Yahoo Finance Independent Bank Corporation (NASDAQ:IBCP) Q1 2024 Earnings Call Transcript
Independent Bank Corporation (NASDAQ:IBCP) Q1 2024 Earnings Call Transcript April 25, 2024
Independent Bank Corporation beats earnings expectations. Reported EPS is $0.76, expectations were $0.64. Independent Bank Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Independent Bank Corporation Reports 2024 First Quarter Results. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. [Operator Instructions]. I will now hand this conference call over to our host, Brad Kessel, President and CEO. Please go ahead.
William Kessel: Good morning, and welcome to today's call. Thank you for joining us for Independent Bank Corporation's conference call and webcast to discuss the company's first quarter 2024 results. I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Mohr, Executive Vice President and Chief Financial Officer, and Joel Rahn, Executive Vice President, Commercial Banking. Before we begin today's call, I would like to direct you to the important information on Page 2 of our presentation, specifically the cautionary note regarding forward-looking statements. If anyone does not already have a copy of the press release issued by us today, you can access it at the company's website, independentbank.com.
The agenda for today's call will include prepared remarks followed by a question-and-answer session and then closing remarks. Independent Bank Corporation reported first quarter 2024 net income of $16 million or $0.76 per diluted share versus net income of $13 million or $0.61 per diluted share in the prior year period. I am very pleased with our first quarter 2024 results, driving organic growth on both sides of the balance sheet, with loans up 5.3% and core deposits up 9%. We were able to generate net interest margin expansion increasing to 3.30% from 3.26% on a linked-quarter basis and net interest income growth on both a linked-quarter basis and a year-over-year quarterly basis. Expenses continue to be well managed. Our credit metrics continue to be very good with watch credits and non-performing assets near historic lows.
These fundamentals drove good growth in both our earnings per share, 23% increase and tangible book value per share, a 16% increase compared to the prior-year quarter. Our performance ratios for the quarter included a return on average assets of 1.24% and return on average equity of 15.95%. Leveraging our team's proven success in the integration of dynamic new professionals, we are optimistic about continuing these positive growth trends for the balance of this year and into 2025. Total deposits as of March 31, 2024, were $4.58 billion. Overall, core deposits increased $95.7 million or 9% annualized during the first quarter of 2024. On a linked-quarter basis, retail deposits increased by $23.5 million, business deposits increased by $25.4 million and municipal deposits also increased by $46.9 million.
Our existing customer base continues to exhibit a remix out of non-interest bearing and/or lower-yielding deposit products into higher-yielding product offerings, but the remix pace has slowed. Additionally, our sales team continues to bring in new relationships, well below our wholesale cost of funds. We have included in our presentation a historical view of our cost of funds, as compared to the Fed funds spot rate and the Fed effective rate. For the quarter, our total cost of funds increased by two basis points to 2.01%. Through the first quarter of 2024, the cumulative cycle beta for our cost of funds is 37.3%. At this time, I'd like to turn the presentation over to Joel Rahn to share a few comments on the success we're having in growing our loan portfolios and provide an update on our credit metrics.
Joel Rahn: Thanks, Brad, and good morning, everyone. On Page 7, we share an update on our $3.8 billion loan portfolio and quarterly activity. Total loans increased by $49 million in the first quarter, representing 5.3% annualized growth. The strongest segment continues to be commercial lending, which grew by $55 million. We also realized growth in our mortgage business with that portfolio growing by $4.6 million for the quarter. Our installment portfolio decreased by $11.1 million with softness in demand, but also a result of a strategic decision to pull back in that segment. As noted in the material, in each portfolio, yield on new production is significantly higher than the respective portfolio yield. The commercial portfolio continues to be our highest-yielding portfolio with a yield of 6.83%.
We continue to see a return on our strategic expansion of our commercial banking team. The experienced talent that we continue to add has been a strong contributor to our commercial growth, which on an annualized basis was 13% in the first quarter.
