MBWM Mercantile Bank Corporation

Mercantile Bank Corporation (NASDAQ: MBWM) ("Mercantile") reported net income of $20.9 million, or $1.30 per diluted share, for the third quarter of 2023, compared with net income of $16.0 million, or $1.01 per diluted share, for the respective prior-year period. Net income during the first nine months of 2023 totaled $62.2 million, or $3.89 per diluted share, compared with net income of $39.3 million, or $2.48 per diluted share, during the first nine months of 2022.

“We are very pleased with our third quarter financial results, especially when considering the challenging operating conditions and uncertain economic environment that we continued to face,” said Robert B. Kaminski, Jr., President and Chief Executive Officer of Mercantile. “Our strong operating results were propelled by enhanced net interest income, which was up nearly 16 percent in the third quarter of 2023 compared to the respective prior-year period primarily due to a higher net interest margin and growth in the commercial loan and residential mortgage loan portfolios. As evidenced by the ongoing loan portfolio expansion and strength in asset quality metrics, we remain committed to employing sound underwriting standards to meet the credit needs of our existing customers and foster loan relationships with new clients. We believe our strong capital position will allow us to endure any issues stemming from shifting economic conditions.”

Third quarter highlights include:

• Significant increase in net interest income reflecting a higher net interest margin and loan growth
• Noteworthy increases in several key fee income categories
• Ongoing growth in commercial loan and residential mortgage loan portfolios
• Continuing strength in commercial loan pipeline
• Sustained low levels of nonperforming assets, past due loans, and loan charge-offs
• Strong capital position

Operating Results

Total revenue, consisting of net interest income and noninterest income, was $58.2 million during the third quarter of 2023, up $8.6 million, or 17.2 percent, from $49.6 million during the prior-year third quarter. Net interest income during the third quarter of 2023 was $49.0 million, up $6.6 million, or 15.5 percent, from $42.4 million during the respective 2022 period, primarily due to increased yields on earning assets and loan growth. Noninterest income totaled $9.2 million during the third quarter of 2023, compared to $7.3 million during the third quarter of 2022. Excluding a gain on the sale of other real estate owned, noninterest income increased $1.6 million, or nearly 22 percent, in the third quarter of 2023 compared with the prior-year third quarter mainly due to higher levels of mortgage banking income, interest rate swap income, bank owned life insurance income, credit and debit card income, and payroll processing fees.

The net interest margin was 3.98 percent in the third quarter of 2023, up from 3.56 percent in the prior-year third quarter. The yield on average earning assets was 5.78 percent during the current-year third quarter, an increase from 4.04 percent during the respective 2022 period. The higher yield on average earning assets primarily resulted from an increased yield on loans. The yield on loans was 6.37 percent during the third quarter of 2023, up from 4.56 percent during the third quarter of 2022 mainly due to higher interest rates on variable-rate commercial loans resulting from the Federal Open Market Committee (“FOMC”) substantially raising the targeted federal funds rate in an effort to reduce elevated inflation levels. The FOMC increased the targeted federal funds rate by 375 basis points during the period of July 2022 through July 2023, during which time average variable-rate commercial loans represented approximately 65 percent of average total commercial loans.

The cost of funds was 1.80 percent in the third quarter of 2023, up from 0.48 percent in the third quarter of 2022 primarily due to higher costs of deposits and borrowed funds, reflecting the impact of the rising interest rate environment, and a change in funding mix, consisting of a decrease in noninterest-bearing and lower-cost deposits and an increase in higher-cost money market accounts and time deposits, reflecting deposit migration and new deposit relationships.

Mercantile recorded provisions for credit losses of $3.3 million and $2.9 million during the third quarters of 2023 and 2022, respectively. The provision expense recorded during the current-year third quarter mainly reflected the establishment of a specific reserve for a distressed commercial loan relationship, a qualitative factor assessment for local economic conditions reflecting the ongoing United Auto Workers strike, and allocations necessitated by net loan growth.   The provision expense recorded during the third quarter of 2022 primarily reflected allocations necessitated by commercial loan and residential mortgage loan growth, an increased specific reserve for a distressed commercial loan relationship, and a decline in forecasted economic conditions.

