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

mbwm20190117_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 22, 2019

____________________

 

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 January 22, 2019, Mercantile Bank Corporation issued a press release announcing earnings and other financial results for the quarter and year ended December 31, 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 January 22, 2019, reporting financial results and earnings for the quarter and year ended December 31, 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: January 22, 2019

 

3

 

 

Exhibit Index

 

 

Exhibit Number Description
   
99.1 Press release of Mercantile Bank Corporation dated January 22, 2019, reporting financial results and earnings for the quarter and year ended December 31, 2018.
(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

ex_133070.htm

Exhibit 99.1

 

 

Mercantile Bank Corporation Announces Strong Fourth Quarter and

Full Year 2018 Results

Robust profitability and loan growth of nearly 8 percent highlight 2018

 

GRAND RAPIDS, Mich., January 22, 2019 – Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $11.6 million, or $0.70 per diluted share, for the fourth quarter of 2018, compared with net income of $8.0 million, or $0.48 per diluted share, for the respective prior-year period. For the full year 2018, Mercantile reported net income of $42.0 million, or $2.53 per diluted share, compared with net income of $31.3 million, or $1.90 per diluted share, for the full year 2017.

 

Net income during the fourth quarter and full year 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 18.7 percent and 18.9 percent during the fourth quarter and full year 2018, respectively, down from 35.9 percent and 32.1 percent during the respective prior-year periods.

 

The fourth quarter and full year were highlighted by:

 

 

Robust earnings and capital position

 

Strong and stable net interest margin

 

Solid growth in a variety of 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

 

Net loan growth of $195 million, or nearly 8 percent, during the full year

 

New commercial term loan originations of approximately $136 million during the fourth quarter and $508 million during the full year

 

Sustained strength in commercial loan pipeline

 

Announced first quarter 2019 regular cash dividend of $0.26 per common share, an increase of 4.0 percent from the regular cash dividend paid during the fourth quarter of 2018

 

Mercantile Bank of Michigan received a Community Reinvestment Act rating of “Outstanding” for the fourth consecutive examination

 

 

 

 

“We are very pleased that the solid operating performance we demonstrated during the first nine months of 2018 continued during the fourth quarter,” said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. “Our financial performance exhibited throughout the year reflects a solid net interest margin, strong asset quality, increases in certain fee income categories, and controlled overhead costs. In spite of continuing competitive pressures in our markets, we were able to record robust growth in the loan portfolio. Based on our current commercial and residential loan pipelines, we are confident that solid loan growth can be realized in future periods. In addition to being pleased with our ongoing financial strength, we are proud to report that Mercantile Bank of Michigan once again received an “Outstanding” Community Reinvestment Act rating, which depicts our continuing focus on meeting the needs of the communities we serve.”

 

Operating Results

 

Total revenue, which consists of net interest income and noninterest income, was $36.2 million during the fourth quarter of 2018, up $3.3 million, or 10.0 percent, from the prior-year fourth quarter. Net interest income during the fourth quarter of 2018 was $30.8 million, up $2.4 million, or 8.5 percent, from the fourth quarter of 2017, primarily reflecting a 22 basis point increase in the net interest margin and a 6.8 percent increase in average total loans. Total revenue was $139 million during the full year 2018, up $10.3 million, or 8.0 percent, from 2017. Net interest income was $120 million in 2018, up $10.3 million, or 9.4 percent, from the prior year, mainly reflecting a 17 basis point increase in the net interest margin and a 5.9 percent increase in average total loans.

 

The net interest margin was 3.98 percent in the fourth quarter of 2018, up from 3.76 percent in the prior-year fourth quarter. The improved net interest margin depicts a higher yield on average earning assets, mainly reflecting an increased yield on commercial loans and a change in earning asset mix, which more than offset a higher cost of funds, primarily resulting from 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 variable-rate commercial loans, which comprised about 55 percent of total commercial loans, stemming from the Federal Open Market Committee raising the targeted federal funds rate by 25 basis points in each of the past five 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 87.9 percent of earning assets during the fourth quarter of 2018, up from 84.0 percent during the prior-year fourth quarter, while lower-yielding interest-earning deposit balances represented 1.0 percent of earning assets during the fourth quarter of 2018, down from 4.6 percent during the fourth quarter of 2017.

