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Independent Bank Corporation Reports 2018 Fourth Quarter and Full Year Results

113 Days ago

GRAND RAPIDS, Mich., Jan. 29, 2019 (GLOBE NEWSWIRE) -- Independent Bank Corporation (NASDAQ: IBCP) reported fourth quarter 2018 net income of $9.9 million, or $0.41 per diluted share, versus net income of $1.7 million, or $0.08 per diluted share, in the prior-year period.  For the year ended Dec. 31, 2018, the Company reported net income of $39.8 million, or $1.68 per diluted share.  This compares to net income of $20.5 million, or $0.95 per diluted share, in 2017.  The increase in fourth quarter earnings as compared to 2017, primarily reflects an increase in net interest income and a decrease in income tax expense that were partially offset by a decrease in non-interest income and by increases in the provision for loan losses and in non-interest expense. The increase in full year 2018 earnings as compared to 2017, primarily reflects increases in net interest income and in non-interest income and a decrease in income tax expense that were partially offset by increases in the provision for loan losses and in non-interest expense.

Significant items impacting comparable fourth quarter and full year 2018 and 2017 results include the following:

  • 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.
  • Merger related expenses of $0.1 million ($0.004 per diluted share, after taxes) and $3.5 million ($0.115 per diluted share, after taxes) for the fourth quarter and year ended Dec. 31, 2018, respectively, and $0.3 million ($0.009 per diluted share, after taxes) for both the fourth quarter and year ended Dec. 31, 2017.
  • A loss on mortgage loans of $0.25 million ($0.008 per diluted share, after taxes) in the fourth quarter of 2018 on the pending sale of approximately $41.5 million of portfolio mortgage loans.  These loans were classified as held for sale at Dec. 31, 2018 and carried at the lower of cost or fair value.  This sale is expected to close on Jan. 31, 2019.
  • Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Change”) of a negative $2.4 million ($0.078 per diluted share, after taxes) and a positive $0.2 million ($0.006 per diluted share, after taxes) for the fourth quarter and full year of 2018, respectively, as compared to a positive change of $0.4 million ($0.011 per diluted share, after taxes) and a negative change $0.7 million ($0.022 per diluted share, after taxes) for the fourth quarter and full year of 2017, respectively.
  • The passage of the "Tax Cuts and Jobs Act" in the fourth quarter of 2017, which, among other things, reduced the federal corporate income tax rate to 21% (from 35%) effective January 1, 2018.  Further, as a result of the reduction in the federal corporate income tax rate, the Company’s deferred tax assets, net (“DTA”), were remeasured at Dec. 31, 2017.  This remeasurement resulted in a reduction of these net assets and a corresponding increase in income tax expense of $6.0 million (or $0.275 per diluted share), which was recorded in the fourth quarter of 2017.

The fourth quarter of 2018 was highlighted by:

  • 58.9% and 41.3% increases in net income and diluted earnings per share, respectively, over the year ago quarter, when excluding the impact of the MSR Change and the 2017 DTA remeasurement.
  • Growth in net interest income of $7.4 million, or 31.5%, compared to the year ago quarter.
  • Total portfolio loan growth of $19.9 million (representing a 3.1% annualized rate).
  • Payment of a 15 cent per share dividend on Nov. 15, 2018.

The Company’s full year 2018 results were highlighted by:

  • 56.6% and 42.7% increases in net income and diluted earnings per share, respectively, over the prior year, when excluding the impact of the MSR Change, Merger related expenses and the 2017 DTA remeasurement.
  • Growth in net interest income of $24.1 million, or 27.0%.
  • Total portfolio loan growth of $269.2 million, or 13.3%, excluding loans acquired in the Merger.
  • A $130.0 million, or 5.8%, increase in total deposits, excluding non-brokered deposits acquired in the Merger and brokered deposits.
  • A 4.5% increase in tangible book value per share to $12.90 at Dec. 31, 2018.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented:  “We are very pleased with our fourth quarter and full year 2018 results. For the fourth quarter of 2018, our return on average assets and return on average equity were 1.18% and 11.43%, respectively.  If you exclude the after tax impact of the negative MSR Change, these ratios improve to 1.41% and 13.61%, respectively. For the full year of 2018, our return on average assets and return on average equity were 1.27% and 12.38%, respectively. The favorable impact of the TCSB Acquisition, combined with strong loan origination activity, led to meaningful loan growth and increased net interest income.  Net income and diluted earnings per share increased significantly in 2018 due to greater operating leverage and efficiency as well as a reduced corporate income tax rate. Reflecting our success and our optimism about the future, we recently announced a 20% increase in our quarterly common stock cash dividend to 18 cents per share, to be paid on Feb 15, 2019.”

