Earnings call transcript Q2 2023

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, and welcome to the Independent Bank Corporation Reports 2023 Second Quarter Results Conference Call. My name is Carla, and I will be the operator of today’s call. [Operator Instructions]

I would now like to pass the conference over to our host, Brad Kessel, President and CEO, to begin. Please go ahead when you’re ready.

William 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 second Thank to the discuss me Chief Brad our and President, Officer; Joel Officer; President Head am as Financial Mohr, and well Executive I and Vice Kessel, Chief joining Rahn, is as President of Gavin Executive Banking. Executive Vice Commercial

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

reported million started. of of share get $XX Bank XXXX $XX.X Independent year the second per period. The or prior let’s versus $X.XX million income increase So quarter diluted in or share diluted per Corporation XXXX in net income $X.XX net second compared offset to in provision as decrease and expense. tax for non-interest due losses a primarily were income is net increase interest results quarter income to increases non-interest that expenses income and in by and related an partially in XXXX credit the

price XX.XX%, for on on mortgage rights comparable quarter of For and generated due changes second compared fair XXXX and our quarter results XXXX. as servicing to assets average return quarter the of in provision loans. on items X.XX% XXXX, return credit impacting included value and the the equity a and losses annualized the second of Significant of X.XX% respectively, second an XX.XX% to average of we in

both quarter another results net pre-provision of prior pre-tax, and income from delivered the quarter. strong with increasing We income financial

see have relationships. banking brought continue many in and our base successfully performance deposit new We to good in full

Economic well. perform second which to a healthy our our led stable to conditions markets, credit our throughout continues continue increasing net the and opportunities, very our and loans interest margin lending is in we quarter. at remain rate total Overall, to generally attractive annualized XX% see

pipeline grow can of high additional deliver with portfolio opportunities clients, that to market healthy for continue commercial quality strong and we our we share our capturing believe performance Our is shareholders. financial and lending

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

have a of We granular uninsured. our very XX.X% just portfolio deposit with deposits

securities. and a we with capacity on available high unpledged In billion borrowing of addition, liquidity borrowing $X.X secured level access have in

June Total increased have first well. base Overall, to perform for down at March X% $XXX.X XX billion our or million, deposit deposits deposits billion, XX, Total annualized. slightly half of continues the XXXX. the at were from $X.XX $X.XX XXXX

our advantage remixing level this of seen we of of During have some interest as period, take rate the spread opportunities. customers funding

non-interest deposits Our checking $XX.X interest and are XXX.X and are Savings bearing up time up up time million. deposits are brokered million, million. bearing deposits million, deposits million. $XX.X are $XXX.X $XXX.X Reciprocal are down down

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

of total to second beta Our XX.X%. points the quarter, funds basis funds increased the our Through XX of X.XX%. for cost cumulative cost by is

comments like loan growing Rahn on Joel At metrics. our and share in provide presentation on update our over the this to would to have the credit success time, portfolios turn we I an to few a

Joel Rahn

with lending portfolio. million. in very being provide the our increased well-diversified million you, Brad. $XX strongest in portfolios update growing second Total loan an segment growth experienced On our Page the Thank the commercial of of X, quarter. quarter, loans $XXX we Each by solid

that basis talent over an our X.X% of our to on our annualized in return The to which the been commercial of growth, contributor continue strategic investment expansion experienced year. XX the months the commercial was added see banking we’ve the strong a in past has on the half We team. first

underlying we second worth a noting continued relationships, Looking in half on to in growth strong which the year. as environment, forward, experienced credit majority treasury growth deposits a the noted. commented with Brad in services. It’s on quarter portfolios including the the segment, mortgage the just expect with minute pipeline, of as Despite that our see installment of growth management our rate C&I and and full well, an based ago, emphasis higher upon strong was the profiles

loan provides portfolio. detail our X on Page commercial

representing to continues lending $XXX C&I be to within or comprising focus, XX% concentration million. approximately largest the mentioned, portfolio. be primary segment, of the our just XX% As the Manufacturing continues C&I

remaining X.X%. It’s at worth The portfolio million comprised at exposure our X.X%, of with concentrations is well. commercial our the This that our industrial estate, portfolio or at perform of real quarter being or noting retail portfolio of XX% stands $XX largest segment to the $XXX and million segment continues of $XXX particular the commercial at or very end. X.X% office to million

our presentation. I you attached to into refer appendix additional For office insight the exposure, to this

days consumer or X.XX%, due an to XX credit at or XX. quarter up at $X.X X.XX% Loans, delinquency. XX, quality of Overall, June provides XX of metrics March at slightly June excellent. totaled to loan non-performing million, elevated were continues credit key delinquent XX, to loans Page $X from end. total a slightly Total be XX quality overview million, loans primarily

for like the for to turn At his year. remainder time, the including this Gavin presentation comments, of the outlook the to over I’d

