The following excerpt is from the company's SEC filing.
GRAND RAPIDS, Mich., July 26, 2018 -
Independent Bank Corporation (NASDAQ: IBCP)
second quarter 2018 net income of $8.8 million, or $0.36 per diluted share, versus net income of $5.9 million, or $0.27 per diluted share, in the prior-year period. For the six months ended June 30, 2018, the Company reported net income of $18.0 million, or $0.78 per diluted share, compared to net income of $11.9 million, or $0.55 per diluted share, in the prior-year period. The increases in second quarter and year to date 2018 earnings as compared to 2017 primarily reflec t 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 quarterly and year to date 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 (the “Merger”) and the associated data processing systems conversions in June 2018. The total assets, loans and deposits acquired in the Merger were approximately $342.8 million, $295.8 million (including $1.3 million of loans held for sale) and $287.7 million, respectively.
Merger related expenses of $3.1 million ($0.10 per diluted share, after taxes) and $3.3 million ($0.11 per diluted share, after taxes) for the three- and six-months ended June 30, 2018, respectively.
Positive changes in the fair value due to price of capitalized mortgage loan servicing rights of $0.5 million ($0.02 per diluted share, after taxes) and $2.0 million ($0.07 per diluted share, after taxes) for the three- and six-months ended June 30, 2018, respectively, as compared to negative changes of $0.6 million ($0.02 per diluted share, after taxes) and $0.5 million ($0.02 per diluted share, after taxes) for the three- and six-months ended June 30, 2017, respectively.
The passage of the "Tax Cuts and Jobs Act" which, among other things, reduced the federal corporate income tax rate to 21% (from 35%) effective January 1, 2018.
Second quarter 2018 highlights include:
Year-over-year increases in net income and diluted earnings per share of 48.7% and 33.3%, respectively;
A year-over-year increase in quarterly net interest income of $7.5 million, or 34.8%;
Total portfolio loan net growth of $101.4 million, or 19.6% annualized, excluding $294.5 million of TCSB loans acquired in the Merger;
Continued strong asset quality metrics; and
The payment of a 15 cent per share dividend on common stock on May 15, 2018.
William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “We are pleased to report another quarter of solid financial performance.
Excluding the impact of Merger related expenses and the positive fair value change in the price of our capitalized mortgage loan servicing rights, our second quarter 2018 results exceeded our expectations. The favorable impact of the TCSB acquisition combined with strong loan origination activity led to significant loan growth and increased net interest income. We successfully completed the TCSB data processing conversions in June 2018, and are on-track to realize our projected cost savings of approximately $0.9 million per quarter beginning in the third quarter of this year. As we look ahead to the remainder of 2018 and beyond, we are focused on building on the momentum generated in the first half of 2018.”
The Company’s net interest income totaled $29.0 million during the second quarter of 2018, an increase of $7.5 million, or 34.8% from the year-ago period, and up $5.0 million, or 21.1%, from the first 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 second quarter of 2018, compared to 3.60% in the year-ago period, and 3.71% in the first quarter of 2018. The year-over-year quarterly increase in net interest income is due to increases in both average interest-earning assets and in the net interest margin. Average interest-earning assets were $2.96 billion in the second quarter of 2018, compared to $2.42 billion in the year ago quarter and $2.61 billion in the first quarter of 2018. Second quarter 2018 interest income on loans includes $0.6 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 first six months of 2018, net interest income totaled $52.9 million, an increase of $10.0 million, or 23.2% from the first half of 2017. The Company’s net interest margin for the first six months of 2018 was 3.83% compared to 3.65% in 2017. The increase in net interest income for the first six months of 2018 is due to increases in both average interest-earning assets and in the net interest margin.
Non-interest income totaled $12.3 million and $24.0 million, respectively, for the second quarter and first six months of 2018, compared to $10.4 million and $20.8 million in the respective comparable year ago periods. These increases were primarily due to growth in mortgage loan servicing income, net.
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 second quarter and first six months of 2018, interchange income and interchange expense each increased by $0.4 million and $0.7 million, respectively, due to classification changes under ASU 2014-09.
Net gains on mortgage loans were approximately $3.3 million in both the second quarters of 2018 and 2017. For the first six months of 2018, net gains on mortgage loans totaled $5.8 million compared to $5.9 million in 2017. An increase in mortgage loan sales volume in 2018 was offset by margin compression due principally to competitive factors.
Mortgage loan servicing, net, generated income of $1.2 million and a loss of $0.2 million in the second quarters of 2018 and 2017, respectively. For the first six months of 2018, mortgage loan servicing, net, generated income of $3.5 million as compared to income of $0.7 million in 2017. This activity is summarized in the following table:
Three Months Ended
Six Months Ended
Mortgage loan servicing, net:
(Dollars in thousands)
Fair value change due to price
Fair value change due to pay-downs
Non-interest expenses totaled $29.8 million in the second quarter of 2018, compared to $22.8 million in the year-ago period. For the first six months of 2018, non-interest expenses totaled $53.9 million versus $46.3 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 $2.1 million and $4.1 million in the second quarter and first six months of 2018, respectively. This compares to an income tax expense of $2.7 million and $5.3 million in the second quarter and first six months 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.