Noninterest income during the third quarter of 2023 was $9.2 million, compared to $7.3 million during the respective 2022 period. Noninterest income during the third quarter of 2023 included a $0.4 million gain on the sale of other real estate owned. Excluding the impact of this transaction, noninterest income increased $1.6 million, or approximately 22 percent, during the third quarter of 2023 compared with the prior-year third quarter. The higher level of noninterest income mainly stemmed from increased mortgage banking income, interest rate swap income, bank owned life insurance income, credit and debit card income, and payroll servicing fees, which more than offset decreased service charges on accounts. The increase in mortgage banking income largely reflected a higher loan sold percentage, which increased from approximately 36 percent in the second quarter of 2022 to approximately 64 percent in the third quarter of 2023. The growth in interest rate swap income, credit and debit card income, and payroll servicing fees primarily resulted from the successful marketing of products and services to existing and new customers. The decline in service charges on accounts reflected increased earnings credit rates in response to the increasing interest rate environment.

Noninterest expense totaled $28.9 million during the third quarter of 2023, compared to $26.8 million during the prior-year third quarter. The increase in noninterest expense primarily stemmed from larger salary costs, which outweighed decreased residential mortgage lender commissions and incentives and a lower bonus accrual.   The higher level of salary expense mainly resulted from annual merit pay increases and market adjustments, as well as lower residential mortgage loan deferred salary costs. The decreased residential mortgage lender commissions and incentives primarily stemmed from reduced loan production. The increase in overhead costs during the third quarter of 2023 also resulted from higher levels of Federal Deposit Insurance Corporation deposit insurance premiums, reflecting an increased industry-wide assessment rate, contributions to The Mercantile Bank Foundation, and interest rate swap collateral holding costs.

Mr. Kaminski commented, “The notable upticks in net interest income during the third quarter and first nine months of 2023 compared to the respective 2022 periods mainly reflected significant net interest margin expansion and ongoing loan growth. We are pleased with the increases in several key fee income revenue streams, including mortgage banking income, which grew in large part due to the success of a strategic initiative that was implemented to enhance the residential mortgage loan sold percentage.   As part of our efforts to control overhead costs while meeting balance sheet growth objectives, we are constantly reviewing and scrutinizing our operating expenses, including those associated with our branch footprint, to identify additional opportunities to improve efficiency while maintaining our customer service standards.”

Balance Sheet

As of September 30, 2023, total assets were $5.25 billion, up $378 million from December 31, 2022. Total loans increased $188 million, or an annualized 6.4 percent, during the first nine months of 2023, mainly reflecting growth in residential mortgage loans and commercial loans of $99.1 million and $87.0 million, respectively. Commercial loans and residential mortgage loans were up $30.2 million and $21.0 million, respectively, during the third quarter of 2023. Commercial loans increased despite the full payoffs and partial paydowns of certain larger relationships, which aggregated approximately $73 million and $246 million during the third quarter and first nine months of 2023, respectively. The payoffs and paydowns mainly stemmed from customers using excess cash flows generated within their operations to make line of credit and unscheduled principal paydowns, as well as from refinancing debt on the secondary market.   Interest-earning deposits increased $167 million during the first nine months of 2023, in large part reflecting a strategic initiative to enhance on-balance sheet liquidity.

As of September 30, 2023, unfunded commitments on commercial construction and development loans, which are expected to be funded over the next 12 to 18 months, and residential construction loans, which are expected to be largely funded over the next 12 months, totaled $379 million and $54.0 million, respectively.

Ray Reitsma, President of Mercantile Bank, noted, “We are pleased with the growth in the commercial loan portfolio during the third quarter and first nine months of 2023, which was achieved despite elevated levels of full and partial payoffs and paydowns. Our strong commercial loan pipeline and credit availability for commercial construction and development loans provide opportunities for future portfolio expansion. The residential mortgage loan portfolio grew once again, as it did during all of 2022 and the first six months of 2023, in spite of sustained challenging market conditions, including the higher interest rate environment and limited housing inventory levels.”

Commercial and industrial loans and owner-occupied commercial real estate loans combined represented approximately 57 percent of total commercial loans as of September 30, 2023, a level that has remained relatively consistent with prior periods and in line with Mercantile’s expectations.  

