Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q3 2013 Earnings Presentation
34 slides from Independent Bank's earnings presentation, Nov 5, 2013
Slide 1: Independent Bank Corporation Investor Presentation Third Quarter 2013
* Independent Bank Corporation Investor Presentation Third Quarter 2013 November 4, 2013
Slide 2: Cautionary Note Regarding Forward-Looking Statements
* Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements of goals, intentions, and expectations as to future trends, plans, events, or results of Indep
Slide 3: Company Overview
* Company Overview Company: Independent Bank Corporation (Michigan) Ticker / Exchange: IBCP / NASDAQ Closing Price (10/31/13): $9.72 Price to 9/30/13 TBV: 99.3% Shares outstanding: 22,813,512 (10/31/13) Market cap: $221.7 million (10/31/13) 3Q ‘13 Common Offering: Issued 13,225,000 common shares, gr
Slide 4: Strong Capital Levels Following 3Q '13 Offering
* Strong Capital Levels Following 3Q ‘13 Offering Note: The ratio of tangible common equity, or TCE, to tangible assets, or TA, is a non-GAAP-based financial measure. In order to calculate tangible common equity and tangible assets, the Company’s management subtracts intangible assets from both comm
Slide 5: Independent Bank Corporation Highlights
* Independent Bank Corporation Highlights Headquartered in Ionia, MI Celebrating 150 years in 2014 71 offices across Michigan's Lower Peninsula 4th largest bank headquartered in Michigan (by assets) Single state-chartered bank subsidiary (Independent Bank) $2.2 billion in total assets $1.8 billion i
Slide 6: Experienced Management Team
* Experienced Management Team New leadership team in place since 2007 has successfully managed through the credit cycle Age Experience in Banking Industry Years with IBCP Experience Brad Kessel President & CEO 48 26 years 19 years Mr. Kessel was appointed President effective April 1, 2011, and appoi
Slide 7: Core Banking Markets
* Core Banking Markets West Central Southeast East / “Thumb” Significant market presence and opportunity to gain market share in the attractive growth markets in Michigan While state-wide unemployment remains above the national average, western and central Michigan have generally been better than th
Slide 8: Statewide Low Cost Deposit Franchise
Statewide Low Cost Deposit Franchise Focused on Core Deposit Growth Deposit Composition - Q3’13 Deposit Highlights $1.85 billion total deposits — Substantiallyall core funding = $1.42 billion of transaction accounts (77% of total deposits) — Cost of deposits of 0.30% = Over the last year we have sol
Slide 9: Diversified Loan Portfolio Focused on High Quality Growth
* Diversified Loan Portfolio Focused on High Quality Growth Lending Highlights $1.38 billion total loans Current loan origination efforts focus on: High quality, profitable commercial loan segments; Residential mortgage loans eligible for sale in the secondary market; and Consumer installment loans
Slide 10: Commercial Banking Business Model, Philosophy & Structure
* Commercial Banking Business Model, Philosophy & Structure Experienced, relationship-focused lending team with average experience of over 19 years. Total of 21 lenders and three loan group managers Average loan size of $217,000; $300,000 is longer term target Average relationship size of $350,000;
Slide 11: Customer Service Focused, Community Banking Model
* We operate a Customer Service Focused, Community Banking model through 71 banking offices across the lower peninsula of Michigan Our service culture, called the Eagle Experience, is supported by our internal guiding principal: “Impress Every Customer Every Day, Every Time” We have been awarded the
Slide 12: Recent Accomplishments
* Recent Accomplishments Seven consecutive quarters of positive net income $57 million reversal of deferred tax asset valuation allowance demonstrates both a forecast of future profitability and a forecast of stable to improving asset quality Non-performing assets declined to $37.0 million at Sept.
