IBCP - Earnings call transcript Q1 2018 | Independent Bank Corporation

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Operator

Good morning, and welcome to the Independent Bank Corporation First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask a question. [Operator Instructions] This event is being recorded. I would now like to turn the conference over to Brad Kessel, President and CEO. ahead. go Please

William Kessel

Officer, you and Thank quarter Independent Corporation's and Chief Bank I Shuster, is Good Vice Executive to for discuss call President Executive and President webcast Brad Financial first joining the conference me am Rob Officer. morning. Chief Kessel, joining and Company's results. XXXX

does can important X today, To a regarding question-and-answer remarks. www.independentbank.com. call, X, include regarding Page our of session today's of it today's prepared begin you responsibility agenda will forward-looking we release Slide Independent on If closing then follow is my access issued presentation. have to website cautionary information along, note, at the not direct the call a and The press I Company's remarks Before will it you copy by followed with statements. anyone to already for the by begin the

for a and We to start are Bank XXXX share. per increase net income Independent a in with very reporting a diluted earnings increase the team, in XX% good XX.X%

the this This three or For corporate of million generated quarter income federal per on we net March or compared positive income growth, of share results. XXXX, XX.XX%. tax continued ago. return $X XX, were $X.X $X.XX diluted return for Strong ended quarter's share assets X.XX% lower on rates one-year average primary million loan and assets, per reductions of a and average to represents diluted $X.XX of drivers a a equity in the months as same the non-performing

income net $XXX,XXX sequential growth quarterly consistent and and in year-over-year million $X.X loan a quarter-over-quarter Our respectively. of interest fueled a increase

first $XXX,XXX million portfolio asset the generated of XXXX, net very we was strong, a of to a and the announce portfolio in quality of had of recorded loan of XX.X%. Traverse pleased company April of recoveries XXXX, State on for Also first million loan net or for loss significant our decrease we Bancorp, the provision $XXX,XXX, a Also completed growth This of annualized. $X.X our assets cover continues primarily XXXX. to in by X, loans Bank XX.X% TCSB expense. be parent growth For evidenced quarter, following to were quarter or total non-performing quarter we acquisition immediately first $XX.X the as City we us

are customer base this attractive very remarks. employee will and Michigan this more his in We Northwestern in market. to welcome excited an of base the provide update Rob subject for

of are production three two X.X%. Ohio. the of today bullet the X, this of is branch Bank, all on of our XX is Our Slide which well metrics good Michigan counties view ninth-year five includes key the one-year includes State well Northwestern U.S. unemployment rate offices, as presentation XX in into unemployment in branches provides operating in X.X% X.X% from some Michigan economy XX our in located locations and City XXXX of economic ago, for Traverse loan Michigan. XXXX a footprint points Michigan of locations now as in acquisition rate at The above February X with footprint in and Michigan recovery. markets. unchanged XX April its Effective The

see continue the state difference combined into the is between the rate, back and in coming higher and to the demand a number with rate national I to Michigan's available. is creation. skills X.X gap the Michigan the million little we the the While individuals skills and than believe job due strong of workforce workforce is the

to space markets. are Detroit, Metro rate, to followed Through end year. performance some strongest by trend up totaled commercial by display up Over sales markets but XX,XXX There XXX,XXX last XX.X%, is Existing XXXX, positive. was continue and X.X% positive for retailers state housing X%, at the solid Home The at Home is in is according were the Index. at XXXX, trends which housing real regional in by the is were to also year-over-year estate on XX,XXX X.X%. up Grand a the market just are X.X%, up Colliers payrolls trends at XX.X%. by evidenced to XX.X%, continuation were of can S&P/Case-Shiller And strong with offices X. up Hills in vacancy strength, sector starts West economic positive prior a evidence same rates XXXX office as of International in apartments which In generally also MSA in same or evidenced the measured vacancy real industrial year, shortage. seen On the vacancy retailers X.X% time X.X%. at Housing be our Rapids home for X.X%. of the X% continue approximate Lansing X%, and basis, Price at estate industrial Michigan the XXXX. trends Warren-Troy-Farmington the the are report, up The Page East shown portfolios XXXX in in QX prices X.X% Detroit a expected level over more regional Michigan is and

