Level One Bancorp, Inc. reports second quarter 2021 net income of $7.0 million, representing $0.84 diluted earnings per common share

Friday, 30. July 2021 14:30

FARMINGTON HILLS, Mich., July 30, 2021 (GLOBE NEWSWIRE) -- Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported its financial results for the second quarter of 2021, which included net income of $7.0 million, or $0.84 diluted earnings per common share. This compares to net income of $2.7 million, or $0.35 diluted earnings per common share, in the second quarter of 2020.

Patrick J. Fehring, Chief Executive Officer of Level One, commented, "We are excited about the opportunities before us as the economy recovers from the effects of the pandemic. Level One is well positioned in attractive markets with a stronger balance sheet, liquidity to support lending activities, and a growing team of talented bankers. During the second quarter of 2021, Level One Bank experienced loan growth (excluding a decrease of $146.5 million in Paycheck Protection Program ("PPP") loans) of $60.0 million, or 16.5% annualized. As the economy has fully reopened, Level One has been well positioned to meet the credit needs of the communities we serve as evidenced by the growth in business and retail loans. Additionally, during the quarter our credit quality metrics remained sound as we have worked closely with our clients as they navigate the economic recovery."

He continued, "I am pleased to report a solid second quarter for Level One with earnings of $7.0 million, or $0.84 diluted earnings per common share. This quarter’s results compare favorably to second quarter 2020 earnings of $2.7 million, or $0.35 diluted earnings per common share. Earnings for the first six months of 2021 were $15.9 million, or $1.94 diluted earnings per common share, compared with earnings of $6.8 million, or $0.88 diluted earnings per common share, for the first six months of 2020."

He concluded, "Finally, the Level One team worked diligently to implement the second round of PPP loans. Our participation in the second round of the PPP program provided over $234 million in loans to 1,531 small business in our communities. When combined with the first round of PPP in 2020, Level One Bank funded over $651 million in PPP loans. With these loans, the Level One Bank has provided both small businesses and their team members protection from the economic challenges of the COVID-19 pandemic."

Second Quarter 2021 Highlights

  • Total loans, excluding a decrease of $146.5 million of PPP loans, increased $60.0 million, or 16.5% annualized during the second quarter of 2021
  • Total loans decreased 4.64% to $1.78 billion at June 30, 2021, compared to $1.86 billion at March 31, 2021
  • Total assets decreased 2.57% to $2.51 billion at June 30, 2021, compared to $2.57 billion at March 31, 2021
  • Total deposits decreased 2.97% to $2.03 billion at June 30, 2021, compared to $2.09 billion at March 31, 2021
  • Total subordinated debt decreased 33.52% to $29.7 million at June 30, 2021, compared to $44.6 million at March 31, 2021
  • Book value per common share increased 4.25% to $26.48 per common share at June 30, 2021, compared to $25.40 per common share at March 31, 2021
  • Tangible book value per common share increased 5.36% to $20.84 per common share at June 30, 2021, compared to $19.78 per common share at March 31, 2021
  • Net income of $7.0 million decreased 22.10% from $9.0 million in the preceding quarter
  • Diluted earnings per common share of $0.84 decreased 23.64% compared to $1.10 in the preceding quarter
  • Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.30%, compared to 3.33% in the preceding quarter and 2.98% in the second quarter of 2020
  • Noninterest income decreased $3.0 million to $4.3 million in the second quarter of 2021, compared to $7.3 million in the preceding quarter
  • Noninterest expense decreased $551 thousand to $14.6 million in the second quarter of 2021, compared to $15.1 million in the preceding quarter
  • Provision for loan loss increased $275 thousand to $540 thousand in the second quarter of 2021, compared to $265 thousand in the preceding quarter

Net Interest Income and Net Interest Margin

Level One's net interest income increased $459 thousand, or 2.40%, to $19.6 million in the second quarter of 2021, compared to $19.2 million in the preceding quarter, and increased $3.4 million, or 20.84%, compared to $16.2 million in the second quarter of 2020. The increase in net interest income compared to the preceding quarter was primarily due to a decrease of $296 thousand in interest expense on deposits and an increase of $145 thousand of interest income on investment securities. The increase in net interest income compared to the second quarter of 2020 was primarily due to increases of $988 thousand of interest income on loans as a result of the accelerated recognition of fees on PPP loans that were forgiven and $354 thousand of interest income on investment securities due to the increased volumes of investment securities. In addition, between the second quarter of 2020 and the second quarter of 2021, interest expense on deposits decreased $1.8 million and interest expense on borrowed funds decreased $168 thousand. The decrease in interest expense on deposits was primarily due to lower interest rates paid as a result of revised internal deposit rates, mainly driven by a decrease in the target federal funds rate.

