Level One Bancorp, Inc. reports third quarter 2020 net income of $5.2 million, representing $0.67 diluted earnings per common share

Friday, 30. October 2020 13:30

FARMINGTON HILLS, Mich., Oct. 30, 2020 (GLOBE NEWSWIRE) -- Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported financial results for the third quarter of 2020, which included net income of $5.2 million, or $0.67 diluted earnings per common share. This compares to net income of $2.7 million, or $0.35 diluted earnings per common share, in the preceding quarter and $4.4 million, or $0.56 diluted earnings per common share, in the third quarter of 2019. 

Patrick J. Fehring, President and Chief Executive Officer of Level One, commented, "We are pleased to report strong third quarter operating results despite being faced with the challenges of the COVID-19 pandemic. The third quarter revenue reflects the significant and continuing growth in our residential mortgage banking business, which experienced an increase in mortgage banking revenue of $1.4 million, or 25.05%, over the previous quarter. This increase is due to the continued low interest rate environment, the dedicated efforts of our team members, as well as management leveraging efficiencies in the production process to meet the unprecedented demand. Level One originated $206.8 million of residential mortgage loans during the three months ended September 30, 2020, compared to $203.6 million originated in the second quarter of 2020. Also during the quarter, our efficiency ratio declined to 58.81%, compared to 62.79% for the preceding quarter, mainly driven by the increase in mortgage banking activities included in noninterest income."

He continued, "Loan portfolio growth was solid in the third quarter with loans increasing 1.57%, and deposits increased 6.70%. To supplement its already well-capitalized financial position, the Company issued $25.0 million in Depository Shares representing interests in 7.50% Non-Cumulative Perpetual Preferred Stock in August. This additional capital will be available to the Company to support growth, increased investments, and acquisitions."

Commenting on credit quality, Mr. Fehring stated, “While net chargeoffs in the third quarter of 2020 were nominal at $78 thousand, we believe it was prudent to record a provision of $4.3 million for the quarter. This provision expense reflects the uncertainty of forecasted economic conditions as businesses and individuals face impacts of the pandemic. Overall, management believes the Bank’s reserves are appropriate, and we will continue to be diligent in our review of credit as circumstances related to the pandemic unfold.”

Mr. Fehring concluded, "I am very proud of the Level One team for their great efforts during the past two quarters in assisting our clients during these challenging times. As of September 30, 2020, Level One had $392.5 million of Paycheck Protection Program ("PPP") loans outstanding to more than 2,000 small and mid-sized businesses. Approximately 40% of these PPP loans are to new clients, which provides us an opportunity for future growth. We will continue to monitor the COVID-19 pandemic and evaluate the impact that it could have on our customers and our team members."

Third Quarter 2020 Highlights

  • Net income of $5.2 million increased 92.6% from $2.7 million in the preceding quarter
  • Diluted earnings per common share of $0.67 increased 91.43% compared to $0.35 in the preceding quarter, and 19.64% compared to $0.56 in the third quarter of 2019
  • Net interest margin, on a fully taxable equivalent ("FTE") basis, was 2.80%, compared to 2.98% in the preceding quarter
  • Noninterest income increased $1.3 million to $9.1 million in the third quarter of 2020, compared to $7.8 million in the preceding quarter
  • Provision for loan loss decreased to $4.3 million of provision expense in the third quarter of 2020, compared to $5.6 million provision expense in the preceding quarter
  • Total assets decreased 3.75% to $2.45 billion at September 30, 2020, compared to $2.54 billion at June 30, 2020
  • Total loans increased 1.57% to $1.84 billion at September 30, 2020, compared to $1.82 billion at June 30, 2020
  • Total deposits increased 6.70% to $1.94 billion at September 30, 2020, compared to $1.82 billion at June 30, 2020
  • Book value per common share increased 3.22% to $24.06 per common share at September 30, 2020, compared to $23.31 per common share at June 30, 2020
  • Tangible book value per common share increased 3.59% to $18.74 per common share at September 30, 2020, compared to $18.09 per common share at June 30, 2020

Net Interest Income and Net Interest Margin

Level One's net interest income increased $364 thousand, or 2.24%, to $16.6 million in the third quarter of 2020, compared to $16.2 million in the preceding quarter, and increased $3.6 million, or 27.79%, compared to $13.0 million in the third quarter of 2019.

Level One’s net interest margin, on a FTE basis, was 2.80% in the third quarter of 2020, compared to 2.98% in the preceding quarter and 3.59% in the third quarter of 2019. This decrease in the net interest margin compared to the preceding quarter and third quarter of 2019 was primarily a result of lower yields across most interest-earning assets, mostly reflecting the impact of lower interest rates. Average loan yield decreased 36 basis points to 3.98% for the third quarter of 2020, compared to 4.34% for the preceding quarter, and decreased 143 basis points from 5.41% for the third quarter of 2019, primarily due to the target federal funds rate dropping 150 basis points in March 2020 in response to the COVID-19 pandemic health crisis, as well as decreasing 75 basis points in the second half of 2019. Another contributing factor to the decrease in loan yields was the impact of the PPP loans originated during the second and third quarters of 2020, which had a yield of 2.99%, net of deferred fees/costs, compared to the non-PPP loans, which had a yield of 4.60%. The decrease in loan yields was accompanied by a corresponding decrease in the cost of funds, which declined 21 basis points to 0.88% in the third quarter of 2020, compared to 1.09% in the preceding quarter and decreased 110 basis points from 1.98% in the third quarter of 2019. Finally, during the third quarter of 2020, our average cash balances of $259.3 million, which resulted primarily from excess funding under the Paycheck Protection Program Liquidity Facility ("PPPLF"), earned 0.12%, which negatively affected the net interest margin.

