IBCP - Earnings call transcript Q2 2018 | Independent Bank Corporation

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Operator

Good morning and welcome to the Independent Bank Corporation’s Second Quarter 2018 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brad Kessel, President and CEO. Please go ahead.

Brad Kessel

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

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

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

results. income addition assets the Bank same income organic on XX.XX%. three return return on loan were million X.XX% per the City rate and year ended XXXX, per June tax share or or XX, this Traverse For This represents generated ago. months X average share the of positive compared growth, for of equity of average million to a of quarter’s and lower corporate the of diluted State $X.XX $X.XX Strong $X.X $X.X federal quarter diluted as drivers a net we primary

$X million with in and million, interest year-over-year a increase and growth, XX% net respectively. Our a consistent $X.X sequential of quarter-over-quarter the TCSB XX% coupled fueled merger, loan income quarterly or

assets net $XXX.X by of or provision be expense. quarter Also very evidenced the loan XX.X% million volumes total we cover strong data quarter This asset a of second portfolio us just portfolio Bancorp, in X.XX% April corresponding year-to-date State continues June non-performing and conversions growth quarter, of total significant the and loss growth our $XX,XXX assets. pleased For second of parent the $XX.X merger City to of quality TCSB or Traverse loan primarily were was complete of net XXXX, of the XXXX charge-offs X, as to second recorded for processing annualized. for Bank, we on Also in we $XXX,XXX XXXX, to the XXXX. company million generated during the with of

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

our income ago June presentation, six a have and $XX.X XX, million generated $X.XX share. in compared ended to period. in a per share income or increase per represents or This the in we year diluted to net Slide XX% the for X increase diluted share months million in diluted XXXX, earnings net Turning XX% of per $XX $X.XX

the year presentation rate year Xth Michigan U.S. provides of X with operating in Our Bank, of XXXX, are Michigan loan X%. and X, up XX in in Traverse of X one recovery. April well production June a Northwest Slide XX in rate and XXXX, offices, Effective our view located economy ago into X.X% today X Ohio. includes X.X% is of which X Michigan. unemployment includes footprint XX footprint. of unemployment now its the this of branches Michigan Michigan from and branch in the slightly is State At all locations City The good XX at acquisition locations, above counties

Michigan continued seen is has up in in generally when back be with demand little estate rate is available. into higher Michigan’s portfolios ago. favorable. economic the than strong believe state, and trends on in our difference the I Michigan a X.X year the levels regional combined the gap workforce while and skills commercial individuals the the skills national the Housing state the can million also workforce shown continuation between of Page number strong yet rate, the positive same the real is the to coming While be current slowed X. occupancy are one period trends to to comparing for year The payrolls, of due

generated have has The regional each year-over-year We largest Michigan growth in growth. Michigan loan of region the Southeast markets. our produced

which regions, seen also of public a result of in our next cover exception four couple reducing Southeast deposit of Michigan bank. have with We in CD its the out relationship one sheet. balance growth The fund slides region, three our decreased being holdings the year-over-year as

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

same are deposits XX basis Similar charts points reflected of XX quarter also one on mix But in is the up on up displaying loan is of XX. a points we comparing basis case, basis when and cost are portfolios. year this to linked Our quarter Page the ago.

continue business. the and XX% XX% mix commercial, We diversified XXXX, target to loan XX% our XX, largest loan installment. our portfolio At commercial June mortgage included of a book with being mix,

million were $XX or up were usage. or million annualized. million reduced loan Despite experiencing loans X.X% pay-offs quarter and our the pay-offs or and commercial installment business pay-downs, levels aggregating Excluding loans of to we up the annualized. to of larger XX% a $X.X $X.X combination $XX are XX% annualized were XXth acquired TCSB outstanding loans merger, or loans sales consecutive total billion. portfolio line of a now in pay-downs or The Consumer related mortgage report loans net with level up or of growth, to portfolio pleased asset were very

Our On cash common a in XX. reflects June X, range dividend the Directors on July capital of declared This to at per August XX, common is share XX, Board equity impact and a have of to primarily quarterly of plan. on strong, X.X%. be March X% This X.XX% to XX the with the do our payable to X.X% TCE position X.XX% August TCSB within moving $X.XX targeted change stock also at of continues tangible place XXXX of is record share. XXXX. merger from repurchase We dividend shareholders the

to presentation over share share of At the few to XXXX. been TCSB credit no in would Shuster comments the management’s to this half XXXX. the Rob there have and However, repurchases outlook like second our a for acquisition financials, time, on I turn quality,

