       123,294  
                                         
AVERAGE BALANCES                                        
  Securities   $ 329,455     $ 347,726     $ 339,582     $ 340,720     $ 333,785  
  Loans held for sale     1,998       1,685       5,109       1,905       6,053  
  Loans, net of unearned income     815,564       793,060       790,846       799,114       788,192  
  Interest-earning assets     1,191,761       1,183,559       1,189,844       1,186,763       1,179,680  
  Goodwill and other intangibles     41,455       41,738       42,731       41,754       43,133  
  Assets     1,309,120       1,299,535       1,307,347       1,303,788       1,302,070  
  Assets - tangible (a)     1,267,665       1,257,797       1,264,616       1,262,034       1,258,937  
  Interest-bearing deposits     806,267       820,342       834,305       818,858       829,029  
  Deposits     1,044,913       1,043,479       1,053,124       1,046,644       1,045,623  
  Customer repurchase agreements     45,725       40,720       46,712       41,443       48,016  
  Long-term borrowings     37,406       37,376       37,388       37,385       37,393  
  Shareholders' equity     172,493       171,784       163,130       171,450       164,595  
  Shareholders' equity - tangible (a)     131,038       130,046       120,399       129,696       121,462  
                                           
                                         
American National Bankshares Inc. and Subsidiaries              
Financial Highlights              
               
(In thousands, except share, ratio and nonfinancial data, unaudited)   3rd Qtr     2nd Qtr     3rd Qtr     YTD     YTD  
    2014     2014     2013     2014     2013  
CAPITAL                                        
  Average shares outstanding - basic     7,841,078       7,872,079       7,877,901       7,871,016       7,867,835  
  Average shares outstanding - diluted     7,851,735       7,879,854       7,892,015       7,881,441       7,878,961  
                                         
ALLOWANCE FOR LOAN LOSSES                                        
  Beginning balance   $ 12,763     $ 12,614     $ 12,676     $ 12,600     $ 12,118  
  Provision for loan losses     -       150       -       150       294  
  Charge-offs     (230 )     (95 )     (162 )     (398 )     (629 )
  Recoveries     87       94       170       268       901  
  Ending balance   $ 12,620     $ 12,763     $ 12,684     $ 12,620     $ 12,684  
                                         
LOANS                                        
  Construction and land development   $ 47,060     $ 50,856     $ 43,386     $ 47,060     $ 43,386  
  Commercial real estate     371,743       366,722       361,968       371,743       361,968  
  Residential real estate     175,091       175,387       173,695       175,091       173,695  
  Home equity     90,952       89,725       89,154       90,952       89,154  
  Commercial and industrial     126,437       125,163       124,504       126,437       124,504  
  Consumer     5,305       5,204       6,289       5,305       6,289  
  Total   $ 816,588     $ 813,057     $ 798,996     $ 816,588     $ 798,996  
                                         
NONPERFORMING ASSETS AT PERIOD-END                                        
  Nonperforming loans:                                        
    90 days past due and accruing   $ -     $ -     $ -     $ -     $ -  
    Nonaccrual     4,494       5,224       4,647       4,494       4,647  
  Foreclosed real estate     2,364       2,622       4,215       2,364       4,215  
  Nonperforming assets   $ 6,858     $ 7,846     $ 8,862     $ 6,858     $ 8,862  
                                         
ASSET QUALITY RATIOS                                        
  Allowance for loan losses to total loans     1.55       1.57       1.59       1.55       1.59  
  Allowance for loan losses to                                        
  nonperforming loans     280.82       244.31       272.95       280.82       272.95  
  Nonperforming assets to total assets     0.52       0.60       0.67       0.52       0.67  
  Nonperforming loans to total loans     0.55       0.64       0.58       0.55       0.58  
  Annualized net charge-offs (recoveries)                                        
  to average loans     0.07 %     0.00 %     0.00 %     0.02 %     (0.05 )%
                                         
                                         
OTHER DATA                                        
  Fiduciary assets at period-end (c)   $ 441,753     $ 450,352     $ 430,853     $ 441,753     $ 430,853  
  Retail brokerage assets at period-end (c)   $ 201,327     $ 197,625     $ 175,856     $ 201,327     $ 175,856  
  Number full-time equivalent employees (d)     292       291       290       292       290  
  Number of full service offices     24       25       25       24       25  
  Number of loan production offices     2       2       2       2       2  
  Number of ATM's     30       31       31       30       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 September 30, 2014 and 2013
(in thousands, except rates)
                             
            Interest            
    Average Balance   Income/Expense   Yield/Rate  
                             
    2014   2013   2014   2013   2014     2013  
Loans:                                    
  Commercial   $ 126,340   $ 126,745   $ 1,339   $ 1,511   4.20 %   4.73 %
  Real estate     686,682     663,539     8,451     9,517   4.92     5.74  
  Consumer     4,540     5,671     85     104   7.43     7.28  
    Total loans     817,562     795,955     9,875     11,132   4.83     5.59  
                                     
