Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q3 2023 Earnings Presentation
27 slides from Independent Bank's earnings presentation, Oct 24, 2023
Slide 1: Earnings Call: Third Quarter 2023
Earnings Call: Third Quarter 2023 October 24, 2023 (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: 3Q23 Overview
4 3Q23 Overview • Net income of $17.5 million, or $0.83 per diluted share, compared to $17.3 million, or $0.81 per diluted share, in 3Q22 • Pre-tax, pre-provision income of $23.0 million, an increase of 7% from $21.5 million in 2Q23 • Increases in both net interest income and non-interest income com
Slide 5: Low-Cost Deposit Franchise
5 Low-Cost Deposit Franchise • Substantial core funding – $3.87 billion of non-maturity Focused on Core Deposit Growth deposit accounts (84.4% of total deposits). • Core deposit increase of $112.6 Deposit Composition million (10.5% annualized) in 9/30/23 Cost of Deposits (%)/Total Deposits ($B) 3Q’2
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% 3.0% 3.5% 4.0% 5.0% 5.5% 6.0% 1.0% 4.5% 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 = 32.6% Jun-19 0.85% Sep-19 0.85% Dec-19 0.74% Fed Funds
Slide 7: Diversified Loan Portfolio Focused on High Quality Growth
7 • Portfolio loan changes in 3Q’23: Diversified Loan Portfolio − Commercial – increased $88.0 million. Focused on High Quality Growth …Average new origination yield of 7.52% vs a 6.72% portfolio yield. − Mortgage – increased $34.5 million. …Average new origination yield of 7.17% vs a 4.57% portfoli
Slide 8: Concentrations within $1.6B Commercial Loan Portfolio
8 Concentrations within $1.6B Commercial Loan Portfolio Loans by Industry as a % Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) of Total Commercial Loans ($ in millions) Manufacturing 1.75%, Land, 0.68%, Special Construction Vacant Land and Purpose, $10 Development,
Slide 9: Credit Quality Summary
9 9 Credit Quality Summary Non-performing Loans ($ in Millions) ORE/ORA ($ in Millions) $16.0 0.9% $6.0 $13.4 $5.0 $14.0 $5.0 0.7% $12.0 $9.5 $4.0 $10.0 $8.2 $8.6 0.5% $7.9 $8.0 $3.0 $6.0 0.4% $5.1 $4.7 0.3% $1.9 $3.7 $3.9 $4.0 $2.0 $1.6 $4.0 0.3% 0.3% 0.3% $1.3 0.2% 0.1% $0.8 $0.7 $2.0 $1.0 $0.5 $0
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. 8.7 8.8 8.9 8.9 8.9 8.9 6.3 6.2 6.4 6.6 6.7 6.7 • Well capitalized
Slide 11: Interest Margin/Income
11 Net Interest Margin/Income • Net interest income was $39.4 million in 3Q’23 compared to $39.9 million in the prior year Yields, NIM and Cost of Funds (%) quarter. A decrease in the net 6 interest margin was partially 4.99 5.26 5 4.38 offset by an increase in average 4 3.63 3.36 3.31 3.12 3.05 3.0
Slide 12: Linked Quarter Analysis
12 Linked Quarter Analysis 3Q’23 NIM Changes Linked Quarter Average Balances and FTE Rates ($ in thousands) 3Q23 2Q23 Change Q2'23 3.26% Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Cash $108,389 $1,468 5.37% $66,023 $837 5.08% $42,366 $631 0.29% Investments 1,089,285 9,949 3.65
Slide 13: Interest Rate Risk Management
13 • The increase in the base case modeled NII is due to an Interest Rate Risk Management improvement in asset mix with an increase in loans and a decline in investments along with a slight benefit from higher rates. These improvements were partially offset Changes in Net Interest Income (Dollars in
Slide 14: Strong Non-interest Income
14 • The $1.6 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 3Q23 Non-interest Income Non-interest Income Trends with changes in mortgage l
