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 26, 2022
INDEPENDENT BANK CORPORATION
(Exact name of registrant as specified in its charter)
| Michigan | 0-7818 | 38-2032782 |
|---|---|---|
| (State or other jurisdiction<br><br> <br>of incorporation) | (Commission File Number) | (IRS Employer<br><br> <br>Identification No.) |
| 4200 East Beltline<br><br> <br>Grand Rapids, Michigan | 49525<br><br> <br>(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 April 26, 2022, Independent Bank Corporation issued a press release announcing its financial results for the quarter ended March 31, 2022. A copy of the press release is attached as Exhibit 99.1. Attached Exhibit 99.2 contains supplemental data to that press release and attached Exhibit 99.3 contains a slide presentation for our earnings conference call.
The information in this Form 8-K and the attached Exhibits shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
| Item 9.01. | Financial Statements and Exhibits |
|---|
Exhibits.
| 99.1 | Press release dated April 26, 2022. |
|---|---|
| 99.2 | Supplemental data to the Registrant's press release dated April 26, 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 | April 26, 2022 | By | s/Gavin A. Mohr |
| Gavin A. Mohr, Principal Financial Officer |
3
Exhibit 99.1
News Release
Independent Bank Corporation
4200 East Beltline
Grand Rapids, MI 49525
616.527.5820
| For Release: | Immediately |
|---|---|
| Contact: | William B. Kessel, President and CEO, 616.447.3933 |
| --- | --- |
Gavin A. Mohr, Chief Financial Officer, 616.447.3929
INDEPENDENT BANK CORPORATION REPORTS
2022 FIRST QUARTER RESULTS
GRAND RAPIDS, Mich., April. 26, 2022 - Independent Bank Corporation (NASDAQ: IBCP) reported first quarter 2022 net income of $18.0 million, or $0.84 per diluted share, versus net income of $22.0 million, or $1.00 per diluted share, in the prior-year period. The decrease in 2022 first quarter earnings as compared to 2021 primarily reflects a decrease in non-interest income and an increase in non-interest expense that were partially offset by an increase in net interest income and a decrease in the provision for credit losses.
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “I am pleased with the first quarter 2022 performance by our team generating strong core results with good growth in net interest income, stabilization of our net interest margin and net growth in each category of loans and total deposits. During the first quarter inflation was reported at near 40 year highs and we witnessed a very dramatic increase in rates on the middle and long end of the yield curve with the expectation now for multiple Fed hikes through 2022 and into 2023. This increase in rates slowed our mortgage origination volume and decreased net gains on mortgage loan sales, but also increased the value of our capitalized mortgage servicing rights. On the asset quality front, we had very low net charge-offs in the first quarter, as well as commercial watch credits at 2.44% of the portfolio, and a very low level of past due loans. While there exists much uncertainty, we are excited about the momentum we have in our markets and look forward to continuing these growth trends for the remainder of 2022.”
First quarter 2022 highlights include:
| • | Return on average assets and return on average equity of 1.54% and 19.38%, respectively; |
|---|---|
| • | An increase in net interest income of 9.0% over the first quarter of 2021; |
| --- | --- |
| • | Loan net growth of $99.0 million (or 13.8% annualized); |
| --- | --- |
| • | Deposit net growth of $88.4 million (or 8.7% 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 22 cent per share dividend on common stock on February 15, 2022. |
| --- | --- |
Significant items impacting comparable quarterly 2022 and 2021 results include the following:
| • | Service charges on deposits was $3.0 million and $1.9 million in the first quarter of 2022 and 2021, respectively. |
|---|---|
| • | Net gains (losses) on sale of securities was $0.1 million in the first quarter of 2022 compared to $1.4 million in the first quarter of 2021. |
| --- | --- |
1
| • | Net gains on mortgage loans was $0.8 million in the first quarter of 2022 compared to $12.8 million in the first quarter of 2021. |
|---|---|
| • | A change in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Change”) of a positive $8.5 million ($0.31 per diluted share, after taxes) as compared to a positive MSR change of $4.6 million ($0.17 per<br> diluted share, after taxes) for the first quarters of 2022 and 2021, respectively. |
| --- | --- |
| • | The provision for credit losses was a credit of $1.6 million in the first quarter of 2022 compared to a credit of $0.5 million in the first quarter of 2021. |
| --- | --- |
| • | Compensation and employee benefits was $20.1 million in the first quarter of 2022 compared to $18.5 million in the first quarter of 2021. |
| --- | --- |
Operating Results
The Company’s net interest income totaled $33.0 million during the first quarter of 2022, an increase of $2.7 million, or 9.0% from the year-ago period, and down $1.3 million, or 3.8%, from the fourth quarter of 2021. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.00% during the first quarter of 2022, compared to 3.05% in the year-ago period, and 3.13% in the fourth quarter of 2021. The year-over-year quarterly increase in net interest income is due to an increase in average interest-earning assets that was partially offset by a decline in the net interest margin. Average interest-earning assets were $4.49 billion in the first quarter of 2022, compared to $4.05 billion in the year ago quarter and $4.43 billion in the fourth quarter of 2021.
In addition, commercial loan balances, interest income and yields have been impacted by Paycheck Protection Program (“PPP”) lending activity. Interest income on PPP loans was $0.6 million and $2.6 million for the first quarters of 2022 and 2021, respectively. PPP loan balances were less than $6.0 million at the end of the first quarter 2022.
Non-interest income totaled $18.9 million for the first quarter of 2022, compared to $26.4 million in the respective comparable year ago period. These changes were primarily due to variances in mortgage banking related revenues (net gains on mortgage loans and mortgage loan servicing, net), service charges on deposit accounts and net gains(losses) on the sale of securities.
Net gains on mortgage loans in the first quarters of 2022 and 2021, were approximately $0.8 million and $12.8 million, respectively. The decrease in net gains on mortgage loans in 2022 was primarily due to a decrease in mortgage loan sales volume, a decrease in profit margins on mortgage loan sales as well as a decrease in the fair value adjustments on the mortgage loan pipeline.
Mortgage loan servicing, net, generated a gain of $9.6 million and $5.2 million in the first quarters of 2022 and 2021, 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 | ||||||
|---|---|---|---|---|---|---|
| 3/31/2022 | 3/31/2021 | |||||
| (In thousands) | ||||||
| Mortgage loan servicing, net: | ||||||
| Revenue, net | $ | 2,083 | $ | 1,910 | ||
| Fair value change due to price | 8,452 | 4,640 | ||||
| Fair value change due to pay-downs | (894 | ) | (1,383 | ) | ||
| Total | $ | 9,641 | $ | 5,167 |
Net gains (losses) on securities available for sale totaled $0.07 million, compared to $1.41 million in the prior year first quarter. The gain during the first quarter of 2021 was generally attributed to the divestiture of a group of mortgage backed securities.
