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CST: 20/11/2019 14:38:06   

Level One Bancorp, Inc. reports third quarter 2019 net income of $4.4 million, representing $0.56 of diluted earnings per common share

21 Days ago

FARMINGTON HILLS, Mich., Oct. 30, 2019 (GLOBE NEWSWIRE) -- Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported financial results for the third quarter of 2019, which included net income of $4.4 million, or $0.56 per diluted share. Excluding expenses related to the pending merger with Ann Arbor State Bank, net income would have been $4.7 million, or $0.60 per diluted share. This compares to net income of  $3.6 million, or $0.45 per diluted share, in the preceding quarter and $3.3 million, or $0.41 per diluted share, in the third quarter of 2018.

Patrick J. Fehring, President and Chief Executive Officer of Level One, commented, "We are pleased to announce a solid third quarter with net income of $4.4 million, which was $1.2 million, or 35%, higher than net income in third quarter of 2018. Our third quarter earnings were driven by net interest income of $13.0 million, noninterest income of $3.9 million, and a previously announced provision benefit related to a loan payoff. Overall, credit quality has improved as nonperforming assets as a  percentage of total assets declined to 0.78% at September 30, 2019 compared with 1.30% at December 31, 2018. Finally, book value per share increased 15.98% over the past twelve months."

He continued, "In addition, during the third quarter of 2019, we announced the signing of a definitive merger agreement with Ann Arbor State Bank. We are extremely excited about this merger as it aligns with our strategic growth goals and affords us an opportunity to accelerate our expansion in the very attractive Ann Arbor market."

Third Quarter 2019 Financial Highlights

  • Net income was $4.4 million, or $0.56 per diluted share, for the third quarter of 2019
  • Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.59%, compared to 3.50% in the preceding quarter and 3.97% in the third quarter of 2018
  • Noninterest income increased 100.52% to $3.9 million in the third quarter of 2019, compared to $1.9 million in the third quarter of 2018, primarily due to higher income from mortgage banking activities
  • Total assets increased 4.37% to $1.51 billion at September 30, 2019, compared to $1.45 billion at September 30, 2018
  • Total loans increased 4.84% to $1.17 billion at September 30, 2019, compared to $1.11 billion at September 30, 2018
  • Total deposits increased 5.68% to $1.19 billion at September 30, 2019, compared to $1.13 billion at September 30, 2018
  • Book value per share increased 15.98% to $21.77 per share at September 30, 2019, compared to $18.77 per share at September 30, 2018
  • Tangible book value per share increased 17.20% to $20.51 per share at September 30, 2019, compared to $17.50 per share at September 30, 2018

Balance Sheet Review

Level One's total assets were $1.51 billion at September 30, 2019, an increase of $93.2 million, or 6.58%, from $1.42 billion at December 31, 2018, and up $63.2 million, or 4.37%, from $1.45 billion at September 30, 2018. The increase in total assets from December 31, 2018 was primarily due to an increase in originated loans, mortgage loans held for sale, fair value of interest rate swaps and receivables from a loan sub-servicer (both included under "other assets"), and cash and cash equivalents.

The investment securities portfolio was $205.2 million at September 30, 2019, an increase of $984 thousand, or 0.48%, from $204.3 million at December 31, 2018, and up $6.2 million, or 3.11%, from $199.1 million at September 30, 2018. The increase in the investment securities portfolio during the twelve months ended September 30, 2019 reflected our plan to grow the investment securities portfolio proportionately with total assets.

Total loans were $1.17 billion at September 30, 2019, an increase of $42.4 million, or 3.76%, from $1.13 billion at December 31, 2018, and up $53.9 million, or 4.84%, from $1.11 billion at September 30, 2018. The growth in total loans compared to December 31, 2018 and September 30, 2018 was primarily due to growth in both our commercial and residential real estate loan portfolio.

