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Section 1: 8-K (FORM 8-K)

mbwm20180112_8k.htm

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 16, 2018

 


 

Mercantile Bank Corporation

(Exact name of registrant as specified in its charter)

 

Michigan 000-26719 38-3360865

(State or other jurisdiction

of incorporation)

(Commission File

Number)

(IRS Employer

Identification Number)

 

310 Leonard Street NW, Grand Rapids, Michigan 49504
(Address of principal executive offices) (Zip Code)
   

Registrant's telephone number, including area code

616-406-3000

 

               

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 (see General Instruction A.2. below):

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-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 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company

 

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.        

 

 

 

 

Item 2.02

Results of Operations and Financial Condition.

 

Earnings Release

 

On January 16, 2018, Mercantile Bank Corporation issued a press release announcing earnings and other financial results for the quarter and year ended December 31, 2017. A copy of the press release is furnished as Exhibit 99.1 to this report and incorporated here by reference.

 

In accordance with General Instruction B.2 of Form 8-K, the information in this Current Report on Form 8-K, including Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

 

Item 9.01

Financial Statements and Exhibits.

 

(d) Exhibits.

 

Exhibit Number   Description
     
99.1       Press release of Mercantile Bank Corporation dated January 16, 2018, reporting financial results and earnings for the quarter and year ended December 31, 2017.

                   

 

 

 

Signatures

 

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.

 

 

Mercantile Bank Corporation

 

 

 

 

 

 

By:

/s/ Charles E. Christmas

 

 

 

Charles E. Christmas

 

 

 

Executive Vice President, Chief

Financial Officer and Treasurer

 

 

Date: January 16, 2018

 

 

 

 

Exhibit Index

 

 

Exhibit Number   Description
     
99.1       Press release of Mercantile Bank Corporation dated January 16, 2018, reporting financial results and earnings for the quarter and year ended December 31, 2017.
(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

ex_102941.htm

Exhibit 99.1

 

 

 

Mercantile Bank Corporation Announces Strong Fourth Quarter and

Full Year 2017 Results

Solid core profitability and loan growth of nearly 8 percent highlight 2017

 

GRAND RAPIDS, Mich., January 16, 2018 – Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $8.0 million, or $0.48 per diluted share, for the fourth quarter of 2017, compared with net income of $8.1 million, or $0.49 per diluted share, for the respective prior-year period. For the full year 2017, Mercantile reported net income of $31.3 million, or $1.90 per diluted share, compared with net income of $31.9 million, or $1.96 per diluted share, for the full year 2016.

 

Excluding the impacts of certain noncore transactions, diluted earnings per share during 2017 and 2016 equaled $1.89 and $1.76, respectively. These transactions included a Bank-owned life insurance death benefit claim in the first quarter of 2017, the revaluation of Mercantile’s net deferred tax asset in response to the Tax Cuts and Jobs Act becoming law in December of 2017, the repurchase of trust preferred securities at a discount in the first quarter of 2016, and accelerated purchase discount accretion on called U.S. Government agency bonds during 2016.

 

The fourth quarter and full year were highlighted by:

 

 

Strong core earnings and capital position

 

Stable and robust net interest margin

 

Solid growth in various fee income categories

 

Controlled overhead costs

 

Strong asset quality, as depicted by low levels of nonperforming assets and loans in the 30- to 89-days delinquent category

 

Total loan growth of $180 million, or nearly 8 percent, during the full year

 

New commercial term loan originations of approximately $119 million during the fourth quarter and $529 million during the full year

 

Sustained strength in commercial loan pipeline

 

Announced first quarter 2018 regular cash dividend of $0.22 per common share, an increase of approximately 16 percent from the $0.19 regular cash dividend paid during the fourth quarter of 2017

 

Our strong 2017 financial results reflect the success of various ongoing strategic initiatives,” said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. “Our focus on net interest margin maintenance, enhanced fee generation, and overhead cost control played a key role in our demonstrated solid operating performance throughout all of 2017. We are very pleased with the level of loan growth during the year, which was achieved in a disciplined manner and in spite of competitive pressures, and our continuing strong asset quality. Based on our overall financial strength and current loan pipeline and prospects, we are well-positioned to participate in the economic strength of our markets during 2018.”