Rob Shuster

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

$X.XX moment. topic XXXX. linked were loan the tax detailed of detailed margin quarter a stated, of on compared is merger XXXX, Our second increase key increases the quarter quarter billion quarter to reflect net a on was period the points, a in contains Average data Page XX organic in Traverse of XX income. I few this first There which summarize City a year slide, the in ago as comments margin in the These and of second up assets points of billion $X.XX I by interest of net the this have equivalent year quarter interest more lot the from significant up billion interest increased from State Bank ago the and XX is X.XX% will but points. XXXX. interest-earning XXXX basis both the linked XX some analysis first $X.XX growth. in during quarter points quarter and more to basis basis net

basis the acquired from on growth, loan margin market in accretion net net balance discount linked basis interest merger. increased the of quarter combination about loan a XXXX linked portfolio a quarter of $XXX,XXX rates organic increase by quarter net interest in of income The the points Second of points. the TCSB X.X XX.X the of margin TCSB contribution and rise was short-term interest interest the

cost a basis average XX the of bearing interest about moved on by mentioned, quarter up Brad basis. points linked As liabilities

data interest standalone margin net conversion difficult occurred XX.X for that to mid-June on referenced in in it IBCP the basis. increase processing is isolate XXXX, standalone Given the above on quarter between me basis a the basis TCSB core a point linked and

and However, given the funds margin TCSB’s net relative we TCSB. was size estimate XXXX, and IBCP between asset in equally earning of yield of May cost the and considering that divided increase in April the in interest about each of standalone

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

and year in the million million income on as $XX.X to the Page to the quarter quarter XX, first Moving quarter compared million in XXXX. of $XX.X totaled $XX.X in non-interest second XXXX ago

the caused of income. year-over-year servicing variability loan most comparative in mortgage Our quarterly non-interest

primarily a of results a its not of text interchange after-tax change have and and per of we to price core $X.XX compared fair after-tax income XXXX. the out the value table revenue, due our servicing in increases to release due year-over-year the parts, We the in were second diluted interchange that to price, to negative pay-downs. in into $X.XX breaks due is as in component to a release. earnings or share loan $XXX,XXX share quarter ASU due value in our was The of per fair described quarter XXXX of fair or second $XXX,XXX part mortgage earnings change view being text net diluted XXXX-XX which expense a of change value the implementation The positive

data As XX, This the million XXXX. expenses of as of amortization Much primarily quarter compensation TCSB $XX.X in assets. occupancy, and year increases benefits, $XX.X XXXX million the quarter second the quarter year-over-year to of the first and the and our $XX.X intangible ago impact million the merger-related totaled processing, in was merger. detailed increase non-interest in on the in of reflect of compared Page expenses

to non-performing implemented $XX.X and of just At was were days incentive yield was XXXX our loan At the XX, of were provides less. day over XXXX. very compensation We Total the Approximately much XX, delinquencies. non-performing data actual support or XX utilized was rate million quarter Investment estimated X loans of tax were X.XX% was the hourly provides collateral the end. performance-based addition, Page rate overview portfolio and The of delinquencies essentially other of loan Because on assets portfolio XXXX. position, weighted due. assets of as compensation non-performing XX X loan duration funds targets loan assets of increased quarter real portfolio during the loans, new and just consumer of lives fixed stage mortgage XX second increased at Page commercial in or first loan on our and credit years estate, other we relationship placed XX% second an or for X.XX%. maturities this the the XXXX, second equivalent of of and XXXX. portion total loss average was of the XXXX. the million no during growth. XXXX, relative average in sales over $X.X is employees to plan delinquencies XXXX. years X.XX%. at XX average variable unchanged June available-for-sale of loan our for $X.X In runoff strong quarter quarter $XX.X quarter June just were to allowance in XX, investments real commercial one and of million construction to non-accrual portfolio June XX the XX, Non-performing million this June anticipated and decreased securities due early performance from estate past that X.XX% at with on had by

