Q2 2024 Independent Bank Corp Earnings Call

July 25, 2024

Operator: Hello all, and welcome to Independent Bank Corporation Reports 2024 Q2 Results. My name is Ezra, and I will be coordinating your call today. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. I will now hand you over to your host, Brad Kessel, President and CEO. Brad, please go ahead.

Operator: Hello all, and welcome to Independent Bank Corporation Reports 2024 Q2 Results. My name is Ezra, and I will be coordinating your call today. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by 2. I will now hand you over to your host, Brad Kessel, President and CEO. Brad, please go ahead.

Hello all and welcome to Independent Bank Corporation Reports 2024 second quarter results.

Ezra: 2024 Second Quarter Results. My name is Ezra, and I will be coordinating your call today. If you would like to ask a question, please press star followed by one on your telephone keypad. Now, if you change your mind, please press star followed by two. I will now hand you over to your host, Brad Kessel, President and CEO. Brad, please go ahead.

My name is Ezra and I will be coordinating your call today. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. I will now hand you over to your host, Brad Kessel.

President and CEO . Brad, please go ahead.

Brad Kessel: Good morning, and welcome to today's call. Thank you for joining us for Independent Bank Corporation's conference call and webcast to discuss the company's Q2 2024 results. I am Brad Kessel, President and Chief Executive Officer. Joining me is Gavin Mohr, EVP and Chief Financial Officer, and Joel Rahn, EVP and Head of our Commercial Banking. Before we begin today's call, I would like to direct you to important information on page 2 of our presentation, specifically the cautionary note regarding forward-looking statements. If anyone does not already have a copy of the press release issued by us today, you can access it at the company's website independentbank.com. The agenda for today's call will include prepared remarks, followed by a question and answer session, and then closing remarks.

Brad Kessel: Good morning, and welcome to today's call. Thank you for joining us on Independent Bank Corporation's conference call and webcast to discuss the company's second quarter 2024 results. I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Moore, EVP and Chief Financial Officer, and Joel Rahn, EVP and Head of our Commercial Banking. Before we begin today's call, I would like to direct you to important information on page two of our presentation, specifically the cautionary note regarding forward-looking statements.

Brad Kessel: If anyone does not already have a copy of the press release issued by us today, you can access it on the company's website, independentbank.com. The agenda for today's call will include prepared remarks, followed by a question and answer session, and then closing remarks.

Brad Kessel: Independent Bank Corporation reported second quarter 2024 net income of $18.5 million, or 88 cents per diluted share, versus net income of $14.8 million, or 70 cents per diluted share, in the prior year period. This represents a return on average assets of 1.44% and a return on average equity of 17.98%, respectively. I am proud of our team and very pleased with our second quarter 2024 results, driving organic growth on both sides of the balance sheet.

Good morning and welcome to today's call. Thank you for joining us for Independent Bank Corporation's conference call and webcast.

Brad Kessel: Overall loans increased 1.2% annualized despite a higher than normal level of commercial payoffs and paydowns, while core deposits were up 4.8% annualized. We were able to generate net interest margin expansion of 3.40% from 3.30% on a linked quarter basis and net interest income growth on both a linked quarter and a year over year quarterly basis. We believe that our expenses continue to be well managed, and we continue to see improved operational scale from strategic investments we have made in recent years. Our credit metrics continue to be excellent, with watch credits and non-performing assets near historic lows.

to discuss the company's second quarter 2024 results. I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Moore, EVP and Chief Financial Officer, and Joel Rahn, EVP and Head of our Commercial Banking.

Brad Kessel: These fundamentals drove good growth in both earnings per share at 26% and tangible book value per share 16% compared to the prior year quarter. Based on a robust commercial loan pipeline, the past record of our core group of professionals, and the ongoing strategic initiative to add talented bankers to our team, we are optimistic about continuing these growth trends for the second half of the year and into 2025. Total deposits at June 30th, 2024 were $4.61 billion, an overall core deposits increase.

Before we begin today's call, I would like to direct you to important information on page 2 of our presentation, specifically the cautionary note regarding forward-looking statements. Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com.

Brad Kessel: $53.3 million, or 4.8% annualized, during the second quarter of 24. On a linked quarter basis, retail deposits declined by $22.2 million. Business deposits increased by $143.6 million, and municipal deposits declined by $68.1 million. Our existing customer base continues to exhibit a remix out of non-interest bearing and or lower yielding deposit products into our higher yielding product offerings, but the remix pace has slowed.

If anyone does not already have a copy of the press release issued by us today, you can access it at the company's website, independentbank.com.

The agenda for today's call will include prepared remarks, followed by a question and answer session, and then closing remarks.

Brad Kessel: Additionally, our sales team continues to bring in new relationships, well below our wholesale cost of funds. We have included in the presentation a historical view of our cost of funds, as well as a comparison to the Fed Fund Spot Rate and Fed Effective Rate. For the quarter, our total cost of funds increased by one basis point to 2.202% through the second quarter of 2024. The cumulative cycle beta for our cost of funds is 38.8%.

Brad Kessel: Independent Bank Corporation reported Q2 2024 net income of $18.5 million or $0.88 per diluted share versus net income of $14.8 million or $0.70 per diluted share in the prior year period. This represents a return on average assets of 1.44% and a return on average equity of 17.98%, respectively. I am proud of our team and very pleased with our Q2 2024 results, driving organic growth on both sides of the balance sheet. Overall, loans increased 1.2% annualized despite a higher than normal level of commercial payoffs and pay downs, while core deposits are up 4.8% annualized.

Independent Bank Corporation reported second quarter 2024 net income of 18.5 million dollars or 88 cents per diluted share versus net income of 14.8 million dollars or 70 cents per diluted share in the prior year period.

This represents a return on average assets of 1.44% and a return on average equity of 17.98% respectively.

Brad Kessel: At this time, I'd like to turn the presentation over to Joel Rahn to share a few comments on the success we're having in growing our loan portfolios and provide an update on our credit metrics. Thank you.

I am proud of our team and very pleased with our second quarter 2024 results.

Joel Rahn: Thanks, Brad, and good morning, everyone. On page 7, we share an update on our $3.9 billion loan portfolio and quarterly activity. Total loans increased by $12 million in the second quarter, representing 1.2% annualized growth. Additionally, our mortgage portfolio grew $10.9 million. Our installment portfolio increased by $3.9 million. Our commercial loan portfolio, as Brad mentioned earlier, declined $3 million in the quarter due to extraordinary payoff activity related to business sales as well as the sale of various real estate investment projects.

driving organic growth on both sides of the balance sheet. Overall loans increased 1.2% annualized despite a higher than normal level of commercial payoffs and paydowns, while core deposits are up 4.8% annualized.

Joel Rahn: It's worth noting that Q2 commercial loan origination was stronger than the first quarter but could not offset the approximate $82 million of unscheduled payoffs realized in the. For the first half of the year, our commercial loan portfolio increased $52 million, representing 6.2% annualized growth. As noted in the materials, in each portfolio, yield on new production is significantly higher than the respective portfolio yield.

Brad Kessel: We were able to generate net interest margin expansion, increasing to 3.40% from 3.30% on a linked quarter basis, and net interest income growth on both a linked quarter and a year-over-year quarterly basis. We believe that our expenses continue to be well managed, and we continue to see improved operational scale from strategic investments we have made in recent years. Our credit metrics continue to be excellent with watch credits and non-performing assets near historic lows. These fundamentals drove good growth in both our earnings per share at 26% and tangible book value per share 16% compared to the prior year quarter.

