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Independent Bank Corporation Reports 2020 Second Quarter Results

Company Release - 7/28/2020 7:59 AM ET

GRAND RAPIDS, Mich., July 28, 2020 (GLOBE NEWSWIRE) -- Independent Bank Corporation (NASDAQ: IBCP) reported second quarter 2020 net income of $14.8 million, or $0.67 per diluted share, versus net income of $10.7 million, or $0.46 per diluted share, in the prior-year period.  For the six months ended June 30, 2020, the Company reported net income of $19.6 million, or $0.88 per diluted share, compared to net income of $20.1 million, or $0.85 per diluted share, in the prior-year period.  The increase in second quarter 2020 earnings as compared to 2019 primarily reflects an increase in non-interest income that was partially offset by a decline in net interest income and increases in the provision for loan losses, non-interest expense and income tax expense.  The slight decline in year-to-date 2020 earnings as compared to 2019 primarily reflects a decline in net interest income and increases in the provision for loan losses and non-interest expense that were partially offset by an increase in non-interest income and a decrease in income tax expense.

Before discussing the 2020 financial results in greater detail, the following is an update on the impact to our organization of the COVID-19 pandemic, which continues to cause significant hardship for many of our customers and communities in a variety of 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 also extend our appreciation to those who have aided and supported them.

The Company continues to respond to the challenges of the current environment. Our response was initially formulated during the month of February 2020 as we prepared our infrastructure to allow the majority of our associates to work remotely.  In March 2020 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 – From mid-March to mid-June we limited our branch lobbies to appointment only and kept drive-through windows open.  In mid-June our bank branch lobbies fully reopened.  With the ability to use drive through service, ATMs or our electronic banking solutions there was minimal disruption to customers.  In addition, our flexible operating network allowed us to efficiently redeploy our associates, as necessary, to high volume areas to fulfill customer requests into our call center, requests for consumer and commercial loan payment relief and mortgage financing requests.
  • Employee Safety – For employees that are in our bank branches servicing our customers, we have expanded sick and vacation time.  All non-branch employees either have the option or are required to work remotely.  We currently have approximately 40% of our total staff working remotely every day.  We have installed “customer friendly” shields throughout our delivery network and have implemented a variety of other protective processes to put both customers and staff at ease.  We continue to comply with the Governor of Michigan’s “Safe at Home” executive orders and “MI Safe Start Plan” as they apply to our business.

  • Loan Forbearances – We have forbearance programs in place to proactively work with our customers who have experienced financial difficulty due to the COVID-19 pandemic. As of June 30, 2020 we had active forbearance agreements with 259 commercial customers with $210.5 million in loans, 668 retail (mortgage and installment loan) customers with $88.7 million in loans, and 773 customers with $114.8 million within our mortgage loans sold and serviced for others. These dollar amounts represent 15.4%, 5.9% and 4.2% of the related total loan portfolio balances. As of July 23, 2020 the active forbearance agreements had changed as follows: 260 commercial customers with $211.8 million in loans, 524 retail customers with $71.0 million in loans, and 639 customers with $98.2 million within our mortgage loans sold and serviced for others. The level of these loans are down after peaking in mid-June 2020, as many customers economic situations have improved, allowing them to pay their loans current. The forbearance terms are flexible enough to meet the specific needs of each customer, while protecting the safety and soundness of the Company.
  • U.S. Small Business Administration (“SBA”) Payroll Protection Program (“PPP”) – Our response, and focus on this vital program, shows our commitment to the communities we serve. We built an effective process to manage the high volume of applications that we received and processed.  Customer demand for this program was extraordinary.  As of June 30, 2020, we had 2,012 PPP loans outstanding with a total balance of $259.4 million.  The average balance of PPP loans in the second quarter of 2020 was $191.1 million with an average yield of 3.05% (including the accretion of approximately $1.0 million of net fees).  The PPP loan portfolio reduced the average yield on interest-earning assets by an estimated 0.04% in the second quarter of 2020.  At June 30, 2020, there was $7.7 million of remaining unaccreted net fees related to PPP loans.  These net fees are expected to be accreted into interest income over the next 20 months and the pace of such accretion will depend on payment activity (including loan forgiveness) within the PPP loan portfolio.  The PPP has been extended to August 8, 2020. We have received approximately 35 forgiveness applications that will be submitted once the SBA Forgiveness portal is activated.
  • Federal Reserve Main Street Lending Program (“MSLP”) – We submitted an application and were approved as a MSLP lender.  This program is designed to support small and medium-sized businesses that were in sound financial condition before the COVID-19 pandemic.  U.S. businesses may be eligible for MSLP loans if they meet either of the following conditions: (1) the business has 15,000 employees or fewer; or (2) the business had 2019 revenues of $5 billion or less.  As of July 14, 2020 we had received three loan applications under the MSLP.