Non-interest expenses totaled $31.5 million in the first quarter of 2022, compared to $30.0 million in the year-ago period. The year-over-year increases in non-interest expense are primarily due to increases in compensation and employee benefits that was partially offset by a decrease in data processing and costs (recoveries) related to unfunded lending commitments. The increase in compensation and employee benefits in 2022 is due to several factors, including wage increases that were generally effective at the start of the year, a decreased level of compensation that was deferred in the first quarter of 2022 as direct origination costs (due to lower mortgage loan origination volume), an increase in commercial lending personnel and higher health care insurance costs. The decrease in data processing costs is primarily due to a onetime credit from our core provider in the first quarter of 2022. The decrease in expense related to the reserve for unfunded lending commitments is due primarily to lower committed unfunded balances.
2
The Company recorded an income tax expense of $4.1 million in the first quarter of 2022. This compares to an income tax expense of $5.1 million in the first quarter of 2021. The changes in income tax expense primarily reflect changes in pre-tax earnings in 2022 relative to 2021.
Asset Quality
A breakdown of non-performing loans^(1)^ by loan type is as follows:
| Loan Type | 3/31/2022 | 12/31/2021 | 3/31/2021 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||
| Commercial | $ | 59 | $ | 62 | $ | 1,373 | |||
| Mortgage | 5,166 | 4,914 | 5,741 | ||||||
| Installment | 668 | 569 | 434 | ||||||
| Subtotal | 5,893 | 5,545 | 7,548 | ||||||
| Less – government guaranteed loans | 859 | 435 | 459 | ||||||
| Total non-performing loans | $ | 5,034 | $ | 5,110 | $ | 7,089 | |||
| Ratio of non-performing loans to total portfolio loans | 0.17 | % | 0.18 | % | 0.25 | % | |||
| Ratio of non-performing assets to total assets | 0.11 | % | 0.11 | % | 0.17 | % | |||
| Ratio of the allowance for credit losses to non-performing loans | 906.38 | % | 924.70 | % | 659.54 | % | |||
| (1) | Excludes loans that are classified as “troubled debt restructured” that are still performing. | ||||||||
| --- | --- |
The provision for credit losses was a credit of $1.6 million and a credit of $0.5 million in the first quarters of 2022 and 2021, respectively. The year-to-date decrease in the provision for credit losses in 2022 compared to 2021, was primarily the result of a decline in the adjustment to allocations based on subjective factors due in part to expected reduction in risk related to COVID-19. The Company recorded loan net charge offs of $0.1 million and loan net recoveries of $0.1 million in the first quarters of 2022 and 2021, respectively. At March 31, 2022, the allowance for credit losses totaled $45.6 million, or 1.52% of total portfolio loans compared to $47.3 million, or 1.63% of total portfolio loans at December 31, 2021.
Balance Sheet, Liquidity and Capital
Total assets were $4.76 billion at March 31, 2022, an increase of $57.2 million from December 31, 2021. Loans, excluding loans held for sale, were $3.00 billion at March 31, 2022, compared to $2.91 billion at December 31, 2021. Deposits totaled $4.21 billion at March 31, 2022, an increase of $88.4 million from December 31, 2021. This increase is primarily due to growth in savings and interest-bearing checking and reciprocal deposit account balances.
Cash and cash equivalents totaled $109.8 million at March 31, 2022, versus $109.5 million at December 31, 2021. Securities available for sale totaled $1.40 billion at March 31, 2022, versus $1.41 billion at December 31, 2021.
Total shareholders’ equity was $355.4 million at March 31, 2022, or 7.46% of total assets compared to $398.5 million or 8.47% at December 31, 2021. Tangible common equity totaled $324.0 million at March 31, 2022, or $15.31 per share compared to $366.8 million or $17.33 per share at December 31, 2021. The decrease in shareholder equity as well as tangible common equity are primarily the result of a decline in accumulated other comprehensive income (loss) related to unrealized losses on securities available for sale. The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:
| Regulatory Capital Ratios | 3/31/2022 | 12/31/2021 | Well<br><br> <br>Capitalized<br><br> <br>Minimum | |||
|---|---|---|---|---|---|---|
| Tier 1 capital to average total assets | 8.56 | % | 8.57 | % | 5.00 | % |
| Tier 1 common equity to risk-weighted assets | 11.49 | % | 11.80 | % | 6.50 | % |
| Tier 1 capital to risk-weighted assets | 11.49 | % | 11.80 | % | 8.00 | % |
| Total capital to risk-weighted assets | 12.71 | % | 13.05 | % | 10.00 | % |
3
Share Repurchase Plan
On December 17, 2021, the Board of Directors of the Company authorized the 2022 share repurchase plan. Under the terms of the 2022 share repurchase plan, the Company is authorized to purchase up to 1,100,000 shares, or approximately 5% of its outstanding common stock. The repurchase plan is authorized to last through December 31, 2022. During the first quarter of 2022, the Company repurchased 59,002 shares at a weighted average price of $23.46 per share.
Earnings Conference Call
Brad Kessel, President and CEO, Gavin A. Mohr, CFO and Joel Rahn, EVP-Commercial Banking will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, April 26, 2022.
To participate in the live conference call, please dial 1-844-200-6205 (access code #645428). Also the conference call will be accessible through an audio webcast with user-controlled slides via the following site/URL: https://events.q4inc.com/attendee/872415764.
A playback of the call can be accessed by dialing 1-866-813-9403 (Conference ID # 996080). The replay will be available through May 3, 2022.
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $4.8 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a branch network across Michigan's Lower Peninsula through one state-chartered bank subsidiary. This subsidiary (Independent Bank) provides a full range of financial services, including commercial banking, mortgage lending, investments and insurance. Independent Bank Corporation is committed to providing exceptional personal service and value to its customers, stockholders and the communities it serves.
For more information, please visit our Web site at: IndependentBank.com.
Forward-Looking Statements
This press release contains forward-looking statements about Independent Bank Corporation. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of Independent Bank Corporation. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting Independent Bank Corporation, its customers, counterparties, employees, and fourth-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Independent Bank Corporation’s revenues and the values of its assets and liabilities, reduce the availability of funding from certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect Independent Bank Corporation in substantial and unpredictable ways. Independent Bank Corporation’s results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk.
Certain risks and important factors that could affect Independent Bank Corporation's future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2021 and other reports filed with the SEC, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Independent Bank Corporation undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances, after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise.