We were able to generate net interest margin expansion increasing to 3.40% from 3.30% on a linked quarter basis, and net interest income growth on both a linked quarter and a year-over-year quarterly basis.

We believe that our expenses continue to be well managed, and we continue to see improved operational scale from strategic investments we have made in recent years. Our credit metrics continue to be excellent with watch credits and non-performing assets near historic lows.

These fundamentals drove good growth in both our earnings per share at 26% and tangible book value per share 16% compared to the prior year quarter.

Joel Rahn: The Commercial Portfolio continues to be our highest yielding portfolio with a yield of 6.91%. Based upon a solid commercial pipeline, we see continued growth opportunities in the second half of the year while maintaining our disciplined credit standard. Page eight provides additional detail on our commercial loan portfolio. As pointed out in prior quarters, C&I lending continues to be our primary focus, representing 69% of the portfolio. Manufacturing continues to be the largest concentration within the C&I segment, comprising approximately 10% or $173 million.

Brad Kessel: Based on a robust commercial loan pipeline, the past record of our core group of professionals, and the ongoing strategic initiative to add talented bankers to our team, we are optimistic about continuing these growth trends for H2 and into 2025. Total deposits at 30 June 2024 were $4.61 billion. Overall core deposits increased $53.3 million or 4.8% annualized during Q2 2024. On a linked quarter basis, retail deposits declined by $22.2 million, business deposits increased by $143.6 million, and municipal deposits declined by $68.1 million during the quarter. Our existing customer base continues to exhibit a remix out of non-interest bearing and/or lower yielding deposit products into our higher yielding product offerings, but the remix pace has slowed.

Based on a robust commercial loan pipeline, the past record of our core group of professionals

and the ongoing strategic initiative to add talented bankers to our team, we are optimistic about continuing these growth trends for the second half of the year and into 2025.

Total deposits at June 30, 2024, were $4.61 billion.

Overall core deposits increased $53.3 million or 4.8% annualized during the second quarter of 2024.

On a linked quarter basis, retail deposits declined by $22.2 million, business deposits increased by $143.6 million.

and municipal deposits declined by $68.1 million.

during the quarter. Our existing customer base continues to exhibit a remix out of non-interest bearing and or lower yielding deposit products into our higher yielding product offerings, but the remix pace has slowed.

Brad Kessel: Additionally, our sales team continues to bring in new relationships well below our wholesale cost of funds. We have included in the presentation a historical view of our cost of funds as well as compared to the Fed funds spot rate and Fed effective rate. For the quarter, our total cost of funds increased by one basis point to 2.202%. Through Q2 2024, the cumulative cycle beta for our cost of funds is 38.8%. This time, I'd like to turn the presentation over to Joel Rahn to share a few comments on the success we're having in growing our loan portfolios and provide an update on our credit metrics.

Additionally, our sales team continues to bring in new relationships.

well below our wholesale cost of funds.

We have included in the presentation a historical view of our cost of funds, as well as compared to the Fed Fund Spot Rate and Fed Effective Rate. For the quarter, our total cost of funds increased by one basis point to 2.202 percent.

Through the second quarter of 2024, the cumulative cycle beta for our cost of funds is 38.8 percent.

Joel Rahn: The remaining 31% of the portfolio is comprised of investment real estate, with the largest concentration being industrial; it's 7.9%, or 123 million. It's worth noting that our exposure to the office segment stands at 84 million, or 4.8% of our commercial portfolio at quarter end. Our office exposure consists primarily of suburban, low-rise office space, with medical comprising 17% of overall office exposure. The average loan size is $1.3 million, which points to the granularity of the segment of our portfolio.

At this time, I'd like to turn the presentation over to Joel Rahn to share a few comments on the success we're having in growing our loan portfolios and provide an update on our credit metrics.

Joel Rahn: Yeah. Thanks, Brad, and good morning, everyone. On page seven, we share an update of our $3.9 billion loan portfolio and quarterly activity. Total loans increased by $12 million in Q2, representing 1.2% annualized growth. Our mortgage portfolio grew $10.9 million. Our installment portfolio increased by $3.9 million. Our commercial loan portfolio, as Brad mentioned earlier, declined $3 million in the quarter due to extraordinary payoff activity related to business sale, as well as sale of various real estate investment projects. It's worth noting that Q2 commercial loan origination was stronger than Q1, but could not offset the approximate $82 million of unscheduled payoffs realized in the quarter. For H1 of the year, our commercial loan portfolio increased $52 million, representing 6.2% annualized growth.

Joel Rahn: For additional insight into our office exposure, I refer you to page 25 of the appendix to this presentation. Key credit quality metrics and trends are outlined on page 9. Overall, credit quality continues to be excellent. Total non-performing loans were $4.5 million, or approximately 10 basis points of total loans at quarter end, consistent with 331. Past due loans totaled 5.3 million, or 14 basis points, down slightly from March 31st. Additionally, while not reflected on the slide, our commercial watch list remains low at 2.2% of the total. At this time, I'd like to turn the presentation over to Gavin for his comments, including his outlook for the remainder of the year.

Gavin Moore: Thanks, Joel, and good morning, everyone. I'm starting at page 10 of our presentation. Page 10 highlights our strong regulatory capital position. While capital ratios increased from the previous quarter, net interest income increased $3 million from the year-ago period. Our tax equivalent net interest margin was 3.4% during the second quarter of 2024 compared to 3.24% in the second quarter of 2023 and up 10 basis points from the first quarter of 2024.

Thanks Brad and good morning everyone. On page seven we share an update of our 3.9 billion dollar loan portfolio and quarterly activity.

Total loans increased by $12 million in the second quarter, representing 1.2% annualized growth. Our mortgage portfolio grew $10.9 million and our installment portfolio increased by $3.9 million.

Our commercial loan portfolio, as Brad mentioned earlier, declined $3 million in the quarter due to extraordinary payoff activity related to business sale as well as sale of various real estate investment projects.

It's worth noting that Q2 commercial loan origination was stronger than Q1, but could not offset the approximate $82 million of unscheduled payoffs realized in the quarter.

For the first half of the year, our commercial loan portfolio increased $52 million, representing 6.2% annualized growth.

Joel Rahn: As noted in the material in each portfolio, yield on new production is significantly higher than the respective portfolio yield. The commercial portfolio continues to be our highest yielding portfolio with a yield of 6.91%. Based upon a solid commercial pipeline, we see continued growth opportunity in H2 while maintaining our disciplined credit standards. Page 8 provides additional detail on our commercial loan portfolio. As pointed out in prior quarters, C&I lending continues to be our primary focus, representing 69% of the portfolio. Manufacturing continues to be the largest concentration within the C&I segment, comprising approximately 10% or $173 million. The remaining 31% of the portfolio is comprised of investment real estate, with the largest concentration being industrial at 7.9% or $123 million.

As noted in the material, in each portfolio, yield on new production is significantly higher than the respective portfolio yield.

The commercial portfolio continues to be our highest yielding portfolio with a yield of 6.91 percent.

Based upon a solid commercial pipeline we see continued growth opportunity in the second half of the year while maintaining our disciplined credit standards.

Page 8 provides additional detail on our commercial loan portfolio. As pointed out in prior quarters, C&I lending continues to be our primary focus, representing 69% of the portfolio.

Manufacturing continues to be the largest concentration within the CNI segment, comprising approximately 10% or 173 million.

The remaining 31% of the portfolio is comprised of investment real estate, with the largest concentration being industrial at 7.9%, or $123 million.

