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

mbwm20180716_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): July 17, 2018

____________________

 

Mercantile Bank Corporation

(Exact name of registrant as specified in its charter)

         

Michigan 000-26719 38-3360865
(State or other jurisdiction (Commission File (IRS Employer
of incorporation) Number) 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 July 17, 2018, Mercantile Bank Corporation issued a press release announcing earnings and other financial results for the quarter ended June 30, 2018. 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 July 17, 2018, reporting financial results and earnings for the quarter ended June 30, 2018.

                   

2

 

 

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: July 17, 2018

 

3

 

 

Exhibit Index

 

 

Exhibit Number Description
   
99.1 Press release of Mercantile Bank Corporation dated July 17, 2018, reporting financial results and earnings for the quarter ended June 30, 2018.

                   

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

ex_117846.htm

Exhibit 99.1

 

 

 

Mercantile Bank Corporation Reports Strong Second Quarter 2018 Results

Continued strength in core profitability and solid loan growth highlight quarter

 

GRAND RAPIDS, Mich., July 17, 2018 – Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $9.4 million, or $0.57 per diluted share, for the second quarter of 2018, compared with net income of $7.3 million, or $0.45 per diluted share, for the respective prior-year period. Net income during the first six months of 2018 totaled $20.3 million, or $1.22 per diluted share, compared to $15.0 million, or $0.91 per diluted share, during the first six months of 2017.

 

The successful collection of certain nonperforming commercial loans increased reported net income during the first six months of 2018 by approximately $1.7 million, or $0.10 per diluted share, while a bank owned life insurance claim during the first quarter of 2017 increased reported net income during the first six months of 2017 by approximately $1.1 million, or $0.06 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.27, or 31.8 percent, during the first six months of 2018 compared to the respective 2017 period.

 

Net income during the second quarter of 2018 and the first six months of 2018 also benefited from a reduction in the corporate federal income tax rate, which was lowered from 35 percent to 21 percent on January 1, 2018, as a result of the enactment of the Tax Cuts and Jobs Act. Mercantile’s effective tax rate was 19.0 percent during both the second quarter and first six months of 2018, down from 30.7 percent during each of the respective prior-year periods.

 

“We are pleased to report another quarter of sound financial performance, continuing the momentum generated during the first quarter of 2018,” said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. “Our strong operating performance and balance sheet, sustained strength in commercial and residential mortgage loan originations, and healthy loan pipelines make us confident that the solid results achieved during the first half of the year will continue throughout the remainder of 2018.”

 

Second quarter highlights include:

 

 

Robust earnings performance and capital position

 

Healthy net interest margin

 

Increased fee income

 

Controlled overhead costs

 

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

 

 

 

 

 

New commercial term loan originations of approximately $142 million

 

Continued strength in commercial loan pipeline

 

Operating Results

 

Total revenue, which consists of net interest income and noninterest income, was $33.8 million during the second quarter of 2018, up $2.5 million, or 8.1 percent, from the prior-year second quarter. Net interest income during the second quarter of 2018 was $29.2 million, up $2.0 million, or 7.5 percent, from the second quarter of 2017, reflecting a higher level of earning assets and an increased net interest margin.

 

The net interest margin was 3.92 percent in the second quarter of 2018, down from 4.06 percent in the linked quarter, but up from 3.85 percent in the prior-year second quarter. The decrease in the net interest margin in the current-year second quarter relative to the first quarter of 2018 primarily resulted from a lower yield on commercial loans, which more than offset an improved earning asset mix. The collection of interest on certain nonperforming commercial loans that paid in full positively impacted the yield on earning assets during the first quarter of 2018 by approximately 29 basis points, while a higher-than-desired level of interest-earning deposits negatively impacted the yield by approximately 8 basis points. Excluding the impacts of these factors, the net interest margin equaled approximately 3.85 percent during the first quarter of 2018. The change in earning asset mix mainly reflected loan growth and a reduction in interest-earning deposit balances. Higher-yielding average loans represented 86.5 percent of average earning assets during the second quarter of 2018, up from 84.4 percent during the linked quarter, while lower-yielding average interest-earning deposit balances represented 2.1 percent of average earning assets during the current-year second quarter, down from 4.1 percent during the linked quarter. The cost of funds equaled 0.68 percent during the second quarter of 2018, up from 0.64 percent during the first quarter of 2018 mainly due to increased costs of certain non-time deposit accounts, time deposits, and borrowed funds.