XXXX to a $XXX,XXX loan Loan Page in quarter XXXX. at originated of respectively. XX, loan in loan asset losses the X.XX% $XXX,XXX net were second in some $XXX,XXX primary quality including XX, million at of driver additional second the and quarter. Thus XXXX. of on provision quarters of for $XX.X portfolio on relatively recorded we or allowance second the loans total of insignificant loss and expense charge-offs provision of loan and for loans growth totaled provides assets. classified the the XXXX X.XX% Moving defaults on June information and XX Page The data, expense new was

these balance decline $X.X additional were estimates will second the our some provides expectations at TCSB information quarter To Page totaled million that our of detailed XXXX. XXXX loans during million XX, XX This XX.X% XX, continues XXXX Inc. our well at of XX, information on Hopefully, we being and preliminary quarter. This second for into million well information, loan for and liabilities June This portfolio of New portfolio the level the balance $XX.X $X.XX a XX slide. TDR this fair accreted of XXXX accelerated our for XXXX, with $X.X with discount Page recorded of for the XXXX X, XX.X% Page as this of of help of assets represented on to assumed, you or very these the basis and perform which deposit performing defaults and acquired for current premium loans of in with on merger slide. the intangible accretion combined XXXX. of June provides beyond. again, XX understand on loans. about X.X% April provided the will summarize Once estimates value of core and Bancorp, recorded of the discount an estimates ‘XX a core over income XXXX XXXX X.X% amortization years. and of well level deposits. portfolio interest of the acquired asset XXXX amortized we of for TCSB be be We $X.X million provide will as as total million, we as for balance this

a outstanding will ‘XX, life $XX,XXX basis. recorded subordinated expense interest asset impairment over interest discount $XXX,XXX to will on million discount integration the in merger. time of fourth as related instruments recorded in efforts This and of discount discount million straight on The in $X.XX $XX,XXX accreted line over remaining accreted per lives on of was we TCSB $XX,XXX in and in the we borrowings of for on quarter into intangible $XX,XXX the issues. This and subordinated exclusive We assumed. XXXX. the quarter. the periodic remaining issued the planned this and equates have be basis, the of with the a at total be $XX goodwill to This deposits We $XXX,XXX ‘XX, tested TCSB debentures which third will debentures significant About accretion be recorded of approximately expense estimate quarter debentures. about went of the in a no XXXX, that

non-interest cost our expenses $X.X track on third about are of beginning saves of projected We XX% or for million of in quarter the standalone per quarter TCSB XXXX.

quarter and and X XXXX expenses $X.X million the for Finally, totaled months TCSB million merger-related of $X.X first second respectively.

less growth, the merger-related actual Page January that amount, in year we XXXX. outlook third XX we XXXX. minor our than Brad quarter XX.X% approximately annualized provided XXXX than the a only was of update X Overall, portfolio original TCSB of the our loan is expect for of to compare We second the months $XXX,XXX the our and of that expenses quarter in half We XXXX. We believe better actual achieved XX.X% XXXX in our original performance during first as of and organic outlook. first for mentioned, respectively. performance of

first half consistent organic year the with expect of or growth about XX%. We the XXXX loan full portfolio year

basis to earlier. the XXXX grew margin net net mentioned I income X.XX% as significantly quarterly interest interest increased year-over-year and quarter a on Second

loan we quarter And a losses to $XXX,XXX. We XXXX in and the increasing fourth the a would slightly We balance expect the expansion be losses expense of given net the interest stable primarily of to and second over forecasted net a result provision growth, third loan growth provision of expense be for of further margin see loans. to had loan the quarters of income in XXXX of in interest the the of average expect XXXX. for to balance

due income. non-interest XXXX loan primarily above mortgage to our was servicing income quarter Second forecast,

absent servicing of in $XX.X the in $XX.X decreases last income or increases the range quarters price. million mortgage fair value to XXXX million capitalized two in due expect We loan any to non-interest

expenses income non-interest an XXXX quarter compensation. above the TCSB related Second as performance-based merger due expense range well to largely was our increase as forecasted in and

of expense two million million expect quarters in last range non-interest XXXX. We $XX.X $XX.X the the in to

over Brad. and the turn effective income two my XXXX. remarks. quarters of an Finally, And XX% would we rate call I to XX% prepared now back concludes expect to between the That tax like last in

Brad Kessel

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

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

would is gain XX% Along to look line is Second, our the efficiencies. and this open continue recent At expenses and X.XX% mid-XX% questions. for better the we term taking corporate federal tax these now will lines, hold equity return for and on income are in low or targets our on range further efficiency longer ratio, into rate, the After and we point, opportunities respectively. target consideration, to XX% for the target range. like in call the near-term our reduced on return the up asset range to

Operator

Please Brendan first The question Instructions] Sandler with O’Neill Nosal go & comes from [Operator ahead. Partners.

