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 30, 2020
INDEPENDENT BANK CORPORATION
(Exact name of registrant as specified in its charter)
| Michigan | 0-7818 | 38-2032782 |
|---|---|---|
| (State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 4200 East Beltline<br><br> <br>Grand Rapids, Michigan | 49525 | |
| --- | --- | |
| (Address of principal executive office) | (Zip Code) |
Registrant’s telephone number,
including area code:
(616) 527-5820
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common stock, no par value | IBCP | NASDAQ Global Select Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition |
|---|
On April 30, 2020, Independent Bank Corporation issued a press release announcing its financial results for the quarter ended March 31, 2020. 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 30, 2020. |
|---|---|
| 99.2 | Supplemental data to the Registrant’s press release dated April 30, 2020. |
| 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 30, 2020 | By | /s/ Stephen A. Erickson |
| Stephen A. Erickson, Principal Financial Officer |
2
Exhibit 99.1
News Release
Independent Bank Corporation
4200 East Beltline
Grand Rapids, MI 49525
616.527.5820
| For Release: | Immediately |
|---|---|
| Contact: | William B. Kessel, President and CEO, 616.447.3933 |
| --- | --- |
Stephen A. Erickson, Chief Financial Officer, 616.447.3914
INDEPENDENT BANK CORPORATION REPORTS
2020 FIRST QUARTER RESULTS
GRAND RAPIDS, Mich., Apr. 30, 2020 – Before summarizing the financial results for the quarter we want to take a moment to recognize that the COVID-19 pandemic has brought significant hardship to many of our customers and communities in so many ways. That is especially true for those who have been infected by the virus and suffered through the health issues that it has caused. Our thoughts are with those who have been directly impacted, and we extend our appreciation to those who have aided and supported them.
Independent Bank Corporation (NASDAQ: IBCP) continues to respond to the challenges of the current environment. Our response was formulated throughout the month of February as we prepared our infrastructure to allow the majority of our staff to work remotely. On Mar. 3^rd^ we activated our Business Continuity plan to protect our customers, employees and business. We will continue to take the necessary steps to serve our communities while doing our part to minimize the spread of COVID-19. The following is a brief description of our current initiatives:
| • | Customer Safety and Service Levels: Beginning Mar. 17^th^ we limited our branch lobbies to appointment only and have kept drive through windows open. With the ability to use drive through service, ATMs or our electronic banking<br> solutions there has been minimal disruption to customers. In addition, our flexible operating network has allowed us to efficiently redeploy our associates to high volume areas to fulfill customer requests into our call center, requests for<br> consumer and commercial loan payment relief and mortgage financing requests. |
|---|---|
| • | Employee Safety: For employees that need to remain in the branch servicing our customers, in addition to closing the branch lobbies, we have expanded sick and vacation time. All non-branch employees either have the option, or are<br> required to work remotely. We currently have approximately 80% of our non-branch staff working remotely every day. Prospectively, as our markets move out of the “Stay Home, Stay Safe” executive orders, we are installing “customer friendly”<br> plastic shields throughout our delivery network to put both customers and staff at ease. |
| --- | --- |
| • | Loan Forbearances: We take pride in being supportive of our customers and communities and have forbearance programs in place and available for those experiencing financial difficulty. Through Apr. 17^th^, we’ve granted deferrals<br> to 151 commercial customers with $129.3 million in loans, 605 retail customers with $76.6 million in portfolio loans, and 807 customers with $118.5 million within our book of mortgage loans we service for others. The forbearance terms are<br> flexible enough to meet the specific needs of each customer, while protecting the safety and soundness of the Bank. |
| --- | --- |
| • | Payroll Protection Program: Our response, and focus on this vital program, shows our commitment to the communities we serve. We have built an effective process to manage the high volume of applications that we’re receiving. Customer<br> demand for this program has been extraordinary. Through Apr. 17^th^ we had received 1,473 applications for $238.2 million in loan requests with 786 applications for $171.8 million accepted by the Small Business Administration<br> (“SBA”) prior to depletion of the initial funding on Apr. 16^th^. We anticipate continuing this program as additional funding is allocated to the SBA and becomes available. |
| --- | --- |
1
IBCP reported first quarter 2020 net income of $4.8 million, or $0.21 per diluted share, versus net income of $9.4 million, or $0.39 per diluted share, in the prior-year period.
Significant items impacting comparable first quarter 2020 and 2019 results include the following:
| • | Provision for loan losses of $6.7 million ($0.24 per diluted share, after taxes) in the first quarter of 2020 due in part to the impact of COVID-19 protective measures on unemployment and economic activity as compared to $0.7 million<br> ($0.02 per diluted share, after taxes) in the first quarter of 2019. The provision for loan losses, and the allowance for loan losses, were calculated under our existing incurred methodology. As permitted under section 4014 of the Coronavirus<br> Aid, Relief, and Economic Security (“CARES”) Act, we have chosen to delay the implementation of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments or “CECL.” This will be discussed further during<br> our first quarter 2020 earnings conference call. |
|---|---|
| • | A change in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Change”) of a negative $5.9 million ($0.21 per diluted share, after taxes) as compared to a negative MSR Change of $2.2 million ($0.07 per<br> diluted share, after taxes) for the first quarters of 2020 and 2019, respectively. |
| --- | --- |
The first quarter of 2020 was highlighted by:
| • | Pre-tax, pre-provision income was $12.5 million in the first quarter of 2020 compared to $12.2 million in the first quarter of 2019 ($18.4 million vs $14.4 million excluding the MSR Change for the same respective periods); |
|---|---|
| • | Growth in gains on mortgage loans of $5.2 million, or 144.8%, compared to the year ago quarter; |
| --- | --- |
| • | Net growth in total deposits, excluding brokered deposits, of $81.8 million, or 11.6% annualized; |
| --- | --- |
| • | The payment of a 20 cent per share dividend on February 14, 2020. |
| --- | --- |
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “Amidst the extraordinary volatility in interest rates and uncertainty around the economic impact of COVID-19, we were pleased with our first quarter results. The gains on mortgage loans more than offset the negative MSR Change and our provision for loan losses increased significantly due to the economic environment, while our core operating results were relatively stable. We will continue to focus on the needs of our customers and communities, while preserving the value of our franchise.”
Operating Results
The Company’s net interest income totaled $30.2 million during the first quarter of 2020, a decrease of $0.05 million, or 0.2% from the year-ago period, and a decrease of $0.5 million, or 1.7%, from the fourth quarter of 2019. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.63% during the first quarter of 2020, compared to 3.88% in the year-ago quarter and 3.70% in the fourth quarter of 2019. The year-over-year quarterly decrease in net interest income is due to an increase in average interest-earning assets that was more than offset by a decline in the net interest margin. Average interest-earning assets were $3.35 billion in the first quarter of 2020 compared to $3.15 billion in the year-ago quarter and $3.32 billion in the fourth quarter of 2019. The decline in the net interest margin primarily reflects the impact of lower market interest rates. Accretion of the discount recorded on loans acquired from our acquisition of TCSB Bancorp, Inc. totaled $0.3 million and $0.4 million in the first quarters of 2020 and 2019, respectively.
Non-interest income totaled $11.0 million and $10.0 million in the first quarters of 2020 and 2019, respectively. This increase was primarily due to changes in mortgage banking related revenues (net gains on mortgage loans partially offset by a decline in mortgage loan servicing, net), as described below.
Net gains on mortgage loans were $8.8 million in the first quarter of 2020, compared to $3.6 million in the year-ago quarter. Mortgage loan origination volume increased 125.8% to $311.1 million in the first quarter of 2020 compared to $137.8 million in the year ago period reflecting lower market interest rates, which have increased mortgage loan refinance activity.
Mortgage loan servicing, net, generated a loss of $5.3 million and a loss of $1.2 million in the first quarters of 2020 and 2019, respectively. This activity is summarized in the following table:
| Three Months Ended | ||||||
|---|---|---|---|---|---|---|
| 03/31/2020 | 03/31/2019 | |||||
| Mortgage loan servicing: | (Dollars in thousands) | |||||
| Revenue, net | $ | 1,673 | $ | 1,476 | ||
| Fair value change due to price | (5,931 | ) | (2,203 | ) | ||
| Fair value change due to pay-downs | (1,042 | ) | (488 | ) | ||
| Total | $ | (5,300 | ) | $ | (1,215 | ) |
2
The significant variance in the fair value change due to price relates primarily to the decline in mortgage loan interest rates in the first quarter of 2020. This decline increased projected prepayment rates for mortgage loans serviced for others, leading to a decrease in fair value due to price.
