Level One Bancorp, Inc. reports third quarter 2021 net income of $9.5 million, representing $1.16 diluted earnings per common share

Rhea-AI Summary

Level One Bancorp, Inc. (Nasdaq: LEVL) reported a strong third quarter of 2021, achieving net income of $9.5 million, or $1.16 diluted earnings per share, marking a 73.13% year-over-year increase. The results were primarily driven by a 14.81% annualized increase in total loans (excluding PPP loans) and a 55.51% rise in mortgage banking fees. Improved credit quality was evident with nonperforming assets decreasing to 0.48% of total assets. The net interest margin increased to 3.47%, reflecting lower deposit costs and higher loan interest income.

Positive

• Net income of $9.5 million, up 73.13% from Q3 2020.
• Diluted earnings per share increased to $1.16, a 38.10% rise quarter-over-quarter.
• Total loans increased by $56.1 million, or 14.81% annualized, excluding PPP loans.
• Noninterest income grew by $1.7 million, or 39.64%, quarter-over-quarter.
• Net interest margin improved to 3.47% from 3.30% in the previous quarter.

Negative

• Total loans decreased by 3.13% from $1.78 billion to $1.72 billion from June 30, 2021.
• Noninterest expense rose by $1.4 million, or 9.60%, compared to the previous quarter.
• Noninterest income down 33.80% year-over-year to $6.0 million from $9.1 million.

FARMINGTON HILLS, Mich., Oct. 29, 2021 (GLOBE NEWSWIRE) -- Level One Bancorp, Inc. (“Level One”) (Nasdaq: LEVL) today reported its financial results for the third quarter of 2021, which included net income of $9.5 million, or $1.16 diluted earnings per common share. This compares to net income of $5.2 million, or $0.67 diluted earnings per common share, in the third quarter of 2020.

Patrick J. Fehring, Chief Executive Officer of Level One, commented, "The Level One team delivered solid operating results in the third quarter 2021 with net income of $9.5 million or $1.16 diluted earnings per common share. This represents a 38.10% increase over diluted earnings per common share of $0.84 for the prior quarter and an increase of 73.13% over the third quarter of 2020 diluted earnings per common share of $0.67. Our quarterly performance was driven by growth in total loans of $56.1 million (excluding Paycheck Protection Program ("PPP") loans), or 14.81% annualized for the period and an increase in fees from mortgage banking activities of $1.5 million or 55.51% over the prior quarter. As announced over the summer, Level One added talent to our mortgage origination team, and the impact was evident in our business results."

Mr. Fehring continued, "Level One also experienced improved credit quality with a decrease in our nonperforming assets as a percentage of total assets to 0.48% at the end of the third quarter compared to 0.55% at the end of the prior quarter. Our financial results also reflect an increase of the net interest margin to 3.47% in the third quarter compared to 3.30% in the prior quarter. The improvement in the net interest margin during the quarter was a result of decreased deposit cost, lower subordinated debt expense along with higher loan interest income including PPP revenue. We are pleased with these positive operating results for the quarter, and we appreciate the efforts of the Level One team."

Third Quarter 2021 Highlights

• Total loans decreased 3.13% to $1.72 billion at September 30, 2021, compared to $1.78 billion at June 30, 2021
• Total loans, excluding a decrease of $111.7 million of PPP loans, increased $56.1 million, or 14.81% annualized, during the third quarter of 2021
• Total assets increased 1.49% to $2.54 billion at September 30, 2021, compared to $2.51 billion at June 30, 2021
• Total deposits increased 1.73% to $2.07 billion at September 30, 2021, compared to $2.03 billion at June 30, 2021
• Book value per common share increased 4.08% to $27.56 per common share at September 30, 2021, compared to $26.48 per common share at June 30, 2021
• Tangible book value per common share increased 5.04% to $21.89 per common share at September 30, 2021, compared to $20.84 per common share at June 30, 2021
• Net income of $9.5 million increased 35.62% from $7.0 million in the preceding quarter
• Diluted earnings per common share of $1.16 increased 38.10% compared to $0.84 in the preceding quarter
• Net interest margin, on a fully taxable equivalent ("FTE") basis, was 3.47%, compared to 3.30% in the preceding quarter and 2.80% in the third quarter of 2020
• Noninterest income increased $1.7 million to $6.0 million in the third quarter of 2021, compared to $4.3 million in the preceding quarter
• Noninterest expense increased $1.4 million to $16.0 million in the third quarter of 2021, compared to $14.6 million in the preceding quarter
• Provision for loan loss decreased $1.7 million to a $1.2 million recovery of provision in the third quarter of 2021, compared to a $540 thousand provision expense in the preceding quarter

