Q4 2021 Independent Bank Corp (Michigan) Earnings Call
Good morning, and welcome to the Independent Bank Corporation reports 2021 fourth quarter and full year results conference call.
Speaker 1: Good morning and welcome to the Independent Bank Corporation Report's 2021 fourth quarter and full year results conference call. All participants are on the line now.
All participants will be in listen only mode.
He doesn't need a system basically.
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After todays presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
Speaker 1: Please note this event is being recorded. I'd now like to turn the conference over to Brad Kessel, President and CEO . Please go ahead.
Turn the conference over to Brad Kessel, President and CEO . Please go ahead.
Good morning, and welcome to today's call.
Speaker 2: 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 fourth quarter and full year 2021 results. I am Brad Kessel, President and Chief Executive Officer and joining me is Gavin Moore, EVP and Chief Financial Officer and Joel Ron, EVP Commercial Banking.
For joining us for independent Bank Corporation's conference call and webcast to discuss the company's fourth quarter and full year 2021 results I am Brad Kessel, President and Chief Executive Officer, and joining me is Kevin Moore, EVP and Chief Financial Officer.
Joel Han EVP commercial banking.
Okay.
While we begin today's call I would like to direct you to the important information on page two of our presentation specifically the cautionary note regarding forward looking statements.
Speaker 2: 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. This morning, you can access it at the company's website independent Bank dotcom.
Speaker 2: If anyone does not already have a copy of the press release issued by us this morning, 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.
Speaker 2: The agenda for today's call will include prepared remarks, followed by a question and answer session, and then closing remarks.
Slide four provides a good summary of our historical results.
Speaker 2: Slide four provides a good summary of our historical results.
I am very pleased with the high level of performance our team generating strong core results for yet another quarter and now for the full year 2021.
Speaker 2: I am very pleased with the high level of performance of our team generating strong core results for yet another quarter and now for the full year of 2021.
We continue to execute on our strategies of investing in people and technology.
Speaker 2: We continue to execute on our strategies of investing in people and technology.
During the fourth quarter, we saw good growth in net interest income stay.
Speaker 2: During the fourth quarter, we saw good growth in net interest income.
Stabilization of our net interest margin and across the board loan growth net of PTT.
Speaker 2: stabilization of our net interest margin, and across the board, loan growth, net of PPP.
Our commercial pipeline is at its highest level in many quarters.
Speaker 2: Our commercial pipeline is at its highest level in many quarters.
Deposit gathering continues to be robust.
Speaker 2: The deposit gathering continues to be robust, both by existing customers as well as the addition of new customers.
Our existing customers as well as the addition of new customers.
In addition, while mortgage gains of taper down we continue to be solid and our card strategies continue to generate positive growth in interchange revenue.
Speaker 2: In addition, while mortgage gains have tapered down, they continue to be solid, and our card strategies continue to generate positive growth in interchange revenue.
And the asset quality front I could not be more pleased with our net recoveries for the full year as well as commercial watch credits. They just three 1% of the portfolio in a very low level.
Speaker 2: On the asset quality front, I could not be more pleased with our net recoveries for the full year as well as commercial watch credits at just 3.1% of the portfolio and a very low level of past due loans.
Past due loans.
We are excited about the momentum we have in our markets and we look forward to continuing these trends into 2022.
Speaker 2: We are excited about the momentum we have in our markets, and we look forward to continuing these trends into 2022.
Turning to page five independent Bank Corp reported fourth quarter 2021, net income of $12 $5 million or <unk> 58 cents per diluted share.
Speaker 2: Turning to page five, Independent Bank Corporation reported fourth quarter 2021 net income of $12.5 million or 58 cents per diluted share.
Versus net income of $17 million or <unk> 77.
Speaker 2: versus net income of $17 million or $0.77 per diluted share.
<unk> per diluted share.
In the prior year period.
The highlights included an increase in net interest income up 10, 6% over the fourth quarter of.
Speaker 2: The highlights included an increase in net interest income of 10.6% over the fourth quarter.
2020.
Net gains on mortgage loans of $5 6 million and total mortgage loan origination volume.
Speaker 2: Net gains on mortgage loans of $5.6 million and total mortgage loan origination volume of $424.6 million.
$424 $6 million.
Net growth in portfolio loans of $21 million or two 9% annualized.
Speaker 2: Net growth in portfolio loans of $21 million or 2.9% annualized.
Excluding P P loans increased by $84 9 million or 11.8% annualized.
Speaker 2: excluding TP, loans increased by $84.9 million or 11.8% annually.
Continued strong asset quality metrics as evidenced by low net charge offs during the quarter as well as low level of nonperforming loans and nonperforming assets.
Speaker 2: continued strong asset quality metrics as evidenced by low net charge-offs during the quarter as well as low level of non-performing loans and non-performing assets.
And our payment of a 21 cent per share dividend and common stock on November 15th 2021.
Speaker 2: and our payment of a 21 cent per share dividend in common stock on November 15, 2021.
Turning to page seven for the <unk>.
Speaker 2: Turning to page 7, for the year ended, full year ended, December 31, 2021, the company reported net income of $62.9 million.
Year ended.
Full year ended December 31, 2021 the company reported net income of $62 $9 million or $2.88 per diluted share.
Speaker 2: or $2.88 per diluted share compared to net income of $56.2 million or $2.53 per diluted share in 2020.
Compared to net income of $56 2 million or $2 53 per diluted share in 2020.
The increase in full year 2021, net income as compared to 2020, primarily reflects an increase in net interest income and a decrease in provision for credit losses.
Speaker 2: The increase in full year 2021 net income, as compared to 2020, primarily reflects an increase in net interest income and a decrease in provision for credit loss.