Capitalized mortgage loan servicing rights totaled $14.8 million at Mar. 31, 2020 compared to $19.2 million at Dec. 31, 2019. As of Mar. 31, 2020, the Company serviced approximately $2.68 billion in mortgage loans for others on which servicing rights have been capitalized.
Non-interest expenses totaled $28.7 million in the first quarter of 2020, compared to $28.0 million in the year-ago period.
The Company recorded an income tax expense of $0.9 million and $2.2 million in the first quarters of 2020 and 2019, respectively. The decrease in income tax expense is primarily due to lower pre-tax earnings in the first quarter of 2020.
Asset Quality
A breakdown of non-performing loans^(1)^ by loan type is as follows:
| Loan Type | 3/31/2020 | 12/31/2019 | 3/31/2019 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | |||||||||
| Commercial | $ | 9,094 | $ | 1,377 | $ | 1,705 | |||
| Consumer/installment | 691 | 805 | 1,028 | ||||||
| Mortgage | 7,669 | 7,996 | 6,116 | ||||||
| Total non-accrual loans | 17,454 | 10,178 | 8,849 | ||||||
| Less – government guaranteed loans | 676 | 646 | 617 | ||||||
| Total non-performing loans | $ | 16,778 | $ | 9,532 | $ | 8,232 | |||
| Ratio of non-performing loans to total portfolio loans | 0.62 | % | 0.35 | % | 0.31 | % | |||
| Ratio of non-performing assets to total assets | 0.50 | % | 0.32 | % | 0.28 | % | |||
| Ratio of the allowance for loan losses to non-performing loans | 193.68 | % | 274.32 | % | 306.78 | % | |||
| (1) | Excludes loans that are classified as “troubled debt restructured” that are still performing. | ||||||||
| --- | --- |
Non-performing loans increased by $7.2 million since year-end 2019 due to an increase in non-performing commercial loans. The increase in non-performing commercial loans primarily reflects the impact of a specific loan relationship that was in watch credit status at December 31, 2019. Other real estate and repossessed assets totaled $1.5 million at Mar. 31, 2020 and $1.9 million at Dec. 31, 2019.
The provision for loan losses was an expense of $6.7 million and $0.7 million in the first quarters of 2020 and 2019, respectively. Included in the first quarter 2020 provision for loan losses is a $4.9 million increase in the qualitative reserve. The level of the provision for loan losses in each period reflects the Company’s overall assessment of the allowance for loan losses, taking into consideration factors such as loan mix, levels of non-performing and classified loans, loan net charge-offs and changes in economic conditions. The Company recorded loan net charge offs of $0.4 million and $0.3 million in the first quarters of 2020 and 2019, respectively. At Mar. 31, 2020, the allowance for loan losses totaled $32.5 million, or 1.20% of portfolio loans, compared to $26.1 million, or 0.96% of portfolio loans at Dec. 31, 2019 (1.25% and 1.01% of portfolio loans when excluding the remaining TCSB acquired loan balances for each period, respectively).
Balance Sheet, Liquidity and Capital
Total assets were $3.63 billion at Mar. 31, 2020, an increase of $67.7 million from Dec. 31, 2019, primarily reflecting an increase in securities available for sale partially offset by a decline in loans. Loans, excluding loans held for sale, were $2.72 billion at Mar. 31, 2020, compared to $2.73 billion at Dec. 31, 2019. Growth in commercial loans of $14.9 million and installment loans of $7.1 million were more than offset by a decline in mortgage loans of $28.9 million, due primarily to a securitization and a sale of $28.7 million of portfolio mortgage loans during the quarter.
Deposits totaled $3.08 billion at Mar. 31, 2020, an increase of $46.8 million from Dec. 31, 2019. The increase in deposits is primarily due to growth in demand deposits and reciprocal deposits that were partially offset by a decline in time and brokered time deposits.
Cash and cash equivalents totaled $70.3 million at Mar. 31, 2020, versus $65.3 million at Dec. 31, 2019. Securities available for sale totaled $594.3 million at Mar. 31, 2020, compared to $518.4 million at Dec. 31, 2019.
3
Total shareholders’ equity was $335.6 million at Mar. 31, 2020, or 9.24% of total assets. Tangible common equity totaled $302.2 million at Mar. 31, 2020, or $13.81 per share. The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:
| Regulatory Capital Ratios | 3/31/2020 | 12/31/2019 | Well<br><br> <br>Capitalized<br><br> <br>Minimum | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Tier 1 capital to average total assets | 9.31 | % | 9.49 | % | 5.00 | % | |||
| Tier 1 common equity to risk-weighted assets | 11.76 | % | 11.96 | % | 6.50 | % | |||
| Tier 1 capital to risk-weighted assets | 11.76 | % | 11.96 | % | 8.00 | % | |||
| Total capital to risk-weighted assets | 12.98 | % | 12.96 | % | 10.00 | % |
Share Repurchase Plan
On Dec. 17, 2019, the Board of Directors of the Company authorized the 2020 share repurchase plan. Under the terms of the 2020 share repurchase plan, the Company is authorized to buy back up to 1,120,000 shares, or approximately 5% of its outstanding common stock. The repurchase plan is authorized to last through Dec. 31, 2020. Thus far in 2020, the Company has repurchased 678,929 shares at a weighted average price of $20.30 per share. Share repurchase activity ceased on March 16, 2020, and is on hold at this time.
Earnings Conference Call
Brad Kessel, President and CEO, and Steve Erickson, CFO, will review the quarterly and full-year results in a conference call for investors and analysts beginning at 11:00 am ET on Thursday, Apr. 30, 2020.
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 at the following event site/URL: https://services.choruscall.com/links/ibcp200430.html
A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10141797). The replay will be available through May 7, 2020.
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $3.6 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.
4
Forward-Looking Statements
This release may contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not historical facts, including statements about our expectations, beliefs, plans, strategies, predictions, forecasts, objectives, or assumptions of future events or performance, may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “expects,” “can,” “could,” “may,” “predicts,” “potential,” “opportunity,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “seeks,” “intends” and similar words or phrases. Accordingly, these statements involve estimates, known and unknown risks, assumptions, and uncertainties that could cause actual strategies, actions, or results to differ materially from those expressed in them, and are not guarantees of timing, future results, events, or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions, or results, based on management’s current expectations, assumptions, and estimates on the date hereof, there can be no assurance that actual strategies, actions or results will not differ materially from expectations. Therefore, readers are cautioned not to place undue reliance on such statements. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in capital and credit markets; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; any future acquisitions or divestitures; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Independent Bank Corporation’s customers; the implementation of Independent Bank Corporation’s strategies and business models; Independent Bank Corporation’s ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties, failure of technology infrastructure or information security incidents; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; competitive product and pricing pressures among financial institutions within Independent Bank Corporation’s markets; changes in customer behavior; management’s ability to maintain and expand customer relationships; management’s ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events; changes in accounting standards and the critical nature of Independent Bank Corporation’s accounting policies.
