EXHIBIT 99.1 – Shareholder Communications Letter

 

 

(First South Bancorp, Inc. Letterhead)

 

 

August 8, 2017

 

Dear Stockholder,

 

First South Bancorp (the “Company”) issued a press release on July 20, 2017 reporting financial results for the three and six-month periods ended June 30, 2017, and filed its Securities and Exchange Commission Form 10-Q on August 8, 2017. The 10-Q document contains a more comprehensive discussion regarding the financial condition and performance of your Company. Both documents can be found in the “About Us” section of our website at www.firstsouthnc.com through the “Investor Information” link. Included with this newsletter is a set of financial statements as of, and for the three and six-month periods ended June 30, 2017. Here are some highlights from our announcement:

 

Ø

Strong quarterly earnings performance with net income of $2.1 million; diluted earnings per share of $0.22 per share; return on average assets of 0.79%, return on average equity of 9.01% and return on average tangible common equity* of 9.82%.

Ø

Pre-tax, pre-provision operating earnings* for the current quarter of $3.5 million are 38.2% higher than the $2.5 million reported for the 2016 second quarter.

Ø

Strong loan growth as loans-held-for-investment increased by $49.5 million and $76.0 million for the 2017 second quarter and six-month periods, respectively.

Ø

Total deposits have grown $106.1 million or 12.9% over last twelve months to $931.5 million.

Ø

Strong core deposit growth as demonstrated by an increase in total non-interest bearing deposits of 17.7% to $208.7 million on a year-over-year basis.

Ø

Expanded the net interest margin to 3.78% versus 3.76% and 3.74% for the second quarter of 2016 and the first quarter of 2017, respectively.

Ø

Increased non-interest income through enhanced fees from a growing core deposit base and robust mortgage banking activity.

Ø

Asset quality metrics continue to improve with lower levels of past due and non-performing loans.

Ø

We continue to maintain a solid capital position.

 

Total assets have grown by approximately $71 million during the first six months of 2017 and are approaching $1.1 billion at June 30, 2017. At the end of the second quarter of 2017, total loans and leases held for investment were $777 million, total deposits were $932 million and total stockholders’ equity was $92 million. The goal in late 2014 was to enhance the franchise value of the Company by expanding our geographic footprint and to grow earning assets to achieve greater profitability. Since acquiring $172 million in deposits and nine branches from Bank of America in December 2014, we have grown an additional $143 million in deposits and loaned over $296 million into our local economies. We have accomplished what we set out to do!

 

Net income for the three and six-month periods ended June 30, 2017 was $2.1 million and $3.9 million, respectively, and compares favorably to the $1.6 million and $3.1 million for the same prior year periods. Earnings per diluted share were $0.22 and $0.41 for the current three and six-month periods compared to $0.17 and $0.32 for the comparable periods ended June 30, 2016. Both net income and earnings per diluted share for the quarter and year-to-date periods are over 27% higher than a year ago. Net income has benefited from substantial increases in net interest income, improvement in core non-interest income (core non-interest income excludes gains and losses on the sale of investment securities and other real estate owned), and effective control of non-interest expenses.

 

 

Due to the growth in our loan and lease portfolio, coupled with a shift of earning assets from lower-yielding to higher-yielding assets, the Company has been able to expand its net interest margin for the first six months of 2017 to 3.76% from 3.71% a year ago. Compared with the six-month period ended June 30, 2016, the overall yield on our earning assets has increased by 5 basis points during the current six month period to 4.17% while our cost of funds has remained at 0.42%.

 

Increases in both the average volume of earning assets and the yield on those earning assets resulted in increases in net interest income of $1.0 million and $1.8 million for the current three and six-month periods compared to one year ago. Excluding gains and losses on the sale of investment securities and other real estate owned, non-interest income improved by $206,000 and $117,000 for the three and six-month periods ended June 30, 2017 compared with the prior year periods. During the second quarter of 2017 the Company incurred $278,000 of professional fees associated with our pending merger. Excluding these merger related costs, non-interest expenses for the three and six-month periods ending June 30, 2017 were below the levels posted for the same periods one year ago.

