IBCP - Earnings call transcript Q4 2020 | Independent Bank Corporation

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Operator

Good day, and welcome to the Independent Bank Corporation Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Brad Kessel, President and CEO. Please go ahead.

William Kessel

Good morning, and welcome to today's call. us discuss Bank and the XXXX joining and conference full for results. to webcast company's you for Corporation's Independent call year Thank fourth quarter me Chief Brad Officer; Financial Rahn, Commercial Officer, President am President, Joel Mohr, and Vice I and and Kessel, and joining Banking. is Executive Chief Gavin EVP Executive

serve. not important the begin X does of copy Page at closing some Page presentation COVID-XX have IndependentBank.com. our a today's remarks. like that will access for we the cautionary do by pandemic Today, Before our of by press Independent clients, If on serving of remotely. job our we employees, today, issued continue XX% regarding already I since an our continue outstanding we actions have statements. followed to vendor associates frontline direct of then presentation, to the staff call of of lists our specifically, information would call, you note customers, work and forward-looking taken to who release communities X the total the our a to as partners to the you today's question-and-answer include session start remarks, can approximately The it the the prepared website, and company's agenda the protect do anyone

and consistent over This We many plan management continue improvements this to talent an quarters is performance controls, and built plan we quarter. We diversified execute improving metrics plan around balanced will framework. each operating following enterprise-wide on process years. cost and our management share believe and growth, yield many that risk and

so in by financial the be our pandemic, individuals many $X.XX quarter the following: and Independent our we independent. to extraordinary shown are our did fourth income of Slide year to million versus share net staying in net I and for increases fourth or COVID-XX is period. and XXXX. are As proud the net diluted the full performance purpose, quarter that assisting earnings despite report am diluted XXXX. income we very income of million in to X share fourth to all $XX prior and challenges brought compared $XX.X job pleased on navigate per of year diluted This per highlights on XX.X%, challenges, XXXX or this on share past Bank circumstances year reported in XXXX businesses strong of the per the persevering The while $X.XX quarter of XX.X% represents associates the focused respectively, Corporation and and include continue

Our return on XXXX. average on assets to X.XX% and in average and equity X.XX% compared respectively, XX.X% and return were XX.X%,

the up Our mortgage mortgage on banking $XX.X to quarter. also for over team XXXX, on pleased $XX.X of total fourth of $XXX XXX% volume million million gains mortgage growth were or loans basis. We continued see generated of net net deposits million, a linked-quarter origination and in X.X%

and provides continue our efforts serve protect $X.XX a XX, Asset and of year. year low and quality X by share produce most during We nonperforming after performance to improving as snapshot stock safely and net our loans a our financial importantly, recoveries on performance to XXXX. a business historical employees. strong on the quarter, our customers dividend common assets. plan operating announced per the our effectively our of operate evidenced Page to level And we of loan November nonperforming continues presentation to be continuity of payment consistent good

compared partially $X of in fourth XXXX, ended December year were $XX.X year the earnings by net that and and company primarily $XX.X offset represent and tax results reflects diluted These quarter XXXX XXXX. increase income or income decrease reported of year XX, increases noninterest noninterest in compared earnings to respectively, to and million a share in expense. The as full and net share the an diluted full expense net income million per interest XXXX or share XX.X% increase to in compared of income the $X.XX XX.X%, XXXX. diluted in in income For income increases per per

were Our assets return XX.X% on average and XXXX. return on average compared and and in to equity XX.X%, respectively, X.XX% X.XX%

the Driving $X.X on XXX% our were million Additionally, mortgage moving and all growth we we XX.X% up improving total origination continue XX.X% the for Also to This in our were efficiency $XXX had XXXX of for of year, deposit net over past XXXX strong gains net able XX.X%. to loans billion. XXXX. of $XX.X mortgage of for annual year million, volume year, versus or these trend results of ratio.

several Finally, literal shutdown loan economy and deposit reflecting I metrics second year-end. statistics, of tangible $XX.XX X increased of key to our equity by from share On markets. we to our the good common X, per $XX.XX Page economic quarter a am report the XX% pleased our the snapshot display XXXX. during provides prior of Michigan Page Michigan for

employment. However, in noticeable seen statewide since we then, improvement have