Net Interest Income and Net Interest Margin

Level One's net interest income increased $899 thousand, or 4.58%, to $20.5 million in the third quarter of 2021, compared to $19.6 million in the preceding quarter, and increased $3.9 million, or 23.61%, compared to $16.6 million in the third quarter of 2020. The increase in net interest income compared to the preceding quarter was primarily due to an increase of $500 thousand of interest income on loans and decreases of $126 thousand in interest expense on deposits and $181 thousand in interest expense on subordinated notes. The increase in net interest income compared to the third quarter of 2020 was primarily due to increases of $1.7 million of interest income on loans primarily as a result of the accelerated recognition of fees on PPP loans that were forgiven and $419 thousand of interest income on investment securities due to increased volumes of investment securities. In addition, between the third quarter of 2020 and the third quarter of 2021, interest expense on deposits decreased $1.4 million and interest expense on borrowed funds and subordinated notes decreased $483 thousand. The decrease in interest expense on deposits was primarily due to lower interest rates paid as a result of revised internal deposit rates and maturity of higher cost time deposits. The decrease in interest expense on borrowed funds and subordinated notes was primarily due to the redemption of $15.0 million of subordinated notes during the second quarter of 2021 and a decrease in Federal Reserve Bank borrowings.

Level One’s net interest margin, on a FTE basis, was 3.47% in the third quarter of 2021, compared to 3.30% in the preceding quarter and 2.80% in the third quarter of 2020. The increase in the net interest margin year over year was primarily a result of an increase in loan yields of 62 basis points to 4.60% in the third quarter of 2021, compared to 3.98% in the third quarter of 2020 due primarily to the recognition of fees on PPP loans, as well as a decrease in the cost of interest-bearing liabilities, which declined 40 basis points to 0.48% in the third quarter of 2021, compared to 0.88% in the third quarter of 2020 primarily due to lower interest rates paid as a result of revised internal deposit rates and maturity of higher cost time deposits.

Noninterest Income

Level One's noninterest income increased $1.7 million, or 39.64%, to $6.0 million in the third quarter of 2021, compared to $4.3 million in the preceding quarter, and decreased $3.1 million, or 33.80%, compared to $9.1 million in the third quarter of 2020. The increase in noninterest income compared to the preceding quarter was primarily attributable to an increase of $1.5 million in mortgage banking activities and an increase of $151 thousand in other charges and fees. The increase in the mortgage banking activities income compared to the preceding quarter was primarily due to $26.2 million higher residential loan originations held for sale and $11.2 million higher residential loans sold primarily as a result of increased hiring efforts and efficiencies created within the mortgage department. The increase in other charges and fees was primarily due to tax credits as a result of legislation enacted in response to the COVID-19 pandemic recognized during the quarter.

The decrease in noninterest income in the third quarter of 2021 compared to the same period in 2020 was primarily due to decreases of $2.9 million in mortgage banking activities and $434 thousand in net gains on sales of investment securities. This was partially offset by an increase of $243 thousand in service charges on deposits. The decrease in mortgage banking activities compared to the third quarter of 2020 was primarily due to $84.2 million fewer residential loan originations held for sale and $54.5 million fewer residential loans sold. The higher volumes in the third quarter of 2020 were primarily as a result of the significant decrease in interest rates during the first half of 2020 while interest rates have remained relatively stable in 2021. The decrease in net gains on sales of investment securities was due to no securities sold in the third quarter of 2021. The increase in service charges on deposits was primarily due to higher transaction volumes and deposit balances.

Noninterest Expense

Level One's noninterest expense increased $1.4 million, or 9.60%, to $16.0 million in the third quarter of 2021, compared to $14.6 million in the preceding quarter, and increased $863 thousand, or 5.71%, compared to $15.1 million in the third quarter of 2020. The increase in noninterest expense compared to the preceding quarter was primarily attributable to increases of $1.2 million in salary and employee benefits and $147 thousand in marketing expense. The increase in salary and employee benefits compared to the second quarter of 2021 was primarily due to an increase of $902 thousand in mortgage commissions as well as an increase of 15 full-time equivalent employees. The increase in marketing expense between the periods was due to an increase in advertising efforts.

The increase in noninterest expense in the third quarter of 2021 compared to the same period in 2020 was mainly attributable to an increase of $689 thousand in salary and employee benefits and $171 thousand in marketing expense. The increase in salary and employee benefits between the periods was primarily due to an increase of 20 full-time equivalent employees as well as incentive compensation. The increase in marketing expense between the periods was due to an increase in advertising efforts.

The efficiency ratio, which is a measure of operating expenses as a percentage of net interest income and noninterest income, was 60.21% for the third quarter of 2021, compared to 60.93% for the preceding quarter and 58.81% in the third quarter of 2020.

Income Tax Expense

Level One's income tax provision was $2.3 million, or 19.49% of pretax income, in the third quarter of 2021, as compared to $1.8 million, or 20.82% of pretax income, in the preceding quarter and $1.1 million, or 17.66% of pretax income, in the third quarter of 2020.

Loan Portfolio

Total loans were $1.72 billion at September 30, 2021, a decrease of $55.5 million, or 3.13%, from $1.78 billion at June 30, 2021, and down $124.2 million, or 6.73%, from $1.84 billion at September 30, 2020. The decrease in total loans compared to June 30, 2021 was primarily due to $111.7 million of PPP loans forgiven by the SBA during the third quarter partially offset by a net increase of $56.1 million, or 14.81% annualized growth, in the remainder of the loan portfolio. The decrease in total loans compared to September 30, 2020, was primarily due to a $244.9 million net decrease in PPP loans (originated and forgiven) which was partially offset by a net increase of $120.7 million in the remainder of the loan portfolio.