 

The increase in the net interest margin during the second quarter of 2018 compared to the prior-year second quarter reflects a higher yield on average earning assets, primarily reflecting an increased yield on commercial loans, which more than offset a higher cost of funds, mainly reflecting increased costs of certain non-time deposit accounts, time deposits, and borrowed funds. The increased yield on commercial loans primarily reflects the positive impact of higher interest rates on variable-rate commercial loans, stemming from the Federal Open Market Committee raising the targeted federal funds rate by 25 basis points in each of June and December 2017 and March and June 2018.

 

Net interest income and the net interest margin during the second quarter of 2018 and the prior-year second quarter were 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 $0.8 million and $1.3 million were recorded during the second quarters of 2018 and 2017, respectively. Purchased loan accretion amounts vary from period to period as a result of periodic cash flow re-estimations, loan payoffs, and payment performance. An increase in interest expense on subordinated debentures totaling $0.2 million was recorded during both the current-year second quarter and prior-year second quarter.

 

Mercantile recorded a $0.7 million provision for loan losses during the second quarter of 2018 compared to a $0.8 million provision during the respective 2017 period. The provision expense recorded during the second quarter of 2018 primarily reflects loan growth and increased allocations related to certain environmental factors, while the provision expense recorded during the prior-year second quarter mainly reflects loan growth.

 

 

 

 

Noninterest income during the second quarter of 2018 was $4.6 million, up $0.5 million, or 12.6 percent, from the $4.1 million recorded during the second quarter of 2017. The increase in noninterest income in part reflects higher mortgage banking activity income, credit and debit card fees, payroll processing revenue, and service charges on accounts. The increased mortgage banking activity income mainly reflects the success of ongoing strategic initiatives that were implemented to increase market penetration. The positive impacts of these initiatives have more than offset the negative impacts of rising residential mortgage loan rates and a shortage of housing inventory in Mercantile’s markets.

 

Noninterest expense totaled $21.4 million during the second quarter of 2018, up $1.5 million, or 7.7 percent, from the respective 2017 period. The higher level of expense primarily resulted from increased salary costs, mainly reflecting annual employee merit pay increases, the hiring of additional staff, a larger bonus accrual, and higher stock-based compensation expense. In addition, all hourly employees received a pay increase effective April 1, 2018.

 

Mr. Kaminski continued, “We are very pleased with the ongoing strength and relative steadiness of our core net interest margin, depicting our continuing focus on loan pricing discipline and sound asset quality. The recent interest rate hikes initiated by the Federal Open Market Committee have positively impacted our core net interest margin, and we believe our balance sheet structure positions us to benefit from any further rate increases. We are also pleased with the growth in various fee income categories stemming from the success of ongoing strategic initiatives. Although headwinds persist, including rising interest rates and limited housing inventories in our markets, mortgage banking activity income increased in the second quarter as we expected, in large part reflecting a higher level of purchase activity and our efforts to increase market penetration.”   

 

Balance Sheet

 

As of June 30, 2018, total assets were $3.29 billion, up $1.8 million from December 31, 2017. Total loans increased $78.3 million, or 3.1 percent, while interest-earning deposits decreased $75.6 million, or 52.1 percent, over the same time period. Interest-earning deposit balances declined as a result of these funds being used to meet loan funding requirements. Approximately $142 million in commercial term loans to new and existing borrowers were originated during the second quarter of 2018, as continuing sales and relationship-building efforts resulted in additional lending opportunities. As of June 30, 2018, unfunded commitments on commercial construction and development loans totaled approximately $116 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 the net loan growth achieved during the second quarter of 2018, reflecting our lending team’s ongoing focus on establishing new customer relationships and serving our existing customer base. New commercial term loan originations were in line with quarterly originations over the past few years. We remain dedicated to growing the loan portfolio in a disciplined manner, with a continuing emphasis on credit quality and risk-based pricing. Based on expected new loan fundings, we are confident that the commercial loan portfolio will expand in future periods. Our residential mortgage loan portfolio grew for the ninth consecutive quarter due to our ongoing strategic initiatives, and we believe we are well-positioned to increase our market presence.”