Operating Results

The Company’s net interest income totaled $30.7 million during the fourth quarter of 2018, an increase of $7.4 million, or 31.5% from the year-ago period, and an increase of $1.0 million, or 3.3%, from the third quarter of 2018. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.93% during the fourth quarter of 2018, compared to 3.65% in the year-ago quarter and 3.91% in the third quarter of 2018. The year-over-year quarterly increase in net interest income is due to the increase in the net interest margin as well as an increase in average interest-earning assets.  Average interest-earning assets were $3.12 billion in the fourth quarter of 2018 compared to $2.57 billion in the year-ago quarter and $3.04 billion in the third quarter of 2018. Fourth quarter 2018 interest income on loans includes $0.42 million of accretion of the discount recorded on the TCSB loans acquired in the Merger.  The total discount initially recorded on the TCSB loans acquired in the Merger was $6.5 million (or approximately 2.2% of the total TCSB loans acquired in the Merger).  

For the full-year of 2018, net interest income totaled $113.3 million, an increase of $24.1 million, or 27.0% from 2017.  This increase is due to increases in the net interest margin and average interest-earning assets. The Company’s net interest margin for all of 2018 increased to 3.88% compared to 3.65% in 2017.  Full year 2018 interest income on loans includes $1.66 million of accretion of the discount recorded on the TCSB loans acquired in the Merger.  Average interest-earning assets totaled $2.94 billion in 2018 compared to $2.47 billion in 2017. 

Non-interest income totaled $9.0 million and $44.8 million, respectively, for the fourth quarter and full year of 2018, compared to $11.4 million and $42.5 million in the respective comparable year ago periods.  These variances were primarily due to changes in interchange income and in mortgage banking related revenues (net gains on mortgage loans and mortgage loan servicing, net), as described below.

The Company adopted Financial Accounting Standards Board Accounting Standards Update 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”) on Jan. 1, 2018, using the modified retrospective approach.  Although ASU 2014-09 did not have any impact on Jan. 1, 2018 shareholders’ equity or 2018 net income, it did result in some classification changes in non-interest income and non-interest expense as compared to the prior year period.  Specifically, in the fourth quarter and full year of 2018, interchange income and interchange expense each increased by $0.4 million and $1.5 million, respectively, due to classification changes under ASU 2014-09.   
                                                                                                                                
Net gains on mortgage loans were $2.0 million in the fourth quarter of 2018, compared to $2.9 million in the year-ago quarter.  For the full year of 2018, net gains on mortgage loans totaled $10.6 million compared to $11.8 million in 2017. An increase in mortgage loan sales volume in 2018 was more than offset by margin compression (due principally to competitive factors) and a loss recorded on a portfolio mortgage loan sale as described above.

Mortgage loan servicing generated a loss of $1.5 million and income of $1.0 million in the fourth quarters of 2018 and 2017, respectively. For all of 2018, mortgage loan servicing generated income of $3.2 million as compared to income of $1.6 million in 2017. This activity is summarized in the following table:

  Three Months Ended Year Ended
  12/31/2018   12/31/2017 12/31/2018   12/31/2017
Mortgage loan servicing: (Dollars in thousands)
Revenue, net $ 1,506     $ 1,138   $ 5,480     $ 4,391  
Fair value change due to price   (2,395 )     356     191       (719 )
Fair value change due to pay-downs   (622 )     (515 )   (2,514 )     (2,025 )
Total $ (1,511 )   $ 979   $ 3,157     $ 1,647  
 

Capitalized mortgage loan servicing rights totaled $21.4 million at Dec. 31, 2018 compared to $15.7 million at Dec. 31, 2017.  As of Dec. 31, 2018, the Company serviced approximately $2.33 billion in mortgage loans for others on which servicing rights have been capitalized.