 

On June 12, 2017, we issued a joint press release with Carolina Financial Corporation (NASDAQ ticker symbol “CARO”) announcing that your Company has entered into an agreement to be acquired subject to regulatory and stockholder approval. Carolina Financial Corporation is the parent company of CresCom Bank and is headquartered in Charleston, South Carolina. We anticipate holding a Special Meeting of Stockholders later this year to allow stockholders to vote on the proposed merger transaction. The partnership between these two companies would create the second largest community bank in the Carolinas with total assets of approximately $3.3 billion.

 

It has always been the goal of your Board of Directors to maximize stockholder value. The strategic direction of the Bank has been to take actions aimed at creating a high performing community bank. Over the past five years, the progress made toward achieving that goal has been significant, but there was still work to be done to reach the high performing level our stockholders deserve. The decision to become part of CARO and CresCom Bank was not an easy one, but after months of deliberation and careful consideration, your Board believes that partnering with a like-minded, high-performing community bank is the best path forward to increase and enhance value for you, our stockholders. Please watch your mail, or email, for the proxy statement containing important information regarding the merger.

 

Thank you for your continued support of First South Bancorp and please feel free to contact me with any questions or concerns.

 

Sincerely,

 

/s/ Bruce W. Elder

 

Bruce W. Elder, President & CEO

(252) 940-4936

bruce.elder@firstsouthnc.com

 

 

Cautionary Statements Regarding Forward-Looking Information.

 

This letter contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. In general, forward-looking statements usually use words such as “may,” “believe,” “expect,” “anticipate,” “intend,” “will,” “should,” “plan,” “estimate,” “predict,” “continue” and “potential” or the negative of these terms or other comparable terminology, including statements related to the expected timing of the closing of the merger with Carolina Financial Corporation (“CARO”), the expected returns and other benefits of the merger, to stockholders, expected improvement in operating efficiency resulting from the merger estimated expense reductions resulting from the merger and the timing of achievement of such reductions, the impact on and timing of the recovery of the impact on tangible book value, and the effect of the merger on regulatory capital ratios. Forward-looking statements represent management’s beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance. Forward-looking statements are subject to numerous assumptions, risks and uncertainties that change over time and could cause actual results or financial condition to differ materially from those expressed in or implied by such statements.

 

Factors that could cause or contribute to such differences include, but are not limited to, the possibility that expected benefits may not materialize in the time frames expected or at all, or may be more costly to achieve; that the merger may not be timely completed, if at all; that prior to completion of the merger or thereafter, the parties’ respective businesses may not perform as expected due to transaction-related uncertainties or other factors; that the parties are unable to implement successful integration strategies; that the required regulatory, stockholder, or other closing conditions are not satisfied in a timely manner, or at all; reputational risks and the reaction of the parties’ customers to the merger; diversion of management time to merger-related issues; and other factors and risk influences contained in the cautionary language included under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Form 10-K for the year ended December 31, 2016 and other documents subsequently filed by the Company with the Securities and Exchange Commission (the “SEC”). Consequently, no forward-looking statement can be guaranteed. Neither the Company nor CARO undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For any forward-looking statements made in this letter, the Company claims protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

Additional Information About the Merger and Where to Find It

 

The Company and CARO will file relevant documents concerning the merger with the SEC, including a Registration Statement on Form S-4 which will include a joint proxy statement of CARO and the Company and a prospectus of CARO, as well as other relevant documents concerning the proposed merger.  The proposed merger will be submitted to the Company’s stockholders and CARO’s stockholders for their consideration. This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such off, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

 

 

STOCKHOLDERS OF FIRST SOUTH ARE URGED TO READ THE REGISTRATION STATEMENT, THE JOINT PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS WHEN THEY ARE FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS WHEN THEY BECOME AVAILABLE, AS THEY WILL CONTAIN IMPORTANT INFORMATION.

 

Stockholders of the Company will be able to obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about the Company and CARO, at the SEC’s internet site (http://www.sec.gov).  Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, without charge, by directing a request to:  First South Bancorp, Inc., 1311 Carolina Avenue, Washington, NC 27889, Attention: Scott C. McLean, Executive Vice President and Chief Financial Officer.

 

Participants in the Merger Solicitation.

