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Independent Bank Corp Michigan  (NASDAQ:IBCP)
Q4 2018 Earnings Conference Call
Jan. 29, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning and welcome to the Independent Bank Corporation's Fourth Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Brad Kessel, President and CEO. Please go ahead, sir.

William B. Kessel -- President and Chief Executive Officer

Good morning. Thank you for joining Independent Bank Corporation's conference call and webcast to discuss the Company's 2018 fourth quarter and full-year results. I am Brad Kessel, President and Chief Executive Officer, and joining me is Rob Shuster, Executive Vice President and Chief Financial Officer.

Before we begin today's call, it is my responsibility to direct you to important information on page two regarding the cautionary note for forward-looking statements. If anyone does not already have a copy of the press release issued by Independent today, you can access it at the Company's website www.independentbank.com.

The agenda for today's call will include prepared remarks, followed by a question-and-answer session, and then closing remarks. To follow along, I will begin with slide five of our presentation.

I am very pleased with our Company's fourth quarter and full-year 2018 results. We continue to execute on our operating plan delivering strong growth in core earnings, growth in our core funding, and growth in loans, while maintaining excellent asset quality and effectively managing our capital. We are reporting fourth quarter 2018 net income of $9.9 million, or $0.41 per diluted share versus net income of $1.7 million, or $0.08 per diluted share in the prior year period.

This quarter's results include a decrease in the fair value due to price of our capitalized mortgage loan servicing rights of $2.4 million, or $0.08 per diluted share. The increase in fourth quarter earnings as compared to 2017 reflects a $7.4 million increase in net interest income and a $7.3 million decrease in income tax expense that were partially offset by a $2.5 million decrease in non-interest income, a $200,000 increase in the provision for loan losses, and a $3.7 million increase in our non-interest expense.

For the fourth quarter of 2018, our return on average assets and return on average equity were 1.2% and 11.4%, respectively. When excluding the after-tax impact of the negative fair value change due to price, these ratios improved to 1.4% for ROA and 13.6% for ROE, respectively.

During the fourth quarter we grew portfolio loans by $19.9 million, or 3% annualized. This represents the 19th consecutive quarter of loan growth. This 3% loan growth is net of $41.5 million of mortgage loans we transferred to loans held for sale. This transaction aligns well with our ongoing efforts to manage our interest rate risk and liquidity profile, as well as to maintain a diversified loan mix, not to mention, taking advantage of lower market interest rates at the end of 2018.

On the funding side, during the fourth quarter, total deposits were up $115 million, or 16.3% annualized. Excluding brokered deposits, the growth rate was 7.9% annualized. Some of our recent deposit-gathering success has been a function of the automation of our DDA sweep product. Previously, these funds moved off balance sheet into interest-bearing money market funds with a third party. Today for these same customers we can offer competitive rates along with FDIC insurance and maintain the funds and balance sheet.

As it relates to capital, the company paid a $0.15 per share dividend on November 15, 2018. Also during the fourth quarter of 2018, the Company repurchased 587,969 shares of our stock at an average price of $21.57 per share.

Turning to slide six in our presentation, for the year ended December 31, 2018, the Company reported net income of $39.8 million, or $1.68 per diluted share. This compares to net income of $20.5 million, or $0.95 per diluted share in 2017. This represents an increase of $19.4 million, or 95% in net income and $0.73 or 77% increase in diluted earnings per share.

Our return on average assets and return on average equity for the year ended December 31, 2018 improved to 1.27% and 12.38%, respectively. The favorable impact of the Traverse City State Bank acquisition combined with strong loan origination activity led to meaningful loan growth and increased net interest income. Net income and diluted earnings per share have increased significantly in 2018 as we have gained greater operating leverage and efficiency as well as benefiting from a reduced corporate income tax rate. We are optimistic about our future and recently announced a 20% increase in our quarterly common stock cash dividend to $0.18 per share to be paid on February 15, 2019.

