Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q4 2023 Earnings Presentation
30 slides from Independent Bank's earnings presentation, Jan 25, 2024
Slide 1: Earnings Call: Fourth Quarter 2023
Earnings Call: Fourth Quarter 2023 January 25, 2024 (NASDAQ: IBCP)
Slide 2: Cautionary note regarding forward-looking statements
2 Cautionary note regarding 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 pl
Slide 3: Agenda
3 Agenda • Formal Remarks − William B. (Brad) Kessel President and Chief Executive Officer − Gavin A. Mohr Executive Vice President and Chief Financial Officer − Joel Rahn Executive Vice President – Commercial Banking • Question and Answer session • Closing Remarks Note: This presentation is availab
Slide 4: 4Q23 Overview
4 4Q23 Overview • Net income of $13.7 million, or $0.65 per diluted share • Decline in net income from prior quarter driven by unfavorable fair value adjustment in mortgage loan servicing • Strong profitability, prudent balance sheet management, and AOCI recapture results in further growth in tangib
Slide 5: Low-Cost Deposit Franchise
5 Low-Cost Deposit Franchise • Substantial core funding – $3.81 billion of non-maturity deposit Focused on Core Deposit Growth accounts (82.5% of total deposits). • Core deposit decrease of $11.3 Deposit Composition million (1.0% annualized) in 12/31/23 Cost of Deposits (%)/Total Deposits ($B) 4Q'23
Slide 6: Deposit Balances and Cost of Funds vs. Federal Funds Rate
Federal Funds Rate 0.0% 0.5% 1.5% 2.0% 2.5% 3.5% 4.0% 4.5% 5.5% 6.0% 1.0% 3.0% 5.0% Dec-16 0.27% Mar-17 0.27% Jun-17 0.28% Sep-17 0.33% Dec-17 0.36% Mar-18 0.42% IB COF Jun-18 0.51% Sep-18 0.60% Dec-18 0.73% Mar-19 0.82% Cumulative Cycle Beta = 36.0% Jun-19 0.85% Sep-19 0.85% Dec-19 0.74% Mar-20 0.6
Slide 7: Diversified Loan Portfolio Focused on High Quality Growth
7 • Portfolio loan changes in 4Q'23: Diversified Loan Portfolio − Commercial – increased $53.6 million. Focused on High Quality Growth …Average new origination yield of 7.72% vs a 6.77% portfolio yield. − Mortgage – increased $10.0 million. …Average new origination yield of 7.68% vs a 4.64% portfoli
Slide 8: Concentrations within $1.7B Commercial Loan Portfolio
8 Concentrations within $1.7B Commercial Loan Portfolio C&I or Owner Occupied Loans by Industry as a % Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) of Total Commercial Loans ($ in millions) Manufacturing Construction 1.75%, Land, 0.68%, Special Vacant Land and Purp
Slide 9: Credit Quality Summary
9 Credit Quality Summary Non-performing Loans ($ in Millions) ORE/ORA ($ in Millions) $16.0 0.9% $6.0 $13.4 0.8% $5.0 $14.0 $5.0 $12.0 0.7% $9.5 0.6% $4.0 $10.0 $8.2 $8.6 $7.9 0.5% $8.0 $3.0 $5.2 0.4% $6.0 $5.1 $4.7 $1.9 0.4% $3.7 $3.9 $4.0 0.3% $2.0 $1.6 $1.3 $4.0 0.3% 0.3% 0.3% 0.1% 0.2% $0.8 0.1%
Slide 10: Strong Capital Position
10 Strong Capital Position • Long-term capital Priorities: Capital retention to support organic growth, acquisitions TCE / TA (%) Leverage Ratio (%) and return of capital through strong and consistent dividends and share repurchases. 7.2 8.8 8.9 8.9 8.9 8.9 9.0 6.2 6.4 6.6 6.7 6.7 • Well capitalized
Slide 11: Net Interest Margin/Income
11 Net Interest Margin/Income • Net interest income was $40.1 million in 4Q'23 compared to $40.6 million in the prior year Yields, NIM and Cost of Funds (%) quarter. A decrease in the net interest margin was partially 6 4.99 5.26 5.33 4.38 offset by an increase in average 5 4 3.36 3.31 3.18 3.26 3.4
Slide 12: Linked Quarter Analysis
12 Linked Quarter Analysis 4Q'23 NIM Changes Linked Quarter Average Balances and FTE Rates ($ in thousands) 4Q23 3Q23 Change Q3'23 3.23% Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Cash $119,884 $1,647 5.45% $108,389 $1,468 5.37% $11,495 $179 0.08% Change in earning asset mix 0
Slide 13: Interest Rate Risk Management
13 • The decrease in the base case modeled NII is due to an adverse shift in the Interest Rate Risk Management funding mix and the change in rates during the quarter which caused the yield curve to invert further. These changes were partially offset by improvement in asset mix with an Changes in Net
Slide 14: Strong Non-interest Income
14 • The $3.1 million comparative quarterly decrease in mortgage Strong Non-interest Income loan servicing; net is primarily attributed to changes in the fair value of capitalized mortgage loan servicing rights associated 4Q23 Non-interest Income Non-interest Income Trends with changes in mortgage l
Slide 15: Focus on Improved Efficiency
15 • 4Q'23 efficiency ratio of 64.3%. Focus on Improved Efficiency • Compensation and employee benefits expense of $19.0 million, a decrease of $1.3 million from the prior year quarter. • Compensation (salaries and wages) Non-interest Expense ($M) Efficiency Ratio (4 quarter rolling average) decreas