Total deposits were $1.19 billion at September 30, 2019, an increase of $59.9 million, or 5.28%, from $1.13 billion at December 31, 2018, and up $64.2 million, or 5.68%, from $1.13 billion at September 30, 2018.  The increase in deposits compared to December 31, 2018 and September 30, 2018 was primarily due to growth in our money market and savings deposits. Total deposit composition at September 30, 2019 consisted of 32.55% of demand deposit accounts, 27.83% of savings and money market accounts and 39.62% of time deposits.

Operating Results

Level One's net interest income increased $547 thousand, or 4.40%, to $13.0 million in the third quarter of 2019, compared to $12.4 million in the preceding quarter, primarily due to the payoff of a large, nonaccrual loan relationship during the third quarter of 2019 which resulted in $408 thousand in loan interest and fee income. Net interest income remained relatively flat as compared to the third quarter of 2018.

Level One’s net interest margin, on a FTE basis, was 3.59% in the third quarter of 2019, compared to 3.50%  in the preceding quarter and 3.97% in the third quarter of 2018. This increase in the net interest margin compared to the preceding quarter was primarily a result of lower cost of funds quarter over quarter. Average cost of funds was 1.98% for the third quarter of 2019 and 2.07% for the preceding quarter. The decrease in net interest margin year over year was primarily due to lower average loan yield and higher cost of funds as the federal funds rate was 25 basis points higher year over year.

Level One's noninterest income increased $381 thousand, or 10.96%, to $3.9 million in the third quarter of 2019, compared to $3.5 million in the preceding quarter, and increased $2.0 million, or 100.52%, compared to $1.9 million in the third quarter of 2018. The increase in noninterest income compared to the preceding quarter was primarily due to an increase in interest rate swap fees (included in other charges and fees) and net gains on the sale of investment securities. The increase in noninterest income year over year was attributable to the same factors mentioned in the quarter to quarter analysis above, as well as an increase in income related to mortgage banking activities. The increase in the mortgage banking activities income year over year was predominantly as a result of the doubling of our mortgage team in the third quarter of 2018.

Level One's noninterest expense increased $372 thousand, or 3.33%, to $11.5 million in the third quarter of 2019, compared to $11.2 million in the preceding quarter, and increased $1.0 million, or 10.38%, compared to $10.5 million in the third quarter of 2018.  The increase in noninterest expenses quarter over quarter was primarily a result of increased mortgage commissions (included in salary and employee benefits) due to higher loan volumes in the third quarter of 2019. The increase in noninterest expense year over year was primarily a result of increased mortgage commissions, salary and employee benefits due to the overall growth in team member headcount, and $319 thousand of expense related to the pending merger with Ann Arbor State Bank. The efficiency ratio, which is a measure of operating expenses as a percentage of net interest income and noninterest income, for the third quarter of 2019 was 68.50%, compared to 70.15% for the preceding quarter and 69.73% in the third quarter of 2018.

Level One's income tax provision was $914 thousand, or 17.17% of pretax income, in the third quarter of 2019, as compared to $767 thousand, or 17.75% of pretax income, in the preceding quarter and $665 thousand, or 16.96% of pretax income, in the third quarter of 2018.

Asset Quality

Nonaccrual loans were $11.5 million, or 0.98% of total loans, at September 30, 2019, a decrease of $7.0 million from nonaccrual loans of $18.4 million, or 1.64% of total loans, at December 31, 2018, and a decrease of $1.4 million from nonaccrual loans of $12.9 million, or 1.15% of total loans, at September 30, 2018. The decrease in nonaccrual loans compared to December 31, 2018 was primarily due to the payoff of three large commercial loan relationships on nonaccrual status during the first and third quarter 2019 totaling $12.4 million. This was partially offset by two commercial loan relationships totaling $5.2 million moving to nonaccrual status. The decrease in nonaccrual loans compared to September 30, 2018 was primarily due to payoffs of three commercial loan relationships on nonaccrual status totaling $7.4 million, partially offset by four commercial loan relationships totaling $6.1 million moving to nonaccrual status.

