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

mbwm20190711_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 16, 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))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

MBWM

The Nasdaq Stock Market LLC

 

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 16, 2019, Mercantile Bank Corporation issued a press release announcing earnings and other financial results for the quarter ended June 30, 2019. 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 16, 2019, reporting financial results and earnings for the quarter ended June 30, 2019.

 

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 16, 2019

 

3

 

 

Exhibit Index

 

 

Exhibit Number                    Description

 

99.1                         Press release of Mercantile Bank Corporation dated July 16, 2019, reporting financial results and earnings for the quarter ended June 30, 2019.

 

(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

ex_149924.htm

Exhibit 99.1

 

 

Mercantile Bank Corporation Reports Strong Second Quarter 2019 Results

Continued strength in core profitability and solid loan growth highlight quarter

 

GRAND RAPIDS, Mich., July 16, 2019 – Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $11.7 million, or $0.71 per diluted share, for the second quarter of 2019, compared with net income of $9.4 million, or $0.57 per diluted share, for the respective prior-year period. Net income during the first six months of 2019 totaled $23.5 million, or $1.43 per diluted share, compared to $20.3 million, or $1.22 per diluted share, during the first six months of 2018.

 

A bank owned life insurance claim increased reported net income during the second quarter of 2019 by approximately $1.3 million, or $0.08 per diluted share. Excluding the impact of this transaction, diluted earnings per share increased $0.06, or 10.5 percent, during the second quarter of 2019 compared to the prior-year second quarter. Bank owned life insurance claims and a gain on the sale of a former branch facility increased reported net income during the first six months of 2019 by approximately $3.1 million, or $0.19 per diluted share, while the successful collection of certain nonperforming commercial loans increased reported net income during the respective 2018 period by approximately $1.7 million, or $0.10 per diluted share. Excluding the impacts of these transactions, diluted earnings per share increased $0.12, or 10.7 percent, during the first six months of 2019 compared to the respective prior-year period.

 

“We are very pleased to conclude the first half of 2019 with another quarter of solid operating results,” said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. “Our sound financial condition, sustained strength in commercial and residential mortgage loan originations, and expected new loan fundings elicit confidence that the strong results achieved during the first six months of the year will continue throughout the last half of the year.”

 

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

 

Annualized net loan growth of almost 12 percent

 

New commercial term loan originations of approximately $134 million

 

Continued strength in commercial and residential loan pipelines

 

 

 

 

Operating Results

 

Total revenue, which consists of net interest income and noninterest income, was $37.5 million during the second quarter of 2019, up $3.7 million, or 10.9 percent, from the prior-year second quarter. Reflecting a higher level of earning assets, net interest income of $31.1 million during the second quarter of 2019 was up $1.9 million, or 6.5 percent, from the second quarter of 2018.

 

The net interest margin was 3.79 percent in the second quarter of 2019. The yield on average earning assets equaled 4.85 percent during the second quarter of 2019, up from 4.60 percent during the respective 2018 period mainly due to an increased yield on commercial loans. The improved 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’s raising of the targeted federal funds rate by 25 basis points in each of June, September, and December 2018. The cost of funds equaled 1.06 percent during the second quarter of 2019, up from 0.68 percent during the prior-year second quarter mainly due to an increased cost of time deposits and a change in funding mix. Increased reliance on more costly wholesale funds during the twelve months ended June, 30, 2019, most of which occurred in the second half of 2018 and January 2019, was necessitated by various funding requirements, including ongoing loan growth and seasonal deposit withdrawals by certain business customers for bonus and tax payments.

 

Net interest income and the net interest margin during the second quarters of 2019 and 2018, and the first six months of the current year and prior year, were affected by purchase accounting accretion and amortization associated with fair value measurements. Increases in interest income on loans totaling $0.6 million and $0.8 million were recorded during the second quarters of 2019 and 2018, respectively, and increases of $0.8 million and $3.0 million were recorded during the first six months of 2019 and 2018, 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 and prior-year second quarters, and increases of $0.3 million were recorded during both the first six months of 2019 and 2018.

 

Mercantile recorded a $0.9 million provision for loan losses during the second quarter of 2019 compared to a $0.7 million provision during the respective 2018 period. The provision expense recorded during the current-year second quarter mainly reflected ongoing net loan growth, while the provision expense recorded during the second quarter of 2018 primarily reflected loan growth and increased allocations related to certain environmental factors.

