AP NEWS

American National Bankshares Inc. Reports Fourth Quarter 2018 Earnings

January 17, 2019

-- Q4 2018 annualized loan growth 8% -- Q4 2018 net income of $5.0 million -- 2018 net income $22.6 million -- Q4 2018 net interest margin of 3.48% -- Q4 2018 average shareholders’ equity of $218.4 million is 11.78% of average assets

DANVILLE, Va., Jan. 17, 2019 (GLOBE NEWSWIRE) -- American National Bankshares Inc. (“American National”) (Nasdaq: AMNB), parent company of American National Bank and Trust Company, today announced net income for the fourth quarter of 2018 of $5,002,000 compared to $2,120,000 for the fourth quarter of 2017, a $2,882,000 or 135.9% increase. Basic net income per common share was $0.57 for the fourth quarter of 2018 compared to $0.25 for the 2017 quarter. Diluted net income per common share was $0.57 for the fourth quarter of 2018 compared to $0.24 for the 2017 quarter. Net income for the fourth quarter of 2018 produced a return on average assets of 1.08%, a return on average equity of 9.16%, and a return on average tangible equity of 11.63%.

Net income for the year ended December 31, 2018 was $22,579,000 compared to $15,249,000 for 2017, a $7,330,000 or 48.1% increase. Basic net income per common share was $2.60 for 2018 compared to $1.76 for 2017. Diluted net income per common share was $2.59 for 2018 compared to $1.76 for 2017. Net income for 2018 produced a return on average assets of 1.24%, a return on average equity of 10.56%, and a return on average tangible equity of 13.49%.

The enactment of the new federal tax law in late December 2017 negatively affected net income for the 2017 quarter and year. In order to account for the change in income tax rates from 35% to 21%, American National recognized a $2.7 million charge to its deferred tax asset and a corresponding increase in income tax expense in the fourth quarter of 2017.

Beginning in 2018, income tax expense was positively affected by the substantial reduction in the corporate tax rate.

Financial Performance and OverviewJeffrey V. Haley, President and Chief Executive Officer, reported, “We are very pleased to report net income for the quarter of $5.0 million, an increase of 135.9% over the comparable quarter of 2017. Net income for 2018 was $22.6 million, an increase of 48.1% over 2017.

“Earnings were positively impacted for the quarter and the year by 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 interest rates.

“Earnings have also increased due to a significant reduction in loan loss provision. Our need for loan loss provision was reduced by three factors: loan balances, continued strong asset quality metrics, and improvements in various qualitative factors we use in computing our allowance for loan losses.

“Lastly, 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%.

“Earnings for the fourth quarter 2018 were negatively impacted by unrealized losses on equity securities of $270,000. Accounting for fair value changes in equity securities changed in 2018 and unrealized gains and losses are now reflected in the income statement.

“Further, earnings were negatively impacted for the fourth quarter of 2018 and for the year by merger related expenses. Our pending acquisition of HomeTown Bank is generating significant non-recurring expense, $872,000 of which hit the fourth quarter.

“The balance sheet grew last year. Year over year growth in loans was $21.4 million or 1.6%. Most of this growth occurred in the fourth quarter of 2018 where loans increased $26.3 million or 2.0%. Growth was muted in most of 2018 because of over $40 million in large commercial loan payoffs during the year. Current expectations for 2019 are for growth in loans at a moderate pace, probably in the mid-single digit percentage range.

“Year over year growth in deposits was $31.5 million or 2.1%. This growth is mostly in non-maturity core deposits (non-interest bearing accounts), which increased $41.5 million or 10.5%. Our cost of interest bearing deposits for the fourth quarter was 0.83%, compared to 0.61% for the 2017 quarter. Our net interest margin for the current quarter was 3.48%, up two basis points from the prior year quarter, due in large portion to increasing yields on loans. Protecting our net interest margin is a continuing strategic imperative.

“We have noted that many stocks in the financial sector, including American National, have declined substantially and, in many cases, disproportionately, over the last several months. American National approved a stock repurchase program in January 2018 authorizing the repurchase of up to 300,000 shares over the following two years. We will revisit our intention with respect to the plan, subsequent to completion of the merger with HomeTown Bank, based on then current facts and circumstances.”