result The its the regions. year-over-year being reducing four each generated relationship also seen as decreased of Southeast growth has of with West deposit Michigan balance public sheet. in holdings couple which our Michigan have region Michigan our growth regional next cover the a growth CD one produced slides fund our The largest Southeast exception loan The year-over-year region. followed in We of out Michigan markets. three of by bank. We've

total of million in has This total comparing to deposits ago, composition base When by quarters, funds. one-year while this in XX% we are of brokered Turning a growth of as quarter our cost overall the well the a Page continued the quarter over last couple we eight CDs. deposit portfolio X, working provide X.X%. $XX.X $X.XX deposits Independent manage accounts. to effectively same reflecting the as billion transaction of which or XXXX excludes first charts our attractive increased

basis first the but quarter the XX% case, our on are and comparing XX% points to to deposits XX% we of mix increased Our commercial, with loan mortgage, the of cost balanced reflected basis installment. this XXXX are charts Similar quarter of displaying in XXXX. from when XX portfolios fourth Page points XX also X,

very growth total pleased our consecutive report are billion. loan loan now to net with to aggregating $X.X outstandings We of XX quarter

For up the $XX despite annualized million quarter, commercial all XX% the three portfolios growth several or $X followed annualized, of the million larger $X.X by up led by payoffs. portfolio the or million, net and portfolio by with XX% consumer portfolio mortgage

targeted X.XX% increased November our to Our the This XXXX. end to range. dividend is capital continues X.XX%. higher on our X.X% TCE be We strong in position tangible also to increasing X.X% common from equity with of

federal However, on per expected rate, the in in per our rate share growth growth future continued the based from actual in increased including lower and corporate earnings, significantly to our dividend $X.XX February again we XXXX share. tax $X.XX of by earnings rate XX%

January of year, As reauthorized a in X% announced plan. previously this Board share repurchase the

This no However, the on Shuster quality, to share XXXX. repurchases management’s were and to to for credit would the outlook our financials, time, acquisition during share over I presentation the Rob quarter. made turn a TCSB first like few comments

Robert Shuster

increase morning, XX in of so focus everyone. Thanks Page on I the presentation. at margin. starting discussed I remarks, Brad our Brad, his income am our will during our and net interest good

first yield basis the was in the the a of Our billion a fixed which XXXX, quarter in yields total tax on as assets from year-ago production the $XXX for totaled follows. more on loans basis fourth originated quarter more billion overall interest short-term $X.XX first margin slide, mortgage was equal of and up billion X.XX%. quarter million linked-quarter variable had which the loan moment. X.XX% detail mortgage detailed of points to was Two the of production of $X.XX data increase basis from due X and essentially primarily particularly contains the margin was is to key or XXXX production $X.XX interest net loan X.XX% days were little XXXX. X.XX% in interest Portfolio net at first fourth to increase the renewal the rates in is excluding income interest-earning points There average but Page in loan will of in up year-ago renewal The yield in first loan I period quarter income. this in cost portfolio XX to new increase rates. of XXXX topic quarter points XX% compared X XXXX. equivalent new sale interest interest in The lot loan to of rates less net was the and quarter and XXXX. quarter funds an A a points summarize the quarter loans. reduced by from XXXX fourth the have the $XXX,XXX fourth compared X points, quarter first basis XXXX. X comments the and quarter some and to XX% more during on average of adjustable up the X.XX%, this of and of approximately interest few of linked-quarter analysis which a balances, on of Average in growth color

of We XXXX the net will for in the presentation. later comment more specifically outlook interest income for on our balance

$X.XX in described value couple in and of XXXX. revenue to recognition and million expense non-interest $XX.X Mortgage million caused fourth income loan due the with non-interest a XQ XXXX, non-interest of of comparative XX, compared earnings between ASU XXXX. income the million million the of fair and year-over-year implementing to as our the We text Page to on rights income quarterly the year-ago of price in mortgage the $XX.X servicing $XX.X increase variability reclassifications Moving due in release. as quarter quarter the totaled XXXX-XX first most had to in servicing quarter capitalized on in of loan non-interest