Level One had $373 thousand of other real estate owned assets at September 30, 2019, compared to no other real estate owned assets at December 31, 2018 and September 30, 2018. Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 0.78% at September 30, 2019, compared to 1.30% at December 31, 2018, and 0.89% at September 30, 2018.

In addition, we had $157 thousand of loans 90 days or more past due and still accruing at September 30, 2019, compared to $243 thousand at December 31, 2018 and $354 thousand at September 30, 2018, all of which consisted of purchase credit impaired loans from previously acquired financial institutions.

Performing troubled debt restructured loans that were not included in nonaccrual loans at September 30, 2019 were $914 thousand, compared to $931 thousand at December 31, 2018 and $2.5 million at September 30, 2018. The decrease in performing troubled debt restructurings year over year was due to one commercial loan relationship totaling $1.5 million moving to nonaccrual. 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.

Net chargeoffs in the third quarter of 2019 were $30 thousand, or 0.01% of average loans on an annualized basis, compared to $36 thousand of net chargeoffs, or 0.01% of average loans on an annualized basis, for the preceding quarter and $194 thousand of net chargeoffs, or 0.07% of average loans on an annualized basis, for the quarter ended September 30, 2018.

Level One's third quarter of 2019 provision for loan losses was a provision benefit of $16 thousand, compared to a provision expense of $429 thousand in the preceding quarter and a provision expense of $619 thousand in the third quarter of 2018. The decrease in the provision expense quarter over quarter as well as year over year was primarily due to fewer charge-offs and the release of $362 thousand of specific reserves on a commercial loan relationship that paid off in the third quarter of 2019. The allowance for loan losses was $12.3 million, or 1.05% of total loans, at September 30, 2019, compared to $11.6 million, or 1.03% of total loans, at December 31, 2018, and $11.9 million, or 1.07% of total loans, at September 30, 2018. As of September 30, 2019, the allowance for loan losses as a percentage of nonaccrual loans was 107.46%, compared to 62.70% at December 31, 2018, and 92.36% at September 30, 2018.

Capital

Total shareholders’ equity was $168.0 million at September 30, 2019, an increase of $16.2 million, or 10.68%, compared with $151.8 million at December 31, 2018, primarily as a result of increased retained earnings and accumulated other comprehensive income.  Total shareholders' equity increased $22.5 million, or 15.47%, from $145.5 million at September 30, 2018 as a result of the same factors previously mentioned.

Recent Developments

Merger with Ann Arbor Bank: On August 13, 2019, Level One and Ann Arbor Bancorp, Inc. ("AAB") jointly announced the signing of an Agreement and Plan of Merger, dated August 12, 2019, pursuant to which Level One has agreed to acquire AAB and its wholly owned subsidiary, Ann Arbor State Bank.

Third Quarter Dividend: On September 19, 2019, Level One’s Board of Directors declared a quarterly cash dividend of $0.04 per share. This dividend was paid out on October 15, 2019, to stockholders of record at the close of business on September 30, 2019.

