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: April 27, 2021
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 April 27, 2021, Independent Bank Corporation issued a press release announcing its financial results for the quarter ended March 31, 2021. 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 April 27, 2021. |
|---|---|
| 99.2 | Supplemental data to the Registrant's press release dated April 27, 2021. |
| --- | --- |
| 99.3 | Earnings conference call presentation. |
| --- | --- |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
| --- | --- |
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 | April 27, 2021 | By | s/Gavin A. Mohr |
| Gavin A. Mohr, Principal Financial Officer |
2
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 |
| --- | --- |
Gavin A. Mohr, Chief Financial Officer, 616.447.3929
INDEPENDENT BANK CORPORATION REPORTS
2021 FIRST QUARTER RESULTS
GRAND RAPIDS, Mich., April. 27, 2021 - Independent Bank Corporation (NASDAQ: IBCP) reported first quarter 2021 net income of $22.0 million, or $1.00 per diluted share, versus net income of $4.8 million, or $0.21 per diluted share, in the prior-year period. The increase in 2021 first quarter earnings as compared to 2020 primarily reflects increases in net interest income, non-interest income as well as a decrease in the provision for credit losses that were partially offset by an increase in non-interest expense.
First quarter 2021 highlights include:
| • | Increases in net income and diluted earnings per share of 358.2% and 376.2%, respectively, compared to 2020; |
|---|---|
| • | Return on average assets and return on average equity of 2.10% and 23.51%, respectively; |
| --- | --- |
| • | Net gains on mortgage loans of $12.8 million (up 45.1% over 2020) and total mortgage loan origination volume of $509.0 million; |
| --- | --- |
| • | Deposit net growth of $221.2 million (or 6.1%); |
| --- | --- |
| • | Continued strong asset quality metrics as evidenced by net loan recoveries during the quarter, a low level of non-performing loans and non-performing assets; |
| --- | --- |
| • | The adoption of Financial Accounting Standards Board Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“CECL”) on January 1, 2021. The adoption<br> of CECL increased beginning of year allowance for credit losses, allowance for losses related to unfunded lending commitments and deferred tax assets $11.7 million, $1.5 million and $2.7 million, respectively and decreased retained<br> earnings $10.3 million; |
| --- | --- |
| • | COVID related forbearances declined to 0.62% of total loans; and |
| --- | --- |
| • | The payment of a 21 cent per share dividend on common stock on February 16, 2021. |
| --- | --- |
Significant items impacting comparable first quarter 2021 and 2020 results include the following:
| • | Net gains on sale of securities equal to $1.4 million ($0.05 per diluted share, after tax) in the first quarter of 2021 related to the divestiture of certain securities. |
|---|---|
| • | A change in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Change”) of a positive $4.6 million ($0.17 per diluted share, after taxes) as compared to a negative MSR change of $5.9 million ($0.21 per<br> diluted share, after taxes) for the first quarters of 2021 and 2020, respectively. |
| --- | --- |
1
| • | The provision for credit losses was a credit of $0.5 million in the first quarter of 2021 compared to an expense of $6.7 million in the first quarter of 2020. |
|---|
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “We are pleased to report very strong financial performance in the first quarter of 2021 as we continue to navigate the many challenges brought on by the COVID-19 pandemic. Our associates continued their amazing efforts during this quarter! We closed a company record 2,044 mortgage loans for over one-half billion dollars, helping our customers buy new homes or refinance existing mortgage loans. Our team facilitated 1,250 loans under the second round of the Paycheck Protection Program totaling $128.2 million while continuing to assist our customers in completing and submitting PPP round 1 forgiveness applications to the SBA. Finally, we maintained solid asset quality metrics during the first quarter of 2021. COVID-19 related loan forbearance balances decreased by 26.2% during the first quarter of 2021. As we look ahead to the balance of 2021 and beyond, we are mindful that the challenges from the COVID-19 pandemic remain; however, we are confident of our continued ability to effectively respond to these challenges and remain optimistic about our future.”
COVID-19 Pandemic Update
The Company continues to respond to the challenges arising from the COVID-19 pandemic and take the necessary steps to serve our communities while doing our part to minimize the spread of COVID-19. The following is a brief description of our current initiatives:
| • | Customer Safety and Service Levels – From mid-March 2020 to mid-June 2020 we limited our branch lobbies to appointment only and kept drive-through windows open. In mid-June 2020 our bank branch lobbies fully reopened. On November 13,<br> 2020 we again limited our branch lobbies to appointment only in response to increasing COVID-19 cases in the State of Michigan. Branch lobbies were reopened January 4, 2021. With the ability to use drive through service, ATMs or our<br> electronic banking solutions there was minimal disruption to our customers. | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| • | Employee Safety – For employees that are in our bank branches servicing our customers, we have expanded sick and vacation time. All non-branch employees either have the option or are required to work remotely. We currently have<br> approximately 38% of our total staff working remotely every day. We have installed “customer friendly” shields throughout our delivery network and have implemented a variety of other protective processes to promote the safety of our<br> employees and put both customers and staff at ease. | ||||||||||||||
| --- | --- | ||||||||||||||
| • | Loan Forbearances – We have forbearance programs in place to proactively work with our customers who have experienced financial difficulty due to the COVID-19 pandemic. Totals for these programs by loan type are presented in the table<br> below under the caption “Asset Quality”. The level of these loans is down significantly after peaking in mid-June 2020, as many customers’ economic situations have improved, allowing them to pay their loans current or return to their<br> original payment terms. | ||||||||||||||
| --- | --- | ||||||||||||||
| • | U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) – We built an effective process to manage the high volume of applications that we received. Customer demand for this program was extraordinary. As of March<br> 31, 2021, we continue to assist our customers with loan forgiveness applications from round 1 of PPP while processing new PPP applications for round 2 of the Paycheck Protection Program. Current PPP activity is summarized below: | ||||||||||||||
| --- | --- | ||||||||||||||
| Three Months Ending | PPP – Round 1 | PPP – Round 2 | |||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| 12/31/2020 | 3/31/2021 | 3/31/2021 | |||||||||||||
| # | (000’s) | # | (000’s) | # | (000’s) | ||||||||||
| Loans Outstanding | 1,483 | $ | 169,782 | 698 | $ | 105,934 | 1,250 | $ | 128,240 | ||||||
| Avg. Loans Outstanding | - | 220,214 | - | 137,833 | - | 68,626 | |||||||||
| Apps. Submitted for Forgiveness | 808 | 122,962 | 1,477 | 183,346 | - | - | |||||||||
| Forgiveness Apps. Approved | 755 | 91,972 | 1,354 | 158,046 | - | - | |||||||||
| Net Fees Accreted into Int. Income | - | 3,251 | - | 1,853 | - | 219 | |||||||||
| Unaccreted Fees | - | 3,216 | - | 1,362 | - | 5,454 | |||||||||
| Average Loan Yield | - | 6.91 | % | - | 6.43 | % | - | 2.21 | % |
Operating Results
The Company’s net interest income totaled $30.3 million during the first quarter of 2021, an increase of $0.1 million, or 0.3% from the year-ago period, and down $0.7 million, or 2.3%, from the fourth quarter of 2020. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.05% during the first quarter of 2021, compared to 3.63% in the year-ago period, and 3.12% in the fourth quarter of 2020. The year-over-year quarterly increase in net interest income is due to an increase in average interest-earning assets that was largely offset by a decline in the net interest margin. Average interest-earning assets were $4.05 billion in the first quarter of 2021, compared to $3.35 billion in the year ago quarter and $3.98 billion in the fourth quarter of 2020.
2
Due to the economic impact of COVID-19, the Federal Reserve has taken a variety of actions to stimulate the economy, including significantly lowering short-term interest rates. Lower interest rates combined with a higher allocation to lower yielding assets has placed continued pressure on the Company’s net interest margin.
Non-interest income totaled $26.4 million in the first quarter of 2021 compared to $11.0 million for the first quarter of 2020 and $22.4 million in the fourth quarter of 2020. These changes were primarily due to variances in mortgage banking related revenues (net gains on mortgage loans and mortgage loan servicing, net), gain on sale of securities and improved interchange income.
Net gains on mortgage loans in the first quarters of 2021 and 2020, were approximately $12.8 million and $8.8 million, respectively. The increase in net gains on mortgage loans in the first quarter of 2021 compared to the first quarter of 2020 was primarily due to a significant increase in mortgage loan sales volume (principally reflecting the rise in mortgage loan refinance levels), as well as improved profit margins on mortgage loan sales.
