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: January 27, 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 | 49525 | |
| --- | --- | |
| Grand Rapids, Michigan | (Zip Code) | |
| (Address of principal executive office) |
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 January 27, 2022, Independent Bank Corporation issued a press release announcing its financial results for the quarter ended December 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 January 27, 2022. |
|---|---|
| 99.2 | Supplemental data to the Registrant's press release dated January 27, 2022. |
| --- | --- |
| 99.3 | Earnings conference call presentation. |
| --- | --- |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| INDEPENDENT BANK CORPORATION | |||
|---|---|---|---|
| (Registrant) | |||
| Date | January 27, 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 |
| Gavin A. Mohr, Chief Financial Officer, 616.447.3929 |
INDEPENDENT BANK CORPORATION REPORTS
2021 FOURTH QUARTER AND FULL YEAR RESULTS
GRAND RAPIDS, Mich., Jan. 27, 2022 - Independent Bank Corporation (NASDAQ: IBCP) reported fourth quarter 2021 net income of $12.5 million, or $0.58 per diluted share, versus net income of $17.0 million, or $0.77 per diluted share, in the prior-year period. For the year ended December 31, 2021, the Company reported net income of $62.9 million, or $2.88 per diluted share, compared to net income of $56.2 million, or $2.53 per diluted share, in 2020. The increase in full year 2021 net income as compared to 2020 primarily reflects an increase in net interest income and a decrease in provision for credit losses that were partially offset by a decrease in non-interest income and an increase in non-interest expense and income tax expense.
Fourth quarter 2021 highlights include:
| • | An increase in net interest income of 10.6% over the fourth quarter of 2020; |
|---|---|
| • | Net gains on mortgage loans of $5.6 million and total mortgage loan origination volume of $424.6 million; |
| --- | --- |
| • | Deposit net growth of $105.0 million (or 10.4% annualized); |
| --- | --- |
| • | Continued strong asset quality metrics as evidenced by low loan charge-offs during the quarter as well as a low level of non-performing loans and non-performing assets; and |
| --- | --- |
| • | The payment of a 21 cent per share dividend on common stock on November 15, 2021. |
| --- | --- |
Full year 2021 highlights include:
| • | Increases in net income and diluted earnings per share of 12.0% and 13.8%, respectively, compared to 2020; |
|---|---|
| • | Return on average assets and return on average equity of 1.41% and 16.13%, respectively; |
| --- | --- |
| • | Net gains on mortgage loans of $35.9 million and total mortgage loan origination volume of $1.9 billion; |
| --- | --- |
| • | Net growth in portfolio loans of $171.4 million (or 6.3%); |
| --- | --- |
| • | Deposit net growth of $479.7 million (or 13.2 %); |
| --- | --- |
| • | Paid $0.84 in dividends which was a 5.0% increase compared to 2020; and |
| --- | --- |
| • | Tangible common equity per share increased by 6.1% to $17.33 from $16.33. |
| --- | --- |
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “I am very pleased with the high level of performance by our team generating strong core results for yet another quarter and the full year 2021. We continue to execute on our strategies of investing in people and technology. During the fourth quarter we saw good growth in net interest income, stabilization of our net interest margin and across the board loan growth, net of PPP. Our commercial pipeline is at its highest level in many quarters. Deposit gathering continues to be robust both via existing customers as well as through the addition of new customers. In addition, while mortgage gains have tapered down they continue to be solid and our card strategies are generating positive growth in interchange revenue. On the asset quality front, I could not be more pleased, with our net recoveries for the full year, as well as commercial watch credits at 3.10% of the portfolio, and a very low level of past due loans. We are excited about the momentum we have in our markets and look forward to continuing these trends into 2022.”
1
Significant items impacting comparable quarterly and year to date 2021 and 2020 results include the following:
| • | Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Changes”) of a positive $0.6 million ($0.02 per diluted share, after taxes) and $3.4 million ($0.12 per diluted share, after taxes) for the<br> three-months and full-year ended December 31, 2021, respectively, as compared to a negative $0.9 million ($0.03 per diluted share, after taxes) and a negative $10.8 million ($0.39 per diluted share, after taxes) for the three-months and<br> full year ended December 31, 2020 respectively. |
|---|
Operating Results
The Company’s net interest income totaled $34.3 million during the fourth quarter of 2021, an increase of $3.3 million, or 10.6% from the year-ago period, and up $0.5 million, or 1.4%, from the third quarter of 2021. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.13% during the fourth quarter of 2021, compared to 3.12% in the year-ago period, and 3.18% in the third quarter of 2021. The year-over-year quarterly increase in net interest income is due to an increase in average interest-earning assets and the net interest margin. Average interest-earning assets were $4.43 billion in the fourth quarter of 2021, compared to $3.98 billion in the year ago quarter and $4.30 billion in the third quarter of 2021.
For the full year 2021, net interest income totaled $129.8 million, an increase of $6.2 million, or 5.0% from 2020. The Company’s net interest margin for the full year of 2021 was 3.10% compared to 3.34% in 2020. The increase in net interest income for the full year of 2021 compared to 2020 is due to an increase in average interest-earning assets that was partially offset by a decline in the net interest margin.
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. These actions have placed continued pressure on the Company’s net interest margin.
In addition, commercial loan balances, interest income and yields have been impacted by Paycheck Protection Program (“PPP”) lending activity. PPP lending activity is summarized in the following tables:
| PPP – Round 1 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| At or for the three months ended | 12/31/2021 | 9/30/2021 | 12/31/2020 | |||||||||||
| # | (000’s) | # | (000’s) | # | (000’s) | |||||||||
| Loans outstanding at period end | 6 | $ | 197 | 20 | $ | 1,262 | 1,483 | $ | 169,782 | |||||
| Average loans outstanding | 774 | - | 2,699 | 220,214 | ||||||||||
| Cumulative forgiveness applications submitted | 2,124 | 261,088 | 2,085 | 260,015 | 808 | 122,962 | ||||||||
| Cumulative forgiveness applications approved | 2,122 | 261,047 | 2,082 | 259,613 | 755 | 91,972 | ||||||||
| Net fees accreted into interest income | - | - | 381 | 3,250 | ||||||||||
| Net unaccreted fees at period end | - | - | 3,216 | |||||||||||
| Average loan yield | - | - | 11.51 | % | 6.91 | % |
Note: PPP – Round 1 loan activity began in the second quarter of 2020.
2
| PPP – Round 2 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| At or for the three months ended | 12/31/2021 | 9/30/2021 | 3/31/2021 | ||||||||||||
| # | (000’s) | # | (000’s) | # | (000’s) | ||||||||||
| Loans outstanding at period end | 180 | $ | 26,167 | 806 | $ | 88,888 | 1,250 | $ | 128,240 | ||||||
| Average loans outstanding | 58,895 | - | 110,276 | - | 72,011 | ||||||||||
| Cumulative forgiveness applications submitted | 1,401 | 115,568 | 831 | 51,370 | - | - | |||||||||
| Cumulative forgiveness applications approved | 1,372 | 109,405 | 810 | 50,535 | - | - | |||||||||
| Net fees accreted into interest income | 2,372 | - | 2,249 | - | 229 | ||||||||||
| Net unaccreted fees at period end | 806 | - | 3,178 | - | 5,454 | ||||||||||
| Average loan yield | 17.11 | % | - | 9.17 | % | - | 2.25 | % |
Note: PPP – Round 2 loan activity began in the first quarter of 2021.
Non-interest income totaled $15.8 million and $76.6 million, respectively, for the fourth quarter and full year 2021, compared to $22.4 million and $80.7 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 fourth quarters of 2021 and 2020, were approximately $5.6 million and $15.9 million, respectively. For full year 2021, net gains on mortgage loans totaled $35.9 million compared to $62.6 million in 2020. The decrease in net gains on mortgage loans in 2021 was primarily due to a decrease in mortgage loan sales volume, as well as a decrease in profit margins on mortgage loan sales and fair value adjustments on the mortgage loan pipeline.
