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: July 26, 2022
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> <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):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | 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 ☐
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. ☐
| Item 2.02. | Results of Operations and Financial Condition |
|---|
On July 26, 2022, Independent Bank Corporation issued a press release announcing its financial results for the quarter ended June 30, 2022. 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 July 26, 2022. |
|---|---|
| 99.2 | Supplemental data to the Registrant's press release dated July 26, 2022. |
| --- | --- |
| 99.3 | Earnings conference call presentation. |
| --- | --- |
2
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 | July 26, 2022 | By | s/Gavin A. Mohr |
| Gavin A. Mohr, Principal Financial | |||
| Officer |
3
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> <br>Gavin A. Mohr, Chief Financial Officer, 616.447.3929 |
| --- | --- |
INDEPENDENT BANK CORPORATION REPORTS 2022 SECOND QUARTER RESULTS
GRAND RAPIDS, Mich., July 26, 2022 - Independent Bank Corporation (NASDAQ: IBCP) reported second quarter 2022 net income of $13.0 million, or $0.61 per diluted share, versus net income of $12.4 million, or $0.56 per diluted share, in the prior- year period. For the six months ended June 30, 2022, the Company reported net income of $31.0 million, or $1.45 per diluted share, compared to net income of $34.4 million, or $1.56 per diluted share, in the prior-year period.
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “I am pleased with our second quarter 2022 performance in which we generated strong core results with $3.1 million growth in net interest income, a 26 basis point expansion of our net interest margin on a linked quarter basis, and net growth in each category of loans and as well as growth in total deposits. In addition, our asset quality metrics continue to be very good, with a low level of past dues, low level of commercial watch credits, low level of non-performing assets, net loan recoveries for the quarter, and an allowance for credit losses to total loans of 1.47%. As we head into the second half of 2022, our focus will continue to be on the rotation of our earning asset mix out of lower yielding investments into higher yielding loans, growing our deposit base while managing our costs of funds, and controlling our expenses. While there exists much uncertainty in the marketplace, we are excited about the momentum we have in our markets and look forward to continuing these growth trends for the remainder of 2022.”
Highlights for the second quarter of 2022 include:
| • | Increases in net income and diluted earnings per share of 4.9% and 8.9%, respectively, over the second quarter of 2021; |
|---|---|
| • | Net growth in portfolio loans of $254.8 million (or 34.0% annualized); |
| --- | --- |
| • | Annualized return on average assets and average equity of 1.10% and 15.68%, respectively; |
| --- | --- |
| • | An increase in net interest income of 14.9% over the second quarter of 2021; |
| --- | --- |
| • | Continued strong asset quality metrics as evidenced by net loan recoveries during the quarter as well as a low level of non-performing loans and non-performing assets; and |
| --- | --- |
| • | The payment of a 22 cent per share dividend on common stock on May 16, 2022. |
| --- | --- |
Highlights for the first six months of 2022 include:
| • | Annualized return on average assets and average equity of 1.32% and 17.63%, respectively; |
|---|---|
| • | An increase in net interest income of $7.4 million or 12.0% over the first six months of 2021; |
| --- | --- |
| • | Net growth in portfolio loans of $353.8 million (or 24.6% annualized); and |
| --- | --- |
| • | Net growth in deposits, excluding brokered time deposits, of $136.4 million (or 6.7% annualized). |
| --- | --- |
1
Significant items impacting comparable 2022 and 2021 results include the following:
| • | Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Changes”) of $3.1 million ($0.12 per diluted share, after taxes) and $11.6 million<br> ($0.43 per diluted share, after taxes) for the three- and six-months ended June 30, 2022, respectively, as compared to a negative $2.4 million ($0.09 per diluted share, after taxes) and a positive $2.2 million ($0.08 per diluted share,<br> after taxes) for the three- and six-months ended June 30, 2021, respectively. |
|---|---|
| • | Gain on sale of a branch facility in other income of $0.9 million dollars during the three- and six- months ended June 30, 2022. |
| --- | --- |
| • | The provision for credit losses was an expense of $2.4 million in the second quarter of 2022 compared to a credit of $1.4 million in the second quarter of 2021. |
| --- | --- |
| • | Net gains on mortgage loans was $1.3 million in the second quarter of 2022 compared to $9.1 million in the second quarter of 2021. |
| --- | --- |
Operating Results
The Company’s net interest income totaled $36.1 million during the second quarter of 2022, an increase of $4.7 million, or 14.9% from the year-ago period, and up $3.1 million, or 9.3%, from the first quarter of 2022. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.26% during the second quarter of 2022, compared to 3.02% in the year-ago period, and 3.00% in the first quarter of 2022. The year-over-year quarterly increase in net interest income was due to an increase in average interest-earning assets and an increase in the net interest margin. Average interest-earning assets were $4.49 billion in the second quarter of 2022, compared to $4.22 billion in the year ago quarter and $4.49 billion in the first quarter of 2022.
For the first six months of 2022, net interest income totaled $69.1 million, an increase of $7.4 million, or 12.0% from the first six months in 2021. The Company’s net interest margin for the first six months of 2022 was 3.13% compared to 3.04% in 2021. The increase in net interest income for the first six months of 2022 compared to 2021 was also due to an increase in average interest- earning assets and an increase in the net interest margin.
Non-interest income totaled $14.6 million and $33.6 million, respectively, for the second quarter and first six months of 2022, compared to $14.8 million and $41.2 million in the respective comparable year ago periods. These changes were primarily due to variances in mortgage banking related revenues (net gains on mortgage loans and mortgage loan servicing, net).
Net gains on mortgage loans in the second quarters of 2022 and 2021, were approximately $1.3 million and $9.1 million, respectively. For the first six months of 2022, net gains on mortgage loans totaled $2.1 million compared to $21.9 million in 2021. The decrease in net gains on mortgage loans was primarily due to lower profit margins on mortgage loan sales, a decrease in the volume of mortgage loans sold and fair value adjustments on the mortgage loan pipeline.
Mortgage loan servicing, net, generated income of $4.2 million and expense of $2.0 million in the second quarters of 2022 and 2021, respectively. For the first six months of 2022 and 2021, mortgage loan servicing, net, generated income of $13.8 million and $3.2 million, respectively. The significant variances in mortgage loan servicing, net is primarily due 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 loan servicing, net activity is summarized in the following table:
| Three months ended | Six months ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 6/30/2022 | 6/30/2021 | 6/30/2022 | 6/30/2021 | |||||||||
| (In thousands) | ||||||||||||
| Mortgage loan servicing, net: | ||||||||||||
| Revenue, net | $ | 2,124 | $ | 1,876 | $ | 4,207 | $ | 3,786 | ||||
| Fair value change due to price | 3,120 | (2,426 | ) | 11,572 | 2,214 | |||||||
| Fair value change due to pay-downs | (1,082 | ) | (1,412 | ) | (1,976 | ) | (2,795 | ) | ||||
| Total | $ | 4,162 | $ | (1,962 | ) | $ | 13,803 | $ | 3,205 |
Net gains (losses) on securities available for sale totaled a loss of $0.3 million in the second quarter of 2022, compared to zero in the prior year second quarter. The loss during the second quarter of 2022 was generally attributed to the divestiture of a group of securities as part of a balance sheet management strategy.
Other income in the second quarters of 2022 and 2021, was $3.0 million and $1.9 million, respectively. The increase in other income was primarily attributed to the divestiture of bank real estate.
2
Non-interest expenses totaled $32.4 million in the second quarter of 2022, compared to $32.5 million in the year-ago period. For the first six months of 2022, non-interest expenses totaled $63.9 million versus $62.6 million in 2021. The year-to-date increases in non-interest expense are primarily due to increases in compensation and employee benefits and advertising that were partially offset by a decrease in conversion related expenses. The increase in compensation and employee benefits in 2022 is due to several factors including, wage increases that were generally effective at the start of the year, a decreased level of compensation that was deferred as direct origination costs (due to lower mortgage loan origination volume), an increase in commercial lending personnel and higher health care insurance costs.
The Company recorded an income tax expense of $2.9 million and $7.0 million in the second quarter and first six months of 2022, respectively. This compares to an income tax expense of $2.7 million and $7.8 million in the second quarter and first six months of 2021, respectively. The changes in income tax expense principally reflect changes in pre-tax earnings in 2022 relative to 2021.
Asset Quality
A breakdown of non-performing loans^(1)^ by loan type is as follows:
| 6/30/2022 | 12/31/2021 | 6/30/2021 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Loan Type | (Dollars in thousands) | ||||||||
| Commercial | $ | 56 | $ | 62 | $ | 242 | |||
| Mortgage | 5,074 | 4,914 | 4,941 | ||||||
| Installment | 729 | 569 | 362 | ||||||
| Sub total | 5,859 | 5,545 | 5,545 | ||||||
| Less - government guaranteed loans | 1,360 | 435 | 427 | ||||||
| Total non-performing loans | $ | 4,499 | $ | 5,110 | $ | 5,118 | |||
| Ratio of non-performing loans to total portfolio loans | 0.14 | % | 0.18 | % | 0.18 | % | |||
| Ratio of non-performing assets to total assets | 0.10 | % | 0.11 | % | 0.12 | % | |||
| Ratio of allowance for credit losses to total non-performing loans | 1064.30 | % | 924.70 | % | 897.34 | % |
(1) Excludes loans that are classified as “troubled debt restructured” that are still performing.
