Attached files
| file | filename |
|---|---|
| EX-99.3 - EXHIBIT 99.3 - INDEPENDENT BANK CORP /MI/ | ex99_3.htm |
| EX-99.2 - EXHIBIT 99.2 - INDEPENDENT BANK CORP /MI/ | ex99_2.htm |
| 8-K - 8-K - INDEPENDENT BANK CORP /MI/ | form8k.htm |
Exhibit 99.1
News Release
Independent Bank Corporation
4200 East Beltline
Grand Rapids, MI 49525
616.527.5820
|
For Release:
|
Immediately
|
| Contact: |
William B. Kessel, President and CEO, 616.447.3933
Robert N. Shuster, Chief Financial Officer, 616.522.1765
|
INDEPENDENT BANK CORPORATION REPORTS
2018 FOURTH QUARTER AND FULL YEAR RESULTS
GRAND RAPIDS, Mich., Jan. 29, 2019 - 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.
|
1
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.
2
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.
3
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.
4
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.
5
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
|
||||
6
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
|
||||||||||
7
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
|
December 31,
2018 |
September 30,
2018 |
June 30,
2018 |
March 31,
2018 |
December 31,
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.
|
8
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
December 31,
|
Twelve Months Ended
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.
|
9
Reconciliation of Non-GAAP Financial Measures (continued)
Independent Bank Corporation
Tangible Common Equity Ratio
|
December 31,
2018
|
September 30,
2018
|
June 30,
2018
|
March 31,
2017
|
December 31,
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.
10