More annual reports from Level One Bancorp, Inc.:
2020 Report2016 Annual Report Our Passion is Helping Power Yours. Board of Directors From left to right: Steven H. Rivera, D.O., MBA, FACEP, President-Elect Medical Staff, St. John Providence Hospital, Managing Partner, Independent Emergency Physicians, P.C.; Mark J. Herman, President & COO, ANYI Management Company; Barbara E. Allushuski, President & CEO, Blue Heron Talent, LLC; Victor L. Ansara, President & CEO, Ansara Restaurant Group, Inc.; 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; Michael A. Brillati, CEO, Salus Group; Thomas A. Fabbri, President & CEO, Aaro Companies; James Bellinson, Managing Director, Riverstone Communities Executive Team From left to right: Eva Scurlock, EVP, Risk Management Officer; Timothy R. Mackay, EVP, Consumer Banking Officer; Patrick J. Fehring, President & CEO; David Walker, EVP, CFO & Treasurer; Gregory A. Wernette, EVP, CLO To Our Shareholders I am pleased to report 2016 was a year of significant growth and expansion for Level One Bank. Through organic growth, an acquisition and branching into new markets, we have achieved remarkable results. Our Net Income was $11 million in 2016, a slight decrease from 2015 due to the costs associated with the acquisition of Bank of Michigan. The acquisition will be accretive to earnings in 2017, further strengthening shareholder value. Total Assets grew 22% to $1.128 billion in 2016. Operating at the billion-dollar level brings new challenges to Level One, including increased accounting and regulatory oversight and greater competition, for all of which we are well prepared. Due to the investments we have made over the years in people, technology and systems infrastructure, we are now benefiting from a strong performance profile that includes four year compounded growth of 18% in assets, 14% growth in earnings per share, and 17% in our share price to $23 per share. We were recognized by Standard & Poor’s in 2016 as ranking 10th in the nation for performance among community banks our size. We continue to experience quality growth in our commercial, retail and mortgage portfolios, with loans increasing 25% and deposits increasing 18% in 2016. Quality growth requires quality team members, and I am especially thankful for our dedicated team of bankers who are the driving force behind our success. In 2016, we opened our first banking center in the City of Detroit, reinforcing our commitment to Detroit businesses and families during an important time in the city’s resurgence. For the first time in the Bank’s history, we also expanded outside of Southeast Michigan and opened a full-service banking center in Grand Rapids. The Grand Rapids office is off to a great start and we are excited about the opportunities before us in the West Michigan region. As we look ahead to 2017 and approach ten years in business, I am optimistic and enthusiastic about the future of Level One Bank. I want to personally thank you for your continued support as we remain focused on building a better way to bank in our local communities. Sincerely, Patrick J. Fehring President & CEO 2016 The Year In Review Q1 • Opened a new banking center in Downtown Detroit • Reached the milestone of $1.0 billion in assets Q2 • Completed the integration and operating systems conversion of Bank of Michigan • Ranked 10th in the nation among Best Performing Community Banks by S&P Global Market Intelligence Q3 • Named one of the ‘Best Banks to Work For’ in the nation by American Banker Magazine Q4 • Named ‘Export Lender of the Year’ by the Small Business Administration (SBA) for the third consecutive year • Honored for the fourth consecutive year as one of Metro Detroit’s ‘Best and Brightest Companies to Work For’ • Recognized in Inc. Magazine’s list of 5,000 Fastest Growing Private Companies in America • Celebrated the grand opening of HOPE Inside to offer free money management and credit coaching workshops to the Detroit community • Opened a new banking center in Grand Rapids, our first location in West Michigan Annual Report 2016 | 1 Growth & Expansion In less than a decade since our founding in 2007, it’s incredible to see how much we have grown – today we operate with 13 offices, more than 200 