Q2 2026 Independent Bank Corp Earnings Call

July 23, 2026

Operator: Good day. Thank you for standing by. Welcome to the Independent Bank Corporation Q2 2026 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, President and CEO, Brad Kessel. Please go ahead.

Speaker #1: After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star 11 on your telephone.

Speaker #1: You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. Please be advised, today's conference is being recorded.

Speaker #1: I would now like to hand the conference over to your speaker today, President and CEO Brad Kessel. Please go ahead.

Speaker #2: 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 results for the second quarter of 2026.

Brad Kessel: Good morning. Welcome to today's call. Thank you for joining us for Independent Bank Corporation's conference call and webcast to discuss the company's results for the Q2 2026. I am Brad Kessel, President and Chief Executive Officer. Joining me is Gavin Mohr, Executive Vice President and our Chief Financial Officer, and Joel Rahn, Executive Vice President and Head of Commercial Banking. Before we begin today's call, I would like to direct you to important information on page two of our presentations, 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, then closing remarks.

Speaker #2: I'm Brad Kessel, President and Chief Executive Officer. Joining me are Gavin Mohr, Executive Vice President and Chief Financial Officer, and Joel Rahn, Executive Vice President and Head of Commercial Banking.

Speaker #2: Before we begin today's call, I'd like to direct your two important information on page two of our presentations. Specifically, the cautionary note regarding forward-looking statements.

Speaker #2: 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.

Speaker #2: The agenda for today's call will include prepared remarks followed by a question-and-answer session and then closing remarks. Earlier this morning, Independent Bank Corporation reported second quarter 2026 net income of $18.8 million.

Brad Kessel: Earlier this morning, Independent Bank Corporation reported Q2 2026 net income of $18.8 million, or $0.90 per diluted share, versus net income of $16.9 million or $0.81 per diluted share in the prior year period. Highlights for the Q2 2026 include a net interest margin of 3.71%, a 6 basis point increase from the linked quarter. An increase in net interest income of $1 million or 2.2% over the Q1 2026. An increase in tangible common equity per share of common stock of $0.86 or 14.8% annualized from 31 March 2026. A return on average assets and a return on average equity of 1.37% and 14.52%, respectively, for the quarter ending 30 June 2026. Net growth in total deposits less brokered time of $38.2 million or 3.2% annualized. Net loan growth of $105.8 million or 9.8% annualized.

Speaker #2: Or $0.90 per diluted share, versus net income of $16.9 million, or $0.81 per diluted share, in the prior year period. Highlights for the second quarter of 2026 include a net interest margin of 3.71%.

Speaker #2: Six basis point increase from the linked quarter. An increase in net interest income of $1 million or $2.2% over the first quarter of 2026.

Speaker #2: An increase in tangible common equity per share of common stock of $0.86, or 14.8% annualized, from March 31, 2026. A return on average assets and a return on average equity of 1.37% and 14.52%, respectively, for the quarter ended June 30, 2026.

Speaker #2: Net growth in total deposits less brokered time of 38.2 million or 3.2% annualized. Net loan growth of $105.8 million or 9.8% annualized. An increase in tangible common equity to $8.9% at June 30, 2026.

Brad Kessel: An increase in tangible common equity to 8.9% at 30 June 2026. The payment of our $0.28 per share quarterly dividend common stock on 14 May 2026. Our Q2 performance demonstrates the strength of Independent Bank's community banking model and the continued benefits of disciplined balance sheet management, relationship-based lending, and a stable, locally focused deposit franchise. We saw broad-based momentum across the business with core customer activity supporting loan growth, core deposit growth, improving earning asset yields, and continued capital generation. Just as important, we achieved these results while maintaining strong asset quality, prudent liquidity, and capital levels that position us well in the current operating environment. The quarter also reinforced the value of our strategy, serving attractive Michigan markets through local decision-making, deep customer relationships, and consistent credit discipline.

Speaker #2: And the payment of our $0.28 per share quarterly dividend on common stock on May 14, 2026. Our second quarter performance demonstrates the strength of Independent Bank's community banking model and the continued benefits of disciplined balance sheet management.

Speaker #2: Relationship-based lending and the stable, locally focused deposit franchise. We saw broad-based momentum across the business, with core customer activity supporting loan growth, core deposit growth, improving earning asset yields, and continued capital generation.

Speaker #2: Just as important, we achieved these results while maintaining strong asset quality, prudent liquidity, and capital levels that position us well in the current operating environment.

Speaker #2: The quarter also reinforced the value of our strategy—serving attractive Michigan markets through local decision-making, deep customer relationships, and consistent credit discipline. We believe that approach continues to differentiate Independent Bank and supports durable performance through changing rate and economic cycles.

Brad Kessel: We believe that approach continues to differentiate Independent Bank and supports durable performance through changing rate and economic cycles. We were pleased to complete our acquisition of HCB Financial Corp on 1 July 2026. Integration work is underway with a targeted system conversion of 9 November. We continue to believe the combination strengthens our presence in complementary markets and enhances our ability to serve customers, employees, communities, and our shareholders over the long term. A few other highlights during the Q2 included Independent Bank being named Michigan's Best-in-State Bank by Forbes for 2026. Independent Bank is the only bank in Michigan that has been recognized by Forbes 4 years in a row. This also marks our 6th time overall that Independent has received this prestigious recognition.