 

 

 

 

Operating Results

 

Total revenue, which consists of net interest income and noninterest income, was $32.9 million during the fourth quarter of 2017, up $1.9 million, or 6.0 percent, from the prior-year fourth quarter. Net interest income during the fourth quarter of 2017 was $28.4 million, up $2.0 million, or 7.4 percent, from the fourth quarter of 2016, reflecting a higher level of earning assets and an increased net interest margin. Total revenue was $129 million during the full year 2017, up $1.8 million, or 1.5 percent, from 2016. Net interest income was $110 million in 2017, up $3.9 million, or 3.7 percent, from the prior year, reflecting a higher level of earning assets.

 

The net interest margin was 3.76 percent in the fourth quarter of 2017, up from 3.72 percent in the prior-year fourth quarter. The increase in the net interest margin primarily resulted from a higher yield on loans, mainly reflecting the positive impact of higher interest rates on variable-rate commercial loans stemming from the Federal Open Market Committee (“FOMC”) hiking the targeted federal funds rate by 25 basis points in December of 2016 and March, June, and December of 2017. The cost of funds equaled 0.59 percent during the fourth quarter of 2017, up from 0.46 percent during the respective 2016 period mainly due to increased costs of certain non-time deposit accounts, time deposits, and borrowed funds.

 

The net interest margin was 3.79 percent in 2017, down from 3.86 percent in 2016 due to an increased cost of funds, which more than offset a slight increase in the yield on average earning assets. The cost of funds equaled 0.54 percent during 2017, up from 0.45 percent during 2016 primarily due to higher costs of certain non-time deposits, time deposits, and borrowed funds. The improved yield on average earning assets mainly resulted from an increased yield on loans, primarily reflecting higher interest rates on variable-rate commercial loans stemming from the previously-mentioned FOMC rate hikes, which more than offset a decreased yield on securities, mainly reflecting a decreased level of accelerated purchase discount accretion on called U.S. Government agency bonds. A change in earning asset mix also contributed to the increased yield on average earning assets; average loans represented 85.2 percent of average earning assets during 2017, up from 84.9 percent during 2016. The accelerated discount accretion totaled $2.2 million during 2016, positively impacting the net interest margin by eight basis points. A nominal level of accelerated discount accretion on called U.S. Government agency bonds was recorded as interest income during 2017.

 

Net interest income and the net interest margin during 2017 and 2016 were also affected by purchase accounting accretion and amortization entries associated with the fair value measurements recorded effective June 1, 2014. Increases in interest income on loans totaling $4.6 million and $4.9 million were recorded during 2017 and 2016, respectively. An increase in interest expense on subordinated debentures totaling $0.7 million was recorded during both 2017 and 2016. Purchased loan accretion amounts vary from period to period as a result of periodic cash flow re-estimations, loan payoffs, and payment performance.

 

Mercantile recorded a $0.6 million provision for loan losses during both the fourth quarter of 2017 and the prior-year fourth quarter. During 2017, Mercantile recorded a provision for loan losses of $3.0 million, compared to a provision of $2.9 million during 2016. The provision expense recorded during the 2017 and 2016 periods primarily reflects ongoing loan growth and periodic adjustments to loan loss reserve environmental factors.

 

 

 

 

Noninterest income during the fourth quarter of 2017 was $4.5 million, down $0.1 million, or 2.2 percent, from the prior-year fourth quarter. Growth in credit and debit card fees and payroll processing revenue was more than offset by a decline in other income, which was elevated in the fourth quarter of 2016 mainly as a result of payments received on certain purchased credit-impaired loans. Noninterest income for 2017 was $19.0 million, down $2.0 million, or 9.7 percent, from 2016. Core noninterest income revenue streams, including treasury management income, credit and debit card interchange fees, mortgage banking activity income, payroll processing revenue, and customer service fees, increased $1.2 million, or 8.5 percent, on a combined basis in 2017 compared to the prior year. The increase in mortgage banking activity income primarily reflects the positive impact of strategic initiatives that were implemented in the latter half of 2016 and throughout 2017, including the hiring of additional loan originators, introduction of new and enhanced products, loan programs and increased marketing efforts. Noninterest income during both periods benefitted from certain noncore transactions, including a Bank-owned life insurance death benefit claim in 2017 and a gain associated with a trust preferred securities repurchase transaction in 2016.