Haley concluded, “This is an exciting time for American National. Our employees are working diligently with their new friends at HomeTown Bank to consummate our merger in a few months. The transaction will give American National the largest deposit market share of any community bank in the Roanoke, Virginia market. Our earnings for 2018 were good and we’re expecting 2019, excluding merger related costs, and 2020 will be strong. Balance sheet growth took an uptick late in 2018, but sets the stage for strong expectations in 2019. Our operating philosophy will continue to focus on asset quality, volume and rate – in that order.”

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

For the quarter ended December 31, 2018, average shareholders’ equity was 11.78% of average assets, compared to 11.64% for the quarter ended December 31, 2017.

Book value per common share was $25.52 at December 31, 2018, compared to $24.13 at December 31, 2017.

Tangible book value per common share was $20.38 at December 31, 2018, compared to $18.92 at December 31, 2017.

Credit Quality MeasurementsNon-performing assets composed of ($1,090,000 of non-performing loans, $72,000 of 90 day past due and accruing loans, and $869,000 of other real estate owned) represented 0.11% of total assets at December 31, 2018, compared to 0.21% at December 31, 2017.

Annualized net charge offs to average loans were 23 basis points for the fourth quarter of 2018, compared to six basis points for the same quarter in 2017. Net charge offs for 2018 were five basis points, compared to two basis points for 2017.

Other real estate owned was $869,000 at December 31, 2018, compared to $1,225,000 at December 31, 2017, a decrease of $356,000 or 29.1%.

Merger Related Financial ImpactThe 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 taxes. The impact of these adjustments is summarized below (dollars in thousands):

For the quarter ended December 31, 2018 2017 ---------------------------------- - ----- - ----- Net Interest Income $ 286 $ 529 Income Before Income Taxes $ 231 $ 449 For the year ended December 31, 2018 2017 ---------------------------------- - ----- - ----- Net Interest Income $ 1,288 $ 2,114 Income Before Income Taxes $ 1,023 $ 1,586

The fourth quarter of 2018 includes $143,000 in cash basis accretion income related to the early payoff of several acquired loans, compared to $348,000 for the comparable quarter of 2017. For 2018, cash basis accretion income was $688,000, compared to $968,000 for 2017.

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

Net Interest IncomeNet interest income before the provision for loan losses increased to $15,012,000 in the fourth quarter of 2018 from $14,363,000 in the fourth quarter of 2017, an increase of $649,000 or 4.5%.

For the 2018 quarter, the net interest margin was 3.48% compared to 3.46% for the same quarter in 2017, an increase of 0.02%.

The major drivers affecting margin were:

-- Positively affecting margin was a $41.4 million (2.4%) increase in average earning assets, at a 19 basis point higher yield. -- Positively affecting margin was a $30.6 million (7.4%) increase in average noninterest bearing deposits. -- Negatively affecting margin was a $7.6 million (0.7%) increase in the average balance of interest bearing deposits at a 22 basis point higher cost.

Provision for Loan Losses and Allowance for Loan LossesProvision expense for the fourth quarter of 2018 was a negative $6,000 compared to a negative $74,000 for the fourth quarter of 2017. The fourth 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 0.94% at December 31, 2018 compared to 1.02% at December 31, 2017.

Net loans outstanding increased during the fourth quarter by $27.1 million or 2.1%. However, the need for additions to the allowance for loan losses was 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 $2,998,000 in the fourth quarter of 2018, compared with $3,804,000 in the fourth quarter of 2017, a decrease of $806,000 or 21.2%. The major drivers of this decrease were mortgage banking and securities gains and losses.

Mortgage banking income was down $235,000 or 38.8%, primarily due to lower demand.

Securities gains and losses were down $492,000 or 221.6%, almost entirely related to the change in accounting for equity investments requiring unrealized gains and losses to be reflected in the income statement.

Noninterest ExpenseNoninterest expense totaled $11,638,000 in the fourth quarter of 2018, compared to $11,021,000 in the fourth quarter of 2017, an increase of $617,000 or 5.6%.