Noninterest Income

Level One's noninterest income increased $1.3 million, or 17.15%, to $9.1 million in the third quarter of 2020, compared to $7.8 million in the preceding quarter, and increased $5.2 million, or 134.78%, compared to $3.9 million in the third quarter of 2019. The increase in noninterest income compared to the preceding quarter was primarily attributable to an increase of $1.4 million in mortgage banking activities and an increase of $309 thousand in other charges and fees, partially offset by a decrease of $465 thousand in net gains on sales of investment securities. The increase in the mortgage banking activities income compared to the second quarter of 2020 was primarily due to $54.9 million higher residential loan originations held for sale as a result of low interest rates continuing during the third quarter of 2020. The increase in other charges and fees was primarily due to an increase in interest rate swap fees partially offset by lower gains on sale of other real estate owned. The decrease in net gain on sales of investment securities was due to fewer sales of investment securities during the third quarter of 2020.

The increase in noninterest income year over year was primarily due to increases of $4.8 million in mortgage banking activities and $283 thousand in net gains on sales of investment securities. The increase in mortgage banking activities compared to the third quarter of 2019 was primarily due to $98.2 million higher residential loan originations held for sale and $66.9 million higher residential loans sold primarily as a result of higher volumes caused by the lower rate environment. The increase in net gain on sales of securities was due to higher gains realized on securities sold in the third quarter of 2020 than those sold in the third quarter of 2019.

Noninterest Expense

Level One's noninterest expense remained flat at $15.1 million in the third quarter of 2020, compared to the preceding quarter, and increased $3.6 million, or 31.09%, compared to $11.5 million in the third quarter of 2019. The increase in noninterest expense year over year was mainly attributable to increases of $2.3 million in salary and employee benefits, $475 thousand in occupancy and equipment expense, $417 thousand in FDIC expense (included in "other expense" on the income statement), $343 thousand in professional fees, $183 thousand in data processing expense, and $163 thousand in core deposit premium amortization. These increases were partially offset by a decrease of $302 thousand in acquisition and due diligence fees. The increase in salary and employee benefits between the periods was primarily due to an increase of $1.6 million in mortgage commissions expense as well as an increase of 37 full-time equivalent employees, mainly attributable to the acquisition of Ann Arbor State Bank as well as organic growth. The increase in occupancy and equipment expense was primarily attributable to increased building rent and other expenses related to the addition of the three new branches acquired with Ann Arbor State Bank, as well as organic growth in the organization. The increase in FDIC premium expense was primarily due to the increase in assets related to the acquisition of Ann Arbor State Bank in addition to credits received during the third quarter of 2019. The increase in professional service fees was primarily related to increased residential mortgage volumes as well as increased legal fees. The increase in data processing expense was due to increased costs of loan systems. As a result of the acquisition, the Company recorded $3.7 million of core deposit premiums, leading to the increased amortization expense on core deposit intangibles compared to the same period in the prior year. The decrease in acquisition and due diligence fees was primarily due to the majority of expenses related to the merger with Ann Arbor State Bank being incurred from the third quarter of 2019 to the first quarter of 2020.

The efficiency ratio, which is a measure of operating expenses as a percentage of net interest income and noninterest income, for the third quarter of 2020 was 58.81%, compared to 62.79% for the preceding quarter and 68.50% in the third quarter of 2019. The decrease in the efficiency ratio year over year was primarily driven by the $4.8 million increase in mortgage banking activities included in noninterest income explained above.

Income Tax Expense

Level One's income tax provision was $1.1 million, or 17.66% of pretax income, in the third quarter of 2020, as compared to $643 thousand, or 19.11% of pretax income, in the preceding quarter and $914 thousand, or 17.17% of pretax income, in the third quarter of 2019. The increase in income tax provision compared to the preceding quarter and year over year was primarily as a result of increased income before income taxes.

Investment Securities

The investment securities portfolio grew $36.4 million, or 16.74%, to $253.5 million at September 30, 2020, from $217.2 million at June 30, 2020, and up $48.3 million, or 23.53%, from $205.2 million at September 30, 2019. The increase in the investment securities portfolio compared to June 30, 2020 was primarily due to the purchase of $44.5 million of investment securities, offset in part by $6.4 million of sales, calls, or maturity of investment securities. The increase in the investment securities compared to September 30, 2019 was primarily due to the acquisition of Ann Arbor State Bank, which contributed $47.4 million of investment securities, with additional organic growth and sales of investment securities since the completion of the merger in January 2020.