 

Noninterest expense totaled $19.8 million during the fourth quarter of 2017, up $1.5 million, or 7.9 percent, from the prior-year fourth quarter. Noninterest expense during 2017 was $79.7 million, an increase of $2.6 million, or 3.4 percent, from the $77.1 million expensed during 2016. The higher level of expense in the 2017 periods primarily resulted from expected increases in various operating expenses stemming from recent expansion initiatives and increased salary expense, mainly reflecting annual employee merit pay increases, the hiring of additional staff, a larger bonus accrual, and greater stock-based compensation expense. A significant portion of the increased salary expense resulting from staff additions reflects the opening of the southeast Michigan office.

 

Mr. Kaminski continued, “Our net interest margin remained relatively steady during 2017, ranging from 3.73 percent to 3.85 percent on a quarterly basis. The increase in our loan yield, which helped offset the impact of an increased cost of funds on our net interest margin, primarily reflects the positive impact of the recent Federal Open Market Committee rate hikes, which outweighed the negative impacts stemming from persistent competitive pressures and the ongoing relatively low interest rate environment. In light of our current balance sheet structure, we anticipate that potential additional rate hikes will benefit our net interest income. We are pleased with the growth in our core noninterest income revenue streams, and we will continue our efforts to enhance fee income in future periods.”    

 

Balance Sheet

 

As of December 31, 2017, total assets were $3.29 billion, up $204 million, or 6.6 percent, from December 31, 2016. Total loans increased $180 million, or 7.6 percent, to $2.56 billion over the same time period. Approximately $119 million and $529 million in commercial term loans to new and existing borrowers were originated during the fourth quarter and full year of 2017, respectively, as ongoing sales and relationship-building efforts resulted in increased lending opportunities. As of December 31, 2017, unfunded commitments on commercial construction and development loans totaled approximately $154 million, which are expected to be largely funded over the next 12 to 18 months.

 

 

 

 

Raymond Reitsma, President of Mercantile Bank of Michigan, noted, “We are very pleased with our new commercial term loan originations during 2017. Although the commercial loan portfolio slightly contracted during the fourth quarter of 2017, we were still able to produce net loan growth during the quarter as a result of growth in the residential mortgage portfolio. The reduction in commercial loans stemmed from an unusually high level of payoffs, primarily reflecting situations whereby we remained committed to margin and credit quality preservation. The solid growth in the commercial and industrial, owner-occupied commercial real estate, and non-owner occupied commercial real estate portfolios during 2017 reflects the ongoing efforts of our lending team to identify new lending opportunities and meet the needs of existing customers, while growth in the residential mortgage portfolio during the year depicts the success of strategic initiatives focused on increasing our market presence. Based on the strength of our current loan pipelines and additional lending opportunities reported by commercial lenders, we are confident that we can grow the commercial and residential loan portfolios in future periods.”

 

Commercial and industrial loans and owner-occupied commercial real estate (“CRE”) loans combined represented approximately 58 percent of total commercial loans as of December 31, 2017. Non-owner occupied CRE loans equaled about 36 percent of total commercial loans as of December 31, 2017.

 

As of December 31, 2017, total deposits were $2.52 billion, up $147 million from December 31, 2016. Local deposits were up $121 million since year-end 2016. Growth in local deposits was mainly driven by new commercial loan relationships and the success of various deposit account initiatives. Wholesale funds were $323 million, or approximately 11 percent of total funds, as of December 31, 2017, compared to $251 million, or about 9 percent of total funds, as of December 31, 2016.

 

Asset Quality

 

Nonperforming assets at December 31, 2017 were $9.4 million, or 0.3 percent of total assets, compared to $6.4 million, or 0.2 percent of total assets, at December 31, 2016. The transfer of a Bank-owned parcel of real estate, which is no longer being considered for use as a bank facility, from fixed assets to other real estate owned accounted for nearly 55 percent of the $3.0 million increase in nonperforming assets during 2017. The parcel of real estate is expected to be sold in the next six months for an amount that approximates current book value. The level of past due loans remains nominal, and loan relationships on the internal watch list have remained relatively consistent in number and dollar volume.

 

Net loan charge-offs were $0.3 million during the fourth quarter of 2017, or an annualized 0.05 percent of average loans, and $0.2 million, or an annualized 0.03 percent of average loans, during the prior-year fourth quarter. Net loan charge-offs totaled $1.4 million during 2017, or 0.06 percent of average loans, and $0.6 million, or 0.03 percent of average loans, during 2016.

