Level One Bancorp, Inc. reports third quarter 2021 net income of $9.5 million, representing $1.16 diluted earnings per common share
10/29/2021 - 08:15 AM
FARMINGTON HILLS, Mich., Oct. 29, 2021 (GLOBE NEWSWIRE) -- Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported its financial results for the third quarter of 2021, which included net income of $9.5 million , or $1.16 diluted earnings per common share. This compares to net income of $5.2 million , or $0.67 diluted earnings per common share, in the third quarter of 2020.
Patrick J. Fehring, Chief Executive Officer of Level One, commented, "The Level One team delivered solid operating results in the third quarter 2021 with net income of $9.5 million or $1.16 diluted earnings per common share. This represents a 38.10% increase over diluted earnings per common share of $0.84 for the prior quarter and an increase of 73.13% over the third quarter of 2020 diluted earnings per common share of $0.67. Our quarterly performance was driven by growth in total loans of $56.1 million (excluding Paycheck Protection Program ("PPP") loans), or 14.81% annualized for the period and an increase in fees from mortgage banking activities of $1.5 million or 55.51% over the prior quarter. As announced over the summer, Level One added talent to our mortgage origination team, and the impact was evident in our business results."
Mr. Fehring continued, "Level One also experienced improved credit quality with a decrease in our nonperforming assets as a percentage of total assets to 0.48% at the end of the third quarter compared to 0.55% at the end of the prior quarter. Our financial results also reflect an increase of the net interest margin to 3.47% in the third quarter compared to 3.30% in the prior quarter. The improvement in the net interest margin during the quarter was a result of decreased deposit cost, lower subordinated debt expense along with higher loan interest income including PPP revenue. We are pleased with these positive operating results for the quarter, and we appreciate the efforts of the Level One team."
Third Quarter 2021 Highlights
Total loans decreased 3.13% to $1.72 billion at September 30, 2021, compared to $1.78 billion at June 30, 2021 Total loans, excluding a decrease of $111.7 million of PPP loans, increased $56.1 million , or 14.81% annualized, during the third quarter of 2021 Total assets increased 1.49% to $2.54 billion at September 30, 2021, compared to $2.51 billion at June 30, 2021 Total deposits increased 1.73% to $2.07 billion at September 30, 2021, compared to $2.03 billion at June 30, 2021 Book value per common share increased 4.08% to $27.56 per common share at September 30, 2021, compared to $26.48 per common share at June 30, 2021 Tangible book value per common share increased 5.04% to $21.89 per common share at September 30, 2021, compared to $20.84 per common share at June 30, 2021 Net income of $9.5 million increased 35.62% from $7.0 million in the preceding quarter Diluted earnings per common share of $1.16 increased 38.10% compared to $0.84 in the preceding quarter Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.47% , compared to 3.30% in the preceding quarter and 2.80% in the third quarter of 2020 Noninterest income increased $1.7 million to $6.0 million in the third quarter of 2021, compared to $4.3 million in the preceding quarter Noninterest expense increased $1.4 million to $16.0 million in the third quarter of 2021, compared to $14.6 million in the preceding quarter Provision for loan loss decreased $1.7 million to a $1.2 million recovery of provision in the third quarter of 2021, compared to a $540 thousand provision expense in the preceding quarter Net Interest Income and Net Interest Margin
Level One's net interest income increased $899 thousand , or 4.58% , to $20.5 million in the third quarter of 2021, compared to $19.6 million in the preceding quarter, and increased $3.9 million , or 23.61% , compared to $16.6 million in the third quarter of 2020. The increase in net interest income compared to the preceding quarter was primarily due to an increase of $500 thousand of interest income on loans and decreases of $126 thousand in interest expense on deposits and $181 thousand in interest expense on subordinated notes. The increase in net interest income compared to the third quarter of 2020 was primarily due to increases of $1.7 million of interest income on loans primarily as a result of the accelerated recognition of fees on PPP loans that were forgiven and $419 thousand of interest income on investment securities due to increased volumes of investment securities. In addition, between the third quarter of 2020 and the third quarter of 2021, interest expense on deposits decreased $1.4 million and interest expense on borrowed funds and subordinated notes decreased $483 thousand . The decrease in interest expense on deposits was primarily due to lower interest rates paid as a result of revised internal deposit rates and maturity of higher cost time deposits. The decrease in interest expense on borrowed funds and subordinated notes was primarily due to the redemption of $15.0 million of subordinated notes during the second quarter of 2021 and a decrease in Federal Reserve Bank borrowings.
