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

mbwm20181015_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): October 16, 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 October 16, 2018, Mercantile Bank Corporation issued a press release announcing earnings and other financial results for the quarter ended September 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 October 16, 2018, reporting financial results and earnings for the quarter ended September 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: October 16, 2018

 

3

 

 

Exhibit Index

 

 

Exhibit Number   Description
       
99.1     Press release of Mercantile Bank Corporation dated October 16, 2018, reporting financial results and earnings for the quarter ended September 30, 2018.

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

ex_125555.htm

Exhibit 99.1

 

 

 

Mercantile Bank Corporation Reports Strong Third Quarter 2018 Results

Healthy loan growth and continued strength in core profitability highlight quarter

 

GRAND RAPIDS, Mich., October 16, 2018 – Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $10.1 million, or $0.61 per diluted share, for the third quarter of 2018, compared with net income of $8.3 million, or $0.51 per diluted share, for the respective prior-year period. Net income during the first nine months of 2018 totaled $30.5 million, or $1.83 per diluted share, compared to $23.3 million, or $1.41 per diluted share, during the first nine months of 2017.

 

Interest income related to purchased loan accounting entries increased net income during the third quarter of 2018 by $0.3 million, or $0.02 per diluted share, and net income during the first nine months of 2018 by $2.7 million, or $0.16 per diluted share; during the respective 2017 periods, net income increased $1.1 million, or $0.07 per diluted share, and $2.6 million, or $0.15 per diluted share, as a result of these entries. A bank owned life insurance claim during the first quarter of 2017 increased reported net income during the first nine months of 2017 by $1.2 million, or $0.07 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.15, or 34.1 percent, during the third quarter of 2018 compared to the prior-year third quarter, and $0.48, or 40.3 percent, during the first nine months of 2018 compared to the respective 2017 period.

 

Net income during the third quarter of 2018 and the first nine months of 2018 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 third quarter and first nine months of 2018, down from 30.8 percent and 30.7 percent during the respective prior-year periods.

 

“We are pleased to report that our current quarter operating results represent a continuation of the robust performance demonstrated during the first half of the year,” said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. “Our sustained strength in core profitability, sound capital position, and healthy commercial and residential mortgage loan pipelines position us to finish the year in strong fashion and take advantage of future growth opportunities.”

 

Third quarter highlights include:

 

 

Strong earnings performance and capital position

 

Robust net interest margin

 

Growth in several fee income categories

 

 

 

 

 

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 $119 million

 

Continued strength in commercial loan pipeline

 

Operating Results

 

Total revenue, which consists of net interest income and noninterest income, was $34.5 million during the third quarter of 2018, up $1.3 million, or 3.9 percent, from the prior-year third quarter. Net interest income during the third quarter of 2018 was $29.8 million, up $1.2 million, or 4.2 percent, from the third quarter of 2017, reflecting a higher level of earning assets and an increased net interest margin.

 

The net interest margin was 3.87 percent in the third quarter of 2018, up from 3.83 percent in the prior-year third quarter. The improved net interest margin exhibits a higher yield on average earning assets, primarily reflecting an increased yield on commercial loans and a change in earning asset mix, which more than offset a higher cost of funds, mainly due to increased costs of certain non-time deposit accounts, time deposits, and borrowed funds. The increased yield on commercial loans primarily reflects the impact of higher interest rates on certain variable-rate commercial loans stemming from the Federal Open Market Committee raising the targeted federal funds rate by 25 basis points in each of the past four quarters. The change in earning asset mix mainly reflects loan growth and a reduction in interest-earning deposit balances. On average, higher-yielding loans represented 86.8 percent of earning assets during the third quarter of 2018, up from 84.8 percent during the prior-year third quarter, while lower-yielding interest-earning deposit balances represented 2.0 percent of earning assets during the current-year third quarter, down from 3.9 percent during the respective 2017 period.

 

Net interest income and the net interest margin during the third quarters of 2018 and 2017 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 $0.4 million and $1.8 million were recorded during the third 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. Increases in interest expense on subordinated debentures totaling $0.2 million were recorded during both the current-year third quarter and prior-year third quarter.