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 $1.51 billion as of September 30, 2019. It operates twelve 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 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, 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 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
Earnings Summary                  
Interest income $ 17,983     $ 17,657     $ 17,442     $ 17,041     $ 16,629  
Interest expense 4,995     5,216     4,724     4,228     3,560  
Net interest income 12,988     12,441     12,718     12,813     13,069  
Provision (benefit) for loan losses (16 )   429     422     (51 )   619  
Noninterest income 3,858     3,477     2,286     2,307     1,924  
Noninterest expense 11,539     11,167     10,368     10,384     10,454  
Income before income taxes 5,323     4,322     4,214     4,787     3,920  
Income tax provision 914     767     747     836     665  
Net income $ 4,409     $ 3,555     $ 3,467     $ 3,951     $ 3,255  
Per Share Data                  
Basic earnings per common share $ 0.57     $ 0.46     $ 0.45     $ 0.51     $ 0.42  
Diluted earnings per common share 0.56     0.45     0.44     0.50     0.41  
Book value per common share 21.77     21.07     20.15     19.58     18.77  
Tangible book value per share (1) 20.51     19.81     18.88     18.31     17.50  
Shares outstanding (in thousands) 7,714     7,728     7,749     7,750     7,749  
Average basic common shares (in thousands) 7,721     7,741     7,752     7,750     7,749  
Average diluted common shares (in thousands) 7,752     7,856     7,869     7,893     7,901  
Selected Period End Balances                  
Total assets $ 1,509,463     $ 1,505,376     $ 1,456,552     $ 1,416,215     $ 1,446,269  
Securities available-for-sale 205,242     218,145     226,874     204,258     199,051  
Total loans 1,168,923     1,166,501     1,131,097     1,126,565     1,114,999  
Total deposits 1,194,542     1,229,445     1,151,463     1,134,635     1,130,311  
Total liabilities 1,341,495     1,342,509     1,300,433     1,264,455     1,300,810  
Total shareholders' equity 167,968     162,867     156,119     151,760     145,459  
Tangible shareholders' equity (1) 158,250     153,121     146,337     141,926     135,570  
Performance and Capital Ratios                  
Return on average assets (annualized) 1.16 %   0.95 %   0.96 %   1.11 %   0.95 %
Return on average equity (annualized) 10.58     8.92     8.99     10.69     8.95  
Net interest margin (fully taxable equivalent)(2) 3.59     3.50     3.76     3.73     3.97  
Efficiency ratio (noninterest expense/net interest income plus noninterest income) 68.50     70.15     69.10     68.68     69.73  
Dividend payout ratio 7.03     8.69     6.72     5.87     7.13  
Total shareholders' equity to total assets 11.13     10.82     10.72     10.72     10.06  
Tangible equity to tangible assets (1) 10.55     10.24     10.11     10.09     9.44  
Common equity tier 1 to risk-weighted assets 11.73     11.49     11.78     11.82     11.75  
Tier 1 capital to risk-weighted assets 11.73     11.49     11.78     11.82     11.75  
Total capital to risk-weighted assets 13.84     13.62     13.95     14.00     13.99  
Tier 1 capital to average assets (leverage ratio) 10.12     10.01     10.19     10.21     10.31  
Asset Quality Ratios:                  
Net charge-offs to average loans 0.01 %   0.01 %   0.01 %   0.10 %   0.07 %
Nonperforming assets as a percentage of total assets 0.78     0.99     1.17     1.30     0.89  
Nonaccrual loans as a percent of total loans 0.98     1.25     1.47     1.64     1.15  
Allowance for loan losses as a percentage of period-end loans 1.05     1.06     1.06     1.03     1.07  
Allowance for loan losses as a percentage of nonaccrual loans 107.46     84.94     71.85     62.70     92.36  
Allowance for loan losses as a percentage of nonaccrual loans, excluding allowance allocated to loans accounted for under ASC 310-30 100.52     79.41     66.33     57.71     84.72  
(1) See section entitled "GAAP Reconciliation of Non-GAAP Financial Measures" below.
(2) Presented on a tax equivalent basis using a 21% tax rate.

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 shareholders' equity, tangible book value per share and the ratio of tangible equity to tangible assets. 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.

We calculate: (i) tangible shareholders' equity as total shareholders' equity less core deposit intangibles, mortgage servicing rights and goodwill; (ii) tangible book value per share as tangible shareholders' equity divided by shares of common stock outstanding; and (iii) tangible assets as total assets, less core deposit intangibles, mortgage servicing rights and goodwill.