Level One’s net interest margin, on a FTE basis, was 3.47% in the third quarter of 2021, compared to 3.30% in the preceding quarter and 2.80% in the third quarter of 2020. The increase in the net interest margin year over year was primarily a result of an increase in loan yields of 62 basis points to 4.60% in the third quarter of 2021, compared to 3.98% in the third quarter of 2020 due primarily to the recognition of fees on PPP loans, as well as a decrease in the cost of interest-bearing liabilities, which declined 40 basis points to 0.48% in the third quarter of 2021, compared to 0.88% in the third quarter of 2020 primarily due to lower interest rates paid as a result of revised internal deposit rates and maturity of higher cost time deposits.
Noninterest Income
Level One's noninterest income increased $1.7 million , or 39.64% , to $6.0 million in the third quarter of 2021, compared to $4.3 million in the preceding quarter, and decreased $3.1 million , or 33.80% , compared to $9.1 million in the third quarter of 2020. The increase in noninterest income compared to the preceding quarter was primarily attributable to an increase of $1.5 million in mortgage banking activities and an increase of $151 thousand in other charges and fees. The increase in the mortgage banking activities income compared to the preceding quarter was primarily due to $26.2 million higher residential loan originations held for sale and $11.2 million higher residential loans sold primarily as a result of increased hiring efforts and efficiencies created within the mortgage department. The increase in other charges and fees was primarily due to tax credits as a result of legislation enacted in response to the COVID-19 pandemic recognized during the quarter.
The decrease in noninterest income in the third quarter of 2021 compared to the same period in 2020 was primarily due to decreases of $2.9 million in mortgage banking activities and $434 thousand in net gains on sales of investment securities. This was partially offset by an increase of $243 thousand in service charges on deposits. The decrease in mortgage banking activities compared to the third quarter of 2020 was primarily due to $84.2 million fewer residential loan originations held for sale and $54.5 million fewer residential loans sold. The higher volumes in the third quarter of 2020 were primarily as a result of the significant decrease in interest rates during the first half of 2020 while interest rates have remained relatively stable in 2021. The decrease in net gains on sales of investment securities was due to no securities sold in the third quarter of 2021. The increase in service charges on deposits was primarily due to higher transaction volumes and deposit balances.
Noninterest Expense
Level One's noninterest expense increased $1.4 million , or 9.60% , to $16.0 million in the third quarter of 2021, compared to $14.6 million in the preceding quarter, and increased $863 thousand , or 5.71% , compared to $15.1 million in the third quarter of 2020. The increase in noninterest expense compared to the preceding quarter was primarily attributable to increases of $1.2 million in salary and employee benefits and $147 thousand in marketing expense. The increase in salary and employee benefits compared to the second quarter of 2021 was primarily due to an increase of $902 thousand in mortgage commissions as well as an increase of 15 full-time equivalent employees. The increase in marketing expense between the periods was due to an increase in advertising efforts.
The increase in noninterest expense in the third quarter of 2021 compared to the same period in 2020 was mainly attributable to an increase of $689 thousand in salary and employee benefits and $171 thousand in marketing expense. The increase in salary and employee benefits between the periods was primarily due to an increase of 20 full-time equivalent employees as well as incentive compensation. The increase in marketing expense between the periods was due to an increase in advertising efforts.
The efficiency ratio, which is a measure of operating expenses as a percentage of net interest income and noninterest income, was 60.21% for the third quarter of 2021, compared to 60.93% for the preceding quarter and 58.81% in the third quarter of 2020.
Income Tax Expense
Level One's income tax provision was $2.3 million , or 19.49% of pretax income, in the third quarter of 2021, as compared to $1.8 million , or 20.82% of pretax income, in the preceding quarter and $1.1 million , or 17.66% of pretax income, in the third quarter of 2020.