Speaker #2: We were pleased to complete our acquisition of HCB Financial Corp on July 1, 2026. Integration work is underway with a targeted system conversion of November 9.

Speaker #2: We continue to believe the combination strengthens our presence and complementary markets and enhances our ability to serve customers employees communities and the shareholder and our shareholders over the long term.

Speaker #2: A few other highlights during the second quarter included Independent Bank being named Michigan's best in-state bank by Forbes for 2026. Independent Bank is the only bank in Michigan that has been recognized by Forbes four years in a row.

Speaker #2: This also marks our sixth time overall that Independent has received this prestigious recognition. During the quarter, we announced the creation of two new regional president roles within our commercial banking structure.

Brad Kessel: During the quarter, we announced the creation of 2 new regional president roles within our commercial banking structure, reinforcing our commitment to strong local leadership, relationship-based growth, and continued service to customers and communities across Michigan. This new leadership structure reflects our intentional alignment of markets, teams, and strategic priorities as the organization continues to grow. In their new roles, Kyle Johns and Dan Plumert will lead market-level relationship development, strengthen community engagement, foster collaboration across business lines, and help ensure consistent execution of our strategic goals. I'm also proud to share that Independent Bank remains a top lender and resource for small business owners and entrepreneurs with our experienced lending team available to help eligible business access financing through the U.S. Small Business Administration loan programs.

Speaker #2: Reinforcing our commitment to strong local leadership, relationship-based growth, and continued service to customers and communities across Michigan. This new leadership structure reflects our intentional alignment of markets teams and strategic priorities as the organization continues to grow.

Speaker #2: In their new roles, Kyle Johns and Daniel Plummer will lead market-level relationship development, strengthen community engagement, foster collaboration across business lines, and help ensure consistent execution of our strategic goals.

Speaker #2: I am also proud to share that Independent Bank remains a top lender and resource for small business owners and entrepreneurs. With our experienced lending team, available to help eligible business access financing through the US Small Business Administration loan programs.

Speaker #2: As a member of the SBA's preferred lenders program, Independent Bank has delegated authority to process and approve eligible SBA loan requests in-house. Helping streamline the financing process for borrowers.

Brad Kessel: As a member of the SBA's Preferred Lenders Program, Independent Bank has delegated authority to process and approve eligible SBA loan requests in-house, helping streamline the financing process for borrowers. Independent Bank was recently honored by the SBA Michigan District office as a top 10 lender for its outstanding contributions and support of Michigan's small business community during fiscal year 2025. Moving to page five of our presentation, deposits total $4.9 billion on 30 June 2026. An increase of $100 million from the start of the year. This growth occurred in non-interest-bearing, saving and interest-bearing checking, and reciprocal deposits, offset by a small decline in time deposits and an $18 million reduction in brokered deposits. On a linked quarter basis, business deposits increased by $66 million.

Speaker #2: Independent Bank was recently honored by the SBA Michigan District Office as a top 10 lender for its outstanding contributions and support of the Michigan small business community during fiscal year 2025.

Speaker #2: Moving to page five of our presentation, deposits total $4.9 billion at June 30, 2026. An increase of $100 million from the start of the year.

Speaker #2: This growth occurred in non-interest-bearing, savings and interest-bearing checking, and reciprocal deposits, offset by a small decline in time deposits and an $18 million reduction in brokered deposits.

Speaker #2: On a linked-quarter basis, business deposits increased by $66 million, retail deposits increased by $15 million, offset by a $45 million decrease in municipal deposits, primarily due to seasonality and usage of American Rescue Plan Act funds.

Brad Kessel: Retail deposits increased by $15 million, offset by a $45 million decrease in municipal deposits, primarily due to seasonality and usage of American Rescue Plan Act funds. The deposit base is comprised of 47% retail, 40% commercial, and 13% municipal. On page six, we have included in our presentation a historical view of our cost of funds as compared to the Fed funds spot rate and Fed effective rate. For the quarter, our total cost of funds decreased by 1 basis point to 1.53%. At this time, I'd like to turn the presentation over to Joel Rahn to share a few comments on the success we are having in growing our loan portfolios and provide an update on our credit metrics. Joel?

Speaker #2: The deposit basis comprised of 40% $47% retail, 40% commercial, and 13% municipal. 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.

Speaker #2: For the quarter, our total cost of funds decreased by one basis point from 1.53%. At this time, I'd like to turn the presentation over to Joel Rahn to share a few comments on the success we are having in growing our loan portfolios and provide an update on our credit metrics.

Speaker #2: Joel.

Speaker #3: Yeah, thanks, Brad. Good morning, everyone. Page seven summarizes our loan activity for the quarter. We experienced strong second quarter loan growth of $105 million, or 9.8% annualized.

Joel Rahn: Yeah. Thanks, Brad. Good morning, everyone. Page seven summarizes our loan activity for the quarter. We experienced strong Q2 loan growth of $105 million or 9.8% annualized. Commercial loan generation was very strong, with $92.6 million of quarterly growth or 16% annualized. During the quarter, our residential mortgage and consumer installment loan portfolios increased $12.9 million and $0.2 million respectively. Year to date, we've grown loans $138 million, led by strong commercial loan growth of $146 million, representing 13% annualized growth. Our strategic investment in commercial banking talent continues to supplement our loan growth. Year to date, we've added eight experienced commercial bankers, bringing our total to 53 bankers, comprising eight commercial loan teams across our statewide footprint. Compared to a year ago, we've added a net of six experienced commercial bankers to our team.

