Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — IPO Roadshow (September 2010)
76 slides from Independent Bank's IPO roadshow presentation, Sep 24, 2010
Slide 1: Follow-on Offering of Common Stock $110,000,000
Independent Bank Corporation Follow-on Offering of Common Stock $110,000,000 September 2010
Slide 2: Cautionary Note Regarding Forward-Looking Statements
Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements of goals, intentions, and expectations as to future trends, plans, events, or results of Indepen
Slide 3: Transaction Overview
Transaction Overview Issuer: Independent Bank Corporation Ticker / Exchange: IBCPD / NASDAQ Type of Offering: Follow-on Public Offering Type of Security: Common Stock Transaction Size: $110 million Over-Allotment Option: 15% Use of Proceeds: All or substantially all of the net proceeds from this off
Slide 4: Executive Summary
Executive Summary
Slide 5: Investment Opportunity
Investment Opportunity The Michigan economy has shown signs of stabilization making now the time to invest in the Michigan banking market Asset quality has turned the corner as demonstrated by improved trends in recent quarters Substantial progress on restructuring the balance sheet and reducing hig
Slide 6: Experienced Management Team
Experienced Management Team Michael M. Magee President & CEO Mr. Magee, age 54, was appointed as our President and Chief Executive Officer effective January 1, 2005. He served as our Chief Operating Officer from April to December, 2004. From 1993 until April 2004, he was the President and Chief Exec
Slide 7: Summary of Capital Plan
Summary of Capital Plan Description Additional Tangible Common Equity Status Timing Exchange of TARP Preferred into Common Stock $70mm Pending Upon Completion of Offering Exchange of Trust Preferred Securities into Common Stock $41mm Completed June 2010 Common Equity Issuance $103mm Pending Septembe
Slide 8: Overview of Independent Bank Corporation
Overview of Independent Bank Corporation Headquartered in Ionia, MI Over 100 offices across Michigan's Lower Peninsula 4th largest bank headquartered in Michigan Single state-chartered bank subsidiary $2.7 billion in total assets $2.4 billion in total deposits 2010 J.D. Power award recipient
Slide 9: Michigan Economy is Showing Signs of Stabilization
Michigan Economy is Showing Signs of Stabilization Michigan Nonfarm Payrolls have continued to stabilize since November 2009. Nonfarm payroll has risen year to date by approximately 32,000. Unemployment rate has fallen to 13.1% as of June 2010 vs. peak of 15.6% in July 2009. The Michigan economy has
Slide 10: Core Banking Markets
Independent Bank Corporation Core Banking Markets Core deposits are defined as total deposits less jumbo time deposits. Core loans exclude out of state lending and payment plan receivables. Dollars in millions. Data as of 6/30/10. Northeast West Central Southeast Thumb Bay
Slide 11: Summary Financial Performance
Summary Financial Performance ROAA (%) ROACE (%) Earnings per Share Total Assets ($M)
Slide 12: Credit Quality Continues to Improve
Credit Quality Continues to Improve Nonperforming Assets 1 ($ in millions) 1) Excludes TDRs
Slide 13: Management Projections of Credit
Management Projections of Credit Provision Expense ($ in millions) Net Charge-Offs ( $ in millions) Allowance ($ in millions) Source: Company financials and management forecasts See pages 61 and 73 for additional detail. The charts below illustrate the historical and forecasted provision expense, ne
Slide 14: Projected Pro Forma Tangible Book Value
Projected Pro Forma Tangible Book Value (1) Reflects the conversion on October 1, 2010 of all of our Series B Convertible Preferred Stock at 75% of par, plus approximately $1.7 million in accrued and unpaid dividends as of September 30, 2010 without a discount to par, at a conversion price of $7.233