Loan Portfolio

Total loans were $1.84 billion at September 30, 2020, an increase of $28.5 million, or 1.57%, from $1.82 billion at June 30, 2020, and up $675.0 million, or 57.74%, from $1.17 billion at September 30, 2019. The growth in total loans compared to June 30, 2020 was primarily due to organic growth in our commercial loan portfolio as well as our residential real estate loan portfolio, $3.9 million of which were PPP loans. The growth in total loans compared to September 30, 2019 was primarily due to $392.5 million of PPP loans that were originated during the second and third quarters of 2020. The acquisition of Ann Arbor State Bank also contributed $224.1 million of loans as of the merger date of January 2, 2020. In addition to the PPP loans and the acquired loan portfolio, we had $117.7 million of organic loan growth in our commercial loan portfolio and our residential real estate loan portfolio. The loan growth mentioned above was partially offset by $59.3 million of loan runoff during the nine months ended September 30, 2020.

Deposits

Total deposits were $1.94 billion at September 30, 2020, an increase of $122.1 million, or 6.70%, from $1.82 billion at June 30, 2020, and increased $748.9 million, or 62.69%, from $1.19 billion at September 30, 2019. The increase in deposits compared to June 30, 2020  was primarily due to organic growth in our money market and savings deposits. The growth in deposits compared to September 30, 2019 was primarily due to $484.1 million of organic deposit growth. In addition, the acquisition of Ann Arbor State Bank contributed $264.8 million in deposits as of the merger date of January 2, 2020. Total deposit composition at September 30, 2020 consisted of 38.48% of demand deposit accounts, 30.64% of savings and money market accounts and 30.88% of time deposits.

Borrowings

Total debt outstanding was $261.4 million at September 30, 2020, a decrease of $238.2 million, or 47.68%, from $499.6 million at June 30, 2020, and an increase of $134.6 million, or 106.09%, from $126.8 million at September 30, 2019. The decrease in debt outstanding compared to June 30, 2020 was primarily due to a decrease of $236.3 million in Federal Reserve Bank ("FRB") borrowings, with $34.1 million remaining outstanding at the FRB under the PPPLF. The increase in total borrowings compared to September 30, 2019 was primarily due to increases of $81.0 million in long-term FHLB advances, $34.1 million in FRB borrowings, and $30.0 million in subordinated notes, partially offset by a decrease of $10.0 million in fed funds sold. The increase in debt outstanding, as well as the issuance of new subordinated notes during the fourth quarter of 2019 reflected management's efforts to fund the liquidity needs of Level One.

Asset Quality

Nonaccrual loans were $19.3 million, or 1.04% of total loans, at September 30, 2020, an increase of $11.0 million from nonaccrual loans of $8.3 million, or 0.46% of total loans, at June 30, 2020, and an increase of $7.8 million from nonaccrual loans of $11.5 million, or 0.98% of total loans, at September 30, 2019. The increase in nonaccrual loans compared to the preceding quarter was primarily due to five commercial loan relationships and two residential loan relationships totaling $11.4 million moving to nonaccrual status. The increase in nonaccrual loans year over year was primarily due to the same factors mentioned in the preceding sentence, partially offset by $1.1 million of nonaccrual loans transferred to other real estate owned and $914 thousand of nonaccrual loans paid down or charged off.

Level One had no other real estate owned assets at September 30, 2020, compared to $61 thousand at June 30, 2020 and $373 thousand at September 30, 2019. Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 0.79% at September 30, 2020, compared to 0.33% at June 30, 2020, and 0.78% at September 30, 2019.

Performing troubled debt restructured loans, which are not reported as nonaccrual loans but rather as part of impaired loans, were $1.1 million at September 30, 2020 and June 30, 2020, and $914 thousand at September 30, 2019. Loans to borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, forbearance agreements, and principal deferral or reduction, are categorized as troubled debt restructured loans. In accordance with bank regulatory guidance, troubled debt restructurings do not include short-term modifications made on a good-faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief.

Net chargeoffs in the third quarter of 2020 were $78 thousand, or 0.02% of average loans on an annualized basis, compared to $1.5 million of net chargeoffs, or 0.34% of average loans on an annualized basis, for the preceding quarter and $30 thousand of net chargeoffs, or 0.01% of average loans on an annualized basis, in the third quarter of 2019. The decrease in net chargeoffs during the third quarter of 2020 compared to the second quarter of 2020 was due primarily to a $1.3 million chargeoff during the second quarter of 2020 on a $7.9 million nonaccrual loan relationship that was subsequently sold.

Level One's provision for loan losses in the third quarter of 2020 was a provision expense of $4.3 million, compared to $5.6 million of provision expense in the preceding quarter and a provision benefit of $16 thousand in the third quarter of 2019. The decrease in the provision expense quarter over quarter was primarily due to a $1.4 million decrease in net chargeoffs and a slight decrease in both general reserves and reserves on purchase credit impaired loans, partially offset by a new $498 thousand specific reserve on one commercial loan relationship. The increase in the provision expense year over year was primarily due to an increase in general reserves of $3.3 million as a result of the uncertainty surrounding the impact of  the COVID-19 pandemic on the loan portfolio, as well as a $794 thousand increase in specific reserves. The Company will continue to evaluate the fluid situation in regard to the COVID-19 pandemic and will take further action to appropriately record additional provision for loan losses should there be any indications of a decrease in the credit quality of our portfolio as a result of the COVID-19 pandemic.

