HTBK Heritage Commerce Corporation

 

ITEM 8.01   OTHER EVENTS

QUARTERLY DIVIDEND

“We achieved record pre-tax income for the second quarter of 2015, reflecting the overall strength and diversity of our business and the robust economy of the San Francisco Bay Area markets in which we operate.  Highlighting our strong operating performance were solid revenue growth, an increase in core deposits, and an expanding net interest margin,” said Walter Kaczmarek, President and Chief Executive Officer.  “Loan growth continued to be strong at 14% year-over-year and 3% on a linked quarter basis.  Total commercial and residential real estate loans increased 12% and C&I loans increased 13% year-over-year.  Growth in most of our loan categories highlights our ability to deepen and grow customer relationships, as well as gain new customers and market share.  Bay View Funding, acquired in November 2014, is expanding our franchise and is positively impacting interest income and net interest margin.”

“Deposits, excluding all time deposits and CDARS deposits, increased 19% year-over-year, and 2% on a linked-quarter basis,” added Mr. Kaczmarek.  “At the end of the first quarter of 2015, we announced our plans to acquire Focus Business Bank, and we expect this acquisition will generate considerable operating synergies. We remain on schedule for a closing in the third quarter of 2015.”

Second Quarter 2015 Highlights (as of, or for the period ended June 30, 2015, except as noted):

¨

Diluted earnings per share increased 40% to $0.14 for the second quarter of 2015, compared to $0.10 for the second quarter of 2014, and increased 8% from $0.13 for the first quarter of 2015.  Diluted earnings per share increased 35% to $0.27 for the first six months of 2015, compared to $0.20 per diluted share for the first six months of 2014.

¨

Reflecting strong balance sheet growth, net interest income increased 29% to $17.6 million for the second quarter of 2015, compared to $13.7 million for the second quarter of 2014, and increased 5% from $16.9 million for the first quarter of 2015.  For the first six months of 2015, net interest income increased 28% to $34.5 million, compared to $27.0 million for the first six months of 2014.

¨

The fully tax equivalent (“FTE”) net interest margin increased 59 basis points to 4.66% for the second quarter of 2015, from 4.07% for the second quarter of 2014, primarily due to loan growth, higher yields on securities, and revenue from the higher yielding Bay View Funding factored receivables portfolio, and a special dividend of $203,000 paid by the San Francisco Federal Home Loan Bank (“FHLB”). The net interest margin increased 8 basis points for the second quarter of 2015, from 4.58% for the first quarter of 2015 primarily due to loan growth and the special dividend paid by the FHLB.  For the first six months of 2015, net interest margin increased 56 basis points to 4.62%, compared to 4.06% for the first six months of 2014, primarily due to revenue from the higher yielding Bay View Funding factored receivables portfolio, and the special dividend paid by the FHLB.

¨	Solid performance ratios include a return on average tangible assets of 1.09%, a return on average tangible equity of 10.49%, and an efficiency ratio of 63.70% for the second quarter of 2015.

¨	Loans (excluding loans-held-for-sale) increased 14% to $1.13 billion at June 30, 2015, compared to $990.3 million at June 30, 2014, and increased 3% from $1.10 billion at March 31, 2015.

¨	Nonperforming assets (“NPAs”) declined to $5.3 million, or 0.31% of total assets, at June 30, 2015, compared to $8.7 million, or 0.59% of total assets, at June 30, 2014, and $8.4 million, or 0.51% of total assets, at March 31, 2015.

¨	Classified assets, net of Small Business Administration (“SBA”) guarantees, decreased 52% to $11.2 million at June 30, 2015, from $23.1 million at June 30, 2014, and decreased 33% from $16.6 million at March 31, 2015.

¨	The Company had net recoveries of $181,000 for the second quarter of 2015, compared to net charge-offs of $27,000 for the second quarter of 2014, and net recoveries of $235,000 for the first quarter of 2015.

¨

There was a $22,000 provision for loan losses for the second quarter of 2015, compared to a $198,000 credit provision for loan losses for the second quarter of 2014, and a $60,000 credit provision for loan losses for the first quarter of 2015.  There was a $38,000 credit provision for loan losses for the six months ended June 30, 2015, compared to a $208,000 credit provision for loan losses for the six months ended June 30, 2014.