The provision for credit losses was an expense of $2.4 million and a credit of $1.4 million in the second quarters of 2022 and 2021, respectively. The provision for credit losses was an expense of $0.8 million and a credit of $1.9 million in the first six months of 2022 and 2021, respectively. The quarterly increase in the provision for credit losses in 2022 compared to 2021, was primarily the result of increases in pooled reserve allocations and the adjustment to allocations based on subjective factors due in part to loan portfolio growth. The year-to-date increase in the provision for credit losses in 2022 compared to 2021, was primarily the result of an increase in the adjustment to allocations based on the pooled reserves due in part to loan growth that was partially offset by a decrease in the adjustment to subjective factors due in part to expected reduction in risk related to COVID-19. The Company recorded loan net recoveries of $0.04 million and loan net recoveries of $0.60 million in the second quarters of 2022 and 2021, respectively. At June 30, 2022, the allowance for credit losses totaled $47.9 million, or 1.47% of total portfolio loans compared to $47.3 million, or 1.63% of total portfolio loans at December 31, 2021.
Balance Sheet, Liquidity and Capital
Total assets were $4.83 billion at June 30, 2022, an increase of $121.5 million from December 31, 2021. Loans, excluding loans held for sale, were $3.26 billion at June 30, 2022, compared to $2.91 billion at December 31, 2021. Deposits totaled $4.29 billion at June 30, 2022, an increase of $173.5 million from December 31, 2021. This increase is primarily due to growth in non-interest bearing, interest-bearing checking, reciprocal and brokered time deposit account balances.
Cash and cash equivalents totaled $59.5 million at June 30, 2022, versus $109.5 million at December 31, 2021. Securities available for sale (“AFS”) totaled $859.7 million at June 30, 2022, versus $1.41 billion at December 31, 2021. The decrease in securities AFS is primarily due to the transfer of $391.6 million of securities AFS to held to maturity on April 1, 2022.
Total shareholders’ equity was $331.1 million at June 30, 2022, or 6.86% of total assets compared to $398.5 million or 8.47% at December 31, 2021. Tangible common equity totaled $300.0 million at June 30, 2022, or $14.25 per share compared to $366.8 million or $17.33 per share at December 31, 2021. The decrease in shareholder equity as well as tangible common equity are primarily the result of a decline in accumulated other comprehensive income (loss) related to unrealized losses on securities available for sale. The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:
3
| Regulatory Capital Ratios | 6/30/2022 | 12/31/2021 | Well<br><br> <br>Capitalized<br><br> <br>Minimum | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Tier 1 capital to average total assets | 8.49 | % | 8.57 | % | 5.00 | % | |||
| Tier 1 common equity to risk-weighted assets | 11.02 | % | 11.80 | % | 6.50 | % | |||
| Tier 1 capital to risk-weighted assets | 11.02 | % | 11.80 | % | 8.00 | % | |||
| Total capital to risk-weighted assets | 12.26 | % | 13.05 | % | 10.00 | % |
Share Repurchase Plan
On December 18, 2021, the Board of Directors of the Company authorized the 2022 share repurchase plan. Under the terms of the 2022 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, 2022. For the first six months of 2022, the Company repurchased 181,586 shares at a weighted average price of $22.08 per share.
Earnings Conference Call
Brad Kessel, President and CEO, Gavin A. 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, July 26, 2022.
To participate in the live conference call, please dial 1-844-200-6205 (Access Code # 397649). 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/739908773
A playback of the call can be accessed by dialing 1-866-813-9403 (Access Code # 656335). The replay will be available through August 2, 2022.
4
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $4.8 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, 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 press release contains forward-looking statements about Independent Bank Corporation. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of Independent Bank Corporation. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting Independent Bank Corporation, its customers, counterparties, employees, and second-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Independent Bank Corporation’s revenues and the values of its assets and liabilities, reduce the availability of funding from certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect Independent Bank Corporation in substantial and unpredictable ways. Independent Bank Corporation’s results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk.
Certain risks and important factors that could affect Independent Bank Corporation's future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2021 and other reports filed with the SEC, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward- looking statement speaks only as of the date on which it is made, and Independent Bank Corporation undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances, after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise.
5
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
| December 31,<br><br> <br>2021 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Cash and due from banks | 56,516 | $ | 51,069 | ||
| Interest bearing deposits | 2,970 | 58,404 | |||
| Cash and Cash Equivalents | 59,486 | 109,473 | |||
| Securities available for sale | 859,704 | 1,412,830 | |||
| Securities held to maturity (fair value of 359,701 at June 30, 2022 and zero at December 31, 2021) | 381,608 | - | |||
| Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 17,653 | 18,427 | |||
| Loans held for sale, carried at fair value | 31,400 | 55,470 | |||
| Loans held for sale, carried at lower of cost or fair value | - | 34,811 | |||
| Loans | |||||
| Commercial | 1,329,198 | 1,203,581 | |||
| Mortgage | 1,284,169 | 1,139,659 | |||
| Installment | 645,483 | 561,805 | |||
| Total Loans | 3,258,850 | 2,905,045 | |||
| Allowance for credit losses | (47,883 | ) | (47,252 | ) | |
| Net Loans | 3,210,967 | 2,857,793 | |||
| Other real estate and repossessed assets | 508 | 245 | |||
| Property and equipment, net | 36,148 | 36,404 | |||
| Bank-owned life insurance | 55,088 | 55,279 | |||
| Capitalized mortgage loan servicing rights, carried at fair value | 39,477 | 26,232 | |||
| Other intangibles | 2,871 | 3,336 | |||
| Goodwill | 28,300 | 28,300 | |||
| Accrued income and other assets | 102,999 | 66,140 | |||
| Total Assets | 4,826,209 | $ | 4,704,740 | ||
| Liabilities and Shareholders' Equity | |||||
| Deposits | |||||
| Non-interest bearing | 1,357,824 | $ | 1,321,601 | ||
| Savings and interest-bearing checking | 1,961,124 | 1,897,487 | |||
| Reciprocal | 615,204 | 586,626 | |||
| Time | 316,425 | 308,438 | |||
| Brokered time | 39,997 | 2,938 | |||
| Total Deposits | 4,290,574 | 4,117,090 | |||
| Other borrowings | 25,507 | 30,009 | |||
| Subordinated debt | 39,395 | 39,357 | |||
| Subordinated debentures | 39,626 | 39,592 | |||
| Accrued expenses and other liabilities | 99,973 | 80,208 | |||
| Total Liabilities | 4,495,075 | 4,306,256 | |||
| 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: 21,049,218 shares at June 30, 2022 and<br> 21,171,036 shares at December 31, 2021 | 319,885 | 323,401 | |||
| Retained earnings | 96,252 | 74,582 | |||
| Accumulated other comprehensive income (loss) | (85,003 | ) | 501 | ||
| Total Shareholders’ Equity | 331,134 | 398,484 | |||
| Total Liabilities and Shareholders’ Equity | 4,826,209 | $ | 4,704,740 |
All values are in US Dollars.