4
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | |||||
|---|---|---|---|---|---|---|
| (unaudited) | ||||||
| (In thousands, except share | ||||||
| amounts) | ||||||
| Assets | ||||||
| Cash and due from banks | $ | 46,600 | $ | 51,069 | ||
| Interest bearing deposits | 63,221 | 58,404 | ||||
| Cash and Cash Equivalents | 109,821 | 109,473 | ||||
| Securities available for sale | 1,400,137 | 1,412,830 | ||||
| Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 17,653 | 18,427 | ||||
| Loans held for sale, carried at fair value | 29,514 | 55,470 | ||||
| Loans held for sale, carried at lower of cost or fair value | - | 34,811 | ||||
| Loans | ||||||
| Commercial | 1,257,601 | 1,203,581 | ||||
| Mortgage | 1,170,059 | 1,139,659 | ||||
| Installment | 576,405 | 561,805 | ||||
| Total Loans | 3,004,065 | 2,905,045 | ||||
| Allowance for credit losses | (45,627 | ) | (47,252 | ) | ||
| Net Loans | 2,958,438 | 2,857,793 | ||||
| Other real estate and repossessed assets | 438 | 245 | ||||
| Property and equipment, net | 37,385 | 36,404 | ||||
| Bank-owned life insurance | 54,984 | 55,279 | ||||
| Capitalized mortgage loan servicing rights, carried at fair value | 35,933 | 26,232 | ||||
| Other intangibles | 3,104 | 3,336 | ||||
| Goodwill | 28,300 | 28,300 | ||||
| Accrued income and other assets | 86,276 | 66,140 | ||||
| Total Assets | $ | 4,761,983 | $ | 4,704,740 | ||
| Liabilities and Shareholders' Equity | ||||||
| Deposits | ||||||
| Non-interest bearing | $ | 1,318,377 | $ | 1,321,601 | ||
| Savings and interest-bearing checking | 1,972,462 | 1,897,487 | ||||
| Reciprocal | 605,332 | 586,626 | ||||
| Time | 306,382 | 308,438 | ||||
| Brokered time | 2,945 | 2,938 | ||||
| Total Deposits | 4,205,498 | 4,117,090 | ||||
| Other borrowings | 30,006 | 30,009 | ||||
| Subordinated debt | 39,376 | 39,357 | ||||
| Subordinated debentures | 39,609 | 39,592 | ||||
| Accrued expenses and other liabilities | 92,045 | 80,208 | ||||
| Total Liabilities | 4,406,534 | 4,306,256 | ||||
| Shareholders’ Equity | ||||||
| Preferred stock, no par value, 200,000 shares authorized; none issued or outstanding Common stock, no par value, 500,000,000 shares authorized; issued and outstanding: | - | - | ||||
| 21,168,230 shares at March 31, 2022 and 21,171,036 shares at December 31, 2021 | 321,981 | 323,401 | ||||
| Retained earnings | 87,882 | 74,582 | ||||
| Accumulated other comprehensive income (loss) | (54,414 | ) | 501 | |||
| Total Shareholders’ Equity | 355,449 | 398,484 | ||||
| Total Liabilities and Shareholders’ Equity | $ | 4,761,983 | $ | 4,704,740 |
5
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
| Three Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | March 31,<br><br> <br>2021 | |||||||
| (unaudited) | |||||||||
| Interest Income | (In thousands, except per share amounts) | ||||||||
| Interest and fees on loans | $ | 28,418 | $ | 30,316 | $ | 28,105 | |||
| Interest on securities available for sale | |||||||||
| Taxable | 4,552 | 4,114 | 2,796 | ||||||
| Tax-exempt | 1,554 | 1,577 | 1,384 | ||||||
| Other investments | 217 | 217 | 217 | ||||||
| Total Interest Income | 34,741 | 36,224 | 32,502 | ||||||
| Interest Expense | |||||||||
| Deposits | 767 | 977 | 1,256 | ||||||
| Other borrowings and subordinated debt and debentures | 973 | 962 | 962 | ||||||
| Total Interest Expense | 1,740 | 1,939 | 2,218 | ||||||
| Net Interest Income | 33,001 | 34,285 | 30,284 | ||||||
| Provision for credit losses | (1,573 | ) | 630 | (474 | ) | ||||
| Net Interest Income After Provision for Credit Losses | 34,574 | 33,655 | 30,758 | ||||||
| Non-interest Income | |||||||||
| Interchange income | 3,082 | 3,306 | 3,049 | ||||||
| Service charges on deposit accounts | 2,957 | 2,992 | 1,916 | ||||||
| Net gains (losses) on assets | |||||||||
| Mortgage loans | 835 | 5,600 | 12,828 | ||||||
| Securities available for sale | 70 | (10 | ) | 1,416 | |||||
| Mortgage loan servicing, net | 9,641 | 1,269 | 5,167 | ||||||
| Other | 2,363 | 2,614 | 2,030 | ||||||
| Total Non-interest Income | 18,948 | 15,771 | 26,406 | ||||||
| Non-interest Expense | |||||||||
| Compensation and employee benefits | 20,130 | 19,905 | 18,522 | ||||||
| Occupancy, net | 2,543 | 2,216 | 2,343 | ||||||
| Data processing | 2,216 | 2,851 | 2,374 | ||||||
| Furniture, fixtures and equipment | 1,045 | 1,060 | 1,003 | ||||||
| Interchange expense | 1,011 | 1,083 | 948 | ||||||
| Communications | 757 | 739 | 881 | ||||||
| Advertising | 680 | 599 | 489 | ||||||
| Loan and collection | 559 | 819 | 759 | ||||||
| FDIC deposit insurance | 522 | 413 | 330 | ||||||
| Legal and professional | 493 | 534 | 499 | ||||||
| Conversion related expenses | 44 | 191 | 218 | ||||||
| Net gains on other real estate and repossessed assets | (55 | ) | (28 | ) | (180 | ) | |||
| Costs (recoveries) related to unfunded lending commitments | (355 | ) | 844 | (32 | ) | ||||
| Other | 1,860 | 2,728 | 1,867 | ||||||
| Total Non-interest Expense | 31,450 | 33,954 | 30,021 | ||||||
| Income Before Income Tax | 22,072 | 15,472 | 27,143 | ||||||
| Income tax expense | 4,105 | 2,964 | 5,106 | ||||||
| Net Income | $ | 17,967 | $ | 12,508 | $ | 22,037 | |||
| Net Income Per Common Share | |||||||||
| Basic | $ | 0.85 | $ | 0.59 | $ | 1.01 | |||
| Diluted | $ | 0.84 | $ | 0.58 | $ | 1.00 |
6
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | March 31,<br><br> 2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (unaudited) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| Net interest income | $ | 33,001 | $ | 34,285 | $ | 33,803 | $ | 31,393 | $ | 30,284 | |||||
| Provision for credit losses | (1,573 | ) | 630 | (659 | ) | (1,425 | ) | (474 | ) | ||||||
| Non-interest income | 18,948 | 15,771 | 19,695 | 14,771 | 26,406 | ||||||||||
| Non-interest expense | 31,450 | 33,954 | 34,512 | 32,536 | 30,021 | ||||||||||