Mortgage loan servicing, net, generated a gain of $5.2 million and a loss of $5.3 million in the first quarters of 2021 and 2020, respectively. The significant variances in mortgage loan servicing, net are 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 | ||||||
|---|---|---|---|---|---|---|
| 3/31/2021 | 3/31/2020 | |||||
| Mortgage loan servicing, net: | (Dollars in thousands) | |||||
| Revenue, net | $ | 1,910 | $ | 1,673 | ||
| Fair value change due to price | 4,640 | (5,931 | ) | |||
| Fair value change due to pay-downs | (1,383 | ) | (1,042 | ) | ||
| Total | $ | 5,167 | $ | (5,300 | ) |
Net gain on sale of securities totaled $1.4 million in first quarter of 2021 compared to $0.3 million in the prior year quarter. The gain on sale of securities in the first quarter of 2021 is related to the divestiture of a group of mortgage backed securities.
Interchange income equaled $3.0 million in the first quarter of 2021, an increase of $0.6 million from the prior year quarter. The increase is primarily due to higher transaction volume year-over-year.
Non-interest expenses totaled $30.0 million in the first quarter of 2021, compared to $28.7 million in the year-ago period. These year-over-year increases in non-interest expense are primarily due to increases in compensation and employee benefits and conversion related expense. The first quarter 2021 includes $0.2 million of expenses related to the Company’s core data processing conversion that is in process. (the Day 1 conversion is expected to be completed in May 2021)
The Company recorded an income tax expense of $5.1 million and $0.9 million in the first quarter of 2021 and 2020, respectively. The changes in income tax expense primarily reflect a 371.6% increase in pre-tax earnings in 2021 relative to 2020.
3
Asset Quality
A breakdown of loan forbearance totals by loan type is as follows:
| 3/31/2021 | 12/31/2020 | % change vs. prior quarter | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Loan Type | # | $(000’s) | % of portfolio | # | (000's) | % of portfolio | # | ||||||||||
| Loans serviced for others | 205 | $ | 26,975 | 0.9 | % | 288 | 1.4 | % | (28.8 | )% | (37.1 | ||||||
| Commercial | 0 | $ | 0 | 0.0 | % | 2 | 0.0 | % | (100.0 | )% | (100.0 | ||||||
| Mortgage | 111 | 15,263 | 1.53 | % | 134 | 2.0 | % | (17.2 | )% | (23.0 | |||||||
| Installment | 32 | 537 | 0.1 | % | 48 | 0.3 | % | (33.3 | )% | (62.0 | |||||||
| Total | 143 | $ | 15,800 | 0.6 | % | 184 | 0.8 | % | (22.3 | )% | (26.2 |
All values are in US Dollars.
Note: The % of portfolio is based on the dollar amount of forbearances to the total for the loan portfolio segment.
A breakdown of non-performing loans^(1)^ by loan type is as follows:
| Loan Type | 3/31/2021 | 12/31/2020 | 3/31/2020 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||
| Commercial | $ | 1,373 | $ | 1,440 | $ | 9,094 | |||
| Mortgage | 5,741 | 6,353 | 7,669 | ||||||
| Installment | 434 | 519 | 691 | ||||||
| Subtotal | 7,548 | 8,312 | 17,454 | ||||||
| Less – government guaranteed loans | 459 | 439 | 676 | ||||||
| Total non-performing loans | $ | 7,089 | $ | 7,873 | $ | 16,778 | |||
| Ratio of non-performing loans to total portfolio loans | 0.25 | % | 0.29 | % | 0.62 | % | |||
| Ratio of non-performing assets to total assets | 0.17 | % | 0.21 | % | 0.50 | % | |||
| Ratio of the allowance for loan losses to non-performing loans | 659.54 | % | 450.01 | % | 193.68 | % | |||
| (1) | Excludes loans that are classified as “troubled debt restructured” that are still performing. | ||||||||
| --- | --- |
Non-performing loans have decreased $0.8 million from December 31, 2020, due primarily to a decrease in non-performing mortgage loans.
The provision for credit losses was a credit of $0.5 in the first quarter of 2021 compared to an expense of $6.7 million in the prior year quarter. The $7.2 million comparative decrease in the provision for credit losses during the first quarter of 2021 relative to the same quarter in 2020 was the result of decreases in newly identified losses in the commercial and retail loan portfolios, a decrease in the adjustment to allocations based on subjective factors and increases in gross recoveries of previously charged-off commercial and retail loans.
The allowance for credit losses totaled $46.8 million at March 31, 2021 compared to $35.4 million at December 31, 2020. The increase from the prior quarter is attributed to the recording of our CECL adoption entry effective January 1, 2021. The impact of the adoption was an increase in our allowance for credit losses of $11.7 million. The adjustment was within our disclosed range of $10.5 million to $12.5 million. The after tax impact to retained earnings was a decrease of $10.3 million. At March 31, 2021, the allowance for credit losses equaled 1.68% of total portfolio loans under CECL, compared to 1.30% of total portfolio loans, at December 31, 2020 under the incurred loss methodology.
The Company recorded loan net recoveries of $0.1 million in the first quarter of 2021 compared to net charge offs of $0.4 million in the prior year quarter.
Balance Sheet, Liquidity and Capital
Total assets were $4.4 billion at March 31, 2021, an increase of $222.4 million from December 31, 2020. Loans, excluding loans held for sale, were $2.78 billion at March 31, 2021, compared to $2.73 billion at December 31, 2020. Deposits totaled $3.86 billion at March 31, 2021, an increase of $221.2 million from December 31, 2020. This increase is primarily due to growth in non-interest bearing, savings and interest-bearing checking and reciprocal deposit account balances.
Cash and cash equivalents totaled $130.5 million at March 31, 2021, versus $118.7 million at December 31, 2020. Securities available for sale totaled $1.25 billion at March 31, 2021, versus $1.07 billion at December 31, 2020. The significant increase in securities available for sale is due to the deployment of funds generated from the growth in deposits.
4
Total shareholders’ equity was $387.3 million at March 31, 2021, or 8.75% of total assets. Tangible common equity totaled $355.0 million at March 31, 2021, or $16.30 per share. The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:
| Regulatory Capital Ratios | 3/31/2021 | 12/31/2020 | Well<br><br> <br>Capitalized<br><br> <br>Minimum | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Tier 1 capital to average total assets | 8.95 | % | 8.81 | % | 5.00 | % | |||
| Tier 1 common equity to risk-weighted assets | 12.74 | % | 12.81 | % | 6.50 | % | |||
| Tier 1 capital to risk-weighted assets | 12.74 | % | 12.81 | % | 8.00 | % | |||
| Total capital to risk-weighted assets | 13.99 | % | 14.06 | % | 10.00 | % |
Share Repurchase Plan
On December 18, 2020, the Board of Directors of the Company authorized the 2021 share repurchase plan. Under the terms of the 2021 share repurchase plan, the Company is authorized to purchase up to 1,100,000 shares, or approximately 5% of its outstanding common stock. The repurchase plan is authorized to last through December 31, 2021. Thus far in 2021, the company has repurchased 180,667 shares at a weighted average price of $19.93 per share.
Earnings Conference Call
Brad Kessel, President and CEO and Gavin A. Mohr, CFO will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, April 27, 2021.
To participate in the live conference call, please dial 1-866-200-8394. Also the conference call will be accessible through an audio webcast with user-controlled slides via the following site/URL: https://services.choruscall.com/links/ibcp210427.html.
A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10153919). The replay will be available through May 4, 2021.
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $4.4 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 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.
5
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, 2020 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.
