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 18, 2018
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		24,541
(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:
o	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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Item 2.02 Results of Operations and Financial Condition

On October 18, 2018, American National Bankshares Inc. ("the Company") reports earnings for third quarter 2018.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits:

99.1 October 18, 2018 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 18, 2018                                                                       /s/ William W. Traynham

Executive Vice President and Chief Financial Officer

EX-99.1

Date:	October 18, 2018
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 2018 EARNINGS

• Q3 2018 net income of $5.8 million and diluted EPS of $0.66

• Net interest margin of 3.51% for Q3 2018

• Average shareholders’ equity of $215.1 million is 11.87% of average assets

• Nonperforming assets to total assets 0.18% for Q3 2018

Danville, VA -- American National Bankshares Inc. (“American National”) (NASDAQ: AMNB), parent company of American National Bank and Trust Company, today announced net income of $5,785,000 for the third quarter of 2018 compared to $4,787,000 for the third quarter of 2017, a $998,000 or 20.8% increase. Basic and diluted net income per common share was $0.66 for the 2018 quarter compared to $0.55 for the 2017 quarter. Net income for the third quarter of 2018 produced annualized returns on average assets of 1.28%, on average equity of 10.76%, and on average tangible equity of 13.70%.

Net income for the first nine months of 2018 was $17,577,000 compared to $13,129,000 for the comparable period of 2017, a $4,448,000 or 33.9% increase. Basic and diluted net income per common share was $2.02 for the 2018 period compared to $1.52 for the 2017 period.

Financial Performance and Overview

Jeffrey V. Haley, President and Chief Executive Officer, reported, “We are very pleased to report net income for the quarter of $5.8 million, an increase of 20.8% over the comparable quarter of 2017. Net income for the nine months was $17.6 million, an increase

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of 33.9% over the comparable period of 2017. The main drivers of the increase for the quarter and the period were, as has been the case for the past few quarters, greater net interest income, lower loan loss provision and lower corporate income taxes.

“Net interest income has increased with greater earning assets, mostly loans, and increasing market rates.

“Earnings have also increased due to a significant reduction in loan loss provision. Provision expense in the third quarter of 2018 was $463,000 less than the comparable quarter of 2017. Our need for provision expense was reduced by three factors: loan balances outstanding were effectively flat during the period, continued strong asset quality metrics, and improvements in various qualitative factors we use in computing our allowance for loan losses.

“Also benefiting earnings was the substantial decrease in our corporate tax rate. The tax cut, enacted in December 2017, reduced our statutory rate to 21% from 35% and our effective rate to 20.2% from 31.5%.

“The balance sheet has grown in the last year. Year over year growth in loans was $36 million or 2.8%. However, net loans fell $5 million or 0.4% during the first nine months of 2018, primarily due to over $40 million in large commercial loan payoffs during the period. Current expectations for the remainder of 2018 and 2019 are for growth in loans at a moderate pace.

“Year over year growth in deposits was $42.9 million or 2.9%. Deposits fell $11.6 million or 0.8% during the first nine months of 2018. The year over year growth is mostly in non-maturity core deposits (noninterest bearing and money market accounts), which are the heart of our balance sheet. Our cost of interest bearing deposits for the third quarter was 0.73%, compared to 0.57% for the 2017 quarter.

“American National benefits from rising market interest rates. However, the yield on loans has been constrained by intense competition for high quality borrowers. On the other side of the balance sheet, after almost ten years of very low rates and as rates now rise customers are beginning to demand more yield for the use of their money. Our net interest margin for the current quarter was 3.51%, down five basis points from the prior year quarter, due in large portion to a decline in accretion income. As rates continue to

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move up, maintaining and protecting our net interest margin is a continuing strategic imperative.”

