IBCP - Earnings call transcript Q1 2021 | Independent Bank Corporation

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Operator

Good morning and welcome to the IBCP First Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, that this event is being recorded.

Now I'd like to turn the conference over to Mr. CEO. and President Kessel, Brad Please go ahead.

William Kessel

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

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

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

be of and in this circumstances highlights customers, we continue extraordinary to our of and on quarter income, respectively, report XXX%, offset X, $XX income reported shown share This quarter $X.XX losses stayed $X pleased income, past following. associates Corporation purpose, for in did or first earnings provision to the Independent. share, to in Slide job proud increases well are Bank increase Independent of The challenges. per and strong the They pandemic, quarter are compared by million challenges as increases net compared focused in we COVID-XX our XXXX. quarter as net persevering diluted to to the financial were credit down for diluted decrease I reflects first XXXX million prior first diluted non-interest on of navigate the share XXXX the the include or assisting The period. net that XXXX. for am versus XXXX per year our performance despite partially in continued businesses of As XXX% primarily net interest the and individuals per so expense. $X.X first a brought as XXXX many the year, by earnings, in income increase an represents non-interest income and of

return and X.XX% respectively. and equity on assets on Our average average return were XX.XX%,

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

our - of level stock for quarter, We our be allowance per a loan January defaults as announced common low million Xst, XXXX, business This XXXX. on a in dividend. payment losses. we a to during consecutive during Asset evidenced of Most over operate XXth, importantly, we year the new the quality and our our serve and deposit net on quarter increased continued share provides recording strong for to protect our plan $XX.X non-performing increase CECL, $X.XX safely represents snap presentation our loan of in to a effectively adopted customers cash dividend the and markets. credit snapshot is increase assets. metrics our we XXXX continuity recoveries loans non-performing no X% of our X Michigan and Page and On continues have the good commercial by a employees. seventh the February

continued to improvement key for now State economic unemployment statistics the rate are we X, Overall, displayed for we Michigan. Michigan at in Turning several X.X%. Page of the seeing

still we prices XXX,XXX still sale pre-COVID. workers over inventory we Regional are negatively the sales. to impacting of number in are of overall workers our volume average - and levels at of However, markets climb, had continue total home record employed home employed below many the lows

front, a result of the Department and continues Health On Services of rates, the the rates as and COVID-XX monitor Michigan vaccination hospitalization positivity closely to the Human cases, deaths virus.

doses On Public our over in the including in K-XX case X.X to have schools, second per at and have officials concerning vaccination been positivity a Health million continues The daily through front identifying preschool, administered level April of XX at Michigan and institutions. XXX,XXX. outbreaks be first state. begun higher rate million X.X excess doses XXrd coronavirus

being COVID The third Michigan's XX,XXX. hospitals. are now of deaths in of cumulative coronavirus a to the Michigan treated attributed exceeds spurred increase for rapid COVID-XX in has the The wave cases people number in

off held previous the has on reactivating government restrictions. many of state Our

cost portfolio, customers. to as for industry, our government billion this base, extensive update our loan our office return not-too-distant growth manage funds. On the composition and Page $X.X the to remote and of limits optimistic wave am work in virus, effectively we expectations the gathering to working X, are hopeful for reflecting of result Like stimulus we I most couple provide this still portfolio. deposit provide on future. continued overall deposit increased XX, as the in continues However, in third of of our On levels in while normal an a Page well in a place. the charts Despite our

balance million, and $XX.X by has million. increased quarter, installment commercial For by the by balances million. first balances declined increased $X.X $XX.X Mortgage

Excluding at the be PPP levels or XX.X% end, of peak Page slightly and soft. to declined well demand. the That by usage million continues program. X we - our mortgage commercial utilization or end. company. to XX of displace strengthened were our an XX, said, on growing just is total quarter declined On from pipeline Page an to modifications, a on SBA's the rate of administration commercial On update levels at which PPP page activity, $XX.X have Bank's our loans update quarter continued is historic which X.XX% loan the million is pipeline for At quarter. our down line balances $X.X for low Commercial we

