Independent Bank Corporation Reports 2023 Second Quarter Results

Second Quarter Highlights

Highlights for the second quarter of 2023 include:

• An increase in net interest income of 6.3% over the second quarter of 2022;
• An increase in book value and tangible book value per share of $0.51;
• Net growth in loans of $121.3 million (or 13.9% annualized); and
• The payment of a 23 cent per share dividend on common stock on May 15, 2023.

GRAND RAPIDS, Mich., July 25, 2023 (GLOBE NEWSWIRE) -- Independent Bank Corporation (NASDAQ: IBCP) reported second quarter 2023 net income of $14.8 million, or $0.70 per diluted share, versus net income of $13.0 million, or $0.61 per diluted share, in the prior-year period. For the six months ended June 30, 2023, the Company reported net income of $27.8 million, or $1.31 per diluted share, compared to net income of $31.0 million, or $1.45 per diluted share, in the prior year period.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “We delivered another quarter of strong financial results with net income and pre-tax, pre-provision income both increasing from the prior quarter. We continue to see good stability in our deposit base and have successfully grown our client base and brought in new, full banking relationships. Economic conditions remain healthy throughout our markets and we continue to see attractive lending opportunities, which led to our total loans increasing at a 14% annualized rate in the second quarter. We have a solid pipeline of high quality commercial lending opportunities, and we believe that we can continue to grow our client base and deliver strong financial performance for our shareholders.”

Significant items impacting comparable second quarter 2023 and 2022 results include the following:

• Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Changes”) of  $2.4 million ($0.09 per diluted share, after taxes) for the three-month period ended June 30, 2023, as compared to $3.1 million ($0.12 per diluted share, after taxes) for the three-months ended June 30, 2022.
• The provision for credit losses on loans was an expense of $3.3 million ($0.12 per diluted share, after taxes) in the second quarter ended June 30, 2023, as compared to an expense of $2.4 million ($0.09 per diluted share, after taxes) in the second quarter ended June 30, 2022.

Operating Results

The Company’s net interest income totaled $38.4 million during the second quarter of 2023, an increase of $2.3 million, or 6.3% from the year-ago period, and down $0.1 million, or 0.2%, from the first quarter of 2023. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.26% during the second quarter of 2023, compared to 3.26% in the year-ago period, and 3.33% in the first quarter of 2023. The year-over-year quarterly increase in net interest income was due to an increase in average interest-earning assets. The decrease in net interest income compared to the linked quarter was due to a decrease in net interest margin that was partially offset by an increase in average interest-earning assets. Average interest-earning assets were $4.76 billion in the second quarter of 2023, compared to $4.49 billion in the year ago quarter and $4.70 billion in the first quarter of 2023.

For the first six months of 2023, net interest income totaled $76.8 million, an an increase of $7.7 million, or 11.2% from the first six months in 2022. The Company’s net interest margin for the first six months of 2023 was 3.29% compared to 3.13% in 2022. The increase in net interest income for the first six months of 2023 compared to 2022 reflects this improved margin as well as our increase in average interest- earning assets.

Non-interest income totaled $15.4 million and $26.0 million, respectively, for the second quarter and for the first six months 2023, compared to $14.6 million and $33.6 million in the respective comparable prior year periods. These changes were primarily due to variances in mortgage banking related revenues and a loss on securities available for sale.

Net gains on mortgage loans in the second quarters of 2023 and 2022, were approximately $2.1 million and $1.3 million, respectively. For the first six months of 2023, net gains on mortgage loans totaled $3.4 million compared to $2.1 million in 2022. The increase in net gains on mortgage loans was primarily due to a increase in the gain on sale margin on mortgage loan sold that was partially offset by a decrease in the volume of mortgage loans sold.

Mortgage loan servicing, net, generated income of $3.7 million and $4.2 million in the second quarters of 2023 and 2022, respectively. For the first six months of 2023 and 2022, mortgage loan servicing, net, generated income of $4.4 million and $13.8 million, respectively. The significant variance in mortgage loan servicing, net is primarily due to changes in the fair value of capitalized mortgage loan servicing rights associated with the magnitude of changes in mortgage loan interest rates and expected future prepayment levels between periods. Mortgage loan servicing, net activity is summarized in the following table:

Non-interest expenses totaled $32.2 million in the second quarter of 2023, compared to $32.4 million in the year-ago period. For the first six months of 2023, non-interest expenses totaled $63.2 million versus $63.9 million in 2022.

The Company recorded income tax expense of $3.4 million and $6.3 million in the second quarter and first six months of 2023, respectively. This compares to an income tax expense of $2.9 million and $7.0 million in the second quarter and first six months of 2022. The changes in income tax expense principally reflect changes in pre-tax earnings in 2023 relative to 2022.

