Level One Bancorp, Inc.
Annual Report 2018

Plain-text annual report

Making Banking and Life Easier 2018 Annual Report Board of Directors 1 Steven H. Rivera DO, MBA, FACEP Board of Trustees Ascension Southeast Michigan Hospitals, Physician Advisor Ascension Providence Hospitals, Medical Staff Leadership Ascension Providence 2 Mark J. Herman President & COO ANYI Management Company 3 Barbara E. Allushuski President & CEO Blue Heron Talent, LLC 4 Victor L. Ansara President & CEO Ansara Restaurant Group, Inc. 5 Stefan Wanczyk President & CEO Utica Enterprises, Inc. 6 Patrick J. Fehring President & CEO Level One Bank 7 Shukri W. David MD, MBA, FACC, Physician Chair, Heart & Vascular Center of Excellence St. John Providence Health System Ascension Michigan 8 Michael A. Brillati CEO Salus Group 9 Thomas A. Fabbri President & CEO Aaro Companies 10 James Bellinson Managing Director Riverstone Communities 4 1 3 5 7 8 10 2 6 9 To Our Shareholders I am pleased to report 2018 was another successful year of quality growth and strong financial results for Level One Bancorp, Inc. Net Income was $14.4 million in 2018, an increase from the previous year. Fully diluted Earnings Per Share grew 28.2% from 2017 to $1.91 while assets increased to $1.4 billion at December 31, 2018. Our Return on Average Assets for the year was 1.1% and the Return on Average Equity increased to 10.7%. We achieved solid loan growth of 8.9% in 2018 as both Commercial and Residential Lending contributed to our results. We believe we continue to experience a positive economic environment and are well positioned for success in the coming year. Patrick J. Fehring, President & CEO In the second quarter of 2018, Level One Bancorp, Inc. successfully launched an Initial Public Offering and became a publicly traded company on Nasdaq. We took this action for several reasons. First, the IPO provided our investors a measure of liquidity as we have been a private company since our founding in 2007. Additionally, it gave us access to the broader capital markets which we believe will facilitate our continuing growth. Finally, it allowed us to raise additional capital, strengthening our balance sheet. As part of our strategic plans for growth in 2018, we significantly increased the size of our residential mortgage operations with the addition of approximately 30 mortgage bankers. We are excited to have them on our team and expect great opportunity ahead for growth of the mortgage business. Level One Bank was recognized for several awards in 2018. One that I am most proud of relates to the culture we have created at Level One, which leads to our ability to attract and retain talented bankers. For the sixth consecutive year, we were named one of Metro Detroit’s ‘101 Best & Brightest Companies to Work For’. Our people and the core values they exhibit are an important differentiator and key to our success. Much has changed in the banking industry since we opened our doors in 2007, and technology is at the forefront. We continue to invest in technology and data to make banking easier and more convenient for our clients. We have developed an enhanced IT vision that provides us a clear path forward. As we look ahead to 2019 and beyond, we remain focused on quality growth and profitability. Thank you for your continued support and commitment to Level One Bancorp, Inc. Sincerely, Patrick J. Fehring President & CEO Executive Team From left to right: Lani Barrett, EVP, Chief Human Resources Officer; Gregory A. Wernette, EVP, Chief Lending Officer; David C. Walker, EVP, Chief Financial Officer; Patrick J. Fehring, Chairman, President and Chief Executive Officer; Eva Scurlock, EVP, Risk Management Officer; Timothy R. Mackay, EVP, Consumer Banking Officer Photography by Libby Greene/Nasdaq, Inc. Annual Report 2018 | 1 MAKING BANKING AND LIFE EASIER Whether building a business, raising a family, or carrying out day-to-day tasks, people choose to do business with the people and companies that make their lives easier. Among the top reasons individuals choose their primary bank is convenience - convenient locations and ATMs, easy account opening and application processes, and access to online and mobile banking tools to name a few. At Level One