8-K
INDEPENDENT BANK CORP /MI/ (IBCP)
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: October 24, 2023
INDEPENDENT BANK CORPORATION
(Exact name of registrant as specified in its charter)
| Michigan | 0-7818 | 38-2032782 | |||
|---|---|---|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | 4200 East Beltline<br><br>Grand Rapids, Michigan | 49525 | |
| --- | --- | ||||
| (Address of principal executive office) | (Zip Code) |
Registrant’s telephone number,
including area code:
(616) 527-5820
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, no par value | IBCP | NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Item 2.02. Results of Operations and Financial Condition
On October 24, 2023, Independent Bank Corporation issued a press release announcing its financial results for the quarter ended September 30, 2023. A copy of the press release is attached as Exhibit 99.1. Attached Exhibit 99.2 contains supplemental data to that press release and attached Exhibit 99.3 contains a slide presentation for our earnings conference call.
The information in this Form 8-K and the attached Exhibits shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits
Exhibits.
| 99.1 | Press release dated October 24, 2023. |
|---|---|
| 99.2 | Supplemental data to the Registrant’s press release dated October 24, 2023. |
| 99.3 | Earnings conference call presentation. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INDEPENDENT BANK CORPORATION | |||
|---|---|---|---|
| (Registrant) | |||
| Date | 10/24/2023 | By | s/Gavin A. Mohr |
| Gavin A. Mohr, Principal Financial Officer |
3
Document
Exhibit 99.1
NEWS RELEASE
Independent Bank Corporation
4200 East Beltline
Grand Rapids, MI 49525
616.527.5820
| For Release: | Immediately |
|---|---|
| Contact: | William B. Kessel, President and CEO, 616.447.3933<br><br>Gavin A. Mohr, Chief Financial Officer, 616.447.3929 |
INDEPENDENT BANK CORPORATION REPORTS 2023 THIRD QUARTER RESULTS
Third Quarter Highlights
Highlights for the third quarter of 2023 include:
•An increase in net interest income of $1.1 million (2.8%) over the second quarter of 2023;
•Net growth in core deposits of $112.6 million (or 10.5% annualized) from June 30, 2023;
•Net growth in loans of $110.4 million (or 12.1% annualized) from June 30, 2023; and
•The payment of a 23 cent per share dividend on common stock on August 14, 2023.
GRAND RAPIDS, Mich., October 24, 2023 - Independent Bank Corporation (NASDAQ: IBCP) reported third quarter 2023 net income of $17.5 million, or $0.83 per diluted share, versus net income of $17.3 million, or $0.81 per diluted share, in the prior-year period. For the nine months ended September 30, 2023, the Company reported net income of $45.3 million, or $2.14 per diluted share, compared to net income of $48.3 million, or $2.27 per diluted share, in the prior year period.
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “Our team continued its positive momentum in the third quarter, achieving strong financial results with solid balance sheet growth, a stable net interest margin, disciplined expense management, and healthy asset quality. Capitalizing on the current operating environment, we gained new banking relationships with clients who appreciate our value proposition as a commercial bank with robust treasury management solutions, industry expertise, and client centric service. This success led to double-digit annualized growth in loans and deposits. Despite expecting lower loan growth in the fourth quarter due to seasonality, we have a solid pipeline of high-quality relationship opportunities.”
Significant items impacting comparable third quarter 2023 and 2022 results include the following:
•Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Changes”) of $1.6 million ($0.06 per diluted share, after taxes) for the three-month period ended September 30, 2023, as compared to $3.2 million ($0.12 per diluted share, after taxes) for the three-months ended September 30, 2022.
•The provision for credit losses on loans was an expense of $1.4 million ($0.05 per diluted share, after taxes) in the third quarter ended September 30, 2023, as compared to an expense of $3.1 million ($0.12 per diluted share, after taxes) in the third quarter ended September 30, 2022.
Operating Results
The Company’s net interest income totaled $39.4 million during the third quarter of 2023, a decrease of $0.5 million, or 1.2% from the year-ago period, and an increase of $1.1 million, or 2.8%, from the second quarter of 2023. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.25% during the third quarter of 2023, compared to 3.49% in the year-ago period, and 3.26 in the second quarter of 2023. The year-over-year quarterly decrease in net interest income was due to a decrease in net interest margin that was partially offset by an increase in average interest-earning assets. The increase in net interest income compared to the linked quarter was due to an increase in average interest-earning assets that partially offset by a decrease in net interest margin. Average interest-earning assets were $4.89 billion in the third quarter of 2023, compared to $4.61 billion in the year ago quarter and $4.76 billion in the second quarter of 2023.
For the first nine months of 2023, net interest income totaled $116.2 million, an increase of $7.3 million, or 6.7% from the first nine months in 2022. The Company’s net interest margin for the first nine months of 2023 was 3.28% compared to 3.25% in 2022. The increase in net interest income for the first nine months of 2023 compared to 2022 reflects this improved margin as well as our increase in average interest- earning assets.
Non-interest income totaled $15.6 million and $41.6 million, respectively, for the third quarter and for the first nine months 2023, compared to $16.9 million and $50.4 million in the respective comparable prior year periods. These changes were primarily due to variances in mortgage banking related revenues.
Net gains on mortgage loans in the third quarters of 2023 and 2022, were approximately $2.1 million and $2.9 million, respectively. For the first nine months of 2023, net gains on mortgage loans totaled $5.5 million compared to $4.9 million in 2022. The comparative quarterly decrease in net gains on mortgage loans was primarily due to a decrease in the volume of mortgage loans sold that was partially offset by an increase in the gain on sale margin on mortgage loans sold.
Mortgage loan servicing, net, generated income of $2.7 million and $4.3 million in the third quarters of 2023 and 2022, respectively. For the first nine months of 2023 and 2022, mortgage loan servicing, net, generated income of $7.1 million and $18.1 million, respectively. The significant variance in mortgage loan servicing, net is primarily due to changes in the fair value of capitalized mortgage loan servicing rights associated with the magnitude of changes in mortgage loan interest rates and expected future prepayment levels between periods. Mortgage loan servicing, net activity is summarized in the following table:
| Three months ended | Nine months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| 9/30/2023 | 9/30/2022 | 9/30/2023 | 9/30/2022 | |||||
| (In thousands) | ||||||||
| Mortgage loan servicing, net: | ||||||||
| Revenue, net | $ | 2,197 | $ | 2,190 | $ | 6,612 | $ | 6,397 |
| Fair value change due to price | 1,556 | 3,203 | 3,364 | 14,775 | ||||
| Fair value change due to pay-downs | (1,085) | (1,110) | (2,908) | (3,086) | ||||
| Total | $ | 2,668 | $ | 4,283 | $ | 7,068 | $ | 18,086 |
Non-interest expenses totaled $32.0 million in the third quarter of 2023, compared to $32.4 million in the year-ago period. For the first nine months of 2023, non-interest expenses totaled $95.2 million versus $96.3 million in 2022.
The Company recorded income tax expense of $4.1 million and $10.4 million in the third quarter and first nine months of 2023, respectively. This compares to an income tax expense of $4.0 million and $10.9 million in the third quarter and first nine months of 2022. The changes in income tax expense principally reflect changes in pre-tax earnings in 2023 relative to 2022.
Asset Quality
A breakdown of non-performing loans by loan type is as follows:
| 9/30/2023 | 12/31/2022 | 9/30/2022 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Loan Type | (Dollars in thousands) | ||||||||
| Commercial | $ | 31 | $ | 38 | $ | 41 | |||
| Mortgage | 6,137 | 4,745 | 4,737 | ||||||
| Installment | 801 | 598 | 529 | ||||||
| Sub total | 6,969 | 5,381 | 5,307 | ||||||
| Less - government guaranteed loans | 2,254 | 1,660 | 1,491 | ||||||
| Total non-performing loans | $ | 4,715 | $ | 3,721 | $ | 3,816 | |||
| Ratio of non-performing loans to total portfolio loans | 0.13 | % | 0.11 | % | 0.11 | % | |||
| Ratio of non-performing assets to total assets | 0.10 | % | 0.08 | % | 0.08 | % | |||
| Ratio of allowance for credit losses to total non-performing loans | 1176.99 | % | 1409.16 | % | 1340.20 | % |
The provision for credit losses on loans was an expense of $1.4 million and $3.1 million in the third quarters of 2023 and 2022, respectively. The provision for credit losses on loans was an expense of $3.8 million in both the first nine months of 2023 and 2022. The quarterly change in the provision for credit losses on loans in 2023 compared to 2022, is primarily the result of a decrease in pooled loan reserve loss rates on retail loans and a decline in loan growth. We recorded loan net charge offs (recoveries) of $(0.18) million and $(0.12) million in the third quarters of 2023 and 2022, respectively and $0.78 million and $(0.11) million during the first nine months of 2023 and 2022, respectively. At September 30, 2023, the allowance for credit losses for loans totaled $55.5 million, or 1.48% of total portfolio loans compared to $52.4 million, or 1.51% of total portfolio loans at December 31, 2022. The year-to-date increase in the provision for credit losses for securities HTM in 2023 compared to 2022, was the result of a loss incurred on a $3.0 million subordinated debt security that defaulted during the first quarter.
Balance Sheet, Capital and Liquidity
Total assets were $5.20 billion at September 30, 2023, an increase of $200.2 million from December 31, 2022. Loans, excluding loans held for sale, were $3.74 billion at September 30, 2023, compared to $3.47 billion at December 31, 2022. Deposits totaled $4.59 billion at September 30, 2023, an increase of $206.5 million from December 31, 2022. This increase is primarily due to growth in reciprocal, time and brokered time deposit account balances that were partially offset by decreases in non-interest bearing and in savings and interest-bearing checking deposit account balances.
Cash and cash equivalents totaled $127.5 million at September 30, 2023, versus $74.4 million at December 31, 2022. Securities available for sale (“AFS”) totaled $684.6 million at September 30, 2023, versus $779.3 million at December 31, 2022.
Total shareholders’ equity was $375.0 million at September 30, 2023, or 7.21% of total assets compared to $347.6 million or 6.95% at December 31, 2022. Tangible common equity totaled $344.6 million at September 30, 2023, or $16.53 per share compared to $316.7 million or $15.04 per share at December 31, 2022. The increase in shareholder equity as well as tangible common equity are primarily the result of earnings retention.
