Level One Bancorp, Inc. reports second quarter 2021 net income of $7.0 million, representing $0.84 diluted earnings per common share
07/30/2021 - 08:30 AM
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 expense 2,121 2,394 3,075 3,648 4,163 Net interest income 19,616 19,157 19,106 16,597 16,233 Provision for loan losses 540 265 1,538 4,270 5,575 Noninterest income 4,326 7,278 8,110 9,125 7,789 Noninterest expense 14,588 15,139 15,461 15,126 15,083 Income before income taxes 8,814 11,031 10,217 6,326 3,364 Income tax provision 1,835 2,072 1,844 1,117 643 Net income $ 6,979 $ 8,959 $ 8,373 $ 5,209 $ 2,721 Preferred stock dividends 469 469 479 — — Net income available to common shareholders 6,510 8,490 7,894 5,209 2,721 Net income allocated to participating securities 92 111 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 share 0.84 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 share 26.48 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-sale 376,453 346,266 302,732 253,527 217,172 Total loans 1,775,243 1,861,691 1,723,537 1,843,888 1,815,353 Total deposits 2,031,808 2,093,965 1,963,312 1,943,435 1,821,351 Total liabilities 2,281,114 2,355,539 2,227,655 2,236,979 2,361,437 Total shareholders' equity 225,409 217,187 215,327 209,468 180,259 Total common shareholders' equity 202,037 193,815 191,955 186,098 180,259 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 ratio 7.02 4.50 4.90 7.41 14.22 Total shareholders' equity to total assets 8.99 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 assets 9.66 9.63 9.30 8.83 8.76 Tier 1 capital to risk-weighted assets 11.09 11.11 10.80 10.31 8.76 Total capital to risk-weighted assets 14.15 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 assets 0.55 0.60 0.77 0.79 0.33 Nonaccrual loans as a percent of total loans 0.77 0.83 1.09 1.04 0.46 Allowance for loan losses as a percentage of total loans 1.30 1.21 1.29 1.15 0.94 Allowance for loan losses as a percentage of nonaccrual loans 168.64 146.95 118.50 110.32 206.37 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-sale 376,453 346,266 217,172 Other investments 14,398 14,398 12,398 Mortgage loans held for sale, at fair value 9,305 19,550 24,557 Loans: Originated loans 1,580,175 1,647,847 1,558,955 Acquired loans 195,068 213,844 256,398 Total loans 1,775,243 1,861,691 1,815,353 Less: Allowance for loan losses (23,144 ) (22,578 ) (17,063 ) Net loans 1,752,099 1,839,113 1,798,290 Premises and equipment, net 15,524 15,523 15,882 Goodwill 35,554 35,554 35,554 Mortgage servicing rights, net 4,599 4,346 1,213 Other intangible assets, net 2,862 3,028 3,579 Other real estate owned — — 61 Bank-owned life insurance 29,576 18,314 17,965 Income tax benefit 5,491 5,823 3,293 Interest receivable and other assets 42,296 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 deposits 142,862 140,629 119,570 Money market and savings deposits 629,378 652,091 472,599 Time deposits 525,117 556,557 584,931 Total deposits 2,031,808 2,093,965 1,821,351 Borrowings 182,639 186,440 455,159 Subordinated notes 29,651 44,600 44,457 Other liabilities 37,016 30,534 40,470 Total liabilities 2,281,114 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 earnings 110,243 104,191 83,824 Accumulated other comprehensive income, net of tax 5,071 3,095 7,260 Total shareholders' equity 225,409 217,187 180,259 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 fees 2,780 3,101 3,642 5,881 7,731 Securities: Taxable 991 850 594 1,841 1,278 Tax-exempt 627 623 670 1,250 1,281 Federal funds sold and other 172 155 173 327 567 Total interest income 21,737 21,551 20,396 43,288 40,213 Interest Expense Deposits 1,091 1,387 2,884 2,478 6,716 Borrowed funds 475 466 643 941 1,173 Subordinated notes 555 541 636 1,096 1,271 Total interest expense 2,121 2,394 4,163 4,515 9,160 Net interest income 19,616 19,157 16,233 38,773 31,053 Provision expense for loan losses 540 265 5,575 805 6,064 Net interest income after provision for loan losses 19,076 18,892 10,658 37,968 24,989 Noninterest income Service charges on deposits 800 777 548 1,577 1,182 Net gain on sales of securities — 20 899 20 1,428 Mortgage banking activities 2,711 5,811 5,684 8,522 8,272 Other charges and fees 815 670 658 1,485 1,597 Total noninterest income 4,326 7,278 7,789 11,604 12,479 Noninterest expense Salary and employee benefits 9,352 9,922 9,598 19,274 18,228 Occupancy and equipment expense 