Investment Securities

The investment securities portfolio grew $13.0 million, or 3.47%, to $389.5 million at September 30, 2021, from $376.5 million at June 30, 2021, and up $136.0 million, or 53.64%, from $253.5 million at September 30, 2020. The increase in the investment securities portfolio compared to June 30, 2021 was primarily due to the purchase of $19.6 million of investment securities using excess cash balances generated by payoffs of PPP loans, partially offset in part by $6.6 million of sales, calls, or maturity of investment securities and principal pay downs. The increase in investment securities compared to September 30, 2020, was primarily due to the purchase of $172.2 million of securities between the two dates using excess cash balances generated by the payoffs of PPP loans, partially offset by $36.2 million of sales, calls, or maturity of investment securities and principal pay downs.

Deposits

Total deposits were $2.07 billion at September 30, 2021, an increase of $35.2 million, or 1.73%, from $2.03 billion at June 30, 2021, and up $123.6 million, or 6.36%, from $1.94 billion at September 30, 2020. The growth in deposits compared to June 30, 2021 and September 30, 2020 was primarily due to organic deposit growth as a result of increased customer liquidity and new customers. Total deposit composition at September 30, 2021 consisted of 47.01% of demand deposit accounts, 30.55% of savings and money market accounts and 22.44% of time deposits.

Borrowings

Total debt outstanding was $211.7 million at September 30, 2021, a decrease of $564 thousand, or 0.27%, from $212.3 million at June 30, 2021, and down $49.6 million, or 18.99%, from $261.4 million at September 30, 2020. The decrease in total borrowings compared to September 30, 2020 was primarily due to a decrease of $34.1 million in Federal Reserve Bank borrowings under the Paycheck Protection Program Liquidity Facility as well as the redemption of $15.0 million of subordinated notes. The Company would have paid approximately $721 thousand per year in interest on the redeemed subordinated notes.

Asset Quality

Nonaccrual loans were $12.1 million, or 0.71% of total loans, at September 30, 2021, a decrease of $1.6 million from nonaccrual loans of $13.7 million, or 0.77% of total loans, at June 30, 2021, and a decrease of $7.1 million from nonaccrual loans of $19.3 million, or 1.04% of total loans, at September 30, 2020. The decrease in nonaccrual loans compared to the prior quarter-end was primarily due to a $2.9 million pay off of one commercial loan relationship partially offset by two commercial loan relationships moving to nonaccrual status totaling $1.9 million. The decrease in nonaccrual loans compared to September 30, 2020 was primarily due to pay offs of five commercial loan relationships totaling $5.9 million, paydowns on two commercial loan relationships totaling $3.3 million, and the transfer of a $1.8 million residential real estate loan relationship to other real estate owned. This was partially offset by three commercial loan relationships and one residential real estate loan moving to nonaccrual status totaling $3.0 million.

Nonperforming assets, consisting of nonaccrual loans and other real estate owned, as a percentage of total assets were 0.48% at September 30, 2021, compared to 0.55% at June 30, 2021, and 0.79% at September 30, 2020.

Performing troubled debt restructured loans, which are not reported as nonaccrual loans but rather as part of impaired loans, were $762 thousand at September 30, 2021 compared to $765 thousand at June 30, 2021, and $1.1 million at September 30, 2020. Loans to borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, forbearance agreements, and principal deferral or reduction, are categorized as troubled debt restructured loans. In accordance with bank regulatory guidance, troubled debt restructurings do not include short-term modifications made on a good-faith basis in response to the COVID-19 pandemic to borrowers who were current prior to any relief. As of September 30, 2021, there were $1.1 million of loans that remained on a COVID-related deferral compared to $7.5 million as of June 30, 2021. As of September 30, 2021, there were no loans that had payments deferred greater than six months compared to $7.4 million as of June 30, 2021.

Net charge-offs in the third quarter of 2021 were $224 thousand, or 0.05% of average loans on an annualized basis, compared to $26 thousand of net recoveries, or 0.01% of average loans on an annualized basis for the preceding quarter and $78 thousand of net charge-offs, or 0.02% of average loans on an annualized basis, in the third quarter of 2020.

Level One's provision for loan losses in the third quarter of 2021 was a provision recovery of $1.2 million, compared to provision expense of $540 thousand in the preceding quarter and provision expense of $4.3 million in the third quarter of 2020. The decrease in the provision expense quarter over quarter was primarily due to a decrease of $2.0 million in general reserves as a result of a reduction in qualitative factors within the allowance for loan loss model as a result of improved credit quality, partially offset by an increase in specific reserves of $252 thousand. The decrease in the provision expense in the third quarter of 2021 compared to the same period in 2020 was primarily due to a decrease in general reserves of $5.1 million resulting from a decrease in qualitative factors and a decrease of $531 thousand in specific reserves. The Company will continue to evaluate the fluid situation in regard to the COVID-19 pandemic and will take further action to appropriately record additional provision for loan losses or decrease the level of the provision for loan losses should there be any indications of significant changes in the credit quality of our portfolio as a result of the COVID-19 pandemic.