Bank, we make life easier by making banking easier - by placing account access at your fingertips, by offering more convenient locations, by providing free access to every ATM in the nation, by opening accounts online, and much more. • Level One Bancorp, Inc. filed a registration statement with the SEC for an Initial Public Offering • Level One Bank was named one of the ‘10 Best Banks in Michigan’ by GOBankingRates • Level One Bank was selected as a ‘Best Company to Work For’ by Novi Chamber of Commerce 2018 Highlights Photography by Libby Greene/Nasdaq, Inc. • Level One Bancorp, Inc. commenced its Initial Public Offering • Level One Bancorp, Inc. celebrated its first day of trading on the Nasdaq stock exchange (LEVL) • Level One Bank was recognized for the sixth consecutive year as one of Metro Detroit’s ‘101 Best & Brightest Companies to Work For’ • Level One Bank added 30 new mortgage team members, doubling the size of the Mortgage Division • Level One Bank was honored as one of Michigan’s ‘Best For-Profits for Non-Profits’ by MichBusiness Annual Report 2018 | 2 Annual Report 2018 | 3 Making Banking Easier with New Products and Technology Making Homeownership Easier with Expanded Mortgage Services Our commitment to making life easier for our clients also extends into the homebuying process. Our online mortgage application lets clients apply online whenever and wherever it’s most convenient. Our online pre-qualification application gives clients a quick and easy way to determine what they qualify for. In 2018, we introduced a new mortgage program called Community One that offers unique benefits for first responders, medical professionals, government and non-profit employees, and teachers who serve our local communities. We also introduced a new Unsecured Home Improvement Loan that offers a quick and easy application process for individuals eager to get started on home renovation projects. In the third quarter of 2018, we doubled the size of our mortgage division with the addition of approximately 30 new mortgage loan officers and support staff. We also opened a new mortgage loan center at a prime location in downtown Ann Arbor, located at 1328 S. Main Street, right across from the University of Michigan Stadium. With the additional mortgage team members, we further strengthened our local mortgage presence and made it easier for homebuyers to access a mortgage banker in their community. During a time when everything you need is at your fingertips, from online shopping apps to grocery delivery services, people expect the same conveniences from their bank. That’s why we offer products like Mobile Wallet and Mobile Check Deposit, making it easy to make in-store purchases from your phone or deposit checks on the go. In 2018, we enhanced our online account opening platform enabling personal checking and savings accounts to be opened and funded entirely online. To provide added value and help our clients save money, we refund ATM fees charged by other institutions anywhere in the nation, making domestic travel easier for our clients. Our BaZing app conveniently notifies clients when there’s an offer at a nearby merchant, while also providing free cell phone protection and travel savings on hotels and car rentals. With a Level One debit card, we even pay our clients $0.10 for every transaction in which they choose credit. While technology is a driving force in the industry, we also understand the importance of personal connections and relationships. We offer a level of personal service that is unmatched by other institutions. The combination of personal service with sophisticated products and technology is a significant differentiator and an important part of our client acquisition and retention strategies. In 2019, we will continue to enhance our product and technology offerings with new services like Zelle®, a person-to-person payment solution that makes it easy to pay friends and family electronically. To complement our online account opening and online mortgage application platforms, we will soon offer online applications for new small business loans and Home Equity Lines of Credit. Annual Report 2018 | 4 Annual Report 2018 | 5 Making Business Easier for Our Clients “ It’s