The allowance for loan losses was $21.3 million, or 1.15% of total loans, at September 30, 2020, compared to $17.1 million, or 0.94% of total loans, at June 30, 2020, and $12.3 million, or 1.05% of total loans, at September 30, 2019. Excluding $392.5 million and $388.3 million of PPP loans, the allowance for loan losses as a percentage of total loans was 1.46% in the third quarter of 2020, compared to 1.20% in the preceding quarter (See section entitled "GAAP Reconciliation of Non-GAAP Financial Measures" for further details). The allowance for loan losses as a percentage of total loans increased as a result of the uncertainty surrounding the impact of  the COVID-19 pandemic on the loan portfolio. As of September 30, 2020, the allowance for loan losses as a percentage of nonaccrual loans was 110.32%, compared to 206.37% at June 30, 2020, and 107.46% at September 30, 2019. The Company will  re-evaluate the appropriateness of the allowance for loan losses in future quarters as needed. 

Capital

Total shareholders’ equity was $209.5 million at September 30, 2020, an increase of $29.2 million, or 16.20%, compared with $180.3 million at June 30, 2020, primarily as a result of the issuance of preferred stock in the third quarter of 2020. Total shareholders' equity increased $41.5 million, or 24.71%, from $168.0 million at September 30, 2019 attributable to the issuance of preferred stock in the third quarter of 2020 as well as an increase in retained earnings.

Recent Developments

Third Quarter Common Stock Dividend: On September 16, 2020, Level One’s Board of Directors declared a quarterly cash dividend of $0.05 per share. This dividend was paid on October 15, 2020, to stockholders of record at the close of business on September 30, 2020.

Preferred Stock Public Offering and First Cash Dividend: On August 10, 2020, the Company sold 1,000,000 depositary shares, each representing 1/100th interest in a share of 7.50% Non-Cumulative Perpetual Preferred Stock, Series B. The aggregate offering price for the shares sold by the Company was $25.0 million, and after deducting $1.6 million of underwriting discounts and offering expenses paid to third parties, the Company received total net proceeds of $23.4 million.

On October 21, 2020, Level One’s Board of Directors declared a quarterly cash dividend of $47.92 per share on its 7.50% Non-Cumulative Preferred Stock, Series B. Holders of depositary shares will receive $0.4792 per depositary share. The dividend is payable on November 15, 2020, to shareholders of record at the close of business on October 31, 2020.

Level One's Response to the COVID-19 Pandemic: Level One has taken comprehensive steps to help our customers, team members and communities during the current COVID-19 pandemic health crisis. For our customers, we have provided loan payment deferrals and offered fee waivers, among other actions. Through September 30, 2020, we have helped our consumer and small business customers by deferring loan payments and waiving fees on $416.3 million of non-PPP loans ($388.9 million of commercial balances and $27.4 million of consumer balances). As of September 30, 2020, we had $16.3 million of loans that had an outstanding payment deferral. To support our communities, we have made charitable donations, including one to a local health system, in order to help support the frontline workers impacted by the COVID-19 pandemic.

We are continuing to enable the vast majority of our main office team members to work remotely each day. We have also taken significant actions to help ensure the safety of our team members whose roles require them to come into the office, which includes the development, implementation and communication of a comprehensive return to office plan. In addition, while our branches have reopened to serve our clients, we will continue to be diligent in our efforts to follow all CDC guidelines in order to ensure the health and safety of our clients and team members. We will continue to evaluate this fluid situation and take additional actions as necessary.

About Level One Bancorp, Inc.

Level One Bancorp, Inc. is the holding company for Level One Bank, a full-service commercial and consumer bank headquartered in Michigan with assets of approximately $2.45 billion as of September 30, 2020. It operates sixteen banking centers throughout southeast Michigan and west Michigan. Level One Bank's success has been recognized both locally and nationally as the U.S. Small Business Administration's (SBA) "Community Lender of the Year" and "Export Finance Lender of the Year" and one of S&P Global's Top 10 "Best-Performing Community Banks" in the nation. Level One's commercial division provides a menu of products including lines of credit, term loans, leases, commercial mortgages, SBA loans, export-import financing, and a full suite of treasury management and private banking services. The consumer division offers personal savings and checking accounts and a complete array of consumer loan products including residential mortgages, home equity loans, auto loans, and credit card services. Level One Bank offers a variety of online banking services and a robust mobile banking application for individuals and businesses. Level One Bank offers the sophistication of a big bank, the heart of a community bank, and the spirit of an entrepreneur. For more information, visit www.levelonebank.com.

