Independent Bank Corporation Reports 2021 Second Quarter Results

GRAND RAPIDS, Mich., July 29, 2021 (GLOBE NEWSWIRE) -- 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 ended6/30/20213/31/20216/30/2020
 #(000’s)#(000’s)#(000’s)
Loans outstanding at period end298$42,315 698$105,934 2,012$259,351 
Average loans outstanding- 78,747 - 136,206 - 191,061 
Cumulative forgiveness applications submitted1,882 231,715 1,477 183,346 - - 
Cumulative forgiveness applications approved1,870 229,429 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 ended6/30/20213/31/2021
 #(000’s)#(000’s)
Loans outstanding at period end1,409$129,573 1,250$128,240 
Average loans outstanding- 133,239 - 72,011 
Cumulative forgiveness applications submitted166 8,843 - - 
Cumulative forgiveness applications approved164 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 6/30/20206/30/2021 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 Type6/30/20213/31/2021% change vs. prior quarter
# $ (000’s)% of
portfolio
# $ (000's)% of
portfolio
#$
Commercial- $-0.0%- $-0.0%none none 
Mortgage82  12,4161.2%111  15,2631.5%(26.1)%(18.7)%
Installment18  3270.1%32  5370.1%(43.8)%(39.1)%
Total100 $12,7430.5%143 $15,8000.6%(30.1)%(19.3)%
           
Loans serviced for others150 $20,2310.6%205 $26,9750.9%(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 Ratios6/30/2021 12/31/2020 Well Capitalized Minimum 
       
Tier 1 capital to average total assets8.69%8.81%5.00%
Tier 1 common equity to risk-weighted assets12.46%12.81%6.50%
Tier 1 capital to risk-weighted assets12.46%12.81%8.00%
Total capital to risk-weighted assets13.71%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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