Speaker #3: Commercial loan generation was very strong with 92.6 million of quarterly growth or 16% annualized. During the quarter, our residential mortgage and consumer installment loan portfolios increased 12.9 million and 0.2 million respectively.

Speaker #3: Year to date, we've grown loans by $138 million, led by strong commercial loan growth of $146 million, representing 13% annualized growth. Our strategic investment in commercial banking talent continues to supplement our loan growth.

Speaker #3: Year to date, we've added eight experienced commercial bankers, bringing our total to 53 bankers, comprising eight commercial loan teams across our statewide footprint. Compared to a year ago, we've added a net of six experienced commercial bankers.

Speaker #3: Looking ahead, based on a strong pipeline, we believe we will continue low double-digit growth of our commercial loan portfolio for 2026. We continue to see market share opportunities from regional banks in both talent and customer acquisition and are seeing steady organic growth from existing customers.

Joel Rahn: Looking ahead, based on a strong pipeline, we believe we will continue low double-digit growth of our commercial loan portfolio for 2026. We continue to see market share opportunities from regional banks in both talent and customer acquisition and are seeing steady organic growth from existing customers. Looking at the commercial loan production for the H1 of the year, the mix of C&I lending versus investment real estate was 58% and 42% respectively. For our commercial portfolio, the mix is 67% C&I and 33% investment real estate. Page eight provides detail on our commercial loan portfolio concentrations, there hasn't been any significant shift in our portfolio over the past year, with the portfolio remaining very well diversified. Our largest segment of the C&I category continues to be manufacturing at $194 million or 8.2% of the total portfolio.

Speaker #3: Looking at the commercial loan production for the first half of the year, the mix of C&I lending versus investment real estate was 58% and 42%, respectively.

Speaker #3: And for our commercial portfolio, the mix is 67% C&I and 33% investment real estate. Page eight provides detail on our commercial loan portfolio concentrations, and there hasn't been any significant shift in our portfolio over the past year, with the portfolio remaining very well diversified.

Speaker #3: Our largest segment of the CNI category continues to be manufacturing at $194 million, or 8.2% of the total portfolio. In the investment real estate segment of the portfolio, the largest concentration is industrial at $219 million, or 9.3%.

Joel Rahn: In the investment real estate segment of the portfolio, the largest concentration is industrial at $219 million or 9.3%. We outline key credit quality metrics on page nine. Overall, we continue to demonstrate, as Brad said, strong credit quality. Total non-performing loans were $32.8 million or 74 basis points of total loans at quarter end, up slightly from 64 basis points at 30 June. Or excuse me, at 31 March. It's worth noting that approximately two-thirds of this total is one commercial development exposure that we've discussed in prior quarters. We continue to work through the challenges of this particular project and are appropriately reserved for any loss exposure. Past due loans totaled $5.6 million or 13 basis points, down from $8.2 million or 19 basis points at 31 March.

Speaker #3: We outline key credit quality metrics on page nine. Overall, we continue to demonstrate as Brad said, strong credit quality. Total non-performing loans were 32.8 million or 74 basis points of total loans at quarter end up slightly from 64 basis points at 630.

Speaker #3: Or, excuse me, at 331. It's worth noting that approximately two-thirds of the total one commercial development exposure that we've discussed in prior quarters. We continue to work through the challenges of this particular project and are appropriately reserved for any loss exposure.

Speaker #3: Past due loans totaled $5.6 million, or 13 basis points, down from $8.2 million, or 19 basis points, at 3/31. It's not reflected on this slide, but also worth noting that we realized net charge-offs of $633,000, or 3 basis points of average loans, in the first two quarters of the year.

Joel Rahn: It's not reflected on this slide, but also worth noting that we realized net charge-offs of $633,000 or three basis points of average loans in the first two quarters of the year. This compares to $442,000 or two basis points in H1 2025. At this time, I'd like to turn the presentation over to Gavin Mohr for his comments, including the outlook for the remainder of 2026.

Speaker #3: This compares to $442,000 or two basis points in the first half of 2025. This time, I'd like to turn the presentation over to Gavin for his comments including the outlook for the remainder of 2026.

Speaker #4: Thanks, Joel, and good morning, everyone. I'm starting at page 10 of our presentation. Page 10 highlights our strong regulatory capital position.

Gavin Mohr: Thanks, Joel Rahn, and good morning, everyone. I'm starting at page 10 of our presentation. Page 10 highlights our strong regulatory capital position. I would highlight the increase in our tangible common equity ratio to 8.9%. Turning on to page 11. Net interest income increased $3.3 million from the year ago period. Our tax equivalent net interest margin was 3.71% during Q2 2026, compared to 3.58% in Q2 2025, and up six basis points from Q1 2026. Average interest-earning assets were $5.33 billion in Q2 2026, compared to $5.11 billion in the year ago quarter and $5.23 billion in Q1 this year. Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and the net interest margin.

Speaker #4: I would highlight the increase in our tangible common equity ratio to 8.9%. Turning on to page 11, net interest income increased 3.3 million dollars from a year ago period.