6
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
| Three Months Ended | Six Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30,<br><br> <br>2022 | March 31,<br><br> <br>2022 | June 30,<br><br> <br>2021 | June 30, | ||||||||||||
| 2022 | 2021 | ||||||||||||||
| (unaudited) | |||||||||||||||
| Interest Income | (In thousands, except per share amounts) | ||||||||||||||
| Interest and fees on loans | $ | 31,454 | $ | 28,418 | $ | 28,091 | $ | 59,872 | $ | 56,196 | |||||
| Interest on securities | |||||||||||||||
| Taxable | 4,950 | 4,552 | 3,656 | 9,502 | 6,452 | ||||||||||
| Tax-exempt | 1,746 | 1,554 | 1,544 | 3,300 | 2,928 | ||||||||||
| Other investments | 214 | 217 | 208 | 431 | 425 | ||||||||||
| Total Interest Income | 38,364 | 34,741 | 33,499 | 73,105 | 66,001 | ||||||||||
| Interest Expense | |||||||||||||||
| Deposits | 1,216 | 767 | 1,142 | 1,983 | 2,398 | ||||||||||
| Other borrowings and subordinated debt and debentures | 1,087 | 973 | 964 | 2,060 | 1,926 | ||||||||||
| Total Interest Expense | 2,303 | 1,740 | 2,106 | 4,043 | 4,324 | ||||||||||
| Net Interest Income | 36,061 | 33,001 | 31,393 | 69,062 | 61,677 | ||||||||||
| Provision for credit losses | 2,379 | (1,573 | ) | (1,425 | ) | 806 | (1,899 | ) | |||||||
| Net Interest Income After Provision for Credit Losses | 33,682 | 34,574 | 32,818 | 68,256 | 63,576 | ||||||||||
| Non-interest Income | |||||||||||||||
| Interchange income | 3,422 | 3,082 | 3,453 | 6,504 | 6,502 | ||||||||||
| Service charges on deposit accounts | 3,096 | 2,957 | 2,318 | 6,053 | 4,234 | ||||||||||
| Net gains (losses) on assets | |||||||||||||||
| Mortgage loans | 1,253 | 835 | 9,091 | 2,088 | 21,919 | ||||||||||
| Securities available for sale | (345 | ) | 70 | - | (275 | ) | 1,416 | ||||||||
| Mortgage loan servicing, net | 4,162 | 9,641 | (1,962 | ) | 13,803 | 3,205 | |||||||||
| Other | 3,044 | 2,363 | 1,871 | 5,407 | 3,901 | ||||||||||
| Total Non-interest Income | 14,632 | 18,948 | 14,771 | 33,580 | 41,177 | ||||||||||
| Non-interest Expense | |||||||||||||||
| Compensation and employee benefits | 19,882 | 20,130 | 19,883 | 40,012 | 38,405 | ||||||||||
| Data processing | 2,644 | 2,216 | 2,576 | 4,860 | 4,950 | ||||||||||
| Occupancy, net | 2,077 | 2,543 | 2,153 | 4,620 | 4,496 | ||||||||||
| Interchange expense | 1,262 | 1,011 | 1,201 | 2,273 | 2,149 | ||||||||||
| Furniture, fixtures and equipment | 1,042 | 1,045 | 1,034 | 2,087 | 2,037 | ||||||||||
| Communications | 762 | 757 | 777 | 1,519 | 1,658 | ||||||||||
| Advertising | 560 | 680 | 164 | 1,240 | 653 | ||||||||||
| Loan and collection | 647 | 559 | 859 | 1,206 | 1,618 | ||||||||||
| FDIC deposit insurance | 457 | 522 | 307 | 979 | 637 | ||||||||||
| Legal and professional | 479 | 493 | 522 | 972 | 1,021 | ||||||||||
| Costs (recoveries) related to unfunded lending commitments | 649 | (355 | ) | 26 | 294 | (6 | ) | ||||||||
| Conversion related expenses | 6 | 44 | 1,143 | 50 | 1,361 | ||||||||||
| Net (gains) losses on other real estate and repossessed assets | (141 | ) | (55 | ) | 6 | (196 | ) | (174 | ) | ||||||
| Other | 2,108 | 1,860 | 1,885 | 3,968 | 3,752 | ||||||||||
| Total Non-interest Expense | 32,434 | 31,450 | 32,536 | 63,884 | 62,557 | ||||||||||
| Income Before Income Tax | 15,880 | 22,072 | 15,053 | 37,952 | 42,196 | ||||||||||
| Income tax expense | 2,879 | 4,105 | 2,665 | 6,984 | 7,771 | ||||||||||
| Net Income | $ | 13,001 | $ | 17,967 | $ | 12,388 | $ | 30,968 | $ | 34,425 | |||||
| Net Income Per Common Share | |||||||||||||||
| Basic | $ | 0.62 | $ | 0.85 | $ | 0.57 | $ | 1.47 | $ | 1.58 | |||||
| Diluted | $ | 0.61 | $ | 0.84 | $ | 0.56 | $ | 1.45 | $ | 1.56 |
7
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
| June 30,<br><br> <br>2022 | March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| Net interest income | $ | 36,061 | $ | 33,001 | $ | 34,285 | $ | 33,803 | $ | 31,393 | |||||
| Provision for credit losses | 2,379 | (1,573 | ) | 630 | (659 | ) | (1,425 | ) | |||||||
| Non-interest income | 14,632 | 18,948 | 15,771 | 19,695 | 14,771 | ||||||||||
| Non-interest expense | 32,434 | 31,450 | 33,954 | 34,512 | 32,536 | ||||||||||
| Income before income tax | 15,880 | 22,072 | 15,472 | 19,645 | 15,053 | ||||||||||
| Income tax expense | 2,879 | 4,105 | 2,964 | 3,683 | 2,665 | ||||||||||
| Net income | $ | 13,001 | $ | 17,967 | $ | 12,508 | $ | 15,962 | $ | 12,388 | |||||
| Basic earnings per share | $ | 0.62 | $ | 0.85 | $ | 0.59 | $ | 0.74 | $ | 0.57 | |||||
| Diluted earnings per share | 0.61 | 0.84 | 0.58 | 0.73 | 0.56 | ||||||||||
| Cash dividend per share | 0.22 | 0.22 | 0.21 | 0.21 | 0.21 | ||||||||||
| Average shares outstanding | 21,070,266 | 21,191,860 | 21,256,367 | 21,515,669 | 21,749,654 | ||||||||||
| Average diluted shares outstanding | 21,266,476 | 21,398,128 | 21,473,963 | 21,726,346 | 21,966,829 | ||||||||||
| Performance Ratios | |||||||||||||||
| Return on average assets | 1.10 | % | 1.54 | % | 1.07 | % | 1.40 | % | 1.12 | % | |||||
| Return on average equity | 15.68 | 19.38 | 12.61 | 15.93 | 12.78 | ||||||||||
| Efficiency ratio ^(1)^ | 62.50 | 59.62 | 66.68 | 63.47 | 69.24 | ||||||||||
| As a Percent of Average Interest-Earning Assets^(1)^ | |||||||||||||||
| Interest income | 3.47 | % | 3.16 | % | 3.30 | % | 3.37 | % | 3.22 | % | |||||
| Interest expense | 0.21 | 0.16 | 0.17 | 0.19 | 0.20 | ||||||||||
| Net interest income | 3.26 | 3.00 | 3.13 | 3.18 | 3.02 | ||||||||||
| Average Balances | |||||||||||||||
| Loans | $ | 3,145,095 | $ | 2,980,098 | $ | 2,957,985 | $ | 2,903,700 | $ | 2,859,544 | |||||
| Securities | 1,312,934 | 1,407,225 | 1,367,038 | 1,317,382 | 1,274,556 | ||||||||||
| Total earning assets | 4,493,714 | 4,492,757 | 4,433,400 | 4,296,662 | 4,223,570 | ||||||||||
| Total assets | 4,758,960 | 4,721,205 | 4,654,491 | 4,513,774 | 4,434,760 | ||||||||||
| Deposits | 4,221,047 | 4,158,528 | 4,069,901 | 3,934,937 | 3,879,715 | ||||||||||
| Interest bearing liabilities | 3,005,103 | 2,950,337 | 2,863,057 | 2,740,444 | 2,674,425 | ||||||||||
| Shareholders' equity | 332,610 | 376,010 | 393,477 | 397,542 | 388,780 | ||||||||||
| End of Period | |||||||||||||||
| Capital | |||||||||||||||
| Tangible common equity ratio | 6.26 | % | 6.85 | % | 7.85 | % | 8.02 | % | 8.21 | % | |||||
| Average equity to average assets | 6.99 | 7.96 | 8.45 | 8.81 | 8.77 | ||||||||||
| Common shareholders' equity per share of common stock | $ | 15.73 | $ | 16.79 | $ | 18.82 | $ | 18.76 | $ | 18.30 | |||||
| Tangible common equity per share of common stock | 14.25 | 15.31 | 17.33 | 17.27 | 16.82 | ||||||||||
| Total shares outstanding | 21,049,218 | 21,168,230 | 21,171,036 | 21,321,092 | 21,632,912 | ||||||||||
| Selected Balances | |||||||||||||||
| Loans | $ | 3,258,850 | $ | 3,004,065 | $ | 2,905,045 | $ | 2,883,978 | $ | 2,814,559 | |||||
| Securities | 1,241,312 | 1,400,137 | 1,412,830 | 1,348,378 | 1,330,660 | ||||||||||
| Total earning assets | 4,170,577 | 4,514,590 | 4,484,987 | 4,405,189 | 4,246,410 | ||||||||||
| Total assets | 4,826,209 | 4,761,983 | 4,704,740 | 4,622,340 | 4,461,272 | ||||||||||
| Deposits | 4,290,574 | 4,205,498 | 4,117,090 | 4,012,068 | 3,862,466 | ||||||||||
| Interest bearing liabilities | 2,997,883 | 2,956,736 | 2,865,090 | 2,784,554 | 2,633,747 | ||||||||||
| Shareholders' equity | 331,134 | 355,449 | 398,484 | 400,031 | 395,974 | ||||||||||
| (1) | Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%. | ||||||||||||||
| --- | --- |
8
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<br><br> <br>June 30, | Six Months Ended<br><br> <br>June 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||
| (Dollars in thousands) | ||||||||||||
| Net Interest Margin, Fully Taxable Equivalent ("FTE") | ||||||||||||
| Net interest income | $ | 36,061 | $ | 31,393 | $ | 69,062 | $ | 61,677 | ||||
| Add: taxable equivalent adjustment | 481 | 478 | 963 | 882 | ||||||||