 

Capital Position

 

Shareholders’ equity totaled $366 million as of December 31, 2017, an increase of $25.1 million from year-end 2016. The Bank’s capital position remains above “well-capitalized” with a total risk-based capital ratio of 12.6 percent as of December 31, 2017, compared to 13.1 percent at December 31, 2016. At December 31, 2017, the Bank had approximately $77 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a “well-capitalized” institution. Mercantile reported 16,592,125 total shares outstanding at December 31, 2017.

 

 

 

 

No shares were repurchased during 2017 as part of the $20 million stock repurchase program that was announced in January of 2015. Future share repurchases totaling $15.5 million can be made under the program, which was expanded by $15 million in early 2016.

 

Mr. Kaminski concluded, “Our strong financial performance during 2017 positions us to meet growth objectives and further build shareholder value. As evidenced by our ongoing cash dividend program, including the announcement of an increased first quarter 2018 regular cash dividend earlier today, we remain committed to enhancing shareholder value. Our relationship-based banking approach, which focuses on meeting customers’ needs through the efficient delivery of a wide-range of products and services, continues to be successful as depicted by the solid growth in deposits and loans during the year. We are excited about Mercantile’s future and are confident that our demonstrated robust operating performance will continue in the current year.”

 

About Mercantile Bank Corporation

 

Based in Grand Rapids, Michigan, Mercantile Bank Corporation is the bank holding company for Mercantile Bank of Michigan.  Mercantile provides banking services to businesses, individuals and governmental units, and differentiates itself on the basis of service quality and the expertise of its banking staff. Mercantile has assets of approximately $3.2 billion and operates 49 banking offices. Mercantile Bank Corporation’s common stock is listed on the NASDAQ Global Select Market under the symbol “MBWM.”

 

Forward-Looking Statements

 

This news release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and nontraditional competitors; changes in banking regulation or actions by bank regulators; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; changes in the national and local economies; and other factors, including risk factors, disclosed from time to time in filings made by Mercantile with the Securities and Exchange Commission. Mercantile undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

 

FOR FURTHER INFORMATION:

 

Robert B. Kaminski, Jr.

Charles Christmas
President and CEO Executive Vice President and CFO
616-726-1502 616-726-1202
[email protected] [email protected]

 

 

 

 

Mercantile Bank Corporation

Fourth Quarter 2017 Results

MERCANTILE BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

                         
   

DECEMBER 31,

   

DECEMBER 31,

   

DECEMBER 31,

 
   

2017

   

2016

   

2015

 

ASSETS

                       

Cash and due from banks

  $ 55,127,000     $ 50,200,000     $ 42,829,000  

Interest-earning deposits

    144,974,000       133,396,000       46,463,000  

Federal fund sold

    0       0       599,000  

Total cash and cash equivalents

    200,101,000       183,596,000       89,891,000  
                         

Securities available for sale

    335,744,000       328,060,000       346,992,000  

Federal Home Loan Bank stock

    11,036,000       8,026,000       7,567,000  
                         

Loans

    2,558,552,000       2,378,620,000       2,277,727,000  

Allowance for loan losses

    (19,501,000 )     (17,961,000 )     (15,681,000 )

Loans, net

    2,539,051,000       2,360,659,000       2,262,046,000  
                         

Premises and equipment, net

    46,034,000       45,456,000       46,862,000  

Bank owned life insurance

    68,689,000       67,198,000       58,971,000  

Goodwill

    49,473,000       49,473,000       49,473,000  

Core deposit intangible

    7,600,000       9,957,000       12,631,000  

Other assets

    28,976,000       30,146,000       29,123,000  
                         

Total assets

  $ 3,286,704,000     $ 3,082,571,000     $ 2,903,556,000  
                         
                         

LIABILITIES AND SHAREHOLDERS' EQUITY

                       

Deposits:

                       

Noninterest-bearing

  $ 866,380,000     $ 810,600,000     $ 674,568,000  

Interest-bearing

    1,655,985,000       1,564,385,000       1,600,814,000  

Total deposits

    2,522,365,000       2,374,985,000       2,275,382,000  
                         

Securities sold under agreements to repurchase

    118,748,000       131,710,000       154,771,000  

Federal Home Loan Bank advances

    220,000,000       175,000,000       68,000,000  

Subordinated debentures

    45,517,000       44,835,000       55,154,000  

Accrued interest and other liabilities

    14,204,000       15,230,000       16,445,000  

Total liabilities

    2,920,834,000       2,741,760,000       2,569,752,000  
                         

SHAREHOLDERS' EQUITY

                       