Significant items impacting comparable quarterly and year to date 2020 and 2019 results include the following:

  • Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Changes”) of a negative $2.9 million ($0.10 per diluted share, after taxes) and a negative $8.9 million ($0.31 per diluted share, after taxes) for the three- and six-months ended June 30, 2020, respectively, as compared to a negative $2.7 million ($0.09 per diluted share, after taxes) and a negative $4.9 million ($0.16 per diluted share, after taxes) for the three- and six-months ended June 30, 2019, respectively.
  •  Approximately $0.76 million ($0.03 per diluted share, after taxes) and $0.82 million ($0.03 per diluted share, after taxes) of expenses related to a pending data processing conversion and bank branch closures (as described further below under “Operating Results”) for the three- and six-months ended June 30, 2020, respectively

Second quarter 2020 highlights include:

  • Increases in net income and diluted earnings per share of 37.7% and 45.7%, respectively, compared to 2019;
  • Return on average assets and return on average equity of 1.54% and 17.39%, respectively;
  • Net gains on mortgage loans of $17.6 million (up 310.1% over 2019) and total mortgage loan origination volume of $470.6 million;
  • Total portfolio loan net growth of $148.5 million;
  • Deposit net growth of $401.6 million;
  • The issuance of $40.0 million of subordinated debt in May 2020;
  • Continued strong asset quality metrics; and
  • The payment of a 20 cent per share dividend on common stock on May 15, 2020.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “We are pleased to report a very strong financial performance in the second quarter of 2020 despite the many challenges brought on by the COVID-19 pandemic.  Our associates did an amazing job during the quarter!  We closed nearly one-half billion dollars of mortgage loans, helping our customers buy new homes or refinance existing mortgage loans.  We closed over $250 million of PPP loans, helping our customers keep their employees on the payroll and their businesses operating.  We actively administered over 1,700 loan forbearance plans to help our business and retail customers who have been adversely impacted by the COVID-19 pandemic.  We continued to effectively operate our Business Continuity Plan to safely serve our customers and protect our employees.  Finally, we maintained solid asset quality metrics during the second quarter of 2020.  As we look ahead to the last half of 2020 and beyond, we are mindful of the ongoing challenges from the COVID-19 pandemic, but we are confident of our continued ability to effectively respond to these challenges and remain optimistic about our future.”

Operating Results

The Company’s net interest income totaled $30.5 million during the second quarter of 2020, a decrease of $0.3 million, or 1.0% from the year-ago period, but up $0.3 million, or 0.9%, from the first quarter of 2020.  The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.36% during the second quarter of 2020, compared to 3.87% in the year-ago period, and 3.63% in the first quarter of 2020.  The year-over-year quarterly decrease in net interest income is due to a decline in the net interest margin that was partially offset by an increase in average interest-earning assets.  Average interest-earning assets were $3.66 billion in the second quarter of 2020, compared to $3.19 billion in the year ago quarter and $3.35 billion in the first quarter of 2020.

For the first six months of 2020, net interest income totaled $60.7 million, a decrease of $0.3 million, or 0.6% from the first half of 2019.  The Company’s net interest margin for the first six months of 2020 was 3.49% compared to 3.88% in 2019.  The decrease in net interest income for the first six months of 2020 compared to 2019 is also due to a decline in the net interest margin that was partially offset by an increase in average interest-earning assets.  

