Independent Bank Corporation Reports 2021 Second Quarter

GRAND RAPIDS, Mich., July 29, 2021 (Globalrelease Wire) — Independent Bank Corporation (NASDAQ: IBCP) reported second quarter 2021 net income of $12.4 million, or $0.56 per diluted share, versus net income of $14.8 million, or $0.67 per diluted share, in the prior-year period. For the six months ended June 30, 2021, the Company reported net income of $34.4 million, or $1.56 per diluted share, compared to net income of $19.6 million, or $0.88 per diluted share, in the prior-year period. The decline in second quarter 2021 earnings as compared to 2020 primarily reflects a decrease in non-interest income and an increase in non-interest expense that were partially offset by an increase in net interest income and decreases in the provision for credit losses and income tax expense. The increase in year-to-date 2021 earnings as compared to 2020 primarily reflects increases in net interest income and non-interest income and a decrease in the provision for credit losses that were partially offset by increases in non-interest expense and income tax expense.

Highlights for the second quarter of 2021 include:

  • Annualized return on average assets and on average equity of 1.12% and 12.78%, respectively;
  • An increase in net interest income of 3.1% over the second quarter of 2020;
  • Net gains on mortgage loans of $9.1 million and total mortgage loan origination volume of $473.7 million;
  • Net growth in portfolio loans of $30.3 million (or 4.4% annualized);
  • Continued strong asset quality metrics as evidenced by net loan recoveries during the quarter as well as a low level of non-performing loans and non-performing assets; and
  • The payment of a 21 cent per share dividend on common stock on May 14, 2021.

Highlights for the first six months of 2021 include:

  • Increases in net income and diluted earnings per share of 75.8% and 77.3%, respectively;
  • Annualized return on average assets and on average equity of 1.60% and 18.06%, respectively;
  • Net gains on mortgage loans of $21.9 million and total mortgage loan origination volume of $982.7 million;
  • Net growth in portfolio loans of $80.9 million (or 6.0% annualized);
  • Net growth in deposits of $225.1 million (or 12.5% annualized).

Significant items impacting comparable quarterly and year to date 2021 and 2020 results include the following:

  • Changes in the fair value due to price of capitalized mortgage loan servicing rights (the “MSR Changes”) of a negative $2.4 million ($0.09 per diluted share, after taxes) and a positive $2.2 million ($0.08 per diluted share, after taxes) for the three- and six-months ended June 30, 2021, respectively, as compared to a negative $2.9 million ($0.10 per diluted share, after taxes) and a negative $8.9 million ($0.31 per diluted share, after taxes) for the three- and six-months ended June 30, 2020, respectively.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “We are pleased to report a solid financial performance for the second quarter and first six months of 2021. Economic activity and business conditions have improved in our markets. Earning asset growth, including portfolio loans, has resulted in an increase in net interest income in 2021 compared to the year ago period. Mortgage loan origination activity continues to be strong. Asset quality metrics have been exceptional in 2021. Our ratio of non-performing assets to total assets declined to 0.12% at June 30, 2021, and COVID related loan forbearance balances decreased by 40.5% during the first six months of 2021, which represents only 0.5% of our total loans at June 30, 2021.”

Kessel added: “During the second quarter of 2021, we also completed our conversion to a new modern core platform with flexible application processing interfaces (APIs). This change now allows faster integration with new technology, real-time processing capabilities, and better access to our data and decision management using that data. Initial feedback from our customer base includes much excitement about ONE Wallet, our new mobile and online platform for consumer and business clients. This platform provides customers with the ability to open new accounts and apply for loans online, along with enhanced transfer, bill pay, and self-service capabilities. In addition, ONE Wallet+ enables our customers to monitor all of their finances in one location and provides budgeting and spending analytical tools. ONE Wallet+ has experienced a very strong adoption rate.”

Kessel concluded: “As we look ahead to the balance of 2021 and beyond, we are mindful that although economic conditions have improved, challenges from the pandemic remain. However, we are confident of our continued ability to effectively respond to these challenges and remain optimistic about our future.”