Common stock

    309,772,000       305,488,000       304,819,000  

Retained earnings

    60,132,000       40,904,000       27,722,000  

Accumulated other comprehensive income/(loss)

    (4,034,000 )     (5,581,000 )     1,263,000  

Total shareholders' equity

    365,870,000       340,811,000       333,804,000  
                         

Total liabilities and shareholders' equity

  $ 3,286,704,000     $ 3,082,571,000     $ 2,903,556,000  

 

 

 

 

Mercantile Bank Corporation

Fourth Quarter 2017 Results

MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)

 

   

THREE MONTHS ENDED

   

THREE MONTHS ENDED

   

TWELVE MONTHS ENDED

   

TWELVE MONTHS ENDED

 
   

December 31, 2017

   

December 31, 2016

   

December 31, 2017

   

December 31, 2016

 

INTEREST INCOME

                               

Loans, including fees

  $ 30,411,000     $ 27,830,000     $ 116,816,000     $ 109,049,000  

Investment securities

    2,036,000       1,724,000       7,631,000       9,007,000  

Other interest-earning assets

    455,000       161,000       1,096,000       401,000  

Total interest income

    32,902,000       29,715,000       125,543,000       118,457,000  
                                 

INTEREST EXPENSE

                               

Deposits

    2,819,000       1,940,000       9,362,000       7,549,000  

Short-term borrowings

    48,000       57,000       190,000       211,000  

Federal Home Loan Bank advances

    966,000       668,000       3,657,000       2,263,000  

Other borrowed money

    667,000       615,000       2,586,000       2,567,000  

Total interest expense

    4,500,000       3,280,000       15,795,000       12,590,000  
                                 

Net interest income

    28,402,000       26,435,000       109,748,000       105,867,000  
                                 

Provision for loan losses

    600,000       600,000       2,950,000       2,900,000  
                                 

Net interest income after provision for loan losses

    27,802,000       25,835,000       106,798,000       102,967,000  
                                 

NONINTEREST INCOME

                               

Service charges on accounts

    1,085,000       1,075,000       4,233,000       4,253,000  

Credit and debit card income

    1,263,000       1,093,000       4,760,000       4,278,000  

Mortgage banking income

    1,188,000       1,288,000       4,421,000       3,866,000  

Earnings on bank owned life insurance

    337,000       331,000       2,731,000       1,264,000  

Other income

    630,000       817,000       2,856,000       7,377,000  

Total noninterest income

    4,503,000       4,604,000       19,001,000       21,038,000  
                                 

NONINTEREST EXPENSE

                               

Salaries and benefits

    11,601,000       10,565,000       45,397,000       43,524,000  

Occupancy

    1,479,000       1,463,000       6,186,000       6,063,000  

Furniture and equipment

    543,000       541,000       2,168,000       2,119,000  

Data processing costs

    2,067,000       1,990,000       8,222,000       7,939,000  

FDIC insurance costs

    252,000       128,000       960,000       1,236,000  

Other expense

    3,906,000       3,707,000       16,783,000       16,237,000  

Total noninterest expense

    19,848,000       18,394,000       79,716,000       77,118,000  
                                 

Income before federal income tax expense

    12,457,000       12,045,000       46,083,000       46,887,000  
                                 

Federal income tax expense

    4,478,000       3,960,000       14,809,000       14,974,000  
                                 

Net Income

  $ 7,979,000     $ 8,085,000     $ 31,274,000     $ 31,913,000  
                                 

Basic earnings per share

  $ 0.48     $ 0.49     $ 1.90     $ 1.96  

Diluted earnings per share

  $ 0.48     $ 0.49     $ 1.90     $ 1.96  
                                 

Average basic shares outstanding

    16,525,625       16,352,359       16,478,968       16,292,086  

Average diluted shares outstanding

    16,536,225       16,374,117       16,489,070       16,310,730  

 

 

 

 

Mercantile Bank Corporation

Fourth Quarter 2017 Results

MERCANTILE BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)

 

   

Quarterly

   

Year-To-Date

 

(dollars in thousands except per share data)

 

2017

   