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

be commercial interest The granular income is accreted Page retail months. next or our manufacturing loan sure We XX, Construction concentrations expect and $XXX X% portfolio these most to of being On XX.X%. over we very display with and the portfolio. at nine largest makeup of entire into the the C&I with concentrations at fees million made or in X.X%.

with the Within portfolio, the retail CRE concentration million or X.X%. $XX largest is

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

of be capital tangible assets capital X.XX% to In XXXX. with at strong levels common terms our tangible XX, management, continue of equity March to

our XXth, This $XX.XX a the of to May per on our company plan. record few the As share. up and stock XXX,XXX cash of on company to credit we million is repurchased XXXX presentation share. share calendar Gavin for price shares have at repurchase per quarterly end year. financials, time, dividend shares has is a XXXX to a in XXth, authorized comments the Board December XXXX. of stock. May to purchase far The Xth, plan authorized like to our would dividend the our declared previously At terms of to common XXXX, last to noted, plan, XXXX, or X.X Directors average this over of authorized share cash $X.XX outstanding the - we Under this payable on common of of On dividend approximately repurchase to XXXX the share of weighted the XXXX. repurchase shareholders the turn Thus X% outlook I quality

Gavin Mohr

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

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

impacted 'XX was decline liquid in in margin first growth Decrease asset yield. three and interest adversely PPP Our assets by accretion, net earning factors. a quarter in

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

$XX.X million to first the Moving quarter in $XX.X to compared XX, as in million million on quarter totaled quarter and the the $XX non-interest income XXXX in of year XXXX. ago Page of fourth

story revenues. strong the here course is banking mortgage exceptionally Of our

at are mortgage million, First of 'XX. due margins, second XXXX. quarter in quarter profit quarter $XX.X rates. stronger mortgage in mortgage application in in the million loan the decline a start compared as the pipeline refinance volume, loan of in The result in and volume quarter 'XX sales increase strong first was loan loans an as $X.X robust net was first seeing increase But be gains we these in loan increase of the continues application a and on as increased to in volume sale to to 'XX the mortgage gains well the of

income volume of to servicing tax to loans fair mortgage share mortgage remains to per our strong due million non-interest Our $X.XX and due servicing rates. or diluted gain value downs million the in to a after pay was $X.X $X.X increase mortgage capitalized a the price loans on due a strong. purchased million decrease Contributing $X.X

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

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

Page the paid of decrease. XX% provides to presentation. of the information assets perform in $XX more XX on delinquencies. have new later real were these at the March in classified Page You'll assets on non-interest the off Total assets. estate defaults being and outlook for or XXXX. March loan other became million and of March non-performing XX, fourth XX, loans data, our on including total quarter totaled 'XX. that quality decreased or loans, no loans million, of well current additional provides $X.X comments highlight new on defaults million 'XX. million totaling early-stage at information provides assets current XX.X% XX XX% days continues data Non-performing would This TDR XXXX. XX quarter expense non-performing the to on loan are XX.XX% performing by XX, non-performing commercial with I $X.X there in and some asset compared million of were primarily on million to for loans the or during 'XX. responsible that delinquent $XX.X first first Loans commercial portfolio portfolio XXXX. decreased $X.X these loans Page either $X.X to XX of Two XX quarter