Brendan Nosal

guys. Hey, How good morning are you?

Brad Kessel

Good morning.

Brendan Nosal

cost you off here or a going the timing then XXXX? does all early forecast terms quarter are CBI the in expense first guess, will in and earlier? some of third laid of TCSB you amortization And I include savings, question get much Just secondly pretty bleed into to expense out do start here the of that quarter few you your think to expenses. is, on fourth

Rob Shuster

questions. expect the include quarter. intangible place The does be the in in all both saves forecasted The to we answer core yes is third increase to largely range the amortization deposit the in those cost and

Brendan Nosal

mean quarter Alright, and regional color from the midsized again markets up one Michigan-based talk And number in Appreciate players this starting heard to there. idea M&A. of the just I then of M&A, I great. on a your around

that state the the integration am or the update of in might for looking is on increased you just thoughts your more if and curious additional within just forward done, is Michigan I you deals us hearing in going and now and what less then fully for? be So interest TCSB M&A numbers are

Brad Kessel

Brendan. Sure,

of buy consecutive on So our quarters quarter-after-quarter capital And is have have Independent the of we loan today, XX on we reported we side, said and really point on geared so our growth. now organic M&A, use loan growth. as of towards appetite the primarily organic

So, if that many with The well time growing in merger us at it of our Traverse had accretion, and same EPS driver attractive was back, the we base. that terms there We will we went went. City for And opportunities earning in earn merger similar would continue financial the size, a lot and of like learned profile were metrics, to be first be very primary from the it in our years that. market, way interested. asset terms a

In to buyer of operate terms don’t do seller price we goal disconnect primary I shareholder the that of and the know. may shareholders, said But – think and has we has maybe market actually value operate does best in I more just as publicly again that is create whole, level sellers objective. of a is between our Independent, that continue will and as at have it our interest our the demanded what by create Michigan appear that a gotten increased to

Brendan Nosal

the Alright, guys. Thanks for questions, that’s it. taking

Operator

next comes from question Please Our Damon DelMonte ahead. KBW. go with

Damon DelMonte

Hey, again guidance and guys. good Thanks in such always clarity providing your remarks. morning great for

Rob, had I a accretable I of quick the the said could expected margin couple what going impact missed yield that? forward, Just on repeat about you you follow-ups. think

Rob Shuster

of expect we the dollar the sort what to increasing items on impact I and of don’t stable of least amounts, went accretion. for couple on the did margin didn’t at each of a to yield is the from next through but quarters, I slightly in anticipate the margin. the change accretion I say the various I really the about mention impact significant be

similar of at second it quarter will the change X it roughly be so next for I and basis next a impact the points couple quarters, of least much So couple think the not was quarters. in

Damon DelMonte

growth about Thank year, you. And expecting you said the to great. loans you mortgage year the that to have we ramp-up going areas do of loan for or XX% the category in of commercial expect to are back what the going in this on your that’s outlook had We Okay, during to then it a are you side? expect continue and decent growth, kind half more see see that? XXXX, through had

Brad Kessel

strong from I quarter we very much the solid Damon, imagine that would I it marine-type finances off very consumer fueled off which that and had third was for on our indirect first we second the and installment will a of quarter, that’s there, growth desk, have RV side paper. then probably and think tail and typical.

have I less terms we off little and quarter had probably a of think there remarks strong On we had maybe then I growth will in side, like maybe be have actually portfolio equivalent the taper of then mortgage on in higher pipeline that have that normal we an – the QX, have higher again second and We level loan my little commercial a pretty mentioned side, than payoffs. a that QX. the And in today. we level

So pickup I am on hopeful little have actually the that side bit commercial what’s the of pipeline more a a based we today. in on

Damon DelMonte

are the great. had. I in I detail Again, questions remarks. you yes, those appreciate provided prepared That your Thanks. – probably only two the Okay, main

Brad Kessel

Thank you.