The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:
| Regulatory Capital Ratios | 9/30/2023 | 12/31/2022 | Well<br>Capitalized<br>Minimum | |||
|---|---|---|---|---|---|---|
| Tier 1 capital to average total assets | 8.71 | % | 8.56 | % | 5.00 | % |
| Tier 1 common equity to risk-weighted assets | 11.09 | % | 10.97 | % | 6.50 | % |
| Tier 1 capital to risk-weighted assets | 11.09 | % | 10.97 | % | 8.00 | % |
| Total capital to risk-weighted assets | 12.34 | % | 12.22 | % | 10.00 | % |
At September 30, 2023, in addition to liquidity available from our normal operating, funding, and investing activities, we had unused credit lines with the FHLB and FRB of approximately $989.9 million and $504.0 million, respectively. We also had approximately $812.3 million in fair value of unpledged securities AFS and HTM at September 30, 2023 which could be pledged for an estimated additional borrowing capacity at the FHLB and FRB of approximately $749.4 million.
Share Repurchase Plan
On December 20, 2022, the Board of Directors of the Company authorized the 2023 share repurchase plan. Under the terms of the 2023 share repurchase plan, the Company is authorized to purchase up to 1,100,000 shares, or approximately 5% of its then outstanding common stock. The repurchase plan is authorized to last through December 31, 2023. For the first nine months of 2023, the Company repurchased 288,401 shares of common stock, for an aggregate purchase price of $5.0 million.
Earnings Conference Call
Brad Kessel, President and CEO, Gavin Mohr, CFO and Joel Rahn, EVP – Commercial Banking will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, October 24, 2023.
To participate in the live conference call, please dial 1-833-470-1428 (Access Code # 218288). Also, the conference call will be accessible through an audio webcast with user-controlled slides via the following site/URL: https://events.q4inc.com/attendee/796177293.
A playback of the call can be accessed by dialing 1-866-813-9403 (Access Code # 103128). The replay will be available through October 31, 2023.
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $5.2 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a branch network across Michigan's Lower Peninsula through one state-chartered bank subsidiary. This subsidiary (Independent Bank) provides a full range of financial services, including commercial banking, mortgage lending, consumer banking, investments and insurance. Independent Bank Corporation is committed to providing exceptional personal service and value to its customers, stockholders and the communities it serves.
For more information, please visit our Web site at: IndependentBank.com.
Forward-Looking Statements
This presentation contains forward-looking statements, which are any statements or information that are not historical facts. These forward-looking statements include statements about our anticipated future revenue and expenses and our future plans and prospects.
Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. For example, deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding to us, lead to a tightening of credit, and increase stock price volatility. Our results could also be adversely affected by changes in interest rates; increases in unemployment rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of our investment securities; legal and regulatory developments; changes in customer behavior and preferences; breaches in data security; and management’s ability to effectively manage the multitude of risks facing our business. Key risk factors that could affect our future results are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2022 and the other reports we file with the SEC, including under the heading “Risk Factors.” Investors should not place undue reliance on forward-looking statements as a prediction of our future results.
Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
| September 30, 2023 | December 31, 2022 | |||
|---|---|---|---|---|
| (Unaudited) | ||||
| (In thousands, except share<br>amounts) | ||||
| Assets | ||||
| Cash and due from banks | $ | 58,567 | $ | 70,180 |
| Interest bearing deposits | 68,894 | 4,191 | ||
| Cash and Cash Equivalents | 127,461 | 74,371 | ||
| Securities available for sale | 684,641 | 779,347 | ||
| Securities held to maturity (fair value of $309,199 at September 30, 2023 and $335,418 at December 31, 2022) | 358,899 | 374,818 | ||
| Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 16,821 | 17,653 | ||
| Loans held for sale, carried at fair value | 13,979 | 26,518 | ||
| Loans held for sale, carried at lower of cost or fair value | — | 20,367 | ||
| Loans | ||||
| Commercial | 1,626,122 | 1,466,853 | ||
| Mortgage | 1,475,908 | 1,368,409 | ||
| Installment | 639,456 | 630,090 | ||
| Total Loans | 3,741,486 | 3,465,352 | ||
| Allowance for credit losses | (55,495) | (52,435) | ||
| Net Loans | 3,685,991 | 3,412,917 | ||
| Other real estate and repossessed assets, net | 443 | 455 | ||
| Property and equipment, net | 35,346 | 35,893 | ||
| Bank-owned life insurance | 54,631 | 55,204 | ||
| Capitalized mortgage loan servicing rights, carried at fair value | 46,057 | 42,489 | ||
| Other intangibles | 2,141 | 2,551 | ||
| Goodwill | 28,300 | 28,300 | ||
| Accrued income and other assets | 145,308 | 128,904 | ||
| Total Assets | $ | 5,200,018 | $ | 4,999,787 |
| Liabilities and Shareholders' Equity | ||||
| Deposits | ||||
| Non-interest bearing | $ | 1,141,641 | $ | 1,269,759 |
| Savings and interest-bearing checking | 1,929,947 | 1,973,308 | ||
| Reciprocal | 799,883 | 602,575 | ||
| Time | 477,928 | 321,492 | ||
| Brokered time | 236,213 | 211,935 | ||
| Total Deposits | 4,585,612 | 4,379,069 | ||
| Other borrowings | 50,014 | 86,006 | ||
| Subordinated debt | 39,491 | 39,433 | ||
| Subordinated debentures | 39,711 | 39,660 | ||
| Accrued expenses and other liabilities | 110,192 | 108,023 | ||
| Total Liabilities | 4,825,020 | 4,652,191 | ||
| Shareholders’ Equity | ||||
| Preferred stock, no par value, 200,000 shares authorized; none issued or outstanding | — | — | ||
| Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: 20,850,455 shares at September 30, 2023 and 21,063,971 shares at December 31, 2022 | 317,145 | 320,991 | ||
| Retained earnings | 150,157 | 119,368 | ||
| Accumulated other comprehensive loss | (92,304) | (92,763) | ||
| Total Shareholders’ Equity | 374,998 | 347,596 | ||
| Total Liabilities and Shareholders’ Equity | $ | 5,200,018 | $ | 4,999,787 |
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
| Three Months Ended | Nine Months Ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30,<br>2023 | June 30, 2023 | September 30,<br>2022 | September 30, | ||||||||
| 2023 | 2022 | ||||||||||
| (Unaudited) | |||||||||||
| Interest Income | (In thousands, except per share amounts) | ||||||||||
| Interest and fees on loans | $ | 51,419 | $ | 47,679 | $ | 37,092 | $ | 143,392 | $ | 96,964 | |
| Interest on securities | |||||||||||
| Taxable | 5,865 | 5,919 | 5,329 | 17,668 | 14,831 | ||||||
| Tax-exempt | 3,409 | 3,283 | 2,284 | 9,775 | 5,584 | ||||||
| Other investments | 1,739 | 1,067 | 220 | 3,481 | 651 | ||||||
| Total Interest Income | 62,432 | 57,948 | 44,925 | 174,316 | 118,030 | ||||||
| Interest Expense | |||||||||||
| Deposits | 20,743 | 17,461 | 3,625 | 51,964 | 5,608 | ||||||
| Other borrowings and subordinated debt and debentures | 2,262 | 2,137 | 1,403 | 6,134 | 3,463 | ||||||
| Total Interest Expense | 23,005 | 19,598 | 5,028 | 58,098 | 9,071 | ||||||
| Net Interest Income | 39,427 | 38,350 | 39,897 | 116,218 | 108,959 | ||||||
| Provision for credit losses | 1,350 | 3,317 | 3,145 | 6,827 | 3,951 | ||||||
| Net Interest Income After Provision for Credit Losses | 38,077 | 35,033 | 36,752 | 109,391 | 105,008 | ||||||
| Non-interest Income | |||||||||||
| Interchange income | 4,100 | 3,355 | 4,049 | 10,660 | 10,553 | ||||||
| Service charges on deposit accounts | 3,309 | 3,134 | 3,082 | 9,300 | 9,135 | ||||||
| Net gains (losses) on assets | |||||||||||
| Mortgage loans | 2,099 | 2,120 | 2,857 | 5,475 | 4,945 | ||||||
| Securities available for sale | — | — | — | (222) | (275) | ||||||
| Mortgage loan servicing, net | 2,668 | 3,674 | 4,283 | 7,068 | 18,086 | ||||||
| Other | 3,435 | 3,134 | 2,590 | 9,298 | 7,997 | ||||||
| Total Non-interest Income | 15,611 | 15,417 | 16,861 | 41,579 | 50,441 | ||||||
| Non-interest Expense | |||||||||||
| Compensation and employee benefits | 19,975 | 20,602 | 20,601 | 59,916 | 60,613 | ||||||
| Data processing | 3,071 | 2,891 | 2,653 | 8,953 | 7,513 | ||||||
| Occupancy, net | 1,971 | 1,845 | 2,062 | 5,975 | 6,682 | ||||||
| Interchange expense | 1,119 | 1,054 | 927 | 3,222 | 3,200 | ||||||
| Furniture, fixtures and equipment | 927 | 929 | 987 | 2,782 | 3,074 | ||||||
| FDIC deposit insurance | 677 | 749 | 591 | 2,209 | 1,570 | ||||||
| Communications | 568 | 635 | 723 | 1,871 | 2,242 | ||||||