 

Mercantile recorded provisions for loan losses of $0.4 million and $1.0 million during the third quarters of 2018 and 2017, respectively. The provision expense recorded during the third quarter of 2018 primarily reflects loan growth, while the provision expense recorded during the prior-year third quarter mainly reflects an increased allocation related to the economic conditions environmental factor and loan growth.

 

Noninterest income during the third quarter of 2018 was $4.7 million, up $0.1 million, or 2.2 percent, from the $4.6 million recorded during the third quarter of 2017. The increase in noninterest income primarily reflects higher credit and debit card fees, service charges on accounts, and payroll processing revenue. Mortgage banking activity income declined slightly in the third quarter of 2018 compared to the prior-year third quarter, mainly reflecting the impacts of rising residential mortgage loan interest rates and a limited supply of homes for sale in Mercantile’s markets.

 

 

 

 

Noninterest expense totaled $21.7 million during the third quarter of 2018, up $1.4 million, or 7.1 percent, from the respective 2017 period. The higher level of expense primarily resulted from increased salary costs, mainly reflecting annual employee merit pay increases and higher stock-based compensation expense, as well as pay increases for all hourly employees.

 

Mr. Kaminski continued, “As anticipated, our net interest margin remained strong during the third quarter of 2018, reflecting ongoing sound asset quality, disciplined loan pricing, and a beneficial balance sheet structure. Our cost of funds continued to trend upwards in the third quarter, reflecting the continuing rising interest rate environment; however, its impact was more than offset by an increased yield on earning assets, primarily reflecting higher interest rates on certain variable-rate commercial loans. We believe that our current balance sheet structure postures our net interest income to benefit from any further Federal Open Market Committee tightening. Our strategic initiatives related to enhancing fee income continue to be successful, and we remain focused on controlling overhead costs. Although mortgage banking activity income continues to be hampered by the increasing interest rate environment and lack of inventory in our markets, we are pleased with the current pipeline and elevated level of pre-qualifications, and are enhancing our efforts to sell a greater percentage of originated mortgage loans.”

 

Balance Sheet

 

As of September 30, 2018, total assets were $3.30 billion, up $13.4 million from December 31, 2017. Over the same time period, total loans increased $139 million, equating to an annualize growth rate of 7.2 percent, while interest-earning deposits decreased $117 million, or 80.6 percent. During the twelve months ended September 30, 2018, total loans were up $143 million, or 5.6 percent, while interest-earning deposits were down $94.9 million, or 77.1 percent. The declines in interest-earning deposit balances primarily resulted from the funds being used to meet loan funding requirements. Approximately $119 million in commercial term loans to new and existing borrowers were originated during the third quarter of 2018, as continuing sales and relationship-building efforts resulted in additional lending opportunities. As of September 30, 2018, unfunded commitments on commercial construction and development loans totaled approximately $152 million, which are expected to be largely funded over the next 12 to 18 months.

 

Raymond Reitsma, President of Mercantile Bank of Michigan, noted, “After experiencing sluggish net loan growth during the fourth quarter of 2017 and a slight contraction in the loan portfolio during the first quarter of 2018 primarily due to certain larger commercial loan payoffs, we are very pleased with the net growth of $146 million during the combined second and third quarters of the current year, which produced an annualized growth rate of about 7 percent for the first nine months of 2018. The loan growth realized during the past two quarters reflects growth in the commercial portfolio, most notably in the commercial and industrial category, as well as the residential mortgage loan portfolio. We continue to attract new customer relationships and meet the needs of our existing customers with an ongoing commitment to sound underwriting and appropriate pricing. Based on our current pipeline, we believe that the commercial loan portfolio will reflect solid growth in future periods. Our strategic initiatives that were designed to increase residential mortgage market penetration continue to be effective, as depicted by growth in the portfolio for the tenth consecutive quarter. Residential mortgage loan pre-qualifications remain elevated, with the current level being about two times higher than the level at the same time last year.”

 

 

 

 

As of September 30, 2018, commercial and industrial loans and owner-occupied commercial real estate (“CRE”) loans combined represented approximately 59 percent of total commercial loans, while non-owner occupied CRE loans equaled about 35 percent of total commercial loans.

