Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K

CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): April 30, 2019
LEVEL ONE BANCORP, INC.
(Exact name of registrant as specified in its charter)
Commission File Number: 001-38458
Michigan
(State or other jurisdiction of
incorporation or organization)
 
71-1015624
(I.R.S. Employer
Identification No.)
32991 Hamilton Court
Farmington Hills, MI
(Address of principal executive offices)
 
48334
(Zip code)
(248) 737-0300
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b– 2 of the Securities Exchange Act of 1934 (§ 240.12b–2 of this chapter).
Emerging growth company    þ
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Item 2.02.    Results of Operations and Financial Condition

On April 30, 2019, Level One Bancorp, Inc. issued a press release announcing its financial results for the first quarter of 2019. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Item 9.01.     Financial Statements and Exhibits.
Exhibit No.
 
Description
99.1
 




SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: April 30, 2019
 
 
 
LEVEL ONE BANCORP, INC.
 
 
 
 
By:
/s/ David C. Walker
 
Name:
David C. Walker
 
Title:
Executive Vice President and Chief Financial Officer


Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12864087&doc=3
 
For Immediate Release

Level One Bancorp, Inc. reports first quarter 2019 net income of $3.5 million, representing $0.44 of diluted earnings per common share

Farmington Hills, MI – April 30, 2019 – Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported financial results for the first quarter of 2019, which included net income of $3.5 million, or $0.44 per diluted share. This compares to net income of $4.0 million, or $0.50 per diluted share, in the preceding quarter and $3.2 million, or $0.47 per diluted share, in the first quarter of 2018.

Patrick J. Fehring, President and Chief Executive Officer, commented “We are pleased to announce a solid first quarter with earnings of $3.5 million, representing an increase of 9.43% over the first quarter of 2018.  First quarter fully diluted earnings per share of $0.44 slightly declined from $0.47 in the first quarter of 2018 primarily as a result of our initial public offering of shares in April of 2018. We continue to focus on our strategic priorities to ensure a strong organization for our shareholders, team members, and clients."

He continued, "Earlier this year, we announced the approval of a share repurchase program and repurchased a total of $1.1 million in shares of our common stock during the first quarter. In addition, we announced an increase in our first quarter dividend to $0.04 per share, compared to $0.03 per share paid out during each quarter of 2018. The increase in our first quarter dividend, along with the commencement of the share repurchase program, demonstrate our commitment to return more capital to our shareholders."

First Quarter 2019 Financial Highlights

Net income was $3.5 million, or $0.44 per diluted share, for the first quarter of 2019
Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.76%, compared to 3.73% in the preceding quarter
Noninterest income increased 66.62% to $2.3 million in the first quarter of 2019, compared to $1.4 million in the first quarter of 2018 mainly due to higher mortgage banking activities income
Our quarterly dividend declared increased from $0.03 per common share in the first quarter of 2018 to $0.04 per common share in the first quarter of 2019
Total assets increased 11.99% to $1.46 billion at March 31, 2019, compared to $1.30 billion at March 31, 2018
Total loans increased 7.58% to $1.13 billion at March 31, 2019, compared to $1.05 billion at March 31, 2018
Total deposits increased 3.49% to $1.15 billion at March 31, 2019, compared to $1.11 billion at March 31, 2018
Book value per share increased 20.08% to $20.15 per share at March 31, 2019, compared to $16.78 per share at March 31, 2018
Tangible book value per share increased 23.64% to $18.88 per share at March 31, 2019, compared to $15.27 per share at March 31, 2018

Balance Sheet Review

Level One's total assets were $1.46 billion at March 31, 2019, an increase of $40.3 million, or 2.85%, from $1.42 billion at December 31, 2018, and up $155.9 million, or 11.99%, from $1.30 billion at March 31, 2018. The increase in total assets from

1



December 31, 2018 was primarily due to an increase in originated loans, mortgage loans held for sale and securities available-for-sale.

The investment securities portfolio was $226.9 million at March 31, 2019, an increase of $22.6 million, or 11.07%, from $204.3 million at December 31, 2018, and up $66.6 million, or 41.49%, from $160.3 million at March 31, 2018.

