GROWTH AND
PROFITABILITY
2015 Annual Report
CORPORATE OFFICE
32991 Hamilton Court
Farmington Hills, MI 48334
248-737-0300
MORTGAGE LOAN PRODUCTION OFFICE
2750 South State Street
Ann Arbor, MI 48104
734-794-5225
Ferndale
22635 Woodward Avenue
Ferndale, MI 48220
248-414-6500
Northville
20550 Haggerty Road
Northville, MI 48167
248-380-6590
Novi
44350 W. 12 Mile Road
Novi, MI 48377
248-735-1000
Sterling Heights
43683 Schoenherr Road
Sterling Heights, MI 48313
586-412-1800
CONTACT INFORMATION
Toll Free: 888-880-5663
Phone: 248-737-0300
Fax: 248-536-5060
Email: contact@levelonebank.com
LevelOneBank.com
BRANCH LOCATIONS
Birmingham
1732 West Maple Road
Birmingham, MI 48009
248-723-4800
Bloomfield Township
37100 Woodward Avenue
Bloomfield Township, MI 48304
248-530-7401
Detroit
1420 Washington Boulevard
Detroit, MI 48226
313-309-9980
Farmington Hills
37000 Grand River Avenue
Farmington Hills, MI 48335
248-912-6040
31000 Northwestern Highway
Farmington Hills, MI 48334
248-538-7600
30201 Orchard Lake Road
Farmington Hills, MI 48334
248-737-1110
Member FDIC
Level One Board Of Directors
To Our Shareholders
2015 marked our eighth year in business. I am pleased to report that we
had an exceptional year by any measure. Through planning, execution,
and hard work our dedicated team continues to take Level One Bank
to higher levels.
In 2015, our net income was $12.8 million. These results included a $2.1
million (after-tax) gain as a result of our successfully negotiated exit
from the FDIC Loss Share Agreement associated with a prior acquisition.
These year-end financial results reflect a 14.6% Return on Equity and
1.4% Return on Assets which rank Level One Bank amongst the top of
our industry peers. Additionally, the independent year-end appraisal of
Level One Bank Common Shares reflects a value of $20.75 per share, a
substantial increase from the prior year-end.
The second half of 2015 set the stage for immense opportunities in 2016
as we entered a definitive agreement to acquire Farmington Hills based
Bank of Michigan. The completion of this transaction in 2016 will take
our Bank to the next level of growth with over $1.0 billion in assets and
increased earnings. We also announced plans to invest in the resurgence
of Detroit by opening a new branch in the heart of the Downtown area
(now open at 1420 Washington Blvd.).
Looking ahead to 2016, we remain a community bank that is shareholder-
committed, customer-focused and community-involved. We set
ourselves apart as an entrepreneurial bank that provides clients
with access to key decision makers and a team of responsive,
engaged bankers.
We were able to achieve this financial performance as a result of our
quality growth. During the year we saw Total Assets grow by 29% to over
$923 million. This included the acquisition of Lotus Bank in early 2015
which also added two branches, bringing our total number of branches
to ten convenient locations throughout the area. We also continued to
significantly invest in both our Commercial Banking and Residential
Mortgage teams to take advantage of opportunities for continuing
growth. We did all of this while maintaining a very high level of quality
within our loan portfolio.
As we near a billion dollars in assets, we believe the future looks bright
with a solid foundation of talented people, quality relationships and
strong financial performance. Thank you for your continued support.
Sincerely,
Patrick J. Fehring
President and CEO
“Through planning, execution, and
hard work our dedicated team continues
to take Level One Bank to higher levels.”
– Patrick J. Fehring
President and CEO
From left to right: Michael A. Brillati, CEO, Salus Group; James Bellinson, Managing Director, Riverstone Communities; Barbara E. Allushuski, President & CEO, Blue Heron Talent, LLC;
Mark J. Herman, President & COO, ANYI Management Company; Lead Board Director, Thomas A. Fabbri, President & CEO, Aaro Companies; Stefan Wanczyk, President & CEO, Utica Enterprises,
Inc.; Patrick J. Fehring, President & CEO, Level One Bank; Shukri W. David, M.D., FACC, Physician Chair, Heart & Vascular Center of Excellence, St. John Providence Health System. Clinical Professor
of Medicine Wayne State University School of Medicine; Victor L. Ansara, President & CEO, Ansara Restaurant Group, Inc.; Steven H. Rivera, D.O., MBA, FACEP, Board of Trustees Ascension
Southeastern Michigan. President-Elect Medical Staff, St. John Providence Hospital. Managing Partner, Independent Emergency Physicians, P.C.
