Independent Bank Corporation (NASDAQ:IBCP) reported strong second quarter 2024 results, driven by organic growth across both the balance sheet and income statement. The company reported net income of $18.5 million, or $0.88 per diluted share, for the second quarter of 2024, compared to $14.8 million, or $0.70 per diluted share, in the prior year period. This represents a return on average assets of 1.44% and a return on average equity of 17.98% respectively.

For the first half of 2024, Independent Bank Corporation reported net income of $34.5 million, or $1.65 per diluted share, compared to $27.8 million, or $1.32 per diluted share, in the first half of 2023. The company's annual net income for 2023 was $59.1 million, with annual revenue of $289.7 million, annual operating cash flow of $53.6 million, and annual free cash flow of $47.5 million.

Financials

Loans and Deposits: Organic Growth Across the Balance Sheet

Independent Bank Corporation's total loans increased by $12 million, or 1.2% annualized, during the second quarter of 2024. This growth was driven by a $10.9 million increase in the mortgage portfolio and a $3.9 million increase in the installment portfolio, partially offset by a $3 million decline in the commercial loan portfolio due to elevated payoff activity. For the first half of 2024, the company's commercial loan portfolio increased by $52 million, or 6.2% annualized.

On the deposit side, total deposits at June 30, 2024 were $4.61 billion. Core deposits increased $53.3 million, or 4.8% annualized, during the second quarter. This growth was driven by a $143.6 million increase in business deposits, partially offset by declines in retail and municipal deposits. The company's existing customer base continues to shift into higher-yielding deposit products, though the pace of this remix has slowed.

Net Interest Margin and Earnings: Expansion and Growth

Independent Bank Corporation's net interest margin expanded to 3.40% in the second quarter of 2024, up from 3.30% in the linked quarter and 3.24% in the prior year quarter. This expansion was driven by a combination of changes in earning asset mix, higher loan yields, loan fee accretion, and favorable shifts in funding mix, partially offset by increased funding costs.

Net interest income increased $3 million, or 7.8%, from the prior year quarter. This growth was supported by a $213 million increase in average interest-earning assets compared to the second quarter of 2023. The company's guidance calls for mid-single-digit growth in net interest income for the full year 2024.

Non-Interest Income: Visa Gain Offsets Mortgage Banking Decline

Non-interest income totaled $15.2 million in the second quarter of 2024, compared to $15.4 million in the prior year quarter and $12.6 million in the first quarter of 2024. The increase from the first quarter was primarily driven by a $2.7 million gain on the exchange of Visa Class B1 common stock. This gain offset a decline in net gains on mortgage loans, which totaled $1.3 million in Q2 2024 compared to $2.1 million in the prior year quarter, due to lower profit margins and loan sale volumes.

Independent Bank Corporation's guidance calls for non-interest income to be in the range of $11.5 million to $13 million per quarter for the full year 2024. The company's outlook anticipates continued pressure on mortgage banking revenues, offset by growth in other fee income categories.

Expenses: Controlled Growth

Non-interest expense totaled $33.3 million in the second quarter of 2024, compared to $32.2 million in both the prior year quarter and the first quarter of 2024. The increase was primarily driven by a $0.7 million increase in performance-based compensation and a $0.4 million increase in data processing costs. The company's full year 2024 guidance calls for non-interest expense to be in the range of $32.5 million to $33.5 million per quarter.

Credit Quality: Excellent Metrics

Independent Bank Corporation's credit quality metrics remained excellent in the second quarter. Total non-performing loans were $4.5 million, or approximately 0.10% of total loans, at June 30, 2024. Past due loans totaled $5.3 million, or 0.14% of total loans, down slightly from March 31, 2024. The company's commercial watch list also remained low at 2.2% of the commercial portfolio.

The provision for credit losses was $20,000 in the second quarter of 2024, below the company's forecasted range. Independent Bank Corporation's allowance for credit losses stood at 1.46% of total loans at June 30, 2024.

Liquidity

Independent Bank Corporation maintained a strong capital position, with a common equity tier 1 capital ratio of 11.37% and a total risk-based capital ratio of 12.62% at June 30, 2024. The company did not repurchase any shares during the second quarter.

In terms of liquidity, Independent Bank Corporation had $1.57 billion in available borrowing capacity with the FHLB and Federal Reserve at quarter-end. The company also had $811 million in unpledged securities that could provide additional liquidity.

Outlook

Looking ahead, Independent Bank Corporation remains optimistic about its growth prospects for the second half of 2024 and into 2025. The company cited a robust commercial loan pipeline, the track record of its core team of professionals, and ongoing initiatives to add talented bankers to the organization.

Independent Bank Corporation's guidance for the full year 2024 includes: - Mid-single-digit loan growth - Mid-single-digit growth in net interest income - Non-interest income in the range of $11.5 million to $13 million per quarter - Non-interest expense in the range of $32.5 million to $33.5 million per quarter - Effective tax rate of approximately 20%

The company continues to focus on investing in its team, leveraging technology, and supporting its communities as it aims to deliver strong and consistent results for shareholders.

Conclusion

Independent Bank Corporation's solid second quarter 2024 results demonstrate the strength of its community banking franchise and its ability to drive organic growth across both the balance sheet and income statement. With a robust loan pipeline, excellent credit quality, and a strong capital and liquidity position, the company appears well-positioned to navigate the current economic environment and continue delivering value for its shareholders.