Q2 2025 Independent Bank Corp Earnings Call
Operator: Reports 2025 second quarter results.
Operator: My name is Ezra and I will be your coordinator for today. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind, please press star followed by two.
Hello everyone and welcome to the Independent Bank. Corporation reports 2025 second quarter results. My name is Ezra and I will be your coordinator for today.
Operator: We will be taking questions after the prepared remarks.
Brad Kessel: I will now hand over to our host, Brad Kessel.
Brad Kessel: President and CEO to begin. Please go ahead.
If you would like to ask a question, please press star for it by 1 on your telephone keypad. If you change your mind, please press star followed by 2. We will be taking questions after the prepared remarks. I will now hand over to our host, Brad kessle.
Brad Kessle: President and CEO to begin. 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 second quarter 2025 results.
Brad Kessel: I am Brad Kessel, President and Chief Executive Officer and joining me is Gavin Mohr, EVP and Chief Financial Officer, and Joel Rahn, EVP, Commercial Bank Good morning, and welcome to today's conference call. I am Brad Kessel, President and Chief Before we begin today's call, I would like to direct you to the important information on page two 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.
Good morning and welcome to today's call. Thank you for joining us for Independent Bank corporations conference call and webcast to discuss the company's second quarter 2025 results. I am Brad Castle, president and chief executive officer. And joining me is Gavin Moore EVP and Chief Financial Officer and Joel Ron EVP, Commercial Banking.
Brad Kessle: Before we begin today's call, I would like to direct you to the important information on page 2 of our presentation. Specifically the cautionary note regarding forward-looking statements
Brad Kessel: The agenda for today's call will include prepared remarks, followed by a question and answer session, and then closing remarks.
Brad Kessle: 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
Brad Kessle: the agenda for today's call will include prepared remarks, followed by a question and answer session and then closing remarks
Brad Kessel: I am pleased to report that the bill is passed. Our solid second quarter results as we advance our mission of inspiring financial independence today with tomorrow in mind. Our vision is a future where people approach their finances with confidence, clarity, and the determination to succeed. Our core values of courage, drive, integrity, people focused, and teamwork are the blueprint our employees live by. We strive to be Michigan's most people focused bank. Today, Independent Bank Corporation reported second quarter 2025 net income of $16.9 million or 81 cents per diluted share versus net income of $18.5 million or 88 cents per diluted share in the prior year period.
Brad Kessle: I am pleased to report.
Brad Kessle: Our solid second quarter results, as we advance, our mission of inspiring Financial Independence today, with tomorrow, in mind, our vision is a future where people approach their finances with confidence Clarity and the determination to succeed.
Brad Kessle: Our core values of Courage Dr. Integrity people focused and teamwork are the blueprint. Our employees live by, we strive to be Michigan's. Most people focused Bank
Brad Kessel: Significant items impacting comparable second quarter 25 and 24 results include the following. Changes in the fair value due to price of capitalized mortgage loan servicing rights was a loss of $0.2 million, or one penny, per diluted share after tax for the three months ending June 30, 2025, as compared to $0.9 million, or three cents, per diluted share after tax gained for the three-month period June 30, 2024. Also, a gain on equity securities at fair value of $2.7 million or $0.10 per diluted share after tax in the second quarter of June 30, 2024, attributable to the exchange of our Visa Class B1 common stock.
Speaker Change: Today, Independent Bank Corporation reported second quarter of 2025, net income of 16.9 million or 81 cents per diluted share versus net. Income of 18.5 million or 88 cents per diluted share in the prior year period.
Speaker Change: Significant items, impacting comparable, second quarter, 25 and 24 results include the following.
Speaker Change: Changes in the fair value due to price of capitalized mortgage loan. Servicing Rights was a loss of 0.2 million or 1 penny per diluted share. After tax for the 3 months ending June 3025 as compared to 0.9 million or 3 cents per diluted share after tax gained for the 3-month period. June 3020 2024
Brad Kessel: No gain or loss in equity securities at fair value was recorded in the second quarter of 25. I'm very proud of our team and pleased to see us continue our positive trends with our second quarter 25 results. Overall loans increased by 9% annualized, while core deposits were down 1.4% annualized due to seasonality. We generated net interest income growth on both a linked quarter basis and a year-over-year quarterly basis, producing nine basis points of the margin expansion from the prior quarter. Our expenses are well managed and we continue to see improved operational scale from strategic investments made in recent years.
Speaker Change: also again on Equity Securities at fair value of 2.7 million, or 10 cents per diluted share after tax. In the second quarter of June 3024 attributable to the exchange of our Visa class B1 common stock, no gain or loss in equity. Securities at fair value, was recorded in the second quarter of 25.
Speaker Change: I'm very proud of our team and pleased to see us continue our positive Trends with our second quarter. 25 results.
Speaker Change: overall loans, increase by 9% annualized, while Court, deposits were down 1.4% annualized, due to seasonality,
Brad Kessel: These fundamentals drove positive growth in tangible common equity per share of common stock 10.8% compared to the prior year quarter, along with very healthy performance returns, a return on average assets of 1.27% and a return on average equity of 14.66%. Despite heightened uncertainty in the markets during the quarter, our credit metrics remained strong with low levels of watch credits, 16 basis points of non-performing assets to total assets and 2 basis points in net charge-offs to average loans of the quarter annualized. The allowance for credit losses was 1.47% of total loans. Our team has been effective in many areas during the first half of 2025, including business development from the existing customer base and onboarding new relationships, which have enhanced the geographic and product line diversification of our business.
Speaker Change: A year-over-year quarterly basis producing 9 basis points of margin expansion from the prior quarter. Our expenses are well managed and we continue to see improved operational scale from strategic Investments made. In recent years, the fundamentals these fundamentals to a positive growth and tangible common Equity per share of common stock 10.8%, compared to the prior year quarter,
Speaker Change: Along with very healthy performance, returns a return on average assets of 1.27% and a return on average Equity of 14.66%.