Non-interest expenses totaled $26.8 million in the fourth quarter of 2018, compared to $23.1 million in the year-ago period.  For the full year of 2018, non-interest expenses totaled $107.5 million versus $92.1 million in 2017.  These year-over-year increases in non-interest expense are primarily due to the TCSB Acquisition (including the aforementioned Merger related expenses) as well as higher performance based compensation and health insurance costs. 

The Company recorded an income tax expense of $2.3 million and $9.3 million in the fourth quarter and full-year of 2018, respectively.  This compares to an income tax expense of $9.5 million and $18.0 million in the fourth quarter and full-year of 2017, respectively.  The decline in income tax expense is primarily due to a reduction in the statutory federal corporate income tax rate to 21% (from 35%) that became effective on Jan. 1, 2018, which was partially offset by an increase in income before income tax.  In addition, the fourth quarter and full year 2017 income tax expense was increased by $6.0 million due to the DTA remeasurement as described above.      

Asset Quality

Commenting on asset quality, President and CEO Kessel added:  “Non-performing loans and assets as well as loan net charge-offs remain at low levels.  In addition, thirty- to eighty-nine day delinquency rates at Dec. 31, 2018 were 0.03% for commercial loans and 0.29% 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 12/31/2018   12/31/2017   12/31/2016
  (Dollars in Thousands)
Commercial $ 2,220   $ 646   $ 5,163
Consumer/installment   781     543     907
Mortgage   6,033     6,995     7,294
Total $ 9,034   $ 8,184   $ 13,364
Ratio of non-performing loans to total portfolio loans   0.35%     0.41%     0.83%
Ratio of non-performing assets to total assets   0.31%     0.35%     0.72%
Ratio of the allowance for loan losses to non-performing loans   275.49%     275.99%     151.41%
 
(1)  Excludes loans that are classified as “troubled debt restructured” that are still performing.
 

Non-performing loans at Dec. 31, 2018 increased $0.85 million from Dec. 31, 2017.  This increase primarily reflects an increase in commercial non-performing loans.  Other real estate and repossessed assets totaled $1.3 million at Dec. 31, 2018, compared to $1.6 million at Dec. 31, 2017. 

The provision for loan losses was an expense of $0.6 million and $0.4 million in the fourth quarters of 2018 and 2017, respectively.  The provision for loan losses was an expense of $1.5 million and $1.2 million for all of 2018 and 2017, 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 $0.1 million and net recoveries of $0.7 million in the fourth quarters of 2018 and 2017, respectively.  For all of 2018 and 2017, the Company recorded loan net recoveries of $0.8 million and $1.2 million, respectively.  At Dec. 31, 2018, the allowance for loan losses totaled $24.9 million, or 0.96% of portfolio loans (1.06% when excluding the remaining TCSB acquired loan balances), compared to $22.6 million, or 1.12% of portfolio loans, at Dec. 31, 2017.

Balance Sheet, Liquidity and Capital

Total assets were $3.35 billion at Dec. 31, 2018, an increase of $563.9 million from Dec. 31, 2017, primarily reflecting the impact of the TCSB Acquisition as well as loan growth.  Loans, excluding loans held for sale, were $2.58 billion at Dec. 31, 2018, compared to $2.02 billion at Dec. 31, 2017. 

Deposits totaled $2.91 billion at Dec. 31, 2018, an increase of $512.9 million from Dec. 31, 2017.  The increase in deposits is primarily due to the TCSB Acquisition and growth in reciprocal deposits and brokered deposits. 

Cash and cash equivalents totaled $70.2 million at Dec. 31, 2018, versus $54.7 million at Dec. 31, 2017. Securities available for sale totaled $427.9 million at Dec. 31, 2018, compared to $522.9 million at Dec. 31, 2017.