| Net interest income - taxable equivalent | $ | 36,542 | $ | 31,871 | $ | 70,025 | $ | 62,559 | ||||
| Net interest margin (GAAP) ^(1)^ | 3.21 | % | 2.98 | % | 3.09 | % | 3.00 | % | ||||
| Net interest margin (FTE) ^(1)^ | 3.26 | % | 3.02 | % | 3.13 | % | 3.04 | % | ||||
| (1) | Annualized. | |||||||||||
| --- | --- |
Tangible Common Equity Ratio
| June 30,<br><br> <br>2022 | March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Common shareholders' equity | $ | 331,134 | $ | 355,449 | $ | 398,484 | $ | 400,031 | $ | 395,974 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 2,871 | 3,104 | 3,336 | 3,579 | 3,821 | ||||||||||
| Tangible common equity | $ | 299,963 | $ | 324,045 | $ | 366,848 | $ | 368,152 | $ | 363,853 | |||||
| Total assets | $ | 4,826,209 | $ | 4,761,983 | $ | 4,704,740 | $ | 4,622,340 | $ | 4,461,272 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 2,871 | 3,104 | 3,336 | 3,579 | 3,821 | ||||||||||
| Tangible assets | $ | 4,795,038 | $ | 4,730,579 | $ | 4,673,104 | $ | 4,590,461 | $ | 4,429,151 | |||||
| Common equity ratio | 6.86 | % | 7.46 | % | 8.47 | % | 8.65 | % | 8.88 | % | |||||
| Tangible common equity ratio | 6.26 | % | 6.85 | % | 7.85 | % | 8.02 | % | 8.21 | % | |||||
| Tangible Common Equity per Share of Common Stock: | |||||||||||||||
| Common shareholders' equity | $ | 331,134 | $ | 355,449 | $ | 398,484 | $ | 400,031 | $ | 395,974 | |||||
| Tangible common equity | $ | 299,963 | $ | 324,045 | $ | 366,848 | $ | 368,152 | $ | 363,853 | |||||
| Shares of common stock outstanding (in thousands) | 21,049 | 21,168 | 21,171 | 21,321 | 21,633 | ||||||||||
| Common shareholders' equity per share of common stock | $ | 15.73 | $ | 16.79 | $ | 18.82 | $ | 18.76 | $ | 18.30 | |||||
| Tangible common equity per share of common stock | $ | 14.25 | $ | 15.31 | $ | 17.33 | $ | 17.27 | $ | 16.82 |
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
Exhibit 99.2
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Supplemental Data
Non-performing assets ^(1)^
| June 30,<br><br> <br>2022 | March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Non-accrual loans | $ | 5,859 | $ | 5,893 | $ | 5,545 | $ | 5,917 | $ | 5,531 | |||||
| Loans 90 days or more past due and still accruing interest | - | - | - | - | 14 | ||||||||||
| Subtotal | 5,859 | 5,893 | 5,545 | 5,917 | 5,545 | ||||||||||
| Less: Government guaranteed loans | 1,360 | 859 | 435 | 327 | 427 | ||||||||||
| Total non-performing loans | 4,499 | 5,034 | 5,110 | 5,590 | 5,118 | ||||||||||
| Other real estate and repossessed assets | 508 | 438 | 245 | 224 | 296 | ||||||||||
| Total non-performing assets | $ | 5,007 | $ | 5,472 | $ | 5,355 | $ | 5,814 | $ | 5,414 | |||||
| As a percent of Portfolio Loans | |||||||||||||||
| Non-performing loans | 0.14 | % | 0.17 | % | 0.18 | % | 0.19 | % | 0.18 | % | |||||
| Allowance for credit losses | 1.47 | 1.52 | 1.63 | 1.62 | 1.63 | ||||||||||
| Non-performing assets to total assets | 0.10 | 0.11 | 0.11 | 0.13 | 0.12 | ||||||||||
| Allowance for credit losses as a percent of non-performing loans | 1,064.30 | 906.38 | 924.70 | 837.19 | 897.34 | ||||||||||
| ^(1)^ | Excludes loans classified as "trouble debt restructured" that are not past due. | ||||||||||||||
| --- | --- |
Troubled debt restructurings ("TDR")
| June 30, 2022 | |||||||
|---|---|---|---|---|---|---|---|
| Commercial | Retail ^(1)^ | Total | |||||
| (In thousands) | |||||||
| Performing TDR's | $ | 3,266 | $ | 28,580 | $ | 31,846 | |
| Non-performing TDR's ^(2)^ | - | 1,164 | ^(3)^ | 1,164 | |||
| Total | $ | 3,266 | $ | 29,744 | $ | 33,010 | |
| December 31, 2021 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial | Retail ^(1)^ | Total | |||||
| (In thousands) | |||||||
| Performing TDR's | $ | 4,481 | $ | 31,589 | $ | 36,070 | |
| Non-performing TDR's ^(2)^ | - | 1,016 | ^(3)^ | 1,016 | |||
| Total | $ | 4,481 | $ | 32,605 | $ | 37,086 | |
| (1) | Retail loans include mortgage and installment loan segments. | ||||||
| --- | --- | ||||||
| (2) | Included in non-performing assets table above. | ||||||
| --- | --- | ||||||
| (3) | Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis. | ||||||
| --- | --- |
1
Allowance for credit losses
| Six months ended<br><br> <br>June 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | ||||||||||||||
| Loans | Securities | Unfunded<br><br> <br>Commitments | Loans | Securities | Unfunded<br><br> <br>Commitments | ||||||||||
| (Dollars in thousands) | |||||||||||||||
| Balance at beginning of period | $ | 47,252 | $ | - | 4,481 | $ | 35,429 | - | $ | 1,805 | |||||
| Additions (deductions) | |||||||||||||||
| Impact of adoption of ASC 326 | - | - | 11,574 | 1,469 | |||||||||||
| Provision for credit losses | 648 | 158 | - | (1,899 | ) | - | - | ||||||||
| Initial allowance on loans purchased with credit deterioration | - | - | 134 | - | |||||||||||
| Recoveries credited to allowance | 1,274 | - | 1,434 | - | |||||||||||
| Loans charged against the allowance | (1,291 | ) | - | (746 | ) | - | |||||||||
| Recoveries included in non-interest expense | - | 294 | - | (6 | ) | ||||||||||
| Balance at end of period | $ | 47,883 | $ | 158 | 4,775 | $ | 45,926 | - | $ | 3,268 | |||||
| Net loans charged (recovered) against the allowance to average Portfolio Loans | 0.00 | % | (0.05 | )% |
Capitalization
| June 30,<br><br> <br>2022 | December 31,<br><br> <br>2021 | |||||
|---|---|---|---|---|---|---|
| (In thousands) | ||||||
| Subordinated debt | $ | 39,395 | $ | 39,357 | ||
| Subordinated debentures | 39,626 | 39,592 | ||||
| Amount not qualifying as regulatory capital | (619 | ) | (581 | ) | ||
| Amount qualifying as regulatory capital | 78,402 | 78,368 | ||||
| Shareholders’ equity | ||||||
| Common stock | 319,885 | 323,401 | ||||
| Retained earnings | 96,252 | 74,582 | ||||
| Accumulated other comprehensive income (loss) | (85,003 | ) | 501 | |||
| Total shareholders’ equity | 331,134 | 398,484 | ||||
| Total capitalization | $ | 409,536 | $ | 476,852 |
2
Non-Interest Income
| Three months ended | Six months ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30,<br><br> <br>2022 | March 31,<br><br> <br>2022 | June 30,<br><br> <br>2021 | June 30, | ||||||||||
| 2022 | 2021 | ||||||||||||
| (In thousands) | |||||||||||||
| Interchange income | $ | 3,422 | $ | 3,082 | $ | 3,453 | $ | 6,504 | $ | 6,502 | |||
| Service charges on deposit accounts | 3,096 | 2,957 | 2,318 | 6,053 | 4,234 | ||||||||
| Net gains (losses) on assets | |||||||||||||
| Mortgage loans | 1,253 | 835 | 9,091 | 2,088 | 21,919 | ||||||||
| Securities | (345 | ) | 70 | - | (275 | ) | 1,416 | ||||||
| Mortgage loan servicing, net | 4,162 | 9,641 | (1,962 | ) | 13,803 | 3,205 | |||||||
| Investment and insurance commissions | 682 | 738 | 634 | 1,420 | 1,217 | ||||||||
| Bank owned life insurance | 105 | 138 | 127 | 243 | 266 | ||||||||
| Other | 2,257 | 1,487 | 1,110 | 3,744 | 2,418 | ||||||||
| Total non-interest income | $ | 14,632 | $ | 18,948 | $ | 14,771 | $ | 33,580 | $ | 41,177 |
Capitalized Mortgage Loan Servicing Rights
| Three months ended<br><br> <br>June 30, | Six months ended<br><br> <br>June 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||
| (In thousands) | ||||||||||
| Balance at beginning of period | $ | 35,933 | $ | 23,530 | $ | 26,232 | $ | 16,904 | ||
| Originated servicing rights capitalized | 1,505 | 2,739 | 3,648 | 6,108 | ||||||
| Change in fair value | 2,039 | (3,838 | ) | 9,597 | (581 | ) | ||||
| Balance at end of period | $ | 39,477 | $ | 22,431 | $ | 39,477 | $ | 22,431 |
3
Mortgage Loan Activity
| Three months ended | Six months ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30,<br><br> <br>2022 | March 31,<br><br> <br>2022 | June 30,<br><br> <br>2021 | June 30, | ||||||||||||
| 2022 | 2021 | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Mortgage loans originated | $ | 317,683 | $ | 270,194 | $ | 473,742 | $ | 587,877 | $ | 982,745 | |||||