Slide 15: Projected Pro Forma Tangible Book Value
Projected Pro Forma Tangible Book Value 1) Projected provision through 12/31/11. 2) Projected Mepco contingency expenses for loan losses from July 1, 2010 through December 31, 2011. 3) Projected PTPP through 12/31/11. Excludes amortization of intangibles. Note: See footnotes on page 14 for additiona
Slide 16: Pro Forma Ownership
Pro Forma Ownership Assumes offer price of $1.59 Note: Does not assume exercise of the over-allotment option. Not inclusive of U.S. Treasury anti-dilution adjustments. Includes TARP preferred exchange and $110 million common equity offering. Includes projected Management's projections of PTPP throug
Slide 17: Core Earnings Drivers
Core Earnings Drivers Reduce reliance on high-cost brokered deposits 0.72% cost of deposits (excluding brokered deposits) Increase net income by reducing the need for excess liquidity Allowing reverse repos to mature Continue to shrink balance sheet by disposing of low quality assets in order to imp
Slide 18: Pre-Tax, Pre-Provision Earnings Power
Pre-Tax, Pre-Provision Earnings Power Execution of Strategic Plan Positions IBCP to Generate Strong Earnings For the first half of 2010, the Company had pre-tax, pre-provision earnings of $11.1 million. As the Company deleverages the balance sheet, there will be reduced net interest income. The Comp
Slide 19: Payment Plan Detail - Mepco
Payment Plan Detail - Mepco Mepco Finance Corporation ("Mepco") is a wholly-owned subsidiary that acquires payment plans for vehicle service contracts from marketers Mepco was forced to take charge-offs after its largest counterparty experienced financial difficulties and ultimately filed for bankru
Slide 20: Deposit Market Share and Funding Profile
Deposit Market Share in Michigan ($ in Millions) Funding Profile - 2Q'10 ($ in Millions) 14% 43% 21% 17% 5% $2.4 billion total deposits $1.9 billion of core deposits (80% of total) Cost of Deposits of 1.23% (0.72% excluding brokered deposits) New capital will allow Company to repay 80% brokered depo
Slide 21: Diversified Loan Portfolio
Diversified Loan Portfolio Lending Highlights Lending Profile - 2Q'10 ($ in Millions) $2.1 billion loan portfolio IBCP is currently deleveraging its loan portfolios, reducing its total loans approximately $670 million (30%) from its peak Hired Stefanie Kimball from Comerica in 2007 to institute a co
Slide 22: Loan Portfolio Overview
Loan Portfolio Overview Commercial Loan Portfolio Segmentation at 6/30/10 Note: Non-performing loans includes non-accruals and 90+ days past due.
Slide 23: Overview of Credit Strategy
Overview of Credit Strategy Solid Credit Infrastructure in Place Seasoned credit team led by executives and senior managers with prior experience at large regional banks Strong credit culture buttressed by comprehensive industry best practices Currently, deleveraging the balance sheet and de-emphasi
Slide 24: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Commercial Non-Performing Assets Commercial Loans 30-89 Days Delinquent Relatively stable 30-89 days delinquency levels. Six quarters of declining NPA levels. NPLs declined 52% in Q2 '10 from peak in Q4 '08. NPAs declined 35% over the same time period. Note: Non-pe
Slide 25: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Text Box Break-down of Income Producing Properties ($000s) $342 M as of 6/30/2010 Well diversified portfolio mix Segment outstanding declined 18% since 2008 Portion of watch credits consistent with portfolio overall Multi-family strongest segment Approximately 1,10
Slide 26: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Credit Loss Recognition Detail ORE totaled $21.3 million at 6/30/10 with an average write down to 35% of balance at default as outlined on page 68.
