Q1 2024 Independent Bank Corp Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Independent Bank Corporation Report 2024 first quarter results.
Ladies and gentlemen, thank you for standing by welcome to the Independent Bank Corporation reports 2024 last quarter results. All lines have been placed on mute during the presentation portion of the call with an opportunity for a question and answer.
Operator: All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press star followed by one on your telephone keypad. I would now like to hand this conference call over to our host, Brad Kessel, President and CEO.
Operator: If you'd like to ask a question. Please press star followed by one on your telephone keypad I would now like to hand. This conference call I thought twice, Brad Kessel, President and CEO.
William Bradford Kessel: Good morning and welcome to today's call. Thank you for joining us on 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 two of our presentation.
William Bradford Kessel: Please go ahead.
William Bradford 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 Moore Executive Vice President and.
William Bradford Kessel: Chief Financial Officer, and Joel run Executive Vice President commercial banking.
William Bradford Kessel: Before we begin today's call I would like to direct you to the important information on page two of our presentation.
William Bradford Kessel: Specifically, the cautionary note regarding forward-looking statements. If anyone does not already have a copy of the press release issued by us today, they 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.
William Bradford Kessel: Specifically the cautionary note regarding forward looking statements.
William Bradford Kessel: If anyone does not already have a copy of the press release issued by us today.
William Bradford Kessel: Can access it at the company's website independent bank Dot com.
William Bradford Kessel: The agenda for today's call will include prepared remarks, followed by a question and answer session and then closing remarks.
William Bradford Kessel: 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 a 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.
William Bradford Kessel: Independent Bank Corp reported first quarter 2024, net income of $16 million.
William Bradford Kessel: For <unk> 76 per diluted share.
William Bradford Kessel: Versus net income of $13 million or <unk> 61 per diluted share in the prior year period.
William Bradford Kessel: I am very pleased with our first quarter 2024 results.
William Bradford Kessel: Having organic growth on both sides of the balance sheet with loans up five 3% and core deposits up 9%, we were able to generate net interest margin expansion, increasing to 330% from 3% to 6% on a linked quarter basis.
William Bradford Kessel: And net interest income growth on both a linked quarter basis, and a year over year quarterly basis.
William Bradford Kessel: Expenses continue to be well managed our credit metrics continue to be very good with watch credits in nonperforming assets near historic lows. These.
William Bradford Kessel: These fundamentals drove good growth in both earnings per share, a 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.
William Bradford Kessel: These fundamentals drove good growth in both our earnings earnings per share, 23% increase in tangible book value per share is 16% increase compared to the prior year quarter.
William Bradford Kessel: Our performance ratios for the quarter included a return on average assets of $1, two 4% and return on average equity of 15, 95%.
William Bradford Kessel: 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.
William Bradford Kessel: 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 migration out of non-interest-bearing and or lower-yielding deposit products into higher-yielding product offerings. But the remix pace has slowed down.
William Bradford Kessel: Total deposits as of March 31, 2024, or $458 billion overall core deposits increased $95 7 million or 9%.
William Bradford Kessel: 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 a municipal deposits also increased by $46 9 million.
William Bradford Kessel: Our existing customer base continues to exhibit a remix out of noninterest bearing <unk> lower yielding deposit products in.
William Bradford Kessel: The higher yielding product offerings, but the remix pace has slowed.
William Bradford Kessel: 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 Fund 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.
William Bradford Kessel: Additionally, our sales team continues to bring in new relationships well below our wholesale cost of funds.
Joel F. Rahn: 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 further.
Joel F. Rahn: <unk> for the quarter, our total cost of funds increased by two basis points to two points.
Joel F. Rahn: Zero, 1% through the first quarter of 2020 for the cumulative.
Joel F. Rahn: Cycle beta for our cost of funds is 37, 3%.
Joel F. Rahn: At this time I'd like to turn the presentation over to Joe Ron to share a few comments on the success, we were having in growing our loan portfolios and provide an update on our credit metrics.
Joel F. 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. Our 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 as a result of a strategic decision to pull back in that segment.
Joel F. Rahn: Thanks, Brad and good morning, everyone on page seven we share an update on our $3 8 billion loan portfolio an quarterly activity.
Joel F. Rahn: Total loans increased by $49 million in the first quarter, representing five 3% annualized growth the.
