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CST: 18/06/2019 14:38:23   

Independent Bank Corporation Reports 2019 First Quarter Results

57 Days ago

GRAND RAPIDS, Mich., April 22, 2019 (GLOBE NEWSWIRE) -- Independent Bank Corporation (NASDAQ: IBCP) reported first quarter 2019 net income of $9.4 million, or $0.39 per diluted share, versus net income of $9.2 million, or $0.42 per diluted share, in the prior-year period. 

Significant items impacting comparable first quarter 2019 and 2018 results include the following:

  • Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Change”) of a negative $2.2 million ($0.07 per diluted share, after taxes) and a positive $1.5 million ($0.05 per diluted share, after taxes) for the first quarters of 2019 and 2018, respectively.
  • The acquisition of TCSB Bancorp, Inc. (“TCSB”), and its subsidiary, Traverse City State Bank, on Apr. 1, 2018 (referred to as the “Merger” or “TCSB Acquisition”) and the associated data processing systems conversions in June 2018.  The total assets, loans and deposits acquired in the Merger were approximately $343.5 million, $295.8 million (including $1.3 million of loans held for sale) and $287.7 million, respectively.

First quarter 2019 highlights include:

  • Return on average assets and return on average equity of 1.13% and 11.14%, respectively.  These ratios increase to 1.34% and 13.20%, respectively, when excluding the after tax impact of the MSR Change.
  • A year-over-year increase in net interest income of $6.3 million, or 26.3%;
  • A year-over-year increase in net gains on mortgage loans of $1.0 million, or 40.5%;
  • Net growth in total portfolio loans of $36.3 million, or 5.7% annualized; and
  • Net growth in total deposits, excluding brokered deposits, of $79.7 million, or 12.2% annualized.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “We are pleased to report a solid start to 2019.  When excluding the after tax impact of the MSR Change, net income and diluted earnings per share increased by 38.9% and 26.0%, respectively, in 2019 as compared to 2018.  We achieved strong growth in both loans and deposits.  As we look ahead to the remainder of 2019, we continue to be focused on building shareholder value and positioning the Company for long-term success.”

Operating Results

The Company’s net interest income totaled $30.2 million during the first quarter of 2019, an increase of $6.3 million, or 26.3%, from the year-ago period, and a decrease of $0.4 million, or 1.4% from the fourth quarter of 2018.  The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.88% during the first quarter of 2019 compared to 3.71% in the year ago period, and 3.93% in the fourth quarter of 2018.  The year-over-year quarterly increase in net interest income is due to increases in both the net interest margin and in average interest-earning assets.  Total average interest-earning assets were $3.15 billion in the first quarter of 2019 compared to $2.61 billion in the year ago quarter and $3.12 billion in the fourth quarter of 2018.

Non-interest income totaled $10.0 million and $11.7 million in the first quarters of 2019 and 2018, respectively.  This decrease is primarily due to declines in service charges on deposits and mortgage loan servicing income. 

Gains on mortgage loans totaled $3.6 million and $2.6 million in the first quarters of 2019 and 2018, respectively.  An increase in mortgage loan sales volume was partially offset by compression in the profit margin.  Mortgage loan origination volume declined 13.3% to $137.8 million in the first quarter of 2019 compared to the year ago period. 

Mortgage loan servicing generated a loss of $1.2 million and income of $2.2 million in the first quarters of 2019 and 2018, respectively.  This activity is summarized in the following table: 

    Three Months Ended
    03/31/2019 03/31/2018
Mortgage loan servicing:   (Dollars in thousands)
  Revenue, net $     1,476   $     1,192  
  Fair value change due to price     (2,203 )     1,458   
  Fair value change due to pay-downs     (488 )     (429 )
Total $   (1,215 ) $     2,221  

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 2019.  This decline increased projected prepayment rates for mortgage loans serviced for others, leading to a decrease in fair value due to price.