Were partially offset by a decrease in noninterest income and an increase in noninterest expense and income tax expense.
Speaker 2: that were partially offset by a decrease in non-interest income and an increase in non-interest expense and income tax expense.
Highlights for the full year of 2021 include increases in net income and diluted earnings per share of 12% and 13, 8% respectively.
Speaker 2: Highlights for the full year of 2021 include increases in net income and diluted earnings per share of 12% and 13.8% respectively.
Annualized return on average assets and average equity of 1.41% and 16, 1% respectively net.
Speaker 2: annualized return on average assets and average equity of 1.41% and 16.1% respectively, net gains on mortgage loans of $35.9 million.
Net gains on mortgage loans of $35 $9 million.
And record total mortgage origination volume of $1.9 billion.
Speaker 2: and record total mortgage origination volume of $1.9 billion.
Net growth in portfolio loans of 171.
Speaker 2: net growth in portfolio loans of $171.4 million or 6.3% annualized.
$4 million or six 3% annualized.
Net growth in deposits of $479 $7 million or 13, 2% annualized.
Speaker 2: Net growth in deposits of $479.7 million or 13.2% annual.
We paid 84 cents in dividends, which was a 5% increase compared to 2020.
Speaker 2: We paid $0.84 in dividends, which was a 5% increase compared to 2020, and tangible common equity per share increased by 6.1% to $17.33 per share.
Tangible common equity per share increased by six 1% to $17 33 per share.
Page eight provides a good snapshot of our loan and deposit metrics for our Michigan markets.
Speaker 2: Page 8 provides a good snapshot of our loan and deposit metrics for our Michigan market.
Point out that our two loan production offices opened in Ottawa County, and Macomb County during the third quarter of 2021 and are off to a strong strong start.
Speaker 2: I would point out that our two loan production offices opened in Ottawa County and Macomb County during the third quarter of 2021 and are off to a strong, strong start. As a result, we do plan to open a new full service office in Ottawa County during the first half of 2022.
As a result, we do plan to open a new full service office in Ottawa County during the first half of 2022.
Turning to page eight we displayed several key economic statistics for the state of Michigan. Overall, we are seeing continued improvement in the unemployment rate for Michigan now five 9%.
Speaker 2: Turning to page 8, we display several key economic statistics for the state of Michigan. Overall, we are seeing continued improvement in the unemployment rate for Michigan, now at 5.9%.
Above the national average of three 9% however.
Speaker 2: above the national average of 3.9%. However, the state of Michigan has 282,000 fewer workers employed today as compared to pre-COVID.
However, the state of Michigan has 282000 fewer workers employed today as compared to pre COVID-19 .
Labor shortages or have any noticeable impact in many segments of our economy.
Speaker 2: Labor shortages are having a noticeable impact on many segments of our economy, including an increase in wages in our markets and reductions in business operating.
Including an increase in wages in our markets and reductions in business I believe.
In addition supply chain shortages are also constraining many businesses in our markets.
Speaker 2: In addition, supply chain shortages are also constraining many businesses in our market.
Regional average home sale prices continued to climb as inventory levels in many of our markets continue to be at record lows and negatively impacting the overall volume of home sales.
Speaker 2: Regional average home sale prices continue to climb as inventory levels in many of our markets continue to be at record lows and negatively impacting the overall volume of home sales.
That said, we continue to have very strong applications levels for new home purchases.
Speaker 2: That said, we continue to have very strong applications levels for new home purchase.
On page 10, we provide a couple of charts, reflecting the composition of our deposit base as well as the continued growth in this portfolio, while working to effectively manage our overall cost of funds.
Speaker 2: On page 10, we provide a couple of charts reflecting the composition of our deposit base as well as the continued growth in this portfolio while working to effectively manage our overall cost of funds.
Extensive gummer government stimulus continues to result in increased deposit levels for many of our customers.
Speaker 2: Extensive government stimulus continues to result in increased deposit levels for many of our customers.
Turning to page 11, we have a few highlights relating to independent banks digital transformation.
Speaker 2: Turning to page 11, we have a few highlights relating to Independent Bank's digital transformation.
Following our second quarter whole bank conversion, we continue to see good utilization and growth rates in our one wallet, one wallet plus and treasury one platforms.
Speaker 2: Following our second quarter whole bank conversion, we continue to see good utilization and growth rates in our One Wallet, One Wallet Plus, and Treasury One platform.
At this time I would like to turn the presentation over to Joel mine to share a few comments on our loan portfolio.
Speaker 2: At this time, I would like to turn the presentation over to Joel Ron to share a few comments on our loan portfolio.
Thanks, Brad.
Speaker 3: Thank you, Brad. On page 12, we provide an update on our $2.9 billion portfolio. For the fourth quarter, commercial balances decreased $19.2 million. However, if you exclude PPP activity, our commercial balances increased by $45 million for the quarter. And for the year, excluding PPP loans, our commercial portfolio grew by 9.4%.
On page 12.
Provide an update on our $2 9 billion dollar portfolio.
The fourth quarter commercial balances decreased $19 2 million.
However, if you exclude PPP activity our COO.
Marshall balances increased by $45 million for the quarter.
And for the year, excluding PPP loans, our commercial portfolio grew by nine 4%.
Looking more closely at the growth in the third and fourth quarters is annualized.
Speaker 3: Looking more closely at the growth of the third and fourth quarters is annualized.
Commercial portfolio increased to an annualized pace of nearly 19%.
Speaker 3: commercial portfolio increase at an annualized pace of nearly 19%.
As Brad said, our commercial pipeline is very strong and we expect solid commercial loan growth in the first quarter of 2022.
Speaker 3: As Brad said, our commercial pipeline is very strong and we expect solid commercial loan growth in the first quarter of 2022.