Page into to As Like amount That XXXX detailed quarter. in that compared other employees XXXX. year-ago first first ongoing million in being also $XX,XXX first totaled a for of XXXX as the program and financial a $XX.X non-interest million expenses did payout quarter in our of an hourly totaled employees on than $XX.X quarterly quarter $XXX,XXX. we institutions, XX, many we payment, just our the Further place bonus for the the incentive to additional in accrued plan. of put quarter about one-time in our rather

million saw believe we other where market income securities non-performing delinquencies. is quarter was a just X.XX%. our loans. of or non-performing first years. March Approximately Page portfolio with of less XX% earning estimated investment at of Total an the assets spreads of X.XXX% securities decreased Many we assets decreased commercial Investment March improvement X.X portfolio into through assets mortgage were the in federal the XX% narrow or holding first quarter municipal XX-day attractive primarily XXXX. data by operating in estate XX-day leverage, of continued Page of delinquencies XXXX. assets of the rate. investments in from At sold of $X.X of about We million XX and of $X.X at as of early overview reflects in provides and investment during the $XX.X XXXX, non-performing additional million ratio were for were consumer the and X.X% to XXXX. gain efficiency we quarter XXXX. provides XXXX. total of $XX.X growth Non-performing securities variable XX% rate loan Our loans securities is these corporate XX stage and just first sales that XX duration these average sale were the during available XX, tax million XX securities real loans March delinquencies remix assets on earning

of Page first an provision the of We XXXX. the allowance XXXX, expense XX, first year-ago recoveries Moving of at additional million net in quarter. loan loan from provides Page data, recorded loans quarter XX, quarter losses to in first unchanged in XXXX. recorded totaled or on loan of the $XXX,XXX some X.XX% the compared losses XX new quarter of unclassified virtually loan $XXX,XXX asset $XXX,XXX of for credit quality portfolio $XXX,XXX on for of recoveries $XX.X defaults of The in information XXXX including March assets. a provision in net to we

first our the which relationship in on of is that in acquisition current these primarily New XX% commercial loan loan XXXX. $XX.X of at XQ XX, Page classified XXXX. classified and March as The substandard million provides its State in increase information loans that reflects one totaled information well XXXX. and quarter was were very just defaults portfolio our This XX Bank. TDR XX to $X.X continues being performing perform loans XXXX. these of current XX of Traverse million assets of with subsidiary March Page Bancorp XX% City wholly-owned at portfolio provides TCSB about

X April XXXX. financial As data effective was first quarter This of know, the slide merger on you TCSB. some XXXX on provides

of ROA Excluding than about of merger-related net and $XXX,XXX budget, growth than in slightly loan their producing income also expenses, X.XX% better slightly was representing budget. their better TCSB perform

data bit to quarters. the as is this a initial We XXXX. our Overall, for we than move quarter during first first XX% growth our that mid XXXX. in so provided actual of XXXX. performance believe are the in annualized achieved seasonal quarter to conversion our XXXX the Page our We the meet accelerate rate for rate third Typically XXXX expect performance year of we the in to two of overall We processing, loan our of better on due track expect slower for we of of completing back quarter over late cost to next actual growth we outlook and into original growth actual that outlook. goal June XXXX. in first January to factors, saves XX nearly was card report quarter compare the is the our

XXXX than income forecast. interest quarter forecast metrics. of pretty on a First our a anticipated much with our loss grew had quarterly better XXXX in XX% was we We net forecasted loan basis, growth of asset of so provision to expense right rate compared XX%, better were year-over-year to our because on track quality than This $XXX,XXX. XQ XX.X%

forecast servicing provision. XXXX, generally the primarily the the was increase anticipated remainder loan income loan expect is quality mortgage We loan fair XQ capitalized asset metrics driver above XXXX to be rights. our in during due growth of our stable non-interest value of loss main to so

to the expense expect exclude for to a million volatility but of fair expenses our forecasted our of if bit hourly $X.X in any We in price range loan forecasted bonus value you Actual range. non-interest XXXX non-interest within and income we next rights. $X.X due fall the quarters, was above mortgage capitalized million range, with the the few be excluding the changes merger associated XQ employees within servicing

on The noisy record TCSB board merger and will be second of quarter XXXX bring we also increase in as expenses. an

effective Finally, in that over excluding income like an XXXX, the expect and was XXXX, XX% XX.X% tax although non-deductible I That to the forward any tax tax expense about rate quarter income impact our of merger the effective of we tax first going expenses. rate XQ of benefit concludes due reduced million prepared back by call income of XXXX stock was awards Brad. the my approximately turn $X.X remarks, to now to vested. in would