The following presents these non-GAAP financial measures along with their most directly comparable financial measure calculated in accordance with GAAP:

  As of
(Dollars in thousands, except per share data) September 30,
2019
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  (Unaudited)   (Unaudited)   (Unaudited)       (Unaudited)
Total shareholders' equity $ 167,968     $ 162,867     $ 156,119     $ 151,760     $ 145,459  
Less:                  
Goodwill 9,387     9,387     9,387     9,387     9,387  
Other intangible assets, net 331     359     395     447     502  
Tangible shareholders' equity $ 158,250     $ 153,121     $ 146,337     $ 141,926     $ 135,570  
                   
Shares outstanding (in thousands) 7,714     7,728     7,749     7,750     7,749  
Tangible book value per share $ 20.51     $ 19.81     $ 18.88     $ 18.31     $ 17.50  
                   
Total assets $ 1,509,463     $ 1,505,376     $ 1,456,552     $ 1,416,215     $ 1,446,269  
Less:                  
Goodwill 9,387     9,387     9,387     9,387     9,387  
Other intangible assets, net 331     359     395     447     502  
Tangible assets $ 1,499,745     $ 1,495,630     $ 1,446,770     $ 1,406,381     $ 1,436,380  
                   
Tangible equity to tangible assets 10.55 %   10.24 %   10.11 %   10.09 %   9.44 %
                   
Net income, as reported $ 4,409     $ 3,555     $ 3,467     $ 3,951     $ 3,255  
Acquisition and due diligence fees 319                  
Income tax benefit (1) (67 )                
Net income, excluding acquisition and due diligence fees $ 4,661     $ 3,555     $ 3,467     $ 3,951     $ 3,255  
                   
Diluted earnings per share, as reported $ 0.56     $ 0.45     $ 0.44     $ 0.50     $ 0.41  
Effect of acquisition and due diligence fees, net of tax 0.04                  
Diluted earnings per common share, excluding acquisition and due diligence fees $ 0.60     $ 0.45     $ 0.44     $ 0.50     $ 0.41  
                   
(1) Assumes acquisition and due diligence fees are deductible at an income tax rate of 21%.        


Consolidated Balance Sheets          
  As of
  September 30,   December 31,   September 30,
(Dollars in thousands) 2019   2018   2018
Assets (Unaudited)       (Unaudited)
Cash and cash equivalents $ 49,361     $ 33,296     $ 77,837  
Securities available-for-sale 205,242     204,258     199,051  
Federal Home Loan Bank stock 8,325     8,325     8,325  
Mortgage loans held for sale, at fair value 26,864     5,595     9,392  
Loans:          
Originated loans 1,093,694     1,041,898     1,022,119  
Acquired loans 75,229     84,667     92,880  
Total loans 1,168,923     1,126,565     1,114,999  
Less: Allowance for loan losses (12,307 )   (11,566 )   (11,890 )
Net loans 1,156,616     1,114,999     1,103,109  
Premises and equipment, net 13,427     13,242     13,506  
Goodwill 9,387     9,387     9,387  
Other intangible assets, net 331     447     502  
Bank-owned life insurance 12,080     11,866     11,785  
Income tax benefit 469     2,467     3,201  
Other assets 27,361     12,333     10,174  
Total assets $ 1,509,463     $ 1,416,215     $ 1,446,269  
Liabilities          
Deposits:          
Noninterest-bearing demand deposits $ 322,069     $ 309,384     $ 380,369  
Interest-bearing demand deposits 66,716     52,804     50,226  
Money market and savings deposits 332,432     287,575     238,351  
Time deposits 473,325     484,872     461,365  
Total deposits 1,194,542     1,134,635     1,130,311  
Borrowings 111,937     99,574     146,483  
Subordinated notes 14,934     14,891     14,882  
Other liabilities 20,082     15,355     9,134  
Total liabilities 1,341,495     1,264,455     1,300,810  
Shareholders' equity          
Common stock, no par value per share:          
Authorized - 20,000,000 shares          
Issued and outstanding - 7,714,000 shares at September 30, 2019, 7,750,216 shares at December 31, 2018, and 7,749,216 shares at September 30, 2018 89,206     90,621     90,411  
Retained earnings 73,394     62,891     59,173  
Accumulated other comprehensive income (loss), net of tax 5,368     (1,752 )   (4,125 )
Total shareholders' equity 167,968     151,760     145,459  
Total liabilities and shareholders' equity $ 1,509,463     $ 1,416,215     $ 1,446,269  


