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
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 plan
Slide 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 available at www
Slide 4: 3Q23 Overview
3Q23 Overview • Total deposits increased at a 10.5% annualized rate • Total loans increased 12% annualized while maintaining disciplined approach to new loan production • New loan production largely focused on new commercial clients that bring deposits to the bank • Asset quality remained exceptiona
Slide 5: Low-Cost Deposit Franchise Focused on Core Deposit Growth
Low-Cost Deposit Franchise Focused on Core Deposit Growth • Substantial core funding – $3.87 billion of non-maturity deposit accounts (84.4% of total deposits). • Core deposit increase of $112.6 million (10.5% annualized) in 3Q’23. • Total deposits increased $206.5 million (6.3% annualized) since 12
Slide 6: Historic IBC Cost of Funds vs. the Federal Funds Rate
Historic IBC Cost of Funds (excluding sub debt) vs. the Federal Funds Rate (with Deposit Balances) D e p o s it B a la n c e s ( $ i n t h o u s a n d s ) 6 0 .2 7 % 0 .2 7 % 0 .2 8 % 0 .3 3 % 0 .3 6 % 0 .4 2 % 0 .5 1 % 0 .6 0 % 0 .7 3 % 0 .8 2 % 0 .8 5 % 0 .8 5 % 0 .7 4 % 0 .6 3 % 0 .3 0 % 0 .2 3 %
Slide 7: Diversified Loan Portfolio Focused on High Quality Growth
Diversified Loan Portfolio Focused on High Quality Growth • Portfolio loan changes in 3Q’23: − Commercial – increased $88.0 million. …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% portfolio
Slide 8: Concentrations within $1.6B Commercial Loan Portfolio
9% $149 9% $147 6% $99 6% $90 5% $73 4% $71 3% $54 3% $51 3% $43 $40 $40 $40 $35 $30 $73 Manufacturing Construction Health Care and Social Assistance Retail Hotel and Accomodations Real Estate Rental and Leasing Transportation Other Services (except Public Administration) Wholesale Professional, Sci
Slide 9: Credit Quality Summary
$5.0 $1.6 $1.3 $1.9 $0.8 $0.2 $0.5 $0.5 $0.7 $0.4 $- $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 2016 2017 2018 2019 2020 2021 2022 Q1'23 Q2'23 Q3'23 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 excl
Slide 10: 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 capitalized in all regulatory capital measurements. • Tangible common equity ratio excluding the impact of unrealized
Slide 11: Net Interest Margin/Income
$30.2 $30.5 $32.0 $31.0 $30.3 $31.4 $33.8 $34.3 $33.0 $36.1 $39.9 $40.6 $38.4 $38.4 $39.4 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21 Q2'21 Q3'21 Q4'21 Q1'22 Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Q3'23 3.63 3.36 3.31 3.12 3.05 3.02 3.18 3.13 3.00 3.26 3.49 3.52 3.33 3.26 3.25 1.26 0.06 0.09 0.09 0.08 0.07 0.08 0.08 0.12
Slide 12: 3Q'23 NIM Changes
3Q’23 NIM Changes Linked Quarter Average Balances and FTE Rates ($ in thousands) Linked Quarter Analysis Q2'23 3.26% Change in earning asset mix 0.05% Increase in loan and investment yield 0.16% Change in funding mix -0.03% Increase in funding costs -0.19% Q3'23 3.25% 3Q23 2Q23 Change Avg Bal Inc/Ex
Slide 13: Interest Rate Risk Management
Interest Rate Risk Management • The increase in the base case modeled NII is due to an 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 by an adverse shift in the funding mix. • The
Slide 14: Strong Non-interest Income
$19.7 $15.8 $18.9 $14.6 $16.9 $11.5 $10.5 $15.4 $15.6 3 6 .8 % 3 0 .3 % 3 5 .4 % 2 7 .6 % 2 7 .3 % 1 8 .4 % 1 6 .4 % 1 8 .4 % 2 0 .0 % -5.0 5.0 15.0 25.0 35.0 45.0 55.0 $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 $40.0 Q 3 '2 1 Q 4 '2 1 Q 1 '2 2 Q 2 '2 2 Q 3 '2 2 Q 4 '2 2 Q 1 '2 3 Q 2 '2 3 Q 3 '2 3
Slide 15: Focus on Improved Efficiency