Non-interest expense totaled $28.0 million in the first quarter of 2019, compared to $24.1 million in the year-ago period.  Several categories of non-interest expense increased as a result of the Merger.  In addition, the Company incurred increases in compensation due to market rate driven increases, particularly in hourly wages, and in health care costs due to increased claims. 

The Company recorded an income tax expense of $2.2 million and $2.0 million in the first quarters of 2019 and 2018, respectively.  Income tax expense represented 18.8% and 18.2% of pre-tax earnings in the first quarters of 2019 and 2018, respectively.

Asset Quality

Commenting on asset quality, President and CEO Kessel added:  “Non-performing loans and assets remain at low levels.  In addition, thirty- to eighty-nine day delinquency rates at Mar. 31, 2019 were 0.003% for commercial loans and 0.39% for mortgage and consumer loans.  These early stage delinquency rates continue to be well-managed.”

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

Loan Type   3/31/2019 12/31/2018 3/31/2018
  (Dollars in Thousands)
Commercial $   1,705   $ 2,220   $   439  
Consumer/installment   1,028     781     605  
Mortgage   6,116     6,033     5,585  
  Total $   8,849   $ 9,034   $   6,629  
Ratio of non-performing loans to total portfolio loans   0.34 %   0.35 %   0.32 %
Ratio of non-performing assets to total assets   0.30 %   0.31 %   0.30 %
Ratio of the allowance for loan losses to non-performing loans   285.39 %     275.49 %   348.03 %
  1. Excludes loans that are classified as “troubled debt restructured” that are still performing.

Non-performing loans decreased by $0.2 million since year-end 2018 due to a decline in non-performing commercial loans.  The decrease in non-performing commercial loans primarily reflects loan charge-offs, pay-offs and negotiated transactions.  Other real estate and repossessed assets totaled $1.3 million at both Mar. 31, 2019 and at Dec. 31, 2018.

The provision for loan losses was an expense of $0.7 million and $0.3 million in the first quarters of 2019 and 2018, 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 mix, levels of non-performing and classified loans and loan net charge-offs.  The Company recorded loan net charge-offs of $0.3 million in the first quarter of 2019 compared to loan net recoveries of $0.2 million in the first quarter of 2018.  At Mar. 31, 2019, the allowance for loan losses totaled $25.3 million, or 0.96% of portfolio loans, compared to $24.9 million, or 0.96% of portfolio loans, at Dec. 31, 2018.  Excluding the remaining TCSB acquired loan balances, the allowance for loan losses was equal to 1.05% and 1.06% of portfolio loans at Mar. 31, 2019 and Dec. 31, 2018, respectively.

Balance Sheet, Liquidity and Capital

Total assets were $3.38 billion at Mar. 31, 2019, an increase of $30.3 million from Dec. 31, 2018.  Loans, excluding loans held for sale, were $2.62 billion at Mar. 31, 2019, compared to $2.58 billion at Dec. 31, 2018.  Deposits totaled $2.93 billion at Mar. 31, 2019, an increase of $20.8 million from Dec. 31, 2018.  The increase in deposits is primarily due to growth in savings and interest-bearing checking account balances and in reciprocal deposits. 

Cash and cash equivalents totaled $71.6 million at Mar. 31, 2019, versus $70.2 million at Dec. 31, 2018. Securities available for sale totaled $461.5 million at Mar. 31, 2019, versus $427.9 million at Dec. 31, 2018. 

Total shareholders’ equity was $344.7 million at Mar. 31, 2019, or 10.19% of total assets.  Tangible common equity totaled $310.3 million at Mar. 31, 2019, or $13.17 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
3/31/2019 12/31/2018 Well
Capitalized
Minimum
 

Tier 1 capital to average total assets
 

9.46


%
 

  9.44


%
 

5.00


%
Tier 1 common equity  to risk-weighted assets 11.94 % 11.94 % 6.50 %
Tier 1 capital to risk-weighted assets 11.94 % 11.94 % 8.00 %
Total capital to risk-weighted assets 12.96 % 12.94 % 10.00 %

Share Repurchase Plan

As previously announced, on Dec. 18, 2018, the Board of Directors of the Company authorized a share repurchase plan.  Under the terms of the share repurchase plan, the Company is authorized to buy back up to 5% of its outstanding common stock.    The repurchase plan is authorized to last through Dec. 31, 2019.  Thus far in 2019, the Company has repurchased 115,787 shares at a weighted average price of $21.85 per share.