Department and has protocols the monitoring stabilization over the declines for Services Michigan relaxing Health the improvements to or see several of continues past Michigan Human these metrics, reopening allowed metrics COVID-XX of and X of activities. On front, for in months. which closely had additional been

of on eligible workers, the continued overall we the result, XX, our vaccine. this couple with are a XX, government working On currently continues to is manage funds. state deposit we billion $X.X the while composition portfolio. the February. age loan rollout. Page essential workers vaccine over Xst other up provide effectively to of on On our people and and COVID-XX as XX the update Progress an Page Health in cost of our of provide well a portfolio reflecting charts base bars receive As growth restaurants as opening care

commercial are with increase the the our economy for quarter, commercial $XXX.X $X.X an million. sector. declined in including balances commercial balances For the quarter, Mortgage $X.X million. showing declined pipeline decline by we installment underlying million fourth by by in balances the balances strength, and manufacturing the declined Despite experiencing

the Additionally, the through mortgage year. pipeline weeks stay X new into first to has continued strong the

did finish For of year update $X.X the with we are $XX.X the the Page on or prior an loans at our declined Program. administration have update full On X.XX% bank's SBA's over XXXX, year-end. the million growth On loan loan XX, of to million of Paycheck XX, on Page modifications, XX, net we total we which December XXXX. displaying Protection the

$XXX had December in XX, million we unaccreted $X.X balances of fees. As XXXX, in and outstanding million

next fees We expect these months. to be most into of the over interest X income accreted

have applications concentrations for million X our in nature very Round a at date. XXX by concentrations largest we the X.X%. range with of XX, displaying X the or portfolio program over and up, what granular team. Currently, our to XX%, $XXX originated C&I at Phase entire X to since little X at The XX% Phase Additionally, XX% we was estimate to being the between makeup or Page of Phase was portfolio. we opened received manufacturing in are construction commercial is On in of loan retail X% volumes

estate retail Within at the X.X%. real portfolio, largest concentration the is commercial

portfolio as hospitality service at activity as by XX our includes up whose business food negatively loans to December XX, this the sectors those and indicate the been metrics impacted hold industries. the including credit an investments has provides well Page during more well, industry XXXX, very pandemic. overview quarter. Our continues COVID-XX in This of

company recently over declared and levels cash authorized management, December of XX, and X% XXXX consecutive XX. $X.XX the December XXXX a a Under shares last the few the our $X.XX of to over dividend year terms is is the our quality, XXXX. comments February authorized a million on At XX, of to continue XXXX January XXXX. of XXXX. seventh the of common the repurchase XX XXXX, terms X.X% repurchase a share November XX, credit XXXX, share paid repurchase Board our on to we've Gavin authorized presentation capital financials, I dividend. like approximately purchase X.X scorecard The plan. share or increased this of XXXX for strong through be to outlook increase up payable our at on to time, of quarterly on equity to XX, a In turn outstanding our the to and cash common end This cash plan tangible represents for per tangible would capital with is Directors On December CECL, the assets We to share dividend stock. X% plan,

Gavin Mohr

morning, year ago I Thanks, Net million am Brad, everyone. our starting and interest the of from good increased Page income presentation. period. XX $X.X on

on XX interest third down Average I basis XX tax from detailed this of and quarter of billion interest-earning in the which quarter the more, margin the ago period will billion net billion from the Page X.XX% XXXX. $X.XX the $X.XX decline was is basis XXXX, assets have quarter fourth a some more net compared comments margin. analysis points to the quarter topic equivalent decrease the in year detailed of during points more year were the in quarter moment. of down income XXXX. contains third a net third of in $X.XX XXXX in and linked and interest ago XX the quarter, Our in interest

increase was amortization in a asset margin certain in the de-designated earning X loss on factors: related of instruments, and accelerated by acceleration impacted of interest securities amortization net premium adversely interest 'XX quarter derivative expense fourth Our on decline to yield.