Loan Portfolio
Total loans were $1.72 billion at September 30, 2021, a decrease of $55.5 million , or 3.13% , from $1.78 billion at June 30, 2021, and down $124.2 million , or 6.73% , from $1.84 billion at September 30, 2020. The decrease in total loans compared to June 30, 2021 was primarily due to $111.7 million of PPP loans forgiven by the SBA during the third quarter partially offset by a net increase of $56.1 million , or 14.81% annualized growth, in the remainder of the loan portfolio. The decrease in total loans compared to September 30, 2020, was primarily due to a $244.9 million net decrease in PPP loans (originated and forgiven) which was partially offset by a net increase of $120.7 million in the remainder of the loan portfolio.
Investment Securities
The investment securities portfolio grew $13.0 million , or 3.47% , to $389.5 million at September 30, 2021, from $376.5 million at June 30, 2021, and up $136.0 million , or 53.64% , from $253.5 million at September 30, 2020. The increase in the investment securities portfolio compared to June 30, 2021 was primarily due to the purchase of $19.6 million of investment securities using excess cash balances generated by payoffs of PPP loans, partially offset in part by $6.6 million of sales, calls, or maturity of investment securities and principal pay downs. The increase in investment securities compared to September 30, 2020, was primarily due to the purchase of $172.2 million of securities between the two dates using excess cash balances generated by the payoffs of PPP loans, partially offset by $36.2 million of sales, calls, or maturity of investment securities and principal pay downs.
Deposits
Total deposits were $2.07 billion at September 30, 2021, an increase of $35.2 million , or 1.73% , from $2.03 billion at June 30, 2021, and up $123.6 million , or 6.36% , from $1.94 billion at September 30, 2020. The growth in deposits compared to June 30, 2021 and September 30, 2020 was primarily due to organic deposit growth as a result of increased customer liquidity and new customers. Total deposit composition at September 30, 2021 consisted of 47.01% of demand deposit accounts, 30.55% of savings and money market accounts and 22.44% of time deposits.
Borrowings
Total debt outstanding was $211.7 million at September 30, 2021, a decrease of $564 thousand , or 0.27% , from $212.3 million at June 30, 2021, and down $49.6 million , or 18.99% , from $261.4 million at September 30, 2020. The decrease in total borrowings compared to September 30, 2020 was primarily due to a decrease of $34.1 million in Federal Reserve Bank borrowings under the Paycheck Protection Program Liquidity Facility as well as the redemption of $15.0 million of subordinated notes. The Company would have paid approximately $721 thousand per year in interest on the redeemed subordinated notes.
Asset Quality
Nonaccrual loans were $12.1 million , or 0.71% of total loans, at September 30, 2021, a decrease of $1.6 million from nonaccrual loans of $13.7 million , or 0.77% of total loans, at June 30, 2021, and a decrease of $7.1 million from nonaccrual loans of $19.3 million , or 1.04% of total loans, at September 30, 2020. The decrease in nonaccrual loans compared to the prior quarter-end was primarily due to a $2.9 million pay off of one commercial loan relationship partially offset by two commercial loan relationships moving to nonaccrual status totaling $1.9 million . The decrease in nonaccrual loans compared to September 30, 2020 was primarily due to pay offs of five commercial loan relationships totaling $5.9 million , paydowns on two commercial loan relationships totaling $3.3 million , and the transfer of a $1.8 million residential real estate loan relationship to other real estate owned. This was partially offset by three commercial loan relationships and one residential real estate loan moving to nonaccrual status totaling $3.0 million .
Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 0.48% at September 30, 2021, compared to 0.55% at June 30, 2021, and 0.79% at September 30, 2020.
Performing troubled debt restructured loans, which are not reported as nonaccrual loans but rather as part of impaired loans, were $762 thousand at September 30, 2021 compared to $765 thousand at June 30, 2021, and $1.1 million at September 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 September 30, 2021, there were $1.1 million of loans that remained on a COVID-related deferral compared to $7.5 million as of June 30, 2021. As of September 30, 2021, there were no loans that had payments deferred greater than six months compared to $7.4 million as of June 30, 2021.
Net charge-offs in the third quarter of 2021 were $224 thousand , or 0.05% of average loans on an annualized basis, compared to $26 thousand of net recoveries, or 0.01% of average loans on an annualized basis for the preceding quarter and $78 thousand of net charge-offs, or 0.02% of average loans on an annualized basis, in the third quarter of 2020.