 

The net interest margin was 3.96 percent in 2018, up from 3.79 percent in 2017. The increased net interest margin reflects a higher yield on average earning assets, primarily depicting an improved yield on commercial loans, which more than offset a higher cost of funds, mainly resulting from 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 variable-rate commercial loans stemming from the Federal Open Market Committee raising the targeted federal funds rate by 25 basis points on four occasions during 2018 and three occasions during 2017.

 

 

 

 

Net interest income and the net interest margin during 2018 and 2017 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 $4.0 million and $4.6 million were recorded during 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 $0.7 million was recorded during both 2018 and 2017.

 

Mercantile recorded no provision expense during the fourth quarter of 2018, compared to a provision expense of $0.6 million during the prior-year fourth quarter. During 2018, Mercantile recorded a provision for loan losses of $1.1 million, compared to a provision of $3.0 million during 2017. No provision expense was recorded during the fourth quarter of 2018 as the positive impact of net loan recoveries offset increased reserve allocations necessitated by loan growth and changes in loan loss reserve environmental factors. The provision expense recorded during 2018 and 2017 primarily reflects ongoing loan growth and periodic adjustments to loan loss reserve environmental factors.

 

Noninterest income during the fourth quarter of 2018 was $5.4 million. Noninterest income during the quarter included a one-time $0.9 million accounting adjustment related to mortgage banking activities in prior years; excluding this adjustment, noninterest income decreased slightly in the fourth quarter of 2018 compared to the prior-year fourth quarter. Noninterest income totaled $19.0 million during both 2018 and 2017. Noninterest income during 2018 included the previously mentioned mortgage banking activity adjustment, while noninterest income during 2017 included a $1.4 million bank owned life insurance death benefit claim; excluding these transactions, noninterest income increased $0.5 million, or 2.9 percent, during 2018 compared to 2017. Growth in credit and debit card fees, payroll processing revenue, and treasury management income during the fourth quarter of 2018 was more than offset by a decline in mortgage banking activity income, while growth in these revenue streams during the full year 2018 surpassed a decrease in mortgage banking activity income. Although Mercantile believes its market share increased during 2018, mortgage banking activity income declined during the 2018 periods compared to the respective 2017 periods primarily due to the impacts of a limited supply of homes for sale in the Bank’s markets and lower refinance activity due to rising residential mortgage loan interest rates.

 

Noninterest expense totaled $22.0 million during the fourth quarter of 2018, up $2.1 million, or 10.6 percent, from the prior-year fourth quarter. Noninterest expense during 2018 was $86.2 million, an increase of $6.5 million, or 8.1 percent, from the $79.7 million expensed during 2017. The higher level of expense in the 2018 periods primarily resulted from increased salary costs, mainly reflecting annual employee merit pay increases and higher stock-based compensation expense. In addition, a one-time pay increase for all hourly employees that totaled $1.6 million on an annualized basis became effective on April 1, 2018, contributing to the higher level of noninterest expense.

 

Mr. Kaminski continued, “As expected, our ongoing emphasis on disciplined loan pricing and sound underwriting, along with a beneficial balance sheet structure, produced a healthy and steady net interest margin throughout 2018. Our improved yield on earning assets, mainly reflecting increased interest rates on variable-rate commercial loans, more than offset a higher cost of funds stemming from the continuing rising interest rate environment. We anticipate that any further interest rate hikes initiated by the Federal Open Market Committee will have a positive impact on our net interest income in light of our current balance sheet structure. We are pleased with the increases in certain fee income categories and remain committed to controlling overhead costs. Although our mortgage banking activity income was hampered in 2018 by a lack of inventory in our markets and lower refinance activity, we are hopeful that our current loan pipeline, prominent level of pre-qualifications, and heightened efforts to sell a greater percentage of originated mortgage loans should result in solid levels of income in future periods.”

