Level One Bancorp, Inc. reports fourth quarter 2020 net income of $8.4 million, representing $1.02 diluted earnings per common share
01/29/2021 - 08:30 AM
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: 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 expense 3,075 3,648 4,163 4,997 4,458 Net interest income 19,106 16,597 16,233 14,820 12,908 Provision for loan losses 1,538 4,270 5,575 489 548 Noninterest income 8,110 9,125 7,789 4,690 4,590 Noninterest expense 15,461 15,126 15,083 14,562 11,295 Income before income taxes 10,217 6,326 3,364 4,459 5,655 Income tax provision 1,844 1,117 643 349 975 Net income $ 8,373 $ 5,209 $ 2,721 $ 4,110 $ 4,680 Preferred stock dividends 479 — — — — Net income available to common shareholders 7,894 5,209 2,721 4,110 4,680 Net income allocated to participating securities 65 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 share 1.02 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 share 25.14 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-sale 302,732 253,527 217,172 230,671 180,905 Total loans 1,723,537 1,843,888 1,815,353 1,466,407 1,227,609 Total deposits 1,963,312 1,943,435 1,821,351 1,470,608 1,135,428 Total liabilities 2,227,655 2,236,979 2,361,437 1,761,055 1,414,196 Total shareholders' equity 215,327 209,468 180,259 175,768 170,703 Total common shareholders' equity 191,955 186.098 180,259 175,768 170,703 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 ratio 4.90 7.41 14.22 7.52 6.60 Total shareholders' equity to total assets 8.81 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 assets 9.30 8.83 8.76 8.10 11.72 Tier 1 capital to risk-weighted assets 10.80 10.31 8.76 8.10 11.72 Total capital to risk-weighted assets 14.91 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 loans 0.11 % 0.02 % 0.34 % 0.05 % 0.06 % Nonperforming assets as a percentage of total assets 0.77 0.79 0.33 0.89 1.23 Nonaccrual loans as a percent of total loans 1.09 1.04 0.46 1.04 1.51 Allowance for loan losses as a percentage of total loans 1.29 1.15 0.94 0.89 1.03 Allowance for loan losses as a percentage of nonaccrual loans 118.50 110.32 206.37 85.32 68.40 Allowance for loan losses as a percentage of nonaccrual loans, excluding allowance allocated to loans accounted for under ASC 310-30 114.95 105.46 195.04 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-sale 302,732 253,527 180,905 Other investments 14,398 14,398 11,475 Mortgage loans held for sale, at fair value 43,482 60,635 13,889 Loans: Originated loans 1,498,458 1,603,893 1,158,138 Acquired loans 225,079 239,995 69,471 Total loans 1,723,537 1,843,888 1,227,609 Less: Allowance for loan losses (22,297 ) (21,254 ) (12,674 ) Net loans 1,701,240 1,822,634 1,214,935 Premises and equipment, net 15,834 15,646 13,838 Goodwill 35,554 35,554 9,387 Other intangible assets, net 6,557 5,581 383 Other real estate owned — — 921 Bank-owned life insurance 18,200 18,083 12,167 Income tax benefit 3,686 3,791 1,217 Interest receivable and other assets 37,228 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 deposits 127,920 115,395 62,586 Money market and savings deposits 619,900 595,471 313,885 Time deposits 596,815 600,142 433,072 Total deposits 1,963,312 1,943,435 1,135,428 Borrowings 185,684 216,809 212,225 Subordinated notes 44,592 44,555 44,440 Other liabilities 34,067 32,180 22,103 Total liabilities 2,227,655 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, 2019 23,372 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, 2019 87,615 89,409 89,345 Retained earnings 96,158 88,646 77,766 Accumulated other comprehensive income, net of tax 8,182 8,043 3,592 Total shareholders' equity 215,327 209,468 170,703 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 fees 3,234 3,456 1,480 14,421 6,375 Securities: Taxable 747 652 736 2,677 3,509 Tax-exempt 592 613 577 2,486 2,305 Federal funds sold and other 169 250 269 986 1,303 Total interest income 22,181 20,245 17,366 82,639 70,448 Interest Expense Deposits 1,954 2,323 3,725 10,993 16,941 Borrowed funds 487 693 418 2,353 1,378 Subordinated notes 634 632 315 2,537 1,074 Total interest expense 3,075 3,648 4,458 15,883 19,393 Net interest income 19,106 16,597 12,908 66,756 51,055 Provision expense for loan losses 1,538 4,270 548 11,872 1,383 Net interest income after provision for loan losses 17,568 12,327 12,360 54,884 49,672 Noninterest income Service charges on deposits 648 616 633 2,446 2,547 Net gain on sales of securities — 434 1,023 1,862 1,174 Mortgage banking activities 