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 Monday, Apr. 22, 2019.

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/ibcp190422.html.

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10129490). The replay will be available through Apr. 29, 2019.

Annual Shareholders Meeting
The Company’s 2019 Annual Meeting of Shareholders is being held at 3:00 pm ET on Tuesday, Apr. 23, 2019.  This meeting will be held at the Company’s headquarters – 4200 East Beltline, Grand Rapids, MI 49525.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $3.4 billion.  Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a branch network across Michigan's Lower Peninsula through one state-chartered bank subsidiary.  This subsidiary (Independent Bank) provides a full range of financial services, including commercial banking, mortgage lending, investments and insurance.  Independent Bank Corporation is committed to providing exceptional personal service and value to its customers, stockholders and the communities it serves. 

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

Forward-Looking Statements

This 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, 2018 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  
     March 31,    December 31,  
      2019       2018    
    (unaudited)  
    (In thousands, except share  
    amounts)  
Assets  
Cash and due from banks    $   33,247     $   23,350    
Interest bearing deposits        38,376         46,894    
  Cash and Cash Equivalents       71,623         70,244    
Interest bearing deposits - time       496         595    
Equity securities at fair value       -         393    
Securities available for sale        461,531         427,926    
Federal Home Loan Bank and Federal Reserve Bank stock, at cost        18,359         18,359    
Loans held for sale, carried at fair value        43,098         44,753    
Loans held for sale, carried at lower of cost or fair value       -          41,471    
Loans          
  Commercial        1,168,404         1,144,481    
  Mortgage        1,043,745         1,042,890    
  Installment        406,646         395,149    
  Total Loans        2,618,795         2,582,520    
  Allowance for loan losses        (25,254 )       (24,888 )  
  Net Loans        2,593,541         2,557,632    
Other real estate and repossessed assets       1,338         1,299    
Property and equipment, net        37,985         38,777    
Bank-owned life insurance        55,310         55,068    
Deferred tax assets, net       2,866         5,779    
Capitalized mortgage loan servicing rights       19,909         21,400    
Other intangibles        6,143         6,415    
Goodwill       28,300         28,300    
Accrued income and other assets        43,107         34,870    
  Total Assets    $   3,383,606     $   3,353,281    
           
Liabilities and Shareholders' Equity  
Deposits          
  Non-interest bearing    $   858,261     $   879,549    
  Savings and interest-bearing checking       1,207,965         1,194,865    
  Reciprocal       267,178         182,072    
  Time       388,729         385,981    
  Brokered time       212,092         270,961    
  Total Deposits        2,934,225         2,913,428    
Other borrowings        25,714         25,700    
Subordinated debentures        39,405         39,388    
Accrued expenses and other liabilities        39,536         35,771    
  Total Liabilities        3,038,880         3,014,287    
           
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:           
  23,560,179 shares at March 31, 2019 and 23,579,725 shares at December 31, 2018       374,678         377,372    
  Accumulated deficit       (23,135 )       (28,270 )  
  Accumulated other comprehensive loss       (6,817 )       (10,108 )  
  Total Shareholders’ Equity        344,726         338,994    
  Total Liabilities and Shareholders’ Equity    $   3,383,606     $   3,353,281    
           
   