Level One's provision for loan losses in the third quarter of 2021 was a provision recovery of $1.2 million , compared to provision expense of $540 thousand in the preceding quarter and provision expense of $4.3 million in the third quarter of 2020. The decrease in the provision expense quarter over quarter was primarily due to a decrease of $2.0 million in general reserves as a result of a reduction in qualitative factors within the allowance for loan loss model as a result of improved credit quality, partially offset by an increase in specific reserves of $252 thousand . The decrease in the provision expense in the third quarter of 2021 compared to the same period in 2020 was primarily due to a decrease in general reserves of $5.1 million resulting from a decrease in qualitative factors and a decrease of $531 thousand 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 $21.7 million , or 1.26% of total loans, at September 30, 2021, compared to $23.1 million , or 1.30% of total loans, at June 30, 2021, and $21.3 million , or 1.15% of total loans, at September 30, 2020. Excluding PPP loans of $147.6 million , $259.3 million , and $392.5 million as of these dates respectively, the allowance for loan losses as a percentage of total loans was 1.38% as of September 30, 2021, compared to 1.53% as of June 30, 2021 and 1.46% as of September 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 decreased compared to June 30, 2021 primarily due to a reduction in qualitative factors within the allowance for loan loss model as a result of improved credit quality. The allowance for loan losses as a percentage of total loans increased compared to September 30, 2020 as a result of the forgiveness of $244.9 million of PPP loans. As of September 30, 2021, the allowance for loan losses as a percentage of nonaccrual loans was 179.11% , compared to 168.64% at June 30, 2021, and 110.32% at September 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 $233.9 million at September 30, 2021, an increase of $8.5 million , or 3.78% , compared with $225.4 million at June 30, 2021 primarily as a result of an increase in retained earnings. Total shareholders' equity increased $24.4 million , or 11.68% , from $209.5 million at September 30, 2020, primarily as a result of an increase in retained earnings.
Recent Developments
Third Quarter Common Stock Dividend : On September 15, 2021, Level One’s Board of Directors declared a quarterly cash dividend of $0.06 per share. This dividend was paid on October 15, 2021, to stockholders of record at the close of business on September 30, 2021.
Third Quarter Preferred Stock Dividend :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 November 15, 2021, to shareholders of record at the close of business on October 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 funded 1,532 PPP loans for $234.3 million , of which 1,187 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 $2.54 billion as of September 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 terminology. 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, (Dollars in thousands, except per share data) September June 30, March 31, December 31, September Earnings Summary Interest income $ 22,322 $ 21,737 $ 21,551 $ 22,181 $ 20,245 Interest expense 1,807 2,121 2,394 3,075 3,648 Net interest income 20,515 19,616 19,157 19,106 16,597 Provision expense (recovery) for loan losses (1,189 ) 540 265 1,538 4,270 Noninterest income 6,041 4,326 7,278 8,110 9,125 Noninterest expense 15,989 14,588 15,139 15,461 15,126 Income before income taxes 11,756 8,814 11,031 10,217 6,326 