 

Noninterest income during the second quarter of 2019 was $6.3 million, compared to $4.6 million during the prior-year second quarter. Noninterest income during the second quarter of 2019 included a bank owned life insurance claim of $1.3 million. Excluding the impact of this transaction, noninterest income increased $0.5 million, or 10.9 percent, during the current-year second quarter compared to the respective 2018 period. The higher level of noninterest income primarily reflected increased mortgage banking activity income and credit and debit card income. The increased mortgage banking activity income mainly reflected the success of ongoing strategic initiatives that were instituted to increase market penetration, along with a higher level of refinance activity stemming from the recent decrease in residential mortgage loan interest rates. Increased service charges on accounts and payroll processing fees also contributed to the improved level of noninterest income.

 

 

 

 

Noninterest expense totaled $22.1 million during the second quarter of 2019, up $0.7 million, or 3.1 percent, from the prior-year second quarter. The higher level of expense primarily resulted from increased salary costs, mainly reflecting annual employee merit pay increases and higher stock-based compensation expense.

 

Mr. Kaminski continued, “As anticipated, our net interest margin remained strong during the second quarter of 2019, depicting our ongoing emphasis on loan pricing discipline and sound underwriting. We are pleased with the growth in key fee income categories, and we remain steadfast in our efforts to achieve growth initiatives in a cost-conscious manner. The noteworthy increase in mortgage banking activity income reflects the success of continuing strategic initiatives designed to further market penetration, along with a spike in refinance activity spurred by the recent decline in residential mortgage loan interest rates.”

 

Balance Sheet

 

As of June 30, 2019, total assets were $3.58 billion, up $212 million, or 6.3 percent, from December 31, 2018. Total loans and interest-earning deposits increased $128 million and $82.3 million, respectively, over the same time period. During the twelve months ended June 30, 2019, total loans were up $245 million, or 9.3 percent. Approximately $134 million and $259 million in commercial term loans to new and existing borrowers were originated during the second quarter and first six months of 2019, respectively, as ongoing sales and relationship-building efforts resulted in increased lending opportunities. As of June 30, 2019, unfunded commitments on commercial construction and development loans totaled approximately $129 million, which are expected to be largely funded over the next 12 to 18 months. The growth in interest-earning deposits mainly stemmed from certain deposit-gathering initiatives and an increase in wholesale funds.

 

Ray Reitsma, President of Mercantile Bank of Michigan, noted, “Our lending team’s continuing focus on identifying new customer relationships and meeting the needs of our existing customer base is evidenced by the solid net loan growth realized during the second quarter of 2019. We are very pleased with the level of new commercial term loan originations during the quarter, which were commensurate with quarterly originations over the past several years. We remain committed to growing the loan portfolio in a disciplined manner, with an ongoing emphasis on credit quality and risk-based pricing, and maintaining the combined commercial and industrial loan and owner-occupied commercial real estate loan portfolios at a minimum percentage of total commercial loans. Based on anticipated new loan fundings, we are confident that we can continue to grow the commercial loan portfolio in future periods. Depicting our efforts to increase market presence and a higher level of refinance activity, our residential mortgage loan portfolio expanded for the thirteenth consecutive quarter. In light of the current strong pipeline, we are optimistic that the residential mortgage loan portfolio can also increase going forward.”

 

As of June 30, 2019, commercial and industrial loans and owner-occupied commercial real estate loans combined represented approximately 58 percent of total commercial loans, a level that has remained relatively consistent and in line with internal expectations.

 

Total deposits at June 30, 2019, were $2.62 billion, up $156 million from December 31, 2018. Local deposits and brokered deposits were up $99.3 million and $56.2 million, respectively, during the first six months of 2019. The growth in local deposits was mainly driven by a special time deposit campaign that was introduced mid first quarter and ended in early April, along with an increase in business money market accounts. Wholesale funds were $543 million, or approximately 17 percent of total funds, as of June 30, 2019, compared to $474 million, or approximately 16 percent of total funds, as of December 31, 2018. A substantial portion of the growth in wholesale funds during the first six months of 2019 occurred in January; the monies were used primarily to fund strong loan growth recorded in late 2018 and early 2019 and offset typical and expected seasonal business deposit withdrawals used for bonus and tax payments, as well as to maintain sufficient balance sheet liquidity.