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect management’s current views of future events and operations. These forward-looking statements are based on the information currently available to the Company as of the date of this release. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "will," "propose," "may," "plan," "seek," "expect," "intend," "estimate," "anticipate," "believe," "continue" or similar technology. It is important to note that these forward-looking statements are not guarantees of future performance and involve risk and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, including its potential effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic, the ability of the Company to implement its strategy and expand its lending operations, changes in interest rates and other general economic, business and political conditions, including changes in the financial markets, changes in benchmark interest rates used to price loans and deposits including the expected elimination of LIBOR, as well as other risks described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

 


          
Summary Consolidated Financial Information         
(Unaudited)As of or for the three months ended,
(Dollars in thousands, except per share data)September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
Earnings Summary         
Interest income$20,245  $20,396  $19,817  $17,366  $17,983  
Interest expense3,648  4,163  4,997  4,458  4,995  
Net interest income16,597  16,233  14,820  12,908  12,988  
Provision (benefit) for loan losses4,270  5,575  489  548  (16) 
Noninterest income9,125  7,789  4,690  4,590  3,858  
Noninterest expense15,126  15,083  14,562  11,295  11,539  
Income before income taxes6,326  3,364  4,459  5,655  5,323  
Income tax provision1,117  643  349  975  914  
Net income$5,209  $2,721  $4,110  $4,680  $4,409  
Net income allocated to participating securities40  19  47  50  45  
Net income attributable to common shareholders$5,169  $2,702  $4,063  $4,630  $4,364  
Per Share Data         
Basic earnings per common share$0.68  $0.35  $0.53  $0.60  $0.57  
Diluted earnings per common share0.67  0.35  0.53  0.60  0.56  
Diluted earnings per common share, excluding acquisition and due diligence fees (1)0.67  0.37  0.68  0.63  0.60  
Book value per common share24.06  23.31  22.74  22.13  21.77  
Tangible book value per common share (1)18.74  18.09  17.54  20.86  20.51  
Preferred shares outstanding (in thousands)10          
Common shares outstanding (in thousands)7,734  7,734  7,731  7,715  7,714  
Average basic common shares (in thousands)7,675  7,676  7,637  7,632  7,721  
Average diluted common shares (in thousands)7,712  7,721  7,738  7,747  7,752  
Selected Period End Balances         
Total assets$2,446,447  $2,541,696  $1,936,823  $1,584,899  $1,509,463  
Securities available-for-sale253,527  217,172  230,671  180,905  205,242  
Total loans1,843,888  1,815,353  1,466,407  1,227,609  1,168,923  
Total deposits1,943,435  1,821,351  1,470,608  1,135,428  1,194,542  
Total liabilities2,236,979  2,361,437  1,761,055  1,414,196  1,341,495  
Total shareholders' equity209,468  180,259  175,768  170,703  167,968  
Total common shareholders' equity186,098  180,259  175,768  170,703  167,968  
Tangible common shareholders' equity (1)144,963  139,913  135,578  160,940  158,250  
Performance and Capital Ratios         
Return on average assets (annualized)0.83% 0.46% 0.87% 1.23% 1.16 %
Return on average equity (annualized)10.48  6.02  9.40  10.98  10.58  
Net interest margin (fully taxable equivalent)(2)2.80  2.98  3.42  3.56  3.59  
Efficiency ratio (noninterest expense/net interest income plus noninterest income)58.81  62.79  74.64  64.55  68.50  
Dividend payout ratio7.41  14.22  7.52  6.60  7.03  
Total shareholders' equity to total assets8.56  7.09  9.08  10.77  11.13  
Tangible common equity to tangible assets (1)6.03  5.59  7.15  10.22  10.55  
Common equity tier 1 to risk-weighted assets8.83  8.76  8.10  11.72  11.73  
Tier 1 capital to risk-weighted assets10.31  8.76  8.10  11.72  11.73  
Total capital to risk-weighted assets14.39  12.81  11.68  15.99  13.84  
Tier 1 capital to average assets (leverage ratio)7.17  6.21  7.08  10.41  10.12  
Asset Quality Ratios:         
Net charge-offs to average loans0.02% 0.34% 0.05% 0.06% 0.01 %
Nonperforming assets as a percentage of total assets0.79  0.33  0.89  1.23  0.78  
Nonaccrual loans as a percent of total loans1.04  0.46  1.04  1.51  0.98  
Allowance for loan losses as a percentage of total loans1.15  0.94  0.89  1.03  1.05  
Allowance for loan losses as a percentage of nonaccrual loans110.32  206.37  85.32  68.40  107.46  
Allowance for loan losses as a percentage of nonaccrual loans, excluding allowance allocated to loans accounted for under ASC 310-30105.46  195.04  80.34  64.29  100.52  

(1) See section entitled "GAAP Reconciliation of Non-GAAP Financial Measures" below.
(2) Presented on a tax equivalent basis using a 21% tax rate.

GAAP Reconciliation of Non-GAAP Financial Measures

Some of the financial measures included in this report are not measures of financial condition or performance recognized by GAAP. These non-GAAP financial measures include tangible common shareholders' equity, tangible book value per common share and the ratio of tangible common equity to tangible assets, as well as net income and diluted earnings per common share excluding acquisition and due diligence fees. Our management uses these non-GAAP financial measures in its analysis of our performance, and we believe that providing this information to financial analysts and investors allows them to evaluate capital adequacy, as well as better understand and evaluate the Company’s core financial results for the periods in question.

