Level One Bancorp, Inc. reports fourth quarter 2020 net income of $8.4 million, representing $1.02 diluted earnings per common share

1/29, 2:30 PM (Source: GlobeNewswire)

FARMINGTON HILLS, Mich., Jan. 29, 2021 (GLOBE NEWSWIRE) -- Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported financial results for the fourth quarter of 2020, which included net income of $8.4 million, or $1.02 diluted earnings per common share. This compares to net income of $5.2 million, or $0.67 diluted earnings per common share, in the preceding quarter and $4.7 million, or $0.60 diluted earnings per common share, in the fourth quarter of 2019.

Patrick J. Fehring, President and Chief Executive Officer of Level One, commented, "We are pleased to report strong earnings for the fourth quarter of 2020. This caps another year of quality growth at Level One. In 2020, our net income was $20.4 million with diluted earnings per common share of $2.57. This was an increase of 26.70% over the prior year net income of $16.1 million and a 25.37% increase over last year's $2.05 diluted earnings per common share. These results were achieved in the face of an extraordinarily challenging environment this past year. For their accomplishments of the past year, I want to recognize the tireless effort of the Level One team during the pandemic and the related turbulence of the economy. Highlights of our remarkable year include the following:

  • The successful integration of Ann Arbor State Bank, adding a great team of bankers and a desirable market to Level One.
  • Providing over $410.0 million in Paycheck Protection Program ("PPP") lending to support our clients.
  • Increasing mortgage banking activities income by 181.60% to $22.2 million.
  • Improving the efficiency ratio to 62.44%.
  • Strengthening our balance sheet with additional capital from the offering of depositary shares of our Series B preferred stock.
  • Increasing our loan loss reserves by $9.6 million to 1.29% of total loans and 1.56% of non-PPP loans.
  • Increasing total deposits by 72.91%.
  • Reducing non-performing assets by $634 thousand from year-end 2019."

He continued, “We are very proud of our entire team that has helped businesses complete more than 1,000 applications for the second round of PPP loans in the past two weeks that total $193.6 million. These loans will help many small businesses cope with the challenges of managing through continued slowdowns in business activity and government-mandated shutdowns."

He concluded, "We are still in an uncertain, but improving, economy and maintain cautious optimism about the future while being cognizant of the continued COVID-19 pandemic concerns. As noted, we added significant reserves to our loan loss reserves in 2020 that reflect the challenging headwinds.”

Fourth Quarter 2020 Highlights

  • Net income of $8.4 million increased 60.74% from $5.2 million in the preceding quarter
  • Diluted earnings per common share of $1.02 increased 52.24% compared to $0.67 in the preceding quarter, and 70.00% compared to $0.60 in the fourth quarter of 2019
  • Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.27%, compared to 2.80% in the preceding quarter
  • Net interest income increased $2.5 million to $19.1 million in the fourth quarter of 2020, compared to $16.6 million in the preceding quarter
  • Noninterest income decreased $1.0 million to $8.1 million in the fourth quarter of 2020, compared to $9.1 million in the preceding quarter
  • Provision for loan loss decreased to $1.5 million in the fourth quarter of 2020, compared to $4.3 million provision expense in the preceding quarter
  • Total assets decreased 0.14% to $2.44 billion at December 31, 2020, compared to $2.45 billion at September 30, 2020
  • Total loans decreased 6.53% to $1.72 billion at December 31, 2020, compared to $1.84 billion at September 30, 2020 primarily driven by PPP loan forgiveness
  • Total deposits increased 1.02% to $1.96 billion at December 31, 2020, compared to $1.94 billion at September 30, 2020
  • Book value per common share increased 4.49% to $25.14 per common share at December 31, 2020, compared to $24.06 per common share at September 30, 2020
  • Tangible book value per common share increased 4.75% to $19.63 per common share at December 31, 2020, compared to $18.74 per common share at September 30, 2020

Net Interest Income and Net Interest Margin

Level One's net interest income increased $2.5 million, or 15.12%, to $19.1 million in the fourth quarter of 2020, compared to $16.6 million in the preceding quarter, and increased $6.2 million, or 48.02%, compared to $12.9 million in the fourth quarter of 2019.