Mortgage loan servicing, net, generated a gain of $1.3 million and a loss of $0.4 million in the fourth quarters of 2021 and 2020, respectively. For full year 2021 and 2020, mortgage loan servicing, net, generated a gain of $5.7 million and loss of $9.4 million, 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 | Twelve Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 12/31/2021 | 12/31/2020 | 12/31/2021 | 12/31/2020 | |||||||||
| Mortgage loan servicing, net: | (Dollars in thousands) | |||||||||||
| Revenue, net | $ | 2,044 | $ | 1,812 | $ | 7,853 | $ | 6,874 | ||||
| Fair value change due to price | 567 | (892 | ) | 3,380 | (10,833 | ) | ||||||
| Fair value change due to pay-downs | (1,342 | ) | (1,304 | ) | (5,488 | ) | (5,391 | ) | ||||
| Total | $ | 1,269 | $ | (384 | ) | $ | 5,745 | $ | (9,350 | ) |
Net gain(loss) on securities available for sale totaled $(0.01) million and $1.41 million in fourth quarter and full year 2021, respectively, compared to 0.01 million and $0.27 million in the prior year fourth quarter and full year, respectively. The increase in gain during the full year of 2021 was related to the divestiture of a group of mortgage backed securities in the first quarter of 2021.
Non-interest expenses totaled $34.0 million in the fourth quarter of 2021, compared to $32.7 million in the year-ago period. For full year 2021, non-interest expenses totaled $131.0 million versus $122.4 million in 2020. These year-over-year increases in non-interest expense are primarily due to increases in compensation and employee benefits (for the year to date period), data processing, interchange, costs(recoveries) related to the reserve for unfunded lending commitments and other expenses. The increase in compensation and employee benefits in 2021 is due to several factors, including, wage increases that were generally effective at the start of the year, an increase in lending personnel, increased overtime primarily associated with a data processing conversion, higher payroll taxes due to the increase in compensation and higher health care insurance costs (these costs during 2020 were unusually low due to the various COVID related lock-downs). The increase in data processing costs is primarily due to new software and technology product and service additions. The increase in interchange expense is due primarily to changes in transaction volume and transaction channel mix. The increase in expense related to the reserve for unfunded lending commitments is due to higher committed unfunded balances.
The Company recorded an income tax expense of $3.0 million and $14.4 million in the fourth quarter and full-year 2021, respectively. This compares to an income tax expense of $4.1 million and $13.3 million in the fourth quarter and full-year 2020, respectively. The changes in income tax expense primarily reflect changes in pre-tax earnings in 2021 relative to 2020.
3
Asset Quality
A breakdown of loan forbearance totals by loan type is as follows:
| 12/31/2021 | 9/30/2021 | % change vs. prior quarter | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Loan Type | # | $(000’s) | % of<br><br> <br>portfolio | # | (000’s) | % of<br><br> <br>portfolio | # | |||||||||||
| Commercial | - | $ | - | 0.0 | % | - | 0.0 | % | none | none | ||||||||
| Mortgage | 22 | 2,278 | 0.2 | % | 39 | 0.5 | % | (43.6 | )% | (61.4 | ||||||||
| Installment | 1 | 55 | 0.0 | % | 7 | 0.0 | % | (85.7 | )% | (49.5 | ||||||||
| Total | 23 | $ | 2,333 | 0.1 | % | 46 | 0.2 | % | (50.0 | )% | (61.2 | |||||||
| Loans serviced for others | 46 | $ | 5,163 | 0.2 | % | 64 | 0.3 | % | (28.1 | )% | (35.3 |
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 | 12/31/2021 | 12/31/2020 | 12/31/2019 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||
| Commercial | $ | 62 | $ | 1,440 | $ | 1,377 | |||
| Mortgage | 4,914 | 6,353 | 7,996 | ||||||
| Installment | 569 | 519 | 805 | ||||||
| Subtotal | 5,545 | 8,312 | 10,178 | ||||||
| Less – government guaranteed loans | 435 | 439 | 646 | ||||||
| Total non-performing loans | $ | 5,110 | $ | 7,873 | $ | 9,532 | |||
| Ratio of non-performing loans to total portfolio loans | 0.18 | % | 0.29 | % | 0.35 | % | |||
| Ratio of non-performing assets to total assets | 0.11 | % | 0.21 | % | 0.32 | % | |||
| Ratio of the allowance for loan losses to non-performing loans | 924.70 | % | 450.01 | % | 274.32 | % | |||
| (1) | Excludes loans that are classified as “troubled debt restructured” that are still performing. | ||||||||
| --- | --- |
Non-performing loans have decreased $2.8 million from December 31, 2020, due primarily to a decrease in non-performing commercial loans and mortgage loans.
The provision for credit losses was an expense of $0.6 million and a credit of $0.4 million in the fourth quarters of 2021 and 2020, respectively. The provision for credit losses was a credit of $1.9 million and an expense of $12.5 million in the full year of 2021 and 2020, respectively. The year-to-date decreases in the provision for credit losses in 2021 compared to 2020, were primarily the result of a decline in the adjustment to allocations based on subjective factors and the specific reserve allocations, with an increase in recoveries of loans previously charged off. In particular, the higher full year provision for credit losses in 2020 included an $11.2 million (or 128.2%) increase in the qualitative/subjective portion of the allowance for credit losses. That increase in 2020 principally reflected the unique challenges and prevailing economic uncertainty resulting from the COVID-19 pandemic and the potential impact on the loan portfolio.
The Company recorded loan net charge offs of $0.2 million and loan net recoveries of $0.1 million in the fourth quarters of 2021 and 2020, respectively. Full year 2021 and 2020, the Company recorded loan net recoveries of $2.0 million and loan net charge-offs of $3.2 million, respectively.
The allowance for credit losses totaled $47.3 million at December 31, 2021 compared to $35.4 million at December 31, 2020. The increase from December 31, 2020 is attributed to 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 impact of the adoption of CECL was an increase in the allowance for credit losses of $11.7 million. At December 31, 2021, the allowance for credit losses equaled 1.63% of total portfolio loans (1.64% when excluding PPP loans) under CECL, compared to 1.30% of total portfolio loans (1.38% when excluding PPP loans) at December 31, 2020, under the probable incurred loss methodology.
4
Balance Sheet, Liquidity and Capital
Total assets were $4.70 billion at December 31, 2021, an increase of $500.7 million from December 31, 2020. Loans, excluding loans held for sale, were $2.91 billion at December 31, 2021, compared to $2.73 billion at December 31, 2020. Deposits totaled $4.12 billion at December 31, 2021, an increase of $479.7 million from December 31, 2020. This increase is primarily due to growth in non-interest bearing, savings and interest-bearing checking and reciprocal and time deposit account balances.
Cash and cash equivalents totaled $109.5 million at December 31, 2021, versus $118.7 million at December 31, 2020. Securities available for sale totaled $1.41 billion at December 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.
Total shareholders’ equity was $398.5 million at December 31, 2021, or 8.47% of total assets. Tangible common equity totaled $366.8 million at December 31, 2021, or $17.33 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 | 12/31/2021 | 12/31/2020 | Well<br><br> <br>Capitalized Minimum | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Tier 1 capital to average total assets | 8.57 | % | 8.81 | % | 5.00 | % | |||
| Tier 1 common equity to risk-weighted assets | 11.80 | % | 12.81 | % | 6.50 | % | |||
| Tier 1 capital to risk-weighted assets | 11.80 | % | 12.81 | % | 8.00 | % | |||
| Total capital to risk-weighted assets | 13.05 | % | 14.06 | % | 10.00 | % |
Share Repurchase Plan
On December 17, 2021, 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, 2022. For the full year 2021, the Company repurchased 814,910 shares at a weighted average price of $21.19 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 Thursday, January 27, 2022.
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/ibcp220127.html.
A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 8699212). The replay will be available through February 3, 2022.
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $4.7 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.
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.