Due to the economic impact of COVID-19, the Federal Reserve has taken a variety of actions to stimulate the economy, including significantly lowering short-term interest rates.  These actions have placed continued pressure on the Company’s net interest margin.

Non-interest income totaled $20.4 million and $31.4 million, respectively, for the second quarter and first six months of 2020, compared to $9.9 million and $19.9 million in the respective comparable year ago periods.  These changes were primarily due to variances in mortgage banking related revenues (net gains on mortgage loans and mortgage loan servicing, net).
                                                                                                                                 
Net gains on mortgage loans in the second quarters of 2020 and 2019, were approximately $17.6 million and $4.3 million, respectively.  For the first six months of 2020, net gains on mortgage loans totaled $26.5 million compared to $7.9 million in 2019.  The increase in net gains on mortgage loans was primarily due to an increase in mortgage loan sales volume in 2020, improved profit margins on mortgage loan sales, and fair value adjustments on the mortgage loan pipeline.

Mortgage loan servicing, net, generated a loss of $3.0 million and $1.9 million in the second quarters of 2020 and 2019, respectively. For the first six months of 2020 and 2019, mortgage loan servicing, net, generated a loss of $8.3 million and $3.1 million, respectively.  The significant variances in mortgage loan servicing, net are primarily due to changes in the fair value of capitalized mortgage loan servicing rights associated with changes in mortgage loan interest rates and expected future prepayment levels. Mortgage loan servicing, net activity is summarized in the following table:

   Three Months Ended  Six Months Ended
   6/30/2020 6/30/2019 6/30/2020 6/30/2019 
Mortgage loan servicing, net: (Dollars in thousands) 
Revenue, net$    1,646 $    1,515 $    3,319 $    2,991 
Fair value change due to price   (2,921)   (2,670)   (8,852)   (4,873)
Fair value change due to pay-downs (1,747) (752) (2,789) (1,240)
Total$(3,022)$(1,907)$(8,322)$(3,122)

Non-interest expenses totaled $27.3 million in the second quarter of 2020, compared to $26.6 million in the year-ago period.  For the first six months of 2020, non-interest expenses totaled $56.1 million versus $54.6 million in 2019.  These year-over-year increases in non-interest expense are primarily due to increases in compensation, loan and collection expense and legal and professional fees.  The increase in compensation is due in part to $0.4 million in bonuses paid during the second quarter of 2020 to front-line personnel due to their extraordinary efforts during the COVID-19 pandemic.  In addition, the second quarter of 2020 includes $0.3 million of expenses related to the Company’s core data processing conversion that is in process (this conversion is expected to be completed in April 2021) and $0.4 million of expenses (primarily write-downs of fixed assets and leases) related to the closures of six bank branch offices that are expected to occur on July 31, 2020. 

The Company recorded an income tax expense of $3.5 million and $4.5 million in the second quarter and first six months of 2020, respectively.  This compares to an income tax expense of $2.7 million and $4.9 million in the second quarter and first six months of 2019, respectively.  The changes in income tax expense reflect changes in pre-tax earnings in 2020 relative to 2019.

Asset Quality

A breakdown of non-performing loans(1) by loan type is as follows:

Loan Type  6/30/2020 12/31/2019 6/30/2019 
 (Dollars in thousands)
Commercial$  4,886 $1,377 $  900 
Consumer/installment 602  805  901 
Mortgage 7,455  7,996  5,997 
Subtotal 12,943  10,178  7,798 
Less – government guaranteed loans 604  646  436 
Total non-performing loans$12,339 $9,532 $  7,362 
Ratio of non-performing loans to total portfolio loans 0.43%  0.35%  0.27% 
Ratio of non-performing assets to total assets 0.34%  0.32%  0.27% 
Ratio of the allowance for loan losses to non-performing loans 279.60%    274.32%  351.85% 

(1) Excludes loans that are classified as “troubled debt restructured” that are still performing.