2017

   

2017

   

2017

   

2016

                 
   

4th Qtr

   

3rd Qtr

   

2nd Qtr

   

1st Qtr

   

4th Qtr

   

2017

   

2016

 

EARNINGS

                                                       

Net interest income

  $ 28,402       28,644       27,193       25,509       26,435       109,748       105,867  

Provision for loan losses

  $ 600       1,000       750       600       600       2,950       2,900  

Noninterest income

  $ 4,503       4,605       4,042       5,851       4,604       19,001       21,038  

Noninterest expense

  $ 19,848       20,210       19,882       19,776       18,394       79,716       77,118  

Net income before federal income tax expense

  $ 12,457       12,039       10,603       10,984       12,045       46,083       46,887  

Net income

  $ 7,979       8,337       7,343       7,615       8,085       31,274       31,913  

Basic earnings per share

  $ 0.48       0.51       0.45       0.46       0.49       1.90       1.96  

Diluted earnings per share

  $ 0.48       0.51       0.45       0.46       0.49       1.90       1.96  

Average basic shares outstanding

    16,525,625       16,483,492       16,471,060       16,434,647       16,352,359       16,478,968       16,292,086  

Average diluted shares outstanding

    16,536,225       16,494,540       16,485,356       16,449,210       16,374,117       16,489,070       16,310,730  
                                                         

PERFORMANCE RATIOS

                                                       

Return on average assets

    0.97 %     1.03 %     0.96 %     1.02 %     1.05 %     1.00 %     1.07 %

Return on average equity

    8.70 %     9.21 %     8.39 %     8.99 %     9.35 %     8.82 %     9.35 %

Net interest margin (fully tax-equivalent)

    3.76 %     3.83 %     3.85 %     3.73 %     3.72 %     3.79 %     3.86 %

Efficiency ratio

    60.32 %     60.78 %     63.65 %     63.06 %     59.26 %     61.92 %     60.77 %

Full-time equivalent employees

    641       634       643       617       616       641       616  
                                                         

YIELD ON ASSETS / COST OF FUNDS

                                                       

Yield on loans

    4.76 %     4.81 %     4.69 %     4.54 %     4.65 %     4.70 %     4.65 %

Yield on securities

    2.60 %     2.50 %     2.44 %     2.35 %     2.27 %     2.47 %     2.87 %

Yield on other interest-earning assets

    1.29 %     1.28 %     0.99 %     0.81 %     0.51 %     1.21 %     0.51 %

Yield on total earning assets

    4.35 %     4.41 %     4.37 %     4.20 %     4.18 %     4.33 %     4.31 %

Yield on total assets

    4.04 %     4.10 %     4.05 %     3.88 %     3.87 %     4.02 %     3.99 %

Cost of deposits

    0.45 %     0.43 %     0.35 %     0.33 %     0.33 %     0.39 %     0.33 %

Cost of borrowed funds

    1.74 %     1.75 %     1.69 %     1.53 %     1.45 %     1.68 %     1.45 %

Cost of interest-bearing liabilities

    0.88 %     0.85 %     0.77 %     0.68 %     0.68 %     0.80 %     0.66 %

Cost of funds (total earning assets)

    0.59 %     0.58 %     0.52 %     0.47 %     0.46 %     0.54 %     0.45 %

Cost of funds (total assets)

    0.55 %     0.54 %     0.48 %     0.43 %     0.42 %     0.50 %     0.42 %
                                                         

PURCHASE ACCOUNTING ADJUSTMENTS

                                                 

Loan portfolio - increase interest income

  $ 683       1,757       1,336       832       1,672       4,608       4,925  

Trust preferred - increase interest expense

  $ 171       171       171       171       171       684       684  

Core deposit intangible - increase overhead

  $ 556       556       609       636       636       2,357       2,675  
                                                         

MORTGAGE BANKING ACTIVITY

                                                       

Total mortgage loans originated

  $ 62,526       61,962       60,371       38,365       46,727       223,224       163,072  

Purchase mortgage loans originated

  $ 33,958       41,254       39,115       21,523       21,962       135,850       78,251  

Refinance mortgage loans originated

  $ 28,568       20,708       21,256       16,842       24,765       87,374       84,821  

Total mortgage loans sold

  $ 26,254       33,858       29,371       18,463       30,081       107,946       111,058  

