Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q1 2009 Earnings Presentation
52 slides from Independent Bank's earnings presentation, Apr 23, 2009
Slide 1: Independent Bank Corporation 1st Quarter 2009 Earnings Conference Call
Independent Bank Corporation 1st Quarter 2009 Earnings Conference Call - April 24, 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: 1st Quarter 2009 Overview
1st Quarter 2009 Overview Michael M. Magee, President and Chief Executive Officer 3
Slide 4: 1Q09: High-Level Overview
1Q09: High-Level Overview 4 Foundation Remains Solid Core pre-tax, pre-provision earnings showed solid growth on a year-over-year and linked quarter basis TE net interest margin continued to expand - currently among the best in the industry Regulatory capital remains above minimum to be "well capita
Slide 5: 1st Quarter 2009 Financial Review
1st Quarter 2009 Financial Review Robert N. Shuster, Executive Vice President and CFO 5
Slide 6: 1st Quarter 2009 Recap
1st Quarter 2009 Recap 6 Net loss of $18.6 million and net loss applicable to common stock of $19.7 million or 84 cents per share Elevated provision for loan losses as well as other credit related costs (loss on ORE and loan and collection expenses) drove the loss Loss on securities ($0.6 million) a
Slide 7: 1st Quarter 2009 Recap (continued)
1st Quarter 2009 Recap (continued) 7 Positive Factors Growth in the TE net interest margin on both a year-over-year and sequential quarterly basis Growth in non-interest income on both a year-over-year and sequential quarterly basis due primarily to gains on mortgage loan sales Excluding the increas
Slide 8: Valuation Allowance On Deferred Tax Asset
Valuation Allowance On Deferred Tax Asset 8 Current accounting impact Total net deferred tax asset of $43.7 million at 3/31/09. The associated valuation allowance is also $43.7 million at 3/31/09 (of which $36.2 million was established at 12/31/08). Income tax expense of $0.293 million in 1Q 2009 re
Slide 9: Pre-Tax, Pre-Provision Core Operating Earnings
Pre-Tax, Pre-Provision Core Operating Earnings 1Q09 4Q08 1Q08 Net income (loss) $(18,597) $(90,025) $ 341 Income tax exp. (benefit) 293 10,348 (2,031) Provision for loan losses 30,838 28,831 11,316 Securities losses 581 6,924 2,163 MSR impairment charge 697 4,255 725 Goodwill impairment charge -- 50
Slide 10: Tax Equivalent Net Interest Margin
Tax Equivalent Net Interest Margin 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 Yield on Earning Assets 0.0774 0.077 0.0775 0.0765 0.0737 0.0715 0.0702 0.0711 0.0708 Cost of Funds 0.0351 0.0343 0.0344 0.0343 0.0307 0.0247 0.0226 0.0231 0.0195 Net Interest Margin 0.0423 0.0427 0.0431 0.0422
Slide 11: TE Net Interest Income
TE Net Interest Income 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 Net Interest Income 31209 32068 31881 31521 31785 34539 34997 33387 35044 11
Slide 12: TE Net Interest Income - Continued
TE Net Interest Income - Continued 12 Items impacting 1Q 2009 Reversal of interest on non-accrual loans of $0.863 million - compared to $0.799 million in 4Q'08 and $0.797 million in 1Q '08. Non-accrual loans averaged $127.5 million compared to $116.5 million in 4Q'08 and $83.0 million in 1Q '08. Inc
Slide 13: TE Net Interest Income Sensitivity at 3/31/09
TE Net Interest Income Sensitivity at 3/31/09 (a) Interest rate change TE Net Interest Income TE Net Interest Margin 200 basis point rise $135,092 5.06% 100 basis point rise 137,610 5.15% Base case scenario (b) 140,772 5.27% 100 basis point decline 142,554 5.34% 200 basis point decline 138,241 5.18%
Slide 14: Non-Interest Income
Non-Interest Income Category ($ in 000's) 1Q09 4Q08 1Q08 Total non-interest income $11,578 $ 644 $9,492 Service charges - deposits 5,507 5,996 5,647 VISA check card income 1,415 1,394 1,371 Gain (loss) on securities (581) (6,924) (2,163) Net gains - mortgage loan sales 3,281 1,204 1,867 Mortgage loa
Slide 15: Non-Interest Expense
Non-Interest Expense Category ($ in 000's) 1Q09 4Q08 1Q08 Total non-interest expense $33,391 $84,086 $30,251 Goodwill impairment charge -- 50,020 -- Compensation & employee benefits 12,577 13,164 14,184 Occupancy 3,048 3,054 3,114 Advertising 1,442 1,691 1,100 Loan and collection 4,038 3,536 1,925 L
