LEVL - Level One Bancorp Inc. reports fourth quarter 2019 net income of $4.7 million representing $0.60 diluted earnings per common share

FARMINGTON HILLS, Mich., Jan. 30, 2020 (GLOBE NEWSWIRE) -- Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported financial results for the fourth quarter of 2019, which included net income of $4.7 million, or $0.60 diluted earnings per share. Excluding $220 thousand of expenses related to the recently completed merger with Ann Arbor State Bank, net income would have been $4.9 million, or $0.63 diluted earnings per share. This compares to net income of $4.4 million, or $0.56 diluted earnings per share, in the preceding quarter and $4.0 million, or $0.50 diluted earnings per share, in the fourth quarter of 2018.

Patrick J. Fehring, President and Chief Executive Officer of Level One, commented, "We are pleased to announce a strong fourth quarter with net income of $4.7 million, which was $271 thousand, or 6%, higher than net income in the third quarter of 2019. During the fourth quarter, we also saw solid loan growth with total loans up $58.7 million or 5%, as compared to prior quarter."

He continued, "For the full year 2019, net income of $16.1 million was up 12% from $14.4 million in 2018. Our expansion of the mortgage team in late 2018 contributed to the robust mortgage activity during the full year 2019, resulting in an increase of $5.6 million in mortgage banking income year over year. In addition, credit quality has improved as nonperforming assets as a percentage of total assets declined to 0.73% at December 31, 2019 compared with 1.30% at December 31, 2018. Net chargeoffs for the full year 2019 also declined to $275 thousand or 0.02% as a percentage of average loans. As always, increasing shareholder value remains a priority with Level One, which was evidenced by the declaration of $0.16 per share to shareholders through common stock dividends, as compared to the declaration of dividends of $0.12 per share during 2018."

He concluded, "On January 2, 2020, we completed the merger transaction with Ann Arbor Bancorp, Inc., and are pleased to welcome the customers and team members of Ann Arbor State Bank as we build our presence in the very attractive Ann Arbor market. Overall, 2019 was a great year for the bank, and we look forward to 2020 and are excited about the prospects for continued growth."

Fourth Quarter 2019 Financial Highlights

• Net income was $4.7 million, or $0.60 diluted earnings per share
  
• Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.56%, compared to 3.59% in the preceding quarter and 3.73% in the fourth quarter of 2018
  
• Noninterest income increased 119% to $4.6 million in the fourth quarter of 2019, compared to $2.3 million in the fourth quarter of 2018, primarily due to higher income from mortgage banking activities and gains on sales of securities
  
• Total assets increased 12% to $1.58 billion at December 31, 2019, compared to $1.42 billion at December 31, 2018
  
• Total loans increased 9% to $1.23 billion at December 31, 2019, compared to $1.13 billion at December 31, 2018
  
• Total deposits increased to $1.14 billion at December 31, 2019, compared to $1.13 billion at December 31, 2018
  
• Book value per share increased 13% to $22.13 per share at December 31, 2019, compared to $19.58 per share at December 31, 2018
  
• Tangible book value per share increased 14% to $20.86 per share at December 31, 2019, compared to $18.31 per share at December 31, 2018

2019 Financial Highlights

• Net income was $16.1 million, or $2.05 diluted earnings per share
  
• Net interest margin, on a FTE basis, was 3.60% compared to 3.92% in the preceding year
  
• Noninterest income increased 101% to $14.2 million in 2019, compared to $7.1 million in 2018, primarily due to higher income from mortgage banking activities, commercial lending swap income and gains on sales of securities

Balance Sheet Review

Level One's total assets were $1.58 billion at December 31, 2019, an increase of $75.4 million, or 5.00%, from $1.51 billion at September 30, 2019, and up $168.7 million, or 11.91%, from $1.42 billion at December 31, 2018. The increase in total assets from September 30, 2019 was primarily due to an increase in originated loans and cash and cash equivalents, partially offset by a decrease in investment securities. The increase in total assets year over year was attributable to the same factors mentioned in the quarter to quarter analysis above, as well as an increase in mortgage loans held for sale, fair value of interest rate swaps and receivables from a loan sub-servicer (both included under "other assets").