Joel F. Rahn: The strongest segment continues to be commercial lending, which grew by $55 million.
Joel F. Rahn: We also realized growth in our mortgage business with that portfolio growing by $4 6 million for the quarter.
Joel F. Rahn: 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.
Joel F. Rahn: As noted in the material, 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 6.8%. 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, consistent with the pace of growth experienced in 2023.
Joel F. Rahn: As noted in the material and 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 683%.
Joel F. Rahn: We continue to see a return on our strategic expansion of our commercial banking team.
Joel F. Rahn: 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 consistent with the pace of growth experienced in 2023.
Joel F. Rahn: Based upon a solid commercial pipeline, we see continued growth opportunity while maintaining our disciplined credit standard. Page 8 provides additional detail on our commercial loan portfolio. As I've pointed out in prior quarters, C&I lending continues to be our primary focus, representing 68% of the portfolio. Manufacturing continues to be the largest concentration within the C&I segment, comprising approximately 10% or $174 million.
Joel F. Rahn: Based upon our solid commercial pipeline, we see continued growth opportunity, while maintaining our disciplined credit standards.
Joel F. Rahn: Page eight provides additional detail on our commercial loan portfolio as I pointed out in prior quarters C&I lending continues to be our primary focus representing 68% of the portfolio.
Joel F. Rahn: Manufacturing continues to be the largest concentration within the C&I segment, comprising approximately 10% or $174 million.
Joel F. Rahn: The remaining 32% of the portfolio is comprised of investment real estate, with the largest concentration being industrial at 7.9%, or $140 million. It's worth noting that our exposure to the office segment stands at $89 million, or 5% of our commercial portfolio, at quarter end. Our office exposure consists primarily of suburban, low-rise office space, with medical comprising 25% of our overall office exposure. The average loan size is $1.2 million, which points to the granularity of this segment of our portfolio.
Joel F. Rahn: The remaining 32% of the portfolio is comprised of investment real estate with the largest concentration being industrial at seven 9% or $140 million.
Joel F. Rahn: It's worth noting that our exposure to the office segment stands at $89 million or 5% of our commercial portfolio at quarter end. Our office exposure consists primarily of suburban low rise office space with medical comprising 25% of our overall office exposure.
Joel F. Rahn: The average loan size is $1 $2 million, which points to the granularity of this segment of our portfolio.
Joel F. Rahn: For additional insight into our office exposure, I refer you to page 25 of the appendix to this presentation. Key credit quality metrics and trends are outlined on page 9. Overall, credit quality continues to be excellent. Total non-performing loans were $3.7 million, or approximately 10 basis points of total loans at quarter end, which is a slight decrease from $1231.23. Past due loans totaled 7.1 million, or 19 basis points, up slightly from year-end 2020. At this time, I would like to turn the presentation over to Gavin for his comments, including his outlook for the remainder of the year. Thanks.
Joel F. Rahn: For additional insight into our office exposure I refer you to page 25 of the appendix to this presentation.
Gavin: Key credit quality metrics and trends are outlined on page nine.
Gavin: Overall credit quality continues to be excellent total nonperforming loans were $3 7 million or approximately 10 basis points of total loans at quarter end, which is a slight decrease from 12 to $31 23.
Gavin: Past due loans totaled $7 1 million or 19 basis points up slightly from year end 'twenty three.
Joel F. Rahn: At this time I would like to turn the presentation over to Gavin for his comments, including the outlook for the remainder of the year.
Gavin A. Mohr: Thanks, Joel, and good morning, everyone. I'm starting on page 10 of our presentation. Page 10 highlights our strong regulatory capital position; all capital ratios increased from our linked quarter basis. Net interest income increased $1.8 million from the year-ago period. Our tax equivalent net interest margin was 3.3 percent during the first quarter of 2024 compared to 3.32 percent in the first quarter of 2023 and up four basis points from the fourth quarter of 2023, averaging interest earning assets with $4.91 billion in the first quarter of 2024 compared to $4.7 billion in the year-ago quarter and $4.93 billion in the fourth quarter of 2023.
Gavin: Thanks, Joel and good morning, everyone I am starting at page 10 of our presentation.
Gavin A. Mohr: <unk> highlights are stronger regulatory capital position, all capital ratios increased from a linked quarter basis.