Slide 27: Opportunities for Commercial Lending Growth
Opportunities for Commercial Lending Growth Foundation Well Positioned for Growth Emphasis on relationship lending with a "know your customer", community bank style approach Focusing on high quality, profitable loan segments such as: Middle market and small business lending (including small business
Slide 28: Retail Loan Portfolio Overview
Retail Loan Portfolio Overview Our strategy is to sell the majority of our first mortgage loans into the secondary market and selectively retain in our portfolio adjustable rate mortgage (ARM) products with strong underwriting metrics. Retail servicing: Bank Portfolio of $981 million Loans sold, but
Slide 29: Concentration by State
Concentration by State Portfolio Stratification Retail Loan Portfolio Resort Lending($237 M) is Bulk of Out of State Origination Strategy: Diversify from MI real estate concentration & take advantage of 3rd party relationship; Initiated in 2001 and suspended strategy for new originations in 2008. Cu
Slide 30: Retail Loan Portfolio Overview
Retail Loan Portfolio Overview Retail Non Performing Assets Retail Loans 30-89 Days Delinquent As of Q2'10 total 30 to 89 days past due were $19.7M, down from $23.3M at Q4'09 and $32.8M at the peak of Q4'08. As of Q2'10 total NPLs were $44.5M; down from $56.4M at Q4'09; and down from $59.2M at Q2'09
Slide 31: TDR Overview
TDR Overview Working with client base to make loans affordable 80% of TDRs are performing and 78% of retail TDRs with 6 months seasoning are current The specific reserves allocated to troubled debt restructured credits totaled $18.8 million at June 30, 2010, compared to $8.6 million at December 31,
Slide 32: Opportunities for Retail Lending Growth
Opportunities for Retail Lending Growth Management believes we have a solid retail platform in place to capitalize on lending and deposit opportunities in Michigan. We have good relationships with our investors, both Fannie Mae and Freddie Mac, as well as several others. We view the FHA paper as att
Slide 33: Long Term Strategy
Long Term Strategy With the new capital, we plan to: Continue our growth of low cost core deposits to generate a healthy net interest margin; Continue our focus on asset quality and reducing non-performing assets; Selectively growing the balance sheet through relationship lending with the ultimate g
Slide 34: Investment Summary
Investment Summary Company has turned the corner in regards to asset quality. Reducing high risk portions of the balance sheet. Rigorously worked to improve credit administration process and underwriting standards. Focused on credit culture and risk management practices. Strong operating efficiencie
Slide 35: Additional Information
Additional Information
Slide 36: Financial Review
Financial Review Financial Review
Slide 37: "Well-Capitalized" for Regulatory Purposes
"Well-Capitalized" for Regulatory Purposes Trust Preferred issued prior to May 19, 2010 will be grandfathered for Tier 1 capital qualification purposes. Independent's trust preferred instruments are primarily indexed to 3-Month LIBOR, except for IBC Capital Finance II. For 2011,the annual interest e
Slide 38: Positive Trends Seen in Second Quarter 2010 Results
Positive Trends Seen in Second Quarter 2010 Results Reported second quarter 2010 net income applicable to common stock of $6.8 million, or $0.44 per diluted share. For the six months ended June 30, 2010 the Company reported a net loss applicable to common stock of $8.1 million, or $3.10 per share. T
Slide 39: Credit Quality Overview
Credit Quality Overview Credit Overview ($ in thousands)
Slide 40: Strong Net Interest Margin
Strong Net Interest Margin The Company's core deposit focused network of over 100 branches has allowed it to build a strong core deposit base. The margin was primarily driven by the Company's strong yield on earning assets. Quarterly Net Interest Margin
Slide 41: Core Earnings Power
Core Earnings Power In addition to the net interest income improvements, the Company expects significant cost savings. Data processing; Core communications; Occupancy; and Equipment. (1) Represents the excess amount over a "normalized" level (experienced prior to 2008) of $1.25 million quarterly.