interest for outlook margin interest income XXXX more later presentation. comment in the specifically will the for We and net our the net on

a fourth in continues the mortgage quarter core a gains XXXX market and due gains a Page third quarter due of strong solid volumes Moving to stronger million pay the loan quarter compared due in million loans start and sale or the in loss application as to per loan $XXX,XXX strong to both and 'XX. here in 'XX. to mortgage $X.X downs XX. mortgage loan The servicing volume 'XX loan fourth of mortgage on $XX.X sales purchase volume increase $XX.X and in to quarter loan XXXX compared we profit value in ago The in decrease as Partially story to quarter decrease continue to fair $XX revenues. in lower Noninterest the is the margins. income pipeline Fourth in tax mortgage be to these was quarter as as due million quarter to million well due and interest $XX.X loan the be million of $X.X rights of our Mortgage price banking 'XX refinance on share an gains the strong these XXXX. the have $XXX,XXX at strong actually offsetting after on was net strong of fourth to the rates. to quarter $X.XX mortgage servicing year capitalized totaled increase million fourth was in diluted an in first increased

million quarter $XX.X decreased in and totaled the plan. expense million noninterest XXXX. fourth Performance-based the our ago quarter of XX, year in Page in the on to third 'XX, the $X.X compared as in over the expense third million compensation incentive million due quarter $XX.X management a detailed to decrease primarily annual for As XXXX of compensation quarter accrual $XX.X

XXXX quarter of of The million included third $X.X expenses. conversion-related

data, Page increase. make and current. performing loans has totaling at Page loans XX these will on of loans at XX continues assets up million the nonperforming the classified and early-stage TDR other provides information additional have delinquent noninterest Since later by the new the $X.X Loans provides of XX.X% to to decreased We of nonperforming assets. outlook third at and or increased $X.X $XX XXXX. assets or quality information loan totaled total December including data provides portfolio in quarter XX real million of This to XX that 'XX. XXXX. on perform days expense these XX compared December delinquencies. for the XX, Total on loans on in XX.X% become December XX, $X.X asset loans being quarter. some well comments nonperforming XX% current loans, defaults Page one million $X.X on and off our assets, fourth other with Nonperforming portfolio million X.XX% XX, more this XXXX. $XX.X paid million Two XX, December has of million these to presentation. commercial during estate,

increase when the the the a Page for PPP resulting we credit in in second XX, XXXX of was expense City the fourth or excluding million quarter loans portfolio. 'XX year to most unique factor for million $XXX,XXX The portion in significant pandemic to the or the adoption third XXXX. loan qualitative COVID-XX allowance from in compared $XX.X a on loan CECL provision ago million a driving loan the quarter losses of on or increases This provision of year-to-date higher Moving X.X% $XX.X and X.XX% The subjective in the recorded $XXX,XXX losses The portfolio the in increase losses. and losses XXXX. and loans was ratio the This principally of single of potential an and loan quarter reflects in for the challenges XX, the totaled provision allowance COVID-XX of acquired of the of loan $X credit Bank of following December for to economic delayed relief included uncertainty December XXXX. at Traverse the loans. passed bill remaining updated State guidance impact XXX.X%

loss the the losses and as for previously cash million if analysis estimate XXXX. adopted. loans. as to calculated X, provides or flow of XX, be outlook the back final CECL CECL XX in January January enhancements. expect X.XX% the our adopt the December during outlook original allowance disclosed is the Page CARES increase range, XXXX that range the XXXX. in losses provided discounted allowance the actual approximately of certain million update methodology allowance in midpoint extension. loan of incurred methodology our is to We performance to range when we of an was allowed We our XXXX, of CECL see for under compared the year to at Using total our $XX.X how The Act to XX our CECL our $XX.X Page as is model to the of range for XXXX at due over $XX.X loan December to increase XX, million under

growth Our at loan estimated outlook approximately X%.