Level One’s net interest margin, on a FTE basis, was 3.27% in the fourth quarter of 2020, compared to 2.80% in the preceding quarter and 3.56% in the fourth quarter of 2019. The increase in the net interest margin compared to the preceding quarter was primarily a result of the forgiveness of $102.4 million of PPP loans by the U.S. Small Business Administration (“SBA”), which accelerated the recognition of related fee income, which resulted in an average yield on PPP loans of 6.21%, net of deferred fees/costs. Loan yields on non-PPP loans was 4.17% for the fourth quarter of 2020 compared to 4.35% in the preceding quarter. The decrease compared to the fourth quarter of 2019 was a result of lower yields across most interest-earning assets, mostly reflecting the impact of lower interest rates. Average loan yield decreased 71 basis points to 4.49% for the fourth quarter of 2020 from 5.20% for the fourth 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. The decrease in loan yields was accompanied by a corresponding decrease in the cost of funds, which declined 99 basis points to 0.78% in the fourth quarter of 2020, compared to 1.77% in the fourth quarter of 2019 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. Finally, during the fourth quarter of 2020, our average cash balances of $213.5 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 decreased $1.0 million, or 11.12%, to $8.1 million in the fourth quarter of 2020, compared to $9.1 million in the preceding quarter, and increased $3.5 million, or 76.25%, compared to $4.6 million in the fourth quarter of 2019. The decrease in noninterest income compared to the preceding quarter was primarily attributable to a decrease of $434 thousand in net gains on sales of investment securities, a decrease of $315 thousand in other charges and fees, and a decrease of $298 thousand in mortgage banking activities. The decrease in net gains on sales of investment securities was due to fewer sales of investment securities during the fourth quarter of 2020. The decrease in other charges and fees was primarily due to a decrease in interest rate swap fees and lower gains on sale of other real estate owned. The decrease in the mortgage banking activities income compared to the third quarter of 2020 was primarily due to $40.1 million lower residential loan originations held for sale.

The increase in noninterest income year over year was primarily due to an increase of $4.7 million in mortgage banking activities partially offset by a decrease of $1.0 million in net gains on sales of investment securities. The increase in mortgage banking activities compared to the fourth quarter of 2019 was primarily due to $71.7 million higher residential loan originations held for sale and $70.3 million higher residential loans sold primarily as a result of higher volumes caused by the lower interest rate environment and the expansion of our mortgage banking department. The decrease in net gains on sales of securities was due to fewer securities sold in the fourth quarter of 2020 than in the fourth quarter of 2019.

Noninterest Expense

Level One's noninterest expense increased $335 thousand, or 2.21%, to $15.5 million in the fourth quarter of 2020, compared to $15.1 million in the preceding quarter, and increased $4.2 million, or 36.88%, compared to $11.3 million in the fourth quarter of 2019. The increase in noninterest expense compared to the preceding quarter was primarily attributable to an increase of $352 thousand in salary and employee benefits. The increase in salary and employee benefits compared to the third quarter of 2020 was primarily due to increases of $774 thousand in incentive compensation and $98 thousand in supplemental employee retirement plan ("SERP") expense as a result of a year-to-date true-up. This was partially offset by a $605 thousand decrease in mortgage commissions.

The increase in noninterest expense year over year was mainly attributable to increases of $3.1 million in salary and employee benefits, $412 thousand in occupancy and equipment expense, $347 thousand in data processing expense, $284 thousand in FDIC premium expense, $198 thousand in professional service fees, and $163 thousand in core deposit premium amortization. These increases were partially offset by a decrease of $220 thousand in acquisition and due diligence fees. The increase in salary and employee benefits between the periods was primarily due to increases of $1.3 million in mortgage commissions expense and $709 thousand in incentive compensation as well as an increase of 29 full-time equivalent employees attributable to the acquisition of Ann Arbor State Bank and 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. The increase in professional service fees was primarily related to increased residential mortgage volumes as well as increased audit fees. In addition, as a result of the acquisition, Level One 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 fourth quarter of 2020 was 56.81%, compared to 58.81% for the preceding quarter and 64.55% in the fourth quarter of 2019. The decrease in the efficiency ratio year over year was primarily driven by the additional income provided by the acquisition of Ann Arbor State Bank without adding a proportional amount of expense as well as the increase in mortgage banking income net of commissions as a result of higher loan volumes.