 

 

 

 

Balance Sheet

 

As of December 31, 2018, total assets were $3.36 billion, up $77.2 million, or 2.3 percent, from December 31, 2017. Total loans increased $195 million, or 7.6 percent, to $2.75 billion over the same time period. Approximately $136 million and $508 million in commercial term loans to new and existing borrowers were originated during the fourth quarter and full year of 2018, respectively, as ongoing sales and relationship-building efforts resulted in increased lending opportunities. As of December 31, 2018, unfunded commitments on commercial construction and development loans totaled approximately $170 million, which are expected to be largely funded over the next 12 to 18 months.

 

Ray Reitsma, President of Mercantile Bank of Michigan, noted, “We are very pleased with the net loan growth achieved during 2018, along with the level of new commercial term loan originations, which exceeded $500 million for the fourth consecutive year. Net loan growth during 2018 reflects higher levels of commercial loans and residential mortgage loans. All commercial loan segments, most notably the commercial and industrial loan portfolio, grew during the year. The solid growth in commercial loans depicts our ongoing efforts to identify new lending opportunities and meet the credit needs of our existing customers, while growth in residential mortgage loans reflects the continuing success of strategic initiatives that were centered on increasing our market penetration. We remain committed to growing the loan portfolio with an emphasis on risk-based pricing and sound underwriting parameters. In light of our current commercial loan and residential loan pipelines, additional lending opportunities conveyed by commercial lenders, and the level of residential mortgage loan pre-qualifications, we believe that we can grow the commercial and residential loan portfolios in future periods.”

 

As of December 31, 2018, commercial and industrial loans and owner-occupied commercial real estate loans combined represented approximately 58 percent of total commercial loans.

 

Total deposits at December 31, 2018 were $2.46 billion, down $58.7 million from December 31, 2017. Local deposits were down $69.2 million, and out-of-area deposits were up $10.5 million since year-end 2017. The decrease in local deposits during the current year mainly depicts the managed reduction of public unit time deposits given the strong competition and resulting relatively high interest rates in Mercantile’s markets and declines in certain personal account products stemming from depositors using funds for personal investments and expenditures. Noninterest-bearing checking accounts reflected solid growth during 2018 primarily due to new commercial loan relationships. Wholesale funds were $474 million, or approximately 16 percent of total funds, as of December 31, 2018, compared to $323 million, or about 11 percent of total funds, as of December 31, 2017.

 

Asset Quality

 

Nonperforming assets at December 31, 2018, were $5.0 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 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 2018. Net loan recoveries were $0.7 million during the fourth quarter of 2018 and $1.8 million for the full year 2018. Net loan charge-offs were $0.3 million during the fourth quarter of 2017 and $1.4 million for the full year 2017, representing 0.05 percent and 0.06 percent of average total loans, respectively.

 

 

 

 

Capital Position

 

Shareholders’ equity totaled $375 million as of December 31, 2018, an increase of $9.4 million from year-end 2017. The Bank’s capital position remains above “well-capitalized” with a total risk-based capital ratio of 12.3 percent as of December 31, 2018, compared to 12.6 percent at December 31, 2017. At December 31, 2018, the Bank had approximately $72 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a “well-capitalized” institution. Mercantile reported 16,534,256 total shares outstanding at December 31, 2018.

 

As part of a $20 million common stock repurchase program announced in January of 2015, which was expanded by $15 million in early 2016, Mercantile repurchased approximately 200,000 shares for $5.9 million, or a weighted average all-in cost per share of $29.73, during the fourth quarter of 2018; no shares were repurchased during the first nine months of 2018. As of December 31, 2018, future share repurchases totaling $9.6 million could be made under the program.

