Earnings call transcript Q1 2023

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Operator

Hello, everyone, and welcome to the Independent Bank Corporation Reports 2023 First Quarter Results. My name is Emily, and I'll be coordinating your call today. After the prepared remarks, there will be the opportunity for any questions [Operator Instructions].

I will now turn the call over to our host, Brad Kessel, President and CEO. Please go ahead.

Brad Kessel

to welcome and morning, today's call. Good for call and you XXXX joining company's us conference Corporation's results. Bank Independent webcast quarter for first Thank to the discuss me Chief Brad our and Independent. Charge Officer; Executive Officer, President of am Rahn, Financial Mohr, and Joel President I and Vice Kessel, Chief joining Vice is and President Commercial Gavin Executive for Executive in Banking

session the tax income of share the million $XX due by for call, note by independentbank.com. then specifically, prior Bank the Independent The reported an noninterest decrease a of Before income in can the expense. income, like XXXX to and share partially the of The on increase interest issued net decrease first in as include to would expense statements. quarter in per today's forward-looking closing access first have provision XXXX year first anyone the net or million of the in period. compared cautionary website, you I income today's an Corporation the noninterest per primarily not net credit is and diluted or were $X.XX important to quarter for that we the question-and-answer in call our will losses company's income, offset results increase diluted quarter by you in Page If versus X and today, of decreases $X.XX $XX agenda begin followed direct to information prepared press already release presentation, remarks. it us copy regarding remarks, does XXXX a at brief a

on price fair return average equity in in impacting the included generated return first on XXXX, the items on XX.XX%, changes rights, compared XXXX to troubles securities X.XX% to comparable first to our first deposit an and banking experienced and provision focused XX.XX% losses and recent the bringing able loans, been the new mortgage remain credit the assets pleased quarter of maturity. for base have of servicing to customers on throughout of our value the needs quarter Significant serving and held for due as we losses of relationships respectively we remains XXXX. quarter average X.XX% the For of to stable annualized in results the on and in I credit and industry the am a our to provision bank. report

of quarter million, Importantly, we the generated for deposit annualized core X.X% XXXX. $XX.X growth first of

to $XX.X financial another As total past results. X.X% loans level strong of maintaining annualized grew a we report a quarter able low of dues. are We by result, million or while

commercial strategy continues talented be and to deposit and market talented to an our share expense unchanged across already to to as of Bank's greater assist in continue Independent team remains footprint. Additionally, our goal on management. bankers team efficiency focused add operating achieving we banking our loan

securities. liquidity secured very We uninsured with in and have unpledged capacity borrowing a deposits deposit a granular $X.X high approximately our billion access XX.X% available level of borrowing of on base with and

loan-to-deposit ongoing XX.X%, ratio to at our continue believe growth to capacity we support the With portfolios. we the loan of have

be quarter billion. billion, billion $X.X deposits $X.X to we During the core. the XX.X% consider XXXX, first of Of or grew $X.XX to our

the of In accounts to report balance addition million deposit for also to net generating X,XXX core quarter. pleased more deposit than are we growth $XX.X growth, in account

on quarter, deposit metrics some the base our We showing the are additional including the of granularity behind information funding. this

the quarter. view of historical rate our of in our cost Fed effective the as Fed to presentation a compared funds spot rate included the fund have We and for

to XX.X%. credit over loan Through XX Rahn our by at cycle on presentation At of cost of is of beta basis cost the success our points quarter to X.XX%. funds total for few Joel cumulative now and update growing to first XXXX, we this Our increased portfolios in share like time, funds our an on turn a metrics. are provide to the the having comments I'd the

Joel Rahn

morning, an portfolio. good Total and update that quarter, to Page On Brad, well-diversified you, increase $XX the we million loan led residential our provide mortgage everyone. on X, loans in $XX million thank a activity, portfolio. by leading Well, first increased in

was unplanned from commercial $X and million commercial businesses consumer grew loan of loan or sold that $XX worth refinanced watch our payoffs growth credits. portfolio during of the Our reflected $X.X flat list noting loan million payoffs installment It's quarter. approximately projects, these were lending million

expansion first that we're in pleased quarter, So we the to are strategic loan gain each commercial growth will in disruption with was serve. believe provide commercial share creditworthy banking in well as opportunity Overall, this we loan our we our marketplace positioned that market believe growth and of XXXX. to market continue while soft growth as team