Non-performing loans have increased $2.8 million from December 31, 2019 due primarily to an increase in non-performing commercial loans.  This increase principally reflects one specific loan relationship.  This loan relationship was in watch credit status at December 31, 2019, moved into non-accrual in the first quarter of 2020 and was charged down by $4.0 million in the second quarter of 2020, to a remaining balance of $2.9 million.  Approximately $2.6 million of this remaining loan balance was paid on July 21, 2020 from the auction of assets securing the loan and $0.3 million is fully reserved with collection efforts continuing.  Other real estate and repossessed assets totaled $1.6 million at June 30, 2020, compared to $1.9 million at December 31, 2019. 

The provision for loan losses was an expense of $5.2 million and $0.7 million in the second quarters of 2020 and 2019, respectively.  The provision for loan losses was an expense of $11.9 million and $1.3 million in the first six months of 2020 and 2019, respectively. 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 growth, loan mix, levels of non-performing and classified loans and loan net charge-offs.  In addition, the higher year-to-date provision for loan losses includes an $8.7 million (or 98.2%) increase in the qualitative/subjective portion of the allowance for loan losses.  This increase principally reflects the unique challenges and economic uncertainty resulting from the COVID-19 pandemic and the potential impact on the loan portfolio.  The Company recorded loan net charge-offs of $3.183 million and $0.003 million in the second quarters of 2020 and 2019, respectively.  For the first six months of 2020 and 2019, the Company recorded loan net charge-offs of $3.557 million and $0.301 million, respectively.  At June 30, 2020, the allowance for loan losses totaled $34.5 million, or 1.20% of total portfolio loans, compared to $26.1 million, or 0.96% of total portfolio loans, at December 31, 2019. Excluding PPP loans and the remaining Traverse City State Bank acquired loan balances, the allowance for loan losses was equal to 1.38% of portfolio loans at June 30, 2020.

Balance Sheet, Liquidity and Capital

Total assets were $4.04 billion at June 30, 2020, an increase of $478.6 million from December 31, 2019.  Loans, excluding loans held for sale, were $2.87 billion at June 30, 2020, compared to $2.73 billion at December 31, 2019.  Deposits totaled $3.49 billion at June 30, 2020, an increase of $448.4 million from December 31, 2019.  This increase is primarily due to growth in non-interest bearing checking, savings and interest-bearing checking and reciprocal deposit account balances. 

Cash and cash equivalents totaled $55.8 million at June 30, 2020, versus $65.3 million at December 31, 2019. Securities available for sale totaled $856.3 million at June 30, 2020, versus $518.4 million at December 31, 2019.  The significant increase in securities available for sale is due to the deployment of funds generated from the growth in deposits. 

In May 2020, the Company issued $40.0 million of subordinated notes with a ten year maturity, a five year call option and an initial coupon interest rate (fixed for the first five years) of 5.95%.

Total shareholders’ equity was $355.1 million at June 30, 2020, or 8.78% of total assets.  Tangible common equity totaled $322.0 million at June 30, 2020, or $14.72 per share.  The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:

Regulatory Capital Ratios6/30/2020 12/31/2019Well Capitalized Minimum

Tier 1 capital to average total assets

  8.76

%

  9.49

%

5.00

%
Tier 1 common equity  to risk-weighted assets12.07%11.96%6.50%
Tier 1 capital to risk-weighted assets12.07%11.96%8.00%
Total capital to risk-weighted assets13.32%12.96%10.00%

Share Repurchase Plan

As previously announced, on December 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 December 31, 2020.  During the first quarter of 2020, the Company repurchased 678,929 shares at a weighted average price of $20.30 per share. Due primarily to the economic uncertainty brought on by the COVID-19 pandemic, share repurchase activity ceased on March 16, 2020, and is on hold at this time.

Earnings Conference Call
Brad Kessel, President and CEO and Rob Shuster, CFO will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, July 28, 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 via the following event site/URL:  https://services.choruscall.com/links/ibcp200728.html.

 

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10145927). The replay will be available through August 4, 2020.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $4.0 billion.  Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a branch network across Michigan'sLower Peninsula through one state-chartered bank subsidiary.  This subsidiary (Independent Bank) provides a full range of financial services, including commercial banking, mortgage lending, investments and insurance.  Independent Bank Corporation is committed to providing exceptional personal service and value to its customers, stockholders and the communities it serves. 