| Loan and collection | 520 | 620 | 772 | 1,718 | 1,978 | ||||||
| Legal and professional | 543 | 473 | 573 | 1,623 | 1,545 | ||||||
| Advertising | 360 | 431 | 345 | 1,286 | 1,585 | ||||||
| Costs (recoveries) related to unfunded lending commitments | 451 | 100 | 382 | 76 | 676 | ||||||
| Other | 1,854 | 1,919 | 1,750 | 5,610 | 5,572 | ||||||
| Total Non-interest Expense | 32,036 | 32,248 | 32,366 | 95,241 | 96,250 | ||||||
| Income Before Income Tax | 21,652 | 18,202 | 21,247 | 55,729 | 59,199 | ||||||
| Income tax expense | 4,109 | 3,412 | 3,950 | 10,405 | 10,934 | ||||||
| Net Income | $ | 17,543 | $ | 14,790 | $ | 17,297 | $ | 45,324 | $ | 48,265 | |
| Net Income Per Common Share | |||||||||||
| Basic | $ | 0.84 | $ | 0.70 | $ | 0.82 | $ | 2.16 | $ | 2.29 | |
| Diluted | $ | 0.83 | $ | 0.70 | $ | 0.81 | $ | 2.14 | $ | 2.27 |
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
| September 30,<br>2023 | June 30,<br>2023 | March 31,<br>2023 | December 31,<br>2022 | September 30, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| Net interest income | $ | 39,427 | $ | 38,350 | $ | 38,441 | $ | 40,602 | $ | 39,897 | |||||
| Provision for credit losses | 1,350 | 3,317 | 2,160 | 1,390 | 3,145 | ||||||||||
| Non-interest income | 15,611 | 15,417 | 10,551 | 11,468 | 16,861 | ||||||||||
| Non-interest expense | 32,036 | 32,248 | 30,957 | 32,091 | 32,366 | ||||||||||
| Income before income tax | 21,652 | 18,202 | 15,875 | 18,589 | 21,247 | ||||||||||
| Income tax expense | 4,109 | 3,412 | 2,884 | 3,503 | 3,950 | ||||||||||
| Net income | $ | 17,543 | $ | 14,790 | $ | 12,991 | $ | 15,086 | $ | 17,297 | |||||
| Basic earnings per share | $ | 0.84 | $ | 0.70 | $ | 0.62 | $ | 0.72 | $ | 0.82 | |||||
| Diluted earnings per share | 0.83 | 0.70 | 0.61 | 0.71 | 0.81 | ||||||||||
| Cash dividend per share | 0.23 | 0.23 | 0.23 | 0.22 | 0.22 | ||||||||||
| Average shares outstanding | 20,922,431 | 21,040,349 | 21,103,831 | 21,064,556 | 21,057,673 | ||||||||||
| Average diluted shares outstanding | 21,114,445 | 21,222,535 | 21,296,980 | 21,266,876 | 21,251,933 | ||||||||||
| Performance Ratios | |||||||||||||||
| Return on average assets | 1.34 | % | 1.18 | % | 1.06 | % | 1.21 | % | 1.40 | % | |||||
| Return on average equity | 18.68 | 16.29 | 14.77 | 17.94 | 20.48 | ||||||||||
| Efficiency ratio (1) | 57.52 | 59.26 | 62.07 | 60.82 | 56.26 | ||||||||||
| As a Percent of Average Interest-Earning Assets (1) | |||||||||||||||
| Interest income | 5.12 | % | 4.91 | % | 4.67 | % | 4.41 | % | 3.92 | % | |||||
| Interest expense | 1.87 | 1.65 | 1.34 | 0.89 | 0.43 | ||||||||||
| Net interest income | 3.25 | 3.26 | 3.33 | 3.52 | 3.49 | ||||||||||
| Average Balances | |||||||||||||||
| Loans | $ | 3,694,534 | $ | 3,567,920 | $ | 3,494,169 | $ | 3,449,944 | $ | 3,360,621 | |||||
| Securities | 1,071,211 | 1,111,670 | 1,146,075 | 1,164,809 | 1,226,203 | ||||||||||
| Total earning assets | 4,892,208 | 4,763,295 | 4,696,786 | 4,637,475 | 4,610,307 | ||||||||||
| Total assets | 5,192,114 | 5,044,746 | 4,988,440 | 4,934,859 | 4,884,841 | ||||||||||
| Deposits | 4,577,796 | 4,447,843 | 4,417,106 | 4,350,748 | 4,326,958 | ||||||||||
| Interest bearing liabilities | 3,554,179 | 3,415,621 | 3,304,868 | 3,159,374 | 3,075,210 | ||||||||||
| Shareholders' equity | 372,667 | 364,143 | 356,720 | 333,610 | 335,120 |
(1)Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%.
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data (continued)
| September 30,<br>2023 | June 30,<br>2023 | March 31,<br>2023 | December 31,<br>2022 | September 30, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| End of Period | |||||||||||||||
| Capital | |||||||||||||||
| Tangible common equity ratio | 6.67 | % | 6.75 | % | 6.60 | % | 6.37 | % | 6.15 | % | |||||
| Tangible common equity ratio excluding accumulated other comprehensive loss | 8.20 | 8.09 | 7.95 | 7.98 | 7.86 | ||||||||||
| Average equity to average assets | 7.18 | 7.22 | 7.15 | 6.76 | 6.86 | ||||||||||
| Total capital to risk-weighted assets (2) | 13.58 | 13.66 | 13.80 | 13.62 | 13.58 | ||||||||||
| Tier 1 capital to risk-weighted assets (2) | 11.36 | 11.42 | 11.53 | 11.36 | 11.29 | ||||||||||
| Common equity tier 1 capital to risk-weighted assets (2) | 10.44 | 10.46 | 10.55 | 10.38 | 10.29 | ||||||||||
| Tier 1 capital to average assets (2) | 8.93 | 8.97 | 8.92 | 8.86 | 8.77 | ||||||||||
| Common shareholders' equity per share of common stock | $ | 17.99 | $ | 17.91 | $ | 17.40 | $ | 16.50 | $ | 15.78 | |||||
| Tangible common equity per share of common stock | 16.53 | 16.45 | 15.94 | 15.04 | 14.30 | ||||||||||
| Total shares outstanding | 20,850,455 | 20,943,694 | 21,138,303 | 21,063,971 | 21,063,954 | ||||||||||
| Selected Balances | |||||||||||||||
| Loans | $ | 3,741,486 | $ | 3,631,114 | $ | 3,509,809 | $ | 3,465,352 | $ | 3,409,858 | |||||
| Securities | 1,043,540 | 1,092,703 | 1,137,103 | 1,154,165 | 1,183,701 | ||||||||||
| Total earning assets | 4,884,720 | 4,830,185 | 4,860,696 | 4,688,246 | 4,633,876 | ||||||||||
| Total assets | 5,200,018 | 5,135,564 | 5,138,934 | 4,999,787 | 4,931,377 | ||||||||||
| Deposits | 4,585,612 | 4,487,636 | 4,544,749 | 4,379,069 | 4,327,028 | ||||||||||
| Interest bearing liabilities | 3,573,187 | 3,501,280 | 3,481,511 | 3,274,409 | 3,116,027 | ||||||||||
| Shareholders' equity | 374,998 | 375,162 | 367,714 | 347,596 | 332,308 |
(2)September 30, 2023 are Preliminary.
Reconciliation of Non-GAAP Financial Measures
Independent Bank Corporation
Independent Bank Corporation believes non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate the adequacy of common equity and performance trends. Tangible common equity is used by the Company to measure the quality of capital.
Reconciliation of Non-GAAP Financial Measures
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||||||
| (Dollars in thousands) | ||||||||||||
| Net Interest Margin, Fully Taxable Equivalent ("FTE") | ||||||||||||
| Net interest income | $ | 39,427 | $ | 39,897 | $ | 116,218 | $ | 108,959 | ||||
| Add: taxable equivalent adjustment | 422 | 462 | 1,284 | 1,425 | ||||||||
| Net interest income - taxable equivalent | $ | 39,849 | $ | 40,359 | $ | 117,502 | $ | 110,384 | ||||
| Net interest margin (GAAP) (1) | 3.21 | % | 3.45 | % | 3.25 | % | 3.21 | % | ||||
| Net interest margin (FTE) (1) | 3.25 | % | 3.49 | % | 3.28 | % | 3.25 | % |
(1)Annualized.
Tangible Common Equity Ratio
| September 30,<br>2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Common shareholders' equity | $ | 374,998 | $ | 375,162 | $ | 367,714 | $ | 347,596 | $ | 332,308 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 2,141 | 2,278 | 2,415 | 2,551 | 2,697 | ||||||||||
| Tangible common equity | 344,557 | 344,584 | 336,999 | 316,745 | 301,311 | ||||||||||
| Addition: | |||||||||||||||
| Accumulated other comprehensive loss for regulatory purposes | 86,507 | 74,712 | 75,013 | 86,966 | 91,248 | ||||||||||
| Tangible common equity excluding other comprehensive loss adjustments | $ | 431,064 | $ | 419,296 | $ | 412,012 | $ | 403,711 | $ | 392,559 | |||||
| Total assets | $ | 5,200,018 | $ | 5,135,564 | $ | 5,138,934 | $ | 4,999,787 | $ | 4,931,377 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 2,141 | 2,278 | 2,415 | 2,551 | 2,697 | ||||||||||
| Tangible assets | 5,169,577 | 5,104,986 | 5,108,219 | 4,968,936 | 4,900,380 | ||||||||||
| Addition: | |||||||||||||||
| Net unrealized losses on available for sale securities and derivatives, net of tax | 86,507 | 74,712 | 75,013 | 86,966 | 91,248 | ||||||||||
| Tangible assets excluding other comprehensive loss adjustments | $ | 5,256,084 | $ | 5,179,698 | $ | 5,183,232 | $ | 5,055,902 | $ | 4,991,628 | |||||
| Common equity ratio | 7.21 | % | 7.31 | % | 7.16 | % | 6.95 | % | 6.74 | % | |||||
| Tangible common equity ratio | 6.67 | % | 6.75 | % | 6.60 | % | 6.37 | % | 6.15 | % | |||||
| Tangible common equity ratio excluding other comprehensive loss | 8.20 | % | 8.09 | % | 7.95 | % | 7.98 | % | 7.86 | % | |||||
| Tangible Common Equity per Share of Common Stock: | |||||||||||||||
| Common shareholders' equity | $ | 374,998 | $ | 375,162 | $ | 367,714 | $ | 347,596 | $ | 332,308 | |||||
| Tangible common equity | $ | 344,557 | $ | 344,584 | $ | 336,999 | $ | 316,745 | $ | 301,311 | |||||
| Shares of common stock outstanding (in thousands) | 20,850 | 20,944 | 21,138 | 21,064 | 21,064 | ||||||||||
| Common shareholders' equity per share of common stock | $ | 17.99 | $ | 17.91 | $ | 17.40 | $ | 16.50 | $ | 15.78 | |||||
| Tangible common equity per share of common stock | $ | 16.53 | $ | 16.45 | $ | 15.94 | $ | 15.04 | $ | 14.30 |
The tangible common equity ratio removes the effect of goodwill and other intangible assets from capital and total assets. Tangible common equity per share of common stock removes the effect of goodwill and other intangible assets from common shareholders’ equity per share of common stock.