The primary driver of this increase was merger related expenses related to the pending acquisition of HomeTown Bank. These nonrecurring expenses totaled $872,000 in the fourth quarter of 2018.

About American NationalAmerican National is a multi-state bank holding company with total assets of approximately $1.9 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 $769 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.

Forward-Looking StatementsStatements 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 Bank, 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 Bank, include but are not limited to: (1) the businesses of American National and/or HomeTown Bank 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. 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.

Contact: William W. Traynham, Chief Financial Officer 434-773-2242 traynhamw@amnb.com

American National Bankshares Inc. Consolidated Balance Sheets (Dollars in thousands, except per share data) Unaudited ----------------------------------------------------------------------------------- December 31 ---------------------------- Assets 2018 2017 - --------- - - --------- - Cash and due from banks $ 29,587 $ 28,594 Interest-bearing deposits in other banks 34,668 23,883 Equity securities, at fair value 1,830 - Securities available for sale, at fair value 332,653 321,337 Restricted stock, at cost 5,247 6,110 Loans held for sale 640 1,639 Loans 1,357,476 1,336,125 Less allowance for loan losses (12,805 ) (13,603 ) - --------- - - --------- - Net Loans 1,344,671 1,322,522 - --------- - - --------- - Premises and equipment, net 26,675 25,901 Other real estate owned, net 869 1,225 Goodwill 43,872 43,872 Core deposit intangibles, net 926 1,191 Bank owned life insurance 18,941 18,460 Accrued interest receivable and other assets 22,287 21,344 - --------- - - --------- - Total assets $ 1,862,866 $ 1,816,078 - --------- - - --------- - Liabilities Demand deposits -- noninterest-bearing $ 435,828 $ 394,344 Demand deposits -- interest-bearing 234,621 226,914 Money market deposits 401,461 403,024 Savings deposits 132,360 126,786 Time deposits 361,957 383,658 Total deposits 1,566,227 1,534,726 - --------- - - --------- - Short-term borrowings: Customer repurchase agreements 35,243 10,726 Other short-term borrowings - 24,000 Junior subordinated debt 27,927 27,826 Accrued interest payable and other liabilities 10,927 10,083 - --------- - - --------- - Total liabilities 1,640,324 1,607,361 - --------- - - --------- - Shareholders’ equity Preferred stock, $5 par, 2,000,000 shares authorized, none outstanding - - Common stock, $1 par, 20,000,000 shares authorized, 8,720,337 shares outstanding at December 31, 2018 and 8,650,547 shares outstanding at December 31, 2017 8,668 8,604 Capital in excess of par value 78,172 76,179 Retained earnings 141,537 127,010 Accumulated other comprehensive loss, net (5,835 ) (3,076 ) - --------- - - --------- - Total shareholders’ equity 222,542 208,717 - --------- - - --------- - Total liabilities and shareholders’ equity $ 1,862,866 $ 1,816,078 - --------- - - --------- -