6
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |||||
|---|---|---|---|---|---|---|
| (unaudited) | ||||||
| (In thousands, except share<br><br> <br>amounts) | ||||||
| Assets | ||||||
| Cash and due from banks | $ | 49,220 | $ | 56,006 | ||
| Interest bearing deposits | 81,287 | 62,699 | ||||
| Cash and Cash Equivalents | 130,507 | 118,705 | ||||
| Securities available for sale | 1,247,280 | 1,072,159 | ||||
| Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 18,427 | 18,427 | ||||
| Loans held for sale, carried at fair value | 77,799 | 92,434 | ||||
| Loans | ||||||
| Commercial | 1,301,223 | 1,242,415 | ||||
| Mortgage | 999,982 | 1,015,926 | ||||
| Installment | 483,019 | 475,337 | ||||
| Total Loans | 2,784,224 | 2,733,678 | ||||
| Allowance for credit losses ^(1)^ | (46,755 | ) | (35,429 | ) | ||
| Net Loans | 2,737,469 | 2,698,249 | ||||
| Other real estate and repossessed assets | 346 | 766 | ||||
| Property and equipment, net | 36,736 | 36,127 | ||||
| Bank-owned life insurance | 55,318 | 55,180 | ||||
| Capitalized mortgage loan servicing rights | 23,530 | 16,904 | ||||
| Other intangibles | 4,063 | 4,306 | ||||
| Goodwill | 28,300 | 28,300 | ||||
| Accrued income and other assets | 66,665 | 62,456 | ||||
| Total Assets | $ | 4,426,440 | $ | 4,204,013 | ||
| Liabilities and Shareholders' Equity | ||||||
| Deposits | ||||||
| Non-interest bearing | $ | 1,301,842 | $ | 1,153,473 | ||
| Savings and interest-bearing checking | 1,670,106 | 1,526,465 | ||||
| Reciprocal | 608,689 | 556,185 | ||||
| Time | 275,022 | 287,402 | ||||
| Brokered time | 2,916 | 113,830 | ||||
| Total Deposits | 3,858,575 | 3,637,355 | ||||
| Other borrowings | 30,006 | 30,012 | ||||
| Subordinated debt | 39,300 | 39,281 | ||||
| Subordinated debentures | 39,541 | 39,524 | ||||
| Accrued expenses and other liabilities | 71,689 | 68,319 | ||||
| Total Liabilities | 4,039,111 | 3,814,491 | ||||
| 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: 21,773,734 shares at March 31, 2021 and 21,853,800 shares at December 31, 2020 | 335,704 | 339,353 | ||||
| Retained earnings | 47,287 | 40,145 | ||||
| Accumulated other comprehensive income | 4,338 | 10,024 | ||||
| Total Shareholders’ Equity | 387,329 | 389,522 | ||||
| Total Liabilities and Shareholders’ Equity | $ | 4,426,440 | $ | 4,204,013 | ||
| (1) | Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology. | |||||
| --- | --- |
7
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
| Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | March 31,<br><br> <br>2020 | |||||||
| (unaudited) | |||||||||
| Interest Income | (In thousands, except per share amounts) | ||||||||
| Interest and fees on loans | $ | 28,105 | $ | 31,139 | $ | 31,764 | |||
| Interest on securities available for sale | |||||||||
| Taxable | 2,796 | 3,299 | 3,059 | ||||||
| Tax-exempt | 1,384 | 789 | 390 | ||||||
| Other investments | 217 | 235 | 366 | ||||||
| Total Interest Income | 32,502 | 35,462 | 35,579 | ||||||
| Interest Expense | |||||||||
| Deposits | 1,256 | 3,516 | 4,700 | ||||||
| Other borrowings and subordinated debt and debentures | 962 | 953 | 688 | ||||||
| Total Interest Expense | 2,218 | 4,469 | 5,388 | ||||||
| Net Interest Income | 30,284 | 30,993 | 30,191 | ||||||
| Provision for credit losses ^(1)^ | (474 | ) | (421 | ) | 6,721 | ||||
| Net Interest Income After Provision for Credit Losses | 30,758 | 31,414 | 23,470 | ||||||
| Non-interest Income | |||||||||
| Interchange income | 3,049 | 2,819 | 2,457 | ||||||
| Service charges on deposit accounts | 1,916 | 2,218 | 2,591 | ||||||
| Net gains on assets | |||||||||
| Mortgage loans | 12,828 | 15,873 | 8,840 | ||||||
| Securities available for sale | 1,416 | 14 | 253 | ||||||
| Mortgage loan servicing, net | 5,167 | (384 | ) | (5,300 | ) | ||||
| Other | 2,030 | 1,823 | 2,163 | ||||||
| Total Non-interest Income | 26,406 | 22,363 | 11,004 | ||||||
| Non-interest Expense | |||||||||
| Compensation and employee benefits | 18,522 | 20,039 | 16,509 | ||||||
| Data processing | 2,374 | 2,374 | 2,355 | ||||||
| Occupancy, net | 2,343 | 2,120 | 2,460 | ||||||
| Furniture, fixtures and equipment | 1,003 | 964 | 1,036 | ||||||
| Interchange expense | 948 | 926 | 859 | ||||||
| Communications | 881 | 785 | 803 | ||||||
| Loan and collection | 759 | 708 | 805 | ||||||
| Legal and professional | 499 | 600 | 393 | ||||||
| Advertising | 489 | 594 | 683 | ||||||
| FDIC deposit insurance | 330 | 385 | 370 | ||||||
| Conversion related expenses | 218 | 1,541 | 56 | ||||||
| Correspondent bank service fees | 100 | 101 | 99 | ||||||
| Net (gains) losses on other real estate and repossessed assets | (180 | ) | (82 | ) | 109 | ||||
| Other | 1,735 | 1,652 | 2,182 | ||||||
| Total Non-interest Expense | 30,021 | 32,707 | 28,719 | ||||||
| Income Before Income Tax | 27,143 | 21,070 | 5,755 | ||||||
| Income tax expense | 5,106 | 4,084 | 945 | ||||||
| Net Income | $ | 22,037 | $ | 16,986 | $ | 4,810 | |||
| Net Income Per Common Share | |||||||||
| Basic | $ | 1.01 | $ | 0.78 | $ | 0.22 | |||
| Diluted | $ | 1.00 | $ | 0.77 | $ | 0.21 | |||
| (1) | Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology. | ||||||||
| --- | --- |
8
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | September 30,<br><br> <br>2020 | June 30,<br><br> <br>2020 | March 31,<br><br> <br>2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| Net interest income | $ | 30,284 | $ | 30,993 | $ | 31,966 | $ | 30,462 | $ | 30,191 | |||||
| Provision for credit losses ^(1)^ | (474 | ) | (421 | ) | 975 | 5,188 | 6,721 | ||||||||
| Non-interest income | 26,406 | 22,363 | 27,011 | 20,367 | 11,004 | ||||||||||
| Non-interest expense | 30,021 | 32,707 | 33,641 | 27,346 | 28,719 | ||||||||||
| Income before income tax | 27,143 | 21,070 | 24,361 | 18,295 | 5,755 | ||||||||||
| Income tax expense | 5,106 | 4,084 | 4,777 | 3,523 | 945 | ||||||||||
| Net income | $ | 22,037 | $ | 16,986 | $ | 19,584 | $ | 14,772 | $ | 4,810 | |||||
| Basic earnings per share | $ | 1.01 | $ | 0.78 | $ | 0.90 | $ | 0.67 | $ | 0.22 | |||||
| Diluted earnings per share | 1.00 | 0.77 | 0.89 | 0.67 | 0.21 | ||||||||||
| Cash dividend per share | 0.21 | 0.20 | 0.20 | 0.20 | 0.20 | ||||||||||
| Average shares outstanding | 21,825,937 | 21,866,326 | 21,881,562 | 21,890,761 | 22,271,412 | ||||||||||
| Average diluted shares outstanding | 22,058,503 | 22,112,829 | 22,114,692 | 22,113,187 | 22,529,370 | ||||||||||
| Performance Ratios | |||||||||||||||
| Return on average assets | 2.10 | % | 1.61 | % | 1.90 | % | 1.54 | % | 0.54 | % | |||||
| Return on average equity | 23.51 | 17.82 | 21.36 | 17.39 | 5.54 | ||||||||||
| Efficiency ratio ^(2)^ | 53.48 | 60.59 | 56.36 | 53.07 | 69.32 | ||||||||||
| As a Percent of Average Interest-Earning Assets^(2)^ | |||||||||||||||
| Interest income | 3.27 | % | 3.57 | % | 3.62 | % | 3.72 | % | 4.28 | % | |||||
| Interest expense | 0.22 | 0.45 | 0.31 | 0.36 | 0.65 | ||||||||||
| Net interest income | 3.05 | 3.12 | 3.31 | 3.36 | 3.63 | ||||||||||
| Average Balances | |||||||||||||||