Level One’s net interest margin, on a FTE basis, was 3.30% in the second quarter of 2021, compared to 3.33% in the preceding quarter and 2.98% in the second quarter of 2020. The increase in the net interest margin year over year was primarily a result of a decrease in the cost of interest-bearing liabilities, which declined 54 basis points to 0.55% in the second quarter of 2021, compared to 1.09% in the second quarter of 2020 primarily due to lower interest rates paid as a result of revised internal deposit rates, mainly driven by the decreases in the target federal funds rate.

Noninterest Income

Level One's noninterest income decreased $3.0 million, or 40.56%, to $4.3 million in the second quarter of 2021, compared to $7.3 million in the preceding quarter, and decreased $3.5 million, or 44.94%, compared to $7.8 million in the second quarter of 2020. The decrease in noninterest income compared to the preceding quarter was primarily attributable to a decrease of $3.1 million in mortgage banking activities partially offset by an increase of $145 thousand in other charges and fees. The decrease in the mortgage banking activities income compared to the preceding quarter was primarily due to $78.2 million lower residential loan originations held for sale and $89.4 million lower residential loans sold primarily as a result of the increase in interest rates and secondary market pricing. The increase in other charges and fees was primarily due to increases in bank owned life insurance interest income and interest rate swap fees.

The decrease in noninterest income in the second quarter of 2021 compared to the same period in 2020 was primarily due to decreases of $3.0 million in mortgage banking activities and $899 thousand in net gains on sales of investment securities. This was partially offset by increases of $252 thousand in service charges on deposits and $157 thousand in other charges and fees. The decrease in mortgage banking activities compared to the second quarter of 2020 was primarily due to $55.5 million lower residential loan originations held for sale and $40.4 million lower residential loans sold primarily as a result of the increase in interest rates and secondary market pricing. The decrease in net gains on sales of investment securities was due to no securities sold in the second quarter of 2021. The increase in service charges on deposits was primarily due to higher transaction volumes and deposit balances. The increase in other charges and fees was primarily due to increases in Visa Rebate income, interest rate swap fees, and bank owned life insurance interest income. These were partially offset by a decrease in gains on sale of other real estate owned.

Noninterest Expense

Level One's noninterest expense decreased $551 thousand, or 3.64%, to $14.6 million in the second quarter of 2021, compared to $15.1 million in the preceding quarter, and decreased $495 thousand, or 3.28%, compared to $15.1 million in the second quarter of 2020. The decrease in noninterest expense compared to the preceding quarter was primarily attributable to decreases of $570 thousand in salary and employee benefits, $167 thousand in data processing expense, and $138 thousand in loan processing expense. These decreases were partially offset by increases of $286 thousand in other expense and $148 thousand in marketing expense. The decrease in salary and employee benefits compared to the first quarter of 2021 was primarily due to decreases of $591 thousand in mortgage commissions; $223 thousand in social security, Medicare and employment taxes related to the decrease in mortgage commissions; and $124 thousand in incentive compensation. This was partially offset by a $307 thousand increase in salary expense primarily due to an increase in full-time equivalent employees. The decrease in data processing expense was primarily due to a decrease in PPP loan volumes run through the loan processing system used for PPP loans. The decrease in loan processing expense was primarily due to a collection fee on a nonaccrual loan in the first quarter of 2020. The increase in other expense was primarily due to the provision on unfunded commitments. The increase in marketing expense was primarily due to an increase in advertising efforts.

The decrease in noninterest expense in the second quarter of 2021 compared to the same period in 2020 was mainly attributable to decreases of $246 thousand in salary and employee benefits, $176 thousand in acquisition and due diligence fees, and $167 thousand in professional service fees. These decreases were partially offset by an increase of $147 thousand in data processing expense. The decrease in salary and employee benefits between the periods was primarily due to decreases of $914 thousand in mortgage commissions expense partially offset by a $339 thousand increase in incentive compensation and a $206 thousand increase in salaries expense. The decrease in acquisition and due diligence fees was primarily due to certain post-merger integration costs incurred in the second quarter of 2020, following the acquisition of Ann Arbor State Bank. The decrease in professional service fees was primarily related to decreased residential mortgage volumes. The increase in data processing fees was primarily due to the new loan processing system used for PPP loans.

The efficiency ratio, which is a measure of operating expenses as a percentage of net interest income and noninterest income, was 60.93% for the second quarter of 2021, compared to 57.27% for the preceding quarter and 62.79% in the second quarter of 2020.