Consolidated Statements of Income                    
(Unaudited) Three months ended   Nine months ended
  September 30,   June 30,   September 30,   September 30,
  September 30,
(In thousands, except per share data) 2019   2019   2018   2019
  2018
Interest income                    
Originated loans, including fees $ 14,633     $ 14,125     $ 12,653     $ 42,652     $ 35,664  
Acquired loans, including fees 1,501     1,637     2,454     4,895     7,173  
Securities:                    
Taxable 857     980     816     2,773     2,057  
Tax-exempt 588     595     450     1,728     1,181  
Federal funds sold and other 404     320     256     1,034     708  
Total interest income 17,983     17,657     16,629     53,082     46,783  
Interest Expense                    
Deposits 4,478     4,617     2,802     13,216     7,467  
Borrowed funds 261     346     502     960     946  
Subordinated notes 256     253     256     759     759  
Total interest expense 4,995     5,216     3,560     14,935     9,172  
Net interest income 12,988     12,441     13,069     38,147     37,611  
Provision expense (benefit) for loan losses (16 )   429     619     835     463  
Net interest income after provision for loan losses 13,004     12,012     12,450     37,312     37,148  
Noninterest income                    
Service charges on deposits 627     662     655     1,914     1,915  
Net gain on sales of securities 151     7         151      
Mortgage banking activities 2,352     2,316     754     5,788     1,394  
Net gain (loss) on sale of commercial loans (37 )           (37 )   11  
Other charges and fees 765     492     515     1,805     1,428  
Total noninterest income 3,858     3,477     1,924     9,621     4,748  
Noninterest expense                    
Salary and employee benefits 7,536     7,193     6,888     21,642     19,013  
Occupancy and equipment expense 1,203     1,168     1,173     3,575     3,293  
Professional service fees 465     385     494     1,212     1,231  
Acquisition and due diligence fees 319             319      
Marketing expense 379     288     264     843     697  
Printing and supplies expense 78     104     127     250     343  
Data processing expense 661     606     565     1862     1,512  
Other expense 898     1,423     943     3,371     3,205  
Total noninterest expense 11,539     11,167     10,454     33,074     29,294  
Income before income taxes 5,323     4,322     3,920     13,859     12,602  
Income tax provision 914     767     665     2,428     2,167  
Net income $ 4,409     $ 3,555     $ 3,255     $ 11,431     $ 10,435  
Earnings per common share:                    
Basic earnings per common share $ 0.57     $ 0.46     $ 0.42     $ 1.48     $ 1.44  
Diluted earnings per common share $ 0.56     $ 0.45     $ 0.41     $ 1.46     $ 1.41  
Cash dividends declared per common share $ 0.04     $ 0.04     $ 0.03     $ 0.12     $ 0.09  
Weighted average common shares outstanding—basic   7,721       7,741       7,749     7,738       7,264  
Weighted average common shares outstanding—diluted   7,752       7,856       7,901     7,776       7,414  