| Loans | $ | 2,834,012 | $ | 2,876,795 | $ | 2,925,872 | $ | 2,913,857 | $ | 2,766,770 | |||||
| Securities available for sale | 1,093,618 | 1,009,578 | 891,975 | 660,126 | 527,395 | ||||||||||
| Total earning assets | 4,047,952 | 3,984,080 | 3,887,455 | 3,659,614 | 3,350,948 | ||||||||||
| Total assets | 4,254,294 | 4,195,546 | 4,102,318 | 3,868,408 | 3,565,829 | ||||||||||
| Deposits | 3,698,811 | 3,632,758 | 3,559,070 | 3,303,302 | 3,066,298 | ||||||||||
| Interest bearing liabilities | 2,589,102 | 2,574,306 | 2,532,481 | 2,402,361 | 2,309,995 | ||||||||||
| Shareholders' equity | 380,111 | 379,232 | 364,714 | 341,606 | 348,963 | ||||||||||
| End of Period | |||||||||||||||
| Capital | |||||||||||||||
| Tangible common equity ratio | 8.08 | % | 8.56 | % | 8.23 | % | 8.03 | % | 8.40 | % | |||||
| Average equity to average assets | 8.93 | 9.04 | 8.89 | 8.83 | 9.79 | ||||||||||
| Common shareholders' equity per share of common stock | $ | 17.79 | $ | 17.82 | $ | 17.05 | $ | 16.23 | $ | 15.33 | |||||
| Tangible common equity per share of common stock | 16.30 | 16.33 | 15.55 | 14.72 | 13.81 | ||||||||||
| Total shares outstanding | 21,773,734 | 21,853,800 | 21,885,368 | 21,880,183 | 21,892,001 | ||||||||||
| Selected Balances | |||||||||||||||
| Loans | $ | 2,784,224 | $ | 2,733,678 | $ | 2,855,479 | $ | 2,866,663 | $ | 2,718,115 | |||||
| Securities available for sale | 1,247,280 | 1,072,159 | 985,050 | 856,280 | 594,284 | ||||||||||
| Total earning assets | 4,209,017 | 3,979,397 | 3,962,824 | 3,833,523 | 3,416,845 | ||||||||||
| Total assets | 4,426,440 | 4,204,013 | 4,168,944 | 4,043,315 | 3,632,387 | ||||||||||
| Deposits | 3,858,575 | 3,637,355 | 3,597,745 | 3,485,125 | 3,083,564 | ||||||||||
| Interest bearing liabilities | 2,626,280 | 2,553,418 | 2,515,185 | 2,456,193 | 2,350,056 | ||||||||||
| Shareholders' equity | 387,329 | 389,522 | 373,092 | 355,123 | 335,618 | ||||||||||
| (1) | Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%. | ||||||||||||||
| --- | --- |
9
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>March 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| (Dollars in thousands) | ||||||
| Net Interest Margin, Fully Taxable | ||||||
| Equivalent ("FTE") | ||||||
| Net interest income | $ | 30,284 | $ | 30,191 | ||
| Add: taxable equivalent adjustment | 404 | 121 | ||||
| Net interest income - taxable equivalent | $ | 30,688 | $ | 30,312 | ||
| Net interest margin (GAAP) ^(1)^ | 3.01 | % | 3.61 | % | ||
| Net interest margin (FTE) ^(1)^ | 3.05 | % | 3.63 | % | ||
| (1) | Annualized. | |||||
| --- | --- |
Tangible Common Equity Ratio
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | September 30,<br><br> <br>2020 | June 30,<br><br> <br>2020 | March 31,<br><br> <br>2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Common shareholders' equity | $ | 387,329 | $ | 389,522 | $ | 373,092 | $ | 355,123 | $ | 335,618 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 4,063 | 4,306 | 4,561 | 4,816 | 5,071 | ||||||||||
| Tangible common equity | $ | 354,966 | $ | 356,916 | $ | 340,231 | $ | 322,007 | $ | 302,247 | |||||
| Total assets | $ | 4,426,440 | $ | 4,204,013 | $ | 4,168,944 | $ | 4,043,315 | $ | 3,632,387 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 4,063 | 4,306 | 4,561 | 4,816 | 5,071 | ||||||||||
| Tangible assets | $ | 4,394,077 | $ | 4,171,407 | $ | 4,136,083 | $ | 4,010,199 | $ | 3,599,016 | |||||
| Common equity ratio | 8.75 | % | 9.27 | % | 8.95 | % | 8.78 | % | 9.24 | % | |||||
| Tangible common equity ratio | 8.08 | % | 8.56 | % | 8.23 | % | 8.03 | % | 8.40 | % |
Tangible Common Equity per Share of Common Stock:
| Common shareholders' equity | $ | 387,329 | $ | 389,522 | $ | 373,092 | $ | 355,123 | $ | 335,618 |
|---|---|---|---|---|---|---|---|---|---|---|
| Tangible common equity | $ | 354,966 | $ | 356,916 | $ | 340,231 | $ | 322,007 | $ | 302,247 |
| Shares of common stock outstanding (in thousands) | 21,774 | 21,854 | 21,885 | 21,880 | 21,892 | |||||
| Common shareholders' equity per share of common stock | $ | 17.79 | $ | 17.82 | $ | 17.05 | $ | 16.23 | $ | 15.33 |
| Tangible common equity per share of common stock | $ | 16.30 | $ | 16.33 | $ | 15.55 | $ | 14.72 | $ | 13.81 |
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.
10
Exhibit 99.2
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Supplemental Data
Non-performing assets ^(1)^
^^
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | September 30,<br><br> <br>2020 | June 30,<br><br> <br>2020 | March 31,<br><br> <br>2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | ||||||||||||||
| Non-accrual loans | $ | 7,548 | $ | 8,312 | $ | 10,481 | $ | 12,938 | $ | 17,454 | ||||
| Loans 90 days or more past due and still accruing interest | - | - | 266 | 5 | - | |||||||||
| Subtotal | 7,548 | 8,312 | 10,747 | 12,943 | 17,454 | |||||||||
| Less: Government guaranteed loans | 459 | 439 | 510 | 604 | 676 | |||||||||
| Total non-performing loans | 7,089 | 7,873 | 10,237 | 12,339 | 16,778 | |||||||||
| Other real estate and repossessed assets | 346 | 766 | 1,487 | 1,569 | 1,494 | |||||||||
| Total non-performing assets | $ | 7,435 | $ | 8,639 | $ | 11,724 | $ | 13,908 | $ | 18,272 | ||||
| As a percent of Portfolio Loans | ||||||||||||||
| Non-performing loans | 0.25 | % | 0.29 | % | 0.36 | % | 0.43 | % | 0.62 | |||||
| Allowance for credit losses | 1.68 | 1.30 | 1.25 | 1.20 | 1.20 | |||||||||
| Non-performing assets to total assets | 0.17 | 0.21 | 0.28 | 0.34 | 0.50 | |||||||||
| Allowance for credit losses as a percent of non-performing loans | 659.54 | 450.01 | 349.43 | 279.60 | 193.68 | |||||||||
| ^(1)^ | Excludes loans classified as "trouble debt restructured" that are not past due. | |||||||||||||
| --- | --- |
Troubled debt restructurings ("TDR")
| March 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|
| Commercial | Retail ^(1)^ | Total | |||||
| (In thousands) | |||||||
| Performing TDR's | $ | 5,032 | $ | 34,679 | $ | 39,711 | |
| Non-performing TDR's ^(2)^ | 1,105 | 1,459 | ^(3)^ | 2,564 | |||
| Total | $ | 6,137 | $ | 36,138 | $ | 42,275 | |
| December 31, 2020 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial | Retail ^(1)^ | Total | |||||
| (In thousands) | |||||||
| Performing TDR's | $ | 7,956 | $ | 36,385 | $ | 44,341 | |
| Non-performing TDR's ^(2)^ | 1,148 | 1,584 | ^(3)^ | 2,732 | |||
| Total | $ | 9,104 | $ | 37,969 | $ | 47,073 | |
| (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
| Three months ended<br><br> <br>March 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | ||||||||||
| Loans | Unfunded<br><br> <br>Commitments | Loans | Unfunded<br><br> <br>Commitments | ||||||||
| (Dollars in thousands) | |||||||||||
| Balance at beginning of period | $ | 35,429 | $ | 1,805 | $ | 26,148 | $ | 1,542 | |||
| Additions (deductions) | |||||||||||
| Impact of adoption of ASC 326 | 11,574 | 1,469 | - | - | |||||||
| Provision for credit losses ^(1)^ | (474 | ) | - | 6,721 | - | ||||||
| Initial allowance on loans purchased with credit deterioration | 134 | - | - | - | |||||||
| Recoveries credited to allowance | 548 | - | 399 | - | |||||||