Haley concluded, “The fourth quarter got off to an outstanding start. On October 1, 2018, American National and HomeTown Bankshares Corporation (NASDAQ: HMTA - “HomeTown”), headquartered in Roanoke, Va., announced the signing of an agreement that calls for HomeTown to merge with American National in a transaction valued at approximately $95.6 million. The combination deepens American National’s footprint in the Roanoke MSA and creates a presence in the New River Valley. Upon completion of the merger, American National will have eight offices in the combined Roanoke/New River Valley markets with total deposits of over $700 million. Based on financial results as of June 30, 2018, the combined company will have approximately $2.4 billion in assets, $1.8 billion in loans, and $2.0 billion in deposits.

“Roanoke and Franklin County are already important markets for our company and the addition of the New River Valley market is an exciting growth opportunity. The combination of HomeTown and American National will create a company that is better positioned to serve the needs of those communities. We believe in community banking and focus on accessible, responsive, and friendly community-based services. By combining our highly qualified and dedicated teams, we believe we will be the community bank of choice for businesses and individuals in this area. We feel so strongly that our combined organization will be able to offer a hometown banking platform for each of our ten regions in Virginia and North Carolina that we will change our tag line to ‘Welcome to Hometown Banking.’”

Capital

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

For the quarter ended September 30, 2018, average shareholders’ equity was 11.87% of average assets, compared to 11.79% for the quarter ended September 30, 2017.

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Book value per common share was $24.79 at September 30, 2018, compared to $24.31 at September 30, 2017.

Tangible book value per common share was $19.65 at September 30, 2018, compared to $19.09 at September 30, 2017.

Credit Quality Measurements

Non-performing assets ($2,238,000 of non-performing loans, $74,000 of 90 day past due and accruing loans, and $916,000 of other real estate owned) represented 0.18% of total assets at September 30, 2018, compared to 0.29% at September 30, 2017.

Annualized net recoveries to average loans were three basis points (0.03%) for the 2018 third quarter compared to net charge offs of seven basis points (0.07%) for the same quarter in 2017.

Other real estate owned was $916,000 compared to $2,101,000 at September 30, 2017, a decrease of $1,185,000 or 56.4%.

Acquisition Related Financial Impact

The acquisition accounting adjustments related to our 2011 and 2015 acquisitions have had and continue to have a positive impact on net interest income and income before income tax. The impact of these adjustments is summarized below (dollars in thousands):

For the quarter ended September 30,	2018		2017
Net Interest Income	$	198	$	557
Income Before Income Taxes	$	142	$	477
For the nine months ended September 30,	2018		2017
Net Interest Income	$	1,002	$	1,586
Income Before Income Taxes	$	792	$	1,138

The third quarter of 2018 includes $59,000 in cash basis accretion income related to the early payoff of several acquired loans, compared to $333,000 for the comparable quarter of 2017.

The positive financial impact of these merger related accounting adjustments will continue to decline in upcoming quarters.

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Net Interest Income

Net interest income before the provision for loan losses increased to $14,751,000 in the third quarter of 2018 from $14,338,000 in the third quarter of 2017, an increase of $413,000 or 2.9%.

For the 2018 quarter, the net interest margin was 3.51% compared to 3.56% for the same quarter in 2017, a decrease of five basis points (0.05%). The decrease in net interest margin was driven mostly by higher cost of funds.

Provision for Loan Losses and Allowance for Loan Losses

Provision expense for the third quarter of 2018 was a negative $23,000 compared to $440,000 for the third quarter of 2017. The third quarter 2018 negative provision was related to adjustments on the specific reserves for several impaired loans.

The allowance for loan losses as a percentage of total loans was 1.02% at September 30, 2018 compared to 1.07% at September 30, 2017.

Net loans outstanding fell during the third quarter by $8.2 million or 0.6%. The need for additions to the allowance for loan losses was also reduced by improvement in various qualitative factors used in the determination of the allowance, notably national and local economic conditions, and loan volume.

Noninterest Income

Noninterest income totaled $3,380,000 in the third quarter of 2018, compared with $3,804,000 in the third quarter of 2017, a decrease of $424,000 or 11.1%. The major driver of the decrease was a $337,000 gain reflected in the 2017 quarter from the sale of a bank owned commercial lot.