to XXXX. and in remaining the on recorded or Page $XX.X March credit year quarter Xst, $XX.X which for adjustment million. CECL. The of reserve was XXXX. Page to allowance of to for $X.X $XXX,XXX impact 'XX, lending a to the quarter during was increases We portfolio January loan a credits Traverse of adjustment totaled million to acquired day X.XX% January X allowance for to fell compared credits for our first earnings of The for is Page actual outlook $X.X for provision to $XX.X the was losses in million XX. X.XX% on $XX.X loss provided $XX.X Bank in previously provision at losses ago range the a to the - totaled of million. elected adopt commitments our XXXX performance update after-tax excluding which fell to the The We XXXX. The to outlook in allowance that adoption within Moving unfunded State to within losses the adoption for quarter disclosed X provides of million $X.X credit of when credit the of we fourth of City the expense million, of $XXX,XXX million, increased retained million. information CECL XXXX. original million The for XX CECL loans. The see credit our the $X.X day disclosed XX of million. $XX.X XX, and our increase PPP the decrease range year losses ratio previously loans in an compared how loans our

the mortgage were This $XX.X million the is to due PPP of $XX X.XX% of to primarily round incentive-based million primary the expense. first provision year decreased first income $XX.X 'XX, X.XX%. range retail a in in $XXX.X to commercial loan to interest net increased PPP interest in outside on of the forecasted below million. loans X.X% by forecast primary which loans. estimated or the compared Non-interest likely range quarter in of X.XX% which and income to 'XX. of $XX.X to forecasted the quarter mortgages, year on two with in of was million quarter to was loans on $XX related million $X.X totaling be in outperformance. the during in for reserves. losses decrease Program. CECL first that the compared Our quarter our for $XX the risk, XXXX. QX higher of provision balances to credits full portfolio than range watch decrease gains and our of was our credit first X.XX% in Loan outlook quarter with our forecasted targeted origination of assets loans low food is losses growth increase first to of prior accrual current of the for In loans decrease million the drove million. Higher for was the an Protection of the increase The the XXXX during was QX levels of was higher quarter income single-digits. an losses million year the a a impact XXXX. improvement in quarterly of the grew growth Non-interest Loans net The growth target net increase to in employment million. combined decreased Net 'XX compared $XX.X provision a Paycheck forecasted range fee average totaled in income provision by This a expense an in XXXX losses The of anticipated 'XX, credit servicing $XX.X The will increase X, credit total $XX.X range of of of of $XX.X the of million forecast adoption for drivers our higher production balance - $XX.X at and due $XXX of year it than sale million. our January our generated compensation for below payout forecasted allowance margin million, credit credit is than full million the an for interest-earning processed within million $X.X driver 'XX due accretion to full our credit mortgage for or

generally quarter Our 'XX, was with our which forecast. the line effective for first was in tax rate income XX.X%

average prepared shares in XXXX. concludes XXX,XXX quarter an first of at $XX.XX to Lastly, I the Brad. company my over would cost like back to the remarks. call of now That the purchased turn

William Kessel

Thanks, Gavin.

of transformation in completed hereof the Let's displays initiatives. what and our the of turn during key is most Slide initiatives, a XX our quarter quarter second digital strategic hereof XXXX high-level the will significant much to completed with the XXXX. deck or And second which we are be which view

and the signed a benefits agreement interfaces, moving capabilities application this as online partner, transfer, consumer integration and our APIs. and This their a new decision The processing better also includes accounts faster online, data. management of last processing Wallet, enhanced clients. bill I This with Fiserv include capabilities. ONE allow converting for the platform real-time technology, self-service This flexible this to DNA with of we and along open business and access our data customers core and will data to and platform. apply introduction be with modern core that's using to to platform allows new processing our time for As reported our will year, mobile with new pay known change loans new platform investment

monitor Wallet spending mobile to all our unified budgeting the well Hub. as This customer channels Plus omnichannel in as ONE aka will their one addition, The banking and clients In serve finances call from all enables to channel change create analytical location, channel, we the also as the electronic tools. branch which experience support through back-office our channel, and the foundation a provides

been team new months to working excited XX we're for this hard technology clients. to roll out has over and our Our

this the like questions. I now to up will we point, pleased. call think be open they would for At

Operator

First ahead. We'll question now Please comes begin the Sandler. session. question-and-answer Nosal, from Piper Instructions] [Operator Brendan go

Brendan Nosal

Brad. you morning, morning, Good good are Gavin. How guys? Hey,

William Kessel

Doing morning, you. well, thank Good Brendan.