5
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
| December 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| (unaudited) | ||||||
| (In thousands, except share<br><br> <br>amounts) | ||||||
| Assets | ||||||
| Cash and due from banks | $ | 51,069 | $ | 56,006 | ||
| Interest bearing deposits | 58,404 | 62,699 | ||||
| Cash and Cash Equivalents | 109,473 | 118,705 | ||||
| Securities available for sale | 1,412,830 | 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 | 55,470 | 92,434 | ||||
| Loans held for sale, carried at lower of cost or fair value | 34,811 | - | ||||
| Loans | ||||||
| Commercial | 1,203,581 | 1,242,415 | ||||
| Mortgage | 1,139,659 | 1,015,926 | ||||
| Installment | 561,805 | 475,337 | ||||
| Total Loans | 2,905,045 | 2,733,678 | ||||
| Allowance for credit losses ^(1)^ | (47,252 | ) | (35,429 | ) | ||
| Net Loans | 2,857,793 | 2,698,249 | ||||
| Other real estate and repossessed assets | 245 | 766 | ||||
| Property and equipment, net | 36,404 | 36,127 | ||||
| Bank-owned life insurance | 55,279 | 55,180 | ||||
| Capitalized mortgage loan servicing rights, carried at fair value | 26,232 | 16,904 | ||||
| Other intangibles | 3,336 | 4,306 | ||||
| Goodwill | 28,300 | 28,300 | ||||
| Accrued income and other assets | 66,140 | 62,456 | ||||
| Total Assets | $ | 4,704,740 | $ | 4,204,013 | ||
| Liabilities and Shareholders’ Equity | ||||||
| Deposits | ||||||
| Non-interest bearing | $ | 1,321,601 | $ | 1,153,473 | ||
| Savings and interest-bearing checking | 1,897,487 | 1,526,465 | ||||
| Reciprocal | 586,626 | 556,185 | ||||
| Time | 308,438 | 287,402 | ||||
| Brokered time | 2,938 | 113,830 | ||||
| Total Deposits | 4,117,090 | 3,637,355 | ||||
| Other borrowings | 30,009 | 30,012 | ||||
| Subordinated debt | 39,357 | 39,281 | ||||
| Subordinated debentures | 39,592 | 39,524 | ||||
| Accrued expenses and other liabilities | 80,208 | 68,319 | ||||
| Total Liabilities | 4,306,256 | 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: 21,171,036 shares at December 31, 2021 and 21,853,800 shares at December 31, 2020 | 323,401 | 339,353 | ||||
| Retained earnings | 74,582 | 40,145 | ||||
| Accumulated other comprehensive income | 501 | 10,024 | ||||
| Total Shareholders’ Equity | 398,484 | 389,522 | ||||
| Total Liabilities and Shareholders’ Equity | $ | 4,704,740 | $ | 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. | |||||
| --- | --- |
6
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
| Three Months Ended | Twelve Months Ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | December 31, | ||||||||||||
| 2021 | 2020 | ||||||||||||||
| (unaudited) | |||||||||||||||
| Interest Income | (In thousands, except per share amounts) | ||||||||||||||
| Interest and fees on loans | $ | 30,316 | $ | 30,132 | $ | 31,139 | $ | 116,644 | $ | 123,159 | |||||
| Interest on securities available for sale | |||||||||||||||
| Taxable | 4,114 | 3,922 | 3,299 | 14,488 | 12,655 | ||||||||||
| Tax-exempt | 1,577 | 1,597 | 789 | 6,102 | 2,926 | ||||||||||
| Other investments | 217 | 204 | 235 | 846 | 1,089 | ||||||||||
| Total Interest Income | 36,224 | 35,855 | 35,462 | 138,080 | 139,829 | ||||||||||
| Interest Expense | |||||||||||||||
| Deposits | 977 | 1,090 | 3,516 | 4,465 | 12,666 | ||||||||||
| Other borrowings and subordinated debt and debentures | 962 | 962 | 953 | 3,850 | 3,551 | ||||||||||
| Total Interest Expense | 1,939 | 2,052 | 4,469 | 8,315 | 16,217 | ||||||||||
| Net Interest Income | 34,285 | 33,803 | 30,993 | 129,765 | 123,612 | ||||||||||
| Provision for credit losses ^(1)^ | 630 | (659 | ) | (421 | ) | (1,928 | ) | 12,463 | |||||||
| Net Interest Income After Provision for Credit Losses | 33,655 | 34,462 | 31,414 | 131,693 | 111,149 | ||||||||||
| Non-interest Income | |||||||||||||||
| Interchange income | 3,306 | 4,237 | 2,819 | 14,045 | 11,230 | ||||||||||
| Service charges on deposit accounts | 2,992 | 2,944 | 2,218 | 10,170 | 8,517 | ||||||||||
| Net gains (losses) on assets | |||||||||||||||
| Mortgage loans | 5,600 | 8,361 | 15,873 | 35,880 | 62,560 | ||||||||||
| Securities available for sale | (10 | ) | 5 | 14 | 1,411 | 267 | |||||||||
| Mortgage loan servicing, net | 1,269 | 1,271 | (384 | ) | 5,745 | (9,350 | ) | ||||||||
| Other | 2,614 | 2,877 | 1,823 | 9,392 | 7,521 | ||||||||||
| Total Non-interest Income | 15,771 | 19,695 | 22,363 | 76,643 | 80,745 | ||||||||||
| Non-interest Expense | |||||||||||||||
| Compensation and employee benefits | 19,905 | 21,659 | 20,039 | 79,969 | 74,781 | ||||||||||
| Data processing | 2,851 | 3,022 | 2,374 | 10,823 | 8,534 | ||||||||||
| Occupancy, net | 2,216 | 2,082 | 2,120 | 8,794 | 8,938 | ||||||||||
| Interchange expense | 1,083 | 1,202 | 926 | 4,434 | 3,342 | ||||||||||
| Furniture, fixtures and equipment | 1,060 | 1,075 | 964 | 4,172 | 4,089 | ||||||||||
| Loan and collection | 819 | 735 | 708 | 3,172 | 3,037 | ||||||||||
| Communications | 739 | 683 | 785 | 3,080 | 3,194 | ||||||||||
| Legal and professional | 534 | 513 | 600 | 2,068 | 2,027 | ||||||||||
| Advertising | 599 | 666 | 594 | 1,918 | 2,230 | ||||||||||
| Conversion related expenses | 191 | 275 | 1,541 | 1,827 | 2,586 | ||||||||||
| FDIC deposit insurance | 413 | 346 | 385 | 1,396 | 1,596 | ||||||||||
| Costs (recoveries) related to unfunded lending commitments | 844 | 369 | (8 | ) | 1,207 | 263 | |||||||||
| Branch closure costs | - | - | - | - | 417 | ||||||||||
| Net (gains) losses on other real estate and repossessed assets | (28 | ) | (28 | ) | (82 | ) | (230 | ) | 64 | ||||||
| Other | 2,728 | 1,913 | 1,761 | 8,393 | 7,315 | ||||||||||
| Total Non-interest Expense | 33,954 | 34,512 | 32,707 | 131,023 | 122,413 | ||||||||||
| Income Before Income Tax | 15,472 | 19,645 | 21,070 | 77,313 | 69,481 | ||||||||||
| Income tax expense | 2,964 | 3,683 | 4,084 | 14,418 | 13,329 | ||||||||||
| Net Income | $ | 12,508 | $ | 15,962 | $ | 16,986 | $ | 62,895 | $ | 56,152 | |||||
| Net Income Per Common Share | |||||||||||||||
| Basic | $ | 0.59 | $ | 0.74 | $ | 0.78 | $ | 2.91 | $ | 2.56 | |||||
| Diluted | $ | 0.58 | $ | 0.73 | $ | 0.77 | $ | 2.88 | $ | 2.53 | |||||
| (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
Selected Financial Data
| December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| Net interest income | $ | 34,285 | $ | 33,803 | $ | 31,393 | $ | 30,284 | $ | 30,993 | |||||
| Provision for credit losses ^(1)^ | 630 | (659 | ) | (1,425 | ) | (474 | ) | (421 | ) | ||||||
| Non-interest income | 15,771 | 19,695 | 14,771 | 26,406 | 22,363 | ||||||||||
| Non-interest expense | 33,954 | 34,512 | 32,536 | 30,021 | 32,707 | ||||||||||
| Income before income tax | 15,472 | 19,645 | 15,053 | 27,143 | 21,070 | ||||||||||
| Income tax expense | 2,964 | 3,683 | 2,665 | 5,106 | 4,084 | ||||||||||
| Net income | $ | 12,508 | $ | 15,962 | $ | 12,388 | $ | 22,037 | $ | 16,986 | |||||
| Basic earnings per share | $ | 0.59 | $ | 0.74 | $ | 0.57 | $ | 1.01 | $ | 0.78 | |||||
| Diluted earnings per share | 0.58 | 0.73 | 0.56 | 1.00 | 0.77 | ||||||||||