The following presents these non-GAAP financial measures along with their most directly comparable financial measure calculated in accordance with GAAP:

Tangible Common Shareholders' Equity, Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Share
 As of
(Dollars in thousands, except per share data)September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 (Unaudited) (Unaudited) (Unaudited)   (Unaudited)
Total shareholders' equity$209,468  $180,259  $175,768  $170,703  $167,968 
Less:         
Preferred stock23,370         
Total common shareholders' equity186,098  180,259  175,768  170,703  167,968 
Less:         
Goodwill35,554  35,554  36,216  9,387  9,387 
Other intangible assets, net5,581  4,792  3,974  376  331 
Tangible common shareholders' equity$144,963  $139,913  $135,578  $160,940  $158,250 
          
Common shares outstanding (in thousands)7,734  7,734  7,731  7,715  7,714 
Tangible book value per common share$18.74  $18.09  $17.54  $20.86  $20.51 
          
Total assets$2,446,447  $2,541,696  $1,936,823  $1,584,899  $1,509,463 
Less:         
Goodwill35,554  35,554  36,216  9,387  9,387 
Other intangible assets, net5,581  4,792  3,974  376  331 
Tangible assets$2,405,312  $2,501,350  $1,896,633  $1,575,136  $1,499,745 
          
Tangible common equity to tangible assets6.03% 5.59% 7.15% 10.22% 10.55%
               


Adjusted Income and Diluted Earnings Per Share
 Three months ended
(Dollars in thousands, except per share data)September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 (Unaudited) (Unaudited) (Unaudited)   (Unaudited)
Net income, as reported$5,209  $2,721   $4,110   $4,680   $4,409  
Acquisition and due diligence fees17  176   1,471   220   319  
Income tax benefit (1)(4) (34) (295) (26) (25)
Net income, excluding acquisition and due diligence fees$5,222  $2,863   $5,286   $4,874   $4,703  
          
Diluted earnings per share, as reported$0.67  $0.35   $0.53   $0.60   $0.56  
Effect of acquisition and due diligence fees, net of income tax benefit  0.02   0.15   0.03   0.04  
Diluted earnings per common share, excluding acquisition and due diligence fees$0.67  $0.37   $0.68   $0.63   $0.60  
          
(1) Assumes income tax rate of 21% on deductible acquisition expenses.  
   


 
Allowance for Loan Loss as a Percentage of Total Loans, Excluding PPP Loans
 As of
(Dollars in thousands, except per share data)September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 September 30,
2019
 (Unaudited) (Unaudited) (Unaudited)   (Unaudited)
Total loans$1,843,888  $1,815,353  $1,466,407  $1,227,609  $1,168,923 
Less:         
PPP loans392,521  388,264       
Total loans, excluding PPP loans$1,451,367  $1,427,089  $1,466,407  $1,227,609  $1,168,923 
          
Allowance for loan loss$21,254  $17,063  $12,989  $12,674  $12,307 
Allowance for loan loss as a percentage of total loans1.15% 0.94% 0.89% 1.03% 1.05%
Allowance for loan loss as a percentage of total loans, excluding PPP loans1.46% 1.20% 0.89% 1.03% 1.05%
               


      
Consolidated Balance Sheets     
(Unaudited)As of
 September 30, June 30, September 30,
(Dollars in thousands)2020 2020 2019
Assets     
Cash and cash equivalents$176,486  $364,112  $49,361 
Securities available-for-sale253,527  217,172  205,242 
Other investments14,398  12,398  8,325 
Mortgage loans held for sale, at fair value60,635  24,557  26,864 
Loans:     
Originated loans1,603,893  1,558,955  1,093,694 
Acquired loans239,995  256,398  75,229 
Total loans1,843,888  1,815,353  1,168,923 
Less: Allowance for loan losses(21,254) (17,063) (12,307)
Net loans1,822,634  1,798,290  1,156,616 
Premises and equipment, net15,646  15,882  13,427 
Goodwill35,554  35,554  9,387 
Other intangible assets, net5,581  4,792  331 
Other real estate owned  61  373 
Bank-owned life insurance18,083  17,965  12,080 
Income tax benefit3,791  3,293  469 
Interest receivable and other assets40,112  47,620  26,988 
Total assets$2,446,447  $2,541,696  $1,509,463 
Liabilities     
Deposits:     
Noninterest-bearing demand deposits$632,427  $644,251  $322,069 
Interest-bearing demand deposits115,395  119,570  66,716 
Money market and savings deposits595,471  472,599  332,432 
Time deposits600,142  584,931  473,325 
Total deposits1,943,435  1,821,351  1,194,542 
Borrowings216,809  455,159  111,937 
Subordinated notes44,555  44,457  14,934 
Other liabilities32,180  40,470  20,082 
Total liabilities2,236,979  2,361,437  1,341,495 
Shareholders' equity     
Preferred stock, no par value per share; authorized-50,000 shares; issued and outstanding-10,000 shares at September 30, 2020 and 0 at June 30, 2020 and September 30, 201923,370     
Common stock, no par value per share; authorized - 20,000,000 shares; issued and outstanding - 7,734,322 shares at September 30, 2020 and June 30, 2020, and 7,714,000 shares at September 30, 201989,409  89,175  89,206 
Retained earnings88,646  83,824  73,394 
Accumulated other comprehensive income, net of tax8,043  7,260  5,368 
Total shareholders' equity209,468  180,259  167,968 
Total liabilities and shareholders' equity$2,446,447  $2,541,696  $1,509,463 
            