Gavin Mohr

Good. Thanks, Brendan.

Brendan Nosal

Good.

your past number more two. deals There start a of of announced or want to have question. Just a in the markets top-level week off here been kind over

know, your result in it's your of curious, talents but any kind opportunity up presents can those these Just how you on thoughts the of of deals? yourself if the a as if anywhere itself adding know you shape market? I to see team And if dynamics quick where kind early, then competitive might

William Kessel

course, that this that remaining in the us the over you to you'll partnering, unique talent. we to then so it's in disruption Independent, course, see opportunity shown but take banks customers, an to yeah thing the is forward. ability markets the and it earlier advantage marketplace, our the add same course, reoccurring Well, the TCF, New do disruption I and Community York you And, years, past creates of opportunity to not year, in Monday And going a - does for have think know, create I opportunity, Bank Michigan M&A of of the the Flagstar with Huntington thing. and think in And think work I of marketplace. to know add the the

Brendan Nosal

thanks amortization that from the derivatives, of is accelerated that in the on color. loss bit or quarters maybe All of margin I more a of just that a that is look kind other and words, we and right. more Perfect, point then a around? recurring one for for of changes here. the piece stick X.XX%? quarter, of last is Or bps different And it on me this margin XX, pull note one-time benefit benefit, at XX transitory Slide will follow-up margin a from there's the out

Gavin Mohr

a That one-time Brendon. that's was quarter-over-quarter, the -

So we're just showing you that third quarter.

So the we'll is a quarter-over-quarter up but one-time of of quarter. cost is see you'll last the pick points benefit, it adjustment XX the basis funds in impact where

William Kessel

in that So we - what happened accelerated is, QX

Gavin Mohr

Yes.

William Kessel

And derivatives make now prospectively. So those that going on you won't it see cost sense? forward other Does than that in higher we QX. don't seeing you're have it

Brendan Nosal

think right. I Yeah, all It's so.

funds. you kind quarter, nothing would next But a closer else is there the cost to the know, NIM correct? a permanent if changes, to of of look So X.XX%, help

Gavin Mohr

as basis quarter-over-quarter. fair. that XX points Yes, just That's comparative

Brendan Nosal

there. Thanks for All right, help the fantastic.

Operator

go Davidson. [Operator Gunther, from Next D.A. you. Russell Instructions] question Thank is Please ahead.

Russell Gunther

morning, guys. good Hey,

William Kessel

Good morning, Russell.

Gavin Mohr

Good morning.

Russell Gunther

And, you hoping for to comments of that on and suggests to prepared like you're reiterated mix? just ex-PPP. wanted remarks verticals growth you of whether growth, the kind little non-PPP you bit consumer, a even how that mortgage that'll commercial thinking know, core follow-up looks loan you could your from I expect X% contributions or on from elaborate know kind organic come be on X% but expectations more that about fairly three to

William Kessel

Yeah.

decline, decline had slight a we So, in core and mortgage, commercial, an again, saw we consumer. PPP increase a we of for the and little a slight was excluding in what saw bit

think, as it I we view the generally, across evenly. Board,

existing commercial I stable been to of to demand. our loan a mortgage is, of we'll have, know footing, loans. accelerated few mortgage you stable, returns were are in we be And economy for us. lower previously And raised prepayment What's working years, jumbo a of limit As continue as over think the book. size-only result last GSEs see the course, really on the front commercial the headwind And what book the rates business have interesting book the has the more conforming to as largest level. more rates book mortgage in was of course, the materially their company, on a a

over So sold last quarters now what were loans the is we've previously portfolio that into experienced are being the market. few secondary

probably we'll see to reduced. know, you still some think, wane as continue I of are know, it'll you re-fis but that,

seeing areas for the good a Marine very in seeing RV demand are residential too. We demand very financing good We're of construction. for