Speaker Change: Despite heightened uncertainty in the markets during the quarter. Our credit metrics remain strong with low levels of watch credits. 16 basis points of non-performing assets, to total assets and 2 basis points in that charge offs to average loans, uh, of the quarter annualized, the allowance for credit losses, 1 1 was 1.47% of total loans.
Brad Kessel: We continue to succeed in recruiting talented bankers to join the Independent Bank team. During the second quarter, we rolled out several new technologies to make banking easier for both our customers and associates serving our customers.
Speaker Change: Our team has been effective in many areas. During the first half of 25, including Business Development from the existing customer base and onboarding new relationships, which have enhanced the geographic and product. Line diversification of our business, we continue to succeed and recruiting talented Bankers to join the Independent Bank team. During the second quarter, we rolled out several new
Brad Kessel: For all these reasons, I am optimistic about our prospects for growth for the balance of 2025 and into 2026.
Speaker Change: Technologies to make to make banking easier for both our customers and Associate serving our customers.
Brad Kessel: Moving to page five of our presentation, total deposits as of June 30, 2025 were $4.7 billion. Overall core deposits decreased $15.7 million during the second quarter of 2025. On a linked quarter basis, retail deposits were down $13.8 million, business deposits were up by $60.5 million, and municipal deposits decreased by $64 million. Our sales team continues to bring in new relationships well below our wholesale cost of funds. On page six, we have included in our presentation a historical view of our cost of funds as compared to the Fed Fund spot rate and Fed effective rate. For the quarter, our total cost of funds declined by four basis points to 1.76 percent.
Speaker Change: For all these reasons, I am optimistic about our prospects for growth in for the balance of 25 and in the 26.
Speaker Change: Moving to that page 5 of our presentation total deposits. As of June, 3025 for 4.7 billion overall core deposits decreased 15.7 million during the second quarter of 25 on a linked quarter basis. Retail deposits were down 13.8 million business. Deposits were up by 60.5 million and Municipal deposits decreased by 64 million. Our sales team continues to bring in new relationships. Well below our wholesale cost of funds.
Joel Rahn: 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?
Speaker Change: on Page 6, we have included in our presentation, a historical view of our cost of funds as compared to the FED fund spot rate and fed effective rate for the quarter, our total cost of funds declined by 4 basis points to 1.76%,
Joel Rahn: Yeah, thanks, Brad, and good morning, everyone. On page seven, we share an update on loan activity for the quarter. We continue to experience solid loan growth in the second quarter with total loans growing by 91.7 million or 9 percent annualized. Commercial loan generation was strong resulting in $75.8 million of quarterly growth. 15.3% on an annualized basis. Our residential mortgage portfolio grew by $15.6 million, and our installment loan portfolio was up slightly for the quarter. Our continued strategic investment in commercial banking talent continues to supplement our loan growth. We added three experienced commercial bankers in the second quarter, bringing our team to 50 bankers across our statewide footprint.
Speaker Change: At this time, I'd like to turn the presentation over to Joel, Ron, to share a few comments on the success. We're having and growing our loan portfolios and provide an update on our credit metrics Joel. Yeah, thanks, Brad. And good morning, everyone on page 7. We share an update on loan activity for the quarter.
Speaker Change: We continued to experience solid loan growth in the second quarter, with total loans growing by 91.7 million or 9% annualized.
Speaker Change: Commercial loan generation was strong resulting in. 75.8 million, a quarterly growth.
Speaker Change: 15.3% on an annualized basis, our Residential Mortgage portfolio, uh grew by 15.6 million and our installment loan portfolio was up slightly for the quarter.
Speaker Change: our continued Strategic investment in Commercial Banking counts continue to supplement our loan growth,
Joel Rahn: Our staff additions include launching a new LPO in Kalamazoo. We're very excited to have a commercial presence in that. Looking ahead, we believe we will continue low double-digit growth of our commercial loan portfolio in the second half of the year based upon a strong pipeline. We continue to see market share opportunities from regional banks and are seeing some uptick in organic growth from our existing customers. As noted in previous quarters, our new loan production in all categories continues to come on at yields well above the respective portfolios. Looking at the commercial loan production activity on a year-to-date basis, the mix of C&I lending versus investment real estate is 59% and 41% respectively.
Speaker Change: We added, 3, experiments, commercial bankers and second quarter, bringing our team to 50 Bankers across our Statewide footprint.
Speaker Change: Our staff additions include launching a new lpo in Kalamazoo. We're very excited to have a commercial presence in that market.
Speaker Change: Looking ahead, we believe we will continue low double-digit growth of our commercial loan portfolio. In the second half of the Year based upon a strong pipeline.
Speaker Change: We continue to see market share opportunities from Regional Banks and are seeing some uptick in organic growth from our existing customers.
Speaker Change: as noted in previous quarters, our new Loan Production uh in all categories uh continues to come on at yields, well above the respective portfolio yield
Speaker Change: Looking at the commercial Loan, Production activity on a year-to-date basis, the mix of cni lending versus investment. Real estate is 59% and 41% respectively.
Joel Rahn: For our commercial portfolio, our mix is 70% C&I and 30% IR . Page 8 provides detail on our commercial loan portfolio concentrations. There's not been any significant shift in our portfolio, and the portfolio continues to be very well diversified. Our largest segment of the C&I category is manufacturing at $184 million, or 8.9% of the total portfolio. It's worth noting that within the manufacturing segment is $157 million of automotive industry exposure that we're monitoring closely for any tariff-related impacts. To date, the impact has been nominal. Key credit quality metrics and trends are outlined on page 9.
Speaker Change: For our commercial portfolio. Our mix is 70%, cni and 30%. I
Speaker Change: Page 88 provides detail on our commercial loan portfolio concentrations. There's not been any significant shift in our portfolio and portfolio continues to be very well Diversified.
Speaker Change: Our largest segment of the cni category is manufacturing at 184 million or 8.9% of the total portfolio. It's worth noting that within the manufacturing segment is 157 million of automotive industry exposure that we're monitoring closely for any tariff related impact.
Speaker Change: To date, the impact has been nominal.