In the fourth quarter, our residential mortgage balances increased by $38 7 million and installment balances increased by $1 $6 million.
Speaker 3: In the fourth quarter, our residential mortgage balance has increased by $38.7 million, and installment balance has increased by $1.6 million.
Our mortgage pipeline bogged down from peak levels continues to display strength.
Speaker 3: Our mortgage pipeline, while down from peak levels, continues to display strength.
We remain optimistic by our ability to accelerate earning asset rotation from lower yielding investments to higher yielding loans.
Speaker 3: We remain optimistic about our ability to accelerate the earning asset rotation from lower-yielding investments to higher-yielding loans.
We continue to believe we are on track to grow loans at a low double digit pace in 2022.
Speaker 3: We continue to believe we're on track to grow loans at a low double-digit pace in 2022.
He turned to page 13, we provide an update on our loan COVID-19 related modifications, which declined to $2 3 million or <unk>, 1% of total loans at December 31st.
Speaker 3: If you turn to page 13, we provide an update on our loan COVID-related modifications, which declined to $2.3 million, or 0.1% of total loans, at December 31.
All but one of these modifications are in our residential mortgage portfolio.
Speaker 3: All but one of these modifications are in our residential mortgage portfolio.
Moving to page 14.
Speaker 3: Moving to page 14, we provide an update on the bank's administration of the SBA's Paycheck Protection Program. As of December 31, 2021, we had $26.2 million in balances outstanding and $806,000 in net unaccredited fees.
We provide an update on the bank's administration of the Sba's Paycheck protection program.
As of December 31st 2021, we had $26 2 million and balances outstanding and 806000 net on accretive fees.
We expect these remaining loans to be forgiven and he used to be accreted into interest income during the first quarter of 2022.
Speaker 3: We expect these remaining loans to be forgiven and fees to be accreted into interest income during the first quarter of 2022.
On page 15, we display the concentrations of our $1 2 billion dollar commercial loan portfolio.
Speaker 3: On page 15, we display the concentrations of our $1.2 billion commercial loan portfolio.
Consistent with prior quarters, you'll note that 63% of the portfolio is comprised of a variety of C&I categories, the largest of which is manufacturing at $114 million or nine 5%.
Speaker 3: Consistent with prior quarters, you'll note that 63% of the portfolio is comprised of a variety of C&I categories, the largest of which is manufacturing at $114 million, or 9.5%. The remaining 37% of the portfolio is comprised of commercial real estate, the largest concentrations being retail at $109 million, or 9%, and office, the majority of which is medical related, at $72 million, or 6%.
The remaining 37% of the portfolio is comprised of commercial real estate.
The largest concentrations being retail and $109 million or 9% and office the majority of which is medical related at $72 million or 6%.
The portfolio is very granular in nature, and our credit metrics indicate that this portfolio has held up very well through the pandemic and the resulting supply chain pressures.
Speaker 3: The portfolio is very granular in nature, and our credit metrics indicate that this portfolio has held up very well through the pandemic and the resulting supply chain pressure.
So at this time I would like to turn the presentation over to Gavin to share a few comments on our investment capital financials credit quality and our outlook for 2022.
Speaker 3: So at this time, I'd like to turn the presentation over to Gavin to share a few comments on our investments, capital, financials, credit quality, and our outlook for 2022.
Yeah.
Thanks, Joel and good morning, everyone I am starting at page 18 of our presentation.
Speaker 2: Thank you all. Good morning, everyone. I'm starting at page 18 of our presentation.
Net interest income increased $3 $3 million from the year ago period, our tax equivalent net interest margin was 313% during the fourth quarter of 2021, which is up one basis point from the year ago period, and down five basis points for the third quarter of 2021 that will have.
Speaker 4: Net interest income increased $3.3 million from the year-ago period. Our tax equivalent net interest margin was 3.13% during the fourth quarter of 2021, which is up one basis point from the year-ago period and down five basis points from the third quarter of 2021. I'll have some more detailed comments on this topic in a moment. Average interest earning assets were $4.3 million.
For more detailed comments on this topic in a moment average interest.
Interest, earning assets was $4 three.
In the fourth quarter of 2021 compared to $398 billion in the year ago quarter and $4.3 billion in the third quarter of 2021.
Speaker 4: billion dollars in the fourth quarter of 2021 compared to.
Speaker 4: $3.98 billion in the year ago quarter and $4.3 billion in the third quarter of 2021.
Page 19 contains a more detailed analysis of the linked quarter increase in net interest income and a decrease in the net interest margin. Our four quarter 21 net interest margin was negatively impacted by three factors decrease in yield on securities available for sale and impact of a negative one basis point growth in liquid assets.
Speaker 4: Page 19 contains a more detailed analysis of the length quarter increase in net interest income and a decrease in the net interest margin. Our fourth quarter 21 net interest margin was negatively impacted by three factors. Decrease in yield on securities available for sale had an impact of negative one basis point. Growth in liquid assets had a impact of negative four basis points and a change in the loan mix, loan yield and mix had a impact of a negative three basis points.
It had a impact of negative four basis points of the change in the loan mix loan yield and mix at a impact of a negative three basis points, we will comment more specifics specifically on our outlook for net interest income and the net interest margin for 2022 later in the presentation.
Speaker 4: We will comment more specifically on our outlook for net interest income and the net interest margins for 2022 later in the presentation.
Moving on to page 20, noninterest income totaled $15 $8 million in the fourth quarter of 2021 as compared to $22 $4 million in the year ago quarter, and $19 $7 million in the third quarter of 2021 fourth quarter 21, net gains on mortgage loans totaled $5 6 million.