9
Document
Exhibit 99.2
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Supplemental Data
Non-performing assets
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Non-accrual loans | $ | 6,969 | $ | 6,876 | $ | 6,216 | $ | 5,381 | $ | 5,307 | |||||
| Loans 90 days or more past due and still accruing interest | — | — | — | — | — | ||||||||||
| Subtotal | 6,969 | 6,876 | 6,216 | 5,381 | 5,307 | ||||||||||
| Less: Government guaranteed loans | 2,254 | 2,882 | 2,330 | 1,660 | 1,491 | ||||||||||
| Total non-performing loans | 4,715 | 3,994 | 3,886 | 3,721 | 3,816 | ||||||||||
| Other real estate and repossessed assets | 443 | 658 | 499 | 455 | 348 | ||||||||||
| Total non-performing assets | $ | 5,158 | $ | 4,652 | $ | 4,385 | $ | 4,176 | $ | 4,164 | |||||
| As a percent of Portfolio Loans | |||||||||||||||
| Non-performing loans | 0.13 | % | 0.11 | % | 0.11 | % | 0.11 | % | 0.11 | % | |||||
| Allowance for credit losses | 1.48 | 1.49 | 1.44 | 1.51 | 1.50 | ||||||||||
| Non-performing assets to total assets | 0.10 | 0.09 | 0.09 | 0.08 | 0.08 | ||||||||||
| Allowance for credit losses as a percent of non-performing loans | 1,176.99 | 1,351.13 | 1,300.82 | 1,409.16 | 1,340.20 |
Allowance for credit losses
| Nine months ended September 30, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||||||||||
| Loans | Securities | Unfunded<br>Commitments | Loans | Securities | Unfunded<br>Commitments | |||||||||
| (Dollars in thousands) | ||||||||||||||
| Balance at beginning of period | $ | 52,435 | $ | 168 | $ | 5,080 | $ | 47,252 | $ | — | $ | 4,481 | ||
| Additions (deductions) | ||||||||||||||
| Provision for credit losses | 3,840 | 2,987 | — | 3,783 | 168 | — | ||||||||
| Recoveries credited to allowance | 2,082 | — | — | 2,004 | — | — | ||||||||
| Assets charged against the allowance | (2,862) | (3,000) | — | (1,897) | — | — | ||||||||
| Additions included in non-interest expense | — | — | 76 | — | — | 676 | ||||||||
| Balance at end of period | $ | 55,495 | $ | 155 | $ | 5,156 | $ | 51,142 | $ | 168 | $ | 5,157 | ||
| Net loans charged (recovered) against the allowance to average Portfolio Loans | 0.03 | % | 0.00 | % | ||||||||||
| 1 | ||||||||||||||
| --- |
Capitalization
| September 30, 2023 | December 31, 2022 | |||
|---|---|---|---|---|
| (In thousands) | ||||
| Subordinated debt | $ | 39,491 | $ | 39,433 |
| Subordinated debentures | 39,711 | 39,660 | ||
| Amount not qualifying as regulatory capital | (715) | (657) | ||
| Amount qualifying as regulatory capital | 78,487 | 78,436 | ||
| Shareholders’ equity | ||||
| Common stock | 317,145 | 320,991 | ||
| Retained earnings | 150,157 | 119,368 | ||
| Accumulated other comprehensive income (loss) | (92,304) | (92,763) | ||
| Total shareholders’ equity | 374,998 | 347,596 | ||
| Total capitalization | $ | 453,485 | $ | 426,032 |
Non-Interest Income
| Three months ended | Nine months ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2023 | June 30, 2023 | September 30, 2022 | September 30, | ||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Interchange income | $ | 4,100 | $ | 3,355 | $ | 4,049 | $ | 10,660 | $ | 10,553 | |
| Service charges on deposit accounts | 3,309 | 3,134 | 3,082 | 9,300 | 9,135 | ||||||
| Net gains (losses) on assets | |||||||||||
| Mortgage loans | 2,099 | 2,120 | 2,857 | 5,475 | 4,945 | ||||||
| Securities | — | — | — | (222) | (275) | ||||||
| Mortgage loan servicing, net | 2,668 | 3,674 | 4,283 | 7,068 | 18,086 | ||||||
| Investment and insurance commissions | 875 | 744 | 750 | 2,446 | 2,170 | ||||||
| Bank owned life insurance | 124 | 98 | 59 | 333 | 302 | ||||||
| Other | 2,436 | 2,292 | 1,781 | 6,519 | 5,525 | ||||||
| Total non-interest income | $ | 15,611 | $ | 15,417 | $ | 16,861 | $ | 41,579 | $ | 50,441 |
Capitalized Mortgage Loan Servicing Rights
| Three months ended September 30, | Nine months ended September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| (In thousands) | ||||||||
| Balance at beginning of period | $ | 44,427 | $ | 39,477 | $ | 42,489 | $ | 26,232 |
| Originated servicing rights capitalized | 1,159 | 1,588 | 3,112 | 5,237 | ||||
| Change in fair value | 471 | 2,093 | 456 | 11,689 | ||||
| Balance at end of period | $ | 46,057 | $ | 43,158 | $ | 46,057 | $ | 43,158 |
| 2 | ||||||||
| --- |
Mortgage Loan Activity
| Three months ended | Nine months ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2023 | June 30, 2023 | September 30, 2022 | September 30, | |||||||||||||
| 2023 | 2022 | |||||||||||||||
| (Dollars in thousands) | ||||||||||||||||
| Mortgage loans originated | $ | 172,914 | $ | 160,515 | $ | 209,041 | $ | 446,450 | $ | 796,918 | ||||||
| Mortgage loans sold | 115,269 | 99,025 | 157,511 | 321,140 | 522,213 | |||||||||||
| Net gains on mortgage loans | 2,099 | 2,120 | 2,857 | 5,475 | 4,945 | |||||||||||
| Net gains as a percent of mortgage loans sold ("Loan Sales Margin") | 1.82 | % | 2.14 | % | 1.81 | % | 1.70 | % | 0.95 | % | ||||||
| Fair value adjustments included in the Loan Sales Margin | (0.32) | % | 1.03 | % | 0.25 | % | 0.60 | % | (0.54) | % |
Non-Interest Expense
| Three months ended | Nine months ended | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| September 30, 2023 | June 30, 2023 | September 30, 2022 | September 30, | ||||||||
| 2023 | 2022 | ||||||||||
| (In thousands) | |||||||||||
| Compensation | $ | 13,054 | $ | 13,523 | $ | 12,839 | $ | 39,846 | $ | 37,807 | |
| Performance-based compensation | 2,955 | 3,220 | 4,290 | 8,420 | 11,728 | ||||||
| Payroll taxes and employee benefits | 3,966 | 3,859 | 3,472 | 11,650 | 11,078 | ||||||
| Compensation and employee benefits | 19,975 | 20,602 | 20,601 | 59,916 | 60,613 | ||||||
| Data processing | 3,071 | 2,891 | 2,653 | 8,953 | 7,513 | ||||||
| Occupancy, net | 1,971 | 1,845 | 2,062 | 5,975 | 6,682 | ||||||
| Interchange expense | 1,119 | 1,054 | 927 | 3,222 | 3,200 | ||||||
| Furniture, fixtures and equipment | 927 | 929 | 987 | 2,782 | 3,074 | ||||||
| FDIC deposit insurance | 677 | 749 | 591 | 2,209 | 1,570 | ||||||
| Communications | 568 | 635 | 723 | 1,871 | 2,242 | ||||||
| Loan and collection | 520 | 473 | 772 | 1,718 | 1,978 | ||||||
| Legal and professional | 543 | 620 | 573 | 1,623 | 1,545 | ||||||
| Advertising | 360 | 431 | 345 | 1,286 | 1,585 | ||||||
| Amortization of intangible assets | 136 | 137 | 174 | 410 | 639 | ||||||
| Supplies | 135 | 122 | 147 | 363 | 431 | ||||||
| Correspondent bank service fees | 56 | 59 | 75 | 178 | 232 | ||||||
| Costs related to unfunded lending commitments | 451 | 100 | 382 | 76 | 676 | ||||||
| Provision for loss reimbursement on sold loans | 7 | 4 | 12 | 21 | 57 | ||||||
| Net (gains) losses on other real estate and repossessed assets | 1 | 63 | (18) | 18 | (214) | ||||||
| Other | 1,519 | 1,534 | 1,360 | 4,620 | 4,427 | ||||||
| Total non-interest expense | $ | 32,036 | $ | 32,248 | $ | 32,366 | $ | 95,241 | $ | 96,250 | |
| 3 | |||||||||||
| --- |
Average Balances and Tax Equivalent Rates
| Three Months Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||||||||
| Average<br>Balance | Interest | Rate (2) | Average<br>Balance | Interest | Rate (2) | |||||||
| (Dollars in thousands) | ||||||||||||
| Assets | ||||||||||||
| Taxable loans | $ | 3,687,637 | $ | 51,352 | 5.54 | % | $ | 3,353,102 | $ | 37,019 | 4.39 | % |
| Tax-exempt loans (1) | 6,897 | 85 | 4.89 | 7,519 | 92 | 4.85 | ||||||
| Taxable securities | 755,054 | 5,865 | 3.11 | 891,677 | 5,329 | 2.39 | ||||||
| Tax-exempt securities (1) | 316,157 | 3,813 | 4.82 | 334,526 | 2,727 | 3.26 | ||||||
| Interest bearing cash | 108,389 | 1,468 | 5.37 | 5,830 | 28 | 1.91 | ||||||
| Other investments | 18,074 | 271 | 5.95 | 17,653 | 192 | 4.32 | ||||||
| Interest Earning Assets | 4,892,208 | 62,854 | 5.12 | 4,610,307 | 45,387 | 3.92 | ||||||
| Cash and due from banks | 61,094 | 62,340 | ||||||||||
| Other assets, net | 238,812 | 212,194 | ||||||||||
| Total Assets | $ | 5,192,114 | $ | 4,884,841 | ||||||||
| Liabilities | ||||||||||||
| Savings and interest-bearing checking | 2,598,170 | 12,272 | 1.87 | 2,548,213 | 2,803 | 0.44 | ||||||
| Time deposits | 816,810 | 8,471 | 4.11 | 402,466 | 822 | 0.81 | ||||||
| Other borrowings | 139,199 | 2,262 | 6.45 | 124,531 | 1,403 | 4.47 | ||||||
| Interest Bearing Liabilities | 3,554,179 | 23,005 | 2.57 | % | 3,075,210 | 5,028 | 0.65 | |||||
| Non-interest bearing deposits | 1,162,816 | 1,376,279 | ||||||||||
| Other liabilities | 102,452 | 98,232 | ||||||||||
| Shareholders’ equity | 372,667 | 335,120 | ||||||||||
| Total liabilities and shareholders’ equity | $ | 5,192,114 | $ | 4,884,841 | ||||||||
| Net Interest Income | $ | 39,849 | $ | 40,359 | ||||||||