| Income before income tax | 22,072 | 15,472 | 19,645 | 15,053 | 27,143 | ||||||||||
| Income tax expense | 4,105 | 2,964 | 3,683 | 2,665 | 5,106 | ||||||||||
| Net income | $ | 17,967 | $ | 12,508 | $ | 15,962 | $ | 12,388 | $ | 22,037 | |||||
| Basic earnings per share | $ | 0.85 | $ | 0.59 | $ | 0.74 | $ | 0.57 | $ | 1.01 | |||||
| Diluted earnings per share | 0.84 | 0.58 | 0.73 | 0.56 | 1.00 | ||||||||||
| Cash dividend per share | 0.22 | 0.21 | 0.21 | 0.21 | 0.21 | ||||||||||
| Average shares outstanding | 21,191,860 | 21,256,367 | 21,515,669 | 21,749,654 | 21,825,937 | ||||||||||
| Average diluted shares outstanding | 21,398,128 | 21,473,963 | 21,726,346 | 21,966,829 | 22,058,503 | ||||||||||
| Performance Ratios | |||||||||||||||
| Return on average assets | 1.54 | % | 1.07 | % | 1.40 | % | 1.12 | % | 2.10 | % | |||||
| Return on average equity | 19.38 | 12.61 | 15.93 | 12.78 | 23.51 | ||||||||||
| Efficiency ratio ^(1)^ | 59.62 | 66.68 | 63.47 | 69.24 | 53.48 | ||||||||||
| As a Percent of Average Interest-Earning Assets^(1)^ | |||||||||||||||
| Interest income | 3.16 | % | 3.30 | % | 3.37 | % | 3.22 | % | 3.27 | % | |||||
| Interest expense | 0.16 | 0.17 | 0.19 | 0.20 | 0.22 | ||||||||||
| Net interest income | 3.00 | 3.13 | 3.18 | 3.02 | 3.05 | ||||||||||
| Average Balances | |||||||||||||||
| Loans | $ | 2,980,098 | $ | 2,957,985 | $ | 2,903,700 | $ | 2,859,544 | $ | 2,834,012 | |||||
| Securities available for sale | 1,407,225 | 1,367,038 | 1,317,382 | 1,274,556 | 1,093,618 | ||||||||||
| Total earning assets | 4,492,757 | 4,433,400 | 4,296,662 | 4,223,570 | 4,047,952 | ||||||||||
| Total assets | 4,721,205 | 4,654,491 | 4,513,774 | 4,434,760 | 4,254,294 | ||||||||||
| Deposits | 4,158,528 | 4,069,901 | 3,934,937 | 3,879,715 | 3,698,811 | ||||||||||
| Interest bearing liabilities | 2,950,337 | 2,863,057 | 2,740,444 | 2,674,425 | 2,589,102 | ||||||||||
| Shareholders' equity | 376,010 | 393,477 | 397,542 | 388,780 | 380,111 | ||||||||||
| End of Period | |||||||||||||||
| Capital | |||||||||||||||
| Tangible common equity ratio | 6.85 | % | 7.85 | % | 8.02 | % | 8.21 | % | 8.08 | % | |||||
| Average equity to average assets | 7.96 | 8.45 | 8.81 | 8.77 | 8.93 | ||||||||||
| Common shareholders' equity per share of common stock | $ | 16.79 | $ | 18.82 | $ | 18.76 | $ | 18.30 | $ | 17.79 | |||||
| Tangible common equity per share of common stock | 15.31 | 17.33 | 17.27 | 16.82 | 16.30 | ||||||||||
| Total shares outstanding | 21,168,230 | 21,171,036 | 21,321,092 | 21,632,912 | 21,773,734 | ||||||||||
| Selected Balances | |||||||||||||||
| Loans | $ | 3,004,065 | $ | 2,905,045 | $ | 2,883,978 | $ | 2,814,559 | $ | 2,784,224 | |||||
| Securities available for sale | 1,400,137 | 1,412,830 | 1,348,378 | 1,330,660 | 1,247,280 | ||||||||||
| Total earning assets | 4,514,590 | 4,484,987 | 4,405,189 | 4,246,410 | 4,209,017 | ||||||||||
| Total assets | 4,761,983 | 4,704,740 | 4,622,340 | 4,461,272 | 4,426,440 | ||||||||||
| Deposits | 4,205,498 | 4,117,090 | 4,012,068 | 3,862,466 | 3,858,575 | ||||||||||
| Interest bearing liabilities | 2,956,736 | 2,865,090 | 2,784,554 | 2,633,747 | 2,626,280 | ||||||||||
| Shareholders' equity | 355,449 | 398,484 | 400,031 | 395,974 | 387,329 | ||||||||||
| (1) | Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%. | ||||||||||||||
| --- | --- |
7
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, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| (Dollars in thousands) | ||||||
| Net Interest Margin, Fully Taxable | ||||||
| Equivalent ("FTE") | ||||||
| Net interest income | $ | 33,001 | $ | 30,284 | ||
| Add: taxable equivalent adjustment | 482 | 404 | ||||
| Net interest income - taxable equivalent | $ | 33,483 | $ | 30,688 | ||
| Net interest margin (GAAP) ^(1)^ | 2.96 | % | 3.01 | % | ||
| Net interest margin (FTE) ^(1)^ | 3.00 | % | 3.05 | % | ||
| (1) | Annualized. | |||||
| --- | --- |
Tangible Common Equity Ratio
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | March 31,<br><br> <br>2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Common shareholders' equity | $ | 355,449 | $ | 398,484 | $ | 400,031 | $ | 395,974 | $ | 387,329 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 3,104 | 3,336 | 3,579 | 3,821 | 4,063 | ||||||||||
| Tangible common equity | $ | 324,045 | $ | 366,848 | $ | 368,152 | $ | 363,853 | $ | 354,966 | |||||
| Total assets | $ | 4,761,983 | $ | 4,704,740 | $ | 4,622,340 | $ | 4,461,272 | $ | 4,426,440 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 3,104 | 3,336 | 3,579 | 3,821 | 4,063 | ||||||||||
| Tangible assets | $ | 4,730,579 | $ | 4,673,104 | $ | 4,590,461 | $ | 4,429,151 | $ | 4,394,077 | |||||
| Common equity ratio | 7.46 | % | 8.47 | % | 8.65 | % | 8.88 | % | 8.75 | % | |||||
| Tangible common equity ratio | 6.85 | % | 7.85 | % | 8.02 | % | 8.21 | % | 8.08 | % | |||||
| Tangible Common Equity per Share of Common Stock: | |||||||||||||||
| Common shareholders' equity | $ | 355,449 | $ | 398,484 | $ | 400,031 | $ | 395,974 | $ | 387,329 | |||||
| Tangible common equity | $ | 324,045 | $ | 366,848 | $ | 368,152 | $ | 363,853 | $ | 354,966 | |||||
| Shares of common stock outstanding (in thousands) | 21,168 | 21,171 | 21,321 | 21,633 | 21,774 | ||||||||||
| Common shareholders' equity per share of common stock | $ | 16.79 | $ | 18.82 | $ | 18.76 | $ | 18.30 | $ | 17.79 | |||||
| Tangible common equity per share of common stock | $ | 15.31 | $ | 17.33 | $ | 17.27 | $ | 16.82 | $ | 16.30 |
The tangible common equity ratio removes the effect of goodwill and other intangible assets from capital and total assets. Tangible common equity per share of common stock removes the effect of goodwill and other intangible assets from common shareholders’ equity per share of common stock.
