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
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: 2Q23 Overview
2Q23 Overview • Total deposits down slightly from prior quarter, but have increased from end of prior year • Total loans increased 14% annualized while maintaining conservative approach to new loan production • New loan production largely focused on new commercial clients that bring deposits to the
Slide 5: Liquidity / Uninsured Deposits
Note: Portfolio loans exclude loans HFS. Liquidity / Uninsured Deposits Strong Liquidity Position • Significant liquidity position to manage the current environment. • Total available liquidity significantly exceeds (227%) estimated uninsured deposit balances. • Established access and tested the BTF
Slide 6: Low-Cost Deposit Franchise Focused on Core Deposit Growth
Low-Cost Deposit Franchise Focused on Core Deposit Growth • Substantial core funding – $3.71 billion of non-maturity deposit accounts (82.8% of total deposits). • Core deposit decrease of $23.4 million (2.2% annualized) in 2Q’23. • Total deposits increased $108.6 million (5.0% annualized) since 12/3
Slide 7: Historic IBC Cost of Funds vs. the Federal Funds Rate
0 .2 5 % 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 % 0 .3 9 % 0 .1 4 % 0 .1 2 % 0 .1 1 % 0 .1 0 % 0 .1 0 % 0 .1 2 % 0 .3 3 % 0 .7 9 % 1 .2 5 % 1 .5 7 % 0 500,000 1,000,000 1,500,000 2,000,000 2,500,00
Slide 8: Diversified Loan Portfolio Focused on High Quality Growth
Diversified Loan Portfolio Focused on High Quality Growth • Portfolio loan changes in 2Q’23: − Commercial – increased $66.9 million. …Average new origination yield of 7.34%. − Mortgage – increased $33.2 million. …Average new origination yield of 6.85%. − Installment – increased $21.3 million. …Avera
Slide 9: Concentrations within $1.54B Commercial Loan Portfolio
Concentrations within $1.54B Commercial Loan Portfolio Loans by Industry as a % of Total Commercial Loans ($ in millions) Investor RE by Collateral Type as a % of Total Commercial Loans ($ in millions) Note: $1 billion, or 65.1% of the commercial loan portfolio is C&I or owner occupied, while $537 m
Slide 10: Asset Quality Metrics
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 excludes $1.63 million of payment plan receivables that were held for sale. 10 $13.4 $8.2 $8.6 $9.5 $7.9 $5.1 $5.0 $4.5 $3.8 $3.7 $3.9 $4.0
Slide 11: 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 12: Net Interest Margin/Income
Net Interest Margin/Income • Net interest income was $38.4 million in 1Q’23 and 2Q’23. A decrease in the net interest margin was partially offset by an increase in average earnings assets. • Net interest margin was 3.26% during the second quarter of 2023, compared to 3.26% in the year-ago quarter an
Slide 13: 2Q'23 NIM Changes
2Q’23 NIM Changes Linked Quarter Average Balances and FTE Rates ($ in thousands) Linked Quarter Analysis Q1'23 3.33% Change in earning asset mix 0.03% Increase in loan and investment yield 0.21% Change in funding mix -0.06% Increase in funding costs -0.25% Q2'23 3.26% 2Q23 1Q23 Change Avg Bal Inc/Ex
Slide 14: 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 15: Strong Non-interest Income
Strong Non-interest Income • The $0.5 million comparative quarterly decrease in mortgage loan servicing; net is primarily attributed to changes in the fair value of capitalized mortgage loan servicing rights associated with changes in mortgage loan interest rates and expected future prepayment level
Slide 16: Focus on Improved Efficiency
Focus on Improved Efficiency • 2Q’23 efficiency ratio of 59.3%. • 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 were generally effective at the start
Slide 17: Outlook: Loan Growth and Net Interest Income
Category Outlook Outlook • 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 2023. • This growth forecast
Slide 18: Outlook: Non-interest Income and Expense
Category Outlook Outlook • Expect mortgage loan origination volumes in 2023 to be down by approximately 20%, a decline in mortgage loan servicing net of approximately 80%, interchange income in 2023 to increase approximately 2.0% to 3.0% as compared to 2022 and service charges on deposits to be coll
Slide 19: 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 20: Question and Answer Session, Closing Remarks
Question and Answer Session Closing Remarks NASDAQ: IBCP Thank you for attending 20
Slide 21: Appendix: Additional Financial Data and Non-GAAP Reconciliations
Appendix Additional Financial Data and Non-GAAP Reconciliations 21
Slide 22: Granular Deposit Base
$1,956 $879 $484 $251 $210 $515 $193 $2,166 $1,394 $677 $251 Consumer Commercial Public Funds Brokered Insured Deposits Uninsured Deposits $3,216 $3,297 $3,300 $3,403 $3,580 $3,570 $989 $994 $1,027 $976 $965 $918 $4,205 $4,291 $4,327 $4,379 $4,545 $4,488 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 Insured Deposit
Slide 23: CRE – Office Metrics
53% 47% CRE – Office Metrics • 30.5% of portfolio is medical office buildings. • 91% of portfolio are located in suburban geographies. • 62.7% of CRE – Office mature after 2024. • Average loan size of $1.2 million. Suburban Fixed Variable Maturing Exposure (millions) CRE - Office Fixed vs. Variable
Slide 24: Historical Financial Data
Historical Financial Data here Year Ended December 31, Quarter Ended, ($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 $3,259
Slide 25: Non-GAAP to GAAP Reconciliation
Non-GAAP to GAAP Reconciliation June 30, March 31, December 31, September 30, June 30, 2022 2021 2020 2019 2023 2023 2022 2022 2022 Net interest income $ 149,561 $ 129,765 $ 123,612 $ 122,581 $ 38,350 $ 38,441 $ 40,602 $ 39,897 $ 36,061 Non-interest income 61,909 76,643 80,745 47,736 15,417 10,551 1
Slide 26: Reconciliation of Non-GAAP Financial Measures
Reconciliation of Non-GAAP Financial Measures 2023 2022 2023 2022 Net Interest Margin, Fully Taxable Equivalent ("FTE") Net interest income 38,350$ 36,061$ 76,791$ 69,062$ Add: taxable equivalent adjustment 423 481 862 963 Net interest income - taxable equivalent 38,773$ 36,542$ 77,653$ 70,025$ Net
Slide 27: Reconciliation of Non-GAAP Financial Measures (continued)
Reconciliation of Non-GAAP Financial Measures (continued) Tangible Common Equity Ratio June 30, March 31, December 31, September 30, June 30, 2022 2021 2020 2019 2023 2023 2022 2022 2022 Common shareholders' equity 347,596$ 398,484$ 389,522$ 350,169$ 375,162$ 367,714$ 347,596$ 332,308$ 331,134$ Less