Independent Bank Corporation Reports 2017 Third Quarter Results


GRAND RAPIDS, Mich., Oct. 26, 2017 (GLOBE NEWSWIRE) -- Independent Bank Corporation (NASDAQ:IBCP) reported third quarter 2017 net income of $6.9 million, or $0.32 per diluted share, versus net income of $6.4 million, or $0.30 per diluted share, in the prior-year period.  The increase in third quarter 2017 results as compared to 2016 primarily reflects an increase in net interest income that was partially offset by increases in the provision for loan losses and in non-interest and income tax expenses and a decrease in non-interest income.

For the nine months ended Sept. 30, 2017, the Company reported net income of $18.8 million, or $0.87 per diluted share, compared to net income of $16.9 million, or $0.78 per diluted share, in the prior-year period.  The increase in 2017 year-to-date results as compared to 2016 is primarily due to increases in net interest income and non-interest income that were partially offset by increases in the provision for loan losses as well as in non-interest and income tax expenses.

Third quarter 2017 highlights include:

  • A year-over-year increase in quarterly net interest income of $2.9 million, or 14.6%;
  • A year-over-year increase in quarterly net income and diluted earnings per share of 7.6% and 6.7%, respectively;
  • Continued improvement in asset quality metrics with a $0.4 million, or 3.2%, decline in non-performing assets;
  • Total portfolio loan net growth of $125.4 million, or 27.5% annualized;
  • A 2.0% increase in tangible book value per share to $12.47 at Sept. 30, 2017 from $12.22 at June 30, 2017; and
  • The payment of a ten cent per share dividend on common stock on Aug. 15, 2017.

The third quarter of 2017 included a $0.57 million ($0.02 per diluted share, after tax) decline in the fair value of capitalized mortgage loan servicing rights due to price.  The third quarter of 2016 included a $0.62 million ($0.02 per diluted share, after tax) recovery of previously recorded impairment charges on capitalized mortgage loan servicing rights.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “Excluding the after-tax, two cent per diluted share, charge related to a decline in price of our capitalized mortgage loan servicing rights, our  third quarter 2017 results met our expectations and included a provision for loan losses expense of $0.6 million.  Strong loan origination activity led to significant loan growth and increased net interest income. We were also pleased with the sequential quarterly growth in our net interest margin which rose to 3.66%.  Reflecting both these excellent operating results, as well as our strong capital position, we recently announced a 20% increase in the quarterly cash dividend on our common stock to 12 cents per share effective Nov. 15, 2017.  As we look ahead to the remainder of 2017 and beyond, we are focused on building on the momentum generated in the first nine months of 2017.”

Operating Results

The Company’s net interest income totaled $22.9 million during the third quarter of 2017, an increase of $2.9 million, or 14.6%, from the comparable year-ago period, and up $1.4 million, or 6.6%, from the second quarter of 2017.  The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.66% during the third quarter of 2017, compared to 3.51% in the year-ago period, and 3.60% in the second quarter of 2017.  The year-over-year quarterly increase in net interest income is due to increases in both average interest-earning assets and in the net interest margin.  Average interest-earning assets were $2.52 billion in the third quarter of 2017, compared to $2.29 billion in the year ago quarter and $2.42 billion in the second quarter of 2017. 

For the first nine months of 2017, net interest income totaled $65.9 million, an increase of $6.5 million, or 10.9%, from the comparable year ago period.  The Company’s net interest margin for the first nine months of 2017 was 3.65% compared to 3.55% in 2016.  The increase in net interest income for the first nine months of 2017 is due to increases in both average interest-earning assets and in the net interest margin.

Non-interest income totaled $10.3 million and $31.1 million, respectively, for the third quarter and first nine months of 2017, compared to $11.7 million and $29.1 million in the respective comparable year ago periods.  The year-over-year quarterly decrease was primarily due to a decline in net revenues from the Company’s mortgage banking activities (net gains on mortgage loans and net mortgage loan servicing income).  The year-to-date increase in 2017 compared to 2016 was primarily due to growth in revenues from the Company’s mortgage banking activities (net gains on mortgage loans and net mortgage loan servicing income). In addition, both service charges on deposit accounts and interchange income grew during the first nine months of 2017 compared to 2016.
                                                                                                                                 
Net gains on mortgage loans were $3.0 million in the third quarter of 2017, compared to $3.6 million in the year-ago quarter.  For the first nine months of 2017, net gains on mortgage loans totaled $8.9 million compared to $7.7 million in 2016.  Mortgage loan origination and sales volumes have increased in 2017 primarily due to the expansion of the Company’s mortgage banking operations (opening additional loan production offices) that principally occurred in the last quarter of 2016 and first quarter of 2017.  The quarterly comparative decline in net gains on mortgage loans reflects a lower loan sales margin due to competitive factors as well as fair value adjustments related to the mortgage loan pipeline (primarily mortgage loan origination commitments).