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
               
    Three Months Ended  
    March 31,   December 31,   March 31,  
      2019       2018       2018    
    (unaudited)
Interest Income   (In thousands, except per share amounts)
  Interest and fees on loans    $   32,681     $   32,838     $   23,353    
  Interest on securities               
  Taxable        3,006         2,782       2,635    
  Tax-exempt        374         408       479    
  Other investments        575         393       330    
  Total Interest Income        36,636       36,421       26,797    
Interest Expense              
  Deposits        5,681         5,006       2,287    
  Other borrowings and subordinated debentures       712         746       574    
  Total Interest Expense        6,393       5,752       2,861    
  Net Interest Income        30,243       30,669       23,936    
Provision for loan losses        664       591       315    
  Net Interest Income After Provision for Loan Losses        29,579       30,078       23,621    
Non-interest Income              
  Service charges on deposit accounts        2,640         3,092         2,905    
  Interchange income        2,355         2,669         2,246    
  Net gains (losses) on assets              
  Mortgage loans        3,611         2,026         2,571    
  Securities        304         209         (173 )  
  Mortgage loan servicing, net        (1,215 )       (1,511 )       2,221    
  Other       2,264         2,466         1,943    
  Total Non-interest Income      9,959       8,951       11,713    
Non-interest Expense              
  Compensation and employee benefits        16,351         15,572       14,468    
  Occupancy, net        2,505         2,245       2,264    
  Data processing       2,144         2,082       1,878    
  Furniture, fixtures and equipment        1,029         1,051       967    
  Communications       769         737       680    
  Interchange expense       688         728       598    
  Advertising       672         577       441    
  Loan and collection       634         782       677    
  Legal and professional       369         528       378    
  FDIC deposit insurance       368         331       230    
  Net (gains) losses on other real estate and repossessed assets       119         (53 )     (290 )  
  Credit card and bank service fees       103         104       96    
  Merger related expenses       -         111         174    
  Other       2,239         2,030       1,574    
  Total Non-interest Expense        27,990       26,825       24,135    
  Income Before Income Tax       11,548       12,204       11,199    
Income tax expense        2,167       2,268       2,038    
  Net Income   $   9,381     $   9,936     $   9,161    
Net Income Per Common Share              
  Basic   $   0.40     $   0.41     $   0.43    
  Diluted   $   0.39     $   0.41     $   0.42    
               

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES  
Selected Financial Data  
                       
  March 31,   December 31,   September 30,   June 30,   March 31,    
    2019     2018     2018       2018     2018    
  (unaudited)    
  (Dollars in thousands except per share data)  
Three Months Ended                      
  Net interest income $   30,243   $   30,669   $   29,697     $   28,980   $   23,936    
  Provision for loan losses     664       591       (53 )       650       315    
  Non-interest income     9,959       8,951       11,836         12,315       11,713    
  Non-interest expense     27,990       26,825       26,740         29,761       24,135    
  Income before income tax     11,548       12,204       14,846         10,884       11,199    
  Income tax expense     2,167       2,268       2,921         2,067       2,038    
  Net income  $   9,381   $   9,936   $   11,925     $   8,817   $   9,161    
                       
  Basic earnings per share $   0.40   $   0.41   $   0.49     $   0.37   $   0.43    
  Diluted earnings per share     0.39       0.41       0.49         0.36       0.42    
  Cash dividend per share     0.18       0.15       0.15         0.15       0.15    
                       
  Average shares outstanding     23,588,313       23,988,810       24,148,768         24,109,322       21,364,708    
  Average diluted shares outstanding     23,884,744       24,339,782       24,514,814         24,509,963       21,674,375    
                       
  Performance Ratios                      
  Return on average assets     1.13 %     1.18 %     1.46   %     1.12 %     1.34 %  
  Return on average common equity     11.14       11.43       13.83         10.57       14.04    
  Efficiency ratio (1)     69.27       67.11       63.63         71.14       66.72    
                       
  As a Percent of Average Interest-Earning Assets (1)                    
  Interest income     4.70 %     4.66 %     4.53   %     4.49 %     4.15 %  
  Interest expense     0.82       0.73       0.62         0.56       0.44    
  Net interest income     3.88       3.93       3.91         3.93       3.71    
                       