year As the the prior or can the but given million that $X.X COVID-XX year. of in an interest X%. changed income year many Actual rates increase approximately COVID-XX loans. The year-end. year. basis The rates long-term of shaped been XXX.X% The from outlook economic of quarter an a contracted to the X% full the upheaval basis. interest-earning was dramatically the income from in appreciate, declined unforeseen assumed original net first environment of generated Loans PPP forecast million full than XX fee grew annualized This and for original that has forecast interest you short-term Net factors the million forecast. our impact the to growth income throughout margin to rate by interest Paycheck very is original decreased stable economic net assets beginning pandemic. created have environment XXXX primarily declined in or the X.X% were Program. The by compared XXXX. by different in at lending $XXX.X on increased for points $XXX.X due challenges and the the The growth million pandemic accretion our $X related rates by of Protection X.XX%

increased to for the range. increased by our conversion. was expenses income mortgage increase in full catalyst performance-based to forecasted on mortgages, total the outperformance. in to forecasted year $XX.X This an of combined is primarily X.XX% XXXX an to average of Noninterest XXXX the to XXXX, shock increase million annualized X.X% related CARES the forecast $XX.X provision of or qualitative adopt includes result was expense XXXX The compared of XXXX X.XX% loans. X.XX% compensation to CECL This The average year data XXXX full X%. in pandemic. our the reserve not was the margins provision a production, XX.X% COVID-XX we with the As as Act million Noninterest well sale extension, compared the range did due a forecasted. X% higher increase of loans. above of and to in Higher-than-forecasted of from in outside total driven

purchased XXXX, for XXXX. the in October XXXX, was tax shares repurchase Total generally of $XX.XX. was XX, XX, pausing effective average an was activity quarter in share of $XX.XX of shares the with XXX,XXX forecast. line year rate XX,XXX cost average Our income company The purchased shares XX.XX% XXXX. full our at the which effective at reactivated was fourth cost After March plan on XXXX an in

our XX. for outlook This summarize initial Page will XXXX. Turning to

section X% first range year to are growth. The in growth loan loan full low anticipate X%. the growth and of targeting a We is single-digit rate

our range loans, growth X% PPP target Excluding X%. is to rate

see across loan assumes We our to of This Michigan an X all growth outlook expect economy. portfolios. improving

interest are income, X.X% is we where net Next increase a forecasting XXXX. of slight full year over

on basis XXXX expect the funds assets. trend in XX target up to due full year-end. federal We XX yields interest year to points slightly in net forecast declining lower margin no with rate by to assumes by compared XXXX This long-term to earning rates primarily change

of CECL CECL quarter to expected approximately adopt $XX.X year to be certain initial adjustment average million. $XX XXXX the first noninterest The is expense be in X.XX% is of to be for This provision $XX allowance expect range a completed that A million the of as income, of full We would unreasonable. financial approximately million to quarterly we XXXX. procedures review for of losses to to will Related credit estimate X/X/XX. $XX.X million. portfolio to loans not adjustment subject X.XX%

expect mortgage on in with volumes decline margins approximately combined origination loans declining loan We by to XXXX, sold. XX%

to year X% quarterly for X% is actuals. noninterest below the $XX.X XXXX range for the with to outlook Our of million $XX.X a total million, expense

to compensation. benefits compensation expect We in total to be primarily reduction compared and XXXX to in the employee lower due 'XX incentive

federal of income was during XXXX income assuming for statutory rate corporate change does an approximately remain XX%, rate XXXX. at taxes it in outlook tax in the XXXX same as Our the effective not

I would the over be back believe my the Brad. repurchases of approximately like That outstanding of of now authorization will to remarks. share the X% that call turn midpoint Lastly, to our we prepared at concludes shares.

William Kessel

of us. extraordinary period all has time for an XXXX of been

on on the continues reflected remarks, initiatives I of at XX team execute our As Slide to my the presentation. beginning mentioned the of

One the Later processing most key which numerous XXXX base XXXX milestones and our on in move initiatives of a in journey. are to our transformation, core and customer XXXX, with is planned significant learned is digital the we and A essential call world. today's to enhanced announced would platform. that achieved compete our digital the offering questions. XXXX, is in in early provide this perseverance have this it real-time open we the we today's digital At and digital mobile PPP fast-changing and If XXXX, Through excited banking point, began partners is now banking to change into of in strong like core we to up and experience. anything for importance people, from a to world, unified purpose.