¨	The allowance for loan losses (“ALLL”) was 1.65% of total loans at June 30, 2015, compared to 1.88% at June 30, 2014, and 1.68% at March 31, 2015.

¨

Deposits totaled $1.45 billion at June 30, 2015, compared to $1.27 billion at June 30, 2014, and $1.42 billion at March 31, 2015.  Deposits (excluding all time deposits and CDARS deposits) increased $187.1 million, or 19%, to $1.19 billion at June 30, 2015, from $1.00 billion at June 30, 2014, and increased $24.2 million, or 2%, from $1.17 billion at March 31, 2015.

¨

As of January 1, 2015, along with other community banking organizations, we became subject to new capital requirements, and certain provisions of the new rules will be phased in from 2015 through 2019 under Basel III and Dodd-Frank.  The Company’s consolidated capital ratios and the Bank’s capital ratios exceeded the regulatory guidelines for a well-capitalized financial institution under the Basel III regulatory requirements at June 30, 2015.

Capital Ratios	Heritage Commerce Corp	Heritage Bank of Commerce	Well-Capitalized Financial Institution Basel III Regulatory Guidelines
Total Risk-Based	13.0%	12.6%		10.0%
Tier 1 Risk-Based	11.8%	11.3%		8.0%
Common Equity Tier 1 Risk-based	10.5%	11.3%		6.5%
Leverage	10.6%	10.2%		5.0%

 

Focus Business Bank Merger Update

 

		For the Quarter Ended												For the Six Months Ended
ALLOWANCE FOR LOAN LOSSES		June 30,				March 31,				June 30,				June 30,				June 30,
(in $000's, unaudited)		2015				2015				2014				2015				2014
Balance at beginning of period		$	18,554			$	18,379			$	18,817			$	18,379			$	19,164
Provision (credit) for loan losses during the period			22				(60)				(198)				(38)				(208)
Net (charge-offs) recoveries during the period			181				235				(27)				416				(364)
Balance at end of period		$	18,757			$	18,554			$	18,592			$	18,757			$	18,592
Total loans		$	1,133,603			$	1,101,991			$	990,341			$	1,133,603			$	990,341
Total nonperforming loans		$	4,832			$	6,733			$	8,142			$	4,832			$	8,142
Allowance for loan losses to total loans			1.65%				1.68%				1.88%				1.65%				1.88%
Allowance for loan losses to total nonperforming loans			388.18%				275.57%				228.35%				388.18%				228.35%

    

Forward Looking Statement Disclaimer

These forward‑looking statements are subject to various risks and uncertainties that may be outside our control and our actual results could differ materially from our projected results. In addition, our past results of operations do not necessarily indicate our future results. The forward‑looking statements could be affected by many factors, including but not limited to: (1) local, regional, and national economic conditions and events and the impact they may have on us and our customers, and our assessment of that impact on our estimates including, the allowance for loan losses; (2) changes in the financial performance or condition of the Company’s customers, or changes in the performance or creditworthiness of our customers’ suppliers or other counterparties, which could lead to decreased loan utilization rates, delinquencies, or defaults and could negatively affect our customers’ ability to meet certain credit obligations; (3) volatility in credit and equity markets and its effect on the global economy; (4) changes in consumer spending, borrowings and saving habits; (5) competition for loans and deposits and failure to attract or retain deposits and loans; (6) our ability to increase market share and control expenses; (7) our ability to develop and promote customer acceptance of new products and services in a timely manner; (8) risks associated with concentrations in real estate related loans; (9) other‑than‑temporary impairment charges to our securities portfolio; (10) an oversupply of inventory and deterioration in values of California commercial real estate; (11) a prolonged slowdown in construction activity; (12) changes in the level of nonperforming assets and charge‑offs and other credit quality measures, and their impact on the adequacy of the Company’s allowance for loan losses and the Company’s provision for loan losses; (13) the effects of and changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board; (14) changes in inflation, interest rates, and market liquidity which may impact interest margins and impact funding sources; (15) our ability to raise capital or incur debt on reasonable terms; (16) regulatory limits on Heritage Bank of Commerce’s ability to pay dividends to the Company; (17) the impact of reputational risk on such matters as business generation and retention, funding and liquidity; (18) the impact of cyber security attacks or other disruptions to the Company’s information systems and any resulting compromise of data or disruptions in service; (19) the effect and uncertain impact on the Company of the enactment of the Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated by supervisory and oversight agencies implementing the new legislation; (20) significant changes in applicable laws and regulations, including those concerning taxes, banking and securities; (21) changes in the competitive environment among financial or bank holding companies and other financial service providers; (22) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters; (23) the costs and effects of legal and regulatory developments, including resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations or reviews; (24) the successful completion of the Focus Business Bank merger, integration of the business, employees and operations of Focus Business Bank with the Company and our ability to achieve the projected synergies of this acquisition; and (25) our success in managing the risks involved in the foregoing factors.