Joel Rahn: Overall, credit quality continues to be excellent, as Brad Total non-performing loans were $8.2 million, or 20 basis points of total loans at quarter end, up slightly from 17 basis points at $3.31. Past due loans totaled $6.6 million, or 16 basis points, also up slightly from 10 basis points at $3.3 million.
Speaker Change: Outlined on page 9.
Speaker Change: Overall credit quality continues to be excellent as Brad said.
Speaker Change: total non-performing loans were 8.2 million or 20 basis points of total loans at quarter end up slightly from 17 basis points at 331
Joel Rahn: It's not reflected on the slide, and Brad mentioned it just a moment ago, but it's worth noting that our year-to-date charge-offs are $442,000, or two basis points of average loans on an annualized basis.
Speaker Change: past due loans totaled, 6.6 million or 16 basis points also up slightly from 10 basis points at 331
Speaker Change: It's not reflected on the slide and Brad mentioned in just a moment ago, but it's worth noting that our year to date. Charge offs are 442,000 or 2 basis points of average loans on an annualized basis.
Gavin Mohr: 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. Thanks, Joel.
Gavin Mohr: Good morning, everyone. I'm starting on page 10 of our presentation. Page 10 highlights our strong regulatory capital position. Turning to page 11, net interest income increased $3.3 million from the year-ago period for tax-equivalent net interest margins 3.58% during the second quarter of 2025 compared to 3.40% in the second quarter of 2024, and up nine basis points from the first quarter of 2025. Average interest earning assets were $5.04 billion in the second quarter of 2025 compared to $4.89 billion in the year-ago quarter and $5.08 billion in the first quarter of 2025.
Speaker Change: 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. Thanks Joel and good morning everyone. I'm starting on page 10 of our presentation page 10. Highlights our strong regulatory Capital position
Gavin: Turning to page 11 net, interest income increased 3.3 million from the year ago period for tax equivalent. Net interest margins 3.58%, during the second quarter of 2025 compared to 3.40% in the second quarter of 2024 and up 9 basis points from the first quarter of 2025 average interest earning assets were 5.04 billion dollars in the second quarter of 2025 compared to 4.89 billion dollars. In the year ago, quarter and 5.08 billion dollars in the first quarter of 2025.
Gavin Mohr: Page 12 contains a more detailed analysis of the late quarter increase in net interest income and the net interest margin. On a late quarter basis, our second quarter 2025 net interest margin was positively impacted by three factors. A decrease in funding costs contributed three basis points. Change in earning asset yield and mix contributed six basis points, and in a loan prepayment fee that contributed one basis point. These were partially offset by a change in funding mix that negatively impacted the margin by one basis point.
Gavin: Page 12 contains a more detailed analysis of the link quarter increase in net interest income, and the net interest margin on a link quarter basis. Our second quarter, 2025 net interest margin was positively impacted by 3 factors.
Gavin Mohr: On page 13, we provide details on the institution's interest rate risk position, the comparative simulation analysis for second quarter 25 and first quarter 25. Calculate 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 you incur from the valuation date. The shock scenarios consider immediate, permanent, and parallel rate changes. The base case model of NII is slightly higher during the quarter, given earning asset growth and slight margin expansion. Asset yields were augmented by a shift in asset mix with good commercial loan growth, partially funded by runoff of lower yielding investments.
Gavin: A decrease in funding costs contributed 3 basis points change in earning asset yield and mixed contributed 6 basis points and and a loan uh prepayment fee that contributed 1 basis point these were partially offset by a change in funding mix uh that negatively impacts the margin by 1 basis point.
Gavin Mohr: Also, assets continue to reprice higher. This benefit was partially offset by an adverse shift in funding mix with an increase in wholesale funding to finance earning asset growth and a modest core deposit runoff. The NII sensitivity position shows slightly more exposure to a declining rate environment. Asset repricing increased due to strong growth in variable rate commercial loans and HELOC. Some of the increase in asset repricing was offset by purchase floors and faster liability repricing given an increase in short duration wholesale funding. Currently 37.1% of assets repriced in one month and 49.2% repriced in the next 12 months.
Gavin: On page 13. We provide details on the institutions, interest rate, risk position the comparative, simulation analysis for second quarter, 25, and first quarter. 25 calculate 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 a spot you incurred from the valuation date. The shock scenario is considered immediate permanent and parallel rate changes the base case model in II is slightly higher. During the quarter, given earning asset growth and slight margin expansion. Asset yields were augmented by a shift in asset mix with good commercial loan growth, partially funded by runoff of lower yielding Investments.
Gavin: Also assets continue to reprice higher.
This this benefit was particular partially offset by an adverse shift in funding, mix with an increase in wholesale funding to finance earning asset growth and a modest core deposit. Runoff the knee sensitivity position shows slightly more exposure to a declining rate environment, asset repricing increase due to strong growth and variable rate commercial loans in helocs,
Some of the in some of the increase in asset repricing was offset by purchase floors and faster liability, free pricing, given an increase in short duration, wholesale funding currently 37.1% of Assets reprice in 1 month and 49.2% rep pricing in the next 12 months.
Gavin Mohr: Moving on to page 14, non-interest income totaled $11.3 million in the second quarter of 2025 compared to $15.2 million in the year ago quarter and $10.4 million in the first quarter of 2025. Second quarter, 25 net gains on mortgage loans totaled $1.6 million compared to $1.3 million in the second quarter of 2024. The increase is due to higher profit margins and higher volume of loan sales. No gain or loss on equity securities at fair value is recorded for the second quarter of 2025 compared to $2.7 million gain in the prior year's quarter due to the exchange of Visa Class B1 common stock.
Gavin: Moving on to page 14, not interest income, total of 11.3 million in the second quarter of 2025 compared to 15.2 million.
Gavin: In the year ago quarter and 10.4 million in the first quarter of 2025.
Gavin: Second quarter, 25. Net gains on mortgage loans. Totaled, 1.6 million compared to 1.3 million in the second quarter of 2024.
Gavin: The increase is due to higher profit margins and higher volume of loan sales.