Gavin A. Mohr: Net interest income increased $1 $8 million from the year ago period, our tax equivalent net interest margin was three 3% during the first quarter of 'twenty four compared to 332% in the first quarter of 2023.
Gavin A. Mohr: Up four basis points from the fourth quarter of 2023.
Gavin A. Mohr: Average interest, earning assets were $4 $91 billion in the first quarter of 2024 compared to $4 7 billion in.
Gavin A. Mohr: In the year ago quarter, and $4 $93 billion in the fourth quarter of 2023.
Gavin A. Mohr: Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and the net interest margin. On a linked quarter basis, our first quarter 24 net interest margin was positively impacted by three factors, an increase in yield on loans and investments of two basis points, a change in earning asset mix of three basis points, and a change in funding mix of four basis points. These increases were partially offset by an increase in funding costs of $5 billion.
Gavin A. Mohr: Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and the net interest margin on.
Gavin A. Mohr: On a linked quarter basis, our first quarter 'twenty four net interest margin was positively impacted by three factors increase in yield on loans and investments of two basis points change in earning asset mix of three basis points change.
Gavin A. Mohr: Change in funding mix of four basis points. These increases were partially offset by an increase in funding costs of five basis points.
Gavin A. Mohr: On page 13, we provide details on the institution's interest rate risk position. The comparative simulation analysis for the first quarter of 24 and the fourth quarter of 23 calculates the change in net interest income over the next 12 months under five rate scenarios. All scenarios assume a static balance sheet. The base rate scenario applies the spot yield curve from the valuation date. The shock scenarios consider immediate, permanent, and parallel rate changes.
Gavin A. Mohr: On page 13, we provide details on the institution's interest rate risk position.
Gavin A. Mohr: Comparative simulation analysis for the first quarter of 24 in the fourth quarter of 'twenty three calculate the change in net interest income over the next 12 months under five rate scenarios, all scenarios assume a static balance sheet to base rates scenario applies a spot yield curve.
Gavin A. Mohr: From the valuation date, the shock scenarios consider immediate permanent in parallel rate changes the increase in the base rate forecast of net interest income in the first quarter of 24 compared to the fourth quarter of 'twenty. Three is primarily due to a shift in the asset mix with an increase in loans that decline in securities. The loan growth was centered in variable.
Gavin A. Mohr: The increase in the base rate forecasted net interest income in the first quarter of 24 compared to the fourth quarter of 23 is primarily due to a shift in the asset mix with an increase in loans and a decline in securities. The loan growth was centered on variable rate commercial loans. Additionally, a modest increase in term rates during the quarter increased modeled asset yields related to fixed-rate lending products. Sensitivity was largely unchanged during the quarter, with the exposure to rising rates decreasing modestly for larger rate increases.
Gavin A. Mohr: Commercial loans. Additionally, a modest increase in term rates during the quarter increased modeled asset yields related to fixed rate lending products sensitivity is largely unchanged during the quarter with the exposure to rising rates decreasing modestly for large law larger rate increases currently 33% of <unk>.
Gavin A. Mohr: 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, 24 net gains on mortgage loans were $1.4 million compared to $1.3 million in the first quarter of 23. The increase is primarily due to increased profit margins that were partially offset by a lower volume of loan sales.
Gavin A. Mohr: Assets reprice in one month and 43, 8% reprice in the next 12 months.
Gavin A. Mohr: Moving onto page 14, non interest income.
Gavin A. Mohr: <unk> totaled $12 6 million in the first quarter 2024, as compared to $10 6 million in the year ago quarter, and $9 1 million in the fourth quarter of 2023 first quarter 'twenty four net gains on mortgage loans were $1 4 million compared to $1 3 million in the first quarter of 'twenty three the increase is primarily.
Gavin A. Mohr: Due to increased profit margins that was partially offset by lower volume of loan sales.
Gavin A. Mohr: Positively impacting non-interest income with a $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 a change in price that was partially offset by a $0.8 million decrease due to paydowns 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.
Gavin A. Mohr: Positively impacting non-interest income was $2 $7 million gain on mortgage loan servicing debt. This is comprised of $2 2 million of revenue $1 3 million or <unk> <unk> per diluted share after tax gain due to change in price that was partially offset.
Gavin A. Mohr: By $8 million decrease due to pay downs of capitalized mortgage loan servicing rights in the first quarter of 2024.