 

The Company and CARO, and certain of their respective directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the stockholders of the Company in respect of the merger. Information regarding the directors and executive officers of the Company and CARO and other persons who may be deemed participants in the solicitation of the Company’s stockholders in connection with the merger will be included in the joint proxy statement/prospectus for the Company’s special meeting of stockholders, which will be filed with the SEC. Information about the Company’s directors and executive officers can also be found in the Company’s definitive proxy statement in connection with its 2017 annual meeting of stockholders, as filed with the SEC on June 2, 2017, and other documents subsequently filed by the Company with the SEC. Information about CARO’s directors and executive officers can also be found in CARO’s definitive proxy statement in connection with its 2017 annual meeting of stockholders, as filed with the SEC on March 20, 2017, and other documents subsequently filed by CARO with the SEC. Additional information regarding the interests of such participants will be included in the joint proxy statement/prospectus and other relevant documents regarding the merger filed with the SEC when they become available.

 

*NON-GAAP FINANCIAL MEASURES

 

Important disclosures about and reconciliations of non-GAAP measures to the corresponding GAAP measures, are provided below and attached to this letter.

 

This letter and the accompanying Supplemental Financial Data contain financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP) in the United States. Management uses these "non-GAAP" measures in their analysis of the Company's performance. Management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Reconciliations of non-GAAP disclosures are provided within the accompanying tables to this letter.

 

 

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition

  

		June 30,				December 31,				June 30,
		2017				2016				2016
Assets		(Unaudited)								(Unaudited)
Cash and due from banks		$	23,049,153			$	22,854,712			$	24,376,456
Interest-bearing deposits with banks			17,022,773				23,320,968				16,357,259
Investment securities available for sale, at fair value			195,401,445				192,606,119				199,855,361
Investment securities held to maturity			506,553				509,617				509,036
Mortgage loans held for sale			6,380,856				5,098,518				5,251,714
Loans and leases held for investment			776,656,251				700,642,291				668,842,905
Allowance for loan and lease losses			(9,366,564	)			(8,673,172	)			(8,338,244	)
Net loans and leases held for investment			767,289,687				691,969,119				660,504,661
Premises and equipment, net			11,152,205				11,291,596				11,671,166
Assets held for sale			185,906				192,720				192,720
Other real estate owned			2,437,946				3,229,423				5,540,672
Federal Home Loan Bank stock, at cost			1,847,700				1,573,700				2,317,500
Accrued interest receivable			3,448,043				3,525,684				3,141,824
Goodwill			4,218,576				4,218,576				4,218,576
Mortgage servicing rights			2,134,256				2,148,905				1,272,952
Identifiable intangible assets			1,490,348				1,611,187				1,753,350
Bank-owned life insurance			18,351,387				18,080,183				17,795,206
Prepaid expenses and other assets			6,462,221				8,470,887				6,720,669
Total assets		$	1,061,379,055			$	990,701,914			$	961,479,122
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing demand		$	208,671,921			$	196,917,165			$	177,281,556
Interest bearing demand			308,799,734				272,098,903				242,206,763
Savings			149,720,673				145,031,981				142,151,162
Large denomination certificates of deposit			136,978,726				122,819,510				118,773,827
Other time			127,363,292				133,732,804				145,049,086
Total deposits			931,534,346				870,600,363				825,462,394
Borrowed money			22,500,000				17,000,000				32,500,000
Junior subordinated debentures			10,310,000				10,310,000				10,310,000
Other liabilities			5,138,320				5,607,832				5,880,159
Total liabilities			969,482,666				903,518,195				874,152,553
Common stock, $.01 par value, 25,000,000 shares authorized;    9,502,520; 9,494,935; and 9,493,776 shares outstanding, respectively			95,025				94,949				94,938
Additional paid-in capital			36,072,883				36,018,743				35,978,994
Retained earnings			52,822,834				49,560,595				46,241,836
Accumulated other comprehensive income			2,905,647				1,509,432				5,010,801
Total stockholders' equity			91,896,389				87,183,719				87,326,569
Total liabilities and stockholders' equity		$	1,061,379,055			$	990,701,914			$	961,479,122

 

 

First South Bancorp, Inc. and Subsidiary

Consolidated Statements of Operations

Three and Six Months Ended June 30, 2017 and 2016

(Unaudited)

 

