Income before income taxes for the quarter ended June 30, 2016, was $2.4 million, compared to $1.8 million for the same period in 2015. For the six-month period ended as of the same date, income before income taxes was nearly $4.3 million compared to $4.1 million for 2015 for a 4.3% increase. Total assets, deposits and loans as of June 30, 2016, were $786.2 million, $709.3 million, and $610.6 million, compared to $752.7 million, $680.5 million and $566.9 million, respectively, as of June 30, 2015. This increase in earnings and overall growth in the Company is an indication of some improvement in the local economy, as well as a strong results-oriented focus from our team. In January, we finalized our conversion from a C-Corporation to an S-Corporation. In just that short period of time, it has been confirmed to me that this was, indeed, a sound decision.
Consolidation in the banking industry is a big issue and continues to be driven by an unrealistic regulatory burden and the challenge of improving interest margins in a slow growth, low rate environment. At the same time, the door for start-up banks is simply not open, and I fear it may be quite some time before it is again, if ever. Raising capital, managing regulation and fending off large competitors in a continually changing industry—a great deal of which is driven by technology—is simply a mountain to climb for a start-up.
As we face such obstacles, one way to respond is to widen our options, and that is exactly what we are doing. As we look for ways to widen our options and choices, we must reassure ourselves that we have not forsaken "our first love," and that is "obsession for our customers." At the same time, we must also have an intense focus on supporting the "frontline" people who serve our customers. We must have and keep, not only a sense of urgency, but a sense of "insurgency," which yields a focus and purpose. When this sense of insurgency becomes a part of our core, then we are able to expand the boundaries of our core further and further outward.
Consider this: A recent Gallop survey shows that only 13% of employees say they are emotionally engaged with their company. Companies who never forsake their first love, the frontline and the customers, abhor complexity, bureaucracy, and anything that impedes a good, solid execution of the company’s strategy, which enhances employee engagement.
At North State Bank, we are deeply focused on infusing an "owner’s mindset," something that one writer says stems from a "Founder’s Mentality." Such thinking and behavior leads to a culture where employees treat expenses and, indeed all financial decisions, as though it was their own money. Secondly, there is a "bias to action," with decisions made quickly and by empowered employees, especially those closest to customers. Thirdly, an owner’s mindset includes an aversion to bureaucracy which acts as a medicine to keep the "arteries of the business" from getting clogged and slowing things down, enabling people to be innovative and to uniquely serve customers while adding value to their relationships.
As we seek new ways to grow our bank soundly and profitably, we must have options. One thing about options is that if you have only one, you have a recipe for what is known as "confirmation bias." A leader makes a decision based on a single option and then seeks out information and other people to bolster his choice.
On January 1, 1962, a young four-man, rock-and-roll group named The Beatles was invited to audition in London for Decca Records, one of two major British record labels. "We were all excited," recalled John Lennon. "It was Decca." For an hour or so, they played fifteen different songs and their manager, Brian Epstein, was hopeful they’d get a contract. The response came, and Decca had decided to pass. In a letter to Epstein, well-known Decca talent scout Dick Rowe wrote, "We don’t like your boys’ sound. Groups are out, four-piece groups with guitars, particularly, are finished." Obviously, Mr. Rowe did not consider his options carefully and lost an opportunity to change the face of music forever.
Recently, we had options regarding the establishment of an SBA (Small Business Administration) lending unit. After looking at two options, we decided to build a division "from the ground up." This has proven to be a good decision as this new division is a clear cultural fit and is off to a great start.
We will continue to look at new options to advance our bank, and we will broaden these options without being narrow in our thinking and not be overconfident about the future as Mr. Rowe was with The Beatles.
Thank you for your advocacy, support, and interest in our Bank. We look forward to reporting our progress to you as we operate this bank soundly and profitably in the time ahead.
Larry D. Barbour
President and CEO