| Net Interest Income as a Percent of Average Interest Earning Assets | 3.25 | % | 3.49 | % | ||||||||
| (1) | Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 21%. | |||||||||||
| --- | --- | |||||||||||
| (2) | Annualized | |||||||||||
| 4 | ||||||||||||
| --- |
Average Balances and Tax Equivalent Rates
| Nine Months Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||||||||
| Average<br>Balance | Interest | Rate | Average<br>Balance | Interest | Rate (2) | |||||||
| (Dollars in thousands) | ||||||||||||
| Assets | ||||||||||||
| Taxable loans | $ | 3,579,569 | $ | 143,203 | 5.34 | % | $ | 3,155,410 | $ | 96,742 | 4.09 | % |
| Tax-exempt loans (1) | 6,705 | 239 | 4.77 | 7,922 | 281 | 4.74 | ||||||
| Taxable securities | 788,654 | 17,668 | 2.99 | 978,668 | 14,831 | 2.02 | ||||||
| Tax-exempt securities (1) | 320,724 | 11,009 | 4.58 | 336,123 | 6,950 | 2.76 | ||||||
| Interest bearing cash | 71,355 | 2,769 | 5.19 | 36,761 | 94 | 0.34 | ||||||
| Other investments | 17,805 | 712 | 5.35 | 17,806 | 557 | 4.18 | ||||||
| Interest Earning Assets | 4,784,812 | 175,600 | 4.90 | 4,532,690 | 119,455 | 3.52 | ||||||
| Cash and due from banks | 59,163 | 59,851 | ||||||||||
| Other assets, net | 231,872 | 196,406 | ||||||||||
| Total Assets | $ | 5,075,847 | $ | 4,788,947 | ||||||||
| Liabilities | ||||||||||||
| Savings and interest-bearing checking | 2,550,973 | 31,644 | 1.66 | 2,528,655 | 4,232 | 0.22 | ||||||
| Time deposits | 745,983 | 20,320 | 3.64 | 365,245 | 1,376 | 0.50 | ||||||
| Other borrowings | 128,846 | 6,134 | 6.37 | 116,774 | 3,463 | 3.96 | ||||||
| Interest Bearing Liabilities | 3,425,802 | 58,098 | 2.27 | % | 3,010,674 | 9,071 | 0.40 | |||||
| Non-interest bearing deposits | 1,184,548 | 1,342,228 | ||||||||||
| Other liabilities | 100,929 | 88,281 | ||||||||||
| Shareholders’ equity | 364,568 | 347,764 | ||||||||||
| Total liabilities and shareholders’ equity | $ | 5,075,847 | $ | 4,788,947 | ||||||||
| Net Interest Income | $ | 117,502 | $ | 110,384 | ||||||||
| Net Interest Income as a Percent of Average Interest Earning Assets | 3.28 | % | 3.25 | % | ||||||||
| (1) | Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 21%. | |||||||||||
| --- | --- | |||||||||||
| 5 | ||||||||||||
| --- |
Commercial Loan Portfolio Analysis as of September 30, 2023
| Total Commercial Loans | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of Loan Category in Watch Credit | |||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | ||||||
| (Dollars in thousands) | ||||||||||
| Land | $ | 10,101 | $ | 9 | $ | — | $ | 9 | 0.1 | % |
| Land Development | 17,268 | — | — | — | — | |||||
| Construction | 117,206 | — | — | — | — | |||||
| Income Producing | 581,938 | 21,439 | — | 21,439 | 3.7 | |||||
| Owner Occupied | 452,772 | 20,506 | — | 20,506 | 4.5 | |||||
| Total Commercial Real Estate Loans | $ | 1,179,285 | $ | 41,954 | $ | — | $ | 41,954 | 3.6 | |
| Other Commercial Loans | $ | 446,836 | $ | 19,388 | 31 | $ | 19,419 | 4.3 | ||
| Total non-performing commercial loans | $ | 31 |
Commercial Loan Portfolio Analysis as of December 31, 2022
| Total Commercial Loans | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of Loan Category in Watch Credit | |||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | ||||||||
| (Dollars in thousands) | ||||||||||||
| Land | $ | 9,285 | $ | 180 | $ | — | $ | 180 | 1.9 | % | ||
| Land Development | 16,220 | — | — | — | — | |||||||
| Construction | 114,277 | — | — | — | — | |||||||
| Income Producing | 469,696 | 6,177 | — | 6,177 | 1.3 | |||||||
| Owner Occupied | 426,404 | 16,525 | — | 16,525 | 3.9 | |||||||
| Total Commercial Real Estate Loans | $ | 1,035,882 | $ | 22,882 | $ | — | $ | 22,882 | 2.2 | |||
| Other Commercial Loans | $ | 430,971 | $ | 9,157 | 38 | $ | 9,195 | 2.1 | ||||
| Total non-performing commercial loans | $ | 38 | 6 | |||||||||
| --- |
ibcp20233qearningsdeck
Earnings Call: Third Quarter 2023 October 24, 2023 (NASDAQ: IBCP)
Cautionary note regarding forward-looking statements This presentation contains forward-looking statements, which are any statements or information that are not historical facts. These forward-looking statements include statements about our anticipated future revenue and expenses and our future plans and prospects. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. For example, deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding to us, lead to a tightening of credit, and increase stock price volatility. Our results could also be adversely affected by changes in interest rates; increases in unemployment rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of our investment securities; legal and regulatory developments; changes in customer behavior and preferences; breaches in data security; and management’s ability to effectively manage the multitude of risks facing our business. Key risk factors that could affect our future results are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2022 and the other reports we file with the SEC, including under the heading “Risk Factors.” Investors should not place undue reliance on forward-looking statements as a prediction of our future results. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. 2 2
• Formal Remarks − William B. (Brad) Kessel President and Chief Executive Officer − Gavin A. Mohr Executive Vice President and Chief Financial Officer − Joel Rahn Executive Vice President – Commercial Banking • Question and Answer session • Closing Remarks Note: This presentation is available at www.IndependentBank.com in the Investor Relations area under the “Presentations” tab. Agenda 3
3Q23 Overview • Total deposits increased at a 10.5% annualized rate • Total loans increased 12% annualized while maintaining disciplined approach to new loan production • New loan production largely focused on new commercial clients that bring deposits to the bank • Asset quality remained exceptional with NPAs/Total Assets at 0.10% and net recoveries in the quarter • Continued rotation into higher yielding assets helped to offset an increase in deposit costs and keep net interest margin relatively stable at 3.25% compared to 3.26% in 2Q’23. • Disciplined expense control results in efficiency ratio improving to 57.5% from 59.3% in 3Q23 • ROAA improved to 1.34% from 1.18% in prior quarter, while ROAE improved to 18.7% from 16.3% • Total Capital Ratio of 13.6% • Strong capital position enabled company to be opportunistic and repurchase 88,401 shares at an average price per share of $19.15. • Balance sheet liquidity remains high with loan-to-deposit ratio of 82% • Net income of $17.5 million, or $0.83 per diluted share, compared to $17.3 million, or $0.81 per diluted share, in 3Q22 • Pre-tax, pre-provision income of $23.0 million, an increase of 7% from $21.5 million in 2Q23 • Increases in both net interest income and non-interest income compared to 2Q23 • Strong profitability and prudent balance sheet management results in further growth in tangible book value per share Healthy Capital & Liquidity Positions Positive Trends in Key Metrics Strong Balance Sheet Supports Continued Loan Growth 3Q’23 Earnings 4
Low-Cost Deposit Franchise Focused on Core Deposit Growth • Substantial core funding – $3.87 billion of non-maturity deposit accounts (84.4% of total deposits). • Core deposit increase of $112.6 million (10.5% annualized) in 3Q’23. • Total deposits increased $206.5 million (6.3% annualized) since 12/31/22 with non-interest bearing down $128.1 million, savings and interest- bearing checking down $43.4 million, reciprocal up $197.3 million, time up $156.4 million and brokered time up $24.3 million. • Deposits by Customer Type: − Retail – 48.3% − Commercial – 35.3% − Municipal – 16.4% Deposit Composition 9/30/23 Cost of Deposits (%)/Total Deposits ($B) Core Deposits: 84.4% Non-interest Bearing 25% Savings and Interest- bearing Checking 42% Reciprocal 17% Time 10% Brokered 5% 5 $ 3 .9 $ 4 .1 $ 4 .1 $ 4 .2 $ 4 .3 $ 4 .3 $ 4 .4 $ 4 .5 $ 4 .5 $ 4 .6 0 .1 2 % 0 .1 1 % 0 .0 9 % 0 .0 7 % 0 .1 1 % 0 .3 3 % 0 .7 8 % 1 .2 6 % 1 .5 7 % 1 .8 0 % Q 2 '2 1 Q 3 '2 1 Q 4 '2 1 Q 1 '2 2 Q 2 '2 2 Q 3 '2 2 Q 4 '2 2 Q 1 '2 3 Q 2 '2 3 Q 3 '2 3 Total Deposits Cost Of Deposits $4.6B
Historic IBC Cost of Funds (excluding sub debt) vs. the Federal Funds Rate (with Deposit Balances) D e p o s it B a la n c e s ( $ i n t h o u s a n d s ) 6 0 .2 7 % 0 .2 7 % 0 .2 8 % 0 .3 3 % 0 .3 6 % 0 .4 2 % 0 .5 1 % 0 .6 0 % 0 .7 3 % 0 .8 2 % 0 .8 5 % 0 .8 5 % 0 .7 4 % 0 .6 3 % 0 .3 0 % 0 .2 3 % 0 .3 9 % 0 .1 4 % 0 .1 2 % 0 .1 1 % 0 .1 0 % 0 .1 0 % 0 .1 2 % 0 .3 3 % 0 .7 9 % 1 .2 5 % 1 .5 7 % 1 .8 0 % 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% D e c -1 6 M a r- 1 7 J u n -1 7 S e p -1 7 D e c -1 7 M a r- 1 8 J u n -1 8 S e p -1 8 D e c -1 8 M a r- 1 9 J u n -1 9 S e p -1 9 D e c -1 9 M a r- 2 0 J u n -2 0 S e p -2 0 D e c -2 0 M a r- 2 1 J u n -2 1 S e p -2 1 D e c -2 1 M a r- 2 2 J u n -2 2 S e p -2 2 D e c -2 2 M a r- 2 3 J u n -2 3 S e p -2 3 IB COF Fed Funds Spot Fed Effective Total Deposits F e d e ra l F u n d s R a te Cumulative Cycle Beta = 32.6%