Gavin Mohr: Asset yields related to fixed rate lending products -- sensitivity is largely unchanged during the quarter with the exposure to rising rates decreasing modestly for larger rate increases. Currently 33% of assets repriced in one month and 43.8% repriced in the next 12 months. Moving on to Page 14. Non-interest income totaled $12.6 million in the first quarter of 2024 as compared to $10.6 million in the year-ago quarter and $9.1 million in the fourth quarter of 2023. First quarter 2024 net gains on mortgage loans were $1.4 million compared to $1.3 million in the first quarter of 2023. The increase is primarily due to increased profit margins that was partially offset by a lower volume of loan sales. Positively impacting non-interest income was $2.7 million gain on mortgage loan servicing net.
This is comprised of $2.2 million of revenue, $1.3 million or $0.05 per diluted share after-tax gain due to change in price that partially offset by $0.8 million decrease due to pay downs of capitalized mortgage loan servicing rights in the first quarter of 2024. As detailed on Page 15, our non-interest expense totaled $32.2 million in the first quarter of 2024 as compared to $31 million in the year-ago quarter and $31.9 million in the fourth quarter of 2023. Performance-based compensation increased $1.2 million due primarily to higher expected incentive compensation payout for salaried and hourly employees and salary increases effective at the beginning of the year. Data processing costs increased by $0.3 million from the prior year period, primarily due to core data processor annual asset growth and CPI-related cost increases, as well as the purchase of the new lending solutions software.
Page 16 is our update for our 2024 outlook to see how our actual performance during the first quarter compared to the original outlook that was provided in January of 2024. Our outlook estimated loan growth in the middle single-digits. Loans increased $49.1 million in the first quarter of 2024, 5.3% annualized, which is below our forecasted range. Commercial and mortgage had positive growth, while installment loans decreased in the first quarter. First quarter 2024 net interest income increased by 4.6% over 2023, which is lower than our forecast of mid-single-digit growth. The net interest margin was 3.3% for the current quarter and 3.32% for the prior year quarter, but was up four basis points from the linked quarter. The first quarter 2024 provision for credit losses was an expense of $0.7 million and below our forecasted range.
The Q1 of '24 provision expense was primarily a result of provision expenses on loans that was partially offset by a credit provision on securities held to maturity. Moving on to Page 17, non-interest income totaled $12.6 million in the first quarter of '24, which was within our forecasted range of $11.5 million to $13 million. First quarter 2024 loan origination, sales and gains totaled $94 million, $80.8 million and $1.4 million respectively. Mortgage loan servicing net generated a gain of $2.7 million in the first quarter of 2024. Non-interest expense was $32.2 million in the first quarter, below our forecasted range of $32.5 million to $33.5 million. Our effective income tax rate of 19.3% for the first quarter of 2024 was lower than our original forecast.
Lastly, there were no shares repurchased in the first quarter of 2024. That concludes my prepared remarks. I would like to now turn the call back over to Brad.
William Kessel: Thanks, Gavin. I'm very pleased with how we started 2024, and it is very much in line with the strong results, which our company has been delivering quarter-over-quarter, year-after-year for some time. This success is directly attributable to our talented team, their focus on connecting with customers, investing in our communities and making banking easy. We've built a strong community bank franchise, which positions us well to effectively manage through a variety of economic environments and continue delivering strong and consistent results for our shareholders. As we move forward in 2024, our 160th year of serving the communities of Michigan, our focus will be continuing to invest in our team, leveraging our technology and supporting our communities.
In doing so, we will continue the rotation of our earning assets out of lower-yielding investments into higher-yielding loans. With the strong value proposition offered as a large community commercial bank, we believe we can continue to grow our customer base, while managing our cost of funds and controlling our non-interest expenses. Accordingly, we are excited about our future. At this point, we'd now like to open up the call for questions.
Operator: Thank you, Brad. [Operator Instructions]. Our first question comes from the line of Brendan Nosal of Hovde Group. Your line is now open. Please go ahead.
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