American National Bankshares Inc. Consolidated Statements of Income (Dollars in thousands, except per share data) Unaudited --------------------------------------------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31 December 31 ---------------------------- -------------------------- 2018 2017 2018 2017 - --------- - - --------- - - --------- - - --------- Interest and Dividend Income: Interest and fees on loans $ 15,481 $ 14,426 $ 59,966 $ 55,276 Interest and dividends on securities: Taxable 1,674 1,271 6,106 4,666 Tax-exempt 298 439 1,502 2,043 Dividends 81 79 321 319 Other interest income 357 265 873 734 Total interest and dividend income 17,891 16,480 68,768 63,038 - --------- - - --------- - - --------- - - --------- Interest Expense: Interest on deposits 2,340 1,713 8,086 5,794 Interest on short-term borrowings 145 79 186 173 Interest on long-term borrowings - 53 - 296 Interest on junior subordinated debt 394 272 1,402 1,028 Total interest expense 2,879 2,117 9,674 7,291 - --------- - - --------- - - --------- - - --------- Net Interest Income: 15,012 14,363 59,094 55,747 Provision for loan losses (6 ) (74 ) (103 ) 1,016 - --------- - - --------- - - --------- - - --------- Net Interest Income After Provision for Loan Losses 15,018 14,437 59,197 54,731 - --------- - - --------- - - --------- - - --------- Noninterest Income: Trust fees 908 1,008 3,783 3,926 Service charges on deposit accounts 646 608 2,455 2,426 Other fees and commissions 660 619 2,637 2,471 Mortgage banking income 370 605 1,862 2,208 Securities gains (losses), net (270 ) 222 123 812 Brokerage fees 192 226 795 829 Income from Small Business Investment Companies 161 118 637 236 Gains (losses) on premises and equipment, net (6 ) 7 60 344 Other 337 391 922 975 - --------- - - --------- - - --------- - - --------- Total noninterest income 2,998 3,804 13,274 14,227 - --------- - - --------- - - --------- - - --------- Noninterest Expense: Salaries 5,132 5,225 20,509 19,829 Employee benefits 1,048 1,045 4,370 4,274 Occupancy and equipment 1,081 1,120 4,378 4,487 FDIC assessment 125 137 537 538 Bank franchise tax 191 277 1,054 1,072 Core deposit intangible amortization 55 80 265 528 Data processing 382 550 1,691 2,014 Software 313 291 1,279 1,144 Other real estate owned, net 21 130 122 303 Merger related expenses 872 - 872 - Other 2,418 2,166 9,169 8,694 - --------- - - --------- - - --------- - - --------- Total noninterest expense 11,638 11,021 44,246 42,883 - --------- - - --------- - - --------- - - --------- Income Before Income Taxes 6,378 7,220 28,225 26,075 Income Taxes 1,376 5,100 5,646 10,826 - --------- - - --------- - Net Income $ 5,002 $ 2,120 $ 22,579 $ 15,249 - --------- - - --------- - - --------- - - --------- Net Income Per Common Share: Basic $ 0.57 $ 0.25 $ 2.60 $ 1.76 Diluted $ 0.57 $ 0.24 $ 2.59 $ 1.76 Average Common Shares Outstanding: Basic 8,717,572 8,648,494 8,698,014 8,641,717 Diluted 8,723,388 8,668,765 8,708,647 8,660,628