Gavin Mohr: Positively impacting non-interest income was $0.5 million gain on mortgage loan servicing net. This is comprised of $0.2 million, or one cent, per diluted share after tax loss due to change in price, $0.9 million decrease due to pay downs, and a $1 million, a $0.1 million loss on sale of originated servicing rights. So it's offset by $1.6 million of servicing revenue in the second quarter of 2025. The decline in servicing revenue compared to the prior year quarter is attributed to the sale of approximately $931 million of mortgage servicing rights on January 31st, 2025.
Gavin: No gain or loss on Equity Securities. And fair value is reported for the second quarter of 2025 compared to 2.7 million gain. In the prior year quarter due to the exchange of Visa class B1 common stock.
Gavin: Positively impacting, non-interest income was 0.5 million gain on mortgage loan, servicing net.
Gavin Mohr: As detailed on page 15, our non-interest expense totaled $33.8 million in the second quarter of 2025, as compared to $33.3 million in the year-ago quarter, and $34.3 million in the first quarter of 2025. Compensation expense decreased $0.1 million, primarily due to lower incentive-based compensation expense, lower health benefits-related costs, and higher deferred loan origination costs due to higher commercial and mortgage loan production. Data processing costs increased by $0.6 million from the prior year period, primarily due to core data processor annual asset growth and CPI-related cost increases and increases in other software solutions.
Our 96, expands total 33.8 million in the second quarter of 2025 as compared to 33.3 million in the year ago quarter and 34.3 million in the first quarter. 25 competition expense, decrease 0.1 million primarily due to lower incentive based compensation, expense lower health, benefit health benefits related costs and higher deferred loan origination cost due to higher commercial and Mortgage Loan Production data processing costs increase by 6 million from the prior year period. Primarily due to poor data processor annual asset growth growth and CPI related costs, increases and increases in other software Solutions.
Gavin Mohr: Page 16 is our update for 2025 Outlook to see how our actual performance during the second quarter compared to the original outlook that we provided in January 2025. Our outlook estimated loan growth in the mid-single digits. Loans increased $91.7 million in the second quarter of 2025 or 9% annualized, which is above our forecasted range. Commercial mortgage and installment loans increased in the second quarter of 2025. Second quarter 2025 net interest income increased by 7.9% over 2024, which is slightly below our forecast of a high single digit growth. The net interest margin was 3.58% for the current quarter, 3.4% for the prior year quarter and up nine basis points from a linked quarter perspective.
Gavin: Page. 16 is our update for our 2025 Outlook to see how our actual performance during the second quarter compared to the original Outlook that we provided in January 2025.
Gavin: Our Outlook estimated loan, growth in the mid, single digits loans, increased 91.7 million in the second quarter of 2025 or 9% annualized, which is above. Our forecasted range, commercial mortgage, and installment loans, increased in the second quarter of 25.
Gavin: Second quarter, 2025 net, interest income increased by 7.9% over 2024, which is slightly below our forecasts of a high single digit growth.
Gavin Mohr: The second quarter 2025 provision for credit losses was an expense of $1.5 million, which was within our forecasted range.
Gavin Mohr: Moving on to page 17. Non-interest income totaled $11.3 million in the second quarter of 2025, which was within our forecasted range of $11 to $12 million in the second quarter. Second quarter 2025 mortgage loan origination sales and gains totaled $147.8 million, $95.4 million, and $1.6 million, respectively. Mortgage loan servicing net generated a gain of a half million dollars in the second quarter 2025, which is below our forecasted target. Non-interest expense was $33.8 million in the second quarter, below our forecasted range of $34.5 to $35.5 million. Our effective income tax rate was 18.4% in the second quarter of 2025.
Gavin: And net interest margin was 3.58% for the current quarter 3.4% for the prior year quarter and up 9 basis points. From a length, quarter perspective, the second quarter of 2025 for vision. For credit losses was an expense of 1.5 million, which was within our forecast to range. Moving on to 17 Page, 17, non-interest income, total of 11.3 million in the second quarter 202 2025, which was within our forecasted range of 11 to 12 million dollars. In the second quarter, second quarter, 2025 more zillion, origination sales and gains told the 147.8 million 95.4 million and 1.6 million respectively more Zone servicing that generated a gain of a half million dollars in the second quarter of 2025, which is below our forecast at Target.
Gavin: Not interest expense for 33.8 million in the second quarter below, our forecasted range of 34.5 to 35.5 million dollars.
Gavin Mohr: Lastly, there were 251,183 shares of common stock repurchased for an aggregate purchase price of $7.3 million in the second quarter of 2025.
Gavin: Are effective income tax rate was 18.4%. The second quarter of 2025
Brad Kessel: That concludes my prepared remarks, and I would like to now turn the call back over to Brad. Thanks, Gavin. 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 through the second half of 2025, our focus will be continuing to invest in our team, leveraging our technology, and supporting our communities.
Lastly, there were 251,183 shares of common stock repurchased, for an aggregate purchase. Price of 7.3 million in the second quarter. 2025 that concludes my prepared remarks, and I would like to now turn the call back over to Brad. Thanks, Gavin, we've built a strong Community Bank franchise which position positions as well to affectively managed through a variety of economic environments, and continue, delivering, strong and consistent results for our shareholders.
Operator: At this point, we'd like to open up the call for questions. Thank you very much. If you would like to ask a question, please press star followed by one on your telephone keypad. Now, please ensure your device is unmuted locally. And if you change your mind, or your question has already been answered, please press star followed by.
Brad Kessle: As we move through the second, half of 2025, our Focus will be continuing to invest in our team, leveraging, our technology and supporting our communities.
Brad Kessle: At this point, we'd like to open up the call for questions Ezra
Speaker Change: Thank you very much if you would like to ask a question, please press star. Followed by 1 on your telephone keypad. Now, please ensure your devices unmuted locally, and if you change your mind or your question has already been answered, please. Press star, followed by 2.