Member FDIC

 

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		For the Quarter Ended:												Percent Change From:								For the Six Months Ended:
CONSOLIDATED INCOME STATEMENTS		June 30,				March 31,				June 30,				March 31,				June 30,				June 30,				June 30,				Percent
(in $000's, unaudited)		2015				2015				2014				2015				2014				2015				2014				Change
Interest income		$	18,175			$	17,366			$	14,192				5	%			28	%		$	35,541			$	28,047			27	%
Interest expense			533				508				507				5	%			5	%			1,041				1,028			1	%
Net interest income before provision for loan losses			17,642				16,858				13,685				5	%			29	%			34,500				27,019			28	%
Provision (credit) for loan losses			22				(60)				(198)				137	%			111	%			(38)				(208)			82	%
Net interest income after provision for loan losses			17,620				16,918				13,883				4	%			27	%			34,538				27,227			27	%
Noninterest income:
Service charges and fees on deposit accounts			715				623				646				15	%			11	%			1,338				1,266			6	%
Increase in cash surrender value of life insurance			396				400				397				-1	%			0	%			796				795			0	%
Servicing income			299				306				313				-2	%			-4	%			605				661			-8	%
Gain on sales of SBA loans			186				207				442				-10	%			-58	%			393				599			-34	%
Gain on sales of securities			-				-				-				N/	A			N/	A			-				50			-100	%
Other			568				390				249				46	%			128	%			958				693			38	%
Total noninterest income			2,164				1,926				2,047				12	%			6	%			4,090				4,064			1	%
Noninterest expense:
Salaries and employee benefits			7,712				8,042				6,819				-4	%			13	%			15,754				13,062			21	%
Occupancy and equipment			1,045				1,045				987				0	%			6	%			2,090				1,932			8	%
Professional fees			239				95				126				152	%			90	%			334				712			-53	%
Other			3,621				3,094				2,837				17	%			28	%			6,715				5,609			20	%
Total noninterest expense			12,617				12,276				10,769				3	%			17	%			24,893				21,315			17	%
Income before income taxes			7,167				6,568				5,161				9	%			39	%			13,735				9,976			38	%
Income tax expense			2,690				2,430				1,837				11	%			46	%			5,120				3,576			43	%
Net income			4,477				4,138				3,324				8	%			35	%			8,615				6,400			35	%
Dividends on preferred stock			(448)				(448)				(224)				0	%			100	%			(896)				(448)			100	%
Net income available to common shareholders			4,029				3,690				3,100				9	%			30	%			7,719				5,952			30	%
Undistributed earnings allocated to Series C preferred stock			(331)				(274)				(358)				21	%			-8	%			(605)				(673)			-10	%
Distributed and undistributed earnings allocated to common
shareholders		$	3,698			$	3,416			$	2,742				8	%			35	%		$	7,114			$	5,279			35	%
PER COMMON SHARE DATA
(unaudited)
Basic earnings per share		$	0.14			$	0.13			$	0.10				8	%			40	%		$	0.27			$	0.20			35	%
Diluted earnings per share		$	0.14			$	0.13			$	0.10				8	%			40	%		$	0.27			$	0.20			35	%
Weighted average shares outstanding - basic			26,573,909				26,509,723				26,370,510				0	%			1	%			26,541,816				26,365,167			1	%
Weighted average shares outstanding - diluted			26,767,255				26,680,253				26,503,401				0	%			1	%			26,724,260				26,493,466			1	%
Common shares outstanding at period-end			26,596,094				26,522,739				26,370,510				0	%			1	%			26,596,094				26,370,510			1	%
Pro forma common shares outstanding at period-end, assuming
Series C preferred stock was converted into common stock			32,197,094				32,123,739				31,971,510				0	%			1	%			32,197,094				31,971,510			1	%
Book value per share		$	6.30			$	6.31			$	6.14				0	%			3	%		$	6.30			$	6.14			3	%
Tangible book value per share		$	5.70			$	5.70			$	6.09				0	%			-6	%		$	5.70			$	6.09			-6	%
Pro forma tangible book value per share, assuming Series C
preferred stock was converted into common stock		$	5.31			$	5.31			$	5.64				0	%			-6	%		$	5.31			$	5.64			-6	%
KEY FINANCIAL RATIOS
(unaudited)
Annualized return on average equity			9.59	%			9.04	%			7.45	%			6	%			29	%			9.32	%			7.28	%		28	%
Annualized return on average tangible equity			10.49	%			9.89	%			7.51	%			6	%			40	%			10.20	%			7.33	%		39	%
Annualized return on average assets			1.08	%			1.03	%			0.91	%			5	%			19	%			1.05	%			0.88	%		19	%
Annualized return on average tangible assets			1.09	%			1.04	%			0.91	%			5	%			20	%			1.06	%			0.88	%		20	%
Annualized return before income taxes and provision (credit) for
loan losses to average assets			1.73	%			1.61	%			1.36	%			7	%			27	%			1.67	%			1.35	%		24	%
Net interest margin			4.66	%			4.58	%			4.07	%			2	%			14	%			4.62	%			4.06	%		14	%
Efficiency ratio			63.70	%			65.35	%			68.45	%			-3	%			-7	%			64.51	%			68.57	%		-6	%
AVERAGE BALANCES
(in $000's, unaudited)
Average assets		$	1,664,568			$	1,634,923			$	1,469,085				2	%			13	%		$	1,649,839			$	1,464,008			13	%
Average tangible assets		$	1,648,505			$	1,619,006			$	1,467,718				2	%			12	%		$	1,633,686			$	1,462,583			12	%
Average earning assets		$	1,542,551			$	1,516,284			$	1,373,957				2	%			12	%		$	1,529,490			$	1,367,973			12	%
Average loans held-for-sale		$	1,748			$	987			$	4,135				77	%			-58	%		$	1,370			$	3,717			-63	%
Average total loans		$	1,106,158			$	1,064,849			$	970,538				4	%			14	%		$	1,085,618			$	948,911			14	%
Average deposits		$	1,428,469			$	1,403,636			$	1,257,121				2	%			14	%		$	1,416,121			$	1,253,644			13	%
Average demand deposits - noninterest-bearing		$	550,869			$	530,552			$	436,018				4	%			26	%		$	540,767			$	432,501			25	%
Average interest-bearing deposits		$	877,600			$	873,084			$	821,103				1	%			7	%		$	875,354			$	821,143			7	%
Average interest-bearing liabilities		$	877,613			$	873,135			$	822,660				1	%			7	%		$	875,392			$	821,955			7	%
Average equity		$	187,179			$	185,620			$	178,963				1	%			5	%		$	186,400			$	177,377			5	%
Average tangible equity		$	171,116			$	169,703			$	177,596				1	%			-4	%		$	170,247			$	175,952			-3	%

