Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q4 2008 Earnings Presentation
45 slides from Independent Bank's earnings presentation, Jan 26, 2009
Slide 1: Independent Bank Corporation 4th Quarter 2008 Earnings Conference Call
Independent Bank Corporation 4th Quarter 2008 Earnings Conference Call - January 27, 2009
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: Overview of 4th Quarter 2008 Results
Overview of 4th Quarter 2008 Results Michael M. Magee, President and Chief Executive Officer 3
Slide 4: Financial Overview - Fourth Quarter 2008
Financial Overview - Fourth Quarter 2008 4Q 08 3Q 08 4Q 07 12ME 08 12ME 07 Net income (loss) applicable to common stock (millions) $(86.5) $(5.3) $2.4 $(88.2) $10.4 Earnings (loss) per share applicable to common stock $(3.80) $(0.23) $0.11 $(3.88) $0.45 ROA, based on net income applicable to common
Slide 5: 4Q:08 - High-Level Overview
4Q:08 - High-Level Overview 5 Strategic Initiatives Efforts to improve credit quality remain our top priority - focused on loan monitoring + portfolio management function + resolution of non-performing assets Receipt of $72 million of Tier 1 capital under the TARP Capital Purchase Program in Decembe
Slide 6: 4th Quarter 2008 Financial Review
4th Quarter 2008 Financial Review Robert N. Shuster, Executive Vice President and CFO 6
Slide 7: 4th Quarter 2008 Recap
4th Quarter 2008 Recap 7 Positive Factors Growth in the TE net interest margin on both a year-over-year and sequential quarterly basis. Receipt of $72 million under the Capital Purchase Program strengthens balance sheet and regulatory capital ratios. Balance sheet generally remains structured to ben
Slide 8: 4th Quarter 2008 Recap - continued
4th Quarter 2008 Recap - continued 8 Many unusual items and non-cash charges in 4Q 2008 Non-cash goodwill impairment charge of $50.0 million or $1.92 per share after tax. Non-cash charge of $26.8 million or $1.18 per share to establish a valuation allowance on deferred tax assets. Additional non-cas
Slide 9: Goodwill Impairment Charge
Goodwill Impairment Charge 9 IB Reporting Unit $50.0 million of goodwill at this reporting unit. IBC market capitalization declined in 4Q ($142.5 million at 9/30/08 to $49.7 million at 12/31/08). Step 1 and Step 2 goodwill impairment analyses performed as of 12/31/08. Resulted in goodwill impairment
Slide 10: Valuation Allowance On Deferred Tax Asset
Valuation Allowance On Deferred Tax Asset 10 Current accounting impact Total net deferred tax asset of $42.3 million. Valuation allowance of $35.4 million established at 12/31/08. $26.8 million of the valuation allowance charged to income tax expense and $8.6 million of the valuation allowance charg
Slide 11: Regulatory Capital Ratios (Independent Bank)
Regulatory Capital Ratios (Independent Bank) Category Estimated 12/31/08 Actual 09/30/08 Actual 12/31/07 Tier 1 capital to average assets 8.37% 7.45% 7.35% Tier 1 capital to risk-weighted assets 10.76% 9.58% 9.25% Total capital to risk-weighted assets 12.05% 10.84% 10.50% 11
Slide 12: Pre-Tax, Pre-Loan Loss Provision Core Operating Earnings
Pre-Tax, Pre-Loan Loss Provision Core Operating Earnings 4Q08 4Q07 FY '08 FY '07 Income (loss) continuing ops. $(86,325) $ 2,278 $(87,964) $ 9,955 Income tax exp. (benefit) 11,148 (15) 3,863 (1,103) Provision for loan losses 24,831 9,393 68,287 43,160 Securities losses 6,924 964 14,961 705 MSR impai
Slide 13: Trading Securities
Trading Securities Category ($ in 000's) 12/31/08 9/30/08 Fannie Mae preferred stock (1) $ -- $ 220 Freddie Mac preferred stock (2) 12 120 Goldman Sachs preferred stock (3) -- 2,590 Merrill Lynch (B of A) preferred stock (4) 1,917 2,249 Totals $ 1,929 $5,179 Totals Totals Totals 13 Sold 38,000 share
Slide 14: Securities Available for Sale at 12/31/08
Securities Available for Sale at 12/31/08 Category ($ in 000's) Cost Basis "Fair" Value Difference Private label CMO's/asset backed (1) $ 57,188 $ 44,313 $(12,875) Agency MBS 47,377 48,025 648 Bank trust preferred (2) 17,874 12,706 (5,168) Bank of America Series E preferred (3) 3,800 4,816 1,016 Mun