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2017				2016				2017				2016
Interest income:
Interest and fees on loans		$	8,700,534			$	7,642,097			$	16,913,822			$	14,833,692
Interest on investments and deposits			1,392,349				1,356,030				2,783,029				2,836,282
Total interest income			10,092,883				8,998,127				19,696,851				17,669,974
Interest expense:
Interest on deposits			830,192				697,426				1,584,181				1,366,702
Interest on borrowings			60,469				58,711				122,429				131,797
Interest on junior subordinated notes			127,011				141,578				251,261				281,617
Total interest expense			1,017,672				897,715				1,957,871				1,780,116
Net interest income			9,075,211				8,100,412				17,738,980				15,889,858
Provision for credit losses			485,000				325,000				750,000				550,000
Net interest income after provision for credit losses			8,590,211				7,775,412				16,988,980				15,339,858
Non-interest income:
Deposit fees and service charges			1,964,665				1,931,050				3,820,885				3,838,457
Loan fees and charges			92,723				138,649				178,767				195,634
Mortgage loan servicing fees			316,988				273,689				638,827				507,689
Gain on sale and other fees on mortgage loans			654,016				568,403				1,127,578				982,264
Gain (loss) on sale of other real estate, net			(26,151	)			(14,315	)			55,500				(26,484	)
Gain on sale of investment securities			-				183,955				-				467,470
Other  income			555,678				466,798				1,034,464				1,159,085
Total non-interest income			3,557,919				3,548,229				6,856,021				7,124,115
Non-interest expense:
Compensation and fringe benefits			5,000,901				4,944,984				10,114,454				9,984,939
Federal deposit insurance premiums			157,118				160,525				304,492				322,134
Premises and equipment			1,334,666				1,380,675				2,733,216				2,754,484
Marketing			119,050				229,434				182,790				417,253
Data processing			807,722				749,731				1,601,090				1,546,217
Amortization of intangible assets			151,269				133,571				300,466				265,099
Other real estate owned expense			105,093				212,883				269,859				306,557
Other			1,538,363				1,235,090				2,754,365				2,556,137
Total non-interest expense			9,214,182				9,046,893				18,260,732				18,152,820
Income before income tax expense			2,933,948				2,276,748				5,584,269				4,311,153
Income tax expense			879,031				664,734				1,657,155				1,238,345
NET INCOME		$	2,054,917			$	1,612,014			$	3,927,114			$	3,072,808
Per share data:
Basic earnings per share		$	0.22			$	0.17			$	0.41			$	0.32
Diluted earnings per share		$	0.22			$	0.17			$	0.41			$	0.32
Dividends per share		$	0.035			$	0.030			$	0.070			$	0.055
Average basic shares outstanding			9,500,958				9,493,776				9,499,289				9,492,489
Average diluted shares outstanding			9,554,420				9,519,565				9,548,382				9,517,248

 

 

