Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q3 2022 Earnings Presentation
32 slides from Independent Bank's earnings presentation, Oct 25, 2022
Slide 1: Independent Bank Corporation Earnings Call Third Quarter 2022
Independent Bank Corporation Earnings Call Third Quarter 2022 October 25, 2022 (NASDAQ: IBCP)
Slide 2: Cautionary note regarding forward-looking statements
Cautionary note regarding forward-looking statements This presentation contains forward-looking statements about Independent Bank Corporation. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements and are based on the
Slide 3: Agenda
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 ava
Slide 4: 3Q22 Overview
3Q22 Overview 4 3Q22 Earnings • Net income of $17.3 million, or $0.81 per diluted share, compared to $16.0 million, or $0.73 per diluted share, in 3Q21 • Pre-tax, pre-provision income of $24.4 million, an increase of 28% from $19.0 million in 3Q21 • Growth in net interest income offset lower net gai
Slide 5: Business Investment in Michigan Creating Attractive Growth Opportunities
Business Investment in Michigan Creating Attractive Growth Opportunities 5 Significant investment in electric vehicle industry, clean energy infrastructure, and the trend of onshoring of supply chain is driving job growth, business formation/expansion, and attractive lending and deposit gathering op
Slide 6: Low Cost Deposit Franchise Focused on Core Deposit Growth
Low Cost Deposit Franchise Focused on Core Deposit Growth 6 Substantially core funding – $3.92 billion of non- maturity deposit accounts (90.6% of total deposits). Total deposits increased $209.9 million (5.1%) since 12/31/21 with non-interest bearing up $55.2 million, savings and interest- bear
Slide 7: Historic IBC Cost of Funds vs. the Federal Funds Rate
Historic IBC Cost of Funds (excluding sub debt) vs. the Federal Funds Rate 7 0.25% 0.27% 0.27% 0.28% 0.33% 0.36% 0.42% 0.51% 0.60% 0.73% 0.82% 0.85% 0.85% 0.74% 0.63% 0.30% 0.23% 0.39% 0.14% 0.12% 0.11% 0.10% 0.10% 0.11% 0.33% 0.50% 0.75% 1.00% 1.25% 1.25% 1.50% 1.75% 2.00% 2.25% 2.50% 2.50% 2.50% 2
Slide 8: Diversified Loan Portfolio Focused on High Quality Growth
Diversified Loan Portfolio Focused on High Quality Growth 8 Lending Highlights Note: Portfolio loans exclude loans HFS. Portfolio loan changes in 3Q’22: − Commercial – increased $79.0 million. − Average new origination yield of 5.32%. − Mortgage – increased $70.7 million. − Average new origination
Slide 9: Concentrations within $1.4B Commercial Loan Portfolio
Loans by Industry as a % of Total Commercial Loans ($ in millions) Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) 9 Concentrations within $1.4B Commercial Loan Portfolio 9 Note: $896 million, or 63.6% of the commercial loan portfolio is C&I or owner occupied, while $
Slide 10: Credit Quality Summary
Credit Quality Summary Note 1: Non-performing loans and non-performing assets exclude troubled debt restructurings that are performing. Note 2: 12/31/16 30 to 89 days delinquent data excludes $1.63 million of payment plan receivables that were held for sale. Non-performing Assets ($ in Millions) ORE
Slide 11: Strong Capital Position
Strong Capital Position 11 TCE / TA (%) Leverage Ratio (%) CET1 Ratio (%) Total RBC Ratio (%) Strong Capital Position • Long-term capital Priorities: Capital retention to support organic growth, acquisitions and return of capital through strong and consistent dividends and share repurchases. • Well
Slide 12: Net Interest Margin/Income Highlights
Highlights Net interest income increased $3.8 million in 3Q’22 vs.2Q’22 due to an increase in average earning assets and an increase in the net interest margin. Net interest margin was 3.49% during the third quarter of 2022, compared to 3.18% in the year-ago quarter and 3.26% in the second quart
Slide 13: Linked Quarter Analysis
Linked Quarter Analysis 13 3Q’22 NIM Changes Linked Quarter Average Balances and FTE Rates Q2'22 3.26% Increase in investment yield 0.15% Change in loan yield and mix 0.30% Increase in funding costs -0.22% Q3'22 3.49% 3Q22 2Q22 Change Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield
Slide 14: Interest Rate Risk Management
• Slightly asset sensitive NII position. • The increase in the base case modeled NII is due to rate increases during the quarter, lower betas on interest bearing deposits than modeled and earning asset growth. These benefits were partially offset by a shift in the funding mix to increased levels of
Slide 15: Strong Non-interest Income
Strong Non-interest Income 15 Diverse sources of non-interest income, representing 27.3% of operating revenue in 3Q’22. 3Q’22 other income of $1.8 million compared to $2.1 million in the prior year quarter. This decrease was primarily due to the prior year relationship credit from the core provi
Slide 16: Focus on Improved Efficiency
Focus on Improved Efficiency 16 Source: Company documents. Non-interest Expense ($M) Highlights Efficiency Ratio (4 quarter rolling average) 3Q’22 efficiency ratio of 56.3%. Compensation and employee benefits expense of $20.6 million, a decrease of $1.1 million from the prior year quarter. Com