Annual Report 2015 | 1
Growth
Profitability
Through organic expansion and acquisition, Level One Bank took growth to new
heights. Our commercial division continues to make great strides, growing loans
by 42% in 2015. Mortgage and home equity lines of credit grew by 36%, exceeding
$100 million for the first time. Deposit growth was outstanding with a 42% increase,
representing the best year in Level One Bank’s history.
Fueling this growth was our diverse and talented staff; bringing proven experience,
business acumen and superior service to existing customers while cultivating
and growing our overall customer base. We continue to attract new, key talent
from financial competitors; each professional bringing significant expertise and a
portfolio of additional clients. Contributing to our ability to attract top talent is the
unique culture we’ve built and our recognition in the marketplace as a great place
to work. For the third consecutive year, Level One Bank was named one of Metro
Detroit’s Best & Brightest Companies to Work For.
As the economy continued to improve, we gained increasing opportunities in the
areas of residential construction lending while our communities began to build
again. Additionally, our physician loan program – available for those in the medical,
dental, veterinary and chiropractic areas – has provided jump-start capital,
particularly in support of individuals completing medical school and residency. The
economic climate also provided opportunities for Level One Bank to get creative to
help local entrepreneurs grow their businesses. Our Entrepreneurial Line of Credit
(eLine) was launched as an unsecured line of credit offering small business owners
up to $25,000, filling a gap in the industry where most banks only offer traditional
credit cards.
Our forward movement also took our Bank into the City of Detroit. Construction on
our newest branch began in the fourth quarter and opened to the public in January
2016. In Detroit, we are well positioned to offer additional support to our existing
clients in the area while nurturing new commercial and consumer relationships.
Level One Bank is poised to take a key role in the city and its rebirth, located in the
very epicenter of the Tri-County area.
2015 was a year of remarkable financial performance for Level One Bank, starting
early in the first quarter when we terminated the FDIC Loss Share Agreement related
to the Paramount Bank acquisition of 2010. This termination resulted in an after-
tax gain of $2.1 million and allows Level One Bank to manage the Paramount loans
without the costs and restrictions of the Loss Share Agreement.
Core profitability improved significantly in 2015 as a result of strong organic loan and
deposit growth, improved efficiency of expenses as compared to revenue and solid
credit performance with overall net recoveries.
Reflective of our entrepreneurial spirit, acquisition remained another growth
cornerstone for Level One Bank. 2015 saw a smooth transition and integration of
like-minded cultures and employees as we welcomed Lotus Bank into our operations.
Upon closing the Lotus Bank transaction in February 2015, assets grew to $844
million, bringing new customers and expanding our branch footprint by two.
Following the integration of Lotus Bank, Level One Bank entered into a definitive
agreement to acquire Bank of Michigan with the deal closing in the first quarter of
2016. This acquisition will bring Level One Bank over the milestone of $1.0 billion in
assets, creating one of the largest community banks in Southeast Michigan.
Throughout the year, we continued Level One Bank’s tradition of outstanding credit
performance along with our robust growth. As the year concluded, Level One Bank
realized all-time record profits – better than the previous three years combined; a
testament to the value we provide our customers and the communities we serve.
As the year concluded, Level One Bank realized
all-time record profits - better than the
previous three years combined; a testament
to the value we provide our customers
and the communities we serve.
Annual Report 2015 | 2
Our newest branch located at 1420 Washington Blvd. in Detroit
Annual Report 2015 | 3
Our Clients
VAST has proven experience in designing and delivering complete electronic/electromechanical
products, solutions and manufacturing services.
VAST Production Services
Light manufacturing and engineering firm VAST Production Services came to Level One Bank via
the Lotus Bank acquisition in 2015. “The transition has been excellent. The Level One executive
team guided us every step of the way,” said Accounting Manager Laura Gares. Established in
1996, VAST Production Services is a Michigan-based business that wanted to partner with a
Michigan bank. “We’ve received exceptional support from everyone at Level One,” she
added. Gares sites online banking, fund transfers, ease of ACH payments and remote
deposit services as helping to increase financial management efficiencies.
The company, with 44 employees, has seen significant increases in sales
and Level One Bank has helped respond to the growing needs of the business.