Joel Rahn: It's worth noting that our exposure to the office segment stands at $84 million or 4.8% of our commercial portfolio at quarter end. Our office exposure consists primarily of suburban low-rise office space, with medical comprising 17% of overall office exposure. The average loan size is $1.3 million, which points to the granularity of this segment of our portfolio. For additional insight into our office exposure, I refer you to page 25 of the appendix to this presentation. Key credit quality metrics and trends are outlined on page 9. Overall credit quality continues to be excellent. Total non-performing loans were $4.5 million or approximately 10 basis points of total loans at quarter end, consistent with March 31. Past due loans totaled $5.3 million or 14 basis points, down slightly from March 31.

It's worth noting that our exposure to the office segment stands at 84 million, or 4.8% of our commercial portfolio at quarter end.

Our office exposure consists primarily of suburban, low-rise office space with medical comprising 17% of overall office exposure.

The average loan size is $1.3 million, which points to the granularity of this segment of our portfolio.

For additional insight into our office exposure, I refer you to page 25 of the appendix to this presentation.

Key credit quality metrics and trends are outlined on page 9. Overall credit quality continues to be excellent.

Total non-performing loans were $4.5 million, or approximately 10 basis points of total loans at quarter end, consistent with 331.

Past due loans totaled 5.3 million, or 14 basis points, down slightly from March 31st.

Joel Rahn: While not reflected on the slide, our commercial watch list remains low at 2.2% of the commercial portfolio. At this time, I'd like to turn the presentation over to Gavin for his comments, including the outlook for the remainder of the year.

While not reflected on the slide, our commercial watch list remains low at 2.2% of the commercial portfolio.

At this time, I'd like to turn the presentation over to Gavin for his comments, including the outlook for the remainder of the year.

Gavin Mohr: Thanks, Joel, and good morning, everyone. I'm starting at page 10 of our presentation. Page 10 highlights our strong regulatory capital position. All capital ratios increased from the linked quarter. Net interest income increased $3.3 million from the year ago period. Our tax equivalent net interest margin was 3.4% during Q2 2024, compared to 3.24% in Q2 2023, and up 10 basis points from Q1 2024.

Thanks, Joel, and good morning, everyone. I'm starting at page 10 of our presentation. Page 10 highlights our strong regulatory capital position. All capital ratios increased from the link quarter.

Net interest income increased $3 million from the year-ago period. Our tax equivalent net interest margin was 3.4 percent during the second quarter of 2024 compared to 3.24 percent in the second quarter of 2023 and up 10 basis points from the first quarter of 2024.

Gavin Moore: Average interest earning assets were $4.89 billion in the second quarter of 2024 compared to $4.76 billion in the year-ago quarter and $4.91 billion in the first quarter of 2024. Page 12 contains a more detailed analysis of the link quarter increase in net interest income and net interest margin. On a link quarter basis, our second quarter 2024 net interest margin was positively impacted by four factors. Change in earning asset mix equated to three basis points.

Gavin Mohr: Average interest earning assets were $4.89 billion in Q2 2024, compared to $4.76 billion in the year ago quarter and $4.91 billion in Q1 2024. Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and net interest margin. On a linked quarter basis, our Q2 2024 net interest margin was positively impacted by four factors. Change in earning asset mix equated to three basis points. Increase in yield on loans equated to three basis points. Loan fee accretion equated to five basis points, and change in funding mix equated to five basis points. These increases were partially offset by an increase in funding costs that resulted in six basis points.

Average interest earning assets were $4.89 billion in the second quarter of 2024 compared to $4.76 billion in the year ago quarter and $4.91 billion in the first quarter of 2024.

Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and net interest margin. On a linked quarter basis, our second quarter of 2024 net interest margin was positively impacted by four factors.

Gavin Moore: An increase in yield on loans equated to three basis points, loan fee accretion equated to five basis points, and change in funding mix equated to five basis points. These increases were partially offset by an increase in funding costs, which has resulted in a six base. On page 13, we provide details on the institution's interest rate risk position. The comparative simulation analysis for the second quarter of 2024 and the first quarter of 2024 calculates the change in net interest income over the next 12 months under five rate scenarios. All scenarios assume a static balance sheet. The base rate scenario applies the spot yield curve from the valuation date, while the shock scenarios consider immediate, permanent, and parallel rate changes.

Change in earning asset mix equated to three basis points, increase in yield on loans equated to three basis points, loan fee accretion equated to five basis points, and change in funding mix equated to five basis points.

These increases were partially offset by an increase in funding costs.

Gavin Mohr: On page 13, we provide details on the institution's interest rate risk position. The comparative simulation analysis for Q2 2024 and Q1 2024 calculates the change in net interest income over the next 12 months under 5 rate scenarios. All scenarios assume a static balance sheet. The base rate scenario applies the spot yield curve from the valuation date. The shock scenarios considered immediate, permanent, and parallel rate changes. The base case modeled NII is largely unchanged during the quarter as asset yields benefit from a shift in asset mix, a shift in loan mix, and a continued asset repricing was offset by liability repricing. The NII sensitivity profile is largely unchanged during the quarter for smaller rate changes of ±100 basis points. The exposure to larger rising rate scenarios decreased modestly.

who has resulted in six basis points.

On page 13 we provide details on the institution's interest rate risk position. The comparative simulation analysis for the second quarter of 24 and the first quarter of 24 calculates the change in net interest income over the next 12 months under five rate scenarios.

All scenarios assume a static balance sheet. The base rate scenario applies the spot yield curve from the valuation date.

The shock scenario is considered immediate, permanent, and parallel rate changes.

Gavin Moore: The base case model, the NII, is largely unchanged during the quarter as asset yields benefit from a shift in asset mix, a shift in loan mix, and continued asset repricing was offset by liability repricing. The NII sensitivity profile is largely unchanged during the quarter for smaller rate changes of plus or minus 100 basis points. The exposure to larger rising rate scenarios decreased modestly. Asset sensitivity increased slightly while liability sensitivity declined. Additionally, NII exposure to larger rate declines is largely unchanged. Currently, 34.3% of assets are repriced in one month and 44.9% are repriced in the next 12 months. Moving on to page 14,

The base case model to NII is largely unchanged during the quarter, as asset yields, benefits from a shift in asset mix, a shift in loan mix, and continued asset repricing was offset by liability repricing. The NII sensitivity profile is largely unchanged during the quarter for smaller rate changes of plus or minus 100 basis points.

Gavin Mohr: Asset sensitivity increased slightly, while liability sensitivity declined. Additionally, NII exposure to larger rate declines is largely unchanged. Currently, 34.3% of assets reprice in one month and 44.9% reprice in the next twelve months. Moving on to page fourteen. Non-interest income totaled $15.2 million in Q2 2024, as compared to $15.4 million in the year ago quarter and $12.6 million in Q1 2024. Q2 2024 net gains on mortgage loans totaled $1.3 million compared to $2.1 million in Q2 2023. The decrease is due to decreased profit margins as well as lower volume of loan sales.

The exposure to larger rising rate scenarios decreased modestly. Asset sensitivity increased slightly while

liability sensitivity decline. Additionally, NII exposure to larger rate decline is largely unchanged. Currently, 34.3% of assets repriced in one month and 44.9% repriced in the next 12 months.

Gavin Moore: Non-interest income totaled $15.2 million in the second quarter of 2024, as compared to $15.4 million in the year-ago quarter and $12.6 million in the first quarter of 2024. Second quarter of 2024 net gains on mortgage loans totaled $1.3 million, compared to $2.1 million in the second quarter of 2023. The decrease is due to decreased profit margins as well as lower volume of loan sales.