Operating Results

The Company’s net interest income totaled $31.4 million during the second quarter of 2021, an increase of $0.9 million, or 3.1% from the year-ago period, and up $1.1 million, or 3.7%, from the first quarter of 2021. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.02% during the second quarter of 2021, compared to 3.36% in the year-ago period, and 3.05% in the first quarter of 2021. The year-over-year quarterly increase in net interest income was due to an increase in average interest-earning assets that was partially offset by a decline in the net interest margin. Average interest-earning assets were $4.22 billion in the second quarter of 2021, compared to $3.66 billion in the year ago quarter and $4.05 billion in the first quarter of 2021.

For the first six months of 2021, net interest income totaled $61.7 million, an increase of $1.0 million, or 1.7% from the first half of 2020. The Company’s net interest margin for the first six months of 2021 was 3.04% compared to 3.49% in 2020. The increase in net interest income for the first six months of 2021 compared to 2020 was also due to an increase in average interest-earning assets that was partially offset by a decline in the net interest margin.

Due principally to the economic impact of COVID-19, the Federal Reserve has taken a variety of actions to stimulate the economy, including significantly lowering short-term interest rates. These lower interest rates combined with a higher allocation to lower yielding securities available for sale has placed continued pressure on the Company’s net interest margin.

In addition, commercial loan balances, interest income and yields have been impacted by Paycheck Protection Program (“PPP”) lending activity. PPP lending activity is summarized in the following tables:

  PPP – Round 1
At or for the three months ended 6/30/2021 3/31/2021 6/30/2020
  # (000’s) # (000’s) # (000’s)
Loans outstanding at period end 298 $ 42,315   698 $ 105,934   2,012 $ 259,351  
Average loans outstanding   78,747     136,206     191,061  
Cumulative forgiveness applications submitted 1,882   231,715   1,477   183,346      
Cumulative forgiveness applications approved 1,870   229,429   1,354   158,046      
Net fees accreted into interest income   981     1,853     977  
Net unaccreted fees at period end   381     1,362     7,736  
Average loan yield   5.98 %   6.43 %   3.05 %
                         

Note: PPP – Round 1 loan activity began in the second quarter of 2020.

  PPP – Round 2
At or for the three months ended 6/30/2021 3/31/2021
  # (000’s) # (000’s)
Loans outstanding at period end 1,409 $ 129,573   1,250 $ 128,240  
Average loans outstanding   133,239     72,011  
Cumulative forgiveness applications submitted 166   8,843      
Cumulative forgiveness applications approved 164   8,828      
Net fees accreted into interest income   832     229  
Net unaccreted fees at period end   5,429     5,454  
Average loan yield   3.50 %   2.25 %
                 

Note: PPP – Round 2 loan activity began in the first quarter of 2021.

Non-interest income totaled $14.8 million and $41.2 million, respectively, for the second quarter and first six months of 2021, compared to $20.4 million and $31.4 million in the respective comparable year ago periods. These changes were primarily due to variances in mortgage banking related revenues (net gains on mortgage loans and mortgage loan servicing, net).

Net gains on mortgage loans in the second quarters of 2021 and 2020, were approximately $9.1 million and $17.6 million, respectively. For the first six months of 2021, net gains on mortgage loans totaled $21.9 million compared to $26.5 million in 2020. The decrease in net gains on mortgage loans was primarily due to a decline in mortgage loan sales volume in 2021, lower profit margins on mortgage loan sales, and fair value adjustments on the mortgage loan pipeline.

Mortgage loan servicing, net, generated a loss of $2.0 million and a loss of $3.0 million in the second quarters of 2021 and 2020, respectively. For the first six months of 2021 and 2020, mortgage loan servicing, net, generated income of $3.2 million and a loss of $8.3 million, respectively. The significant variances in mortgage loan servicing, net are primarily due to changes in the fair value of capitalized mortgage loan servicing rights associated with changes in mortgage loan interest rates and expected future prepayment levels. Mortgage loan servicing, net activity is summarized in the following table:

  Three Months Ended Six Months Ended
    6/30/2021   6/30/2020 6/30/2021   6/30/2020  
Mortgage loan servicing, net: (Dollars in thousands)
Revenue, net $ 1,876   $ 1,646   $ 3,786   $ 3,319  
Fair value change due to price   (2,426 )   (2,921 )   2,214     (8,852 )
Fair value change due to pay-downs   (1,412 )   (1,747 )   (2,795 )   (2,789 )
Total $ (1,962 ) $ (3,022 ) $ 3,205   $ (8,322 )
                         

Net gain on securities available for sale totaled zero and $1.4 million in second quarter and first six months of 2021, respectively, compared to zero and $0.3 million in the prior year second quarter and first six months, respectively. The increased gain that occurred in the first quarter of 2021 was related to the divestiture of a group of mortgage backed securities.