Mortgage loan servicing generated income of $0.001 million and $0.9 million in the third quarters of 2017 and 2016, respectively. For the first nine months of 2017, mortgage loan servicing generated income of $0.7 million as compared to a loss of $0.5 million in 2016. This activity is summarized in the following table:

   Three Months Ended  Nine Months Ended
   9/30/20179/30/20169/30/20179/30/2016
Mortgage loan servicing: (Dollars in thousands) 
  Revenue, net$    1,091 $    1,037 $    3,253 $    3,087 
  Fair value change due to price (572)   --  (1,075)   -- 
  Fair value change due to pay-downs (518)   --  (1,510)   -- 
  Amortization   --  (799)   --  (2,065)
  Impairment (charge) recovery   --    620    --  (1,476)
Total$    1 $    858 $    668 $  (454)
             

Effective on Jan. 1, 2017, the Company adopted the fair value accounting method for capitalized mortgage loan servicing rights.

Non-interest expenses totaled $22.6 million in the third quarter of 2017, compared to $22.5 million in the year-ago period.  For the first nine months of 2017, non-interest expenses totaled $68.9 million versus $65.5 million in 2016.  These year-over-year increases in non-interest expenses were primarily due to increases in compensation and employee benefits largely related to the aforementioned expansion of the Company’s mortgage banking operations.

The Company recorded an income tax expense of $3.2 million and $8.4 million in the third quarter and first nine months of 2017, respectively.  This compares to an income tax expense of $3.0 million and $7.5 million in the third quarter and first nine months of 2016, respectively.  The year-to-date 2016 income tax expense was reduced by a credit of approximately $0.3 million due to the adoption of ASU 2016-09 in the second quarter of that year.      

Asset Quality

Commenting on asset quality, President and CEO Kessel added: “We continue to make progress in further improving asset quality, as evidenced by declines in non-performing loans and assets.  In addition, thirty- to eighty-nine day delinquency rates at Sept. 30, 2017 were 0.06% for commercial loans and 0.48% 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  9/30/2017 12/31/2016 9/30/2016 
 (Dollars in thousands)
Commercial$  788  $  5,163  $  3,386 
Consumer/installment 525   907   732 
Mortgage 7,097   7,294   6,679 
Payment plan receivables --   --   4 
  Total$  8,410  $13,364  $10,801 
Ratio of non-performing loans to total portfolio loans 0.43%  0.83%  0.67%
Ratio of non-performing assets to total assets 0.38%  0.72%  0.62%
Ratio of the allowance for loan losses to non-performing loans 255.39%  151.41%  204.08%

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

Non-performing loans have declined $5.0 million, or 37.1%, from Dec. 31, 2016.  This decline primarily reflects the pay-off or liquidation of non-performing commercial loans.  Other real estate and repossessed assets totaled $2.2 million at Sept. 30, 2017, compared to $5.0 million at Dec. 31, 2016. 

The provision for loan losses was an expense of $0.6 million and a credit of $0.2 million in the third quarters of 2017 and 2016, respectively.  The provision for loan losses was an expense of $0.8 million and a credit of $1.4 million in the first nine months of 2017 and 2016, 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.  The Company recorded loan net recoveries of $0.3 million (0.07% annualized of average loans) and loan net charge-offs of $0.5 million (0.12% annualized of average loans) in the third quarters of 2017 and 2016, respectively.  For the first nine months of 2017 and 2016, the Company recorded loan net recoveries of $0.4 million (0.03% annualized of average loans) and $0.9 million (0.08% of average loans), respectively.  The year-to-date change in 2017 is due primarily to a decline in recoveries of previously charged-off commercial loans.  At Sept. 30, 2017, the allowance for loan losses totaled $21.5 million, or 1.11% of portfolio loans, compared to $20.2 million, or 1.26% of portfolio loans, at Dec. 31, 2016.