Moving on to page 14. Non-interest income totaled $15.2 million in the second quarter of 2024 as compared to $15.4 million in the year-ago quarter and $12.6 million in the first quarter of 2024.

Second quarter, 24 net gains on mortgage loans totaled $1.3 million compared to $2.1 million in the second quarter of 23. The decrease is due to decreased profit margins as well as lower volume of loan sales.

Gavin Moore: Gain on equity securities at fair value totaled $2.7 million during the second quarter of 2024. This gain is a consequence of the exchange of our shares of Visa Class B1 common stock into a combination of Visa Class C common stock and Visa Class B2 common stock. With the completion of this exchange, we are able to record the fair value of the Visa Class C common stock through income, as it is convertible into publicly traded Visa Class A common stock, while the Visa Class B2 common stock continues to be carried at zero, positively impacting non-interest income with a $2.1 million gain on mortgage loan servicing net. This is comprised of $2.2 million of revenue.

Gavin Mohr: Gain on equity securities at fair value totaled $2.7 million during Q2 2024. This gain is a consequence of the exchange of our shares of Visa Class B-1 common stock into a combination of Visa Class C common stock and Visa Class B-2 common stock. With the completion of this exchange, we're able to record the fair value of the Visa Class C common stock through income as it is convertible into publicly traded Visa Class A common stock, while the Visa Class B-2 common stock continues to be carried at zero. Positively impacting non-interest income was $2.1 million gain on mortgage loan servicing net. This is comprised of $2.2 million of revenue, $0.9 million or $0.03 per diluted share gain due to change in price.

gain on equity.

Securities at fair value totaled $2.7 million during the second quarter of 2024. This gain is a consequence of the exchange of our shares of Visa Class B1 common stock into a combination of Visa Class C common stock and Visa Class B2 common stock.

With the completion of this exchange, we are able to record the fair value of the Visa Class C common stock through income as it is convertible into publicly traded Visa Class A common stock, while the Visa Class B2 common stock continues to be carried at zero.

positively impacting non-interest income with 2.1 million dollar gain on mortgage loan servicing net. This is comprised of 2.2 million of the revenue.

Gavin Moore: 0.9 million or 3 cents per diluted share gain due to the change in price that was partially offset by a $1 million decrease due to paydowns of capitalized mortgage loan servicing rights in the second quarter of 2024. As detailed on page 15, our non-interest expense totaled $33.3 million in the second quarter of 2024, as compared to $32.2 million in the year-ago quarter and $32.2 million in the first quarter of 2024. Performance-based compensation increased $0.7 million due to primarily the higher expected incentive compensation payout for Salary and Hourly Employees. Data processing costs increased by 0.4 million from a year ago, period, primarily due to the core data processor. Annual asset growth and CPI-related cost increases as well as new solutions implemented during this time frame.

Gavin Mohr: That was partially offset by a $1 million decrease due to paydowns of capitalized mortgage loan servicing rights in Q2 2024. As detailed on page 15, our noninterest expense totaled $33.3 million in Q2 2024 as compared to $32.2 million in the year-ago quarter and $32.2 million in Q1 2024. Performance-based compensation increased $0.7 million due to primarily the higher expected incentive compensation payout for salaried and hourly employees. Data processing costs increased by $0.4 million from the year-ago period, primarily due to core data processor, annual asset growth, and CPI-related cost increases, as well as new solutions implemented during this timeframe.

0.9 million or three cents per diluted share gain due to change in price that was partially offset by a 1 million dollar decrease due to pay downs of capitalized mortgage loan servicing rights in the second quarter of 24.

As detailed on page 15, our non-interest expense totaled $33.3 million in the second quarter of 2024 as compared to $32.2 million in the year-ago quarter and $32.2 million in the first quarter of 2024.

Performance-based compensation increased $0.7 million due to primarily the higher expected incentive compensation payout.

for Salary and Hourly Employees.

Data processing costs increased by 0.4 million from the year ago period primarily due to core data processor

Annual asset growth and CPI related cost increases as well as new solutions implemented during this time frame.

Gavin Moore: Page 16 is our update for 2024 Outlook to see how our actual performance during the second quarter compared to the original Outlook we provided in January of this year. Our 2024 Outlook estimated loan growth in mid-single digits. Loans increased $11.9 million in the second quarter of 2024, or 1.2% annualized, which is below our forecasted range. Mortgage installment loans had positive growth, while commercial loans decreased in the second quarter of 2024. In second quarter 2024, net interest income increased by 7.8% over 2023, which is within our forecast of mid single-digit growth.

Gavin Mohr: Page sixteen is our update for our 2024 outlook to see how our actual performance during Q2 compared to the original outlook we provided in January of this year. Our outlook estimated loan growth in mid-single digits. Loans increased $11.9 million in Q2 2024, or 1.2% annualized, which is below our forecasted range. Mortgage installment loans had positive growth, while commercial loans decreased in Q2 2024. Q2 2024 net interest income increased by 7.8% over 2023, which is within our forecast of mid-single digit growth. The net interest margin was 3.4% in the current quarter and 3.24% for the prior year quarter, and up 10% or 10 basis points, excuse me, from the linked quarter.

Page 16 is our update for 2024 Outlook to see how our actual performance during the second quarter compared to the original Outlook we provided in January of this year. Our Outlook estimated loan growth in mid-single digits.

Loans increased $11.9 million in the second quarter of 2024, or 1.2% annualized, which is below our forecasted range. Mortgage installment loans had positive growth, while commercial loans decreased in the second quarter of 2024.

Gavin Moore: The net interest margin was 3.4% in the current quarter and 3.24% in the current quarter, percent for the prior year quarter and up 10 basis points from the late quarter, the second quarter of 2024. Provision for credit losses was an expense of $20,000 below our forecasted range. Moving on to page 17, non-interest income totaled $15.2 million in the second quarter of 2024, which is higher than our forecasted range of $11.5 million to $13 million.

Second quarter of 2024, net interest income increased by 7.8% over 2023, which is within our forecast of mid-single-digit growth. The net interest margin was 3.4% in the current quarter and 3.24%.

for the prior year quarter and up 10 basis points from the late quarter.

Gavin Mohr: Q2 2024 provision for credit losses was an expense of $20,000, below our forecasted range. Moving on to page 17. Non-interest income totaled $15.2 million in Q2 2024, which is higher than our forecasted range of $11.5 million to $13 million. Q2 mortgage loan origination sales gains totaled $142.6 million, $95.5 million, and $1.3 million, respectively. Mortgage loan servicing net generated a gain of $2.1 million in Q2 2024.

The second quarter of 2024.

Second quarter 24 provision for credit losses was an expense of $20,000 below our forecasted range.

Moving on to page 17, non-interest income totaled $15.2 million in the second quarter of 2024, which was higher than our forecasted range.

Gavin Moore: Second quarter mortgage loan origination sales gains totaled $142.6 million, $95.5 million, and $1.3 million, respectively. Mortgage loan servicing net generated a gain of $2.1 million in the second quarter of 2024. Gain on equity securities of a fair value of $2.7 million or $0.10 per loan share after tax in the second quarter ended June 30, 2024, which is attributed to the exchange over Visa Class B1 common stock. Non-interest expense was $33.3 million in the second quarter, within our forecasted range of $32.5 to $33.5 million. Our effective income tax rate of 20% for the second quarter of 2024 was in line with our forecast. Lastly, there were no shares we purchased in the second quarter of 2024.

of $11.5 million to $13 million.