Non-interest expenses totaled $32.5 million in the second quarter of 2021, compared to $27.3 million in the year-ago period. For the first six months of 2021, non-interest expenses totaled $62.6 million versus $56.1 million in 2020. These year-over-year increases in non-interest expense are primarily due to increases in compensation and employee benefits, data processing, interchange and conversion related expenses. The increase in compensation and employee benefits in 2021 is due to several factors, including, wage increases that were generally effective at the start of the year, increased overtime primarily associated with a data processing conversion, a higher accrual for incentive compensation (due to expected actual performance compared to targets), higher payroll taxes due to the increase in compensation and higher health care insurance costs (these costs during the first six months of 2020 were unusually low due to the various COVID related lock-downs). In addition, the second quarter and first six months of 2021 included $1.1 million and $1.4 million, respectively, of expenses related to the Company’s core data processing conversion (this conversion was completed in May 2021) compared to $0.3 million and $0.4 million, respectively, in the comparable periods in 2020. The second quarter and first six months of 2020 also included $0.4 million of expenses (primarily write-downs of fixed assets and leases) related to the closures of six bank branch offices that were completed in the third quarter of 2020.

The Company recorded an income tax expense of $2.7 million and $7.8 million in the second quarter and first six months of 2021, respectively. This compares to an income tax expense of $3.5 million and $4.5 million in the second quarter and first six months of 2020, respectively. The changes in income tax expense principally reflect changes in pre-tax earnings in 2021 relative to 2020.

Asset Quality

A breakdown of loan forbearance totals by loan type is as follows:

Loan Type 6/30/2021 3/31/2021 % change vs. prior quarter
#   $ (000’s) % of
portfolio
#   $ (000’s) % of
portfolio
# $
Commercial   $ 0.0 %   $ 0.0 % none   none  
Mortgage 82     12,416 1.2 % 111     15,263 1.5 % (26.1 )% (18.7 )%
Installment 18     327 0.1 % 32     537 0.1 % (43.8 )% (39.1 )%
Total 100   $ 12,743 0.5 % 143   $ 15,800 0.6 % (30.1 )% (19.3 )%
                     
Loans serviced for others 150   $ 20,231 0.6 % 205   $ 26,975 0.9 % (26.8 )% (25.0 )%
                                 

Note: The % of portfolio is based on the dollar amount of forbearances to the total for the loan portfolio segment.

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

Loan Type   6/30/2021     12/31/2020     6/30/2020  
  (Dollars in thousands)
Commercial $ 242   $ 1,440   $ 4,886  
Mortgage   4,941     6,353     7,455  
Installment   362     519     602  
Subtotal   5,545     8,312     12,943  
Less – government guaranteed loans   427     439     604  
Total non-performing loans $ 5,118   $ 7,873   $ 12,339  
Ratio of non-performing loans to total portfolio loans   0.18 %   0.29 %   0.43 %
Ratio of non-performing assets to total assets   0.12 %   0.21 %   0.34 %
Ratio of the allowance for credit losses to non-performing loans   897.34 %   450.01 %   279.60 %
       

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

Non-performing loans decreased $2.8 million from December 31, 2020, as all loan categories have declined, reflecting improving economic conditions and the Company’s collection efforts.

The provision for credit losses was a credit of $1.4 million and an expense of $5.2 million in the second quarters of 2021 and 2020, respectively. The provision for credit losses was a credit of $1.9 million and an expense of $11.9 million in the first six months of 2021 and 2020, respectively. The quarterly and year-to-date decreases in the provision for credit losses in 2021 compared to 2020, were primarily the result of a decline in the balance of loans individually evaluated in the allowance for credit losses, slightly lower reserve allocations (reflecting an improvement in economic forecasts, particularly for lower unemployment levels) for pooled loans evaluated in the allowance for credit losses and a decrease in the adjustment to allocations based on subjective factors. In particular, the higher year-to-date provision for credit losses in 2020 included an $8.7 million (or 98.2%) increase in the qualitative/subjective portion of the allowance for credit losses. That increase in 2020 principally reflected the unique challenges and prevailing economic uncertainty resulting from the COVID-19 pandemic and the potential impact on the loan portfolio.

