Independent Bank Corporation (IBCP) Earnings Call Transcript & Summary

Good afternoon and welcome to Independent Bank Corporation's 2021 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. In accordance with the Michigan Department of Health and Human Services guidance on in-person meetings and to provide greater access to our shareholders, we will be conducting the 2021 Annual Shareholders' Meeting virtually. We are pleased you have chosen to join us for this event. As a reminder, voting instructions remain as described in the proxy materials previously distributed. Shareholders had the option to vote by Internet, by phone or by mail. Although we will not be able to accept votes in person, you can vote electronically during the meeting by following the instructions in the proxy materials. I will now formally open the polls for voting at this time and will formally close the polls at the conclusion of my presentation. Stockholders who have sent in proxies or voted via telephone or the Internet do not need to take any further action. I would like to now review the 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 CEO, will review our results of operations for 2020. We will then have a brief question-and-answer session, followed by a report on the results of the voting and finally adjourn the meeting. Shareholders can ask questions at any time during the meeting by utilizing the Q&A box located on the right side of your screen. Slide 4 introduces our company's directors, and Slide 5 introduces our executive team. I am pleased that they could join us during today's meeting and want to thank each of them for their service. I would also like to welcome Dennis Archer, Jr. to our Board. Dennis was appointed to the Board in October of 2020, and we look forward to his continued contributions. As summarized on Slide 6, Gavin Mohr will act as the Secretary of this meeting. In Mr. Mohr's possession is a certified list of shareholders as of February 19, 2021, the record date of this meeting. The list along with an affidavit of the mailing of notice of the meeting and the accompanying proxy materials and annual report are available for inspection by any interested shareholder. The notice of the meeting, proxy materials and annual report were made available to all shareholders entitled to vote at this meeting on or about March 8, 2021. The Secretary has informed me that our records show that the company had 21,891,206 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 and all proxies that have been received by the company. The Secretary has also informed me that more than the 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 7, proposal #1 is the election of directors. Christina Keller, Ronia Kruse, Michael Magee and Matthew Missad are the nominees standing for election to 3-year terms ending in 2024. Slide 8 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, 2021. At today's meeting, we are asking our shareholders to ratify that selection. Slide 9 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 10 outlines proposal #4. The Board has solicited a vote from our shareholders to approve the Independent Bank Corporation 2021 long-term incentive plan. Since formal written ballots have been signed on behalf of all shares voting by proxy, I declare that the polls for the Independent Bank Corporation 2021 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?