Net gain on sale of mortgage loans

  $ 1,051       1,131       1,012       732       993       3,926       3,397  
                                                         

CAPITAL

                                                       

Tangible equity to tangible assets

    9.56 %     9.54 %     9.70 %     9.77 %     9.31 %     9.56 %     9.31 %

Tier 1 leverage capital ratio

    11.28 %     11.18 %     11.49 %     11.53 %     11.17 %     11.28 %     11.17 %

Common equity risk-based capital ratio

    10.76 %     10.54 %     10.65 %     10.83 %     10.88 %     10.76 %     10.88 %

Tier 1 risk-based capital ratio

    12.23 %     12.01 %     12.15 %     12.39 %     12.47 %     12.23 %     12.47 %

Total risk-based capital ratio

    12.89 %     12.66 %     12.79 %     13.05 %     13.13 %     12.89 %     13.13 %

Tier 1 capital

  $ 360,533       354,087       347,754       341,708       336,316       360,533       336,316  

Tier 1 plus tier 2 capital

  $ 380,035       373,280       366,048       359,984       354,278       380,035       354,278  

Total risk-weighted assets

  $ 2,948,013       2,949,011       2,861,605       2,757,616       2,697,727       2,948,013       2,697,727  

Book value per common share

  $ 22.05       21.99       21.69       21.13       20.76       22.05       20.76  

Tangible book value per common share

  $ 18.61       18.49       18.16       17.56       17.14       18.61       17.14  

Cash dividend per common share

  $ 0.19       0.19       0.18       0.18       0.67       0.74       1.16  
                                                         

ASSET QUALITY

                                                       

Gross loan charge-offs

  $ 920       709       1,150       456       970       3,235       2,205  

Recoveries

  $ 628       607       419       171       805       1,825       1,585  

Net loan charge-offs (recoveries)

  $ 292       102       731       285       165       1,410       620  

Net loan charge-offs to average loans

    0.05 %     0.02 %     0.12 %     0.05 %     0.03 %     0.06 %     0.03 %

Allowance for loan losses

  $ 19,501       19,193       18,295       18,276       17,961       19,501       17,961  

Allowance to originated loans

    0.88 %     0.88 %     0.86 %     0.92 %     0.95 %     0.88 %     0.95 %

Nonperforming loans

  $ 7,143       8,231       6,450       7,292       5,939       7,143       5,939  

Other real estate/repossessed assets

  $ 2,260       2,327       789       495       469       2,260       469  

Nonperforming loans to total loans

    0.28 %     0.32 %     0.26 %     0.30 %     0.25 %     0.28 %     0.25 %

Nonperforming assets to total assets

    0.29 %     0.32 %     0.23 %     0.26 %     0.21 %     0.29 %     0.21 %
                                                         

NONPERFORMING ASSETS - COMPOSITION

                                                 

Residential real estate:

                                                       

Land development

  $ 0       0       0       0       16       0       16  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied / rental

  $ 3,574       3,648       3,367       2,972       2,883       3,574       2,883  

Commercial real estate:

                                                       

Land development

  $ 35       50       65       80       95       35       95  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied

  $ 4,272       4,627       1,313       1,221       610       4,272       610  

Non-owner occupied

  $ 36       84       400       421       488       36       488  

Non-real estate:

                                                       

Commercial assets

  $ 1,444       2,126       2,081       3,076       2,293       1,444       2,293  

Consumer assets

  $ 42       23       13       17       23       42       23  

Total nonperforming assets

    9,403       10,558       7,239       7,787       6,408       9,403       6,408  
                                                         

NONPERFORMING ASSETS - RECON

                                                       

Beginning balance

  $ 10,558       7,239       7,787       6,408       5,459       6,408       6,737  

Additions - originated loans

  $ 402       4,789       1,774       2,987       2,953       9,952       6,344  

Merger-related activity

  $ 0       210       16       0       33       226       33  

Return to performing status

  $ 0       (120 )     0       (113 )     (13 )     (233 )     (13 )

Principal payments

  $ (688 )     (1,089 )     (1,168 )     (1,289 )     (1,386 )     (4,234 )     (4,164 )

Sale proceeds

  $ (101 )     (373 )     (147 )     (56 )     (308 )     (677 )     (1,428 )

Loan charge-offs

  $ (754 )     (91 )     (953 )     (135 )     (263 )     (1,933 )     (981 )