Slide seven of our presentation provides a good view of our footprint. Turning to slide eight, Michigan business conditions continue to be favorable with lower unemployment, good job growth, affordable housing, and continued good demand for commercial real estate. The December 2018 Michigan unemployment rate at 4% is lower than one year ago or 4.7% and 0.1% above the US unemployment rate of 3.9%. Regionally, Grand Rapids unemployment is at 2.5%, Lansing is at 3.1%, and Detroit-Livernois-Dearborn is at 4.2%. Michigan's workforce is 4.463 million strong and overall employment is up slightly from one year ago.

In regards to housing, the Michigan real estate market can be characterized as affordable with a continued shortage of inventory. The average sales price of a home in Michigan is $184,000 and Michigan's year-over-year average sales price is up 8.6%.

The continuation of the positive economic trends can be seen in our regional portfolios shown on page nine. Our two strongest growth regions are the Grand Rapids region up $98 million in loan balances, in south our Southeast Michigan region up $90 million in loan balances. Our Traverse City team has produced solid growth, 5% annualized since the acquisition. We have also seen very good year-over-year deposit growth in most of our regions.

The next couple of slides cover our balance sheet. Turning to page 10, we provide a couple of charts reflecting the attractive composition of our deposit base as well as the continued growth in this portfolio in six of the last eight quarters while working to effectively manage our overall cost of funds. Independent has $2.9 billion in total deposits, of which 75% are non-maturity deposit accounts. When comparing fourth quarter 2018 to the same quarter one year ago, we increased total deposits by $130 million, or 5.8%. This excludes brokered deposits and $254 million of non-brokered deposits acquired in the TCSB merger.

Our total cost of deposits is up 12 basis points on a linked quarter basis and is up 35 basis points when comparing to the same quarter one year ago. Our cumulative deposit cost beta for the period of quarter one 2017 to quarter four 2018 is 28.3%. And our cumulative deposit cost beta over last four quarters is 34.3%.

Similar charts are also reflected on page 11, but in this case, we are displaying the balanced mix of our loan portfolios. We continue to target a diversified loan mix with the largest portfolio being our commercial book of business. At December 31, our loan mix included 43% commercial, 39% mortgage, 15% installment, and 3% held for sale.

Total loans outstanding now aggregate to $2.67 billion. The commercial portfolio, our largest book of business, grew by $32.4 million or 11.6% annualized during the quarter. Consumer installment loans were up slightly for the quarter and portfolio mortgage loans declined by $13.6 million as a result of the reclassification of $41.5 million of portfolio mortgage loans to held for sale. In terms of capital management, our capital levels continue to be strong with tangible common equity moving from 9.51% at December 31, 2018, to 9.17% at December 31, 2018. This is well within our targeted TCE range of 8.5% to 9.5%.

On January 21st, the Board of Directors increased the cash dividend by 20% and declaring a quarterly cash dividend on common stock of $0.18 per share payable on February 15, 2019. Our Board of Directors approved a 2019 share repurchase plan for up to 5% of outstanding common shares. Through the 25th -- through January 25th under this new plan, 43,768 shares have been repurchased at an average price of $21.67 per share.

At this time, I would like to turn the presentation over to Rob Shuster to share a few comments on our financials, credit quality, a review of our final 2018 results versus our original outlook, and then management's initial outlook for 2019.

Robert N. Shuster -- EVP & Chief Financial Officer

Thanks, Brad, and good morning, everyone. I am starting at page 13 of our presentation. Brad discussed the increase in our net interest income during his remarks, so I will focus on our net interest margin. Our tax equivalent net interest margin was 3.93% during the fourth quarter of 2018, which is up 28 basis points from the year ago period and up 2 basis points from the third quarter of 2018. I will have some more detailed comments on this topic in a moment.

Average interest earning assets were $3.12 billion in the fourth quarter of '18 compared to $2.57 billion in the year ago quarter and $3.04 billion in the third quarter of 2018. The significant year-over-year increase reflects both the Traverse City State Bank merger and organic loan growth. Page 14 contains a more detailed analysis of the linked-quarter increase in net interest income. There is a lot of data on this slide, but to summarize a few key points; the linked-quarter net interest margin again increased by 2 basis points. This was primarily due to a $346,000 increase in net recoveries of interest on previously charged off or non-accrual loans.