The Company recorded loan net recoveries of $0.6 million and loan net charge-offs of $3.2 million in the second quarters of 2021 and 2020, respectively. For the first six months of 2021 and 2020, the Company recorded loan net recoveries of $0.7 million and loan net charge-offs of $3.6 million, respectively.

The allowance for credit losses totaled $45.9 million at June 30, 2021 compared to $35.4 million at December 31, 2020. The increase from December 31, 2020 is attributed to the adoption of Financial Accounting Standards Board Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“CECL”) on January 1, 2021. The impact of the adoption of CECL was an increase in the allowance for credit losses of $11.7 million. At June 30, 2021, the allowance for credit losses equaled 1.63% of total portfolio loans (1.73% when excluding PPP loans) under CECL, compared to 1.30% of total portfolio loans (1.38% when excluding PPP loans) at December 31, 2020, under the probable incurred loss methodology.

Balance Sheet, Liquidity and Capital

Total assets were $4.46 billion at June 30, 2021, an increase of $257.3 million from December 31, 2020. Loans, excluding loans held for sale, were $2.81 billion at June 30, 2021, compared to $2.73 billion at December 31, 2020. Deposits totaled $3.86 billion at June 30, 2021, an increase of $225.1 million from December 31, 2020. This increase is primarily due to growth in non-interest bearing, savings and interest-bearing checking and reciprocal deposit account balances.

Cash and cash equivalents totaled $69.3 million at June 30, 2021, compared to $118.7 million at December 31, 2020. Securities available for sale totaled $1.33 billion at June 30, 2021, compared to $1.07 billion at December 31, 2020. The significant increase in securities available for sale is due to the deployment of funds generated from the growth in deposits.

Total shareholders’ equity was $396.0 million at June 30, 2021, or 8.88% of total assets. Tangible common equity totaled $363.9 million at June 30, 2021, or $16.82 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 6/30/2021   12/31/2020   Well Capitalized Minimum  
             
Tier 1 capital to average total assets 8.69 % 8.81 % 5.00 %
Tier 1 common equity to risk-weighted assets 12.46 % 12.81 % 6.50 %
Tier 1 capital to risk-weighted assets 12.46 % 12.81 % 8.00 %
Total capital to risk-weighted assets 13.71 % 14.06 % 10.00 %

Share Repurchase Plan

On December 18, 2020, the Board of Directors of the Company authorized the 2021 share repurchase plan. Under the terms of the 2021 share repurchase plan, the Company is authorized to purchase up to 1,100,000 shares, or approximately 5% of its outstanding common stock. The repurchase plan is authorized to last through December 31, 2021. For the first six months of 2021, the Company has repurchased 344,005 shares at a weighted average price of $21.18 per share.

Earnings Conference Call

Brad Kessel, President and CEO and Gavin A. Mohr, CFO will review the quarterly results in a conference call for investors and analysts beginning at 12:00 pm ET on Thursday, July 29, 2021.

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 site/URL: https://services.choruscall.com/links/ibcp210729.html.

A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10158604). The replay will be available through August 5, 2021.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $4.5 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 press release contains forward-looking statements about Independent Bank Corporation. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the information available to, and assumptions and estimates made by, management as of the date hereof. These forward-looking statements cover, among other things, anticipated future revenue and expenses and the future plans and prospects of Independent Bank Corporation. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated. The COVID-19 pandemic is adversely affecting Independent Bank Corporation, its customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic or global financial markets could adversely affect Independent Bank Corporation’s revenues and the values of its assets and liabilities, reduce the availability of funding from certain financial institutions, lead to a tightening of credit, and increase stock price volatility. In addition, changes to statutes, regulations, or regulatory policies or practices could affect Independent Bank Corporation in substantial and unpredictable ways. Independent Bank Corporation’s results could also be adversely affected by changes in interest rates; further increases in unemployment rates; deterioration in the credit quality of its loan portfolios or in the value of the collateral securing those loans; deterioration in the value of its investment securities; legal and regulatory developments; litigation; increased competition from both banks and non-banks; changes in the level of tariffs and other trade policies of the United States and its global trading partners; changes in customer behavior and preferences; breaches in data security; failures to safeguard personal information; effects of mergers and acquisitions and related integration; effects of critical accounting policies and judgments; and management’s ability to effectively manage credit risk, market risk, operational risk, compliance risk, strategic risk, interest rate risk, liquidity risk and reputation risk.