 

Total deposits at September 30, 2018 were $2.51 billion, down $13.6 million and up $19.8 million from December 31, 2017, and September 30, 2017, respectively, while local deposits were up $7.9 million and $43.2 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 $321 million, or approximately 11 percent of total funds, as of September 30, 2018, compared to $323 million and $325 million as of December 31, 2017, and September 30, 2017, respectively.

 

Asset Quality

 

Nonperforming assets at September 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. The decline in nonperforming assets during the first nine months of 2018 primarily reflects successful loan collection efforts and sales of bank-owned properties 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 nine months of 2018. Net loan recoveries were $0.1 million during the third quarter of 2018 and $1.1 million during the first nine months of 2018. Net loan charge-offs totaled $0.1 million during the prior-year third quarter and $1.1 million during the first nine months of 2017.

 

Capital Position

 

Shareholders’ equity totaled $379 million as of September 30, 2018, an increase of $13.6 million from year-end 2017. The Bank’s capital position remains above “well-capitalized” with a total risk-based capital ratio of 12.8 percent as of September 30, 2018, compared to 12.6 percent at December 31, 2017. At September 30, 2018, the Bank had approximately $87 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a “well-capitalized” institution. Mercantile reported 16,616,502 total shares outstanding at September 30, 2018.

 

Mr. Kaminski concluded, “Our strong financial performance during the first nine months of 2018 positions us to meet profitability and growth targets. As evidenced by the ongoing cash dividend program, including the announcement of an increased fourth quarter dividend and special dividend earlier today, we remain committed to enhancing total shareholder value. Our market-leading products and services and focus on developing mutually-beneficial relationships have been instrumental in our ability to gain new clients and retain existing customers successfully. We are excited about the opportunities that are available to us in our markets as we continue to seek out prospective customers.”

 

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
  [email protected] [email protected]

                           

 

 

 

Mercantile Bank Corporation

Third Quarter 2018 Results

 

MERCANTILE BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

SEPTEMBER 30,

   

DECEMBER 31,

   

SEPTEMBER 30,

 
   

2018

   

2017

   

2017

 

ASSETS

                       

Cash and due from banks

  $ 51,824,000     $ 55,127,000     $ 53,941,000  

Interest-earning deposits

    28,193,000       144,974,000       123,110,000  

Total cash and cash equivalents

    80,017,000       200,101,000       177,051,000  
                         

Securities available for sale

    326,531,000       335,744,000       330,090,000  

Federal Home Loan Bank stock

    11,072,000       11,036,000       11,036,000  
                         

Loans

    2,697,417,000       2,558,552,000       2,554,272,000  

Allowance for loan losses

    (21,692,000 )     (19,501,000 )     (19,193,000 )

Loans, net

    2,675,725,000       2,539,051,000       2,535,079,000  
                         

Premises and equipment, net

    48,104,000       46,034,000       45,606,000  

Bank owned life insurance

    69,628,000       68,689,000       66,858,000  

Goodwill

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

Core deposit intangible

    6,038,000       7,600,000       8,156,000  

Other assets

    33,518,000       28,976,000       31,306,000  
                         

Total assets

  $ 3,300,106,000     $ 3,286,704,000     $ 3,254,655,000  
                         
                         

LIABILITIES AND SHAREHOLDERS' EQUITY

                       

Deposits:

                       

Noninterest-bearing

  $ 879,442,000     $ 866,380,000     $ 826,038,000  

Interest-bearing

    1,629,368,000       1,655,985,000       1,663,005,000  

Total deposits

    2,508,810,000       2,522,365,000       2,489,043,000  
                         

Securities sold under agreements to repurchase

    112,378,000       118,748,000       122,280,000  

Federal Home Loan Bank advances

    240,000,000       220,000,000       220,000,000  

Subordinated debentures

    46,029,000       45,517,000       45,347,000  

Accrued interest and other liabilities

    13,424,000       14,204,000       15,439,000  

Total liabilities

    2,920,641,000       2,920,834,000       2,892,109,000  
                         

SHAREHOLDERS' EQUITY

                       

