8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 21, 2014
AMERICAN NATIONAL BANKSHARES INC.
(Exact name of registrant as specified in its charter)
Virginia	0-12820	54-1284688
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)
628 Main Street, Danville, VA 24541
	(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: 434-792-5111
Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
	þ	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
	o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
	o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
	o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13a-4(c))

Item 2.02 Results of Operations and Financial Condition

On October 21, 2014, American National Bankshares Inc. ("the Company") reports earnings for third quarter 2014.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits:

99.1 October 21, 2014 News Release

99.2 Quarterly Balance Sheets, Statements of Income, Net Interest Income Analysis and Selected Financial Data

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: October 21, 2014                                                                                                                              /s/ William W. Traynham

Senior Vice President and Chief Financial Officer

EX-99.1

Date:	October 21, 2014
Contact:	William W. Traynham, Chief Financial Officer
	434-773-2242
	traynhamw@amnb.com
Traded:	NASDAQ Global Select Market	Symbol:	AMNB

AMERICAN NATIONAL BANKSHARES INC. REPORTS THIRD QUARTER 2014 EARNINGS

· 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%

Danville, VA -- 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."

EX-99.2

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