In the second quarter of 2018, the Company recorded $29.0 million of goodwill, a core deposit intangible (“CDI”) of $5.8 million and discounts of $6.5 million, $0.4 million and $1.5 million on loans, time deposits and borrowings (including subordinated debentures), respectively, related to the Merger.  These adjustments reflected the preliminary valuation of the assets acquired and liabilities assumed in the Merger.  In the third quarter of 2018, goodwill was reduced by $0.7 million (to $28.3 million) related to the collection of a TCSB acquired loan that had been charged off in full prior to the Merger.  Because of the status of the collection activities related to this loan at the time of the Merger, the Company determined that this transaction was a measurement period adjustment and reduced goodwill accordingly.  The goodwill is being periodically tested for impairment, and the CDI is being amortized over a ten year period ($0.2 million and $0.6 million of amortization for this CDI was recorded in the fourth quarter and last nine months of 2018, respectively).  The discounts will be accreted based on the lives of the related assets or liabilities.

Total shareholders’ equity was $339.0 million at Dec. 31, 2018, or 10.11% of total assets.  Tangible common equity totaled $304.3 million at Dec. 31, 2018, or $12.90 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 12/31/2018   12/31/2017   Well Capitalized Minimum


Tier 1 capital to average total assets
9.44%   9.78%   5.00%
Tier 1 common equity  to risk-weighted assets 11.94%   12.95%   6.50%
Tier 1 capital to risk-weighted assets 11.94%   12.95%   8.00%
Total capital to risk-weighted assets 12.94%   14.10%   10.00%
           

Share Repurchase Plan

On Dec. 18, 2018, the Board of Directors of the Company authorized the 2019 share repurchase plan.  Under the terms of the 2019 share repurchase plan, the Company is authorized to buy back up to 5% of its outstanding common stock.    The repurchase plan is authorized to commence on Jan. 1, 2019 and last through Dec. 31, 2019.

During the fourth quarter of 2018, the Company repurchased 587,969 shares under its 2018 share repurchase plan (which expired on Dec. 31, 2018) at an average cost of $21.57 per share.

The Company intends to accomplish the 2019 repurchases through open market transactions, though the Company could execute repurchases through other means, such as privately negotiated transactions.  The timing and amount of any share repurchases will depend on a variety of factors, including, among others, securities law restrictions, the trading price of the Company's common stock, other regulatory requirements, potential alternative uses for capital, and the Company's financial performance. The repurchase program does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion. The Company expects to fund any repurchases from cash on hand.  Thus far in 2019 (through Jan. 25, 2019), the Company has repurchased 43,768 shares under its 2019 share repurchase plan at an average cost of $21.67 per share.

Earnings Conference Call

Brad Kessel, President and CEO, and Rob Shuster, CFO, will review the quarterly and full-year results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, Jan. 29, 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/ibcp190129.html.

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10127131). The replay will be available through Feb. 5, 2019.

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.

In addition, factors that may cause actual results to differ from expectations regarding the April 1, 2018 acquisition of TCSB Bancorp, Inc. include, but are not limited to, the reaction to the transaction of the companies’ customers, employees and counterparties; customer disintermediation; inflation; expected synergies, cost savings and other financial benefits of the transaction might not be realized within the expected timeframes or might be less than projected; credit and interest rate risks associated with the parties' respective businesses, customers, borrowings, repayment, investment, and deposit practices; general economic conditions, either nationally or in the market areas in which the parties operate or anticipate doing business, are less favorable than expected; new regulatory or legal requirements or obligations; and other risks.

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, 2017 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
    December 31,
    2018   2017
     
    (unaudited)
    (In thousands, except share amounts)
Assets
Cash and due from banks   $ 23,350     $ 36,994  
Interest bearing deposits     46,894       17,744  
Cash and Cash Equivalents     70,244       54,738  
Interest bearing deposits - time     595       2,739  
Equity securities at fair value     393       -  
Trading securities     -       455  
Securities available for sale     427,926       522,925  
Federal Home Loan Bank and Federal Reserve Bank stock, at cost     18,359       15,543  
Loans held for sale, carried at fair value     44,753       39,436  
Loans held for sale, carried at lower of cost or fair value     41,471       -  
Loans        
Commercial     1,144,481       853,260  
Mortgage     1,042,890       849,530  
Installment     395,149       316,027  
Total Loans     2,582,520       2,018,817  
Allowance for loan losses     (24,888 )     (22,587 )
Net Loans     2,557,632       1,996,230  
Other real estate and repossessed assets     1,299       1,643  
Property and equipment, net     38,777       39,149  
Bank-owned life insurance     55,068       54,572  
Deferred tax assets, net     5,779       15,089  
Capitalized mortgage loan servicing rights     21,400       15,699  
Other intangibles     6,415       1,586  
Goodwill     28,300       -  
Accrued income and other assets     34,870       29,551  
Total Assets   $ 3,353,281     $ 2,789,355  
         