 

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		End of Period:									Percent Change From:
CONSOLIDATED BALANCE SHEETS		June 30,			March 31,			June 30,			March 31,				June 30,
(in $000's, unaudited)		2015			2015			2014			2015				2014
ASSETS
Cash and due from banks		$	36,960		$	27,388		$	32,162			35	%			15	%
Federal funds sold and interest-bearing
deposits in other financial institutions			94,308			124,388			17,256			-24	%			447	%
Securities available-for-sale, at fair value			209,092			200,768			261,489			4	%			-20	%
Securities held-to-maturity, at amortized cost			100,321			94,588			95,972			6	%			5	%
Loans held-for-sale - SBA, including deferred costs			3,794			1,390			2,269			173	%			67	%
Loans:
Commercial			471,651			458,498			415,557			3	%			13	%
Real estate:
Commercial and residential			508,497			487,475			454,676			4	%			12	%
Land and construction			68,666			74,972			47,758			-8	%			44	%
Home equity			71,579			65,243			56,743			10	%			26	%
Consumer			13,739			16,200			16,112			-15	%			-15	%
Loans			1,134,132			1,102,388			990,846			3	%			14	%
Deferred loan fees			(529)			(397)			(505)			33	%			5	%
Total loans, net of deferred fees			1,133,603			1,101,991			990,341			3	%			14	%
Allowance for loan losses			(18,757)			(18,554)			(18,592)			1	%			1	%
Loans, net			1,114,846			1,083,437			971,749			3	%			15	%
Company owned life insurance			52,052			51,657			50,452			1	%			3	%
Premises and equipment, net			7,249			7,340			7,237			-1	%			0	%
Goodwill			13,055			13,054			-			0	%			N/	A
Other intangible assets			2,898			3,087			1,297			-6	%			123	%
Accrued interest receivable and other assets			45,631			45,790			40,736			0	%			12	%
Total assets		$	1,680,206		$	1,652,887		$	1,480,619			2	%			13	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand, noninterest-bearing		$	574,210		$	544,339		$	456,235			5	%			26	%
Demand, interest-bearing			235,922			241,477			193,041			-2	%			22	%
Savings and money market			380,398			380,486			354,175			0	%			7	%
Time deposits-under $250			55,571			55,747			57,987			0	%			-4	%
Time deposits-$250 and over			160,106			163,066			158,011			-2	%			1	%
Time deposits - brokered			26,139			28,126			33,614			-7	%			-22	%
CDARS - money market and time deposits			14,791			10,408			14,785			42	%			0	%
Total deposits			1,447,137			1,423,649			1,267,848			2	%			14	%
Accrued interest payable and other liabilities			46,030			42,461			31,246			8	%			47	%
Total liabilities			1,493,167			1,466,110			1,299,094			2	%			15	%
Shareholders' Equity:
Series C preferred stock, net			19,519			19,519			19,519			0	%			0	%
Common stock			134,307			133,992			132,911			0	%			1	%
Retained earnings			36,484			34,583			29,187			5	%			25	%
Accumulated other comprehensive loss			(3,271)			(1,317)			(92)			-148	%			-3455	%
Total shareholders' equity			187,039			186,777			181,525			0	%			3	%
Total liabilities and shareholders' equity		$	1,680,206		$	1,652,887		$	1,480,619			2	%			13	%

 