Balance Sheet, Liquidity and Capital

Total assets were $2.75 billion at Sept. 30, 2017, an increase of $204.5 million from Dec. 31, 2016.  Loans, excluding loans held for sale, were $1.94 billion at Sept. 30, 2017, compared to $1.61 billion at Dec. 31, 2016. 

Deposits totaled $2.34 billion at Sept. 30, 2017, an increase of $118.0 million from Dec. 31, 2016.  The increase in deposits is primarily due to growth in checking, savings and brokered deposit account balances that was partially offset by a decline in time deposits. 

Cash and cash equivalents totaled $47.6 million at Sept. 30, 2017, versus $83.2 million at Dec. 31, 2016. Securities available for sale totaled $548.9 million at Sept. 30, 2017, versus $610.6 million at Dec. 31, 2016.

Total shareholders’ equity was $267.7 million at Sept. 30, 2017, or 9.72% of total assets.  Tangible common equity totaled $266.0 million at Sept. 30, 2017, or $12.47 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
 

9/30/2017
 
12/31/2016
Well
Capitalized
Minimum
       
Tier 1 capital to average total assets 9.67% 9.90%5.00%
Tier 1 common equity to risk-weighted assets12.76%13.87%6.50%
Tier 1 capital to risk-weighted assets12.76%13.87%8.00%
Total capital to risk-weighted assets13.87%15.02%10.00%
       

Share Repurchase Plan

As previously announced, on Jan. 23, 2017, the Board of Directors of the Company authorized a share repurchase plan.  Under the terms of the 2017 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, 2017.  Thus far in 2017, the Company has not repurchased any shares.

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 Thursday, Oct. 26, 2017.

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:  http://services.choruscall.com/links/ibcp171026.html.

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10112463). The replay will be available through Nov. 2, 2017.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ:IBCP) is a Michigan-based bank holding company with total assets of approximately $2.8 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.

Any statements in this news release that are not historical facts are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Words such as “anticipates,” “believes,” “contemplates,” “feels,” “expects,” “estimates,” “seeks,” “strives,” “plans,” “intends,” “outlook,” “forecast,” “position,” “target,” “mission,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “opportunity,” “initiative,” “outcome,” “continue,” “remain,” “maintain,” “on course,” “trend,” “objective,” “looks forward” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, as they relate to Independent Bank Corporation or its management, are intended to identify forward-looking statements. These forward-looking statements are predicated on the beliefs and assumptions of Independent Bank Corporation's management based on information known to Independent Bank Corporation's management as of the date of this news release and do not purport to speak as of any other date. Forward looking statements may include descriptions of plans and objectives of Independent Bank Corporation's management for future or past operations, products or services, and forecasts of Independent Bank Corporation's revenue, earnings or other measures of economic performance, including statements about profitability, business lines and subsidiaries, and estimates of credit trends. Such statements reflect the view of Independent Bank Corporation's management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Independent Bank Corporation's actual results could differ materially from those discussed. 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. Independent Bank Corporation cautions that the foregoing list of factors is not exclusive. For discussion of factors that may cause actual results to differ from expectations, please refer to our filings with the Securities and Exchange Commission. In particular, please refer to “Item 1A. Risk Factors” in Independent Bank Corporation's Annual Report on Form 10-K for the year ended December 31, 2016. Forward-looking statements speak only as of the date they are made. Independent Bank Corporation does not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward looking statements are made. For any forward-looking statements made in this news release or in any documents, Independent Bank Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