easy to get things done because I don’t have all the red tape.” – Michael Campbell, Hutch Paving Sam Slaughter - Sellers Auto Group When Sellers Auto Group was looking for a bank, they understood the benefits of working with a local community bank like Level One Bank. “The difference between a local bank and a national bank is key. We were looking for more of a relationship, not just an account,” explained Sam Slaughter, Owner of Sellers Auto Group. When looking to refinance their mortgage, Slaughter and his CFO, Andrew Haller, talked to several different banks. After meeting with Level One’s leadership team and reviewing the product and service offerings, they knew Level One Bank was the right choice. “The level of personal service is so refreshing. Whether it’s the commercial mortgage or treasury management people, everyone is committed to helping us and making sure our needs are met,” he said. Sellers Auto Group is an award-winning company operating two dealerships - Sellers Buick GMC in Farmington Hills and Sellers Subaru in Macomb. They sell and service new and pre-owned vehicles and were recognized locally and nationally as ‘Buick Dealer of the Year’ in 2018 and 2019. Sellers Auto Group prides itself on being a trusted source for transportation in the community and centers its client experience around transparency and simplicity. For more information, visit www.sellersautogroup.com. Michael Campbell - Hutch Paving Michael Campbell, President of Hutch Paving, appreciates Level One Bank’s ability to get things done. He notes the stark contrast between the mega-bank mentality and that of a community bank. “It’s a different atmosphere. It’s easy to get things done because I don’t have all the red tape,” he explains. When asked what makes Level One Bank different from other banks he’s worked with, Campbell describes the people and the service, “It’s a lot more personal. When I need my banker, he’s there for me. He answers the phone when I call. When I go to the branch, everyone knows who I am. They smile and greet me by name.” When Campbell was looking to refinance a commercial loan, he found Level One Bank’s rates to be competitive and now uses the Bank for various personal and business banking needs, including the purchase of equipment such as dump trucks and large excavators. Hutch Paving specializes in the installation, repair, maintenance and rehabilitation of asphalt and concrete pavement systems for both the public and private sectors of Southeast Michigan. Services include new construction, milling, pulverization, crack repair, sealcoating, patching, resurfacing, reclamation, curbing, removal & replacement, concrete, striping, speed bumps and drainage systems of asphalt and concrete, and more. For more information, visit www.hutchpaving.com. Bryan Howard - Proos Manufacturing, Inc. Level One Bank’s entrepreneurial roots and approach resonated with Bryan Howard, President and CEO of Proos Manufacturing. When Howard purchased Proos Manufacturing from the previous owner in 2018, he wanted a bank that understood his challenges and was willing to put some skin in the game. “They put their money where their mouth is. They took a chance on me,” Howard explained. “They took the time to get to know me and hear my story. They understood me and what I needed more than a typical bank would.” The deal was complex with a lot of moving parts, but Level One Bank worked collaboratively with Howard to come up with customized solutions. “It was not an easy deal,” said Howard. “I really appreciated Level One’s creativity and solutions-oriented approach.” Proos Manufacturing is a leading provider of Engineered Products for the material handling, automotive, industrial, and furniture industries. For more information, visit www.proos.com. Annual Report 2018 | 6 Annual Report 2018 | 7 Making Life Easier for Our Communities by Giving Back 1 2 As a community bank, we remain committed to making an impact in the areas we serve. From financial literacy and homebuyer workshops to volunteering and mentoring children, our team members dedicated over 1000 hours of community service and financially supported nearly 90 philanthropic organizations in 2018. In 2018, we introduced a new grant program for small business owners in partnership with the Federal Home Loan Bank to help businesses with expansion efforts and investing in their workforce. We continue to offer a number of grant programs to make affordable homeownership easier for low-to-moderate income individuals, including help with closing costs, home repairs, and accessibility modifications. Through these programs, we were able to leverage $350,000 in grant money. 