Asset Quality

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

The provision for credit losses on loans was an expense of $3.3 million and $2.2 million in the second quarters of 2023 and 2022, respectively. The provision for credit losses on loans was an expense of $2.5 million and an expense of $0.6 million in the first six months of 2023 and 2022, respectively. The quarterly change in the provision for credit losses on loans in 2023 compared to 2022, was primarily the result of a an increase in specific reserve on one commercial credit as well as increases in the pooled loan reserve and subjective loan allocations due primarily to loan growth. The year-to-date increase in the provision for credit losses in 2023 compared to 2022, was primarily the result of a combination of increases in net commercial specific allocations, pooled loan reserve and subjective loan allocations due to loan growth We recorded loan net charge offs (recoveries) of $(0.10) million and $(0.04) million in the second quarters of 2023 and 2022, respectively and $0.96 million and $0.02 million during the first six months of 2023 and 2022, respectively. At June 30, 2023, the allowance for credit losses for loans totaled $54.0 million, or 1.49% of total portfolio loans compared to $52.4 million, or 1.51% of total portfolio loans at December 31, 2022. The year-to-date increase in the provision for credit losses for securities HTM in 2023 compared to 2022, was the result of a loss incurred on a $3.0 million subordinated debt security that defaulted during the first quarter.

Balance Sheet, Capital and Liquidity

Total assets were $5.14 billion at June 30, 2023, an increase of $135.8 million from December 31, 2022. Loans, excluding loans held for sale, were $3.63 billion at June 30, 2023, compared to $3.47 billion at December 31, 2022.  Deposits totaled $4.49 billion at June 30, 2023, an increase of $108.6 million from December 31, 2022. This increase is primarily due to growth in reciprocal, time and brokered time deposit account balances that were partially offset by decreases in non-interest bearing and in savings and interest-bearing checking deposit account balances.

Cash and cash equivalents totaled $129.2 million at June 30, 2023, versus $74.4 million at December 31, 2022. Securities available for sale (“AFS”) totaled $731.8 million at June 30, 2023, versus $779.3 million at December 31, 2022.

Total shareholders’ equity was $375.2 million at June 30, 2023, or 7.31% of total assets compared to $347.6 million or 6.95% at December 31, 2022. Tangible common equity totaled $344.6 million at June 30, 2023, or $16.45 per share compared to $316.7 million or $15.04 per share at December 31, 2022. The increase in shareholder equity as well as tangible common equity are primarily the result of earnings retention and a decrease in accumulated other comprehensive loss related to unrealized losses on securities available for sale.

The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:

At June 30, 2023, in addition to liquidity available from our normal operating, funding, and investing activities, we had unused credit lines with the FHLB and FRB of approximately $926.9 million and $476.5 million, respectively. We also had approximately $866.9 million in fair value of unpledged securities AFS and HTM at June 30, 2023 which could be pledged for an estimated additional borrowing capacity at the FHLB and FRB of approximately $800.1 million.

Share Repurchase Plan

On December 20, 2022, the Board of Directors of the Company authorized the 2023 share repurchase plan. Under the terms of the 2023 share repurchase plan, the Company is authorized to purchase up to 1,100,000 shares, or approximately 5% of its then outstanding common stock. The repurchase plan is authorized to last through December 31, 2023. During the second quarter of 2023, the Company repurchased 200,000 shares of common stock, for an aggregate purchase price of $3.3 million.

Earnings Conference Call

Brad Kessel, President and CEO, Gavin Mohr, CFO and Joel Rahn, EVP – Commercial Banking will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, July 25, 2023.

To participate in the live conference call, please dial 1-833-470-1428 (Access Code # 245095). Also, the conference call will be accessible through an audio webcast with user-controlled slides via the following site/URL: https://events.q4inc.com/attendee/289851319.

A playback of the call can be accessed by dialing 1-866-813-9403 (Access Code # 212125). The replay will be available through August 1, 2023.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $5.1 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, consumer banking, 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 presentation contains forward-looking statements, which are any statements or information that are not historical facts. These forward-looking statements include statements about our anticipated future revenue and expenses and our future plans and prospects.

Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. For example, deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding to us, lead to a tightening of credit, and increase stock price volatility. Our results could also be adversely affected by changes in interest rates; increases in unemployment rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of our investment securities; legal and regulatory developments; changes in customer behavior and preferences; breaches in data security; and management’s ability to effectively manage the multitude of risks facing our business. Key risk factors that could affect our future results are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2022 and the other reports we file with the SEC, including under the heading “Risk Factors.” Investors should not place undue reliance on forward-looking statements as a prediction of our future results.

Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.

(1) Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%.

(2) June 30, 2023 are Preliminary.
 

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.

(1) Annualized.

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.