team members, thousands of clients and over a billion dollars in assets. Through these years of tremendous growth and success, our vision has never wavered. At our core, we are a relationship-based community bank with an undeniable entrepreneurial spirit, founded to build a better way to bank for local businesses and families. In 2016, we took that vision to new heights and new markets. In the first quarter, we opened a banking center in the City of Detroit. Here, we are much more than a typical branch; we are a resource for the area’s entrepreneurs, students and families. The new space was designed with our consultative approach in mind. Meeting rooms and WiFi are freely available to the public, new technology enables video-conferencing with clients and colleagues, and the vibrant colors echo a lively city on the rise. Through our new HOPE Inside initiative, a partnership with Operation HOPE, Wayne State University and TechTown, we offer free credit counseling and money management workshops to the Detroit community. Acquisition continues to play an important role in Level One Bank’s growth strategy. During the second quarter of 2016, we completed our fourth acquisition with the successful integration and systems conversion of Bank of Michigan. The deal propelled Level One over $1.0 billion in assets, brought a new banking center in Farmington Hills, and added many new team members and clients. 1 As we strengthened our presence in Southeast Michigan, we also looked for opportunities to expand our footprint outside of Southeast Michigan for the first time. In November 2016, we bridged our way to West Michigan with the opening of a full-service office in Grand Rapids. Grand Rapids has one of the strongest and fastest growing economies in the nation and shares the same community- minded and entrepreneurial values as Level One. The new office includes comprehensive retail, mortgage and commercial banking services. As we establish our new presence in Grand Rapids, we look forward to future expansion opportunities. 2 3 Changing the signs during our acquisition of Bank of Michigan. 3 Celebrating our new Detroit banking center with a ceremonial ribbon-cutting. A conversation room in Detroit offers video conferencing technology. 1 2 Annual Report 2016 | 2 4 5 4 Inaugurating our first office in Grand Rapids with local chamber members and business leaders. 5 The industrial design in Detroit features a beautiful mural of the downtown area. Annual Report 2016 | 3 1 Our Passion: Our Clients Youth Vision Solutions (YVS), Inc. Youth Vision Solutions (YVS) is a Detroit-based non-profit organization with the mission of helping youth who were previously homeless, school dropouts or otherwise at-risk overcome those obstacles to graduate high school and lead successful, independent lives. YVS provides education management exclusively for Covenant House Academy, which currently operates three charter schools in Detroit and one in Grand Rapids. While most schools educate students up to the age of 19, Covenant House Academy is uniquely positioned to accommodate ages 16-22. YVS began its banking relationship with Level One after the Bank of Michigan acquisition in 2016. “It was a smooth transition. They made everything easy for us,” said Michael Krystyniak, President/ Superintendent at YVS. Level One’s banking center in downtown Detroit offers particular convenience to the YVS staff. “We are very happy with our relationship. Their services are much better and the Detroit location is easily accessible.” 1 Former graduating class of YVS and Covenant House Academy. 3 Josh is a retired Marine Sergeant and monoskiier who uses the Sidekicks feet from College Park Industries. 2 Reggie is an extreme athlete and motivational speaker who uses the Trustep product from College Park Industries. 