| Loans charged against the allowance | (456 | ) | - | (773 | ) | - | |||||
| Additions included in non-interest expense | - | (32 | ) | - | 119 | ||||||
| Balance at end of period | $ | 46,755 | $ | 3,242 | $ | 32,495 | $ | 1,661 | |||
| Net loans charged (recovered) against the allowance to average Portfolio Loans | (0.01 | )% | 0.06 | % | |||||||
| (1) | Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology. | ||||||||||
| --- | --- |
Capitalization
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |||||
|---|---|---|---|---|---|---|
| (In thousands) | ||||||
| Subordinated debt | $ | 39,300 | $ | 39,281 | ||
| Subordinated debentures | 39,541 | 39,524 | ||||
| Amount not qualifying as regulatory capital | (524 | ) | (505 | ) | ||
| Amount qualifying as regulatory capital | 78,317 | 78,300 | ||||
| Shareholders’ equity | ||||||
| Common stock | 335,704 | 339,353 | ||||
| Retained earnings | 47,287 | 40,145 | ||||
| Accumulated other comprehensive income | 4,338 | 10,024 | ||||
| Total shareholders’ equity | 387,329 | 389,522 | ||||
| Total capitalization | $ | 465,646 | $ | 467,822 |
2
Non-Interest Income
| Three months ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | March 31,<br><br> <br>2020 | ||||||
| (In thousands) | ||||||||
| Interchange income | $ | 3,049 | $ | 2,819 | $ | 2,457 | ||
| Service charges on deposit accounts | 1,916 | 2,218 | 2,591 | |||||
| Net gains on assets | ||||||||
| Mortgage loans | 12,828 | 15,873 | 8,840 | |||||
| Securities | 1,416 | 14 | 253 | |||||
| Mortgage loan servicing, net | 5,167 | (384 | ) | (5,300 | ) | |||
| Investment and insurance commissions | 583 | 493 | 513 | |||||
| Bank owned life insurance | 139 | 160 | 270 | |||||
| Other | 1,308 | 1,170 | 1,380 | |||||
| Total non-interest income | $ | 26,406 | $ | 22,363 | $ | 11,004 |
Capitalized Mortgage Loan Servicing Rights
| Three months ended<br><br> <br>March 31, | |||||
|---|---|---|---|---|---|
| 2021 | 2020 | ||||
| (In thousands) | |||||
| Balance at beginning of period | $ | 16,904 | $ | 19,171 | |
| Originated servicing rights capitalized | 3,369 | 2,632 | |||
| Change in fair value | 3,257 | (6,974 | ) | ||
| Balance at end of period | $ | 23,530 | $ | 14,829 |
3
Mortgage Loan Activity
| Three months ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | March 31,<br><br> <br>2020 | |||||||
| (Dollars in thousands) | |||||||||
| Mortgage loans originated | $ | 509,003 | $ | 502,491 | $ | 311,078 | |||
| Mortgage loans sold | 377,418 | 388,631 | 262,260 | ||||||
| Net gains on mortgage loans | 12,828 | 15,873 | 8,840 | ||||||
| Net gains as a percent of mortgage loans sold ("Loan Sales Margin") | 3.40 | % | 4.08 | % | 3.37 | % | |||
| Fair value adjustments included in the | |||||||||
| Loan Sales Margin | (0.98 | ) | (0.53 | ) | 0.78 |
Non-Interest Expense
| Three months ended | ||||||||
|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | March 31,<br><br> <br>2020 | ||||||
| (In thousands) | ||||||||
| Compensation | $ | 10,121 | $ | 10,852 | $ | 10,703 | ||
| Performance-based compensation | 4,292 | 5,485 | 2,121 | |||||
| Payroll taxes and employee benefits | 4,109 | 3,702 | 3,685 | |||||
| Compensation and employee benefits | 18,522 | 20,039 | 16,509 | |||||
| Data processing | 2,374 | 2,374 | 2,355 | |||||
| Occupancy, net | 2,343 | 2,120 | 2,460 | |||||
| Furniture, fixtures and equipment | 1,003 | 964 | 1,036 | |||||
| Interchange expense | 948 | 926 | 859 | |||||
| Communications | 881 | 785 | 803 | |||||
| Loan and collection | 759 | 708 | 805 | |||||
| Legal and professional | 499 | 600 | 393 | |||||
| Advertising | 489 | 594 | 683 | |||||
| FDIC deposit insurance | 330 | 385 | 370 | |||||
| Amortization of intangible assets | 242 | 255 | 255 | |||||
| Conversion related expenses | 218 | 1,541 | 56 | |||||
| Supplies | 174 | 167 | 184 | |||||
| Correspondent bank service fees | 100 | 101 | 99 | |||||
| Provision for loss reimbursement on sold loans | 34 | 40 | 37 | |||||
| Costs (recoveries) related to unfunded lending commitments | (32 | ) | (8 | ) | 119 | |||
| Net (gains) losses on other real estate and repossessed assets | (180 | ) | (82 | ) | 109 | |||
| Other | 1,317 | 1,198 | 1,587 | |||||
| Total non-interest expense | $ | 30,021 | $ | 32,707 | $ | 28,719 |
4
Average Balances and Tax Equivalent Rates
| Three Months Ended<br><br> <br>March 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||||||||||
| Average<br><br> <br>Balance | Interest | Rate ^(2)^ | Average<br><br> <br>Balance | Interest | Rate ^(2)^ | |||||||||
| (Dollars in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Taxable loans | $ | 2,827,335 | $ | 28,039 | 4.00 | % | $ | 2,758,909 | $ | 31,688 | 4.61 | % | ||
| Tax-exempt loans ^(1)^ | 6,677 | 84 | 5.10 | 7,861 | 97 | 4.96 | ||||||||
| Taxable securities | 782,471 | 2,796 | 1.43 | 468,095 | 3,059 | 2.61 | ||||||||
| Tax-exempt securities^(1)^ | 311,147 | 1,770 | 2.28 | 59,300 | 490 | 3.31 | ||||||||
| Interest bearing cash | 101,895 | 29 | 0.12 | 38,424 | 128 | 1.34 | ||||||||
| Other investments | 18,427 | 188 | 4.14 | 18,359 | 238 | 5.21 | ||||||||
| Interest Earning Assets | 4,047,952 | 32,906 | 3.27 | 3,350,948 | 35,700 | 4.28 | ||||||||
| Cash and due from banks | 56,371 | 49,610 | ||||||||||||
| Other assets, net | 149,971 | 165,271 | ||||||||||||
| Total Assets | $ | 4,254,294 | $ | 3,565,829 | ||||||||||
| Liabilities | ||||||||||||||
| Savings and interest-bearing checking | $ | 2,140,405 | 675 | 0.13 | $ | 1,615,589 | 1,930 | 0.48 | ||||||
| Time deposits | 339,872 | 581 | 0.69 | 594,871 | 2,770 | 1.87 | ||||||||
| Other borrowings | 108,825 | 962 | 3.59 | 99,535 | 688 | 2.78 | ||||||||
| Interest Bearing Liabilities | 2,589,102 | 2,218 | 0.35 | 2,309,995 | 5,388 | 0.94 | ||||||||
| Non-interest bearing deposits | 1,218,534 | 855,838 | ||||||||||||
| Other liabilities | 66,547 | 51,033 | ||||||||||||
| Shareholders’ equity | 380,111 | 348,963 | ||||||||||||
| Total liabilities and shareholders’ equity | $ | 4,254,294 | $ | 3,565,829 | ||||||||||
| Net Interest Income | $ | 30,688 | $ | 30,312 | ||||||||||
| Net Interest Income as a Percent of Average Interest Earning Assets | 3.05 | % | 3.63 | % |
| (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
Commercial Loan Portfolio Analysis as of March 31, 2021
| Total Commercial Loans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of Loan | ||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | Category in<br><br> <br>Watch Credit | ||||||
| (Dollars in thousands) | |||||||||||
| Land | $ | 14,178 | $ | 175 | $ | - | $ | 175 | 1.2 | % | |
| Land Development | 13,274 | 35 | - | 35 | 0.3 | ||||||
| Construction | 75,364 | 36 | - | 36 | 0.0 | ||||||
| Income Producing | 362,506 | 2,049 | - | 2,049 | 0.6 | ||||||
| Owner Occupied | 353,101 | 12,219 | 719 | 12,938 | 3.7 | ||||||
| Total Commercial Real Estate Loans | $ | 818,423 | $ | 14,514 | 719 | $ | 15,233 | 1.9 | |||
| Other Commercial Loans | $ | 482,800 | $ | 15,107 | 654 | $ | 15,761 | 3.2 | |||
| Total non-performing commercial loans | $ | 1,373 |
Commercial Loan Portfolio Analysis as of December 31, 2020