For more information, please visit our Web site at: IndependentBank.com.

Forward-Looking Statements

This press release contains forward-looking statements about Independent Bank Corporation. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of Independent Bank Corporation. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting Independent Bank Corporation, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Independent Bank Corporation’s revenues and the values of its assets and liabilities, reduce the availability of funding from certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect Independent Bank Corporation in substantial and unpredictable ways. Independent Bank Corporation’s results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk.

Certain risks and important factors that could affect Independent Bank Corporation's future results are identified in its Annual Report on Form 10-K for the year ended December 31, 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.


INDEPENDENT BANK CORPORATION AND SUBSIDIARIES 
Consolidated Statements of Financial Condition 
  June 30, December 31,
   2020   2019  
  (unaudited) 
  (In thousands, except share 
  amounts) 
Assets 
Cash and due from banks $47,369  $53,295  
Interest bearing deposits  8,447   12,009  
  Cash and Cash Equivalents  55,816   65,304  
Interest bearing deposits - time  -   350  
Securities available for sale  856,280   518,400  
Federal Home Loan Bank and Federal Reserve Bank stock, at cost  18,427   18,359  
Loans held for sale, carried at fair value  83,706   69,800  
Loans     
Commercial  1,362,956   1,166,695  
Mortgage  1,041,684   1,098,911  
Installment  462,023   459,417  
  Total Loans  2,866,663   2,725,023  
Allowance for loan losses  (34,500)  (26,148) 
  Net Loans  2,832,163   2,698,875  
Other real estate and repossessed assets  1,569   1,865  
Property and equipment, net  36,962   38,411  
Bank-owned life insurance  55,300   55,710  
Deferred tax assets, net  2,483   2,072  
Capitalized mortgage loan servicing rights  13,773   19,171  
Other intangibles  4,816   5,326  
Goodwill  28,300   28,300  
Accrued income and other assets  53,720   42,751  
  Total Assets $4,043,315  $3,564,694  
      
Liabilities and Shareholders' Equity 
Deposits     
Non-interest bearing $1,118,424  $852,076  
Savings and interest-bearing checking  1,375,523   1,186,745  
Reciprocal  535,398   431,027  
Time  323,993   376,877  
Brokered time  131,787   190,002  
  Total Deposits  3,485,125   3,036,727  
Other borrowings  50,002   88,646  
Subordinated debt  39,283   -  
Subordinated debentures  39,490   39,456  
Accrued expenses and other liabilities  74,292   49,696  
  Total Liabilities  3,688,192   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:     
21,880,183 shares at June 30, 2020 and 22,481,643 shares at December 31, 2019  338,989   352,344  
Retained earnings  12,338   1,611  
Accumulated other comprehensive income (loss)  3,796   (3,786) 
  Total Shareholders’ Equity  355,123   350,169  
  Total Liabilities and Shareholders’ Equity $4,043,315  $3,564,694  
      


INDEPENDENT BANK CORPORATION AND SUBSIDIARIES     
Consolidated Statements of Operations     
            
  Three Months Ended Six Months Ended 
  June 30, March 31, June 30, June 30, 
   2020   2020   2019   2020   2019  
                      