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, 2019 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 | ||||||
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | |||||
| (unaudited) | ||||||
| (In thousands, except share<br><br> <br>amounts) | ||||||
| Assets | ||||||
| Cash and due from banks | $ | 48,753 | $ | 53,295 | ||
| Interest bearing deposits | 21,538 | 12,009 | ||||
| Cash and Cash Equivalents | 70,291 | 65,304 | ||||
| Interest bearing deposits - time | - | 350 | ||||
| Securities available for sale | 594,284 | 518,400 | ||||
| Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 18,359 | 18,359 | ||||
| Loans held for sale, carried at fair value | 64,549 | 69,800 | ||||
| Loans | ||||||
| Commercial | 1,181,599 | 1,166,695 | ||||
| Mortgage | 1,069,967 | 1,098,911 | ||||
| Installment | 466,549 | 459,417 | ||||
| Total Loans | 2,718,115 | 2,725,023 | ||||
| Allowance for loan losses | (32,495 | ) | (26,148 | ) | ||
| Net Loans | 2,685,620 | 2,698,875 | ||||
| Other real estate and repossessed assets | 1,494 | 1,865 | ||||
| Property and equipment, net | 37,776 | 38,411 | ||||
| Bank-owned life insurance | 55,035 | 55,710 | ||||
| Deferred tax assets, net | 4,280 | 2,072 | ||||
| Capitalized mortgage loan servicing rights | 14,829 | 19,171 | ||||
| Other intangibles | 5,071 | 5,326 | ||||
| Goodwill | 28,300 | 28,300 | ||||
| Accrued income and other assets | 52,499 | 42,751 | ||||
| Total Assets | $ | 3,632,387 | $ | 3,564,694 | ||
| Liabilities and Shareholders’ Equity | ||||||
| Deposits | ||||||
| Non-interest bearing | $ | 874,935 | $ | 852,076 | ||
| Savings and interest-bearing checking | 1,229,999 | 1,186,745 | ||||
| Reciprocal | 464,574 | 431,027 | ||||
| Time | 359,050 | 376,877 | ||||
| Brokered time | 155,006 | 190,002 | ||||
| Total Deposits | 3,083,564 | 3,036,727 | ||||
| Other borrowings | 101,954 | 88,646 | ||||
| Subordinated debentures | 39,473 | 39,456 | ||||
| Accrued expenses and other liabilities | 71,778 | 49,696 | ||||
| Total Liabilities | 3,296,769 | 3,214,525 | ||||
| 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: 21,892,001 shares at March 31, 2020 and 22,481,643 shares at December 31, 2019 | 338,528 | 352,344 | ||||
| Retained earnings | 1,944 | 1,611 | ||||
| Accumulated other comprehensive loss | (4,854 | ) | (3,786 | ) | ||
| Total Shareholders’ Equity | 335,618 | 350,169 | ||||
| Total Liabilities and Shareholders’ Equity | $ | 3,632,387 | $ | 3,564,694 |
6
| INDEPENDENT BANK CORPORATION AND SUBSIDIARIES | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Consolidated Statements of Operations | |||||||||
| Three Months Ended | |||||||||
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | March 31,<br><br> <br>2019 | |||||||
| (unaudited) | |||||||||
| Interest Income | (In thousands, except per share amounts) | ||||||||
| Interest and fees on loans | $ | 31,764 | $ | 33,140 | $ | 32,681 | |||
| Interest on securities | |||||||||
| Taxable | 3,059 | 3,031 | 3,006 | ||||||
| Tax-exempt | 390 | 325 | 374 | ||||||
| Other investments | 366 | 412 | 575 | ||||||
| Total Interest Income | 35,579 | 36,908 | 36,636 | ||||||
| Interest Expense | |||||||||
| Deposits | 4,700 | 5,487 | 5,681 | ||||||
| Other borrowings and subordinated debentures | 688 | 711 | 712 | ||||||
| Total Interest Expense | 5,388 | 6,198 | 6,393 | ||||||
| Net Interest Income | 30,191 | 30,710 | 30,243 | ||||||
| Provision for loan losses | 6,721 | (221 | ) | 664 | |||||
| Net Interest Income After Provision for Loan Losses | 23,470 | 30,931 | 29,579 | ||||||
| Non-interest Income | |||||||||
| Service charges on deposit accounts | 2,591 | 2,885 | 2,640 | ||||||
| Interchange income | 2,457 | 2,553 | 2,355 | ||||||
| Net gains on assets | |||||||||
| Mortgage loans | 8,840 | 6,388 | 3,611 | ||||||
| Securities | 253 | 3 | 304 | ||||||
| Mortgage loan servicing, net | (5,300 | ) | 1,348 | (1,215 | ) | ||||
| Other | 2,163 | 2,420 | 2,264 | ||||||
| Total Non-interest Income | 11,004 | 15,597 | 9,959 | ||||||
| Non-interest Expense | |||||||||
| Compensation and employee benefits | 16,509 | 18,546 | 16,351 | ||||||
| Occupancy, net | 2,460 | 2,216 | 2,505 | ||||||
| Data processing | 2,355 | 2,308 | 2,144 | ||||||
| Furniture, fixtures and equipment | 1,036 | 1,055 | 1,029 | ||||||
| Interchange expense | 859 | 883 | 688 | ||||||
| Loan and collection | 805 | 709 | 634 | ||||||
| Communications | 803 | 728 | 769 | ||||||
| Advertising | 683 | 515 | 672 | ||||||
| Legal and professional | 393 | 533 | 369 | ||||||
| FDIC deposit insurance | 370 | (38 | ) | 368 | |||||
| Net (gains) losses on other real estate and repossessed assets | 109 | (63 | ) | 119 | |||||
| Credit card and bank service fees | 99 | 111 | 103 | ||||||
| Other | 2,238 | 1,800 | 2,239 | ||||||
| Total Non-interest Expense | 28,719 | 29,303 | 27,990 | ||||||
| Income Before Income Tax | 5,755 | 17,225 | 11,548 | ||||||
| Income tax expense | 945 | 3,346 | 2,167 | ||||||
| Net Income | $ | 4,810 | $ | 13,879 | $ | 9,381 | |||
| Net Income Per Common Share | |||||||||
| Basic | $ | 0.22 | $ | 0.62 | $ | 0.40 | |||
| Diluted | $ | 0.21 | $ | 0.61 | $ | 0.39 |
7
| INDEPENDENT BANK CORPORATION AND SUBSIDIARIES | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Selected Financial Data | |||||||||||||||
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | September 30,<br><br> <br>2019 | June 30,<br><br> <br>2019 | March 31,<br><br> <br>2019 | |||||||||||
| (unaudited) | |||||||||||||||
| (Dollars in thousands except per share data) | |||||||||||||||
| Three Months Ended | |||||||||||||||
| Net interest income | $ | 30,191 | $ | 30,710 | $ | 30,872 | $ | 30,756 | $ | 30,243 | |||||
| Provision for loan losses | 6,721 | (221 | ) | (271 | ) | 652 | 664 | ||||||||
| Non-interest income | 11,004 | 15,597 | 12,275 | 9,905 | 9,959 | ||||||||||
| Non-interest expense | 28,719 | 29,303 | 27,848 | 26,592 | 27,990 | ||||||||||
| Income before income tax | 5,755 | 17,225 | 15,570 | 13,417 | 11,548 | ||||||||||
| Income tax expense | 945 | 3,346 | 3,125 | 2,687 | 2,167 | ||||||||||
| Net income | $ | 4,810 | $ | 13,879 | $ | 12,445 | $ | 10,730 | $ | 9,381 | |||||
| Basic earnings per share | $ | 0.22 | $ | 0.62 | $ | 0.55 | $ | 0.47 | $ | 0.40 | |||||
| Diluted earnings per share | 0.21 | 0.61 | 0.55 | 0.46 | 0.39 | ||||||||||
| Cash dividend per share | 0.20 | 0.18 | 0.18 | 0.18 | 0.18 | ||||||||||
| Average shares outstanding | 22,271,412 | 22,481,551 | 22,486,041 | 23,035,526 | 23,588,313 | ||||||||||
| Average diluted shares outstanding | 22,529,370 | 22,776,908 | 22,769,572 | 23,313,346 | 23,884,744 | ||||||||||
| Performance Ratios | |||||||||||||||
| Return on average assets | 0.54 | % | 1.56 | % | 1.42 | % | 1.27 | % | 1.13 | % | |||||
| Return on average common equity | 5.54 | 15.92 | 14.64 | 12.72 | 11.14 | ||||||||||
| Efficiency ratio ^(1)^ | 69.32 | 62.56 | 63.76 | 64.57 | 69.27 | ||||||||||
| As a Percent of Average Interest-Earning Assets^(1)^ | |||||||||||||||
| Interest income | 4.28 | % | 4.44 | % | 4.60 | % | 4.73 | % | 4.70 | % | |||||
| Interest expense | 0.65 | 0.74 | 0.84 | 0.86 | 0.82 | ||||||||||
| Net interest income | 3.63 | 3.70 | 3.76 | 3.87 | 3.88 | ||||||||||
| Average Balances | |||||||||||||||
| Loans | $ | 2,766,770 | $ | 2,776,037 | $ | 2,786,544 | $ | 2,699,648 | $ | 2,621,871 | |||||
| Securities available for sale | 527,395 | 488,016 | 423,255 | 441,523 | 446,734 | ||||||||||
| Total earning assets | 3,350,948 | 3,320,828 | 3,285,081 | 3,191,264 | 3,152,177 | ||||||||||
| Total assets | 3,565,829 | 3,529,744 | 3,483,296 | 3,388,398 | 3,357,003 | ||||||||||
| Deposits | 3,066,298 | 3,040,099 | 3,023,334 | 2,929,885 | 2,909,096 | ||||||||||
| Interest bearing liabilities | 2,309,995 | 2,251,928 | 2,219,133 | 2,155,660 | 2,115,549 | ||||||||||
| Shareholders’ equity | 348,963 | 345,910 | 337,162 | 338,254 | 341,592 | ||||||||||
| End of Period | |||||||||||||||
| Capital | |||||||||||||||
| Tangible common equity ratio | 8.40 | % | 8.96 | % | 8.71 | % | 8.72 | % | 9.26 | % | |||||
| Average equity to average assets | 9.79 | 9.80 | 9.68 | 9.98 | 10.18 | ||||||||||
| Tangible common equity per share of common stock | $ | 13.81 | $ | 14.08 | $ | 13.63 | $ | 13.19 | $ | 13.17 | |||||
| Total shares outstanding | 21,892,001 | 22,481,643 | 22,480,748 | 22,498,776 | 23,560,179 | ||||||||||
| Selected Balances | |||||||||||||||
| Loans | $ | 2,718,115 | $ | 2,725,023 | $ | 2,722,446 | $ | 2,706,526 | $ | 2,618,795 | |||||
| Securities available for sale | 594,284 | 518,400 | 439,592 | 430,305 | 461,531 | ||||||||||
| Total earning assets | 3,416,845 | 3,343,941 | 3,348,631 | 3,239,247 | 3,180,655 | ||||||||||
| Total assets | 3,632,387 | 3,564,694 | 3,550,837 | 3,438,302 | 3,383,606 | ||||||||||
| Deposits | 3,083,564 | 3,036,727 | 3,052,312 | 2,978,885 | 2,934,225 | ||||||||||
| Interest bearing liabilities | 2,350,056 | 2,312,753 | 2,272,587 | 2,194,970 | 2,141,083 | ||||||||||
| Shareholders’ equity | 335,618 | 350,169 | 340,245 | 330,846 | 344,726 | ||||||||||
| (1) | Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%. | ||||||||||||||
| --- | --- |
8
Reconciliation of Non-GAAP Financial Measures
Independent Bank Corporation
Independent Bank Corporation believes non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate the adequacy of common equity and performance trends. Tangible common equity is used by the Company to measure the quality of capital.