Speaker #4: Our tax equivalent net interest margin was 3.71% during the second quarter of 2026 compared to 3.58% in the second quarter of 2025 and up six basis points from the first quarter of 2026 average interest earning assets were 5.33 billion dollars in the second quarter of 2026 compared to 5.11 billion dollars in the year ago quarter and 5.23 billion dollars in the first quarter of this year.

Speaker #4: Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and the net interest margin. On a linked quarter basis, our 20 our second quarter 26 net interest margin was positively impacted by three factors.

Gavin Mohr: On a linked quarter basis, our Q2 2026 net interest margin was positively impacted by three factors. Change in earning asset mix contributed three basis points, an increase in earning asset yield contributed two basis points, and a decrease in funding cost contributed one basis point. On page 13, we provide details on the institution's interest rate risk position. The comparative simulation analysis for Q2 2026 and Q1 2026 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 a spot yield curve from the valuation date. The shock scenarios consider immediate permanent parallel rate changes. The base case modeled NII is slightly higher during the quarter due to $60 million of earning asset growth, five basis points of modeled margin expansion.

Speaker #4: Change in earning asset mix contributed three basis points, an increase in earning asset yield contributed two basis points, and a decrease in funding cost contributed one basis point.

Speaker #4: On page 13, we provide details on the institution's interest rate risk position. The comparative simulation analysis for the second quarter '26 and the first quarter of '26 calculates the change in net interest income over the next 12 months under five rate scenarios. All scenarios assume a static balance sheet, with a base rate scenario applying a spot yield curve from the valuation date.

Speaker #4: The shock scenarios consider immediate, permanent, parallel rate changes. The base case modeled in II is slightly higher during the quarter due to $60 million of earning asset growth and five basis points of modeled margin expansion.

Speaker #4: Earning asset expansion was centered in commercial loans, which were up $97 million. Runoff and lower-yielding investments and overnight liquidity helped fund earning asset growth.

Gavin Mohr: Earning asset expansion was centered in commercial loans. It was up to $97 million. Runoff and lower yielding investments and overnight liquidity helped fund earning asset growth. Asset and liability yields were slightly higher during the quarter, with asset yields up eight basis points and liability costs three basis points higher. NII sensitivity to lower rates declined modestly, while the benefit to higher rates remained largely unchanged. Reduced exposure to lower rates is due to a $50 million notional floor purchases. Termination of $50 million of pay fixed swaps. The overall position is closely matched for smaller rate changes or ±100 basis points. The bank has modest exposure to larger rate declines and benefits from larger rate increases. Currently, 37.9% of assets reprice in 1 month and 49.4% reprice in the next 12 months.

Speaker #4: Asset and liability yields were slightly higher during the quarter with that asset yields up eight basis points and liability cost three basis points higher.

Speaker #4: NII sensitivity to lower rates declined modestly, while the benefit to higher rates remained largely unchanged. Reduced exposure to lower rates is due to $50 million notional floor purchases.

Speaker #4: Termination of 50 million of pay fixed swaps the overall position is closely matched for smaller rate changes or plus or minus 100 basis points.

Speaker #4: The bank has modest exposure to larger rate declines and benefits from larger rate increases. Currently, 37.9% of assets reprice in one month, and 49.4% reprice in the next 12 months.

Speaker #4: Moving on to page 14, non-interest income totaled 15.3 million dollars in the second quarter of 2026 as compared to 11.3 million dollars in the year ago quarter and 12 million dollars in the first quarter of 2026.

Gavin Mohr: Moving on to page 14, non-interest income totaled $15.3 million in Q2 2026, as compared to $11.3 million in the year ago quarter and $12 million in Q1 2026. Q2 2026 net gains on mortgage loans totaled $1.7 million, compared to $1.6 million in the prior year quarter. The increase is primarily due to higher volume of mortgage loans sold that were partially offset by lower profit margins. Mortgage loan servicing net was a gain of $2.5 million in Q2 2026 compared to a gain of $0.5 million in the prior year quarter. The change due to price was a gain of $1.8 million or $0.07 per diluted share after tax in Q2 2026 compared to a loss of $2 million or $0.01 per diluted share after tax in the prior year period.

Speaker #4: Second quarter 2026 net gains on mortgage loans totaled $1.7 million, compared to $1.6 million in the prior year quarter. The increase is primarily due to a higher volume of mortgage loans sold that were partially offset by lower profit margins.

Speaker #4: Mortgage loan servicing net was a gain of $2.5 million in the second quarter of '26, compared to a gain of $0.5 million in the prior year quarter.

Speaker #4: The change due to price was a gain of 1.8 million or 7 cents per diluted character tax in the second quarter of 26 compared to a loss of 2 million or 1 cent per diluted share after tax in the prior year period.

Speaker #4: As detailed on page 15, our non-interest expense totaled $37.8 million in the second quarter of 2026, compared to $33.8 million in the year-ago quarter and $38.3 million in the first quarter of 2026.