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 June 30, 2018 were 0.04% for commercial loans and 0.42% for mortgage and consumer loans. These early stage delinquency rates continue to be well-managed.”
A breakdown of non-performing loans
by loan type is as follows:
Ratio of non-performing loans to total portfolio loans
Ratio of non-performing assets to total assets
Ratio of the allowance for loan losses to non-performing loans
Excludes loans that are classified as “troubled debt restructured” that are still performing.
Non-performing loans have increased $0.9 million from Dec. 31, 2017. This increase primarily reflects a rise in non-performing commercial loans. ORE and repossessed assets totaled $1.7 million at June 30, 2018, compared to $1.6 million at Dec. 31, 2017.
The provision for loan losses was an expense of $0.7 million and $0.6 million in the second quarters of 2018 and 2017, respectively. The provision for loan losses was an expense of $1.0 million and $0.2 million in the first six months 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 growth, loan mix, levels of non-performing and classified loans and loan net charge-offs. The Company recorded loan net charge-offs of $0.2 million and $0.04 million in the second quarters of 2018 and 2017, respectively. For the first six months of 2018 and 2017, the Company recorded loan net charge-offs of $0.05 million and loan net recoveries of $0.1 million, respectively. At June 30, 2018, the allowance for loan losses totaled $23.5 million, or 0.95% of total portfolio loans, compared to $22.6 million, or 1.12% of total portfolio loans, at Dec. 31, 2017.
Balance Sheet, Liquidity and Capital
Total assets were $3.23 billion at June 30, 2018, an increase of $445.2 million from Dec. 31, 2017, primarily reflecting the impact of the Merger as well as loan growth. Loans, excluding loans held for sale, were $2.47 billion at June 30, 2018, compared to $2.02 billion at Dec. 31, 2017.
Deposits totaled $2.78 billion at June 30, 2018, an increase of $380.0 million from Dec. 31, 2017. The increase in deposits is primarily due to the Merger and growth in brokered time deposits.
Cash and cash equivalents totaled $58.7 million at June 30, 2018, versus $54.7 million at Dec. 31, 2017. Securities available for sale totaled $450.6 million at June 30, 2018, compared to $522.9 million at Dec. 31, 2017.
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 reflect the preliminary valuation of the assets acquired and liabilities assumed in the Merger. The goodwill will be periodically tested for impairment, and the CDI will be amortized over a ten year period ($0.2 million of amortization for this CDI was recorded in the second quarter of 2018). The discounts will be accreted based on the lives of the related assets or liabilities.
Total shareholders’ equity was $337.1 million at June 30, 2018, or 10.42% of total assets. Tangible common equity totaled $301.1 million at June 30, 2018, or $12.47 per share. The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:
Regulatory Capital Ratios
Tier 1 capital to average total assets
Tier 1 common equity to risk-weighted assets
Tier 1 capital to risk-weighted assets
Total capital to risk-weighted assets
Share Repurchase Plan
As previously announced, on Jan. 22, 2018, the Board of Directors of the Company authorized a share repurchase plan. Under the terms of the 2018 share repurchase plan, the Company is authorized to buy back up to 5% of its outstanding common stock.
The repurchase plan is authorized to last through Dec. 31, 2018.
Thus far in 2018, the Company has not repurchased any shares.
Earnings Conference Call
Brad Kessel, President and CEO, and Rob Shuster, CFO, will review the quarterly results in a conference call for investors and analysts beginning at 11:00 am ET on Thursday, July 26, 2018.
To participate in the live conference call, please dial 1-866-200-8394. Also the conference call will be accessible through an audio webcast with user-controlled slides via the following event site/URL:
A playback of the call can be accessed by dialing 1-877-344-7529 (Conference ID # 10121685). The replay will be available through Aug. 2, 2018.
About Independent Bank Corporation
Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $3.2 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, 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:
This release may contain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Any statements that are not historical facts, including statements about our expectations, beliefs, plans, strategies, predictions, forecasts, objectives, or assumptions of future events or performance, may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipates,” “believes,” “expects,” “can,” “could,” “may,” “predicts,” “potential,” “opportunity,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “seeks,” “intends” and similar words or phrases. Accordingly, these statements involve estimates, known and unknown risks, assumptions, and uncertainties that could cause actual strategies, actions, or results to differ materially from those expressed in them, and are not guarantees of timing, future results, events, or performance. Because forward-looking statements are necessarily only estimates of future strategies, actions, or results, based on management’s current expectations, assumptions, and estimates on the date hereof, there can be no assurance that actual strategies, actions or results will not differ materially from expectations. Therefore, readers are cautioned not to place undue reliance on such statements.