Income tax provision 2,291 1,835 2,072 1,844 1,117 Net income $ 9,465 $ 6,979 $ 8,959 $ 8,373 $ 5,209 Preferred stock dividends 468 469 469 479 — Net income available to common shareholders 8,997 6,510 8,490 7,894 5,209 Net income allocated to participating securities 138 92 111 65 40 Net income attributable to common shareholders $ 8,859 $ 6,418 $ 8,379 $ 7,829 $ 5,169 Per Share Data Basic earnings per common share $ 1.19 $ 0.85 $ 1.11 $ 1.02 $ 0.68 Diluted earnings per common share 1.16 0.84 1.10 1.02 0.67 Diluted earnings per common share, excluding acquisition and due diligence fees (1) 1.16 0.84 1.10 1.02 0.67 Book value per common share 27.56 26.48 25.40 25.14 24.06 Tangible book value per common share (1) 21.89 20.84 19.78 19.63 18.74 Preferred shares outstanding (in thousands) 10 10 10 10 10 Common shares outstanding (in thousands) 7,640 7,629 7,630 7,634 7,734 Average basic common shares (in thousands) 7,519 7,520 7,528 7,642 7,675 Average diluted common shares (in thousands) 7,638 7,633 7,612 7,695 7,712 Selected Period End Balances Total assets $ 2,543,883 $ 2,506,523 $ 2,572,726 $ 2,442,982 $ 2,446,447 Securities available-for-sale 389,528 376,453 346,266 302,732 253,527 Total loans 1,719,717 1,775,243 1,861,691 1,723,537 1,843,888 Total deposits 2,066,992 2,031,808 2,093,965 1,963,312 1,943,435 Total liabilities 2,309,949 2,281,114 2,355,539 2,227,655 2,236,979 Total shareholders' equity 233,934 225,409 217,187 215,327 209,468 Total common shareholders' equity 210,562 202,037 193,815 191,955 186,098 Tangible common shareholders' equity (1) 167,262 159,022 150,887 149,844 144,963 Performance and Capital Ratios Return on average assets (annualized) 1.50 % 1.09 % 1.44 % 1.35 % 0.83 % Return on average equity (annualized) 16.32 12.52 16.31 15.61 10.48 Net interest margin (fully taxable equivalent)(2) 3.47 3.30 3.33 3.27 2.80 Efficiency ratio (noninterest expense/net interest income plus noninterest income) 60.21 60.93 57.27 56.81 58.81 Dividend payout ratio 5.08 7.02 4.50 4.90 7.41 Total shareholders' equity to total assets 9.20 8.99 8.44 8.81 8.56 Tangible common equity to tangible assets (1) 6.69 6.46 5.96 6.24 6.03 Common equity tier 1 to risk-weighted assets 9.82 9.66 9.63 9.30 8.83 Tier 1 capital to risk-weighted assets 11.19 11.09 11.11 10.80 10.31 Total capital to risk-weighted assets 14.19 14.15 15.18 14.91 14.39 Tier 1 capital to average assets (leverage ratio) 7.68 7.24 7.15 6.93 7.17 Asset Quality Ratios: Net charge-offs (recoveries) to average loans 0.05 % (0.01 )% — % 0.11 % 0.02 % Nonperforming assets as a percentage of total assets 0.48 0.55 0.60 0.77 0.79 Nonaccrual loans as a percent of total loans 0.71 0.77 0.83 1.09 1.04 Allowance for loan losses as a percentage of total loans 1.26 1.30 1.21 1.29 1.15 Allowance for loan losses as a percentage of nonaccrual loans 179.11 168.64 146.95 118.50 110.32 Allowance for loan losses as a percentage of nonaccrual loans, excluding allowance allocated to loans accounted for under ASC 310-30 173.58 163.76 142.62 114.95 105.46
(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 (Unaudited) As of (Dollars in thousands) September 30, June 30, September 30, Assets Cash and cash equivalents $ 293,824 $ 218,366 $ 176,486 Securities available-for-sale 389,528 376,453 253,527 Other investments 14,398 14,398 14,398 Mortgage loans held for sale, at fair value 15,351 9,305 60,635 Loans: Originated loans 1,537,145 1,580,175 1,603,893 Acquired loans 182,572 195,068 239,995 Total loans 1,719,717 1,775,243 1,843,888 Less: Allowance for loan losses (21,731 ) (23,144 ) (21,254 ) Net loans 1,697,986 