CMAC Transportation and Logistics
CMAC Transportation and Logistics is a regional truckload provider with
more than 300 employees. Frustrated with delays in loan processing which
hampered business activity, the company left their bank to become a
Level One Bank customer because the Bank offered “a different approach
that was more in tune with customer needs,” said Scott Christie, President
of CMAC. CMAC, which generates nearly $40 million in annual revenue,
needed a bank that offered flexibility, support and understood the particular
needs of the trucking industry. “It is so refreshing to have someone get in
the trenches with you and understand what you do,” Christie added. CMAC
and its related companies Superior Global Logistics and MSH Logistics are
committed to their Michigan roots and community engagement, supporting
a host of Southeast Michigan non-profit organizations since founding the
company in 2001. The family-owned leaders of the business appreciated
that Level One Bank shared a similar philosophy to community involvement.
“Working with a Michigan bank keeps dollars in Michigan and we feel good
about that,” CMAC Partner Heather DePaul said.
CMAC provides domestic and international warehousing, consolidation, transportation and logistics
services for a wide range of automotive and general commodity industries.
Annual Report 2015 | 4
Annual Report 2015 | 5
Our Communities
Walking in support of the March of Dimes
Enjoying our best friends at work while raising money for a good cause during Bring Your Dog to Work Day
Building brand awareness during the MHSAA football finals at Ford Field in Detroit
Community investment and community partnerships. Both are key to Level One Bank’s mission and business model.
Teaching financial literacy classes at The Empowerment Plan in Detroit
Our involvement with Macomb County Habitat for Humanity® represents just such a collaboration, with
Level One Bank assisting the non-profit along with the clients it serves. We provided the guidance, expertise
and resources necessary for navigating new changes in the mortgage regulatory environment, helping to
originate loans on Habitat’s behalf and make home ownership a reality for those who would otherwise be
unable to attain it. Our work with Habitat resulted in our nomination for the 2015 Spirit Award, an award
presented to a company whose support and partnership ‘exceeded the norm in every way’.
Level One Bank’s financial know-how and proficiency created an opportunity to aid employees of
The Empowerment Plan in the area of financial literacy. In 2015, we committed resources to develop
a comprehensive financial literacy curriculum and free training program for individuals and non-
profits located in the communities we serve. Level One Bank volunteers have provided countless
hours of financial education training from goal setting and household budgeting to credit basics
and payday lender risks.
“Scores of other banks walked away from this
challenge because there was no real profit in
this work for them or because they could not
find a way to embrace the community credits.”
– Macomb County Habitat for Humanity
We also continued our relationship with a number of community organizations including
Community Connections, Community Social Services, Cornerstone Schools, Friendship
Circle, Habitat for Humanity Oakland County, Heat & Warmth Fund, Jain Society, JARC,
Jewish Federation of Metro Detroit, Junior Achievement, March of Dimes, Meals on
Wheels, Neighborhood House, Operation Give, Read to a Child, Rebuild Together
Oakland County, YMCA and many more.
Volunteering at Gleaners Community Food Bank of Southeast Michigan
Annual Report 2015 | 6
Annual Report 2015 | 7
Consolidated Balance Sheets - Level One Bancorp, Inc.
Years ended December 31, 2015 and 2014 (Dollars in thousands, except per share data)
Consolidated Statements of Changes in Shareholders’ Equity - Level One Bancorp, Inc.
Years ended December 31, 2015, 2014 and 2013 (Dollars in thousands, except per share data)
ASSETS
Cash and due from financial institutions
Securities available for sale
Federal Home Loan Bank stock
Mortgage loans held for sale, at fair value
Loans
Acquired loans
Originated loans
Less: Allowance for loan losses
Net loans
FDIC indemnification asset
Premises and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Demand
Savings
Time
Total deposits
Borrowings