Peter Winter: Our first question comes from Peter Winter with CA Davidson. Peter, your line is now open, please go ahead. Thanks. Good morning. You guys had really nice strong margin expansion this quarter.
Our first question comes from Peter winter, with CA Davidson Peter, your line is now open. Please go ahead.
Speaker Change: Uh, thanks. Good morning.
Gavin Mohr: And I was just wondering, could you talk about maybe the outlook for the margin the second half of the year? You know, especially if we get maybe two rate cuts based on the forward curve.
Speaker Change: Um you guys had really nice uh strong margin expansion, this quarter and I was just wondering, could you talk about maybe the outlook for the margin, the second half of the year.
you know, especially if we get maybe 2 ray Cuts, uh, based on the forward, curve,
Gavin Mohr: Yeah, Peter, I would. This is Gavin. Thanks for joining today. So the margin forecast that we provided is, we're still very confident in that we provided in January, the two basis point cuts is factored into that forecast. I would, I would share that given the current positioning in our, for our, the balance sheet. The cut of a quarter to 50 basis points does not have a significant impact. and the Margin. one or two bases. Okay, that's helpful.
Yeah, uh Peter I would uh this is Gavin um thanks for joining today. We so the margin forecast that we provided um is is we're still very uh confident in.
um, that we provided in January, the 2 basis point cuts, um, is, uh, factored into that, uh, forecast,
Speaker Change: I would, I would share that, um, given the current positioning that our for our, our the balance sheet. Um,
Speaker Change: The cut of a quarter to 50 basis points. Does not have a significant impact.
Speaker Change: 1, 1 or 2 bases.
Speaker Change: Specifically.
Gavin Mohr: You guys also have done a nice job managing deposit costs lower. Do you still see room to lower deposit costs absent if there are no rate cuts? And if so, what are some of the drivers? I think that right now where we're at in the deposit costs, we're probably seeing a plateau, The longer we stay or the longer they hold flat and as asset growth continues, you can kind of feel the pressure build. If I look at where we're currently seeing our CDs reprice and where we're issuing new, those are at the same level. So I don't see if we stay here a lot of opportunity to reprice down from here.
Speaker Change: Okay, that's helpful. Um,
You guys also have done a nice job uh matching your deposit costs lower. Uh, do you still see room to to lower deposit costs absent if there are no rate cuts? And and if so kind of what are some of the drivers?
I think that right now where we're at in the deposit cost. It, we're we're probably seeing a plateau Peter, um, the longer we we stay it it or the longer, they hold flat, uh, and and as asset growth continues, you can kind of feel the pressure build. Um, if if I look at where we're currently uh seeing our CVS, re repriced and where we're uh, issuing new. Um, those are are at the same level. So I don't see if we stay here a, a lot of opportunity to to reprice down from here.
Brad Kessel: And then, Brad, if I can ask just a question. Treasury Secretary Scott Besson, he seems very focused on bank regulation, trying to kind of level the playing field for the commercial bank. So the question is, have you seen anything that benefits you from a competitive standpoint against credit union? Oh, that's a, that's a great question. No. not with specifically credit unions. I do think that since the change in the administration, there were quite a few. Rules that were under review, including like CRA, Dodd-Frank, Section 1071, Small Business Data Collection, and so on, and those have sort of been paused or set aside.
Speaker Change: Got it.
And then Brad if I can ask just, uh, a question. Um,
Treasury secretary. Uh, Scott besan. He he seems very focused on Bank regulation, trying to kind of level the playing field for the commercial Banks.
Speaker Change: So the question is, have you seen anything that benefits you from a competitive standpoint against credit unions?
That's a, uh, Peter. That's a great question. Uh, no.
Um, not not with specifically credit unions.
I, I do think that, um, since the change in the administration,
There were quite a few.
Uh, uh, rules that were under review. Uh, including like CRA, uh, Dodd, Frank section, 1071 small, business data collection, uh, and, and so on. And it, those have
Brad Kessel: So that's significant for banks, for community banks, because it would have been, I think, costly to move forward as those regulations were being proposed. So, and then saying on top of that, I think we are still looking for, you know, further relief and excited to see Fed Governor Nikki Bowman, who's, I think, a friend of community banks and her role in charge of, you know, the compliance side. So I think there's still more to come, but again, back to your original question that fair and equitable playing field with the non-banks, there's been no change. Okay.
Uh, sort of been paused or or set aside. So, uh, that, that, that significant for, for banks, for, for Community Banks because it would have been, I think costly, uh, to move forward as those regulations were being proposed. So, uh, and and and, and, and then saying, on top of that, I, I think we, we are still looking for, you know, further relief in the in excited to see a Fed Governor, Nikki Bowman, who's a, uh, I think a friend of Community Banks in, in her role, uh, in, in, in charge of the, you know, the compliance side. So, uh, I think there's still more to
Come. Um, but again back to your uh, original question that uh, fair and Equitable playing field with the the non-banks, there's been no change.
Peter Winter: Thanks, Brad. That's helpful.
Speaker Change: Okay.
Speaker Change: Thanks, Brad. That's helpful.
Brendan Nosal: Our next question comes from Brendan Nosal with Hovda Group. Brendan, your line is now open, please go ahead. And good morning, folks. Hope you're doing well.
Speaker Change: Our next question comes from Brendan. Nozzle would have the group, Brendan your line is now open. Please go ahead.
Brendan: Hey, good morning, folks. Hope you're doing well.
Brendan Nosal: Maybe just starting off here, I'm kind of curious, at a top level, walking through your local economies, can you just kind of take us through your markets region by region? And where are you seeing pockets of strength? And where, when you look at the footprint now, you see the biggest long-term opportunities?
Brendan: Maybe just starting off here. Um kind of curious at a top level walking through your local economy. Can you just kind of take us through your markets region by region? And you know where you're seeing pockets of strength? Um and you know where when you look at the footprint now you see the biggest long-term opportunity.
