Third Quarter Highlights
Highlights for the third quarter of 2023 include:
- An increase in net interest income of $1.1 million (2.8%) over the second quarter of 2023;
- Net growth in core deposits of $112.6 million (or 10.5% annualized) from June 30, 2023;
- Net growth in loans of $110.4 million (or 12.1% annualized) from June 30, 2023; and
- The payment of a 23 cent per share dividend on common stock on August 14, 2023.
GRAND RAPIDS, Mich., Oct. 24, 2023 (GLOBE NEWSWIRE) -- Independent Bank Corporation ( IBCP) reported third quarter 2023 net income of $17.5 million, or $0.83 per diluted share, versus net income of $17.3 million, or $0.81 per diluted share, in the prior-year period. For the nine months ended September 30, 2023, the Company reported net income of $45.3 million, or $2.14 per diluted share, compared to net income of $48.3 million, or $2.27 per diluted share, in the prior year period.
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “Our team continued its positive momentum in the third quarter, achieving strong financial results with solid balance sheet growth, a stable net interest margin, disciplined expense management, and healthy asset quality. Capitalizing on the current operating environment, we gained new banking relationships with clients who appreciate our value proposition as a commercial bank with robust treasury management solutions, industry expertise, and client centric service. This success led to double-digit annualized growth in loans and deposits. Despite expecting lower loan growth in the fourth quarter due to seasonality, we have a solid pipeline of high-quality relationship opportunities.”
Significant items impacting comparable third quarter 2023 and 2022 results include the following:
- Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Changes”) of $1.6 million ($0.06 per diluted share, after taxes) for the three-month period ended September 30, 2023, as compared to $3.2 million ($0.12 per diluted share, after taxes) for the three-months ended September 30, 2022.
- The provision for credit losses on loans was an expense of $1.4 million ($0.05 per diluted share, after taxes) in the third quarter ended September 30, 2023, as compared to an expense of $3.1 million ($0.12 per diluted share, after taxes) in the third quarter ended September 30, 2022.
Operating Results
The Company’s net interest income totaled $39.4 million during the third quarter of 2023, a decrease of $0.5 million, or 1.2% from the year-ago period, and an increase of $1.1 million, or 2.8%, from the second quarter of 2023. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.25% during the third quarter of 2023, compared to 3.49% in the year-ago period, and 3.26 in the second quarter of 2023. The year-over-year quarterly decrease in net interest income was due to a decrease in net interest margin that was partially offset by an increase in average interest-earning assets. The increase in net interest income compared to the linked quarter was due to an increase in average interest-earning assets that partially offset by a decrease in net interest margin. Average interest-earning assets were $4.89 billion in the third quarter of 2023, compared to $4.61 billion in the year ago quarter and $4.76 billion in the second quarter of 2023.
For the first nine months of 2023, net interest income totaled $116.2 million, an increase of $7.3 million, or 6.7% from the first nine months in 2022. The Company’s net interest margin for the first nine months of 2023 was 3.28% compared to 3.25% in 2022. The increase in net interest income for the first nine months of 2023 compared to 2022 reflects this improved margin as well as our increase in average interest- earning assets.
Non-interest income totaled $15.6 million and $41.6 million, respectively, for the third quarter and for the first nine months 2023, compared to $16.9 million and $50.4 million in the respective comparable prior year periods. These changes were primarily due to variances in mortgage banking related revenues.
Net gains on mortgage loans in the third quarters of 2023 and 2022, were approximately $2.1 million and $2.9 million, respectively. For the first nine months of 2023, net gains on mortgage loans totaled $5.5 million compared to $4.9 million in 2022. The comparative quarterly decrease in net gains on mortgage loans was primarily due to a decrease in the volume of mortgage loans sold that was partially offset by an increase in the gain on sale margin on mortgage loans sold.
Mortgage loan servicing, net, generated income of $2.7 million and $4.3 million in the third quarters of 2023 and 2022, respectively. For the first nine months of 2023 and 2022, mortgage loan servicing, net, generated income of $7.1 million and $18.1 million, respectively. The significant variance in mortgage loan servicing, net is primarily due to changes in the fair value of capitalized mortgage loan servicing rights associated with the magnitude of changes in mortgage loan interest rates and expected future prepayment levels between periods. Mortgage loan servicing, net activity is summarized in the following table:
Three months ended | Nine months ended | ||||||||||||||
9/30/2023 | 9/30/2022 | 9/30/2023 | 9/30/2022 | ||||||||||||
(In thousands) | |||||||||||||||
Mortgage loan servicing, net: | |||||||||||||||
Revenue, net | $ | 2,197 | $ | 2,190 | $ | 6,612 | $ | 6,397 | |||||||
Fair value change due to price | 1,556 | 3,203 | 3,364 | 14,775 | |||||||||||
Fair value change due to pay-downs | (1,085 | ) | (1,110 | ) | (2,908 | ) | (3,086 | ) | |||||||
Total | $ | 2,668 | $ | 4,283 | $ | 7,068 | $ | 18,086 |
Non-interest expenses totaled $32.0 million in the third quarter of 2023, compared to $32.4 million in the year-ago period. For the first nine months of 2023, non-interest expenses totaled $95.2 million versus $96.3 million in 2022.