Total loans were $1.13 billion at March 31, 2019, an increase of $4.5 million, or 0.40%, from $1.13 billion at December 31, 2018, and up $79.7 million, or 7.58%, from $1.05 billion at March 31, 2018. Loan originations during the first quarter of 2019 were strong. However, the originations were nearly offset by high loan payoffs during the quarter which have historically occurred during the first quarter of each year. The growth in total loans compared to March 31, 2018 was primarily due to growth in our commercial and industrial and residential real estate loan portfolios.

Total deposits were $1.15 billion at March 31, 2019, an increase of $16.8 million, or 1.48%, from $1.13 billion at December 31, 2018, and up $38.8 million, or 3.49%, from $1.11 billion at March 31, 2018. Total deposit composition at March 31, 2019 consisted of 30.11% of demand deposit accounts, 27.71% of savings and money market accounts and 42.18% of time deposits.

Operating Results

Level One's net interest income decreased $95 thousand, or 0.73%, to $12.7 million in the first quarter of 2019, compared to $12.8 million in the preceding quarter, primarily as a result of higher costs of funds, and increased $591 thousand, or 4.87%, compared to $12.1 million in the first quarter of 2018, primarily as a result of increased income on originated loans, partially offset by increased interest expense on deposits.

Level One’s net interest margin, on a FTE basis, was 3.76% in the first quarter of 2019, compared to 3.73% in the preceding quarter and 4.03% in the first quarter of 2018. This improvement in the net interest margin compared to the preceding quarter was primarily as a result of higher average loan yield from the fourth quarter of 2018 to the first quarter of 2019, partially offset by higher cost of funds as a result of customers gravitating towards interest-bearing accounts. The decrease in net interest margin year over year was primarily due to higher cost of funds.

Level One's noninterest income increased $914 thousand, or 66.62%, compared to $1.4 million in the first quarter of 2018, and remained consistent from the first quarter of 2019 compared to the preceding quarter. The increase in noninterest income year over year was primarily due to a $884 thousand increase in mortgage banking activities mainly as a result of higher gains on sales of loans.

Level One’s noninterest expenses remained stable in the first quarter of 2019 compared to the preceding quarter, and increased $1.2 million, or 13.50%, compared to $9.1 million in the first quarter of 2018. The increase in noninterest expenses year over year was primarily a result of increased salary and employee benefits due to the overall growth in team member headcount, including the doubling in size of the mortgage division during the third quarter of 2018. The efficiency ratio, which is a measure of operating expenses as a percentage of net interest income and noninterest income, for the first quarter of 2019 was 69.10%, compared to 68.68% for the preceding quarter and 67.67% in the first quarter of 2018.

Level One's income tax provision was $747 thousand, or 17.73% of pretax income, in the first quarter of 2019, as compared to $836 thousand, or 17.46% of pretax income, in the preceding quarter and $642 thousand, or 16.85% of pretax income, in the first quarter of 2018.

Asset Quality

Nonperforming loans were $16.6 million, or 1.47% of total loans, at March 31, 2019, a decrease of $1.8 million from nonperforming loans of $18.4 million, or 1.64% of total loans, at December 31, 2018, and an increase of $3.6 million from

2



nonperforming loans of $13.0 million, or 1.23% of total loans, at March 31, 2018. The decrease in nonperforming loans from the fourth quarter 2018 is primarily due to the pay off of a large loan relationship on nonaccrual status during the first quarter 2019. The increase in nonperforming loans compared to first quarter 2018 was primarily due to two commercial loan relationships totaling $8.0 million moving to nonaccrual status, partially offset by commercial loan payoffs of $5.3 million.

Level One had $373 thousand of other real estate owned assets at March 31, 2019, compared to $0 other real estate owned assets at December 31, 2018 and March 31, 2018. Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 1.17% at March 31, 2019, compared to 1.30% at December 31, 2018, and 1.00% at March 31, 2018.

In addition, we had $453 thousand of loans 90 days or more past due and still accruing at March 31, 2019, compared to $243 thousand at December 31, 2018 and $263 thousand at March 31, 2018, all of which consisted of purchase credit impaired loans.