Noninterest Expense

Noninterest expense totaled $10,904,000 in the third quarter of 2018, compared to $10,710,000 in the third quarter of 2017, an increase of $194,000 or 1.8%. The major driver of the increase was a $213,000 or 4.2% increase in salaries, mostly related to adjustments of fringe benefit accruals.

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About American National

American National is a multi-state bank holding company with total assets of approximately $1.8 billion. Headquartered in Danville, Virginia, American National is the parent company of American National Bank and Trust Company. American National Bank is a community bank serving Virginia and North Carolina with 24 banking offices and two loan production offices. American National Bank also manages an additional $857 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

Statements made in this release, other than those concerning historical financial information, may be considered forward-looking statements, which speak only as of the date of this release and are based on current expectations and involve a number of assumptions. These include statements as to the anticipated performance of American National and the benefits of the proposed merger with HomeTown, including future financial and operating results, cost savings and enhanced revenues that may be realized from the merger as well as other statements of expectations regarding the merger and any other statements regarding future results or expectations. American National intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. American National’s ability to predict results, or the actual effect of future plans or strategies, is inherently uncertain. Factors that could have a material effect on the operations and future prospects of American National and the resulting company after the proposed merger with HomeTown, include but are not limited to: (1) the businesses of American National and/or HomeTown may not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; (2) expected revenue synergies and cost savings from the merger may not be fully realized or realized within the expected timeframe; (3) revenues following the merger may be lower than expected; (4) customer and employee relationships and business operations may be disrupted by the merger; (5) the ability to obtain required regulatory and shareholder approvals, and the ability to complete the merger on the expected timeframe may be more difficult, time-consuming or costly than expected; (6) changes in interest rates, general economic conditions, legislation and regulation, and monetary and fiscal policies of the U.S. government, including policies of the U.S.

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Treasury, Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System; (7) the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows, competition, and demand for financial services in the companies’ respective market areas; (8) the implementation of new technologies, and the ability to develop and maintain secure and reliable electronic systems; (9) accounting principles, policies, and guidelines; and (10) other risk factors detailed from time to time in filings made by American National with the Securities and Exchange Commission. American National undertakes no obligation to update or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

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EX-99.2

American National Bankshares Inc.
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
Unaudited
	September 30
ASSETS	2018			2017
Cash and due from banks	$	32,688		$	26,949
Interest-bearing deposits in other banks	37,355			76,271
Equity securities, at fair value	2,087			—
Securities available for sale, at fair value	295,777			272,205
Restricted stock, at cost	5,239			5,509
Loans held for sale	1,934			3,386
Loans	1,331,153			1,295,154
Less allowance for loan losses	(13,588		)	(13,858		)
Net Loans	1,317,565			1,281,296
Premises and equipment, net	25,690			25,923
Other real estate owned, net	916			2,101
Goodwill	43,872			43,872
Core deposit intangibles, net	981			1,271
Bank owned life insurance	18,785			18,491
Accrued interest receivable and other assets	23,602			23,267
Total assets	$	1,806,491		$	1,780,541
Liabilities
Demand deposits -- noninterest-bearing	$	420,486		$	402,100
Demand deposits -- interest-bearing	230,984			225,279
Money market deposits	362,575			336,752
Savings deposits	135,702			124,025
Time deposits	373,360			392,049
Total deposits	1,523,107			1,480,205
Customer repurchase agreements	29,104			43,240
Long-term borrowings	—			9,996
Junior subordinated debt	27,902			27,800
Accrued interest payable and other liabilities	10,312			9,086
Total liabilities	1,590,425			1,570,327
Shareholders' equity
Preferred stock, $5 par, 2,000,000 shares authorized,
none outstanding	—			—
Common stock, $1 par, 20,000,000 shares authorized,
8,714,431 shares outstanding at September 30, 2018 and
8,647,345 shares outstanding at September 30, 2017	8,661			8,600
Capital in excess of par value	77,842			75,943
Retained earnings	138,715			126,507
Accumulated other comprehensive loss, net	(9,152		)	(836		)
Total shareholders' equity	216,066			210,214
Total liabilities and shareholders' equity	$	1,806,491		$	1,780,541