Income Tax Expense

Level One's income tax provision was $1.8 million, or 18.05% of pretax income, in the fourth quarter of 2020, as compared to $1.1 million, or 17.66% of pretax income, in the preceding quarter and $975 thousand, or 17.24% of pretax income, in the fourth quarter of 2019.

Loan Portfolio

Total loans were $1.72 billion at December 31, 2020, a decrease of $120.4 million, or 6.53%, from $1.84 billion at September 30, 2020, and up $495.9 million, or 40.40%, from $1.23 billion at December 31, 2019. The decrease in total loans compared to September 30, 2020 was primarily due to a decrease of $122.4 million in our commercial and industrial loan portfolio, $102.4 million of which were PPP loans that were forgiven. The growth in total loans compared to December 31, 2019 was primarily due to $290.1 million of PPP loans that were originated during the second and third quarters of 2020 and new loan growth during the year ended December 31, 2020. The acquisition of Ann Arbor State Bank also contributed $224.1 million of loans as of the merger date of January 2, 2020. The loan growth mentioned above was partially offset by a net decrease of $18.3 million due to loan payoffs and lower line of credit usage.

Investment Securities

The investment securities portfolio grew $49.2 million, or 19.41%, to $302.7 million at December 31, 2020, from $253.5 million at September 30, 2020, and up $121.8 million, or 67.34%, from $180.9 million at December 31, 2019. The increase in the investment securities portfolio compared to September 30, 2020 was primarily due to the purchase of $56.9 million of investment securities, offset in part by $2.6 million of sales, calls, or maturity of investment securities. The increase in investment securities compared to December 31, 2019 was primarily due to the purchase of $140.1 million of securities between the two dates using the excess cash balances generated by the payoffs of PPP loans as well as the acquisition of Ann Arbor State Bank, which contributed $47.4 million of investment securities.

Deposits

Total deposits increased to $1.96 billion at December 31, 2020, compared to $1.94 billion at September 30, 2020, and increased $827.9 million, or 72.91%, from $1.14 billion at December 31, 2019. The growth in deposits compared to December 31, 2019 was primarily due to $563.1 million of organic deposit growth as a result of customers increasing their liquidity. 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 December 31, 2020 consisted of 38.03% of demand deposit accounts, 31.57% of savings and money market accounts and 30.40% of time deposits.

Borrowings

Total debt outstanding was $230.3 million at December 31, 2020, a decrease of $31.1 million, or 11.90%, from $261.4 million at September 30, 2020, and down $26.3 million, or 10.25%, from $256.7 million at December 31, 2019. The decrease in debt outstanding compared to September 30, 2020 was primarily due to a decrease of $34.1 million in PPPLF Federal Reserve Bank ("FRB") borrowings. The decrease in total borrowings compared to December 31, 2019 was primarily due to decreases of $60.0 million in short-term FHLB advances and $5.0 million in fed funds sold, partially offset by an increase of $36.2 million in long-term FHLB advances, of which $11.0 million was acquired through the Ann Arbor State Bank acquisition.

Asset Quality

Nonaccrual loans were $18.8 million, or 1.09% of total loans, at December 31, 2020, a decrease of $450 thousand from nonaccrual loans of $19.3 million, or 1.04% of total loans, at September 30, 2020, and an increase of $287 thousand from nonaccrual loans of $18.5 million, or 1.51% of total loans, at December 31, 2019.

Level One had no other real estate owned assets at December 31, 2020 and September 30, 2020, compared to $921 thousand at December 31, 2019. Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 0.77% at December 31, 2020, compared to 0.79% at September 30, 2020, and 1.23% at December 31, 2019.

Performing troubled debt restructured loans, which are not reported as nonaccrual loans but rather as part of impaired loans, were $978 thousand at December 31, 2020, $1.1 million at September 30, 2020, and $906 thousand at December 31, 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. As of December 31, 2020, there were $19.8 million of loans that remained on a COVID-related deferral of which $11.4 million of loans had payments deferred greater than six months.

