Independent Bank Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The company is a Michigan bank holding company whose subsidiary, Independent Bank, serves mainly rural and suburban communities in Lower Michigan. The supplied filing text incorporates the annual report containing the financial statements and MD&A, but does not include those detailed statements.
Key financial and operating metrics
| Metric | 2022 | Comparable period / context |
|---|---|---|
| Total loans, excluding loans held for sale | $3.465 billion at December 31 | Prior-year value not provided in supplied text |
| Total deposits | $4.379 billion at December 31 | Prior-year value not provided in supplied text |
| Non-performing loans | $3.7 million at December 31 | $5.1 million at December 31, 2021 |
| Allowance for credit losses / non-performing loans | 1,409.16% | 924.70% in 2021; increase reflected higher allowance and lower non-performing loans |
| Net gains on mortgage loans | $6.4 million | $35.9 million in 2021; $62.9 million in 2020 |
| Gross unrealized losses on available-for-sale securities | Approximately $87.3 million | Approximately $8.6 million in 2021 |
| Gross unrealized losses on held-to-maturity securities | Approximately $62.6 million | Zero in 2021 |
| Subordinated debt and capital instruments | $40.0 million subordinated notes; $38.4 million trust preferred securities | Notes issued in 2020 and mature in May 2030 |
Revenue mix: interest and fees on loans contributed 60.2% of revenue in 2022, other interest income 13.0%, and non-interest income 26.8%. In 2021, the respective shares were 54.3%, 10.0%, and 35.7%.
Profit, total revenue, net interest income, margin, cash flow, total assets, and actual liquidity ratios: the supplied filing text does not provide clear values. It states that the relevant financial statements and MD&A are incorporated from the company’s shareholder annual report.
The company reported that holding-company and bank capital ratios exceeded requirements for the well-capitalized category at year-end, but the supplied text does not provide the actual ratios. The bank had 56 branches, two drive-thru facilities, five Michigan loan production offices, and one Ohio loan production office. It reported 803 full-time and 113 part-time employees.
Material changes versus prior periods
- Mortgage loan gains fell substantially, from $35.9 million in 2021 to $6.4 million in 2022; the filing identifies mortgage banking revenue as sensitive to interest rates, loan-sale volumes, and market conditions.
- Unrealized losses on both available-for-sale and held-to-maturity securities increased materially from 2021. Management characterized these losses as temporary and said it expected recovery, citing its ability to hold securities to maturity or until losses reverse.
- Non-performing loans declined from $5.1 million to $3.7 million, while allowance coverage of non-performing loans increased.
- The company announced a 2023 share repurchase plan authorizing repurchases of up to 1.1 million shares. Its 2022 plan expired at year-end; the filing reports 241 shares purchased in October 2022 outside the publicly announced plan.
Outlook, risks, and unusual items
- The supplied text provides no specific earnings, revenue, growth, or margin guidance. Management’s outlook is subject to uncertainty from inflation, rising interest rates, recession concerns, supply-chain disruption, energy prices, and geopolitical conditions.
- Key risks include deposit and funding liquidity, interest-rate changes and deposit pricing, credit deterioration, real estate and other collateral values, securities valuation, competition, and dependence on continued loan and deposit growth.
- The company warned that macroeconomic stress could raise delinquencies and credit losses or impair securities, loans, mortgage servicing rights, intangible assets, or deferred tax assets. It said it was monitoring higher-risk loan segments.
- Management noted that the securities unrealized losses were believed temporary; actual outcomes depend on credit conditions, market prices, and the company’s ability to hold the securities.
- Litigation in the ordinary course was described as not expected to significantly affect consolidated financial position or results. Accrued probable losses were immaterial, and the estimated maximum additional reasonably possible losses were described as insignificant, with the caveat that estimates could change.
- The 1% excise tax on net stock repurchases effective January 1, 2023 was not expected by the company to materially affect operations or results.
- Disclosure controls and procedures were assessed as effective as of December 31, 2022. The filing text incorporates the auditor’s internal-control report but does not reproduce it.
Most important facts for investors to verify
- Consult the incorporated annual report and audited statements for 2022 and 2021 revenue, net income, diluted earnings per share, net interest margin, cash flows, assets, and liquidity and capital ratios; these values are not included in the supplied text.
- Review securities portfolio duration, unrealized losses, available liquidity, and any accounting or capital effects if securities must be sold before recovery.
- Assess deposit trends, deposit pricing, funding mix, and sensitivity of net interest income to rate changes.
- Review loan concentrations, credit quality, allowance methodology, and performance of higher-risk borrower and collateral segments.
- Verify the assumptions behind management’s expectation that securities losses are temporary and its assessment of litigation and other contingencies.