Gavin Mohr: As detailed on page 15, our non-interest expense totaled $37.8 million in Q2 2026 compared to $33.8 million in the year ago quarter and $38.3 million in Q1 2026. Compensation and employee benefits expense increased $1.4 million, primarily due to salary increases that were effective on 1 January 2026, and higher health insurance related costs. Litigation expense was $0.4 million attributed to an accrual established for losses we consider probable as a result of all of our outstanding litigation matters in aggregate. Advertising expense increased $0.3 million in Q2 2026 compared to the prior year quarter, primarily due to new deposit account opening incentives. We recorded merger related expenses of $4.4 million in Q2 2026.

Speaker #4: Compensation and employee benefits expense increased $1.4 million primarily due to salary increases that were effective on January 1, 2026, and higher health insurance-related costs.

Speaker #4: Litigation expense was 0.4 million attributed to an accrual established for losses we consider probable as a result of all of our outstanding litigation matters and aggregate advertising expense increased 0.3 million in the second quarter of 2026 compared to the prior year quarter primarily due to new deposit account opening incentives recorded merger related expenses of 4.4 million in the second quarter of 2026.

Speaker #4: Turning to page 16 is our update for our 2026 outlook, to see how our actual performance during the second quarter compared to the original outlook that we provided in January of this year.

Gavin Mohr: Turning to page 16 is our update for our 2026 outlook to see how our actual performance during Q2 compared to the original outlook that we provided in January of this year. Our outlook estimated full year loan growth of 4.5% to 5.5%. Loans increased $105.8 million in Q2 2026 or 9.8% annualized, which is above our forecasted range. Commercial loans increased $92.6 million and mortgage loans increased $12.9 million while installment loans were flat for Q2. Q2 2026 net interest income increased by 7.4% over 2025, which is within our forecasted range of 7% to 8%. I would highlight this is the 12th consecutive quarter of increasing net interest income. The net interest margin was 3.71% for the current quarter and 3.58% for the prior year quarter, and up six basis points from a linked quarter perspective.

Speaker #4: Our outlook estimated full-year loan growth of 4.5% to 5.5%. Loans increased $105.8 million in the second quarter of 2026, or 9.8% annualized, which is above our forecasted range.

Speaker #4: Commercial loans increased $92.6 million, and mortgage loans increased $12.9 million, while installment loans were flat for the second quarter. Second quarter 2026 net interest income increased by 7.4% over 2025, which is within our forecasted range of 7% to 8%.

Speaker #4: I would highlight this is the 12th consecutive quarter of increasing net interest income. The net interest margin was 3.71% for the current quarter and 3.58% for the prior year quarter.

Speaker #4: And up six basis points from our linked quarter. Perspective: the second quarter 2026 provision for credit losses was an expense of $2.7 million.

Gavin Mohr: The Q2 2026 provision for credit losses was an expense of $2.7 million, which is at the high end of our forecasted range. Moving on to page 17. Non-interest income totaled $15.3 million in Q2 2026, which was above our forecasted range of $11.3 million to $12.3 million. Q2 2026 mortgage loan origination sales and gains totaled $145.4 million, $97.1 million and $1.3 million respectively. Mortgage loan servicing net generated a gain of $2.5 million in Q2 2026, which is above our forecasted target. Positively impacting the Q2 results was a gain on equity securities of $1.6 million. This is related to the exchange of Visa Class B-2 shares to Visa Class C shares in the quarter. Non-interest expense was $37.8 million in Q2, above our forecasted range of $36 to $37 million.

Speaker #4: Which is at the high end of our forecasted range. Moving on to page 17. Non-interest income totaled $15.3 million in the second quarter of 2026, which was above our forecasted range of $11.3 million to $12.3 million.

Speaker #4: Second quarter '26 mortgage loan origination, sales, and gains totaled $145.4 million, $97.1 million, and $1.3 million, respectively. Mortgage loan servicing net generated a gain of $2.5 million in the second quarter of '26, which is above our forecasted target.

Speaker #4: Positively impacting the second quarter results was a gain on equity securities of $1.6 million. This is related to the exchange of Visa B2 shares to Visa Class C shares.

Speaker #4: In the quarter. Non-interest expense was 37.8 million dollars in the second quarter above our forecasted range of 36 to 37 million dollars. We recorded litigation expense of 4.4 million dollars in the quarter as well as 0.4 million dollars in merger related costs.

Gavin Mohr: We recorded litigation expense of $4.4 million in the quarter, as well as $0.4 million in merger-related costs. Our effective income tax rate was 17.2% for Q2 2026. Lastly, there were no shares of common stock repurchased in Q2 or H1 2026. That concludes my prepared remarks, and I would like to now turn the call back over to Brad.

Speaker #4: Our effective income tax rate was 17.2% for the second quarter of 2026. Lastly, there were no shares of common stocks repurchased in the second quarter for six months of 2026.

Speaker #4: That concludes my prepared remarks and I would like to now turn the call back over to Brad.

Speaker #1: 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.

Brad Kessel: 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 H2 2026, our focus will be continuing to invest in our team, investing in and leveraging our technology, and the successful integration of the HCB franchise, while always working to be Michigan's most people-focused bank. At this point, we'd like to open up the call for questions.

Speaker #1: As we move through the second half of 2026 our focus will be continuing to invest in our team investing in and leveraging our technology and the successful integration of the HCB franchise while always working to be Michigan's most people focused bank.

Speaker #1: At this point, we'd like to open up the call for questions.

Speaker #4: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press *11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, please press *11 again.

Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press *11 on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press *11 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Brendan Nosal with Hovde Group. Your line is open.

Speaker #4: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Brendan Nestle with Hobley Group. Your line is open.

Speaker #5: Hey, good morning, everybody. Hope you're doing well.

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

Speaker #6: Good morning Brendan. Good morning.

Gavin Mohr: Good morning, Brendan.

Brad Kessel: Morning.

Speaker #5: Maybe just starting off here on the expense number. I get that you guys continue to, you know, add talent and producers and you're investing.

Brendan Nosal: Maybe just starting off here on the expense number. I get that you guys continue to add talent and producers and you're investing. I guess if I look at the core expense base, it was just above the high end of the quarterly guidance range. Just kind of curious how you think about the run rate as we move through the balance of the year without considering High Point, just kind of legacy Independent versus that $36 million to $37 million range.

Speaker #5: I guess if I look at the core expense base it was you know just above the high end of kind of the quarterly guidance range.

Speaker #5: Just kind of curious how you think about the the run rate as we move through the balance of the year. You know without considering high point just kind of legacy independent versus kind of that that 36 to 30 to 37 million dollar range.

Speaker #6: Yeah so I think your analysis is is accurate Brendan. When I think about the the core in in based on our forecast what wasn't compre what we didn't have captured in that was certainly the litigation of a a a 400,000 the other thing that we we had this quarter we did have a incentive accrual catch up that that added 400,000 that being said I mean you know that that I just I would call that you know part of a part of core and then we also had some elevated advertising expense that's related to deposit promotional deposit promotion that was that has been terminated but there's still there's still some was was still there's still some earn out taking place there.

Gavin Mohr: Yeah. I think your analysis is accurate, Brendan. When I think about the core and based on our forecast, what we didn't have captured in that was certainly the litigation of $400,000. The other thing that we had this quarter, we did have incentive accrual catch-up that added $400,000. That being said, I would call that part of core. Then we also had some elevated advertising expense that's related to deposit promotional. That's a deposit promotion that has been terminated, but there's still some earn-out taking place there. When I think about on a net-net, I get back to that around $37 million or high end of our range going forward, to answer your question, yes.

Speaker #6: So, when I think about it on a net-net basis, I get back to that, you know, around $37 million or the high end of our range going forward, to answer your question.

Speaker #6: Yes.

Speaker #1: Yeah I I agree with that Gavin. I I would add also loan and collection right now is running a little bit higher and it relates predominantly to the the one credit.

Brad Kessel: Yeah, I agree with that, Gavin. I would add also loan and collection right now is running a little bit higher. It relates predominantly to the one credit. As we move that through the process, and hopefully we can get that down, too.

Speaker #1: So as we move that through the process, hopefully we can get that down, too.

Speaker #5: Okay. Fantastic. Thanks for the the color there. maybe pivoting to kind of what you're doing with the balance sheet in terms of the complexion and and the margin you've been on this journey of remixing the asset base into higher yielding commercial loans for for some time now and that's generated quite a bit of margin expansion.

Brendan Nosal: Okay, fantastic. Thanks for the color there. Maybe pivoting to what you're doing with the balance sheet in terms of the complexion and the margin. You've been on this journey of remixing the asset base into higher yielding commercial loans for some time now, that's generated quite a bit of margin expansion, irrespective of the rate environment. I guess without asking specifically about the longer term net interest margin expectation, I guess my question is whether the commercial remixing opportunity is exhausted by the end of this year. Whether you think there's still more work to do in the future.

Speaker #5: irrespective of the rate environment I I guess without asking specifically about the longer term margin expectation I I guess my question is whether the commercial remixing opportunity is exhausted by the end of this year or whether you think there's still more work to do in the future.

Speaker #6: Yeah the the commercial re to make sure to define your question correctly so correct me if I I don't if I get it wrong for some so commercial wise in terms of repricing the commercial book is is approaching market due to the the short duration.

Gavin Mohr: Yeah. To make sure to define your question correctly, correct me if I get it wrong for a sec. Commercial-wise, in terms of repricing, the commercial book is approaching market due to the short duration. That being said, the securities portfolio and the mortgage portfolio that we intend to continue, certainly on the mortgage side, continue to redeploy into the commercial pipeline. Has room to run. I would say we've been doing some analysis internally. It all held the same, we're seeing some favorability in the positive shape of the yield curve, Brendan. Continuing to grind higher for the next 12 months between flat to where we're at today at 6 basis points a quarter is not unreasonable.

Speaker #6: That being said, the securities portfolio and the mortgage portfolio that we intend to continue, certainly on the mortgage side, continue to redeploy into the commercial pipeline has room to run.

Speaker #6: And I I would say we we've been you know doing some analysis internally it all held the same and we're we're seeing some favorability in the positive shape of the yield curve Brendan continuing to grind higher for the next 12 months it it it between you know flat to you know where we're at today at six basis points a quarter is not unreasonable.

Speaker #6: I don't I think six basis points is outsized but you know anywhere from you know two to four basis points a quarter going forward would not be unreasonable in terms of it margin expansion.

Gavin Mohr: I think 6 basis points is outsized, anywhere from 2 to 4 basis points a quarter going forward would not be unreasonable in terms of a net interest margin expansion.