Second quarter mortgage loan origination sales gains totaled $142.6 million, $95.5 million, and $1.3 million respectively.

Mortgage loan servicing net generated a gain of $2.1 million in the second quarter of 2024.

Gavin Mohr: Gain on equity securities at fair value of $2.7 million or $0.10 per diluted share after tax in Q2 ended 30 June 2024, which is attributed to the exchange of our Visa Class B-1 common stock. Non-interest expense was $33.3 million in Q2, within our forecasted range of $32.5 to $33.5 million. Our effective income tax rate of 20% for Q2 2024 was in line with our forecast. Lastly, there were no shares repurchased in Q2 2024. That concludes my prepared remarks. I would like to now turn the call back over to Brad.

Gain on equity security is a fair value of $2.7 million or $0.10 per losing share after tax in the second quarter ended June 30, 2024, which is attributed to the exchange over Visa Class B1 common stock.

Non-interest expense was $33.3 million in the second quarter within our forecasted range of $32.5 to $33.5 million.

Our effective income tax rate of 20% for the second quarter of 2024 was in line with our forecast. Lastly, there were no shares we purchased in the second quarter of 2024.

Brad Kessel: That concludes my prepared remarks. I would like to now turn the call back over to Brad. Thanks, Gavin. I'm very pleased.

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

Brad Kessel: Thanks, Gavin. I'm very pleased with our H1 performance for 2024, and it is very much in line with the strong results which our company has been delivering quarter over quarter, year after year for some time. This success is directly attributable to our talented team, their focus on connecting with customers, investing in our communities, and making banking easy. We've built a strong community bank franchise, which positions us well to effectively manage through a variety of economic environments and continue delivering strong and consistent results for our shareholders. As we move into the H2 of 2024, our 160th year of serving the communities of Michigan, our focus will be continuing to invest in our team, leveraging our technology, and supporting our communities. In doing so, we will continue the rotation of our earning assets out of lower-yielding investments into higher-yielding loans.

Brad Kessel: I'm very pleased with our first half performance for 2024, and it is very much in line with the strong results which our company has been delivering quarter over quarter, year after year for some time. This success is directly attributable to our talented team, their focus on connecting with customers, investing in our communities, and making banking easy. They have built a strong community bank franchise. This positions us well to effectively manage through a variety of economic environments and continue delivering strong and consistent results for our shareholders.

I'm very pleased with our first half performance for 2024, and it is very much in line with the strong results.

which our company has been delivering quarter over quarter, year after year for some time.

This success is directly attributable to our talented team, their focus on connecting with customers, investing in our communities, and making banking easy. We've built a strong community bank franchise.

which positions us well to effectively manage through a variety of economic environments and continue delivering strong and consistent results for our shareholders.

Brad Kessel: As we move into the second half of 2024, our 160th year of serving the communities of Michigan, our focus will be continuing to invest in our team, leveraging our technology, and supporting our communities. In doing so, we will continue the rotation of our earning assets out of lower yielding investments into higher yielding loans. With the strong value proposition offered as a large community commercial bank, we believe we can continue to grow our customer base while managing our cost of funds and controlling our non-interest expenses. Accordingly, we are excited about our future. At this point in time, we'd like to open the call for questions.

As we move into the second half of 2024, our 160th year of serving the communities of Michigan, our focus will be continuing to invest in our team, leveraging our technology, and supporting our communities.

Brad Kessel: With the strong value proposition offered as a large community commercial bank, we believe we can continue to grow our customer base while managing our cost of funds and controlling our non-interest expenses. Accordingly, we are excited about our future. At this point in time, we'd like to open the call for questions.

Ezra: Thank you very much. To ask a question, please press star followed by one on your telephone keypad. Now, when prepping to ask your question, please ensure your device is unmuted locally. If you change your mind, please press star followed by two. Our first question is from Brendan Nozal with Hovda Group. Brendan, your line is now open. Please go ahead.

Operator: Thank you very much. Our first question is from Brendan Nosal with Hovde Group. Brendan, your line is now open. Please go ahead.

Operator: Thank you very much. To ask your questions please press star followed by 1 on telephone keypad know when pressing to ask your questions Our first question is from Brendan Nosal with Hovde Group. Brendan, your line is now open. Please go ahead.

Our first question is from Brian.

Brendan Lasalle.

However group Brendan.

Your line is now open. Please go ahead.

Gavin Moore: Hey, good morning, guys. Hope you're doing well. Morning. Maybe just to start off on the net interest margin here, I mean, expansion was really quite healthy and probably stronger than I was looking for. Just as we move to the back half of the year, could you help us walk through the moving pieces over the next few quarters and thoughts on where the margin trends from here? Thanks.

Brendan Nosal: Hey, good morning, guys. Hope you're doing well.

Hey, good morning, guys hope you're doing well.

Brad Kessel: Morning.

Good morning.

Gavin Moore: Yeah, sure. So, we did have some fee accretion that equated to five basis points for the quarter, although we do view that as part of the core of the business. I anticipate we'll continue to drift higher as we forecast. I think we'll end up within that range. I'm pretty confident we'll end up in that forecasted range that we provided in January. The moving pieces are always the deposit remix, and then we can see in terms of the repricing of the asset book that's currently well below market rates. But yeah, I do believe we'll continue to see it drift higher.

Brendan Nosal: Maybe just to start off on the net interest margin here. I mean, expansion was really quite healthy and probably stronger than I was looking for. Just as we move to the H2, could you help us walk through the moving pieces over the next few quarters and thoughts on where the margin trends from here? Thanks.

Maybe just to start off on the net interest margin here.

Spansion was really quite healthy and probably stronger than I was looking for.

As we move to the back half of the year could you help us walk through the moving pieces over the next few quarters and thoughts on where the margin trends Amir. Thanks.

Gavin Mohr: Yeah, sure. So we did have some fee accretion that we equated to five basis points for the quarter, although we do view that as part of a core of the business. I anticipate we'll continue to drift higher, as we forecast. I think we'll end up within that range. I'm pretty confident we'll end up in that forecasted range that we provided in January. The moving pieces is always, you know, the deposit remix, and then what we're able to see in terms of repricing of the asset book that's currently, you know, well below market rates. Yeah, I do believe we'll continue to see it drift higher.

Yes sure.

So we did have some fee accretion.

That we.

We acquired a five basis points for the quarter.

So that we have to view that as part of our core of the business.

Hum.

I anticipate we will continue to drift higher.

As we forecast I think we'll end up within that range I'm pretty confident went up in that forecasted range that we provided in January the moving pieces as always.

The deposit remix.

And then we're able to see in terms of repricing of.

The asset book, that's currently well below below market rates.

Yes, I do believe we will continue to see it.

To drift higher.

Brad Kessel: Okay, perfect. One more for me before I step back. It looks like M&A activity in Michigan continues to heat up with another major transaction announced this morning. Just curious, at this point, what your own appetite is to participate in the kind of activity reviewed in the state.

Brendan Nosal: Okay, perfect. One more for me before I step back. It looks like M&A activity in Michigan continues to heat up with another in-market transaction announced this morning. Just curious at this point, what your own appetite is to participate in the kind of renewed activity in the state.

Okay perfect.

Speaker Change: One more convenient for I can step back.

It looks like M&A activity in Michigan continues to heat up with another end market transaction announced this morning.

Speaker Change: Just curious at this point, what your own appetite is to participate in the kind of the renewed activity in the state.