Performing troubled debt restructured loans that were not included in nonaccrual loans at March 31, 2019 were $925 thousand, compared to $931 thousand at December 31, 2018 and $2.4 million at March 31, 2018. 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 first quarter of 2019 were $29 thousand, or 0.01% of average loans on an annualized basis, compared to $274 thousand of net chargeoffs, or 0.10% of average loans on an annualized basis, for the preceding quarter and $755 thousand of net chargeoffs, or 0.29% of average loans on an annualized basis, for the quarter ended March 31, 2018.

Level One's first quarter of 2019 provision for loan losses was a provision expense of $422 thousand, compared to a provision benefit of $51 thousand in the preceding quarter and a provision expense of $554 thousand in the first quarter of 2018. The change in provision for loan losses compared to fourth quarter 2018 was primarily due to $229 thousand of new specific reserves on two commercial loan relationships as well as the organic growth in the loan portfolio quarter over quarter. The allowance for loan losses was $12.0 million, or 1.06% of total loans, at March 31, 2019, compared to $11.6 million, or 1.03% of total loans, at December 31, 2018, and $11.5 million, or 1.09% of total loans, at March 31, 2018. As of March 31, 2019, the allowance for loan losses as a percentage of nonperforming loans was 71.85%, compared to 62.70% at December 31, 2018, and 88.67% at March 31, 2018.

Capital

Total shareholders’ equity was $156.1 million at March 31, 2019, an increase of $4.3 million, or 2.87%, 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 $45.6 million, or 41.25%, from $110.5 million at March 31, 2018, primarily as a result of our initial public offering of 1,150,765 shares of common stock in April of 2018.

Recent Developments

First Quarter Dividend: On March 21, 2019, Level One’s Board of Directors declared a quarterly cash dividend of $0.04 per share. This dividend was paid out on April 15, 2019, to stockholders of record at the close of business on March 31, 2019.








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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 $1.46 billion as of March 31, 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, auto, 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. 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.

Media Contact:
Investor Relations Contact:
Nicole Ransom
Peter Root
(248) 538-2183
(248) 538-2186



4



Summary Consolidated Financial Information
(Unaudited)
As of or for the three months ended,
(Dollars in thousands, except per share data)
March 31,
2019
 
December 31, 2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
Earnings Summary
 
 
 
 
 
 
 
 
 
Interest income
$
17,442

 
$
17,041

 
$
16,629

 
$
15,380

 
$
14,774

Interest expense
4,724

 
4,228

 
3,560

 
2,965

 
2,647

Net interest income
12,718

 
12,813

 
13,069

 
12,415

 
12,127

Provision (benefit) for loan losses
422

 
(51
)
 
619

 
(710
)
 
554

Noninterest income
2,286

 
2,307

 
1,924

 
1,452

 
1,372

Noninterest expense
10,368

 
10,384

 
10,454

 
9,705

 
9,135

Income before income taxes
4,214

 
4,787

 
3,920

 
4,872

 
3,810

Income tax provision
747

 
836

 
665

 
860

 
642

Net income
$
3,467

 
$
3,951

 
$
3,255

 
$
4,012

 
$
3,168

Per Share Data
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.45

 
$
0.51

 
$
0.42

 
$
0.54

 
$
0.48

Diluted earnings per common share
0.44

 
0.50

 
0.41

 
0.53

 
0.47

Book value per common share
20.15

 
19.58

 
18.77

 
18.51

 
16.78

Tangible book value per share (1)
18.88

 
18.31

 
17.50

 
17.23

 
15.27

Shares outstanding (in thousands)
7,749

 
7,750

 
7,749

 
7,749

 
6,585

Average basic common shares (in thousands)
7,752

 
7,750

 
7,749

 
7,456

 
6,539

Average diluted common shares (in thousands)
7,869

 
7,893

 
7,901

 
7,613

 
6,699

Selected Period End Balances
 
 
 
 
 
 
 
 
 