Income Tax Expense

Level One's income tax provision was $1.8 million, or 20.82% of pretax income, in the second quarter of 2021, as compared to $2.1 million, or 18.78% of pretax income, in the preceding quarter and $643 thousand, or 19.11% of pretax income, in the second quarter of 2020.

Loan Portfolio

Total loans were $1.78 billion at June 30, 2021, a decrease of $86.4 million, or 4.64%, from $1.86 billion at March 31, 2021, and down $40.1 million, or 2.21%, from $1.82 billion at June 30, 2020. The decrease in total loans compared to March 31, 2021 was primarily due to $160.3 million of PPP loans forgiven by the SBA during the second quarter partially offset by a net increase of $60.0 million, or 16.5% annualized growth, in the remainder of the loan portfolio and $17.5 million of PPP loan originations from the second round of PPP funding. The decrease in total loans compared to June 30, 2020, was primarily due to a $129.0 million net decrease in PPP loans (originated and forgiven) which was partially offset by a net increase of $88.9 million in the remainder of the loan portfolio.

Investment Securities

The investment securities portfolio grew $30.2 million, or 8.72%, to $376.5 million at June 30, 2021, from $346.3 million at March 31, 2021, and up $159.3 million, or 73.34%, from $217.2 million at June 30, 2020. The increase in the investment securities portfolio compared to March 31, 2021 was primarily due to the purchase of $36.6 million of investment securities, offset in part by $3.4 million of sales, calls, or maturity of investment securities. The increase in investment securities compared to June 30, 2020, was primarily due to the purchase of $197.0 million of securities between the two dates using the excess cash balances generated by the payoffs of PPP loans, partially offset by $37.7 million of sales, calls, or maturity of investment securities and principal pay downs.

Deposits

Total deposits were $2.03 billion at June 30, 2021, a decrease of $62.2 million, or 2.97%, from $2.09 billion at March 31, 2021, and up $210.5 million, or 11.55%, from $1.82 billion at June 30, 2020. The decrease in deposits compared to March 31, 2021 was primarily due to runoff related to deposit pricing opportunities. The growth in deposits compared to June 30, 2020 was primarily due to organic deposit growth as a result of customers increasing their liquidity due to PPP loan proceeds and government stimulus payments. Total deposit composition at June 30, 2021 consisted of 43.18% of demand deposit accounts, 30.98% of savings and money market accounts and 25.84% of time deposits.

Borrowings

Total debt outstanding was $212.3 million at June 30, 2021, a decrease of $18.8 million, or 8.14%, from $231.0 million at March 31, 2021, and down $287.3 million, or 57.50%, from $499.6 million at June 30, 2020. The decrease in debt outstanding compared to March 31, 2021 was primarily due to the redemption of $15.0 million of subordinated notes. The decrease in total borrowings compared to June 30, 2020 was primarily due to a decrease of $270.4 million in Federal Reserve Bank borrowings used for liquidity related to PPP loans as well as the redemption of the subordinated notes discussed above. The Company would have paid approximately $721 thousand per year in interest on the redeemed subordinated notes.

Asset Quality

Nonaccrual loans were $13.7 million, or 0.77% of total loans, at June 30, 2021, a decrease of $1.7 million from nonaccrual loans of $15.4 million, or 0.83% of total loans, at March 31, 2021, and an increase of $5.4 million from nonaccrual loans of $8.3 million, or 0.46% of total loans, at June 30, 2020. The decrease in nonaccrual loans compared to the prior quarter-end was primarily due to $2.1 million of paydowns on four commercial loan relationships partially offset by two commercial loan relationships moving to nonaccrual status totaling $726 thousand. The increase in nonaccrual loans compared to June 30, 2020 was primarily due to seven commercial loan relationships totaling $7.6 million being transferred to nonaccrual status, partially offset by a $2.9 million paydown of one commercial loan relationship.

Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 0.55% at June 30, 2021, compared to 0.60% at March 31, 2021, and 0.33% at June 30, 2020.

Performing troubled debt restructured loans, which are not reported as nonaccrual loans but rather as part of impaired loans, were $765 thousand at June 30, 2021 and March 31, 2021, and $1.1 million at June 30, 2020. 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. As of June 30, 2021, there were $7.5 million of loans that remained on a COVID-related deferral compared to $22.2 million as of March 31, 2021. As of June 30, 2021, $7.4 million of those loans had payments deferred greater than six months compared to $10.7 million as of March 31, 2021.