| Cash dividend per share | 0.21 | 0.21 | 0.21 | 0.21 | 0.20 | ||||||||||
| Average shares outstanding | 21,256,367 | 21,515,669 | 21,749,654 | 21,825,937 | 21,866,326 | ||||||||||
| Average diluted shares outstanding | 21,473,963 | 21,726,346 | 21,966,829 | 22,058,503 | 22,112,829 | ||||||||||
| Performance Ratios | |||||||||||||||
| Return on average assets | 1.07 | % | 1.40 | % | 1.12 | % | 2.10 | % | 1.61 | % | |||||
| Return on average equity | 12.61 | 15.93 | 12.78 | 23.51 | 17.82 | ||||||||||
| Efficiency ratio ^(2)^ | 66.68 | 63.47 | 69.24 | 53.48 | 60.59 | ||||||||||
| As a Percent of Average Interest-Earning Assets^(2)^ | |||||||||||||||
| Interest income | 3.30 | % | 3.37 | % | 3.22 | % | 3.27 | % | 3.57 | % | |||||
| Interest expense | 0.17 | 0.19 | 0.20 | 0.22 | 0.45 | ||||||||||
| Net interest income | 3.13 | 3.18 | 3.02 | 3.05 | 3.12 | ||||||||||
| Average Balances | |||||||||||||||
| Loans | $ | 2,957,985 | $ | 2,903,700 | $ | 2,859,544 | $ | 2,834,012 | $ | 2,876,795 | |||||
| Securities available for sale | 1,367,038 | 1,317,382 | 1,274,556 | 1,093,618 | 1,009,578 | ||||||||||
| Total earning assets | 4,433,400 | 4,296,662 | 4,223,570 | 4,047,952 | 3,984,080 | ||||||||||
| Total assets | 4,654,491 | 4,513,774 | 4,434,760 | 4,254,294 | 4,195,546 | ||||||||||
| Deposits | 4,069,901 | 3,934,937 | 3,879,715 | 3,698,811 | 3,632,758 | ||||||||||
| Interest bearing liabilities | 2,863,057 | 2,740,444 | 2,674,425 | 2,589,102 | 2,574,306 | ||||||||||
| Shareholders’ equity | 393,477 | 397,542 | 388,780 | 380,111 | 379,232 | ||||||||||
| End of Period | |||||||||||||||
| Capital | |||||||||||||||
| Tangible common equity ratio | 7.85 | % | 8.02 | % | 8.21 | % | 8.08 | % | 8.56 | % | |||||
| Average equity to average assets | 8.45 | 8.81 | 8.77 | 8.93 | 9.04 | ||||||||||
| Common shareholders’ equity per share of common stock | $ | 18.82 | $ | 18.76 | $ | 18.30 | $ | 17.79 | $ | 17.82 | |||||
| Tangible common equity per share of common stock | 17.33 | 17.27 | 16.82 | 16.30 | 16.33 | ||||||||||
| Total shares outstanding | 21,171,036 | 21,321,092 | 21,632,912 | 21,773,734 | 21,853,800 | ||||||||||
| Selected Balances | |||||||||||||||
| Loans | $ | 2,905,045 | $ | 2,883,978 | $ | 2,814,559 | $ | 2,784,224 | $ | 2,733,678 | |||||
| Securities available for sale | 1,412,830 | 1,348,378 | 1,330,660 | 1,247,280 | 1,072,159 | ||||||||||
| Total earning assets | 4,484,987 | 4,405,189 | 4,246,410 | 4,209,017 | 3,979,397 | ||||||||||
| Total assets | 4,704,740 | 4,622,340 | 4,461,272 | 4,426,440 | 4,204,013 | ||||||||||
| Deposits | 4,117,090 | 4,012,068 | 3,862,466 | 3,858,575 | 3,637,355 | ||||||||||
| Interest bearing liabilities | 2,865,090 | 2,784,554 | 2,633,747 | 2,626,280 | 2,553,418 | ||||||||||
| Shareholders’ equity | 398,484 | 400,031 | 395,974 | 387,329 | 389,522 | ||||||||||
| (1) | Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss<br> methodology. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | 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>December 31, | Twelve Months Ended<br><br> <br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| (Dollars in thousands) | ||||||||||||
| Net Interest Margin, Fully Taxable | ||||||||||||
| Equivalent (“FTE”) | ||||||||||||
| Net interest income | $ | 34,285 | $ | 30,993 | $ | 129,765 | $ | 123,612 | ||||
| Add: taxable equivalent adjustment | 492 | 221 | 1,866 | 823 | ||||||||
| Net interest income - taxable equivalent | $ | 34,777 | $ | 31,214 | $ | 131,631 | $ | 124,435 | ||||
| Net interest margin (GAAP) ^(1)^ | 3.08 | % | 3.10 | % | 3.06 | % | 3.32 | % | ||||
| Net interest margin (FTE) ^(1)^ | 3.13 | % | 3.12 | % | 3.10 | % | 3.34 | % | ||||
| (1) | Annualized for three months ended December 31, 2021 and 2020. | |||||||||||
| --- | --- |
Tangible Common Equity Ratio
| December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Common shareholders’ equity | $ | 398,484 | $ | 400,031 | $ | 395,974 | $ | 387,329 | $ | 389,522 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 3,336 | 3,579 | 3,821 | 4,063 | 4,306 | ||||||||||
| Tangible common equity | $ | 366,848 | $ | 368,152 | $ | 363,853 | $ | 354,966 | $ | 356,916 | |||||
| Total assets | $ | 4,704,740 | $ | 4,622,340 | $ | 4,461,272 | $ | 4,426,440 | $ | 4,204,013 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 3,336 | 3,579 | 3,821 | 4,063 | 4,306 | ||||||||||
| Tangible assets | $ | 4,673,104 | $ | 4,590,461 | $ | 4,429,151 | $ | 4,394,077 | $ | 4,171,407 | |||||
| Common equity ratio | 8.47 | % | 8.65 | % | 8.88 | % | 8.75 | % | 9.27 | % | |||||
| Tangible common equity ratio | 7.85 | % | 8.02 | % | 8.21 | % | 8.08 | % | 8.56 | % | |||||
| Tangible Common Equity per Share of Common Stock: | |||||||||||||||
| Common shareholders’ equity | $ | 398,484 | $ | 400,031 | $ | 395,974 | $ | 387,329 | $ | 389,522 | |||||
| Tangible common equity | $ | 366,848 | $ | 368,152 | $ | 363,853 | $ | 354,966 | $ | 356,916 | |||||
| Shares of common stock outstanding (in thousands) | 21,171 | 21,321 | 21,633 | 21,774 | 21,854 | ||||||||||
| Common shareholders’ equity per share of common stock | $ | 18.82 | $ | 18.76 | $ | 18.30 | $ | 17.79 | $ | 17.82 | |||||
| Tangible common equity per share of common stock | $ | 17.33 | $ | 17.27 | $ | 16.82 | $ | 16.30 | $ | 16.33 |
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)^
| December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | March 31,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Non-accrual loans | $ | 5,545 | $ | 5,917 | $ | 5,531 | $ | 7,548 | $ | 8,312 | |||||
| Loans 90 days or more past due and still accruing interest | - | - | 14 | - | - | ||||||||||
| Subtotal | 5,545 | 5,917 | 5,545 | 7,548 | 8,312 | ||||||||||
| Less: Government guaranteed loans | 435 | 327 | 427 | 459 | 439 | ||||||||||
| Total non-performing loans | 5,110 | 5,590 | 5,118 | 7,089 | 7,873 | ||||||||||
| Other real estate and repossessed assets | 245 | 224 | 296 | 346 | 766 | ||||||||||
| Total non-performing assets | $ | 5,355 | $ | 5,814 | $ | 5,414 | $ | 7,435 | $ | 8,639 | |||||
| As a percent of Portfolio Loans | |||||||||||||||
| Non-performing loans | 0.18 | % | 0.19 | % | 0.18 | % | 0.25 | % | 0.29 | % | |||||
| Allowance for credit losses | 1.63 | 1.62 | 1.63 | 1.68 | 1.30 | ||||||||||
| Non-performing assets to total assets | 0.11 | 0.13 | 0.12 | 0.17 | 0.21 | ||||||||||
| Allowance for credit losses as a percent of non-performing loans | 924.70 | 837.19 | 897.34 | 659.54 | 450.01 | ||||||||||
| ^(1)^ | Excludes loans classified as “trouble debt restructured” that are not past due. | ||||||||||||||
| --- | --- |
Troubled debt restructurings (“TDR”)
| 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 | |
| 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
| Twelve months ended<br><br> <br>December 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)^ | (1,928 | ) | - | 12,463 | - | |||||
| Initial allowance on loans purchased with credit deterioration | 134 | - | - | - | ||||||