| Total Commercial Loans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of Loan | ||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | Category in<br><br> <br>Watch Credit | ||||||
| (Dollars in thousands) | |||||||||||
| Land | $ | 14,567 | $ | 116 | $ | - | $ | 116 | 0.8 | % | |
| Land Development | 12,176 | 36 | - | 36 | 0.3 | ||||||
| Construction | 68,724 | 36 | - | 36 | 0.1 | ||||||
| Income Producing | 358,603 | 3,699 | - | 3,699 | 1.0 | ||||||
| Owner Occupied | 360,510 | 24,693 | 745 | 25,438 | 7.1 | ||||||
| Total Commercial Real Estate Loans | $ | 814,580 | $ | 28,580 | 745 | $ | 29,325 | 3.6 | |||
| Other Commercial Loans | $ | 427,835 | $ | 16,059 | 695 | $ | 16,754 | 3.9 | |||
| Total non-performing commercial loans | $ | 1,440 |
6
Exhibit 99.3
Independent Bank Corporation (IBCP) Earnings CallFirst Quarter 2021April 27, 2021
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, 2020 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 OfficerGavin A. Mohr, Executive Vice President and Chief Financial OfficerQuestion and Answer session.Closing Remarks.Note: This presentation is available at www.IndependentBank.com in the Investor Relations area under the “Presentations” tab. 3
COVID-19 ResponseSupporting Employees, Clients & Communities 4 Employees Clients & Communities Work from home. Providing the technology, culture, and operational infrastructure for the workforce to work remotely as needed.Granting additional sick and vacation time. Complying with applicable Michigan requirements (MI Safe Start Plan, etc.).Performing additional routine and on-demand sanitization of facilities using enhanced methods. Pro-actively reaching out to our business customers to understand needs. Supporting local businesses. Closed over $375 million in SBA Payroll Protection Program (PPP) loans. Working with business and consumer customers on temporary payment relief. When it became apparent that the Coronavirus (COVID-19) pandemic could pose a threat to our people and business, we activated our Business Continuity and Crisis Communication Core Teams to take early and decisive action
Historical Financial Data 5 Year Ended December 31, Quarter Ended, ($M except per share data) 2017 2018 2019 2020 3/31/20 6/30/20 9/30/20 12/31/20 3/31/21 Balance Sheet: Total Assets $2,789 $3,353 $3,565 $4,204 $3,632 $4,043 $4,169 $4,204 $4,426 Portfolio Loans $2,019 $2,583 $2,725 $2,734 $2,718 $2,867 $2,855 $2,734 $2,784 Deposits $2,401 $2,913 $3,037 $3,637 $3,084 $3,485 $3,598 $3,637 $3,859 Tangible Common Equity $263 $304 $317 $357 $302 $322 $340 $357 $355 Profitability: Pre-Tax, Pre-Provision Income $39.6 $50.6 $58.6 $81.9 $12.5 $23.5 $25.3 $20.6 $26.7 Pre-Tax, Pre-Prov / Avg. Assets 1.50% 1.62% 1.70% 2.08% 1.41% 2.44% 2.46% 1.98% 2.54% Net Income(1) $20.5 $39.8 $46.4 $56.2 $4.8 $14.8 $19.6 $17.0 $22.0 Return on Average Assets(1) 0.77% 1.27% 1.35% 1.43% 0.54% 1.54% 1.90% 1.61% 2.10% Return on Average Equity(1) 7.8% 12.4% 13.6% 15.7% 5.5% 17.4% 21.4% 17.8% 23.5% Net Interest Margin (FTE) 3.65% 3.88% 3.80% 3.34% 3.63% 3.36% 3.31% 3.12% 3.05% Efficiency Ratio 69.2% 67.2% 64.9% 59.2% 69.3% 53.1% 56.4% 60.6% 53.5% Asset Quality: NPAs / Assets 0.35% 0.29% 0.32% 0.21% 0.50% 0.34% 0.28% 0.21% 0.17% NPAs / Loans + OREO 0.49% 0.38% 0.42% 0.32% 0.67% 0.48% 0.41% 0.32% 0.27% Reserves / Total Portfolio Loans 1.12% 0.96% 0.96% 1.30% 1.20% 1.20% 1.25% 1.30% 1.68% NCOs / Avg. Loans (0.06%) (0.03%) (0.02%) 0.11% 0.06% 0.45% (0.04%) (0.02%) (0.01%) Capital Ratios: TCE Ratio 9.4% 9.2% 9.0% 8.6% 8.4% 8.0% 8.2% 8.6% 8.1% Leverage Ratio 10.6% 10.5% 10.1% 9.2% 9.6% 9.1% 9.0% 9.2% 9.3% Tier 1 Capital Ratio 14.0% 13.3% 12.7% 13.3% 12.2% 12.6% 13.0% 13.3% 13.2% Total Capital Ratio 15.2% 14.3% 13.7% 16.0% 13.4% 15.3% 15.6% 16.0% 15.8%
1Q 2021 Financial Highlights Income StatementPre-tax, pre-provision income was $26.7 million in the first quarter of 2021 compared to $12.5 million in the first quarter of 2020.Net income of $22.0 million, or $1.00 per diluted share compared to $4.8 million, or $0.21 per diluted share for the year ago quarter.Net interest income of $30.3 million, compared to $30.2 million, for the year ago quarter.Mortgage loan originations of $509.0 million, also, $377.4 million in mortgage loans sold with $12.8 million in net gains on mortgage loans compared to $8.8 million in net gains from the year ago quarter. Mortgage servicing rights change (the “MSR Change”) due to price of $4.6 million ($0.17 per diluted share, after taxes) compared to a negative $5.9 million ($0.21 per diluted share, after taxes) in the first quarter of 2020. Provision for loan loss credit of $0.5 million compared to an expense of $6.7 million in the first quarter of 2020. Balance Sheet/CapitalSecurities available for sale increased by $175.1 million.Total portfolio loans increased by $50.5 million.Total deposits grew by $221.2 million.Paid a 21 cent per share cash dividend on common stock on February 16, 2021. 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, 2020.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: $155 million of Ohio mortgage loans, $50 million of resort loans and $15 million of purchased mortgage loans. 94 96 75 69 Michigan’s premier community bank. #1 deposit market share amongst Michigan banks < $10B in assets and #9 deposit market share overall. Top 10 market share in 20 of 23 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).Eight bank branches were closed (two on June 26, 2020 and six on July 31, 2020). The closures by region were: 3 in the East/”Thumb”, 2 in the Central and 1 each in the West, Northwest and Southeast. New full service bank branch opened in Brighton, Michigan in 4Q’20.7 Loan Production Offices (LPOs), including 5 throughout Michigan and 2 in Ohio (residential mortgage lending only). Branches (62) East / “Thumb”Branches: 20Deposits: $954MLoans: $193M SoutheastBranches: 8Deposits: $474MLoans: $740M CentralBranches: 10Deposits: $463MLoans: $186M WestBranches: 20Deposits: $1,018MLoans: $941M NorthwestBranches: 4Deposits: $264MLoans: $259M
Select Economic Statistics 8 Unemployment Trends (%) Total Employees (Thousands) Regional Average Home Sales Price (Thousands) Annualized Home Sales (Thousands) Elevated unemployment rates due to COVID-19 As of Feb ‘21 Stable prices in key markets Strong job growth prior to COVID-19 Slowing Michigan home sales Select Economic Statistics
Low Cost Deposit Franchise Focused on Core Deposit Growth 9 Substantially core funding – $3.6 billion of non-maturity deposit accounts (92.8% of total deposits).Total deposits increased $221.2 million (6.1%) since 12/31/20 with non-interest bearing up $148.4 million, savings and interest- bearing checking up $143.6 million, reciprocal up $52.5 million and time down $12.4 million.Deposits by Customer Type:Retail – 51.9%Commercial – 34.4%Municipal – 13.7% Deposit Composition – 3/31/21 Deposit Highlights Michigan Deposit Market Share $3.9B Core Deposits: 92.8% Cost of Deposits (%)/Total Deposits ($B) Note: Core deposits defined as total deposits less maturity deposits.