Net Interest Income and Net Interest Margin                  
(Unaudited) For the three months ended
  September 30, 2019   June 30, 2019   September 30, 2018
(Dollars in thousands) Average
Balance
Interest (1) Average
Rate (2)
  Average
Balance
Interest (1) Average
Rate (2)
  Average
Balance
Interest (1) Average
Rate (2)
Interest-earning assets:                      
Gross loans (3) $ 1,182,764   $ 16,134   5.41 %   $ 1,164,871   $ 15,762   5.43 %   $ 1,075,642   $ 15,107   5.57 %
Investment securities: (4)                      
Taxable 121,473   857   2.80     143,841   980   2.73     134,619   816   2.41  
Tax-exempt 85,332   588   3.28     87,287   595   3.26     67,599   450   3.13  
Interest earning cash balances 51,142   289   2.24     32,606   206   2.53     28,685   157   2.17  
Federal Home Loan Bank Stock 8,325   115   5.48     8,325   114   5.49     8,303   99   4.73  
Total interest-earning assets $ 1,449,036   $ 17,983   4.96 %   $ 1,436,930   $ 17,657   4.96 %   $ 1,314,848   $ 16,629   5.04 %
Non-earning assets:                      
  Cash and due from banks 23,103         24,347         22,358      
  Premises and equipment 13,228         13,239         13,465      
  Goodwill 9,387         9,387         9,387      
  Other intangible assets, net 347         376         533      
  Bank-owned life insurance 12,023         11,948         11,732      
  Allowance for loan losses (12,241 )       (12,039 )       (11,591 )    
  Other non-earning assets 27,145         16,804         7,414      
  Total assets $ 1,522,028         $ 1,500,992         $ 1,368,146      
Interest-bearing liabilities:                      
  Interest-bearing demand deposits $ 51,963   $ 63   0.48 %   $ 56,434   $ 69   0.49 %   $ 60,022   $ 52   0.34 %
  Money market and savings deposits 320,363   1,170   1.45     295,371   1,125   1.53     249,595   625   0.99  
  Time deposits 543,765   3,245   2.37     582,874   3,423   2.36     463,373   2,125   1.82  
  Borrowings 70,766   261   1.46     59,272   346   2.33     95,371   502   2.09  
  Subordinated notes 14,925   256   6.81     14,910   253   6.78     14,874   256   6.83  
  Total interest-bearing liabilities $ 1,001,782   $ 4,995   1.98 %   $ 1,008,861   $ 5,216   2.07 %   $ 883,235   $ 3,560   1.60 %
Noninterest-bearing liabilities and shareholders' equity:                      
  Noninterest bearing demand deposits 333,690         315,530         329,459      
  Other liabilities 19,804         17,144         9,956      
  Shareholders' equity 166,752         159,457         145,496      
  Total liabilities and shareholders' equity $ 1,522,028         $ 1,500,992         $ 1,368,146      
Net interest income   $ 12,988         $ 12,441         $ 13,069    
Interest spread     2.98 %       2.89 %       3.44 %
Net interest margin (5)     3.56         3.47         3.94  
Tax equivalent effect     0.03         0.03         0.03  
Net interest margin on a fully tax equivalent basis     3.59 %       3.50 %       3.97 %

(1) Interest income is shown on actual basis and does not include taxable equivalent adjustments.
(2) Average rates and yields are presented on an annual basis and includes a taxable equivalent adjustment to interest income of $118 thousand, $115 thousand, and $84 thousand on tax-exempt securities for the three months ended September 30, 2019, June 30, 2019, and September 30, 2018, respectively, using a federal income tax rate of 21%.
(3) Includes nonaccrual loans.
(4) 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.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.