1,752,099 1,822,634 Premises and equipment, net 15,170 15,524 15,646 Goodwill 35,554 35,554 35,554 Mortgage servicing rights, net 5,051 4,599 2,194 Other intangible assets, net 2,695 2,862 3,387 Bank-owned life insurance 29,774 29,576 18,083 Income tax benefit 4,041 5,491 3,791 Interest receivable and other assets 40,511 42,296 40,112 Total assets $ 2,543,883 $ 2,506,523 $ 2,446,447 Liabilities Deposits: Noninterest-bearing demand deposits $ 791,879 $ 734,451 $ 632,427 Interest-bearing demand deposits 179,814 142,862 115,395 Money market and savings deposits 631,551 629,378 595,471 Time deposits 463,748 525,117 600,142 Total deposits 2,066,992 2,031,808 1,943,435 Borrowings 182,058 182,639 216,809 Subordinated notes 29,668 29,651 44,555 Other liabilities 31,231 37,016 32,180 Total liabilities 2,309,949 2,281,114 2,236,979 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 September 30, 2021, June 30, 2021 and September 30, 2020 23,372 23,372 23,370 Common stock, no par value per share; authorized - 20,000,000 shares; issued and outstanding - 7,639,544 shares at September 30, 2021, 7,628,944 shares at June 30, 2021 and 7,734,322 shares at September 30, 2020 86,926 86,723 89,409 Retained earnings 118,781 110,243 88,646 Accumulated other comprehensive income, net of tax 4,855 5,071 8,043 Total shareholders' equity 233,934 225,409 209,468 Total liabilities and shareholders' equity $ 2,543,883 $ 2,506,523 $ 2,446,447
Consolidated Statements of Income (Unaudited) Three months ended Nine months ended (In thousands, except per share data) September June 30, September September September Interest income Originated loans, including fees $ 17,796 $ 17,167 $ 15,274 $ 51,785 $ 44,630 Acquired loans, including fees 2,651 2,780 3,456 8,532 11,187 Securities: Taxable 1,054 991 652 2,895 1,930 Tax-exempt 630 627 613 1,880 1,894 Federal funds sold and other 191 172 250 518 817 Total interest income 22,322 21,737 20,245 65,610 60,458 Interest Expense Deposits 965 1,091 2,323 3,443 9,039 Borrowed funds 468 475 693 1,409 1,866 Subordinated notes 374 555 632 1,470 1,903 Total interest expense 1,807 2,121 3,648 6,322 12,808 Net interest income 20,515 19,616 16,597 59,288 47,650 Provision expense (recovery) for loan losses (1,189 ) 540 4,270 (384 ) 10,334 Net interest income after provision for loan losses 21,704 19,076 12,327 59,672 37,316 Noninterest income Service charges on deposits 859 800 616 2,436 1,798 Net gain on sales of securities — — 434 20 1,862 Mortgage banking activities 4,216 2,711 7,108 12,738 15,380 Other charges and fees 966 815 967 2,451 2,564 Total noninterest income 6,041 4,326 9,125 17,645 21,604 Noninterest expense Salary and employee benefits 10,551 9,352 9,862 29,825 28,090 Occupancy and equipment expense 1,680 1,583 1,678 4,971 4,773 Professional service fees 847 774 808 2,264 2,141 Acquisition and due diligence fees — — 17 — 1,664 FDIC premium expense 244 210 287 778 722 Marketing expense 428 281 257 842 709 Loan processing expense 231 193 262 755 690 Data processing expense 928 1,057 844 3,209 2,601 Core deposit premium amortization 167 166 192 501 576 Other expense 913 972 919 2,571 2,805 Total noninterest expense 15,989 14,588 15,126 45,716 44,771 Income before income taxes 11,756 8,814 6,326 31,601 14,149 Income tax provision 2,291 1,835 1,117 6,198 2,109 Net income 9,465 6,979 5,209 25,403 12,040 Preferred stock dividends 468 469 — 1,406 — Net income attributable to common shareholders $ 8,997 $ 6,510 $ 5,209 $ 23,997 $ 12,040 Earnings per common share: Basic earnings per common share $ 1.19 $ 0.85 $ 0.68 $ 3.15 $ 1.56 Diluted earnings per common share $ 1.16 $ 0.84 $ 0.67 $ 3.10 $ 1.55 Cash dividends declared per common share $ 0.06 $ 0.06 $ 0.05 $ 0.18 $ 0.15 Weighted average common shares outstanding—basic 7,519 7,520 7,675 7,526 7,640 Weighted average common shares outstanding—diluted 7,638 7,633 7,712 7,631 7,701