Speaker #5: Fantastic Gavin. Thank you for answering the question.

Brendan Nosal: Fantastic, Gavin. Thank you for answering the question.

Speaker #4: One moment for our next question. Our next question comes from Nathan Rice with Piper Sandler. Your line is open.

Operator: One moment for our next question. Our next question comes from Nathan Race with Piper Sandler. Your line is open.

Speaker #7: Hey, good morning, everyone. This is Nick Brandon on for Nate Rice. Thanks for taking my questions this morning.

Nick Branton: Hey, good morning, everyone. This is Nick Branton on for Nate Race. Thanks for taking my questions this morning.

Speaker #6: Sure Nick.

Gavin Mohr: Sure, Nick.

Nick Branton: Just going to expenses on the HCB deal. With the deal closing earlier this month, can you walk through the cost savings cadence from here? Do you expect the savings to build gradually each quarter, or does the bulk of them come through after the systems conversion in November?

Speaker #7: just going to expenses on the HCB deal with the deal closing earlier this month. Can you kind of walk through the cost savings cadence from here and do you kind of expect the savings to build gradually each quarter or does the bulk of them kind of come through after the systems conversion in November?

Speaker #6: Yeah, it'll be the latter, Nick. So, for various reasons, we chose to run the banks as separate subsidiaries through conversion, as Brad highlighted on November 9th.

Gavin Mohr: Yeah, it'll be the latter, Nick. For various reasons, we chose to run the banks as separate subsidiaries through conversion, as Brad highlighted, on 9 November. Running two individual banks, it did slow down some of those cost saves. Our team is focused on achieving that number very early in 2027 at the latest to have 2027 is fully implemented and realized.

Speaker #6: so you know running running two individual banks we we it did slow down some of those cost saves but our team is focused on achieving you know that that number very early in 27 at the latest.

Speaker #6: To have a 27 is a you know fully implemented and and realized.

Speaker #1: Yeah, I think that number was 40%.

Joel Rahn: I think that number was 40%.

Speaker #6: It was 40% yep of of half a year.

Gavin Mohr: It was 40%, yep, of half a year.

Speaker #7: Got it, that's helpful. And then maybe switching to loan growth—how does the commercial pipeline look heading into the third quarter? And did any of the quarter's growth pull forward from the back half?

Nick Branton: Got it. That's helpful. Then maybe switching to loan growth. How does the commercial pipeline look heading into Q3? Did any of the quarter's growth pull forward from the H2?

Speaker #2: Yeah Nick this is Joel. the the pipeline is is holding up well. We had you know a really strong second quarter of production and despite that pipeline is strong and when I you know there's always some seasonality to it and third quarter just historically is is a little softer for loan production.

Joel Rahn: Yeah. Nick, this is Joel. The pipeline is holding up well. We had a really strong Q2 of production. Despite that, pipeline is strong. There's always some seasonality to it. Q3, just historically, is a little softer for loan production. Not bad, but typically a little bit softer just because the early part of the quarter, a lot of people are on vacation. Business owners like to enjoy the summer. We always see the Q4 usually be quite strong. I think that sort of a cyclical or seasonality pattern will hold this year. No, our pipeline, just in terms of the dollar, where it's at today versus a year ago, very comparable, and we continue to see really good opportunities out in the marketplace.

Speaker #2: Not bad, but typically a little bit softer, just because in the early part of the quarter, a lot of people are on vacation. Business owners like to enjoy the summer.

Speaker #2: and then we always see the fourth quarter usually be quite strong. So I I think that that you know that sort of a cyclical or seasonality pattern will hold this year.

Speaker #2: But no, our pipeline—in terms of the dollar, you know, where it's at today versus a year ago—is very comparable, and we continue to see really good opportunities out in the marketplace.

Speaker #7: Great. That's everything for me. Thanks guys.

Nick Branton: Great. That's everything for me. Thanks, guys.

Speaker #6: Thank you.

Gavin Mohr: Thank you.

Speaker #4: One moment for our next question. Our next question comes from Matt Rick with KBW. Your line is open.

Operator: One moment for our next question. Our next question comes from Matt Rick with KBW. Your line is open.

Speaker #7: Hey guys, hope everybody's doing well this morning. My first question was a follow-up to one of the earlier questions about commercial new origination yields.

Matt Rick: Hey, guys. Hope everybody's doing well this morning. My first question was a follow-up to one of the earlier questions about commercial new origination yields. It looks like they were up 2 basis points, and you said the portfolio is approaching market. Do you think market yields have peaked at this point? I'm just kind of curious how you guys weigh profitability with market share gain, given the commercial opportunity in front of you.

Matt Renck: Hey, guys. Hope everybody's doing well this morning. My first question was a follow-up to one of the earlier questions about commercial new origination yields. It looks like they were up 2 basis points, and you said the portfolio is approaching market. Do you think market yields have peaked at this point? I'm just kind of curious how you guys weigh profitability with market share gain, given the commercial opportunity in front of you.

Speaker #7: It looks like they were up two basis points, and you said the portfolio is approaching market. But do you think market yields have peaked at this point? And then I'm just kind of curious how you guys weigh profitability with market share gain, given the commercial opportunity in front of you.