Net recoveries in the second quarter of 2021 were $26 thousand, or 0.01% of average loans on an annualized basis, compared to $17 thousand of net recoveries for the preceding quarter and $1.5 million of net charge-offs, or 0.34% of average loans on an annualized basis, in the second quarter of 2020. The change between the second quarter of 2021 and the second quarter of 2020 was primarily due to a $1.3 million charge-off on one commercial loan relationship in the second quarter of 2020.

Level One's provision for loan losses in the second quarter of 2021 was a provision expense of $540 thousand, compared to $265 thousand in the preceding quarter and $5.6 million in the second quarter of 2020. The increase in the provision expense quarter over quarter was primarily due to an increase of $533 thousand in general reserves as a result of an increase in loan volumes excluding PPP loans, partially offset by a decrease in specific reserves of $254 thousand. The decrease in the provision expense in the second quarter of 2021 compared to the same period in 2020 was primarily due to a decrease in general reserves of $3.2 million resulting from an adjustment of the economic qualitative factors in the second quarter of 2020, a decrease of $1.5 million in net charge-offs due to the charge-off mentioned above in the second quarter of 2020 as well as a $259 thousand decrease 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 or decrease the level of the provision for loan losses should there be any indications of significant changes in the credit quality of our portfolio as a result of the COVID-19 pandemic.

The allowance for loan losses was $23.1 million, or 1.30% of total loans, at June 30, 2021, compared to $22.6 million, or 1.21% of total loans, at March 31, 2021, and $17.1 million, or 0.94% of total loans, at June 30, 2020. Excluding PPP loans of $259.3 million, $405.8 million, and $388.3 million as of these dates respectively, the allowance for loan losses as a percentage of total loans was 1.53% as of June 30, 2021, compared to 1.55% as of March 31, 2021 and 1.20% as of June 30, 2020 (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 compared to June 30, 2020, primarily due to the trends in delinquencies and nonaccrual loans as well as the stress on the commercial and industrial and commercial real estate owner occupied portfolios, primarily in the restaurant and transportation industries, as a result of the uncertainty surrounding the COVID-19 pandemic. As of June 30, 2021, the allowance for loan losses as a percentage of nonaccrual loans was 168.64%, compared to 146.95% at March 31, 2021, and 206.37% at June 30, 2020. The Company will continue to evaluate the appropriateness of the allowance for loan losses in future quarters as needed.

Capital

Total shareholders’ equity was $225.4 million at June 30, 2021, an increase of $8.2 million, or 3.79%, compared with $217.2 million at March 31, 2021 primarily as a result of increases in retained earnings and accumulated other comprehensive income. Total shareholders' equity increased $45.1 million, or 25.05%, from $180.3 million at June 30, 2020, attributable to an increase in retained earnings as well as the issuance of preferred stock in the third quarter of 2020.

Recent Developments

Second Quarter Common Stock Dividend: On June 16, 2021, Level One’s Board of Directors declared a quarterly cash dividend of $0.06 per share. This dividend was paid on July 15, 2021, to stockholders of record at the close of business on June 30, 2021.

Third Quarter Preferred Stock Dividend: On July 21, 2021, Level One’s Board of Directors declared a quarterly cash dividend of $46.88 per share on its 7.50% Non-Cumulative Perpetual Preferred Stock, Series B. Holders of depositary shares will receive $0.4688 per depositary share. The dividend is payable on August 15, 2021, to shareholders of record at the close of business on July 31, 2021.

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. In addition, from January 18 through June 30, 2021, Level One has funded 1,531 PPP loans for $234.2 million of which 1,186 applications were for loans $150,000 or below.