 

Mr. Kaminski concluded, “Our strong financial performance during 2018 enabled us to reward shareholders with the increased payment of regular quarterly cash dividends and a special dividend during the fourth quarter. As demonstrated by our continuing cash dividend program, including the announcement of an increased first quarter 2019 regular cash dividend earlier today, we remain dedicated to building shareholder value. Our relationship-based banking philosophy, which entails meeting customers’ needs through the efficient delivery of a wide array of products and services, continues to attract new clients and has allowed us to retain existing customers. We believe that our sound financial condition positions us to meet growth objectives and enhance shareholder value in future periods.”

 

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 $3.4 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 and CEO Executive Vice President and CFO
  616-726-1502 616-726-1202
  rkaminski@mercbank.com cchristmas@mercbank.com

 

 

 

 

MERCANTILE BANK CORPORATION

CONSOLIDATED BALANCE SHEETS

(Unaudited)

                         
   

DECEMBER 31,

   

DECEMBER 31,

   

DECEMBER 31,

 
   

2018

   

2017

   

2016

 

ASSETS

                       

Cash and due from banks

  $ 64,872,000     $ 55,127,000     $ 50,200,000  

Interest-earning deposits

    10,482,000       144,974,000       133,396,000  

Total cash and cash equivalents

    75,354,000       200,101,000       183,596,000  
                         

Securities available for sale

    337,366,000       335,744,000       328,060,000  

Federal Home Loan Bank stock

    16,022,000       11,036,000       8,026,000  
                         

Loans

    2,753,085,000       2,558,552,000       2,378,620,000  

Allowance for loan losses

    (22,380,000 )     (19,501,000 )     (17,961,000 )

Loans, net

    2,730,705,000       2,539,051,000       2,360,659,000  
                         

Premises and equipment, net

    48,321,000       46,034,000       45,456,000  

Bank owned life insurance

    69,647,000       68,689,000       67,198,000  

Goodwill

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

Core deposit intangible

    5,561,000       7,600,000       9,957,000  

Other assets

    31,458,000       28,976,000       30,146,000  
                         

Total assets

  $ 3,363,907,000     $ 3,286,704,000     $ 3,082,571,000  
                         
                         

LIABILITIES AND SHAREHOLDERS' EQUITY

                       

Deposits:

                       

Noninterest-bearing

  $ 889,784,000     $ 866,380,000     $ 810,600,000  

Interest-bearing

    1,573,924,000       1,655,985,000       1,564,385,000  

Total deposits

    2,463,708,000       2,522,365,000       2,374,985,000  
                         

Securities sold under agreements to repurchase

    103,519,000       118,748,000       131,710,000  

Federal Home Loan Bank advances

    350,000,000       220,000,000       175,000,000  

Subordinated debentures

    46,199,000       45,517,000       44,835,000  

Accrued interest and other liabilities

    25,232,000       14,204,000       15,230,000  

Total liabilities

    2,988,658,000       2,920,834,000       2,741,760,000  
                         

SHAREHOLDERS' EQUITY

                       

Common stock

    308,005,000       309,772,000       305,488,000  

Retained earnings

    75,483,000       60,132,000       40,904,000  

Accumulated other comprehensive income/(loss)

    (8,239,000 )     (4,034,000 )     (5,581,000 )

Total shareholders' equity

    375,249,000       365,870,000       340,811,000  
                         

Total liabilities and shareholders' equity

  $ 3,363,907,000     $ 3,286,704,000     $ 3,082,571,000  

 

 

 

 

MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)

                                 
   

THREE MONTHS

ENDED

   

THREE MONTHS

ENDED

   

TWELVE MONTHS

ENDED

   

TWELVE MONTHS

ENDED

 
   

December 31, 2018

   

December 31, 2017

   

December 31, 2018

   

December 31, 2017

 

INTEREST INCOME

                               