Fourth quarter 2018 discount accretion of $423,000 on the TCSB-acquired loan portfolio was down $185,000 from the $608,000 we recorded in 3Q '18. This discount accretion increased the net interest margin by 5.4 basis points and 7.9 basis points in 4Q '18 and 3Q '18, respectively. We will comment more specifically on our outlook for net interest income for 2019 later in the presentation.

Page 15 compares our quarterly average cost of funds, which is annualized interest expense divided by average earning assets to (ph) the monthly average effective federal funds rate during the quarter and the spot federal funds rate during the quarter. You can see the relatively low cumulative beta of 8.6% for the first 81 basis points of movement in the effective federal funds rate from Q3 '15 to Q2 '17 and the increase in the cumulative beta to 30.7% for the next 127 basis points of movement in the effective federal funds rate from Q2 '17 to Q4 '18.

Moving on to page 16, non-interest income totaled $9 million in the fourth quarter of '18 as compared to $11.4 million in the year ago quarter and $11.8 million in the third quarter of 2018. Our mortgage banking operations, net gains on mortgage loans and mortgage loan servicing caused most of the quarterly comparative year-over-year and linked-quarter variability in non-interest income. We have a table in the text of our earnings release that breaks out mortgage loan servicing into its component parts; net revenue, fair value change due to price, and fair value change due to pay-downs.

Fair value change due to price, which we view as not being a part of core results, as Brad mentioned, was a negative $2.4 million or $0.078 per diluted share after tax in the fourth quarter of '18 compared to a positive $356,000 or $0.011 (ph) per diluted share in the fourth quarter of 2017. Net gains on mortgage loans declined on both the year-over-year and linked-quarter basis. Unique to the fourth quarter of 2018 is a $248,000 loss that we recorded on a pending sale of $41.5 million of portfolio mortgage loans. The sale is expected to settle by January 31, 2019. In addition, we have generally seen competitive pricing pressure throughout 2018 when compared to 2017 which has reduced profitability margins. The year-over-year increases in interchange income and interchange expense were primarily due to the implementation of ASU 2014-09 as described in the text of our earnings release.

As detailed on page 17, our non-interest expenses totaled $26.8 million in the fourth quarter of 2018 as compared to $23.1 million in the year ago quarter and $26.7 million in the third quarter of 2018. This year-over-year quarterly increase was primarily in compensation and benefits; occupancy; data processing; furniture, fixtures and equipment; communications; interchange expense as I mentioned earlier; advertising; and the amortization of intangible assets. Much of the increases reflect the impact of the TCSB merger. In addition, healthcare costs increased by nearly $450,000 on a quarterly year-over-year basis due to an increase in actual and estimated incurred but not reported claims. We have a self-insured health insurance plan with an individual stop loss limit. And unfortunately, we have had elevated claims in 2018 as compared to recent years.

Investment securities available for sale decreased by $9 million during the fourth quarter of 2018. Page 18 provides an overview of our investments at December 31, 2018. Approximately 29% of the portfolio was variable rate and much of the fixed rate portion of the portfolio is in maturities or average lives of five years or less. The estimated average duration of the portfolio is about 2.97 years with a weighted average tax equivalent yield of 3.11%, which is up 10 basis points from September 30.

Page 19 provides data on non-performing loans, other real estate, non-performing assets and early stage delinquencies. Total non-performing assets were $10.3 million or 0.31% of total assets at December 31, 2018. This was slightly lower than the September 30, 2018 level. At December 31, 2018, 30- to 89-day commercial loan delinquencies were just 0.03% and mortgage and consumer loan delinquencies were 0.29%.

Moving on to page 20, we recorded a provision for loan losses of $591,000 in the fourth quarter 2018 compared to an expense of $393,000 in the year ago quarter. We had modest loan net charge-offs of $104,000 in 4Q '18. The allowance for loan losses totaled $24.9 million, or 0.96% of portfolio loans and 1.06% of originated loans at December 31, 2018.

Page 21 provides some additional asset quality data, including information on new loan defaults and on classified assets. New loan defaults were $3.8 million in 4Q '18.

Page 22 provides information on our TDR portfolio that totaled $56 million at December 31, 2018, a decline of $3.3 million during the fourth quarter. This portfolio continues to perform very well with nearly 95% of these loans performing and 93.2% of these loans being current at December 31, 2018.