Speaker 4: Moving on to page 20, non-interest income totaled $15.8 million in the fourth quarter of 2021 as compared to $22.4 million in the year-ago quarter and $19.7 million in the third quarter of 2021. Fourth quarter, 21 net gains on mortgage loans totaled $5.6 million compared to $15.9 million in the fourth quarter of 2021.
Compared to $15 $9 million in the fourth quarter of 'twenty.
The decrease in these gains was due to decrease a decrease in the mortgage loan sales volume in the.
Speaker 4: The decrease in these gains was due to a decrease in the mortgage loan sales volume and in the mortgage loan pipeline, as well as a lower loan sale profit.
And in the mortgage loan pipeline as well as lower loan sale profit markets.
Mortgage loan applications remains solid, although with Bharti, India refinance applications slowed in the fourth quarter of 'twenty one.
Speaker 4: Mortgage loan applications remained solid, although refinancing applications slowed in the fourth quarter of 21.
Our purchase mortgage volumes continued to be strong positively impacting non-interest income was a $1.3 million gain on mortgage loan servicing due to 8.6 million dollar or two cents per diluted share after tax increase in the value due to price.
Speaker 4: Our purchase market volumes continued to be strong. Positively impacting non-interest income was a $1.3 million gain on mortgage loan servicing due to a $0.6 million, or $0.02 per diluted share after tax, increase in the value due to price and a $1.3 million decrease due to paydowns of capitalized mortgage loan servicing rights in the fourth quarter of 21.
$1.3 million decrease due to pay downs of capitalized mortgage loan servicing rights in the fourth quarter of 'twenty one.
As detailed on page 21, our noninterest expense totaled $34 million in the fourth quarter of 2021 as compared to $32 $7 million in the year ago quarter, and $34 $5 million in the third quarter 2021 compensation increased <unk> $6 million compared to the prior year quarter due to.
Speaker 4: As detailed on page 21, our non-interest expense totaled $34 million in the fourth quarter of 2021, as compared to $32.7 million in the year-ago quarter and $34.5 million in the third quarter of 2021. Compensation increased $0.6 million compared to the prior year quarter due to raises that were effective at the start of the year. The hiring of new lenders and increased overtime related to data processing convergence.
Raises that were effective at the start of the year, the hiring new lenders and increased overtime related to data processing conversion.
<unk> based compensation decreased $1 million due to a higher catch up in the fourth quarter of 'twenty. The four quarter of 'twenty. One included <unk> $9 million of costs related to the reserve for unfunded lending commitments due to an increase in unfunded lending.
Speaker 4: Performance-based compensation decreased $1 million due to a higher pool catch-up in the fourth quarter of 20. The fourth quarter of 21 included $0.9 million of costs related to the reserve for unfunded lending commitments due to an increase in unfunded lending commitment balances.
Commitment balances.
We will we will have more commitments on our outlook for noninterest expense later in the presentation.
Speaker 4: We will have more commitments on our outlook for non-interest expense later in the presentation.
Age 22 provides data on nonperforming loans other real estate nonperforming assets and early stage delinquencies total nonperforming assets were $5 $3 million or one 1% of total assets at December 31, 2021 loans 30 to 89 days delinquent decreased.
Speaker 4: Page 22 provides data on non-performing loans, other real estate, non-performing assets, and early stage delinquencies. Total non-performing assets were $5.3 million, or 0.11% of total assets, at December 31, 2021. Loans 30 to 89 days delinquent decreased to $2.3 million at December 31, 2021, compared to $2.4 million at September 30, 2021.
$2 $3 million at December 31, 2021, compared to $2 $4 million at September 32021.
Page 23 provides some additional asset quality data, including information on new loan defaults.
Speaker 4: Page 23 provides some additional asset quality data, including information on new loan defaults and on classified assets. I would highlight there were no new commercial loan defaults for full year 2021.
Classified assets I would highlight there were no new commercial loan defaults for full year 2021.
Page 24 provides information on our <unk> portfolio that totaled $37 million as of December 31, 2021. This portfolio continues to perform well with 96, 4% of these loans being current at December 31, 2021, moving on to page 25, we recorded a provision for credit loss.
Speaker 4: Page 24 provides information on our TDR portfolio that totaled $37 million on December 31, 2021. This portfolio continues to perform well with 96.4% of these loans being current at December 31, 2021.
Speaker 4: Moving on to page 25, we recorded a provision for credit losses expense of $0.6 million in the fourth quarter of 21 compared to a provision credit of $0.4 million in the year ago quarter and a provision credit of $0.7 million in the third quarter of 2021.
Losses expense of <unk> $6 million in the fourth quarter of 'twenty, one compared to a provision credit of $4 million in the year ago quarter, and a provision credit of <unk> $7 million in the third quarter of 2021, the allowance for loan losses totaled $47 3 million or one point.
Speaker 4: The allowance for loan losses totaled $47.3 million, or 1.63% of portfolio loans at December 31, 2021. This ratio increases to 1.64% when excluding the PPP loans and the remaining Traverse City State Bank acquired loans.
Six 3% of portfolio loans at December 31, 20, <unk> on this ratio increases the 164% when excluding the PPP loans and the remaining traverse City State Bank acquired loan.
It's <unk>.
Page 26 is our update for 2020 , one outlook to see how our actual performance during the year compared to the original outlook that we provided in January 2021, our outlook estimated loan growth in the low single digits loans increased $21 $1 million in the fourth quarter of 2021 or two 9% annualized growth in maus.
Speaker 4: Page 26 is our update for 2021 Outlook to see how our actual performance during the year compared to the original Outlook that we provided in January of 2021.
Speaker 4: Our outlook estimated loan growth in the low single digits. Loans increased $21.1 million in the fourth quarter of 2021, or 2.9% annualized.