Slide 42: Overview of Asset Quality
Overview of Asset Quality Dollars in thousands. (NPLs + OREO) / (Tangible Total Equity + Loan Loss Reserves). 18% 29% 38% 15% <1%
Slide 43: Credit Quality Continues to Improve
Credit Quality Continues to Improve 30-89 Days Past Due ($ in millions) NPLs / Total Loans ($ in millions) Note: Excludes TDRs
Slide 44: Charge-off Recognition Preceded by Early Provisioning
Charge-off Recognition Preceded by Early Provisioning Provisions vs. Charge Off History LTM Rolling Net Charge Offs / Average Loans
Slide 45: Securities Portfolio as of 6/30/10
Securities Portfolio as of 6/30/10 46% of the securities portfolio consists of U.S. Treasury securities and U.S. Agency mortgage backed securities. Another 32% consists of municipal securities. The securities portfolio is reviewed quarterly for impairment. Private label residential MBS securities on
Slide 46: Deferred Tax Asset
Deferred Tax Asset Current accounting impact Total gross deferred tax asset of $69.9 million and gross deferred tax liabilities of $6.1 million at 6/30/10. The associated valuation allowance is $62.4 million. $2.2 million of such valuation allowance was established during the six months ended 6/30/1
Slide 47: Other Real Estate Owned
Other Real Estate Owned Other real estate owned and repossessed assets totaled $41.8 million at June 30, 2010, compared to $31.5 million at December 31, 2009. This increase is the result of the migration of non-performing loans secured by real estate into ORE as the foreclosure process is completed
Slide 48: Loan Portfolio Mepco Overview
Loan Portfolio Mepco Overview
Slide 49: Mepco - Business Model
Mepco - Business Model Illustrative Mepco Transaction - Total Payments of $2,400 paid monthly over 12 to 24 Months(1) VSC Marketer - Sells VSC to Consumer Administrator - Process and pays claims under VSC Insurance Company - Guaranties performance of the VSC Mepco VSC Marketer Administrator Insuranc
Slide 50: Mepco - Risk Isolation
Mepco - Risk Isolation Because consumers can cancel the VSC at any time, consumer credit risk is not a major concern; Mepco's potential losses are contingent on the ability of its counterparties to refund Mepco after cancellations Mepco Cancellation Mechanics Mepco VSC Marketer Administrator Insuran
Slide 51: Mepco - Projections
Mepco - Projections We plan to downsize our Mepco business to $247 million of receivables by December 2010 Mepco's net payment plan receivables have declined from $406 million at 12/31/2009 to $286 million at 6/30/2010 The receivables related to the bankrupt counterparty declined from $209 million t
Slide 52: Loan Portfolio Burn Down Analysis
Loan Portfolio Burn Down Analysis
Slide 53: Credit Review Preparation for the Offering
Credit Review Preparation for the Offering Extensive review of our commercial and retail loan portfolios was undertaken in advance of this offering to assess potential future losses in the portfolio Management Internal Analysis (Most Recent Update as of August 2010) Extensive internal loan portfolio
Slide 54: External Loan Reviews
External Loan Reviews Commercial Portfolio External Loan Review In December 2009, an independent third party individually reviewed 69% of the total portfolio outstanding (1,056 individual files) and extrapolated their findings for the remaining 31% Reviewed key credit processes and compared its loss
Slide 55: Credit Loss Expectations Versus SCAP
Credit Loss Expectations Versus SCAP While we were not subject to the Federal Reserve's review under the Supervisory Capital Assessment Program (the "SCAP"), we performed our own "stress test" of cumulative losses over 2009 and 2010 based on the SCAP methodology. SCAP projected cumulative losses for
Slide 56: SCAP Stress Testing Analysis
SCAP Stress Testing Analysis SCAP Stress Test ($ in thousands) Note: Loan portfolio segment balances and allocation as reported in our call report.