Slide 15: Tax Equivalent Net Interest Margin
Tax Equivalent Net Interest Margin 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 Yield on Earning Assets 0.0769 0.0774 0.077 0.0775 0.0765 0.0737 0.0715 0.0702 0.0711 Cost of Funds 0.0347 0.0351 0.0343 0.0344 0.0343 0.0307 0.0247 0.0226 0.0231 Net Interest Margin 0.0423 0.0423 0.0427 0.0431
Slide 16: TE Net Interest Income
TE Net Interest Income 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 Net Interest Income 31514 31209 32068 31881 31521 31785 34539 34997 33387 16
Slide 17: TE Net Interest Income - Continued
TE Net Interest Income - Continued 17 Items impacting 4Q 2008 Reversal of interest on non-accrual loans of $0.799 million - which is $0.452 million higher than 3Q'08 and $0.491 million higher than 4Q '07. Impact on NIM is 6 bps. Increase in interest expense of $0.607 million related to the decline i
Slide 18: TE Net Interest Income Sensitivity at 12/31/08
TE Net Interest Income Sensitivity at 12/31/08 (a) Interest rate change TE Net Interest Income TE Net Interest Margin 200 basis point rise $129,681 4.84% 100 basis point rise 132,498 4.95% Base case scenario (b) 135,890 5.08% 100 basis point decline 137,950 5.15% 200 basis point decline 134,366 5.02
Slide 19: Non-Interest Income
Non-Interest Income Category ($ in 000's) 4Q08 3Q08 4Q07 Total non-interest income $ 644 $ 5,448 $11,173 Service charges - deposits 5,996 6,416 6,418 VISA check card income 1,394 1,468 1,376 Gain (loss) on securities (6,924) (6,711) (964) Net gains - mortgage loan sales 1,204 969 904 Mortgage loan s
Slide 20: Non-Interest Expense
Non-Interest Expense Category ($ in 000's) 4Q08 3Q08 4Q07 Total non-interest expense $83,586 $30,656 $29,585 Goodwill impairment charge 50,020 -- -- Compensation & employee benefits 13,164 14,023 13,438 Occupancy 3,054 2,871 2,754 Advertising 1,691 1,575 1,549 Loan and collection 3,536 2,008 1,437 L
Slide 21: Provision for Loan Losses
Provision for Loan Losses 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 Provison for Loan Losses 7963 8139 14893 10735 9393 11316 12352 19788 24831 21
Slide 22: Asset Quality Measures - Non-Performing Loans
Asset Quality Measures - Non-Performing Loans Non-performing loans by loan type ($ in 000's) 12/31/08 9/30/08 12/31/07 Commercial $ 82,055 $ 74,219 $48,945 Mortgage 38,922 33,869 23,147 Consumer 4,873 3,945 3,435 Finance receivables 3,415 2,616 1,722 Total $129,265 $114,649 $77,249 As a % of total l
Slide 23: Allowance for Loan Losses Allocation
Allowance for Loan Losses Allocation ($ in 000's) 12/31/08 9/30/08 12/31/07 Specific loan allocations $16,788 $16,812 $10,713 Adversely rated loans 9,511 10,179 10,804 Historical losses 20,270 16,243 14,668 Other factors/subjective 11,331 10,664 9,109 Total $57,900 $53,898 $45,294 As a % of portfoli
Slide 24: Analysis of the Allowance for Loan Losses
Analysis of the Allowance for Loan Losses Loan type ($ in 000's) Loan Balance Allocated Allowance % of Loan Balance Commercial $ 980,391 $38,084 3.88% Mortgage 839,496 13,175 1.57% Consumer 356,806 6,109 1.71% Finance receivables 286,836 532 0.19% Total $2,463,529 $57,900 2.35% . 24
Slide 25: Asset Quality Measures - Net Loan Charge-Offs
Asset Quality Measures - Net Loan Charge-Offs Net loan charge-offs by loan type ($ in 000's) 4Q08 3Q08 2Q08 1Q08 Commercial $13,626 $12,314 $8,403 $3,498 Mortgage 3,564 3,698 2,238 2,124 Consumer 1,624 1,116 498 982 Overdrafts 247 248 160 149 Finance receivables 977 (6) 0 13 Total $20,038 $17,370 $1
Slide 26: 4th Quarter 2008 Credit Review
4th Quarter 2008 Credit Review Stefanie M. Kimball, Executive Vice President and Chief Lending Officer 26
Slide 27: Commercial Lending Highlights
Commercial Lending Highlights 27
Slide 28: Commercial Loan Balances
Commercial Loan Balances $75 million in new and renewed loan volume in 4Q offset by repayments and net loan charge-offs Increased pricing and loan return hurdles Overall commercial loan balances declined $32 million 28