American National Bankshares Inc.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
Unaudited
	Three Months Ended					Nine Months Ended
	September 30					September 30
	2018			2017		2018			2017
Interest and Dividend Income:
Interest and fees on loans	$	15,062		$	14,394	$	44,485		$	40,850
Interest and dividends on securities:
Taxable	1,568			1,108		4,432			3,395
Tax-exempt	362			460		1,204			1,604
Dividends	82			77		240			240
Other interest income	143			235		516			469
Total interest and dividend income	17,217			16,274		50,877			46,558
Interest Expense:
Interest on deposits	2,048			1,529		5,746			4,081
Interest on short-term borrowings	29			52		41			94
Interest on long-term borrowings	—			82		—			243
Interest on junior subordinated debt	389			273		1,008			756
Total interest expense	2,466			1,936		6,795			5,174
Net Interest Income	14,751			14,338		44,082			41,384
Provision for loan losses	(23		)	440		(97		)	1,090
Net Interest Income After Provision
for Loan Losses	14,774			13,898		44,179			40,294
Noninterest Income:
Trust fees	1,001			1,098		2,875			2,918
Service charges on deposit accounts	605			622		1,809			1,818
Other fees and commissions	656			618		1,977			1,852
Mortgage banking income	551			612		1,492			1,603
Securities gains (losses), net	(17		)	—		393			590
Brokerage fees	172			219		603			603
Income from Small Business Investment Companies	150			86		476			118
Gains on premises and equipment, net	63			337		66			337
Other	199			212		585			584
Total noninterest income	3,380			3,804		10,276			10,423
Noninterest Expense:
Salaries	5,285			5,072		15,377			14,604
Employee benefits	1,036			1,048		3,322			3,229
Occupancy and equipment	1,069			1,151		3,297			3,367
FDIC assessment	134			138		412			401
Bank franchise tax	291			276		863			795
Core deposit intangible amortization	56			80		210			448
Data processing	420			475		1,309			1,464
Software	307			303		966			853
Other real estate owned, net	46			62		101			173
Other	2,260			2,105		6,751			6,528
Total noninterest expense	10,904			10,710		32,608			31,862

Income Before Income Taxes	7,250		6,992		21,847		18,855
Income Taxes	1,465		2,205		4,270		5,726
Net Income	$	5,785	$	4,787	$	17,577	$	13,129
Net Income Per Common Share:
Basic	$	0.66	$	0.55	$	2.02	$	1.52
Diluted	$	0.66	$	0.55	$	2.02	$	1.52
Average Common Shares Outstanding:
Basic	8,712,443		8,644,310		8,691,423		8,639,433
Diluted	8,718,918		8,663,246		8,703,662		8,657,891