 

 

 

 

As of June 30, 2018, commercial and industrial loans and owner-occupied commercial real estate (“CRE”) loans combined represented approximately 58 percent of total commercial loans, while non-owner occupied CRE loans equaled about 36 percent of total commercial loans.

 

Total deposits at June 30, 2018 were $2.53 billion, up $7.4 million and $159 million from December 31, 2017, and June 30, 2017, respectively, while local deposits were up $22.6 million and $165 million during the respective time periods. New commercial loan relationships and the success of various deposit account initiatives drove the growth in local deposits. Wholesale funds were $317 million, or approximately 11 percent of total funds, as of June 30, 2018, compared to $323 million and $339 million as of December 31, 2017, and June 30, 2017, respectively.

 

Asset Quality

 

Nonperforming assets at June 30, 2018, were $5.8 million, or 0.2 percent of total assets, compared to $9.4 million, or 0.3 percent of total assets, at December 31, 2017, and $7.2 million, or 0.2 percent of total assets, at June 30, 2017. The decline in nonperforming assets during the first six months of 2018 primarily reflects successful loan collection efforts and sales of bank-owned real estate that were no longer being used or considered for use as bank facilities. The level of past due loans remains nominal, and loan relationships on the internal watch list generally declined in number and dollar volume during the first six months of 2018. Net loan recoveries were $0.5 million, or an annualized negative 0.08 percent of average loans, during both the second quarter of 2018 and the linked quarter, compared with net loan charge-offs of $0.7 million, or an annualized 0.12 percent of average loans, during the second quarter of 2017.

 

Capital Position

 

Shareholders’ equity totaled $375 million as of June 30, 2018, an increase of $9.0 million from year-end 2017. The Bank’s capital position remains above “well-capitalized” with a total risk-based capital ratio of 12.9 percent as of June 30, 2018, compared to 12.6 percent at December 31, 2017. At June 30, 2018, the Bank had approximately $88 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a “well-capitalized” institution. Mercantile reported 16,609,336 total shares outstanding at June 30, 2018.

 

Mr. Kaminski concluded, “Our strong financial performance during the first half of 2018 positions us to meet growth and profitability objectives and increase shareholder value. The sustained cash dividend program, including the announcement of an increased third quarter dividend earlier today, depicts our commitment to enhancing total shareholder return. Our value-added approach to banking, along with our wide array of products and services, have allowed us to successfully attract new customers as well as retain existing clients. We are excited about the opportunities available to us in our markets, and we are confident that our demonstrated robust operating performance during the first six months of 2018 will continue during the remainder of the current year and beyond.”

 

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 $3.3 billion and operates 47 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 & CEO Executive Vice President & CFO
  616-726-1502 616-726-1202
  rkaminski@mercbank.com cchristmas@mercbank.com

             

 

 

                

MERCANTILE BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

JUNE 30,

   

DECEMBER 31,

   

JUNE 30,

 
   

2018

   

2017

   

2017

 

ASSETS

                       

Cash and due from banks

  $ 56,338,000     $ 55,127,000     $ 52,847,000  

Interest-earning deposits

    69,402,000       144,974,000       48,762,000  

Total cash and cash equivalents

    125,740,000       200,101,000       101,609,000  
                         

Securities available for sale

    331,142,000       335,744,000       322,258,000  

Federal Home Loan Bank stock

    11,036,000       11,036,000       11,036,000  
                         

Loans

    2,636,856,000       2,558,552,000       2,527,281,000  

Allowance for loan losses

    (21,167,000 )     (19,501,000 )     (18,295,000 )

Loans, net

    2,615,689,000       2,539,051,000       2,508,986,000  
                         

Premises and equipment, net

    47,102,000       46,034,000       45,999,000  

Bank owned life insurance

    69,321,000       68,689,000       66,535,000  

Goodwill

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

Core deposit intangible

    6,514,000       7,600,000       8,712,000  

Other assets

    32,504,000       28,976,000       28,728,000  
                         

Total assets

  $ 3,288,521,000     $ 3,286,704,000     $ 3,143,336,000  
                         
                         

LIABILITIES AND SHAREHOLDERS' EQUITY

                       

Deposits:

                       