  (unaudited) 
Interest Income (In thousands, except per share amounts) 
Interest and fees on loans $29,863  $31,764  $33,836  $61,627  $66,517  
Interest on securities available for sale           
Taxable  2,847   3,059   3,034   5,906   6,040  
Tax-exempt  793   390   324   1,183   698  
Other investments  251   366   379   617   954  
  Total Interest Income  33,754   35,579   37,573   69,333   74,209  
Interest Expense           
Deposits  2,388   4,700   6,021   7,088   11,702  
Other borrowings and subordinated debt and debentures  904   688   796   1,592   1,508  
  Total Interest Expense  3,292   5,388   6,817   8,680   13,210  
  Net Interest Income  30,462   30,191   30,756   60,653   60,999  
Provision for loan losses  5,188   6,721   652   11,909   1,316  
  Net Interest Income After Provision for Loan Losses  25,274   23,470   30,104   48,744   59,683  
Non-interest Income           
Service charges on deposit accounts  1,623   2,591   2,800   4,214   5,440  
Interchange income  2,526   2,457   2,604   4,983   4,959  
Net gains on assets           
Mortgage loans  17,642   8,840   4,302   26,482   7,913  
Securities available for sale  -   253   -   253   304  
Mortgage loan servicing, net  (3,022)  (5,300)  (1,907)  (8,322)  (3,122) 
Other  1,598   2,163   2,106   3,761   4,370  
  Total Non-interest Income  20,367   11,004   9,905   31,371   19,864  
Non-interest Expense           
Compensation and employee benefits  16,279   16,509   15,931   32,788   32,282  
Occupancy, net  2,159   2,460   2,131   4,619   4,636  
Data processing  1,590   2,355   2,171   3,945   4,315  
Furniture, fixtures and equipment  1,090   1,036   1,006   2,126   2,035  
Communications  800   803   717   1,603   1,486  
Interchange expense  726   859   753   1,585   1,441  
Loan and collection  756   805   628   1,561   1,262  
Advertising  364   683   627   1,047   1,299  
Legal and professional  468   393   371   861   740  
FDIC deposit insurance  430   370   342   800   710  
Branch closure costs  417   -   -   417   -  
Conversion related expenses  346   56   -   402   -  
Credit card and bank service fees  94   99   97   193   200  
Net (gains) losses on other real estate and repossessed assets  (9)  109   (198)  100   (79) 
Other  1,836   2,182   2,016   4,018   4,255  
  Total Non-interest Expense  27,346   28,719   26,592   56,065   54,582  
  Income Before Income Tax  18,295   5,755   13,417   24,050   24,965  
Income tax expense  3,523   945   2,687   4,468   4,854  
  Net Income $14,772  $4,810  $10,730  $19,582  $20,111  
Net Income Per Common Share           
Basic $0.67  $0.22  $0.47  $0.89  $0.86  
Diluted $0.67  $0.21  $0.46  $0.88  $0.85  
            


INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
           
 June 30, March 31, December 31,
 September 30,
 June 30, 
  2020  2020  2019   2019   2019 
                  
 (unaudited) 
   
 (Dollars in thousands except per share data)
Three Months Ended          
Net interest income$30,462 $30,191 $30,710  $30,872  $30,756 
Provision for loan losses 5,188  6,721  (221)  (271)  652 
Non-interest income 20,367  11,004  15,597   12,275   9,905 
Non-interest expense 27,346  28,719  29,303   27,848   26,592 
Income before income tax 18,295  5,755  17,225   15,570   13,417 
Income tax expense 3,523  945  3,346   3,125   2,687 
Net income$14,772 $4,810 $13,879  $12,445  $10,730 
           
Basic earnings per share$0.67 $0.22 $0.62  $0.55  $0.47 
Diluted earnings per share 0.67  0.21  0.61   0.55   0.46 
Cash dividend per share 0.20  0.20  0.18   0.18   0.18 
           
Average shares outstanding 21,890,761  22,271,412  22,481,551   22,486,041   23,035,526 
Average diluted shares outstanding 22,113,187  22,529,370  22,776,908   22,769,572   23,313,346 
           
Performance Ratios          
Return on average assets 1.54% 0.54% 1.56%  1.42  1.27%
Return on average equity 17.39  5.54  15.92   14.64   12.72 
Efficiency ratio (1) 53.07  69.32  62.56   63.76   64.57 
           
As a Percent of Average Interest-Earning Assets (1)         
Interest income 3.72% 4.28% 4.44%  4.60%  4.73%
Interest expense 0.36  0.65  0.74   0.84   0.86 
Net interest income 3.36  3.63  3.70   3.76   3.87 
           
Average Balances          
Loans$2,913,857 $2,766,770 $2,776,037  $2,786,544  $2,699,648 
Securities available for sale 660,126  527,395  488,016   423,255   441,523 
Total earning assets 3,659,614  3,350,948  3,320,828   3,285,081   3,191,264 
Total assets 3,868,408  3,565,829  3,529,744   3,483,296   3,388,398 
Deposits 3,303,302  3,066,298  3,040,099   3,023,334   2,929,885 
Interest bearing liabilities 2,402,361  2,309,995  2,251,928   2,219,133   2,155,660 
Shareholders' equity 341,606  348,963  345,910   337,162   338,254 
           
