Independent Bank Corporation Reports 2023 Fourth Quarter Results

Fourth Quarter Highlights

Highlights for the fourth quarter of 2023 include:

• An increase in net interest income of $0.7 million (1.7%) over the third quarter of 2023;
• An increase in book value and tangible book value per share of $1.42 and $1.43 respectively;
• Net growth in loans of $49.4 million (or 5.2% annualized) from September 30, 2023; and
• The payment of a 23 cent per share dividend on common stock on November 13, 2023.

GRAND RAPIDS, Mich., Jan. 25, 2024 (GLOBE NEWSWIRE) — Independent Bank Corporation (NASDAQ: IBCP) reported fourth quarter 2023 net income of $13.7 million, or $0.65 per diluted share, versus net income of $15.1 million, or $0.71 per diluted share, in the prior-year period. For the year ended December 31, 2023, the Company reported net income of $59.1 million, or $2.79 per diluted share, compared to net income of $63.4 million, or $2.97 per diluted share, in 2022.

William B. (“Brad”) Kessel, the President and Chief Executive Officer of Independent Bank Corporation, commented: “’Our fourth quarter performance capped off another remarkably strong year, with our organization performing exceptionally well despite continued challenges in the macroeconomic environment. For the fourth quarter of 2023, I am particularly pleased with the double digit annualized growth in our commercial loan portfolio, the year over year 4.1% growth in our core deposit base, the linked quarter growth in our net interest income and our strong asset quality metrics which enabled us to release a small amount of loan loss reserves. Significantly impacting our quarterly results was the change in price of the fair value of our capitalized mortgage servicing rights of $3.6 million ($0.14 per diluted share, after tax). Adding back this non-cash adjustment, our fourth quarter 2023 annualized return on assets was 1.26% versus 1.24% for the three months ended December 31, 2022. During 2023, we continued to make investments in talent and technology which we believe will enable us to consistently add new customers, grow our market share, generate profitable growth, and further increase the value of our franchise in 2024 and beyond.”

Significant items impacting comparable 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 $(3.6) million ($(0.14) per diluted share, after taxes) and $(0.3) million ($(0.01) per diluted share, after taxes) for the three-month and full-year ended December 31, 2023, respectively, as compared to $(0.5) million ($(0.02) per diluted share, after taxes) and $14.3 million ($0.53 per diluted share, after taxes) for the three-months and full-year ended December 31, 2022, respectively.
• The provision for credit losses was a credit of $0.6 million ($0.02 per diluted share, after taxes) and expense of $6.2 million ($0.23 per diluted share, after tax) in the fourth quarter and full year ended December 31, 2023, respectively, as compared to an expense of $1.4 million ($0.05 per diluted share, after taxes) and expense of $5.3 million ($0.20 per diluted share, after tax) in the fourth quarter and full year ended December 31, 2022, respectively.

Operating Results

The Company’s net interest income totaled $40.1 million during the fourth quarter of 2023, a decrease of $0.5 million, or 1.2% from the year-ago period, and up $0.7 million, or 1.7%, from the third quarter of 2023. The Company’s tax equivalent net interest income as a percent of average interest-earning assets (the “net interest margin”) was 3.26% during the fourth quarter of 2023, compared to 3.52% in the year-ago period, and 3.23% in the third quarter of 2023. The year-over-year quarterly decrease in net interest income was due to a decrease in the net interest margin that was partially offset by an increase in average earnings assets. Average interest-earning assets were $4.93 billion in the fourth quarter of 2023, compared to $4.64 billion in the year ago quarter and $4.89 billion in the third quarter of 2023.

For the year ended December 31, 2023, net interest income totaled $156.3 million, an increase of $6.8 million, or 4.5% from the prior year ended December 31, 2022. The Company’s net interest margin for the year ended December 31, 2023 was 3.26% compared to 3.32% in 2022. The increase in net interest income for the year ended December 31, 2023 compared to 2022 reflects an increase in average interest- earning assets that was partially offset by a decrease in the net interest margin.

