Independent Bank Widens Margin as Commercial Lending Accelerates
Net interest margin expanded 6 bps sequentially to 3.71% as loan growth gathered pace.
Independent Bank (IBCP), the Michigan-focused commercial lender, increased net interest income to $47.9 million in the second quarter, up 2.2% QoQ and 7.4% YoY. Net interest margin widened 6 bps sequentially and 13 bps from a year earlier to 3.71%, supported by higher average earning assets and improved pricing.
The margin expansion accelerated from 3 bps in the first quarter as the source of the improvement shifted. A 16-bps decline in deposit costs had driven the earlier gain; in the second quarter, earning-asset yields rose 5 bps and the cost of interest-bearing liabilities eased 1 bp. Average deposits declined 0.4% QoQ to $4.813 billion, though they remained 3.6% higher YoY.
Commercial lending supplied the balance-sheet momentum. Average loans rose 5.8% YoY and 1.2% QoQ to $4.369 billion. Period-end loans increased at a 9.8% annualized pace, accelerating from 3.0% in the first quarter. Commercial balances grew $146.4 million from year-end to $2.360 billion, compared with an $8.4 million increase in mortgages and a $17.3 million decline in installment loans.
Fee income added another source of growth. Non-interest income rose 27% QoQ and 35% YoY to $15.3 million, helped by a new $1.6 million Visa equity-security gain and higher mortgage-servicing income. Interchange income, deposit-service charges and mortgage-sale gains also increased sequentially.
Higher costs absorbed part of those gains. Non-interest expense increased about 12% YoY to $37.8 million, reflecting compensation, advertising, merger and data-processing costs as well as $0.4 million of litigation expense. The efficiency ratio improved 369 bps QoQ to 60.64%. It remained 97 bps above its year-earlier level.
Credit measures weakened around a commercial-development exposure. Non-performing loans rose to $32.8 million, or 0.74% of portfolio loans, from 0.64% in the first quarter and 0.20% a year earlier; the increase was concentrated in a $28.18 million credit. The provision increased to $2.72 million from $1.50 million a year earlier, while net charge-offs held at $0.37 million. The allowance rose $2.2 million from year-end to $65.7 million, though coverage of non-performing loans declined to 200% from 231% QoQ and 745% YoY.
Capital levels held as the loan book expanded. The CET1 ratio was unchanged QoQ at 11.70% and rose 34 bps YoY, while the tangible common equity ratio increased 15 bps sequentially to 8.86%. Tangible common equity per share gained $0.86 QoQ to $24.24. Core deposits grew at a 3.2% annualized pace, down from 6.9% in the first quarter, leaving commercial lending as the clearest forward indicator for balance-sheet growth.