Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q3 2009 Earnings Presentation
48 slides from Independent Bank's earnings presentation, Oct 26, 2009
Slide 1: 3rd Quarter 2009 Earnings Conference Call
Independent Bank Corporation 3rd Quarter 2009 Earnings Conference Call - October 27, 2009 1
Slide 2: Safe Harbor Statement
Safe Harbor Statement This presentation may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include expressions such as "expects," "intends," "believes" and "should" which are necessarily statements of
Slide 3: 3rd Quarter 2009 Overview
3rd Quarter 2009 Overview Michael M. Magee, President and Chief Executive Officer 3
Slide 4: 3Q09: High-Level Overview
3Q09: High-Level Overview 4 Foundation Remains Solid Core pre-tax, pre-provision earnings showed continued growth year-over-year and was stable on a linked quarter basis TE net interest margin was strong - currently among best in the industry Regulatory capital remains above minimum to be "well capi
Slide 5: 3Q09: High-Level Overview - Continued
3Q09: High-Level Overview - Continued 5 Interest and Dividends on Trust Preferred Securities and Preferred Stock Deferred In current environment need to preserve cash at the holding company level One cent dividend on common stock also suspended, effective Nov. 1, 2009 Special Shareholders Meeting An
Slide 6: 3rd Quarter 2009 Financial Review
3rd Quarter 2009 Financial Review Robert N. Shuster, Executive Vice President and CFO 6
Slide 7: 3rd Quarter 2009 Recap
3rd Quarter 2009 Recap 7 Net loss of $16.7 million and net loss applicable to common stock of $17.8 million or 74 cents per share Elevated provision for loan losses as well as other credit related costs (loss on ORE and loan and collection expenses) and a special charge at Mepco drove the loss Impai
Slide 8: Valuation Allowance On Deferred Tax Asset
Valuation Allowance On Deferred Tax Asset 8 Current accounting impact Total net deferred tax asset of $49.2 million at 9/30/09. The associated valuation allowance is also $49.2 million at 9/30/09 (of which $36.2 million was established at 12/31/08). Income tax benefit of $1.1 million in 3Q 2009 rela
Slide 9: Pre-Tax, Pre-Provision Core Operating Earnings
Pre-Tax, Pre-Provision Core Operating Earnings 3Q09 2Q09 3Q08 Net income (loss) $(16,714) $ (5,161) $ (5,326) Income tax exp. (benefit) (1,088) (959) (5,723) Provision for loan losses 22,285 25,593 19,788 Est. losses VSC counterparty risk 8,713 2,215 -- Securities (gains) losses (121) (4,230) 6,711
Slide 10: Tax Equivalent Net Interest Margin
Tax Equivalent Net Interest Margin 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 Yield on Earning Assets 0.0775 0.0765 0.0737 0.0715 0.0702 0.0711 0.0708 0.0704 0.0697 Cost of Funds 0.0344 0.0343 0.0307 0.0247 0.0226 0.0231 0.0195 0.0183 0.0182 Net Interest Margin 0.0431 0.0422 0.043 0.0468
Slide 11: TE Net Interest Income
TE Net Interest Income 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 Net Interest Income 31881 31521 31785 34539 34997 33387 35044 36116 35756 11
Slide 12: TE Net Interest Income - Continued
TE Net Interest Income - Continued 12 Items impacting 3Q 2009 Reversal of interest on non-accrual loans of $0.377 million - compared to $0.787 million in 2Q'09 and $0.347 million in 3Q '08. Non-accrual loans averaged $119.5 million compared to $121.5 million in 2Q'09 and $115.4 million in 3Q '08. Av
Slide 13: TE Net Interest Income Sensitivity at 9/30/09
TE Net Interest Income Sensitivity at 9/30/09 (a) Interest rate change TE Net Interest Income TE Net Interest Margin 200 basis point rise $141,900 5.31% 100 basis point rise 141,000 5.28% Base case scenario (b) 141,800 5.31% 100 basis point decline 141,700 5.30% 200 basis point decline 140,100 5.24%
Slide 14: Non-Interest Income
Non-Interest Income Category ($ in 000's) 3Q09 2Q09 3Q08 Total non-interest income $12,781 $21,011 $5,448 Service charges - deposits 6,384 6,321 6,416 VISA check card income 1,480 1,500 1,468 Gain (loss) on securities 121 4,230 (6,711) Net gains - mortgage loan sales 2,257 3,262 969 Mortgage loan se
Slide 15: Non-Interest Expense
Non-Interest Expense Category ($ in 000's) 3Q09 2Q09 3Q08 Total non-interest expense $43,557 $37,057 $30,656 Compensation & employee benefits 13,823 13,328 14,023 Vehicle service contract counterparty risk 8,713 2,215 -- Loan and collection 3,628 3,227 2,008 Occupancy 2,602 2,560 2,871 FDIC Insuranc
Slide 16: Mepco Counterparties - Charge for Estimated Losses
