Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q2 2023 Earnings Presentation
27 slides from Independent Bank's earnings presentation, Jul 25, 2023
Slide 1: Earnings Call: Second Quarter 2023
Earnings Call: Second Quarter 2023 July 25, 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: 2Q23 Overview
4 2Q23 Overview • Net income of $14.8 million, or $0.70 per diluted share, compared to $13.0 million, or $0.61 per diluted share, in 2Q22 • Pre-tax, pre-provision income of $21.5 million • Increase in non-interest income compared to 1Q23 • Strong profitability and prudent balance sheet management re
Slide 5: Strong Liquidity Position
5 Strong Liquidity Position • Significant liquidity position to manage the current 2Q 2023 environment. Current On-balance sheet Excess reserves at the Fed $ 68.0 • Total available liquidity Unpledged AFS Securities $ 712.7 Sources Total On-balance sheet $ 780.7 significantly exceeds (227%) estimate
Slide 6: Low-Cost Deposit Franchise
6 Low-Cost Deposit Franchise • Substantial core funding – $3.71 billion of non-maturity Focused on Core Deposit Growth deposit accounts (82.8% of total deposits). • Core deposit decrease of $23.4 Deposit Composition million (2.2% annualized) in 6/30/23 Cost of Deposits (%)/Total Deposits ($B) 2Q’23.
Slide 7: Deposit Balances
Federal Funds Rate 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% Sep-16 0.25% Dec-16 0.27% Mar-17 0.27% Jun-17 0.28% Sep-17 0.33% Dec-17 0.36% IB COF Mar-18 0.42% Jun-18 0.51% Sep-18 0.60% Dec-18 0.73% Cumulative Cycle Beta = 29.4% Mar-19 0.82% Jun-19 0.85% Sep-19 0.85% Fed Funds
Slide 8: Diversified Loan Portfolio Focused on High Quality Growth
8 • Portfolio loan changes in 2Q’23: Diversified Loan Portfolio − Commercial – increased $66.9 million. Focused on High Quality Growth …Average new origination yield of 7.34%. − Mortgage – increased $33.2 million. …Average new origination yield of 6.85%. Loan Composition Yield on Loans (%)/ − Instal
Slide 9: Concentrations within $1.54B Commercial Loan Portfolio
9 Concentrations within $1.54B Commercial Loan Portfolio Loans by Industry as a % Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) of Total Commercial Loans ($ in millions) Commercial Industrial Manufacturing Retail 0.63% 10% 1.65% $10 Construction $152 2.59%$25 Office
Slide 10: Credit Quality Summary
10 10 Credit Quality Summary Non-performing Loans ($ in Millions) ORE/ORA ($ in Millions) $13.4 $5.0 1.1% $9.5 $8.2 $8.6 $7.9 $5.1 $5.0 $4.5 $1.9 0.4% $3.8 $3.7 $3.9 $4.0 $1.6 $1.3 0.3% 0.3% $0.8 0.3% $0.4 $0.5 $0.5 $0.5 $0.7 0.2% 0.2% 0.2% $0.2 $0.3 0.1% 0.1% 0.1% 0.1% 2016 2017 2018 2019 2020 2021
Slide 11: Strong Capital Position
11 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. 6.9 6.7 8.8 8.7 8.8 8.9 8.9 8.9 • Well capitalized in all regulato
Slide 12: Interest Margin/Income
12 Net Interest Margin/Income • Net interest income was $38.4 million in 1Q’23 and 2Q’23. A decrease in the net interest Yields, NIM and Cost of Funds (%) margin was partially offset by an increase in average 6 5 4.99 earnings assets. 4 3 3.26 • Net interest margin was 3.26% 2 1.72 during the second
Slide 13: Linked Quarter Analysis
13 Linked Quarter Analysis 2Q’23 NIM Changes Linked Quarter Average Balances and FTE Rates ($ in thousands) 2Q23 1Q23 Change Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Avg Bal Inc/Exp Yield Q1'23 3.33% Cash $66,023 $837 5.08% $38,889 $464 4.84% $27,134 $373 0.25% Investments 1,129,352 9,839 3.49% 1
Slide 14: Interest Rate Risk Management
14 • 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 15: Strong Non-interest Income
15 • The $0.5 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 2Q23 Non-interest Income Non-interest Income Trends with changes in mortgage l
Slide 16: Focus on Improved Efficiency
16 • 2Q’23 efficiency ratio of 59.3%. Focus on Improved Efficiency • Compensation and employee benefits expense of $20.6 million, an increase of $0.7 million from the prior year quarter. • Compensation (salaries and wages) increased $1.0 million due to raises that Non-interest Expense ($M) Efficienc
Slide 17: Category Outlook
17 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 18: Category Outlook
18 Category Outlook NON-INTEREST NON-INTEREST INCOME SHARE INCOME EXPENSES TAXES REPURCHASES IBCP forecasted 2023 quarterly IBCP forecasted 2023 quarterly range of $11M to $13M with the range of $32.0M to $33.5M with the total for the year down 20% to 25% total for the year up 1.5% to 2.5% from 2022
Slide 19: Strategic Initiatives
19 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 20: Question and Answer Session Closing Remarks
20 Question and Answer Session Closing Remarks Thank you for attending NASDAQ: IBCP
Slide 21: Appendix
21 Appendix Additional Financial Data and Non-GAAP Reconciliations
Slide 22: Granular Deposit Base
22 • Average deposit account balance Granular Deposit Base of approximately $19,261. • Average deposit balance excluding reciprocal deposit of $4,327 $4,379 $4,545 $4,488 $16,044. $4,205 $4,291 $976 22% $965 21% $918 21% • Average Commercial deposit $989 24% $994 23% $1,027 24% Uninsured balance of
Slide 23: CRE – Office Metrics
23 CRE – Office Metrics • 30.5% of portfolio is medical office buildings. • 91% of portfolio are located in suburban geographies. Geographic CRE - Office Maturing Location (millions) Fixed vs. Variable Exposure (millions) • 62.7% of CRE – Office mature after 2024. • Average loan size of $1.2 $25.6 $
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 6/30/22 9/30/22 12/31/22 3/31/23 6/30/23 Balance Sheet: Total Assets $3,565 $4,204 $4,705 $5,000 $4,826 $4,931 $5,000 $5,139 $5,136 Portfolio Loans $2,725 $2,734 $2,905 $3,465 $3,2
Slide 25: Non-GAAP to GAAP Reconciliation
25 Non-GAAP to GAAP Reconciliation Year Ended December 31, Quarter Ended June 30, March 31, December 31, September 30, June 30, 2022 2021 2020 2019 2023 2023 2022 2022 2022 (Dollars in thousands) Net interest income $ 149,561 $ 129,765 $ 123,612 $ 122,581 $ 38,350 $ 38,441 $ 40,602 $ 39,897 $ 36,061
Slide 26: Reconciliation of Non-GAAP Financial Measures
26 Reconciliation of Non-GAAP Financial Measures Three Months Ended Six Months Ended June 30, June 30, 2023 2022 2023 2022 (Dollars in thousands) Net Interest Margin, Fully Taxable Equivalent ("FTE") Net interest income $ 38,350 $ 36,061 $ 76,791 $ 69,062 Add: taxable equivalent adjustment 423 481 8
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 June 30, March 31, December 31, September 30, June 30, 2022 2021 2020 2019 2023 2023 2022 2022 2022 (Dollars in thousands) Common shareholders' equity $ 347,596 $ 398,484 $