Total assets
$
1,456,552

 
$
1,416,215

 
$
1,446,269

 
$
1,322,913

 
$
1,300,629

Securities available-for-sale
226,874

 
204,258

 
199,051

 
196,047

 
160,349

Total loans
1,131,097

 
1,126,565

 
1,114,999

 
1,045,789

 
1,051,354

Total deposits
1,151,463

 
1,134,635

 
1,130,311

 
1,065,216

 
1,112,644

Total liabilities
1,300,433

 
1,264,455

 
1,300,810

 
1,179,468

 
1,190,106

Total shareholders' equity
156,119

 
151,760

 
145,459

 
143,445

 
110,523

Tangible shareholders' equity (1)
146,337

 
141,926

 
135,570

 
133,501

 
100,524

Performance and Capital Ratios
 
 
 
 
 
 
 
 
 
Return on average assets (annualized)
0.96
%
 
1.11
%
 
0.95
%
 
1.23
 %
 
1.00
%
Return on average equity (annualized)
8.99

 
10.69

 
8.95

 
11.97

 
11.64

Net interest margin (fully taxable equivalent)(2)
3.76

 
3.73

 
3.97

 
3.99

 
4.03

Efficiency ratio (noninterest expense/net interest income plus noninterest income)
69.10

 
68.68

 
69.73

 
69.99

 
67.67

Dividend payout ratio (3)
6.72

 
5.87

 
7.13

 
5.78

 

Total shareholders' equity to total assets
10.72

 
10.72

 
10.06

 
10.84

 
8.50

Tangible equity to tangible assets (1)
10.11

 
10.09

 
9.44

 
10.17

 
7.79

Common equity tier 1 to risk-weighted assets
11.78

 
11.82

 
11.75

 
12.11

 
9.47

Tier 1 capital to risk-weighted assets
11.78

 
11.82

 
11.75

 
12.11

 
9.47

Total capital to risk-weighted assets
13.95

 
14.00

 
13.99

 
14.44

 
11.87

Tier 1 capital to average assets (leverage ratio)
10.19

 
10.21

 
10.31

 
10.60

 
8.15

Asset Quality Ratios:
 
 
 
 
 
 
 
 
 
Net charge-offs (recoveries) to average loans
0.01
%
 
0.10
%
 
0.07
%
 
(0.26
)%
 
0.29
%
Nonperforming assets as a percentage of total assets
1.17

 
1.30

 
0.89

 
0.85

 
1.00

Nonperforming loans as a percent of total loans
1.47

 
1.64

 
1.15

 
1.08

 
1.23

Allowance for loan losses as a percentage of period-end loans
1.06

 
1.03

 
1.07

 
1.10

 
1.09

Allowance for loan losses as a percentage of nonperforming loans
71.85

 
62.70

 
92.36

 
101.67

 
88.67

Allowance for loan losses as a percentage of nonperforming loans, excluding allowance allocated to loans accounted for under ASC 310-30
66.33

 
57.71

 
84.72

 
92.93

 
80.36

(1) See section entitled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" below.
(2) Presented on a tax equivalent basis using a 21% tax rate.
(3) The dividend payout ratio of 0 for the three months ended March 31, 2018 was due to the timing difference between the declaration date and payout date of the dividend. The Company declared a $0.03 dividend on March 15, 2018 but it was not paid out until April 16, 2018.
GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

Some of the financial measures included in this earnings release are not measures of financial performance recognized by GAAP. These non-GAAP financial measures include tangible shareholders' equity, tangible book value per share, and the ratio of tangible shareholders' equity to tangible assets. Our management uses these non-GAAP financial measures in its analysis of our performance, and we believe financial analysts and others frequently use these measures, and other similar measures, to evaluate capital adequacy. We calculate: (i) tangible shareholders' equity as total shareholders' equity less core deposit intangibles 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 and goodwill.

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

Reconciliation of Non-GAAP Financial Measures
As of
(Dollars in thousands, except per share data)
March 31,
2019
 
December 31,
2018
 
September 30,
2018
 
June 30,
2018
 
March 31,
2018
 
(Unaudited)
 
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Total shareholders' equity
$
156,119

 
$
151,760

 
$
145,459

 
$
143,445

 
$
110,523

Less:
 
 
 
 
 
 
 
 
 
Goodwill
9,387

 
9,387

 
9,387

 
9,387

 
9,387

Core deposit intangibles
395

 
447

 
502

 
557

 
612

Tangible shareholders' equity
$
146,337

 
$
141,926

 
$
135,570

 
$
133,501

 
$
100,524

 
 