 

 

 

 

Asset Quality

 

Nonperforming assets at June 30, 2019, were $4.0 million, or 0.1 percent of total assets, compared to $5.0 million, or 0.2 percent of total assets, at December 31, 2018. The level of past due loans remains nominal, and loan relationships on the internal watch list have remained relatively consistent in number and dollar volume. During the second quarter of 2019, nominal net loan recoveries, representing an annualized 0.01 percent of average total loans, were recorded.

 

Capital Position

 

Shareholders’ equity totaled $400 million as of June 30, 2019, an increase of $24.9 million from year-end 2018. The Bank’s capital position remains above “well-capitalized” with a total risk-based capital ratio of 12.4 percent as of June 30, 2019, compared to 12.3 percent at December 31, 2018. At June 30, 2019, the Bank had approximately $78 million in excess of the 10.0 percent minimum regulatory threshold required to be considered a “well-capitalized” institution. Mercantile reported 16,440,356 total shares outstanding at June 30, 2019.

 

As part of a $20 million common stock repurchase program announced in January 2015, and later expanded by $15 million in April 2016, Mercantile repurchased approximately 119,000 shares for $3.6 million, or a weighted average all-in cost per share of $30.23, during the first quarter of 2019; no shares were repurchased during the second quarter of 2019. Since the program’s inception, Mercantile repurchased approximately 1,275,000 shares for $29.0 million, or a weighted average all-in cost per share of $22.77. In conjunction with the anticipated completion of its existing program, Mercantile announced a new $20 million stock repurchase plan in May 2019.

 

Mr. Kaminski concluded, “With our strong financial performance during the first six months of 2019, we are well positioned to meet growth and profitability goals and further enhance shareholder value. The ongoing cash dividend program, including the announcement of an increased third quarter regular dividend earlier today, exhibits our long-term commitment to enhancing total shareholder return. We continue to gain new clients through our value-added approach and the offering of a wide-range of products and services, and we are excited about opportunities that we believe are available to us to expand our business in our markets. Based on our sustained financial strength and healthy loan pipelines, we are confident in our ability to deliver robust performance not only during the remainder of the current year, but into the foreseeable periods as well.”

 

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 $3.5 billion and operates 46 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

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   

JUNE 30,

   

DECEMBER 31,

   

JUNE 30,

 
   

2019

   

2018

   

2018

 

ASSETS

                       

Cash and due from banks

  $ 57,675,000     $ 64,872,000     $ 56,338,000  

Interest-earning deposits

    92,750,000       10,482,000       69,402,000  

Total cash and cash equivalents

    150,425,000       75,354,000       125,740,000  
                         

Securities available for sale

    347,924,000       337,366,000       331,142,000  

Federal Home Loan Bank stock

    18,002,000       16,022,000       11,036,000  
                         

Loans

    2,881,493,000       2,753,085,000       2,636,856,000  

Allowance for loan losses

    (24,053,000 )     (22,380,000 )     (21,167,000 )

Loans, net

    2,857,440,000       2,730,705,000       2,615,689,000  
                         

Premises and equipment, net

    51,823,000       48,321,000       47,102,000  

Bank owned life insurance

    67,678,000       69,647,000       69,321,000  

Goodwill

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

Core deposit intangible, net

    4,634,000       5,561,000       6,514,000  

Other assets

    28,740,000       31,458,000       32,504,000  
                         

Total assets

  $ 3,576,139,000     $ 3,363,907,000     $ 3,288,521,000  
                         
                         

LIABILITIES AND SHAREHOLDERS' EQUITY

                       

Deposits:

                       

Noninterest-bearing

  $ 918,581,000     $ 889,784,000     $ 884,470,000  

Interest-bearing

    1,700,628,000       1,573,924,000       1,645,341,000  

Total deposits

    2,619,209,000       2,463,708,000       2,529,811,000  
                         

Securities sold under agreements to repurchase

    119,669,000       103,519,000       94,573,000  

Federal Home Loan Bank advances

    374,000,000       350,000,000       230,000,000  

Subordinated debentures

    46,540,000       46,199,000       45,858,000  

Accrued interest and other liabilities

    16,604,000       25,232,000       13,360,000  

Total liabilities

    3,176,022,000       2,988,658,000       2,913,602,000  
                         

SHAREHOLDERS' EQUITY

                       