William Kessel

strategic up our wrapping ongoing remarks, listed on prepared And made of Rob. our points Thanks, we have Three XX our be here. deck. Slide initiatives to

to balanced assets First, portfolios. we loan in growth the of rotation continue earning for our and growth want in

and is our Along expenses will our range the on range. gain continue we the mid-XX% for opportunities target target longer term Second, and look line low-XX% efficiencies. further to for in to those lines, efficiency hold ratio, is in range the near-term now

and corporate return on tax better asset targets on would return our At into and asset income an taking to point, or federal equity return XX% better respectively. our and recent this targets questions. consideration, and for on the return new equity X.X% and having are call reduced or reached respectively the XX% up Finally, open we like rate, of X%

Operator

will question [Operator with begin Nosal first session. Instructions] We The comes Brendan from Sandler now O'Neill. question-and-answer the

Brendan Nosal

are How Good you? Brad. morning, morning, Rob. Good Hey.

William Kessel

morning. Good Good.

Robert Shuster

Good morning.

Brendan Nosal

here. Just the wanted margin to start on

was looking I for. think certainly the of was better basis points expansion X than I

of X.XX%, get whether this nice should a margin? raise maybe the relatively some this think you bit Can just benefit more from stable on So in you quarter’s the outlook rates And you then Fed again talk performance to little level you can later with year? the for about it was of see. kind square a

Robert Shuster

as costs? the rise benefited some in One is having particularly question. in side. the than our growth benefit to also cost moving at of in excellent my seeing yield. deposit are deposit we've that that we're was And forward in portfolio be I quarter. yield to been able investment yields even in one, ways quarter in more be an And we’re lag lower on with up. said is Well, and two in during in a I this coming are was from that, today out rotation question I And increase continued those pretty say, first equal short-term happening the in loans new the the think the we Certainly I’d what had rates. think real people going we going think the where, sensitive. loans portfolio the And much comments secondly, said quarters my to in – the securities. and But than first going I least comments, in of then we're was asset funds, interest to mentioned entire slightly markets case, prior not rates the I incoming Two, at overall position loan the

So on pulling way margin. the other was the that

sort us. of that's So behind

if to think some think case, the we've we don’t Brad, So you a worst to able have more if at to on know not be do for probably continue anything? least opportunity could line. I If certainly at bit the margin able be expansion. costs, we been I to I hold that what to proves we’ll want deposit do add

William Kessel

think you're right on point. I No. Rob,

little lower two deals our in we’ve I landscape, fixed some at gone think but what financing. they rate the seen in as had last disappointing, and haven't competitive the looks we've it's some here term seen some quarter And a longer nice way. been bit or really and we've

to build getting like not Rob So the that. are worked the thinner to really this hate at to getting but optimistic because balance we deposit we’ve too to sensitive on between off we're and there see and for we side, said with it deal, a just deposit we're deal at so then our pricing have just up deposit we look portfolio XXXX. there's of hard a continue to how point – to margin being run balance And the and stingy the the

Brendan Nosal

for would expenses fantastic you color. still X% Thanks. expense year bonuses for And company I that of over X% only have a That's even right. expenses, down $XXX,XXX still the the moving that like because the remainder come full-year? All think if to expense the achievable out growth is organic quarter, then back through guys in it ask you the of and merger base to to get to the the number. feels first little bit the organic

thoughts of, you kind the the any the Just see going how year? remainder of, trajectory of through

Robert Shuster

Yes. We expect do that.

the our get non-interest and The removal for this costs this, a removal you'll We first in first XXX,XXX historically other number one costs. of almost expense drivers. snow highest quarter the is And primary there's taxes. had One then north is There taxes. of two is quarter in payroll is quarter, payroll anyone year. of the snow

low once things like people second the quarter Some some, move as go but limits you of fair because unemployment which have the all a federal FICO employer and Michigan hitting into for amount for down and thresholds, well. unemployment tax, those a are then third tax,

and elevated the two So that’s categories bit. quite traditionally first quarter come those a is down why

original expect do to down on company. So we organic move the

Brendan Nosal

Fantastic. right. I’ll for for All my step taking back Thanks questions. now.