Common stock

    312,544,000       309,772,000       309,033,000  

Retained earnings

    80,275,000       61,001,000       55,258,000  

Accumulated other comprehensive income/(loss)

    (13,354,000 )     (4,903,000 )     (1,745,000 )

Total shareholders' equity

    379,465,000       365,870,000       362,546,000  
                         

Total liabilities and shareholders' equity

  $ 3,300,106,000     $ 3,286,704,000     $ 3,254,655,000  

 

 

 

 

Mercantile Bank Corporation

Third Quarter 2018 Results

 

MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)

 

   

THREE MONTHS ENDED

   

THREE MONTHS ENDED

   

NINE MONTHS ENDED

   

NINE MONTHS ENDED

 
   

September 30, 2018

   

September 30, 2017

   

September 30, 2018

   

September 30, 2017

 

INTEREST INCOME

                               

Loans, including fees

  $ 32,918,000     $ 30,746,000     $ 97,087,000     $ 86,406,000  

Investment securities

    2,255,000       1,906,000       6,628,000       5,594,000  

Other interest-earning assets

    313,000       382,000       1,071,000       641,000  

Total interest income

    35,486,000       33,034,000       104,786,000       92,641,000  
                                 

INTEREST EXPENSE

                               

Deposits

    3,574,000       2,652,000       9,921,000       6,543,000  

Short-term borrowings

    63,000       45,000       181,000       142,000  

Federal Home Loan Bank advances

    1,201,000       1,033,000       3,134,000       2,690,000  

Other borrowed money

    808,000       660,000       2,286,000       1,920,000  

Total interest expense

    5,646,000       4,390,000       15,522,000       11,295,000  
                                 

Net interest income

    29,840,000       28,644,000       89,264,000       81,346,000  
                                 

Provision for loan losses

    400,000       1,000,000       1,100,000       2,350,000  
                                 

Net interest income after provision for loan losses

    29,440,000       27,644,000       88,164,000       78,996,000  
                                 

NONINTEREST INCOME

                               

Service charges on accounts

    1,127,000       1,076,000       3,259,000       3,148,000  

Credit and debit card income

    1,378,000       1,215,000       3,955,000       3,497,000  

Mortgage banking income

    1,235,000       1,326,000       3,115,000       3,233,000  

Payroll services

    328,000       285,000       1,128,000       983,000  

Earnings on bank owned life insurance

    318,000       328,000       969,000       2,394,000  

Other income

    322,000       375,000       1,213,000       1,243,000  

Total noninterest income

    4,708,000       4,605,000       13,639,000       14,498,000  
                                 

NONINTEREST EXPENSE

                               

Salaries and benefits

    12,932,000       11,636,000       38,027,000       33,796,000  

Occupancy

    1,648,000       1,598,000       5,049,000       4,707,000  

Furniture and equipment

    659,000       543,000       1,789,000       1,625,000  

Data processing costs

    2,150,000       2,071,000       6,415,000       6,155,000  

Other expense

    4,261,000       4,362,000       12,931,000       13,585,000  

Total noninterest expense

    21,650,000       20,210,000       64,211,000       59,868,000  
                                 

Income before federal income tax expense

    12,498,000       12,039,000       37,592,000       33,626,000  
                                 

Federal income tax expense

    2,375,000       3,702,000       7,142,000       10,331,000  
                                 

Net Income

  $ 10,123,000     $ 8,337,000     $ 30,450,000     $ 23,295,000  
                                 

Basic earnings per share

  $ 0.61     $ 0.51     $ 1.83     $ 1.41  

Diluted earnings per share

  $ 0.61     $ 0.51     $ 1.83     $ 1.41  
                                 

Average basic shares outstanding

    16,611,411       16,483,492       16,602,701       16,463,245  

Average diluted shares outstanding

    16,619,295       16,494,540       16,610,544       16,474,534  

 

 

 

 

Mercantile Bank Corporation

Third Quarter 2018 Results

 

MERCANTILE BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)

 

   

Quarterly

   

Year-To-Date

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

3rd Qtr

   

2nd Qtr

   

1st Qtr

   

4th Qtr

   

3rd Qtr

   

2018

   

2017

 

EARNINGS

                                                       