Slide 57: Management Projections - Earnings Drivers
Management Projections - Earnings Drivers Net Interest Margin ("NIM") NIM was 4.48% in 2008, 5.00% in 2009 and 4.38% in Q2 2010; the decline was due to the building of reserve liquidity and reduced payment plan receivables at our Mepco subsidiary We expect improvement of NIM in 2010 and 2011 followi
Slide 58: Commercial Loan Portfolio Review
Loan Portfolio Commercial Loan Portfolio Review
Slide 59: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Significant reduction of the loan portfolio accomplished by decreasing higher risk components while positioning for growth in higher quality segments. Commercial loans outstanding of $767 million at 6/30/10, and a total of $813 million when including commitments. C
Slide 60: Commercial Provision vs. Charge-off History
Commercial Loan Portfolio Overview Commercial Provision vs. Charge-off History Commercial provision levels have declined for five consecutive quarters after recognition of rapidly deteriorating CRE values in late '08 in early '09. Charge-offs lag earlier commercial provisioning and are driven by lar
Slide 61: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Net Charge-Offs ($in millions) Allowance ($ in millions) Commercial loss projections based on a Probability of Default (PD) and Loss Given Default (LGD) methodology reflecting last 12 month experience Conservative inclusion of an adjustment factor to assume further
Slide 62: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview TDR Segmentation by Loan Type Performing & Non-Performing TDRs Philosophy of "working with our clients as long as they work with us". Two thirds of performing TDRs will be eligible for review for TDR status in January 2011. Three quarters of TDRs in non-accrual are
Slide 63: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Reason for TDR on Performing Segment at 6/30/10 Payment Status on Nonaccrual TDRs at 6/30/10 Consideration for TDR Status on performing Segment by January 2011 (Dollars in Thousands)
Slide 64: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Balances by Loan Size ($000s) $767 M as of 6/30/2010 Commercial loan portfolio is granular in nature, with an average loan size of $185,000.
Slide 65: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Text Box C&I and Owner Occupied Industry Segmentation ($000s) $349 M as of 6/30/2010 Diverse industry segmentation, with very little exposure to the automotive industry. Note: Automotive industry is a sub-sector of manufacturing.
Slide 66: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Composition of Non Accrual Loans 26% of Nonaccrual loans are in Land, Land Development and Construction. Total average write-down of contractual Loan balance to Nonaccrual is approximately 58%. (Dollars in Millions)
Slide 67: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Text Box Construction & Land Development by Segment Construction & Land Development by Size $76 M as of 6/30/2010 (Dollars in Thousands) Remaining construction and land development has an average loan size of $280,000.
Slide 68: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview Text Box Other Real Estate Owned by Segment Total ORE Book Value of $21.3 million as of June 30, 2010. Land and Land Development comprised $12.5 million or 60% of the remaining ORE Inventory. 80% of the properties in ORE are $500M or less. On average ORE assets hav
Slide 69: Commercial Loan Portfolio Overview
Commercial Loan Portfolio Overview ORE - Transfers ORE - Sales
Slide 70: Retail Loan Portfolio Review
Loan Portfolio Retail Loan Portfolio Review
Slide 71: Retail Loan Portfolio Overview
Retail Loan Portfolio Overview New Production Tightening of portfolio credit standards over last 36 months; 95% of new mortgage production sold into secondary market; Increased emphasis on FHA lending; Enhanced quality assurance review for consumer origination process; Centralized consumer loan unde
Slide 72: Retail Provision vs. Charge-off History
Retail Loan Portfolio Overview Retail Provision vs. Charge-off History Retail loan provision expense closely approximates the retail net charge-offs, however we have typically provided in excess of net charge-offs to this point when considering the specific reserves needed on early past dues, impair
Slide 73: Retail Loan Portfolio Overview
Retail Loan Portfolio Overview Provision Expense ($ in millions) Net Charge-offs ($in millions) Allowance ($ in millions) Retail loss projections based on segmentation analysis by type and FICO score, utilizing FICO scores default tables and last 12 month experience Both commercial and retail foreca
Slide 74: Retail Loan Portfolio Overview
Retail Loan Portfolio Overview TDR Segmentation by Loan Type Performing & Non-Performing TDRs $18.0M $85.9M $5.6M $98.3M 804 loans or $103.9 million in TDRs at Q2'10. 78% of overall TDRs are performing for those loans with a payment history of 6 months or more. Impairment reserves set aside on TDRs
Slide 75: Retail Loan Portfolio Overview
Retail Loan Portfolio Overview Retail Segmentation by Loan Type Retail Segmentation by Geography Data as of 6/30/10
Slide 76: Retail Loan Portfolio Overview
Retail Loan Portfolio Overview TDR Segmentation by Loan Type Performing & Non-Performing TDRs Modification Program Basics Bank performs full re-underwriting of credit, includes income and asset verification and collateral valuation; Bank's objective is an affordable housing payment based on current