suburban credit a office did as the size continues concentrations with primary X.X% is from with portfolio office We XX. portfolio fully million vast of on Page worth the $XX XX% at Manufacturing XX, provide with approximately credit also X.X% loss $XXX portfolio. be that Page office be to XX% exposure portfolio X.X%. concentration estate industrial portfolio. to million space. into or granular, focus, in $XXX,XXX commercial stands retail comprised charge-off $X.X a and bank. commercial million. average that was portfolio our medical or the XXXX. experience million. of a reserved very office the one segment, on the of office our C&I a being more and On long We history of XX% which real year largest exposure office we spotty quarter, was the commercial provide This decrease continues end, loan at segment is noting our comprising and was of The $XXX our or ago. detail the $XXX or during remaining It's within That with The be had majority our space slight being C&I the the to largest quarter of our insight representing million XX% at X.X% our being at lending exposure characterized on low-rise a can loan

Aside from continues quality very metrics nonperforming our end. watch credit, segment with office-related XX quarter March up XX. an Total were well on overview credit at continues of list that no at provides At excellent. million for this credit key comments, the our quality loans Page his $X.X outlook loans for hold to quality total credits our year. credit of of to be delinquent Overall, to to at to totaled loans million XX at turn XX, year-end. of remainder the time, In the I'd March Gavin or quarter for or end. like from including $X.X over XX down this presentation slightly the days X.XX% X.XX% portfolio

Gavin Mohr

XX Bank that at starting first we held Joel. maturity. subordinated In morning, took Thanks, security I'm charge-off of to quarter, our on a provision debt of the Good the the to everyone. presentation. was related Signature $X Page million classified

Additionally, XXXX. our strong and with Moody's rated liquidity comfortable our Over loss Signature Bank's Bank we current on our characteristics each caused ratio, Valley securities Valley of senior balance is The of XX and/or additional holdings security a corporate credit events Bank realized in a failures be grade holdings. reviews Slide securities. first and quarter total risk-based the with of Page investment $XXX,XXX deterioration. S&P rated investment quantifies ratio of and financial unsecured credit KBRA. our unique position. by the and capital sheet. to CETX We portfolio grade believe sale equity by isolated of XX% XX common regulatory Silicon XX% to We their corporate Silicon are ratio, regular highlights ratio, tangible an leverage by capital increased perform the institution,

Moving Page from million $X.X to year XX. increased ago income on period. Net interest the

quarter 'XX, $X.X points were quarter net XXXX. which from to period XXXX quarter of XXXX. is during quarter the of the and was in basis year points billion and first quarter billion first from equivalent down of the $X.XX the tax the up basis compared Average of margin fourth fourth billion Our the ago in interest-earning year XX ago in X.XX% interest $X.XX assets XX

the quarter contributed decrease increase net impacted two funding in an a change and net XX in margin quarter contributed and points. loss mix yield offset points, linked points, XX changes yield cost linked analysis than interest due our in a basis XX basis mix and of interest by factors: XXXX loan On was in income more positively funding investments basis more Page was margin. by X These quarter mix. points earning basis, asset to the in increases and increase first of basis were contains of net interest detailed X

largely partially growth next primarily the a and unchanged comparative in The deposits changes calculates quarter XXXX institution's 'XX earning analysis X 'XX details Page outlook margin specifically funding assets comment than the more fourth and favorable income interest month the XX, income in by interest will and during hedging net previously change change We quarter and compared funding the from provide on later for were 'XX and composition. the interest-bearing in net impact All rate first for rate term static the the XXXX immediate, on an in is adverse XX risk fourth interest the valuation the rate reprice modeled quarter and presentation. position. changes in months. On interest we of interest Currently, during is quarter quarter. income changes. our curve due net the as mix net additional in scenarios. the a mix and in betas the base in rate date. The the scenarios of five earning decrease next quarter assume parallel shift by Sensitivity The adverse deposit XX.X% were forecasted months over asset on permanent, scenarios to in of first higher offset a yield The base balance consider scenario reprice asset in XX spot XX.X% to applies the rate from sheet. shock under transactions. These offset simulation

million to sale on compared in offset was in million $X.X million $XX.X gains first 'XX by Moving XXXX quarter these capitalized of year gain mortgage by after quarter XX. a the or million tax a partially due loan gains in mortgage that's totaled loan in $X.XX Page sales to due $X.X decrease million fair on rights net the a on income $XX.X impacting value to the ago of gain first a and decrease a first paydowns the noninterest the in quarter of $X.X as offset mortgage was an $X.X diluted million the the of continued servicing quarter $X.X compared loan was fourth first of volume. on XXXX increase highly to and due in loan margin $X.X that $XX.X lower saleable application million loans percentage mortgage to The in quarter, in revenue income, of to and The Noninterest maintain servicing partially and due quarter price, loans in in quarter mortgage million mix increase decrease per 'XX. the to of. to share totaled million