Subordinated debentures
FDIC true-up payable
Other liabilities
Total liabilities
Shareholders’ equity
Preferred stock,
Series A, no shares issued and outstanding (2015), $1,000 per share par value
($11,301 liquidation preference), 50,000 shares authorized, 11,301 shares outstanding (2014)
Common stock,
no par value; 20,000,000 shares authorized; 6,309,783 (2015) and
6,302,648 (2014) shares issued and outstanding
Retained earnings
Accumulated other comprehensive income (loss)
Total shareholders’ equity
Total liabilities and shareholders’ equity
2015
$
16,036
116,702
4,052
3,656
107,121
652,597
(7,890)
751,828
-
11,949
4,549
647
15,244
2014
$
16,994
98,769
4,250
3,331
58,919
505,232
(5,589)
558,562
3,503
10,598
-
513
18,688
$
924,663
$
715,208
$
491,855
7,760
284,500
784,115
34,510
14,733
-
5,671
839,029
$
327,926
8,033
206,038
541,997
78,387
-
3,938
6,465
630,787
-
11,287
57,640
28,345
(351)
85,634
$
924,663
57,501
15,929
(296)
84,421
$
715,208
BALANCE AT JANUARY 1, 2013
Net income
Issuance of common stock (1,481,888 shares)
Preferred stock dividends
Stock based compensation expense
Issuance costs
Other comprehensive loss
BALANCE AT DECEMBER 31, 2013
Net income
Exercise stock options (35,000 shares)
Preferred stock dividends
Stock based compensation expense
Other comprehensive income
BALANCE AT DECEMBER 31, 2014
Net income
Exercise stock options (2,835 shares)
Preferred stock dividends
Preferred stock redemption
Stock based compensation expense
Other comprehensive income
BALANCE AT DECEMBER 31, 2015
Preferred
Stock
$11,287
-
-
-
-
-
-
Common
Stock
$57,057
-
-
-
58
-
-
Retained
Earnings
Accumulated Other
Comprehensive
Income (loss)
Total
Shareholders’
Equity
$10,357
$
58
$78,759
3,915
-
(113)
-
-
-
-
-
-
-
-
(3,086)
3,915
-
(113)
58
-
(3,086)
$11,287
$57,115
$14,159
$
(3,028)
$79,533
-
-
-
-
-
$11,287
-
-
-
(11,287)
-
-
-
320
-
66
-
1,883
-
(113)
-
-
-
-
-
-
2,732
$57,501
$15,929
$
(296)
-
25
-
-
114
-
12,528
-
(112)
-
-
-
-
-
-
-
-
(55)
-
$57,640
$28,345
$
(351)
1,883
320
(113)
66
2,732
$84,421
12,528
25
(112)
(11,287)
114
(55)
$85,634
Annual Report 2015 | 8
Annual Report 2015 | 9
Consolidated Statements of Income - Level One Bancorp, Inc.
Years ended December 31, 2015, 2014 and 2013
(Dollars in thousands, except per share data)
Consolidated Statements of Cash Flows - Level One Bancorp, Inc.
Years ended December 31, 2015, 2014 and 2013
(Dollars in thousands, except per share data)
Total Assets
Total Loans
Net Interest Margin
INTEREST INCOME
Originated loans, including fees
Acquired loans, including fees
Securities
FDIC indemnification asset amortization
Federal funds sold and other
Total interest income
INTEREST EXPENSE
Deposits
Borrowed funds
Subordinated debentures
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
NON-INTEREST INCOME
Services charges on deposits
Net gain on sale of securities
Net gain on sale of residential mortgage loans
Net gain on sale of commercial loans
Loss sharing
Gain on FDIC loss share agreement termination
Other charges and fees
Total non-interest income
NON-INTEREST EXPENSE
Salaries and benefits
Occupancy and equipment
Professional services
Marketing
Printing and supplies
Data processing
Other
Total non-interest expense
Income before income taxes
Income taxes
Net income
Less: Preferred stock dividends
2015
$26,978
11,762
2,525
-
70
41,335
3,512
252
28
3,792
37,543
1,359
36,184
972
280
1,701
92
-
3,117
1,052
7,214
14,663
2,792
892
567
349
1,350
4,275
24,888
18,510
5,982
12,528
112
2014
$20,753
11,943
2,370
(8,676)
32
26,422
2,500
153
-
2,653
23,769
2,743
21,026
835
149
1,445
-
(1,113)
-
1,010
2,326
12,758
2,353
900
425
357
1,134
3,264
21,191
2,161
278
1,883
113
2013
$ 16,590
13,039
1,808
(6,475)
30
24,992
2,119
146
-
2,265
22,727
574
22,153
656
155
2,378
168
(665)
-
586
3,278
11,809
2,086
1,024
521
346
1,162
2,850
19,798
5,633
1,718
3,915
113
Net income attributable to common shareholders
$12,416
$ 1,770
$ 3,802
Earnings per share:
Basic
Diluted
$ 1.97
$ 1.91
$ 0.28
$ 0.28
$ 0.61
$ 0.60
Annual Report 2015 | 10
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
from operating activities
Depreciation
Amortization of core deposit intangibles
Provision for loan losses
Discount on SBA/USDA retained loans
Net amortization of securities
Net realized gain on sales of securities
Origination of loans held for sale
Proceeds from sales of loans originated for sale
Net gain on sales on loans