And installment loans were offset by a decline in commercial loans due to a $63 $8 million decrease in PPP loan balances in the fourth quarter of 'twenty, one excluding PPP loans total portfolio loans grew at 11, 5% annualized rate during the full year of 2021 above our forecasted range for full year 'twenty.
Speaker 4: Growth in mortgage and installment loans were offset by a decline in commercial loans due to a $63.8 million decrease in PPP loan balances in the fourth quarter of 21, excluding PPP loans.
Speaker 4: Total portfolio loans grew at 11.5% annualized rate during the full year of 2021, above our forecasted range. For full year 2021, net interest income increased by 5% over 2020.
The 21 net interest income increased by 5% over 2020.
Which is higher than our forecast however, the net interest margin for the full year of 2021 with 24 basis points lower than the full year of 2020 net interest margin of 334%, which was a steeper decline than our forecast higher than anticipated deposit growth that has largely been deployed into lower yielding the best.
Speaker 4: which is higher than our forecast. However, the net interest margin for the full year of 2021, the 24 basis points lower than the full year of 2020, that interest margin of 3.34%, which is a steeper decline than our forecast, higher than anticipated deposit growth that has largely been deployed into lower yielding investment securities, the primary reason for these variances.
Security is a primary reason for these variances.
The four quarter 'twenty, one provision for credit losses wasn't expands a point $6 million. This is below our forecasted 2021 full year provision range.
Speaker 4: The fourth quarter 21 provision for credit losses was an expense of $0.6 million. This is below our forecasted 2021 four-year provision range.
0.25 to <unk> 35 of average total portfolio for oil loans.
Speaker 4: of 0.25 to 0.35 of average total portfolio loans.
The primary drivers of the decrease in provision for credit losses were a decrease in the adjustment to the allocations based on subjective factors and an increase in recoveries of loans.
Speaker 4: The primary drivers of the decrease in provision for credit losses were a decrease in the adjustment to the allocations based on subjective factors and an increase in recoveries of loans previously charged off.
Loans previously charged off noninterest income totaled $15 $8 million in the fourth quarter of 'twenty, one which is within our forecasted range of 13 million to $16 million. The mortgage loan pipeline continues to be solid although refinance refinance activity slowed down in the fourth quarter of 2021.
Speaker 4: Non-interest income totaled $15.8 million in the fourth quarter of 21, which is within our forecasted range of $13 million to $16 million. The mortgage loan pipeline continues to be solid, although refinance activity slowed down in the fourth quarter of 2021.
Noninterest expense was $34 million in the fourth quarter outside of our 28, 5% to $29 5 million.
Speaker 4: Non-interest expense was $34 million in the fourth quarter, outside our $28.5 to $29.5 million targeted quarterly range. Increases in compensation and employee benefits, data processing, and expense related to the reserve or unfunded lending commitments were the primary categories that caused non-interest expense to exceed the target range.
Targeted quarterly range increases in compensation and employee benefits data processing and expense related to the reserve for unfunded lending commitments with our primary categories of core noninterest expense to exceed the target range or.
Our effective income tax rate of 19 point to an 18, 6% for the fourth quarter and full year 2021, respectively was a bit lower than our forecast. This is due in part to a higher than expected levels of tax exempt interest income.
Speaker 4: Our effective income tax rate of 19.2% and 18.6% for the fourth quarter and full year 2021, respectively, was a bit lower than our forecast. This is due in part to a higher than expected levels of tax contempt interest income.
Lastly, the company comp.
Speaker 4: Lastly, the company purchased 814,910 shares at an average cost of $21.19 for the whole year of 2021.
The company purchased 814910 shares at an average cost of $21 19 for the whole year of 2021.
Turning to page 27.
Speaker 4: Turning to page 27, this will summarize our initial outlook for 2022. The first section is loan growth. We anticipate loan growth in the low double-digit range and are targeting a full year growth rate of 10%. We expect to see growth across all three loan categories. This outlook assumes an improving Michigan economy.
This will summarize our initial outlook for 2020 to the first section is loan growth, we anticipate loan growth in the low double digit range and are targeting a full year growth rate of 10%, we expect to see growth across all three loan categories.
This outlook assumes an improving in Michigan and improving Michigan economy.
Next is net interest income, where we are forecasting a low single digit growth of 1% to 3% over full year 2022, we expect the net interest margin to trend lower compared to the full year 2021 by 10 to 15 basis points, primarily due to a declining yields on earning assets. This forecast assumes.
Speaker 4: Next is net interest income, where we are forecasting a low single-digit growth of 1% to 3% over full year 2022. We expect the net interest margin to trend lower compared to the full year 2021 by 10% to 15% basis points, primarily due to declining yields on earning assets. This forecast assumes a 25% increase in June and September and target federal funds rate in 2022, with long-term rates up slightly by year end.
A 25% increase in June and September .
But the federal funds rate in 2022 with long term rates up slightly by year end.
Full year 2022 provision expense for the allowance for credit losses.
Speaker 4: for your 2022 provision expense for the allowance for credit losses of approximately 0.15% to 0.2% of average loans would not be unreasonable.
Approximately.
One 5% to 0.2% of average loans would not be unreasonable.
Related to noninterest income, we estimate a quarterly range of 13 million to $17 million, we expect mortgage loan origination volumes to decline by approximately 21% in 2022 combined with declining margins on sold loans our outlook for noninterest.
Speaker 4: Related to non-interest income, we estimate a quarterly range of $13 million to $17 million. We expect mortgage loan origination volumes to decline by approximately 21 percent in 2022, combined with declining margins on sold loans.
<unk> expense as a quarterly range of 33.
Speaker 4: Our outlook for non-interest expense is a quarterly range of 30.5%.
$30 5 million to $32 5 million for the total for the year three and a half.