Gavin A. Mohr: As detailed on page 15, our noninterest expense totaled $32 2 million in the first quarter 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.
Gavin A. Mohr: For salaried and hourly employees and salary increases effective.
Gavin A. Mohr: At the beginning of the year data processing cost increased by <unk> 3 million from the prior year period, primarily due to core data processor annual asset growth in CPI related cost increases as well as the purchase of a new lending solutions.
Gavin A. Mohr: Performance-based compensation increased $1.2 million due primarily to higher expected incentive compensation payout for salary 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 a new lending solution, software.
Gavin A. Mohr: <unk>.
Gavin A. Mohr: 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 for 2024, our outlook estimated loan growth in the middle single digits loans increased $49 1 million in the first quarter of 2024 or five 3% annualized.
Gavin A. Mohr: 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. In the first quarter of 2024, net interest income increased by 4.6% over 2023, which is lower than our forecast of mid-single-digit growth.
Gavin A. Mohr: Which is below our forecasted range commercial and mortgage had positive growth while solar loans decreased in the first quarter.
Gavin A. Mohr: First quarter 2024 net interest in <unk>.
Gavin A. Mohr: Income increased by four 6% over 2023, which is lower than our forecast of mid single digit growth. The net interest margin was three 3% for the current quarter and 3233, 2% for the prior year quarter.
Gavin A. Mohr: But was up four basis points from the linked quarter.
Gavin A. Mohr: The first quarter of 2020 for provision for credit losses wasn't.
Gavin A. Mohr: It was an expense of <unk> $7 million and below our forecasted range. The first quarter 'twenty for provision expense was primarily a result of provision expenses on loans that was partially offset by credit provisions on securities held to maturity.
Gavin A. Mohr: Moving on to page 17, noninterest income totaled $12 6 million in the first quarter 'twenty, four which was within our forecasted range of $11 5 million to $13 million first quarter 2024 loan origination sales and gains totaled 94 million $88 million and $1 4 million respectively.
Gavin A. Mohr: The net interest margin was 3.3% for the current quarter and 3.32% for the prior year quarter, but it was up four basis points from the late quarter. The first quarter of 2024 provision for credit losses was an expense of $0.7 million in the lower forecasted range. The first quarter of 2024 provision expense was primarily a result of provision expenses on loans that were partially offset by a credit provision on securities held to maturity.
Gavin A. Mohr: Mortgage loans servicing that generated a gain of $2 7 million in the first quarter 2024 <unk>.
Gavin A. Mohr: Noninterest expense was $32 2 million in the first quarter below our forecasted range of 32, 5% to $33 $5 million.
Gavin A. Mohr: Our effective income tax rate of 19, 3% for the first quarter of 2024 was lower than our original forecast.
Gavin A. Mohr: 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. Thanks, Kevin 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.
Gavin A. Mohr: Moving on to page 17, non-interest income totaled $12.6 million in the first quarter of 2024, 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 to $33.5 million. Our effective income tax rate of 19.3% for the first quarter of 2024 was lower than our original forecast. Additionally, there were no shares repurchased in the first quarter of 2024.
Gavin A. Mohr: Quarter over quarter or year after year for some time this.
Gavin A. Mohr: 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.
Gavin A. Mohr: Delivering strong and consistent results for our shareholders.
Gavin A. Mohr: As we move forward in 2024 or 168 year of serving the communities, 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.
Gavin A. Mohr: That concludes my prepared remarks. I would like to now turn the call back over to Brad. Thanks, Gavin.
Gavin A. Mohr: <unk> into higher yielding loans.
Gavin A. Mohr: 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 noninterest expenses.
William Bradford 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, and 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.
William Bradford Kessel: Accordingly, we are excited about our future.
Speaker Change: At this point, we'd now like to open up the call for questions.
Speaker Change: Thank you Brad if you'd like to register a question. Please press star followed by one.
Speaker Change: Pat and Kieran Amit Luckily if you'd like to withdraw your question at any time, we can take some quick questions Hello Bhakti.
William Bradford Kessel: As a reminder, staff with my one.
William Bradford Kessel: 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.
William Bradford Kessel: Question.
William Bradford Kessel: Last question comes from the line of Brandon Nashville.
Speaker Change: Your line is now open. Please go ahead.