Valuation write-downs

  $ (14 )     (7 )     (70 )     (15 )     (67 )     (106 )     (120 )

Ending balance

  $ 9,403       10,558       7,239       7,787       6,408       9,403       6,408  
                                                         

LOAN PORTFOLIO COMPOSITION

                                                       

Commercial:

                                                       

Commercial & industrial

  $ 753,764       776,562       780,816       757,219       713,903       753,764       713,903  

Land development & construction

  $ 29,872       28,575       29,027       31,924       34,828       29,872       34,828  

Owner occupied comm'l R/E

  $ 526,327       485,347       491,633       452,382       450,464       526,327       450,464  

Non-owner occupied comm'l R/E

  $ 791,685       805,167       783,036       768,565       748,269       791,685       748,269  

Multi-family & residential rental

  $ 101,918       119,170       114,081       113,257       117,883       101,918       117,883  

Total commercial

  $ 2,203,566       2,214,821       2,198,593       2,123,347       2,065,347       2,203,566       2,065,347  

Retail:

                                                       

1-4 family mortgages

  $ 254,560       236,075       220,697       205,850       195,226       254,560       195,226  

Home equity & other consumer

  $ 100,426       103,376       107,991       112,117       118,047       100,426       118,047  

Total retail

  $ 354,986       339,451       328,688       317,967       313,273       354,986       313,273  

Total loans

  $ 2,558,552       2,554,272       2,527,281       2,441,314       2,378,620       2,558,552       2,378,620  
                                                         

END OF PERIOD BALANCES

                                                       

Loans

  $ 2,558,552       2,554,272       2,527,281       2,441,314       2,378,620       2,558,552       2,378,620  

Securities

  $ 346,780       341,126       333,294       341,677       336,086       346,780       336,086  

Other interest-earning assets

  $ 144,974       123,110       48,762       12,663       133,396       144,974       133,396  

Total earning assets (before allowance)

  $ 3,050,306       3,018,508       2,909,337       2,795,654       2,848,102       3,050,306       2,848,102  

Total assets

  $ 3,286,704       3,254,655       3,143,336       3,018,919       3,082,571       3,286,704       3,082,571  

Noninterest-bearing deposits

  $ 866,380       826,038       800,718       757,706       810,600       866,380       810,600  

Interest-bearing deposits

  $ 1,655,985       1,663,005       1,570,003       1,520,310       1,564,385       1,655,985       1,564,385  

Total deposits

  $ 2,522,365       2,489,043       2,370,721       2,278,016       2,374,985       2,522,365       2,374,985  

Total borrowed funds

  $ 387,468       390,868       404,370       380,009       354,902       387,468       354,902  

Total interest-bearing liabilities

  $ 2,043,453       2,053,873       1,974,373       1,900,319       1,919,287       2,043,453       1,919,287  

Shareholders' equity

  $ 365,870       362,546       357,499       348,050       340,811       365,870       340,811  
                                                         

AVERAGE BALANCES

                                                       

Loans

  $ 2,534,729       2,534,364       2,472,489       2,390,030       2,372,510       2,483,440       2,345,308  

Securities

  $ 346,318       339,125       338,045       339,537       336,493       340,770       340,172  

Other interest-earning assets

  $ 138,095       116,851       46,250       61,376       127,790       90,925       77,863  

Total earning assets (before allowance)

  $ 3,019,142       2,990,340       2,856,784       2,790,943       2,836,793       2,915,135       2,763,343  

Total assets

  $ 3,248,828       3,220,053       3,081,542       3,016,871       3,064,974       3,142,673       2,987,784  

Noninterest-bearing deposits

  $ 849,751       805,650       785,705       766,031       773,137       802,024       715,550  

Interest-bearing deposits

  $ 1,635,727       1,648,235       1,531,399       1,542,078       1,561,539       1,589,778       1,567,846  

Total deposits

  $ 2,485,478       2,453,885       2,317,104       2,308,109       2,334,676       2,391,802       2,283,396  

Total borrowed funds

  $ 384,168       393,910       400,508       352,614       366,905       382,917       347,134  

Total interest-bearing liabilities

  $ 2,019,895       2,042,145       1,931,907       1,894,692       1,928,444       1,972,695       1,914,980  

Shareholders' equity

  $ 363,823       359,131       351,216       343,344       343,122       354,448       341,340  
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