Independent Bank Corporation (IBCP) Earnings Call Transcript & Summary

Good afternoon. Welcome to the Independent Bank Corporation 2020 Annual Meeting of Shareholders. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mike Magee. Please go ahead.

Thank you. Good afternoon, and welcome to Independent Bank Corporation's 2020 Annual Meeting of Shareholders. Before we start, I would like to direct everyone's attention to our comments regarding forward-looking statements on Slide 2. I am Mike Magee, Chairman of the Board of Directors of Independent Bank Corporation. It is now shortly after 3:00 p.m. Eastern Time, and this meeting is officially called to order. I'd like to start with a short notice regarding this meeting. Given the challenging environment created by COVID-19 and in light of the executive order by Governor, Gretchen Whitmer, restricting gatherings here in the State of Michigan, we are pleased that you have chosen to join us on this conference call. As a reminder, voting instructions remain as described in the proxy materials previously distributed, except that we do not have the capability to accept votes in person due to this prohibition. However, shareholders still had the option to vote by Internet, by phone or by mail. I would like to turn now to reviewing our agenda for today's meeting as summarized on Slide 3. We will start with the business portion of today's meeting. During which our shareholders will vote upon the matters listed in our previously distributed proxy materials. At the conclusion of that portion of the meeting, Brad Kessel, the company's President and Chief Executive Officer, will review our results of operations for 2019. We will then have a brief question-and-answer session, followed by a report on the results of the voting, and then finally, adjourn the meeting. Slides 4 and 5 introduce our company's directors and Slide 6 introduces our executive management team. I am pleased that they could join me on today's call and want to thank each of them for their service. I would also like to recognize and thank Terry Haske for his many years of service to our organization. Terry retired from our Board in December of 2019. As summarized on Slide 7, Steve Erickson will act as the Secretary of this meeting. In Mr. Erickson's possession is a certified list of shareholders as of February 21, 2020, the record date of this meeting. This list, along with an affidavit of the mailing of notice of the meeting and the accounting proxy materials and annual report are available for inspection by any interested shareholder. The notice of the meeting, proxy and annual report were made available to all shareholders entitled to vote at this meeting on or about March 9, 2020. The Secretary has informed me that our records show that the company had 22,416,412 shares of its common stock outstanding on the record date, which are entitled to notice of and to vote at the meeting. The Secretary has previously delivered a list of our shareholders in all proxies that have been received by the company. The Secretary has also informed me that more than a majority of the company's outstanding shares of common stock entitled to vote at this meeting are present by proxy. Accordingly, a quorum is declared present, and we will proceed to take action on the matters submitted to our shareholders at this meeting. As outlined on Slide 8, Proposal 1 is the election of directors, Terance Beia, Stephen Gulis and William Kessel are the nominees standing for election to 3-year terms ending in 2023. Slide 9 provides information on Proposal 2. The Audit Committee has selected Crowe LLP as the independent auditors for Independent Bank Corporation for the year ending December 31, 2020. At today's meeting, we are asking our shareholders to ratify that selection. Slide 10 outlines Proposal 3. The Board has solicited a nonbinding advisory vote from our shareholders to approve the compensation of our executives as described in our proxy materials. Slide 11 outlines Proposal #4. The Board has solicited a nonbinding advisory vote from our shareholders on how often we include the advisory vote on executive compensation in our proxy materials. At this point, we would normally announce that the polls are open and those shareholders that intended to vote in person would be able to do so. However, in the current environment, we have been forced to forgo that option. Stockholders who have sent in proxies or voted via telephone or the Internet, do not need to take any further action. Since formal written ballots have been signed on behalf of all shares voted by proxy, I declare that the polls for the Independent Bank Corporation 2020 Annual Shareholders Meeting are now closed. We will report on the results of the voting at the end of the meeting. I would now like to turn this meeting over to Brad Kessel, the President and CEO of Independent Bank Corporation, for a brief presentation. Brad?