Total deposits at September 30, 2023, were $3.90 billion, up $144 million, or 3.8 percent, from June 30, 2023, and $188 million, or 5.1 percent, from December 31, 2022. Local deposits increased $144 million and $76.6 million during the third quarter and first nine months of 2023, respectively, while brokered deposits grew $111 million during the first nine months of 2023, all of which occurred during the second quarter.   The growth in local deposits during the first nine months of 2023 mainly depicted the anticipated buildup in existing customers’ deposit balances that began after they made customary tax and bonus payments and partnership distributions during the first quarter of 2023, along with deposit generation from new client relationships. Wholesale funds, consisting of brokered deposits and Federal Home Loan Bank of Indianapolis advances, were $569 million, or approximately 13 percent of total funds, at September 30, 2023, compared with $308 million, or approximately 7 percent of total funds, at December 31, 2022. Wholesale funds totaling $311 million were obtained during the first nine months of 2023 to increase on-balance sheet liquidity and offset loan growth, seasonal deposit withdrawals, and wholesale fund maturities. Noninterest-bearing checking accounts comprised about 34 percent of total deposits as of September 30, 2023.

Asset Quality

Nonperforming assets totaled $5.9 million at September 30, 2023, compared to $2.8 million, $8.4 million, $7.7 million, and $1.4 million at June 30, 2023, March 31, 2023, December 31, 2022, and September 30, 2022, respectively, with each dollar amount representing less than 0.2 percent of total assets as of the respective dates. The increase in nonperforming assets during the third quarter of 2023 primarily reflected the deterioration of one commercial loan relationship, which was placed on nonaccrual during the current quarter; this relationship accounted for approximately 62 percent of total nonperforming assets as of September 30, 2023.

The level of past due loans remains nominal, and the dollar volume of loan relationships on the internal watch list declined during the first nine months of 2023. During the third quarter of 2023, loan charge-offs of $0.2 million slightly exceeded recoveries of prior period loan charge-offs, providing for a negligible level of net loan charge-offs.

Mr. Reitsma remarked, “Our unwavering focus on underwriting loans in a sound and cautious manner is reflected in our consistently strong asset quality metrics. We continue to judiciously monitor our commercial loan portfolio for any signs of distress resulting from the current operating environment, such as the negative impact of higher interest rates on borrowers’ debt service coverage ratios. As evidenced by ongoing low levels of past due loans and loan charge-offs, our commercial borrowers are demonstrating the ability to successfully navigate through various operating challenges and meet increased debt service requirements. Our credit monitoring tools, including a vigorous loan review program and early identification and reporting of stressed credit relationships, should allow us to limit the impact of any recognized credit issues on our overall financial performance and standing.   We have not witnessed any signs of systemic credit deterioration, such as increased delinquency levels, in our residential mortgage loan and consumer loan portfolios and continue to be pleased with the performance of both portfolios.”

Capital Position

Shareholders’ equity totaled $483 million as of September 30, 2023, up $41.8 million from year-end 2022. Mercantile Bank maintains a “well-capitalized” position, with its total risk-based capital ratio at 13.9 percent as of September 30, 2023, compared to 13.7 percent on December 31, 2022. At September 30, 2023, Mercantile Bank had approximately $189 million in excess of the 10 percent minimum regulatory threshold required to be categorized as a “well-capitalized” institution.  

All of Mercantile’s investments are categorized as available-for-sale. As of September 30, 2023, the net unrealized loss on these investments totaled $93.1 million, resulting in an after-tax reduction to equity capital of $73.6 million. Although unrealized gains and losses on investments are excluded from regulatory capital ratio calculations, our excess capital over the minimum regulatory requirement to be considered a “well-capitalized” institution would approximate $115 million on an adjusted basis.

Mercantile reported 16,023,350 total shares outstanding at September 30, 2023.

Mr. Kaminski remarked, “Our sustained strong financial performance has enabled us to continue our regular cash dividend program and consistently provide shareholders with meaningful cash returns on their investments while supporting ongoing loan growth. We believe our solid capital levels, outstanding asset quality metrics, strong operating performance, and continued strength in our commercial loan pipeline will enable us to withstand any issues arising from changing economic conditions and deliver sound financial results during the fourth quarter of 2023 and beyond as we strive to remain a steady and profitable performer.”

Newly Appointed Mercantile and Mercantile Bank Board of Director Members

Mr. Kaminski stated, “I am very pleased to announce additions to both Mercantile’s and Mercantile Bank’s Board of Directors. Amy Sparks and Ray Reitsma, who are currently serving as board members of Mercantile Bank’s Directorate and will continue to do so, have been appointed to Mercantile’s Board of Directors, while Sara Schmidt and Richard MacDonald have been selected to serve on Mercantile Bank’s Board of Directors.”