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 protocols necessary for those who return. As of March 31, 2021, we opened branches for walk in services. 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 $2.51 billion as of June 30, 2021. It operates sixteen banking centers throughout Metro Detroit, Ann Arbor, Grand Rapids, and Jackson and provides a variety of commercial, small business, and consumer banking services. 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," one of American Banker Magazine's "Top 200 Community Banks in the Nation," one of Metro Detroit's "Best & Brightest Companies to Work For" and more. Level One Bank’s business banking division provides a broad spectrum of products including lines of credit, term loans, leases, commercial mortgages, SBA loans, MEDC loans, export-import financing, and a full suite of treasury management services. The consumer banking division offers a range of personal checking, savings and CD products and a complete array of consumer loan products including residential mortgages, new construction and renovation loans, home equity lines of credit, auto loans, and credit card services. Level One Bank offers a variety of digital banking services including online banking, robust mobile banking apps, online account opening and online loan applications 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," "annualized" 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 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, and changes in tax laws, regulations and guidance, 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,
 June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands, except per share data)2021 2021 2020 2020 2020
Earnings Summary         
Interest income$21,737  $21,551  $22,181  $20,245  $20,396 
Interest expense2,121  2,394  3,075  3,648  4,163 
Net interest income19,616  19,157  19,106  16,597  16,233 
Provision for loan losses540  265  1,538  4,270  5,575 
Noninterest income4,326  7,278  8,110  9,125  7,789 
Noninterest expense14,588  15,139  15,461  15,126  15,083 
Income before income taxes8,814  11,031  10,217  6,326  3,364 
Income tax provision1,835  2,072  1,844  1,117  643 
Net income$6,979  $8,959  $8,373  $5,209  $2,721 
Preferred stock dividends469  469  479     
Net income available to common shareholders6,510  8,490  7,894  5,209  2,721 
Net income allocated to participating securities92  111  65  40  19 
Net income attributable to common shareholders$6,418  $8,379  $7,829  $5,169  $2,702 
Per Share Data         
Basic earnings per common share$0.85  $1.11  $1.02  $0.68  $0.35 
Diluted earnings per common share0.84  1.10  1.02  0.67  0.35 
Diluted earnings per common share, excluding acquisition and
due diligence fees (1)
0.84  1.10  1.02  0.67  0.37 
Book value per common share26.48  25.40  25.14  24.06  23.31 
Tangible book value per common share (1)20.84  19.78  19.63  18.74  18.09 
Preferred shares outstanding (in thousands)10  10  10  10   
Common shares outstanding (in thousands)7,629  7,630  7,634  7,734  7,734 
Average basic common shares (in thousands)7,520  7,528  7,642  7,675  7,676 
Average diluted common shares (in thousands)7,633  7,612  7,695  7,712  7,721 
Selected Period End Balances         
Total assets$2,506,523  $2,572,726  $2,442,982  $2,446,447  $2,541,696 
Securities available-for-sale376,453  346,266  302,732  253,527  217,172 
Total loans1,775,243  1,861,691  1,723,537  1,843,888  1,815,353 
Total deposits2,031,808  2,093,965  1,963,312  1,943,435  1,821,351 
Total liabilities2,281,114  2,355,539  2,227,655  2,236,979  2,361,437 
Total shareholders' equity225,409  217,187  215,327  209,468  180,259 
Total common shareholders' equity202,037  193,815  191,955  186,098  180,259 
Tangible common shareholders' equity (1)159,022  150,887  149,844  144,963  139,913 
Performance and Capital Ratios         
Return on average assets (annualized)1.09 % 1.44% 1.35% 0.83% 0.46%
Return on average equity (annualized)12.52  16.31  15.61  10.48  6.02 
Net interest margin (fully taxable equivalent)(2)3.30  3.33  3.27  2.80  2.98 
Efficiency ratio (noninterest expense/net interest income plus
noninterest income)
60.93  57.27  56.81  58.81  62.79 
Dividend payout ratio7.02  4.50  4.90  7.41  14.22 
Total shareholders' equity to total assets8.99  8.44  8.81  8.56  7.09 
Tangible common equity to tangible assets (1)6.46  5.96  6.24  6.03  5.59 
Common equity tier 1 to risk-weighted assets9.66  9.63  9.30  8.83  8.76 
Tier 1 capital to risk-weighted assets11.09  11.11  10.80  10.31  8.76 
Total capital to risk-weighted assets14.15  15.18  14.91  14.39  12.81 
Tier 1 capital to average assets (leverage ratio)7.24  7.15  6.93  7.17  6.21 
Asset Quality Ratios:         
Net charge-offs (recoveries) to average loans(0.01)% % 0.11% 0.02% 0.34%
Nonperforming assets as a percentage of total assets0.55  0.60  0.77  0.79  0.33 
Nonaccrual loans as a percent of total loans0.77  0.83  1.09  1.04  0.46 
Allowance for loan losses as a percentage of total loans1.30  1.21  1.29  1.15  0.94 
Allowance for loan losses as a percentage of nonaccrual loans168.64  146.95  118.50  110.32  206.37 
Allowance for loan losses as a percentage of nonaccrual loans,
excluding allowance allocated to loans accounted for under ASC 310-30
163.76  142.62  114.95  105.46  195.04 