First South Bancorp, Inc.		Supplemental Financial Data (Unaudited)
		Quarter to Date																				Year to Date
		6/30/2017				3/31/2017				12/31/2016				9/30/2016				6/30/2016				6/30/2017				6/30/2016
		(dollars in thousands except per share data)
Consolidated balance sheet data:
Total assets		$	1,061,379			$	1,039,424			$	990,702			$	985,795			$	961,479			$	1,061,379			$	961,479
Loans held for sale:		$	6,381			$	2,507			$	5,099			$	7,313			$	5,252			$	6,381			$	5,252
Loans and leases held for investment (HFI):
Mortgage		$	76,249			$	73,107			$	74,905			$	74,710			$	73,100			$	76,249			$	73,100
Commercial			593,732				558,578				535,047				518,265				510,678				593,732				510,678
Consumer			83,730				73,188				69,454				69,039				66,138				83,730				66,138
Leases			22,945				22,270				21,236				20,452				18,927				22,945				18,927
Total loans and leases HFI			776,656				727,143				700,642				682,466				668,843				776,656				668,843
Allowance for loan and lease losses			(9,367	)			(8,941	)			(8,673	)			(8,498	)			(8,338	)			(9,367	)			(8,338	)
Net loans and leases HFI		$	767,289			$	718,202			$	691,969			$	673,968			$	660,505			$	767,289			$	660,505
Cash & interest bearing deposits		$	40,072			$	70,713			$	46,176			$	57,209			$	40,734			$	40,072			$	40,734
Investment securities			195,908				195,048				193,116				193,765				200,364				195,908				200,364
Bank-owned life insurance			18,351				18,219				18,080				17,937				17,795				18,351				17,795
Premises and equipment			11,152				11,572				11,292				11,609				11,671				11,152				11,671
Goodwill			4,219				4,219				4,219				4,219				4,219				4,219				4,219
Mortgage servicing rights			2,134				2,140				2,149				2,091				1,273				2,134				1,273
Identifiable intangible assets			1,490				1,551				1,611				1,682				1,753				1,490				1,753
Deposits:
Non-interest checking		$	208,672			$	204,576			$	196,917			$	189,873			$	177,281			$	208,672			$	177,281
Interest checking			222,267				212,386				189,401				176,034				170,153				222,267				170,153
Money market			86,533				86,598				82,698				88,081				72,054				86,533				72,054
Savings			149,721				147,718				145,032				141,701				142,151				149,721				142,151
Certificates			264,341				268,588				256,552				264,142				263,823				264,341				263,823
Total deposits		$	931,534			$	919,866			$	870,600			$	859,831			$	825,462			$	931,534			$	825,462
Borrowings		$	22,500			$	15,000			$	17,000			$	20,000			$	32,500			$	22,500			$	32,500
Junior subordinated debentures			10,310				10,310				10,310				10,310				10,310				10,310				10,310
Stockholders' equity			91,896				89,282				87,184				88,294				87,327				91,896				87,327
Consolidated earnings summary:
Interest income		$	10,093			$	9,604			$	9,336			$	9,210			$	8,998			$	19,697			$	17,670
Interest expense			1,018				940				920				911				898				1,958				1,780
Net interest income			9,075				8,664				8,416				8,299				8,100				17,739				15,890
Provision for credit losses			485				265				200				220				325				750				550
Noninterest income			3,558				3,298				3,372				3,691				3,548				6,856				7,124
Noninterest expense			9,214				9,047				8,819				8,929				9,046				18,261				18,153
Income before taxes			2,934				2,650				2,769				2,841				2,277				5,584				4,311
Income tax expense			879				778				775				947				665				1,657				1,238
Net income		$	2,055			$	1,872			$	1,994			$	1,894			$	1,612			$	3,927			$	3,073
Per Share Data:
Basic earnings per share		$	0.22			$	0.20			$	0.21			$	0.20			$	0.17			$	0.41			$	0.32
Diluted earnings per share		$	0.22			$	0.20			$	0.21			$	0.20			$	0.17			$	0.41			$	0.32
Dividends per share		$	0.035			$	0.035			$	0.030			$	0.030			$	0.030			$	0.070			$	0.055
Book value per share		$	9.67			$	9.40			$	9.18			$	9.30			$	9.20			$	9.67			$	9.20
Shares outstanding			9,502,520				9,500,266				9,494,935				9,494,935				9,493,776				9,502,520				9,493,776
Average basic shares			9,500,958				9,497,601				9,494,935				9,494,861				9,493,776				9,499,289				9,492,489
Average diluted shares			9,554,420				9,541,548				9,529,753				9,525,302				9,519,565				9,548,382				9,517,248
Performance ratios (tax equivalent):
Yield on average earning assets			4.19	%			4.15	%			4.07	%			4.13	%			4.17	%			4.17	%			4.12	%
Cost of interest bearing liabilities			0.55	%			0.52	%			0.52	%			0.52	%			0.52	%			0.54	%			0.52	%
Net interest spread			3.65	%			3.62	%			3.55	%			3.61	%			3.64	%			3.63	%			3.60	%
Net interest margin			3.78	%			3.74	%			3.68	%			3.73	%			3.76	%			3.76	%			3.71	%
Average earning assets to total average assets			93.61	%			93.32	%			92.92	%			92.42	%			92.38	%			93.47	%			92.29	%
Return on average assets (annualized)			0.79	%			0.75	%			0.80	%			0.78	%			0.68	%			0.77	%			0.66	%
Return on average equity (annualized)			9.01	%			8.52	%			8.94	%			8.52	%			7.55	%			8.77	%			7.26	%
Efficiency ratio			71.65	%			74.92	%			74.16	%			73.84	%			77.59	%			73.23	%			79.14	%
Average assets		$	1,041,823			$	1,014,310			$	992,192			$	968,729			$	947,761			$	1,028,027			$	943,232
Average earning assets		$	975,211			$	946,578			$	921,984			$	895,290			$	875,529			$	960,850			$	870,496
Average equity		$	91,452			$	89,143			$	88,694			$	88,481			$	85,927			$	90,294			$	85,096
Equity/Assets			8.66	%			8.59	%			8.80	%			8.96	%			9.08	%			8.66	%			9.08	%

 

 