Diversified Loan Portfolio Focused on High Quality Growth • Portfolio loan changes in 3Q’23: − Commercial – increased $88.0 million. …Average new origination yield of 7.52% vs a 6.72% portfolio yield. − Mortgage – increased $34.5 million. …Average new origination yield of 7.17% vs a 4.57% portfolio yield. − Installment – decreased $12.1 million. …Average new origination yield of 8.23% vs a 5.40% portfolio yield. • Mortgage loan portfolio weighted average FICO of 754 and average balance of $181,980. • Installment weighted average FICO of 758 and average balance of $26,052. • Commercial loan rate mix: − 49% fixed / 51% variable. − Indices – 56% tied to Prime, 1% tied to a US Treasury rate and 43% tied to SOFR. • Mortgage loan (including HELOC) rate mix: − 62% fixed / 38% adjustable or variable. − 22% tied to Prime, 10% tied to a US Treasury rate and 69% tied to SOFR. Note: Portfolio loans exclude loans HFS. Loan Composition 9/30/23 Yield on Loans (%)/ Total Portfolio Loans ($B) Commercial 43% Mortgage 39% Installment 17% Held for Sale 0% 7 $2.8 $2.9 $2.9 $3.0 $3.3 $3.4 $3.4 $3.5 $3.6 $3.7 3 .9 5 % 4 .1 3 % 4 .0 8 % 3 .8 2 % 4 .0 1 % 4 .3 9 % 4 .9 0 % 5 .0 7 % 5 .3 6 % 5 .5 3 % Q 2 '2 1 Q 3 '2 1 Q 4 '2 1 Q 1 '2 2 Q 2 '2 2 3 Q '2 2 4 Q '2 2 1 Q '2 3 2 Q '2 3 3 Q '2 3 Total Portfolio Loans Yield on Loans $3.7B
9% $149 9% $147 6% $99 6% $90 5% $73 4% $71 3% $54 3% $51 3% $43 $40 $40 $40 $35 $30 $73 Manufacturing Construction Health Care and Social Assistance Retail Hotel and Accomodations Real Estate Rental and Leasing Transportation Other Services (except Public Administration) Wholesale Professional, Scientific, and Technical Services Arts, Entertainment, and Recreation Food Service Finance and Insurance Assisted Living Concentrations within $1.6B Commercial Loan Portfolio Loans by Industry as a % of Total Commercial Loans ($ in millions) Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) Note: $1.03 billion, or 63.6% of the commercial loan portfolio is C&I or owner occupied, while $592 million, or 36.4% is investment real estate. The percentage concentrations are based on the entire commercial portfolio of $1.63 billion as of September 30, 2023 8 $1.03B 10.18%, Commercial Industrial, $157 8.87%, Retail, $136 6.08%, Office, $93 5.23%, Construction, $80 3.23%, Multifamily, $50 2.50%, 1-4 Family, $38 1.75%, Land, Vacant Land and Development, $27 0.68%, Special Purpose, $10 $592MM
$5.0 $1.6 $1.3 $1.9 $0.8 $0.2 $0.5 $0.5 $0.7 $0.4 $- $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 2016 2017 2018 2019 2020 2021 2022 Q1'23 Q2'23 Q3'23 Note 1: Non-performing loans and non-performing assets exclude troubled debt restructurings that are performing. Note 2: 12/31/16 30 to 89 days delinquent data excludes $1.63 million of payment plan receivables that were held for sale. 9 Credit Quality Summary Non-performing Loans ($ in Millions) ORE/ORA ($ in Millions) 30 to 89 Days Delinquent ($ in Millions) Non-performing Assets ($ in Millions) 9 $13.4 $8.2 $8.6 $9.5 $7.9 $5.1 $3.7 $3.9 $4.0 $4.7 0.4% 0.3% 0.3% 0.3% 0.2% 0.1% 0.1% 0.1% 0.1% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 2016 2017 2018 2019 2020 2021 2022 Q1'23 Q2'23 Q3'23 Non-performing Loans (NPLs) NPLs / Total Loans $13.4 $8.2 $9.0 $9.5 $7.9 $5.1 $3.7 $3.9 $4.0 5.2 $5.0 $1.6 $1.3 $1.9 $0.8 $0.2 $0.5 $0.5 $0.7 0.4 $- $5.0 $10.0 $15.0 $20.0 2016 2017 2018 2019 2020 2021 2022 Q1'23 Q2'23 Q3'23 Non-performing Loans 90+ Days PD ORE/ORA $5.3 $4.8 $4.4 $7.2 $13.2 $2.3 $3.1 $1.9 $4.4 $4.9 0.3% 0.2% 0.2% 0.3% 0.5% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% $- $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 2016 2017 2018 2019 2020 2021 2022 Q1'23 Q2'23 Q3'23 30-89 Days PD 30-89 Days PD / Total Loans
• Long-term capital Priorities: Capital retention to support organic growth, acquisitions and return of capital through strong and consistent dividends and share repurchases. • Well capitalized in all regulatory capital measurements. • Tangible common equity ratio excluding the impact of unrealized losses on securities AFS and HTM is 8.2% Strong Capital Position TCE / TA (%) Leverage Ratio (%) CET1 Ratio (%) Total RBC Ratio (%) 10 6.3 6.2 6.4 6.6 6.7 6.7 Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Q3'23 8.7 8.8 8.9 8.9 8.9 8.9 Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Q3'23 10.3 10.3 10.4 10.6 10.4 10.4 Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Q3'23 13.7 13.5 13.6 13.8 13.6 13.6 Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Q3'23
$30.2 $30.5 $32.0 $31.0 $30.3 $31.4 $33.8 $34.3 $33.0 $36.1 $39.9 $40.6 $38.4 $38.4 $39.4 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Q3'23 3.63 3.36 3.31 3.12 3.05 3.02 3.18 3.13 3.00 3.26 3.49 3.52 3.33 3.26 3.25 1.26 0.06 0.09 0.09 0.08 0.07 0.08 0.08 0.12 0.77 2.18 3.65 4.38 4.99 5.26 0.63 0.30 0.23 0.39 .14 .12 .11 .10 . 0 0.12 0.45 0.92 1.39 1.72 1.93 0 1 2 3 4 5 6 Q 1 '2 0 Q 2 '2 0 Q 3 '2 0 Q 4 '2 0 Q 1 '2 1 Q 2 '2 1 Q 3 '2 1 Q 4 '2 1 Q 1 '2 2 Q 2 '2 2 Q 3 '2 2 Q 4 '2 2 Q 1 '2 3 Q 2 '2 3 Q 3 '2 3 Net Interest Margin (FTE) Average Effective FF Yield Cost of Funds Net Interest Margin/Income • Net interest income was $39.4 million in 3Q’23 compared to $39.9 million in the prior year quarter. A decrease in the net interest margin was partially offset by an increase in average earnings assets. • Net interest margin was 3.25% during the third quarter of 2023, compared to 3.49% in the year- ago quarter and 3.26% in the second quarter of 2023. Yields, NIM and Cost of Funds (%) Net Interest Income ($ in Millions) 11
3Q’23 NIM Changes Linked Quarter Average Balances and FTE Rates ($ in thousands) Linked Quarter Analysis Q2'23 3.26% Change in earning asset mix 0.05% Increase in loan and investment yield 0.16% Change in funding mix -0.03% Increase in funding costs -0.19% Q3'23 3.25% 3Q23 2Q23 Change Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Cash $108,389 $1,468 5.37% $66,023 $837 5.08% $42,366 $631 0.29% Investments 1,089,285 9,949 3.65% 1,129,352 9,839 3.49% (40,067) 110 0.17% Commercial loans 1,566,874 26,804 6.79% 1,483,042 24,616 6.66% 83,832 2,188 0.14% Mortgage loans 1,479,029 16,941 4.58% 1,442,710 16,049 4.45% 36,319 892 0.14% Consumer loans 648,631 7,692 4.70% 642,168 7,030 4.39% 6,463 662 0.31% Earning assets $4,892,208 $62,854 5.12% $4,763,295 $58,371 4.91% $128,913 $4,483 0.21% Nonmaturity deposits $2,598,170 $12,272 1.87% $2,519,009 $10,515 1.67% $79,161 1,757 0.21% CDARS deposits 96,409 989 4.07% 84,466 806 3.83% 11,943 183 0.24% Retail Time deposits 452,585 3,970 3.48% 417,281 2,989 2.87% 35,304 981 0.61% Brokered deposits 267,816 3,512 5.20% 259,958 3,151 4.86% 7,858 361 0.34% Bank borrowings 60,017 794 5.25% 55,762 728 5.24% 4,255 66 0.01% IBC debt 79,182 1,468 7.36% 79,145 1,409 7.14% 37 59 0.21% Cost of funds $3,554,179 $23,005 2.57% $3,415,621 $19,598 2.30% $138,558 $3,407 0.27% Free funds $1,338,029 $1,347,674 ($9,645) Net interest income $39,849 $38,773 $1,076 Net interest margin 3.25% 3.26% -0.01% 12
Interest Rate Risk Management • The increase in the base case modeled NII is due to an improvement in asset mix with an increase in loans and a decline in investments along with a slight benefit from higher rates. These improvements were partially offset by an adverse shift in the funding mix. • The NII sensitivity profile is largely unchanged during the quarter for smaller rate changes of +/- 100 basis points. The exposure to rising rates decreased modestly for larger rate increases. • Base-rate is a static balance sheet applying the spot yield curve from the valuation date. • Stable core funding base. Transaction accounts fund 38.9% of assets and other non-maturity deposits fund another 20.2% of assets. Moderate wholesale funding of just 7.0% of assets. • 32.0% of assets reprice in 1 month and 44.2% reprice in the next 12 months. • Continually evaluating strategies to manage NII through hedging as well as product pricing and structure. Changes in Net Interest Income (Dollars in 000’s) Simulation analyses calculate the change in net interest income over the next twelve months, under immediate parallel shifts in interest rates, based upon a static statement of financial condition, which includes derivative instruments, and does not consider loan fees. 13 September 30, 2023 -200 -100 Base-rate 100 200 Net Interest Income $169,475 $171,069 $172,118 $171,200 $169,245 Change from Base -1.54% -0.61% -0.53% -1.67% June 30, 2023 -200 -100 Base-rate 100 200 Net Interest Income $163,427 $164,904 $165,282 $164,068 $161,807 Change from Base -1.12% -0.23% -0.73% -2.10%