| Mortgage loans sold | 142,977 | 221,725 | 306,789 | 364,702 | 684,207 | ||||||||||
| Net gains on mortgage loans | 1,253 | 835 | 9,091 | 2,088 | 21,919 | ||||||||||
| Net gains as a percent of mortgage loans sold ("Loan Sales Margin") | 0.88 | % | 0.38 | % | 2.96 | % | 0.57 | % | 3.20 | % | |||||
| Fair value adjustments included in the Loan Sales Margin | (0.27 | ) | (1.87 | ) | (0.08 | ) | (1.24 | ) | (0.57 | ) |
Non-Interest Expense
| Three months ended | Six months ended | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| June 30,<br><br> <br>2022 | March 31,<br><br> <br>2022 | June 30,<br><br> <br>2021 | June 30, | |||||||||||
| 2022 | 2021 | |||||||||||||
| (In thousands) | ||||||||||||||
| Compensation | $ | 12,533 | $ | 12,435 | $ | 11,136 | $ | 24,968 | $ | 21,257 | ||||
| Performance-based compensation | 3,776 | 3,662 | 4,783 | 7,438 | 9,075 | |||||||||
| Payroll taxes and employee benefits | 3,573 | 4,033 | 3,964 | 7,606 | 8,073 | |||||||||
| Compensation and employee benefits | 19,882 | 20,130 | 19,883 | 40,012 | 38,405 | |||||||||
| Data processing | 2,644 | 2,216 | 2,576 | 4,860 | 4,950 | |||||||||
| Occupancy, net | 2,077 | 2,543 | 2,153 | 4,620 | 4,496 | |||||||||
| Interchange expense | 1,262 | 1,011 | 1,201 | 2,273 | 2,149 | |||||||||
| Furniture, fixtures and equipment | 1,042 | 1,045 | 1,034 | 2,087 | 2,037 | |||||||||
| Communications | 762 | 757 | 777 | 1,519 | 1,658 | |||||||||
| Advertising | 560 | 680 | 164 | 1,240 | 653 | |||||||||
| Loan and collection | 647 | 559 | 859 | 1,206 | 1,618 | |||||||||
| FDIC deposit insurance | 457 | 522 | 307 | 979 | 637 | |||||||||
| Legal and professional | 479 | 493 | 522 | 972 | 1,021 | |||||||||
| Amortization of intangible assets | 233 | 232 | 243 | 465 | 485 | |||||||||
| Costs (recoveries) related to unfunded lending commitments | 649 | (355 | ) | 26 | 294 | (6 | ) | |||||||
| Supplies | 161 | 123 | 170 | 284 | 344 | |||||||||
| Correspondent bank service fees | 80 | 77 | 115 | 157 | 215 | |||||||||
| Conversion related expenses | 6 | 44 | 1,143 | 50 | 1,361 | |||||||||
| Provision for loss reimbursement on sold loans | 12 | 33 | 25 | 45 | 59 | |||||||||
| Net (gains) losses on other real estate and repossessed assets | (141 | ) | (55 | ) | 6 | (196 | ) | (174 | ) | |||||
| Other | 1,622 | 1,395 | 1,332 | 3,017 | 2,649 | |||||||||
| Total non-interest expense | $ | 32,434 | $ | 31,450 | $ | 32,536 | $ | 63,884 | $ | 62,557 |
4
Average Balances and Tax Equivalent Rates
| Three Months Ended<br><br> <br>June 30, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||||
| Average<br><br> <br>Balance | Interest | Rate ^(2)^ | Average<br><br> <br>Balance | Interest | Rate ^(2)^ | |||||||||
| (Dollars in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Taxable loans | $ | 3,137,369 | $ | 31,383 | 4.01 | % | $ | 2,852,972 | $ | 28,026 | 3.94 | % | ||
| Tax-exempt loans ^(1)^ | 7,726 | 90 | 4.67 | 6,572 | 82 | 5.00 | ||||||||
| Taxable securities | 966,146 | 4,950 | 2.05 | 908,622 | 3,656 | 1.61 | ||||||||
| Tax-exempt securities^(1)^ | 346,788 | 2,208 | 2.55 | 365,934 | 2,005 | 2.19 | ||||||||
| Interest bearing cash | 18,032 | 29 | 0.65 | 71,043 | 22 | 0.12 | ||||||||
| Other investments | 17,653 | 185 | 4.20 | 18,427 | 186 | 4.05 | ||||||||
| Interest Earning Assets | 4,493,714 | 38,845 | 3.47 | 4,223,570 | 33,977 | 3.22 | ||||||||
| Cash and due from banks | 58,497 | 54,120 | ||||||||||||
| Other assets, net | 206,749 | 157,070 | ||||||||||||
| Total Assets | $ | 4,758,960 | $ | 4,434,760 | ||||||||||
| Liabilities | ||||||||||||||
| Savings and interest-bearing checking | $ | 2,534,242 | 788 | 0.12 | $ | 2,260,172 | 689 | 0.12 | ||||||
| Time deposits | 354,209 | 428 | 0.48 | 305,390 | 453 | 0.59 | ||||||||
| Other borrowings | 116,652 | 1,087 | 3.74 | 108,863 | 964 | 3.55 | ||||||||
| Interest Bearing Liabilities | 3,005,103 | 2,303 | 0.31 | 2,674,425 | 2,106 | 0.32 | ||||||||
| Non-interest bearing deposits | 1,332,596 | 1,314,153 | ||||||||||||
| Other liabilities | 88,651 | 57,402 | ||||||||||||
| Shareholders’ equity | 332,610 | 388,780 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,758,960 | $ | 4,434,760 | ||||||||||
| Net Interest Income | $ | 36,542 | $ | 31,871 | ||||||||||
| Net Interest Income as a Percent of Average Interest Earning Assets | 3.26 | % | 3.02 | % |
| (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 |
| --- | --- |
5
Average Balances and Tax Equivalent Rates
| Six Months Ended<br><br> <br>June 30, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||||
| Average<br><br> <br>Balance | Interest | Rate ^(2)^ | Average<br><br> <br>Balance | Interest | Rate ^(2)^ | |||||||||
| (Dollars in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Taxable loans | $ | 3,054,925 | $ | 59,723 | 3.93 | % | $ | 2,840,224 | $ | 56,065 | 3.98 | % | ||
| Tax-exempt loans ^(1)^ | 8,127 | 189 | 4.69 | 6,624 | 166 | 5.07 | ||||||||
| Taxable securities | 1,022,884 | 9,502 | 1.86 | 845,895 | 6,452 | 1.52 | ||||||||
| Tax-exempt securities^(1)^ | 336,935 | 4,223 | 2.51 | 338,692 | 3,775 | 2.22 | ||||||||
| Interest bearing cash | 52,483 | 66 | 0.25 | 86,384 | 51 | 0.12 | ||||||||
| Other investments | 17,884 | 365 | 4.12 | 18,427 | 374 | 4.10 | ||||||||
| Interest Earning Assets | 4,493,238 | 74,068 | 3.31 | 4,136,246 | 66,883 | 3.25 | ||||||||
| Cash and due from banks | 58,586 | 55,239 | ||||||||||||
| Other assets, net | 188,381 | 153,540 | ||||||||||||
| Total Assets | $ | 4,740,205 | $ | 4,345,025 | ||||||||||
| Liabilities | ||||||||||||||
| Savings and interest-bearing checking | $ | 2,518,714 | 1,429 | 0.11 | $ | 2,200,620 | 1,364 | 0.13 | ||||||
| Time deposits | 346,326 | 554 | 0.32 | 322,535 | 1,034 | 0.65 | ||||||||
| Other borrowings | 112,831 | 2,060 | 3.68 | 108,844 | 1,926 | 3.58 | ||||||||
| Interest Bearing Liabilities | 2,977,871 | 4,043 | 0.27 | 2,631,999 | 4,324 | 0.33 | ||||||||
| Non-interest bearing deposits | 1,324,922 | 1,266,607 | ||||||||||||
| Other liabilities | 83,222 | 61,950 | ||||||||||||
| Shareholders’ equity | 354,190 | 384,469 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,740,205 | $ | 4,345,025 | ||||||||||
| Net Interest Income | $ | 70,025 | $ | 62,559 | ||||||||||
| Net Interest Income as a Percent of Average Interest Earning Assets | 3.13 | % | 3.04 | % |
| (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 |
| --- | --- |
6
Commercial Loan Portfolio Analysis as of June 30, 2022
| Total Commercial Loans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of<br><br> <br>Loan<br><br> <br>Category in Watch Credit | ||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | |||||||
| (Dollars in thousands) | |||||||||||
| Land | $ | 9,722 | $ | 778 | $ | - | $ | 778 | 8.0 | % | |
| Land Development | 20,559 | - | - | - | 0.0 | ||||||
| Construction | 78,574 | - | - | - | 0.0 | ||||||
| Income Producing | 411,134 | 315 | - | 315 | 0.1 | ||||||
| Owner Occupied | 425,307 | 23,293 | - | 23,293 | 5.5 | ||||||
| Total Commercial Real Estate Loans | $ | 945,296 | $ | 24,386 | - | $ | 24,386 | 2.6 | |||
| Other Commercial Loans | $ | 383,902 | $ | 4,614 | 56 | $ | 4,670 | 1.2 | |||
| Total non-performing commercial loans | $ | 56 |
Commercial Loan Portfolio Analysis as of December 31, 2021
| Total Commercial Loans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of<br><br> <br>Loan<br><br> <br>Category in Watch Credit | ||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | |||||||
| (Dollars in thousands) | |||||||||||
| Land | $ | 13,621 | $ | 114 | $ | - | $ | 114 | 0.8 | % | |
| Land Development | 14,854 | 32 | - | 32 | 0.2 | ||||||
| Construction | 67,663 | - | - | - | 0.0 | ||||||
| Income Producing | 402,936 | 2,215 | - | 2,215 | 0.5 | ||||||
| Owner Occupied | 360,614 | 21,960 | - | 21,960 | 6.1 | ||||||