Slide 17: 2022 Outlook Update
2022 Outlook Update Category Outlook Lending Continued growth IBCP goal of low double digit (approximately 10%) overall loan growth is based on increases in commercial loans, mortgage loans and consumer loans. Expect much of this growth to occur in the last three quarters of 2022. This growth foreca
Slide 18: Strategic Initiatives
Strategic Initiatives 18 • Organic growth through servicing businesses and consumers in our Markets in an inclusive way to include straight forward marketing, improved brand awareness and enhanced outreach efforts that foster strong customer relationships and engagement. • Improve net interest incom
Slide 19: Q&A and Closing Remarks
Q&A and Closing Remarks Question and Answer Session Closing Remarks Thank you for attending! NASDAQ: IBCP 19
Slide 20: Appendix: Additional Financial Data and Non-GAAP Reconciliations
Appendix 20 Additional Financial Data and Non-GAAP Reconciliations
Slide 21: Historical Financial Data
Historical Financial Data 21 Year Ended December 31, Quarter Ended, ($M except per share data) 2018 2019 2020 2021 9/30/21 12/31/21 3/31/22 6/30/22 9/30/22 Balance Sheet: Total Assets $3,353 $3,565 $4,204 $4,705 $4,622 $4,705 $4,762 $4,826 $4,931 Portfolio Loans $2,583 $2,725 $2,734 $2,905 $2,884 $2
Slide 22: Franchise Overview
Franchise Overview 22 Note: All financial data as of June 30, 2022 $4.9 billion asset community bank operating throughout the state of Michigan Highly profitable franchise built upon the foundation of a low-cost deposit base and exceptional credit quality Proven track record of strong performa
Slide 23: Our Michigan Markets
Our Michigan Markets 23 Source: S&P Global Market Intelligence and Company documents. Map does not include loan production offices. Deposit market share data based on FDIC Summary of Deposits Annual Survey as of June 30, 2022. Note: Loan and deposit balances exclude the loans and deposits (such as b
Slide 24: Digital Transformation
24 24 ▪ All functionality within online banking can be done in the new IB ONE Wallet app. ▪ Customers can reset their own passwords in the app. ▪ Instantly transfer funds to other IB customers. ▪ IB Card Controls allows you to turn your debit card on or off, restrict transactions by category or doll
Slide 25: Select Economic Statistics
0 100,000 200,000 300,000 400,000 500,000 600,000 USA - Census AVG MI Ohio 511,000 12,833 - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 - 200,000 400,000 600,000 800,000 1,000,000 1,200,000 M ic h ig an ( 0 0 0 )s U SA ( 0 0 0 )s USA - Census AVG MI 152,536 4,356 3,500 3,600 3,700 3,8
Slide 26: Investment Securities Portfolio
Investment Securities Portfolio 26 Highlights ▪ High quality, liquid, diverse portfolio with moderate duration. ▪ On April 1, 2022 approximately $391.6 million in securities available-for-sale was transferred to held-to-maturity. ▪ Net unrealized loss of $154.0 million, representing 11.8% of amortiz
Slide 27: Classified Assets and New Default Trends
Classified Assets and New Default Trends Note: Dollars all in millions. Total Classified Assets Commercial Loan New Defaults Total Loan New Defaults Retail Loan New Defaults 27 $27 $15 $19 $17 $17 $20 $12 $11 $10 10% 5% 6% 5% 4% 4% 3% 2% 2% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% $0 $5 $10 $15 $20 $25
Slide 28: Troubled Debt Restructurings (TDRs)
Troubled Debt Restructurings (TDRs) TDR Highlights Working with client base to maximize sustainable performance. The specific reserves allocated to TDRs totaled $280m at 9/30/22. A majority of our TDRs are performing under their modified terms but remain in TDR status for the life of the loan.
Slide 29: Credit Cost Summary
Note: Dollars all in millions. Provision for Credit Losses Loan Net Charge-Offs/Recoveries Allowance for Credit Losses Credit Cost Summary 29 ($1.3) $1.2 $1.5 $0.8 $12.5 ($1.8) ($1.6) $2.2 $3.1 ($4.0) ($2.0) $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 2016 2017 2018 2019 2020 2021 Q1'22 Q2'22 Q3'22 $
Slide 30: Non-GAAP to GAAP Reconciliation
30Non-GAAP to GAAP Reconciliation Reconciliation of Non-GAAP Financial Measures Adjusted Income Statement Results (non-GAAP) September 30, June 30, March 31, December 31, September 30, 2021 2020 2019 2018 2022 2022 2022 2021 2021 Net interest income $ 129,765 $ 123,612 $ 122,581 $ 113,282 $ 39,897 $
Slide 31: Reconciliation of Non-GAAP Financial Measures
31 Reconciliation of Non-GAAP Financial Measures 2022 2021 2022 2021 Net Interest Margin, Fully Taxable Equivalent ("FTE") Net interest income 39,897$ 33,803$ 108,959$ 95,480$ Add: taxable equivalent adjustment 462 492 1,425 1,374 Net interest income - taxable equivalent 40,359$ 34,295$ 110,384$ 96,
Slide 32: Reconciliation of Non-GAAP Financial Measures (continued)
32 Reconciliation of Non-GAAP Financial Measures (continued) Independent Bank Corporation Tangible Common Equity Ratio September 30, June 30, March 31, December 31, September 30, 2021 2020 2019 2018 2022 2022 2022 2021 2021 Common shareholders' equity 398,484$ 389,522$ 350,169$ 338,994$ 332,308$ 331