The allowance for loan losses was $21.7 million, or 1.26% of total loans, at September 30, 2021, compared to $23.1 million, or 1.30% of total loans, at June 30, 2021, and $21.3 million, or 1.15% of total loans, at September 30, 2020. Excluding PPP loans of $147.6 million, $259.3 million, and $392.5 million as of these dates respectively, the allowance for loan losses as a percentage of total loans was 1.38% as of September 30, 2021, compared to 1.53% as of June 30, 2021 and 1.46% as of September 30, 2020 (see section entitled "GAAP Reconciliation of Non-GAAP Financial Measures" for further details). The allowance for loan losses as a percentage of total loans decreased compared to June 30, 2021 primarily due to a reduction in qualitative factors within the allowance for loan loss model as a result of improved credit quality. The allowance for loan losses as a percentage of total loans increased compared to September 30, 2020 as a result of the forgiveness of $244.9 million of PPP loans. As of September 30, 2021, the allowance for loan losses as a percentage of nonaccrual loans was 179.11%, compared to 168.64% at June 30, 2021, and 110.32% at September 30, 2020. The Company will continue to evaluate the appropriateness of the allowance for loan losses in future quarters as needed.

Capital

Total shareholders’ equity was $233.9 million at September 30, 2021, an increase of $8.5 million, or 3.78%, compared with $225.4 million at June 30, 2021 primarily as a result of an increase in retained earnings. Total shareholders' equity increased $24.4 million, or 11.68%, from $209.5 million at September 30, 2020, primarily as a result of an increase in retained earnings.

Recent Developments

Third Quarter Common Stock Dividend: On September 15, 2021, Level One’s Board of Directors declared a quarterly cash dividend of $0.06 per share. This dividend was paid on October 15, 2021, to stockholders of record at the close of business on September 30, 2021.

Third Quarter Preferred Stock Dividend: On October 20, 2021, Level One’s Board of Directors declared a quarterly cash dividend of $46.88 per share on its 7.50% Non-Cumulative Perpetual Preferred Stock, Series B. Holders of depositary shares will receive $0.4688 per depositary share. The dividend is payable on November 15, 2021, to shareholders of record at the close of business on October 31, 2021.

Level One's Response to the COVID-19 Pandemic: Level One has taken comprehensive steps to help our customers, team members and communities during the current COVID-19 pandemic health crisis. For our customers, we have provided loan payment deferrals and offered fee waivers, among other actions. In addition, from January 18 through June 30, 2021, Level One funded 1,532 PPP loans for $234.3 million, of which 1,187 applications were for loans $150,000 or below.

We are continuing to enable the vast majority of our main office team members to work remotely each day. We have also taken significant actions to help ensure the safety of our team members whose roles require them to come into the office, which includes the development, implementation and communication of protocols necessary for those who return. As of March 31, 2021, we opened branches for walk in services. We will continue to evaluate this fluid situation and take additional actions as necessary.

About Level One Bancorp, Inc.

Level One Bancorp, Inc. is the holding company for Level One Bank, a full-service commercial and consumer bank headquartered in Michigan with assets of approximately $2.54 billion as of September 30, 2021. It operates sixteen banking centers throughout Metro Detroit, Ann Arbor, Grand Rapids, and Jackson and provides a variety of commercial, small business, and consumer banking services. Level One Bank's success has been recognized both locally and nationally as the U.S. Small Business Administration's (SBA) "Community Lender of the Year," one of American Banker Magazine's "Top 200 Community Banks in the Nation," one of Metro Detroit's "Best & Brightest Companies to Work For" and more. Level One Bank’s business banking division provides a broad spectrum of products including lines of credit, term loans, leases, commercial mortgages, SBA loans, MEDC loans, export-import financing, and a full suite of treasury management services. The consumer banking division offers a range of personal checking, savings and CD products and a complete array of consumer loan products including residential mortgages, new construction and renovation loans, home equity lines of credit, auto loans, and credit card services. Level One Bank offers a variety of digital banking services including online banking, robust mobile banking apps, online account opening and online loan applications for individuals and businesses. Level One Bank offers the sophistication of a big bank, the heart of a community bank, and the spirit of an entrepreneur. For more information, visit www.levelonebank.com.