It is my pleasure to be here today and represent the dedicated staff of Independent Bank. I echo Mike's earlier comment and welcome each of you to Independent Bank Corporation's 2020 Annual Shareholders Meeting. As we begin this business update, I would like to take a moment to recognize that the COVID-19 pandemic has brought significant hardship to many of our customers and communities, impacting both lives and livelihoods. Our thoughts are with those who have been directly impacted, and we extend our appreciation to those who have aided them. When it became apparent that COVID-19 could pose a threat to our people and business, we activated our business continuity plan and crisis communication team. Beginning with Slide 13 of our presentation, we have listed some of the key actions taken by our team, including preventative health measures and policies to protect our employees and customers; initiatives to ensure uninterrupted service to our customers as well as assistance to our customers experiencing hardship. Our BCP team continues to regularly meet and plan as we all transition from the current stay home, stay safe executive orders and restart our local, regional and national economies. While at this time, it seems so long ago, I would like to take a few minutes and comment on our 2019 highlights, several of which are shown on Slide 14. As a community bank at the center of all our strategies is a focus on serving our customers and investing in our markets and in our people. During 2019, we committed over $1.7 billion in financing in our markets. We invested nearly $750,000 in sponsorships and donations, and our associates volunteered nearly 20,000 hours of time. Our customer base is growing as is our brand. During 2019, we were recognized by Forbes for the second consecutive year as having the highest customer satisfaction for banks in Michigan. Slide 15 displays our return on equity and return on assets, which, we believe, to be 2 of the most significant drivers of total shareholder return. For all of 2019, we generated a return on average assets of 1.35% and a return on average common equity of 13.6%, respectively. Also on Slide 15 is a graph that compares the total shareholder return assuming reinvestment of dividends of Independent Bank Corporation common stock, the dark blue line, and the SNL U.S. Bank Nasdaq Stock Index, the green line, over the last 5 years. A similar performance graph is also included in our IBC 2019 annual report. Slide 16 shows our 5-year track record for consistent growth and profitability, including compounded annual growth rates of 23.5% for diluted earnings per share and 29% on dividends paid per share, respectively. For the year ended December 31, 2019, the company reported net income of $46.4 million or $2 per diluted share, compared to net income of $39.8 million or $1.68 per diluted share in 2018. This represents increases of $6.6 million or 16.6% and $0.32 or 19% in net income and diluted earnings per share, respectively. Over the same period, our tangible book value per share increased by 9.1% to $14.08 per share from $12.90 per share at the end of 2018. Slide 17 represents some additional full year financial highlights. Also as reflected in our balance sheet, our fundamentals continue to be strong. Loans, excluding loans held for sale, totaled $2.73 billion at December 31, 2019, an increase of 6% from $2.58 billion at December 31, 2018. On the funding side, deposits totaled $3.04 billion at December 31, 2019, compared to $2.91 billion at December 31, 2018. The $123.3 million increase in deposits during 2019 reflects growth, primarily in our reciprocal deposit base. Our capital levels continue to be strong, which supports our growth initiatives and provides us with flexibility to address changes in market and business conditions. Common shareholders' equity increased to $350.2 million at December 31, 2019, from $339 million at December 31, 2018, due primarily to net income that was partially offset by share repurchases and dividends. Turning to Slide 18. Today's marketplace is one of rapid change with innovations and new technology. This creates opportunities to improve customer experience and become more efficient. On the regulatory front, we continue to invest in additional resources, both in people and in technology, to meet the ever-changing requirements and expectations of the banking industry. We believe there continues to be a place for larger community banks like Independent Bank with scale, a deeper understanding of our local markets and the ability to serve individuals and businesses in the community with relationship banking. Yet as banks work to avoid net interest margin compression, cover more normalized loan loss provisions and meet the industry's high regulatory expectations to compete, we also need -- we also see a need to continue to invest in new technology and expand our product offering. Turning to Slide 19. Our vision for 2020 and beyond is that of blending people with technology. At Independent Bank, we know that our customers want to be independent with personalized, convenient and safe financial solutions from someone they can trust. As we look to 2020 and beyond, the key to our success is our ability to continue to execute on our operating plan, which is built around relationship banking. Prospectively, our operating plan continues to have 4 primary objectives: the first objective of our operating plan is organic growth; our second objective is continuing to increase productivity, while continuously improving the customer experience. A few of the more recent enhancements include person-to-person payments via Zelle and online chat service, personal financial management tools within our mobile app that include expense categorization, budgeting and account aggregation and electronic signatures within our branch channels; our third objective is a strong ongoing enterprise-wide risk management framework for credit risk, market risk, operating risk and legal and regulatory risks; our fourth objective is to continue to attract, retain and develop our service team. We recognize the path to our organization's success is through the success of each and every one of our team members. In closing, as Mike Magee mentioned, I would like to acknowledge and thank Terry Haske, as a member of the Independent Bank Corporation Board from March of 1996 through December of 2019, and Chairman of the IBC Board from 2002 to 2004. Terry was a CPA and retired Principal with Anderson, Tucky, Bernhardt & Doran. Terry's contributions were many, and he will be missed. Finally, I would like to acknowledge the commitment and ongoing effort of your Board of Directors, our bank officers and all our bank associates. Their dedication and service is exemplary and each is truly making a positive difference in the lives of our customers, our shareholders and the communities we serve. At this point in the meeting, we would like to pause and open up the meeting for any questions.

[Operator Instructions] At this time, we have no questions. So this concludes our session of question and answer. I would now like to turn the conference back over to Brad Kessel.

Thank you. And now I would like to turn the meeting back over to Chairman, Magee.

Thank you, Brad. Is the Secretary ready to report on the voting results?

Yes, I am, Mr. Chairman. The final tabulation is as follows: 20,034,640 shares are represented by proxy, which constitute 89.3% of the common shares entitled to vote at this meeting. With respect to the election of directors, I would like to report that no nominee received fewer than 17,255,779 votes for and all the nominees were reelected. With respect to the other proposals, I would like to report that each of those proposals received the requisite votes for approval and the advisory vote on the frequency of the shareholder advisory vote on executive compensation recommended that the votes occur each year. That is all, Mr. Chairman, back to you.

Thank you, Steve. A formal report of the Secretary will be filed with the minutes of the meeting and the specific voting results will be reported in a filing with the Securities and Exchange Commission. This concludes our business for today, and the meeting is now adjourned. I'd like to thank everyone for attending. Be safe and take care.

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