8
Exhibit 99.2
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Supplemental Data
Non-performing assets ^(1)^
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | September 30,<br><br> <br>2021 | June 30,<br><br> <br>2021 | March 31,<br><br> <br>2021 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||||||||
| Non-accrual loans | $ | 5,893 | $ | 5,545 | $ | 5,917 | $ | 5,531 | $ | 7,548 | |||||
| Loans 90 days or more past due and still accruing interest | - | - | - | 14 | - | ||||||||||
| Subtotal | 5,893 | 5,545 | 5,917 | 5,545 | 7,548 | ||||||||||
| Less: Government guaranteed loans | 859 | 435 | 327 | 427 | 459 | ||||||||||
| Total non-performing loans | 5,034 | 5,110 | 5,590 | 5,118 | 7,089 | ||||||||||
| Other real estate and repossessed assets | 438 | 245 | 224 | 296 | 346 | ||||||||||
| Total non-performing assets | $ | 5,472 | $ | 5,355 | $ | 5,814 | $ | 5,414 | $ | 7,435 | |||||
| As a percent of Portfolio Loans Non-performing loans | 0.17 | % | 0.18 | % | 0.19 | % | 0.18 | % | 0.25 | % | |||||
| Allowance for credit losses | 1.52 | 1.63 | 1.62 | 1.63 | 1.68 | ||||||||||
| Non-performing assets to total assets | 0.11 | 0.11 | 0.13 | 0.12 | 0.17 | ||||||||||
| Allowance for credit losses as a percent of non-performing loans | 906.38 | 924.70 | 837.19 | 897.34 | 659.54 | ||||||||||
| ^(1)^ | Excludes loans classified as "trouble debt restructured" that are not past due. | ||||||||||||||
| --- | --- |
Troubled debt restructurings ("TDR")
| March 31, 2022 | |||||||
|---|---|---|---|---|---|---|---|
| Commercial | Retail ^(1)^ | Total | |||||
| (In thousands) | |||||||
| Performing TDR's | $ | 4,410 | $ | 30,622 | $ | 35,032 | |
| Non-performing TDR's ^(2)^ | - | 875 | ^(3)^ | 875 | |||
| Total | $ | 4,410 | $ | 31,497 | $ | 35,907 | |
| December 31, 2021 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial | Retail ^(1)^ | Total | |||||
| (In thousands) | |||||||
| Performing TDR's | $ | 4,481 | $ | 31,589 | $ | 36,070 | |
| Non-performing TDR's ^(2)^ | - | 1,016 | ^(3)^ | 1,016 | |||
| Total | $ | 4,481 | $ | 32,605 | $ | 37,086 | |
| (1) | Retail loans include mortgage and installment loan segments. | ||||||
| --- | --- | ||||||
| (2) | Included in non-performing assets table above. | ||||||
| --- | --- | ||||||
| (3) | Also includes loans on non-accrual at the time of modification until six payments are received on a timely basis. | ||||||
| --- | --- |
1
Allowance for credit losses
| Three months ended<br><br> <br>March 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||
| Loans | Unfunded<br><br> <br>Commitments | Loans | Unfunded<br><br> <br>Commitments | |||||||||
| (Dollars in thousands) | ||||||||||||
| Balance at beginning of period | $ | 47,252 | $ | 4,481 | $ | 35,429 | $ | 1,805 | ||||
| Additions (deductions) | ||||||||||||
| Impact of adoption of ASC 326 | - | - | 11,574 | 1,469 | ||||||||
| Provision for credit losses | (1,573 | ) | - | (474 | ) | - | ||||||
| Initial allowance on loans purchased with credit deterioration | - | - | 134 | - | ||||||||
| Recoveries credited to allowance | 621 | - | 548 | - | ||||||||
| Loans charged against the allowance | (673 | ) | - | (456 | ) | - | ||||||
| Recoveries included in non-interest expense | - | (355 | ) | - | (32 | ) | ||||||
| Balance at end of period | $ | 45,627 | $ | 4,126 | $ | 46,755 | $ | 3,242 | ||||
| Net loans charged (recovered) against the allowance to average Portfolio Loans | 0.01 | % | (0.01 | )% |
Capitalization
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | |||||
|---|---|---|---|---|---|---|
| (In thousands) | ||||||
| Subordinated debt | $ | 39,376 | $ | 39,357 | ||
| Subordinated debentures | 39,609 | 39,592 | ||||
| Amount not qualifying as regulatory capital | (600 | ) | (581 | ) | ||
| Amount qualifying as regulatory capital | 78,385 | 78,368 | ||||
| Shareholders’ equity | ||||||
| Common stock | 321,981 | 323,401 | ||||
| Retained earnings | 87,882 | 74,582 | ||||
| Accumulated other comprehensive income (loss) | (54,414 | ) | 501 | |||
| Total shareholders’ equity | 355,449 | 398,484 | ||||
| Total capitalization | $ | 433,834 | $ | 476,852 |
2
Non-Interest Income
| Three months ended | |||||||
|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | March 31,<br><br> <br>2021 | |||||
| (In thousands) | |||||||
| Interchange income | $ | 3,082 | $ | 3,306 | $ | 3,049 | |
| Service charges on deposit accounts | 2,957 | 2,992 | 1,916 | ||||
| Net gains (losses) on assets | |||||||
| Mortgage loans | 835 | 5,600 | 12,828 | ||||
| Securities | 70 | (10 | ) | 1,416 | |||
| Mortgage loan servicing, net | 9,641 | 1,269 | 5,167 | ||||
| Investment and insurance commissions | 738 | 708 | 583 | ||||
| Bank owned life insurance | 138 | 156 | 139 | ||||
| Other | 1,487 | 1,750 | 1,308 | ||||
| Total non-interest income | $ | 18,948 | $ | 15,771 | $ | 26,406 |
Capitalized Mortgage Loan Servicing Rights
| Three months ended<br><br> <br>March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| (In thousands) | ||||
| Balance at beginning of period | $ | 26,232 | $ | 16,904 |
| Originated servicing rights capitalized | 2,143 | 3,369 | ||
| Change in fair value | 7,558 | 3,257 | ||
| Balance at end of period | $ | 35,933 | $ | 23,530 |
3
Mortgage Loan Activity
| Three months ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | March 31,<br><br> <br>2021 | |||||||
| (Dollars in thousands) | |||||||||
| Mortgage loans originated | $ | 270,194 | $ | 424,563 | $ | 509,003 | |||
| Mortgage loans sold | 221,725 | 291,196 | 377,418 | ||||||
| Net gains on mortgage loans | 835 | 5,600 | 12,828 | ||||||
| Net gains as a percent of mortgage loans sold ("Loan Sales Margin") | 0.38 | % | 1.92 | % | 3.40 | % | |||
| Fair value adjustments included in the Loan Sales Margin | (1.87 | ) | (0.90 | ) | (0.98 | ) |
Non-Interest Expense
| Three months ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2022 | December 31,<br><br> <br>2021 | March 31,<br><br> <br>2021 | |||||||
| (In thousands) | |||||||||
| Compensation | $ | 12,435 | $ | 11,462 | $ | 10,121 | |||
| Performance-based compensation | 3,662 | 4,473 | 4,292 | ||||||