American National Bankshares Inc. Financial Highlights Unaudited (Dollars in thousands, except per At or for the Year Ended share data) 4th Qtr 3rd Qtr 4th Qtr December 31, ---------------------------- 2018 2018 2017 2018 2017 - --------- - - --------- - - --------- - - --------- - - --------- - EARNINGS Interest income $ 17,891 $ 17,217 $ 16,480 $ 68,768 $ 63,038 Interest expense 2,879 2,466 2,117 9,674 7,291 Net interest income 15,012 14,751 14,363 59,094 55,747 Provision for loan losses (6 ) (23 ) (74 ) (103 ) 1,016 Noninterest income 2,998 3,380 3,804 13,274 14,227 Noninterest expense 11,638 10,904 11,021 44,246 42,883 Income taxes 1,376 1,465 5,100 5,646 10,826 Net income 5,002 5,785 2,120 22,579 15,249 PER COMMON SHARE Income per share - basic $ 0.57 $ 0.66 $ 0.25 $ 2.60 $ 1.76 Income per share - diluted 0.57 0.66 0.24 2.59 1.76 Cash dividends paid 0.25 0.25 0.25 1.00 0.97 Book value per share 25.52 24.79 24.13 25.52 24.13 Book value per share - tangible (a) 20.38 19.65 18.92 20.38 18.92 Closing market price 29.31 39.00 38.30 29.31 38.30 FINANCIAL RATIOS Return on average assets 1.08 % 1.28 % 0.47 % 1.24 % 0.87 % Return on average equity 9.16 10.76 4.00 10.56 7.34 Return on average tangible equity 11.63 13.70 5.21 13.49 9.59 (b) Average equity to average assets 11.78 11.87 11.64 11.70 11.82 Tangible equity to tangible assets 9.78 9.72 9.24 9.78 9.24 (a) Net interest margin, taxable 3.48 3.51 3.46 3.49 3.50 equivalent Efficiency ratio (c) 58.45 59.65 59.93 59.57 60.89 Effective tax rate 21.57 20.21 70.64 20.00 41.52 PERIOD-END BALANCES Securities $ 339,730 $ 303,103 $ 327,447 $ 339,730 $ 327,447 Loans held for sale 640 1,934 1,639 640 1,639 Loans, net of unearned income 1,357,476 1,331,153 1,336,125 1,357,476 1,336,125 Goodwill and other intangibles 44,798 44,853 45,063 44,798 45,063 Assets 1,862,866 1,806,491 1,816,078 1,862,866 1,816,078 Assets - tangible (a) 1,818,068 1,761,638 1,771,015 1,818,068 1,771,015 Deposits 1,566,227 1,523,107 1,534,726 1,566,227 1,534,726 Customer repurchase agreements 35,243 29,104 10,726 35,243 10,726 Other short-term borrowings - - 24,000 - 24,000 Long-term borrowings 27,927 27,902 27,826 27,927 27,826 Shareholders’ equity 222,542 216,066 208,717 222,542 208,717 Shareholders’ equity - tangible (a) 177,744 171,213 163,654 177,744 163,654 AVERAGE BALANCES Securities (d) $ 332,230 $ 335,320 $ 304,254 $ 330,982 $ 301,377 Loans held for sale 1,201 3,282 4,269 2,285 3,185 Loans, net of unearned income 1,335,469 1,327,060 1,301,833 1,330,582 1,262,264 Interest-earning assets 1,736,453 1,693,912 1,695,091 1,709,283 1,631,853 Goodwill and other intangibles 44,831 44,887 45,109 44,926 45,287 Assets 1,854,492 1,811,631 1,820,499 1,827,658 1,758,012 Assets - tangible (a) 1,809,661 1,766,744 1,775,390 1,782,732 1,712,725 Interest-bearing deposits 1,116,911 1,118,929 1,109,286 1,134,512 1,061,519 Deposits 1,558,864 1,542,945 1,520,665 1,556,039 1,454,182 Customer repurchase agreements 37,905 11,896 42,540 18,401 46,335 Other short-term borrowings - 2,176 951 1,149 3,158 Long-term borrowings 27,914 27,886 34,331 27,874 36,887 Shareholders’ equity 218,430 215,054 211,864 213,821 207,807 Shareholders’ equity - tangible (a) 173,599 170,167 166,755 168,895 162,520 American National Bankshares Inc. Financial Highlights Unaudited (Dollars in thousands, except per share data) At or for the Year Ended 4th Qtr 3rd Qtr 4th Qtr December 31, ---------------------------- 2018 2018 2017 2018 2017 - --------- - - --------- - - --------- - - --------- - - --------- - CAPITAL Average shares outstanding - basic 8,717,572 8,712,443 8,648,494 8,698,014 8,641,717 Average shares outstanding - 8,723,388 8,718,918 8,668,765 8,708,647 8,660,628 diluted ALLOWANCE FOR LOAN LOSSES Beginning balance $ 13,588 $ 13,508 $ 13,858 $ 13,603 $ 12,801 Provision for loan losses (6 ) (23 ) (74 ) (103 ) 1,016 Charge-offs (818 ) (28 ) (280 ) (1,020 ) (690 ) Recoveries 41 131 99 325 476 - --------- - - --------- - - --------- - - --------- - - --------- - Ending balance $ 12,805 $ 13,588 $ 13,603 $ 12,805 $ 13,603 LOANS Construction and land development $ 97,240 $ 99,546 $ 123,147 $ 97,240 $ 123,147 Commercial real estate 655,800 632,022 637,701 655,800 637,701 Residential real estate 209,438 205,277 209,326 209,438 209,326 Home equity 103,933 104,873 109,857 103,933 109,857 Commercial and industrial 285,972 284,176 251,666 285,972 251,666 Consumer 5,093 5,259 4,428 5,093 4,428 - --------- - - --------- - - --------- - - --------- - - --------- - Total $ 1,357,476 $ 1,331,153 $ 1,336,125 $ 1,357,476 $ 1,336,125 NONPERFORMING ASSETS AT PERIOD-END Nonperforming loans: 90 days past due and accruing $ 72 $ 74 $ 359 $ 72 $ 359 Nonaccrual 1,090 2,238 2,201 1,090 2,201 Other real estate owned 869 916 1,225 869 1,225 - --------- - - --------- - - --------- - - --------- - - --------- - Nonperforming assets $ 2,031 $ 3,228 $ 3,785 $ 2,031 $ 3,785 ASSET QUALITY RATIOS Allowance for loan losses to total 0.94 % 1.02 % 1.02 % 0.94 % 1.02 % loans Allowance for loan losses to nonperforming loans 1,101.98 587.72 531.37 1,101.98 531.37 Nonperforming assets to total 0.11 0.18 0.21 0.11 0.21 assets Nonperforming loans to total loans 0.09 0.17 0.19 0.09 0.19 Annualized net charge-offs (recoveries) to average loans 0.23 (0.03 ) 0.06 0.05 0.02 OTHER DATA Fiduciary assets at period-end (e) $ 494,034 $ 523,754 $ 518,284 $ 494,034 $ 518,284 (f) Retail brokerage assets at $ 274,552 $ 333,565 $ 321,151 $ 274,552 $ 321,151 period-end (e) (f) Number full-time equivalent 305 316 328 305 328 employees (g) Number of full service offices 24 24 26 24 26 Number of loan production offices 2 2 2 2 2 Number of ATM’s 33 34 34 33 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 (i) gains (losses) on the sale of OREO, net and (ii) merger related expenses by net interest income including tax equivalent income on nontaxable loans and securities and noninterest income excluding (i) securities gains (losses), net and (ii) gains (losses) on premises and equipment, net. (d) - Average does not include unrealized gains and losses. (e) - Market value. (f) - Assets are not owned by American National and are not reflected in the consolidated balance sheet. (g) - Average for quarter.