Reconciliation of Non-GAAP Financial Measures
| Three Months Ended<br><br> <br>March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| (Dollars in thousands) | ||||||
| Net Interest Margin, Fully Taxable Equivalent (“FTE”) | ||||||
| Net interest income | $ | 30,191 | $ | 30,243 | ||
| Add: taxable equivalent adjustment | 121 | 117 | ||||
| Net interest income - taxable equivalent | $ | 30,312 | $ | 30,360 | ||
| Net interest margin (GAAP) ^(1)^ | 3.61 | % | 3.86 | % | ||
| Net interest margin (FTE) ^(1)^ | 3.63 | % | 3.88 | % | ||
| Adjusted Net Income before tax | ||||||
| Income before income tax | $ | 5,755 | $ | 11,548 | ||
| Provision for loan losses | 6,721 | 644 | ||||
| Pre-tax, pre-provision income | $ | 12,476 | $ | 12,192 | ||
| (1) | Annualized. | |||||
| --- | --- |
9
Reconciliation of Non-GAAP Financial Measures (continued)
Independent Bank Corporation
| Tangible Common Equity Ratio | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | September 30,<br><br> <br>2019 | June 30,<br><br> <br>2019 | March 31,<br><br> <br>2019 | |||||||||||
| (Dollars in thousands) | |||||||||||||||
| Common shareholders’ equity | $ | 335,618 | $ | 350,169 | $ | 340,245 | $ | 330,846 | $ | 344,726 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 5,071 | 5,326 | 5,598 | 5,870 | 6,143 | ||||||||||
| Tangible common equity | $ | 302,247 | $ | 316,543 | $ | 306,347 | $ | 296,676 | $ | 310,283 | |||||
| Total assets | $ | 3,632,387 | $ | 3,564,694 | $ | 3,550,837 | $ | 3,438,302 | $ | 3,383,606 | |||||
| Less: | |||||||||||||||
| Goodwill | 28,300 | 28,300 | 28,300 | 28,300 | 28,300 | ||||||||||
| Other intangibles | 5,071 | 5,326 | 5,598 | 5,870 | 6,143 | ||||||||||
| Tangible assets | $ | 3,599,016 | $ | 3,531,068 | $ | 3,516,939 | $ | 3,404,132 | $ | 3,349,163 | |||||
| Common equity ratio | 9.24 | % | 9.82 | % | 9.58 | % | 9.62 | % | 10.19 | % | |||||
| Tangible common equity ratio | 8.40 | % | 8.96 | % | 8.71 | % | 8.72 | % | 9.26 | % | |||||
| Tangible Common Equity per Share of Common Stock: | |||||||||||||||
| Common shareholders’ equity | $ | 335,618 | $ | 350,169 | $ | 340,245 | $ | 330,846 | $ | 344,726 | |||||
| Tangible common equity | $ | 302,247 | $ | 316,543 | $ | 306,347 | $ | 296,676 | $ | 310,283 | |||||
| Shares of common stock outstanding (in thousands) | 21,892 | 22,482 | 22,481 | 22,499 | 23,560 | ||||||||||
| Common shareholders’ equity per share of common stock | $ | 15.33 | $ | 15.58 | $ | 15.13 | $ | 14.70 | $ | 14.63 | |||||
| Tangible common equity per share of common stock | $ | 13.81 | $ | 14.08 | $ | 13.63 | $ | 13.19 | $ | 13.17 |
The tangible common equity ratio removes the effect of goodwill and other intangible assets from capital and total assets. Tangible common equity per share of common stock removes the effect of goodwill and other intangible assets from common shareholders’ equity per share of common stock.
10
Exhibit 99.2
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Supplemental Data
| Non-performing assets ^(1)^ | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | September 30,<br><br> <br>2019 | June 30,<br><br> <br>2019 | March 31,<br><br> <br>2019 | |||||||||||
| (Dollars in thousands) | |||||||||||||||
| Non-accrual loans | $ | 17,454 | $ | 10,178 | $ | 7,124 | $ | 7,798 | $ | 8,849 | |||||
| Loans 90 days or more past due and still accruing interest | - | - | - | - | - | ||||||||||
| Total non-accrual loans | 17,454 | 10,178 | 7,124 | 7,798 | 8,849 | ||||||||||
| Less: Government guaranteed loans | 676 | 646 | 475 | 436 | 617 | ||||||||||
| Total non-performing loans | 16,778 | 9,532 | 6,649 | 7,362 | 8,232 | ||||||||||
| Other real estate and repossessed assets | 1,494 | 1,865 | 1,789 | 1,990 | 1,338 | ||||||||||
| Total non-performing assets | $ | 18,272 | $ | 11,397 | $ | 8,438 | $ | 9,352 | $ | 9,570 | |||||
| As a percent of Portfolio Loans | |||||||||||||||
| Non-performing loans | 0.62 | % | 0.35 | % | 0.24 | % | 0.27 | % | 0.31 | % | |||||
| Allowance for loan losses | 1.20 | 0.96 | 0.96 | 0.96 | 0.96 | ||||||||||
| Non-performing assets to total assets | 0.50 | 0.32 | 0.24 | 0.27 | 0.28 | ||||||||||
| Allowance for loan losses as a percent of non-performing loans | 193.68 | 274.32 | 393.26 | 351.85 | 306.78 | ||||||||||
| ^(1)^ | Excludes loans classified as “trouble debt restructured” that are not past due. | ||||||||||||||
| --- | --- | ||||||||||||||
| Troubled debt restructurings (“TDR”) | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | ||||||||
| March 31, 2020 | |||||||||||||||
| Commercial | Retail ^(1)^ | Total | |||||||||||||
| (In thousands) | |||||||||||||||
| Performing TDR’s | $ | 8,924 | $ | 39,253 | $ | 48,177 | |||||||||
| Non-performing TDR’s ^(2)^ | 264 | 2,095 | ^(3)^ | 2,359 | |||||||||||
| Total | $ | 9,188 | $ | 41,348 | $ | 50,536 | |||||||||
| December 31, 2019 | |||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | ||||||||
| Commercial | Retail ^(1)^ | Total | |||||||||||||
| (In thousands) | |||||||||||||||
| Performing TDR’s | $ | 7,974 | $ | 39,601 | $ | 47,575 | |||||||||
| Non-performing TDR’s ^(2)^ | 540 | 2,607 | ^(3)^ | 3,147 | |||||||||||
| Total | $ | 8,514 | $ | 42,208 | $ | 50,722 | |||||||||
| (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 loan losses | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Three months ended<br><br> <br>March 31, | ||||||||||
| 2020 | 2019 | |||||||||
| Loans | Unfunded<br><br> <br>Commitments | Loans | Unfunded<br><br> <br>Commitments | |||||||
| (Dollars in thousands) | ||||||||||
| Balance at beginning of period | $ | 26,148 | $ | 1,542 | $ | 24,888 | $ | 1,296 | ||
| Additions (deductions) | ||||||||||
| Provision for loan losses | 6,721 | - | 664 | - | ||||||
| Recoveries credited to allowance | 399 | - | 568 | - | ||||||
| Loans charged against the allowance | (773 | ) | - | (866 | ) | - | ||||
| Additions included in non-interest expense | - | 119 | - | 160 | ||||||
| Balance at end of period | $ | 32,495 | $ | 1,661 | $ | 25,254 | $ | 1,456 | ||
| Net loans charged against the allowance to average Portfolio Loans | 0.06 | % | 0.05 | % | ||||||
| Capitalization | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | ||||
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | |||||||||
| (In thousands) | ||||||||||
| Subordinated debentures | $ | 39,473 | $ | 39,456 | ||||||
| Amount not qualifying as regulatory capital | (1,224 | ) | (1,224 | ) | ||||||
| Amount qualifying as regulatory capital | 38,249 | 38,232 | ||||||||
| Shareholders’ equity | ||||||||||
| Common stock | 338,528 | 352,344 | ||||||||
| Retained earnings | 1,944 | 1,611 | ||||||||
| Accumulated other comprehensive loss | (4,854 | ) | (3,786 | ) | ||||||
| Total shareholders’ equity | 335,618 | 350,169 | ||||||||
| Total capitalization | $ | 373,867 | $ | 388,401 |
2
| Non-Interest Income | ||||||||
|---|---|---|---|---|---|---|---|---|
| Three months ended | ||||||||
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | March 31,<br><br> <br>2019 | ||||||
| (In thousands) | ||||||||
| Service charges on deposit accounts | $ | 2,591 | $ | 2,885 | $ | 2,640 | ||
| Interchange income | 2,457 | 2,553 | 2,355 | |||||
| Net gains on assets | ||||||||
| Mortgage loans | 8,840 | 6,388 | 3,611 | |||||
| Securities | 253 | 3 | 304 | |||||