Ms. Sparks, who joined Mercantile Bank’s Board in 2022, is the Owner, President, and Chief Executive Officer of Nuvar, Inc., a Michigan-based manufacturing company specializing in finished product contract manufacturing for the office furniture, health care, education, appliance, and transportation industries.   Ms. Sparks is also a Certified Public Accountant and has nearly three decades of demonstrated expertise and success in solidifying financial performance, enhancing organizational development, diversifying into new markets, and increasing employee engagement.

Mr. Reitsma has served in many vital roles for Mercantile and Mercantile Bank, currently serving as Chief Operating Officer and Executive Vice President of Mercantile, positions he has held since January 1, 2022, and May 24, 2018, respectively, and President of Mercantile Bank, a position he was appointed to on January 1, 2017.   Mr. Reitsma’s areas of responsibility have included commercial lending, treasury and cash management, mortgage lending, operations, risk management, retail and branch activities, and credit administration.   Mr. Reitsma was also very instrumental in the preparation, transition and integration periods surrounding the merger with Firstbank Corporation in 2014.

Ms. Schmidt is Senior Vice President and Chief Information Security Officer for US Foods, which is a leading foodservice distributor that provides customers with a broad and innovative food offering and comprehensive suite of e-commerce, technology, and business solutions. Ms. Schmidt has over twenty years of leadership experience in the field of information and cyber security across diverse industries and has also served as a Branch Chief for the National Security Agency (U.S. Department of Defense).   Ms. Schmidt received her Bachelor of Science in Mathematics from Aquinas College and her Master of Science in Applied and Computational Mathematics from Johns Hopkins University, Whiting School of Engineering.   She holds the designation of Certified Information Systems Security Professional (CISSP).

Mr. MacDonald has been with The Hinman Company, a commercial real estate investment, development, and management company, since 1989, currently serving as Chief Operating Officer. Mr. MacDonald has been involved in significant land assemblages, acquisitions, and developments, including urban and suburban, multi-family apartments, shopping centers, office buildings, hotels, mixed-use, technology and research, historic redevelopment, and high-rise projects.   Mr. MacDonald graduated from Western Michigan University with a BBA in Accountancy and a minor in Finance.

Mr. Kaminski concluded, “The diverse backgrounds of these individuals and their demonstrated business acumen will assist both Boards in fulfilling their corporate responsibilities. We are thrilled that they have joined our already high-functioning Boards and are excited to see the positive impacts they will have on our Boards’ activities and oversight duties.”

Investor Presentation

Mercantile has prepared presentation materials that management intends to use during its previously announced third quarter 2023 conference call on Tuesday, October 17, 2023, at 10:00 a.m. Eastern Time, and from time to time thereafter in presentations about the company’s operations and performance. These materials are available for viewing in the Investor Relations section of Mercantile’s website at www.mercbank.com, and have also been furnished to the U.S. Securities and Exchange Commission concurrently with this press release.

About Mercantile Bank Corporation

Based in Grand Rapids, Michigan, Mercantile Bank Corporation is the bank holding company for Mercantile Bank.  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 $5.2 billion and operates 45 banking offices.   Mercantile Bank Corporation’s common stock is listed on the NASDAQ Global Select Market under the symbol “MBWM.”   For more information about Mercantile, visit www.mercbank.com, and follow us on Facebook, Instagram and Twitter @MercBank and on LinkedIn at www.linkedin.com/company/merc-bank.

Forward-Looking Statements

This news release contains statements or information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will,” and similar references to future periods. Any such statements 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; increasing rates of inflation and slower growth rates or recession; significant declines in the value of commercial real estate; market volatility; demand for products and services; climate impacts; labor markets; the degree of competition by traditional and nontraditional financial services companies; changes in banking regulation or actions by bank regulators; changes in tax laws and other laws and regulations applicable to us; changes in prices, levies, and assessments; the impact of technological advances; potential cyber-attacks, information security breaches and other criminal activities; litigation liabilities; governmental and regulatory policy changes; the outcomes of existing or future contingencies; trends in customer behavior as well as their ability to repay loans; changes in local real estate values; damage to our reputation resulting from adverse publicity, regulatory actions, litigation, operational failures, and the failure to meet client expectations and other facts; the transition from LIBOR to SOFR; changes in the national and local economies; unstable political and economic environments; disease outbreaks, such as the COVID-19 pandemic or similar public health threats, and measures implemented to combat them; and other factors, including those expressed as 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. Investors are cautioned not to place undue reliance on any forward-looking statements contained herein.