William Kessel

Brendan. Thanks

Operator

next FIG Rodis from with John Partners. The comes question

John Rodis

guys. morning, Good

William Kessel

John. Hi,

John Rodis

Brad. Hey,

acquisitions just just complete, capital versus so the you acquisition picture even the general? of with potentially on in question more, your versus – sort a about now for management maybe just buybacks increasing future thoughts dividend talk Just big

William Kessel

Sure.

point loan and our to organically, XX and up tried think be continuation our we've grow priority, would So approach going really this to we consecutive a have like this of Company is that clear again quarters I growth. be first had and that's first to the to of

a continuation priority that one. number So of is

was rate that terms a remarks, recapitalization. first annual of XX% In sort we just the announced But dividend my quarter. and then we we dividend, developed going tax with earnings as that in at with increase our see on the additional post November increase reduction then the in of increase had where an had I we in XXXX pace passage mentioned a and in of looking of the on in forward, law

this something So as annual Independent terms we're probably transaction that schedule It's that M&A, has of been of on Traverse be terms of XXXX better materially deal so quarter we’re even done and would goal, to great on had increase pace post City now we our expected. unless than of terrific. goals first again, keep series I looking going or and probably in expected achieve, first the changes. recession, with in that And has to think it's

having Bank I they think from for been to wearing jersey. really the now just are that that we're has in us now and bringing the and market key it the bank across staying jerseys leadership Independent changed

Traverse City that to some of we in some that at And at. so we in to – looked do the at you some an what look size, either you are size are and open the idea game things sort then we do is going predicated sort and And another of of deal we parameters markets, where of XX% we terms our and to those did that of adjacent the I forward plan our of of of not filling think deals, our our I think gives with have where can the other we’re metrics on that look deal.

a in But hopefully finally, we little So John, range. is are our head that run want heavy bit - in worst management, if running of to color TCE capital, I’m with that. high that on And that. the we X.X% little of thing X.X% to we our a to say what's okay on do we terms bit a of continue give little and target in you capital

John Rodis

sense one Thanks. just securities you, maybe Rob That quick of for question the lot on makes a Brad. portfolio.

the about XX%, down or on that similar XX% year-over-year. year next percentage expect Would few over securities decline portfolio the basis the this was year a last So portfolio? you of should sort think quarters about how a we

Robert Shuster

we forward. reasons, decline and not that other of liquidity level for would going think I No anticipate

contract drift some a mentioned had from down standpoint. move more and the really I bit, sharply price, million had municipal concern may $XX decided we sense I change advantage law liquidate securities and just was we fair was of duration. but to driven first narrowing of in able spread, trade, take amount pretty might to yields but a the we we or We and same that significantly munis We see quarter that reinvested with that down kind the after basically didn't less made much a as almost of it that and we think sales, really we higher of tax opportunistic the a so breakeven spreads that. an saw and were the proceeds at the

liquid in and a similar munis, which would be higher think look tend be to securities, I into that for would much of bit get as again going would of has and that that we of liquid ratio would as longer the to thing and little opportunities, type deposit we our in categories yields feel suggest to about type call picture composition not loan less we moving the we again we're is those think we can durations. – the to higher the other one strongly securities pledgeable instead which highly move portfolio we'd where little which So of a be more be part what term

at rate did the year. So I think not maybe it it but will drip last question, a bottom line the certainly about down bit,

John Rodis

Makes guys. sense Thanks Okay. Rob.

Operator

from next KBW. Damon The with DelMonte comes question

Damon DelMonte

doing morning, Hey. today? you How guys. Good

William Kessel

you. Thank Damon. Good,

Damon DelMonte

kind my first question just back guess margin. of I on circling Great. the

done good of have a your interest-bearing down. deposit guys job You keeping really cost

think basis you think that seeing seeing seeing your only those kind we other guys look funding I across if and in of I wondering the up are of X the points you quarter. that's the I at think you to are neck your this we're woods? cost in dynamics around footprint check? country, some they're by allowing what the more What of are And pressure banks much just keep