| Mortgage loan servicing, net | (5,300 | ) | 1,348 | (1,215 | ) | |||
| Investment and insurance commissions | 513 | 461 | 297 | |||||
| Bank owned life insurance | 270 | 298 | 242 | |||||
| Other | 1,380 | 1,661 | 1,725 | |||||
| Total non-interest income | $ | 11,004 | $ | 15,597 | $ | 9,959 | ||
| Capitalized Mortgage Loan Servicing Rights | ||||||||
| --- | --- | --- | --- | --- | --- | --- | ||
| Three months ended<br><br> <br>March 31, | ||||||||
| 2020 | 2019 | |||||||
| (In thousands) | ||||||||
| Balance at beginning of period | $ | 19,171 | $ | 21,400 | ||||
| Servicing rights acquired | - | - | ||||||
| Originated servicing rights capitalized | 2,632 | 1,200 | ||||||
| Change in fair value | (6,974 | ) | (2,691 | ) | ||||
| Balance at end of period | $ | 14,829 | $ | 19,909 |
3
| Mortgage Loan Activity | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Three months ended | |||||||||
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | March 31,<br><br> <br>2019 | |||||||
| (Dollars in thousands) | |||||||||
| Mortgage loans originated | $ | 311,078 | $ | 302,520 | $ | 137,758 | |||
| Mortgage loans sold | 262,260 | 248,691 | 154,525 | ||||||
| Net gains on mortgage loans | 8,840 | 6,388 | 3,611 | ||||||
| Net gains as a percent of mortgage loans sold (“Loan Sales Margin”) | 3.37 | % | 2.57 | % | 2.34 | % | |||
| Fair value adjustments included in the Loan Sales Margin | 0.78 | (0.38 | ) | 0.58 | |||||
| Non-Interest Expense | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | ||
| Three months ended | |||||||||
| March 31,<br><br> <br>2020 | December 31,<br><br> <br>2019 | March 31,<br><br> <br>2019 | |||||||
| (In thousands) | |||||||||
| Compensation | $ | 10,703 | $ | 10,726 | $ | 10,481 | |||
| Performance-based compensation | 2,121 | 4,336 | 2,220 | ||||||
| Payroll taxes and employee benefits | 3,685 | 3,484 | 3,650 | ||||||
| Compensation and employee benefits | 16,509 | 18,546 | 16,351 | ||||||
| Occupancy, net | 2,460 | 2,216 | 2,505 | ||||||
| Data processing | 2,355 | 2,308 | 2,144 | ||||||
| Furniture, fixtures and equipment | 1,036 | 1,055 | 1,029 | ||||||
| Interchange expense | 859 | 883 | 688 | ||||||
| Loan and collection | 805 | 709 | 634 | ||||||
| Communications | 803 | 728 | 769 | ||||||
| Advertising | 683 | 515 | 672 | ||||||
| Legal and professional fees | 393 | 533 | 369 | ||||||
| FDIC deposit insurance | 370 | (38 | ) | 368 | |||||
| Amortization of intangible assets | 255 | 272 | 272 | ||||||
| Supplies | 184 | 164 | 158 | ||||||
| Costs (recoveries) related to unfunded lending commitments | 119 | (95 | ) | 160 | |||||
| Net (gains) losses on other real estate and repossessed assets | 109 | (63 | ) | 119 | |||||
| Credit card and bank service fees | 99 | 111 | 103 | ||||||
| Provision for loss reimbursement on sold loans | 37 | 50 | 111 | ||||||
| Other | 1,643 | 1,409 | 1,538 | ||||||
| Total non-interest expense | $ | 28,719 | $ | 29,303 | $ | 27,990 |
4
| Average Balances and Tax Equivalent Rates | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Three Months Ended<br><br> <br>March 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Average<br><br> <br>Balance | Interest | Rate ^(2)^ | Average<br><br> <br>Balance | Interest | Rate ^(2)^ | |||||||||
| (Dollars in thousands) | ||||||||||||||
| Assets | ||||||||||||||
| Taxable loans | $ | 2,758,909 | $ | 31,688 | 4.61 | % | $ | 2,613,182 | $ | 32,600 | 5.03 | % | ||
| Tax-exempt loans ^(1)^ | 7,861 | 97 | 4.96 | 8,689 | 103 | 4.81 | ||||||||
| Taxable securities | 468,095 | 3,059 | 2.61 | 389,845 | 3,006 | 3.08 | ||||||||
| Tax-exempt securities^(1)^ | 59,300 | 490 | 3.31 | 56,889 | 469 | 3.30 | ||||||||
| Interest bearing cash | 38,424 | 128 | 1.34 | 65,213 | 311 | 1.93 | ||||||||
| Other investments | 18,359 | 238 | 5.21 | 18,359 | 264 | 5.83 | ||||||||
| Interest Earning Assets | 3,350,948 | 35,700 | 4.28 | 3,152,177 | 36,753 | 4.70 | ||||||||
| Cash and due from banks | 49,610 | 34,240 | ||||||||||||
| Other assets, net | 165,271 | 170,586 | ||||||||||||
| Total Assets | $ | 3,565,829 | $ | 3,357,003 | ||||||||||
| Liabilities | ||||||||||||||
| Savings and interest-<br><br> <br>bearing checking | $ | 1,615,589 | 1,930 | 0.48 | $ | 1,361,057 | 1,486 | 0.44 | ||||||
| Time deposits | 594,871 | 2,770 | 1.87 | 688,434 | 4,195 | 2.47 | ||||||||
| Other borrowings | 99,535 | 688 | 2.78 | 66,058 | 712 | 4.37 | ||||||||
| Interest Bearing Liabilities | 2,309,995 | 5,388 | 0.94 | 2,115,549 | 6,393 | 1.23 | ||||||||
| Non-interest bearing deposits | 855,838 | 859,605 | ||||||||||||
| Other liabilities | 51,033 | 40,257 | ||||||||||||
| Shareholders’ equity | 348,963 | 341,592 | ||||||||||||
| Total liabilities and | ||||||||||||||
| shareholders’ equity | $ | 3,565,829 | $ | 3,357,003 | ||||||||||
| Net Interest Income | $ | 30,312 | $ | 30,360 | ||||||||||
| Net Interest Income as a Percent of Average Interest Earning Assets | 3.63 | % | 3.88 | % |
| (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, 2020 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Total Commercial Loans | |||||||||||
| Watch Credits | Percent of<br><br> <br>Loan | ||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | Category in<br><br> <br>Watch Credit | ||||||
| (Dollars in thousands) | |||||||||||
| Land | $ | 11,293 | $ | 175 | $ | 735 | $ | 910 | 8.1 | % | |
| Land Development | 12,710 | - | - | - | 0.0 | ||||||
| Construction | 100,875 | - | - | - | 0.0 | ||||||
| Income Producing | 406,292 | 15,139 | - | 15,139 | 3.7 | ||||||
| Owner Occupied | 333,047 | 24,327 | 7,829 | 32,156 | 9.7 | ||||||
| Total Commercial Real Estate Loans | $ | 864,217 | $ | 39,641 | 8,564 | $ | 48,205 | 5.6 | |||
| Other Commercial Loans | $ | 317,382 | $ | 22,838 | 530 | $ | 23,368 | 7.4 | |||
| Total non-performing commercial loans | $ | 9,094 |
Commercial Loan Portfolio Analysis as of December 31, 2019
| Total Commercial Loans | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Watch Credits | Percent of<br><br> <br>Loan | ||||||||||
| Loan Category | All Loans | Performing | Non-accrual | Total | Category in<br><br> <br>Watch Credit | ||||||
| (Dollars in thousands) | |||||||||||
| Land | $ | 11,235 | $ | 275 | $ | 735 | $ | 1,010 | 9.0 | % | |
| Land Development | 12,899 | - | - | - | 0.0 | ||||||
| Construction | 97,463 | - | - | - | 0.0 | ||||||
| Income Producing | 409,897 | 15,347 | - | 15,347 | 3.7 | ||||||
| Owner Occupied | 323,694 | 35,485 | 295 | 35,780 | 11.1 | ||||||
| Total Commercial Real Estate Loans | $ | 855,188 | $ | 51,107 | 1,030 | $ | 52,137 | 6.1 | |||
| Other Commercial Loans | $ | 311,507 | $ | 20,580 | 347 | $ | 20,927 | 6.7 | |||
| Total non-performing commercial loans | $ | 1,377 |
6
Exhibit 99.3
Q1 EARNINGSConference Call – April 30, 2020