Common stock

    306,669,000       308,005,000       311,720,000  

Retained earnings

    90,618,000       75,483,000       74,084,000  

Accumulated other comprehensive income/(loss)

    2,830,000       (8,239,000 )     (10,885,000 )

Total shareholders' equity

    400,117,000       375,249,000       374,919,000  
                         

Total liabilities and shareholders' equity

  $ 3,576,139,000     $ 3,363,907,000     $ 3,288,521,000  

 

 

 

 

MERCANTILE BANK CORPORATION

CONSOLIDATED REPORTS OF INCOME

(Unaudited)

 

   

THREE MONTHS ENDED

   

THREE MONTHS ENDED

   

SIX MONTHS ENDED

   

SIX MONTHS ENDED

 
   

June 30, 2019

   

June 30, 2018

   

June 30, 2019

   

June 30, 2018

 

INTEREST INCOME

                               

Loans, including fees

  $ 36,765,000     $ 31,855,000     $ 72,555,000     $ 64,170,000  

Investment securities

    2,485,000       2,177,000       4,926,000       4,373,000  

Other interest-earning assets

    569,000       287,000       976,000       757,000  

Total interest income

    39,819,000       34,319,000       78,457,000       69,300,000  
                                 

INTEREST EXPENSE

                               

Deposits

    5,529,000       3,262,000       10,334,000       6,347,000  

Short-term borrowings

    68,000       61,000       173,000       118,000  

Federal Home Loan Bank advances

    2,261,000       988,000       4,494,000       1,933,000  

Other borrowed money

    845,000       783,000       1,695,000       1,478,000  

Total interest expense

    8,703,000       5,094,000       16,696,000       9,876,000  
                                 

Net interest income

    31,116,000       29,225,000       61,761,000       59,424,000  
                                 

Provision for loan losses

    900,000       700,000       1,750,000       700,000  
                                 

Net interest income after provision for loan losses

    30,216,000       28,525,000       60,011,000       58,724,000  
                                 

NONINTEREST INCOME

                               

Service charges on accounts

    1,143,000       1,079,000       2,220,000       2,132,000  

Credit and debit card income

    1,513,000       1,334,000       2,850,000       2,577,000  

Mortgage banking income

    1,345,000       995,000       2,402,000       1,879,000  

Payroll services

    355,000       317,000       860,000       800,000  

Earnings on bank owned life insurance

    1,608,000       321,000       3,238,000       652,000  

Other income

    370,000       504,000       1,397,000       891,000  

Total noninterest income

    6,334,000       4,550,000       12,967,000       8,931,000  
                                 

NONINTEREST EXPENSE

                               

Salaries and benefits

    13,286,000       12,757,000       26,302,000       25,094,000  

Occupancy

    1,629,000       1,629,000       3,391,000       3,401,000  

Furniture and equipment

    621,000       582,000       1,257,000       1,130,000  

Data processing costs

    2,295,000       2,137,000       4,511,000       4,265,000  

Other expense

    4,256,000       4,309,000       8,456,000       8,671,000  

Total noninterest expense

    22,087,000       21,414,000       43,917,000       42,561,000  
                                 

Income before federal income tax expense

    14,463,000       11,661,000       29,061,000       25,094,000  
                                 

Federal income tax expense

    2,748,000       2,215,000       5,522,000       4,767,000  
                                 

Net Income

  $ 11,715,000     $ 9,446,000     $ 23,539,000     $ 20,327,000  
                                 

Basic earnings per share

  $ 0.71     $ 0.57     $ 1.43     $ 1.22  

Diluted earnings per share

  $ 0.71     $ 0.57     $ 1.43     $ 1.22  
                                 

Average basic shares outstanding

    16,428,187       16,601,400       16,428,875       16,598,274  

Average diluted shares outstanding

    16,434,714       16,610,819       16,434,941       16,607,593  

 

 

 

 

MERCANTILE BANK CORPORATION

CONSOLIDATED FINANCIAL HIGHLIGHTS

(Unaudited)

 

    Quarterly    

Year-To-Date

 
(dollars in thousands except per share data)   2019     2019     2018     2018     2018              
   

2nd Qtr

   