First South Bancorp, Inc.		Supplemental Financial Data (Unaudited)
		6/30/2017				3/31/2017				12/31/2016				9/30/2016				6/30/2016				6/30/2017				6/30/2016
		(dollars in thousands except per share data)
Asset quality data and ratios:
Nonaccrual loans and leases:
Non-TDR nonaccrual loans and leases
Earning		$	495			$	576			$	410			$	569			$	555			$	495			$	555
Non-Earning			1,489				1,479				1,257				1,289				1,075				1,489				1,075
Total Non-TDR nonaccrual loans and leases		$	1,984			$	2,055			$	1,667			$	1,858			$	1,630			$	1,984			$	1,630
TDR nonaccrual loans and leases
Current TDRs		$	549			$	720			$	422			$	792			$	706			$	549			$	706
Past Due TDRs			0				0				962				248				250				0				250
Total TDR nonaccrual loans and leases		$	549			$	720			$	1,384			$	1,040			$	956			$	549			$	956
Total nonaccrual loans and leases		$	2,533			$	2,775			$	3,051			$	2,898			$	2,586			$	2,533			$	2,586
Loans and leases >90 days past due, still accruing			0				0				0				0				218				0				218
Other real estate owned			2,438				3,115				3,229				4,810				5,541				2,438				5,541
Total nonperforming assets		$	4,971			$	5,890			$	6,280			$	7,708			$	8,345			$	4,971			$	8,345
Allowance for loan and lease losses to  loans and leases HFI			1.21	%			1.23	%			1.24	%			1.25	%			1.25	%			1.21	%			1.25	%
Net charge-offs (recoveries)		$	59			$	(3	)		$	25			$	60			$	122			$	57			$	78
Net charge-offs (recoveries) to total loans and leases			0.01	%			0.00	%			0.00	%			0.01	%			0.02	%			0.01	%			0.01	%
Total nonaccrual loans and leases to total loans and leases HFI			0.33	%			0.38	%			0.44	%			0.42	%			0.39	%			0.33	%			0.39	%
Total nonperforming assets to total assets			0.47	%			0.57	%			0.63	%			0.78	%			0.87	%			0.47	%			0.87	%
Total loans and leases to total deposits			84.06	%			79.32	%			81.06	%			80.22	%			81.66	%			84.06	%			81.66	%
Total loans and leases to total assets			73.78	%			70.20	%			71.24	%			69.97	%			70.11	%			73.78	%			70.11	%
Loans serviced for others		$	363,489			$	368,617			$	371,956			$	370,606			$	292,222			$	363,489			$	292,222
Reconciliation of Non-GAAP Measures:
Pre-tax pre-provision operating earnings (non-GAAP):
Income before taxes (GAAP)		$	2,934			$	2,650			$	2,769			$	2,841			$	2,277			$	5,584			$	4,311
Provision for credit losses			485				265				200				220				325				750				550
Pre-tax pre-provision net income			3,419				2,915				2,969				3,061				2,602				6,334				4,861
Securities (gains) losses, net			0				0				0				0				(184	)			0				(467	)
OREO valuations			58				119				140				0				103				177				110
OREO (gains) losses, (net)			26				(82	)			(80	)			(77	)			14				(56	)			26
Pre-tax pre-provision operating earnings (non-GAAP)		$	3,503			$	2,952			$	3,029			$	2,984			$	2,535			$	6,455			$	4,530
Total core non-interest income (non-GAAP):
Non-interest income (GAAP)		$	3,558			$	3,298			$	3,372			$	3,691			$	3,548			$	6,856			$	7,124
Securities (gains) losses, net			0				0				0				0				(184	)			0				(467	)
OREO (gains) losses, (net)			26				(82	)			(80	)			(77	)			14				(56	)			26
Total core non-interest income (non-GAAP)		$	3,584			$	3,216			$	3,292			$	3,614			$	3,378			$	6,800			$	6,683
Tangible equity (non-GAAP):
Total equity (GAAP)		$	91,896			$	89,282			$	87,184			$	88,294			$	87,327			$	91,896			$	87,327
Intangible assets (a)			5,709				5,770				5,830				5,901				5,972				5,709				5,972
Tangible equity (non-GAAP)		$	86,187			$	83,512			$	81,354			$	82,393			$	81,355			$	86,187			$	81,355
Tangible Equity/Assets (non-GAAP)			8.12	%			8.03	%			8.21	%			8.36	%			8.46	%			8.12	%			8.46	%
Tangible book value per share (non-GAAP)		$	9.07			$	8.79			$	8.57			$	8.68			$	8.57			$	9.07			$	8.57
Return on average tangible common equity (non-GAAP):
Net income (GAAP)		$	2,055			$	1,872			$	1,994			$	1,894			$	1,612			$	3,927			$	3,073
Amortization of intangibles, net of tax			42				43				51				47				50				85				101
Tangible net income available to shareholders (non-GAAP)		$	2,097			$	1,915			$	2,045			$	1,941			$	1,662			$	4,012			$	3,174
Average equity			91,452				89,143				88,694				88,481				85,927				90,294				85,096
Average intangible assets (a)			5,748				5,809				5,876				5,946				6,018				5,778				6,053
Average tangible common equity (non-GAAP)		$	85,704			$	83,334			$	82,818			$	82,535			$	79,909			$	84,516			$	79,043
Return on average tangible common equity (non-GAAP)			9.82	%			9.32	%			9.82	%			9.36	%			8.37	%			9.57	%			8.05	%