start year 'XX mortgage the lending origination that As quarter the the year on first compared an at personnel. to and quarter of due in million compared the in detailed on expense volume in prior fourth loan million of in the of increased totaled increase as to our quarter compensation level $XX XX, a deferred Page $XX.X of to lower raises XXXX year, XXXX. the was as quarter $X.X decreased first million that quarter $XX.X the origination effective in noninterest were direct ago and costs million Compensation of

million lending the corporate $X.X 'XX. plan lower decrease primarily level first to decreased compared within performance compensation the compensation to Performance-based of and incentive mortgage due in volume quarter a

million expenses actual prior original related in The that the unfunded as been million to $X.X lending loss is related rates. to the expected XXXX costs due prior a year primarily to volume quarter period, to certain a of outlook asset lending in first see and expense paid XX had for credit related first the Data we reserve by growth. XXXX. of our our as increased update credit performance $X.X provided well quarter expense Page such decrease processing compared to increase to a in commitments during outlook in commitments for January to the the previously included quarter the to the year that XXXX our in an how expensed from

installment or double million Commercial XXXX increased is below in Our positive the loan and growth quarter our quarter loans 'XX. the in first growth the Loans which forecasted of low of digits. estimated first $XX.X X.X% had annualized, range. mortgage outlook in

XXXX interest line First quarter first margin Net single-digit forecast for first over interest of XXXX higher was net interest increased which higher basis XX.X% of X%, original net with the of is our margin XXXX, quarter is the income XX in than by of The which than growth. a quarter XXXX. points our forecast.

X.XX% XXXX expense provision quarter first for $X.X losses an was or The of annualized. million credit

of incurred a on than security expense which quarter during provision securities losses first credit provision to in 'XX, expense held XX The to a The for credit due as million loss in maturity for quarter to an a of was a quarter. result range. the is first subordinate loans lower debt provision the forecasted $X increase our related

million Noninterest $XX.X first was $XX forecasted our million. income million of which in the to totaled of $XX 'XX, quarter below range

$XX million loan million mortgage loss First $XXX totaled sales, in respectively. a credit corporate in first range originations, the of XXXX loan security. gain first was $XX.X for of and quarter, million generated of below million million, of available gains expense the related $XX quarter quarter $X.X to impaired on quarterly. $X.X million, 'XX. was targeted securities $X.X Noninterest Mortgage and our to $XXX.X The servicing million forecasted the million divestiture a sale

income XXXX below effective to rate slightly for the of quarter we forecasted. of where had Our first tax XX.X%

remarks. the repurchased my in quarter XXXX. concludes the turn call like prepared now no back over to of would first Brad. I shares Lastly, to were That

Brad Kessel

quarter, Each our Gavin. view a key Thanks, initiatives. we high-level share of strategic

the XXXX, yielding mix proceed be investments rotation expenses. base funds, will our of our to on noninterest while all through core growing cost higher-yielding our and deposit loans, we asset our earning As our out controlling into continue managing focus of our of

a our by potential like base, low-cost to point, concern this environments portfolios, have the Independent economic good to to open about effectively We've in increasing on particularly deposit results like the slowdown, for deliver our a see and questions. continuing consistent a commercial strong believe point, about we as now in this at proposition well the strong Bank. segment shareholders. a built variety At well-diversified franchise and economic offered loans, manage is we a continue we as trends. for Accordingly, community continue the talented loan interest opportunities there we which While renewed team, call demand through to banks well are a value to us growth positions and strong up of for we'd excited

Operator

Thank you Instructions]. [Operator

just We will a brief the roster. take pause assemble to Q&A

from Nosal with comes Brendan question Piper first Our Sandler.

Brendan Nosal

you core time Nice looks the have of deposits up get flat job and build which the deposits this the broker cash cash quite forward, to nice more really a cash this flat? you desire did bringing keeping of folks You balance growing of funding to to quarter. like pretty by matching you looking growth nicely. to growth, see then and brought those it I you or it are loan build allowed happy forever and point do sources, at guess, on kind a of

Gavin Mohr

of we growth some lower the we've seen new were year. rest the that end So the time will bank. reciprocal; coming we throughout did cash that cash of On growth balance sheet and was quarter be in through elevated come deposit of into faced with anticipate level an with. The

rotation Some of could as see from it is non-maturity. you

I I I answer expect and So to continuing throughout we year. continue the have we're mean, to rest guess grow of grow to would the deposits the is deposits,

