Independent Bank Corporation · NASDAQ:IBCP
Independent Bank — Q2 2009 Earnings Presentation
51 slides from Independent Bank's earnings presentation, Jul 28, 2009
Slide 1: Independent Bank Corporation 2nd Quarter 2009 Earnings Conference Call
Independent Bank Corporation 2nd Quarter 2009 Earnings Conference Call - July 28, 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: 2nd Quarter 2009 Overview
2nd Quarter 2009 Overview Michael M. Magee, President and Chief Executive Officer 3
Slide 4: 2Q09: High-Level Overview
2Q09: 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 best in the industry Regulatory capital remains above minimum to be "well capitalize
Slide 5: 2nd Quarter 2009 Financial Review
2nd Quarter 2009 Financial Review Robert N. Shuster, Executive Vice President and CFO 5
Slide 6: 2nd Quarter 2009 Recap
2nd Quarter 2009 Recap 6 Net loss of $5.2 million and net loss applicable to common stock of $6.2 million or 26 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 Gain on securities ($4.2 million) and
Slide 7: 2nd Quarter 2009 Recap (continued)
2nd 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, gains on securities
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 6/30/09. The associated valuation allowance is also $43.7 million at 6/30/09 (of which $36.2 million was established at 12/31/08). Income tax benefit of $0.959 million in 2Q 2009 re
Slide 9: Pre-Tax, Pre-Provision Core Operating Earnings
Pre-Tax, Pre-Provision Core Operating Earnings 2Q09 1Q09 2Q08 Net income (loss) $(5,161) $(18,597) $ 3,346 Income tax exp. (benefit) (959) 293 469 Provision for loan losses 27,808 30,838 12,352 Securities (gains) losses (4,230) 581 (837) MSR impairment (recovery) charge (2,965) 697 (996) Losses on O
Slide 10: Tax Equivalent Net Interest Margin
Tax Equivalent Net Interest Margin 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 Yield on Earning Assets 0.077 0.0775 0.0765 0.0737 0.0715 0.0702 0.0711 0.0708 0.0709 Cost of Funds 0.0343 0.0344 0.0343 0.0307 0.0247 0.0226 0.0231 0.0195 0.0184 Net Interest Margin 0.0427 0.0431 0.0422 0.043 0
Slide 11: TE Net Interest Income
TE Net Interest Income 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 Net Interest Income 32068 31881 31521 31785 34539 34997 33387 35044 36116 11
Slide 12: TE Net Interest Income - Continued
TE Net Interest Income - Continued 12 Items impacting 2Q 2009 Reversal of interest on non-accrual loans of $0.787 million - compared to $0.863 million in 1Q'09 and $0.609 million in 2Q '08. Non-accrual loans averaged $121.5 million compared to $127.5 million in 1Q'09 and $104.4 million in 2Q '08. Av
Slide 13: TE Net Interest Income Sensitivity at 6/30/09
TE Net Interest Income Sensitivity at 6/30/09 (a) Interest rate change TE Net Interest Income TE Net Interest Margin 200 basis point rise $150,519 5.64% 100 basis point rise 150,027 5.63% Base case scenario (b) 150,951 5.66% 100 basis point decline 149,549 5.61% 200 basis point decline 147,596 5.53%
Slide 14: Non-Interest Income
Non-Interest Income Category ($ in 000's) 2Q09 1Q09 2Q08 Total non-interest income $21,011 $11,578 $14,137 Service charges - deposits 6,321 5,507 6,164 VISA check card income 1,500 1,415 1,495 Gain (loss) on securities 4,230 (581) 837 Net gains - mortgage loan sales 3,262 3,281 1,141 Mortgage loan s
Slide 15: Non-Interest Expense
Non-Interest Expense Category ($ in 000's) 2Q09 1Q09 2Q08 Total non-interest expense $34,842 $33,391 $31,191 Compensation & employee benefits 13,328 12,577 13,808 Occupancy 2,560 3,048 2,813 Credit card and bank service fees 1,668 1,464 1,174 Advertising 1,421 1,442 1,168 Loan and collection 3,227 4