Non-interest income totaled $9.1 million and $50.7 million, respectively, for the fourth quarter and full year of 2023, compared to $11.5 million and $61.9 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 in the fourth quarters of 2023 and 2022, were approximately $2.0 million and $1.5 million, respectively. For the full year of 2023, net gains on mortgage loans totaled $7.4 million compared to $6.4 million in 2022. The increase in net gains on mortgage loans was due to a combination of higher profit margins on mortgage loan sales and an increase in the volume of mortgage loans sold.

Mortgage loan servicing, net, generated a loss of $2.4 million and a gain of $0.7 million in the fourth quarters of 2023 and 2022, respectively. For the full year of 2023 and 2022, mortgage loan servicing, net, generated income of $4.6 million and $18.8 million, respectively. The significant variances in mortgage loan servicing, net is primarily due to changes in the fair value of capitalized mortgage loan servicing rights attributed to a decrease in interest rates that resulted in a lower earnings rate on escrow deposits and an increase in prepayment speeds. Mortgage loan servicing, net activity is summarized in the following table:

Non-interest expenses totaled $31.9 million in the fourth quarter of 2023, compared to $32.1 million in the year-ago period. For the full year of 2023, non-interest expenses totaled $127.1 million versus $128.3 million in 2022.

The Company recorded an income tax expense of $4.2 million and $14.6 million in the fourth quarter and full year of 2023, respectively. This compares to an income tax expense of $3.5 million and $14.4 million in the fourth quarter and full year of 2022, respectively.

Asset Quality

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

The provision for credit losses was credit of $0.6 million and an expense of $1.4 million in the fourth quarters of 2023 and 2022, respectively. The provision for credit losses was an expense of $6.2 million and $5.3 million in the full year of 2023 and 2022, respectively. The quarterly decrease in the provision for credit losses in 2023 compared to 2022, was primarily the result of a change in allocation rates due to subjective factors (prior year allocation rates were increased while current year rates decreased). The Company recorded loan net charge-offs of $0.2 million and $0.1 million in the fourth quarters of 2023 and 2022, respectively. At December 31, 2023, the allowance for credit losses totaled $54.7 million, or 1.44% of total portfolio loans compared to $52.4 million, or 1.51% of total portfolio loans at December 31, 2022.

Balance Sheet, Liquidity and Capital

Total assets were $5.26 billion at December 31, 2023, an increase of $263.9 million from December 31, 2022. Loans, excluding loans held for sale, were $3.79 billion at December 31, 2023, compared to $3.47 billion at December 31, 2022. Deposits totaled $4.62 billion at December 31, 2023, an increase of $243.8 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 savings and interest-bearing checking deposit account balances.

Cash and cash equivalents totaled $169.8 million at December 31, 2023, versus $74.4 million at December 31, 2022. Securities available for sale (“AFS”) totaled $679.4 million at December 31, 2023, versus $779.35 million at December 31, 2022.

Total shareholders’ equity was $404.4 million at December 31, 2023, or 7.68% of total assets compared to $347.6 million or 6.95% at December 31, 2022. Tangible common equity totaled $374.1 million at December 31, 2023, or $17.96 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 and a decline in accumulated other comprehensive loss related to unrealized losses on securities available for sale.

The Company’s wholly owned subsidiary, Independent Bank, remains significantly above “well capitalized” for regulatory purposes with the following ratios:

At December 31, 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 $1.0 billion and $515.4 million, respectively. We also had approximately $813.8 million in fair value of unpledged securities AFS and HTM at December 31, 2023 which could be pledged for an estimated additional borrowing capacity at the FHLB and FRB of approximately $754.6 million.

Share Repurchase Plan

On December 19, 2023, the Board of Directors of the Company authorized the 2024 share repurchase plan. Under the terms of the 2024 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, 2024. For the full year of 2023, the Company repurchased 298,601 shares at a weighted average price of $17.27 per share.

Earnings Conference Call

Brad Kessel, President and CEO, Gavin A. 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 Thursday, January 25, 2024.

To participate in the live conference call, please dial 1-833-470-1428 (Access Code # 216359). 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/712732859.

A playback of the call can be accessed by dialing 1-866-813-9403 (Access Code # 634318). The replay will be available through February 1, 2024.

About Independent Bank Corporation

Independent Bank Corporation (NASDAQ: IBCP) is a Michigan-based bank holding company with total assets of approximately $5.3 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 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.

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

Tangible Common Equity Ratio

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.