Forward-Looking Statements

This release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect management’s current views of future events and operations. These forward-looking statements are based on the information currently available to the Company as of the date of this release. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "will," "propose," "may," "plan," "seek," "expect," "intend," "estimate," "anticipate," "believe," "continue," "annualized" or similar terminology. It is important to note that these forward-looking statements are not guarantees of future performance and involve risk and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, including its effects on the economic environment, our customers and our operations, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic, the ability of the Company to implement its strategy and expand its lending operations, changes in interest rates and other general economic, business and political conditions, including changes in the financial markets, changes in benchmark interest rates used to price loans and deposits including the expected elimination of LIBOR, and changes in tax laws, regulations and guidance, as well as other risks described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Summary Consolidated Financial Information
(Unaudited)		As of or for the three months ended,
(Dollars in thousands, except per share data)		September 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Earnings Summary
Interest income		$	22,322			$	21,737			$	21,551			$	22,181			$	20,245
Interest expense		1,807				2,121				2,394				3,075				3,648
Net interest income		20,515				19,616				19,157				19,106				16,597
Provision expense (recovery) for loan losses		(1,189		)		540				265				1,538				4,270
Noninterest income		6,041				4,326				7,278				8,110				9,125
Noninterest expense		15,989				14,588				15,139				15,461				15,126
Income before income taxes		11,756				8,814				11,031				10,217				6,326
Income tax provision		2,291				1,835				2,072				1,844				1,117
Net income		$	9,465			$	6,979			$	8,959			$	8,373			$	5,209
Preferred stock dividends		468				469				469				479				—
Net income available to common shareholders		8,997				6,510				8,490				7,894				5,209
Net income allocated to participating securities		138				92				111				65				40
Net income attributable to common shareholders		$	8,859			$	6,418			$	8,379			$	7,829			$	5,169
Per Share Data
Basic earnings per common share		$	1.19			$	0.85			$	1.11			$	1.02			$	0.68
Diluted earnings per common share		1.16				0.84				1.10				1.02				0.67
Diluted earnings per common share, excluding acquisition and due diligence fees (1)		1.16				0.84				1.10				1.02				0.67
Book value per common share		27.56				26.48				25.40				25.14				24.06
Tangible book value per common share (1)		21.89				20.84				19.78				19.63				18.74
Preferred shares outstanding (in thousands)		10				10				10				10				10
Common shares outstanding (in thousands)		7,640				7,629				7,630				7,634				7,734
Average basic common shares (in thousands)		7,519				7,520				7,528				7,642				7,675
Average diluted common shares (in thousands)		7,638				7,633				7,612				7,695				7,712
Selected Period End Balances
Total assets		$	2,543,883			$	2,506,523			$	2,572,726			$	2,442,982			$	2,446,447
Securities available-for-sale		389,528				376,453				346,266				302,732				253,527
Total loans		1,719,717				1,775,243				1,861,691				1,723,537				1,843,888
Total deposits		2,066,992				2,031,808				2,093,965				1,963,312				1,943,435
Total liabilities		2,309,949				2,281,114				2,355,539				2,227,655				2,236,979
Total shareholders' equity		233,934				225,409				217,187				215,327				209,468
Total common shareholders' equity		210,562				202,037				193,815				191,955				186,098
Tangible common shareholders' equity (1)		167,262				159,022				150,887				149,844				144,963
Performance and Capital Ratios
Return on average assets (annualized)		1.50		%		1.09		%		1.44		%		1.35		%		0.83		%
Return on average equity (annualized)		16.32				12.52				16.31				15.61				10.48
Net interest margin (fully taxable equivalent)(2)		3.47				3.30				3.33				3.27				2.80
Efficiency ratio (noninterest expense/net interest income plus noninterest income)		60.21				60.93				57.27				56.81				58.81
Dividend payout ratio		5.08				7.02				4.50				4.90				7.41
Total shareholders' equity to total assets		9.20				8.99				8.44				8.81				8.56
Tangible common equity to tangible assets (1)		6.69				6.46				5.96				6.24				6.03
Common equity tier 1 to risk-weighted assets		9.82				9.66				9.63				9.30				8.83
Tier 1 capital to risk-weighted assets		11.19				11.09				11.11				10.80				10.31
Total capital to risk-weighted assets		14.19				14.15				15.18				14.91				14.39
Tier 1 capital to average assets (leverage ratio)		7.68				7.24				7.15				6.93				7.17
Asset Quality Ratios:
Net charge-offs (recoveries) to average loans		0.05		%		(0.01		)%		—		%		0.11		%		0.02		%
Nonperforming assets as a percentage of total assets		0.48				0.55				0.60				0.77				0.79
Nonaccrual loans as a percent of total loans		0.71				0.77				0.83				1.09				1.04
Allowance for loan losses as a percentage of total loans		1.26				1.30				1.21				1.29				1.15
Allowance for loan losses as a percentage of nonaccrual loans		179.11				168.64				146.95				118.50				110.32
Allowance for loan losses as a percentage of nonaccrual loans, excluding allowance allocated to loans accounted for under ASC 310-30		173.58				163.76				142.62				114.95				105.46

^{(1) See section entitled "GAAP Reconciliation of Non-GAAP Financial Measures" below.
(2) Presented on a tax equivalent basis using a 21% tax rate.}