  Average Balances                      
  Loans $   2,621,871   $   2,627,614   $   2,550,302     $   2,449,056   $   2,062,847    
  Securities available for sale     446,734       433,903       442,949         470,427       500,599    
  Total earning assets     3,152,177       3,121,640       3,038,221         2,963,982       2,611,890    
  Total assets     3,357,003       3,327,002       3,247,603         3,168,196       2,776,986    
  Deposits     2,909,096       2,873,889       2,789,969         2,701,362       2,417,906    
  Interest bearing liabilities     2,115,549       2,058,720       1,986,905         1,946,287       1,724,153    
  Shareholders' equity     341,592       344,779       341,998         334,626       264,584    
                       
End of Period                      
  Capital                      
  Tangible common equity ratio     9.26 %     9.17 %     9.51   %     9.41 %     9.54 %
  Average equity to average assets     10.18       10.36       10.53         10.56       9.53    
  Tangible common equity per share                       
  of common stock $   13.17   $   12.90   $   12.84     $   12.47   $   12.46    
  Total shares outstanding     23,560,179       23,579,725       24,150,341         24,143,044       21,374,816    
                       
  Selected Balances                      
  Loans $   2,618,795   $   2,582,520   $   2,562,578     $   2,467,317   $   2,071,435    
  Securities available for sale     461,531       427,926       436,957         450,593       489,119    
  Total earning assets     3,180,655       3,162,911       3,078,083         3,023,454       2,625,534    
  Total assets     3,383,606       3,353,281       3,297,124         3,234,522       2,793,119    
  Deposits     2,934,225       2,913,428       2,798,643         2,780,516       2,430,401    
  Interest bearing liabilities     2,141,083       2,098,967       2,036,770         1,988,495       1,719,771    
  Shareholders' equity     344,726       338,994       345,204         337,083       267,917    
                       
(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  
  March 31,  
    2019       2018    
  (Dollars in thousands)  
  Net Interest Margin, Fully Taxable          
  Equivalent ("FTE")          
         
Net interest income $   30,243     $   23,936    
  Add:  taxable equivalent adjustment      117         128    
Net interest income - taxable equivalent $   30,360     $   24,064    
Net interest margin (GAAP) (1)   3.86 %     3.69 %  
Net interest margin (FTE) (1)   3.88 %     3.71 %  
 
(1) Annualized.  

 

   
Tangible Common Equity Ratio                    
  March 31,   December 31,   September 30,   June 30,   March 31,  
    2019       2018       2018       2018       2018    
  (Dollars in thousands)  
Common shareholders' equity $   344,726     $   338,994     $   345,204     $   337,083     $   267,917    
Less:                    
  Goodwill     28,300         28,300         28,300         29,012         -    
  Other intangibles     6,143       6,415       6,709       7,004       1,500    
Tangible common equity $   310,283     $   304,279     $   310,195     $   301,067     $   266,417    
                     
Total assets $   3,383,606     $   3,353,281     $   3,297,124     $   3,234,522     $   2,793,119    
Less:                    
  Goodwill     28,300         28,300         28,300         29,012         -     
  Other intangibles     6,143         6,415         6,709         7,004         1,500    
Tangible assets $   3,349,163     $   3,318,566     $   3,262,115     $   3,198,506     $   2,791,619    
                     
Common equity ratio   10.19 %     10.11 %     10.47 %     10.42 %     9.59 %  
Tangible common equity ratio   9.26 %     9.17 %     9.51 %     9.41 %     9.54 %  
                     
  Tangible Common Equity per Share of Common Stock:    
 
Common shareholders' equity $   344,726     $   338,994     $   345,204     $   337,083     $   267,917    
Tangible common equity $   310,283     $   304,279     $   310,195     $   301,067     $   266,417    
Shares of common stock  
  outstanding (in thousands)   23,560       23,580       24,150       24,143       21,375    
 
Common shareholders' equity per share  
  of common stock $   14.63     $   14.38     $   14.29     $   13.96     $   12.53    
Tangible common equity per share   
  of common stock $   13.17     $   12.90     $   12.84     $   12.47     $   12.46    
 


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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