Slide 13: Strong Net Interest Margin
* Strong Net Interest Margin Diversification of the loan and securities portfolio, in combination with a low cost deposit base, positions us to benefit from a rising rate environment Q2’13 net interest margin is in the top 15% of all Midwest banks with assets between $1 and $5 billion (1) Net intere
Slide 14: Non-Interest Income Analysis
* Non-Interest Income Analysis YTD Non-interest Income Breakout Non-interest Income Trends Diverse sources of non-interest income YTD non-interest income represents approximately 37% of total revenue (net interest income and non-interest income) Ranks in the top 15% among Midwest banks with assets b
Slide 15: Focus on Reducing Non-interest Expense
Focus on Reducing Non-interest Expense Non-interest Expense ($in Millions) | Expense Reduction Focus f”” $400 cae 120% = Internal group focus on improving the our efficiency! “4 $367 efficiency ratio ratio to 65% over time through both reduction in non-interest expense and increased revenues - an 0
Slide 16: Earnings Review and Outlook
* Earnings Review and Outlook Category Outlook Net interest income $19.5 million in Q3’13 (essentially unchanged from Q2’13). Goal is to at least hold NII steady assuming continued low interest rate environment. Pressure on net interest margin offset by projected modest interest earning asset growth
Slide 17: Earnings Review and Outlook
* Earnings Review and Outlook Category Outlook Non-interest income: $9.8 million in Q3’13 and $13.0 million in Q2’13. Significant sequential quarterly decline due primarily to decrease in gains on mortgage loans. Based on projected interest rate levels, forecast total gains on mortgage loans of $5 m
Slide 18: Capital Planning Priorities & Considerations
* Capital Planning Priorities & Considerations After the completion of the 3Q ‘13 common equity offering and TARP exit, IBCP now has a strong capital structure Common stock is now the predominant component of Tier 1 capital 10.24% tangible common equity to tangible total assets ratio at 9/30/13 Regu
Slide 19: Steady Credit Quality Improvement
* Steady Credit Quality Improvement Non-performing Loans ($ in Millions) ORE / ORA ($ in Millions) 30-89 Days Delinquent ($ in Millions) Non-performing Assets ($ in Millions) Note: Non-performing loans and non-performing assets exclude troubled debt restructurings. 38% decrease from 12/31/12 36% dec
Slide 20: Improving Credit Costs
* Improving Credit Costs * Provision ($ in Millions) Net Charge-Offs ($ in Millions) Allowance ($ in Millions)
Slide 21: Troubled Debt Restructurings (TDRs)
* Troubled Debt Restructurings (TDRs) Over 89% of TDRs are Current TDRs ($M) % Current Working with client base to maximize sustainable performance The specific reserves allocated to TDRs totaled $15.9 million at September 30, 2013 A majority of our TDRs are performing under their modified terms but
Slide 22: TDR Segmentation
TDR Segmentation Retail TDRs by Type (9/30/13) Commercial TDRs by Type (9/30/13) ~uf Ln, 1 REM-2nd Lien 4% REM- ‘st Lien 3% cal 13% Income Producing 50% Resort 24% Owner Occupied oes Vacant Land w% Land Development Construction 3% Th Troubled Debt Restructurings as of 9/30/13 (SM) Commercial __ Reta
Slide 23: Investment Securities Portfolio
Investment Securities Portfolio (9/30/13) Investment Portfolio Highlights fj” = High quality, liquid, diverse portfolio ~ “f ‘s with short duration Investment Portfolio by Type Corporate oe Private Label Mortgage om — 73% of the portfolio is AAA rated essary agenay tos oe — 5.9year average weighted
Slide 24: Investment Summary
* Investment Summary Compelling absolute and relative valuation with potential for upside as the stock trades to a more normalized valuation Results oriented management team as evidenced by improved earnings and improved credit metrics Excellent, low cost core deposit base drives a strong net intere
Slide 25: Appendix
Appendix few ta» Independent Bank
Slide 26: Michigan Economy Continues to Stabilize
Unemployment Trends (%) Median Home Sales Price (Thousands) Total Employees Michigan (Thousands) Median Home Sales Price by Region (Thousands) Michigan Economy Continues to Stabilize * Sources: Bureau of Labor Statistics, Homepricetrend.com and Realtor.org. Michigan unemployment ticked up - 3Q ‘13 J
Slide 27: Medium sized urban, commercial focused market
* Medium sized urban, commercial focused market There are 11,833 total businesses in this region’s footprint There are 95,795 households in this region’s footprint The average household income in this region is $51,361, which is below the State of Michigan average of $58,514 The estimated 5 year com
Slide 28: Ionia / West Michigan / Rural Market Summary
* Ionia / West Michigan / Rural Market Summary Market Information IB Position in Market Geographic Footprint Market Strategy Small sized rural, commercial focused market There are 4,225 total businesses in this region’s footprint There are 31,633 households in this region’s footprint The average hou
Slide 29: Lansing Market Summary
* Lansing Market Summary Market Information IB Position in Market Geographic Footprint Market Strategy Small sized urban/rural, commercial focused market There are 13,169 total businesses in this region’s footprint There are 138,278 households in this region’s footprint The average household income
Slide 30: Bay City, Saginaw, Midland Market Summary
* Bay City, Saginaw, Midland Market Summary Market Information IB Position in Market Geographic Footprint Market Strategy Medium sized urban, commercial focused market There are 10,474 total businesses in this region’s footprint There are 98,565 households in this region’s footprint The average hous
Slide 31: "Thumb" Market Summary
* “Thumb” Market Summary Market Information IB Position in Market Geographic Footprint Market Strategy Small sized rural, commercial focused market There are 6,818 total businesses in this region’s footprint There are 41,616 households in this region’s footprint The average household income in this
Slide 32: Southeast Michigan Market Summary
* Southeast Michigan Market Summary Market Information IB Position in Market Geographic Footprint Market Strategy Large sized urban, commercial focused market There are 12,353 total businesses in this region’s footprint There are 80,140 households in this region’s footprint The average household inc
Slide 33: Mepco Update
* Mepco Update Mepco Finance Corporation ("Mepco") is a wholly-owned subsidiary that acquires payment plans for vehicle service contracts from marketers Mepco incurred charge-offs after its largest counterparty experienced financial difficulties and ultimately filed for bankruptcy in March 2010 As o
Slide 34: Classified Assets and New Default Trends
Classified Assets and New Default Trends Total Classified Assets ($ in Millions) Commercial New Defaults ($ in Millions #7” 8250 7 72x mmm classifica S4) 0.0% $80.0 70% i a —EEE a eT om aeacrae ci, [sme at {1)s5.amtnor e081 commer = ee a 60.0% $60.0 which was moved to non-accrual in 30°13-have exeat