Liabilities and Shareholders' Equity
Deposits        
Non-interest bearing   $ 879,549     $ 768,333  
Savings and interest-bearing checking     1,194,865       1,064,391  
Reciprocal     182,072       50,979  
Time     385,981       374,872  
Brokered time     270,961       141,959  
Total Deposits     2,913,428       2,400,534  
Other borrowings     25,700       54,600  
Subordinated debentures     39,388       35,569  
Accrued expenses and other liabilities     35,771       33,719  
Total Liabilities     3,014,287       2,524,422  
         
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:        
23,579,725 shares at December 31, 2018 and 21,333,869 shares at December 31, 2017     377,372       324,986  
Accumulated deficit     (28,270 )     (54,054 )
Accumulated other comprehensive loss     (10,108 )     (5,999 )
Total Shareholders’ Equity     338,994       264,933  
Total Liabilities and Shareholders’ Equity   $ 3,353,281     $ 2,789,355  
         

 

 
 
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
 
    Three Months Ended   Twelve Months Ended
    December 31,   September 30,   December 31,   December 31,
    2018   2018   2017   2018   2017
     
    (unaudited)
Interest Income   (In thousands, except per share amounts)
     
Interest and fees on loans   $ 32,838     $ 31,000     $ 22,643     $ 116,865     $ 84,281  
Interest on securities                    
Taxable     2,782       2,737       2,628       10,874       10,928  
Tax-exempt     408       412       522       1,743       2,000  
Other investments     393       303       233       1,291       1,100  
Total Interest Income     36,421       34,452       26,026       130,773       98,309  
Interest Expense                    
Deposits     5,006       3,976       2,021       14,478       6,775  
Other borrowings and subordinated debentures     746       779       689       3,013       2,348  
Total Interest Expense     5,752       4,755       2,710       17,491       9,123  
Net Interest Income     30,669       29,697       23,316       113,282       89,186  
Provision for loan losses     591       (53 )     393       1,503       1,199  
Net Interest Income After Provision for Loan Losses     30,078       29,750       22,923       111,779       87,987  
Non-interest Income                    
Service charges on deposit accounts     3,092       3,166       3,208       12,258       12,673  
Interchange income     2,669       2,486       2,154       9,905       8,023  
Net gains on assets                    
Mortgage loans     2,026       2,745       2,876       10,597       11,762  
Securities     209       93       198       138       260  
Mortgage loan servicing, net     (1,511 )     1,212       979       3,157       1,647  
Other     2,466       2,134       2,029       8,760       8,168  
Total Non-interest Income     8,951       11,836       11,444       44,815       42,533  
Non-interest Expense                    
Compensation and employee benefits     15,572       16,169       13,985       62,078       55,089  
Occupancy, net     2,245       2,233       2,070       8,912       8,102  
Data processing     2,082       2,051       1,987       8,262       7,657  
Furniture, fixtures and equipment     1,051       1,043       927       4,080       3,870  
Merger related expenses     111       98       274       3,465       284  
Communications     737       727       638       2,848       2,684  
Interchange expense     728       715       287       2,702       1,156  
Loan and collection     782       531       666       2,682       2,230  
Advertising     577       594       354       2,155       1,905  
Legal and professional     528       477       526       1,839       1,892  
FDIC deposit insurance     331       270       286       1,081       894  
Credit card and bank service fees     104       108       97       414       529  
Net gains on other real estate and repossessed assets     (53 )     (325 )     (738 )     (672 )     (606 )
Other     2,030       2,049       1,777       7,615       6,396  
Total Non-interest Expense     26,825       26,740       23,136       107,461       92,082  
Income Before Income Tax     12,204       14,846       11,231       49,133       38,438  
Income tax expense     2,268       2,921       9,520       9,294       17,963  
Net Income   $ 9,936     $ 11,925     $ 1,711     $ 39,839     $ 20,475  
Net Income Per Common Share                    
Basic   $ 0.41     $ 0.49     $ 0.08     $ 1.70     $ 0.96  
Diluted   $ 0.41     $ 0.49     $ 0.08     $ 1.68     $ 0.95  
                     