Page 23 is our final update for 2018 where we compare our actual performance during the year to the original outlook that we provided back in January 2018. Overall, we believe that our actual performance during 2018 was better than our original outlook. Various components of our 2018 performance are outlined on this slide.

Finally, page 24 is our initial outlook for 2019. We are projecting portfolio loan growth of approximately 8% to 9% for 2019. The moderation from 2018 actual portfolio loan growth is primarily in the mortgage loan category, due principally to a higher percentage of loans projected to be originated for sale. We are expecting non-brokered deposit balances to grow 3% to 4% in 2019. Any funding gap in earning asset growth is expected to be largely filled with brokered deposits. We expect 2019 net interest income to grow 10% to 11%, reflecting a full year with the TCSB merger and the aforementioned portfolio loan growth. Our forecast assumes 1.25 basis point increase in the target federal funds rate in June 2019 and a relatively stable net interest margin throughout the year.

Therefore, the projected increase in net interest income is principally due to earning asset growth. Credit is extremely difficult to project. However, we do expect asset quality metrics to generally be stable in 2019. Our provision level at about 20 basis points of average portfolio loans would not be unreasonable for 2019 modeling purposes.

Although mortgage banking related revenues could create quarterly volatility and the first quarter of every year is typically our slowest for non-interest income, we would generally expect a range of $11 million to $12 million per quarter in actual non-interest income in 2019. We are projecting non-interest expense of $27 million to $27.5 million per quarter in 2019. When factoring out merger-related expenses and gain on the sale of other real estate, the projected 2019 level of non-interest expenses is about 2% higher than 2018. Finally, we expect an effective income tax rate of about 20% in 2019.

That concludes my prepared remarks, and I would now like to turn the call back over to Brad.

William B. Kessel -- President and Chief Executive Officer

Thanks, Rob. 2018 was a very successful year for us as we had very good growth, both organically and in adding Traverse City State Bank associates and customer base. This growth enabled us to improve our operating leverage. We met or exceeded our company targets. Our updated return on asset and return on equity targets are 1.3% or better on ROA and 13% or better respectively -- on ROE, respectively.

We continue to pride ourselves on investing in our communities and providing exceptional customer service. Along those lines, this past year we were very pleased to be named one of the Best-In-State Banks by Forbes Magazine coming in as the best bank headquartered in Michigan.

In wrapping up our prepared remarks, we have listed our strategic initiatives on slide 25 of the presentation. We have four focus -- four areas of focus. The first area is growth, principally through organic means, leveraging our sales associates, as well as attracting new sales associates to our team. Organic growth can be supplemented with selective and opportunistic bank acquisitions and branch acquisitions.

Our second area of focus is in process improvement and cost controls. We have identified an initial dozen technology/digital banking projects that will advance our digital offering, reduce costs, and assist us in better leveraging technology, so as to make it easier to bank with us and easier for our associates to service to our customers.

Our third area of focus is in talent management. Over the last several years, we have made a number of changes to recruit, retain, and develop the best team in the marketplace. We will continue to advance this area of focus. Finally, effective risk management is critical to delivering sustained high performance for our shareholders.

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

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question will come from Brendan Nosal of Sandler O'Neill & Partners.

Brendan Jeffrey Nosal -- Sandler O'Neill & Partners LP -- Analyst

Hey. Good morning, guys. How are you?

William B. Kessel -- President and Chief Executive Officer

Very good, Brendan. Thank you.

Brendan Jeffrey Nosal -- Sandler O'Neill & Partners LP -- Analyst

Good. Just starting off here on the net interest margin outlook. If you back out the accretion income, it looks like the core margin was around 3.88% for the quarter. I know that your outlook for the coming year assumes one more mid-year rate hike, but could you just walk through your expectations for the core NIM as we move through 2019 if the Fed doesn't hike rates any further?

Robert N. Shuster -- EVP & Chief Financial Officer

If the Fed doesn't hike rates any further, it's roughly about a $300,000 and change impact reduction in the margins. So that's what that mid-year 25 basis point change in our forecast results in terms of dollars. So it wouldn't have a material impact on either the margin or net interest income.