| Total Commercial Real Estate Loans | $ | 859,688 | $ | 24,321 | - | $ | 24,321 | 2.8 | |||
| Other Commercial Loans | $ | 343,893 | $ | 12,546 | 62 | $ | 12,608 | 3.7 | |||
| Total non-performing commercial loans | $ | 62 |
7
Exhibit 99.3
Independent Bank Corporation Earnings Call Second Quarter 2022 July 26, 2022 (NASDAQ: IBCP)
Cautionary note regarding forward-looking statements This presentation contains forward-looking statements about Independent Bank Corporation. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of Independent Bank Corporation. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting Independent Bank Corporation, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Independent Bank Corporation’s revenues and the values of its assets and liabilities, reduce the availability of funding from certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect Independent Bank Corporation in substantial and unpredictable ways. Independent Bank Corporation’s results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk. Certain risks and important factors that could affect Independent Bank Corporation's future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2021 and other reports filed with the SEC, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Independent Bank Corporation undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise. 2
Agenda 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. 3
Historical Quarterly Financial Data 4 Year Ended December 31, Quarter Ended, ($M except per share data) 2018 2019 2020 2021 6/30/21 9/30/21 12/31/21 3/31/22 6/30/22 Balance Sheet: Total Assets $3,353 $3,565 $4,204 $4,705 $4,461 $4,622 $4,705 $4,762 $4,826 Portfolio Loans $2,583 $2,725 $2,734 $2,905 $2,815 $2,884 $2,905 $3,004 $3,259 Deposits $2,913 $3,037 $3,637 $4,117 $3,862 $4,012 $4,117 $4,205 $4,291 Tangible Common Equity $304 $317 $357 $367 $364 $368 $367 $324 $300 Profitability: Pre-Tax, Pre-Provision Income $50.6 $58.6 $81.9 $75.4 $13.6 $19.0 $16.1 $20.5 $18.3 Pre-Tax, Pre-Prov / Avg. Assets 1.62% 1.70% 2.08% 1.69% 1.23% 1.67% 1.37% 1.76% 1.56% Net Income(1) $39.8 $46.4 $56.2 $62.9 $12.4 $16.0 $15.5 $18.0 $13.0 Return on Average Assets(1) 1.27% 1.35% 1.43% 1.41% 1.12% 1.40% 1.07% 1.54% 1.10% Return on Average Equity(1) 12.4% 13.6% 15.7% 16.1% 12.8% 15.9% 12.6% 19.4% 15.7% Net Interest Margin (FTE) 3.88% 3.80% 3.34% 3.10% 3.02% 3.18% 3.13% 3.00% 3.26% Efficiency Ratio 67.2% 64.9% 59.2% 62.9% 69.2% 63.5% 66.7% 59.6% 62.5% Asset Quality: NPAs / Assets 0.29% 0.32% 0.21% 0.11% 0.12% 0.13% 0.11% 0.11% 0.10% NPAs / Loans + OREO 0.38% 0.42% 0.32% 0.18% 0.19% 0.20% 0.18% 0.17% 0.14% ACL / Total Portfolio Loans 0.96% 0.96% 1.30% 1.63% 1.63% 1.62% 1.63% 1.52% 1.47% NCOs / Avg. Loans (0.03%) (0.02%) 0.11% (0.07%) (0.09%) (0.01%) 0.01% 0.00% 0.00% Capital Ratios: TCE Ratio 9.2% 9.0% 8.6% 7.9% 8.2% 8.0% 7.9% 6.9% 6.3% Leverage Ratio 10.5% 10.1% 9.2% 8.8% 9.0% 9.0% 8.8% 8.8% 8.7% Tier 1 Capital Ratio 13.3% 12.7% 13.3% 12.1% 12.9% 12.4% 12.1% 11.8% 11.3% Total Capital Ratio 14.3% 13.7% 16.0% 14.5% 15.5% 14.9% 14.5% 14.2% 13.7%
2Q 2022 Financial Highlights Income Statement Pre-tax, pre-provision income of $18.3 million compared to $13.6 million in the year ago quarter. Net income of $13.0 million, or $0.61 per diluted share compared to $12.4 million, or $0.56 per diluted share in the year ago quarter. Net interest income of $36.1 million, compared to $31.4 million, in the year ago quarter. Mortgage servicing rights change (the “MSR Change”) due to price of $3.1 million ($0.12 per diluted share, after taxes) compared to a negative $2.4 million ($0.09 per diluted share, after taxes) in the year ago quarter. Provision for credit losses expense of $2.4 million compared to a credit of $1.4 million in the year ago quarter. Return on average assets of 1.10%. Return on average equity of 15.68%. Balance Sheet/Capital Total portfolio loans increased by $254.8 million or 34.0% annualized. Total deposits (excluding brokered deposits) grew by $48.0 million or 4.6% annualized. Paid a 22 cent per share cash dividend on common stock on May 16, 2022. 5
Year-to-date 2022 Financial Highlights Income Statement Net income and diluted earnings per share of $31.0 million and $1.45, respectively, for the first six months of 2022. Annualized return on average assets and on average equity of 1.32% and 17.63%, respectively, for the first six months of 2022. Increases in net interest income of $7.4 million or 12.0% for the first six months of 2022 compared to 2021. The MSR Change due to price of a positive $11.6 million ($0.43 per diluted share, after taxes) for the first six months of 2022 compared to a positive $2.2 million ($0.08 per diluted share, after taxes) in the year ago period. Provision for credit losses expense of $0.8 million for the first six months of 2022 compared to a credit of $1.9 million in the year ago period. Balance Sheet/Capital Total securities (AFS and HTM) decreased by $171.5 million or 24.5% annualized. Total portfolio loans increased by $353.8 million or 24.6% annualized. Total deposits grew (excluding brokered deposits) by $136.4 million or 6.7% annualized. Paid 44 cent per share cash dividend on common stock year-to-date. 6
Our Michigan Markets 7 Source: S&P Global Market Intelligence and Company documents. Map does not include loan production offices. Deposit market share data based on FDIC Summary of Deposits Annual Survey as of June 30, 2021. Note: Loan and deposit balances exclude the loans and deposits (such as brokered deposits) that are not clearly allocable to a certain market region. Loans specifically exclude: $211 million of Ohio mortgage loans, $39 million of resort loans and $10 million of purchased mortgage loans. 94 96 75 69 Michigan’s premier community bank. #1 deposit market share amongst banks headquartered in Michigan and #9 deposit market share overall. Top 10 market share in 20 of 24 counties of operation – with opportunity to gain market share in attractive Michigan markets. Low cost and stable deposit base in East/”Thumb” and Central regions utilized to fund loan growth in the West and Southeast regions (higher growth & more metropolitan). New full service bank branch opening in Holland, Michigan in 3Q’22. Opened Loan Production Offices in Ottawa County and Macomb County in 3Q’21. 8 Loan Production Offices (LPOs), including 6 throughout Michigan and 2 in Ohio (residential mortgage lending only). Branches (58) East / “Thumb” Branches: 18 Deposits: $1,064M Loans: $191M Southeast Branches: 7 Deposits: $560M Loans: $1,020M Central Branches: 10 Deposits: $502M Loans: $192M West Branches: 19 Deposits: $1,250M Loans: $721M Northwest Branches: 4 Deposits: $311M Loans: $333M $74.0 million average deposits per branch
Select Economic Statistics 8 Unemployment Trends (%) Total Employees (Thousands) Regional Average Home Sales Price (Thousands) Annualized Home Sales (Thousands) Select Economic Statistics Unemployment rates returning to normal levels Stable prices in key markets Strong job growth continues Stabilizing Michigan home sales
Low Cost Deposit Franchise Focused on Core Deposit Growth 9 Substantially core funding – $3.93 billion of non-maturity deposit accounts (91.7% of total deposits). Total deposits increased $173.5 million (8.5%) since 12/31/21 with non-interest bearing up $36.2 million, savings and interest- bearing checking up $63.6 million, reciprocal up $28.6 million, time up $8.0 million and brokered up $37.1 million. Deposits by Customer Type: Retail – 51.8% Commercial – 34.9% Municipal – 13.3% Deposit Composition – 6/30/22 Deposit Highlights Michigan Deposit Market Share $4.3B Core Deposits: 91.7% Cost of Deposits (%)/Total Deposits ($B) Note: Core deposits defined as total deposits less maturity deposits. Source: S&P Global deposit market share data based on FDIC Summary of Deposits Annual Survey as of June 30, 2021.