Gavin Mohr

highlights remaining presentation. common Page in the position. ratio The increased quarter. and relatively all other XX tangible capital Joel, our Page I’m XXXX, second capital with quarter of starting Thanks, ratios the equity from good morning, regulatory prior at XX our strong flat everyone. of

million Net interest income year-ago the increased period. $X.X from

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

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

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

months On rate of shock position. Page balance The rate static assume quarter the XX, and scenarios applies analysis simulation we second calculates quarter the institution’s under sheet. on date. rate parallel XXXX risk of X the provide first over scenarios in the permanent from base scenario from and XXXX comparative consider net change All income details curve interest interest next the a scenarios. spot yield immediate, The changes. valuation XX rate the The

to and XXXX benefit decline from higher in quarter the net of rate interest XXXX primarily an asset investments, in improvements a increase due rates. the along improvement of loans These an quarter second in unchanged base with the changes of reprice to in first in mix the as compared a and The slight in forecasted the impact income adverse in is increase with additional the XX.X% shift adverse funding in during mix. hedging an X-month is were by Sensitivity offset quarter partially transactions. reprice deposit offset in months. the and assets term XX.X% were next mix XX funding largely the by from Currently,

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

XXXX the The compared $X.X of quarter volume. gains increased by Second loan mortgage increase is totaled that value lower to partially on due XXXX. $X.X profit loans adjustments second margins primarily sales fair in quarter net mortgage offset million and to were million of

mix gain mortgage loan impacting million to on a moved was and application to due to mortgage in income positively servicing of loans of $X.X higher The or million percentage non-interest million the quarter, $X.X loan revenue in loan saleable $X.X by rights to value quarter offset mortgage after servicing of share $X.XX due partially was per capitalized that tax XXXX. million of second paydowns the due diluted increase in decrease price $X the fair

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

loss due payout to decline expected and hourly mortgage commitments. recoveries incentives prior primarily lower the the rates primarily lending-related employees, in decrease lending attributed Performance-based commitments in lending in to same compared a incentive $X.X lending to second related compensation to quarter to decreased mortgage $X.X to Costs’ the second XXXX. compensation applied decrease for million quarter unfunded by of in the decreased compared a and million year to due salaried period,

lower related cost had related annual increased prior core deferrals processor due paid costs increases period, data well CPI lower primarily a and due a the volume mortgage prior asset data processing mortgage certain to loan credit expenses year-to-date to million been year cost processing previously period, processor to from as expensed. from and as our by Data including related core net and $X.X that growth

XXXX. XXXX the original compared our is provided of update performance XX Page January to actual how in during we to that outlook outlook quarter the our for see second our

low-double-digits. estimated XX.X% outlook million second which of the Our or above annualized, in our growth forecasted loan range. increased in XXXX, the quarter $XXX.X is Loans

loans the had growth in Commercial quarter positive installment mortgage and XXXX. of second

and over which of net growth. Second is below increased the quarter both high-single-digit income quarter the which interest by than The our lower is X.X% interest XXXX second XXXX, X.XX%, original was of for margin XXXX net forecast forecast. XXXX

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

reserve related quarter in expense second growth. due one reserves increase an than primarily credit XXXX pooled to allocations expense of commercial of loan as loan loan second The specific result higher was was in the provision range. subjective and our provision forecasted as increase on loans the to XXXX quarter The an the in well

totaled million our income higher $XX to of $XX quarter which second of forecasted million million. in range $XX.X XXXX, is than Non-interest the

mortgage XXXX Second $XXX.X gain and quarter second million, quarter a gains generated XXXX. origination, of of the loan $X.X servicing and in loan totaled $X.X million million respectively. Mortgage million, sales $XX

second million targeted $XX.X $XX.X $XX to our was expense within million quarter the quarterly. million Non-interest in of range forecasted

forecast. rate effective Our of XXXX, second tax income of for is the our quarter line in XX.X% which with

quarter second average share at were XXXX the a in repurchased $XX.XX. purchased were of book of at below shares $XX.XX. XXX,XXX Shares Lastly, price price tangible of an value