           
  For the nine months ended
  September 30, 2019   September 30, 2018
(Dollars in thousands) Average
Balance
Interest (1) Average
Rate (2)
  Average
Balance
Interest (1) Average
Rate (2)
Interest-earning assets:              
Gross loans (3) $ 1,157,837   $ 47,547   5.49 %   $ 1,052,942   $ 42,837   5.44 %
Investment securities: (4)              
Taxable 135,460   2,773   2.74     117,356   2,057   2.34  
Tax-exempt 84,476   1,728   3.28     60,570   1,181   3.13  
Interest earning cash balances 37,359   670   2.40     27,207   382   1.88  
Federal Home Loan Bank Stock 8,325   364   5.85     8,303   326   5.25  
Total interest-earning assets $ 1,423,457   $ 53,082   5.02 %   $ 1,266,378   $ 46,783   4.96 %
Non-earning assets:              
  Cash and due from banks 24,075         19,577      
  Premises and equipment 13,252         13,150      
  Goodwill 9,387         9,387      
  Other intangible assets, net 383         588      
  Bank-owned life insurance 11,955         11,651      
  Allowance for loan losses (11,950 )       (11,628 )    
  Other non-earning assets 18,642         9,132      
  Total assets $ 1,489,201         $ 1,318,235      
Interest-bearing liabilities:              
  Interest-bearing demand deposits $ 53,894   $ 180   0.45 %   $ 62,626   $ 151   0.32 %
  Money market and savings deposits 307,461   3,389   1.47     266,508   1,851   0.93  
  Time deposits 556,922   9,647   2.32     455,299   5,465   1.60  
  Borrowings 62,006   960   2.07     67,073   946   1.89  
  Subordinated notes 14,910   759   6.81     14,859   759   6.83  
  Total interest-bearing liabilities $ 995,193   $ 14,935   2.01 %   $ 866,365   $ 9,172   1.42 %
Noninterest-bearing liabilities and shareholders' equity:              
  Noninterest bearing demand deposits 316,754         311,675      
  Other liabilities 17,048         9,941      
  Shareholders' equity 160,206         130,254      
  Total liabilities and shareholders' equity $ 1,489,201         $ 1,318,235      
Net interest income   $ 38,147         $ 37,611    
Interest spread     3.01 %       3.54 %
Net interest margin (5)     3.58         3.97  
Tax equivalent effect     0.03         0.02  
Net interest margin on a fully tax equivalent basis     3.61 %       3.99 %

(1) Interest income is shown on actual basis and does not include taxable equivalent adjustments.
(2) Average rates and yields are presented on an annual basis and includes a taxable equivalent adjustment to interest income of $347 thousand and $235 thousand on tax-exempt securities for the nine months ended September 30, 2019 and September 30, 2018, respectively, using the statutory tax rate of 21%.
(3) Includes nonaccrual loans.
(4) 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.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.

Loan Composition                  
  As of
  September 30,   June 30,   March 31,   December 31,   September 30,
(Dollars in thousands) 2019   2019   2019   2018   2018
Commercial real estate: (Unaudited)   (Unaudited)   (Unaudited)       (Unaudited)
Non-owner occupied $ 369,284   $ 364,504   $ 361,066   $ 367,671   $ 362,450
Owner-occupied 196,497   193,500   187,001   194,422   190,131
Total commercial real estate 565,781   558,004   548,067   562,093   552,581
Commercial and industrial 404,130   420,812   401,588   383,455   397,060
Residential real estate 198,277   186,737   180,386   180,018   164,356
Consumer 735   948   1,056   999   1,002
Total loans $ 1,168,923   $ 1,166,501   $ 1,131,097   $ 1,126,565   $ 1,114,999


Impaired Assets                  
  As of
  September 30,   June 30,   March 31,   December 31,   September 30,
(Dollars in thousands) 2019   2019   2019   2018   2018
Nonaccrual loans (Unaudited)   (Unaudited)   (Unaudited)       (Unaudited)
Commercial real estate $ 5,043   $ 2,979   $ 2,694   $ 5,927   $ 4,559
Commercial and industrial 4,071   9,559   10,495   9,605   5,763
Residential real estate 2,339   2,006   3,456   2,915   2,546
Consumer         5
Total nonaccrual loans 11,453   14,544   16,645   18,447   12,873
Other real estate owned 373   373   373    
Total nonperforming assets 11,826   14,917   17,018   18,447   12,873
Performing troubled debt restructurings                  
Commercial real estate         1,511
Commercial and industrial 553   558   562   568   574
Residential real estate 361   363   363   363   365
Total performing troubled debt restructurings 914   921   925   931   2,450
Total impaired assets $ 12,740   $ 15,838   $ 17,943   $ 19,378   $ 15,323
                   
Loans 90 days or more past due and still accruing $ 157   $ 331   $ 453   $ 243   $ 354

Media Contact:          
Nicole Ransom         
(248) 538-2183          

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

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