Net Interest Income Analysis For the Three Months Ended December 31, 2018 and 2017 (Dollars in thousands) Unaudited Interest Average Balance Income/Expense Yield/Rate ------------------------ ------------------ ----------- 2018 2017 2018 2017 2018 2017 - --------- - --------- - ------ - ------ ---- ---- Loans: Commercial $ 262,040 $ 233,689 $ 2,768 $ 2,253 4.19 % 3.82 % Real estate 1,069,515 1,068,273 12,681 12,171 4.74 4.56 Consumer 5,115 4,140 76 81 5.89 7.76 - --------- - --------- - ------ - ------ Total loans 1,336,670 1,306,102 15,525 14,505 4.64 4.44 - --------- - --------- - ------ - ------ ---- ---- Securities: Federal agencies & GSEs 128,826 104,523 752 508 2.33 1.94 Mortgage-backed & CMOs 110,753 92,339 655 501 2.37 2.17 State and municipal 78,223 92,636 529 829 2.71 3.58 Other 14,428 14,756 187 171 5.18 4.64 - --------- - --------- - ------ - ------ Total securities 332,230 304,254 2,123 2,009 2.56 2.64 - --------- - --------- - ------ - ------ ---- ---- Deposits in other banks 67,553 84,735 357 265 2.10 1.24 - --------- - --------- - ------ - ------ ---- ---- Total interest-earning assets 1,736,453 1,695,091 18,005 16,779 4.14 3.95 Non-earning assets 118,039 125,408 - --------- - --------- Total assets $ 1,854,492 $ 1,820,499 - --------- - --------- Deposits: Demand $ 229,286 $ 220,150 13 11 0.02 0.02 Money market 391,289 374,691 1,081 623 1.10 0.66 Savings 133,350 126,274 10 10 0.03 0.03 Time 362,986 388,171 1,236 1,069 1.35 1.09 - --------- - --------- - ------ - ------ ---- ---- Total deposits 1,116,911 1,109,286 2,340 1,713 0.83 0.61 Customer repurchase agreements 37,905 42,540 145 74 1.52 0.69 Other short-term borrowings - 951 - 4 - 1.68 Long-term borrowings 27,914 34,331 394 326 5.65 3.80 - --------- - --------- - ------ - ------ ---- ---- Total interest-bearing liabilities 1,182,730 1,187,108 2,879 2,117 0.97 0.71 - ------ - ------ ---- ---- Noninterest bearing demand deposits 441,953 411,379 Other liabilities 11,379 10,148 Shareholders’ equity 218,430 211,864 - --------- - --------- Total liabilities and shareholders’ equity $ 1,854,492 $ 1,820,499 - --------- - --------- Interest rate spread 3.17 % 3.24 % ---- ---- Net interest margin 3.48 % 3.46 % ---- ---- Net interest income (taxable equivalent basis) 15,126 14,662 Less: Taxable equivalent adjustment (a) 114 299 Net interest income $ 15,012 $ 14,363 - ------ - ------ Notes: (a) - Calculated using 21% and 35% statutory income tax rate in 2018 and 2017, respectively, due to tax rate change.