American National Bankshares Inc.
Financial Highlights
Unaudited
	(Dollars in thousands, except per share data)
		3rd Qtr				2nd Qtr				3rd Qtr			YTD				YTD
		2018				2018				2017			2018				2017
EARNINGS
Interest income		$	17,217			$	16,992			$	16,274		$	50,877			$	46,558
Interest expense		2,466				2,204				1,936			6,795				5,174
Net interest income		14,751				14,788				14,338			44,082				41,384
Provision for loan losses		(23		)		(30		)		440			(97		)		1,090
Noninterest income		3,380				3,563				3,804			10,276				10,423
Noninterest expense		10,904				11,002				10,710			32,608				31,862
Income taxes		1,465				1,399				2,205			4,270				5,726
Net income		5,785				5,980				4,787			17,577				13,129
PER COMMON SHARE
Income per share - basic		$	0.66			$	0.69			$	0.55		$	2.02			$	1.52
Income per share - diluted		0.66				0.69				0.55			2.02				1.52
Cash dividends paid		0.25				0.25				0.24			0.75				0.72
Book value per share		24.79				24.50				24.31			24.79				24.31
Book value per share - tangible (a)		19.65				19.34				19.09			19.65				19.09
Closing market price		39.00				40.00				41.20			39.00				41.20
FINANCIAL RATIOS
Return on average assets		1.28			%	1.31			%	1.08		%	1.29			%	1.01		%
Return on average equity		10.76				11.27				9.16			11.04				8.48
Return on average tangible equity (b)		13.70				14.44				11.81			14.14				11.11
Average equity to average assets		11.87				11.62				11.79			11.67				11.89
Tangible equity to tangible assets (a)		9.72				9.46				9.51			9.72				9.51
Net interest margin, taxable equivalent		3.51				3.50				3.56			3.49				3.51
Efficiency ratio (c)		59.65				60.38				59.14			59.94				61.23
Effective tax rate		20.21				18.96				31.54			19.55				30.37
PERIOD-END BALANCES
Securities		$	303,103			$	348,887			$	277,714		$	303,103			$	277,714
Loans held for sale		1,934				2,296				3,386			1,934				3,386
Loans, net of unearned income		1,331,153				1,339,379				1,295,154			1,331,153				1,295,154
Goodwill and other intangibles		44,853				44,909				45,143			44,853				45,143
Assets		1,806,491				1,824,531				1,780,541			1,806,491				1,780,541
Assets - tangible (a)		1,761,638				1,779,622				1,735,398			1,761,638				1,735,398
Deposits		1,523,107				1,560,746				1,480,205			1,523,107				1,480,205
Customer repurchase agreements		29,104				6,776				43,240			29,104				43,240
Other short-term borrowings		—				5,500				—			—				—
Long-term borrowings		27,902				27,876				37,796			27,902				37,796
Shareholders' equity		216,066				213,348				210,214			216,066				210,214
Shareholders' equity - tangible (a)		171,213				168,439				165,071			171,213				165,071

American National Bankshares Inc.
Financial Highlights
Unaudited
	(Dollars in thousands, except per share data)
		3rd Qtr			2nd Qtr			3rd Qtr			YTD			YTD
		2018			2018			2017			2018			2017
AVERAGE BALANCES
Securities (d)		$	335,320		$	342,486		$	281,246		$	330,561		$	300,407
Loans held for sale		3,282			2,616			3,607			2,650			2,820
Loans, net of unearned income		1,327,060			1,321,812			1,291,822			1,328,936			1,248,929
Interest-earning assets		1,693,912			1,707,223			1,646,241			1,700,128			1,610,541
Goodwill and other intangibles		44,887			44,956			45,191			44,958			45,347
Assets		1,811,631			1,825,860			1,773,636			1,818,615			1,736,955
Assets - tangible (a)		1,766,744			1,780,904			1,728,445			1,773,657			1,691,608
Interest-bearing deposits		1,118,929			1,145,701			1,066,827			1,140,443			1,045,422
Deposits		1,542,945			1,565,321			1,468,523			1,555,086			1,431,777
Customer repurchase agreements		11,896			11,347			48,461			11,829			47,614
Other short-term borrowings		2,176			247			—			1,536			3,902
Long-term borrowings		27,886			27,861			37,780			27,861			37,748
Shareholders' equity		215,054			212,256			209,026			212,268			206,440
Shareholders' equity - tangible (a)		170,167			167,300			163,835			167,310			161,093
CAPITAL
Average common shares outstanding - basic		8,712,443			8,692,107			8,644,310			8,691,423			8,639,433
Average common shares outstanding -
diluted		8,718,918			8,704,726			8,663,246			8,703,662			8,657,891
ALLOWANCE FOR LOAN LOSSES
Beginning balance		$	13,508		$	13,575		$	13,632		$	13,603		$	12,801
Provision for loan losses		(23		)	(30		)	440			(97		)	1,090
Charge-offs		(28		)	(130		)	(277		)	(202		)	(411		)
Recoveries		131			93			63			284			378
Ending balance		$	13,588		$	13,508		$	13,858		$	13,588		$	13,858
LOANS
Construction and land development		$	99,546		$	96,740		$	137,869		$	99,546		$	137,869
Commercial real estate		632,022			633,128			602,434			632,022			602,434
Residential real estate		205,277			207,374			209,201			205,277			209,201
Home equity		104,873			105,558			110,926			104,873			110,926
Commercial and industrial		284,176			291,454			230,484			284,176			230,484
Consumer		5,259			5,125			4,240			5,259			4,240
Total		$	1,331,153		$	1,339,379		$	1,295,154		$	1,331,153		$	1,295,154
NONPERFORMING ASSETS AT PERIOD-END
Nonperforming loans:
90 days past due and accruing		$	74		$	229		$	538		$	74		$	538
Nonaccrual		2,238			1,861			2,498			2,238			2,498
Other real estate owned		916			1,124			2,101			916			2,101
Nonperforming assets		$	3,228		$	3,214		$	5,137		$	3,228		$	5,137