Slide 16: Provision for Loan Losses
Provision for Loan Losses 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 Provison for Loan Losses 8139 14893 10735 9393 11316 12352 19788 28831 30838 16
Slide 17: Asset Quality Measures - Non-Performing Loans
Asset Quality Measures - Non-Performing Loans Non-performing loans by loan type ($ in 000's) 3/31/09 12/31/08 3/31/08 Commercial (1) $ 68,899 $ 78,055 $72,068 Mortgage 50,765 38,922 24,824 Consumer/installment 6,858 4,873 3,427 Finance receivables 2,524 3,415 1,867 Total $129,046 $125,265 $102,186 A
Slide 18: Allowance for Loan Losses Allocation
Allowance for Loan Losses Allocation ($ in 000's) 3/31/09 12/31/08 3/31/08 Specific loan allocations $15,057 $16,788 $16,166 Adversely rated loans 9,393 9,511 9,753 Historical losses 21,464 20,270 14,512 Other factors/subjective 12,391 11,331 9,480 Total $58,305 $57,900 $49,911 As a % of portfolio l
Slide 19: Analysis of the Allowance for Loan Losses
Analysis of the Allowance for Loan Losses Loan type ($ in 000's) Loan Balance Allocated Allowance % of Loan Balance Commercial $ 940,418 $35,534 3.78% Mortgage 816,418 15,242 1.87% Consumer/installment 335,796 6,833 2.03% Finance receivables 354,327 696 0.20% Total $2,446,959 $58,305 2.38% . 19
Slide 20: Asset Quality Measures - Net Loan Charge-Offs
Asset Quality Measures - Net Loan Charge-Offs Net loan charge-offs by loan type ($ in 000's) 1Q09 4Q08 3Q08 2Q08 Commercial $23,776 $17,626 $12,314 $8,403 Mortgage 4,559 3,564 3,698 2,238 Consumer 1,264 1,624 1,116 498 Overdrafts 122 247 248 160 Finance receivables 798 976 (5) 0 Total $30,519 $24,03
Slide 21: Securities Available for Sale at 3/31/09
Securities Available for Sale at 3/31/09 Category ($ in 000's) Cost Basis "Fair" Value Difference Private label CMO's/asset backed (1) $ 54,628 $ 47,388 $ (7,240) Agency MBS 54,673 55,726 1,053 Bank trust preferred (2) 17,869 9,885 (7,984) Bank of America Series E preferred (3) 3,800 2,628 (1,172) M
Slide 22: Regulatory Capital Ratios
Regulatory Capital Ratios (Independent Bank Corporation) Category Estimated 3/31/09 Actual 12/31/08 Actual 3/31/08 Tier 1 capital to average assets 7.97% 8.61% 7.50% Tier 1 capital to risk-weighted assets 9.97% 11.04% 9.49% Total capital to risk-weighted assets 12.22% 13.05% 11.17% 22
Slide 23: Liquidity and Capital
Liquidity and Capital 23 Liquidity Cash on hand at parent company of $28 million at March 31, 2009 Independent Bank has approximately $650 million in unused borrowing capacity at March 31, 2009 Currently executing a strategy to pay down FRB discount window and TAF borrowings and short-term FHLB adva
Slide 24: 1Q 2009 Commercial Credit Review
1Q 2009 Commercial Credit Review Stefanie M. Kimball, Executive Vice President and Chief Lending Officer 24
Slide 25: 1st Quarter 2009 Summary
1st Quarter 2009 Summary Overall level of watch credits declined by $17 million or 8% during 1st Q 2009. Early stage watch credits have steadily declined over the past three quarters. 30 +delinquencies for accruing loans remained at a consistently low level at 1.40%. Nonaccrual loans declined by $9
Slide 26: Commercial Loan Balances
Commercial Loan Balances $93 million in new and renewed loan volume in 1st Quarter offset by repayments Overall commercial loan balances declined $36 million during 1st Quarter 2009 26
Slide 27: Portfolio Segmentation
Portfolio Segmentation High-risk commercial real estate categories of land, land development and construction represent a relatively small proportion of total portfolio and a high percentage of loans are already in watch category and/or have been charged down Strategic direction continues to re-shap
Slide 28: Watch Credits in 1st Quarter 2009
Watch Credits in 1st Quarter 2009 Watch credits decreased by $17 million or 8% during 1st quarter The level of early stage watch credits continued to decline 28
Slide 29: Commercial 30+ Day Delinquency for Accruing Loans
Commercial 30+ Day Delinquency for Accruing Loans Consistent During 1st Quarter 2009 Commercial 30+ day delinquency continues at low level at 1.4% Note: Graph includes all loans over 30 days past due still accruing. 29
Slide 30: Commercial Loan Non-Accruals