Net interest income

  $ 29,840       29,225       30,199       28,402       28,644       89,264       81,346  

Provision for loan losses

  $ 400       700       0       600       1,000       1,100       2,350  

Noninterest income

  $ 4,708       4,550       4,381       4,503       4,605       13,639       14,498  

Noninterest expense

  $ 21,650       21,414       21,147       19,848       20,210       64,211       59,868  

Net income before federal income tax expense

  $ 12,498       11,661       13,433       12,457       12,039       37,592       33,626  

Net income

  $ 10,123       9,446       10,881       7,979       8,337       30,450       23,295  

Basic earnings per share

  $ 0.61       0.57       0.66       0.48       0.51       1.83       1.41  

Diluted earnings per share

  $ 0.61       0.57       0.66       0.48       0.51       1.83       1.41  

Average basic shares outstanding

    16,611,411       16,601,400       16,595,115       16,525,625       16,483,492       16,602,701       16,463,245  

Average diluted shares outstanding

    16,619,295       16,610,819       16,604,325       16,536,225       16,494,540       16,610,544       16,474,534  
                                                         

PERFORMANCE RATIOS

                                                       

Return on average assets

    1.22 %     1.17 %     1.36 %     0.97 %     1.03 %     1.25 %     1.00 %

Return on average equity

    10.64 %     10.25 %     12.07 %     8.70 %     9.21 %     10.97 %     8.87 %

Net interest margin (fully tax-equivalent)

    3.87 %     3.92 %     4.06 %     3.76 %     3.83 %     3.95 %     3.80 %

Efficiency ratio

    62.67 %     63.40 %     61.15 %     60.32 %     60.78 %     62.40 %     62.46 %

Full-time equivalent employees

    637       667       640       641       634       637       634  
                                                         

YIELD ON ASSETS / COST OF FUNDS

                                                       

Yield on loans

    4.91 %     4.92 %     5.14 %     4.76 %     4.81 %     4.99 %     4.68 %

Yield on securities

    2.70 %     2.64 %     2.61 %     2.60 %     2.50 %     2.65 %     2.43 %

Yield on other interest-earning assets

    1.98 %     1.80 %     1.52 %     1.29 %     1.28 %     1.73 %     1.14 %

Yield on total earning assets

    4.60 %     4.60 %     4.70 %     4.35 %     4.41 %     4.63 %     4.32 %

Yield on total assets

    4.28 %     4.27 %     4.37 %     4.04 %     4.10 %     4.31 %     4.01 %

Cost of deposits

    0.56 %     0.53 %     0.50 %     0.45 %     0.43 %     0.53 %     0.37 %

Cost of borrowed funds

    2.14 %     2.01 %     1.83 %     1.74 %     1.75 %     2.00 %     1.66 %

Cost of interest-bearing liabilities

    1.11 %     1.02 %     0.94 %     0.88 %     0.85 %     1.02 %     0.77 %

Cost of funds (total earning assets)

    0.73 %     0.68 %     0.64 %     0.59 %     0.58 %     0.68 %     0.52 %

Cost of funds (total assets)

    0.68 %     0.63 %     0.60 %     0.55 %     0.54 %     0.64 %     0.49 %
                                                         

PURCHASE ACCOUNTING ADJUSTMENTS

                                                 

Loan portfolio - increase interest income

  $ 386       777       2,271       683       1,757       3,434       3,925  

Trust preferred - increase interest expense

  $ 171       171       171       171       171       513       513  

Core deposit intangible - increase overhead

  $ 477       530       556       556       556       1,563       1,801  
                                                         

MORTGAGE BANKING ACTIVITY

                                                       

Total mortgage loans originated

  $ 66,829       62,032       40,937       62,526       61,962       169,798       160,698  

Purchase mortgage loans originated

  $ 47,704       41,239       25,137       33,958       41,254       114,080       101,892  

Refinance mortgage loans originated

  $ 19,125       20,793       15,800       28,568       20,708       55,718       58,806  

Total mortgage loans sold

  $ 30,713       24,114       19,813       26,254       33,858       74,640       81,692  