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		End of Period:									Percent Change From:
		June 30,			March 31,			June 30,			March 31,				June 30,
		2015			2015			2014			2015				2014
CREDIT QUALITY DATA
(in $000's, unaudited)
Nonaccrual loans - held-for-investment		$	4,832		$	6,733		$	7,688			-28	%			-37	%
Restructured and loans over 90 days past due and still accruing			-			-			454			N/	A			-100	%
Total nonperforming loans			4,832			6,733			8,142			-28	%			-41	%
Foreclosed assets			421			1,716			525			-75	%			-20	%
Total nonperforming assets		$	5,253		$	8,449		$	8,667			-38	%			-39	%
Other restructured loans still accruing		$	158		$	163		$	1,180			-3	%			-87	%
Net (recoveries) charge-offs during the quarter		$	(181)		$	(235)		$	27			23	%			-770	%
Provision (credit) for loan losses during the quarter		$	22		$	(60)		$	(198)			137	%			111	%
Allowance for loan losses		$	18,757		$	18,554		$	18,592			1	%			1	%
Classified assets(1)		$	11,168		$	16,647		$	23,092			-33	%			-52	%
Allowance for loan losses to total loans			1.65%			1.68%			1.88%			-2	%			-12	%
Allowance for loan losses to total nonperforming loans			388.18%			275.57%			228.35%			41	%			70	%
Nonperforming assets to total assets			0.31%			0.51%			0.59%			-39	%			-47	%
Nonperforming loans to total loans			0.43%			0.61%			0.82%			-30	%			-48	%
Classified assets* to Heritage Commerce Corp Tier 1
capital plus allowance for loan losses			6%			9%			12%			-33	%			-50	%
Classified assets* to Heritage Bank of Commerce Tier 1
capital plus allowance for loan losses			6%			9%			13%			-33	%			-54	%
OTHER PERIOD-END STATISTICS
(in $000's, unaudited)
Heritage Commerce Corp:
Tangible equity		$	171,086		$	170,636		$	180,228			0	%			-5	%
Tangible common equity		$	151,567		$	151,117		$	160,709			0	%			-6	%
Shareholders' equity / total assets			11.13%			11.30%			12.26%			-2	%			-9	%
Tangible equity / tangible assets			10.28%			10.43%			12.18%			-1	%			-16	%
Tangible common equity / tangible assets			9.11%			9.23%			10.86%			-1	%			-16	%
Loan to deposit ratio			78.33%			77.41%			78.11%			1	%			0	%
Noninterest-bearing deposits / total deposits			39.68%			38.24%			35.98%			4	%			10	%
Total risk-based capital ratio(2)			13.0%			13.0%			15.1%			0	%			-14	%
Tier 1 risk-based capital ratio(2)			11.8%			11.7%			13.9%			1	%			-15	%
Common Equity Tier 1 risk-based capital ratio(2)			10.5%			10.4%			N/A			1	%			N/	A
Leverage ratio(2)			10.6%			10.5%			12.0%			1	%			-12	%
Heritage Bank of Commerce:
Total risk-based capital ratio(2)			12.6%			12.3%			14.1%			2	%			-11	%
Tier 1 risk-based capital ratio(2)			11.3%			11.0%			12.9%			3	%			-12	%
Common Equity Tier 1 risk-based capital ratio(2)			11.3%			11.0%			N/A			3	%			N/	A
Leverage ratio(2)			10.2%			10.0%			11.2%			2	%			-9	%
(1)Net of SBA guarantees
(2)June 30, 2015 and March 31, 2015 capital ratios are based on the Basel III regulatory requirements;
June 30, 2014 capital ratios are based on the Basel I regulatory requirements.