Net chargeoffs in the fourth quarter of 2020 were $496 thousand, or 0.11% of average loans on an annualized basis, compared to $78 thousand of net chargeoffs, or 0.02% of average loans on an annualized basis, for the preceding quarter and $181 thousand of net chargeoffs, or 0.06% of average loans on an annualized basis, in the fourth quarter of 2019. The increase in net chargeoffs during the fourth quarter of 2020 compared to the third quarter of 2020 was due primarily to increases of $357 thousand in commercial loan chargeoffs and $176 thousand in residential loan chargeoffs. The increase in net chargeoffs year over year was primarily due to commercial loan chargeoffs.

Level One's provision for loan losses in the fourth quarter of 2020 was a provision expense of $1.5 million, compared to $4.3 million in the preceding quarter and $548 thousand in the fourth quarter of 2019. The decrease in the provision expense quarter over quarter was primarily due to a decrease of $1.9 million in general reserves as a result of a larger reserve increase in the third quarter of 2020 related to the impact of the COVID-19 pandemic on the loan portfolio, as well as a $997 thousand decrease in specific reserves, partially offset by an increase in net chargeoffs of $418 thousand. The increase in the provision expense year over year was primarily due to an increase in general reserves of $1.3 million as a result of trends in delinquencies and nonaccrual loans as a result of the COVID-19 pandemic, as well as an increase of $315 thousand in net chargeoffs. This was partially offset by a $410 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 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 $22.3 million, or 1.29% of total loans, at December 31, 2020, compared to $21.3 million, or 1.15% of total loans, at September 30, 2020, and $12.7 million, or 1.03% of total loans, at December 31, 2019. Excluding $290.1 million and $392.5 million of PPP loans, the allowance for loan losses as a percentage of total loans was 1.56% in the fourth quarter of 2020, compared to 1.46% 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 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 COVID-19 pandemic. As of December 31, 2020, the allowance for loan losses as a percentage of nonaccrual loans was 118.50%, compared to 110.32% at September 30, 2020, and 68.40% at December 31, 2019. The Company will re-evaluate the appropriateness of the allowance for loan losses in future quarters as needed. 

Capital

Total shareholders’ equity was $215.3 million at December 31, 2020, an increase of $5.9 million, or 2.80%, compared with $209.5 million at September 30, 2020 primarily as a result of an increase in retained earnings. Total shareholders' equity increased $44.6 million, or 26.14%, from $170.7 million at December 31, 2019 attributable to the issuance of preferred stock in the third quarter of 2020 as well as an increase in retained earnings.

Recent Developments

Fourth Quarter Common Stock Dividend: On December 16, 2020, Level One’s Board of Directors declared a quarterly cash dividend of $0.05 per share. This dividend was paid on January 15, 2021, to stockholders of record at the close of business on December 31, 2020.