| Recoveries credited to allowance | 4,477 | - | 3,069 | - | ||||||
| Loans charged against the allowance | (2,434 | ) | - | (6,251 | ) | - | ||||
| Additions included in non-interest expense | - | 1,207 | - | 263 | ||||||
| Balance at end of period | $ | 47,252 | $ | 4,481 | $ | 35,429 | $ | 1,805 | ||
| Net loans charged (recovered) against the allowance to average Portfolio Loans | (0.07 | )% | 0.11 | % | ||||||
| (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
| December 31, | ||||||
|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||
| (In thousands) | ||||||
| Subordinated debt | $ | 39,357 | $ | 39,281 | ||
| Subordinated debentures | 39,592 | 39,524 | ||||
| Amount not qualifying as regulatory capital | (581 | ) | (505 | ) | ||
| Amount qualifying as regulatory capital | 78,368 | 78,300 | ||||
| Shareholders’ equity | ||||||
| Common stock | 323,401 | 339,353 | ||||
| Retained earnings | 74,582 | 40,145 | ||||
| Accumulated other comprehensive income | 501 | 10,024 | ||||
| Total shareholders’ equity | 398,484 | 389,522 | ||||
| Total capitalization | $ | 476,852 | $ | 467,822 |
2
Non-Interest Income
| Three months ended | Twelve months ended<br><br> <br>December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | |||||||||||
| 2021 | 2020 | ||||||||||||
| (In thousands) | |||||||||||||
| Interchange income | $ | 3,306 | $ | 4,237 | $ | 2,819 | $ | 14,045 | $ | 11,230 | |||
| Service charges on deposit accounts | 2,992 | 2,944 | 2,218 | 10,170 | 8,517 | ||||||||
| Net gains on assets | |||||||||||||
| Mortgage loans | 5,600 | 8,361 | 15,873 | 35,880 | 62,560 | ||||||||
| Securities | (10 | ) | 5 | 14 | 1,411 | 267 | |||||||
| Mortgage loan servicing, net | 1,269 | 1,271 | (384 | ) | 5,745 | (9,350 | ) | ||||||
| Investment and insurance commissions | 708 | 678 | 493 | 2,603 | 1,971 | ||||||||
| Bank owned life insurance | 156 | 145 | 160 | 567 | 910 | ||||||||
| Other | 1,750 | 2,054 | 1,170 | 6,222 | 4,640 | ||||||||
| Total non-interest income | $ | 15,771 | $ | 19,695 | $ | 22,363 | $ | 76,643 | $ | 80,745 |
Capitalized Mortgage Loan Servicing Rights
| Three months ended<br><br> <br>December 31, | Twelve months ended<br><br> <br>December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | 2021 | 2020 | |||||||||
| (In thousands) | ||||||||||||
| Balance at beginning of period | $ | 24,208 | $ | 15,403 | $ | 16,904 | $ | 19,171 | ||||
| Originated servicing rights capitalized | 2,800 | 3,697 | 11,437 | 13,957 | ||||||||
| Change in fair value | (776 | ) | (2,196 | ) | (2,109 | ) | (16,224 | ) | ||||
| Balance at end of period | $ | 26,232 | $ | 16,904 | $ | 26,232 | $ | 16,904 |
3
Mortgage Loan Activity
| Three months ended | Twelve months ended | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | December 31, | ||||||||||||
| 2021 | 2020 | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||
| Mortgage loans originated | $ | 424,563 | $ | 453,752 | $ | 502,491 | $ | 1,861,060 | $ | 1,820,697 | |||||
| Mortgage loans sold | 291,196 | 279,235 | 388,631 | 1,254,638 | 1,447,031 | ||||||||||
| Net gains on mortgage loans | 5,600 | 8,361 | 15,873 | 35,880 | 62,560 | ||||||||||
| Net gains as a percent of mortgage loans sold (“Loan Sales Margin”) | 1.92 | % | 2.99 | % | 4.08 | % | 2.86 | % | 4.32 | % | |||||
| Fair value adjustments included in the Loan Sales Margin | (0.90 | ) | 0.04 | (0.53 | ) | (0.52 | ) | 0.47 |
Non-Interest Expense
| Three months ended | Twelve months ended<br><br> <br>December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | December 31,<br><br> <br>2020 | ||||||||||||
| 2021 | 2020 | |||||||||||||
| (In thousands) | ||||||||||||||
| Compensation | $ | 11,462 | $ | 11,507 | $ | 10,852 | $ | 44,226 | $ | 41,517 | ||||
| Performance-based compensation | 4,473 | 6,252 | 5,485 | 19,800 | 19,725 | |||||||||
| Payroll taxes and employee benefits | 3,970 | 3,900 | 3,702 | 15,943 | 13,539 | |||||||||
| Compensation and employee benefits | 19,905 | 21,659 | 20,039 | 79,969 | 74,781 | |||||||||
| Data processing | 2,851 | 3,022 | 2,374 | 10,823 | 8,534 | |||||||||
| Occupancy, net | 2,216 | 2,082 | 2,120 | 8,794 | 8,938 | |||||||||
| Interchange expense | 1,083 | 1,202 | 926 | 4,434 | 3,342 | |||||||||
| Furniture, fixtures and equipment | 1,060 | 1,075 | 964 | 4,172 | 4,089 | |||||||||
| Loan and collection | 819 | 735 | 708 | 3,172 | 3,037 | |||||||||
| Communications | 739 | 683 | 785 | 3,080 | 3,194 | |||||||||
| Legal and professional | 534 | 513 | 600 | 2,068 | 2,027 | |||||||||
| Advertising | 599 | 666 | 594 | 1,918 | 2,230 | |||||||||
| Conversion related expenses | 191 | 275 | 1,541 | 1,827 | 2,586 | |||||||||
| FDIC deposit insurance | 413 | 346 | 385 | 1,396 | 1,596 | |||||||||
| Costs (recoveries) related to unfunded lending commitments | 844 | 369 | (8 | ) | 1,207 | 263 | ||||||||
| Amortization of intangible assets | 243 | 242 | 255 | 970 | 1,020 | |||||||||
| Supplies | 151 | 116 | 167 | 611 | 680 | |||||||||
| Correspondent bank service fees | 90 | 77 | 101 | 382 | 395 | |||||||||
| Provision for loss reimbursement on sold loans | 38 | 36 | 40 | 133 | 200 | |||||||||
| Branch closure costs | - | - | - | - | 417 | |||||||||
| Net (gains) losses on other real estate and repossessed assets | (28 | ) | (28 | ) | (82 | ) | (230 | ) | 64 | |||||
| Other | 2,206 | 1,442 | 1,198 | 6,297 | 5,020 | |||||||||
| Total non-interest expense | $ | 33,954 | $ | 34,512 | $ | 32,707 | $ | 131,023 | $ | 122,413 |
4
Average Balances and Tax Equivalent Rates
| Three Months Ended<br><br> <br>December 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 | $ | 2,949,441 | $ | 30,232 | 4.08 | % | $ | 2,870,011 | $ | 31,071 | 4.31 | % | ||
| Tax-exempt loans ^(1)^ | 8,544 | 106 | 4.92 | 6,784 | 87 | 5.10 | ||||||||
| Taxable securities | 1,017,291 | 4,114 | 1.62 | 803,322 | 3,299 | 1.64 | ||||||||
| Tax-exempt securities^(1)^ | 349,747 | 2,047 | 2.34 | 206,256 | 991 | 1.92 | ||||||||
| Interest bearing cash | 89,950 | 38 | 0.17 | 79,280 | 24 | 0.12 | ||||||||
| Other investments | 18,427 | 179 | 3.85 | 18,427 | 211 | 4.56 | ||||||||
| Interest Earning Assets | 4,433,400 | 36,716 | 3.30 | 3,984,080 | 35,683 | 3.57 | ||||||||
| Cash and due from banks | 58,232 | 51,497 | ||||||||||||
| Other assets, net | 162,859 | 159,969 | ||||||||||||
| Total Assets | $ | 4,654,491 | $ | 4,195,546 | ||||||||||
| Liabilities | ||||||||||||||
| Savings and interest- | ||||||||||||||
| bearing checking | $ | 2,409,373 | 634 | 0.10 | $ | 1,988,438 | 761 | 0.15 | ||||||
| Time deposits | 344,744 | 343 | 0.39 | 477,079 | 2,755 | 2.30 | ||||||||
| Other borrowings | 108,940 | 962 | 3.50 | 108,789 | 953 | 3.48 | ||||||||
| Interest Bearing Liabilities | 2,863,057 | 1,939 | 0.27 | 2,574,306 | 4,469 | 0.69 | ||||||||
| Non-interest bearing deposits | 1,315,784 | 1,167,241 | ||||||||||||
| Other liabilities | 82,173 | 74,767 | ||||||||||||
| Shareholders’ equity | 393,477 | 379,232 | ||||||||||||
| Total liabilities and<br><br> <br>shareholders’ equity | $ | 4,654,491 | $ | 4,195,546 | ||||||||||