American National Bankshares Inc.
Financial Highlights
Unaudited
	(Dollars in thousands, except per share data)
		3rd Qtr				2nd Qtr			3rd Qtr			YTD				YTD
		2018				2018			2017			2018				2017
ASSET QUALITY RATIOS
Allowance for loan losses to total loans		1.02			%	1.01		%	1.07		%	1.02			%	1.07		%
Allowance for loan losses to
nonperforming loans		587.72				646.32			456.46			587.72				456.46
Nonperforming assets to total assets		0.18				0.18			0.29			0.18				0.29
Nonperforming loans to total loans		0.17				0.16			0.23			0.17				0.23
Annualized net charge-offs (recoveries)
to average loans		(0.03		)		0.01			0.07			(0.01		)		—
OTHER DATA
Fiduciary assets at period-end (e) (f)		$	523,754			$	510,552		$	517,294		$	523,754			$	517,294
Retail brokerage assets at period-end (e) (f)		$	333,565			$	326,692		$	307,281		$	333,565			$	307,281
Number full-time equivalent employees (g)		316				323			335			316				335
Number of full service offices		24				26			26			24				26
Number of loan production offices		2				2			2			2				2
Number of ATM's		34				34			34			34				34
Notes:
(a) - Excludes goodwill and other intangible assets.
(b) - Excludes amortization expense, net of tax, of intangible assets.
(c) - The efficiency ratio is calculated by dividing noninterest expense excluding gains or losses on the sale of OREO by
net interest income including tax equivalent income on nontaxable loans and securities and noninterest income and
excluding (i) gains or losses on securities and (ii) gains or losses on sale of premises and equipment.
(d) - Average does not include unrealized gains and losses.
(e) - Market value.
(f) - Assets are not owned by the Company and are not reflected in the consolidated balance sheet.
(g) - Average for quarter.

