Third Quarter Report September 30, 2016

Third Quarter Report September 30, 2016

Dear Shareholders:

For the three months ended September 30, 2016, the Company reported net income of $381,000, or $0.73 per share, compared with $412,000, or $0.82 per share, for the third quarter of 2015. The decrease in net income is primarily attributable to a decrease in noninterest income of $36,000, an increase in noninterest and tax expense of $47,000, a $14,000 increase in the provision for loan losses, offset by an increase in net interest income of $66,000. However, growth in lending is expected to improve core earnings and alleviate spread compression presently occurring in the market.

During the third quarter of the year, the loan portfolio increased 7.9% to $79.9 million as the reallocation of investment securities into higher yielding loans continues the trend started last year. New originations of $18.8 million in commercial mortgage loans and $6.3 million in residential mortgage loans through the first nine months of the year have been achieved while maintaining sound underwriting standards and an appropriate risk management framework.  Consequently, the bank continues to report minimal delinquency and few watch list credits. The increase in net interest income over the same period last year is primarily due to a $215,000 increase in interest and fees on loans, offset by a $145,000 decrease in interest on investment securities and a $6,000 increase in interest expense.

Year-to-date net income totals $1,009,000, or $2.03 per share compared with $1,083,000, or $2.15 per share, for the first nine months of 2015. The decrease in net income is primarily due to a decrease in noninterest income of $147,000 due to decreases in service charge income and nonrecurring fees from Trust department executorships, an increase in noninterest expense and taxes of $110,000, a $22,000 increase in the provision for loan losses, offset by $34,000 in investment security gains and a $170,000 increase in net interest income as a result of loan portfolio growth. Stockholders’ equity increased $2.3 million to $20.7 million from the prior year end.

A $0.48 per share third quarter dividend was paid October 1 bringing the year-to-date dividend amount to $1.44. On behalf of the Board of Directors and employees, thank you for your ongoing support and loyalty to the Company. Please mark your calendars for the Annual Meeting of Shareholders scheduled for Tuesday, April 11, 2017.

Sincerely,

Nelson L. Person
President & CEO