Historic IBC Cost of Funds (excluding sub debt) vs. the Federal Funds Rate 10
11 11 All functionality within online banking can be done in the new IB ONE Wallet app. Customers can reset their own passwords in the app. Instantly transfer funds to other IB customers. IB Card Controls allows you to turn your debit card on or off, restrict transactions by category or dollar amount, and easily set up purchase alerts. ONE Wallet+, available in Online Banking and through the IB ONE Wallet app, is a tool that allows you to consolidate multiple accounts, including other bank accounts, credit cards, and investment accounts into one place. You can create budgets, manage trends, and even set financial goals. Digital Transformation
Diversified Loan PortfolioFocused on High Quality Growth 12 Lending Highlights Note: Portfolio loans exclude loans HFS. Portfolio loan changes in 2Q’22: Commercial – increased $71.6 million (excluding PPP increased $77.3 million). PPP loan balances decreased $5.7 million and totaled $0.3 million at June 30, 2022. Average new origination yield of 4.71%. Mortgage – increased $114.1 million. Average new origination yield of 4.31%. Installment – increased $69.1 million. Average new origination yield of 3.97%. Mortgage loan portfolio weighted average FICO and LTV of 751 and 78%, respectively and average balance of $233,834. Installment weighted average FICO of 758 and average balance of $26,274. Commercial loan rate mix: 50% fixed / 50% variable. Indices – 73% tied to Prime, 23% tied to LIBOR, 2% tied to a US Treasury rate and 3% tied to SOFR. Mortgage loan (including HECL) rate mix: 67% fixed / 33% adjustable or variable. 26% tied to Prime, 38% tied to LIBOR, 16% tied to a US Treasury rate and 20% tied to SOFR. Loan Composition – 6/30/22 $3.3B Yield on Loans (%)/Total Portfolio Loans ($B)
Loans by Industry as a % of Total Commercial Loans ($ in millions) Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) 13 Commercial Loan Portfolio Concentrations 13 Note: $857 million, or 64.5% of the commercial loan portfolio is C&I or owner occupied, while $472 million, or 35.5% is investment real estate. The percentage concentrations are based on the entire commercial portfolio of $1.329 billion as of June 30, 2022
Investment Securities Portfolio 14 Highlights High quality, liquid, diverse portfolio with moderate duration. On April 1, 2022 approximately $391.6 million in securities available-for-sale was transferred to held-to-maturity. Sold $66.4 million of securities to facilitate an asset rotation into higher yielding loans. Net unrealized loss of $122.3 million, representing 9.1% of amortized cost net of swaps. Portfolio ratings: 52% AAA rated (or backed by the U.S. Government); 30% AA rated; 9% A rated; 7% BAA rated and 2% unrated. 5.31 year estimated average duration with a weighted average yield of 2.26% (with TE gross up) including swaps. Approximately 26.6% of the portfolio is variable rate including swaps. $1.2B Investment Portfolio by Type (6/30/22)
Strong Capital Position 15 TCE / TA (%) Leverage Ratio (%) CET1 Ratio (%) Total RBC Ratio (%) Strong Capital Position 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. YTD Share Repurchases: 181, 586 shares $22.08 avg price per share Tangible common equity ratio excluding the impact of unrealized losses on securities AFS and HTM is 7.72%
Highlights Net interest income increased $3.1 million in 2Q’22 vs.1Q’22 due primarily to an increase in average earning assets and an increase in the net interest margin. Net interest margin was 3.26% during the second quarter of 2022, compared to 3.02% in the year-ago quarter and 3.00% in the first quarter of 2022. Yields, NIM and Cost of Funds (%) Net Interest Income ($ in Millions) Net Interest Margin/Income 16
Linked Quarter Analysis 17 2Q’22 NIM Changes Linked Quarter Average Balances and FTE Rates 2Q22 1Q22 Change Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield ($ in thousands) Cash $18,032 $29 0.65% $87,317 $37 0.17% ($69,285) ($8) 0.47% Investments 1,330,587 7,343 2.21% 1,425,342 6,747 1.89% (94,755) 596 0.31% Commercial loans 1,291,582 13,924 4.32% 1,211,319 12,239 4.10% 80,263 1,685 0.23% Mortgage loans 1,242,488 11,626 3.74% 1,204,008 10,590 3.52% 38,480 1,036 0.22% Consumer loans 611,025 5,923 3.89% 564,771 5,610 4.03% 46,254 313 -0.14% Earning assets $4,493,714 $38,845 3.47% $4,492,757 $35,223 3.16% $957 $3,622 0.31% Nonmaturity deposits $2,534,242 $788 0.12% $2,503,014 $641 0.10% $31,228 147 0.02% Time deposits 354,209 428 0.48% 338,354 126 0.15% 15,855 302 -0.24% Other borrowings 116,652 1,087 3.74% 108,969 973 3.62% 7,683 114 0.12% Costing funds $3,005,103 $2,303 0.31% $2,950,337 $1,740 0.24% $54,766 $563 0.07% Free funds $1,488,611 $1,542,420 ($53,809) Net interest income $36,542 $33,483 $3,059 Net interest margin 3.26% 3.00% 0.26% Q1'22 3.00% Decline in cash and investments 0.06% Decline in PPP balances net of PPP accretion -0.03% Change in loan yield and mix excluding PPP 0.18% Increase in investment yield 0.10% Increase in funding costs -0.05% Q2'22 3.26%
The increase in the base case modeled NII is due to rate increases during the quarter, lower betas on interest bearing deposits than modeled and earning asset growth. The shift in sensitivity is due to a combination of faster liability repricing due to slightly higher deposit betas and slower asset repricing due to an increase in asset duration. Base-rate is a static balance sheet applying the spot yield curve from the valuation date. Stable core funding base. Transaction accounts fund 44.8% of assets and other non-maturity deposits fund another 24.0% of assets. Limited wholesale funding of just 3.0% of assets. 24.3% of assets reprice in 1 month and 40.6% reprice in the next 12 months. Continually evaluating strategies to manage NII through hedging as well as product pricing and structure. 18 Interest Rate Risk Management Changes in Net Interest Income 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. June 30, 2022 -100 Base-rate +100 +200 (Dollars in 000's) Net Interest Income $ 155,418 $ 161,619 $ 161,518 $ 160,556 Change from Base -3.84% - -0.06% -0.66% March 31, 2022 -100 Base-rate +100 +200 (Dollars in 000's) Net Interest Income $ 136,400 $ 142,500 $ 146,100 $ 147,500 Change from Base -4.28% - 2.53% 3.51%
Strong Non-interest Income 19 Diverse sources of non-interest income, representing 27.6% of operating revenue in 2Q’22. 2Q’22 other income of $2.3 million compared to $1.1 million in the prior year quarter. This increase was primarily due to a gain on sale of a bank owned property $0.3 million loss on the sale of securities in the second quarter of 2022 compared to zero in the prior year quarter was generally attributed to the divestiture of a group of securities as part of a balance sheet management strategy. Mortgage banking: $1.3 million in net gains on mortgage loans in 2Q’22 vs. $9.1 million in the year ago quarter. A combination of lower mortgage loan sales volume, reduced profit margins and fair value adjustments led to this decrease. $317.7 million in mortgage loan originations in 2Q’22 vs. $473.7 million in 2Q’21 and $270.2 million in 1Q’21. 2Q’22 mortgage loan servicing includes a $3.1 million ($0.12 per diluted share, after tax) increase in fair value adjustment due to price compared to a decrease of $2.4 million ($0.09 per diluted share, after tax) in the year ago quarter. Source: Company documents. $33.6M 2022 YTD Non-interest Income (thousands) Non-interest Income Trends ($M) Highlights
Focus on Improved Efficiency 20 Source: Company documents. Non-interest Expense ($M) Highlights Efficiency Ratio (4 quarter rolling average) 2Q’22 efficiency ratio of 62.5%. Compensation and employee benefits expense of $19.9 million, unchanged from the prior year quarter. Compensation (salaries and wages) increased $1.4 million due to raises that were generally effective at the start of the year, a decreased level of compensation that was deferred in the second quarter of 2022 as direct origination costs (lower mortgage loan origination volume), and an increase in lending personnel. $1.0 million decrease in performance based compensation expense accrual due in part to lower mortgage lending volumes. Payroll taxes and employee benefits decreased $0.4 million due to lower payroll taxes and retirement plan costs. Costs related to the reserve for unfunded lending commitments increased $0.6 million due primarily to an increase in the balance of unfunded lending commitments. Opportunities exist to gain additional efficiencies as we continue to optimize our delivery channels.