Gavin Mohr: I'll start with Joel. I think the question maybe for you out of the gate is how do you feel about the market pricing in terms of raw yield? Are we kind of at the-

Speaker #6: So I I would say so I'll start with Joel. I think the the question maybe for you out of the gate is what what how do you feel about the the market pricing in terms of raw yield or we kind of at the.

Gavin Mohr: I'll start with Joel. I think the question maybe for you out of the gate is how do you feel about the market pricing in terms of raw yield? Are we kind of at the-

Speaker #2: Well it's it's obviously gonna follow the industry market. So but in terms of of spread I'll I'll just refer to it that way. in terms of spread we've been holding quite consistent.

Joel Rahn: Well, it's obviously going to follow the industry market. In terms of spread, I'll just refer to it that way. In terms of spread, we've been holding quite consistent. There's a lot of competition, but that's nothing new. I think we're in a pretty stable environment. Always healthy competition. That's just a part of our daily life. In terms of our spread, we've been holding our ground. I don't see it growing, but I also don't see that we're losing ground on our spread. Again, it's all predicated on market movement too. We're looking at likely increased Fed funds here in the near future, and the Treasury market continues to tick up. That's the best insight I can provide you on that. Yeah. We grew the commercial portfolio by $93 million-

Speaker #2: So it it there's a lot of competition but that's not that that's nothing new. so I I I think it's we're in a pretty stable environment.

Speaker #2: Always healthy competition. That's just a part of our our daily life. but in terms of our spread we've been holding we've been holding ground and I don't see that I don't see it growing but I also don't see that we're you know that we're losing ground on our spread.

Speaker #2: So you know and again it's all based on you know predicated on market movement too. So we're looking at likely a increased Fed funds here in the near future in the in the you know the the Treasury market continues to to tick up.

Speaker #2: So that that's the best you know insight I can I can I can provide you on that.

Speaker #1: Yeah and again so we grew the portfolio. The commercial portfolio by 93 million. For the quarter.

Speaker #7: Mm-hmm. Mm-hmm.

Joel Rahn: for the quarter.

Joel Rahn: The average new origination rate was 641, and the portfolio yield is a 606.

Speaker #1: The average new origination rate was 6.41%, and the portfolio yield is at 6.06%.

Matt Rick: Yeah. Nick, you're right. As Gavin said, we're getting real close to market. We're kind of par on the commercial portfolio now because of the turnover.

Brad Kessel: Yeah. Nick, you're right. As Gavin said, we're getting real close to market. We're kind of par on the commercial portfolio now because of the turnover.

Speaker #2: Yeah that that you're right. I mean that that's is Gavin said. We're getting real close to market you know we're kind of par on the on the commercial portfolio now because of turnover.

Speaker #7: Okay got it. And then just one follow up on credit. I I appreciate the color from earlier on about the the two thirds of it being one commercial loan.

Matt Rick: Okay, got it. Then just one follow-up on credit. I appreciate the color from earlier on about the two-thirds of it being one commercial loan. Is there any insight into the timeline on resolution there? Then just generally, looking across the portfolio, any areas you're keeping an eye on or you're seeing early signs of stress in?

Matt Renck: Okay, got it. Then just one follow-up on credit. I appreciate the color from earlier on about the two-thirds of it being one commercial loan. Is there any insight into the timeline on resolution there? Then just generally, looking across the portfolio, any areas you're keeping an eye on or you're seeing early signs of stress in?

Speaker #7: But is there any insight into the timeline on resolution there and then just generally like looking across the portfolio any areas you get you're keeping an eye on or you're seeing you know early signs of stress in?

Brad Kessel: Well, yeah, I can't predict the timeline of that large one. It's a legal process, and it just always moves slower than we want it to move. Yet we do feel like we're gradually making headway. In terms of other areas, no. There's not an industry concern at this point. The one other loan of any significance that we moved to non-accrual during the quarter on the commercial side, it's a management issue. That's what we're seeing, is just the poor operators, eventually it catches up with them. No industry concern from a commercial standpoint at this point.

Speaker #2: Well, yeah, it can't predict the timeline of that large one. It's a legal process, and it just always moves slower than we want it to move.

Speaker #2: and and yet we do feel like we're gradually making headway. in in terms of other areas no. It there's no there there is not an industry concern at this point.

Speaker #2: you know the the one other you know loan of of any significance that that we move to non-accrual during the quarter on the commercial side was it's a management issue.

Speaker #2: and and that's what we're seeing is is is just the you know the the poor operators eventually it catches up with them. But no no industry concern from a commercial standpoint at this point.

Speaker #7: Okay, great. Thanks for taking my questions.

Matt Rick: Okay, great. Thanks for taking my questions.

Matt Renck: Okay, great. Thanks for taking my questions.

Speaker #1: Thank you.

[Company Representative] (Independent Bank): Thank you.

Gavin Mohr: Thank you.

Speaker #4: I'm not showing any further questions at this time, so I'd like to turn the call back over to Brad.

Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Brad.

Speaker #1: 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.

Brad Kessel: 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. 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 towards our common goal of guiding our customers to be independent. Finally, I'd 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 #1: 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.

Speaker #1: Finally I'd like to thank each of you for your interest in independent bank corporation. For joining us on today's call. Have a great day.

Operator: Thank you, ladies and gentlemen. That concludes today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Q2 2026 Independent Bank Corp Earnings Call

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