1st Qtr

   

4th Qtr

   

3rd Qtr

   

2nd Qtr

   

2019

   

2018

 

EARNINGS

                                                       

Net interest income

  $ 31,116       30,645       30,818       29,840       29,225       61,761       59,424  

Provision for loan losses

  $ 900       850       0       400       700       1,750       700  

Noninterest income

  $ 6,334       6,632       5,370       4,708       4,550       12,967       8,931  

Noninterest expense

  $ 22,087       21,830       21,958       21,650       21,414       43,917       42,561  

Net income before federal income tax expense

  $ 14,463       14,597       14,230       12,498       11,661       29,061       25,094  

Net income

  $ 11,715       11,824       11,573       10,123       9,446       23,539       20,327  

Basic earnings per share

  $ 0.71       0.72       0.70       0.61       0.57       1.43       1.22  

Diluted earnings per share

  $ 0.71       0.72       0.70       0.61       0.57       1.43       1.22  

Average basic shares outstanding

    16,428,187       16,429,571       16,594,412       16,611,411       16,601,400       16,428,875       16,598,274  

Average diluted shares outstanding

    16,434,714       16,435,176       16,600,108       16,619,295       16,610,819       16,434,941       16,607,593  
                                                         

PERFORMANCE RATIOS

                                                       

Return on average assets

    1.33 %     1.39 %     1.39 %     1.22 %     1.17 %     1.36 %     1.26 %

Return on average equity

    12.08 %     12.75 %     12.40 %     10.64 %     10.25 %     12.41 %     11.15 %

Net interest margin (fully tax-equivalent)

    3.79 %     3.88 %     3.98 %     3.87 %     3.92 %     3.83 %     3.99 %

Efficiency ratio

    58.98 %     58.56 %     60.68 %     62.67 %     63.40 %     58.77 %     62.26 %

Full-time equivalent employees

    652       631       630       637       667       652       667  
                                                         

YIELD ON ASSETS / COST OF FUNDS

                                                       

Yield on loans

    5.18 %     5.21 %     5.08 %     4.91 %     4.92 %     5.19 %     5.03 %

Yield on securities

    2.85 %     2.82 %     2.80 %     2.70 %     2.64 %     2.83 %     2.62 %

Yield on other interest-earning assets

    2.38 %     2.40 %     2.20 %     1.98 %     1.80 %     2.42 %     1.64 %

Yield on total earning assets

    4.85 %     4.89 %     4.80 %     4.60 %     4.60 %     4.87 %     4.65 %

Yield on total assets

    4.53 %     4.56 %     4.46 %     4.28 %     4.27 %     4.55 %     4.32 %

Cost of deposits

    0.85 %     0.77 %     0.63 %     0.56 %     0.53 %     0.82 %     0.51 %

Cost of borrowed funds

    2.40 %     2.43 %     2.22 %     2.14 %     2.01 %     2.41 %     1.92 %

Cost of interest-bearing liabilities

    1.55 %     1.47 %     1.26 %     1.11 %     1.02 %     1.51 %     0.98 %

Cost of funds (total earning assets)

    1.06 %     1.01 %     0.82 %     0.73 %     0.68 %     1.04 %     0.66 %

Cost of funds (total assets)

    0.99 %     0.94 %     0.76 %     0.68 %     0.63 %     0.97 %     0.61 %
                                                         

PURCHASE ACCOUNTING ADJUSTMENTS

                                                 

Loan portfolio - increase interest income

  $ 569       211       603       386       777       780       3,048  

Trust preferred - increase interest expense

  $ 171       171       171       171       171       342       342  

Core deposit intangible - increase overhead

  $ 450       477       477       477       530       927       1,086  
                                                         

MORTGAGE BANKING ACTIVITY

                                                       

Total mortgage loans originated

  $ 80,205       44,932       44,448       66,829       62,032       125,137       102,969  

Purchase mortgage loans originated

  $ 41,986       29,891       29,729       47,704       41,239       71,877       66,376  

Refinance mortgage loans originated

  $ 38,219       15,041       14,719       19,125       20,793       53,260       36,593  

Total saleable mortgage loans

  $ 49,396       21,502       21,805       30,713       24,114       70,898       43,927  

Net gain on sale of mortgage loans

  $ 1,419       698       829       1,116       851       2,117       1,580  
                                                         

CAPITAL

                                                       