6,810 7,108 2,092 22,190 7,880 Other charges and fees 652 967 842 3,216 2,610 Total noninterest income 8,110 9,125 4,590 29,714 14,211 Noninterest expense Salary and employee benefits 10,214 9,862 7,133 38,304 28,775 Occupancy and equipment expense 1,776 1,678 1,364 6,549 4,939 Professional service fees 794 808 596 2,935 1,808 Acquisition and due diligence fees — 17 220 1,654 539 FDIC premium expense 397 287 113 1,119 310 Marketing expense 247 257 264 956 1,107 Loan processing expense 245 263 189 935 661 Data processing expense 859 844 512 3,460 2,374 Core deposit premium amortization 192 192 29 768 146 Other expense 737 918 875 3,552 3,710 Total noninterest expense 15,461 15,126 11,295 60,232 44,369 Income before income taxes 10,217 6,326 5,655 24,366 19,514 Income tax provision 1,844 1,117 975 3,953 3,403 Net income 8,373 5,209 4,680 20,413 16,111 Preferred stock dividends 479 — — 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—basic 7,642 7,675 7,632 7,627 7,655 Weighted average common shares outstanding—diluted 7,695 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) Taxable 182,522 139,237 110,919 138,837 129,274 Tax-exempt 92,792 94,526 84,141 96,020 84,392 Interest earning cash balances 213,502 259,349 40,965 194,545 38,268 Other investments 14,398 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 assets 138,989 140,480 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 deposits 123,201 116,285 68,120 115,249 57,480 Money market and savings deposits 611,162 513,420 337,046 496,827 314,918 Time deposits 601,900 575,179 440,610 573,823 527,605 Borrowings 187,399 394,020 132,859 279,949 79,864 Subordinated notes 44,569 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 deposits 659,333 640,095 335,532 574,537 321,487 Other liabilities 32,990 34,846 19,825 30,787 17,750 Shareholders' equity 214,561 198,862 170,472 192,342 162,793 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 loans 4.49 % 3.98 % 5.20 % 4.42 % 5.42 % Investment securities: Taxable 1.63 % 1.86 % 2.63 % 1.93 % 2.71 % Tax-exempt 3.14 % 3.19 % 3.27 % 3.19 % 3.27 % Interest earning cash balances 0.11 % 0.12 % 1.79 % 0.24 % 2.23 % Other investments 2.98 % 5.57 % 3.66 % 4.07 % 5.26 % Total interest earning assets 3.80 % 3.41 % 4.79 % 3.83 % 4.96 % Interest-bearing liabilities Interest-bearing demand deposits 0.19 % 0.22 % 0.58 % 0.28 % 0.49 % Money market and savings deposits 0.35 % 0.43 % 1.33 % 0.56 % 1.43 % Time deposits 0.89 % 1.18 % 2.25 % 1.38 % 2.30 % Borrowings 1.03 % 0.70 % 1.25 % 0.84 % 1.73 % Subordinated notes 5.66 % 5.65 % 6.42 % 5.70 % 6.69 % Total interest-bearing liabilities 0.78 % 0.88 % 1.77 % 1.05 % 1.95 % Interest Spread 3.02 % 2.53 % 3.02 % 2.78 % 3.01 % Net interest margin (4) 3.25 % 2.78 % 3.53 % 3.07 % 3.57 % Tax equivalent effect 0.02 % 0.02 % 0.03 % 0.03 % 0.03 % Net interest margin on a fully tax equivalent basis 3.27 % 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-occupied 275,022 269,481 273,577 278,216 216,131 Total commercial real estate 720,832 730,189 725,483 728,910 604,646 Commercial and industrial 685,504 807,923 790,353 469,227 410,228 Residential real estate 315,476 304,088 294,041 262,894 211,839 Consumer 1,725 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 industrial 7,490 8,078 2,377 9,364 11,112 Residential real estate 3,991 4,151 2,226 2,124 2,569 Consumer 15 15 16 15 16 Total nonaccrual loans 18,816 19,266 8,268 15,224 18,529 Other real estate owned — — 61 2,093 921 Total nonperforming assets 18,816 19,266 8,329 17,317 19,450 Performing troubled debt restructurings Commercial and industrial 546 550 549 541 547 Residential real estate 432 599 600 599 359 Total performing troubled debt restructurings 978 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 stock 23,372 23,370 — — — Total common shareholders' equity 191,955 186,098 180,259 175,768 170,703 Less: Goodwill 35,554 35,554 35,554 36,216 9,387 Other intangible assets, net 6,557 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: Goodwill 35,554 35,554 35,554 36,216 9,387 Other intangible assets, net 6,557 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 assets 6.24 % 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) 2 (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 loans 290,135 392,521 388,264 — — 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 loans 1.29 % 1.15 % 0.94 % 0.89 % 1.03 % Allowance for loan loss as a percentage of total loans, excluding PPP loans 1.56 % 1.46 % 1.20 % 0.89 % 1.03 %