 

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		For the Quarter Ended									For the Quarter Ended
		June 30, 2015									June 30, 2014
					Interest			Average						Interest			Average
NET INTEREST INCOME AND NET INTEREST MARGIN		Average			Income/			Yield/			Average			Income/			Yield/
(in $000's, unaudited)		Balance			Expense			Rate			Balance			Expense			Rate
Assets:
Loans, gross(1)		$	1,107,906		$	15,643		5.66	%		$	974,673		$	11,617		4.78	%
Securities - taxable			238,801			1,937		3.25	%			287,841			2,047		2.85	%
Securities - tax exempt(2)			80,943			792		3.92	%			79,845			779		3.91	%
Federal funds sold and interest-bearing
deposits in other financial institutions			114,901			80		0.28	%			31,598			22		0.28	%
Total interest earning assets(2)			1,542,551			18,452		4.80	%			1,373,957			14,465		4.22	%
Cash and due from banks			27,996									23,919
Premises and equipment, net			7,342									7,212
Goodwill and other intangible assets			16,063									1,367
Other assets			70,616									62,630
Total assets		$	1,664,568								$	1,469,085
Liabilities and shareholders' equity:
Deposits:
Demand, noninterest-bearing		$	550,869								$	436,018
Demand, interest-bearing			235,860			105		0.18	%			199,010			82		0.17	%
Savings and money market			382,751			198		0.21	%			354,826			166		0.19	%
Time deposits - under $100			19,065			14		0.29	%			20,610			16		0.31	%
Time deposits - $100 and over			199,615			161		0.32	%			194,483			157		0.32	%
Time deposits - brokered			26,790			53		0.79	%			37,766			83		0.88	%
CDARS - money market and time deposits			13,519			2		0.06	%			14,408			2		0.06	%
Total interest-bearing deposits			877,600			533		0.24	%			821,103			506		0.25	%
Total deposits			1,428,469			533		0.15	%			1,257,121			506		0.16	%
Short-term borrowings			13			-		0.00	%			1,557			1		0.26	%
Total interest-bearing liabilities			877,613			533		0.24	%			822,660			507		0.25	%
Total interest-bearing liabilities and demand,
noninterest-bearing / cost of funds			1,428,482			533		0.15	%			1,258,678			507		0.16	%
Other liabilities			48,907									31,444
Total liabilities			1,477,389									1,290,122
Shareholders' equity			187,179									178,963
Total liabilities and shareholders' equity		$	1,664,568								$	1,469,085
Net interest income(2) / margin						17,919		4.66	%						13,958		4.07	%
Less tax equivalent adjustment(2)						(277)									(273)
Net interest income					$	17,642								$	13,685
(1)Includes loans held-for-sale. Yield amounts earned on loans include loan fees and costs. Nonaccrual loans are included in average balance.
(2)Reflects tax equivalent adjustment for tax exempt income based on a 35% tax rate.