1. Collecting donations for Heart of West Michigan United Way 2. Planting and harvesting vegetables on the farm at Forgotten Harvest 3. Celebrating a Home Dedication Ceremony for our client at Habitat for Humanity 4. Working hard to seal a leaking roof at a Habitat for Humanity warehouse 5. Volunteering with Habitat for Humanity ReStore 6. Supporting local businesses during a Level One Cash Mob event 7. Teaching homebuyer education classes in the local community 8. Leading a financial literacy series with the Chaldean Community Foundation 5 3 4 6 We remain committed to our partnership with Habitat for Humanity. In 2018, we continued to originate mortgage loans for Habitat and provided an exclusive lower- cost loan program for their clients. We expanded our relationship with the addition of a custom-tailored program to help Habitat borrowers with down-payment assistance and provide financial aid for homeowners who have fallen behind on their payments. Our team is passionate about sharing their financial expertise to help others achieve their goals. We facilitated over 40 financial education workshops in partnership with several non-profit organizations in 2018. One of those organizations was the Chaldean Community Foundation, with whom we partnered to develop and teach a series of financial literacy classes to Chaldean immigrants, covering topics such as banking basics, household budgeting and credit building. 7 8 Annual Report 2018 | 8 Annual Report 2018 | 9 CONSOLIDATED BALANCE SHEETS December 31, 2018 and 2017 (Dollars in thousands) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years ended December 31, 2018, 2017 and 2016 (Dollars in thousands) ASSETS Cash and cash equivalents Securities available-for-sale Federal Home Loan Bank stock Mortgage loans held for sale, at fair value Loans: Originated loans Acquired loans Total loans Less: Allowance for loan losses Net loans Premises and equipment Goodwill Other intangible assets, net Bank-owned life insurance Income tax benefit Other assets Total assets LIABILITIES Deposits: Noninterest-bearing demand deposits Interest-bearing demand deposits Money market and savings deposits Time deposits Total deposits Borrowings Subordinated notes Other liabilities Total liabilities Shareholders' equity Common stock: BALANCE AT JANUARY 1, 2016 Net income Other comprehensive loss Exercise of stock options (27,008 shares), including tax benefit Stock based compensation, net of tax impact BALANCE AT DECEMBER 31, 2016 Net income Other comprehensive income Exercise of stock options (57,506 shares), including tax benefit Stock-based compensation expense, net of tax impact BALANCE AT DECEMBER 31, 2017 Net income Other comprehensive loss (excluding tax reform adjustment) Reclass of tax reform adjustments due to early adoption of ASU 2018-02 Initial public offering of 1,150,765 shares of common stock, net of issuance costs Common stock dividends declared and paid of $0.12/share Exercise of stock options (127,494 shares) Stock-based compensation expense, net of tax impact Common Stock $ 57,640 — — 300 366 $ 58,306 — — 605 600 $ 59,511 — — — 29,030 — 1,279 801 Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Retained Earnings $ 28,345 11,046 — — — $ 39,391 9,841 — — — $ 49,232 14,386 — 168 — (895) — — $ (351) — (775) — — $ (1,126) — 343 — — $ (783) — (801) (168) — — — — $ 85,634 11,046 (775) 300 366 $ 96,571 9,841 343 605 600 $ 107,960 14,386 (801) — 29,030 (895) 1,279 801 BALANCE AT DECEMBER 31, 2018 $ 90,621 $ 62,891 $ (1,752) $ 151,760 2018 2017 $ 33,296 204,258 8,325 5,595 1,041,898 84,667 1,126,565 (11,566) 1,114,999 13,242 9,387 447 11,866 2,467 12,333 $ 63,661 150,969 8,303 4,548 920,895 114,028 1,034,923 (11,713) 1,023,210 13,435 9,387 667 11,542 3,102 12,467 $ 1,416,215 $ 1,301,291 $ 309,384 52,804 