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, 2020 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
    June 30,   December 31,
      2021       2020  
    (unaudited)
    (In thousands, except share
    amounts)
Assets
Cash and due from banks   $ 46,242     $ 56,006  
Interest bearing deposits     23,012       62,699  
Cash and Cash Equivalents     69,254       118,705  
Securities available for sale     1,330,660       1,072,159  
Federal Home Loan Bank and Federal Reserve Bank stock, at cost     18,427       18,427  
Loans held for sale, carried at fair value     59,752       92,434  
Loans        
Commercial     1,244,547       1,242,415  
Mortgage     1,045,108       1,015,926  
Installment     524,904       475,337  
Total Loans     2,814,559       2,733,678  
Allowance for credit losses (1)     (45,926 )     (35,429 )
Net Loans     2,768,633       2,698,249  
Other real estate and repossessed assets     296       766  
Property and equipment, net     36,507       36,127  
Bank-owned life insurance     55,446       55,180  
Capitalized mortgage loan servicing rights, carried at fair value     22,431       16,904  
Other intangibles     3,821       4,306  
Goodwill     28,300       28,300  
Accrued income and other assets     67,745       62,456  
Total Assets   $ 4,461,272     $ 4,204,013  
         
Liabilities and Shareholders’ Equity
Deposits        
Non-interest bearing   $ 1,298,282     $ 1,153,473  
Savings and interest-bearing checking     1,699,463       1,526,465  
Reciprocal     589,493       556,185  
Time     272,305       287,402  
Brokered time     2,923       113,830  
Total Deposits     3,862,466       3,637,355  
Other borrowings     30,005       30,012  
Subordinated debt     39,319       39,281  
Subordinated debentures     39,558       39,524  
Accrued expenses and other liabilities     93,950       68,319  
Total Liabilities     4,065,298       3,814,491  
         
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:        
21,632,912 shares at June 30, 2021 and 21,853,800 shares at December 31, 2020     332,457       339,353  
Retained earnings     55,101       40,145  
Accumulated other comprehensive income     8,416       10,024  
Total Shareholders’ Equity     395,974       389,522  
Total Liabilities and Shareholders’ Equity   $ 4,461,272     $ 4,204,013  
         

(1) Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology.

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
                     
    Three Months Ended   Six Months Ended
    June 30,   March 31,   June 30,   June 30,
      2021       2021       2020       2021       2020  
    (unaudited)
Interest Income   (In thousands, except per share amounts)
Interest and fees on loans   $ 28,091     $ 28,105     $ 29,863     $ 56,196     $ 61,627  
Interest on securities available for sale                    
Taxable     3,656       2,796       2,847       6,452       5,906  
Tax-exempt     1,544       1,384       793       2,928       1,183  
Other investments     208       217       251       425       617  
Total Interest Income     33,499       32,502       33,754       66,001       69,333  
Interest Expense                    
Deposits     1,142       1,256       2,388       2,398       7,088  
Other borrowings and subordinated debt and debentures     964       962       904       1,926       1,592  
Total Interest Expense     2,106       2,218       3,292       4,324       8,680  
Net Interest Income     31,393       30,284       30,462       61,677       60,653  
Provision for credit losses (1)     (1,425 )     (474 )     5,188       (1,899 )     11,909  
Net Interest Income After Provision for Credit Losses     32,818       30,758       25,274       63,576       48,744  
Non-interest Income                    
Interchange income     3,453       3,049       2,526       6,502       4,983  
Service charges on deposit accounts     2,318       1,916       1,623       4,234       4,214  
Net gains on assets                    
Mortgage loans     9,091       12,828       17,642       21,919       26,482  
Securities available for sale           1,416             1,416       253  
Mortgage loan servicing, net     (1,962 )     5,167       (3,022 )     3,205       (8,322 )
Other     1,871       2,030       1,598       3,901       3,761  
Total Non-interest Income     14,771       26,406       20,367       41,177       31,371  
Non-interest Expense                    
Compensation and employee benefits     19,883       18,522       16,279       38,405       32,788  
Data processing     2,576       2,374       1,590       4,950       3,945  
Occupancy, net     2,153       2,343       2,159       4,496       4,619  
Interchange expense     1,201       948       726       2,149       1,585  
Furniture, fixtures and equipment     1,034       1,003       1,090       2,037       2,126  
Communications     777       881       800       1,658       1,603  
Loan and collection     859       759       756       1,618       1,561  
Conversion related expenses     1,143       218       346       1,361       402  
Legal and professional     522       499       468       1,021       861  
Advertising     164       489       364       653       1,047  
FDIC deposit insurance     307       330       430       637       800  
Correspondent bank service fees     115       100       94       215       193  
Branch closure costs                 417             417  
Net (gains) losses on other real estate and repossessed assets     6       (180 )     (9 )     (174 )     100  
Other     1,796       1,735       1,836       3,531       4,018  
Total Non-interest Expense     32,536       30,021       27,346       62,557       56,065  
Income Before Income Tax     15,053       27,143       18,295       42,196       24,050  
Income tax expense     2,665       5,106       3,523       7,771       4,468  
Net Income   $ 12,388     $ 22,037     $ 14,772     $ 34,425     $ 19,582  
Net Income Per Common Share                    
Basic   $ 0.57     $ 1.01     $ 0.67     $ 1.58     $ 0.89  
Diluted   $ 0.56     $ 1.00     $ 0.67     $ 1.56     $ 0.88  
                     