| Payroll taxes and employee benefits | 4,033 | 3,970 | 4,109 | ||||||
| Compensation and employee benefits | 20,130 | 19,905 | 18,522 | ||||||
| Occupancy, net | 2,543 | 2,216 | 2,343 | ||||||
| Data processing | 2,216 | 2,851 | 2,374 | ||||||
| Furniture, fixtures and equipment | 1,045 | 1,060 | 1,003 | ||||||
| Interchange expense | 1,011 | 1,083 | 948 | ||||||
| Communications | 757 | 739 | 881 | ||||||
| Advertising | 680 | 599 | 489 | ||||||
| Loan and collection | 559 | 819 | 759 | ||||||
| FDIC deposit insurance | 522 | 413 | 330 | ||||||
| Legal and professional | 493 | 534 | 499 | ||||||
| Amortization of intangible assets | 232 | 243 | 242 | ||||||
| Supplies | 123 | 151 | 174 | ||||||
| Correspondent bank service fees | 77 | 90 | 100 | ||||||
| Conversion related expenses | 44 | 191 | 218 | ||||||
| Provision for loss reimbursement on sold loans | 33 | 38 | 34 | ||||||
| Net gains on other real estate and repossessed assets | (55 | ) | (28 | ) | (180 | ) | |||
| Costs (recoveries) related to unfunded lending commitments | (355 | ) | 844 | (32 | ) | ||||
| Other | 1,395 | 2,206 | 1,317 | ||||||
| Total non-interest expense | $ | 31,450 | $ | 33,954 | $ | 30,021 |
4
Average Balances and Tax Equivalent Rates
| Three Months Ended<br><br> <br>March 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||||||||||
| Average<br><br> <br>Balance | Interest | Rate ^(2)^ | Average<br><br> <br>Balance | Interest | Rate ^(2)^ | |||||||||
| (Dollars in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Taxable loans | $ | 2,971,566 | $ | 28,340 | 3.85 | % | $ | 2,827,335 | $ | 28,039 | 4.00 | % | ||
| Tax-exempt loans ^(1)^ | 8,532 | 99 | 4.71 | 6,677 | 84 | 5.10 | ||||||||
| Taxable securities | 1,080,252 | 4,552 | 1.69 | 782,471 | 2,796 | 1.43 | ||||||||
| Tax-exempt securities^(1)^ | 326,973 | 2,015 | 2.47 | 311,147 | 1,770 | 2.28 | ||||||||
| Interest bearing cash | 87,317 | 37 | 0.17 | 101,895 | 29 | 0.12 | ||||||||
| Other investments | 18,117 | 180 | 4.03 | 18,427 | 188 | 4.14 | ||||||||
| Interest Earning Assets | 4,492,757 | 35,223 | 3.16 | 4,047,952 | 32,906 | 3.27 | ||||||||
| Cash and due from banks | 58,676 | 56,371 | ||||||||||||
| Other assets, net | 169,772 | 149,971 | ||||||||||||
| Total Assets | $ | 4,721,205 | $ | 4,254,294 | ||||||||||
| Liabilities | ||||||||||||||
| Savings and interest- | ||||||||||||||
| bearing checking | $ | 2,503,014 | 641 | 0.10 | $ | 2,140,405 | 675 | 0.13 | ||||||
| Time deposits | 338,354 | 126 | 0.15 | 339,872 | 581 | 0.69 | ||||||||
| Other borrowings | 108,969 | 973 | 3.62 | 108,825 | 962 | 3.59 | ||||||||
| Interest Bearing Liabilities | 2,950,337 | 1,740 | 0.24 | 2,589,102 | 2,218 | 0.35 | ||||||||
| Non-interest bearing deposits | 1,317,160 | 1,218,534 | ||||||||||||
| Other liabilities | 77,698 | 66,547 | ||||||||||||
| Shareholders’ equity | 376,010 | 380,111 | ||||||||||||
| Total liabilities and<br><br> <br>shareholders’ equity | $ | 4,721,205 | $ | 4,254,294 | ||||||||||
| Net Interest Income | $ | 33,483 | $ | 30,688 | ||||||||||
| Net Interest Income as a Percent<br><br> <br>of Average Interest Earning Assets | 3.00 | % | 3.05 | % |
| (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, 2022
| Total Commercial Loans | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| All Loans | Watch Credits | Percent of Loan<br><br> <br>Category in Watch Credit | ||||||||||||
| Loan Category | Performing | Non-accrual | Total | |||||||||||
| (Dollars in thousands) | ||||||||||||||
| Land | $ | 9,878 | $ | 790 | $ | - | $ | 790 | 8.0 | % | ||||
| Land Development | 16,421 | 30 | - | 30 | 0.2 | |||||||||
| Construction | 74,390 | - | - | - | 0.0 | |||||||||
| Income Producing | 396,726 | 1,924 | - | 1,924 | 0.5 | |||||||||
| Owner Occupied | 404,607 | 23,329 | - | 23,329 | 5.8 | |||||||||
| Total Commercial Real Estate Loans | $ | 902,022 | $ | 26,073 | - | $ | 26,073 | 2.9 | ||||||
| Other Commercial Loans | $ | 355,579 | $ | 4,189 | 59 | $ | 4,248 | 1.2 | ||||||
| Total non-performing commercial loans | $ | 59 |
Commercial Loan Portfolio Analysis as of December 31, 2021
| 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 | $ | 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 |
6
Exhibit 99.3
Independent Bank Corporation Earnings Call First Quarter 2022 April 26, 2022 (NASDAQ: IBCP)
Cautionary note regarding forward-looking statements This presentation contains forward-looking statements about Independent Bank Corporation. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of Independent Bank Corporation. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting Independent Bank Corporation, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Independent Bank Corporation’s revenues and the values of its assets and liabilities, reduce the availability of funding from certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect Independent Bank Corporation in substantial and unpredictable ways. Independent Bank Corporation’s results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk. Certain risks and important factors that could affect Independent Bank Corporation's future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2021 and other reports filed with the SEC, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Independent Bank Corporation undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise. 2
Agenda Formal Remarks. William B. (Brad) Kessel, President and Chief Executive Officer Gavin A. Mohr, Executive Vice President and Chief Financial Officer Joel Rahn, Executive Vice President – Commercial Banking Question and Answer session. Closing Remarks. Note: This presentation is available at www.IndependentBank.com in the Investor Relations area under the “Presentations” tab. 3
Historical Quarterly Financial Data 4