Net Interest Income and Net Interest Margin (Unaudited) For the three months ended For the nine months ended (Dollars in thousands) September June 30, September September September Average Balance Sheets: Gross loans(1) $ 1,763,214 $ 1,853,438 $ 1,871,164 $ 1,823,888 $ 1,696,073 Investment securities: (2) Taxable 265,885 248,739 139,237 243,377 124,169 Tax-exempt 104,063 103,184 94,526 103,158 97,104 Interest earning cash balances 221,261 186,186 259,349 192,309 188,179 Other investments 14,398 14,398 12,419 14,398 12,401 Total interest-earning assets $ 2,368,821 $ 2,405,945 $ 2,376,695 $ 2,377,130 $ 2,117,926 Non-earning assets 151,077 147,607 140,480 145,971 133,968 Total assets $ 2,519,898 $ 2,553,552 $ 2,517,175 $ 2,523,101 $ 2,251,894 Interest-bearing demand deposits 156,977 143,290 116,285 144,449 112,579 Money market and savings deposits 624,190 640,471 513,420 623,123 458,438 Time deposits 489,261 550,751 575,179 541,018 564,396 Borrowings 181,911 184,391 394,020 183,983 311,024 Subordinated notes 29,657 41,809 44,468 38,633 44,463 Total interest-bearing liabilities $ 1,481,996 $ 1,560,712 $ 1,643,372 $ 1,531,206 $ 1,490,900 Noninterest bearing demand deposits 774,926 737,038 640,095 735,162 546,066 Other liabilities 31,012 32,852 34,846 31,822 30,047 Shareholders' equity 231,964 222,950 198,862 224,911 184,881 Total liabilities and shareholders' equity $ 2,519,898 $ 2,553,552 $ 2,517,175 $ 2,523,101 $ 2,251,894 Yields: (3) Earning Assets Gross loans 4.60 % 4.32 % 3.98 % 4.42 % 4.40 % Investment securities: Taxable 1.57 % 1.60 % 1.86 % 1.59 % 2.08 % Tax-exempt 2.99 % 3.03 % 3.19 % 3.04 % 3.20 % Interest earning cash balances 0.15 % 0.11 % 0.12 % 0.12 % 0.28 % Other investments 2.95 % 3.40 % 5.57 % 3.18 % 4.49 % Total interest earning assets 3.76 % 3.65 % 3.41 % 3.72 % 3.84 % Interest-bearing liabilities Interest-bearing demand deposits 0.14 % 0.15 % 0.22 % 0.15 % 0.31 % Money market and savings deposits 0.17 % 0.18 % 0.43 % 0.20 % 0.65 % Time deposits 0.53 % 0.54 % 1.18 % 0.58 % 1.55 % Borrowings 1.02 % 1.03 % 0.70 % 1.02 % 0.80 % Subordinated notes 5.00 % 5.32 % 5.65 % 5.09 % 5.72 % Total interest-bearing liabilities 0.48 % 0.55 % 0.88 % 0.55 % 1.15 % Interest Spread 3.28 % 3.10 % 2.53 % 3.17 % 2.69 % Net interest margin (4) 3.44 % 3.27 % 2.78 % 3.33 % 3.01 % Tax equivalent effect 0.03 % 0.03 % 0.02 % 0.03 % 0.03 % Net interest margin on a fully tax equivalent basis 3.47 % 3.30 % 2.80 % 3.36 % 3.04 %
(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 $155 thousand , $153 thousand , and $144 thousand on tax-exempt securities for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively, and $462 thousand and $431 thousand for the nine months ended September 30, 2021 and 2020, 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 (Dollars in thousands) September June 30, March 31, December September Commercial real estate: (Unaudited) (Unaudited) (Unaudited) (Unaudited) Non-owner occupied $ 479,633 $ 477,715 $ 449,690 $ 445,810 $ 460,708 Owner-occupied 295,228 301,615 300,175 275,022 269,481 Total commercial real estate 774,861 779,330 749,865 720,832 730,189 Commercial and industrial 540,546 642,606 794,096 685,504 807,923 Residential real estate 403,517 352,513 316,089 315,476 304,088 Consumer 793 794 1,641 1,725 1,688 Total loans $ 1,719,717 $ 1,775,243 $ 1,861,691 $ 1,723,537 $ 1,843,888