Diversified Loan PortfolioFocused on High Quality Growth 10 Lending Highlights Note: Portfolio loans exclude loans HFS. Portfolio loan changes in 1Q’21:Commercial – increased $58.8 million. PPP loan balances increased $64.4 million and totaled $234.2 million at March 31, 2021.Mortgage – decreased $15.9 million due to portfolio pay-downs.Installment – increased $7.7 million.Mortgage loan portfolio weighted average FICO and LTV of 749 and 71%, respectively and average balance of $195,000.Installment weighted average FICO of 759 and average balance of $21,000.Commercial loan rate mix:62% fixed / 38% variable.Indices – 59% tied to Prime, 38% tied to LIBOR and 3% tied to a US Treasury rate.Mortgage loan (including HECL) rate mix: 54% fixed / 46% adjustable or variable. Indices – 20% tied to Prime, 59% tied to LIBOR , 19% tied to a US Treasury rate and 2% tied to SOFR Loan Composition – 3/31/21 $2.9B Yield on Loans (%)/Total Portfolio Loans ($B)
COVID-19 Programs – Loan Forbearances 11 Highlights Loan Forbearances The table above reflects the status of loan forbearances for the last four quarters. The percent of the loan portfolio is based on loan dollars.Loan Forbearances:Forbearance period is generally three months for mortgage and installment loans and three or six months for commercial loans. Retail (mortgage and installment) loan forbearances are primarily principal & interest deferrals.Commercial loan forbearances are primarily principal deferrals only.Forbearance requests peaked in early June 2020 and have since significantly abated. 3/31/2021 12/31/2020 9/30/2020 6/30/2020 Current % Change from 6/30 Loan Type # $ (000’s) % of portfolio # $ (000’s) % of portfolio # $ (000’s) % of portfolio # $ (000's) % of portfolio # $ Commercial 0 $0 0.00% 2 $163 0.02% 17 $25,105 1.90% 386 $210,486 15.40% -100.0% -100.0% Mortgage 111 15,263 1.53% 134 19,830 1.95% 197 32,091 3.10% 388 81,212 7.80% -71.4% -81.2% Installment 32 537 0.11% 48 1,412 0.30% 97 2,631 0.50% 280 7,459 1.60% -88.6% -92.8% Total 143 $15,800 0.62% 184 $21,405 0.83% 311 $59,827 2.10% 1,054 $299,157 10.40% -86.4% -94.7% Loans serviced for others 205 $26,975 0.88% 288 $42,897 1.44% 416 $66,279 2.30% 773 $114,839 4.2% -73.5% -76.5%
COVID-19 Programs – Paycheck Protection Program (“PPP”) 12 Highlights PPP Loan Portfolio The table above reflects the status of PPP loans as of December 31, and March 31, 2021 for Round 1 and Round 2 respectively.Paycheck Protection Program:Forgiveness applications began to be submitted to the SBA in August 2020. SBA generally has 90 days to process forgiveness applications.Forgiveness application approvals and payments from the SBA began to be received in October 2020.Expect the remaining unaccreted fees at March 31, 2021 to be accreted into interest income in the next 12 months. PPP – Round 1 PPP – Round 2 Description 12/31/2020 3/31/2021 3/31/2021 # ($ in 000’s) # ($ in 000’s) # ($ in 000’s) Loans outstanding at quarter-end 1,483 169,782 698 105,934 1,250 128,240 Average loans outstanding for the quarter n/a 220,214 n/a 137,833 n/a 68,626 Forgiveness applications submitted to the SBA 808 122,962 1,477 183,346 n/a n/a Forgiveness applications processed and approved by the SBA 755 91,972 1,354 158,046 n/a n/a Net fees accreted into interest income during the quarter n/a 3,251 n/a 1,853 n/a 219 Unaccreted fees remaining at quarter-end n/a 3,216 n/a 1,362 n/a 5,454 Average loan yield for the quarter n/a 6.91% n/a 6.43% n/a 2.21%
Loans by Industry as a % of Total Commercial Loans ($ in millions)C&I and Owner Occupied Real Estate = 67.8% of Commercial Loan Portfolio Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions)Investment Real Estate = 32.2% of the Commercial Loan Portfolio 13 Commercial Loan Portfolio Concentrations 13
Investment Securities Portfolio 14 Highlights High quality, liquid, diverse portfolio with relatively short duration.Fair value of $1.25 billion, an increase of $175.4 million in 1Q’21.Net unrealized gain of $7.9 million, representing 0.64% of amortized cost.Portfolio ratings: 72% AAA rated (or backed by the U.S. Government); 14% AA rated; 5% A rated; 5% BAA rated and 3% unrated.3.38 year estimated average duration with a weighted average yield of 1.96% (with TE gross up).Approximately 25.20% of the portfolio is variable rate. $1.2B Investment Portfolio by Type (3/31/21) Investment Securities Activity – 1Q’21 Total repayments include $1.73 million of repayments on Treasury/Agency securities not shown in the table. Agency MBS, CMO & CMBS Municipal/Govern-ment Asset-backed Private Label Mortgage Corp. Total (Dollars in 000’s) Purchases (at cost) $188,933 $136,525 $20,746 $3,000 $24,661 $373,866 Repayments (a) 48,457 8,412 46,553 2,804 1,676 109,636 Sales 76,763 -- -- -- -- 76,763 Purchases in 1Q’21 Yield (TE) 1.44% 2.25% 0.83% 1.11% 1.41% 1.70% Duration 4.85% 7.37% 0.46% 6.21% 4.47% 5.52%
Strong Capital Position 15 Source: S&P Global Market Intelligence and Company documents.Note: Company closed acquisition of TCSB Bancorp, Inc. in Q2 ‘18. TCE / TA (%) Leverage Ratio (%) CET1 Ratio (%) Total RBC Ratio (%) IBCP Target 8.50% - 9.50 % Capital retention to support (i) organic growth and (ii) acquisitions; and Return of capital through (i) strong and consistent dividend and (ii) share repurchases Long-Term Capital Priorities: Strong Capital Position
HighlightsInterest rate sensitivity profile of the loan and securities portfolios, in combination with a low cost core deposit base, positions us as slightly asset sensitive.Net interest income decreased $0.7 million, or 2.3%, in 1Q’21 vs. 4Q’20 due primarily to a $3.0 million decrease in interest income that was partially offset by a $2.3 million decrease in interest expense on deposits. Net interest margin was 3.05% during the first quarter of 2021, compared to 3.63% in the year-ago quarter and 3.12% in the fourth quarter of 2020. Yields, NIM and Cost of Funds (%) Net Interest Income ($ in Millions) Net Interest Margin/Income 16
Linked Quarter Analysis 17 1Q’21 NIM Changes Linked Quarter Average Balances and FTE Rates Yield on average interest-earning assets declined 30 basis points.Yield on PPP round 1 loans decreased 48 basis points due to a decline in fee accretion. Commercial loan yields net of PPP declined 34 basis points compared to the prior quarter. A combination of change in mix and lower yields on new volume loans is the primary driver. Continued growth in liquid assets combined with declining investment yields negatively impacted the net interest margin by 7 basis points (IBD growth 2 bps, investment growth 4 bps, investment yield 1 bps) in Q1’21.Funding costs decreased by 7 basis points (funding cost 0.03%, deferred hedge loss 0.04%) in Q1’21. 1Q’21 Highlights Q4'20 3.12% Decline in cost of funds 0.07% Discount accretion on commercial loans -0.02% Accelerated amortization of loss on derivatives 0.16% Decline in earning asset yields (growth and mix) -0.29% Q1'21 3.05%
Strong Non-interest Income 18 Diverse sources of non-interest income – representing 46.6% of operating revenue in 1Q’21.1Q’21 interchange income of $3.0 million compared to $2.5 million in the prior year quarter. This increase is due to an increase in transaction volume. COVID-19 has adversely impacted service charges on deposits. In addition, we have suspended certain electronic banking fees due to the enhanced need for customers to access this channel.Mortgage banking: $12.8 million in net gains on mortgage loans in 1Q’21 vs. $8.8 million in the year ago quarter. A combination of higher sales volumes and stronger profit margins led to this increase.$509.0 million in mortgage loan originations in 1Q’21 vs. $311.1 million in 1Q’20 and $502.5 million in 4Q’20.1Q’21 mortgage loan servicing includes a $4.6 million ($0.17 per diluted share, after tax) increase in fair value adjustment due to price compared to a dcrease of $5.9 million ($0.21 per diluted share, after tax) in the year ago quarter. Source: Company documents. $26.4M 2021 1Q’21 Non-interest Income (millions) Non-interest Income Trends ($M) Highlights