Noninterest-bearing

  $ 884,470,000     $ 866,380,000     $ 800,718,000  

Interest-bearing

    1,645,341,000       1,655,985,000       1,570,003,000  

Total deposits

    2,529,811,000       2,522,365,000       2,370,721,000  
                         

Securities sold under agreements to repurchase

    94,573,000       118,748,000       110,920,000  

Federal Home Loan Bank advances

    230,000,000       220,000,000       245,000,000  

Subordinated debentures

    45,858,000       45,517,000       45,176,000  

Accrued interest and other liabilities

    13,360,000       14,204,000       14,020,000  

Total liabilities

    2,913,602,000       2,920,834,000       2,785,837,000  
                         

SHAREHOLDERS' EQUITY

                       

Common stock

    311,720,000       309,772,000       308,343,000  

Retained earnings

    74,084,000       61,001,000       50,012,000  

Accumulated other comprehensive income/(loss)

    (10,885,000 )     (4,903,000 )     (856,000 )

Total shareholders' equity

    374,919,000       365,870,000       357,499,000  
                         

Total liabilities and shareholders' equity

  $ 3,288,521,000     $ 3,286,704,000     $ 3,143,336,000  

              

 

 

               

MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)

 

   

THREE MONTHS ENDED

   

THREE MONTHS ENDED

   

SIX MONTHS ENDED

   

SIX MONTHS ENDED

 
   

June 30, 2018

   

June 30, 2017

   

June 30, 2018

   

June 30, 2017

 

INTEREST INCOME

                               

Loans, including fees

  $ 31,855,000     $ 28,927,000     $ 64,170,000     $ 55,660,000  

Investment securities

    2,177,000       1,860,000       4,373,000       3,688,000  

Other interest-earning assets

    287,000       116,000       757,000       259,000  

Total interest income

    34,319,000       30,903,000       69,300,000       59,607,000  
                                 

INTEREST EXPENSE

                               

Deposits

    3,262,000       2,023,000       6,347,000       3,891,000  

Short-term borrowings

    61,000       46,000       118,000       97,000  

Federal Home Loan Bank advances

    988,000       1,002,000       1,933,000       1,657,000  

Other borrowed money

    783,000       639,000       1,478,000       1,260,000  

Total interest expense

    5,094,000       3,710,000       9,876,000       6,905,000  
                                 

Net interest income

    29,225,000       27,193,000       59,424,000       52,702,000  
                                 

Provision for loan losses

    700,000       750,000       700,000       1,350,000  
                                 

Net interest income after provision for loan losses

    28,525,000       26,443,000       58,724,000       51,352,000  
                                 

NONINTEREST INCOME

                               

Service charges on accounts

    1,079,000       1,054,000       2,132,000       2,072,000  

Credit and debit card income

    1,334,000       1,176,000       2,577,000       2,282,000  

Mortgage banking income

    995,000       783,000       1,879,000       1,906,000  

Earnings on bank owned life insurance

    321,000       328,000       652,000       2,066,000  

Other income

    821,000       701,000       1,691,000       1,567,000  

Total noninterest income

    4,550,000       4,042,000       8,931,000       9,893,000  
                                 

NONINTEREST EXPENSE

                               

Salaries and benefits

    12,757,000       10,888,000       25,094,000       22,160,000  

Occupancy

    1,629,000       1,554,000       3,401,000       3,108,000  

Furniture and equipment

    582,000       546,000       1,130,000       1,081,000  

Data processing costs

    2,137,000       2,072,000       4,265,000       4,083,000  

Other expense

    4,309,000       4,822,000       8,671,000       9,226,000  

Total noninterest expense

    21,414,000       19,882,000       42,561,000       39,658,000  
                                 

Income before federal income tax expense

    11,661,000       10,603,000       25,094,000       21,587,000  
                                 

Federal income tax expense

    2,215,000       3,260,000       4,767,000       6,629,000  
                                 

Net Income

  $ 9,446,000     $ 7,343,000     $ 20,327,000     $ 14,958,000  
                                 

Basic earnings per share

  $ 0.57     $ 0.45     $ 1.22     $ 0.91  

Diluted earnings per share

  $ 0.57     $ 0.45     $ 1.22     $ 0.91  
                                 

Average basic shares outstanding

    16,601,400       16,471,060       16,598,274       16,452,954  

Average diluted shares outstanding

    16,610,819       16,485,356       16,607,593       16,467,384  

                                                    

 

 

 

MERCANTILE BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)

 

   

Quarterly

   

Year-To-Date

 
(dollars in thousands except per share data)   2018     2018     2017     2017     2017              
   