287,575 484,872 1,134,635 99,574 14,891 15,355 $ 324,923 62,644 289,363 443,452 1,120,382 47,833 14,844 10,272 1,264,455 1,193,331 Authorized—20,000,000 shares Issued and outstanding—7,750,216 shares at 12/31/2018 and 6,435,461 shares at 12/31/2017 Retained earnings Accumulated other comprehensive loss, net of tax Total shareholders' equity Total liabilities and shareholders' equity 90,621 62,891 (1,752) 151,760 59,511 49,232 (783) 107,960 $ 1,416,215 $ 1,301,291 Annual Report 2018 | 10 Annual Report 2018 | 11 5% 4% 3% 2% 1% 0% 4% 3% 2% 1% 0% 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 2018, 2017 and 2016 (In thousands, except per share data) Interest income Originated loans, including fees $ 49,076 $ 39,812 $ 33,771 Acquired loans, including fees 9,186 12,231 16,956 2018 2017 2016 Securities: Taxable Tax-exempt Federal funds sold and other 2,939 1,657 966 1,746 1,431 955 863 441 304 Total interest income 63,824 55,607 52,903 Interest Expense Deposits Borrowed funds Subordinated notes Total interest expense Net interest income 11,055 6,267 4,499 1,330 1,015 13,400 50,424 797 318 1,014 1,015 8,078 5,832 47,529 47,071 Provision expense for loan losses 412 1,416 3,925 Net interest income after provision for loan losses Noninterest income Service charges on deposits Net gain (loss) on sales of securities Mortgage banking activities Net gain on sale of commercial loans Other charges and fees Total noninterest income Noninterest expense 50,012 46,113 43,146 2,556 (71) 2,330 11 2,229 7,055 2,543 1,885 208 926 146 — 1,907 1,347 6,502 6,407 1,698 2,249 ($ Thousand) Salary and employee benefits 25,781 21,555 17,978 Occupancy and equipment expense Professional service fees Acquisition and due diligence fees Marketing expense Printing and supplies expense Data processing expense Other expense Total noninterest expense Income before income taxes Income tax provision Net income Earnings per common share: Basic Diluted Average common shares outstanding—basic Average common shares outstanding—diluted Cash dividends declared per common share 4,425 1,672 — 1,033 441 2,146 4,180 4,208 3,370 2,314 1,189 — 2,684 930 477 806 468 1,912 2,023 4,655 3,889 39,678 17,389 3,003 36,051 32,407 16,564 17,146 6,723 6,100 $ 14,386 $ 9,841 $ 11,046 $ 1.95 $ 1.91 7,377 7,524 0.12 $ 1.54 $ 1.74 $ 1.49 $ 1.69 6,388 6,341 6,610 6,549 — — 16000 14000 12000 10000 8000 6000 4000 2000 0 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% Net Interest Margin The Company’s loans are its main revenue engine, and the cost of funds increased more than the loan yield increased, resulting in the Company’s net interest margin falling to 3.92%. Noninterest Expense /Average Assets Offsetting net interest revenue is noninterest expense (e.g., salaries, occupancy, data processing, etc.). In 2018, this ratio declined despite an increase of 27 FTE employees (a portion of which is related to the expansion of the mortgage team). Net Income Net income was strong at $14.4 million in 2018. Return on Average Assets Finally, the Company’s net income as percent of assets was 1.07% in 2018. Total Assets Organic growth drove an increase in assets of 9% during 2018. Total Loans Loan growth contributed to 80% of total asset growth during 2018. Net Charge Offs /Average Assets Credit quality remains excellent with a .04% loss rate in 2018. 1600 1400 1200 1000 800 600 400 200 0 2013 2014 2015 2016 2017 2018 ($ Million) 1200 1000 800 600 400 200 0 0.40% 0.30% 0.20% 0.10% 0.00% -0.10% -0.20% 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2018, 2017 and 2016 (Dollars in thousands) ($ Million) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: 2018 2017 2016 $ 14,386 $ 9,841 $ 11,046 Depreciation of fixed assets Amortization of core deposit intangibles Stock-based compensation expense Provision expense for loan losses Discount on acquired SBA/USDA retained loans Net securities premium amortization Net (gain) loss on sales of securities Originations of loans held for sale Proceeds from sales of loans originated for sale Net gain on sales of loans Accretion on acquired purchase credit impaired loans Gain on sale of other real estate owned and repossessed assets Increase in cash surrender value of life insurance Amortization