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) January 22, 2015
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 January 22, 2015, American National Bankshares Inc. ("the Company") reports earnings for foruth quarter 2014.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits:

99.1 January 22, 2015 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: January 22, 2015                                                                                                                               /s/ William W. Traynham

Executive Vice President and Chief Financial Officer

EX-99.1

Date:	January 22, 2015
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 FOURTH QUARTER AND YEAR END 2014 EARNINGS

· 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.

Danville, VA -- 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.

	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
$ in thousands

Quarterly pretax income was negatively impacted by $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.

EX-99.2

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 ATM's		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 & CMO's		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 & CMO's		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