Operator

Instructions]. [Operator

Our first question today Piper with Brendan from Nosal will come Sandler.

Brendan Nosal

start to on And for the just think way core to quarter. the underlying is. figure I'm trying off the what to level I appropriate want this margin out just about

remove from of onetime if as about true million that a you this margin, expense denominator way the reasonable took PPP that quarter both impact I of core kind numerator kind margin noise? well So I interest underlying Is the to ex the XXX. $X.X the of of to level get the of think and of as guys a

Gavin Mohr

agree would Brendan. that, with I Yes,

Brendan Nosal

Okay. Great. And then just a follow-up on that.

Given point for that outlook starting the XXXX. and

to level. compression guess XXX from of I So XX looking bps you're XX for the

from level. us good is XXX I to that up guess core or XXX, bit So which gets a that XXX a

how year seeing of through of where walk out play to just get for margin So and it the XXXX. ended how the puts you're of underlying you the kind kind takes from

Gavin Mohr

Yes. Sure.

So a couple of things.

fourth portfolio. sure, for specifically at we acceleration amortization investment in for on the of the saw the year, end quarter, the think premium I

So one issue there.

year. that's to average see think going on above what for we're next I

be at we quarter to in first year come loan it secondly, some And add as the So then yield that or slowdown higher the should able to growth a yield, so. increase should see next on portfolio.

Brendan Nosal

helpful. of just base one me. that's Got it. definitely of The $XXX.X the off for million, then NII one correct? growth, That's And outlook, X.X% final reported

Gavin Mohr

you that, Brendan, Can repeat I'm sorry.

Brendan Nosal

of Yes, $XXX.X of sure. the NII reported X.X%, correct? base The growth off for million, outlook of that's

Gavin Mohr

correct. That's

Operator

Rodis comes question Janney. John from with Our next

John Rodis

the X.X%. plus next guidance, of as to a any of PPP? the question interest that follow-up net round impact last Just include on I guess Does your income the

Gavin Mohr

in revenue some have round. do XXXX second We does. the Yes. it regarding Yes,

John Rodis

remarks, prepared X. you you be could So said to I think in Round thought XX% XX% X of Round your

So of are the you guidance? fees of sort taking into your that and assuming off that

Gavin Mohr

Yes.

John Rodis

Okay.

do sort Okay. and your hearing you And big of are they today the What picture. Brad, economy just so your borrowers about how then maybe clients, feel forth? from from about

William Kessel

give which with populations Well, entire generally today. half Rahn than Joel are XXXX. XXXX an this just our we that within commercial get out of impacted heads of we sectors representative there coming I you within through would as that's have And industries a about there our initial of earlier great been banking gets response, optimism state, But feedback Obviously, negatively have economy area. rolled certain Board out say meeting of to is Joel quarter of was others. and the but that for different question. the And us from our and up getting And Joel, vaccine a past the add? markets. a optimistic as the that first want number more I'll very second also week group, you

Joel Rahn

you up activity capacity, function manufacturing, the they are that well. think are been The at to haven't summed obvious pretty full just sectors remains able hospitality-related core I all. struggling solid. just construction But their if at because it

Operator

with and Boenning question next Plevelich Joe comes Scattergood. from Our

Joseph Plevelich

million adoption. or I A income Do will will the think to if CECL then $XX that X.X% will the good number to that loans. use so, do not, loans? flow of or see as hinted longer be the the what in in $XX And might longer earnings? is think statement where you it And question settle for retained you term the over allowance of likely term? impact a allowance through $XX.X you million, The all on be million that the to that

Gavin Mohr

Yes.

the of, earnings. calculation inclusive we're to of will so PPP. that inclusive that retained X.X% is where at the CECL, run regarding adjustment through of then So And is

to X.X% over PPP, ex X.XX%. So maybe

reserve term, economy longer up. I that forecast think our will qualitative the our some forecast -- given of ease says, know probably improves, I

charge-off we anticipating normalized maybe a are do, more environment. Although we

we a appropriate having that begin. to all said level is that, So believe

William Kessel

Yes.

thing, I onetime again, other And good, pretax, are too. the Gavin. think those the adjustment, that's

Gavin Mohr

Yes. Thanks, Brad.