First Quarter Preferred Stock Dividend: On January 20, 2021, Level One’s Board of Directors declared a quarterly cash dividend of $46.88 per share on its 7.50% Non-Cumulative Preferred Stock, Series B. Holders of depositary shares will receive $0.4688 per depositary share. The dividend is payable on February 15, 2021, to shareholders of record at the close of business on January 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. We have helped our consumer and small business customers by deferring loan payments and waiving fees. From January 18 through January 27, 2021, Level One received 1,044 new PPP loan applications, for a total amount of $193.6 million of funding, of which 756 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 a comprehensive return to office plan. We are currently serving customers through our drive-thrus and by appointment only for in-person 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 $2.44 billion as of December 31, 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)December 31,
2020
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
Earnings Summary         
Interest income$22,181   $20,245   $20,396   $19,817   $17,366  
Interest expense3,075   3,648   4,163   4,997   4,458  
Net interest income19,106   16,597   16,233   14,820   12,908  
Provision for loan losses1,538   4,270   5,575   489   548  
Noninterest income8,110   9,125   7,789   4,690   4,590  
Noninterest expense15,461   15,126   15,083   14,562   11,295  
Income before income taxes10,217   6,326   3,364   4,459   5,655  
Income tax provision1,844   1,117   643   349   975  
Net income$8,373   $5,209   $2,721   $4,110   $4,680  
Preferred stock dividends479   —   —   —   —  
Net income available to common shareholders7,894   5,209   2,721   4,110   4,680  
Net income allocated to participating securities65   40   19   47   50  
Net income attributable to common shareholders$7,829   $5,169   $2,702   $4,063   $4,630  
Per Share Data         
Basic earnings per common share$1.02   $0.68   $0.35   $0.53   $0.60  
Diluted earnings per common share1.02   0.67   0.35   0.53   0.60  
Diluted earnings per common share, excluding acquisition and due diligence fees (1)1.02   0.67   0.37   0.68   0.63  
Book value per common share25.14   24.06   23.31   22.74   22.13  
Tangible book value per common share (1)19.63   18.74   18.09   17.54   20.86  
Preferred shares outstanding (in thousands)10   10   —   —   —  
Common shares outstanding (in thousands)7,634   7,734   7,734   7,731   7,715  
Average basic common shares (in thousands)7,642   7,675   7,676   7,637   7,632  
Average diluted common shares (in thousands)7,695   7,712   7,721   7,738   7,747  
Selected Period End Balances         
Total assets$2,442,982   $2,446,447   $2,541,696   $1,936,823   $1,584,899  
Securities available-for-sale302,732   253,527   217,172   230,671   180,905  
Total loans1,723,537   1,843,888   1,815,353   1,466,407   1,227,609  
Total deposits1,963,312   1,943,435   1,821,351   1,470,608   1,135,428  
Total liabilities2,227,655   2,236,979   2,361,437   1,761,055   1,414,196  
Total shareholders' equity215,327   209,468   180,259   175,768   170,703  
Total common shareholders' equity191,955   186.098   180,259   175,768   170,703  
Tangible common shareholders' equity (1)149,844   144,963   139,913   135,578   160,940  
Performance and Capital Ratios         
Return on average assets (annualized)1.35 % 0.83 % 0.46 % 0.87 % 1.23 %
Return on average equity (annualized)15.61   10.48   6.02   9.40   10.98  
Net interest margin (fully taxable equivalent)(2)3.27   2.80   2.98   3.42   3.56  
Efficiency ratio (noninterest expense/net interest income plus noninterest income)56.81   58.81   62.79   74.64   64.55  
Dividend payout ratio4.90   7.41   14.22   7.52   6.60  
Total shareholders' equity to total assets8.81   8.56   7.09   9.08   10.77  
Tangible common equity to tangible assets (1)6.24   6.03   5.59   7.15   10.22  
Common equity tier 1 to risk-weighted assets9.30   8.83   8.76   8.10   11.72  
Tier 1 capital to risk-weighted assets10.80   10.31   8.76   8.10   11.72  
Total capital to risk-weighted assets14.91   14.39   12.81   11.68   15.99  
Tier 1 capital to average assets (leverage ratio)6.93   7.17   6.21   7.08   10.41  
Asset Quality Ratios:         
Net charge-offs to average loans0.11 % 0.02 % 0.34 % 0.05 % 0.06 %
Nonperforming assets as a percentage of total assets0.77   0.79   0.33   0.89   1.23  
Nonaccrual loans as a percent of total loans1.09   1.04   0.46   1.04   1.51  
Allowance for loan losses as a percentage of total loans1.29   1.15   0.94   0.89   1.03  
Allowance for loan losses as a percentage of nonaccrual loans118.50   110.32   206.37   85.32   68.40  
Allowance for loan losses as a percentage of nonaccrual loans, excluding allowance allocated to loans accounted for under ASC 310-30114.95   105.46   195.04   80.34   64.29  