          
Consolidated Statements of Income         
(Unaudited)Three months ended Nine months ended
 September 30, June 30, September 30, September 30, September 30,
(In thousands, except per share data)2020 2020 2019 2020 2019
Interest income         
Originated loans, including fees$15,274 $15,317 $14,633  $44,630 $42,652 
Acquired loans, including fees3,456 3,642 1,501  11,187 4,895 
Securities:         
Taxable652 594 857  1,930 2,773 
Tax-exempt613 670 588  1,894 1,728 
Federal funds sold and other250 173 404  817 1,034 
Total interest income20,245 20,396 17,983  60,458 53,082 
Interest Expense         
Deposits2,323 2,884 4,478  9,039 13,216 
Borrowed funds693 643 261  1,866 960 
Subordinated notes632 636 256  1,903 759 
Total interest expense3,648 4,163 4,995  12,808 14,935 
Net interest income16,597 16,233 12,988  47,650 38,147 
Provision expense (benefit) for loan losses4,270 5,575 (16) 10,334 835 
Net interest income after provision for loan losses12,327 10,658 13,004  37,316 37,312 
Noninterest income         
Service charges on deposits616 548 627  1,798 1,914 
Net gain on sales of securities434 899 151  1,862 151 
Mortgage banking activities7,108 5,684 2,352  15,380 5,788 
Other charges and fees967 658 728  2,564 1,768 
Total noninterest income9,125 7,789 3,858  21,604 9,621 
Noninterest expense         
Salary and employee benefits9,862 9,598 7,536  28,090 21,642 
Occupancy and equipment expense1,678 1,567 1,203  4,773 3,575 
Professional service fees808 941 465  2,141 1,212 
Acquisition and due diligence fees17 176 319  1664 319 
Marketing expense257 230 379  709 843 
Printing and supplies expense89 173 78  398 250 
Data processing expense844 910 661  2,601 1,862 
Core deposit premium amortization192 192 29  576 117 
Other expense1,379 1,296 869  3,819 3,254 
Total noninterest expense15,126 15,083 11,539  44,771 33,074 
Income before income taxes6,326 3,364 5,323  14,149 13,859 
Income tax provision1,117 643 914  2,109 2,428 
Net income$5,209 $2,721 $4,409  $12,040 $11,431 
Earnings per common share:         
Basic earnings per common share$0.68 $0.35 $0.57  $1.56 $1.48 
Diluted earnings per common share$0.67 $0.35 $0.56  $1.55 $1.46 
Cash dividends declared per common share$0.05 $0.05 $0.04  $0.15 $0.12 
Weighted average common shares outstanding—basic7,675 7,676 7,721  7,640 7,738 
Weighted average common shares outstanding—diluted7,712 7,721 7,752  7,701 7,776 
            


          
Net Interest Income and Net Interest Margin         
(Unaudited)For the three months ended
 September 30, 2020 June 30, 2020 September 30, 2019
(Dollars in thousands)Average BalanceInterest (1)Average Rate (2) Average BalanceInterest (1)Average Rate (2) Average BalanceInterest (1)Average Rate (2)
Interest-earning assets:           
Gross loans (3)$1,871,164  $18,730 3.98% $1,756,234  $18,959 4.34% $1,182,764  $16,134 5.41%
Investment securities: (4)           
Taxable139,237  652 1.86  115,271  594 2.07  121,473  857 2.80 
Tax-exempt94,526  613 3.19  102,955  670 3.22  85,332  588 3.28 
Interest earning cash balances259,349  76 0.12  226,931  67 0.12  51,142  289 2.24 
Other investments12,419  174 5.57  12,398  106 3.44  8,325  115 5.48 
Total interest-earning assets$2,376,695  $20,245 3.41% $2,213,789  $20,396 3.73% $1,449,036  $17,983 4.96%
Non-earning assets:           
Cash and due from banks$27,571     $26,350     $23,103    
Premises and equipment15,791     16,300     13,228    
Goodwill35,554     36,209     9,387    
Other intangible assets, net4,980     4,297     347    
Bank-owned life insurance18,006     17,888     12,023    
Allowance for loan losses(17,321)    (13,081)    (12,241)   
Other non-earning assets55,899     52,153     27,145    
Total assets$2,517,175     $2,353,905     $1,522,028    
Interest-bearing liabilities:           
Interest-bearing demand deposits$116,285  $65 0.22% $115,176  $72 0.25% $51,963  $63 0.48%
Money market and savings deposits513,420  556 0.43  457,576  561 0.49  320,363  1,170 1.45 
Time deposits575,179  1,702 1.18  570,052  2,251 1.59  543,765  3,245 2.37 
Borrowings394,020  693 0.70  352,554  643 0.73  70,766  261 1.46 
Subordinated notes44,468  632 5.65  44,456  636 5.75  14,925  256 6.81 
Total interest-bearing liabilities$1,643,372  $3,648 0.88% $1,539,814  $4,163 1.09% $1,001,782  $4,995 1.98%
Noninterest-bearing liabilities and shareholders' equity:           
Noninterest bearing demand deposits$640,095     $603,552     $333,690    
Other liabilities34,846     29,750     19,804    
Shareholders' equity198,862     180,789     166,752    
Total liabilities and shareholders' equity$2,517,175     $2,353,905     $1,522,028    
Net interest income $16,597    $16,233    $12,988  
Interest spread  2.53%   2.64%   2.98%
Net interest margin (5)  2.78    2.95    3.56 
Tax equivalent effect  0.02    0.03    0.03 
Net interest margin on a fully tax equivalent basis  2.80%   2.98%   3.59%