Slide 29: 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 Strategic direction re-shapes portfolio with shift towards C & I and a
Slide 30: Watch Credits in 4th Quarter 2008
Watch Credits in 4th Quarter 2008 Watch credits were up slightly at the end of the 4th quarter New watch credits during 4th quarter primarily driven by decline in stock market Payoffs / collections continued 30
Slide 31: Commercial 30+ Day Delinquency for Accruing Loans
Commercial 30+ Day Delinquency for Accruing Loans Further Improved During 4th Quarter 2008 Commercial 30+ day delinquency shows further improvement in 4Q 31
Slide 32: Commercial Loan Non-Accruals
Commercial Loan Non-Accruals Commercial loan non-accruals increased slightly during 4Q Level of commercial loan non-accruals remains elevated 32
Slide 33: Composition of Nonaccrual Loans
Composition of Nonaccrual Loans 57% of Nonaccrual loans in Land, Land Development and Construction Average write-down of loan balance to Nonaccrual: 42% Granularity of Commercial Nonaccruals: 33
Slide 34: 4th Quarter Net Charge-Offs
4th Quarter Net Charge-Offs Net Charge-offs rise in 4Q as work out credits season and continued collateral valuation write downs are taken 34
Slide 35: Commercial ORE Outstanding
Commercial ORE Outstanding Commercial ORE outstandings increased $900,000 in 4Q 50% of new ORE properties relate to one relationship Watch Credits are moving through the workout process 35
Slide 36: Managing Commercial Troubled Assets
Managing Commercial Troubled Assets Non Performing Assets $95 Million Total Stages of a Workout Continuing to Work with Borrowers Legal Processes ORE Management 36
Slide 37: Continuous Improvement of Credit Quality
Continuous Improvement of Credit Quality 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 has been established to provide m
Slide 38: Retail Loan Balances
Retail Loan Balances 4Q new loan volume of $54.2 million in saleable mortgages, $10.2 million booked in portfolio 4Q portfolio mortgage workout refinances of $3.2 million 2008 portfolio mortgage workout refinances of $10.8 million $29.2 million decline in mortgage and consumer loan balances in 4Q 38
Slide 39: Retail 30-Day Delinquency Continues to Increase
Retail 30-Day Delinquency Continues to Increase Number one reason for delinquency is curtailment of income followed by excessive obligations Resulted in mortgage 30 to 89 days past due category increasing to $25.0 million at 4Q from $22.5 million at 3Q Resulted in consumer 30 to 89 days past due cat
Slide 40: Retail Nonperforming Assets
Retail Nonperforming Assets Nonperforming mortgage loan assets increased to $46.3 million (includes $7.4 million in ORE) at 4Q from $41.7 million at 3Q Nonperforming consumer loan assets increased to $5.4 million (includes $0.6 million of ORA) at 4Q from $4.4 million at 3Q 40
Slide 41: Retail Charge Offs Rise as Collateral Values Continue to Decline
Retail Charge Offs Rise as Collateral Values Continue to Decline 4Q net charge offs were approximately $5.4 million (includes $0.2 million of deposit overdrafts) Nonperforming loan portfolio written down by $8.3 million to 83% of contractual loan balance. $1.5 million in specific reserves, netting 8
Slide 42: Retail Non Performing Assets
Retail Non Performing Assets Composition of Non Performing Loans 1 - 4 family mortgage loans, 1st lien 74% Non-farm, non-residential 9% Home Equity Credit Lines 6% 1 - 4 family mortgage loans, junior lien 5% Construction 4% Other 2% Status of Workout Working with borrower 55% Legal process 45% Retai
Slide 43: Management's Ongoing Initiatives to Counter Difficult Credit Cycle
Management's Ongoing Initiatives to Counter Difficult Credit Cycle Appropriate underwriting criteria consistently applied. Added Quality Assurance Review for Consumer Portfolio to Existing Mortgage Portfolio Review. Additions to Collection Management Team and Staff. Established Loss Mitigation/Forec
Slide 44: 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 44
Slide 45: Thank you for participating in the conference call
Thank you for participating in the conference call. 45