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
Third Quarter 2023 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
		SEPTEMBER 30,			DECEMBER 31,			SEPTEMBER 30,
		2023			2022			2022
ASSETS
Cash and due from banks	$	64,551,000		$	61,894,000		$	63,105,000
Other interest-earning assets		201,436,000			34,878,000			220,909,000
Total cash and cash equivalents		265,987,000			96,772,000			284,014,000
Securities available for sale		592,305,000			602,936,000			582,999,000
Federal Home Loan Bank stock		21,513,000			17,721,000			17,721,000
Mortgage loans held for sale		10,171,000			3,565,000			14,411,000
Loans		4,104,376,000			3,916,619,000			3,880,958,000
Allowance for credit losses		(48,008,000	)		(42,246,000	)		(39,120,000	)
Loans, net		4,056,368,000			3,874,373,000			3,841,838,000
Premises and equipment, net		52,231,000			51,476,000			52,117,000
Bank owned life insurance		81,907,000			80,727,000			75,880,000
Goodwill		49,473,000			49,473,000			49,473,000
Core deposit intangible, net		212,000			583,000			741,000
Other assets		120,845,000			94,993,000			97,740,000
Total assets	$	5,251,012,000		$	4,872,619,000		$	5,016,934,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing	$	1,309,672,000		$	1,604,750,000		$	1,716,904,000
Interest-bearing		2,591,063,000			2,108,061,000			2,129,181,000
Total deposits		3,900,735,000			3,712,811,000			3,846,085,000
Securities sold under agreements to repurchase		164,082,000			194,340,000			198,605,000
Federal Home Loan Bank advances		457,910,000			308,263,000			338,263,000
Subordinated debentures		49,473,000			48,958,000			48,787,000
Subordinated notes		88,885,000			88,628,000			88,542,000
Accrued interest and other liabilities		106,716,000			78,211,000			80,391,000
Total liabilities		4,767,801,000			4,431,211,000			4,600,673,000
SHAREHOLDERS' EQUITY
Common stock		293,961,000			290,436,000			289,219,000
Retained earnings		262,838,000			216,313,000			199,505,000
Accumulated other comprehensive income/(loss)		(73,588,000	)		(65,341,000	)		(72,463,000	)
Total shareholders' equity		483,211,000			441,408,000			416,261,000
Total liabilities and shareholders' equity	$	5,251,012,000		$	4,872,619,000		$	5,016,934,000

Mercantile Bank Corporation
Third Quarter 2023 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
(Unaudited)
	THREE MONTHS ENDED					THREE MONTHS ENDED				NINE MONTHS ENDED				NINE MONTHS ENDED
	September 30, 2023					September 30, 2022				September 30, 2023				September 30, 2022
INTEREST INCOME
Loans, including fees	$		65,073,000			$		43,807,000		$		184,232,000		$		113,061,000
Investment securities			3,273,000					2,702,000				9,392,000				7,496,000
Other interest-earning assets			2,807,000					1,620,000				3,932,000				3,004,000
Total interest income			71,153,000					48,129,000				197,556,000				123,561,000
INTEREST EXPENSE
Deposits			16,143,000					2,299,000				36,429,000				5,997,000
Short-term borrowings			693,000					53,000				2,066,000				153,000
Federal Home Loan Bank advances			3,270,000					1,755,000				8,115,000				5,530,000
Other borrowed money			2,086,000					1,646,000				6,049,000				4,294,000
Total interest expense			22,192,000					5,753,000				52,659,000				15,974,000
Net interest income			48,961,000					42,376,000				144,897,000				107,587,000
Provision for credit losses			3,300,000					2,900,000				5,900,000				3,500,000
Net interest income after
provision for credit losses			45,661,000					39,476,000				138,997,000				104,087,000
NONINTEREST INCOME
Service charges on accounts			1,370,000					1,579,000				3,411,000				4,489,000
Credit and debit card income			2,232,000					2,086,000				6,717,000				6,101,000
Mortgage banking income			2,779,000					1,764,000				5,829,000				6,991,000
Interest rate swap income			937,000					566,000				2,722,000				2,347,000
Payroll services			591,000					533,000				1,908,000				1,635,000
Earnings on bank owned life insurance			422,000					238,000				1,224,000				1,310,000
Gain on sale of other real estate owned			391,000					27,000				391,000				47,000
Other income			524,000					487,000				1,640,000				1,399,000
Total noninterest income			9,246,000					7,280,000				23,842,000				24,319,000
NONINTEREST EXPENSE
Salaries and benefits			17,258,000					16,656,000				50,401,000				47,842,000
Occupancy			2,241,000					2,001,000				6,629,000				6,168,000
Furniture and equipment			894,000					953,000				2,594,000				2,822,000
Data processing costs			3,038,000					3,139,000				9,081,000				9,203,000
Charitable foundation contributions			404,000					4,000				416,000				509,000
Other expense			5,085,000					4,030,000				16,228,000				12,943,000
Total noninterest expense			28,920,000					26,783,000				85,349,000				79,487,000
Income before federal income
tax expense			25,987,000					19,973,000				77,490,000				48,919,000
Federal income tax expense			5,132,000					3,943,000				15,303,000				9,659,000
Net Income	$		20,855,000			$		16,030,000		$		62,187,000		$		39,260,000
Basic earnings per share		$	1.30				$	1.01			$	3.89			$	2.48
Diluted earnings per share		$	1.30				$	1.01			$	3.89			$	2.48
Average basic shares outstanding			16,018,419					15,861,551				16,006,058				15,850,422
Average diluted shares outstanding			16,018,419					15,861,551				16,006,058				15,850,439