of debt issuance costs Excess tax benefits 1,332 220 815 412 — 1,327 71 (90,361) 91,091 (2,341) (3,794) 1,369 234 613 1,416 — 871 (208) (64,184) 69,753 (1,844) (5,340) (44) (324) 47 108 (237) (328) 58 27 1,445 233 366 3,925 133 608 (926) (78,950) 74,995 (2,249) (8,412) (35) (181) 53 — Net (increase) decrease in accrued interest receivable and other assets Net increase in accrued interest payable and other liabilities Net cash provided by operating activities 382 (1,546) (4,660) 4,810 18,137 1,667 12,162 2,812 203 Cash flows from investing activities Net increase in loans Principal payments on securities available-for-sale Purchases of securities available-for-sale Purchases of Bank Owned Life Insurance Purchases of FHLB Stock Additions to premises and equipment Proceeds from: (88,069) 9,368 (68,694) — (22) (1,159) Sale of securities available-for-sale Sale of other real estate owned and repossessed assets 3,625 822 — (144,129) (75,780) 8,850 (74,225) — (2,475) (913) 14,803 885 — (128,855) Net cash from acquisition Net cash used in investing activities Cash flows from financing activities Net increase in deposits Change in short-term borrowings Repayment of long-term FHLB advances Change in secured borrowing Net proceeds from issuance of common stock related to our initial public offering Proceeds from exercised stock options Payments related to tax-withholding for share based compensation awards Common stock dividends paid Net cash provided by financing activities Net change in cash and cash equivalents Beginning cash and cash equivalents Ending cash and cash equivalents 14,253 61,810 (10,000) (69) 195,458 (31,820) (4,506) 1,514 29,030 1,279 — 605 (14) (662) 95,627 (30,365) 63,661 $ 33,296 (13) — 161,238 44,545 19,116 $ 63,661 (89,466) 12,900 (91,041) (7,520) (1,536) (3,066) 93,427 116 2,458 (83,728) 46,170 40,543 (408) — — 300 — — 86,605 3,080 16,036 $ 19,116 $ 5,864 1,200 — — 258 2013 2014 2015 2016 2017 2018 Supplemental disclosure of cash flow information: Interest paid Income taxes paid Transfer of loans held for sale to loans held for investment Transfer from premises and equipment to other assets Transfer from loans to other real estate owned $ 12,634 2,120 544 18 108 $ 7,427 4,625 1,587 1,793 385 Annual Report 2018 | 12 Annual Report 2018 | 13 Non-cash transactions: Increase in assets and liabilities in acquisitions: Assets acquired-Bank of Michigan Liabilities assumed-Bank of Michigan — — — — 114,442 102,762 Corporate Office 32991 Hamilton Court Farmington Hills, MI 48334 248-737-0300 Banking Center Locations Birmingham 1712 West Maple Road Birmingham, MI 48009 248-723-4800 Bloomfield 6450 Telegraph Road Bloomfield Hills, MI 48301 248-406-8905 Bloomfield 37100 Woodward Avenue Bloomfield Hills, MI 48304 248-530-7401 Farmington Hills 30095 Northwestern Highway Farmington Hills, MI 48334 248-865-1300 Northville 20550 Haggerty Road Northville, MI 48167 248-380-6590 Farmington Hills 30201 Orchard Lake Road Farmington Hills, MI 48334 248-737-1110 Novi 44350 W. 12 Mile Road Novi, MI 48377 248-735-1000 Ferndale 22635 Woodward Avenue Ferndale, MI 48220 248-414-6500 Sterling Heights 43683 Schoenherr Road Sterling Heights, MI 48313 586-412-1800 Detroit 1420 Washington Boulevard Detroit, MI 48226 313-309-9980 Grand Rapids 2355 Burton Street SE Grand Rapids, MI 49506 616-827-4400 COMING SOON! 195 North Maple Road Ann Arbor, MI 48103 1880 South Rochester Road Rochester Hills, MI 48307 Mortgage Loan Center Locations Ann Arbor 1328 South Main Street Ann Arbor, MI 48104 734-213-1515 Making Banking and Life Easier 888-880-5663 | contact@levelonebank.com www.LevelOneBank.com Member FDIC This report 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. It is important to note that these forward-looking statements are not guarantees of future performance and involve risk and uncertainties, including, but not limited to, the ability of the Company to implement its strategy and expand its lending operations, changes in interest rates and other general economic, business and political conditions, including changes in the financial markets, as well as other risks described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise. 

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