Consolidated Balance Sheets
(Unaudited)		As of
(Dollars in thousands)		September 30, 2021				June 30, 2021				September 30, 2020
Assets
Cash and cash equivalents		$	293,824			$	218,366			$	176,486
Securities available-for-sale		389,528				376,453				253,527
Other investments		14,398				14,398				14,398
Mortgage loans held for sale, at fair value		15,351				9,305				60,635
Loans:
Originated loans		1,537,145				1,580,175				1,603,893
Acquired loans		182,572				195,068				239,995
Total loans		1,719,717				1,775,243				1,843,888
Less: Allowance for loan losses		(21,731		)		(23,144		)		(21,254		)
Net loans		1,697,986				1,752,099				1,822,634
Premises and equipment, net		15,170				15,524				15,646
Goodwill		35,554				35,554				35,554
Mortgage servicing rights, net		5,051				4,599				2,194
Other intangible assets, net		2,695				2,862				3,387
Bank-owned life insurance		29,774				29,576				18,083
Income tax benefit		4,041				5,491				3,791
Interest receivable and other assets		40,511				42,296				40,112
Total assets		$	2,543,883			$	2,506,523			$	2,446,447
Liabilities
Deposits:
Noninterest-bearing demand deposits		$	791,879			$	734,451			$	632,427
Interest-bearing demand deposits		179,814				142,862				115,395
Money market and savings deposits		631,551				629,378				595,471
Time deposits		463,748				525,117				600,142
Total deposits		2,066,992				2,031,808				1,943,435
Borrowings		182,058				182,639				216,809
Subordinated notes		29,668				29,651				44,555
Other liabilities		31,231				37,016				32,180
Total liabilities		2,309,949				2,281,114				2,236,979
Shareholders' equity
Preferred stock, no par value per share; authorized-50,000 shares; issued and outstanding - 10,000 shares, with a liquidation preference of $2,500 per share, at September 30, 2021, June 30, 2021 and September 30, 2020		23,372				23,372				23,370
Common stock, no par value per share; authorized - 20,000,000 shares; issued and outstanding - 7,639,544 shares at September 30, 2021, 7,628,944 shares at June 30, 2021 and 7,734,322 shares at September 30, 2020		86,926				86,723				89,409
Retained earnings		118,781				110,243				88,646
Accumulated other comprehensive income, net of tax		4,855				5,071				8,043
Total shareholders' equity		233,934				225,409				209,468
Total liabilities and shareholders' equity		$	2,543,883			$	2,506,523			$	2,446,447

Consolidated Statements of Income
(Unaudited)		Three months ended												Nine months ended
(In thousands, except per share data)		September 30, 2021				June 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
Interest income
Originated loans, including fees		$	17,796			$	17,167			$	15,274			$	51,785			$	44,630
Acquired loans, including fees		2,651				2,780				3,456				8,532				11,187
Securities:
Taxable		1,054				991				652				2,895				1,930
Tax-exempt		630				627				613				1,880				1,894
Federal funds sold and other		191				172				250				518				817
Total interest income		22,322				21,737				20,245				65,610				60,458
Interest Expense
Deposits		965				1,091				2,323				3,443				9,039
Borrowed funds		468				475				693				1,409				1,866
Subordinated notes		374				555				632				1,470				1,903
Total interest expense		1,807				2,121				3,648				6,322				12,808
Net interest income		20,515				19,616				16,597				59,288				47,650
Provision expense (recovery) for loan losses		(1,189		)		540				4,270				(384		)		10,334
Net interest income after provision for loan losses		21,704				19,076				12,327				59,672				37,316
Noninterest income
Service charges on deposits		859				800				616				2,436				1,798
Net gain on sales of securities		—				—				434				20				1,862
Mortgage banking activities		4,216				2,711				7,108				12,738				15,380
Other charges and fees		966				815				967				2,451				2,564
Total noninterest income		6,041				4,326				9,125				17,645				21,604
Noninterest expense
Salary and employee benefits		10,551				9,352				9,862				29,825				28,090
Occupancy and equipment expense		1,680				1,583				1,678				4,971				4,773
Professional service fees		847				774				808				2,264				2,141
Acquisition and due diligence fees		—				—				17				—				1,664
FDIC premium expense		244				210				287				778					722
Marketing expense		428				281				257				842				709
Loan processing expense		231				193				262					755			690
Data processing expense		928				1,057				844				3,209				2,601
Core deposit premium amortization		167				166				192					501			576
Other expense		913				972				919					2,571			2,805
Total noninterest expense		15,989				14,588				15,126					45,716			44,771
Income before income taxes		11,756				8,814				6,326					31,601			14,149
Income tax provision		2,291				1,835				1,117				6,198				2,109
Net income		9,465				6,979				5,209				25,403				12,040
Preferred stock dividends		468				469				—				1,406				—
Net income attributable to common shareholders		$	8,997			$	6,510			$	5,209			$	23,997			$	12,040
Earnings per common share:
Basic earnings per common share		$	1.19			$	0.85			$	0.68			$	3.15			$	1.56
Diluted earnings per common share		$	1.16			$	0.84			$	0.67			$	3.10			$	1.55
Cash dividends declared per common share		$	0.06			$	0.06			$	0.05			$	0.18			$	0.15
Weighted average common shares outstanding—basic		7,519				7,520				7,675				7,526				7,640
Weighted average common shares outstanding—diluted		7,638				7,633				7,712				7,631				7,701