Slide 16: Provision for Loan Losses
Provision for Loan Losses 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 Provison for Loan Losses 14893 10735 9393 11316 12352 19788 28831 30838 27808 16
Slide 17: Asset Quality Measures - Non-Performing Loans
Asset Quality Measures - Non-Performing Loans Non-performing loans by loan type ($ in 000's) 6/30/09 3/31/09 6/30/08 Commercial $ 62,953 $ 68,899 $ 74,438 Mortgage 51,406 50,765 30,575 Consumer/installment 7,783 6,858 3,897 Finance receivables 3,138 2,524 2,494 Total $125,280 $129,046 $111,404 As a
Slide 18: Allowance for Loan Losses Allocation
Allowance for Loan Losses Allocation ($ in 000's) 6/30/09 3/31/09 6/30/08 Specific loan allocations $17,461 $15,057 $15,907 Adversely rated loans 11,492 9,393 10,305 Historical losses 22,830 21,464 14,905 Other factors/subjective 13,488 12,391 9,987 Total $65,271 $58,305 $51,104 As a % of portfolio
Slide 19: Analysis of the Allowance for Loan Losses
Analysis of the Allowance for Loan Losses Loan type ($ in 000's) Loan Balance Allocated Allowance % of Loan Balance Commercial $ 893,304 $38,329 4.29% Mortgage 788,893 18,261 2.31% Consumer/installment 327,444 7,841 2.39% Finance receivables 432,326 840 0.19% Total $2,441,967 $65,271 2.67% . 19
Slide 20: Asset Quality Measures - Net Loan Charge-Offs
Asset Quality Measures - Net Loan Charge-Offs Net loan charge-offs by loan type ($ in 000's) 2Q09 1Q09 4Q08 3Q08 Commercial $10,697 $23,776 $17,626 $12,314 Mortgage 6,491 4,559 3,564 3,698 Consumer 1,386 1,264 1,624 1,116 Overdrafts 116 122 247 248 Finance receivables 2,218 798 976 (5) Total $20,908
Slide 21: Securities Available for Sale at 6/30/09
Securities Available for Sale at 6/30/09 Category ($ in 000's) Cost Basis "Fair" Value Difference Private label CMO's/asset backed (1) $ 51,120 $ 44,343 $ (6,777) Agency MBS 53,439 54,328 889 Bank trust preferred (2) 17,882 14,074 (3,808) Bank of America Series E preferred (3) -- -- -- Municipal sec
Slide 22: Regulatory Capital Ratios
Regulatory Capital Ratios (Independent Bank Corporation) Category Estimated 6/30/09 Actual 3/31/09 Actual 6/30/08 Tier 1 capital to average assets 7.70% 7.97% 7.66% Tier 1 capital to risk-weighted assets 9.64% 9.97% 9.68% Total capital to risk-weighted assets 11.99% 12.22% 11.32% 22
Slide 23: Liquidity and Capital
Liquidity and Capital 23 Liquidity Cash on hand at parent company of $25 million at June 30, 2009 Independent Bank has approximately $790 million in unused borrowing capacity at June 30, 2009 Have executed a strategy to pay down FRB discount window and TAF borrowings and short-term FHLB advances and
Slide 24: 2Q 2009 Commercial Credit Review
2Q 2009 Commercial Credit Review Stefanie M. Kimball, Executive Vice President and Chief Lending Officer 24
Slide 25: 2nd Quarter 2009 Commercial Lending Summary
2nd Quarter 2009 Commercial Lending Summary Positive Trends 55% decline in net charge offs to $10.7 million as compared to 1st quarter 2009's $23.8 million level. 12% (or $8 million) decline in nonaccrual loans during the quarter and 23% (or $17 million) reduction since year end, aided by transactio
Slide 26: Commercial Loan Outstanding Balances
Commercial Loan Outstanding Balances $37 million in new and renewed loan volume in 2nd Quarter offset by repayments Overall commercial loan balances decreased by $47 million during 2nd 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
Watch Credits Watch credits increased by $17 million and were flat compared to year end. Inflow of new watch credits up slightly from 1st quarter after consideration of lower charge offs. 28
Slide 29: Commercial 30+ Day Delinquency for Accruing Loans