Mercantile Bank Corporation
Third Quarter 2023 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
		Quarterly															Year-To-Date
(dollars in thousands except per share data)		2023			2023			2023			2022			2022
		3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2023			2022
EARNINGS
Net interest income	$	48,961			47,551			48,384			50,657			42,376			144,897			107,587
Provision for credit losses	$	3,300			2,000			600			3,050			2,900			5,900			3,500
Noninterest income	$	9,246			7,645			6,951			7,805			7,280			23,842			24,319
Noninterest expense	$	28,920			27,829			28,599			28,541			26,783			85,349			79,487
Net income before federal income
tax expense	$	25,987			25,367			26,136			26,871			19,973			77,490			48,919
Net income	$	20,855			20,357			20,974			21,803			16,030			62,187			39,260
Basic earnings per share	$	1.30			1.27			1.31			1.37			1.01			3.89			2.48
Diluted earnings per share	$	1.30			1.27			1.31			1.37			1.01			3.89			2.48
Average basic shares outstanding		16,018,419			16,003,372			15,996,138			15,887,983			15,861,551			16,006,058			15,850,422
Average diluted shares outstanding		16,018,419			16,003,372			15,996,138			15,887,983			15,861,551			16,006,058			15,850,439
PERFORMANCE RATIOS
Return on average assets		1.60	%		1.64	%		1.75	%		1.75	%		1.27	%		1.66	%		1.03	%
Return on average equity		17.07	%		17.23	%		18.76	%		20.26	%		14.79	%		17.66	%		12.03	%
Net interest margin(fully tax-equivalent)		3.98	%		4.05	%		4.28	%		4.30	%		3.56	%		4.10	%		3.00	%
Efficiency ratio		49.68	%		50.42	%		51.69	%		48.82	%		53.91	%		50.58	%		60.25	%
Full-time equivalent employees		643			665			633			630			635			643			635
YIELD ON ASSETS / COST OF FUNDS
Yield on loans		6.37	%		6.19	%		5.90	%		5.49	%		4.56	%		6.16	%		4.15	%
Yield on securities		2.13	%		2.00	%		1.95	%		1.91	%		1.79	%		2.03	%		1.66	%
Yield on other interest-earning assets		5.26	%		4.88	%		4.18	%		3.60	%		2.15	%		5.07	%		0.75	%
Yield on total earning assets		5.78	%		5.61	%		5.35	%		4.95	%		4.04	%		5.59	%		3.45	%
Yield on total assets		5.45	%		5.30	%		5.06	%		4.68	%		3.80	%		5.28	%		3.25	%
Cost of deposits		1.67	%		1.36	%		0.87	%		0.42	%		0.24	%		1.31	%		0.20	%
Cost of borrowed funds		2.98	%		2.90	%		2.51	%		2.13	%		1.99	%		2.82	%		1.90	%
Cost of interest-bearing liabilities		2.69	%		2.37	%		1.72	%		1.10	%		0.81	%		2.28	%		0.73	%
Cost of funds(total earning assets)		1.80	%		1.56	%		1.07	%		0.65	%		0.48	%		1.49	%		0.45	%
Cost of funds(total assets)		1.70	%		1.48	%		1.01	%		0.61	%		0.45	%		1.41	%		0.42	%
MORTGAGE BANKING ACTIVITY
Total mortgage loans originated	$	108,602			117,563			71,991			90,794			163,902			298,156			522,985
Purchase mortgage loans originated	$	93,520			100,941			56,728			79,604			140,898			251,189			399,730
Refinance mortgage loans originated	$	15,082			16,622			15,263			11,190			23,004			46,967			123,255
Total saleable mortgage loans	$	69,305			50,734			24,904			29,948			59,740			144,943			187,815
Income on sale of mortgage loans	$	2,386			1,570			950			1,401			1,779			4,906			6,734
CAPITAL
Tangible equity to tangible assets		8.33	%		8.43	%		8.61	%		8.12	%		7.37	%		8.33	%		7.37	%