Net Interest Income and Net Interest Margin
(Unaudited)		For the three months ended												For the nine months ended
(Dollars in thousands)		September 30, 2021				June 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
Average Balance Sheets:
Gross loans(1)		$	1,763,214			$	1,853,438			$	1,871,164			$	1,823,888			$	1,696,073
Investment securities: (2)
Taxable		265,885				248,739				139,237				243,377				124,169
Tax-exempt		104,063				103,184				94,526				103,158				97,104
Interest earning cash balances		221,261				186,186				259,349				192,309				188,179
Other investments		14,398				14,398				12,419				14,398				12,401
Total interest-earning assets		$	2,368,821			$	2,405,945			$	2,376,695			$	2,377,130			$	2,117,926
Non-earning assets		151,077				147,607				140,480				145,971				133,968
Total assets		$	2,519,898			$	2,553,552			$	2,517,175			$	2,523,101			$	2,251,894
Interest-bearing demand deposits		156,977				143,290				116,285				144,449				112,579
Money market and savings deposits		624,190				640,471				513,420				623,123				458,438
Time deposits		489,261				550,751				575,179				541,018				564,396
Borrowings		181,911				184,391				394,020				183,983				311,024
Subordinated notes		29,657				41,809				44,468				38,633				44,463
Total interest-bearing liabilities		$	1,481,996			$	1,560,712			$	1,643,372			$	1,531,206			$	1,490,900
Noninterest bearing demand deposits		774,926				737,038				640,095				735,162				546,066
Other liabilities		31,012				32,852				34,846				31,822				30,047
Shareholders' equity		231,964				222,950				198,862				224,911				184,881
Total liabilities and shareholders' equity		$	2,519,898			$	2,553,552			$	2,517,175			$	2,523,101			$	2,251,894
Yields: (3)
Earning Assets
Gross loans		4.60		%		4.32		%		3.98		%		4.42		%		4.40		%
Investment securities:
Taxable		1.57		%		1.60		%		1.86		%		1.59		%		2.08		%
Tax-exempt		2.99		%		3.03		%		3.19		%		3.04		%		3.20		%
Interest earning cash balances		0.15		%		0.11		%		0.12		%		0.12		%		0.28		%
Other investments		2.95		%		3.40		%		5.57		%		3.18		%		4.49		%
Total interest earning assets		3.76		%		3.65		%		3.41		%		3.72		%		3.84		%
Interest-bearing liabilities
Interest-bearing demand deposits		0.14		%		0.15		%		0.22		%		0.15		%		0.31		%
Money market and savings deposits		0.17		%		0.18		%		0.43		%		0.20		%		0.65		%
Time deposits		0.53		%		0.54		%		1.18		%		0.58		%		1.55		%
Borrowings		1.02		%		1.03		%		0.70		%		1.02		%		0.80		%
Subordinated notes		5.00		%		5.32		%		5.65		%		5.09		%		5.72		%
Total interest-bearing liabilities		0.48		%		0.55		%		0.88		%		0.55		%		1.15		%
Interest Spread		3.28		%		3.10		%		2.53		%		3.17		%		2.69		%
Net interest margin(4)		3.44		%		3.27		%		2.78		%		3.33		%		3.01		%
Tax equivalent effect		0.03		%		0.03		%		0.02		%		0.03		%		0.03		%
Net interest margin on a fully tax equivalent basis		3.47		%		3.30		%		2.80		%		3.36		%		3.04		%

^{(1) Includes nonaccrual loans.
(2) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(3) Average rates and yields are presented on an annual basis and includes a taxable equivalent adjustment to interest income of $155 thousand, $153 thousand, and $144 thousand on tax-exempt securities for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively, and $462 thousand and $431 thousand for the nine months ended September 30, 2021 and 2020, respectively, using a federal income tax rate of 21%.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.}

Loan Composition
		As of
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Commercial real estate:		(Unaudited)				(Unaudited)				(Unaudited)								(Unaudited)
Non-owner occupied		$	479,633			$	477,715			$	449,690			$	445,810			$	460,708
Owner-occupied		295,228				301,615				300,175				275,022				269,481
Total commercial real estate		774,861				779,330				749,865				720,832				730,189
Commercial and industrial		540,546				642,606				794,096				685,504				807,923
Residential real estate		403,517				352,513				316,089				315,476				304,088
Consumer		793				794				1,641				1,725				1,688
Total loans		$	1,719,717			$	1,775,243			$	1,861,691			$	1,723,537			$	1,843,888

Impaired Assets
		As of
(Dollars in thousands)		September 30, 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
Nonaccrual loans		(Unaudited)				(Unaudited)				(Unaudited)								(Unaudited)
Commercial real estate		$	3,768			$	4,536			$	4,542			$	7,320			$	7,022
Commercial and industrial		4,746				5,247				6,822				7,490				8,078
Residential real estate		3,610				3,931				3,987				3,991				4,151
Consumer		9				10				13				15				15
Total nonaccrual loans		12,133				13,724				15,364				18,816				19,266
Other real estate owned		—				—				—				—				—
Total nonperforming assets		12,133				13,724				15,364				18,816				19,266
Performing troubled debt restructurings
Commercial and industrial		336				336				335				546				550
Residential real estate		426				429				430				432				599
Total performing troubled debt restructurings		762				765				765				978				1,149
Total impaired assets		$	12,895			$	14,489			$	16,129			$	19,794			$	20,415
Loans 90 days or more past due and still accruing		$	162			$	387			$	328			$	269			$	552