Focus on Improved Efficiency • 3Q’23 efficiency ratio of 57.5%. • Compensation and employee benefits expense of $20.0 million, an decrease of $0.6 million from the prior year quarter. • Compensation (salaries and wages) increased $0.2 million due to raises that were generally effective at the start
Slide 16: Outlook for 2023
Category Outlook Outlook for 2023 *as of January, 2023 • IBCP forecast of low double digit (approximately 10%-12%) overall loan growth is based on increases in commercial loans and mortgage loans with installment loans remaining flat. Expect much of this growth to occur in the last three quarters of
Slide 17: Outlook for 2023 (continued)
Category Outlook Outlook • IBCP forecasted 2023 quarterly range of $11M to $13M with the total for the year down 20% to 25% from 2022 actual of $61.9M • Expect mortgage loan origination volumes in 2023 to be down by approximately 20%, a decline in mortgage loan servicing net of approximately 80%, in
Slide 18: Strategic Initiatives
Strategic Initiatives • Outside Sales - Relationship banking focus thru consistent calling on prospects and COI’s. • Inside Service/Sales – high retention + high cross sales, collaboration of strategic partners. • Digital Marketing - Leverage data insights, target strategically, elevate brand image,
Slide 19: Question and Answer Session, Closing Remarks
Question and Answer Session Closing Remarks NASDAQ: IBCP Thank you for attending 19
Slide 20: Appendix: Additional Financial Data and Non-GAAP Reconciliations
Appendix Additional Financial Data and Non-GAAP Reconciliations 20
Slide 21: Strong Liquidity Position
87% 80% 80% 98% 85% 73% 219% 203% 218% 237% 240% 222% 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 On-balance sheet / Uninsured Deposits Available Sources / Uninsured Deposits Note: Portfolio loans exclude loans HFS. Liquidity / Uninsured Deposits Strong Liquidity Position • Significant liquidity position to manag
Slide 22: Granular Deposit Base
$1,925 $927 $487 $236 $202 $573 $236 $2,127 $1,500 $723 $236 Consumer Commercial Public Funds Brokered Insured Deposits Uninsured Deposits $3,216 $3,297 $3,300 $3,403 $3,580 $3,570 $3,575 $989 $994 $1,027 $976 $965 $918 $1,011 $4,205 $4,291 $4,327 $4,379 $4,545 $4,488 $4,586 1Q22 2Q22 3Q22 4Q22 1Q23
Slide 23: CRE – Office Metrics
CRE – Office Metrics • 25.3% of portfolio is medical office buildings. • 92% of portfolio are located in suburban geographies. • 68.6% of CRE – Office mature after 2026. • Average loan size of $1.3 million. Maturing Exposure (millions) CRE - Office Fixed vs. Variable Geographic Location (millions) 2
Slide 24: Historical Financial Data
Historical Financial Data 24 here Year Ended December 31, Quarter Ended, ($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
Non-GAAP to GAAP Reconciliation 25 September 30, June 30, March 31, December 31, September 30, 2022 2021 2020 2019 2023 2023 2023 2022 2022 Net interest income $ 149,561 $ 129,765 $ 123,612 $ 122,581 $ 39,427 $ 38,350 $ 38,441 $ 40,602 $ 39,897 Non-interest income 61,909 76,643 80,745 47,736 15,611
Slide 26: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures 26 2023 2022 2023 2022 Net Interest Margin, Fully Taxable Equivalent ("FTE") Net interest income 39,427$ 39,897$ 116,218$ 108,959$ Add: taxable equivalent adjustment 422 462 1,284 1,425 Net interest income - taxable equivalent 39,849$ 40,359$ 117,502$ 11
Slide 27: Reconciliation of Non-GAAP Financial Measures (continued)
Reconciliation of Non-GAAP Financial Measures (continued) 27 Tangible Common Equity Ratio September 30, June 30, March 31, December 31, September 30, 2022 2021 2020 2019 2023 2023 2022 2022 2022 Common shareholders' equity 347,596$ 398,484$ 389,522$ 350,169$ 374,998$ 375,162$ 367,714$ 347,596$ 332,3