   

(a)

Excludes mortgage servicing rights

 

 

Average Balances – Yield/Cost Analysis		Three Months Ended June 30,
		2017												2016
		Average Balance				Interest				Average Yield/Cost				Average Balance				Interest				Average Yield/Cost
Interest earning assets:		(Dollars in thousands)
Loans receivable		$	750,246			$	8,701				4.60	%		$	657,301			$	7,642				4.62	%
Investments and deposits			224,965				1,392				2.83	(1)			218,228				1,356				2.82	(1)
Total earning assets			975,211				10,093				4.19	(1)			875,529				8,998				4.17	(1)
Nonearning assets			66,612												72,232
Total assets		$	1,041,823											$	947,761
Interest bearing liabilities:
Deposits		$	714,938				830				0.47			$	653,904				697				0.43
Borrowings			18,044				61				1.34				21,531				59				1.10
Junior subordinated debentures			10,310				127				4.87				10,310				142				5.43
Total interest bearing liabilities			743,292				1,018				0.55				685,745				898				0.52
Noninterest bearing demand deposits			201,511				-				-				170,244				-				-
Total sources of funds			944,803				1,018				0.43				855,989				898				0.42
Other liabilities			5,568												5,845
Stockholders’ equity			91,452												85,927
Total liabilities and equity		$	1,041,823											$	947,761
Net interest income						$	9,075											$	8,100
Interest rate spread (1)(2)											3.65	%											3.64	%
Net interest margin (1)(3)											3.78	%											3.76	%
Ratio of earning assets to interest bearing liabilities											131.20	%											127.68	%

 

		Six Months Ended June 30,
		2017												2016
		Average Balance				Interest				Average Yield/Cost				Average Balance				Interest				Average Yield/Cost
Interest earning assets:		(Dollars in thousands)
Loans receivable		$	729,510			$	16,914				4.62	%		$	639,323			$	14,834				4.60	%
Investments and deposits			231,340				2,783				2.75	(1)			231,173				2,836				2.77	(1)
Total earning assets			960,850				19,697				4.17	(1)			870,496				17,670				4.12	(1)
Nonearning assets			67,177												72,736
Total assets		$	1,028,027											$	943,232
Interest bearing liabilities:
Deposits		$	703,463				1,584				0.45			$	647,682				1,367				0.42
Borrowings			20,105				123				1.22				27,422				132				0.97
Junior subordinated debentures			10,310				251				4.85				10,310				281				5.40
Total interest bearing liabilities			733,878				1,958				0.54				685,414				1,780				0.52
Noninterest bearing demand deposits			198,308				-				-				166,756				-				-
Total sources of funds			932,186				1,958				0.42				852,170				1,780				0.42
Other liabilities			5,547												5,966
Stockholders’ equity			90,294												85,096
Total liabilities and equity		$	1,028,027											$	943,232
Net interest income						$	17,739											$	15,890
Interest rate spread (1)(2)											3.63	%											3.60	%
Net interest margin (1)(3)											3.76	%											3.71	%
Ratio of earning assets to interest bearing liabilities											130.93	%											127.00	%

 

(1)

Shown as a tax-adjusted yield.

(2)

Represents the difference between the average yield on earning assets and the average cost of funds.

(3)

Represents net interest income divided by average earning assets.