Speaker Change: Hey, good morning folks have been doing well.
Speaker Change: Good morning.
Speaker Change: Maybe to start off here.
Speaker Change: A pretty meaningful transaction announced in your neck of the Woods last week I know that it's early days, but any preliminary thoughts on how independent might be impact data and where you might like to capitalize on adding talent dislocation if those opportunities arise.
William Bradford Kessel: Brandon.
William Bradford Kessel: <unk>.
Speaker Change: Great question.
William Bradford Kessel: <unk>.
William Bradford Kessel: He has been a good competitor.
Speaker Change: Uh huh.
Speaker Change: In our market and.
Operator: Thank you Brad. If you'd like to register a question, please press star followed by one on the telephone keypad, ensuring that you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing star followed by As a reminder, it's star followed by one to ask a question. So our first question comes from the line of Brendan Nosal of Hovde Group. Your line is now open, please go ahead.
Speaker Change: We view their sale.
Brendan Jeffrey Nosal: As an opportunity for us here in Kern County in Ottawa County.
Brendan Jeffrey Nosal: And related markets. So we think it's an opportunity.
Brendan Jeffrey Nosal: For both customer acquisition and talent acquisition.
Brendan Jeffrey Nosal: It's really a continuation of.
Brendan Jeffrey Nosal: Within the independent bank markets.
Brendan Jeffrey Nosal: M&A disruption and.
Brendan Jeffrey Nosal: So we're viewing the the event as a very positive.
Brendan Jeffrey Nosal: Hey, good morning, folks. Hope you're doing well. Good morning. Maybe to start off here, there was a pretty meaningful transaction announced in your neck of the woods last week. I know that it's early days, but any preliminary thoughts on how independent might be impacted and where you might like to capitalize on any talent dislocation if those opportunities arise?
Brendan Jeffrey Nosal: Event for for our franchise.
Brendan Jeffrey Nosal: Okay.
Speaker Change: That's helpful color.
Brendan Jeffrey Nosal: Let me turn it over to the margin continue to move in the right direction for another quarter.
Brendan Jeffrey Nosal: Kind of curious.
Brendan Jeffrey Nosal: If you have any updates to the guidance for the margin you laid out early in the year by year.
Brendan Jeffrey Nosal: Jack there or performing better or worse based on what you say.
Brendan Jeffrey Nosal: Yeah, Brian This is Gavin I think we're right on track.
William Bradford Kessel: Brandon, you know. Great question. You know, MacTow has always been a good competitor in our market, and we view their sale as an opportunity for us here in Kent County and in related markets, so we think it's an opportunity for both customer acquisition and talent acquisition. And it's really a continuation of, you know, within the independent bank markets, M&A disruption. And so we're viewing the event as a very positive event for our franchise.
Brendan Jeffrey Nosal: And from what we had forecasted.
William Bradford Kessel: <unk>.
William Bradford Kessel: Yes.
Speaker Change: Just leave it at that.
Speaker Change: Yes, perfect perfect Alright, Thank you for taking the questions.
Speaker Change: Thank you.
Speaker Change: Thank you.
William Bradford Kessel: The next question comes from the line of Damon Delmonte <unk>. Your line is now open. Please go ahead.
Speaker Change: Hey, good morning, guys hope, you're both doing well.
William Bradford Kessel: You guys are doing well.
William Bradford Kessel: Just a quick follow up on the margin.
Speaker Change: Good morning, just a quick follow up on the margin comment.
William Bradford Kessel: Yes.
Speaker Change: Gavin said should there be some rate cuts in the back half of the year and given some of the more asset sensitive portions of your balance sheet. How would you expect the margin to react and you feel you have some leverage on the funding side that could reprice.
Brendan Jeffrey Nosal: That's a helpful color. Maybe turning over to the margin, continue to move in the right direction for another quarter. Just kind of curious if you have any updates to the guidance for the margin you laid out early in the year, whether you're kind of still on track there or you know performing better or worse based on what you say.
Brendan Jeffrey Nosal: Kind of in step with the asset side and kind of keep the margin stabilize or what are your thoughts on that.
Speaker Change: Yes, David.
Brendan Jeffrey Nosal: Come back to our January.
Gavin A. Mohr: Yeah, Brendan, this is Gavin. I think we're right on track from what we've forecasted. Yeah. See you in a bit. Yeah, perfect, perfect.