2nd Qtr

   

1st Qtr

   

4th Qtr

   

3rd Qtr

   

2nd Qtr

   

2018

   

2017

 

EARNINGS

                                                       

Net interest income

  $ 29,225       30,199       28,402       28,644       27,193       59,424       52,702  

Provision for loan losses

  $ 700       0       600       1,000       750       700       1,350  

Noninterest income

  $ 4,550       4,381       4,503       4,605       4,042       8,931       9,893  

Noninterest expense

  $ 21,414       21,147       19,848       20,210       19,882       42,561       39,658  

Net income before federal income tax expense

  $ 11,661       13,433       12,457       12,039       10,603       25,094       21,587  

Net income

  $ 9,446       10,881       7,979       8,337       7,343       20,327       14,958  

Basic earnings per share

  $ 0.57       0.66       0.48       0.51       0.45       1.22       0.91  

Diluted earnings per share

  $ 0.57       0.66       0.48       0.51       0.45       1.22       0.91  

Average basic shares outstanding

    16,601,400       16,595,115       16,525,625       16,483,492       16,471,060       16,598,274       16,452,954  

Average diluted shares outstanding

    16,610,819       16,604,325       16,536,225       16,494,540       16,485,356       16,607,593       16,467,384  
                                                         

PERFORMANCE RATIOS

                                                       

Return on average assets

    1.17 %     1.36 %     0.97 %     1.03 %     0.96 %     1.26 %     0.99 %

Return on average equity

    10.25 %     12.07 %     8.70 %     9.21 %     8.39 %     11.15 %     8.69 %

Net interest margin (fully tax-equivalent)

    3.92 %     4.06 %     3.76 %     3.83 %     3.85 %     3.99 %     3.79 %

Efficiency ratio

    63.40 %     61.15 %     60.32 %     60.78 %     63.65 %     62.26 %     63.36 %

Full-time equivalent employees

    667       640       641       634       643       667       643  
                                                         

YIELD ON ASSETS / COST OF FUNDS

                                                       

Yield on loans

    4.92 %     5.14 %     4.76 %     4.81 %     4.69 %     5.03 %     4.62 %

Yield on securities

    2.64 %     2.61 %     2.60 %     2.50 %     2.44 %     2.62 %     2.40 %

Yield on other interest-earning assets

    1.80 %     1.52 %     1.29 %     1.28 %     0.99 %     1.64 %     0.97 %

Yield on total earning assets

    4.60 %     4.70 %     4.35 %     4.41 %     4.37 %     4.65 %     4.28 %

Yield on total assets

    4.27 %     4.37 %     4.04 %     4.10 %     4.05 %     4.32 %     3.97 %

Cost of deposits

    0.53 %     0.50 %     0.45 %     0.43 %     0.35 %     0.51 %     0.34 %

Cost of borrowed funds

    2.01 %     1.83 %     1.74 %     1.75 %     1.69 %     1.92 %     1.61 %

Cost of interest-bearing liabilities

    1.02 %     0.94 %     0.88 %     0.85 %     0.77 %     0.98 %     0.73 %

Cost of funds (total earning assets)

    0.68 %     0.64 %     0.59 %     0.58 %     0.52 %     0.66 %     0.49 %

Cost of funds (total assets)

    0.63 %     0.60 %     0.55 %     0.54 %     0.48 %     0.61 %     0.46 %
                                                         

PURCHASE ACCOUNTING ADJUSTMENTS

                                                 

Loan portfolio - increase interest income

  $ 777       2,271       683       1,757       1,336       3,048       2,168  

Trust preferred - increase interest expense

  $ 171       171       171       171       171       342       342  

Core deposit intangible - increase overhead

  $ 530       556       556       556       609       1,086       1,245  
                                                         

MORTGAGE BANKING ACTIVITY

                                                       

Total mortgage loans originated

  $ 62,032       40,937       62,526       61,962       60,371       102,969       98,736  

Purchase mortgage loans originated

  $ 41,239       25,137       33,958       41,254       39,115       66,376       60,638  

Refinance mortgage loans originated

  $ 20,793       15,800       28,568       20,708       21,256       36,593       38,098  

Total mortgage loans sold

  $ 24,114       19,813       26,254       33,858       29,371       43,927       47,834  