Operator

question Our Kevin Group. Swanson ahead. comes with Hovde Please go next from

Kevin Swanson

Good morning, guys.

Brad Kessel

Kevin. morning, Good

Kevin Swanson

about skills them to to now and sheet flex ability or guys all like larger Can have how able outlook been at that? looks you what that, the with to yet talk sheet balance Traverse you guys City your the over is and the impact have balance of just in a

Rob Shuster

sheet their a Well, have investment did was balance significant predominantly portfolio. loans. They not

have – the what didn’t call balance we relative do wasn’t to to really there financial would any, I engineering So, sheet.

of those have brought in they full. I balance able several help on limited were been size because in we some have is think they they sheet back of what been their participations, could to and loan have had where

we And of have City addition, a too, in bit a been to relationships we products. pursue them. enhancement. got array market Traverse time And now to think the where larger broader that’s I able treasury benefit in management then ability significant have little think So, I their is over

them benefit on the also commercial can that side. think I So,

their the to time much on but deposit ours, was of more with they focus had. really bit similar so more their I retail over think that of their the their base, they maybe a base had commercial And commercial on some we side, with on deposit area along benefit deposit is not one increase somewhat strong that balancing relationship terms relationships. out that accounts, In

an earlier, preferred mentioned into XXX, trust LIBOR that, to had was priced accounting the course, part they wanted of of security and that so attractively something I As we about at we entries, plus but million was expense. retain, $X.X interest discounted as that purchase accreted that’s getting

So more their up a that to to rate the still said a very brings market. I that trust add attractive a instrument, rate of to market not so for growth do basis preferred, attractive in on that time that’s can of sort but more sort attractive long-term merger, of as where at really we very much

Kevin Swanson

deposit doing Great, of really seeing? are helpful. the us cost then you give relatively question It and funds idea just still landscape a the I my my little of that’s there Is guess kind guys next went of out up anything was there can but final you an like bit, crazy? question anybody on, low. looked

Rob Shuster

is, I Well, from would that competitors. of call, a variety are seeing at, wide I CD think there certainly market rates what specials are we

time, think bit. to costs a CD ramp And so I over going up are

competition side things of dealing seeing sort municipalities are you deposit think although are I where real move treasury been market units – We management I to are of as non-maturity front accounts. rates not crazy the from money on in think we and don’t because there funds has with and you just larger from the Certainly, anything not commercial pressure well. other now up, banks, but market have money governmental

bit. moving time, been up a over that’s So

those that I see real a non-interest-bearing accounts. one and deposits balanced of lot smaller key benefit have is And lot non-interest think things think the do rotation that. out bearing seen those everyone the we a for have start of to thus in we the retail that of deposits far you us deposits, into a of like is for of from banks lot much of we not have I interest-bearing way

see So what higher there if is much as is of there balanced a had would lot not pressure accounts. you you

Kevin Swanson

Great. Thanks.

Operator

question FIG Rodis comes John with from Our go ahead. next Please Partners.

John Rodis

guys. morning, Good

Brad Kessel

Good morning, John.

John Rodis

the some question securities continued of half second for year? kind outlook quick of on guess we should it’s I growth, I one just loan flat portfolio, the to Rob given down assume guess on the your

Rob Shuster

of one That’s where word would XX% a we feel off? in to it I to great of you that discussing got kind liquidity level we lot that if from need below a assets, level. is think kind question do a maintain standpoint, just we at

about to think as at or level, investment would would XXXish are portfolio. I maybe we And XX% of now, assets, we So so. be makeup the change that move the XXX we of of also sort

it’s to Now, sort of yields. complement a been our

pledgeable municipal a So securities as things and securities could not included where asset-backed better we have we like are get little bit yields, collateral. they but

much we to as more collateral number. things would as we move liquid to and down that be pledgeable that think moved I So

of liquid So assets, terms even portfolio less in borrowings. of be it though represented our more would what a

that a you XXX sort bit a next So toward over see six the four to of I of would think drift down quarters. figure

John Rodis

for the Okay. Rob. thoughts, Thanks

Rob Shuster

Yes.

Operator

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

Brad Kessel

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

Operator

now you presentation. today’s Thank for has conference The attending concluded.

may disconnect. You now

Independent Bank (IBCP) 29 Jul 182018 Q2 Earnings call transcript