Brendan Jeffrey Nosal: Guidance that we gave we do have some rate cuts built into that.
Brendan Jeffrey Nosal: Yeah, perfect, perfect. All right. Thank you for taking the question.
Gavin A. Mohr: So.
Gavin A. Mohr: Within that back half.
Brendan Jeffrey Nosal: I don't know how much pricing repricing.
Operator: The next question comes from the line of Damon DelMonte of KBW. Your line is now open.
Brendan Jeffrey Nosal: Leverage will have on the deposit side I think that's a big question Mark.
Damon Paul DelMonte: Hey, good morning, guys. Hope you're both doing well, or the three of you guys are doing well. Just a quick follow-up on that margin. Good morning.
Damon Paul DelMonte: But the but the forecast we gave with the.
Damon Paul DelMonte: The increase in NIM of 10 to 15 did did have fed rate cuts in May and June August and October.
Damon Paul DelMonte: Just a quick follow up on the margin comment. Gavin, should there be some rate cuts in the back half of the year? And given some of the more asset-sensitive portions of your balance sheet, how would you expect the margin to react? Do you feel you have some leverage on the funding side that could reprice kind of in step with the asset side and kind of keep the margin stabilized? Or, what are your thoughts on that?
Damon Paul DelMonte: Okay, so that three tests.
Damon Paul DelMonte: Hey.
Damon Paul DelMonte: <unk>.
Speaker Change: Okay great.
Speaker Change: Then with regards to the loan growth.
Damon Paul DelMonte: The first quarter growth was.
Damon Paul DelMonte: On the low end of the kind of the full year guide.
Speaker Change: You can kind of look out over the next few quarters do you still feel good for that 58% growth for the year and.
Damon Paul DelMonte: Is that being primarily driven by the C&I side as well.
Joel: Yes. This is Joel.
Gavin A. Mohr: Yeah, Damon, I would come back to our January guidance that we gave. We do have some rate cuts built into that, so within that back half, I don't know how much pricing, repricing leverage we'll have on the deposit side. I think that's a big question mark, but the forecast we gave with the increase in NIMA 10 to 15 did have Fed rate cuts in May and June, August, and October.
Damon Paul DelMonte: <unk>.
Speaker Change: Think we're right on track right, where we plan to be and as.
Gavin A. Mohr: As I said in my comments that our pipeline is looking solid.
Gavin A. Mohr: A very comparable to how we were positioned last year.
Gavin A. Mohr: And yes, we're still seeing <unk>.
Gavin A. Mohr: Opportunity on the C&I side, as well as via or we're still.
Gavin A. Mohr: Making some some real estate loans, where obviously, we're cautious there in certain segments office being the most notable but.
Gavin A. Mohr: Okay, so that's three cuts. OK. Okay, great. And then, you know, with regard to.
Gavin A. Mohr: Yeah, I feel like we're positioned well to date, our plan and <unk>.
Joel F. Rahn: Yeah, this is Joel. I think we're right on track, right where we plan to be. And, as I said in my comments, our pipeline is looking solid, very, very comparable to how we were positioned last year. And, and yeah, we're still seeing opportunity on the CNI side, as well as, you know, we're still.
Speaker Change: And part of that is also we continue to add talent. We continue did we added commercial bankers in the first quarter.
Joel F. Rahn: Capitalizing on some disruption in the marketplace throughout the state and all of our footprint and it positions us really well.
Damon Paul DelMonte: Very good, Joel. Okay, great.
Speaker Change: Okay great.
Damon Paul DelMonte: And then, and then lastly, credit trends remain very strong. And as you kind of look at the prospects for loan growth and you look at where the loan loss reserve is now, I think it's 147 basis points. Do you feel that you need to maintain that level, or do you feel that there's enough cushion where you kind of let that drift down a little bit?
Speaker Change: And then lastly.
Damon Paul DelMonte: Trends remained very strong and as you kind of look.
Damon Paul DelMonte: The prospects for loan growth and you look at where the loan loss reserve is now at 147 basis points.
Damon Paul DelMonte: Do you feel that you need to maintain that level or do you feel that there is enough cushion where you can kind of let that drift down a little bit.
Speaker Change: That's a great question.