Mepco Counterparties - Charge for Estimated Losses 16 Historical perspective Mepco purchases payment plans on a recourse basis When consumer stops making payments or voluntarily cancels the vehicle service contract, Mepco recovers any unpaid balance from its payment plan business counterparties (dir
Slide 17: Provision for Loan Losses
Provision for Loan Losses 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 Provison for Loan Losses 10735 9393 11316 12352 19788 27865 30038 25593 22285 17
Slide 18: Asset Quality Measures - Non-Performing Loans
Asset Quality Measures - Non-Performing Loans Non-performing loans by loan type ($ in 000's) 9/30/09 6/30/09 9/30/08 Commercial $ 56,793 $ 62,953 $ 74,219 Mortgage 49,291 51,406 33,869 Consumer/installment 8,396 7,783 3,945 Finance receivables 2,991 3,138 2,616 Total $117,471 $125,280 $114,649 As a
Slide 19: Allowance for Loan Losses Allocation
Allowance for Loan Losses Allocation ($ in 000's) 9/30/09 6/30/09 9/30/08 Specific loan allocations $22,940 $17,461 $16,812 Adversely rated loans 13,791 11,492 10,179 Historical losses 22,775 22,830 16,243 Other factors/subjective 14,204 13,488 10,664 Total $73,710 $65,271 $53,898 As a % of portfoli
Slide 20: Analysis of the Allowance for Loan Losses
Analysis of the Allowance for Loan Losses Loan type ($ in 000's) Loan Balance Allocated Allowance % of Loan Balance Commercial $ 863,556 $44,028 5.10% Mortgage 770,297 21,033 2.73% Consumer/installment 318,185 7,822 2.46% Finance receivables 435,191 827 0.19% Total $2,387,229 $73,710 3.09% . 20
Slide 21: Asset Quality Measures - Net Loan Charge-Offs
Asset Quality Measures - Net Loan Charge-Offs Net loan charge-offs by loan type ($ in 000's) 3Q09 2Q09 1Q09 3Q08 Commercial $ 7,449 $10,697 $23,776 $12,314 Mortgage 4,890 6,491 4,559 3,698 Consumer 1,479 1,386 1,264 1,116 Overdrafts 157 116 122 248 Finance receivables 10 4 (2) (6) Total $13,985 $18,
Slide 22: Securities Available for Sale at 9/30/09
Securities Available for Sale at 9/30/09 Category ($ in 000's) Cost Basis "Fair" Value Difference Private label CMO's/asset backed (1) $ 46,892 $ 39,766 $ (7,126) Agency MBS 49,351 50,667 1,316 Bank trust preferred (2) 17,906 15,455 (2,451) Municipal securities 76,257 78,116 1,859 Totals $190,406 $1
Slide 23: Regulatory Capital Ratios
Regulatory Capital Ratios (Independent Bank Corporation) Category Estimated 9/30/09 Actual 6/30/09 Actual 9/30/08 Tier 1 capital to average assets 6.99% 7.72% 7.42% Tier 1 capital to risk-weighted assets 9.00% 9.64% 9.56% Total capital to risk-weighted assets 11.64% 11.99% 11.29% 23
Slide 24: Liquidity and Capital
Liquidity and Capital 24 Liquidity Cash on hand at parent company of $22.3 million at 9/30/09 (intercompany tax payment of $4.3 million currently due to Independent Bank) Independent Bank has approximately $854 million in unused borrowing capacity at 9/30/09 Have substantially completed a strategy t
Slide 25: 3rd Quarter 2009 Commercial Credit Review
3rd Quarter 2009 Commercial Credit Review Stefanie M. Kimball, Executive Vice President and Chief Lending Officer 25
Slide 26: 3rd Quarter 2009 Commercial Lending Summary
3rd Quarter 2009 Commercial Lending Summary Positive Trends Non Performing Loans (NPL's) and Non Performing Assets (NPA's) levels are improving. NPL's declined 10% during the 3rd quarter and 27% since year end. NPA's declined 3% during the 3rd quarter and 13% since year end. NPL & NPA improvements h
Slide 27: Portfolio Segmentation
High-risk commercial real estate categories of land, land development and construction represent a relatively small proportion of total portfolio. Strategic direction continues to re-shape portfolio with shift towards C & I and away from certain commercial real estate segments which commenced mid-20
Slide 28: Income Producing Segment by Property Type
Income Producing Segment by Property Type Diversified Portfolio Balanced. Multi-family & 1-4 Family segments represent 29%. Seasoned Portfolio New originations curtailed several years ago. Granularity by Income Producing Segment: 28
Slide 29: Commercial Loan Outstanding Balances
Commercial Loan Outstanding Balances $47 million in new and renewed loan volume in 3rd Quarter offset by repayments. Overall commercial loan balances decreased by $30 million during 3rd Quarter 2009 given relatively weak loan demand. 29
Slide 30: Watch Credits
Watch Credits Watch credits increased by $4 million and were comparable to the same quarter a year ago. Inflow of new watch credits has slowed. 30
Slide 31: Commercial 30+ Day Delinquency for Accruing Loans