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

Consolidated Balance Sheets     
 As of
 June 30, March 31, June 30,
(Dollars in thousands)2021 2021 2020
Assets(Unaudited) (Unaudited) (Unaudited)
Cash and cash equivalents$218,366   $224,683   $364,112  
Securities available-for-sale376,453   346,266   217,172  
Other investments14,398   14,398   12,398  
Mortgage loans held for sale, at fair value9,305   19,550   24,557  
Loans:     
Originated loans1,580,175   1,647,847   1,558,955  
Acquired loans195,068   213,844   256,398  
Total loans1,775,243   1,861,691   1,815,353  
Less: Allowance for loan losses(23,144)  (22,578)  (17,063) 
Net loans1,752,099   1,839,113   1,798,290  
Premises and equipment, net15,524   15,523   15,882  
Goodwill35,554   35,554   35,554  
Mortgage servicing rights, net4,599   4,346   1,213  
Other intangible assets, net2,862   3,028   3,579  
Other real estate owned—       61  
Bank-owned life insurance29,576   18,314   17,965  
Income tax benefit5,491   5,823   3,293  
Interest receivable and other assets42,296   46,128   47,620  
Total assets$2,506,523   $2,572,726   $2,541,696  
Liabilities     
Deposits:     
Noninterest-bearing demand deposits$734,451   $744,688   $644,251  
Interest-bearing demand deposits142,862   140,629   119,570  
Money market and savings deposits629,378   652,091   472,599  
Time deposits525,117   556,557   584,931  
Total deposits2,031,808   2,093,965   1,821,351  
Borrowings182,639   186,440   455,159  
Subordinated notes29,651   44,600   44,457  
Other liabilities37,016   30,534   40,470  
Total liabilities2,281,114   2,355,539   2,361,437  
Shareholders' equity     
Preferred stock, no par value per share; authorized-50,000 shares;
issued and outstanding - 10,000 shares, with a liquidation preference
of $2,500 per share, at June 30, 2021 and March 31, 2021 and 0 at
June 30, 2020
23,372   23,372     
Common stock, no par value per share; authorized - 20,000,000
shares; issued and outstanding - 7,628,944 shares at June 30, 2021,
7,630,342 shares at March 31, 2021 and 7,734,322 shares at June 30, 2020
86,723   86,529   89,175  
Retained earnings110,243   104,191   83,824  
Accumulated other comprehensive income, net of tax5,071   3,095   7,260  
Total shareholders' equity225,409   217,187   180,259  
Total liabilities and shareholders' equity$2,506,523   $2,572,726   $2,541,696  


Consolidated Statements of Income         
(Unaudited)Three months ended Six months ended
 June 30, March 31, June 30, June 30, June 30,
(In thousands, except per share data)2021 2021 2020 2021 2020
Interest income         
Originated loans, including fees$17,167  $16,822  $15,317  $33,989  $29,356 
Acquired loans, including fees2,780  3,101  3,642  5,881  7,731 
Securities:         
Taxable991  850  594  1,841  1,278 
Tax-exempt627  623  670  1,250  1,281 
Federal funds sold and other172  155  173  327  567 
Total interest income21,737  21,551  20,396  43,288  40,213 
Interest Expense         
Deposits1,091  1,387  2,884  2,478  6,716 
Borrowed funds475  466  643  941  1,173 
Subordinated notes555  541  636  1,096  1,271 
Total interest expense2,121  2,394  4,163  4,515  9,160 
Net interest income19,616  19,157  16,233  38,773  31,053 
Provision expense for loan losses540  265  5,575  805  6,064 
Net interest income after provision for loan losses19,076  18,892  10,658  37,968  24,989 
Noninterest income         
Service charges on deposits800  777  548  1,577  1,182 
Net gain on sales of securities  20  899  20  1,428 
Mortgage banking activities2,711  5,811  5,684  8,522  8,272 
Other charges and fees815  670  658  1,485  1,597 
Total noninterest income4,326  7,278  7,789  11,604  12,479 
Noninterest expense         
Salary and employee benefits9,352  9,922  9,598  19,274  18,228 
Occupancy and equipment expense1,583  1,708  1,567  3,291  3,095 
Professional service fees774  643  941  1,417  1,333 
Acquisition and due diligence fees    176  —   1,647 
FDIC premium expense210  324  224  534  435 
Marketing expense281  133  230  414  452 
Loan processing expense193  331  192  524
  427 
Data processing expense1,057  1,224  910  2,281  1,757 
Core deposit premium amortization166  168  192  334
  384 
Other expense972  686  1,053  1,658
  1,887 
Total noninterest expense14,588  15,139  15,083  29,727
  29,645 
Income before income taxes8,814  11,031  3,364  19,845
  7,823 
Income tax provision1,835  2,072   643   3,907  992 
Net income6,979  8,959   2,721   15,938  6,831 
Preferred stock dividends469  469   —   938   
Net income attributable to common shareholders$6,510  $8,490   $2,721  $15,000  $6,831 
Earnings per common share:         
Basic earnings per common share$0.85  $1.11  $0.35  $1.96  $0.88 
Diluted earnings per common share$0.84  $1.10  $0.35  $1.94  $0.88 
Cash dividends declared per common share$0.06  $0.06  $0.05  $0.12  $0.10 
Weighted average common shares outstanding—basic7,520  7,528  7,676  7,524  7,636 
Weighted average common shares outstanding—diluted7,633  7,612  7,721  7,623  7,713 