Speaker 4: $30.5 million to $32.5 million, with a total for the year 3% to 5% below 2021 actuals. We expect total compensation and employee benefits, conversion-related expenses to be lower in 2022 compared to 2021. Our outlook for income tax.
3% to 5% below 2021, actuals, we expect total compensation and employee benefits conversion related expenses to be lower in 2022 compared to 2021, our outlook for income tax.
As an effective rate of approximately 18, 5% assuming the statutory federal corporate income tax rate does not change during 2022.
Speaker 4: an effective rate of approximately 18.5%, assuming the statutory federal corporate income tax rate does not change during 2022. Lastly, we believe the share repurchases
Lastly, we believe the share repurchases.
We'll be at the midpoint of our authorization of approximately 5%.
Speaker 4: will be at the midpoint of our authorization of approximately 5% of outstanding shares. That concludes my prepared remarks. I would now like to turn the call back over to Brad.
Outstanding shares.
That concludes my prepared remarks, I would now like to turn the call back over to Brad.
Thanks, Kevin.
Slide 28 displays a high level view of our key strategic initiatives. During this past year, we have harvested the fruit.
Speaker 2: Slide 28 displays a high-level view of our key strategic initiatives. During this past year, we have harvested the fruit of seeds planted in prior years. This included our investments in the mortgage banking business in prior years when others were exiting the business.
Of seeds planted in prior years. This included our investments in the mortgage banking business in prior years, when others were exiting the business.
As a result over the last few years, we have produced record origination volumes strong fee income and a material increase in our overall servicing customer base with over 11% increase in balances serviced for others.
Speaker 2: As a result, over the last few years, we have produced record origination volumes, strong fee income, and a material increase in our overall servicing customer base, with over 11% increase in balances serviced for others.
With the heightened probability of moving to a higher rate environment, we have seen a decline in refinance activity.
Speaker 2: With the heightened probability of moving to a higher rate environment, we have seen a decline in refinance activity, yet our home finance purchase volume continues to be strong.
Our home finance purchase volume continues to be strong.
In 2022, we made significant investments to our overall technology platform to improve the customer experience and increased productivity amongst other ghouls, we've already seen some very positive results and this investment I believe we will see continued growth and improved productivity in 2022.
Speaker 2: In 2022, we made significant investments to our overall technology platform to improve the customer experience and increase productivity amongst other goals. We have already seen some very positive results in this investment. I believe we will see continued growth and improved productivity in 2022.
Two.
Very significant investments were made in human capital in 2021.
Speaker 2: Very significant investments were made in human capital in 2021.
Specifically, the recruitment and expansion of our commercial banking team by over 25%.
Speaker 2: specifically the recruitment and expansion of our commercial banking team by over 25%.
These investments in people are already showing results with this very strong commercial pipeline as we begin fiscal year 2022, we have increased our earnings per share in dividends for eight consecutive years I believe we are well positioned for 2022 and beyond.
Speaker 5: These investments and people are already showing results for this very strong commercial pipeline as we begin fiscal year 2022. We have increased our earnings per share and dividends for eight consecutive years. I believe we are well positioned for 2022 and beyond. At this point, we would now like to open up the call for questions.
At this point, we would now like to open up the call for questions.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad if.
If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker 1: If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Brendan Nosal with Piper Sandler you May go ahead.
Speaker 1: Our first question comes from Brendan Nozzle with Piper Sandler. You may go ahead. Hey. Good morning, folks.
Hey, good morning folks how are you doing.
But brendan good morning, Brandon.
Maybe just digging into the cost outlook, a little more to start off here.
Speaker 6: Maybe just digging into the cost outlook a little more to start off here, I mean expenses down 3% to 5% feels, you know, fairly optimistic given the inflationary environment. So maybe help us break down that improvement between the three areas that you call out in the guidance slide and then tie it into, you know, how you can drive a declining comp expense this year despite wage pressure.
Expenses down 3% to 5% feels fairly optimistic given the inflationary environment. So maybe help us breakdown that an improvement between the three areas that you call out in the guidance Slide and then tied into how you can drive a decline in comp expense this year despite wage pressure.
Yeah. Thanks Brendan.
Speaker 4: Yeah, thanks, Brandon. Yeah, so referencing the slide is.
Yeah, so referencing the slide is.
As we talk when we talk about the incentive compensation.
Speaker 7: As we talk about the incentive compensation.
That that based.
Speaker 7: Um, that that, uh, based on the current budget this year.
Based on the current budget this year.
Again, we had.
Speaker 7: Again, we had, as you are aware how the compensation is structured, we did outperform so the accrual was higher. We believe next year it will be, that will not be the case. So it's really coming through a reduction.
As you are aware how the compensation is.
Structured we did outperform.
Pool was higher we believe next year it will be that will not be the case, so it's really coming through a reduction in the incentive piece.
Speaker 4: and the incentive piece. We have lower, anticipated lower mortgage production. There was incentives that were tied to that production as well beyond just the broad company goals. Reduction in overtime related to the conversion in all.
Lower.
Anticipated lower mortgage production.
There was incentives that were tied to <unk> production as well.
Beyond just.
The broad company company goals.
We did a reduction in overtime relating to related to the conversion and all.
Greatly reduce if not wholly reduced conversion related expenses this year.
Speaker 7: of greatly reduced, if not fully reduced, conversion-related expenses this year.
We've seen those as you can see that this quarter declined significantly.
Speaker 7: As we've seen those, as you can see, this quarter declined significantly.
And then.
Speaker 7: And then the other thing that we had pointed out here.
The the other thing that we had a point.
Pointed out here.
We saw an increase.