Slide 16: Look-Back on 2023 Forecast
16 Look-Back on 2023 Forecast NET INTEREST INCOME PROVISION FOR LENDING Growth driven primarily by CREDIT LOSSES Continued growth higher average earning Steady asset quality metrics assets Outlook • IBCP forecast of low double digit • IBCP forecast of high single digit (7%-9%) • Very difficult area
Slide 17: Look-Back on 2023 Forecast
17 Look-Back on 2023 Forecast NON-INTEREST NON-INTEREST INCOME SHARE INCOME EXPENSES TAXES REPURCHASES Outlook • IBCP forecasted 2023 quarterly range of $11M to • IBCP forecasted 2023 quarterly range of $32.0M • Approximately an 18.8% • 2023 share repurchase for 2023 $13M with the total for the year
Slide 18: Outlook for 2024
18 Outlook for 2024 NET INTEREST INCOME PROVISION FOR LENDING Growth driven primarily by CREDIT LOSSES Continued growth higher average earning Steady asset quality metrics assets Outlook • IBCP forecast of mid-single digit • The forecast assumes 0.25% Fed rate cuts in • Very difficult area to foreca
Slide 19: Outlook for 2024
19 Outlook for 2024 NON-INTEREST NON-INTEREST INCOME SHARE INCOME EXPENSES TAXES REPURCHASES Outlook • IBCP forecasts 2024 quarterly range of • IBCP forecasts 2024 quarterly range of • Approximately a 20% • 2024 share repurchase for 2024 $11.5M to $13.0M with the total for the $32.5M to $33.5M with
Slide 20: Strategic Initiatives
20 Strategic Initiatives GROWTH PROCESS IMPROVEMENT & COST CONTROLS • Outside Sales - Relationship banking focus thru consistent calling on • Process Automation – leverage core investments + Fintech prospects and COI’s. partnerships: (Blend) mortgage; (Numerated) Commercial; • Inside Service/Sales –
Slide 21: Question and Answer Session Closing Remarks
21 Question and Answer Session Closing Remarks Thank you for attending NASDAQ: IBCP
Slide 22: Appendix: Additional Financial Data and Non-GAAP Reconciliations
22 Appendix Additional Financial Data and Non-GAAP Reconciliations
Slide 23: Historical Financial Data
23 Historical Financial Data here Year Ended December 31, Quarter Ended, ($M except per share data) 2020 2021 2022 2023 12/31/22 3/31/23 6/30/23 9/30/23 12/31/23 Balance Sheet: Total Assets $4,204 $4,705 $5,000 $5,264 $5,000 $5,139 $5,136 $5,200 $5,264 Portfolio Loans $2,734 $2,905 $3,465 $3,791 $3,
Slide 24: Historic Financial Performance
24 Historic Financial Performance Year Ended December 31, ($M except per share data) 2018 2019 2020 2021 2022 2023 5 Year CAGR Balance Sheet: Total Assets $3,353 $3,565 $4,204 $4,705 $5,000 $5,264 9.4% Portfolio Loans $2,583 $2,725 $2,734 $2,905 $3,465 $3,791 8.0% Deposits $2,913 $3,037 $3,637 $4,11
Slide 25: Strong Liquidity Position
25 Strong Liquidity Position • Significant liquidity position to manage the current Sources of Liquidity environment. 4Q 2023 Current On-balance sheet Excess reserves at the Fed $ 101.6 • Total available liquidity Sources Unpledged AFS Securities $ 660.8 significantly exceeds (237%) Total On-balance
Slide 26: Granular Deposit Base
26 • Average deposit account balance Granular Deposit Base of approximately $20,375. • Average deposit balance excluding reciprocal deposit of $4,545 $4,586 $4,623 $16,541. $4,291 $4,327 $4,379 $4,488 $4,205 $965 $918 $1,011 $962 • Average Commercial deposit $994 $1,027 $976 $989 balance of $90,935.
Slide 27: CRE – Office Metrics
27 CRE – Office Metrics • 25.3% of portfolio is medical office buildings. • 92% of portfolio are located in suburban geographies. Geographic CRE - Office Maturing Location (millions) Fixed vs. Variable Exposure (millions) • 72.3% of CRE – Office mature after 2026. $70.1 Urban Variable • Average loan
Slide 28: Non-GAAP to GAAP Reconciliation
28 Non-GAAP to GAAP Reconciliation Year Ended December 31, Quarter Ended December 31, September 30, June 30, March 31, December 31, 2023 2022 2021 2020 2023 2023 2023 2023 2022 (Dollars in thousands) Net interest income $ 156,329 $ 149,561 $ 129,765 $ 123,612 $ 40,111 $ 39,427 $ 38,350 $ 38,441 $ 40
Slide 29: Reconciliation of Non-GAAP Financial Measures
29 Reconciliation of Non-GAAP Financial Measures Reconciliation of Non-GAAP Financial Measures Three Months Ended Twelve Months Ended December 31, December 31, 2023 2022 2023 2022 (Dollars in thousands) Net Interest Margin, Fully Taxable Equivalent ("FTE") Net interest income $ 40,111 $ 40,602 $ 156
Slide 30: Reconciliation of Non-GAAP Financial Measures (continued)
30 Reconciliation of Non-GAAP Financial Measures (continued) Tangible Common Equity Ratio Year Ended December 31, Quarter Ended December 31, September 30, June 30, March 31, December 31, 2023 2022 2021 2020 2023 2023 2023 2023 2022 (Dollars in thousands) Common shareholders' equity $ 404,449 $ 347,5