Net gain on sale of mortgage loans

  $ 851       729       1,051       1,131       1,012       1,580       1,744  
                                                         

CAPITAL

                                                       

Tangible equity to tangible assets

    9.87 %     9.63 %     9.56 %     9.54 %     9.70 %     9.87 %     9.70 %

Tier 1 leverage capital ratio

    11.81 %     11.50 %     11.24 %     11.18 %     11.49 %     11.81 %     11.49 %

Common equity risk-based capital ratio

    11.03 %     11.04 %     10.71 %     10.54 %     10.65 %     11.03 %     10.65 %

Tier 1 risk-based capital ratio

    12.49 %     12.52 %     12.19 %     12.01 %     12.15 %     12.49 %     12.15 %

Total risk-based capital ratio

    13.19 %     13.20 %     12.85 %     12.66 %     12.79 %     13.19 %     12.79 %

Tier 1 capital

  $ 375,167       367,546       359,047       354,087       347,754       375,167       347,754  

Tier 1 plus tier 2 capital

  $ 396,334       387,520       378,548       373,280       366,048       396,334       366,048  

Total risk-weighted assets

  $ 3,003,778       2,935,367       2,946,527       2,949,011       2,861,605       3,003,778       2,861,605  

Book value per common share

  $ 22.57       22.19       22.05       21.99       21.69       22.57       21.69  

Tangible book value per common share

  $ 19.20       18.79       18.61       18.49       18.16       19.20       18.16  

Cash dividend per common share

  $ 0.22       0.22       0.19       0.19       0.18       0.44       0.36  
                                                         

ASSET QUALITY

                                                       

Gross loan charge-offs

  $ 273       654       920       709       1,150       927       1,606  

Recoveries

  $ 766       1,127       628       607       419       1,893       590  

Net loan charge-offs (recoveries)

  $ (493 )     (473 )     292       102       731       (966 )     1,016  

Net loan charge-offs to average loans

    (0.08% )     (0.08% )     0.05 %     0.02 %     0.12 %     (0.08% )     0.08 %

Allowance for loan losses

  $ 21,167       19,974       19,501       19,193       18,295       21,167       18,295  

Allowance to originated loans

    0.89 %     0.87 %     0.88 %     0.88 %     0.86 %     0.89 %     0.86 %

Nonperforming loans

  $ 4,965       5,742       7,143       8,231       6,450       4,965       6,450  

Other real estate/repossessed assets

  $ 842       2,384       2,260       2,327       789       842       789  

Nonperforming loans to total loans

    0.19 %     0.23 %     0.28 %     0.32 %     0.26 %     0.19 %     0.26 %

Nonperforming assets to total assets

    0.18 %     0.25 %     0.29 %     0.32 %     0.23 %     0.18 %     0.23 %

 

 

 

 

NONPERFORMING ASSETS - COMPOSITION

                                                 

Residential real estate:

                                                       

Land development

  $ 0       0       0       0       0       0       0  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied / rental

  $ 3,650       3,571       3,574       3,648       3,367       3,650       3,367  

Commercial real estate:

                                                       

Land development

  $ 0       0       35       50       65       0       65  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied

  $ 1,957       3,913       4,272       4,627       1,313       1,957       1,313  

Non-owner occuped

  $ 0       0       36       84       400       0       400  

Non-real estate:

                                                       

Commercial assets

  $ 180       620       1,444       2,126       2,081       180       2,081  

Consumer assets

  $ 20       22       42       23       13       20       13  

Total nonperforming assets

    5,807       8,126       9,403       10,558       7,239       5,807       7,239  
                                                         

NONPERFORMING ASSETS - RECON

                                                       

Beginning balance

  $ 8,126       9,403       10,558       7,239       7,787       9,403       6,408  

Additions - originated loans

  $ 300       1,426       402       4,789       1,774       1,726       4,761  

Merger-related activity

  $ 17       29       0       210       16       46       16  

Return to performing status

  $ 0       (175 )     0       (120 )     0       (175 )     (113 )

Principal payments

  $ (778 )     (1,557 )     (688 )     (1,089 )     (1,168 )     (2,335 )     (2,457 )

Sale proceeds

  $ (1,807 )     (299 )     (101 )     (373 )     (147 )     (2,106 )     (203 )

Loan charge-offs

  $ (50 )     (597 )     (754 )     (91 )     (953 )     (647 )     (1,088 )