 

 
 
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
                           
  December 31,   September 30,   June 30,   March 31,     December 31,
  2018   2018   2018   2018     2017
     
   
   
  (unaudited)
  (Dollars in thousands except per share data)
Three Months Ended                          
Net interest income $ 30,669     $ 29,697     $ 28,980     $ 23,936     $ 23,316  
Provision for loan losses   591       (53 )     650       315       393  
Non-interest income   8,951       11,836       12,315       11,713       11,444  
Non-interest expense   26,825       26,740       29,761       24,135       23,136  
Income before income tax   12,204       14,846       10,884       11,199       11,231  
Income tax expense   2,268       2,921       2,067       2,038       9,520  
Net income $ 9,936     $ 11,925     $ 8,817     $ 9,161     $ 1,711  
                           
Basic earnings per share $ 0.41     $ 0.49     $ 0.37     $ 0.43     $ 0.08  
Diluted earnings per share   0.41       0.49       0.36       0.42       0.08  
Cash dividend per share   0.15       0.15       0.15       0.15       0.12  
                           
Average shares outstanding   23,988,810       24,148,768       24,109,322       21,364,708       21,332,053  
Average diluted shares outstanding   24,339,782       24,514,814       24,509,963       21,674,375       21,661,133  
                           
Performance Ratios                          
Return on average assets   1.18 %     1.46 %     1.12 %     1.34 %     0.25 %
Return on average common equity   11.43       13.83       10.57       14.04       2.51  
Efficiency ratio (1)   67.11       63.63       71.14       66.72       66.14  
                           
As a Percent of Average Interest-Earning Assets (1)                        
Interest income   4.66 %     4.53 %     4.49 %     4.15 %     4.07 %
Interest expense   0.73       0.62       0.56       0.44       0.42  
Net interest income   3.93       3.91       3.93       3.71       3.65  
                           
Average Balances                          
Loans $ 2,627,614     $ 2,550,302     $ 2,449,056     $ 2,062,847     $ 2,006,207  
Securities available for sale   433,903       442,949       470,427       500,599       532,202  
Total earning assets   3,121,640       3,038,221       2,963,982       2,611,890       2,574,779  
Total assets   3,327,002       3,247,603       3,168,196       2,776,986       2,742,761  
Deposits   2,873,889       2,789,969       2,701,362       2,417,906       2,340,593  
Interest bearing liabilities   2,058,720       1,986,905       1,946,287       1,724,153       1,680,917  
Shareholders' equity   344,779       341,998       334,626       264,584       270,099  
                           
End of Period                          
Capital                          
Tangible common equity ratio   9.17 %     9.51 %     9.41 %     9.54 %     9.45 %
Average equity to average assets   10.36       10.53       10.56       9.53       9.85  
Tangible common equity per share of common stock $ 12.90     $ 12.84     $ 12.47     $ 12.46     $ 12.34  
Total shares outstanding   23,579,725       24,150,341       24,143,044       21,374,816       21,333,869  
                           
Selected Balances                          
Loans $ 2,582,520     $ 2,562,578     $ 2,467,317     $ 2,071,435     $ 2,018,817  
Securities available for sale   427,926       436,957       450,593       489,119       522,925  
Total earning assets   3,162,911       3,078,083       3,023,454       2,625,534       2,617,204  
Total assets   3,353,281       3,297,124       3,234,522       2,793,119       2,789,355  
Deposits   2,913,428       2,798,643       2,780,516       2,430,401       2,400,534  
Interest bearing liabilities   2,098,967       2,036,770       1,988,495       1,719,771       1,722,370  
Shareholders' equity   338,994       345,204       337,083       267,917       264,933  
                           
(1)  Presented on a fully tax equivalent basis assuming a marginal tax rate of 21% in 2018 and 35% in 2017.        
         