Net gain on sale of mortgage loans

  $ 1,116       851       729       1,051       1,131       2,696       2,875  
                                                         

CAPITAL

                                                       

Tangible equity to tangible assets

    9.98 %     9.87 %     9.63 %     9.56 %     9.54 %     9.98 %     9.54 %

Tier 1 leverage capital ratio

    11.76 %     11.81 %     11.50 %     11.24 %     11.18 %     11.76 %     11.18 %

Common equity risk-based capital ratio

    10.93 %     11.03 %     11.04 %     10.71 %     10.54 %     10.93 %     10.54 %

Tier 1 risk-based capital ratio

    12.35 %     12.49 %     12.52 %     12.19 %     12.01 %     12.35 %     12.01 %

Total risk-based capital ratio

    13.05 %     13.19 %     13.20 %     12.85 %     12.66 %     13.05 %     12.66 %

Tier 1 capital

  $ 382,829       375,167       367,546       359,047       354,087       382,829       354,087  

Tier 1 plus tier 2 capital

  $ 404,521       396,334       387,520       378,548       373,280       404,521       373,280  

Total risk-weighted assets

  $ 3,100,158       3,003,778       2,935,367       2,946,527       2,949,011       3,100,158       2,949,011  

Book value per common share

  $ 22.84       22.57       22.19       22.05       21.99       22.84       21.99  

Tangible book value per common share

  $ 19.50       19.20       18.79       18.61       18.49       19.50       18.49  

Cash dividend per common share

  $ 0.24       0.22       0.22       0.19       0.19       0.68       0.55  
                                                         

ASSET QUALITY

                                                       

Gross loan charge-offs

  $ 169       273       654       920       709       1,096       2,315  

Recoveries

  $ 294       766       1,127       628       607       2,187       1,197  

Net loan charge-offs (recoveries)

  $ (125 )     (493 )     (473 )     292       102       (1,091 )     1,118  

Net loan charge-offs to average loans

    (0.02 %)     (0.08 %)     (0.08 %)     0.05 %     0.02 %     (0.06 %)     0.06 %

Allowance for loan losses

  $ 21,692       21,167       19,974       19,501       19,193       21,692       19,193  

Allowance to originated loans

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

Nonperforming loans

  $ 4,852       4,965       5,742       7,143       8,231       4,852       8,231  

Other real estate/repossessed assets

  $ 948       842       2,384       2,260       2,327       948       2,327  

Nonperforming loans to total loans

    0.18 %     0.19 %     0.23 %     0.28 %     0.32 %     0.18 %     0.32 %

Nonperforming assets to total assets

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

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

  $ 3,908       3,650       3,571       3,574       3,648       3,908       3,648  

Commercial real estate:

                                                       

Land development

  $ 0       0       0       35       50       0       50  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied

  $ 1,543       1,957       3,913       4,272       4,627       1,543       4,627  

Non-owner occuped

  $ 0       0       0       36       84       0       84  

Non-real estate:

                                                       

Commercial assets

  $ 331       180       620       1,444       2,126       331       2,126  

Consumer assets

  $ 18       20       22       42       23       18       23  

Total nonperforming assets

    5,800       5,807       8,126       9,403       10,558       5,800       10,558  
                                                         

NONPERFORMING ASSETS - RECON

                                                       

Beginning balance

  $ 5,807       8,126       9,403       10,558       7,239       9,403       6,408  

Additions - originated loans

  $ 999       300       1,426       402       4,789       2,725       9,550  

Merger-related activity

  $ 5       17       29       0       210       51       226  

Return to performing status

  $ 0       0       (175 )     0       (120 )     (175 )     (233 )

Principal payments

  $ (857 )     (778 )     (1,557 )     (688 )     (1,089 )     (3,192 )     (3,546 )

Sale proceeds

  $ (147 )     (1,807 )     (299 )     (101 )     (373 )     (2,253 )     (576 )

Loan charge-offs

  $ (3 )     (50 )     (597 )     (754 )     (91 )     (650 )     (1,179 )

Valuation write-downs

  $ (4 )     (1 )     (104 )     (14 )     (7 )     (109 )     (92 )

Ending balance

  $ 5,800       5,807       8,126       9,403       10,558       5,800       10,558  
                                                         