1Q 2022 Financial Highlights Income Statement Pre-tax, pre-provision income of $20.5 million compared to $26.7 million in the year ago quarter. Net income of $18.0 million, or $0.84 per diluted share compared to $22.0 million, or $1.00 per diluted share in the year ago quarter. Net interest income of $33.0 million, compared to $30.3 million, in the year ago quarter. Mortgage servicing rights change (the “MSR Change”) due to price of $8.5 million ($0.31 per diluted share, after taxes) compared to a positive $4.6 million ($0.17 per diluted share, after taxes) in the year ago quarter. Provision for credit losses credit of $1.6 million compared to a credit of $0.5 million in the year ago quarter. Return on average assets of 1.54%. Return on average equity of 19.38%. Balance Sheet/Capital Total portfolio loans increased by $99.0 million or 13.8% annualized. Total deposits grew by $88.4 million or 8.7% annualized. Paid a 22 cent per share cash dividend on common stock on February 15, 2022. 5
Our Michigan Markets 6 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: $200 million of Ohio mortgage loans, $45 million of resort loans, $6 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 opening in Holland, Michigan in 3Q’22. Opened Loan Production Offices in Ottawa County and Macomb County in 3Q’21. 8 Loan Production Offices (LPOs), including 6 throughout Michigan and 2 in Ohio (residential mortgage lending only). Branches (62) East / “Thumb” Branches: 20 Deposits: $1,052M Loans: $635M Southeast Branches: 8 Deposits: $563M Loans: $942M Central Branches: 10 Deposits: $506M Loans: $190M West Branches: 20 Deposits: $1,225M Loans: $649M Northwest Branches: 4 Deposits: $304M Loans: $311M
Select Economic Statistics 7 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 106,129 213,065 294,004
Low Cost Deposit Franchise Focused on Core Deposit Growth 8 Substantially core funding – $3.90 billion of non-maturity deposit accounts (92.7% of total deposits). Total deposits increased $88.4 million (8.7%) since 12/31/21 with non-interest bearing down $3.2 million, savings and interest- bearing checking up $75.0 million, reciprocal up $18.7 million and time down $2.1 million. Deposits by Customer Type: Retail – 52.6% Commercial – 33.8% Municipal – 13.6% Deposit Composition – 3/31/22 Deposit Highlights Michigan Deposit Market Share $4.2B Core Deposits: 92.7% Cost of Deposits (%)/Total Deposits ($B) Note: Core deposits defined as total deposits less maturity deposits.
9 9 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 10 Lending Highlights Note: Portfolio loans exclude loans HFS. Portfolio loan changes in 1Q’22: Commercial – increased $54.0 million (excluding PPP increased $74.5 million). PPP loan balances decreased $20.4 million and totaled $5.9 million at March 31, 2022. Mortgage – increased $30.4 million. Installment – increased $14.6 million. Mortgage loan portfolio weighted average FICO and LTV of 752 and 78%, respectively and average balance of $226,758. Installment weighted average FICO of 758 and average balance of $24,531. Commercial loan rate mix: 47% fixed / 53% variable. Indices – 73% tied to Prime, 23% tied to LIBOR, 2% tied to a US Treasury rate and 2% tied to SOFR. Mortgage loan (including HECL) rate mix: 66% fixed / 34% adjustable or variable. Indices – 25% tied to Prime, 44% tied to LIBOR , 19% tied to a US Treasury rate and 12% tied to SOFR Loan Composition – 3/31/22 $3.0B Yield on Loans (%)/Total Portfolio Loans ($B)
Loans by Industry as a % of Total Commercial Loans ($ in millions) Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) 11 Commercial Loan Portfolio Concentrations 11 Note: $811 million, or 64.5% of the commercial loan portfolio is C&I or owner occupied, while $446 million, or 35.5% is investment real estate. The percentage concentrations are based on the entire commercial portfolio of $1.258 billion as of March 31, 2022
Investment Securities Portfolio 12 Highlights High quality, liquid, diverse portfolio with moderate duration. $148.9 million of municipal bonds have been hedged with swaps. Net unrealized loss of $61.5 million, representing 4.2% of amortized cost net of swaps. Portfolio ratings: 53% AAA rated (or backed by the U.S. Government); 29% AA rated; 9% A rated; 7% BAA rated and 2% unrated. 4.66 year estimated average duration with a weighted average yield of 1.92% (with TE gross up) including swaps. Approximately 30.0% of the portfolio is variable rate including swaps. $1.4B Investment Portfolio by Type (3/31/22) Investment Securities Activity – 1Q’22 e. Agency, Agency MBS, CMO & CMBS Municipal/Govern-ment Asset-backed Private Label Mortgage Corp. Total (Dollars in 000’s) Purchases (at cost) $15,921 $1,500 $93,884 $15,967 $6,826 $134,101 Repayments 22,378 10,426 27,297 2,523 2,741 65,366 Sales -- 1,396 2,929 4,325 Purchases in 1Q’22 Yield (TE) 2.23% 2.20% 1.96% 2.10% 2.59% 2.04% Duration 4.69% 4.75% 1.10% 2.16% 5.19% 1.90%
Strong Capital Position 13 TCE / TA (%) Leverage Ratio (%) CET1 Ratio (%) Total RBC Ratio (%) 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
Highlights Interest 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 $1.3 million in 1Q’22 vs. 4Q’21 due primarily to a $1.8 million decrease in interest income related to PPP fee accretion. Net interest margin was 3.00% during the first quarter of 2022, compared to 3.05% in the year-ago quarter and 3.13% in the fourth quarter of 2021. Yields, NIM and Cost of Funds (%) Net Interest Income ($ in Millions) Net Interest Margin/Income 14
Linked Quarter Analysis 15 1Q’22 NIM Changes Linked Quarter Average Balances and FTE Rates
Base-rate is a static balance sheet applying the spot yield curve from the valuation date. Stable core funding base. Transaction accounts fund 44.6% of assets and other non-maturity deposits fund another 24.5% of assets. Limited wholesale funding of just 2.4% of assets. 17.0% of assets reprice in 1 month and 31.8% reprice in the next 12 months. Continually evaluating strategies to manage NII through hedging as well as product pricing and structure. 16 Interest Rate Risk Management Changes in Net Interest Income Simulation analyses calculate the change in net interest income over the next twelve months, under immediate parallel shifts in interest rates, based upon a static statement of financial condition, which includes derivative instruments, and does not consider loan fees.