Brendan Jeffrey Nosal -- Sandler O'Neill & Partners LP -- Analyst

Got it. Okay, that's helpful. And then moving over to the outlook for gain on sale revenues. It seems that the outlook is for in-line (ph) year versus 2018 which assumes some pickup in the margins. Can you just walk through your expectations for gain on sale margins to improve? Is it just excess capacity coming out of the industry or are you seeing something else?

Robert N. Shuster -- EVP & Chief Financial Officer

I would say we're seeing a little bit more rational pricing here as we've moved into 2019. So I'm I guess guardedly optimistic that margins are going to be -- though it's going to be primarily a purchase market and we don't expect a significant refinance volume, I'm guardedly optimistic that margins are going to be a bit better. It was -- I would say '18 was a bit of a transitional year and so you saw a little bit more I think pricing competition. But we feel that '19 is going to be a little bit better than where we were in '18.

Brendan Jeffrey Nosal -- Sandler O'Neill & Partners LP -- Analyst

Got it, OK. And then last one for me and then I'll step back. Yesterday there was obviously a sizable MOE announced in the State of Michigan yesterday. Any early thoughts on what opportunities could arise for you guys out of such a large combination in your markets, if any?

William B. Kessel -- President and Chief Executive Officer

Sure, Brendan. Well, today Chemical Bank would be one of our largest competitors. If you were too draw a one-mile radius around our branch locations, our 68 locations, we actually cross paths with them about 25 -- in 25 markets. And so they're a significant competitor and what we've experienced in prior significant mergers in our markets, going back the last couple years, it does create quite a bit of disruption and opportunities for the other banks in the marketplace, including ourselves, both from the customer acquisition side as well as potential talent acquisition side. So I think there is an opportunity and time will tell to see how it all plays out.

Brendan Jeffrey Nosal -- Sandler O'Neill & Partners LP -- Analyst

All right, fantastic. Thanks for taking my questions.

William B. Kessel -- President and Chief Executive Officer

Thank you.

Operator

The next question comes from Kevin Reevey of D.A. Davidson.

Kevin K. Reevey -- D.A. Davidson & Co. -- Analyst

Good morning.

William B. Kessel -- President and Chief Executive Officer

Morning, Kevin.

Kevin K. Reevey -- D.A. Davidson & Co. -- Analyst

First question, I was wondering if you could give us some more color on how your various deposit growth initiatives are coming along. I know you've got treasury management services as a focus. You talked a little bit earlier about digital and your retail and checking. I was looking for a little more color here.

William B. Kessel -- President and Chief Executive Officer

Sure, Kevin. So I'm very pleased with the job that our team has done this past year in growing the core deposit base. We've had very nice growth. It's been a team effort. This side of the balance sheet is not a new focus. It's been a year-after-year focus for us. And in fact, you'll see in our annual proxy statement we list our annual corporate goals for the company and deposit growth has and will continue to be a category for our company and a goal -- and company goals.

You know, it's always been a focus of getting the checking account whether it be at the consumer level or the commercial level and if I look at the -- on the commercial side first, we've had some very excellent new relationships brought into the bank this past year, and I'm very pleased to see that with that we've been successful in bringing in their core checking accounts.

And then alongside with that, we've done a nice job then going out and working with the owner on his or her personal checking and the employee base in capturing success there. In fact, recently one of our offices here in West Michigan for a new commercial customer was successful in opening up about 30 new health savings accounts.

And so it's that type of just teamwork and basic blocking and tackling along with we've been very successful on the -- in the mortgage origination front in seeking to capture the personal checking account in that situation when or where possible and I'm very pleased with the penetration level that we've had there.

And then finally, our treasury management team, and as I outlined in our prepared remarks, has continued to knock on doors of the public funds sector and large commercial sector and has had a lot of success, particularly with this reciprocal DDA account where previously we were sweeping these funds off balance sheet into a third party account, and now we're able to sweep those actually but keep them on balance sheet and pay a very competitive interest rate, albeit still lower than what we would have to pay in -- at a wholesale level. And then at the same time, provide some FDIC insurance along with it. So those are a handful of what's worked well for us. And Rob, I don't know if I left anything out there.

Robert N. Shuster -- EVP & Chief Financial Officer

No, I think that covers it.