 
 
 
 
 
 
 
 
Shares outstanding (in thousands)
7,749

 
7,750

 
7,749

 
7,749

 
6,585

Tangible book value per share
$
18.88

 
$
18.31

 
$
17.50

 
$
17.23

 
$
15.27

 
 
 
 
 
 
 
 
 
 
Total assets
$
1,456,552

 
$
1,416,215

 
$
1,446,269

 
$
1,322,913

 
$
1,300,629

Less:
 
 
 
 
 
 
 
 
 
Goodwill
9,387

 
9,387

 
9,387

 
9,387

 
9,387

Core deposit intangibles
395

 
447

 
502

 
557

 
612

Tangible assets
$
1,446,770

 
$
1,406,381

 
$
1,436,380

 
$
1,312,969

 
$
1,290,630

 
 
 
 
 
 
 
 
 
 
Tangible equity to tangible assets
10.11
%
 
10.09
%
 
9.44
%
 
10.17
%
 
7.79
%












5



Consolidated Balance Sheets
As of
 
March 31,
 
December 31,
 
March 31,
(Dollars in thousands)
2019
 
2018
 
2018
Assets
(Unaudited)
 
 
 
(Unaudited)
Cash and cash equivalents
$
35,982

 
$
33,296

 
$
39,882

Securities available-for-sale
226,874

 
204,258

 
160,349

Federal Home Loan Bank stock
8,325

 
8,325

 
8,303

Mortgage loans held for sale, at fair value
14,043

 
5,595

 
1,871

Loans:
 
 
 
 
 
Originated loans
1,051,169

 
1,041,898

 
946,179

Acquired loans
79,928

 
84,667

 
105,175

Total loans
1,131,097

 
1,126,565

 
1,051,354

Less: Allowance for loan losses
(11,960)

 
(11,566)

 
(11,506)

Net loans
1,119,137

 
1,114,999

 
1,039,848

Premises and equipment, net
13,172

 
13,242

 
13,282

Goodwill
9,387

 
9,387

 
9,387

Other intangible assets, net
395

 
447

 
612

Bank-owned life insurance
11,945

 
11,866

 
11,622

Income tax benefit
1,589

 
2,467

 
3,026

Other assets
15,703

 
12,333

 
12,447

Total assets
$
1,456,552

 
$
1,416,215

 
$
1,300,629

Liabilities
 

 
 

 
 
Deposits:
 

 
 

 
 
Noninterest-bearing demand deposits
$
293,217

 
$
309,384

 
$
298,917

Interest-bearing demand deposits
53,538

 
52,804

 
68,479

Money market and savings deposits
319,028

 
287,575

 
278,042

Time deposits
485,680

 
484,872

 
467,206

Total deposits
1,151,463

 
1,134,635

 
1,112,644

Borrowings
117,907

 
99,574

 
52,783

Subordinated notes
14,905

 
14,891

 
14,853

Other liabilities
16,158

 
15,355

 
9,826

Total liabilities
1,300,433

 
1,264,455

 
1,190,106

Shareholders' equity
 

 
 
 
 
Common stock, no par value per share:
 

 
 
 
 
Authorized - 20,000,000 shares
 

 
 
 
 
Issued and outstanding - 7,749,331 shares at 3/31/19, 7,750,216 shares at 12/31/18, and 6,584,676 shares at 3/31/2018
90,857

 
90,621

 
60,886

Treasury stock - 46,626 shares at 3/31/19 and 0 shares at 12/31/18 and 3/31/18
(1,104)

 

 

Retained earnings
66,049

 
62,891

 
52,568

Accumulated other comprehensive income (loss), net of tax
317

 
(1,752)

 
(2,931)

Total shareholders' equity
156,119

 
151,760

 
110,523

Total liabilities and shareholders' equity
$
1,456,552

 
$
1,416,215

 
$
1,300,629





6



Consolidated Statements of Income
 
 
 
 
 
(Unaudited)
Three months ended
 
March 31,
 
December 31,
 
March 31,
(In thousands, except per share data)
2019
 
2018
 
2018
Interest income
 
 
 
 
 
Originated loans, including fees
$
13,894

 
$
13,412

 
$
11,178

Acquired loans, including fees
1,757

 
2,013

 
2,426

Securities:
 