Brad Kessel: You know, Brendan, Independent Bank has a history of selective M&A, and I think, perspectively, we continue to be, and would be interested in partnering with other institutions where it would make sense. But it's not a requirement. It doesn't, you know; our five-year forecast is not dependent on doing a deal. So I'm not surprised to see another announcement in the Michigan market, and we'll probably see more going forward, and if we can be a part of that, and it makes sense for us, that would be great.

Brad Kessel: You know, Brendan, Independent Bank has a history of selective M&A, and I think prospectively we continue to, you know, where it would make sense, would be interested in, you know, partnering with other institutions. But it's not a requirement. It doesn't, you know, our five-year forecast is not dependent on doing a deal. I am not surprised to see another announcement in the Michigan market, and we'll probably see more going forward. If we can be a part of that and it makes sense for us, that would be great.

Brendan.

Brendan: Independent Bank has a history of selective M&A and.

Brendan: I think perspective, we prospectively, we continue to.

Brendan: Where it would make sense would be interested interested in.

<unk>.

Speaker Change: Partnering with other institutions, but it's not a requirement or it doesn't.

Our five year forecast is not dependent on doing a deal so.

Speaker Change: I am not surprised to see.

Another announcement in the Michigan market.

Speaker Change: And we will probably see more going forward.

Speaker Change: And if we can be a part of that and it makes sense for us that would be great.

Brendan Nosal: All right. Fantastic. Thanks for the thoughts, Brad.

Brad Kessel: All right, that's it. Thanks for the thoughts, Brad.

Speaker Change: Thank you.

Ezra: Thank you very much. Our next question is from Damon Del Monte with KBW. Damon, your line is now open. Please go ahead.

Speaker Change: Okay.

Operator: Thank you very much. Our next question is from Damon DelMonte with KBW. Damon, your line is now open. Please go ahead.

Speaker Change: Thank you very much our next.

Speaker Change: Question is from Damon Delmonte with K B W. Damon Your line is now open. Please go ahead.

Joel Rahn: Hey, this is Matt Rank filling in for Damon. Hope everybody's doing well today. Unknown Speaker My first question was just on loan growth. Hi. You guys mentioned strong, you know, origination activities, strong pipelines, but just looking forward to the second half of the year, how should we think about net growth? Do you think paydowns and payoffs will continue to weigh on overall growth?

Matthew Renck: Hey, this is Matthew Renck filling in for Damon. Hope everybody's doing well today.

Matt Rank: Hey, this is Matt rank filling in for Dan and hope everybody is doing well today.

Brad Kessel: Hi, Matt.

Matthew Renck: My first question was just on loan growth. Hi. You guys mentioned strong, you know, origination activity, strong pipeline. Just looking forward to H2, how should we think about net growth? Do you think pay downs and payoffs will continue to weigh on overall growth, or will we get back to that mid-single digit range?

Matt Rank: My first question was just on loan growth.

Matt Rank: You guys mentioned strong origination activity strong pipeline, but just looking forward to the second half of the year. How should we think about net growth do you think paydowns and payoffs will continue to weigh on overall growth or we will get back to that mid single digit range.

Joel Rahn: Yeah. This is Joel. Yeah, I really do feel that, you know, our game plan, we were executing our game plan. Our originations, as I said, were stronger, slightly stronger in Q2 than they were in Q1. Payoffs happen, but what was extraordinary was that $82 million of quarterly payoffs, which I would note we didn't lose any relationships. You know, we had a customer sell a business and we had a number of real estate projects that sold. They were all bunched within about a six-week time period. It was just very unusual. I look at our origination activity has been solid and steady.

Joel Rahn: Yeah, this is Joel. Yeah, I really do feel that with our game plan, we were executing our game plan, our originations, as I said, were stronger, slightly stronger in the second quarter than they were in the first quarter. And, you know, payoffs happened. But what was extraordinary was that 82 million in quarterly payoffs, which I would note we didn't lose any relationships, but we had a customer sell a business, and we had a number of real estate projects sold. They were all bunched within within about a six week time period, so it was just very unusual.

Speaker Change: Yes. This is Joe.

Joe: I really do feel that.

Speaker Change: Our game plan.

Speaker Change: We're executing our game plan, our originations as I said for stronger slightly stronger in the second quarter than they were in the first quarter and payoffs happen, but what was extraordinary was that $82 million of quarterly payoffs.

Speaker Change: Which I would note we didn't lose any relationships but.

Speaker Change: We had a customer sell a business in EMEA and a number of real estate projects sold but they were all bunched within within about a six week time period. So it was just very unusual.

Joel Rahn: I look at our origination activity has been solid and steady. Our pipeline is as strong as it's been since mid last year. So it's actually been growing as we went through the first half of this year. We're expecting a good, solid second half of the year and feel like our original plan, that we were right on our original plan. It's just this quarter looks a little weird, but I think by the time we get to year end, we'll be right on plan or slightly ahead.

Speaker Change: And so.

Speaker Change: I just I look at our origination activity has been solid and steady our pipeline.

Joel Rahn: Our pipeline is as strong as it's been since mid last year, so it's actually been growing as we went through the H1 of this year. We're expecting a good solid H2 of the year and feel like our original plan, you know, that we're right on our original plan. It's just this quarter looks a little weird, but I think by the time we get to year-end, we'll be right on plan or slightly ahead.

Speaker Change: As.

Speaker Change: As strong as it's been since mid last year. So it's actually been growing as we went through the first half of this year we were expecting.

Speaker Change: Good solid second half of the year and feel like our original plan.

Speaker Change: Our original plan is just this quarter looks a little weird, but.

Speaker Change: By the time, we get to year end, we will be right on plan or slightly ahead.

Gavin Moore: Okay, got it. Thank you. And then last one for me, just with expenses kind of pushing up on the higher end of the range, do you think you'll be able to maintain the range just given expected growth in the back half of the year? Are there any levers you can pull to kind of offset any expense growth?

Matthew Renck: Okay. Got it. Thank you. Last one for me. Just with expenses kind of pushing up on the higher end of the range, do you think you'll be able to maintain the range just given, you know, expected growth in the H2? Are there any levers you can pull to kind of offset any expense growth?

Speaker Change: Okay got it. Thank you and then last one for me just with the expenses kind of pushing up on the higher end of the range do you think you'll be able to maintain the range just given no expected expected growth in the back half of the year are there any levers you can call.

Speaker Change: To kind of offset any expense growth.

Brad Kessel: Well, I do. And Gavin, you jump in here too. You know, I think our range that was given early in the year back in January is still intact. I mean, we're continuing to look at every area of the bank and how we're using our resources. And so I think it is reasonable to still have that range in your estimates. Gavin, anything different there?

Brad Kessel: Well, I do. Gavin, you can jump in here too. You know, I think our range that was given early in the year, back in January is still intact. I mean, we're continuing to look at every area of the bank, and I think it is reasonable to still have that range in your estimates. Gavin, anything different there?

Speaker Change: Well I do and Gavin you can jump in here too I think our range.

Gavin: Given early in the year back in January is still intact.

Speaker Change: We're continuing to.

Gavin: We'll look at every area of the Bakken and how we're using our resources.

Speaker Change: So.

Speaker Change: I think it is.

Speaker Change: Reasonable to still have that range.

Speaker Change: In your estimates do you have any anything differently.

Gavin Moore: No, no, I think it's really well said. I just maybe a little more focused on the driver this quarter was just the accrual for incentive catch-up. So, if that was the incentive compensation this quarter, we had a really strong quarter, so we had some catch-up to do, and that was about quarter over, on a link quarter basis, a half million dollars. I agree with Brad.