End of Period          
Capital          
Tangible common equity ratio 8.03% 8.40  8.96%  8.71%  8.72%
Average equity to average assets 8.83  9.79  9.80   9.68   9.98 
Tangible common equity per share          
of common stock$14.72 $13.81 $14.08  $13.63  $13.19 
Total shares outstanding 21,880,183  21,892,001  22,481,643   22,480,748   22,498,776 
           
Selected Balances          
Loans$2,866,663 $2,718,115 $2,725,023  $2,722,446  $2,706,526 
Securities available for sale 856,280  594,284  518,400   439,592   430,305 
Total earning assets 3,833,523  3,416,845  3,343,941   3,348,631   3,239,247 
Total assets 4,043,315  3,632,387  3,564,694   3,550,837   3,438,302 
Deposits 3,485,125  3,083,564  3,036,727   3,052,312   2,978,885 
Interest bearing liabilities 2,456,193  2,350,056  2,312,753   2,272,587   2,194,970 
Shareholders' equity 355,123  335,618  350,169   340,245   330,846 
           
(1) Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%.     


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 Six Months Ended
 June 30, June 30,
  2020   2019   2020   2019 
                
 (Dollars in thousands)
Net Interest Margin, Fully Taxable       
Equivalent ("FTE")       
        
Net interest income$30,462  $30,756  $60,653  $60,999 
Add: taxable equivalent adjustment 223   102   344   219 
Net interest income - taxable equivalent$30,685  $30,858  $60,997  $61,218 
Net interest margin (GAAP) (1) 3.34%   3.86%   3.47%   3.86% 
Net interest margin (FTE) (1) 3.36%   3.87%   3.49%   3.88% 
        
Adjusted Net Income before tax       
        
Income before income tax$18,295  $13,417  $24,050  $24,965 
Provision for loan losses 5,188   652   11,909   1,316 
Pre-tax, pre-provision income$23,483  $14,069  $35,959  $26,281 
        
(1) Annualized.       
        


Reconciliation of Non-GAAP Financial Measures (continued)      
Independent Bank Corporation          
           
Tangible Common Equity Ratio          
 June 30, March 31, December 31, September 30, June 30, 
 2020 2020 2019 2019 2019 
           
 (Dollars in thousands) 
Common shareholders' equity$355,123  $335,618  $350,169  $340,245  $330,846  
Less:          
Goodwill 28,300   28,300   28,300   28,300   28,300  
Other intangibles 4,816   5,071   5,326   5,598   5,870  
Tangible common equity$322,007  $302,247  $316,543  $306,347  $296,676  
           
Total assets$4,043,315  $3,632,387  $3,564,694  $3,550,837  $3,438,302  
Less:          
Goodwill 28,300   28,300   28,300   28,300   28,300  
Other intangibles 4,816   5,071   5,326   5,598   5,870  
Tangible assets$4,010,199  $3,599,016  $3,531,068  $3,516,939  $3,404,132  
           
Common equity ratio 8.78%  9.24%  9.82%  9.58%  9.62% 
Tangible common equity ratio 8.03%  8.40%  8.96%  8.71%  8.72% 
           
Tangible Common Equity per Share of Common Stock:       
           
Common shareholders' equity$355,123  $335,618  $350,169  $340,245  $330,846  
Tangible common equity$322,007  $302,247  $316,543  $306,347  $296,676  
Shares of common stock          
outstanding (in thousands) 21,880   21,892   22,482   22,481   22,499  
           
Common shareholders' equity per share          
of common stock$16.23  $15.33  $15.58  $15.13  $14.70  
Tangible common equity per share          
of common stock$14.72  $13.81  $14.08  $13.63  $13.19  
           

 

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.

Contact: William B. Kessel, President and CEO, 616.447.3933
 Robert N. Shuster, Chief Financial Officer, 616.522.1765

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Source: Independent Bank Corporation

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