The investment securities portfolio was $180.9 million at December 31, 2019, a decrease of $24.3 million, or 11.86%, from $205.2 million at September 30, 2019, and down $23.4 million, or 11.43%, from $204.3 million at December 31, 2018. The decrease in the investment securities portfolio compared to December 31, 2018 and September 30, 2019 reflected our efforts to better position our combined investment portfolio in connection with the merger with Ann Arbor State Bank.

Total loans were $1.23 billion at December 31, 2019, an increase of $58.7 million, or 5.02%, from $1.17 billion at September 30, 2019, and up $101.0 million, or 8.97%, from $1.13 billion at December 31, 2018. The growth in total loans compared to December 31, 2018 and September 30, 2019 was primarily due to growth in both our commercial real estate and residential real estate loan portfolios.

Total deposits were $1.14 billion at December 31, 2019, a decrease of $59.1 million, or 4.95%, from $1.19 billion at September 30, 2019, and increased $793 thousand, or 0.07%, from $1.13 billion at December 31, 2018. The decrease in deposits compared to September 30, 2019 was primarily due to decreases in money market and savings deposits and time deposits. Total deposit composition at December 31, 2019 consisted of 34.21% of demand deposit accounts, 27.64% of savings and money market accounts and 38.15% of time deposits.

Total debt outstanding was $256.7 million at December 31, 2019, an increase of $129.8 million, or 102.30%, from $126.9 million at September 30, 2019, and an increase of $142.2 million, or 124.23%, from $114.5 million at December 31, 2018. The increase in total borrowings compared to September 30, 2019 and December 31, 2018 was primarily due to increases in long-term FHLB advances and subordinated notes, partially offset by decreases in short-term FHLB advances. The increase in total borrowings as well as the issuance of the $30.0 million of subordinated notes reflected management's efforts to fund the liquidity needs of Level One.

Operating Results

Level One's net interest income decreased $80 thousand, or 0.62%, to $12.9 million in the fourth quarter of 2019, compared to $13.0 million in the preceding quarter and increased $95 thousand, or 0.74%, compared to $12.8 million in the fourth quarter of 2018.

Level One’s net interest margin, on a FTE basis, was 3.56% in the fourth quarter of 2019, compared to 3.59% in the preceding quarter and 3.73% in the fourth quarter of 2018. This decrease in the net interest margin compared to the preceding quarter and fourth quarter 2018 was primarily a result of lower average loan yield. Average loan yield was 5.20% for the fourth quarter of 2019, 5.41% for the preceding quarter, and 5.41% for the fourth quarter 2018 as the federal funds rate dropped 25 basis points in October 2019. The cost of funds declined to 1.77% in the fourth quarter compared to 1.98% in the third quarter.

Level One's noninterest income increased $732 thousand, or 18.97%, to $4.6 million in the fourth quarter of 2019, compared to $3.9 million in the preceding quarter, and increased $2.3 million, or 118.66%, compared to $2.3 million in the fourth quarter of 2018. The increase in noninterest income compared to the preceding quarter was primarily due to a $872 thousand increase in net gains on the sale of investment securities. The $2.3 million increase in noninterest income year over year was attributable to an increase of $1.2 million in mortgage banking activities and an increase of $1.1 million in net gains on the sale of investment securities. 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 as well as higher originations as a result of lower interest rates throughout 2019. The increase in net gains on sale of investment securities was due to sales of corporate bonds, mortgage backed securities, and collateralized mortgage obligations mainly as a result of our efforts to better position our combined investment portfolio in anticipation of the merger with Ann Arbor State Bank that closed on January 2, 2020.

Level One's noninterest expense decreased $244 thousand, or 2.11%, to $11.3 million in the fourth quarter of 2019, compared to $11.5 million in the preceding quarter, and increased $911 thousand, or 8.77%, compared to $10.4 million in the fourth quarter of 2018. The $911 thousand increase in noninterest expense year over year was primarily a result of increases in mortgage commissions (included under "salary and employee benefits"), occupancy and equipment expense, professional service fees, as well as $220 thousand of expense related to the 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 fourth quarter of 2019 was 64.55%, compared to 68.50% for the preceding quarter and 68.68% in the fourth quarter of 2018.

Level One's income tax provision was $975 thousand, or 17.24% of pretax income, in the fourth quarter of 2019, as compared to $914 thousand, or 17.17% of pretax income, in the preceding quarter and $836 thousand, or 17.46% of pretax income, in the fourth quarter of 2018.