Commercial 30+ Day Delinquency for Accruing Loans Commercial 30+ day delinquency remains well managed at 1.4% of the portfolio. Note: Graph includes all loans over 30 days past due still accruing. 31
Slide 32: Commercial Loan Non-Accruals
Commercial Loan Non-Accruals Commercial loan non-accruals decreased $4 million during 3rd quarter 2009, aided by the transactions negotiated by the Special Assets team. Inflow of new non-accrual loans has declined in each of the last three quarters. 32
Slide 33: Composition of Nonaccrual Loans
Composition of Nonaccrual Loans 50% of Nonaccrual loans are in Land, Land Development and Construction. Total average write-down of contractual loan balance to Nonaccrual is approximately 50%. Breakdown by Segment: Granularity of Commercial Nonaccruals: 33
Slide 34: Commercial Non Performing Assets
Commercial Non Performing Assets Commercial Non Performing Assets declined in each of the past three quarters. Loans continue to migrate into ORE as credits move through the workout cycle. 34
Slide 35: Commercial Loan Net Charge Offs
Commercial Loan Net Charge Offs Net Charge-offs decreased significantly in both the 2nd and 3rd quarters of 2009. $0 $5,000 $10,000 $15,000 $20,000 $25,000 3/31/2008 6/30/2008 9/30/2008 12/31/2008 3/31/2009 6/30/2009 9/30/2009 Quarterly Commercial Loan Net Charge Offs Dollars (In Thousands) 35
Slide 36: Comprehensive Foundation of Credit Best Practices
Comprehensive Foundation of Credit Best Practices Real Estate Portfolio Monitoring recently conducted annual transactional review encompassing over 90% of real estate portfolio. Quarterly Watch Process to proactively manage high risk loans is in place. Risk Ratings are independently assigned and str
Slide 37: 3rd Quarter 2009 - Retail Lending Credit Review
3rd Quarter 2009 - Retail Lending Credit Review Brad Kessel, Executive Vice President and COO 37
Slide 38: Retail Nonperforming Loans / Michigan Economic Trends
Retail Nonperforming Loans (as percent of outstandings) 38 Michigan Economic Trends Higher unemployment and declining residential real estate prices continue to make the operating environment very challenging. Source: Michigan Labor Market Information http://www.milmi.org/cgi/dataanalysis/AreaSelect
Slide 39: Retail Loan Balances
Retail Loan Balances 39 Retail Loan Balances & Origination Trends Saleable refinance pace is down from Q209, overall soft loan demand, correspondingly retail loan portfolios continue to decrease. Retail Loan Balances Retail Loan Production
Slide 40: Retail Loan Portfolio Workout Statistics
Retail Nonperforming Loans (as percent of outstandings) 40 Retail Loan Portfolio Workout Statistics Continue to work with borrowers experiencing hardship using multiple home retention and home forfeiture actions, the loan modification being the predominant action.
Slide 41: Retail Loan Portfolio Workout Statistics
Retail Nonperforming Loans (as percent of outstandings) 41 Retail Loan Portfolio Workout Statistics Refinanced or modified six months ago or more performing at a 76% success rate.
Slide 42: Retail Loan Portfolio - Past Due Trends
42 Retail Loan Portfolio - Past Due Trends (as percent of outstanding)
Slide 43: Retail Loan Portfolio Past Due Trends (in dollars)
Retail 30 to 89 Day Delinquency (in dollars) 43 Retail Loan Portfolio Past Due Trends (in dollars) Improvement in both 30 - 89 day past due category and in non-performing loan category. Retail 30 to 89 Day Delinquency Retail Nonperforming Loans
Slide 44: Retail Loan Portfolio - Nonperforming Assets Trends
Retail Nonperforming Loans (as percent of outstandings) 44 Retail Loan Portfolio - Nonperforming Assets Trends (NPL's, ORE and ORA) Overall improvement in non-performing assets Q309 versus Q209
Slide 45: Other Real Estate Liquidation History
Other Real Estate Liquidation History 45 Other Real Estate Statistics Strong quarter of liquidations for ORE, 109 properties at $4.965 million in NBV Sales Volume Realization Rates
Slide 46: Retail Loan Portfolio - Net Charge-Offs Trends
Retail Net Charge Offs (Mortgage, Consumer, Overdrafts) 46 Retail Loan Portfolio - Net Charge-Offs Trends Overall net charge-offs continue to be elevated, but down from Q209
Slide 47: Q & A
Q & A Michael M. Magee Jr. President and Chief Executive Officer Robert N. Shuster Executive Vice President and Chief Financial Officer Stefanie M. Kimball Executive Vice President and Chief Lending Officer William (Brad) B. Kessel Executive Vice President and Chief Operations Officer 47
Slide 48: Thank you for participating in the conference call
Thank you for participating in the conference call 48