Brendan Nosal

some us One quarter of deposit me. maybe pressure? kind the walk kind most what period and us of the over to pricing insight Can evolved you felt month-to-month give you more how through from as

Gavin Mohr

-- we deposits quarter. pushing environment we the deposit So were X costs up. it's March I throughout rotation increasing the the end, We after that do clearly at were was the think the But And months. ultimately, really the XX. changed in first increasing just

back hold to some had as make I think been adjustments we catch long as and to could, we little to bit. a maybe up we've able

Operator

next Erik Our question comes Hovde from Zwick Group. with

Erik Zwick

margin. to just on wanted interest bit a start little I the net

quarter to first the guidance your the margin for kind rest for was to of year, here it to prior The slightly to would the full 'XX. -- with result up we flat year hold relative the fit of be if

certainly So just comments. be just to opportunity competitive little the the But you to that in talked higher to seems funding bit curious into a just some assets. about curious, your mentioned last -- remix you earning that more

going Just outlook or over margin two? for curious how the you the continue to forward quarter the view next here

Gavin Mohr

feeling, in that is makes rate that deposit just there. use it's on obviously big In of everybody two look did say, the I'd call say I pressure. I to our challenging we deposit cuts outlook, and remind a did again, don't this It about, we but the the build, the that had know like. the back forward, quarter. talked what end it's forward year curve on question build beneficial. are was going And the as that first would rotation I continuing just does necessarily would

that this anticipate that We we one model, rotation our we light. -- this were frame. area in of where of time to back go So if was not non-maturities those was did level

I So think…

Erik Zwick

point. good …a

Gavin Mohr

Go on.

Erik Zwick

Go ahead.

Gavin Mohr

I quarter, think in now deposit lower, on a it's shakes our out. reasonable depend a could we So to we're but for could the drift right mix going range -- think I little how really

Brad Kessel

Yes, I'd agree.

we'll probably a think drifting I see little respectively. lower,

think in I assumptions. would be that your good

Erik Zwick

additional I noninterest range to the color your income, the moving kind fee And of for there. expectation income a bit was bottom of XQ end little result below appreciate there. just the maybe the

I Just came charges service expectations, look at was lighter. on maybe curious bit interchange about a little -- as that I deposits guess, out my the and it

deposit fees have seasonality of know made there? banks Or So to things curious some changes I that. if their nonsufficient service some charge there was other just charges,

of rest have might the curious that how about think what and at range first to So the into quarter year? in the play been for getting

Brad Kessel

Yes. of thoughts Eric, there. a couple

the now the in side. we a probably we'd week, last by this see And take sale. Generally, pickup did see mortgage to calendar continue year, lighter-than-expected just in halt on point We on the largest had week be of was -- but per year, part I it. since think here, of that environment and the an it unseasonably apps start may the weather we've cooler the

noninterest when So over I translate it income, big think to one. that's you the

feel interchange service to about the that and charges continue very deposit We have. we good

terms some of in movers on. tweaks right, that have charging We and are in made big those statements for think there, Gavin? the so I But

Gavin Mohr

agree I Yes,

Brad Kessel

Okay.

Erik Zwick

for repurchase the just back. didn't you sold majority have in step stocks bank I'll quarter. The first last year-to-date, me, off here, one of one the shares And any and

for the the capital is where of about process all curious how today, -- your But more to growth strong. like if throughout year. thought buying in the to utilize stock at given So shares continues be think kind that's just you just opportunity you'd become to trading and loan whether back changed active

Brad Kessel

our below off, organic used range our are TCE. marks loan with capital on first our will the think, I for AOCI And we be growth. today targeted

price So for relative going see we share to the what as our of on that some point maybe our put appetite repurchases. there's does value maybe forward. -- intrinsic the current we But pressure out, -- you aspect

some be point. So material probably may but that going repurchases, you this see is at to us with it not

Operator

Our comes next with Damon KBW. DelMonte question from

Matt Renck

is hope I Damon. everybody first My is question provisions. for well. doing Matt filling This in Renck on is

into back So to X.XX% provision, you loan range. up? starts pick provision think the economic back is commercial deterioration was so Or online come that up that growth as speak, to X.XX% to pick will lower Do like than forecast? built there the or to commercial loans core expense

Gavin Mohr

it will be growth. loan with agree I by would you, driven So

had commercial as down, we addressed that one right in So commentary Joel note XXXX. in now, but his wrote had or already we we that had highlighted

for So full forecasted little the slower growth of gate we on than did the year. indicated come a the out