| Net Interest Income | $ | 34,777 | $ | 31,214 | ||||||||||
| Net Interest Income as a Percent<br><br> <br>of Average Interest Earning Assets | 3.13 | % | 3.12 | % |
(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
| Twelve Months Ended<br><br> <br>December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | |||||||||||||
| Average<br><br> <br>Balance | Interest | Rate | Average<br><br> <br>Balance | Interest | Rate | |||||||||
| (Dollars in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Taxable loans | $ | 2,881,950 | $ | 116,358 | 4.04 | % | $ | 2,863,846 | $ | 122,875 | 4.29 | % | ||
| Tax-exempt loans ^(1)^ | 7,240 | 362 | 5.00 | 7,145 | 360 | 5.04 | ||||||||
| Taxable securities | 915,701 | 14,488 | 1.58 | 635,914 | 12,655 | 1.99 | ||||||||
| Tax-exempt securities^(1)^ | 348,346 | 7,892 | 2.27 | 137,330 | 3,673 | 2.67 | ||||||||
| Interest bearing cash | 79,915 | 112 | 0.14 | 59,056 | 184 | 0.31 | ||||||||
| Other investments | 18,427 | 734 | 3.98 | 18,410 | 905 | 4.92 | ||||||||
| Interest Earning Assets | 4,251,579 | 139,946 | 3.30 | 3,721,701 | 140,652 | 3.78 | ||||||||
| Cash and due from banks | 56,474 | 49,886 | ||||||||||||
| Other assets, net | 157,524 | 162,068 | ||||||||||||
| Total Assets | $ | 4,465,577 | $ | 3,933,655 | ||||||||||
| Liabilities | ||||||||||||||
| Savings and interest- | ||||||||||||||
| bearing checking | $ | 2,282,607 | 2,693 | 0.12 | $ | 1,821,115 | 3,882 | 0.21 | ||||||
| Time deposits | 326,081 | 1,772 | 0.54 | 516,306 | 8,784 | 1.70 | ||||||||
| Other borrowings | 108,884 | 3,850 | 3.54 | 117,904 | 3,551 | 3.01 | ||||||||
| Interest Bearing Liabilities | 2,717,572 | 8,315 | 0.31 | 2,455,325 | 16,217 | 0.66 | ||||||||
| Non-interest bearing deposits | 1,288,276 | 1,054,230 | ||||||||||||
| Other liabilities | 69,694 | 65,943 | ||||||||||||
| Shareholders’ equity | 390,035 | 358,157 | ||||||||||||
| Total liabilities and<br><br> <br>shareholders’ equity | $ | 4,465,577 | $ | 3,933,655 | ||||||||||
| Net Interest Income | $ | 131,631 | $ | 124,435 | ||||||||||
| Net Interest Income as a Percent<br><br> <br>of Average Interest Earning Assets | 3.10 | % | 3.34 | % |
(1) Interest on tax-exempt loans and securities is presented on a fully tax equivalent basis assuming a marginal tax rate of 21%.
6
Commercial Loan Portfolio Analysis as of December 31, 2021
| Total Commercial Loans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Loan Category | Watch Credits | Percent of<br><br> <br>Loan<br><br> <br>Category in<br><br> <br>Watch Credit | |||||||||
| 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 |
Commercial Loan Portfolio Analysis as of December 31, 2020
| Total Commercial Loans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of Loan<br><br> <br>Category in Watch Credit | ||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | |||||||
| (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 |
7
Exhibit 99.3
Independent Bank Corporation (IBCP) Earnings CallFourth Quarter 2021January 27, 2022
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 OfficerJoel 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 Quarter Ended, ($M except per share data) 12/31/20 3/31/21 6/30/21 9/30/21 12/31/21 Balance Sheet: Total Assets $4,204 $4,426 $4,461 $4,622 $4,705 Portfolio Loans $2,734 $2,784 $2,815 $2,884 $2,905 Deposits $3,637 $3,859 $3,862 $4,012 $4,117 Tangible Common Equity $357 $355 $364 $368 $367 Profitability: Pre-Tax, Pre-Provision Income $20.6 $26.7 $13.6 $19.0 $16.1 Pre-Tax, Pre-Prov / Avg. Assets 1.98% 2.54% 1.23% 1.67% 1.37% Net Income (1) $17.0 $22.0 $12.4 $16.0 $12.5 Return on Average Assets (1) 1.61% 2.10% 1.12% 1.40% 1.07% Return on Average Equity (1) 17.8% 23.5% 12.8% 15.9% 12.6% Net Interest Margin (FTE) 3.12% 3.05% 3.02% 3.18% 3.13% Efficiency Ratio 60.6% 53.5% 69.2% 63.5% 66.7% Asset Quality : NPAs / Assets 0.21% 0.17% 0.12% 0.13% 0.11% NPAs / Loans + OREO 0.32% 0.27% 0.19% 0.20% 0.18% ACL / Total Portfolio Loans 1.30% 1.68% 1.63% 1.62% 1.63% NCOs / Avg. Loans (0.02%) (0.01%) (0.09%) (0.01%) 0.01% Capital Ratios: TCE Ratio 8.6% 8.1% 8.2% 8.0% 7.9% Leverage Ratio 9.2% 9.3% 9.0% 9.0% 8.8% Tier 1 Capital Ratio 13.3% 13.2% 12.9% 12.4% 12.1% Total Capital Ratio 16.0% 15.8% 15.5% 14.9% 14.5%
Historical Quarterly Financial Data 4
4Q 2021 Financial Highlights Income StatementPre-tax, pre-provision income of $16.1 million compared to $20.6 million in the year ago quarter.Net income of $12.5 million, or $0.58 per diluted share compared to $17.0 million, or $0.77 per diluted share in the year ago quarter.Net interest income of $34.3 million, compared to $31.0 million, in the year ago quarter.Mortgage loan originations of $424.6 million, also, $291.2 million in mortgage loans sold with $5.6 million in net gains on mortgage loans compared to $15.9 million in net gains in the year ago quarter. Mortgage servicing rights change (the “MSR Change”) due to price of $0.6 million ($0.02 per diluted share, after taxes) compared to a negative $0.9 million ($0.03 per diluted share, after taxes) in the year ago quarter. Provision for credit losses expense of $0.6 million compared to a credit of $0.4 million in the year ago quarter. Balance Sheet/CapitalSecurities available for sale increased by $64.5 million.Total portfolio loans increased by $21.6 million.Total deposits grew by $105.0 million.Paid a 21 cent per share cash dividend on common stock on November 15, 2021. 5
Historical Annual Financial Data 6 (1) Excluding the impact of $5.96 million re-measurement of net deferred assets in 2017, net income is $26.44 million, ROA is 1.00% and ROE is 10.10%
Year-to-date 2021 Financial Highlights Income StatementIncreases in net income and diluted earnings per share of 12.0% and 13.8%, respectively, for the full year of 2021 compared to 2020.Annualized return on average assets and on average equity of 1.41% and 16.13%, respectively, for the full year of 2021.Mortgage loan originations of $1.86 billion and mortgage loans sold of $1.25 billion with $35.9 million in net gains on mortgage loans for the full year of 2021 compared to $62.6 million in net gains in the year ago period. Mortgage servicing rights change (the “MSR Change”) due to price of a positive $3.4 million ($0.12 per diluted share, after taxes) for the full year of 2021 compared to a negative $10.8 million ($0.39 per diluted share, after taxes) in the year ago period. Provision for credit losses credit of $1.9 million for the full year of 2021 compared to an expense of $12.5 million in the year ago period. Balance Sheet/CapitalNet growth in portfolio loans of $171.4 million, or 6.3%.Net growth in deposits of $479.7 million, or 13.2%.Repurchased 814,910 common shares at a weighted average price of $21.19 per share during full year 2021. 7