The Company recorded income tax expense of $4.1 million and $10.4 million in the third quarter and first nine months of 2023, respectively. This compares to an income tax expense of $4.0 million and $10.9 million in the third quarter and first nine months of 2022. The changes in income tax expense principally reflect changes in pre-tax earnings in 2023 relative to 2022.
Asset Quality
A breakdown of non-performing loans by loan type is as follows:
9/30/2023 | 12/31/2022 | 9/30/2022 | ||||||||||||
Loan Type | (Dollars in thousands) | |||||||||||||
Commercial | $ | 31 | $ | 38 | $ | 41 | ||||||||
Mortgage | 6,137 | 4,745 | 4,737 | |||||||||||
Installment | 801 | 598 | 529 | |||||||||||
Sub total | 6,969 | 5,381 | 5,307 | |||||||||||
Less - government guaranteed loans | 2,254 | 1,660 | 1,491 | |||||||||||
Total non-performing loans | $ | 4,715 | $ | 3,721 | $ | 3,816 | ||||||||
Ratio of non-performing loans to total portfolio loans | 0.13 | % | 0.11 | % | 0.11 | % | ||||||||
Ratio of non-performing assets to total assets | 0.10 | % | 0.08 | % | 0.08 | % | ||||||||
Ratio of allowance for credit losses to total non-performing loans | 1176.99 | % | 1409.16 | % | 1340.20 | % |
The provision for credit losses on loans was an expense of $1.4 million and $3.1 million in the third quarters of 2023 and 2022, respectively. The provision for credit losses on loans was an expense of $3.8 million in both the first nine months of 2023 and 2022. The quarterly change in the provision for credit losses on loans in 2023 compared to 2022, is primarily the result of a decrease in pooled loan reserve loss rates on retail loans and a decline in loan growth. We recorded loan net charge offs (recoveries) of $(0.18) million and $(0.12) million in the third quarters of 2023 and 2022, respectively and $0.78 million and $(0.11) million during the first nine months of 2023 and 2022, respectively. At September 30, 2023, the allowance for credit losses for loans totaled $55.5 million, or 1.48% of total portfolio loans compared to $52.4 million, or 1.51% of total portfolio loans at December 31, 2022. The year-to-date increase in the provision for credit losses for securities HTM in 2023 compared to 2022, was the result of a loss incurred on a $3.0 million subordinated debt security that defaulted during the first quarter.
Balance Sheet, Capital and Liquidity
Total assets were $5.20 billion at September 30, 2023, an increase of $200.2 million from December 31, 2022. Loans, excluding loans held for sale, were $3.74 billion at September 30, 2023, compared to $3.47 billion at December 31, 2022. Deposits totaled $4.59 billion at September 30, 2023, an increase of $206.5 million from December 31, 2022. This increase is primarily due to growth in reciprocal, time and brokered time deposit account balances that were partially offset by decreases in non-interest bearing and in savings and interest-bearing checking deposit account balances.
Cash and cash equivalents totaled $127.5 million at September 30, 2023, versus $74.4 million at December 31, 2022. Securities available for sale (“AFS”) totaled $684.6 million at September 30, 2023, versus $779.3 million at December 31, 2022.
Total shareholders’ equity was $375.0 million at September 30, 2023, or 7.21% of total assets compared to $347.6 million or 6.95% at December 31, 2022. Tangible common equity totaled $344.6 million at September 30, 2023, or $16.53 per share compared to $316.7 million or $15.04 per share at December 31, 2022. The increase in shareholder equity as well as tangible common equity are primarily the result of earnings retention.
The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:
Regulatory Capital Ratios | 9/30/2023 | 12/31/2022 | Well Capitalized Minimum | ||||||||
Tier 1 capital to average total assets | 8.71 | % | 8.56 | % | 5.00 | % | |||||
Tier 1 common equity to risk-weighted assets | 11.09 | % | 10.97 | % | 6.50 | % | |||||
Tier 1 capital to risk-weighted assets | 11.09 | % | 10.97 | % | 8.00 | % | |||||
Total capital to risk-weighted assets | 12.34 | % | 12.22 | % | 10.00 | % |
At September 30, 2023, in addition to liquidity available from our normal operating, funding, and investing activities, we had unused credit lines with the FHLB and FRB of approximately $989.9 million and $504.0 million, respectively. We also had approximately $812.3 million in fair value of unpledged securities AFS and HTM at September 30, 2023 which could be pledged for an estimated additional borrowing capacity at the FHLB and FRB of approximately $749.4 million.