			Net Interest Income Analysis
			For the Three Months Ended September 30, 2018 and 2017
			(Dollars in thousands)
			Unaudited
								Interest
				Average Balance				Income/Expense				Yield/Rate
				2018		2017		2018		2017		2018		2017
Loans:
	Commercial			$	268,296	$	233,455	$	2,715	$	2,282	4.01	%	3.88	%
	Real estate			1,057,097		1,057,326		12,317		12,102		4.66		4.58
	Consumer			4,949		4,648		76		92		6.09		7.85
		Total loans		1,330,342		1,295,429		15,108		14,476		4.54		4.46
Securities:
	Federal agencies & GSEs			128,284		92,822		732		445		2.28		1.92
	Mortgage-backed & CMOs			107,817		77,663		604		399		2.24		2.06
	State and municipal			84,147		95,861		583		862		2.77		3.60
	Other			15,072		14,900		180		170		4.78		4.56
		Total securities		335,320		281,246		2,099		1,876		2.50		2.67
Deposits in other banks				28,250		69,566		143		235		2.01		1.34
	Total interest-earning assets			1,693,912		1,646,241		17,350		16,587		4.09		4.03
Non-earning assets				117,719		127,395
		Total assets		$	1,811,631	$	1,773,636
Deposits:
	Demand			$	231,339	$	215,486	12		11		0.02		0.02
	Money market			377,074		336,501		839		463		0.88		0.55
	Savings			132,450		124,949		10		9		0.03		0.03
	Time			378,066		389,891		1,187		1,046		1.25		1.06
		Total deposits		1,118,929		1,066,827		2,048		1,529		0.73		0.57
Customer repurchase agreements				11,896		48,461		17		53		0.57		0.43
Other short-term borrowings				2,176		—		12		—		2.21		—
Long-term borrowings				27,886		37,780		389		354		5.58		3.75
	Total interest-bearing
		liabilities		1,160,887		1,153,068		2,466		1,936		0.84		0.67
Noninterest bearing demand deposits				424,016		401,696
Other liabilities				11,674		9,846
Shareholders' equity				215,054		209,026
		Total liabilities and
			shareholders' equity	$	1,811,631	$	1,773,636
Interest rate spread												3.25	%	3.36	%
Net interest margin												3.51	%	3.56	%
Net interest income (taxable equivalent basis)								14,884		14,651
Less: Taxable equivalent adjustment (a)								133		313
Net interest income								$	14,751	$	14,338
Notes:
		(a) - Calculated using 21% and 35% statutory tax rate in 2018 and 2017, respectively, due to tax rate change.

			Net Interest Income Analysis
			For the Nine Months Ended September 30, 2018 and 2017
			(Dollars in thousands)
			Unaudited
								Interest
				Average Balance				Income/Expense				Yield/Rate
				2018		2017		2018		2017		2018		2017
Loans:
	Commercial			$	264,983	$	227,739	$	7,811	$	6,577	3.94	%	3.86	%
	Real estate			1,062,075		1,019,185		36,594		34,228		4.59		4.48
	Consumer			4,528		4,825		229		272		6.76		7.54
		Total loans		1,331,586		1,251,749		44,634		41,077		4.47		4.38
Securities:
	Federal agencies & GSEs			119,597		95,360		1,956		1,340		2.18		1.87
	Mortgage-backed & CMOs			108,473		78,572		1,812		1,224		2.23		2.08
	State and municipal			87,365		110,328		1,870		2,952		2.85		3.57
	Other			15,126		16,147		531		536		4.68		4.43
		Total securities		330,561		300,407		6,169		6,052		2.49		2.69
Deposits in other banks				37,981		58,385		516		469		1.82		1.07
	Total interest-earning assets			1,700,128		1,610,541		51,319		47,598		4.03		3.94
Non-earning assets				118,487		126,414
		Total assets		$	1,818,615	$	1,736,955
Deposits:
	Demand			$	236,734	$	217,052	36		32		0.02		0.02
	Money market			394,005		321,738		2,424		1,046		0.82		0.43
	Savings			131,789		124,780		30		28		0.03		0.03
	Time			377,915		381,852		3,256		2,975		1.15		1.04
		Total deposits		1,140,443		1,045,422		5,746		4,081		0.67		0.52
Customer repurchase agreements				11,829		47,614		19		68		0.21		0.19
Other short-term borrowings				1,536		3,902		22		27		1.91		0.92
Long-term borrowings				27,861		37,748		1,008		998		4.82		3.53
	Total interest-bearing
		liabilities		1,181,669		1,134,686		6,795		5,174		0.77		0.61
Noninterest bearing demand deposits				414,643		386,355
Other liabilities				10,035		9,474
Shareholders' equity				212,268		206,440
		Total liabilities and
			shareholders' equity	$	1,818,615	$	1,736,955
Interest rate spread												3.26	%	3.33	%
Net interest margin												3.49	%	3.51	%
Net interest income (taxable equivalent basis)								44,524		42,424
Less: Taxable equivalent adjustment								442		1,040
Net interest income								$	44,082	$	41,384
Notes:
		(a) - Calculated using 21% and 35% statutory tax rate in 2018 and 2017, respectively, due to tax rate change.