Factors that could cause or contribute to such differences are changes in general economic, political or industry conditions; changes in monetary and fiscal policies, including the interest rate policies of the Federal Reserve Board; volatility and disruptions in capital and credit markets; the interdependence of financial service companies; changes in regulation or oversight; unfavorable developments concerning credit quality; any future acquisitions or divestitures; the effects of more stringent capital or liquidity requirements; declines or other changes in the businesses or industries of Independent Bank Corporation's customers; the implementation of Independent Bank Corporation's strategies and business models; Independent Bank Corporation's ability to utilize technology to efficiently and effectively develop, market and deliver new products and services; operational difficulties, failure of technology infrastructure or information security incidents; changes in the financial markets, including fluctuations in interest rates and their impact on deposit pricing; competitive product and pricing pressures among financial institutions within Independent Bank Corporation's markets; changes in customer behavior; management's ability to maintain and expand customer relationships; management's ability to retain key officers and employees; the impact of legal and regulatory proceedings or determinations; the effectiveness of methods of reducing risk exposures; the effects of terrorist activities and other hostilities; the effects of catastrophic events; changes in accounting standards and the critical nature of Independent Bank Corporation's accounting policies.
In addition, factors that may cause actual results to differ from expectations regarding the April 1, 2018 acquisition of TCSB Bancorp, Inc. include, but are not limited to, the reaction to the transaction of the companies’ customers, employees and counterparties; customer disintermediation; inflation; expected synergies, cost savings and other financial benefits of the transaction might not be realized within the expected timeframes or might be less than projected; credit and interest rate risks associated with the parties' respective businesses, customers, borrowings, repayment, investment, and deposit practices; general economic conditions, either nationally or in the market areas in which the parties operate or anticipate doing business, are less favorable than expected; new regulatory or legal requirements or obligations; and other risks.
Certain risks and important factors that could affect Independent Bank Corporation's future results are identified in its Annual Report on Form 10-K for the year ended December 31, 2017 and other reports filed with the SEC, including among other things under the heading “Risk Factors” in such Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which it is made, and Independent Bank Corporation undertakes no obligation to update any forward-looking statement, whether to reflect events or circumstances, after the date on which the statement is made, to reflect new information or the occurrence of unanticipated events, or otherwise.
INDEPENDENT BANK CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share
Cash and due from banks
Interest bearing deposits
Cash and Cash Equivalents
Interest bearing deposits - time
Equity securities at fair value
Federal Home Loan Bank and Federal Reserve Bank stock, at cost
Loans held for sale, carried at fair value
Loans held for sale, carried at lower of cost or fair value
Allowance for loan losses
Other real estate and repossessed assets
Property and equipment, net
Bank-owned life insurance
Deferred tax assets, net
Capitalized mortgage loan servicing rights
Accrued income and other assets
Liabilities and Shareholders' Equity
Savings and interest-bearing checking
Accrued expenses and other liabilities
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
24,143,044 shares at June 30, 2018 and 21,333,869 shares at December 31, 2017
Accumulated other comprehensive loss
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
Consolidated Statements of Operations
(In thousands, except per share amounts)
Interest and fees on loans
Interest on securities
Total Interest Income
Other borrowings and subordinated debentures
Total Interest Expense
Net Interest Income
Provision for loan losses
Net Interest Income After Provision for Loan Losses
Service charges on deposit accounts
Net gains (losses) on assets
Total Non-interest Income
Compensation and employee benefits
Furniture, fixtures and equipment
Loan and collection
Legal and professional
FDIC deposit insurance
Credit card and bank service fees
Net (gains) losses on other real estate and
Total Non-interest Expense
Income Before Income Tax
Income tax expense
Net Income Per Common Share
Selected Financial Data
(Dollars in thousands except per share data)
Net interest income
Income before income tax
Basic earnings per share
Diluted earnings per share
Cash dividend per share
Average shares outstanding
Average diluted shares outstanding
Return on average assets
Return on average common equity
As a Percent of Average Interest-Earning Assets
Total earning assets
Interest bearing liabilities
End of Period
Tangible common equity ratio
Average equity to average assets
Tangible common equity per share
of common stock
Total shares outstanding
Presented on a fully tax equivalent basis assuming a marginal tax rate of 21% in 2018 and 35% in 2017.
Reconciliation of Non-GAAP Financial Measures
Independent Bank Corporation 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.
Net Interest Margin, Fully Taxable
Add: taxable equivalent adjustment
Net interest income - taxable equivalent
Net interest margin (GAAP)
Net interest margin (FTE)
Tangible Common Equity Ratio
Common shareholders' equity
Common equity ratio
Tangible Common Equity per Share of Common Stock:
Shares of common stock
outstanding (in thousands)
Common shareholders' equity per share
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.
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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