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

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.

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:

⁽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.

⁽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.