4 Joe is a sports enthusiast and business executive who uses the OdysseyK3 product from College Park Industries. Annual Report 2016 | 4 College Park Industries College Park Industries is a Michigan-based designer and manufacturer of highly customized prosthetic solutions. Nearly 30 years ago, the founders recognized a need for anatomically correct prosthetic feet with natural-feeling mobility. With the launch of the Trustep® foot prototype in 1988, College Park Industries revolutionized the prosthetic foot industry. Today, College Park Industries distributes its products to over 130 countries around the world and offers solutions that include feet, upper limbs and endoskeletal components. When College Park Industries was looking to purchase a new building in 2012, they turned to Level One. “We shopped four different financial institutions and Level One was the only bank that truly listened to us and understood our requirements,” said Joseph Wicker, CFO at College Park Industries. After the satisfactory experience, the company moved all of its banking needs to Level One. “Level One Bank has a great listening and understanding ability that results in the right solutions for us,” he added. 3 Annual Report 2016 | 5 2 4 Our Passion: Our Communities We are deeply rooted in the communities we serve and are always looking for new ways to give our time, expertise and financial support to community organizations and neighbors in need. Our relationship with Habitat for Humanity® continues to expand. We are proud to help Habitat for Humanity of Oakland and Macomb Counties by originating mortgage loans and alleviating some of the regulatory burden associated with lending. Additionally, we are able to help Habitat clients with down payment assistance through our grant programs for low-to-moderate income home buyers. 1 We started a new partnership in 2016 with Operation HOPE, Wayne State University and TechTown to open a ‘HOPE Inside’ in Detroit. Our HOPE Inside office is located at TechTown and provides free credit counseling and money management workshops aimed at improving credit scores, increasing access to capital and achieving homeownership. Our passion for small business birthed the ‘Level One Cash Mob’, an employee-based group that gives away free cash at small businesses to encourage others to shop and spend local. In 2016 the Level One Cash Mob gave out more than $15,000 in cash. You can follow our efforts on social media using hashtag #LevelOneCashMob. We also continued our support of a number of community partners including Cornerstone Schools, Detroit Public Television, Empowerment Plan, Heat & Warmth Fund, Jewish Federation of Metro Detroit, Junior Achievement, March of Dimes, Meals on Wheels, Operation Give, ORT America, Read to a Child, Southwest Economic Solutions, YMCA and many more. 2 3 1 A recipient of Level One Bank’s Welcome Home Loan and HOP grant celebrating a home dedication ceremony in partnership with Habitat for Humanity. 2 Celebrating the grand opening of Level One Bank’s HOPE Inside location at TechTown Detroit. Annual Report 2016 | 6 3 Accepting the “Spirit of Detroit” award from the Detroit City Council during the grand opening of our Detroit banking center. 4 5 4 The Level One Cash Mob giving away cash and t-shirts to small business patrons in Detroit. 5 Our Ferndale banking center hosting a networking reception in its community art gallery. Annual Report 2016 | 7 Our Passion: Our Team Level One Bank’s growth and expansion would not be possible without our dedicated team leading the way. We recognize our team is our most valuable asset, critical to the Bank’s success in the past, present and future. When considering our Bank’s differentiators, our people are at the top of the list. Level One bankers are go-getters. We are entrepreneurial. We are creative problem solvers willing and ready to go above and beyond for our clients. This is what sets us apart from our competitors and generates long-term client relationships. In 2016, our team exceeded 200 members for the first time. Now more than ever we are invested in our team’s professional and personal development. Whether it’s through on-the-job training, attendance at conferences and workshops or leadership develop- ment and mentorship, we are devoted to helping our team members achieve their goals. Level One Bank makes an effort to help team members pursue and maintain various professional certifications, some of which in 2016 included: Certified Regulatory Compliance Manager (CRCM), Certified DDI Facilitator, graduation from the Michigan Banker’s Association Perry School of Banking and more. 1 In 2016, we launched our Reboot