(1) Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology.

INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Selected Financial Data
                     
  June 30,   March 31,   December 31,   September 30,   June 30,  
    2021       2021       2020       2020     2020  
  (unaudited)  
  (Dollars in thousands except per share data)
Three Months Ended                    
Net interest income $ 31,393     $ 30,284     $ 30,993     $ 31,966   $ 30,462  
Provision for credit losses (1)   (1,425 )     (474 )     (421 )     975     5,188  
Non-interest income   14,771       26,406       22,363       27,011     20,367  
Non-interest expense   32,536       30,021       32,707       33,641     27,346  
Income before income tax   15,053       27,143       21,070       24,361     18,295  
Income tax expense   2,665       5,106       4,084       4,777     3,523  
Net income $ 12,388     $ 22,037     $ 16,986     $ 19,584   $ 14,772  
                     
Basic earnings per share $ 0.57     $ 1.01     $ 0.78     $ 0.90   $ 0.67  
Diluted earnings per share   0.56       1.00       0.77       0.89     0.67  
Cash dividend per share   0.21       0.21       0.20       0.20     0.20  
                     
Average shares outstanding   21,749,654       21,825,937       21,866,326       21,881,562     21,890,761  
Average diluted shares outstanding   21,966,829       22,058,503       22,112,829       22,114,692     22,113,187  
                     
Performance Ratios                    
Return on average assets   1.12   %   2.10   %   1.61   %   1.90 %   1.54 %
Return on average equity   12.78       23.51       17.82       21.36     17.39  
Efficiency ratio (2)   69.24       53.48       60.59       56.36     53.07  
                     
As a Percent of Average Interest-Earning Assets (2)                  
Interest income   3.22   %   3.27   %   3.57   %   3.62 %   3.72 %
Interest expense   0.20       0.22       0.45       0.31     0.36  
Net interest income   3.02       3.05       3.12       3.31     3.36  
                     
Average Balances                    
Loans $ 2,859,544     $ 2,834,012     $ 2,876,795     $ 2,925,872   $ 2,913,857  
Securities available for sale   1,274,556       1,093,618       1,009,578       891,975     660,126  
Total earning assets   4,223,570       4,047,952       3,984,080       3,887,455     3,659,614  
Total assets   4,434,760       4,254,294       4,195,546       4,102,318     3,868,408  
Deposits   3,879,715       3,698,811       3,632,758       3,559,070     3,303,302  
Interest bearing liabilities   2,674,425       2,589,102       2,574,306       2,532,481     2,402,361  
Shareholders’ equity   388,780       380,111       379,232       364,714     341,606  
                     