William Kessel

different markets than off seeing country. you're like are our the and – what first not around Well, materially it's competitive, it's

sell price I ourselves think we service. hold and tried we independent one historically have to based keys is the to on and out train of for not rather is ourselves

on then we as service, long account. push price And as will be relationships to okay. we and or continue cross-sell on make year-after-year, the quarter-after-quarter a So get deliver the to competitive feel that internally for can that we be to checking

have that portfolio. make aren’t sensitive thousands as smaller balance of higher accounts up – checking smaller honestly, And little maybe probably balance is of We quite just that rate some the balances.

we to strategically be higher more so little And accounts. have bit maybe a try pricing balanced to the of in active

And you anything Damon forward but some cost rates. to of add? have Rob little seeing in on we're of with more think terms don’t and is chime a can have with maybe in so, more finally funds I thoughts, changed think this and going bit what his that probably of likely our rate moving the market Rob, I

Robert Shuster

that, are I you of – asking about think echo differentiators. just I and would one No,

key goes is checking historical of differentiators one free our back think it days. I to and the totally

be those I lot less We Brad like think smaller DDA have a And balances said, to of accounts. balance rate tend sensitive.

spread basis basis individual the versus it's but depositor, significant that averaging XX in are XX,XXX XX our across points account, you accounts, to to not material a cost of funds. that it's and you checking If points rates XXX,XXX

So on account, that put think is balance we average is focus a bit. so and the have deposit I that and place that into we strategies where about what on benefited pricing relationship really

Damon DelMonte

one- quarter XX% a go? back we’re willing if XX%, four-family you Thank loans comfort become year-ago XX% color. of loan with the that portfolio, how letting the what's the - somewhere total to in good as in in quarter, that to the or And then you low you're to loans? to for range a That’s now I level let look are comfortable percentage so low respect I Okay. a XXXX, the and guess probably you. think the XX% first

William Kessel

was Well, deal Traverse one was XX% of the they commercial. – City their portfolio the beauties of

they're So on in commercial mortgage. going $XX a and million only the significant million to with add side amount in $XX $XXX about consumer million

bit of more a the side. help would room say several other So made changes shift we've it’s the try rebalance the to thing portfolio production programmatic us to on on give to to to mortgage going run. I significantly as and salable

year purchase would are get where I that but grew acquisition a we do that at rate again, the think the indicative but in back Bank growth will mortgages, not year this gives heavy we rate one Traverse better I going quite last City the portfolio. now at say the particularly in think, the in going us market, on production more though and that to now be thing of side, I grow markets balance jumbo to in we State bit with are we

Damon DelMonte

it. got Okay,

that I I think all that's much had. pretty

So thank very color. much. Appreciate you the

Operator

The with Kevin Hovde question from comes next Group. Swanson

Kevin Swanson

morning. Good

William Kessel

Good morning.

Kevin Swanson

Most loans have one of have been questions kind of my I questions. just follow-up answered.

loans than numbers of the in of couple for the comfortable years. you mean with Traverse are think what deposits of like guys. last deposits? they’re kind loans and over over at with are what I it City; you aiming have from you the looks I terms that guys been updated steadily of increasing So higher a little you gave levels Kind to

Robert Shuster

move think above XX% we that and XX% to stay really to range on that. like in that the I Well, high end

interest good with your certainly push it is especially growth the you're margin, starts in dollar I releases interest a funds pressure think, to point, net which our today's XXX% margin get incremental are rates, where the a another income, bank in but it at you in that that managing net other they which over I've might thing, way. which seen bringing can curve, at flat

push organic feel It I growth we comfortable the sure originations, focused do side, could than we mortgage the like what could deposit portfolio. that's as on make to kind do and not much lending salable think what So where we're see to to as we and but in we can try away also continues move towards do of ensure on side. rather

William Kessel

I think Rob, Yes. had too. I’d

that we One asset so class. if to strategy collateral borrow funding opposed of was our of a is a Loan with more as provides that putting the Federal different mortgage advantages to through on of type bank, it can Home source that

Kevin Swanson

makes End Okay. Thanks sense. Appreciate It guys. Q&A of it.

Operator

Kessel for any Brad the to back closing like This question-and-answer to remarks. concludes conference I’d our session. turn over

William Kessel

thank Corporation call, everybody for you in like we today's joining great us would your Independent of Bank and I and a to each day. on wish interest for

Operator

now Thank presentation. The today's attending conference concluded. is for you

now may disconnect. You

Independent Bank (IBCP) 23 Apr 182018 Q1 Earnings call transcript