Internship, a professional development and paid internship program designed to help individuals get back into the workforce after a career hiatus. Our Level One Growth program continues to aid motivated and high-performing employees with career development. The annual program includes mentorship with senior managers and personal and professional assessment tools to help team members work towards their goals. Level One Bank strives to be a place where talented people choose to work. In fact, we were honored by American Banker Magazine as one of the top 60 ‘Best Banks to Work For’ in the country and one of Metro Detroit’s ‘101 Best and Brightest Companies to Work For’ in 2016. 2 3 1 Team members proudly representing the “L1” brand. 3 Team members warming up for our annual Battle of the Paddle ping-pong tournament. 2 Our team of more than 200 gathering together for our quarterly All Team Member Meeting. Annual Report 2016 | 8 4 5 4 Team members enjoying our annual Summer Salute client appreciation event. 5 Level One Bank was honored as one of Metro Detroit’s ‘101 Best and Brightest Companies to Work For’ the last 4 years in a row. Annual Report 2016 | 9 CONSOLIDATED BALANCE SHEETS December 31, 2016 and 2015 (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 Premises and equipment, net Goodwill Other intangible assets, net Other assets 2016 $ 19,116 100,533 5,828 9,860 149,821 803,572 (11,089) 942,304 15,719 9,387 901 23,883 2015 $ 16,036 116,702 4,052 3,656 107,121 652,597 (7,890) 751,828 11,949 4,549 647 15,244 Total assets $ 1,127,531 $ 924,663 LIABILITIES AND SHAREHOLDERS’ EQUITY Deposits Demand Savings Time Total deposits Borrowings Subordinated debentures Other liabilities Total liabilities Shareholders’ equity Common stock, no par value; 20,000,000 shares authorized; 6,350,532 (2016) and 6,309,783 (2015) shares issued and outstanding Retained earnings Accumulated other comprehensive loss Total shareholders’ equity $ 616,611 8,889 299,424 924,924 82,645 14,786 8,605 1,030,960 58,306 39,391 (1,126) 96,571 $ 491,855 7,760 284,500 784,115 34,510 14,733 5,671 839,029 57,640 28,345 (351) 85,634 Total liabilities and shareholders’ equity $ 1,127,531 $ 924,663 Annual Report 2016 | 10 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years ended December 31, 2016, 2015 and 2014 (Dollars in thousands, except per share data) Preferred Stock Common Stock Accumulated Other Comprehensive Income (loss) Retained Earnings Total Shareholders’ Equity BALANCE AT JANUARY 1, 2014 $ 11,287 $ 57,115 $ 14,159 $ (3,028) $ 79,533 Net income Exercise stock options (35,000 shares) Preferred stock dividends Stock based compensation expense Other comprehensive income - - - - - - 320 - 66 - 1,883 - (113) - - - - - - 2,732 1,883 320 (113) 66 2,732 BALANCE AT DECEMBER 31, 2014 11,287 57,501 15,929 (296) 84,421 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 Net income Exercise stock options (27,008 shares), including tax benefit Tax benefit from restricted stock vesting Stock based compensation expense Other comprehensive income BALANCE AT DECEMBER 31, 2016 - - - (11,287) - - - 25 - - 114 - 12,528 - (112) - - - - - - - - (55) 12,528 25 (112) (11,287) 114 (55) $ $ - - - - - - - $ 57,640 $ 28,345 $ (351) $ 85,634 - 300 2 364 - 11,046 - - - - - - - - (775) 11,046 300 2 364 (775) $ 58,306 $ 39,391 $ (1,126) $ 96,571 Annual Report 2016 | 11 CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2016, 2015 and 2014 (Dollars in thousands, except per share data) INTEREST INCOME Originated loans, including fees Acquired loans, including fees Securities FDIC indemnification asset amortization Federal funds sold and other 2016 2015 2014 $ 33,771 16,956 2,052 - 124 $ 26,978 11,762 2,525 - 70 $ 20,753 11,943 2,370 (8,676) 32 Total interest income 52,903 41,335 26,422 INTEREST EXPENSE Deposits Borrowed funds Subordinated debentures Total interest expense Net interest income Provision for loan losses 4,499 318 1,015 5,832 3,512 252 28 3,792 47,071 3,925 37,543 1,359 2,500 153 - 2,653 23,769 2,743 Net interest income after provision for loan losses 43,146 36,184 21,026 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 1,885 926 2,249 - - - 1,347 6,407 972 280 1,701 92 - 3,117 1,052 7,214 NON-INTEREST EXPENSE