$19.7 $15.8 $18.9 $14.6 $16.9 $11.5 $10.5 $15.4 $15.6 3 6 .8 % 3 0 .3 % 3 5 .4 % 2 7 .6 % 2 7 .3 % 1 8 .4 % 1 6 .4 % 1 8 .4 % 2 0 .0 % -5.0 5.0 15.0 25.0 35.0 45.0 55.0 $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 Q 3 '2 1 Q 4 '2 1 Q 1 '2 2 Q 2 '2 2 Q 3 '2 2 Q 4 '2 2 Q 1 '2 3 Q 2 '2 3 Q 3 '2 3 Non-interest Income Non-interest Inc/Operating Rev (%) Strong Non-interest Income • The $1.6 million comparative quarterly decrease in mortgage loan servicing; net is primarily attributed to changes in the fair value of capitalized mortgage loan servicing rights associated with changes in mortgage loan interest rates and expected future prepayment levels. • Mortgage banking: − $2.1 million in net gains on mortgage loans in 3Q’23 vs. $2.9 million in the year ago quarter. The decrease is primarily due to lower mortgage loan sales volume that was partially offset by increased profit margins and fair value adjustments. − $172.9 million in mortgage loan originations in 3Q’23 vs. $209.0 million in 3Q’22 and $160.5 million in 2Q’23. − 3Q’23 mortgage loan servicing includes a $1.6 million ($0.06 per diluted share, after tax) increase in fair value adjustment due to price compared to an increase of $3.2 million ($0.12 per diluted share, after tax) in the year ago quarter. Source: Company documents. 3Q23 Non-interest Income (thousands) Non-interest Income Trends ($M) Interchange income $4,100 Service Chg Dep $3,309 Gain (Loss)- Mortgage Sale $2,099 Gain (Loss)- Securities $- Mortgage loan servicing, net $2,668 Investment & insurance commissions $875 Bank owned life insurance $124 Other income $2,436 14 $15.6M
Focus on Improved Efficiency • 3Q’23 efficiency ratio of 57.5%. • Compensation and employee benefits expense of $20.0 million, an decrease of $0.6 million from the prior year quarter. • Compensation (salaries and wages) increased $0.2 million due to raises that were generally effective at the start of the year, a decreased level of compensation that was deferred in the third quarter of 2023 as direct origination costs (lower mortgage loan origination volume). • $1.3 million decrease in performance-based compensation expense. • Payroll taxes and employee benefits increased $0.5 million primarily due to a higher healthcare related costs. • Data processing costs increased by $0.4 million primarily to core data processor annual asset growth and CPI related cost increases and lower net mortgage processing relating cost deferrals due to lower mortgage loan volume as well as the purchase of a new lending solution software. • Opportunities exist to gain additional efficiencies as we continue to optimize our delivery channels. Non-interest Expense ($M) Efficiency Ratio (4 quarter rolling average) Source: Company documents. 15 $ 3 4 .5 $ 3 4 .0 $ 3 1 .5 $ 3 2 .4 $ 3 2 .4 $ 3 2 .1 $ 3 1 .0 $ 3 2 .2 $ 3 2 .0 $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Q 3 '2 1 Q 4 '2 1 Q 1 '2 2 Q 2 '2 2 Q 3 '2 2 Q 4 '2 2 Q 1 '2 3 Q 2 '2 3 Q 3 '2 3 Compensation and Benefits Loan and Collection Occupancy Data Processing FDIC Insurance Other 61.7% 63.2% 64.8% 63.1% 61.3% 59.8% 60.4% 59.6% 59.9% Q 3 '2 1 Q 4 '2 1 1 Q '2 2 2 Q '2 2 3 Q '2 2 4 Q '2 2 1 Q '2 3 2 Q '2 3 3 Q '2 3
Category Outlook Outlook for 2023 *as of January, 2023 • IBCP forecast of low double digit (approximately 10%-12%) overall loan growth is based on increases in commercial loans and mortgage loans with installment loans remaining flat. Expect much of this growth to occur in the last three quarters of 2023. • This growth forecast also assumes a stable Michigan economy. • IBCP forecast of high single digit (7%-9%) growth is primarily supported by an increase in earning assets and a favorable shift in the earning asset base. Expect net interest margin (NIM) to be stable to slightly higher (0.05% - 0.10%) in 2023 compared to full-year 2022. • Primary driver is an increase in earing asset yield. The forecast assumes a 0.50% Fed rate increase in February, a 0.25% increase in March and a 0.25% decrease in September and December in the federal funds rate while long-term interest rates decline slightly over year-end 2022 levels. • Very difficult area to forecast. Future provision levels under CECL will be particularly sensitive to loan growth and mix, projected economic conditions, watch credit levels and loan default volumes. • The allowance as a percentage of total loans was at 1.51% at 12/31/22. • A full year 2023. provision (expense) for credit losses of approximately 0.25% to 0.35% of average total portfolio loans would not be unreasonable. 3Q’23 Update • Total portfolio loans increased $110.4 million (12.1% annualized) in 3Q’23 which is higher than our forecasted range. • Commercial and mortgage loans had positive growth in the third quarter. • 3Q’23 net interest income was $0.5 million (1.2%) lower than the prior year quarter. The net interest margin was 3.25% for the current quarter and 3.49 for the prior year quarter and down 0.01% from the linked quarter. • The 1.2% decrease in net interest income is due to a 0.24% decrease in net interest margin that was partially offset by a $281.0 million increase in average earning assets. • The provision for credit losses was an expense of $1.4 million (0.15% annualized) The 3Q’23 provision expense was primarily the result of loan growth and a decrease in prepayment speeds primarily related to jumbo mortgages. LENDING Continued growth NET INTEREST INCOME Growth driven primarily by higher average earning assets PROVISION FOR CREDIT LOSSES Steady asset quality metrics 16
Category Outlook Outlook • IBCP forecasted 2023 quarterly range of $11M to $13M with the total for the year down 20% to 25% from 2022 actual of $61.9M • Expect mortgage loan origination volumes in 2023 to be down by approximately 20%, a decline in mortgage loan servicing net of approximately 80%, interchange income in 2023 to increase approximately 2.0% to 3.0% as compared to 2022 and service charges on deposits to be collectively comparable to 2022 (a decline in NSF fees to be largely offset by an increase in treasury management related service charges). • IBCP forecasted 2023 quarterly range of $32.0M to $33.5M with the total for the year up 1.5% to 2.5% from the 2022 actual of $128.3M. • The primary driver is an increase in data processing and FDIC deposit insurance premiums. • Approximately an 18.8% effective income tax rate in 2023. This assumes a 21% statutory federal corporate income tax rate during 2023. • 2023 share repurchase authorization at approximately 5% (1.1 million) of outstanding shares. • Share repurchases will be dependent on capital levels, capital allocation options and share price trends. We are not modeling any share repurchases in 2023. 3Q’23 Update • Non-interest income totaled $15.6 million in 3Q’23, which was higher than the forecasted range. 3Q’23 mortgage loan originations, sales and gains totaled $172.9 million, $115.3 million and $2.1 million, respectively. • Mortgage loan servicing generated a gain of $2.7 million in 3Q’23. • Total non-interest expense was $32.0 million in the third quarter of 2023, which is within our forecasted range. • The comparative quarterly decrease is primarily due to declines in compensation and employee benefits, occupancy, net, and communications expense that were partially offset by increases in data processing, interchange expense and FDIC insurance expense. The decrease in compensation and employee benefits is primarily related to a lower expected level of incentive compensation. • 3Q’23 Update: Actual effective income tax rate of 19.0% for the 3Q’23. • 88,401 shares were repurchased in the third quarter of 2023 at a average share price of $19.15. 288,401 shares at an average share price of 17.21 have been repurchased in the first nine months of 2023. NON-INTEREST INCOME NON-INTEREST EXPENSES INCOME TAXES SHARE REPURCHASES 17