Commercial Loan Non-Accruals Commercial loan non-accruals decreased $9 million during 1Q '09 Inflow of new non-accrual loans is consistent Plans in place to dispose of the loan or property for approximately $10 million in non-accruals Level of commercial loan non-accruals remains elevated 30
Slide 31: Composition of Nonaccrual Loans
Composition of Nonaccrual Loans 47% of Nonaccrual loans in Land, Land Development and Construction Average write-down of loan balance to Nonaccrual: 50% Granularity of Commercial Nonaccruals: 31
Slide 32: 1st Quarter Commercial Loan Net Charge-Offs
1st Quarter Commercial Loan Net Charge-Offs Net Charge-offs rise in 1Q as work out credits season and additional collateral valuation and loan disposition write downs are taken 32
Slide 33: Commercial ORE Balances
Commercial ORE Balances Commercial ORE had a net increase of $4.6 Million in the 1Q Watch Credits are moving through the workout and foreclosure process 33
Slide 34: Managing Commercial Troubled Assets
Managing Commercial Troubled Assets Non Performing Assets $86 Million at 3/31/09, a $4.5 million decline since 12/31/08. Other real estate owned (ORE) now accounts for 20% of NPA's at 3/31/09 as compared to 13% at 12/31/08. $10 million of nonaccrual loans have plans in place for their disposition. T
Slide 35: Comprehensive Implementation of Credit Best Practices
Comprehensive Implementation of Credit Best Practices Quarterly Watch Process to proactively manage high risk loans is in place. Risk Ratings are independently assigned and structured based on recommendations made upfront by Credit Officers. A Special Assets Group established to provide more effecti
Slide 36: Management's Ongoing Credit Quality Initiatives
Management's Ongoing Credit Quality Initiatives Highlights of recent enhancements: Special Assets team continues to be expanded. Formation of commercial lending team to focus exclusively on facilitating additional transactions to reduce non-performing assets. Continued investment in training for the
Slide 37: 1Q 2009 - Retail Credit Review
1Q 2009 - Retail Credit Review Brad Kessel, Executive Vice President and COO 37
Slide 38: Retail Credit Overview
Retail Credit Overview Michigan economic conditions. Retail portfolio. Retail loan production. Management initiatives. Total past dues. Nonperforming assets. Retail losses. 38 Retail Credit Overview
Slide 39: Retail Nonperforming Loans and Michigan Unemployment Rate
Retail Nonperforming Loans (as percent of outstandings) 39 Michigan Unemployment Rate
Slide 40: Retail Nonperforming Loans and Michigan Residential Real Estate Market
Retail Nonperforming Loans (as percent of outstandings) 40 Michigan Residential Real Estate Market
Slide 41: Management's Initiatives
Management's Initiatives Increase in collection resources, and enhancements to structure, including formation of loss mitigation committee. Revisions to retail underwriting criteria, approval processes, quality assurance review and exception reporting. Integrated enhanced portfolio analytics, includ
Slide 42: Retail Loan Balances
Retail Loan Balances 42 Retail Loan Balances
Slide 43: Retail Loan Production
Retail Loan Production 43 Retail Loan Production
Slide 44: Retail Past Dues
44 Retail Past Dues (as percent of outstanding)
Slide 45: Retail 30 to 89 Day Delinquency
Retail 30 to 89 Day Delinquency (in dollars) 45 Retail 30 to 89 Day Delinquency (in dollars)
Slide 46: Retail Nonperforming Loans
Retail Nonperforming Loans (as percent of outstandings) 46 Retail Nonperforming Loans (in dollars)
Slide 47: Retail Nonperforming Assets
Retail Nonperforming Loans (as percent of outstandings) 47 Retail Nonperforming Assets (NPL's, ORE and ORA)
Slide 48: Retail Loan Workout Summary
Retail Nonperforming Loans (as percent of outstandings) 48 Retail Loan Workout Summary
Slide 49: Retail Net Charge Offs
Retail Net Charge Offs (Mortgage, Consumer, Overdrafts) 49 Retail Net Charge Offs
Slide 50: Other Real Estate Liquidation History
Other Real Estate Liquidation History 50 Other Real Estate Liquidation History
Slide 51: 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 51
Slide 52: Thank you for participating in the conference call
Thank you for participating in the conference call 52