William Bradford Kessel: You know, that's a great question. You know, if we do realize the soft landing that it feels like we're heading into, we may see that come down a little bit. You know, I think we've got, Gavin helped me, a quarter of the total reserve today is in the subject, and some of that, I think, could be released with a soft landing. So that's it. Well, we're sort of thinking, Damon, so really, future provisioning is going to be driven by loan growth.
Damon Paul DelMonte: If we do realize the soft landing that.
William Bradford Kessel: It feels like we're heading into.
William Bradford Kessel: We may see that come down a little bit.
William Bradford Kessel: I think we've got again and I'll need a quarter of.
William Bradford Kessel: The total reserve today is in this subject.
William Bradford Kessel: And.
William Bradford Kessel: And some of that I think I think could be released with a soft landing.
William Bradford Kessel: So.
William Bradford Kessel: Thats.
William Bradford Kessel: We're sort of thinking Damon so really future provisioning is going to be driven by.
Damon Paul DelMonte: Great, that's all that I have for now. Thanks!
William Bradford Kessel: Loan growth.
Damon Paul DelMonte: Okay.
Speaker Change: Great Thats, all that I have for now thanks.
Operator: Thank you. As a reminder, if you'd like to ask a question, please press start.
Damon Paul DelMonte: Yes.
Speaker Change: Thank you.
Operator: As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Operator: As a reminder, if you'd like to ask a question, please press star followed by 1 on your telephone keypad. We now have a follow-up question from Brendan Nosal of Hofty Group. Your line is open, please go ahead.
Operator: We now have a follow up question from Rodman <unk> Renshaw.
Brendan Jeffrey Nosal: Your line is open. Please go ahead.
Brendan Jeffrey Nosal: Hey, just one more for me, but not to beat a dead horse on the margin, especially considering how nicely it's performed over the past few quarters, but let's say we don't get any of the four rate cuts that you've baked into the guide at the start of the year. I'm just kind of curious how that might impact that margin outlook. I know you're fairly rate neutral at this point, but I'm curious how that impacts the margin.
Brendan Jeffrey Nosal: Hey, just one more for me not to beat a dead horse in the margin, especially considering how atlassian has performed over the past few quarters.
Brendan Jeffrey Nosal: But let's say, we don't get any of the four rate cuts that you've baked into the guide at the start of the year.
Brendan Jeffrey Nosal: Kind of curious how that might impact that margin outlook. I know you are fairly rate neutral at this point, but curious how thats impacting the margin.
Gavin A. Mohr: It'd be beneficial, moderately, but again, I just keep coming back to... [inaudible] The question mark is the deposit remixing. So if that trend continues, what we're currently seeing, and rates stay flat, we would be a little better off and more
Brendan Jeffrey Nosal: It would be.
Brendan Jeffrey Nosal: The beneficial.
Gavin A. Mohr: Moderately.
Gavin A. Mohr: But again, just keep coming back to.
Gavin A. Mohr: <unk>.
Gavin A. Mohr: The question Mark is the deposit Remixing. So if you.
Gavin A. Mohr: That trend continues what we're currently seeing in rates stay flat.
Gavin A. Mohr: We would be a little better off in margin.
Brendan Jeffrey Nosal: Perfect. Perfect. That's helpful. Thanks again.
Brendan Jeffrey Nosal: Perfect perfect. That's helpful. Thanks again.
Operator: The next question comes from the line of John Rodis of Jannie. Your line is now open; please go ahead.
Brendan Jeffrey Nosal: The next question comes from the line of John <unk> of Janney. Your line is now open. Please go ahead.
John Lawrence Rodis: Um, Maury, a question and maybe for Gavin on the securities portfolio, how should it, I assume it's going to continue to trend down, but can you just talk about, you know, just as far as cash flows and, you know, whether you decide to reinvest any going forward.
John Lawrence Rodis: Hey, good morning, guys.
John Lawrence Rodis: Good morning.
John Lawrence Rodis: Question, maybe for Gavin on the Securities portfolio.
John Lawrence Rodis: Should I assume it's going to continue to trend down but can you just talk about just.
John Lawrence Rodis: As far as cash flows.
John Lawrence Rodis: Whether you decide to reinvest any going forward.
Gavin A. Mohr: Yeah, so this quarter we, so we start from the top, cash flow projection for the year is $140, $145 million of amortization, assuming no repurchases or reinvestment into the securities book. We were able to pull some of that forward.