Tier 1 leverage capital ratio		10.64	%		10.73	%		10.66	%		10.09	%		9.63	%		10.64	%		9.63	%
Common equity risk-based capital ratio		10.41	%		10.25	%		10.25	%		10.08	%		9.80	%		10.41	%		9.80	%
Tier 1 risk-based capital ratio		11.38	%		11.24	%		11.27	%		11.12	%		10.84	%		11.38	%		10.84	%
Total risk-based capital ratio		14.21	%		14.03	%		14.11	%		14.00	%		13.69	%		14.21	%		13.69	%
Tier 1 capital	$	554,634			537,802			520,918			503,855			485,499			554,634			485,499
Tier 1 plus tier 2 capital	$	692,252			671,323			652,509			634,729			613,161			692,252			613,161
Total risk-weighted assets	$	4,872,424			4,784,428			4,623,631			4,533,091			4,479,176			4,872,424			4,479,176
Book value per common share	$	30.16			29.89			29.21			27.60			26.24			30.16			26.24
Tangible book value per common share	$	27.06			26.78			26.09			24.47			23.07			27.06			23.07
Cash dividend per common share	$	0.34			0.33			0.33			0.32			0.32			1.00			0.94
ASSET QUALITY
Gross loan charge-offs	$	243			461			106			72			0			810			220
Recoveries	$	230			305			137			149			246			672			876
Net loan charge-offs (recoveries)	$	13			156			(31	)		(77	)		(246	)		138			(656	)
Net loan charge-offs to average loans		< 0.01%			0.02	%		(0.01	%)		(0.01	%)		(0.03	%)		0.01	%		(0.02	%)
Allowance for credit losses	$	48,008			44,721			42,877			42,246			39,120			48,008			39,120
Allowance to loans		1.17	%		1.10	%		1.08	%		1.08	%		1.01	%		1.17	%		1.01	%
Nonperforming loans	$	5,889			2,099			7,782			7,728			1,416			5,889			1,416
Other real estate/repossessed assets	$	51			661			661			0			0			51			0
Nonperforming loans to total loans		0.14	%		0.05	%		0.20	%		0.20	%		0.04	%		0.14	%		0.04	%
Nonperforming assets to total assets		0.11	%		0.05	%		0.17	%		0.16	%		0.03	%		0.11	%		0.03	%
NONPERFORMING ASSETS - COMPOSITION
Residential real estate:
Land development	$	1			2			8			29			30			1			30
Construction	$	0			0			0			124			0			0			0
Owner occupied / rental	$	1,913			1,793			1,952			1,304			1,138			1,913			1,138
Commercial real estate:
Land development	$	0			0			0			0			0			0			0
Construction	$	0			0			0			0			0			0			0
Owner occupied	$	738			716			829			248			0			738			0
Non-owner occupied	$	0			0			0			0			0			0			0
Non-real estate:
Commercial assets	$	3,288			249			5,654			6,023			248			3,288			248
Consumer assets	$	0			0			0			0			0			0			0
Total nonperforming assets	$	5,940			2,760			8,443			7,728			1,416			5,940			1,416
NONPERFORMING ASSETS - RECON
Beginning balance	$	2,760			8,443			7,728			1,416			1,787			7,728			2,468
Additions	$	4,163			273			1,323			6,368			0			5,759			402
Return to performing status	$	0			0			(31	)		0			(160	)		(31	)		(373	)
Principal payments	$	(166	)		(5,526	)		(515	)		(56	)		(211	)		(6,207	)		(986	)
Sale proceeds	$	(661	)		0			0			0			0			(661	)		0
Loan charge-offs	$	(156	)		(430	)		(62	)		0			0			(648	)		(95	)
Valuation write-downs	$	0			0			0			0			0			0			0
Ending balance	$	5,940			2,760			8,443			7,728			1,416			5,940			1,416
LOAN PORTFOLIO COMPOSITION
Commercial:
Commercial & industrial	$	1,166,187			1,212,196			1,173,440			1,185,084			1,213,630			1,166,187			1,213,630