Tangible equity to tangible assets

    9.82 %     9.41 %     9.68 %     9.98 %     9.87 %     9.82 %     9.87 %

Tier 1 leverage capital ratio

    11.17 %     11.16 %     11.41 %     11.76 %     11.81 %     11.17 %     11.81 %

Common equity risk-based capital ratio

    10.47 %     10.46 %     10.41 %     10.93 %     11.03 %     10.47 %     11.03 %

Tier 1 risk-based capital ratio

    11.82 %     11.84 %     11.80 %     12.35 %     12.49 %     11.82 %     12.49 %

Total risk-based capital ratio

    12.55 %     12.56 %     12.50 %     13.05 %     13.19 %     12.55 %     13.19 %

Tier 1 capital

  $ 388,788       379,334       373,721       382,829       375,167       388,788       375,167  

Tier 1 plus tier 2 capital

  $ 412,841       402,469       396,102       404,521       396,334       412,841       396,334  

Total risk-weighted assets

  $ 3,289,958       3,204,295       3,167,655       3,100,158       3,003,778       3,289,958       3,003,778  

Book value per common share

  $ 24.34       23.37       22.70       22.84       22.57       24.34       22.57  

Tangible book value per common share

  $ 21.05       20.05       19.37       19.50       19.20       21.05       19.20  

Cash dividend per common share

  $ 0.26       0.26       1.00       0.24       0.22       0.52       0.44  
                                                         

ASSET QUALITY

                                                       

Gross loan charge-offs

  $ 78       174       354       169       273       252       927  

Recoveries

  $ 96       79       1,042       294       766       175       1,893  

Net loan charge-offs (recoveries)

  $ (18 )     95       (688 )     (125 )     (493 )     77       (966 )

Net loan charge-offs to average loans

    (0.01% )     0.01 %     (0.10% )     (0.02% )     (0.08% )     0.01 %     (0.08% )

Allowance for loan losses

  $ 24,053       23,135       22,380       21,692       21,167       24,053       21,167  

Allowance to originated loans

    0.89 %     0.89 %     0.88 %     0.88 %     0.89 %     0.89 %     0.89 %

Nonperforming loans

  $ 3,505       4,138       4,141       4,852       4,965       3,505       4,965  

Other real estate/repossessed assets

  $ 446       396       811       948       842       446       842  

Nonperforming loans to total loans

    0.12 %     0.15 %     0.15 %     0.18 %     0.19 %     0.12 %     0.19 %

Nonperforming assets to total assets

    0.11 %     0.13 %     0.15 %     0.18 %     0.18 %     0.11 %     0.18 %
                                                         

NONPERFORMING ASSETS - COMPOSITION

                                                 

Residential real estate:

                                                       

Land development

  $ 33       45       0       0       0       33       0  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied / rental

  $ 3,225       3,404       3,555       3,908       3,650       3,225       3,650  

Commercial real estate:

                                                       

Land development

  $ 0       0       0       0       0       0       0  

Construction

  $ 0       0       0       0       0       0       0  

Owner occupied

  $ 642       791       1,363       1,543       1,957       642       1,957  

Non-owner occupied

  $ 26       62       0       0       0       26       0  

Non-real estate:

                                                       

Commercial assets

  $ 2       207       17       331       180       2       180  

Consumer assets

  $ 23       25       17       18       20       23       20  

Total nonperforming assets

    3,951       4,534       4,952       5,800       5,807       3,951       5,807  
                                                         

NONPERFORMING ASSETS - RECON

                                                       

Beginning balance

  $ 4,534       4,952       5,800       5,807       8,126       4,952       9,403  

Additions - originated loans/former branch

  $ 26       539       1,247       999       300       565       1,726  

Merger-related activity

  $ 34       0       0       5       17       34       46  

Return to performing status

  $ 0       0       0       0       0       0       (175 )

Principal payments

  $ (512 )     (382 )     (1,836 )     (857 )     (778 )     (894 )     (2,335 )

Sale proceeds

  $ (74 )     (429 )     (128 )     (147 )     (1,807 )     (503 )     (2,106 )

Loan charge-offs

  $ (36 )     (146 )     (57 )     (3 )     (50 )     (182 )     (647 )