John Lawrence Rodis: Yes.
Speaker Change: So this quarter we saw.
Gavin A. Mohr: Start from the top cash flow projection for the year was 140 145 million of amortization.
Gavin A. Mohr: Assuming no repurchases of reinvestment into the Securities book.
Gavin A. Mohr: We were able to pull some of that forward, we sold $28 million in the first quarter you see a small loss of about 300000 earned.
Gavin A. Mohr: We sold $28 million in the first quarter. We made a small loss of about $300,000. That earn back will be by year end will be a break even on that loss. So. That being said, I think, you know, I don't think what we're targeting for a portfolio total asset is around 12%. So when you look at the current cash flows and the current size, it will be some time before we anticipate reallocating capital into the securities portfolio.
Gavin A. Mohr: Earn back will be by year end will be a breakeven on that loss. So.
Gavin A. Mohr: That being said I think I don't think what we're targeting for our portfolio to total assets is around 12%. So.
Gavin A. Mohr: When you look at the current cash flows and the current size.
Gavin A. Mohr: It will be some time before we anticipate reallocating capital into the securities portfolio.
John Lawrence Rodis: Okay, and Gavin, you said cash flows this year would be $140 million. And then you pulled forward $28 million in the first quarter with a sale. Do you have any more cash flows?
Gavin A. Mohr: Okay.
Gavin A. Mohr: Kevin You said so cash flows this year $140 million and then you pulled forward $28 million in the first quarter with the sale do you have with cash flows are next year roughly.
Gavin A. Mohr: Yeah, it's around $130 million. Pretty similar. Yeah, it's similar.
John Lawrence Rodis: Yes.
Speaker Change: Around $130 million.
Gavin: Pretty similar similar.
Gavin: Similar for the 24 month period.
John Lawrence Rodis: Okay, so to get down to that 12% area, I mean, it'll take you a couple of years or a few years without reinvesting, correct? That's correct, John. And I assume deposit growth would remain pretty solid if loan growth were to slow, then maybe you would decide to reinvest a little bit in your securities portfolio at higher rates? Does that make sense?
Gavin A. Mohr: Okay, so to get down to that 12% area.
John Lawrence Rodis: A couple of years or few years without reinvestment correct.
Speaker Change: That's correct John.
John Lawrence Rodis: And I assume if deposit growth.
John Lawrence Rodis: Would remain pretty solid if loan growth were to slow than than maybe you decide to reinvest first a little bit in the securities portfolio with higher rates is that makes sense.
Gavin A. Mohr: That, yeah, absolutely. So, you know, if we had liquidity and in loans, at a greater, greater than our loan growth, with a cap, that would be an excellent option for capital. OK.
Speaker Change: Absolutely so we have liquidity.
Gavin A. Mohr: And.
Gavin A. Mohr: Loan pick greater.
Gavin A. Mohr: Greater than our loan growth was account that would be an excellent.
Gavin A. Mohr: Option for capital.
John Lawrence Rodis: Okay, okay, thanks guys.
Speaker Change: Okay. Okay. Thanks, guys.
Speaker Change: Thank you.
William Bradford Kessel: As there are no additional questions waiting at this time, I'd like to hand the conference back over to Independent Bank Corporation's President and CEO, Brad Kessel, for closing remarks.
John Lawrence Rodis: As there are no additional questions at this time I would like to hand, the conference back over to independent Bank Corporation's President and CEO, Brad Kessel for closing remarks.
William Bradford Kessel: Okay.
William Bradford Kessel: In closing, we would like to thank our board of directors and our senior management for their support and leadership. We would also like to thank all our associates. I 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, continues to do their part toward our common goal of guiding our customers to become independent. Finally, I'd 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, late.
William Bradford Kessel: In closing, we would like to thank our board of directors, our senior management for their support and leadership, we would also like to thank all our associates.
William Bradford Kessel: I 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 continues to do their part toward our common goal of guiding our customers to be independent <unk>.
William Bradford Kessel: Finally, I'd 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.
Operator: Ladies and gentlemen, this concludes today's call. Thank you for joining us. You may now disconnect your lines. Ladies and gentlemen, this concludes today's call.
Speaker Change: Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Operator: [music].
Operator: Okay.
Operator: Ladies and gentlemen, this concludes today's call.