Strategic Initiatives • Outside Sales - Relationship banking focus thru consistent calling on prospects and COI’s. • Inside Service/Sales – high retention + high cross sales, collaboration of strategic partners. • Digital Marketing - Leverage data insights, target strategically, elevate brand image, personalize the customer experience. • Leverage Referral Network – Fintech (ReferLive); • New Products – SMB deposit product, Business digital pmts. • Market Expansion – Through existing indirect dealer network. • Selective and opportunistic bank and branch acquisitions. • Process Automation – leverage core investments + Fintech partnerships: (Blend) mortgage; (Numerated) Commercial; • Branch Optimization - including assessing existing locations, new locations, service hours, staffing, & workflow and leveraging technology. • Promotion of Self-Serve Channels - (One Wallet, Treasury One, etc.) • Leverage Banker Capacity – including on-line appointment setting. • Leverage Middleware + API’s – expediate new technology implementation. • Optimize Office Space Utilization • Invest in our Team – competitive C&B offering, skill training, leadership development, etc. • High Employee Engagement – thru fostering a culture of purpose, opportunity, continuous learning, diversity, reward + recognition. • Promote Teamwork + Alignment across all business units. • Invest in technology - to enhance the employee experience + customer experience. • Client Service Model – well defined and applied. • Utilize three layers of defense (business unit, risk management and internal audit). Independent & collaborative approach. • Consistent earnings + maintain strong capital levels. • Proactive credit quality monitoring and problem resolution. • Manage Liquidity and IRR. • Manage Operational risk, emphasizing cyber security, fraud prevention, and regulatory compliance. • Effective relationships with regulators & other outside oversight parties. Proactive, transparent and good communication. PROCESS IMPROVEMENT & COST CONTROLS RISK MANAGEMENT GROWTH TALENT MANAGEMENT 18
Question and Answer Session Closing Remarks NASDAQ: IBCP Thank you for attending 19
Appendix Additional Financial Data and Non-GAAP Reconciliations 20
87% 80% 80% 98% 85% 73% 219% 203% 218% 237% 240% 222% 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 On-balance sheet / Uninsured Deposits Available Sources / Uninsured Deposits Note: Portfolio loans exclude loans HFS. Liquidity / Uninsured Deposits Strong Liquidity Position • Significant liquidity position to manage the current environment. • Total available liquidity significantly exceeds (210%) estimated uninsured deposit balances. • Established access and tested the BTFP, no borrowings at 9/30/23. • Attractive loan to deposit ratio of 81.6%. • Uninsured deposit to total deposits of approximately 23.2%, excluding brokered time deposits. Sources of Liquidity 21 Sources of Liquidity 3Q 2023 Current On-balance sheet Excess reserves at the Fed $ 68.9 Unpledged AFS Securities $ 666.3 Total On-balance sheet $ 735.2 On balance sheet liquidity to total deposits 16% Available Sources of Liquidity Unused FHLB & FRB (including BTFP) $ 1,377.3 Borrow capacity on unpledged bonds $ 749.4 Total Available Sources $ 2,126.7 Sources of Liquidity to total deposits 46%
$1,925 $927 $487 $236 $202 $573 $236 $2,127 $1,500 $723 $236 Consumer Commercial Public Funds Brokered Insured Deposits Uninsured Deposits $3,216 $3,297 $3,300 $3,403 $3,580 $3,570 $3,575 $989 $994 $1,027 $976 $965 $918 $1,011 $4,205 $4,291 $4,327 $4,379 $4,545 $4,488 $4,586 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 Insured Deposits Uninsured Deposits Granular Deposit Base • Average deposit account balance of approximately $20,422. • Average deposit balance excluding reciprocal deposit of $16,736. • Average Commercial deposit balance of $91,586. • Average retail deposit balance of $11,002. • 10 largest deposit accounts total $295,8 million or 6.45% of total deposits. − $204.6 million in ICS with FDIC coverage. • 100 largest deposit accounts total $915.6 million or 19.97% of total deposits. − $531.2 million in ICS with FDIC coverage. Note: Uninsured deposit calculation is an approximation. Uninsured Deposit by Segment (9/30/23) Uninsured Deposit Trend ($MM) 21%22%23%24% 24% 21% 37% 10% 29% 22
CRE – Office Metrics • 25.3% of portfolio is medical office buildings. • 92% of portfolio are located in suburban geographies. • 68.6% of CRE – Office mature after 2026. • Average loan size of $1.3 million. Maturing Exposure (millions) CRE - Office Fixed vs. Variable Geographic Location (millions) 23 $14.8 $4.8 $9.8 $64.1 M a tu ri n g 2 0 2 4 M a tu ri n g 2 0 2 5 M a tu ri n g 2 0 2 6 M a tu ri n g 2 0 2 7 & A ft e r 17% 83% $7 $86 Urban Suburban Fixed Variable
Historical Financial Data 24 here Year Ended December 31, Quarter Ended, ($M except per share data) 2019 2020 2021 2022 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 Balance Sheet: Total Assets $3,565 $4,204 $4,705 $5,000 $4,931 $5,000 $5,139 $5,136 $5,200 Portfolio Loans $2,725 $2,734 $2,905 $3,465 $3,410 $3,465 $3,510 $3,631 $3,741 Deposits $3,037 $3,637 $4,117 $4,379 $4,327 $4,379 $4,545 $4,488 $4,586 Tangible Common Equity $317 $357 $367 $317 $301 $317 $317 $345 $345 Profitability: Pre-Tax, Pre-Provision Income $58.6 $81.9 $75.4 $83.7 $24.4 $19.9 $18.0 $21.5 $23.0 Pre-Tax, Pre-Prov / Avg. Assets 1.70% 2.08% 1.62% 1.74% 1.98% 1.61% 1.43% 1.71% 1.77% Net Income(1) $46.4 $56.2 $62.9 $63.8 $17.3 $15.1 $13.0 $14.8 $17.5 Diluted EPS $2.00 $2.53 $2.88 $3.00 $0.81 $0.71 $0.61 $0.70 $0.83 Return on Average Assets(1) 1.35% 1.43% 1.41% 1.32% 1.40% 1.21% 1.06% 1.18% 1.34% Return on Average Equity(1) 13.6% 15.7% 16.1% 18.5% 20.5% 17.9% 14.8% 16.3% 18.7% Net Interest Margin (FTE) 3.80% 3.34% 3.10% 3.32% 3.49% 3.52% 3.33% 3.26% 3.25% Efficiency Ratio 64.9% 59.2% 62.9% 59.4% 56.3% 60.8% 62.1% 59.3% 57.5% Asset Quality: NPAs / Assets 0.32% 0.21% 0.11% 0.08% 0.08% 0.08% 0.09% 0.09% 0.10% NPAs / Loans + OREO 0.42% 0.32% 0.18% 0.12% 0.12% 0.12% 0.12% 0.13% 0.14% ACL / Total Portfolio Loans 0.96% 1.30% 1.63% 1.51% 1.50% 1.51% 1.44% 1.49% 1.48% NCOs / Avg. Loans (0.02%) 0.11% (0.07%) 0.00% 0.00% 0.00% 0.12% (0.00%) 0.00% Capital Ratios: TCE Ratio 9.0% 8.6% 7.9% 6.4% 6.2% 6.4% 6.6% 6.8% 6.7% Leverage Ratio 10.1% 9.2% 8.8% 8.8% 8.8% 8.8% 8.9% 9.0% 8.9% Tier 1 Capital Ratio 12.7% 13.3% 12.1% 11.4% 11.3% 11.4% 11.5% 11.4% 11.4% Total Capital Ratio 13.7% 16.0% 14.5% 13.7% 13.5% 13.7% 13.8% 13.7% 13.7%
Non-GAAP to GAAP Reconciliation 25 September 30, June 30, March 31, December 31, September 30, 2022 2021 2020 2019 2023 2023 2023 2022 2022 Net interest income $ 149,561 $ 129,765 $ 123,612 $ 122,581 $ 39,427 $ 38,350 $ 38,441 $ 40,602 $ 39,897 Non-interest income 61,909 76,643 80,745 47,736 15,611 15,417 10,551 11,468 16,861 Non-interest expense 128,341 131,023 122,413 111,733 32,036 32,248 30,957 32,091 32,366 Pre-Tax, Pre-Provision Income 83,129 75,385 81,944 58,584 23,002 21,519 18,035 19,979 24,392 Provision for credit losses 5,341 (1,928) 12,463 824 1,350 3,317 2,160 1,390 3,145 Income tax expense 14,437 14,418 13,329 11,325 4,109 3,412 2,884 3,503 3,950 Net income $ 63,351 $ 62,895 $ 56,152 $ 46,435 $ 17,543 $ 14,790 $ 12,991 $ 15,086 $ 17,297 Average total assets 4,825,723$ 4,465,577$ 3,933,655$ 3,440,232$ 5,192,114$ 5,044,746$ 4,988,440$ 4,934,859$ 4,884,841$ Performance Ratios Return on average assets 1.31% 1.41% 1.43% 1.35% 1.34% 1.18% 1.06% 1.21% 1.40% Pre-tax, Provision return on average assets 1.72% 1.69% 2.08% 1.70% 1.76% 1.71% 1.47% 1.61% 1.98% Year Ended December 31, Quarter Ended (Dollars in thousands)
Reconciliation of Non-GAAP Financial Measures 26 2023 2022 2023 2022 Net Interest Margin, Fully Taxable Equivalent ("FTE") Net interest income 39,427$ 39,897$ 116,218$ 108,959$ Add: taxable equivalent adjustment 422 462 1,284 1,425 Net interest income - taxable equivalent 39,849$ 40,359$ 117,502$ 110,384$ Net interest margin (GAAP) (1) 3.21% 3.45% 3.25% 3.21% Net interest margin (FTE) (1) 3.25% 3.49% 3.28% 3.25% (1) Annualized. Three Months Ended Nine Months Ended September 30, September 30, (Dollars in thousands)
Reconciliation of Non-GAAP Financial Measures (continued) 27 Tangible Common Equity Ratio September 30, June 30, March 31, December 31, September 30, 2022 2021 2020 2019 2023 2023 2022 2022 2022 Common shareholders' equity 347,596$ 398,484$ 389,522$ 350,169$ 374,998$ 375,162$ 367,714$ 347,596$ 332,308$ Less: Goodwill 28,300 28,300 28,300 28,300 28,300 28,300 28,300 28,300 28,300 Other intangibles 2,551 3,336 4,306 5,326 2,141 2,278 2,415 2,551 2,697 Tangible common equity 316,745$ 366,848$ 356,916$ 316,543$ 344,557$ 344,584$ 336,999$ 316,745$ 301,311$ Total assets $4,999,787 $4,704,740 $4,204,013 $3,564,694 $ 5,200,018 $5,135,564 $ 5,138,934 $ 4,999,787 $ 4,931,377 Less: Goodwill 28,300 28,300 28,300 28,300 28,300 28,300 28,300 28,300 28,300 Other intangibles 2,551 3,336 4,306 5,326 2,141 2,278 2,415 2,551 2,697 Tangible assets $4,968,936 $4,673,104 $4,171,407 $3,531,068 $ 5,169,577 $5,104,986 $ 5,108,219 $ 4,968,936 $ 4,900,380 Common equity ratio 6.95% 8.47% 9.27% 9.82% 7.21% 7.31% 7.16% 6.95% 6.74% Tangible common equity ratio 6.37% 7.85% 8.56% 8.96% 6.67% 6.75% 6.60% 6.37% 6.15% Year Ended December 31, Quarter Ended (Dollars in thousands)