Thanks, Mike. 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 2021 Annual Shareholders' Meeting. The COVID-19 pandemic officially began in late 2019, but it was really early March of 2020 when the first cases were reported in our markets and we began to feel the effects of the virus. Immediately, we enacted our business continuity plan to help prevent the spread of the virus, taking action to protect the health and well-being of our customers and our associates. This resulted in the development of the IB safe work playbook and the rapid deployment of nearly all of our non-branch associates to remote work status or work from home. During 2020, service to our customers went uninterrupted, although we did modify our branches to drive-through service with lobby by appointment only for 2 extended periods of time. Over the course of the year, we offered loan payment relief, where needed, to our customers; we provided small business administration or Payroll Protection Program loans to businesses in our markets; we followed the government-sponsored entities' directives for moratoriums and foreclosures; and we processed a record volume of mortgage loan requests for new home purchases and refinances for our associates listening to their needs and concerns has been critical. In doing so, we have worked hard to have consistent, frequent and open communication, we have paid service bonuses to our frontline associates, we have made adjustments to paid time-off policies, and we have implemented extensive health and safety protocols throughout our facilities. As the vaccination process continues throughout our markets, we are hopeful for a return to normal in the very near future. In the interim, we will continue to adjust as appropriate to the changing circumstances always with the intent to protect the health and well-being of our customers, our associates and our communities. Independent Bank is currently the third largest bank headquartered in the state of Michigan. We operate 62 bank branches in Michigan's Lower Peninsula; as well as 7 loan production offices in Akron, Ohio; Ann Arbor, Michigan, Brighton, Cadillac; Columbus, Ohio; Dearborn, Michigan, Kalamazoo, Saginaw and Troy. Established in 1864, we continue to work towards our mission of making a positive difference in the lives of those we serve, our customers, communities and shareholders as well as all our key stakeholders, including our associates and strategic partners. Over the last 2 years, we invested over $1.25 million in sponsorships and donations to organizations in our communities. Our associates were recognized by the American Bankers Association for volunteerism in 2020 through their outreach programs, mentoring and other partnerships. This includes the capstone initiative, our annual Making a Difference Day. Slide 14 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 2020, we generated a return on average assets of 1.43% and a return on average common equity of 15.68%, respectively. Slide 15 shows our 5-year track record for consistent growth and profitability, including compounded annual growth rates of 19.2% for diluted earnings per share and 18.7% on dividends paid per share, respectively. In 2020, we generated impressive growth in our earnings and earnings per share. For the year ended December 31, 2020, the company reported net income of $56.2 million or $2.53 per diluted share compared to net income of $46.4 million or $2 per diluted share in 2019. This represents increases of $9.8 million or 21% and $0.53 or 26% in net income and diluted earnings per share, respectively. Over the same period, our tangible book value per share increased by $2.25 or 16% to $16.33 per share. 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, 2020, an increase of 0.3% from December 31, 2019. On the funding side, deposits totaled $3.64 billion at December 31, 2020, compared to $3.04 billion at the end of 2019. The $600 million or 19.8% increase in total deposits during 2020 reflects growth in business, retail and municipal deposits. On the credit quality front, our loan portfolio continues to perform well with past due loans continuing near historic lows. 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 $389.5 million at December 31, 2020, from $350.1 million at the end of December 31, 2019, due primarily to net income that was partially offset by share repurchases and dividends. Our ratio of tangible common equity to tangible assets was 8.56% as of the end of 2020 compared to 8.96% at the end of 2019. During 2020, through a combination of dividends and share repurchases, we returned 62% of our 2020 earnings to our shareholders. As we look to 2021 and beyond, the key to our success is our ability to continue to execute on our operating plan, which is built around relationship banking. This plan has 4 major objectives: growing our client base, enhancing the client experience and improving productivity, sound risk management practices and filling a highly engaged and talented team to serve our clients. Over the years, we have been successful in the execution of this plan. The first objective of our operating plan is organic growth. We will continue to work to grow net interest income through balanced loan growth, disciplined risk-adjusted loan pricing and the active management of our funding costs. In addition, we intend to supplement our organic growth through selective and opportunistic bank and branch acquisitions with disciplined pricing. Our second objective is to increase productivity while continuously improving the client experience. For 8 consecutive years, we have continued to improve upon our efficiency ratio, currently at 59.2%. As I reported this time last year, we signed a new core data processing agreement with a new partner that will be converting -- and will be converting during the second quarter of 2021. The benefits of this change include moving to a modern core platform with flexible application processing interfaces, APIs. This will allow faster integration with new technology, real-time processing capabilities and better access to our data and decision management using our data. This investment includes ONE Wallet, our new mobile and online platform for consumer and business clients, providing them the ability to open new accounts and apply for loans online along with enhanced transfer, bill pay and self-service capabilities. In addition, ONE Wallet+ enables our clients to monitor all of their finances in one location as well as provides budgeting and spending analytical tools. This change will also serve as the foundation to create a unified customer experience through all channels, aka, the omnichannel, from the mobile channel, the electronic banking channel, our branch channel and back-office support, which we call The Hub. We achieved cost savings with the agreement itself and anticipate additional savings as the new enterprise solution is fully operational. Before leaving this topic, I would be remiss if I did not mention our continued leveraging of numerous cloud-based solutions throughout our organization as well as the investment in additional cybersecurity tools and a new customer relationship management solution planned for later in 2021. Our ongoing branch optimization efforts will further improve productivity. During 2020, based on changes in customer trends and market opportunities, we closed 8 locations and opened 1 new location, bringing our branch count to 62 locations as of the end of last year. Over the last 8 years, we have more than doubled the average deposits per branch to the current level of $59 million in deposits per branch. We are optimistic that our successful execution of all 4 major initiatives will enable us to materially improve our productivity and overall client experience. The third objective is a strong ongoing enterprise-wide risk management framework. This framework encompasses credit risk, market risk, operating risk and reputational and regulatory risk. 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. Over the last few years, we have benefited by adding to an already talented team new talented team members, often capitalizing on the market disruption caused by M&A activity. At the same time, we continue to execute on several key initiatives aimed at raising the engagement level of our workforce. We are passionate about our desire to ensure that our team members are empowered and supported in a way that will best position them to serve our customers. Finally, we believe that if we are committed to the well-being of our team members and recognize and reward their contributions, they will promote our success. In closing, 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. Your questions can be logged on the upper right-hand portion of the screen. Okay. There are no questions. I thank you, and I would now like to turn the meeting back over to Chairman Magee.

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

Yes. The tabulation is as follows: 19,357,651 shares are represented by proxy or in person, which constitute 88.42% 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 15,451,753 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.

Thank you, Gavin. 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 you on behalf of the Board of Directors for attending today's meeting and hope all of you -- and thank you for your support of Independent Bank Corporation. Goodbye.