prepared my concludes remarks. That

to I like call to back Now, would Brad. over turn the

William Kessel

Thanks some easy. our Gavin. focus communities been These company which banking on directly and is results, in their time, attributable talented quarter-over-quarter, year-after-year investing has making team, for to delivering service, our our personalized strong

the once nice Banks of as and results survey by again service, XXXX Forbes services, with result of are Banks. trust the branch use American inquired bank Ranking pleased convenience listed We be also of of Annual transparent ranking of by their financial locations, the us Best-In-State were The reasonable. This of again Statista Our as surveyed level partnership digital on gained Community fees of in financial ease in the inspired whether recognition America. to consumers was they Banker’s on the and also of quality and company. overall one advice

receive Our great place as during to team this proud this Also, certification second year, of quarter of is were recognition. we work. a to proud the very

In be XXXX, team, As will will our second yielding earning into we and assets continue out rotation half continue we our in higher doing through technology proceed our of the supporting communities. investments lower loans. our leveraging on the to yielding of investing of so, our focus

we we With and while deposit to the expenses. grow controlling strong funds value base, cost believe our community of bank, our managing leading as continue a proposition offered non-interest

consistent we growth well which effectively opportunities our trends. the results positions of about environments for continue We’ve excited built continue delivering us have are to and economic franchise shareholders. a a through strong our and we Accordingly, strong variety manage to

now this up we questions. point, open At would to for call the like

Operator

from from first [Operator question Damon KBW. you. Our Thank Delmonte comes Instructions]

Your now ahead. Please go line is open.

Matthew Renck

it to you a Matt Renck Do I hope you the doing Damon. this in is see profit the My as maybe guys, for start is normalization? guys is question Hey, the relates a of sustainable everybody well. a Or income just kind and filling of margin mortgage first trend? expansion had.

Gavin Mohr

Matt, – say would this is today. I Gavin, Yeah, joining for and thanks

a stable. for the secondary seen there’s low-loan I benefit significant right it So in have is balance market, call mortgages. would Where pay-up we now some

our changed on bit of balance we but really mortgages. haven’t what pay-up little the a has been we upside So have margin, target seen low-loan in saleable those

Matthew Renck

Okay. in think this the my relating question Got you just it’s And mix next out hike months, at interest then shift. to shift rate again do we kind think to mixed get will you second start point? If it. leveled or deposit another of accelerate few

Gavin Mohr

I Well, going I shift say some it’s leveling on. I think would want will that the though, think there’s will the think, to pace but don’t I guess, don’t out. probably – I mixing mix continue. I – accelerate, say, still

Matthew Renck

you. Thank Got it. back. I’ll step

Gavin Mohr

Matt. Thanks,

Operator

Zwick go Thank from you. Hovde. when Please ready. you’re from [Operator comes Instructions] ahead Our next Erik question

Justin Marca

good Hey, morning, guys.

today. Marca for Justin Erik on

there’s sort on loan general industry any had of pipeline if any today? there mix, you if curious comments Just in concentrations the

William Kessel

pretty It’s diversified.

I no, one say would that concentration. not we have So, specific

I relatively carefully. two-thirds, estate. that out appetite our overall as investment think what true they our know and for is even watch C&I; something – are to we real our looking remains opportunities, mix, isn’t. portfolio we’re one-third, And it That’s bankers

continues of it be focused. yeah, C&I to the So, majority

Justin Marca

If quarter-over-quarter Okay. Great. And other what drove non-recurring of items there there? curious, was any increase sort income? in just in the

Gavin Mohr

at look Just here…

William Kessel

Yeah, the I swap fees. think we had

Gavin Mohr

you’re I quarter… the linked or quarter didn’t what Yeah, sorry. hear And looking the

Justin Marca

Linked quarter, yeah.

Gavin Mohr

fees. swap was It sorry. Yeah,

Justin Marca

Okay, And quarter? on you one Did an great. the buyback just last one. average have price share then this

Gavin Mohr

it $XX.XX. Yeah, was

Justin Marca

my right. taking All Great. Okay. for Thanks questions.

Operator

Erik. Thanks,

time. We further have questions no at this

remarks. to will I Brad, final your So back hand host, for now

William Kessel

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

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

Operator

joining. you for This Thank call. concludes today’s

If replay listen you shortly. again, would to will like a be available there

You may now lines. your disconnect

Independent Bank (IBCP) 25 Jul 232023 Q2 Earnings call transcript