Valuation write-downs

  $ (1 )     (104 )     (14 )     (7 )     (70 )     (105 )     (85 )

Ending balance

  $ 5,807       8,126       9,403       10,558       7,239       5,807       7,239  
                                                         

LOAN PORTFOLIO COMPOSITION

                                                       

Commercial:

                                                       

Commercial & industrial

  $ 776,995       739,805       753,764       776,562       780,816       776,995       780,816  

Land development & construction

  $ 37,868       31,437       29,872       28,575       29,027       37,868       29,027  

Owner occupied comm'l R/E

  $ 533,075       531,152       526,327       485,347       491,633       533,075       491,633  

Non-owner occupied comm'l R/E

  $ 818,376       794,206       791,685       805,167       783,036       818,376       783,036  

Multi-family & residential rental

  $ 95,656       96,428       101,918       119,170       114,081       95,656       114,081  

Total commercial

  $ 2,261,970       2,193,028       2,203,566       2,214,821       2,198,593       2,261,970       2,198,593  

Retail:

                                                       

1-4 family mortgages

  $ 283,657       264,996       254,560       236,075       220,697       283,657       220,697  

Home equity & other consumer

  $ 91,229       93,180       100,426       103,376       107,991       91,229       107,991  

Total retail

  $ 374,886       358,176       354,986       339,451       328,688       374,886       328,688  

Total loans

  $ 2,636,856       2,551,204       2,558,552       2,554,272       2,527,281       2,636,856       2,527,281  
                                                         

END OF PERIOD BALANCES

                                                       

Loans

  $ 2,636,856       2,551,204       2,558,552       2,554,272       2,527,281       2,636,856       2,527,281  

Securities

  $ 342,178       348,024       346,780       341,126       333,294       342,178       333,294  

Other interest-earning assets

  $ 69,402       163,879       144,974       123,110       48,762       69,402       48,762  

Total earning assets (before allowance)

  $ 3,048,436       3,063,107       3,050,306       3,018,508       2,909,337       3,048,436       2,909,337  

Total assets

  $ 3,288,521       3,293,900       3,286,704       3,254,655       3,143,336       3,288,521       3,143,336  

Noninterest-bearing deposits

  $ 884,470       830,187       866,380       826,038       800,718       884,470       800,718  

Interest-bearing deposits

  $ 1,645,341       1,709,866       1,655,985       1,663,005       1,570,003       1,645,341       1,570,003  

Total deposits

  $ 2,529,811       2,540,053       2,522,365       2,489,043       2,370,721       2,529,811       2,370,721  

Total borrowed funds

  $ 373,642       373,824       387,468       390,868       404,370       373,642       404,370  

Total interest-bearing liabilities

  $ 2,018,983       2,083,690       2,043,453       2,053,873       1,974,373       2,018,983       1,974,373  

Shareholders' equity

  $ 374,919       368,340       365,870       362,546       357,499       374,919       357,499  
                                                         

AVERAGE BALANCES

                                                       

Loans

  $ 2,596,828       2,552,070       2,534,729       2,534,364       2,472,489       2,574,573       2,431,487  

Securities

  $ 340,990       348,431       346,318       339,125       338,045       344,690       338,787  

Other interest-earning assets

  $ 63,336       123,633       138,095       116,851       46,250       93,318       53,771  

Total earning assets (before allowance)

  $ 3,001,154       3,024,134       3,019,142       2,990,340       2,856,784       3,012,581       2,824,045  

Total assets

  $ 3,232,038       3,249,794       3,248,828       3,220,053       3,081,542       3,240,867       3,049,385  

Noninterest-bearing deposits

  $ 848,650       805,214       849,751       805,650       785,705       827,052       775,922  

Interest-bearing deposits

  $ 1,635,755       1,690,135       1,635,727       1,648,235       1,531,399       1,662,795       1,536,709  

Total deposits

  $ 2,484,405       2,495,349       2,485,478       2,453,885       2,317,104       2,489,847       2,312,631  

Total borrowed funds

  $ 365,124       376,890       384,168       393,910       400,508       370,975       376,694  

Total interest-bearing liabilities

  $ 2,000,879       2,067,025       2,019,895       2,042,145       1,931,907       2,033,770       1,913,403  

Shareholders' equity

  $ 369,787       365,521       363,823       359,131       351,216       367,666       347,302  

 

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