End of Period                    
Capital                    
Tangible common equity ratio   8.21   %   8.08   %   8.56   %   8.23 %   8.03 %
Average equity to average assets   8.77       8.93       9.04       8.89     8.83  
Common shareholders’ equity per share of common stock $ 18.30     $ 17.79     $ 17.82     $ 17.05   $ 16.23  
Tangible common equity per share of common stock   16.82       16.30       16.33       15.55     14.72  
Total shares outstanding   21,632,912       21,773,734       21,853,800       21,885,368     21,880,183  
                     
Selected Balances                    
Loans $ 2,814,559     $ 2,784,224     $ 2,733,678     $ 2,855,479   $ 2,866,663  
Securities available for sale   1,330,660       1,247,280       1,072,159       985,050     856,280  
Total earning assets   4,246,410       4,209,017       3,979,397       3,962,824     3,833,523  
Total assets   4,461,272       4,426,440       4,204,013       4,168,944     4,043,315  
Deposits   3,862,466       3,858,575       3,637,355       3,597,745     3,485,125  
Interest bearing liabilities   2,633,747       2,626,280       2,553,418       2,515,185     2,456,193  
Shareholders’ equity   395,974       387,329       389,522       373,092     355,123  
                     

(1) Beginning January 1, 2021, calculation is based on CECL methodology. Prior to January 1, 2021, calculation was based on the probable incurred loss methodology.
(2) Presented on a fully tax equivalent basis assuming a marginal tax rate of 21%.

Reconciliation of Non-GAAP Financial Measures

Independent Bank Corporation

Independent Bank Corporation believes non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate the adequacy of common equity and performance trends. Tangible common equity is used by the Company to measure the quality of capital.

Reconciliation of Non-GAAP Financial Measures              
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2021       2020       2021       2020  
  (Dollars in thousands)      
Net Interest Margin, Fully Taxable   Equivalent (“FTE”)              
               
Net interest income $ 31,393     $ 30,462     $ 61,677     $ 60,653  
Add: taxable equivalent adjustment   478       223       882       344  
Net interest income – taxable equivalent $ 31,871     $ 30,685     $ 62,559     $ 60,997  
Net interest margin (GAAP) (1)   2.98 %     3.34 %     3.00 %     3.47 %
Net interest margin (FTE) (1)   3.02 %     3.36 %     3.04 %     3.49 %
               

(1) Annualized.

Tangible Common Equity Ratio                  
  June 30,   March 31,   December 31,   September 30,   June 30,
    2021       2021       2020       2020       2020  
  (Dollars in thousands)
Common shareholders’ equity $ 395,974     $ 387,329     $ 389,522     $ 373,092     $ 355,123  
Less:                  
Goodwill   28,300       28,300       28,300       28,300       28,300  
Other intangibles   3,821       4,063       4,306       4,561       4,816  
Tangible common equity $ 363,853     $ 354,966     $ 356,916     $ 340,231     $ 322,007  
                   
Total assets $ 4,461,272     $ 4,426,440     $ 4,204,013     $ 4,168,944     $ 4,043,315  
Less:                  
Goodwill   28,300       28,300       28,300       28,300       28,300  
Other intangibles   3,821       4,063       4,306       4,561       4,816  
Tangible assets $ 4,429,151     $ 4,394,077     $ 4,171,407     $ 4,136,083     $ 4,010,199  
                   
Common equity ratio   8.88 %     8.75 %     9.27 %     8.95 %     8.78 %
Tangible common equity ratio   8.21 %     8.08 %     8.56 %     8.23 %     8.03 %
                   
Tangible Common Equity per Share of Common Stock:            
                   
Common shareholders’ equity $ 395,974     $ 387,329     $ 389,522     $ 373,092     $ 355,123  
Tangible common equity $ 363,853     $ 354,966     $ 356,916     $ 340,231     $ 322,007  
Shares of common stock outstanding (in thousands)   21,633       21,774       21,854       21,885       21,880  
                   
Common shareholders’ equity per share of common stock $ 18.30     $ 17.79     $ 17.82     $ 17.05     $ 16.23  
Tangible common equity per share of common stock $ 16.82     $ 16.30     $ 16.33     $ 15.55     $ 14.72  
                                       

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

Contact:         William B. Kessel, President and CEO, 616.447.3933
Gavin A. Mohr, Chief Financial Officer, 616.447.3929
     

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