Speaker 7: We saw an increase in the unfunded lending commitments in 2021, as we've seen the growth in
In the unfunded lending commitments in 2021.
As we've seen the peak growth in.
The outstandings.
Speaker 7: the outstandings, not necessarily balance outstandings, but just the availability of credit through that asset.
Not necessarily balance outstandings, but just due to availability.
Credit.
To that asset class.
Got it alright, that's helpful color.
Speaker 6: Maybe one more for me turning to kind of provisioning needs and reserve coverage, I mean, a ratio of kind of 1.65-ish percent strikes me as very healthy, so the outlook for, you know, 15 to 20 BIFs of...
Maybe one more for me turning to kind of provisioning needs and reserve coverage.
Our ratio of kind of 1.65 ish percent strikes me as very healthy so that the outlook for 15 to 20 bps.
Loans in terms of if anything there's probably a bit healthier than I was thinking.
Speaker 6: of loans in terms of provisioning was probably a bit heftier than I was thinking, given that strong coverage ratio. So can you maybe offer a little bit of insight into how much you have left in COVID factors in the reserve today and how that might allow you to flex that reserve ratio lower as we move through the year?
Given that strong coverage ratio. So can you maybe offer a little bit of insight into how much you have left in Covid factors in the reserve today, and how that might allow you to flex.
That reserve ratio lower as we move through the year. Thanks.
Yeah.
Speaker 7: Yeah, another great question. So subjectively, there is currently 12.7 million within the reserve that we would define as subjective. There are 12 basis points within the reserve to total loans that is COVID related.
Sure Great question. So subjectively there is currently $12 7 million.
Within the reserve.
I would define a subjective there are 12 basis points within the reserve to total loans that is that as COVID-19 .
Related.
And in some form of factor.
Speaker 4: in in some form or factor uh and uh so to your point i guess you know there could be uh some uh potential there but what we're really seeing uh brandon is the growth
And so to your point I guess, there could be some.
Potential there, but what we're really seeing Brian is the growth.
In in in the pooled factor so as our loans are growing.
Speaker 4: um in in in the pooled factors so as our as our loans are growing um we've seen strong growth in the mortgage portfolio uh and uh
We've seen strong growth in the mortgage portfolio.
And.
That is one of the most costly in terms of that booking assets because of the length of the cash flows to reserve for the allowance.
Allowance for credit losses so.
That's the offset so actually quarter over quarter. This objective did come down a $1 million, but it was just offset by the loan growth.
Understood Alright, great. Thank you for taking my questions.
Thank you.
Our next question comes from Damon Delmonte with <unk> you May now go ahead.
Hey, good morning, guys hope everybody's doing well today.
So first question regarding the margin guidance I think you mentioned you know.
You mentioned it could be down a bit from.
Where it was this past quarter.
Is that guidance taking into account the core margin or is that the like the reported margin which included the PPP impact during 2021.
Yes, great Great question, so that as that is the reported margin.
Martin we the core we think will be very very stable through 2022.
Okay.
Alright, great.
And then yeah.
But that's good.
Okay.
And then could you just elaborate a little bit more on the revenue outlook I mean, sorry, the noninterest income outlook.
When you consider the decline expected in mortgage banking you know what are some of the other positive drivers that we could look for.
So one of the one of the factors there are a couple of years. So one we are factoring into rate increases.
And.
I guess are you talking about noninterest income I apologize, yes, yes, I'm sorry.
Noninterest income.
Yeah, Okay. So yeah, we're saying it'll be down we continue to see very good growth in the interchange income.
It's approximately 5% year over year.
Sure.
As well as service charges on deposits.
We are we are forecasting a decline in NSF fees is I think the industry is anticipating.
But we we think that the treasury management related service charges can offset that so seeing growth.
Management area fees as well.
So that would give you a little more context.
It does that's helpful. Thank you and then I guess, just lastly on the on the loan growth outlook.
You know when you talk about the strong commercial outlook.
Do you see that breaking out between C&I and CRE loans was one one area.
Kind of set up better for growth over the other one or is it pretty equally split.
Yeah. This is Joel.
We by design are going to keep that.
Very evenly split we've been running roughly 60 60 40 on C&I versus <unk>.
Investment real estate.
And we like that balance we want to maintain it. So we were forecasting growth on in both of those buckets.
And.
Yeah, Yeah, that's important to us that we want to maintain that discipline.
Great Okay.
That's all I had thanks a lot appreciate it.
Thanks Damon.
Our next question comes from Russell Gunther with D. A Davidson you May now go ahead.
Hey, good morning, guys.
Just a quick follow up on the loan growth discussion.
I appreciate the color on the 10% double digits in what you just remarked.
CRE versus C&I, just wondering within the mix of that 10% growth do you expect it to be similar to 'twenty, one would there be less of an appetite to portfolio single family residence today, given our commercial outlook just wanted to get a sense for how you think that 10% breaks down across asset classes.
Yeah great.
Great question. So Q2 indicate we are sensitive to the mix.
Think this year is going to be a good representation.
What will look like going forward.
The growth rate is.
It is pretty level across the three loan categories next year.
<unk>.
Okay.
That's very helpful. And then you guys mentioned that you.
L P o's.
It came online in the third quarter opening of full service.
In 2022.
Do you consider.
L P o's and adjacent or expansion markets.
It sounds like Thats not included in your 10% guide, but bigger picture is that something strategically you would look to do.
But I guess I'm not clear Russell in terms of.
Your question because the.
Those loan growth.
Forecasts.
Or are a function of the two will appeals that are online so.
Yeah, no understood I'm, sorry, if I wasn't clear I was I was asking if kind of bigger picture strategically you would think about additional L. P OS in <unk>.
Adjacent markets or even a bit further afield than what you typically do in footprint.
Something you guys would look to do.