(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
 December 31, September 30, December 31,
(Dollars in thousands)2020 2020 2019
Assets(Unaudited) (Unaudited)  
Cash and cash equivalents$264,071  $176,486  $103,930 
Securities available-for-sale302,732  253,527  180,905 
Other investments14,398  14,398  11,475 
Mortgage loans held for sale, at fair value43,482  60,635  13,889 
Loans:     
Originated loans1,498,458  1,603,893  1,158,138 
Acquired loans225,079  239,995  69,471 
Total loans1,723,537  1,843,888  1,227,609 
Less: Allowance for loan losses(22,297) (21,254) (12,674)
Net loans1,701,240  1,822,634  1,214,935 
Premises and equipment, net15,834  15,646  13,838 
Goodwill35,554  35,554  9,387 
Other intangible assets, net6,557  5,581  383 
Other real estate owned—     921 
Bank-owned life insurance18,200  18,083  12,167 
Income tax benefit3,686  3,791  1,217 
Interest receivable and other assets37,228  40,112  21,852 
Total assets$2,442,982  $2,446,447  $1,584,899 
Liabilities     
Deposits:     
Noninterest-bearing demand deposits$618,677  $632,427  $325,885 
Interest-bearing demand deposits127,920  115,395  62,586 
Money market and savings deposits619,900  595,471  313,885 
Time deposits596,815  600,142  433,072 
Total deposits1,963,312  1,943,435  1,135,428 
Borrowings185,684  216,809  212,225 
Subordinated notes44,592  44,555  44,440 
Other liabilities34,067  32,180  22,103 
Total liabilities2,227,655  2,236,979  1,414,196 
Shareholders' equity     
Preferred stock, no par value per share; authorized-50,000 shares; issued and outstanding-10,000 shares at December 31, 2020 and September 30, 2020 and 0 at December 31, 201923,372  23,370   
Common stock, no par value per share; authorized - 20,000,000 shares; issued and outstanding - 7,633,780 shares at December 31, 2020, 7,734,322 shares at September 30, 2020 and 7,715,491 shares at December 31, 201987,615  89,409  89,345 
Retained earnings96,158  88,646  77,766 
Accumulated other comprehensive income, net of tax8,182  8,043  3,592 
Total shareholders' equity215,327  209,468  170,703 
Total liabilities and shareholders' equity$2,442,982  $2,446,447  $1,584,899 


Consolidated Statements of Income         
 Three months ended Twelve months ended
 December 31, September 30, December 31, December 31, December 31,
(In thousands, except per share data)2020 2020 2019 2020 2019
Interest income(Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Originated loans, including fees$17,439   $15,274   $14,304   $62,069   $56,956  
Acquired loans, including fees3,234   3,456   1,480   14,421   6,375  
Securities:         
Taxable747   652   736   2,677   3,509  
Tax-exempt592   613   577   2,486   2,305  
Federal funds sold and other169   250   269   986   1,303  
Total interest income22,181   20,245   17,366   82,639   70,448  
Interest Expense         
Deposits1,954   2,323   3,725   10,993   16,941  
Borrowed funds487   693   418   2,353   1,378  
Subordinated notes634   632   315   2,537   1,074  
Total interest expense3,075   3,648   4,458   15,883   19,393  
Net interest income19,106   16,597   12,908   66,756   51,055  
Provision expense for loan losses1,538   4,270   548   11,872   1,383  
Net interest income after provision for loan losses17,568   12,327   12,360   54,884   49,672  
Noninterest income         
Service charges on deposits648   616   633   2,446   2,547  
Net gain on sales of securities—   434   1,023   1,862   1,174  
Mortgage banking activities6,810   7,108   2,092   22,190   7,880  
Other charges and fees652   967   842   3,216   2,610  
Total noninterest income8,110   9,125   4,590   29,714   14,211  
Noninterest expense         
Salary and employee benefits10,214   9,862   7,133   38,304   28,775  
Occupancy and equipment expense1,776   1,678   1,364   6,549   4,939  
Professional service fees794   808   596   2,935   1,808  
Acquisition and due diligence fees—   17   220   1,654   539  
FDIC premium expense397   287   113   1,119   310  
Marketing expense247   257   264   956   1,107  
Loan processing expense245   263   189   935 
  661  
Data processing expense859   844   512   3,460   2,374  
Core deposit premium amortization192   192   29   768 
  146  
Other expense737   918   875   3,552 
  3,710  
Total noninterest expense15,461   15,126   11,295   60,232 
  44,369  
Income before income taxes10,217   6,326   5,655   24,366 
  19,514  
Income tax provision1,844   1,117   975   3,953   3,403  
Net income8,373   5,209   4,680   20,413   16,111  
Preferred stock dividends479   —   —   479   —  
Net income attributable to common shareholders$7,894   $5,209   $4,680   $19,934   $16,111  
Earnings per common share:         
Basic earnings per common share$1.02   $0.68   $0.60   $2.58   $2.08  
Diluted earnings per common share$1.02   $0.67   $0.60   $2.57   $2.05  
Cash dividends declared per common share$0.05   $0.05   $0.04   $0.20   $0.16  
Weighted average common shares outstanding—basic7,642   7,675   7,632   7,627   7,655  
Weighted average common shares outstanding—diluted7,695   7,712   7,747   7,686   7,770  