1,583 1,708 1,567 3,291 3,095 Professional service fees 774 643 941 1,417 1,333 Acquisition and due diligence fees — — 176 — 1,647 FDIC premium expense 210 324 224 534 435 Marketing expense 281 133 230 414 452 Loan processing expense 193 331 192 524 427 Data processing expense 1,057 1,224 910 2,281 1,757 Core deposit premium amortization 166 168 192 334 384 Other expense 972 686 1,053 1,658 1,887 Total noninterest expense 14,588 15,139 15,083 29,727 29,645 Income before income taxes 8,814 11,031 3,364 19,845 7,823 Income tax provision 1,835 2,072 643 3,907 992 Net income 6,979 8,959 2,721 15,938 6,831 Preferred stock dividends 469 469 — 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—basic 7,520 7,528 7,676 7,524 7,636 Weighted average common shares outstanding—diluted 7,633 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) Taxable 248,739 214,945 115,271 231,935 116,554 Tax-exempt 103,184 102,208 102,955 102,699 98,406 Interest earning cash balances 186,186 168,906 226,931 177,594 152,239 Other investments 14,398 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 assets 147,607 139,100 140,116 143,377 130,640 Total assets $ 2,553,552 $ 2,495,587 $ 2,353,905 $ 2,524,729 $ 2,117,796 Interest-bearing demand deposits 143,290 132,816 115,176 138,082 110,706 Money market and savings deposits 640,471 604,491 457,576 622,580 430,644 Time deposits 550,751 584,085 570,052 567,326 558,945 Borrowings 184,391 185,688 352,554 185,036 269,070 Subordinated notes 41,809 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 deposits 737,038 692,617 603,552 714,949 498,535 Other liabilities 32,852 31,608 29,750 32,235 27,622 Shareholders' equity 222,950 219,684 180,789 221,325 177,814 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 loans 4.32 % 4.35 % 4.34 % 4.33 % 4.64 % Investment securities: Taxable 1.60 % 1.60 % 2.07 % 1.60 % 2.21 % Tax-exempt 3.03 % 3.08 % 3.22 % 3.05 % 3.20 % Interest earning cash balances 0.11 % 0.10 % 0.12 % 0.10 % 0.43 % Other investments 3.40 % 3.18 % 3.44 % 3.29 % 3.94 % Total interest earning assets 3.65 % 3.74 % 3.73 % 3.69 % 4.10 % Interest-bearing liabilities Interest-bearing demand deposits 0.15 % 0.16 % 0.25 % 0.15 % 0.36 % Money market and savings deposits 0.18 % 0.25 % 0.49 % 0.22 % 0.78 % Time deposits 0.54 % 0.66 % 1.59 % 0.60 % 1.75 % Borrowings 1.03 % 1.02 % 0.73 % 1.03 % 0.88 % Subordinated notes 5.32 % 4.92 % 5.75 % 5.12 % 5.75 % Total interest-bearing liabilities 0.55 % 0.63 % 1.09 % 0.59 % 1.30 % Interest Spread 3.10 % 3.11 % 2.64 % 3.10 % 2.80 % Net interest margin (4) 3.27 % 3.30 % 2.95 % 3.28 % 3.14 % Tax equivalent effect 0.03 % 0.03 % 0.03 % 0.03 % 0.03 % Net interest margin on a fully tax equivalent basis 3.30 % 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-occupied 301,615 300,175 275,022 269,481 273,577 Total commercial real estate 779,330 749,865 720,832 730,189 725,483 Commercial and industrial 642,606 794,096 685,504 807,923 790,353 Residential real estate 352,513 316,089 315,476 304,088 294,041 Consumer 794 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 industrial 5,247 6,822 7,490 8,078 2,377 Residential real estate 3,931 3,987 3,991 4,151 2,226 Consumer 10 13 15 15 16 Total nonaccrual loans 13,724 15,364 18,816 19,266 8,268 Other real estate owned — — — — 61 Total nonperforming assets 13,724 15,364 18,816 19,266 8,329 Performing troubled debt restructurings Commercial and industrial 336 335 546 550 549 Residential real estate 429 430 432 599 600 Total performing troubled debt restructurings 765 765 978 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 stock 23,372 23,372 23,372 23,370 — Total common shareholders' equity 202,037 193,815 191,955 186,098 180,259 Less: Goodwill 35,554 35,554 35,554 35,554 35,554 Mortgage servicing rights, net 4,599 4,346 3,361 2,193 1,213 Other intangible assets, net 2,862 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: Goodwill 35,554 35,554 35,554 35,554 35,554 Mortgage servicing rights, net 4,599 4,346 3,361 2,193 1,213 Other intangible assets, net 2,862 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 assets 6.46 % 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 loans 259,303 405,770 290,135 392,521 388,264 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 loans 1.30 % 1.21 % 1.29 % 1.15 % 0.94 % Allowance for loan loss as a percentage of total loans, excluding PPP loans 1.53 % 1.55 % 1.56 % 1.46 % 1.20 %