GAAP Reconciliation of Non-GAAP Financial Measures

Some of the financial measures included in this report are not measures of financial condition or performance recognized by GAAP. These non-GAAP financial measures include tangible common shareholders' equity, tangible book value per common share, the ratio of tangible common equity to tangible assets, net income and diluted earnings per common share excluding acquisition and due diligence fees, and allowance for loan loss as a percentage of total loans, excluding PPP loans. Our management uses these non-GAAP financial measures in its analysis of our performance, and we believe that providing this information to financial analysts and investors allows them to evaluate capital adequacy, as well as better understand and evaluate the Company’s core financial results for the periods in question.

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

Tangible Common Shareholders' Equity, Tangible Common Equity to Tangible Assets Ratio and Tangible Book Value Per Common Share
		As of
(Dollars in thousands, except per share data)		September 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
		(Unaudited)				(Unaudited)				(Unaudited)								(Unaudited)
Total shareholders' equity		$	233,934			$	225,409			$	217,187			$	215,327			$	209,468
Less:
Preferred stock		23,372				23,372				23,372				23,372				23,370
Total common shareholders' equity		210,562				202,037				193,815				191,955				186,098
Less:
Goodwill		35,554				35,554				35,554				35,554				35,554
Mortgage servicing rights, net		5,051				4,599				4,346				3,361				2,193
Other intangible assets, net		2,695				2,862				3,028				3,196				3,388
Tangible common shareholders' equity		$	167,262			$	159,022			$	150,887			$	149,844			$	144,963
Common shares outstanding (in thousands)		7,640				7,629				7,630				7,634				7,734
Tangible book value per common share		$	21.89			$	20.84			$	19.78			$	19.63			$	18.74
Total assets		$	2,543,883			$	2,506,523			$	2,572,726			$	2,442,982			$	2,446,447
Less:
Goodwill		35,554				35,554				35,554				35,554				35,554
Mortgage servicing rights, net		5,051				4,599				4,346				3,361				2,193
Other intangible assets, net		2,695				2,862				3,028				3,196				3,388
Tangible assets		$	2,500,583			$	2,463,508			$	2,529,798			$	2,400,871			$	2,405,312
Tangible common equity to tangible assets		6.69		%		6.46		%		5.96		%		6.24		%		6.03		%

Adjusted Income and Diluted Earnings Per Share
		For the three months ended
(Dollars in thousands, except per share data)		September 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
		(Unaudited)				(Unaudited)				(Unaudited)								(Unaudited)
Net income, as reported		$	9,465			$	6,979			$	8,959			$	8,373			$	5,209
Acquisition and due diligence fees		—				—				—				—				17
Income tax (benefit) expense (1)		—				—				—				2				(4		)
Net income, excluding acquisition and due diligence fees		$	9,465			$	6,979			$	8,959			$	8,375			$	5,222
Diluted earnings per share, as reported		$	1.16			$	0.84			$	1.10			$	1.02			$	0.67
Effect of acquisition and due diligence fees, net of income tax benefit		—				—				—				—				—
Diluted earnings per common share, excluding acquisition and due diligence fees		$	1.16			$	0.84			$	1.10			$	1.02			$	0.67

^{(1) Assumes income tax rate of 21% on deductible acquisition expenses.}

Allowance for Loan Loss as a Percentage of Total Loans, Excluding PPP Loans
		As of
(Dollars in thousands, except per share data)		September 2021				June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
		(Unaudited)				(Unaudited)				(Unaudited)								(Unaudited)
Total loans		$	1,719,717			$	1,775,243			$	1,861,691			$	1,723,537			$	1,843,888
Less:
PPP loans		147,645				259,303				405,770				290,135				392,521
Total loans, excluding PPP loans		$	1,572,072			$	1,515,940			$	1,455,921			$	1,433,402			$	1,451,367
Allowance for loan loss		$	21,731			$	23,144			$	22,578			$	22,297			$	21,254
Allowance for loan loss as a percentage of total loans		1.26		%		1.30		%		1.21		%		1.29		%		1.15		%
Allowance for loan loss as a percentage of total loans, excluding PPP loans		1.38		%		1.53		%		1.55		%		1.56		%		1.46		%

FAQ

What were Level One Bancorp's earnings for Q3 2021?

Level One Bancorp reported a net income of $9.5 million, or $1.16 diluted earnings per share for Q3 2021.

How did Level One Bancorp's net interest margin change in Q3 2021?

The net interest margin increased to 3.47% in Q3 2021, up from 3.30% in Q2 2021.

What was the increase in total loans for Level One Bancorp in Q3 2021?

Total loans increased by $56.1 million, or 14.81% annualized, in the third quarter of 2021.

What drove the increase in noninterest income for Level One Bancorp in Q3 2021?

The increase was primarily due to a $1.5 million rise in mortgage banking activities.