Level One Bancorp (FRMEP) 8-KResults of Operations and Financial Condition

For Immediate Release

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

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

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

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

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

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

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

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

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

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

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

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

Total deposits were $2.07 billion at September 30, 2021, an increase of $35.2 million, or 1.73%, from $2.03 billion at June 30, 2021, and up $123.6 million, or 6.36%, from $1.94 billion at September 30, 2020. The growth in deposits compared to June 30,

2021 and September 30, 2020 was primarily due to organic deposit growth as a result of increased customer liquidity and new customers. Total deposit composition at September 30, 2021 consisted of 47.01% of demand deposit accounts, 30.55% of savings and money market accounts and 22.44% of time deposits.

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

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

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

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

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

Level One's provision for loan losses in the third quarter of 2021 was a provision recovery of $1.2 million, compared to provision expense of $540 thousand in the preceding quarter and provision expense of $4.3 million in the third quarter of 2020. The decrease in the provision expense quarter over quarter was primarily due to a decrease of $2.0 million in general reserves as a result of a reduction in qualitative factors within the allowance for loan loss model as a result of improved credit quality, partially offset by an increase in specific reserves of $252 thousand. The decrease in the provision expense in the third quarter of 2021 compared to the same period in 2020 was primarily due to a decrease in general reserves of $5.1 million resulting from a decrease in qualitative factors and a decrease of $531 thousand in specific reserves. The Company will continue to evaluate

the fluid situation in regard to the COVID-19 pandemic and will take further action to appropriately record additional provision for loan losses or decrease the level of the provision for loan losses should there be any indications of significant changes in the credit quality of our portfolio as a result of the COVID-19 pandemic.

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

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

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

Level One Bancorp, Inc. is the holding company for Level One Bank, a full-service commercial and consumer bank headquartered in Michigan with assets of approximately $2.54 billion as of September 30, 2021. It operates sixteen banking centers throughout Metro Detroit, Ann Arbor, Grand Rapids, and Jackson and provides a variety of commercial, small business,

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