Asset Quality

Nonaccrual loans were $10.7 million, or 0.87% of total loans, at December 31, 2019, a decrease of $787 thousand from nonaccrual loans of $11.5 million, or 0.98% of total loans, at September 30, 2019, and a decrease of $7.8 million from nonaccrual loans of $18.4 million, or 1.64% of total loans, at December 31, 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 $4.9 million moving to nonaccrual status.

Level One had $921 thousand of other real estate owned assets at December 31, 2019, compared to $373 thousand at September 30, 2019 and no other real estate owned assets at December 31, 2018. The increase in other real estate owned assets year over year was due to the addition of two residential properties and one commercial property during the year. Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 0.73% at December 31, 2019, compared to 0.78% at September 30, 2019, and 1.30% at December 31, 2018.

In addition, Level One had $157 thousand of loans 90 days or more past due and still accruing interest at December 31, 2019 and September 30, 2019 and $243 thousand at December 31, 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 December 31, 2019 were $906 thousand, compared to $914 thousand at September 30, 2019 and $931 thousand at December 31, 2018. 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 fourth quarter of 2019 were $181 thousand, or 0.06% of average loans on an annualized basis, compared to $30 thousand of net chargeoffs, or 0.01% of average loans on an annualized basis, for the preceding quarter and $274 thousand of net chargeoffs, or 0.10% of average loans on an annualized basis, in the fourth quarter of 2018.

Level One's provision for loan losses in the fourth quarter of 2019 was a provision expense of $548 thousand, compared to a provision benefit of $16 thousand in the preceding quarter and a provision benefit of $51 thousand in the fourth quarter of 2018. The increase in the provision expense quarter over quarter was primarily due to higher charge-offs in the fourth quarter as well as a prior quarter release of $362 thousand of specific reserves on a commercial loan relationship that paid off in the third quarter. The increase in the provision year over year was primarily due to the release of $729 thousand of specific reserves on a commercial loan relationship that paid off in the fourth quarter of 2018 partially offset by fewer net charge-offs. The allowance for loan losses was $12.7 million, or 1.03% of total loans, at December 31, 2019, compared to $12.3 million, or 1.05% of total loans, at September 30, 2019, and $11.6 million, or 1.03% of total loans, at December 31, 2018. As of December 31, 2019, the allowance for loan losses as a percentage of nonaccrual loans was 118.83%, compared to 107.46% at September 30, 2019, and 62.70% at December 31, 2018.

Capital

Total shareholders’ equity was $170.7 million at December 31, 2019, an increase of $2.7 million, or 1.63%, compared with $168.0 million at September 30, 2019, primarily as a result of increased retained earnings. Total shareholders' equity increased $18.9 million, or 12.48%, from $151.8 million at December 31, 2018 as a result of increased retained earnings and accumulated other comprehensive income.

Recent Developments

Merger with Ann Arbor Bancorp, Inc.: On January 2, 2020, Level One completed its previously announced acquisition of Ann Arbor Bancorp, Inc. (“AAB”) and its wholly owned subsidiary, Ann Arbor State Bank. The transaction was completed pursuant to a merger of the Company’s wholly owned merger subsidiary (“Merger Sub”) with and into AAB, pursuant to the Agreement and Plan of Merger, dated as of August 12, 2019, among Level One, Merger Sub and AAB. Level One paid aggregate consideration of approximately $67.9 million in cash. Level One expects to have approximately $1.4 million in expenses related to the acquisition in the first quarter of 2020.

As of December 31, 2019, Ann Arbor State Bank had total assets of $319.4 million, total loans of $222.1 million and total deposits of $267.7 million.

Fourth Quarter Dividend: On December 19, 2019, Level One’s Board of Directors declared a quarterly cash dividend of $0.04 per share. This dividend was paid out on January 15, 2020, to stockholders of record at the close of business on December 31, 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 $1.58 billion as of December 31, 2019. It operates fifteen 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.

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, as well as net income and diluted earnings per common share excluding acquisition and due diligence fees. 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; (iii) tangible assets as total assets, less core deposit intangibles, mortgage servicing rights and goodwill; (iv) net income, excluding acquisition and due diligence fees, as net income, as reported, less acquisition and due diligences fees, net of income tax benefit; and (v) diluted earnings per common share, excluding acquisition and due diligence fees, as diluted earnings per common share, as reported, less effect of acquisition and due diligence fees on diluted earnings per share, net of income tax benefit.

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