But close anticipate get line. was regarding yes, So that a being come held basis so the think took given we XX points that if loans. to forecasted maybe We the the we I again. lighter totality, write-down than where I loan the for HTM right we back, same. But in in obviously, lighter. everything may happening on year growth comes little don't a can maybe little

Matt Renck

lastly, expense. on noninterest And then just

opportunities hires? then of more cut to new And Do a a costs? delivery hired will appetite you come from guys of should more channels? environment? the for You team. enter have optimization we savings new Or commercial cost conversely, recessionary What's like

Joel Rahn

So team. our side, to areas, is appetite in people our the continuing We're always for for sales talented to ongoing. add all to talent particularly look

on added were they were So this we support quarter, in and out a spread the credit as well as not sales strong person And markets. three They past our side. a commercial people team.

still Southeast and see count retail And FTE Michigan, the West Michigan. in in Michigan, put we've about in quarter, sort at of one in probably simply or one XX opportunity technology in third positions able to the the we're demand not the though, because first through XX branches. another reduced quarter. well paid We looking So structure. the as Northwest XX. of some Much that we're expense that reduced through an as constantly for that here the on filling by of traffic the lower one also customer of place is Over we've side, meet

So to we give technology. leverage additional of example. initiatives have also you I'll number an a

that I and with mortgage team support to for has by of was seen very, of people. benefit busy And our automation manually very side, group on more the automating robotic we've what previously using the slowdown the perform more done mortgage the been process. think

of the expense And to that the is down areas going we're have side. to probably one most do on push So over, Matt. we continue the control

Brad Kessel

questions. end, maybe any like not we do more our hearing sounds On we're It actually, have one question... Okay. more

Manuel Navas

me? guys you Can hear

Brad Kessel

now. We ahead. can Go

Manuel Navas

Davidson. is This Manuel with Navas.

because of Just comp. variable a also follow-up little on the was down a bit conversation. It OpEx

below also up? in savings to these or even -- range, do end OpEx the if fees bounce of back little especially bit With low kind the the more of channel the expect a you don't be range

Brad Kessel

in prospectively. range be lower of I think we'll probably end the on the

Manuel Navas

to of kind you the the at to like compare we over to quarter. a or Do NIM cost enter deposit a period Just end March the have a for end as second second. looking margin of the

Gavin Mohr

X.XX%. was NIM March do. costs I were Deposit $XXX million.

Manuel Navas

migration. deposit the about on of on you're And update your of And deposit during deposit how you of side what for the cycle? to are thinking betas account any kind beta expectation the assuming shifts kind kind with

Gavin Mohr

time We're at for of mid-XXs We lot that about modeling spent in to last the a few still low talking weeks. the cycle.

Manuel Navas

think indicate that did less it's the -- that rate quarter right it this to think as It's deposit went the more focused of was... there, quarter earlier you kind then heard you about And it said, it I the pressure that way right, Is in it? I and still was along. was but

Gavin Mohr

So we were...

Manuel Navas

…In January February. and

Gavin Mohr

quarter, this the in would So I moves quarters. than say rate really was noticeable. pressure of more prior terms in It was

So going definitive way. not with review that too. right? adjusted a regularly we deposit making date the as events along. in prices that we make there's meet And it what's the do adjust March, along were adjustments then, we base then did then with and We our necessary. March landscape up, early adjustments and rotation, and -- pricing the We on But some and to the accelerated

Manuel Navas

And just growth. especially loan on

looking it's second into You have are quarters might already pipelines more missed indicated beyond? and that but that weighted the it, three quarter growth. last how I to

Joel Rahn

the year. several year. digesting the it's actually stronger the viewpoint. end combination feeling But last market slowness stronger the rate than quarter my fourth last during remainder We of very it And pipeline rebuild second solid caused for the pipeline I of in been quarter, higher good about our pipeline very just the we're the is confident had of think and from kind environment Our is quarters. growth now year. at really half now the having of the first active of our than And to was a

Operator

further we have no time, questions. this At

I the So will back Brad. hand call to

Brad Kessel

his our our I being all member to be toward so in support our closing, would of goal team. I In Management part member their be the and Senior own to and continue our of want or team proud her way Directors of Emily. our done associates; to job of customers thank Thanks, Board by to also their each independent. leadership. for to like do I thank Each continues common our guiding

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

Operator

you, This lines. today. Thank now and our everyone, joining us you concludes call, your for disconnect may

Independent Bank (IBCP) 27 Apr 232023 Q1 Earnings call transcript