Joel Rahn: Brendan, this is Joel. So I would just focus on the two largest MSAs in our footprint, and that's West Michigan and then the metro Detroit market, and they're both very similar in many respects. So the manufacturing base is pretty much the same, and there's certainly diversity to it, but it's still heavily automotive dependent, and that's why earlier in my comments, I specifically commented on automotive. We have a relatively small exposure to the automotive industry from a supply base, and they're holding up very well. We're really concerned when things first were announced back in early April, what does this mean?
Joe Will: Yeah, Brandon this is Joe will. Um so I I would just focus uh on the 2. Um largest msas in our footprint. And that's um,
Joe Will: West, Michigan. And then, um, the Metro Detroit market and, and they're both very similar in many respects. So the manufacturing base is, is, you know, pretty much the same. Uh, and it's there's, uh, maybe. You know, there's certainly diversity to it. But it's still heavily Automotive dependent and that's why I earlier in my comments, I specifically commented on Automotive, we, we have, you know, relative
Joel Rahn: And maybe you could argue that all the full impact hasn't been felt yet. So, that's a point that has credibility, so we just continue to stay really close. But so far, I think our economy has held up very well. I like to tell people, if I don't read the news headlines, I'd tell you, just based on customer feedback, the economy's fine. Home building is still pretty strong, especially in West Michigan, and like I said, manufacturing is holding up okay. And then in our northern Michigan offices, there's a lot of, it's a very strong tourist economy, and the consumers are still spending money.
Joe Will: Small exposure, um, to the automotive industry, you know, from a supply base, uh, and they're holding up very well. Um, we're really concerned when things first were announced back in early, April was this mean. And, and maybe you could argue that all the full impact hasn't been felt yet. Uh, so we, you know, and guess that's a, a point, um, that has credibility
Joe Will: So we just continue to stay really close but so far, I think our economy is held up very well. I I like to tell people if I don't read the news headlines, I tell you just based on customer feedback. Um, the economy is fine.
Joe Will: Uh, is still, uh, pretty strong, especially in West Michigan. Uh, and um,
Brendan Nosal: So that's just some kind of high level thoughts to your question. Thank you, Joel. That's a super helpful color.
Joe Will: Uh, like I said, a manufacturing is holding up, okay? And then in our Northern Michigan offices, um, there's a lot of uh, it's a very strong tourist economy, and the consumers are still spending money. So, um, that that's just some kind of high level thoughts to your question.
Joel Rahn: Maybe moving on just to the competitive landscape, I'm just kind of curious how it's evolved over the past couple of months. I'm certainly hearing that some larger regionals are stepping back into certain asset classes like commercial real estate. So just kind of, you know, wondering how that's, you know, been impacting you and how you're seeing that on the market. Yeah, I guess I'll take that one as well. And Brad can chime in. But yeah, it really hasn't changed. A lot of our market share lift still comes from the larger banks. We, as a community bank, we sell very well against the larger bank.
Thank you, Joel that that's super helpful color. Um maybe moving on just to the the competitive landscape. Um just kind of curious how it's evolved over the past couple of months. Uh I'm certainly hearing that uh some larger regionals are stepping back into certain asset classes like commercial real estate. Um so just kind of you know uh wondering how that's you know been impacting you and how you're seeing that on the ground.
Joel Rahn: And so that hasn't changed. Interestingly, we're seeing some opportunity. I agree with your comment that the large banks have, they're very, very careful and maybe just not interested at all in commercial real estate right now. And that's not just the obvious office segment, it's just kind of any commercial real estate. So we have continued to put good investment real estate in our portfolio. We keep it in balance. As I mentioned earlier, we like our mix of 70% C&I and 30% investment real estate overall in our portfolio. But we continue to write deals. I was going to say the one interesting thing, Brendan, is we've actually seen deal opportunity coming off of CMVS maturities.
Yeah, I guess I'll I'll take that 1 as well. Um, and Brad can chime in, uh, but uh, yeah. It it really hasn't changed. I, I'm are a lot of our market share uh, lift is still comes from the the larger Banks. We as a community bank, we sell very well against the larger Bank, uh, and so that that hasn't changed. Um, interestingly, we're, we're seeing some opportunity. I agree with your comment that the large Banks, um, have. They're very, very, um, careful. Um, and maybe just not interested at all in commercial real estate right now.
Joe Will: And that's not just, you know, the obvious, you know office segment that's just kind of any commercial real estate. Um so we have um continued to to um put good um investment real estate in our portfolio.
Brad Kessel: And especially like in the medical office space, we pick our spots, but medical office, we've had good success with rewriting deals that are coming off of CMVS, because that market is not as robust and not as aggressive as it once was. So, yeah, a variety of places, but overall, the mix or where our opportunities are coming from really.
Brad Kessel: Yeah, Joel, I think that was excellent. I would just say, I mean, we were out on a on a call with a prospect last week, whereby, you know, sort of that dollar size between $10 and $20 million, which I'd say is sort of a sweet spot for us, was considered too small by the entity's incumbent bank, and so that is a terrific opportunity for us. Thank you. We're on a good spot. Great, great question. Now, that's a really great color. So thank you.
We keep it in balance. As I mentioned earlier, we like our mix of 70% cni and 30% investment real estate overall in our portfolio, but we continue to to write deals. I was going to say the 1 interesting thing. Um, Brendan is, um, we've actually seen um uh deal opportunity coming off of cmvs. Um, maturities and and uh, especially like in the medical office space, um, you know, we pick our spots, but medical office. We've had good success with rewriting deals that are coming off of cmds because that market is not as robust and not as aggressive as it once was. Um, so yeah, a variety of places but overall the, the the mix or the, you know, the where our opportunities are coming from really hasn't shifted much.
Speaker Change: Yeah, Joel. I I think that was excellent and I would just say I I mean we were out on a
Speaker Change: On a call with a prospect last week whereby, you know, sort of at, uh, dollar sized between 10 and 20 million, which I'd say is sort of a sweet spot for us. Um, was considered too small by the, uh, entities, incumbent bank and so, uh, that, that is a terrific.
Speaker Change: Opportunity for us. So, um,
Brandon: We're we're we're on a good spot. Great. Great question Brandon.