Loans, including fees

  $ 34,676,000     $ 30,411,000     $ 131,763,000     $ 116,816,000  

Investment securities

    2,347,000       2,036,000       8,975,000       7,631,000  

Other interest-earning assets

    172,000       455,000       1,243,000       1,096,000  

Total interest income

    37,195,000       32,902,000       141,981,000       125,543,000  
                                 

INTEREST EXPENSE

                               

Deposits

    3,949,000       2,819,000       13,869,000       9,362,000  

Short-term borrowings

    92,000       48,000       273,000       190,000  

Federal Home Loan Bank advances

    1,513,000       966,000       4,647,000       3,657,000  

Other borrowed money

    823,000       667,000       3,110,000       2,586,000  

Total interest expense

    6,377,000       4,500,000       21,899,000       15,795,000  
                                 

Net interest income

    30,818,000       28,402,000       120,082,000       109,748,000  
                                 

Provision for loan losses

    0       600,000       1,100,000       2,950,000  
                                 

Net interest income after provision for loan losses

    30,818,000       27,802,000       118,982,000       106,798,000  
                                 

NONINTEREST INCOME

                               

Service charges on accounts

    1,099,000       1,085,000       4,358,000       4,233,000  

Credit and debit card income

    1,399,000       1,263,000       5,354,000       4,760,000  

Mortgage banking income

    994,000       1,188,000       4,109,000       4,421,000  

Payroll services

    335,000       323,000       1,462,000       1,305,000  

Earnings on bank owned life insurance

    318,000       337,000       1,287,000       2,731,000  

Other income

    1,225,000       307,000       2,440,000       1,551,000  

Total noninterest income

    5,370,000       4,503,000       19,010,000       19,001,000  
                                 

NONINTEREST EXPENSE

                               

Salaries and benefits

    12,884,000       11,601,000       50,910,000       45,397,000  

Occupancy

    1,662,000       1,479,000       6,711,000       6,186,000  

Furniture and equipment

    681,000       543,000       2,470,000       2,168,000  

Data processing costs

    2,141,000       2,067,000       8,557,000       8,222,000  

Other expense

    4,590,000       4,158,000       17,522,000       17,743,000  

Total noninterest expense

    21,958,000       19,848,000       86,170,000       79,716,000  
                                 

Income before federal income tax expense

    14,230,000       12,457,000       51,822,000       46,083,000  
                                 

Federal income tax expense

    2,657,000       4,478,000       9,798,000       14,809,000  
                                 

Net Income

  $ 11,573,000     $ 7,979,000     $ 42,024,000     $ 31,274,000  
                                 

Basic earnings per share

  $ 0.70     $ 0.48     $ 2.53     $ 1.90  

Diluted earnings per share

  $ 0.70     $ 0.48     $ 2.53     $ 1.90  
                                 

Average basic shares outstanding

    16,594,412       16,525,625       16,600,612       16,478,968  

Average diluted shares outstanding

    16,600,108       16,536,225       16,606,416       16,489,070  

 

 

 

 

MERCANTILE BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)

                                                         
   

Quarterly

   

Year-To-Date

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

4th Qtr

   

3rd Qtr

   

2nd Qtr

   

1st Qtr

   

4th Qtr

   

2018

   

2017

 

EARNINGS

                                                       

Net interest income

  $ 30,818       29,840       29,225       30,199       28,402       120,082       109,748  

Provision for loan losses

  $ 0       400       700       0       600       1,100       2,950  

Noninterest income

  $ 5,370       4,708       4,550       4,381       4,503       19,010       19,001  

Noninterest expense

  $ 21,958       21,650       21,414       21,147       19,848       86,170       79,716  

Net income before federal income tax expense

  $ 14,230       12,498       11,661       13,433       12,457       51,822       46,083  

Net income

  $ 11,573       10,123       9,446       10,881       7,979       42,024       31,274  