Salaries and benefits Occupancy and equipment Professional services Marketing Printing and supplies Data processing Other 17,978 3,370 1,189 806 468 2,023 6,573 14,663 2,792 892 567 349 1,350 4,275 835 149 1,445 - (1,113) - 1,010 2,326 12,758 2,353 900 425 357 1,134 3,264 Total non-interest expense 32,407 24,888 21,191 Income before income taxes Income taxes Net income 17,146 6,100 18,510 5,982 2,161 278 11,046 12,528 1,883 Less: Preferred stock dividends - 112 113 Net income attributable to common shareholders $ 11,046 $ 12,416 $ 1,770 Earnings per share: Basic Diluted $ $ 1.74 1.69 $ $ 1.97 1.92 $ $ 0.28 0.28 Net Interest Margin 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 4.7%. Non-interest Expense/Average Assets Offsetting net interest revenue is non-interest expense (e.g., salaries, occupancy, data processing, etc.) In 2016, this increased primarily due to acquisition expenses. (Thousand) Net Income Net income was solid at $11M in 2016 despite acquisition expenses. Return on Average Assets Annual Report 2016 | 12 The Company’s net income as percent of assets remains strong at 1.05%. CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2016, 2015 and 2014 (Dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash 2016 2015 2014 $ 11,046 $ 12,528 $ 1,883 (Million) Total Assets 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 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: 1,445 233 3,925 133 608 (926) (78,950) 74,995 (2,249) (8,412) - (35) 364 - (181) 1,026 154 1,359 33 864 (280) (58,245) 59,622 (1,793) (6,960) 105 (181) 114 - (100) Accrued interest receivable and other assets Accrued interest payable and other liabilities Net cash from operating activities (4,658) 2,865 4,952 (1,454) 203 11,744 Organic growth and an acquisition drove an increase in assets of 22% in 2016. (Million) Total Loans 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 CASH FLOWS FROM INVESTING ACTIVITIES Available-for-sale securities Sales Maturities, prepayments and call Purchases Purchase of FHLB stock Redemption of FHLB stock Purchase of bank owned life insurance Loan originations and payments, net Proceeds from sale of OREO Additions to premises and equipment Net cash from (used) in acquisition 93,427 12,900 (91,041) (1,536) - (7,520) (89,466) 116 (3,066) 2,458 50,801 12,610 (68,072) - 313 - (109,972) 714 (1,050) (965) 23,084 15,504 (25,871) (1,739) 6 - (101,173) 1,804 (890) - Net cash used in investing activities (83,728) (115,621) (89,275) More than 90% of the asset growth was in loans. This growth occurred despite loan pay downs from the previous acquisitions. Uncovered Charge Offs / Average Assets 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, including tax benefit 46,170 (16,600) 65,000 (8,265) - - - 300 145,358 (37,000) 35,000 (43,798) 14,733 (112) (11,287) 25 Net cash from financing activities 86,605 102,919 Change in cash and cash equivalents Cash and cash equivalents at beginning of year 3,080 16,036 (958) 16,994 38,119 - 5,000 44,899 - (113) - 320 88,225 6,016 10,978 Credit quality remains excellent with a .07% loss rate in 2016. CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,116 $ 16,036 $ 16,994 Supplemental cash flow information Interest paid Taxes paid Supplemental schedule of investing activities: Transfer from loans to OREO Assets acquired – Bank of Michigan (2016), Lotus Bank (2015) Liabilities assumed – Bank of Michigan (2016), Lotus Bank (2015) $ 5,864 $ 1,200 3,603 1,050 $ 258 399 114,442 111,428 102,762 98,906 2,647 2,700 1,019 - - Annual Report 2016 | 13 Banking Center Locations Corporate Office 32991 Hamilton Court Farmington Hills, MI 48334 248-737-0300 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 30095 Northwestern Highway Farmington Hills, MI 48334 248-865-1300 Farmington Hills 31000 Northwestern Highway Farmington Hills, MI 48334 248-538-7600 Farmington Hills 30201 Orchard Lake Road Farmington Hills, MI 48334 248-737-1110 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 Grand Rapids 2355 Burton St. SE Grand Rapids, MI 49506 616-827-4400 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 Member FDIC 888-880-5663 | contact@levelonebank.com www.LevelOneBank.com
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