 
 
 
 
Taxable
936

 
882

 
574

Tax-exempt
545

 
476

 
351

Federal funds sold and other
310

 
258

 
245

Total interest income
17,442

 
17,041

 
14,774

Interest Expense
 

 
 
 
 
Deposits
4,121

 
3,588

 
2,178

Borrowed funds
353

 
384

 
219

Subordinated notes
250

 
256

 
250

Total interest expense
4,724

 
4,228

 
2,647

Net interest income
12,718

 
12,813

 
12,127

Provision expense (benefit) for loan losses
422

 
(51
)
 
554

Net interest income after provision for loan losses
12,296

 
12,864

 
11,573

Noninterest income
 

 
 
 
 
Service charges on deposits
625

 
641

 
642

Net loss on sales of securities
(7
)
 
(71
)
 

Mortgage banking activities
1,120

 
936

 
236

Other charges and fees
548

 
801

 
494

Total noninterest income
2,286

 
2,307

 
1,372

Noninterest expense
 

 
 
 
 
Salary and employee benefits
6,913

 
6,768

 
5,956

Occupancy and equipment expense
1,204

 
1,132

 
1,046

Professional service fees
362

 
441

 
266

Marketing expense
176

 
336

 
142

Printing and supplies expense
68

 
98

 
104

Data processing expense
595

 
634

 
436

Other expense
1,050

 
975

 
1,185

Total noninterest expense
10,368

 
10,384

 
9,135

Income before income taxes
4,214

 
4,787

 
3,810

Income tax provision
747

 
836

 
642

Net income
$
3,467

 
$
3,951

 
$
3,168

Earnings per common share:
 

 
 
 
 
Basic earnings per common share
$
0.45

 
$
0.51

 
$
0.48

Diluted earnings per common share
$
0.44

 
$
0.50

 
$
0.47

Cash dividends declared per common share
$
0.04

 
$
0.03

 
$
0.03

Weighted average common shares outstanding—basic
7,752

 
7,750

 
6,539

Weighted average common shares outstanding—diluted
7,869

 
7,893

 
6,699


7



Net Interest Income and Net Interest Margin
 
 
 
 
 
 
 
 
 
(Unaudited)
For the three months ended,
 
March 31, 2019
 
December 31, 2018
 
March 31, 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)
$
1,125,213

$
15,651

5.64
%
 
$
1,131,705

$
15,425

5.41
%
 
$
1,037,045

$
13,604

5.32
%
Investment securities (4):



 
 
 
 
 
 
 
 
Taxable
141,282

936

2.69

 
133,817

882

2.61

 
102,135

574

2.28

Tax-exempt
80,760

545

3.17

 
71,025

476

3.13

 
54,996

351

3.16

Interest earning cash balances
28,076

176

2.54

 
27,107

164

2.39

 
27,090

106

1.59

Federal Home Loan Bank Stock
8,325

134

6.53

 
8,325

94

4.48

 
8,303

139

6.78

Total interest-earning assets
$
1,383,656

$
17,442

5.14
%
 
$
1,371,979

$
17,041

4.95
%
 
$
1,229,569

$
14,774

4.90
%
Non-earning assets:
 
 
 
 
 
 
 
 
 
 
 
   Cash and due from banks
24,794

 
 
 
23,459

 
 
 
18,531

 
 
   Premises and equipment
13,289

 
 
 
13,376

 
 
 
13,362

 
 
   Goodwill
9,387

 
 
 
9,387

 
 
 
9,387

 
 
   Other intangible assets, net
425

 
 
 
476

 
 
 
644

 
   
   Bank-owned life insurance
11,893

 
 
 
11,813

 
 
 
11,570

 
 
   Allowance for loan losses
(11,563
)
 
 
 
(11,880
)
 
 
 
(11,822
)
 
 
   Other non-earning assets
11,841

 
 
 
8,665

 
 
 
12,195

 
 
             Total assets
$
1,443,722

 
 
 
$
1,427,275

 
 
 
$
1,283,436

 
   
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
     Interest-bearing demand deposits
$
53,299