Basic earnings per share

  $ 0.70       0.61       0.57       0.66       0.48       2.53       1.90  

Diluted earnings per share

  $ 0.70       0.61       0.57       0.66       0.48       2.53       1.90  

Average basic shares outstanding

    16,594,412       16,611,411       16,601,400       16,595,115       16,525,625       16,600,612       16,478,968  

Average diluted shares outstanding

    16,600,108       16,619,295       16,610,819       16,604,325       16,536,225       16,606,416       16,489,070  
                                                         

PERFORMANCE RATIOS

                                                       

Return on average assets

    1.39 %     1.22 %     1.17 %     1.36 %     0.97 %     1.28 %     1.00 %

Return on average equity

    12.40 %     10.64 %     10.25 %     12.07 %     8.70 %     11.33 %     8.82 %

Net interest margin (fully tax-equivalent)

    3.98 %     3.87 %     3.92 %     4.06 %     3.76 %     3.96 %     3.79 %

Efficiency ratio

    60.68 %     62.67 %     63.40 %     61.15 %     60.32 %     61.95 %     61.92 %

Full-time equivalent employees

    630       637       667       640       641       630       641  
                                                         

YIELD ON ASSETS / COST OF FUNDS

                                                       

Yield on loans

    5.08 %     4.91 %     4.92 %     5.14 %     4.76 %     5.01 %     4.70 %

Yield on securities

    2.80 %     2.70 %     2.64 %     2.61 %     2.60 %     2.69 %     2.47 %

Yield on other interest-earning assets

    2.20 %     1.98 %     1.80 %     1.52 %     1.29 %     1.79 %     1.21 %

Yield on total earning assets

    4.80 %     4.60 %     4.60 %     4.70 %     4.35 %     4.68 %     4.33 %

Yield on total assets

    4.46 %     4.28 %     4.27 %     4.37 %     4.04 %     4.35 %     4.02 %

Cost of deposits

    0.63 %     0.56 %     0.53 %     0.50 %     0.45 %     0.56 %     0.39 %

Cost of borrowed funds

    2.22 %     2.14 %     2.01 %     1.83 %     1.74 %     2.06 %     1.68 %

Cost of interest-bearing liabilities

    1.26 %     1.11 %     1.02 %     0.94 %     0.88 %     1.08 %     0.80 %

Cost of funds (total earning assets)

    0.82 %     0.73 %     0.68 %     0.64 %     0.59 %     0.72 %     0.54 %

Cost of funds (total assets)

    0.76 %     0.68 %     0.63 %     0.60 %     0.55 %     0.67 %     0.50 %
                                                         

PURCHASE ACCOUNTING ADJUSTMENTS

                                                 

Loan portfolio - increase interest income

  $ 603       386       777       2,271       683       4,037       4,608  

Trust preferred - increase interest expense

  $ 171       171       171       171       171       684       684  

Core deposit intangible - increase overhead

  $ 477       477       530       556       556       2,040       2,357  
                                                         

MORTGAGE BANKING ACTIVITY

                                                       

Total mortgage loans originated

  $ 44,448       66,829       62,032       40,937       62,526       214,246       223,224  

Purchase mortgage loans originated

  $ 29,729       47,704       41,239       25,137       33,958       143,809       135,850  

Refinance mortgage loans originated

  $ 14,719       19,125       20,793       15,800       28,568       70,437       87,374  

Total mortgage loans sold

  $ 21,805       30,713       24,114       19,813       26,254       96,445       107,946  

Net gain on sale of mortgage loans

  $ 829       1,116       851       729       1,051       3,525       3,926  
                                                         

CAPITAL

                                                       

Tangible equity to tangible assets

    9.68 %     9.98 %     9.87 %     9.63 %     9.56 %     9.68 %     9.56 %

Tier 1 leverage capital ratio

    11.41 %     11.76 %     11.81 %     11.50 %     11.24 %     11.41 %     11.28 %

Common equity risk-based capital ratio

    10.41 %     10.93 %     11.03 %     11.04 %     10.71 %     10.41 %     10.76 %

Tier 1 risk-based capital ratio

    11.80 %     12.35 %     12.49 %     12.52 %     12.19 %     11.80 %     12.23 %

Total risk-based capital ratio

    12.50 %     13.05 %     13.19 %     13.20 %     12.85 %     12.50 %     12.89 %

Tier 1 capital

  $ 373,721       382,829       375,167       367,546       359,047       373,721       360,533  