Cautionary note regarding forward-looking statements This presentation may contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not historical facts, including statements about our expectations, beliefs, plans, strategies, predictions, forecasts, objectives, or assumptions of future events or performance, may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “expects,” “can,” “could,” “may,” “predicts,” “potential,” “opportunity,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “seeks,” “intends” and similar words or phrases. Accordingly, these statements involve estimates, known and unknown risks, assumptions, and uncertainties that could cause actual strategies, actions, or results to differ materially from those expressed in them, and are not guarantees of timing, future results, events, or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions, or results, based on management’s current expectations, assumptions, and estimates on the date hereof, there can be no assurance that actual strategies, actions or results will not differ materially from expectations. Therefore, readers are cautioned not to place undue reliance on such statements. Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in capital and credit markets; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; any future acquisitions or divestitures; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Independent Bank Corporation’s customers; the implementation of Independent Bank Corporation’s strategies and business models; Independent Bank Corporation’s ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties, failure of technology infrastructure or information security incidents; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; competitive product and pricing pressures among financial institutions within Independent Bank Corporation’s markets; changes in customer behavior; management’s ability to maintain and expand customer relationships; management’s ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events; changes in accounting standards and the critical nature of Independent Bank Corporation’s accounting policies. 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, 2019 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 OfficerStephen A. Erickson, Executive Vice President and Chief Financial OfficerQuestion and Answer session.Closing Remarks.Note: This presentation is available at www.IndependentBank.com in the Investor Relations area under the “Presentations” tab. 3
COVID-19 ResponseSupporting Employees, Clients & Communities 4 Employees Clients & Communities Work from home. Providing the technology, culture, and operational infrastructure for the workforce to work remotely as neededGranting additional sick and vacation time Closing our branch lobbies, transacting through our drive-thru windows, and meeting customers safely by appointmentPerforming additional routine and on-demand sanitization of facilities using enhanced methods Pro-actively reaching out to our business customers to understand needs Supporting local businesses Approved $218M in SBA Paycheck Protection Program (PPP) loan applications as of April 16 Working with business and consumer customers on temporary payment relief$129M (10.9%) in loan forbearances to 151 commercial customers $69M (6.5%) in loan forbearances to 325 mortgage customers When it became apparent that the threat from Coronavirus (COVID-19) could pose a threat to our people and business, we activated our Business Continuity and Crisis Communication Core Teams to take early and decisive action
Historical Financial Data 5 Excluding the impact of the $5.96 million remeasurement of net deferred tax assets in 2017, net income is $26.440 million, ROA is 1.00%; and ROE is 10.10%.
1Q 2020 Financial Highlights Income StatementPre-tax, pre-provision income was $12.5 million in the first quarter of 2020 compared to $12.2 million in the first quarter of 2019 ($18.4 million vs $14.4 million excluding the MSR Change for the same respective periods);Net income of $4.8 million, or $0.21 per diluted share vs $9.4 million, or $0.39 per diluted share for the year ago quarter.Net interest income of $30.2 million, a decrease of $50,000, or 0.2% from the year ago quarter.Record level mortgage originations of $311 million, also, $262 million in loans sold with $8.8 million in net gains on mortgage loans vs $3.6 million in net gains from the year ago quarter. Mortgage servicing rights change (the “MSR Change”) due to price of negative $5.9 million ($0.21 per diluted share, after taxes) vs negative $2.2 million ($0.07 per diluted share, after taxes) in 1Q’19. Provision for loan losses of $6.7 million ($0.24 per diluted share, after taxes) vs $0.7 million ($0.02 per diluted share, after taxes) in 1Q’19. Included within the first quarter 2020 provision for loan losses is a $4.9 million increase in the qualitative reserve.Balance Sheet/CapitalTotal portfolio loans declined $6.9 million, or 1.0% annualized. In Q1’20 $28.7 million of portfolio mortgage loans were securitized or sold. The Q1’20 portfolio loan growth rate increases to 3.2% annualized when excluding the impact of these transactions.Total deposits grew by $81.8 million or 11.6% annualized (excluding brokered deposits).Repurchased 678,929 shares at a weighted average price of $20.30 per share during 1Q’20. Share repurchase activity is on hold at this time. Paid a 20 cent per share cash dividend on common stock on 2/14/2020. 6
Our Michigan Markets 7 Source: S&P Global Market Intelligence and Company documents. Map does not include loan production offices. Deposit market share data based on FDIC Summary of Deposits Annual Survey as of June 31, 2019.Note: Loan and deposit balances exclude the loans and deposits that are not clearly allocable to a certain region. 94 96 75 69 Michigan’s community bank. #1 deposit market share amongst Michigan banks < $10B in assets and #10 deposit market share overall Top 10 market share in 19 of 23 counties of operation – with opportunity to gain market share in attractive Michigan marketsLow cost and stable deposit base in East and Central regions utilized to fund growth in the West and Southeast regions (higher growth & more metropolitan)Most recent Forbes “Best in Banks” Survey (published in June 2019) ranked Independent Bank first in the State of Michigan in customer satisfaction.Acquisition of Traverse City State Bank on April 1, 2018 added five branches in the hub of Northern Michigan - driving additional loan and deposit growth We have 12 LPOs, including 9 throughout Michigan and 3 in Ohio (residential mortgage lending only) Branches (68) East / “Thumb”Branches: 23Deposits: $967MLoans: $443M SoutheastBranches: 7Deposits: $345MLoans: $686M CentralBranches: 12Deposits: $465MLoans: $199M WestBranches: 21Deposits: $805MLoans: $833M NorthwestBranches: 5Deposits: $240MLoans: $284M
Select Economic Statistics Unemployment Trends (%) Total Employees (Thousands) Regional Average Home Sales Price (Thousands) Annualized Home Sales (Thousands) Increasing unemployment rates due to COVID-19 Strong job growth prior to COVID-19 Stable prices in key markets Slowing Michigan home sales 8 As of Feb ‘20
Low Cost Deposit Franchise Focused on Core Deposit Growth 9 Substantially core funding – $2.6 billion of non-maturity deposit accounts (83.3% of total deposits)Total deposits increased $81.8 million, or 2.9%, since 12/31/19 (excluding brokered) with non-interest bearing up $22.9 million, interest bearing demand up $43.3 million, reciprocal up $33.5 million and time down $17.8 millionDeposits by Customer Type:Retail – 55.7%Commercial – 28.9%Municipal – 15.4% Deposit Composition – 3/31/20 Deposit Highlights Michigan Deposit Market Share $3.1B Core Deposits: 83.3% Cost of Deposits (%)/Total Deposits ($B) Note: Core deposits defined as total deposits less maturity deposits. Market share data as of 6/30/19.