(1) Interest income is shown on actual basis and does not include taxable equivalent adjustments.
(2) Average rates and yields are presented on an annual basis and includes a taxable equivalent adjustment to interest income of $144 thousand, $154 thousand, and $118 thousand on tax-exempt securities for the three months ended September 30, 2020, June 30, 2020, and September 30, 2019, respectively, using a federal income tax rate of 21%.
(3) Includes nonaccrual loans.
(4) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.

  
 For the nine months ended
 September 30, 2020 September 30, 2019
(Dollars in thousands)Average
Balance
Interest (1)Average
Rate (2)
 Average
Balance
Interest (1)Average
Rate (2)
Interest-earning assets:       
Gross loans (3)$1,696,073  $55,817 4.40% $1,157,837  $47,547 5.49%
Investment securities: (4)       
Taxable124,169  1,930 2.08  135,460  2,773 2.74 
Tax-exempt97,104  1,894 3.20  84,476  1,728 3.28 
Interest earning cash balances188,179  400 0.28  37,359  670 2.4 
Other investments12,401  417 4.49  8,325  364 5.85 
Total interest-earning assets$2,117,926  $60,458 3.84% $1,423,457  $53,082 5.02%
Non-earning assets:       
Cash and due from banks$26,264     $24,075    
Premises and equipment16,195     13,252    
Goodwill35,894     9,387    
Other intangible assets, net4,420     383    
Bank-owned life insurance17,868     11,955    
Allowance for loan losses(14,387)    (11,950)   
Other non-earning assets47,714     18,642    
Total assets$2,251,894     $1,489,201    
Interest-bearing liabilities:       
Deposits:       
Interest-bearing demand deposits$112,579  $262 0.31% $53,894  $180 0.45%
Money market and savings deposits458,438  2,217 0.65  307,461  3,389 1.47 
Time deposits564,396  6,560 1.55  556,922  9,647 2.32 
Borrowings311,024  1,866 0.80  62,006  960 2.07 
Subordinated notes44,463  1,903 5.72  14,910  759 6.81 
Total interest-bearing liabilities$1,490,900  $12,808 1.15% $995,193  $14,935 2.01%
Noninterest-bearing liabilities and shareholders' equity:       
Noninterest bearing demand deposits$546,066     $316,754    
Other liabilities30,047     17,048    
Shareholders' equity184,881     160,206    
Total liabilities and shareholders' equity$2,251,894     $1,489,201    
Net interest income $47,650    $38,147  
Interest spread  2.69%   3.01%
Net interest margin (5)  3.01    3.58 
Tax equivalent effect  0.03    0.03 
Net interest margin on a fully tax equivalent basis  3.04%   3.61%

(1) Interest income is shown on actual basis and does not include taxable equivalent adjustments.
(2) Average rates and yields are presented on an annual basis and includes a taxable equivalent adjustment to interest income of $431 thousand and $347 thousand on tax-exempt securities for the nine months ended September 30, 2020 and September 30, 2019, respectively, using a federal income tax rate of 21%.
(3) Includes nonaccrual loans.
(4) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.

          
Loan Composition         
(Unaudited)As of
 September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands)2020 2020 2020 2019 2019
Commercial real estate:         
Non-owner occupied$460,708  $451,906  $450,694  $388,515  $369,284 
Owner-occupied269,481  273,577  278,216  216,131  196,497 
Total commercial real estate730,189  725,483  728,910  604,646  565,781 
Commercial and industrial807,923  790,353  469,227  410,228  404,130 
Residential real estate304,088  294,041  262,894  211,839  198,277 
Consumer1,688  5,476  5,376  896  735 
Total loans$1,843,888  $1,815,353  $1,466,407  $1,227,609  $1,168,923 
               


          
Impaired Assets         
(Unaudited)As of
 September 30, June 30, March 31, December 31, September 30,
(Dollars in thousands)2020 2020 2020 2019 2019
Nonaccrual loans         
Commercial real estate$7,022 $3,649 $3,721 $4,832 $5,043
Commercial and industrial8,078 2,377 9,364 11,112 4,071
Residential real estate4,151 2,226 2,124 2,569 2,339
Consumer15 16 15 16 
Total nonaccrual loans19,266 8,268 15,224 18,529 11,453
Other real estate owned 61 2,093 921 373
Total nonperforming assets19,266 8,329 17,317 19,450 11,826
Performing troubled debt restructurings         
Commercial and industrial550 549 541 547 553
Residential real estate599 600 599 359 361
Total performing troubled debt restructurings1,149 1,149 1,140 906 914
Total impaired assets$20,415 $9,478 $18,457 $20,356 $12,740
          
Loans 90 days or more past due and still accruing$552 $903 $437 $157 $157
Media Contact:
Nicole Ransom
(248) 538-2183

Investor Relations Contact:
Peter Root
(248) 538-2186

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