Joseph Plevelich

quarter do a all? Okay. more say, use the right of you programmatic the And that be trying to amount certain gives kind And buyback, to versus, expect X.X% confidence or number each then you what and opportunistic? do it is

William Kessel

probably Well, ourselves with more great the quarter really holding an buyback would I maybe all. delivering our being question, understanding as as we see consistent growth opposed other the levels, over of capital well first after opportunities. cognizant of growth cognizant cash And at as rates of would with quarter say, to on opportunistic forecast, of time, company, cognizant of as

again, the consistent I repurchase think, So going be opposed as to we're more probably with opportunistic. share to

Operator

Instructions]. [Operator

Our next from D.A. question come will Gunther with Russell Davidson.

Ryan Griffin

the on This quick just Ryan had expense a guide Russell on I for is question XXXX. for Gunther.

addition any levers that there the comp to are meaningful reduction new other the ratio down? to in incentive in drive In year, expense

William Kessel

Brad. is Gavin, answer a do quick can? you this to Ryan, And I have that or

Gavin Mohr

again? you In terms the ask question piece? compensation of can of the outside -- Ryan, are maybe you saying

Ryan Griffin

Yes, sure.

in that compensation wondering, So are range that just you drive I that guided that down expense planned of lower reductions to? outside there was will piece, other any had to

Gavin Mohr

Yes.

to obviously So the expense... is big one the be going

William Kessel

Comp expense.

Gavin Mohr

correct. we're the structure. expense, comp then The Yes. obviously, evaluating ongoingly expense And

to interest mentioned Brad, add want you I talking you're that I relative actually know, expense some be there'll specifically, anticipate savings too. de-designation, any more the to If comment? if do noninterest I in earlier. don't

William Kessel

Yes.

incentive annual it then unit there. So balance of various programs, XXXX, I'd relative good in to a recorded $XX chunk say, was performance-based compensation. our is plan. half the And hitting to And related our other and milestones some in of for banking mortgage million probably that

category, to, So in overall is I have doing. year feel year, the X each closed think on saves. how material of like in in achieved we're been hone some locations a we've as After company and got after variability that, that cost we based We going lot XXXX on category. we

if team, and to Our other core continuing change branch opportunities. know done down efficiencies, core nail the really a were Ryan, material we're savings, conversion our to to And the to contractual processing at tough now. this which effort are if in almost is, the is room two have look this will point. there, And years which least realizing we negative to But right right difficult customers. partners very now spent will, And get one, is to platforms. we on be impact quantify that optimization manner you at there back anything,

higher have intentionally. running with We been a structure cost

think are to some they're I there areas improvement, today. for quantify but difficult just you for And so

Operator

a from And Rodis question is next follow-up with our John Janney.

John Rodis

just one Brad, follow-up.

Just and the recent between announced acquisition TCF Huntington.

thoughts, your you your for opportunities guys Michigan Just within potential footprint?

William Kessel

it's compete with almost Well, the two here well, And our John, in the last almost a the markets. we them one closure institutions, thanks of question. material locations. the our obviously, event, they within announced every Between financial in for of And markets. XXX obviously, week

for the in a our record. as for opportunities opportunities this And going We've have, I to you shared very customers be company. I marketplace disruption will successful acquisition will track our consolidate been as just we that our in and on with and talent So of we've be for to talent adding continues acquisition. customer to others, had would and number years. industry think, point

John Rodis

Yes.

be opportunity. real could it think a I

William Kessel

John. Thanks,

Gavin Mohr

Thanks.

Operator

like to I'd Brad Kessel back and session, closing remarks. call over any the for question-and-answer to our concludes This turn

William Kessel

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

Operator

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

now disconnect. may You

Independent Bank (IBCP) 28 Jan 212020 Q4 Earnings call transcript