Net Interest Income and Net Interest Margin      
(Unaudited)For the three months ended For the twelve months ended
 December 31, September 30, December 31, December 31, December 31,
(Dollars in thousands)2020 2020 2019 2020 2019
Average Balance Sheets:         
Gross loans(1)$1,832,912   $1,871,164   $1,204,052   $1,730,470   $1,169,486  
Investment securities: (2)         
Taxable182,522   139,237   110,919   138,837   129,274  
Tax-exempt92,792   94,526   84,141   96,020   84,392  
Interest earning cash balances213,502   259,349   40,965   194,545   38,268  
Other investments14,398   12,419   9,110   12,903   8,523  
Total interest-earning assets$2,336,126   $2,376,695   $1,449,187   $2,172,775   $1,429,943  
Non-earning assets138,989   140,480   74,755   135,229   68,015  
Total assets$2,475,115   $2,517,175   $1,523,942   $2,308,004   $1,497,958  
          
Interest-bearing demand deposits123,201   116,285   68,120   115,249   57,480  
Money market and savings deposits611,162   513,420   337,046   496,827   314,918  
Time deposits601,900   575,179   440,610   573,823   527,605  
Borrowings187,399   394,020   132,859   279,949   79,864  
Subordinated notes44,569   44,468   19,478   44,490   16,061  
Total interest-bearing liabilities$1,568,231   $1,643,372   $998,113   $1,510,338   $995,928  
Noninterest bearing demand deposits659,333   640,095   335,532   574,537   321,487  
Other liabilities32,990   34,846   19,825   30,787   17,750  
Shareholders' equity214,561   198,862   170,472   192,342   162,793  
Total liabilities and shareholders' equity$2,475,115   $2,517,175   $1,523,942   $2,308,004   $1,497,958  
          
Yields: (3)         
Earning Assets         
Gross loans4.49 % 3.98 % 5.20 % 4.42 % 5.42 %
Investment securities:         
Taxable1.63 % 1.86 % 2.63 % 1.93 % 2.71 %
Tax-exempt3.14 % 3.19 % 3.27 % 3.19 % 3.27 %
Interest earning cash balances0.11 % 0.12 % 1.79 % 0.24 % 2.23 %
Other investments2.98 % 5.57 % 3.66 % 4.07 % 5.26 %
Total interest earning assets3.80 % 3.41 % 4.79 % 3.83 % 4.96 %
          
Interest-bearing liabilities         
Interest-bearing demand deposits0.19 % 0.22 % 0.58 % 0.28 % 0.49 %
Money market and savings deposits0.35 % 0.43 % 1.33 % 0.56 % 1.43 %
Time deposits0.89 % 1.18 % 2.25 % 1.38 % 2.30 %
Borrowings1.03 % 0.70 % 1.25 % 0.84 % 1.73 %
Subordinated notes5.66 % 5.65 % 6.42 % 5.70 % 6.69 %
Total interest-bearing liabilities0.78 % 0.88 % 1.77 % 1.05 % 1.95 %
          
Interest Spread3.02 % 2.53 % 3.02 % 2.78 % 3.01 %
Net interest margin(4)3.25 % 2.78 % 3.53 % 3.07 % 3.57 %
Tax equivalent effect0.02 % 0.02 % 0.03 % 0.03 % 0.03 %
Net interest margin on a fully tax equivalent basis3.27 % 2.80 % 3.56 % 3.10 % 3.60 %

(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 $140 thousand, $144 thousand, and $117 thousand on tax-exempt securities for the three months ended December 31, 2020, September 30, 2020, and December 31, 2019, respectively, and $574 thousand and $453 thousand for the year ended December 31, 2020 and December 31, 2019, respectively, and 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
 December 31, September 30, June 30, March 31, December 31,
(Dollars in thousands)2020 2020 2020 2020 2019
Commercial real estate:(Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Non-owner occupied$445,810   $460,708   $451,906   $450,694   $388,515  
Owner-occupied275,022   269,481   273,577   278,216   216,131  
Total commercial real estate720,832   730,189   725,483   728,910   604,646  
Commercial and industrial685,504   807,923   790,353   469,227   410,228  
Residential real estate315,476   304,088   294,041   262,894   211,839  
Consumer1,725   1,688   5,476   5,376   896  
Total loans$1,723,537   $1,843,888   $1,815,353   $1,466,407   $1,227,609  


