2016 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