Strong Non-interest Income 17 Diverse sources of non-interest income, representing 35.3% of operating revenue in 1Q’22. 1Q’22 interchange income of $3.1 million compared to $3.0 million in the prior year quarter. This increase was primarily due to an increase in transaction volume. Mortgage banking: $0.8 million in net gains on mortgage loans in 1Q’22 vs. $12.8 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. $270.2 million in mortgage loan originations in 1Q’22 vs. $509.0 million in 1Q’21 and $424.6 million in 4Q’21. 1Q’22 mortgage loan servicing includes a $8.5 million ($0.31 per diluted share, after tax) increase in fair value adjustment due to price compared to a increase of $4.6 million ($0.17 per diluted share, after tax) in the year ago quarter. Source: Company documents. $18.9M 2022 YTD Non-interest Income (thousands) Non-interest Income Trends ($M) Highlights
Focus on Improved Efficiency 18 Source: Company documents. Non-interest Expense ($M) Highlights Efficiency Ratio (4 quarter rolling average) 1Q’22 efficiency ratio of 59.6%. Compensation and employee benefits expense of $20.1 million compared to $18.5 in the prior year quarter. Compensation (salaries and wages) increased $2.3 million due to raises that were generally effective at the start of the year, a decreased level of compensation that was deferred in the first quarter of 2022 as direct origination costs (lower mortgage loan origination volume), an increase in lending personnel and higher health care insurance costs. $0.6 million decrease in incentive compensation accrual due to a decrease in mortgage lending volume. Payroll taxes and employee benefits decreased $0.1 million due to lower payroll taxes and 401(K) plan match. Data processing costs decreased $0.2 million due primarily to a onetime credit from the core data service provider. Costs related to the reserve for unfunded lending commitments decreased $0.3 million due primarily to an decrease in the balance of unfunded lending commitments. Opportunities exist to gain additional efficiencies as we continue to optimize our delivery channels. 65.0% 62.2% 60.3% 59.8% 55.9% 59.9% 61.7% 63.2% 64.8% Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 1Q'22 $29.3 $28.7 $27.3 $33.6 $32.7 $30.0 $32.5 $34.5 $34.0 $31.5 $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Compensation and Benefits Loan and Collection Occupancy Data Processing FDIC Insurance Other Total
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) 19
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 20
Troubled Debt Restructurings (TDRs) TDR Highlights Working with client base to maximize sustainable performance. The specific reserves allocated to TDRs totaled $599m 3/31/22. A majority of our TDRs are performing under their modified terms but remain in TDR status for the life of the loan. 96.5% of TDRs are current as of 3/31/22. Commercial TDR Statistics: 14 loans with $4.7 million book balance. 100% performing. WAR of 5.20% Well seasoned portfolio; all loans are accruing and performing, and have been for over a year since modification. Retail TDR Statistics: 376 loans with $31.5 million book balance. 97.2% performing. WAR of 4.02% (accruing loans). Well seasoned portfolio; 99% of accruing loans are not only performing but have been for over a year since modification. TDRs ($ in Millions) 96% of TDRs are Current 21
Note: Dollars all in millions. Provision for Credit Losses Loan Net Charge-Offs/Recoveries Allowance for Credit Losses Credit Cost Summary 22
2022 Outlook Update Category Outlook Lending Continued growth IBCP goal of low double digit (approximately 10%) overall loan growth is based on increases in commercial loans, mortgage loans and consumer loans. Expect much of this growth to occur in the last three quarters of 2022. This growth forecast also assumes an improving Michigan economy. Q1 Update: Total portfolio loans increased $99.0 million (13.8%) annualized in 1Q’22 which is higher than our forecasted range. Commercial, mortgage and installment loans all had positive growth in 1Q’22. Net Interest Income Growth driven primarily by higher average earning assets The elimination of accelerated fee accretion ($8.9 million in 2021) related to Paycheck Protection Program will make net interest income (NII) growth challenging in 2022. IBCP goal low single digit (1%-3%) growth is primarily supported by an increase in earning assets. Expect the net interest margin (NIM) to trend lower (0.10% - 0.15%) in 2022 compared to full-year 2021. Primary driver is a reduction in earing asset yield. The forecast assumes a 0.25% increase in June and September in the federal funds rate and long-term interest rates up slightly over year end 2021 levels. Q1 Update: 1Q’22 net interest income was $2.7 million (9.0%) higher than the prior year quarter. The net interest margin was 3.00% for the quarter, down 0.13% from the linked quarter and down 0.05% from the prior year quarter. Excluding the impact of PPP, 1Q’22 net interest margin was nearly unchanged from prior year and linked quarter. The increase in net interest income is due to an increase in average interest-earning assets that as partially offset by a decline in net interest margin. Provision for Credit Losses Steady asset quality metrics Very difficult area to forecast. Future provision levels under CECL will be particularly sensitive to loan growth and mix, projected economic conditions, watch credit levels and loan default volumes. The allowance as a percentage of total loans was at 1.63% at 12/31/21. A full year 2022 provision (expense) for credit losses of approximately 0.15% to 0.20% of average total portfolio loans would not be unreasonable. Q1 Update: . The provision for credit losses was a credit of $1.6 million in 1Q’22 which was below our forecasted range of an expense of 0.15% to 0.20% of average portfolio loans. The provision credit was primarily the result of a decline in the adjustment to allocations based on subjective factors due in part to expected reduction in risk related to COVID-19. Non-interest Income IBCP forecasted 2022 quarterly range of $13 million to $17 million with the total for the year down 20% to 25% from 2021 actual of $76.6 million Expect mortgage loan origination volumes in 2022 to be down by approximately 21%, interchange income in 2022 to increase approximately 5% as compared to 2021 and service charges on deposits to be collectively comparable to 2021 (a decline in NSF fees to be largely offset by an increase in treasury management related service charges). Q1 Update: Non-interest income totaled $18.9 million in 1Q’22, which was higher than the forecasted range. 1Q’22 mortgage loan originations, sales and gains totaled $270.2 million, $221.7 million and $0.8 million, respectively. The decrease in net gains on mortgage loans sold was primarily due to lower sales volume, decreased profit margin on mortgage loan sales and a decrease in the fair value adjustments ($3.8 million related to unhedged salable construction mortgage loans) on the mortgage loan pipeline. Mortgage loan servicing generated a gain of $9.6 million in 1Q’22 due primarily to a positive $8.5 million fair value adjustment due to price. It is probable non-interest income will be below the forecasted range in 2022 primarily due to lower than anticipated mortgage loan production and net gains on mortgage loan sales. 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. Q1 Update: : Total non-interest expense was $31.5 million in the first quarter of 2022, within our forecasted range. Income Taxes Approximately an 18.5% effective income tax rate in 2022. This assumes a 21% statutory federal corporate income tax rate during 2022. Q1 Update: Actual effective income tax rate of 18.6% for the 1Q’22. Share Repurchases 2022 share repurchase authorization at approximately 5% (1.1 million) of outstanding shares. Expect total share repurchases in 2022 at the mid-point of this authorization. Q1 Update: The Company repurchased 59,002 (5.4% of repurchase authorization) shares at an average price of $23.46 in the first quarter of 2022. 23
Strategic Initiatives 24 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 Session Closing Remarks Thank you for attending! NASDAQ: IBCP 25