  
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES 
Consolidated Statements of Financial Condition 
  September 30, December 31, 
   2017   2016  
  (unaudited) 
  (In thousands, except share 
  amounts) 
Assets 
Cash and due from banks  $  31,998  $  35,238  
Interest bearing deposits     15,605     47,956  
  Cash and Cash Equivalents    47,603     83,194  
Interest bearing deposits - time    3,489     5,591  
Trading securities    347     410  
Securities available for sale     548,865     610,616  
Federal Home Loan Bank and Federal Reserve Bank stock, at cost     15,543     15,543  
Loans held for sale, carried at fair value     47,611     35,946  
Payment plan receivables and other assets held for sale    -      33,360  
Loans     
  Commercial     837,250     804,017  
  Mortgage     781,346     538,615  
  Installment     318,498     265,616  
  Total Loans     1,937,094     1,608,248  
  Allowance for loan losses     (21,478)    (20,234) 
  Net Loans     1,915,616     1,588,014  
Other real estate and repossessed assets    2,150     5,004  
Property and equipment, net     38,774     40,175  
Bank-owned life insurance     54,286     54,033  
Deferred tax assets, net    22,433     32,818  
Capitalized mortgage loan servicing rights    14,675     13,671  
Other intangibles     1,673     1,932  
Accrued income and other assets     40,381     28,643  
  Total Assets  $  2,753,446  $  2,548,950  
      
Liabilities and Shareholders' Equity 
Deposits     
  Non-interest bearing  $  753,555  $  717,472  
  Savings and interest-bearing checking    1,040,974     1,015,724  
  Reciprocal    49,078     38,657  
  Time    412,601     453,866  
  Brokered time    87,553     -   
  Total Deposits     2,343,761     2,225,719  
Other borrowings     75,849     9,433  
Subordinated debentures     35,569     35,569  
Other liabilities held for sale    -      718  
Accrued expenses and other liabilities     30,557     28,531  
  Total Liabilities     2,485,736     2,299,970  
      
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:      
    21,332,317 shares at September 30, 2017 and 21,258,092 shares at December 31, 2016    324,607     323,745  
  Accumulated deficit    (53,240)    (65,657) 
  Accumulated other comprehensive loss    (3,657)    (9,108) 
  Total Shareholders’ Equity     267,710     248,980  
  Total Liabilities and Shareholders’ Equity  $  2,753,446  $  2,548,950  
      

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES 
Consolidated Statements of Operations 
            
  Three Months Ended Nine Months Ended 
  September 30, June 30, September 30, September 30, 
   2017  2017   2016   2017  2016  
  (unaudited) 
Interest Income (In thousands, except per share amounts) 
  Interest and fees on loans  $  21,831 $  19,949  $  18,597  $  61,638 $  55,361  
  Interest on securities            
  Taxable     2,765    2,781   2,537     8,300    7,261  
  Tax-exempt     512    511   330     1,478    860  
  Other investments     263    292   281     867    884  
  Total Interest Income     25,371  23,533   21,745     72,283  64,366  
Interest Expense           
  Deposits     1,833    1,478   1,254     4,754    3,520  
  Other borrowings     626    563   493     1,659    1,455  
  Total Interest Expense     2,459  2,041   1,747     6,413  4,975  
  Net Interest Income     22,912  21,492   19,998     65,870  59,391  
Provision for loan losses     582  583   (175)    806    (1,439) 
  Net Interest Income After Provision for Loan Losses     22,330  20,909   20,173     65,064  60,830  
Non-interest Income           
  Service charges on deposit accounts     3,281    3,175   3,281     9,465    9,164  
  Interchange income     1,942    2,005   1,943     5,869    5,797  
  Net gains (losses) on assets           
  Mortgage loans     2,971    3,344   3,556     8,886    7,727  
  Securities     69    (34)  (45)    62    302  
  Mortgage loan servicing, net     1    (158)  858     668    (454) 
  Other    2,040    2,114   2,115     6,139    6,561  
  Total Non-interest Income   10,304  10,446   11,708   31,089  29,097  
Non-Interest Expense           
  Compensation and employee benefits     13,577    13,380   13,031     41,104  36,912  
  Occupancy, net     1,970    1,920   1,919     6,032  5,982  
  Data processing    1,796    1,937   1,971     5,670  6,008  
  Furniture, fixtures and equipment     961    1,005   990     2,943  2,939  
  Communications    685    678   670     2,046  2,280  
  Loan and collection    481    670   568     1,564    1,964  
  Advertising    526    519   455     1,551    1,410  
  Legal and professional    550    389   420     1,376  1,178  
  Interchange expense    294    292   276     869  809  
  FDIC deposit insurance    208    202   187     608  852  
  Credit card and bank service fees    105    136   203     432  588  
  Net losses on other real estate and            
    repossessed assets    30    91   263     132  98  
  Other    1,433    1,542   1,576     4,619  4,449  
  Total Non-interest Expense     22,616  22,761   22,529     68,946  65,469  
  Income Before Income Tax    10,018  8,594   9,352     27,207  24,458  
Income tax expense     3,159  2,663   2,979     8,443    7,547  
  Net Income $  6,859 $  5,931  $  6,373  $  18,764 $  16,911  
Net Income Per Common Share           
  Basic $  0.32 $  0.28  $  0.30  $  0.88 $  0.79  
  Diluted $  0.32 $  0.27  $  0.30  $  0.87 $  0.78  
            