Securities:                                    
  Federal agencies & GSEs     72,828     55,543     212     126   1.16     0.91  
  Mortgage-backed & CMOs     58,365     72,505     345     322   2.36     1.78  
  State and municipal     183,679     195,673     1,783     1,945   3.88     3.98  
  Other     14,583     15,861     114     116   3.36     2.93  
    Total securities     329,455     339,582     2,454     2,509   2.99     2.96  
                                     
Deposits in other banks     45,744     54,307     32     38   0.28     0.28  
                                     
  Total interest-earning assets     1,192,761     1,189,844     12,361     13,679   4.14     4.59  
                                     
Non-earning assets     116,359     117,503                        
                                     
    Total assets   $ 1,309,120   $ 1,307,347                        
                                     
Deposits:                                    
  Demand   $ 189,208   $ 163,825     15     25   0.03     0.06  
  Money market     167,777     184,428     51     83   0.12     0.18  
  Savings     88,456     84,390     10     17   0.04     0.08  
  Time     360,826     401,662     1,044     1,213   1.15     1.20  
    Total deposits     806,267     834,305     1,120     1,338   0.55     0.64  
                                     
Customer repurchase agreements     45,725     46,712     2     3   0.02     0.03  
Other short-term borrowings     2,215     -     2     -   0.36     -  
Long-term borrowings     37,406     37,388     268     272   2.87     2.91  
  Total interest-bearing liabilities     891,613     918,405     1,392     1,613   0.62     0.70  
                                     
Noninterest bearing demand deposits     238,646     218,819                        
Other liabilities     6,368     6,993                        
Shareholders' equity     172,493     163,130                        
  Total liabilities and shareholders' equity   $ 1,309,120   $ 1,307,347                        
                                     
Interest rate spread                           3.52 %   3.89 %
Net interest margin                           3.68 %   4.06 %
                                     
Net interest income (taxable equivalent basis)                 10,969     12,066            
Less: Taxable equivalent adjustment                 509     573            
Net interest income               $ 10,460   $ 11,493            
                                     
                                     
 
Net Interest Income Analysis
For the Nine Months Ended September 30, 2014 and 2013
(in thousands, except rates)
                             
            Interest            
    Average Balance   Income/Expense   Yield/Rate  
                             
    2014   2013   2014   2013   2014     2013  
Loans:                                    
  Commercial   $ 122,441   $ 127,592   $ 4,096   $ 4,706   4.49 %   4.95 %
  Real estate     673,745     660,698     25,072     28,927   4.96     5.84  
  Consumer     4,833     5,955     261     316   7.25     7.12  
    Total loans     801,019     794,245     29,429     33,949   4.90     5.70  
                                     
Securities:                                    
  Federal agencies & GSEs     73,506     51,668     617     368   1.12     0.95  
  Mortgage-backed & CMOs     62,420     76,286     1,116     1,040   2.38     1.82  
  State and municipal     189,311     192,113     5,548     5,804   3.91     4.03  
  Other     15,483     13,718     362     306   3.33     2.97  
    Total securities     340,720     333,785     7,643     7,518   3.00     3.00  
                                     
Deposits in other banks     46,024     51,650     100     106   0.29     0.28  
                                     
  Total interest-earning assets     1,187,763     1,179,680     37,172     41,573   4.18     4.70  
                                     
Non-earning assets     116,025     122,390                        
                                     
    Total assets   $ 1,303,788   $ 1,302,070                        
                                     
Deposits:                                    
  Demand   $ 181,040   $ 160,858     56     85   0.04     0.07  
  Money market     177,279     175,486     176     254   0.13     0.19  
  Savings     88,286     83,859     35     54   0.05     0.09  
  Time     372,253     408,826     3,243     3,750   1.17     1.23  
    Total deposits     818,858     829,029     3,510     4,143   0.58     0.67  
                                     
Customer repurchase agreements     41,443     48,016     5     38   0.02     0.11  
Other short-term borrowings     937     -     3     -   0.43     -  
Long-term borrowings     37,385     37,393     798     813   2.85     2.90  
  Total interest-bearing liabilities     898,623     914,438     4,316     4,994   0.64     0.73  
                                     
Noninterest bearing demand deposits     227,786     216,594                        
Other liabilities     5,929     6,443                        
Shareholders' equity     171,450     164,595                        
    Total liabilities and shareholders' equity   $ 1,303,788   $ 1,302,070                        
                                     
Interest rate spread                           3.54 %   3.97 %
Net interest margin                           3.69 %   4.14 %
                                     
Net interest income (taxable equivalent basis)                 32,856     36,579            
Less: Taxable equivalent adjustment                 1,586     1,711            
Net interest income               $ 31,270   $ 34,868