Independent Bank Corp Michigan (NASDAQ:IBCP) Q4 2019 Earnings Conference Call - Final Transcript

Jan 23, 2020 • 11:00 am ET

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Independent Bank Corp Michigan (NASDAQ:IBCP) Q4 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brendan Nosal with Piper Sandler.

Analyst
Brendan Jeffrey Nosal

Hey, good morning guys. How are you?

Executive
William B. Kessel

Good Brendan.

Executive
Stephen A. Erickson

Good. How are you?

Analyst
Brendan Jeffrey Nosal

Good, thanks. Just want to start off on the net interest margin here. I appreciate the guide for being flat with the fourth quarter throughout most of the year. Just kind of curious as to the puts and takes that would allow you to hold the margin flat. I mean I'd imagine if the Fed does not cut rates further, that's certainly one of the things that could help out, but I'm curious what else underlies that expectation.

Executive
William B. Kessel

Well, this is Brad. I guess, first off for the fourth quarter we were at 3.7% [Phonetic]. As we look into 2020, we've got some pretty respectable loan growth expectations there. And -- but I think we're -- maybe some of the lever for the Bank is still the opportunity on the cost of fund side. And over the years, we have structured the funding side with a lot of detailed segmentation of our customer base and really looking at the customers' usage of the bank services, the balances they carry and so on. So I think prospectively one of the levers is on the funding side. Thereafter, we're going to continue to push on the production side, but not at the sacrifice of credit quality. Steve, I don't know if you have anything to add there.

Executive
Stephen A. Erickson

Yeah, the price and structure on the asset side are going to remain important to us and we're not going to get to credit quality. We're not going to change what our targeted structure of price range is on the asset side.

Analyst
Brendan Jeffrey Nosal

All right. Great. That's helpful. And then if we can sneak in another one in there. Moving on to the revision, the outlook for 15 basis points to 20 basis points, that's obviously a big step up from this year. Of course in 2019 you had nice net recoveries. I'm just curious how much of that higher provisioning level is driven by CECL. So I guess, kind of, what would you think it would be absent the new accounting guidance?

Executive
Stephen A. Erickson

Absent CECL it would be basically flat. If you look at where our ALLL is going into this transition into CECL, we're at 96 basis points of loans. CECL with the adjustment will get us up, let's call it, approximately 1.25% of loans. So that provision guidance going forward allows for additional loan growth at and around that new CECL expected ALLL rate as well as allowing for some level of charge-offs.

Analyst
Brendan Jeffrey Nosal

Okay, got it. So basically it just kind of allows for you to hold the reserve at the new post CECL level?

Executive
Stephen A. Erickson

That is correct. We don't anticipate 2020 having near the same level of recoveries as we've seen in the last couple of years. So we're allowing for both in that number.

Executive
William B. Kessel

No, we have had three consecutive years