Tier 1 plus tier 2 capital

  $ 396,102       404,521       396,334       387,520       378,548       396,102       380,035  

Total risk-weighted assets

  $ 3,167,655       3,100,158       3,003,778       2,935,367       2,946,527       3,167,655       2,948,013  

Book value per common share

  $ 22.70       22.84       22.57       22.19       22.05       22.70       22.05  

Tangible book value per common share

  $ 19.37       19.50       19.20       18.79       18.61       19.37       18.61  

Cash dividend per common share

  $ 1.00       0.24       0.22       0.22       0.19       1.68       0.74  
                                                         

ASSET QUALITY

                                                       

Gross loan charge-offs

  $ 354       169       273       654       920       1,450       3,235  

Recoveries

  $ 1,042       294       766       1,127       628       3,229       1,825  

Net loan charge-offs (recoveries)

  $ (688 )     (125 )     (493 )     (473 )     292       (1,779 )     1,410  

Net loan charge-offs to average loans

    (0.10% )     (0.02% )     (0.08% )     (0.08% )     0.05 %     (0.07% )     0.06 %

Allowance for loan losses

  $ 22,380       21,692       21,167       19,974       19,501       22,380       19,501  

Allowance to originated loans

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

Nonperforming loans

  $ 4,141       4,852       4,965       5,742       7,143       4,141       7,143  

Other real estate/repossessed assets

  $ 811       948       842       2,384       2,260       811       2,260  

Nonperforming loans to total loans

    0.15 %     0.18 %     0.19 %     0.23 %     0.28 %     0.15 %     0.28 %

Nonperforming assets to total assets

    0.15 %     0.18 %     0.18 %     0.25 %     0.29 %     0.15 %     0.29 %

 

 

 

 

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

  $ 3,555       3,908       3,650       3,571       3,574       3,555       3,574  

Commercial real estate:

                                                       

Land development

  $ 0       0       0       0       35       0       35  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied

  $ 1,363       1,543       1,957       3,913       4,272       1,363       4,272  

Non-owner occupied

  $ 0       0       0       0       36       0       36  

Non-real estate:

                                                       

Commercial assets

  $ 17       331       180       620       1,444       17       1,444  

Consumer assets

  $ 17       18       20       22       42       17       42  

Total nonperforming assets

    4,952       5,800       5,807       8,126       9,403       4,952       9,403  
                                                         

NONPERFORMING ASSETS - RECON

                                                       

Beginning balance

  $ 5,800       5,807       8,126       9,403       10,558       9,403       6,408  

Additions - originated loans

  $ 1,247       999       300       1,426       402       3,972       9,952  

Merger-related activity

  $ 0       5       17       29       0       51       226  

Return to performing status

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

Principal payments

  $ (1,836 )     (857 )     (778 )     (1,557 )     (688 )     (5,028 )     (4,234 )

Sale proceeds

  $ (128 )     (147 )     (1,807 )     (299 )     (101 )     (2,381 )     (677 )

Loan charge-offs

  $ (57 )     (3 )     (50 )     (597 )     (754 )     (707 )     (1,933 )

Valuation write-downs

  $ (74 )     (4 )     (1 )     (104 )     (14 )     (183 )     (106 )

Ending balance

  $ 4,952       5,800       5,807       8,126       9,403       4,952       9,403  
                                                         

LOAN PORTFOLIO COMPOSITION

                                                       

Commercial:

                                                       

Commercial & industrial

  $ 822,723       818,113       776,995       739,805       753,764       822,723       753,764  