Diversified Loan PortfolioFocused on High Quality Growth 10 Lending Highlights Note: Portfolio loans exclude loans HFS. Portfolio loan changes in 1Q’20Commercial – increased $14.9 million or 5.1% annualizedMortgage – decreased $28.9 million or 10.6% annualized (includes a securitization and a sale totaling $28.7 million of portfolio mortgage loans during the quarter, decreased 9 bps annualized excluding these transactions)Installment – increased $7.1 million or 6.2% annualizedMortgage weighted average FICO and LTV of 745 and 68%, respectively and average balance of $184,000Installment weighted average FICO of 755 and average balance of $27,170Commercial loan rate mix:51% fixed / 49% variableIndices – 58% tied to Prime, 39% tied to LIBOR and 3% tied to a US Treasury rateMortgage loan (inc. HECL) rate mix: 45% fixed / 55% adjustable or variable Indices – 20% tied to Prime, 62% tied to LIBOR and 18% tied to a US Treasury rate Gross Loan Composition – 3/31/20 $2.8B Yield on Loans (%)/Total Portfolio Loans ($B)
COVID-19 Programs to Date 11 Paycheck Protection Program Loan Forbearances $ in thousands. The tables to the left reflect our status in each of these programs through April 17th.Loan Forbearances:Forbearance period three months for mortgage and installment loans, three or six for commercial. Retail forbearances are primarily principal & interest deferrals.Commercial forbearances are primarily principal deferrals only.Paycheck Protection Program:On April 16th the Paycheck Protection Program allocation was depleted.Of the 1,237 loan requests that we had gotten through underwriting, 786 loans for $171.8 million had been approved by the SBA and had been assigned loan #s, which reserves program funds.As of the 17th we still had 236 applications not yet approved by underwriting and 451 through underwriting with no loan #. Highlights
Loan Portfolio Concentrations by Industry 12 Percentage concentrations are based on the entire commercial portfolio of $1,182 million. $483M $698M Loans by Industry as a % of Total Commercial Loans ($ in millions) Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) $698 million, or 59% of the commercial loan portfolio is C&I or owner occupied, while $483 million, or 41% is investment real estate.
Investment Securities Portfolio 13 Highlights High quality, liquid, diverse portfolio with relatively short duration.Fair value of $594.3 million, an increase of $75.9 million in 1Q’20.Net unrealized gain of $3.4 million, representing 0.6% of amortized cost.72% of the portfolio is AAA rated (or backed by the U.S. Government).3.19 year estimated average duration with a weighted average yield of 2.81% (with TE gross up).Approximately 23% of the portfolio is variable rate. $594.3M $594.3M Investment Portfolio by Type (3/31/20) Investment Portfolio by Rating (3/31/20)
Strong Capital Position 14 Source: S&P Global Market Intelligence and Company documents.Note: Company closed acquisition of TCSB Bancorp, Inc. in Q2 ‘18. TCE / TA (%) Leverage Ratio (%) CET1 Ratio (%) Total RBC Ratio (%) IBCP Target 8.50% - 9.50 % Capital retention to support (i) organic growth and (ii) acquisitions; and Return of capital through (i) strong and consistent dividend and (ii) share repurchases Long-Term Capital Priorities:
HighlightsInterest rate sensitivity profile of the loan and securities portfolios, in combination with a low cost core deposit base, positions us as slightly asset sensitive.Net interest income decreased $0.5 million, or 1.7%, in 1Q’20 vs. 4Q’19 due primarily to a seven basis point decline in the net interest margin that was only partially offset by a $30.1 million increase in average interest earning assets.Net interest margin was 3.63% during the first quarter of 2020, compared to 3.88% in the year-ago quarter and 3.70% in the fourth quarter of 2019. Net Interest Margin (TE)(%) Net Interest Income ($ in Millions) Net Interest Margin/Income 15
Linked Quarter Analysis 16 Q1’20 NIM Progression Linked Quarter Avg. Balances and FTE Rates Asset yields drove NIM decline of 14 bps.Commercial: 26 basis point drop; portfolio 49% variable rate with reset frequency of monthly or less.Mortgage: 7 basis point drop primarily due to refinance activity.Asset mix drove only 2 bps of NIM decline.Funding costs improved by 10 bps due to rapid response to rate cuts. Highlights
Strong Non-interest Income 17 Diverse sources of non-interest income – representing 26.8% of revenue Continued strong performance in service charges on deposits and interchangeMortgage banking: $8.8 million in net gains on mortgage loans in 1Q’20 vs $3.6 million in the year ago quarter$311.1 million in mortgage loan originations in 1Q’20 vs $137.8 million in 1Q’19 and $302.5 million in 4Q’19Purchase / Refi mix in 2019 was 70% / 30% vs 1Q’20 origination mix of 43% / 57% and application mix of 32% / 68% as refi activity continues to dominate1Q’20 mortgage loan servicing includes a $5.9 million ($0.21 per diluted share, after tax) decrease in fair value adjustment due to price compared to a decrease of $2.2 million ($0.7 per diluted share, after tax) in the year ago quarter Source: Company documents. $11.0M 2020 Non-interest Income Breakout Non-interest Income Trends ($M) Highlights
Focus on Expense Control 18 Source: Company documents. Non-interest Expense ($M) Highlights Efficiency Ratio (4 quarter rolling avg) Continued focus on expense control and driving positive operating leverage. MSR Change in value due to price of negative $5.9 million reduced mortgage loan servicing income and drove 1Q’20 efficiency ratio to 69.2%, excluding the MSR Change the efficiency ratio would have been 62.2%. Eight branch closings targeted for 3Q’20 with anticipated annual savings in excess of $1.3 million with closing costs of approximately $0.8 million.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) 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 HighlightsWorking with client base to maximize sustainable performance.The specific reserves allocated to TDRs totaled $5.2 million at 3/31/20.A majority of our TDRs are performing under their modified terms but remain in TDR status for the life of the loan.93.2% of TDRs are current as of 3/31/20.Commercial TDR Statistics:33 loans with $9.2 million book balance.97.1% performing.WAR of 5.83% (accruing loans).Well seasoned portfolio; over 66% of accruing loans are not only performing but have been for over a year since modification.Retail TDR Statistics:491 loans with $41.3 million book balance.94.9% performing.WAR of 5.65% (accruing loans).Well seasoned portfolio; over 97% of accruing loans are not only performing but have been for over a year since modification. TDRs ($ in Millions) 93% of TDRs are Current 21
Note: Dollars all in millions. Provision for Loan Losses Loan Net Charge-Offs/Recoveries Allowance for Loan Losses Credit Cost Summary 22
Incurred Loss Model vs CECL 23 Incurred vs. CECL ($ in Thousands) 3/31 “As If” ACL and percent of loans calculated at midpoint of incremental range with additional $9.0 million at Day 1 and $11.0 million at Q1’20. % Loans 0.96% 1.20% 1.60%(1) “As-if CECL” Illustrative Only Incurred Loss Build We delayed adopting CECL under the CARES Act:Increased visibility into the economic (local, regional, national) impact of COVID-19. Unemployment forecast sources exhibiting wide disparityRelationship between unemployment and credit impacted by non-traditional factors, including “stay at home” executive orders, increased unemployment eligibility as well as supplemental unemployment benefits. Incurred Model:Reserve build with Q1 provision expense of $6.7mm. Q1 allowance of $32.5mm or,1.20% of portfolio loans,194% of non-performing loans, and10.5x Q1 gross charge offs annualized of $3.1mm.Subjective allocation increased $4.9mm due to impact of: economic shock, high unemployment claims, “stay home” executive orders and initial wave of forbearance requests.CECL:CECL day 1 impact range is $8.0mm to $10.0mm with $1.0mm to $2.0mm for unfunded commitments.“As if” CECL in Q1’20: $42.0mm to $45.0mm with $2.5mm to $3.5mm for unfunded commitments.CECL Model Details:Discounted cash flow model with fourteen loan segments.Probability of default and loss given default based on long-term average for Commercial and regression for Mortgage and Installment.Regression uses two year forecast / two year reversion to mean driven primarily by unemployment.Unemployment data: median of Bloomberg survey; 12.8% Q2, falls to 8.3% by Q4, reaches 6.0% by Q4, 2021.Q factors: model maturity, economic shock and forbearance activity. Allocation of Incurred ALLL