Impaired Assets As of (Dollars in thousands) September June 30, March 31, December September Nonaccrual loans (Unaudited) (Unaudited) (Unaudited) (Unaudited) Commercial real estate $ 3,768 $ 4,536 $ 4,542 $ 7,320 $ 7,022 Commercial and industrial 4,746 5,247 6,822 7,490 8,078 Residential real estate 3,610 3,931 3,987 3,991 4,151 Consumer 9 10 13 15 15 Total nonaccrual loans 12,133 13,724 15,364 18,816 19,266 Other real estate owned — — — — — Total nonperforming assets 12,133 13,724 15,364 18,816 19,266 Performing troubled debt restructurings Commercial and industrial 336 336 335 546 550 Residential real estate 426 429 430 432 599 Total performing troubled debt restructurings 762 765 765 978 1,149 Total impaired assets $ 12,895 $ 14,489 $ 16,129 $ 19,794 $ 20,415 Loans 90 days or more past due and still accruing $ 162 $ 387 $ 328 $ 269 $ 552
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 (Dollars in thousands, except per share data) September June 30, March 31, December 31, September (Unaudited) (Unaudited) (Unaudited) (Unaudited) Total shareholders' equity $ 233,934 $ 225,409 $ 217,187 $ 215,327 $ 209,468 Less: Preferred stock 23,372 23,372 23,372 23,372 23,370 Total common shareholders' equity 210,562 202,037 193,815 191,955 186,098 Less: Goodwill 35,554 35,554 35,554 35,554 35,554 Mortgage servicing rights, net 5,051 4,599 4,346 3,361 2,193 Other intangible assets, net 2,695 2,862 3,028 3,196 3,388 Tangible common shareholders' equity $ 167,262 $ 159,022 $ 150,887 $ 149,844 $ 144,963 Common shares outstanding (in thousands) 7,640 7,629 7,630 7,634 7,734 Tangible book value per common share $ 21.89 $ 20.84 $ 19.78 $ 19.63 $ 18.74 Total assets $ 2,543,883 $ 2,506,523 $ 2,572,726 $ 2,442,982 $ 2,446,447 Less: Goodwill 35,554 35,554 35,554 35,554 35,554 Mortgage servicing rights, net 5,051 4,599 4,346 3,361 2,193 Other intangible assets, net 2,695 2,862 3,028 3,196 3,388 Tangible assets $ 2,500,583 $ 2,463,508 $ 2,529,798 $ 2,400,871 $ 2,405,312 Tangible common equity to tangible assets 6.69 % 6.46 % 5.96 % 6.24 % 6.03 %
Adjusted Income and Diluted Earnings Per Share For the three months ended (Dollars in thousands, except per share data) September June 30, March 31, December September (Unaudited) (Unaudited) (Unaudited) (Unaudited) Net income, as reported $ 9,465 $ 6,979 $ 8,959 $ 8,373 $ 5,209 Acquisition and due diligence fees — — — — 17 Income tax (benefit) expense (1) — — — 2 (4 ) Net income, excluding acquisition and due diligence fees $ 9,465 $ 6,979 $ 8,959 $ 8,375 $ 5,222 Diluted earnings per share, as reported $ 1.16 $ 0.84 $ 1.10 $ 1.02 $ 0.67 Effect of acquisition and due diligence fees, net of income tax benefit — — — — — Diluted earnings per common share, excluding acquisition and due diligence fees $ 1.16 $ 0.84 $ 1.10 $ 1.02 $ 0.67
(1) Assumes income tax rate of 21% on deductible acquisition expenses.
Allowance for Loan Loss as a Percentage of Total Loans, Excluding PPP Loans As of (Dollars in thousands, except per share data) September June 30, March 31, December September (Unaudited) (Unaudited) (Unaudited) (Unaudited) Total loans $ 1,719,717 $ 1,775,243 $ 1,861,691 $ 1,723,537 $ 1,843,888 Less: PPP loans 147,645 259,303 405,770 290,135 392,521 Total loans, excluding PPP loans $ 1,572,072 $ 1,515,940 $ 1,455,921 $ 1,433,402 $ 1,451,367 Allowance for loan loss $ 21,731 $ 23,144 $ 22,578 $ 22,297 $ 21,254 Allowance for loan loss as a percentage of total loans 1.26 % 1.30 % 1.21 % 1.29 % 1.15 % Allowance for loan loss as a percentage of total loans, excluding PPP loans 1.38 % 1.53 % 1.55 % 1.56 % 1.46 %