Brendan Nosal: I'm gonna sneak one more in here. Maybe just turning to capital M&A activity. It certainly feels like deals have picked up not only across the country, but in the Midwest specifically. So just kind of curious how you're viewing the M&A landscape at the moment, whether you're seeing signs of pickup and activity on your end and just, you know, updated thoughts on your own appetite for any inorganic opportunities. Well, I think that we've seen several very nice deals here in Michigan this year. And so there's definitely. You know, activity going on and there's discussions being held and You know, here in Michigan, we have plus or minus about 80 chartered Banks still still left.
Brandon: No, that's that's, um, really great color. So thank you. I'm going to sneak 1 more in here. Um, maybe just turning to Capital m&a activity. Uh, it certainly feels like deals have picked up, not only across the country, but in the midwest specifically, um, so just kind of curious how you're viewing the m&a landscape at the moment, uh, whether you're seeing signs of pickup and activity, um, on your end and just, you know, updated thoughts on your own appetite for any inorganic uh opportunities right now.
Well, I I think that um we've seen several very nice.
Brandon: Deals here in Michigan. Uh, this year
Brandon: um, and so, um, there's definitely
Brandon: You know, activity going on and there's discussions being held.
and um,
Brandon: You know, here in Michigan. We have
Brandon: Plus, or minus about 80 chartered Banks, uh, still still left. Um,
Brad Kessel: You know, so for independent I would say that, and this is not new, organic growth will continue to be. The primary driver of our overall growth, but. We would be interested in acquired growth, where it makes sense. And so the where it makes sense gets down to, you know, obviously it starts with culture and There's size, and there's geography, and there's also, you know, price. And so I'm hopeful that as we move forward, we'll be able to complement the organic growth with some intelligent acquired growth too.
Brandon: and uh,
Brandon: you know, so for for independent, um,
Brandon: I would say that uh, and this is not new, organic growth will continue to be the primary driver of our overall growth but um,
Brandon: Uh, we we would be interested. Um, and acquired growth where, where it makes sense. And so the where it makes sense gets down to
Brandon: you know, obviously, it starts with culture and
Brandon: Organic growth with some intelligent acquired growth too.
Brendan Nosal: Fantastic, Brad. All right.
Joe Will: Fantastic, Brad. All right.
Speaker Change: Thank you for taking my question.
Adam Kroll: Our next question comes from Adam Kroll with Piper Sandler. Adam, your line is now open, please go ahead. Hi, good morning. This is Adam Kroll. I'm for Nathan Race, and thanks for taking my question.
Speaker Change: Our next question comes from. Adam world with Piper Sandler. Adam, your line is now open. Please go ahead.
Hi, good morning. This is Adam, crawl on for Nathan race, and thanks for taking my questions.
Gavin Mohr: Yes, so maybe just a question for Gavin going back to the margin. If the Fed were to remain on hold through the remainder of the year, do you think the margin can just grind higher with new loans still coming on at a higher rate than the portfolio yield? And maybe could you remind us how much cash flow is coming off the bond book? And maybe in terms of what your fixed rate loan repricing looks like over the next couple quarters? Yeah, so to answer your first question, yes, I do believe that I'm confident that it would, if rates stay where they're at, we would continue to grind higher in the margin barring any type of disruption in the funding market.
Speaker Change: Morning. Yeah. So um, maybe just a question for Gavin, going back to the margin. Um, if the federal to remain on hold through the remainder of the year, do you think the margin can just grind higher with new loans, still coming on at a higher rate than the portfolio yield? And maybe, could you remind us how much cash flow is coming off the bond book and maybe in terms of what your fixed rate loan repricing looks like over the next couple quarters.
Speaker Change: Yeah. Uh, so to answer your first question, yes, uh, I do believe that, uh, I'm confident to do it. It it, if rates stay, uh, where they're at, we would continue to grind higher in the margin barring any type of disruption in the funding Market.
Gavin Mohr: We have, in the next 12 months, we have about $110 million of securities forecasted to reprice. and the I'm just looking here on your. have your question here on the fixed rate loans repricing. Give me one second. And the next, I don't have it broken down by. Order, Adam, but I can tell you in the next 12 months. We have fixed-rate loans repricing at $121 million with an exit rate of $615 million in total.
Speaker Change: um,
Speaker Change: we have a in the next 12 months, we have about 110 million of uh securities,
Speaker Change: Forecasted to reprice.
Speaker Change: Um,
Speaker Change: and the, uh, I'm just looking here on your
Speaker Change: Have your, uh, question here on the commercial the fixed rate. Uh, loans repricing.
Speaker Change: give me 1 second, but
Hold up.
And then the next I don't have a broken down by, uh,
Speaker Change: quarter Adam, but I can tell you in the next 12 months,
Um, we have fixed rate loans repricing at 121 million.
Uh, with an exit rate of 615 in total.
So,
Gavin Mohr: Okay, that's super helpful.
Gavin Mohr: And then maybe switching to fees, you had really solid mortgage loan volume during the quarter. And obviously, the loan sale margin saw a drop with all the rate volatility during the quarter. But I was just wondering if you have any visibility on how you see mortgage trending so far this quarter? Yeah, you know, the gain on sale margin did come in lower than what we had anticipated. A couple things going on there. One, just the competitiveness of the market continues to be very, very competitive. And so the gains were not as high as what we thought they would be there.
Okay, that's that's super helpful. Um, and then maybe switching to fees, uh, you had really solid mortgage loan volume during the quarter. And obviously, the loan sale margin. Um, saw a drop with all the rate volatility during the quarter but I was just wondering if you have any visibility on how you see mortgage trending so far this quarter
Gavin Mohr: There's also some nuance going on in certain sectors of the saleable market where we were, the industry was paying a much higher premium into the secondary to the GSE specifically. That premium has pulled back pretty significantly. We didn't see that coming out of our control. So that's had an impact as well. And then We also annually go through a review of the cost of origination, and so that was higher this year, and so that pulled down the margin as well. So there's a number of moving pieces there, but I would share on the main driver is just the competitiveness of the mortgage space today.