Net Interest Income and Net Interest Margin      
(Unaudited)For the three months ended For the six months ended
 June 30, March 31, June 30, June 30, June 30,
(Dollars in thousands)2021 2021 2020 2021 2020
Average Balance Sheets:         
Gross loans(1)$1,853,438  $1,856,030  $1,756,234  $1,854,726  $1,607,565 
Investment securities: (2)         
Taxable248,739  214,945  115,271  231,935  116,554 
Tax-exempt103,184  102,208  102,955  102,699  98,406 
Interest earning cash balances186,186  168,906  226,931  177,594  152,239 
Other investments14,398  14,398  12,398  14,398  12,392 
Total interest-earning assets$2,405,945  $2,356,487  $2,213,789  $2,381,352  $1,987,156 
Non-earning assets147,607  139,100   140,116  143,377  130,640 
Total assets$2,553,552  $2,495,587   $2,353,905  $2,524,729  $2,117,796 
          
Interest-bearing demand deposits143,290  132,816  115,176  138,082  110,706 
Money market and savings deposits640,471  604,491  457,576  622,580  430,644 
Time deposits550,751  584,085  570,052  567,326  558,945 
Borrowings184,391  185,688  352,554  185,036  269,070 
Subordinated notes41,809  44,598  44,456  43,196  44,460 
Total interest-bearing liabilities$1,560,712  $1,551,678  $1,539,814  $1,556,220  $1,413,825 
Noninterest bearing demand deposits737,038  692,617  603,552  714,949  498,535 
Other liabilities32,852  31,608  29,750  32,235  27,622 
Shareholders' equity222,950  219,684  180,789  221,325  177,814 
Total liabilities and shareholders' equity$2,553,552  $2,495,587  $2,353,905  $2,524,729  $2,117,796 
          
Yields: (3)         
Earning Assets         
Gross loans4.32% 4.35% 4.34% 4.33% 4.64%
Investment securities:         
Taxable1.60% 1.60% 2.07% 1.60% 2.21%
Tax-exempt3.03% 3.08% 3.22% 3.05% 3.20%
Interest earning cash balances0.11% 0.10% 0.12% 0.10% 0.43%
Other investments3.40% 3.18% 3.44% 3.29% 3.94%
Total interest earning assets3.65% 3.74% 3.73% 3.69% 4.10%
          
Interest-bearing liabilities         
Interest-bearing demand deposits0.15% 0.16% 0.25% 0.15% 0.36%
Money market and savings deposits0.18% 0.25% 0.49% 0.22% 0.78%
Time deposits0.54% 0.66% 1.59% 0.60% 1.75%
Borrowings1.03% 1.02% 0.73% 1.03% 0.88%
Subordinated notes5.32% 4.92% 5.75% 5.12% 5.75%
Total interest-bearing liabilities0.55% 0.63% 1.09% 0.59% 1.30%
          
Interest Spread3.10% 3.11% 2.64% 3.10% 2.80%
Net interest margin(4)3.27% 3.30% 2.95% 3.28% 3.14%
Tax equivalent effect0.03% 0.03% 0.03% 0.03% 0.03%
Net interest margin on a fully tax equivalent basis3.30% 3.33% 2.98% 3.31% 3.17%

(1) Includes nonaccrual loans.
(2) 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.
(3) Average rates and yields are presented on an annual basis and includes a taxable equivalent adjustment to interest income of $153 thousand, $152 thousand, and $154 thousand on tax-exempt securities for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively, and $304 thousand and $286 thousand for the six months ended June 30, 2020 and 2021, respectively, using a federal income tax rate of 21%.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.