Our Michigan Markets 8 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: $187 million of Ohio mortgage loans, $42 million of resort loans, $26 million of SBA PPP 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 opened in Brighton, Michigan in 4Q’20.Opened Loan Production Offices in Ottawa County and Macomb County in 3Q’21. 9 Loan Production Offices (LPOs), including 7 throughout Michigan and 2 in Ohio (residential mortgage lending only). Branches (62) East / “Thumb”Branches: 20Deposits: $1,029MLoans: $668M SoutheastBranches: 8Deposits: $572MLoans: $850M CentralBranches: 10Deposits: $504MLoans: $180M WestBranches: 20Deposits: $1,170MLoans: $620M NorthwestBranches: 4Deposits: $304MLoans: $300M
Select Economic Statistics 9 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 Rebounding Michigan home sales
Low Cost Deposit Franchise Focused on Core Deposit Growth 10 Substantially core funding – $3.82 billion of non-maturity deposit accounts (92.4% of total deposits).Total deposits increased $479.7 million (13.2%) since 12/31/20 with non-interest bearing up $168.2 million, savings and interest- bearing checking up $371.0 million, reciprocal up $30.4 million, time up $21.0 million and brokered down $110.9 million.Deposits by Customer Type:Retail – 52.4%Commercial – 34.3%Municipal – 13.4% Deposit Composition – 12/31/21 Deposit Highlights Michigan Deposit Market Share $4.1B Core Deposits: 92.4% Cost of Deposits (%)/Total Deposits ($B) Note: Core deposits defined as total deposits less maturity deposits.
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 4Q’21:Commercial – decreased $19.2 million (excluding PPP increased $44.6 million). PPP loan balances decreased $63.8 million and totaled $26.4 million at December 31, 2021.Mortgage – increased $38.7 million.Installment – increased $1.6 million.Mortgage loan portfolio weighted average FICO and LTV of 752 and 77%, respectively and average balance of $224,524.Installment weighted average FICO of 758 and average balance of $23,974.Commercial loan rate mix:49% fixed / 51% variable.Indices – 72% tied to Prime, 26% tied to LIBOR and 2% tied to a US Treasury rate.Mortgage loan (including HECL) rate mix: 64% fixed / 36% adjustable or variable. Indices – 23% tied to Prime, 48% tied to LIBOR , 18% tied to a US Treasury rate and 11% tied to SOFR Loan Composition – 12/31/21 $2.9B Yield on Loans (%)/Total Portfolio Loans ($B)
COVID-19 Programs – Loan Forbearances 13 Highlights Loan Forbearances The table above reflects the status of loan forbearances. 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. 12/31/2021 9/30/2021 12/31/2020 6/30/2020 % Change from 6/30/20 Loan Type # $ (000’s) % of portfolio # $ (000’s) % of portfolio # $ (000’s) % of portfolio # $ (000's) % of portfolio # $ Commercial 0 $0 0.0% - $ - 0.0% 2 $163 0.0% 386 $210,486 15.4% -100.0% -100.0% Mortgage 22 2,278 0.2% 39 5,901 0.5% 134 19,830 2.0% 388 81,212 7.8% -94.3% -97.2% Installment 1 55 0.0% 7 109 0.0% 48 1,412 0.3% 280 7,459 1.6% -99.6% -99.3% Total 23 2,333 0.1% 46 $6,011 0.2% 184 $21,405 0.8% 1054 $299,157 10.4% -97.8% -99.2% Loans serviced for others 46 $5,163 0.2% 64 $7,986 0.3% 288 $42,897 1.4% 773 $114,839 4.2% -94.0% -95.5%
COVID-19 Programs – Paycheck Protection Program (“PPP”) 14 PPP Loan Portfolio PPP – Round 1 Description 12/31/2021 9/30/2021 6/31/2021 # ($ in 000’s) # ($ in 000’s) # ($ in 000’s) Loans outstanding at quarter-end 6 $ 197 20 $ 1,262 298 $ 42,315 Average loans outstanding for the quarter n/a 774 n/a 14,599 n/a 78,747 Cumulative forgiveness applications submitted at quarter-end 2,124 261,088 2,085 260,015 1,882 231,715 Cumulative forgiveness applications approved at quarter-end 2,122 261,047 2,082 259,613 1,870 229,429 Net fees accreted into interest income during the quarter n/a (6) n/a 381 n/a 981 Net unaccreted fees remaining at quarter-end n/a 0 n/a 0 n/a 381 Average loan yield for the quarter n/a -2.21% n/a 11.51% n/a 5.98% Note: PPP Round 1 loan activity began in the second quarter of 2020. PPP Round 2 loan activity began in the first quarter of 2021. PPP – Round 2 Description 12/31/2021 9/30/2021 6/30/2021 # ($ in 000’s) # ($ in 000’s) # ($ in 000’s) Loans outstanding at quarter-end 180 $ 26,167 806 $ 88,888 1,409 $ 129,573 Average loans outstanding for the quarter n/a 58,895 n/a 100,551 n/a 133,239 Cumulative forgiveness applications submitted at quarter-end 1401 115,568 831 51,370 166 8,843 Cumulative forgiveness applications approved at quarter-end 1372 109,405 810 50,535 164 8,828 Net fees accreted into interest income during the quarter n/a 2,372 n/a 2,249 n/a 832 Net unaccreted fees remaining at quarter-end n/a 806 n/a 3,178 n/a 5,429 Average loan yield for the quarter n/a 17.11% n/a 9.17% n/a 3.50%
Loans by Industry as a % of Total Commercial Loans ($ in millions) Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) 15 Commercial Loan Portfolio Concentrations 15 Note: $757 million, or 62.9% of the commercial loan portfolio is C&I or owner occupied, while $446 million, or 37.1% is investment real estate. The percentage concentrations are based on the entire commercial portfolio of $1.204 billion as of December 31, 2021
Investment Securities Portfolio 16 Highlights High quality, liquid, diverse portfolio with relatively short duration.Fair value of $1.41 billion, an increase of $64.2 million in 4Q’21.Net unrealized gain of $3.6 million, representing 0.25% of amortized cost.Portfolio ratings: 53% AAA rated (or backed by the U.S. Government); 29% AA rated; 9% A rated; 7% BAA rated and 2% unrated.4.12 year estimated average duration with a weighted average yield of 1.88% (with TE gross up).Approximately 19.1% of the portfolio is variable rate. $1.4B Investment Portfolio by Type (12/31/21) Investment Securities Activity – 4Q’21 e. Agency, Agency MBS, CMO & CMBS Municipal/Govern-ment Asset-backed Private Label Mortgage Corp. Total (Dollars in 000’s) Purchases (at cost) $26,774 $22,617 $69,093 $23,679 $5,494 $147,658 Repayments 28,058 8,499 27,456 2,354 4,381 70,748 Sales -- -- 900 -- 2299 3199 Purchases in 4Q’21 Yield (TE) 1.65% 1.67% 1.19% 1.45% 2.89% 1.45% Duration 5.31% 5.52% 1.31% 2.60% 5.07% 3.03%
Strong Capital Position 17 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 increased $0.5 million, or 1.4%, in 4Q’21 vs. 3Q’21 due primarily to a $136.7 million increase in average interest earning assets. Net interest margin was 3.13% during the fourth quarter of 2021, compared to 3.12% in the year-ago quarter and 3.18% in the third quarter of 2021. Yields, NIM and Cost of Funds (%) Net Interest Income ($ in Millions) Net Interest Margin/Income 18
Linked Quarter Analysis 19 4Q’21 NIM Changes Linked Quarter Average Balances and FTE Rates
Strong Non-interest Income 20 Diverse sources of non-interest income, representing 30.3% of operating revenue in 4Q’21.4Q’21 interchange income of $3.3 million compared to $2.8 million in the prior year quarter. This increase was primarily due to an increase in transaction volume and a new switch contract that was executed in the fourth quarter of 2020. Mortgage banking: $5.6 million in net gains on mortgage loans in 4Q’21 vs. $15.9 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.$424.6 million in mortgage loan originations in 4Q’21 vs. $502.5 million in 4Q’20 and $453.8 million in 3Q’21.4Q’21 mortgage loan servicing includes a $0.6 million ($0.02 per diluted share, after tax) increase in fair value adjustment due to price compared to a decrease of $0.9 million ($0.03 per diluted share, after tax) in the year ago quarter. Source: Company documents. $76.6M 2021 YTD Non-interest Income (thousands) Non-interest Income Trends ($M) Highlights