Yeah, Okay yeah.
So.
I would say right now.
We're always.
Open to growing our talented team.
We continue to have ongoing dialogues.
<unk>.
So additional <unk> are probably a function of.
Our.
Desire to and success in adding.
New recruits.
Having said that I do think as Joel mentioned, we've grown the team.
By a substantial amount.
In the last year and.
You know so there is a I think an important.
Effort to blend.
Them into our culture and in with the existing team so.
I'd say it can't happen, but we're not.
As we forecast 2022, it's not it's not a huge part of what we're trying to accomplish.
Understood I appreciate the thoughts there Brad and then switching gears to the margin so.
I appreciate your thoughts guys in terms of the NII expectations and your rate assumptions could.
Could you isolate though for your thoughts around what the 25 basis point move in fed funds means to your margin and what deposit betas, you would be assuming in that analysis.
Yeah.
Great question.
The 25 basis points as wanted to.
Basis points of margin.
And that's what the very low beta we think that the first couple.
We will be able to really hold back on increasing deposit rates.
<unk>.
Low beta assumption there.
Got it Okay very helpful. And then the last one for me is.
Within your NII guide.
What are you guys thinking in terms of the investment portfolio overall size.
In terms of growth or potential contraction in 'twenty two.
Yeah.
So there is an asset rotation.
That will have.
Sure.
Domestic that will take place start to take place in 2022.
I don't anticipate the size of the portfolio drastically shrinking.
But.
Also maintaining current level.
To slightly declining B b.
Reasonable.
Through the year, just depending on when when when when we experienced the loan growth.
Yeah.
Okay. No that's very helpful. Understood. That's it for me guys.
Thank you.
Thank you very much.
Our next question comes from Daniel card debt Cardenas with Boenning and Scattergood you May now go ahead.
Good morning, guys.
Good morning morning.
Quick question.
On the lending side could you give us a little bit of color as to.
The competitive factors that are out there specifically as it relates to pricing.
Your various markets.
Do you kind of see that as a headwind to.
The loan growth in 2022.
Well, let's break that down.
With commercial first and Joel maybe talk a little bit about that.
Yes.
Yeah.
<unk>.
But pricing is always a factor and and.
When the whole industry is looking for any assets.
There's been a lot of competition.
It squeeze on the pricing, we don't see that being.
You know that environment dramatically different.
2022 that it was frankly in 2021.
Yes, it is a little bit of increase in the forecast increase the rate hikes will help a little bit.
And in the bond markets already so I mean, we're.
Seeing pricing.
Well done on the fixed rate loans are increasing following the treasury market right.
We've got some smaller community banks around the state that always kind of seem to lag that so it keeps pressure on our margins a little bit as the rates are rising because the industry does.
Move in tandem obviously.
I mean everyone's got a slightly different philosophy, so, yes, theres going to be continued pressure there, but we're finding a way to win business at fair returns and focus on really good correct.
And I think to add then over on the mortgage side. It is very very competitive.
No.
Both the saleable.
Non salable, there's pressure on the margins there we've seen.
As an example, I think the jumbo pricing, which historically you would have some type of premium to the conforming.
And then it was writing for a lot of last year right on top we've seen that go go through them and be less than some of the conforming price and.
So you know I.
We are.
We we've considered that in our forecast and we're fighting them real hard.
You know independent.
Believes.
<unk> been in the business.
For the long haul.
<unk> be a little more.
More challenging.
In the early part of the year here as we.
Q1, and whatnot, but.
Yes, the mortgage side is definitely.
Heightened in terms of its overall competitiveness.
Okay excellent and then.
How should I think about deposit growth and.
Going forward is that does that.
I don't think its going to keep lockstep with step with loan growth, but whats kind of the.
The outlook on the deposit side in <unk> and 'twenty two.
I can take first shot.
And you know we have now for a couple of years see deposit growth outpace loan growth growth significantly.
We think that's going to flip.
This coming year very difficult too.
For cash this year.
Serge in deposits, if you will and how long.
You know they'll stick.
Think it's correct it will be directly related to our fast rates move in.
And whatnot, but.
We are.
In our forecast keeping deposits pretty pretty flat so.
But back to a much more historical run rate to that two ish percent.
Levels not nothing what we've seen in the last two years.
Okay excellent and then last question for me is as.
Digital platform continues to gain traction.
How do you guys think about your branch franchise is that something that.
Would begin to contract as your digital platform grows or is that not necessarily the case.
Well Daniel Ed that's a great question.
Now over the last.
Eight eight to 10 years.
Branch footprint that independent as field that has significantly changed.
We had over 100 locations.
At the.
In the early 2010, 11 timeframe and over the years, we really.
Paired it back at the same time we.
You know more than doubled the average well more than double the average deposits per branch in 2010 or I'm sorry 'twenty.
20.
We consolidated another eight locations.
In 2021, we did do the whole bank conversion and really moving forward with the digital transformation.
That really I think is going to help us as we go forward.
We likely will have some additional.
What we call branch optimization, we're constantly looking at profitability per location, we're looking at.
Average.
Number of transactions per FTE and that has that continues to decline. So I think it would be reasonable.
To see us.
Scaling back some additional.
In the.
In the coming quarters.
Great. That's it for me thanks, guys.
Thank you.
Sure.
This concludes our question and answer session I would like to turn the conference back over to Brad Kessel for any closing remarks.
In closing I would like to thank our board of directors and our senior management for their support and leadership I also want to thank all our associates are continue to be so proud of the job being done by each member.
Of our team each team member in his or her own way continue continues to do their part to R. R.
Our common goal of guiding our customers to be independent finally, I would like to thank each of you for your interest in independent Bank Corporation and for joining us on today's call.
Have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.