Share Repurchase Plan
On December 20, 2022, the Board of Directors of the Company authorized the 2023 share repurchase plan. Under the terms of the 2023 share repurchase plan, the Company is authorized to purchase up to 1,100,000 shares, or approximately 5% of its then outstanding common stock. The repurchase plan is authorized to last through December 31, 2023. For the first nine months of 2023, the Company repurchased 288,401 shares of common stock, for an aggregate purchase price of $5.0 million.
Earnings Conference Call
Brad Kessel, President and CEO, Gavin Mohr, CFO and Joel Rahn, EVP – Commercial Banking will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Tuesday, October 24, 2023.
To participate in the live conference call, please dial 1-833-470-1428 (Access Code # 218288). Also, the conference call will be accessible through an audio webcast with user-controlled slides via the following site/URL: https://events.q4inc.com/attendee/796177293.
A playback of the call can be accessed by dialing 1-866-813-9403 (Access Code # 103128). The replay will be available through October 31, 2023.
About Independent Bank Corporation
Independent Bank Corporation ( IBCP) is a Michigan-based bank holding company with total assets of approximately $5.2 billion. Founded as First National Bank of Ionia in 1864, Independent Bank Corporation operates a branch network across Michigan's Lower Peninsula through one state-chartered bank subsidiary. This subsidiary (Independent Bank) provides a full range of financial services, including commercial banking, mortgage lending, consumer banking, investments and insurance. Independent Bank Corporation is committed to providing exceptional personal service and value to its customers, stockholders and the communities it serves.
For more information, please visit our Web site at: IndependentBank.com.
Forward-Looking Statements
This presentation contains forward-looking statements, which are any statements or information that are not historical facts. These forward-looking statements include statements about our anticipated future revenue and expenses and our future plans and prospects.
Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. For example, deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect our revenues and the values of our assets and liabilities, reduce the availability of funding to us, lead to a tightening of credit, and increase stock price volatility. Our results could also be adversely affected by changes in interest rates; increases in unemployment rates; deterioration in the credit quality of our loan portfolios or in the value of the collateral securing those loans; deterioration in the value of our investment securities; legal and regulatory developments; changes in customer behavior and preferences; breaches in data security; and management’s ability to effectively manage the multitude of risks facing our business. Key risk factors that could affect our future results are described in more detail in our Annual Report on Form 10-K for the year ended December 31, 2022 and the other reports we file with the SEC, including under the heading “Risk Factors.” Investors should not place undue reliance on forward-looking statements as a prediction of our future results.
Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise.
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES | |||||||
Consolidated Statements of Financial Condition | |||||||
September 30, 2023 | December 31, 2022 | ||||||
(Unaudited) | |||||||
(In thousands, except share amounts) | |||||||
Assets | |||||||
Cash and due from banks | $ | 58,567 | $ | 70,180 | |||
Interest bearing deposits | 68,894 | 4,191 | |||||
Cash and Cash Equivalents | 127,461 | 74,371 | |||||
Securities available for sale | 684,641 | 779,347 | |||||
Securities held to maturity (fair value of $309,199 at September 30, 2023 and $335,418 at December 31, 2022) | 358,899 | 374,818 | |||||
Federal Home Loan Bank and Federal Reserve Bank stock, at cost | 16,821 | 17,653 | |||||
Loans held for sale, carried at fair value | 13,979 | 26,518 | |||||
Loans held for sale, carried at lower of cost or fair value | — | 20,367 | |||||
Loans | |||||||
Commercial | 1,626,122 | 1,466,853 | |||||
Mortgage | 1,475,908 | 1,368,409 | |||||
Installment | 639,456 | 630,090 | |||||
Total Loans | 3,741,486 | 3,465,352 | |||||
Allowance for credit losses | (55,495 | ) | (52,435 | ) | |||
Net Loans | 3,685,991 | 3,412,917 | |||||
Other real estate and repossessed assets, net | 443 | 455 | |||||
Property and equipment, net | 35,346 | 35,893 | |||||
Bank-owned life insurance | 54,631 | 55,204 | |||||
Capitalized mortgage loan servicing rights, carried at fair value | 46,057 | 42,489 | |||||
Other intangibles | 2,141 | 2,551 | |||||
Goodwill | 28,300 | 28,300 | |||||
Accrued income and other assets | 145,308 | 128,904 | |||||
Total Assets | $ | 5,200,018 | $ | 4,999,787 | |||
Liabilities and Shareholders' Equity | |||||||
Deposits | |||||||
Non-interest bearing | $ | 1,141,641 | $ | 1,269,759 | |||
Savings and interest-bearing checking | 1,929,947 | 1,973,308 | |||||
Reciprocal | 799,883 | 602,575 | |||||
Time | 477,928 | 321,492 | |||||
Brokered time | 236,213 | 211,935 | |||||
Total Deposits | 4,585,612 | 4,379,069 | |||||
Other borrowings | 50,014 | 86,006 | |||||
Subordinated debt | 39,491 | 39,433 | |||||
Subordinated debentures | 39,711 | 39,660 | |||||
Accrued expenses and other liabilities | 110,192 | 108,023 |