Credit Quality Summary 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 $1.63 million of payment plan receivables that were held for sale. Non-performing Assets ($ in Millions) ORE/ORA ($ in Millions) Non-performing Loans ($ in Millions) 30 to 89 Days Delinquent ($ in Millions) 21
Classified Assets and New Default Trends Note: Dollars all in millions. Total Classified Assets Commercial Loan New Defaults Total Loan New Defaults Retail Loan New Defaults 22
Troubled Debt Restructurings (TDRs) TDR Highlights Working with client base to maximize sustainable performance. The specific reserves allocated to TDRs totaled $331m 6/30/22. A majority of our TDRs are performing under their modified terms but remain in TDR status for the life of the loan. 96.1% of TDRs are current as of 06/2022. Commercial TDR Statistics: 13 loans with $3.3 million book balance. 100% performing. WAR of 5.56% Well seasoned portfolio; all loans are accruing and performing, and have been for over a year since modification. Retail TDR Statistics: 358 loans with $29.7 million book balance. 96.1% performing. WAR of 4.30% (accruing loans). Well seasoned portfolio; 99% of accruing loans are not only performing but have been for over a year since modification. TDRs ($ in Millions) 96% of TDRs are Current 23
Note: Dollars all in millions. Adopted CECL on 1/1/21, the day one adjustment to the ACL was $11.7 million. Provision for Credit Losses Loan Net Charge-Offs/Recoveries Allowance for Credit Losses Credit Cost Summary 24
2022 Outlook Update Category Outlook Lending Continued growth IBCP goal of low double digit (approximately 10%) overall loan growth is based on increases in commercial loans, mortgage loans and consumer loans. Expect much of this growth to occur in the last three quarters of 2022. This growth forecast also assumes an improving Michigan economy. Q2 Update: Total portfolio loans increased $254.8 million (34.0% annualized) in 2Q’22 and $353.8 million (24.5% annualized) in the first six months of 2022 which is higher than our forecasted range. Commercial, mortgage and installment loans all had positive growth in 2Q’22. Net Interest Income Growth driven primarily by higher average earning assets The elimination of accelerated fee accretion ($8.9 million in 2021) related to Paycheck Protection Program will make net interest income (NII) growth challenging in 2022. IBCP goal low single digit (1%-3%) growth is primarily supported by an increase in earning assets. Expect the net interest margin (NIM) to trend lower (0.10% - 0.15%) in 2022 compared to full-year 2021. Primary driver is a reduction in earing asset yield. The forecast assumes a 0.25% increase in June and September in the federal funds rate and long-term interest rates up slightly over year end 2021 levels. Q2 Update: 2Q’22 net interest income was $4.7 million (14.9%) higher than the prior year quarter. The net interest margin was 3.26% for the quarter, up 0.26% from the linked quarter and up 0.24% from the prior year quarter. The increase in net interest income is due to an increase in average interest-earning assets as well as an increase in net interest margin. Provision for Credit Losses Steady asset quality metrics 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 1.63% at 12/31/21. A full year 2022 provision (expense) for credit losses of approximately 0.15% to 0.20% of average total portfolio loans would not be unreasonable. Q2 Update: The provision for credit losses was an expense of $2.4 million (0.30% annualized) in 2Q’22 which was above our forecasted range of an expense of 0.15% to 0.20% of average portfolio loans. The year-to-date provision for credit losses was an expense of $0.8 (0.05%) which is below our forecast. The 2Q’22 provision expense was primarily the result of an increase in the adjustment to pooled reserve allocations primarily due to loan growth. Non-interest Income IBCP forecasted 2022 quarterly range of $13 million to $17 million with the total for the year down 20% to 25% from 2021 actual of $76.6 million Expect mortgage loan origination volumes in 2022 to be down by approximately 21%, interchange income in 2022 to increase approximately 5% as compared to 2021 and service charges on deposits to be collectively comparable to 2021 (a decline in NSF fees to be largely offset by an increase in treasury management related service charges). Q2 Update: Non-interest income totaled $14.6 million in 2Q’22, which was within the forecasted range. 2Q’22 mortgage loan originations, sales and gains totaled $317.7 million, $143.0 million and $1.3 million, respectively. The decrease in net gains on mortgage loans sold was primarily due to lower sales volume, decreased profit margin on mortgage loan sales and a decrease in the fair value adjustments on the mortgage loan pipeline. Mortgage loan servicing generated a gain of $4.2 million in 2Q’22 due primarily to a positive $3.1 million fair value adjustment due to price. The $1.2 million (62.7%) comparative quarterly increase in other income is primarily attributed to a gain on sale ($0.9 million) of bank owned property. Non-interest Expenses IBCP forecasted 2022 quarterly range of $30.5 million to $32.5 million with the total for the year down (3%-5%) from the 2021 actual of $131.0 million. The primary driver is a decrease in total compensation and employee benefits due primarily to a reduction in incentive compensation, conversion related expense and costs(recoveries) related to unfunded lending commitments. Q2 Update: : Total non-interest expense was $32.4 million in the second quarter of 2022, within our forecasted range. The $0.6 million comparative quarterly increase in costs (recoveries) related to unfunded lending commitments is primarily attributed to an increase in the balance lending commitments. Income Taxes Approximately an 18.5% effective income tax rate in 2022. This assumes a 21% statutory federal corporate income tax rate during 2022. Q2 Update: Actual effective income tax rate of 18.1% for the 2Q’22. Share Repurchases 2022 share repurchase authorization at approximately 5% (1.1 million) of outstanding shares. Expect total share repurchases in 2022 at the mid-point of this authorization. Q2 Update: The Company repurchased 181,586 (16.5% of repurchase authorization) shares at an average price of $22.08 in the first six months of 2022. 25
Strategic Initiatives 26 Organic growth through servicing businesses and consumers in our Markets in an inclusive way to include straight forward marketing, improved brand awareness and enhanced outreach efforts that foster strong customer relationships and engagement. Improve net interest income via balanced loan growth, disciplined risk adjusted loan pricing and active management of deposit pricing. Add new customers and grow revenue by leveraging new LPO’s and talented sales staff & outbound calling efforts. Leverage data analytics for innovative targeted customer acquisitions, retention and cross sales strategies, inside sales efforts and referrals with strategic business unit partners. Supplement our organic growth initiatives via selective and opportunistic bank acquisitions and branch acquisitions. Growth Enhance process improvement expertise, enabling all business lines and departments to streamline/automate operating processes and workflows. Leverage technology, capitalizing upon core conversion new capabilities, streamline and improve bank processes. Leverage virtual capabilities to make more effective meetings, training and customer engagement. Optimize branch delivery channel including assessing existing locations, new locations, service hours, staffing, & workflow and leveraging our existing technology. Expand Digital Branch (call center) services. Process Improvement & Cost Controls Sustain and enhance a constructive culture, supported by a highly engaged workforce that embraces and encourages a diverse, equitable, inclusive and flexible work environment. Retain and attract top talent. Align learning and development initiatives in support of bank priorities and employees’ continued growth. Demonstrate that we are committed to the well-being of our team members who ensure our success. This entails recognizing and rewarding contributions, developing new talent via internships, providing coaching and development, and planning for succession and new opportunities. Talent Management Produce strong and consistent earnings and capital levels. Maintain good credit quality aided by strong proactive asset quality monitoring and problem resolution. Practice sound risk management with effective reporting to include fair banking and scenario planning. Actively manage and monitor liquidity and interest rate risk. Promote strong, independent & collaborative risk management, utilizing three layers of defense (business unit, risk management and internal audit). Ensure effective operational controls with special emphasis on cyber security, fraud prevention, core system conversion and regulatory compliance. Maintain effective relationships with regulators & other outside oversight parties. Provide effective ESG (Environmental, Social and Governance) disclosures for investors and other interested parties. Risk Management
Q&A and Closing Remarks Question and Answer Session Closing Remarks Thank you for attending! NASDAQ: IBCP 27
28 Non-GAAP to GAAP Reconciliation
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