Slide 15: Focus on Improved Efficiency
15 • 3Q’23 efficiency ratio of 57.5%. Focus on Improved Efficiency • Compensation and employee benefits expense of $20.0 million, an decrease of $0.6 million from the prior year quarter. • Compensation (salaries and wages) Non-interest Expense ($M) Efficiency Ratio (4 quarter rolling average) increa
Slide 16: Category Outlook
16 Category Outlook NET INTEREST INCOME PROVISION FOR LENDING Growth driven primarily by CREDIT LOSSES Continued growth higher average earning assets Steady asset quality metrics Outlook • IBCP forecast of low double digit • IBCP forecast of high single digit (7%-9%) • Very difficult area to forecas
Slide 17: Category Outlook
17 Category Outlook NON-INTEREST NON-INTEREST INCOME SHARE INCOME EXPENSES TAXES REPURCHASES Outlook • IBCP forecasted 2023 quarterly range of • IBCP forecasted 2023 quarterly range of • Approximately an 18.8% • 2023 share repurchase for 2023 $11M to $13M with the total for the year $32.0M to $33.5M
Slide 18: Strategic Initiatives
18 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 19: Question and Answer Session Closing Remarks
19 Question and Answer Session Closing Remarks Thank you for attending NASDAQ: IBCP
Slide 20: Appendix
20 Appendix Additional Financial Data and Non-GAAP Reconciliations
Slide 21: Strong Liquidity Position
21 Strong Liquidity Position • Significant liquidity position to manage the current Sources of Liquidity environment. 3Q 2023 Current On-balance sheet Excess reserves at the Fed $ 68.9 • Total available liquidity Sources Unpledged AFS Securities $ 666.3 significantly exceeds (210%) Total On-balance
Slide 22: Granular Deposit Base
22 • Average deposit account balance Granular Deposit Base of approximately $20,422. • Average deposit balance excluding reciprocal deposit of $4,379 $4,545 $4,488 $4,586 $16,736. $4,205 $4,291 $4,327 24%$994 23% $976 24% $965 22% $918 21% $1,01121% • Average Commercial deposit $989 $1,027 balance o
Slide 23: CRE – Office Metrics
23 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) • 68.6% of CRE – Office mature after 2026. Urban Variable $64.1 • Average loan
Slide 24: Historical Financial Data
24 Historical Financial Data here Year Ended December 31, Quarter Ended, ($M except per share data) 2019 2020 2021 2022 9/30/22 12/31/22 3/31/23 6/30/23 9/30/23 Balance Sheet: Total Assets $3,565 $4,204 $4,705 $5,000 $4,931 $5,000 $5,139 $5,136 $5,200 Portfolio Loans $2,725 $2,734 $2,905 $3,465 $3,4
Slide 25: Non-GAAP to GAAP Reconciliation
25 Non-GAAP to GAAP Reconciliation Year Ended December 31, Quarter Ended September 30, June 30, March 31, December 31, September 30, 2022 2021 2020 2019 2023 2023 2023 2022 2022 (Dollars in thousands) Net interest income $ 149,561 $ 129,765 $ 123,612 $ 122,581 $ 39,427 $ 38,350 $ 38,441 $ 40,602 $ 3
Slide 26: Reconciliation of Non-GAAP Financial Measures
26 Reconciliation of Non-GAAP Financial Measures Three Months Ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 (Dollars in thousands) Net Interest Margin, Fully Taxable Equivalent ("FTE") Net interest income $ 39,427 $ 39,897 $ 116,218 $ 108,959 Add: taxable equivalent adjustm
Slide 27: Reconciliation of Non-GAAP Financial Measures (continued)
27 Reconciliation of Non-GAAP Financial Measures (continued) Tangible Common Equity Ratio Year Ended December 31, Quarter Ended September 30, June 30, March 31, December 31, September 30, 2022 2021 2020 2019 2023 2023 2022 2022 2022 (Dollars in thousands) Common shareholders' equity $ 347,596 $ 398,