Loan Composition         
 As of
 June 30, March 31,  December 31,  September 30, June 30,
(Dollars in thousands)2021 2021 2020 2020 2020
Commercial real estate:(Unaudited) (Unaudited)   (Unaudited) (Unaudited)
Non-owner occupied$477,715  $449,690  $445,810  $460,708  $451,906 
Owner-occupied301,615  300,175  275,022  269,481  273,577 
Total commercial real estate779,330  749,865  720,832  730,189  725,483 
Commercial and industrial642,606  794,096  685,504  807,923  790,353 
Residential real estate352,513  316,089  315,476  304,088  294,041 
Consumer794  1,641  1,725  1,688  5,476 
Total loans$1,775,243  $1,861,691  $1,723,537  $1,843,888  $1,815,353 


Impaired Assets         
 As of
 June 30,  March 31, December 31, September 30, June 30,
(Dollars in thousands)2021 2021 2020 2020 2020
Nonaccrual loans(Unaudited) (Unaudited)   (Unaudited) (Unaudited)
Commercial real estate$4,536  $4,542  $7,320  $7,022  $3,649 
Commercial and industrial5,247  6,822  7,490  8,078  2,377 
Residential real estate3,931  3,987  3,991  4,151  2,226 
Consumer10  13  15  15  16 
Total nonaccrual loans13,724  15,364  18,816  19,266  8,268 
Other real estate owned        61 
Total nonperforming assets13,724  15,364  18,816  19,266  8,329 
Performing troubled debt restructurings         
Commercial and industrial336  335  546  550  549 
Residential real estate429  430  432  599  600 
Total performing troubled debt restructurings765  765  978  1,149  1,149 
Total impaired assets$14,489  $16,129  $19,794  $20,415  $9,478 
          
Loans 90 days or more past due and still accruing$387  $328  $269  $552  $903 

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, the ratio of tangible common equity to tangible assets, net income and diluted earnings per common share excluding acquisition and due diligence fees, and allowance for loan loss as a percentage of total loans, excluding PPP loans. 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 Common Share
 As of
 June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands, except per share data)2021 2021 2020 2020 2020
 (Unaudited) (Unaudited)   (Unaudited) (Unaudited)
Total shareholders' equity$225,409  $217,187  $215,327  $209,468  $180,259 
Less:         
Preferred stock23,372  23,372  23,372  23,370   
Total common shareholders' equity202,037  193,815  191,955  186,098  180,259 
Less:         
Goodwill35,554  35,554  35,554  35,554  35,554 
Mortgage servicing rights, net4,599  4,346  3,361  2,193  1,213 
Other intangible assets, net2,862  3,028  3,196  3,388  3,579 
Tangible common shareholders' equity$159,022  $150,887  $149,844  $144,963  $139,913 
          
Common shares outstanding (in thousands)7,629  7,630  7,634  7,734  7,734 
Tangible book value per common share$20.84  $19.78  $19.63  $18.74  $18.09 
          
Total assets$2,506,523  $2,572,726  $2,442,982  $2,446,447  $2,541,696 
Less:         
Goodwill35,554  35,554  35,554  35,554  35,554 
Mortgage servicing rights, net4,599  4,346  3,361  2,193  1,213 
Other intangible assets, net2,862  3,028  3,196  3,388  3,579 
Tangible assets$2,463,508  $2,529,798  $2,400,871  $2,405,312  $2,501,350 
          
Tangible common equity to tangible assets6.46% 5.96% 6.24% 6.03% 5.59%


Adjusted Income and Diluted Earnings Per Share
 For the three months ended
 June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands, except per share data)2021 2021 2020 2020 2020
 (Unaudited) (Unaudited)   (Unaudited) (Unaudited)
Net income, as reported$6,979  $8,959  $8,373  $5,209   $2,721  
Acquisition and due diligence fees—       17   176  
Income tax (benefit) expense (1)—     2  (4)  (34) 
Net income, excluding acquisition and due diligence fees$6,979  $8,959  $8,375  $5,222   $2,863  
          
Diluted earnings per share, as reported$0.84  $1.10  $1.02  $0.67   $0.35  
Effect of acquisition and due diligence fees, net of income tax benefit         0.02  
Diluted earnings per common share, excluding
acquisition and due diligence fees
$0.84  $1.10  $1.02  $0.67   $0.37  
          
(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
 June 30, March 31, December 31, September 30, June 30,
(Dollars in thousands, except per share data)2021 2021 2020 2020 2020
 (Unaudited) (Unaudited)   (Unaudited) (Unaudited)
Total loans$1,775,243  $1,861,691  $1,723,537  $1,843,888  $1,815,353 
Less:         
PPP loans259,303  405,770  290,135  392,521  388,264 
Total loans, excluding PPP loans$1,515,940  $1,455,921  $1,433,402  $1,451,367  $1,427,089 
          
Allowance for loan loss$23,144  $22,578  $22,297  $21,254  $17,063 
Allowance for loan loss as a percentage of total loans1.30% 1.21% 1.29% 1.15% 0.94%
Allowance for loan loss as a percentage of total loans, excluding PPP loans1.53% 1.55% 1.56% 1.46% 1.20%

 


Media Contact:
Nicole Ransom
(248) 538-2183

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

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