Net Interest Income Analysis For the Years Ended December 31, 2018 and 2017 (Dollars in thousands) Unaudited Interest Average Balance Income/Expense Yield/Rate ------------------------ ------------------ ----------- 2018 2017 2018 2017 2018 2017 - --------- - --------- - ------ - ------ ---- ---- Loans: Commercial $ 264,241 $ 229,239 $ 10,579 $ 8,829 4.00 % 3.85 % Real estate 1,063,950 1,031,558 49,275 46,400 4.63 4.50 Consumer 4,676 4,652 305 352 6.52 7.57 - --------- - --------- - ------ - ------ Total loans 1,332,867 1,265,449 60,159 55,581 4.51 4.39 - --------- - --------- - ------ - ------ ---- ---- Securities: Federal agencies & GSEs 121,923 97,670 2,708 1,849 2.22 1.89 Mortgage-backed & CMOs 109,048 82,042 2,467 1,725 2.26 2.10 State and municipal 85,061 105,869 2,399 3,781 2.82 3.57 Other 14,950 15,796 718 707 4.80 4.48 - --------- - --------- - ------ - ------ Total securities 330,982 301,377 8,292 8,062 2.51 2.68 - --------- - --------- - ------ - ------ ---- ---- Deposits in other banks 45,434 65,027 873 734 1.92 1.13 - --------- - --------- - ------ - ------ ---- ---- Total interest-earning assets 1,709,283 1,631,853 69,324 64,377 4.06 3.95 - ------ - ------ ---- ---- Non-earning assets 118,375 126,159 - --------- - --------- Total assets $ 1,827,658 $ 1,758,012 - --------- - --------- Deposits: Demand $ 234,857 $ 217,833 49 43 0.02 0.02 Money market 393,321 335,085 3,505 1,668 0.89 0.50 Savings 132,182 125,157 40 38 0.03 0.03 Time 374,152 383,444 4,492 4,045 1.20 1.05 - --------- - --------- - ------ - ------ ---- ---- Total deposits 1,134,512 1,061,519 8,086 5,794 0.71 0.55 Customer repurchase agreements 18,401 46,335 164 142 0.89 0.31 Other short-term borrowings 1,149 3,158 22 31 1.91 0.98 Long-term borrowings 27,874 36,887 1,402 1,324 5.03 3.59 - --------- - --------- - ------ - ------ ---- ---- Total interest-bearing liabilities 1,181,936 1,147,899 9,674 7,291 0.82 0.64 - ------ - ------ ---- ---- Noninterest bearing demand deposits 421,527 392,663 Other liabilities 10,374 9,643 Shareholders’ equity 213,821 207,807 - --------- - --------- Total liabilities and shareholders’ equity $ 1,827,658 $ 1,758,012 - --------- - --------- Interest rate spread 3.24 % 3.31 % ---- ---- Net interest margin 3.49 % 3.50 % ---- ---- Net interest income (taxable equivalent basis) 59,650 57,086 Less: Taxable equivalent adjustment (a) 556 1,339 Net interest income $ 59,094 $ 55,747 - ------ - ------ Notes: (a) - Calculated using 21% and 35% statutory income tax rate in 2018 and 2017, respectively, due to tax rate change.

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