Gavin Mohr: No, no, I think it's really well said. I just maybe a little more focused on the driver this quarter was just the accrual for incentive catch up. Is that the incentive compensation this quarter was a really strong quarter, so we had some catch up to do, and that was about on a linked quarter basis of a half million dollars. I agree with Brad.

Speaker Change: No I think that's really well said I'd, just maybe a little more focused on the driver. This quarter was just the accrual for incentive catch up so.

Speaker Change: If.

Speaker Change: Is that the incentive compensation this quarter were really strong quarter. So we had.

Speaker Change: Some catch up to do and that was about quarter over quarter on a linked quarter basis was $5 million. So I agree with Brad.

Gavin Moore: Okay, great. Thank you. I'll step back.

Matthew Renck: Okay, great. Thank you. I'll step back.

Speaker Change: Okay, great. Thank you I'll step back.

Ezra: Thank you very much. As a reminder, to ask a question, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your device is unmuted locally. Our next question is from Nathan Race with Piper Sandler. Nathan, your line is now open, please go ahead.

Operator: Thank you very much. Our next question is from Nathan Race with Piper Sandler. Nathan, your line is now open. Please go ahead.

Speaker Change: Thank you very much as a reminder to ask a question. Please press star followed by one on your telephone keypad now when prepping to ask a question. Please ensure your devices and you take a look kidney.

Speaker Change: Okay.

Our next question is from Nathan race with Piper Sandler Nathan Your line is now open. Please go ahead.

Speaker Change: Okay.

Gavin Moore: Hey guys, good morning. Thanks for taking the questions. Morning, Nathan. Curious, maybe, Gavin, if you could just update us on your margin expectations, if the Fed were to cut in late September, and if you were to get maybe three to four cuts as well into 2025, how do you kind of think about exit margin coming out of the end of the fiscal year?

Nathan Race: Hey, guys. Good morning. Thanks for taking the questions.

Nathan Race: Hey, guys. Good morning, Thanks for taking the questions.

Brad Kessel: Morning, Nathan.

Joel Rahn: Morning.

Speaker Change: Good morning, Nathan morning.

Nathan Race: Curious maybe, Gavin, if you can just update us on your margin expectations if the Fed were to cut in late September and if we were to get maybe 3 to 4 cuts as well into 2025. How do you kind of think about exit margin coming out of the end of that year?

Kevin: Curiously, maybe Kevin if you can just update us on your margin expectations at the February cut in late September.

Speaker Change: Where to get maybe 3% to four cuts as well into 2025, how do you kind of thinking about exit margin.

Speaker Change: Coming out of the.

Speaker Change: Uh huh.

Speaker Change: That year.

Gavin Moore: Yeah, so as you can see on our profile, in terms of the NII, we're in a pretty stable position. I do think that the Fed cut could maybe lower the incentive or some of the pressure that the industry is feeling in terms of the deposit rotation. So that would be positive. Additionally, if, you know, we could lose some of the inversion, and we can see that new loans continue to go on at current levels, I think that's also positive, in the long term.

Gavin Mohr: Yeah, so as you can see on our profile in terms of the NII, we're running a pretty stable position. I do think that the Fed cuts could maybe lower the incentive or some of the pressure that the industry is feeling in terms of the deposit rotation. That would be a positive. Additionally, if you know, if we could lose some of the inversion and we can see that new loans continue to go on at current levels. I think that's also positive, long term. But as we've kind of again as we're showing here in the deck, we're trying to manage to a fairly tight earnings profile.

Speaker Change: Yes.

Speaker Change: As you can see on our on our profile in terms of the NII.

We're bringing a pretty stable <unk>.

Position.

Speaker Change: I do think that.

Speaker Change: The the fed cuts.

Speaker Change: Could <unk>.

Speaker Change: Maybe lower.

Speaker Change: The incentive or the.

Speaker Change: Some of the pressure that the industry is feeling in terms of.

Speaker Change: The deposit rotation, so that would be a positive.

Speaker Change: Additionally.

Speaker Change: We could lose some of the inversion.

Speaker Change: And we can see the new loans continue to go on at current levels. So I think that's also positive.

Gavin Moore: But I don't as we as we've kind of again, as we're showing here in the in the deck, we're trying to manage to do a fairly tight earnings profile. So overall positive, but not a big, big swing.

Speaker Change: Long term.

Speaker Change: But I don't as we as we've kind of again was we're showing here in the in the deck were trying to manage to a fairly tight.

Speaker Change: Earnings profile so.

Gavin Mohr: Overall positive, but not a big swing.

Speaker Change: Overall positive.

But not a big big swing.

Nathan Race: Okay, great. That's helpful. Just curious, you know, with the Visa share gains that you guys recognized in the quarter, how are you guys kind of think about maybe redeploying some of those proceeds that you guys contemplate maybe a partial securities portfolio restructure or just kind of is the thinking there just to build additional excess capital for maybe some acquisitions or share repurchases down the road?

Speaker Change: Okay great.

Gavin Moore: That's helpful. And just curious, you know, with the visa share gains that you guys recognize in the quarter, how do you guys kind of think about maybe redeploying some of those proceeds that you guys contemplate maybe, maybe a partial securities portfolio restructuring or just kind of, is it thinking they're just to build additional excess capital for maybe some acquisitions or share purchases down the road? Unknown AttendeeYes. So

Speaker Change: That's helpful and just curious with the visa share gains that you guys.

Speaker Change: Recognizing the quarter.

Speaker Change: How are you guys kind of think about maybe redeploying some of those proceeds that you guys contemplate maybe maybe a partial securities portfolio restructuring.

Speaker Change: Is the.

Speaker Change: Kicking in there just to build additional excess capital for maybe some acquisitions or share repurchases down the road.

Gavin Moore: Yeah, so we had that conversation. Part of the part of the visa transaction is that it's, it's there, there were gates on it. So at this point in time, we've actually only sold two-thirds of the shares that were able to convert and then become liquid. We won't the other third won't become available until next month, we anticipate. So at this point in time, Nathan, management made the decision to just book the gains. And then we'll reevaluate going forward to see what opportunities are there for us, whether we want to, you know, retain the capital or not.

Gavin Mohr: Yes. We had that conversation. Part of the Visa transaction is it's there was gates on it. At this point in time, we've actually only sold two-thirds of the shares that were able to convert and became liquid. The other third won't become available until next month, we anticipate. At this point in time, Nathan, management made a decision to just book the gains, and then we'll reevaluate going forward to see what opportunities are there for us, whether we want to, you know, retain the capital or restructure by year-end.

Speaker Change: Yes.

Speaker Change: So we have this conversation.

Speaker Change: Part of the part of the visa transaction as it is.

Speaker Change: There was gates on it so at this point in time, we've actually only sold two thirds of the shares.

Speaker Change: <unk> that we're able to convert and became liquid.

Speaker Change: The other third won't become available until next month, we anticipate.

So at this point in time, Nathan management made a decision to to just book the gains and then we will reevaluate going forward.

Speaker Change: Let's see what opportunities are there for us whether we want to retain the capital or restructure.

Speaker Change: By year end.

Speaker Change: Okay.

Nathan Race: Okay, great. Then maybe just one last one on fee income. You know, levels in the quarter came in a little lower or towards the lower end of the range, excluding some of those one-time items around or I guess maybe non-core items around the MSR adjustment, the Visa gain. Do you kind of think fee income will maybe be towards the middle to upper end of the range as we move into Q3 and Q4 based on what you're seeing?