 

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES 
Selected Financial Data 
            
 September 30, June 30, March 31, December 31, September 30,  
  2017  2017  2017   2016  2016   
 (unaudited)  
 (Dollars in thousands except per share data) 
Three Months Ended           
  Net interest income$  22,912 $  21,492 $  21,466  $  20,250 $  19,998   
  Provision for loan losses   582    583    (359)    130    (175)  
  Non-interest income   10,304    10,446    10,339     13,201    11,708   
  Non-interest expense   22,616    22,761    23,569     24,878    22,529   
  Income before income tax   10,018    8,594    8,595     8,443    9,352   
  Income tax expense   3,159    2,663    2,621     2,588    2,979   
  Net income $  6,859 $  5,931 $  5,974  $  5,855 $  6,373   
            
  Basic earnings per share$  0.32 $  0.28 $  0.28  $  0.28 $  0.30   
  Diluted earnings per share   0.32    0.27    0.28     0.27    0.30   
  Cash dividend per share   0.10    0.10    0.10     0.10    0.08   
            
  Average shares outstanding   21,334,247    21,331,363    21,308,396     21,248,343    21,232,252   
  Average diluted shares outstanding   21,651,963    21,646,941    21,638,768     21,587,283    21,548,647   
            
  Performance Ratios           
  Return on average assets   1.01%   0.92%   0.95 %   0.91%   1.02 % 
  Return on average common equity   10.27    9.15    9.63     9.29    10.20   
  Efficiency ratio (1)   67.38    70.29    73.29     74.19    70.25   
            
  As a Percent of Average Interest-Earning Assets (1)          
  Interest income   4.05%   3.94%   4.02 %   3.77%   3.81 % 
  Interest expense   0.39    0.34    0.33     0.32    0.30   
  Net interest income   3.66    3.60    3.69     3.45    3.51   
            
  Average Balances           
  Loans$  1,911,635 $  1,782,953 $  1,690,003  $  1,655,222 $  1,616,681   
  Securities available for sale   565,546    592,594    599,451     605,781    593,013   
  Total earning assets   2,522,060    2,423,283    2,371,705     2,365,517    2,294,644   
  Total assets   2,697,362    2,598,605    2,559,487     2,549,108    2,482,002   
  Deposits   2,315,806    2,239,605    2,233,853     2,223,446    2,158,987   
  Interest bearing liabilities   1,664,734    1,595,984    1,574,306     1,547,856    1,499,932   
  Shareholders' equity   265,074    260,095    251,566     250,735    248,678   
            
End of Period           
  Capital           
  Tangible common equity ratio   9.67%   9.79%   9.78 %   9.70%   9.81 %
  Average equity to average assets   9.83    10.01    9.83     9.84    10.02   
  Tangible book value per share$  12.47 $  12.22 $  11.89  $  11.62 $  11.72   
  Total shares outstanding   21,332,317    21,334,740    21,327,796     21,258,092    21,227,974   
            
  Selected Balances           
  Loans$  1,937,094 $  1,811,677 $  1,670,747  $  1,608,248 $  1,607,354   
  Securities available for sale   548,865    583,725    608,964     610,616    603,112   
  Total earning assets   2,568,554    2,486,518    2,411,369     2,355,703    2,347,072   
  Total assets   2,753,446    2,665,367    2,596,482     2,548,950    2,538,319   
  Deposits   2,343,761    2,246,219    2,263,059     2,225,719    2,206,960   
  Interest bearing liabilities   1,701,624    1,646,599    1,597,417     1,553,249    1,528,890   
  Shareholders' equity   267,710    262,453    255,475     248,980    250,902   
            
(1)  Presented on a fully tax equivalent basis assuming a marginal tax rate of 35%      
       


Contact:
                

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