Kevin K. Reevey -- D.A. Davidson & Co. -- Analyst

And then earlier you talked about the low unemployment rates, particularly in Grand Rapids and Lansing, and while that's good, it can be -- always be a double-edged sword. Are your business customers feeling any negative repercussions as a result of such a low unemployment rate in those two markets?

William B. Kessel -- President and Chief Executive Officer

That's a great question and I think that -- a couple of thoughts, one is a lot of business growth today can in fact take place with investment in technology. And so fewer workers are needed, and so they are able to grow their businesses with technology.

The other thing is, I've been impressed with the resiliency and the innovativeness in terms of, OK, we will hire workers and we're going to train you. So they're just having programs, they're investing in their employees, and they're getting it done. So while it probably has somewhat held back some growth, I think the markets are dealing with it and moving forward.

Kevin K. Reevey -- D.A. Davidson & Co. -- Analyst

And then lastly, since we're on the subject of hiring, you talked about in your prepared remarks hiring sales associates to help drive your business growth. What's the competitive market like for sales associates and what are you guys doing to attract as well as retrain talent in that area?

William B. Kessel -- President and Chief Executive Officer

Sure. Great question. And over the last several years, we've been very successful in adding new talent to our team, and I go back to 2016 where we really bulked up on our mortgage origination efforts and added over 15 -- I'm sorry, 50 associates on the mortgage side. And then this past year, we've been successful in adding on the commercial side.

And I think it starts with on the recruiting side, it's an ongoing effort. It's not you pick it up and put it down, pick it up, put it down. It just needs to be ongoing, and we work real hard in our culture at Independent Bank to create a favorable work culture and a culture of accountability, and a culture of being focused on the customer, a culture of teamwork. And as you bring people in from the outside to that culture and then they share what they're seeing and actually how positive is -- it is that word gets out in the marketplace.

So that's been a large part of it. I'd say also with the low unemployment, we have had to increase wages, wages at the hourly level in 2018. We also have for the first time instituted an annual incentive bonus for our hourly employees. So that was looked upon favorably. And so -- and then finally, there's some terrific technology that over the last year and this coming year that we have put in place to make the experience for our -- first of all, the recruiting experience a very efficient process, but then also the on-boarding process to make that a very positive experience for new hires. And so all those efforts combined I think are helping us to be successful in the talent wars.

Kevin K. Reevey -- D.A. Davidson & Co. -- Analyst

Appreciate the color. Thanks for taking my questions.

William B. Kessel -- President and Chief Executive Officer

Thanks, Kevin.

Operator

Next we have a question from Damon DelMonte of KBW.

Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst

Hey. Good morning, guys. How's it going today?

Robert N. Shuster -- EVP & Chief Financial Officer

Good, Damon. How are you?

Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst

Doing well. Thanks. Just a quick follow-up on the loan growth. Could you just talk a little bit more about the drivers of your expected loan growth in the commercial channels and kind of geographically where in the footprint you think you have the best opportunity for growth?

William B. Kessel -- President and Chief Executive Officer

Yes, sure. I'll take first shot at that end. And as you've seen quarter-over-quarter and here now our 19 consecutive quarters of loan growth, it's been pretty balanced, I'd say this past year, we were real strong in mortgage portfolio growth, although we've seen that sort of taper back here and somewhat intentionally here the tail end of the year. But we think the -- we've got very solid pipelines today in the commercial side. I like where the pipeline stands today versus at the end of the third quarter and also where it stands today versus one year ago at this time.

So we think that Southeast Michigan will continue to be a strong market for us as well the West Michigan market, and we think we're also hearing very positive things, albeit as we get into the December-January time-frame, the indirect originations for us somewhat slow down as does the mortgage side. So we'll see a little softness year-over-year end but that should pick up near the end of the first quarter, and we should get some momentum end of the second quarter.

So, Rob, anything to add there?

Robert N. Shuster -- EVP & Chief Financial Officer

No, I think you covered it. I think that growth is going to be as broad based. And the reason, as I mentioned in my comments, we actually grew 13% plus in '18, and the reason for the outlook being more in the 8% to 9% range is largely because of the mortgage side and the originations being -- a higher percentage of them being held for sale. The rest of it with commercial and consumer I think is just going to be sort of more of what we've been doing, although I think on the commercial side, as Brad said, we look at the pipelines and feel like we're well set up to have a good year in 2019. And on the consumer side, we continue to have a very strong offering in the RV (ph) marine power sport arena, and we think that market will be solid again in 2019.

Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst

Okay, that's great. I appreciate the color on that. And then I guess just kind of a broader-based question. What are your thoughts on M&A at this point now that you have the -- you have a deal completed and pretty much integrated? Do you guys have an appetite to do more transactions?

William B. Kessel -- President and Chief Executive Officer

Rob.

Robert N. Shuster -- EVP & Chief Financial Officer

I would say our primary focus is on organic growth. I think the M&A side of things is somewhat opportunistic. You have to have a buyer and a seller, and you have to have some alignment of pricing expectations, and you have to have alignment of culture and strategy, et cetera. So we never build our models and our forecasts assuming there is going to be that type of opportunity. I mean, having said that, I think we would -- we would be open to looking at different things. But I think our primary focus is to continue to gain operating leverage through growth in earning assets. It's sort of a simple formula, but we think it's very effective when you combine that with share repurchases and a strong dividend, and it does create we think solid returns for the shareholders (inaudible).

Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst

Got it. Okay.

William B. Kessel -- President and Chief Executive Officer

Very good, Rob.

Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst

All right. all my other questions have been asked and answered. So thank you very much.

Robert N. Shuster -- EVP & Chief Financial Officer

Thank you.

Operator

And the next question comes from John Rodis of FIG Partners.

John Lawrence Rodis -- FIG Partners LLC -- Analyst

Good morning, guys.

William B. Kessel -- President and Chief Executive Officer

Morning, John,.

John Lawrence Rodis -- FIG Partners LLC -- Analyst

Rob, just on the -- I think on the -- Rob or Brad, I think you said on the share buyback, I think you said you bought 44,000 shares so far in January. How should we sort of think about buyback activity going forward given the stock has rebounded some? Is it more opportunistic going forward or do you expect to be more active?

Robert N. Shuster -- EVP & Chief Financial Officer

I think it's probably more opportunistic. I think we feel -- I mean we have a model we run that works off of a tangible book dilution earn-back time-frame, and probably the most sensitive input to that is projected earnings in the future. And so we just feel like, hey, if there's opportunities out there at certain prices, and you could see kind of where we bought at with what we've done to date, I'm not saying that's a complete reflection of the kind of levels, but we certainly view at those levels that it meets our economic criteria, and it's certainly accretive to earnings-per-share growth. So I think we'll just sort of maybe not have quite the velocity we had in the fourth quarter, and it will be more somewhat dependent kind of what happens in the marketplace. Brad, I don't know if you wanted to add anything?

William B. Kessel -- President and Chief Executive Officer

I agree.

John Lawrence Rodis -- FIG Partners LLC -- Analyst

No, that makes sense. Thanks, Rob. And then one other question, Rob, just on the balance sheet, the securities portfolio. Should we still expect some sort of continued run-off there like we saw in the fourth quarter?

Robert N. Shuster -- EVP & Chief Financial Officer

Yeah, there was about $9 million of run-off. We're kind of -- we kind of feel just for liquidity purposes, we have that retained investments at a certain level. So I mean there may be a bit of run-off, but I don't think it will be significant. I think we'll try to maintain a level at $400 million or so. And again, that's more out of liquidity management than anything else.

John Lawrence Rodis -- FIG Partners LLC -- Analyst

Okay. Makes sense. Thanks, guys.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Brad Kessel for any closing remarks.

William B. Kessel -- President and Chief Executive Officer

We would like to thank each of you for your interest in Independent Bank Corporation and for joining us on today's call. We wish everybody a great day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 49 minutes

Call participants:

William B. Kessel -- President and Chief Executive Officer

Robert N. Shuster -- EVP & Chief Financial Officer

Brendan Jeffrey Nosal -- Sandler O'Neill & Partners LP -- Analyst

Kevin K. Reevey -- D.A. Davidson & Co. -- Analyst

Damon DelMonte -- Keefe Bruyette & Woods Inc. -- Analyst

John Lawrence Rodis -- FIG Partners LLC -- Analyst

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