Impaired Assets         
 As of
 December 31, September 30, June 30, March 31, December 31,
(Dollars in thousands)2020 2020 2020 2020 2019
Nonaccrual loans(Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Commercial real estate$7,320   $7,022   $3,649   $3,721   $4,832  
Commercial and industrial7,490   8,078   2,377   9,364   11,112  
Residential real estate3,991   4,151   2,226   2,124   2,569  
Consumer15   15   16   15   16  
Total nonaccrual loans18,816   19,266   8,268   15,224   18,529  
Other real estate owned—   —   61   2,093   921  
Total nonperforming assets18,816   19,266   8,329   17,317   19,450  
Performing troubled debt restructurings         
Commercial and industrial546   550   549   541   547  
Residential real estate432   599   600   599   359  
Total performing troubled debt restructurings978   1,149   1,149   1,140   906  
Total impaired assets$19,794   $20,415   $9,478   $18,457   $20,356  
          
Loans 90 days or more past due and still accruing$269   $552   $903   $437   $157  


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, 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
(Dollars in thousands, except per share data)December 31,
2020
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Total shareholders' equity$215,327   $209,468   $180,259   $175,768   $170,703  
Less:         
Preferred stock23,372   23,370   —   —   —  
Total common shareholders' equity191,955   186,098   180,259   175,768   170,703  
Less:         
Goodwill35,554   35,554   35,554   36,216   9,387  
Other intangible assets, net6,557   5,581   4,792   3,974   376  
Tangible common shareholders' equity$149,844   $144,963   $139,913   $135,578   $160,940  
          
Common shares outstanding (in thousands)7,634   7,734   7,734   7,731   7,715  
Tangible book value per common share$19.63   $18.74   $18.09   $17.54   $20.86  
          
Total assets$2,442,982   $2,446,447   $2,541,696   $1,936,823   $1,584,899  
Less:         
Goodwill35,554   35,554   35,554   36,216   9,387  
Other intangible assets, net6,557   5,581   4,792   3,974   376  
Tangible assets$2,400,871   $2,405,312   $2,501,350   $1,896,633   $1,575,136  
          
Tangible common equity to tangible assets6.24 % 6.03 % 5.59 % 7.15 % 10.22 %


Adjusted Income and Diluted Earnings Per Share
 Three months ended
(Dollars in thousands, except per share data)December 31,
2020
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Net income, as reported$8,373   $5,209  $2,721  $4,110  $4,680 
Acquisition and due diligence fees—   17  176  1,471  220 
Income tax (benefit) expense (1)  (4) (34) (295) (26)
Net income, excluding acquisition and due diligence fees$8,375   $5,222  $2,863  $5,286  $4,874 
          
Diluted earnings per share, as reported$1.02   $0.67  $0.35  $0.53  $0.60 
Effect of acquisition and due diligence fees, net of income tax benefit—     0.02  0.15  0.03 
Diluted earnings per common share, excluding acquisition and due diligence fees$1.02   $0.67  $0.37  $0.68  $0.63 
          
(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)December 31,
2020
 September 30,
2020
 June 30,
2020
 March 31,
2020
 December 31,
2019
 (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
Total loans$1,723,537   $1,843,888   $1,815,353   $1,466,407   $1,227,609  
Less:         
PPP loans290,135   392,521   388,264   —   —  
Total loans, excluding PPP loans$1,433,402   $1,451,367   $1,427,089   $1,466,407   $1,227,609  
          
Allowance for loan loss$22,297   $21,254   $17,063   $12,989   $12,674  
Allowance for loan loss as a percentage of total loans1.29 % 1.15 % 0.94 % 0.89 % 1.03 %
Allowance for loan loss as a percentage of total loans, excluding PPP loans1.56 % 1.46 % 1.20 % 0.89 % 1.03 %

Media Contact:
Nicole Ransom
(248) 538-2183

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

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