So, back high loan in goal still your think across level, I to we and should that mid and our Board. growth the original single-digits think be again,

Russell Gunther

I there. all the appreciate color

relates was know, path the the a excess provide know on the you a quarter. deck, and weighed big you margin the on question glide in chunk liquidity that Appreciate your the you bit. comments that Next

that for that you drags, a excess anticipate margin? get you that so able to to And might And would to us you when liquidity piece put the you could weighing of be think when give it know you so stop to sense that work? on

Gavin Mohr

good Yeah, question.

we this of in versus in putting view letting work it overnight terms portfolio investment so the is, cash. And it set to we're

is much X.XX% basis than or although yield, high So better a not points. very raw wide a XX that

deposits do But we to deposits grow. or mix or either it the to continue loans the to to our roll it, put more absorb the in manner like appropriate outflows - fund into quickly just should feel an up loans. you the on know, pick work exit we into we can So either preferably that

that's gives there. just here I it of of indication that's out think you an liquidity amount common the and so And

Russell Gunther

Thanks, impact Gavin. from system's on that. guys I anticipated Last the the appreciate know P&L is you question, conversion.

as something or in around projections expense So you this revenue declines? you XX how you're mean the what you you Do you unveiled. know, have works, it picture mentioned, thinking that's to the for could exciting Just months, growth any, about know, bigger impact. see know been

William Kessel

that's So go and side a question great let's expense first. to the

part So on side, the the expense contractual contract an to savings before new immediately was conversion. capture of even agreement

year you So ago really carried And overall that through we a to that have going quarter forward back would into at this you'll last expense, a in reduction time, and XXXX. processing seen or did our see year. each data here see

by significant second example to digitally And you publicly, are this opening, component just one there. the long one is opportunities know, example, efficiencies taking the efficiently. and opening just today leveraging or And but place the an - are you know, save. account more time in lot the really to new way, new and place. just and account what of one think know, for a on. previously shared human at fraction idea, And we haven't do maintenances garnered long, were it more so no And we And know, you you involved, through a that time. a processes necessarily beings we the there account business or that's we in this can as its essentially operating the process, technology, are capture account opening The cost doing longer processes be have got an in it's we new time difficult point, very of

I So there today. prospectively will that to not material share savings, cost it, quantify in can't and be a I'm position

with the one second make And revenue our make for will believe drive difficult. think is it's is it it to bank more quantify. service two, side, revenue. associates it with to that to bank clients our but clients. easier easier difficult we us, do our to very actually make of us. very objectives And to to our the We within On for the one that also core And easier with company,

a Russell, X the but it. for point gives So, into difficult side, X down this revenue just on how I you're looking insight side on percent the I at you that But on know hope put very we're percent and cost to at looking spreadsheet. some

Russell Gunther

for a helpful. taking that's bit. that's And questions. quite very it Thank my me. both Yeah, guys, Brad for you

Gavin Mohr

welcome. you. Thank You're

Operator

[Operator ahead. to Kessel for concludes go like Instructions] the to back turn Mr. This remarks. any I'd Please session. conference our closing question-and-answer over

William Kessel

member would operating team. our customers member team be the environment, closing, go team Independent. of of our Directors be senior his communities. our our Board extra each goal being associates. and or to I to part our guiding to own In all in the done by the our our like and a toward continues to to of leverage for also and to continues opportunities to of continue thank their their so thank our Each circumstances, the I support of for very proud adapt her mile common management want customers way Despite to job I leadership. our do difficult

Bank each for joining day. of like you your would Independent thank I call. a us today's on Corporation Finally, to and in great for Have interest

Operator

you concluded. Thank today's now for Call presentation. is attending

now may disconnect. You

Independent Bank (IBCP) 27 Apr 212021 Q1 Earnings call transcript