Land development & construction	$	72,921			72,682			66,233			61,873			60,970			72,921			60,970
Owner occupied comm'l R/E	$	671,083			659,201			630,186			639,192			643,577			671,083			643,577
Non-owner occupied comm'l R/E	$	1,000,411			957,221			975,735			979,214			963,144			1,000,411			963,144
Multi-family & residential rental	$	308,229			287,285			294,825			266,468			263,741			308,229			263,741
Total commercial	$	3,218,831			3,188,585			3,140,419			3,131,831			3,145,062			3,218,831			3,145,062
Retail:
1-4 family mortgages & home equity	$	854,174			833,198			795,009			755,035			705,442			854,174			705,442
Other consumer	$	31,371			30,060			30,100			29,753			30,454			31,371			30,454
Total retail	$	885,545			863,258			825,109			784,788			735,896			885,545			735,896
Total loans	$	4,104,376			4,051,843			3,965,528			3,916,619			3,880,958			4,104,376			3,880,958
END OF PERIOD BALANCES
Loans	$	4,104,376			4,051,843			3,965,528			3,916,619			3,880,958			4,104,376			3,880,958
Securities	$	613,818			630,485			637,694			620,657			600,720			613,818			600,720
Other interest-earning assets	$	201,436			138,663			10,787			34,878			220,909			201,436			220,909
Total earning assets(before allowance)	$	4,919,630			4,820,991			4,614,009			4,572,154			4,702,587			4,919,630			4,702,587
Total assets	$	5,251,012			5,137,587			4,895,874			4,872,619			5,016,934			5,251,012			5,016,934
Noninterest-bearing deposits	$	1,309,672			1,371,633			1,376,782			1,604,750			1,716,904			1,309,672			1,716,904
Interest-bearing deposits	$	2,591,063			2,385,156			2,221,236			2,108,061			2,129,181			2,591,063			2,129,181
Total deposits	$	3,900,735			3,756,789			3,598,018			3,712,811			3,846,085			3,900,735			3,846,085
Total borrowed funds	$	761,431			826,558			761,509			641,295			675,332			761,431			675,332
Total interest-bearing liabilities	$	3,352,494			3,211,714			2,982,745			2,749,356			2,804,513			3,352,494			2,804,513
Shareholders' equity	$	483,211			478,702			467,372			441,408			416,261			483,211			416,261
AVERAGE BALANCES
Loans	$	4,054,279			4,017,690			3,928,329			3,887,967			3,814,338			4,000,561			3,645,353
Securities	$	626,714			634,607			627,628			606,390			618,043			629,646			615,715
Other interest-earning assets	$	208,932			64,958			31,081			179,507			294,969			102,309			534,786
Total earning assets(before allowance)	$	4,889,925			4,717,255			4,587,038			4,673,864			4,727,350			4,732,516			4,795,854
Total assets	$	5,180,847			4,988,413			4,855,877			4,949,868			5,025,998			5,009,590			5,090,150
Noninterest-bearing deposits	$	1,359,238			1,361,901			1,491,477			1,722,632			1,723,609			1,403,721			1,685,497
Interest-bearing deposits	$	2,466,834			2,278,877			2,184,406			2,077,547			2,144,047			2,311,073			2,235,952
Total deposits	$	3,826,072			3,640,778			3,675,883			3,800,179			3,867,656			3,714,794			3,921,449
Total borrowed funds	$	806,376			827,105			676,724			667,864			689,091			770,543			700,713
Total interest-bearing liabilities	$	3,273,210			3,105,982			2,861,130			2,745,411			2,833,138			3,081,616			2,936,665
Shareholders' equity	$	484,624			473,983			453,524			426,897			430,093			470,824			436,204