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   Twelve Months Ended
  December 31,   December 31,
  2018   2017   2018   2017
   
  (Dollars in thousands)
  Net Interest Margin, Fully Taxable                
Equivalent ("FTE")                
               
Net interest income $ 30,669     $ 23,316     $ 113,282     $ 89,186  
Add:  taxable equivalent adjustment   126       286       510       1,123  
Net interest income - taxable equivalent $ 30,795     $ 23,602     $ 113,792     $ 90,309  
Net interest margin (GAAP) (1)   3.91 %     3.60 %     3.85 %     3.61 %
Net interest margin (FTE) (1)   3.93 %     3.65 %     3.88 %     3.65 %
 
         
           
Adjusted Net Income, Earnings Per Diluted Share,              
Return on Equity and Return on Assets              
               
Net Income $ 9,936     $ 1,711     $ 39,839     $ 20,475  
Deferred tax assets adjustment   -       5,965       -       5,965  
Adjusted net income $ 9,936     $ 7,676     $ 39,839     $ 26,440  
               
Average diluted shares outstanding   24,339,782       21,661,133       23,768,795       21,650,199  
Average total assets $ 3,327,002     $ 2,742,761     $ 3,131,936     $ 2,650,189  
Average shareholders' equity $ 344,779     $ 270,099     $ 321,772     $ 261,768  
               
Diluted earnings per share              
Reported $ 0.41     $ 0.08     $ 1.68     $ 0.95  
Adjusted $ 0.41     $ 0.35     $ 1.68     $ 1.22  
Return on average assets(1)              
Reported   1.18 %     0.25 %     1.27 %     0.77 %
Adjusted   1.18 %     1.11 %     1.27 %     1.00 %
Return on average common equity(1)              
Reported   11.43 %     2.51 %     12.38 %     7.82 %
Adjusted   11.43 %     11.28 %     12.38 %     10.10 %
__________  
(1) Annualized for three months ended December 31, 2018 and 2017.            

  

  Reconciliation of Non-GAAP Financial Measures (continued)            
  Independent Bank Corporation    
   
                   
  Tangible Common Equity Ratio                    
  December 31,   September 30,   June 30,   March 31,   December 31,
  2018   2018   2018   2017   2017
   
  (Dollars in thousands)
   
Common shareholders' equity $ 338,994     $ 345,204     $ 337,083     $ 267,917     $ 264,933  
Less:                  
Goodwill   28,300       28,300       29,012       -       -  
Other intangibles   6,415       6,709       7,004       1,500       1,586  
Tangible common equity $ 304,279     $ 310,195     $ 301,067     $ 266,417     $ 263,347  
                   
Total assets $ 3,353,281     $ 3,297,124     $ 3,234,522     $ 2,793,119     $ 2,789,355  
Less:                  
Goodwill   28,300       28,300       29,012       -       -  
Other intangibles   6,415       6,709       7,004       1,500       1,586  
Tangible assets $ 3,318,566     $ 3,262,115     $ 3,198,506     $ 2,791,619     $ 2,787,769  
                   
Common equity ratio   10.11 %     10.47 %     10.42 %     9.59 %     9.50 %
Tangible common equity ratio   9.17 %     9.51 %     9.41 %     9.54 %     9.45 %
                   
                   
  Tangible Common Equity per Share of Common Stock:    
 
Common shareholders' equity $ 338,994     $ 345,204     $ 337,083     $ 267,917     $ 264,933  
Tangible common equity $ 304,279     $ 310,195     $ 301,067     $ 266,417     $ 263,347  
Shares of common stock outstanding (in thousands)   23,580       24,150       24,143       21,375       21,334  
 
Common shareholders' equity per share of common stock $ 14.38     $ 14.29     $ 13.96     $ 12.53     $ 12.42  
Tangible common equity per share of common stock $ 12.90     $ 12.84     $ 12.47     $ 12.46     $ 12.34  
 

The tangible common equity ratio removes the effect of intangible assets from capital and total assets.  Tangible common equity per share of common stock removes the effect of 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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