Land development & construction

  $ 44,885       39,396       37,868       31,437       29,872       44,885       29,872  

Owner occupied comm'l R/E

  $ 548,619       542,730       533,075       531,152       526,327       548,619       526,327  

Non-owner occupied comm'l R/E

  $ 816,282       811,767       818,376       794,206       791,685       816,282       791,685  

Multi-family & residential rental

  $ 127,597       94,101       95,656       96,428       101,918       127,597       101,918  

Total commercial

  $ 2,360,106       2,306,107       2,261,970       2,193,028       2,203,566       2,360,106       2,203,566  

Retail:

                                                       

1-4 family mortgages

  $ 307,540       301,765       283,657       264,996       254,560       307,540       254,560  

Home equity & other consumer

  $ 85,439       89,545       91,229       93,180       100,426       85,439       100,426  

Total retail

  $ 392,979       391,310       374,886       358,176       354,986       392,979       354,986  

Total loans

  $ 2,753,085       2,697,417       2,636,856       2,551,204       2,558,552       2,753,085       2,558,552  
                                                         

END OF PERIOD BALANCES

                                                       

Loans

  $ 2,753,085       2,697,417       2,636,856       2,551,204       2,558,552       2,753,085       2,558,552  

Securities

  $ 353,388       337,603       342,178       348,024       346,780       353,388       346,780  

Other interest-earning assets

  $ 10,482       28,193       69,402       163,879       144,974       10,482       144,974  

Total earning assets (before allowance)

  $ 3,116,955       3,063,213       3,048,436       3,063,107       3,050,306       3,116,955       3,050,306  

Total assets

  $ 3,363,907       3,300,106       3,288,521       3,293,900       3,286,704       3,363,907       3,286,704  

Noninterest-bearing deposits

  $ 889,784       879,442       884,470       830,187       866,380       889,784       866,380  

Interest-bearing deposits

  $ 1,573,924       1,629,368       1,645,341       1,709,866       1,655,985       1,573,924       1,655,985  

Total deposits

  $ 2,463,708       2,508,810       2,529,811       2,540,053       2,522,365       2,463,708       2,522,365  

Total borrowed funds

  $ 513,220       401,575       373,642       373,824       387,468       513,220       387,468  

Total interest-bearing liabilities

  $ 2,087,144       2,030,943       2,018,983       2,083,690       2,043,453       2,087,144       2,043,453  

Shareholders' equity

  $ 375,249       379,465       374,919       368,340       365,870       375,249       365,870  
                                                         

AVERAGE BALANCES

                                                       

Loans

  $ 2,706,617       2,658,092       2,596,828       2,552,070       2,534,729       2,628,907       2,483,440  

Securities

  $ 343,597       342,593       340,990       348,431       346,318       343,886       340,770  

Other interest-earning assets

  $ 30,564       61,810       63,336       123,633       138,095       69,559       90,925  

Total earning assets (before allowance)

  $ 3,080,778       3,062,495       3,001,154       3,024,134       3,019,142       3,042,352       2,915,135  

Total assets

  $ 3,312,648       3,295,129       3,232,038       3,249,794       3,248,828       3,272,637       3,142,673  

Noninterest-bearing deposits

  $ 905,065       893,181       848,650       805,214       849,751       863,384       802,024  

Interest-bearing deposits

  $ 1,579,632       1,628,346       1,635,755       1,690,135       1,635,727       1,633,150       1,589,778  

Total deposits

  $ 2,484,697       2,521,527       2,484,405       2,495,349       2,485,478       2,496,534       2,391,802  

Total borrowed funds

  $ 434,365       383,830       365,124       376,890       384,168       390,193       382,917  

Total interest-bearing liabilities

  $ 2,013,997       2,012,176       2,000,879       2,067,025       2,019,895       2,023,343       1,972,695  

Shareholders' equity

  $ 370,175       377,574       365,521       365,521       363,823       370,796       354,448  
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