Focus on Improved Efficiency 21 Source: Company documents. Non-interest Expense ($M) Highlights Efficiency Ratio (4 quarter rolling average) Compensation and employee benefits expense of $19.9 million compared to $20.0 in the prior year quarter. Compensation (salaries and wages) increased $0.6 million due to raises that were generally effective at the start of the year, increased overtime and staffing due primarily to the data processing conversion and some new positions (particularly new commercial lenders and related support staff). $1.0 million decrease in incentive compensation accrual due to the magnitude of the change from the prior respective linked quarter was much larger in 2020 resulting in a larger true up in 4Q’20. Payroll taxes and employee benefits rose $0.3 million due to higher health care costs (2020 was unusually low due to CVOID related lock-downs). Data processing costs increased $0.5 million due primarily to new software and technology product/service additions as well as increase due to higher asset base.Costs related to the reserve for unfunded lending commitments increased $0.9 million due primarily to an increase in 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) 22
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 23
Troubled Debt Restructurings (TDRs) TDR HighlightsWorking with client base to maximize sustainable performance.The specific reserves allocated to TDRs totaled $720m 12/31/21.A majority of our TDRs are performing under their modified terms but remain in TDR status for the life of the loan.96.4% of TDRs are current as of 12/31/21.Commercial TDR Statistics:15 loans with $4.5 million book balance.100% performing.WAR of 5.16% (accruing loans).Well seasoned portfolio; all of the accruing loans are not only performing but have been for over a year since modification.Retail TDR Statistics:383 loans with $32.6 million book balance.96.9% performing.WAR of 4.01% (accruing loans).Well seasoned portfolio; 99% of accruing loans are not only performing but have been for over a year since modification. TDRs ($ in Millions) 96% of TDRs are Current 24
Note: Dollars all in millions. Provision for Credit Losses Loan Net Charge-Offs/Recoveries Allowance for Credit Losses Credit Cost Summary 25
2021 Outlook Update Category Outlook Lending Continued growthLoan payoffs related to the Paycheck Protection Program will make loan growth challenging in 2021. The goal of low (1%) single digit overall portfolio loan growth (5% - 7% excluding PPP impact), is based on increases in commercial loans (excluding PPP impact), mortgage loans and consumer loans. This growth forecast also assumes an improving Michigan economy.Q4 Update: Total portfolio loans increased $21.1 million (2.9% annualized) in 4Q’21. Growth in retail (mortgage and installment) loans offset a decline in commercial loans that was due to a $63.8 million decrease in PPP loan balances in 4Q’21. Excluding PPP loans, total portfolio loans grew $314.8 million or 11.5% for the full year of 2021, which was higher than our forecasted range. 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. Q4 Update: 4Q’21 net interest income was $3.3 million (10.6%) higher than the prior year quarter. The net interest margin was 3.13% for the quarter down 0.05% from the linked quarter and up 0.01% from the prior year quarter. The full year 2021 net interest margin was 3.10% down 0.24% from prior year 2020. The primary driver of the decrease in the net interest margin is a higher allocation to lower yielding assets (mix), lower yields on new loan volumes, and lower yields on securities available for sale. 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 1/1/2021) 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.Q4 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 the disclosed range of $10.5 million to 12.5 million. The provision for credit losses was an expense of of $0.6 million in 4Q’21 and was a credit of 1.9 million for the full year 2021. Full year provision for credit losses was 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). Q4 Update: Non-interest income totaled $15.8 million in 4Q’21, which was within the forecasted range. 4Q’21 mortgage loan originations, sales and gains totaled $424.6 million, $291.2 million and $5.6 million, respectively. Mortgage loan servicing generated a gain of $1.3 million in 4Q’21 due primarily to a positive $0.6 million fair value adjustment due to price. The mortgage loan pipeline continues to be solid although refinance activity is slowing down. Non-interest Expenses IBCP forecasted 2021 quarterly range of $28.5 million 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.Q4 Update: Total non-interest expense was $34.0 million in the fourth quarter of 2021, well above our $28.5 million to $29.5 million targeted quarterly range. Increases in compensation and employee benefits, data processing and conversion related expenses were the primary categories that caused actual non-interest expenses to exceed the target range. Income Taxes Approximately a 20% effective income tax rate in 2021. This assumes a 21% statutory federal corporate income tax rate during 2021. Q4 Update: Actual effective income tax rate of 19.2% and 18.6% for 4Q’21 and full year 2021, respectively. Share Repurchases 2021 share repurchase authorization at approximately 5% (1.1 million) of outstanding shares. Expect total share repurchases in 2021 at the mid-point of this authorization.Q4 Update: The Company repurchased 814,910 (74.1% of authorized shares) shares at an average price of $21.19 for full year 2021. 26
2022 Outlook Category Outlook Lending Continued growthIBCP 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. Net Interest Income Growth driven primarily by higher average earning assetsThe 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 earnings 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. 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 1.63% 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. 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 millionExpect 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 services 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). 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. Income Taxes Approximately an 18.5% effective income tax rate in 2022. This assumes a 21% statutory federal corporate income tax rate during 2022. 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. 27
Strategic Initiatives 28 Serve consumers and businesses 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 SessionClosing RemarksThank you for attending!NASDAQ: IBCP 29