Commercial 30+ Day Delinquency for Accruing Loans Commercial 30+ day delinquency remains well managed at 1.8% of the portfolio 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 $8 million during 2Q09 as a result of workout team's negotiations. Actual liquidations at rates at least twice what could be achieved in the loan sale market. Inflow of new non-accrual loans is consistent Level of commercial loan no
Slide 31: Composition of Nonaccrual Loans
Composition of Nonaccrual Loans 59% of Nonaccrual loans are in Land, Land Development and Construction. Total average write-down of contractual loan balance to Nonaccrual is 51%. Breakdown by Segment: Granularity of Commercial Nonaccruals: 31 31
Slide 32: Commercial Non Performing Assets
Commercial Non Performing Assets 4 32 Commercial Non Performing Assets Decline 5 % with More Loans Migrating into ORE
Slide 33: Commercial Loan Net Charge-Offs
Commercial Loan Net Charge-Offs Net Charge-offs decrease 55% in the 2nd quarter 2009. 33
Slide 34: 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. Special Assets Group established to provide more effective
Slide 35: 2nd Quarter 2009 Retail Credit Review
2nd Quarter 2009 Retail Credit Review Brad Kessel, Executive Vice President and COO 35
Slide 36: Retail Nonperforming Loans: Michigan Unemployment Statistics
Retail Nonperforming Loans (as percent of outstandings) 36 Michigan Unemployment Statistics Source: Michigan Labor Market Information http://www.milmi.org/cgi/dataanalysis/AreaSelection.asp?tableName=Labforce
Slide 37: Michigan Residential Real Estate Market
Retail Nonperforming Loans (as percent of outstandings) 37 Michigan Residential Real Estate Market
Slide 38: Michigan Residential Sales Statistics
Retail Nonperforming Loans (as percent of outstandings) 38 Michigan Residential Sales Statistics Historical % Change in Average Sales Price Source: Michigan Association of Realtors http://www.mirealtors.com/content/housingstatistics.htm
Slide 39: Retail Loan Balances
Retail Loan Balances 39 Retail Loan Balances
Slide 40: Retail Loan Production
Retail Loan Production 40 Retail Loan Production
Slide 41: Retail Loan Workout Summary
Retail Nonperforming Loans (as percent of outstandings) 41 Retail Loan Workout Summary
Slide 42: Retail Past Dues
42 Retail Past Dues (as percent of outstanding)
Slide 43: Retail Delinquency (in dollars)
Retail 30 to 89 Day Delinquency (in dollars) 43 Retail 30 to 89 Day Delinquency (in dollars)
Slide 44: Retail Nonperforming Loans (in dollars)
Retail Nonperforming Loans (as percent of outstandings) 44 Retail Nonperforming Loans (in dollars)
Slide 45: Retail Nonperforming Assets (NPL's, ORE and ORA)
Retail Nonperforming Loans (as percent of outstandings) 45 Retail Nonperforming Assets (NPL's, ORE and ORA)
Slide 46: Other Real Estate Liquidation History
Other Real Estate Liquidation History 46 Other Real Estate Liquidation History
Slide 47: Other Real Estate Unit Sales and Realization Rates
Other Real Estate Liquidation History 47 Other Real Estate Unit Sales and Realization Rates
Slide 48: Retail Net Charge Offs
Retail Net Charge Offs (Mortgage, Consumer, Overdrafts) 48 Retail Net Charge Offs
Slide 49: Management's Initiatives
Management's Initiatives Increase in collection resources. Enhancements to collection expertise (consultative sales approach). Formation of loss mitigation committee. Expanded workout options. Creation of Modification Program. Technology enhancements. Creation of ORE management and disposition funct
Slide 50: 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 50
Slide 51: Thank you for participating in the conference call
Thank you for participating in the conference call 51