Unknown Attendee: Unknown Attendee, Laura Hunsicker, Unknown Attendee, Laura Hunsicker,

Speaker Change: Okay great.

Speaker Change: And then maybe just one last one on fee income.

Speaker Change: All levels in the quarter came back came in a little lower or towards the lower end of the range. Excluding some of those onetime.

Speaker Change: Onetime items around or I guess, maybe noncore homes on the MSR adjustment again can you kind of think fee income will maybe be towards the middle to upper end of the range as we move into <unk> and <unk>.

Gavin Moore: I think we can get back to the middle. I'm hesitant to say high because of the margin pressure we're seeing on the gain on sale for loans. We did have what I would call, Nathan, unique events in the quarter that put additional pressure on that margin. I mean, there's general market pressure on the margin, but we had to move some saleable loans into the portfolio that put some pressure on the margin. Then we also had some hedge ineffectiveness that we've been able to tighten up on a go-forward basis. So I think working back to the middle. The other piece there is that if we could see swap fee income increased, I think it would be an opportunity for us as well.

Gavin Mohr: I think we can get back to the middle. I'm hesitant to say high because the margin pressure we're seeing on the gain on sale of loans. We did have what I would call, Nathan, unique events in the quarter that put additional pressure on that margin. I mean, there's general market pressure on the margin, but we had to move some saleable loans to portfolio that put some pressure on the margin. We also had some hedge ineffectiveness that we've been able to tighten up on a go-forward basis. I think working back to the middle.

Speaker Change: Based on what I think we can get back.

Speaker Change: I think we can I think we can get back to the middle.

Speaker Change: Hesitant to say high because the margin pressure were seeing on the gain on sale for loans, we did have.

Gavin Moore: Okay, great. And then just one last one for me.

Nathan Race: What I would call Nathan unique.

Speaker Change: Unique events in the quarter that put additional pressure on that margin I mean, there is general market pressure on the margin, but we had to move some salable loans to portfolio that put some pressure on the margin and then we also.

They had a some.

Speaker Change: Some hedge and effectiveness.

Speaker Change: That.

Speaker Change: We've been able to tighten up on a go forward basis. So I think working back to the middle of that the other piece areas, if we could see swap fee.

Gavin Mohr: The other piece there is, if we could see swap fee income increase, I think we, you know, it'd be an opportunity for us as well.

Speaker Change: Income increased.

Speaker Change: <unk> be an opportunity for us as well.

Brad Kessel: You know, given that it seems like you guys are expecting a pickup in loan growth in the back half of the year, do you see much in the way in terms of needing to provide for that growth from a provision perspective, or do you just feel like the reserve can maybe drift lower just given kind of the surplus reserves that exist today? Yeah, that's a great question.

Nathan Race: Okay, great. Just one last one from me. You know, just given it seems like you guys are expecting a pickup in loan growth in the H2, do you guys see much in the way in terms of needing to provide for that growth, from a provision perspective? Or do you just feel like the reserve can maybe drift lower just given kind of the surplus reserves that exist today?

Speaker Change: Okay, Great and then just one last one for me.

Speaker Change: Just given it seems like you guys are expecting a pickup in loan growth in the back half of the year do you guys see much Noel.

Speaker Change: Way in terms of needing to provide for that growth from a provision perspective or do you just feel like the <unk>.

Speaker Change: <unk>, maybe drift lower.

Speaker Change: Given kind of the surplus reserves that exist today.

Brad Kessel: And, you know, I think that, prospectively, the provisioning would be directly attributable to additional loan growth. So I think the guidance we gave at the start of the year on the provision probably is a little heavy. And so it's something under that. But barring, you know, a credit event, I would expect us to have a greater provision than what we had this past quarter, and directly related to loan growth.

Brad Kessel: Yeah. That's a great question. You know, I think that prospectively our provisioning would be directly attributable to additional loan growth. I think the guidance we gave at the start of the year on the provision probably is a little heavy.

Speaker Change: Yes.

Speaker Change: That's a great question and.

Speaker Change: I think that.

Speaker Change: Prospectively.

Speaker Change: Our provisioning would be directly attributable to additional loan growth. So.

Speaker Change: I think those.

Speaker Change: The guidance, we gave at the start of the year on the provision probably is a little heavy.

Nathan Race: Mm-hmm.

Brad Kessel: It's something under that, but barring, you know, a credit event. I would expect us to have a greater provision than what we had this past quarter and directly related to loan growth. Now, having said that, we do have the ACL today at, I think, 1.46%, and probably 25% of that is in the subjective. You know, if the soft landing continues to materialize like, you know, it sure feels like it could drift lower, Nathan. Sort of a long answer, but hopefully that tells you what's in our head on it.

Speaker Change: And so it's something under that but barring at all.

Speaker Change: A credit event, but.

I would expect us to have a greater provision than what we had this past quarter and directly related to loan growth now having said that we do have.

Brad Kessel: Now, having said that, we do have The ACL today is, I think, at 1.46%, and probably 25% of that is in the subjective. So, you know, if the soft landing continues to materialize, it sure feels like it could drift lower, Nathan. So, sort of a long answer, but hopefully that tells you what's in our heads about it. That's very helpful. I appreciate the color. Thanks, guys.

Speaker Change: The ACL today is I think a 146% and probably 25% to that is in the subjective so.

Speaker Change: If if the soft landing continues to materialize like it sure feels like.

Speaker Change: It could drift lower Nathan so sort of a long answer, but hopefully that tells you what center head on it.

Nathan Race: That's very helpful. I appreciate all the color. Thanks, guys.

Speaker Change: That's very helpful.

Nathan Race: We feel the color thanks Scott.

Brad Kessel: Thank you.

Nathan Race: Thank you.

Ezra: Thank you very much. We have no further questions, so I will hand you over to Brad and the management team.

Operator: Thank you very much. We have no further questions, so I will hand back to Brad and the management team to conclude.

Speaker Change: Thank you very much we have no further questions.

Speaker Change: I will hand back to Brad and management team to conclude.

Brad Kessel: In closing, I would like to thank our board of directors and our senior management for their support and leadership. I also want to thank all our associates. I continue to be so proud of the job being done by each member of our team. Each member, in his or her own way, continues to do his part toward our common goal of guiding our customers to be independent. Finally, I would like to thank each of you for your interest in Independent Bank Corporation and for joining us on today's call. Have a great day.

Brad Kessel: In closing, I would like to thank our board of directors and our senior management for their support and leadership. I also wanna thank all our associates. I continue to be so proud of the job being done by each member of our team. Each member in his or her own way continues to do their part toward our common goal of guiding our customers to be independent. Finally, I would like to thank each of you for your interest in Independent Bank Corporation and for joining us on today's call. Have a great day.

Speaker Change: In closing I would like to thank our board of directors and our senior management for their support and leadership I also want to thank all our associates at.

Speaker Change: Continue to be so proud of the job being done by each member of our team each member in his or her own way continues to do their part toward our common goal of guiding our customers to be independent finally, I would like to thank each of you for your interest in independent Bank Corporation and for joining US on today's call have a great day.

Ezra: Thank you very much, everyone, for joining us. This concludes today's call. You may now disconnect your lines.

Operator: Thank you very much, everyone for joining. This concludes today's call. You may now disconnect your lines.

Speaker Change: Thank you very much.

Speaker Change: Everyone for joining this concludes today's call you may now disconnect your lines.

Speaker Change: [music].

Q2 2024 Independent Bank Corp Earnings Call

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