Net accretion on acquired purchase credit impaired loans
OREO write downs
Loss (gain) on sale of OREO
Stock based compensation expense
Accretion of FDIC true up liability
Increase in cash surrender value of life insurance
Net change in:
Accrued interest receivable and other assets
Accrued interest payable and other liabilities
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities
Sales
Maturities, prepayments and call
Purchases
Purchase of FHLB stock
Redemption of FHLB stock
Loan originations and payments, net
Proceeds from sale of OREO
Additions to premises and equipment
Net cash used in acquisition
2015
$ 12,528
2014
$ 1,883
2013
$ 3,915
1,026
154
1,359
33
864
(280)
(58,245)
59,622
(1,793)
(6,960)
105
(181)
114
-
(100)
4,952
(1,454)
11,744
50,801
12,610
(68,072)
-
313
(109,972)
714
(1,050)
(965)
845
112
2,743
78
1,061
(149)
(47,876)
50,972
(1,445)
(8,524)
64
(209)
66
324
(100)
6,508
713
7,066
23,084
15,504
(25,871)
(1,739)
6
(101,173)
1,804
(890)
-
712
118
574
172
1,630
(155)
(81,820)
85,643
(2,546)
(9,729)
215
71
58
241
(102)
9,517
671
9,185
22,161
21,596
(84,029)
-
28
(97,906)
1,150
(1,320)
-
Net cash from investing activities
(115,621)
(89,275)
(138,320)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits
Repayment of Federal Home Loan Bank advances
Proceeds from Federal Home Loan Bank advances
Increase (decrease) in short term borrowings
Proceeds from issuance of subordinated debentures
Preferred stock dividends
Redemption of preferred stock
Proceeds from exercised stock options
Net cash from financing activities
Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
145,358
(37,000)
35,000
(43,798)
14,733
(112)
(11,287)
25
102,919
(958)
16,994
38,119
-
5,000
44,899
-
(113)
-
320
88,225
6,016
10,978
108,638
-
-
12,641
-
(113)
-
-
121,166
(7,969)
18,947
CASH AND CASH EQUIVALENTS AT END OF YEAR
$ 16,036
$ 16,994
$ 10,978
Supplemental cash flow information
Interest paid
Taxes paid
Supplemental schedule of investing activities:
Transfer from loans to OREO
Asset acquired – Lotus Bank
Liabilities assumed – Lotus Bank
$ 3,603
1,050
$ 2,647
2,700
$ 2,271
1,500
399
111,428
98,906
1,019
-
-
2,183
-
-
Organic growth and the acquisition of Lotus Bank drove
an increase in assets of 29% in 2015.
More than 90% of the asset growth was in loans. This growth
occurred despite loan pay downs from the previous acquisitions.
The Company's loans are its main revenue engine, and the loan
yield increased more than the cost of funds increased, resulting
in the Company's net interest margin rising to 4.6%.
Uncovered Charge Offs / Average Assets
Non-interest Expense/ Average Assets
Net Income
Credit quality remains exceptional with a net recovery in 2015.
Return on Average Assets
Offsetting net interest revenue is non-interest expense
(e.g., salaries, occupancy, data processing, etc.)
In 2015, the Company decreased its non-interest
expense ratio to 2.9%.
The combination of a higher net interest margin and increased
balance sheet size propelled the Company to a record
year of earnings.
The Company's net income as percent of assets increased
to a record 1.43%.
Annual Report 2015 | 11
2015 The Year In Review
1
Quarter
•
•
•
Opened our first mortgage loan production office in Ann Arbor
Developed and launched an Entrepreneurial Line of Credit (eLine)
offering small business owners up to $25,000 unsecured
Completed the acquisition of Lotus Bank, gained two new branches
and grew assets to $844 million
2
Quarter
•
•
•
Named ‘Community Lender of the Year’ by the
U.S. Small Business Administration (SBA)
Named ‘Export Lender of the Year’ by the U.S. Small Business
Administration (SBA) for second consecutive year
Honored by our commercial client, ChemicoMays,
as their Supplier of the Year
3
Quarter
•
•
Honored as one of Metro Detroit’s ‘101 Best & Brightest
Companies to Work For’ third consecutive year
Announced plans to open a new branch in
Downtown Detroit
4
Quarter
•
•
•
Entered into a definitive agreement to
acquire Bank of Michigan
Introduced Chip Cards to consumer and business
clients with enhanced security features
Achieved superior 5-Star BauerFinancial rating
for 20th consecutive quarter, or five years
Annual Report 2015 | 12
LEVEL ONE EXECUTIVE TEAM
From left to right: Eva Scurlock, SVP, Credit Administration; Timothy R. Mackay, SVP, Retail & Consumer Banking;
Patrick J. Fehring, President & CEO; David Walker, EVP, CFO & Treasurer; Gregory A. Wernette, EVP, CLO