Focus on Improved Efficiency 19 Source: Company documents. Non-interest Expense ($M) Highlights Efficiency Ratio (4 quarter rolling average) Continued focus on expense control and driving positive operating leverage. Compensation and employee benefits expense of $18.5 million compared to $16.5 in the prior year quarter. $1.3 million increase in incentive compensation accrual due to an increase in expected payout levels compared to Q1’20. $0.2 million gain on sale of ORE/ORA certain retail properties.1Q’21 non-interest expense included $0.22 million of conversion related expenses (associated with core data processing conversion that is in process).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) 20
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 21
Troubled Debt Restructurings (TDRs) TDR HighlightsWorking with client base to maximize sustainable performance.The specific reserves allocated to TDRs totaled $4.6 million at 3/31/21.A majority of our TDRs are performing under their modified terms but remain in TDR status for the life of the loan.93.3% of TDRs are current as of 3/31/21.Commercial TDR Statistics:23 loans with $6.1 million book balance.82.2% performing.WAR of 5.26% (accruing loans).Well seasoned portfolio; 96% of accruing loans are not only performing but have been for over a year since modification.Retail TDR Statistics:431 loans with $36.1 million book balance.96.0% performing.WAR of 4.27% (accruing loans).Well seasoned portfolio; over 92% of accruing loans are not only performing but have been for over a year since modification. TDRs ($ in Millions) 93% of TDRs are Current 22
Note: Dollars all in millions. Provision for Credit Losses Loan Net Charge-Offs/Recoveries Allowance for Credit Losses Credit Cost Summary 23
Adoption of CECL 24 Adopted CECL on January 1, 2021 as allowed under the CARES Act extension. CECL day 1 adjustment to the ACL of $11.7 million which was within our disclosed range of $10.5 million to $12.5.Reserve for unfunded lending commitments increased $1.5 million.Retained earnings decreased $10.3 million. Allowance for credit losses (ACL) totaled $46.8 million at March 31, 2021. 1.68% of total portfolio loans 1.83% of total portfolio loans net of PPP loansQ1’21 provision for credit losses was a credit of $0.5 million.CECL Model Details:Discounted cash flow model with fourteen loan segments.Probability of default and loss given default based on long-term average for commercial loans and regression for mortgage and installment loans.Regression uses one year forecast / with immediate reversion to mean driven primarily by unemployment.Unemployment data: median of Bloomberg survey: 6.3% Q1, falls to 5.1% at the end of the one year forecast.Q factors: economic shock, forbearance activity, and loans in high risk industries. Provision for Credit Losses Detail Highlights
2021 Outlook Update Category Outlook Lending Continued growthLoan payoffs related to the Paycheck Protection Program will make loan growth challenging in 2021. IBCP goal of low (1%) single digit overall loan growth (5% - 7% excluding PPP impact), primarily supported by increases in commercial loans, mortgage loans and consumer loans. This growth forecast also assumes an improving Michigan economy.Q1 Update: Total loans increased $50.5 million (1.85%) in Q1’21. PPP round two loan production of $128.2 million is primarily responsible for the increase in total loans. PPP round one loans decreased $63.8 million due to loan forgiveness from the SBA. Commercial loans net of PPP production was a decrease of $5.6 million. Net Interest Income Growth driven primarily by higher average earning assetsIBCP goal of approximately 0.5% increase in net interest income (NII) over 2020. Expect the net interest margin (NIM) to trend lower (0.10% - 0.15%) in 2021 compared to full-year 2020. Primary driver is a reduction in earing asset yield. The forecast assumes no changes in the target federal funds rate in 2021 and long-term interest rates up very slightly over year end 2020 levels. Q1 Update: 1Q’21 net interest income was $0.1 million (0.31%) higher than the prior year quarter. The net interest margin was 3.05% for the quarter down 0.07% from the linked quarter and 0.58% from the prior year quarter. This primary driver of the decrease in the net interest margin is a higher allocation to lower yielding assets (mix), lower yields on new volume loans, lower yields on securities and slower accretion of PPP fees. Provision for Credit Losses Steady asset quality metricsVery 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 1.30% at 12/31/20. The initial (effective 1/1/20210) CECL adjustment is now expected to be approximately $10.5 million to $12.5 million. This CECL adjustment is still subject to certain final review procedures that will be completed in 1Q’21. A full year 2021 provision (expense) for credit losses of approximately 0.25% to 0.35% of average total portfolio loans would not be unreasonable.Q1 Update: The impact from our CECL adoption was an increase to our beginning of the year allowance for credit losses of $11.7 million which was within our disclosed range of $10.5 million to 12.5 million. The provision for credit losses was a credit of $0.5 million in the first quarter. If credit quality trends persist it is likely the full year provision for the ACL will be below our forecasted range of 0.25% to 0.35% of average total portfolio loans. Non-interest Income IBCP forecasted 2021 quarterly range of $13 million to $16 million with the total for the year down 30% to 35% from 2020 actual of $80.7 millionExpect mortgage loan origination volumes in 2021 to be down by approximately 30%. Expect overall mortgage banking revenues (gain on sale and mortgage loan servicing) to decline in 2020 due to lower volume as well as margin on loans sold. Expect service charges on deposits and interchange income in 2021 to be collectively comparable to 2020 (i.e. a decline in servicing charges on deposits due to lower NSF fees to be largely offset by an increase in interchange income). Q1 Update: Non-interest income totaled $26.4 million in Q1’21. Mortgage loan production as well as net gain on sale of mortgages was stronger than forecasted. Mortgage loans servicing added $5.2 million in non-interest income in Q1’21. The mortgage loan pipeline continues to be strong although refinance activity is slowing down. Non-interest Expenses IBCP forecasted 2021 quarterly range of $28.5 to $29.5 million with the total for the year down (4%-6%) from the 2020 actual of $122.4 million.Expect total compensation and employee benefits to be lower in 2021 compared to 2020 due primarily to a reduction in incentive compensation. Most other categories of non-interest expense expected to have small (1% to 2%) increases.Q1 Update: Total non-interest expense was $30.0 million in the first quarter, outside our $28.5 to $29.5 million targeted quarterly range. An increase in the accrual for incentive based compensation due to a higher than anticipated payout level is the primary driver of the increase in expense. Non-interest expense net of compensation and employee benefits is down $0.7 million from the prior year quarter. Income Taxes Approximately a 20% effective income tax rate in 2021. This assumes a 21% statutory federal corporate income tax rate during 2021. Q1 Update: Q1’21 actual effective income tax rate of 18.8%. Share Repurchases 2021 share repurchase authorization at approximately 5% of outstanding shares. Expect total share repurchases in 2021 at the mid-point of this authorization.Q1 Update: The company repurchased 180,667 at an average price of $19.93 in 1Q’21. 25
Strategic Initiatives 26 Serve consumers and businesses in our markets in an inclusive way with straight forward marketing and outreach efforts and fostering relationships and strong customer 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 through outbound calling.Add new customers and grow revenue through the addition of new talented sales professionals in our existing markets. 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.Successfully complete 2021 core conversion, capitalizing upon opportunity to 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 services.Build/enhance dashboard reporting and business intelligence. Process Improvement & Cost Controls Create and maintain an engaged workforce through a culture and environment that promotes diversity, equity, inclusion and professional development. Empower and support our team members to serve our customers. 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. Risk Management
Q&A and Closing Remarks Question and Answer SessionClosing RemarksThank you for attending!NASDAQ: IBCP 27