$
48

0.37
%
 
$
53,009

$
47

0.35
%
 
$
63,501

$
51

0.33
%
     Money market and savings deposits
306,496

1,094

1.45

 
259,160

759

1.16

 
273,699

548

0.81

     Time deposits
544,130

2,979

2.22

 
542,047

2,782

2.04

 
456,555

1,579

1.40

     Borrowings
55,814

353

2.57

 
66,491

384

2.29

 
56,819

219

1.56

     Subordinated notes
14,896

250

6.81

 
14,888

256

6.82

 
14,844

250

6.83

             Total interest-bearing liabilities
$
974,635

$
4,724

1.97
%
 
$
935,595

$
4,228

1.79
%
 
$
865,418

$
2,647

1.24
%
Noninterest-bearing liabilities and shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
   Noninterest bearing demand deposits
300,680

 
 
 
331,867

 
 
 
298,681

 
 
   Other liabilities
14,136

 
 
 
11,905

 
 
 
8,931

 
 
   Shareholders' equity
154,271

 
 
 
147,908

 
 
 
110,406

 
 
             Total liabilities and shareholders' equity
$
1,443,722

 
 
 
$
1,427,275

 
 
 
$
1,283,436

 
 
Net interest income
 
$
12,718

 
 
 
$
12,813

 
 
 
$
12,127

 
Interest spread
 
 
3.17
%
 
 
 
3.16
%
 
 
 
3.66
%
Net interest margin (5)
 
 
3.73

 
 
 
3.71

 
 
 
4.00

Tax equivalent effect
 
 
0.03

 
 
 
0.02

 
 
 
0.03

Net interest margin on a fully tax equivalent basis
 
 
3.76
%
 
 
 
3.73
%
 
 
 
4.03
%

(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 $87 thousand, $83 thousand, and $78 thousand on tax-exempt securities for the three months ended March 31, 2019, December 31, 2018 and March 31, 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.




8



Loan Composition
As of
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
(Dollars in thousands)
2019
 
2018
 
2018
 
2018
 
2018
Commercial real estate
(Unaudited)
 
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Non-owner occupied
$
361,066

 
$
367,671

 
$
362,450

 
$
361,341

 
$
360,014

Owner-occupied
187,001

 
194,422

 
190,131

 
172,615

 
172,608

Total commercial real estate
548,067

 
562,093

 
552,581

 
533,956

 
532,622

Commercial and industrial
401,588

 
383,455

 
397,060

 
363,239

 
371,464

Residential real estate
180,386

 
180,018

 
164,356

 
147,763

 
146,436

Consumer
1,056

 
999

 
1,002

 
831

 
832

Total loans
$
1,131,097

 
$
1,126,565

 
$
1,114,999

 
$
1,045,789

 
$
1,051,354


Impaired Assets
As of
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
March 31,
(Dollars in thousands)
2019
 
2018
 
2018
 
2018
 
2018
Nonaccrual loans
(Unaudited)
 
 
 
(Unaudited)
 
(Unaudited)
 
(Unaudited)
Commercial real estate
$
2,694

 
$
5,927

 
$
4,559

 
$
2,557

 
$
1,946

Commercial and industrial
10,495

 
9,605

 
5,763

 
5,983

 
8,192

Residential real estate
3,456

 
2,915

 
2,546

 
2,737

 
2,838

Consumer

 

 
5

 

 

Total nonaccrual loans
16,645

 
18,447

 
12,873

 
11,277

 
12,976

Other real estate owned
373

 

 

 

 

Total nonperforming assets
17,018

 
18,447

 
12,873

 
11,277

 
12,976

Performing troubled debt restructurings

 

 

 
 
 
 
Commercial real estate

 

 
1,511

 
1,517

 
1,525

Commercial and industrial
562

 
568

 
574

 
578

 
582

Residential real estate
363

 
363

 
365

 
364

 
258

Total performing troubled debt restructurings
925

 
931

 
2,450

 
2,459

 
2,365

Total impaired assets
$
17,943

 
$
19,378

 
$
15,323

 
$
13,736

 
$
15,341

 
 
 
 
 
 
 
 
 
 
Loans 90 days or more past due and still accruing
$
453

 
$
243

 
$
354

 
$
259

 
$
263



9