Yeah, you know, the the gain on sale margin was, uh, did did come in lower than what we would, uh, had anticipated. Uh, the couple things going on there. Um, 1 just the competitiveness of the market, um, continues to, uh, be very, very competitive. And, and so, uh, we rates were not, uh, or the gains were not as high as what we thought they would be there. There's also some Nuance going on in, in certain, um, uh, sectors of the saleable market where, uh,
Speaker Change: We were, um, the industry was paying a much higher premium, uh, into the secondary to the GSE specifically that premium has uh, pulled back, pretty significantly. We didn't see that coming, um, out of our control. Uh, so that that's had had an impact as well. And then
Speaker Change: um,
Speaker Change: We also annually go through a review of the cost of origination uh and and so that that was higher uh this year and and so that pulled down the margin as well so there's a number of moving pieces there um but I would share on the main driver is just the the competitiveness of of the mortgage space today.
Adam Kroll: Got it.
Adam Kroll: I really appreciate that and thanks for taking my question.
Speaker Change: Got it, I really appreciate that. And thanks for taking my questions.
Damon Delmonte: Thank you. Our next question comes from Damon DelMonte with KBW. Damon, your line is now open, please go ahead.
Thank you.
Speaker Change: Our next question comes from Damon Del Monte with KBW. Damon your line is now open. Please go ahead.
Matthew Renck: Hey, everybody, it's Matt Renck filling in for Damon. Hope everybody's doing okay. My first question is just a follow up to the capital management. As you guys look for that inorganic opportunity, do you think you'll still be active with buybacks? Or should we expect you guys to kind of put those on pause?
Speaker Change: Hey everybody. It's uh Matt rank filling in for Damon, hope everybody's doing okay. Um, my first question is just a follow up to the Capital Management as you guys. Look for that inorganic opportunity, do you think you'll still be active with BuyBacks? Or should we expect you guys to kind of put those on? Pause in the meantime?
Gavin Mohr: Yeah, this is Gavin, Matt. We're we evaluate it daily. In, as we've explained in the past, we do model the buybacks like we would a M&A opportunity. And we believe, you know, it needs to be at a price range that has a reasonable earn back for our shareholders. The current range is outside, or the current price is outside of that range of earn back that we're comfortable with. That being said, as we continue to go forward and build capital, we reserve the right to change those parameters. But I would say here in more of the short term, if the stock continues to trade in the current ranges, the buybacks will be limited.
Is we've explained in the past. Um, we do model the BuyBacks, like we would, uh, um, say m&a opportunity. Uh, and we, we believe, you know, it needs to be at a price range that, uh, uh, has a reasonable earn back for for our shareholders. Uh, the the current range is, is outside for the current price is outside of that, kind of that range, that that of earn back that we're comfortable with that being said, um, is, is we continue to go forward and and build Capital. Um, we we, you know, reserve the right to change change those uh, uh, those parameters. Um, but I would say here in the, in the more of the short term, uh, if the stock continues to trade in the current ranges, the BuyBacks will be limited.
Gavin Mohr: Okay, great.
Brad Kessel: And then last one for me, you guys mentioned you implemented some new technologies to help customers and associates. Just kind of curious what those technologies are and if you have any other planned investments coming up. Yeah, that's a great question. So in the second quarter, we put in sort of a AI chat function on our website and within the banking platform that's getting a lot of use from our customer base. So that's essentially customers being able to maybe more quickly get answers to their questions. We're using probably several dozen AI use cases around the company that is helping our staff maybe more quickly respond to customers when we've got them, say, on the line within our call center.
Speaker Change: okay great and then um last 1 for me you guys mentioned you implemented some new technologies to help customers and Associates just kind of curious what those Technologies are and if you have any other planned Investments coming up,
yeah, that that's a great question. So uh, in the second quarter we put in sort of a uh, AI chat uh, function on our website and within the banking, uh, platform. That's, uh, getting a lot of use from our customer base. So that's essentially, uh, customers being able to, um, maybe more quickly.
Speaker Change: Uh, get answers to their questions. Um,
Speaker Change: we're using, uh,
Probably several dozen AI use cases, uh, around the company. Um,
Uh, that is uh, helping our staff, maybe more quickly. Uh, respond.
Brad Kessel: We are leveraging some AI use cases to identify next best product opportunities with our customers. We've also leveraged technology just in terms of maybe in the loan processing underwriting area that to significantly reduce time.
uh, to customers when we've got them, say, uh, on the line within our call center
Speaker Change: Um we are leveraging some AI uh use cases to identify. Um, next best product opportunities with with our customers.
Brad Kessel: So those are a handful, but really excited about, you know, sort of where we've been, where we're at, and even where we can go continuing to leverage our technology. Okay, great.
Speaker Change: um we've uh also leveraged technology just in terms of uh maybe um in the loan processing underwriting area that uh uh to significantly um
Speaker Change: Uh, reduce time. So those are a handful but uh, really excited uh, about, you know, sort of where we've been where we're at and even uh, where we can go, uh, continuing to, to leverage our technology.
Matthew Renck: That's all for me. Thank you. Thank you very much.
Okay. Great. That's all from me. Thank you.
Speaker Change: Thank you very much.
Brad Kessel: We currently have no more questions, so I will hand back over to Brad for any closing remarks. In closing, I'd like to thank our board of directors and our senior management for their support and leadership. I also want to thank all our associates that continue to be so proud of the job being done by each member of our team. Each team 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.
Brad Kessle: We currently have no more questions so I will hand back over to Brad for any closing remarks.
Operator: Have a great day. Thank you very much, Brad. And thank you to all our speakers on today's call. We appreciate everyone for joining.
Thanks, Ezra in closing, I'd like to thank our board of directors and our Senior Management for their support and Leadership. I just want to thank all our Associates. I continue to be so proud of the job being done by each member of our team. Each team 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.
Operator: You may now disconnect your lines. [music]
Thank you very much, Brad. And thank you to all our speakers on today's cool. We appreciate everyone for joining. You may now disconnect your lines