LOAN PORTFOLIO COMPOSITION

                                                       

Commercial:

                                                       

Commercial & industrial

  $ 818,113       776,995       739,805       753,764       776,562       818,113       776,562  

Land development & construction

  $ 39,396       37,868       31,437       29,872       28,575       39,396       28,575  

Owner occupied comm'l R/E

  $ 542,730       533,075       531,152       526,327       485,347       542,730       485,347  

Non-owner occupied comm'l R/E

  $ 811,767       818,376       794,206       791,685       805,167       811,767       805,167  

Multi-family & residential rental

  $ 94,101       95,656       96,428       101,918       119,170       94,101       119,170  

Total commercial

  $ 2,306,107       2,261,970       2,193,028       2,203,566       2,214,821       2,306,107       2,214,821  

Retail:

                                                       

1-4 family mortgages

  $ 301,765       283,657       264,996       254,560       236,075       301,765       236,075  

Home equity & other consumer

  $ 89,545       91,229       93,180       100,426       103,376       89,545       103,376  

Total retail

  $ 391,310       374,886       358,176       354,986       339,451       391,310       339,451  

Total loans

  $ 2,697,417       2,636,856       2,551,204       2,558,552       2,554,272       2,697,417       2,554,272  
                                                         

END OF PERIOD BALANCES

                                                       

Loans

  $ 2,697,417       2,636,856       2,551,204       2,558,552       2,554,272       2,697,417       2,554,272  

Securities

  $ 337,603       342,178       348,024       346,780       341,126       337,603       341,126  

Other interest-earning assets

  $ 28,193       69,402       163,879       144,974       123,110       28,193       123,110  

Total earning assets (before allowance)

  $ 3,063,213       3,048,436       3,063,107       3,050,306       3,018,508       3,063,213       3,018,508  

Total assets

  $ 3,300,106       3,288,521       3,293,900       3,286,704       3,254,655       3,300,106       3,254,655  

Noninterest-bearing deposits

  $ 879,442       884,470       830,187       866,380       826,038       879,442       826,038  

Interest-bearing deposits

  $ 1,629,368       1,645,341       1,709,866       1,655,985       1,663,005       1,629,368       1,663,005  

Total deposits

  $ 2,508,810       2,529,811       2,540,053       2,522,365       2,489,043       2,508,810       2,489,043  

Total borrowed funds

  $ 401,575       373,642       373,824       387,468       390,868       401,575       390,868  

Total interest-bearing liabilities

  $ 2,030,943       2,018,983       2,083,690       2,043,453       2,053,873       2,030,943       2,053,873  

Shareholders' equity

  $ 379,465       374,919       368,340       365,870       362,546       379,465       362,546  
                                                         

AVERAGE BALANCES

                                                       

Loans

  $ 2,658,092       2,596,828       2,552,070       2,534,729       2,534,364       2,602,718       2,466,156  

Securities

  $ 342,593       340,990       348,431       346,318       339,125       343,983       338,901  

Other interest-earning assets

  $ 61,810       63,336       123,633       138,095       116,851       82,700       75,029  

Total earning assets (before allowance)

  $ 3,062,495       3,001,154       3,024,134       3,019,142       2,990,340       3,029,401       2,880,086  

Total assets

  $ 3,295,129       3,232,038       3,249,794       3,248,828       3,220,053       3,259,153       3,106,899  

Noninterest-bearing deposits

  $ 893,181       848,650       805,214       849,751       805,650       849,337       785,940  

Interest-bearing deposits

  $ 1,628,346       1,635,755       1,690,135       1,635,727       1,648,235       1,651,186       1,574,293  

Total deposits

  $ 2,521,527       2,484,405       2,495,349       2,485,478       2,453,885       2,500,523       2,360,233  

Total borrowed funds

  $ 383,830       365,124       376,890       384,168       393,910       375,307       382,496  

Total interest-bearing liabilities

  $ 2,012,176       2,000,879       2,067,025       2,019,895       2,042,145       2,026,493       1,956,789  

Shareholders' equity

  $ 377,574       365,521       365,521       363,823       359,131       371,005       351,288  

 

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