CECL (ASU 2016-13) Update Description of Task / Action Step Date Status / Notes 1. Full transition of Excel based incurred allowance for loan losses (ALLL) model into a third-party software solution. 1Q’19 Parallel runs completed in 2018 and full transition in 1Q’19. 2. Select CECL calculation methodologies for each loan segment. 1Q’19 Methodology documentation and testing completed. A discounted cash flow model is generally preferred. 3. Determine appropriate economic/subjective factors for each loan segment to adjust for current environment. 1Q’19 Qualitative factor analysis has been completed. 4. Establish methodology for adjusting loss rates for reasonable and supportable forecast periods. 1Q’19 Regression analysis of loss rates and relevant economic factors completed. Have determined appropriate factors and application methods. Sources for future external economic forecasts in process of review. 5. Historical data validation. 1Q’19 Third-party review of historical data integrity and incurred ALLL process validation. 6. Run full CECL calculations on loan portfolio using all inputs – share impact internally. 2Q’19 Full CECL calculations completed on loan portfolio. Share results internally in 2Q’19. 7. CECL model validation. 2Q/3Q’19 Third-party review of CECL model and validation. 8. Disclose estimated financial impact of CECL on IBCP in public reporting. August 2, 2019 First disclosed the CECL impact range on ALLL in 2Q’19 Form 10-Q. This impact range was updated in the 3Q’19 Form 10-Q. 9. Finalize new financial disclosures. 4Q’19/1Q’20 Update class and risk metrics (if needed) in loan disclosures, and develop new vintage and other required CECL disclosures. 10. Finalize CECL methodology and policy and procedure documentation ahead of 1/1/2020 implementation. 4Q’19/1Q’20 Complete all CECL internal documentation (key controls/policies/procedures) and finalize CECL ALLL calculations. 11. Election to delay CECL under COVID-19 relief. 2020 Record entry for adoption of CECL effective 1/1/2020 at the earlier of 12/31/20 or the end of the national emergency. 24
1Q 2020 Outlook Update Category Outlook Lending Continued growthIBCP goal of mid- single digit (approximately 7%) overall loan growth in 2020, primarily supported by increases in commercial loans, mortgage loans and consumer loans. Expect much of this growth to occur in the last three quarters of 2020. This growth forecast also assumes a stable Michigan economy.Q1 Update: Loans declined slightly for the quarter due to mortgage loan securitization and sale transactions. Given economic disruption due to COVID-19, we anticipate balances to be flat to low single digit growth. This excludes balances associated with PPP. Net Interest Income Growth driven primarily by higher portfolio loan balances, expect total deposits (including brokered time) to grow by approximately 5% in 2020 IBCP goal of approximately a 2% increase in net interest income (NII) over 2019. Expect the net interest margin (NIM) to be relatively stable in 2020 and comparable to the 4Q’19 level but lower than the full year 2019 NIM. The forecast assumes no changes in the target federal funds rate in 2020 and long-term interest rates up very slightly over year end 2019 levels. Q1 Update: First quarter rate environment very different than original forecast. Actual short term rates declined 150 bps and long term rates declined by almost 100 bps. Actual NIM compression of seven bps on linked quarter basis. We anticipate NIM to be relatively stable (slight decline) vs 1Q’20. Provision for Loan 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 0.96% at 12/31/19. The initial (effective 1/1/2020) CECL adjustment is now expected to be approximately $8 million to $10 million. This revised lower range (compared to the 3Q’19 CECL estimate) primarily reflects the following factors: (i) a decline in commercial loan watch credits; (ii) a 4Q’19 update of the credit scoring of the retail loan portfolio reflecting improved scores; (iii) slightly higher prepayment rates in the retail loan portfolio; (iv) methodology refinements in the retail construction loan portfolio; and (v) changes in specific reserves. This CECL adjustment is still subject to certain final review procedures that will be completed in 1Q’20. A full year 2020 provision (expense) for loan losses of approximately 0.15% to 0.20% of average total portfolio loans would not be unreasonable.Q1 Update: We opted to delay implementation of CECL as described earlier. We did increase our qualitative reserve under incurred by $4.9 million, due to economic shock of COVID-19, deteriorating employment and significant forbearance activity. Similar future provisions are possible as we gain a better understanding as to how deep and how long this economic disruption lasts. Non-interest Income IBCP forecasted 2020 quarterly range of $11 million to $13.5 million with the total for the year up 3% to 4% from 2019 actual of $47.7 millionExpect mortgage loan origination volumes in 2020 to be down by approximately 15% due primarily to a decline in refinance activity. Expect overall mortgage banking revenues (gain on sale and mortgage loan servicing) to improve in 2020 due to not having any fair value write downs due to price for MSRs. Expect service charges on deposits and interchange income in 2020 to be collectively comparable to 2019 (i.e. a decline in servicing charges on deposits due to lower NSF fees to be largely offset by an increase in interchange income). Q1 Update: NII was at the low end of the range at $11 million. Very strong 1Q’20 mortgage origination volumes due to drop in rates. $8.8 million in gains on mortgage loans that were partially offset by $5.9 million of negative MSR fair value change due to price. Non-interest Expenses IBCP forecasted 2020 quarterly range of $27.5 to $28.5 million with the total for the year up very slightly (less than 1%) from the 2019 actual of $111.7 million.Expect total compensation and employee benefits to be slightly lower in 2020 compared to 2019 due primarily to a reduction in incentive compensation. Most other categories of non-interest expense expected to have small (1% to 2%) increases.Q1 Update: NIE was just outside the top of our range at $28.7 million and we expect that going forward it will fall back into range. Income Taxes Approximately a 20% effective income tax rate in 2020. This assumes a 21% statutory federal corporate income tax rate during 2020.Q1 Update: 17.4% actual effective income tax rate. Reaffirm approximately 20% rate for 2020. Share Repurchases 2020 share repurchase authorization at approximately 5% of outstanding shares. Expect total share repurchases in 2020 at just above the mid-point of this authorization.Q1 Update: We repurchased 678,929 shares in 1Q’20 at a weighted average price of $20.30. Repurchase activity ceased on March 16, 2020 and is on hold at this time. 25
Strategic Initiatives 26 Improve net interest income via balanced loan growth, disciplined risk adjusted loan pricing and active management of deposit pricing. Innovative and targeted customer acquisition, retention and cross sales strategies leveraging data analytics, inside sales staff, and intra-company referrals with strategic business unit partners.Add new customers and grow revenue through outbound calling.Add new customers and grow revenue through the addition of new talented sales professionals in our existing markets. Supplement our organic growth initiatives via selective and opportunistic bank acquisitions and branch acquisitions. Growth Completion of core data processing provider contract.On-going branch optimization: including assessing existing locations; new locations; service hours; staffing; workflow; and our leveraging of existing technology. Modernize branch delivery technology/systems.Expand Digital Branch (Call Center) services.All business lines and departments: streamline/automate operating processes and workflows Build/enhance dashboard reporting and business intelligence. Process Improvement & Cost Controls We recognize that the path to organizational success is through the success of each and every one of our team members. Accordingly we encourage and support the professional development of our colleagues through our IB Leadership Program, mentoring and other initiatives. We are passionate about our desire to ensure that our team members are empowered and supported in a way that will best position them to serve our customers. We believe that if we are committed to the well-being of our team members, and recognize and reward their contributions, they will ensure our success. Talent Management Maintain strong, high quality, capital levels – augmented by consistent earnings. Maintain excellent asset quality and strong proactive monitoring.Active liquidity and interest rate risk monitoring and management.Strong, independent and collaborative risk management, utilizing 3 layers of defense (business unit, risk management and internal audit). Effective operational controls with special emphasis on cyber security, fraud prevention, regulatory compliance, crisis communications and business continuity plan.Effective working relationships with banking regulators and other key outside oversight partners. Risk Management
Q&A and Closing Remarks Question and Answer SessionClosing RemarksThank you for attending!NASDAQ: IBCP 27