Valuation write-downs

  $ (21 )     0       (74 )     (4 )     (1 )     (21 )     (105 )

Ending balance

  $ 3,951       4,534       4,952       5,800       5,807       3,951       5,807  
                                                         

LOAN PORTFOLIO COMPOSITION

                                                       

Commercial:

                                                       

Commercial & industrial

  $ 881,196       839,207       822,723       818,113       776,995       881,196       776,995  

Land development & construction

  $ 45,158       45,892       44,885       39,396       37,868       45,158       37,868  

Owner occupied comm'l R/E

  $ 556,868       551,517       548,619       542,730       533,075       556,868       533,075  

Non-owner occupied comm'l R/E

  $ 852,844       835,679       816,282       811,767       818,376       852,844       818,376  

Multi-family & residential rental

  $ 128,489       127,903       127,597       94,101       95,656       128,489       95,656  

Total commercial

  $ 2,464,555       2,400,198       2,360,106       2,306,107       2,261,970       2,464,555       2,261,970  

Retail:

                                                       

1-4 family mortgages

  $ 335,618       316,315       307,540       301,765       283,657       335,618       283,657  

Home equity & other consumer

  $ 81,320       83,126       85,439       89,545       91,229       81,320       91,229  

Total retail

  $ 416,938       399,441       392,979       391,310       374,886       416,938       374,886  

Total loans

  $ 2,881,493       2,799,639       2,753,085       2,697,417       2,636,856       2,881,493       2,636,856  
                                                         

END OF PERIOD BALANCES

                                                       

Loans

  $ 2,881,493       2,799,639       2,753,085       2,697,417       2,636,856       2,881,493       2,636,856  

Securities

  $ 365,926       355,878       353,388       337,603       342,178       365,926       342,178  

Other interest-earning assets

  $ 92,750       168,572       10,482       28,193       69,402       92,750       69,402  

Total earning assets (before allowance)

  $ 3,340,169       3,324,089       3,116,955       3,063,213       3,048,436       3,340,169       3,048,436  

Total assets

  $ 3,576,139       3,551,754       3,363,907       3,300,106       3,288,521       3,576,139       3,288,521  

Noninterest-bearing deposits

  $ 918,581       857,734       889,784       879,442       884,470       918,581       884,470  

Interest-bearing deposits

  $ 1,700,628       1,753,240       1,573,924       1,629,368       1,645,341       1,700,628       1,645,341  

Total deposits

  $ 2,619,209       2,610,974       2,463,708       2,508,810       2,529,811       2,619,209       2,529,811  

Total borrowed funds

  $ 543,098       544,566       513,220       401,575       373,642       543,098       373,642  

Total interest-bearing liabilities

  $ 2,243,726       2,297,806       2,087,144       2,030,943       2,018,983       2,243,726       2,018,983  

Shareholders' equity

  $ 400,117       383,729       375,249       379,465       374,919       400,117       374,919  
                                                         

AVERAGE BALANCES

                                                       

Loans

  $ 2,848,343       2,787,430       2,706,617       2,658,092       2,596,828       2,818,055       2,574,573  

Securities

  $ 357,718       354,459       343,597       342,593       340,990       356,098       344,690  

Other interest-earning assets

  $ 94,616       67,915       30,564       61,810       63,336       81,339       93,318  

Total earning assets (before allowance)

  $ 3,300,677       3,209,804       3,080,778       3,062,495       3,001,154       3,255,492       3,012,581  

Total assets

  $ 3,529,598       3,441,774       3,312,648       3,295,129       3,232,038       3,485,929       3,240,867  

Noninterest-bearing deposits

  $ 875,645       852,247       905,065       893,181       848,650       864,011       827,052  

Interest-bearing deposits

  $ 1,719,433       1,668,563       1,579,632       1,628,346       1,635,755       1,694,138       1,662,795  

Total deposits

  $ 2,595,078       2,520,810       2,484,697       2,521,527       2,484,405       2,558,149       2,489,847  

Total borrowed funds

  $ 530,802       532,864       434,365       383,830       365,124       531,827       370,975  

Total interest-bearing liabilities

  $ 2,250,235       2,201,427       2,013,997       2,012,176       2,000,879       2,225,965       2,033,770  

Shareholders' equity

  $ 389,133       376,103       370,175       377,574       365,521       382,654       367,666  

 

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