INDEPENDENT BANK CORP /MI/ Q3 FY2024 earnings call

• Brad Kessel noted net income for Q3 2024 was $13.8 million ($0.65 per diluted share) vs $17.5 million ($0.83) in prior year. Loans up 9.3%, core deposits up 8.9%. Net interest income grew on linked-quarter and y-o-y basis. Expenses well managed, credit metrics excellent, tangible book value per share up 22% y-o-y.
• Joel Rahn shared loan activity: commercial loans up $93M, mortgage up $10M, installment down $12.5M. Commercial portfolio mix: 60% C&I, 40% investment real estate, 35% from new customers. Credit metrics: non-performing loans $5.1M (13bps of total loans), past due loans $4.8M (12bps), watch list 3.3% of total portfolio.
• Gavin Mohr reported net interest income up $2.4M y-o-y. Net interest margin 3.37% Q3 2024 vs 3.23% prior year. Non-interest income $9.5M Q3 2024 vs $15.6M prior year. Non-interest expense $32.6M Q3 2024. Loan growth above forecasted mid-single digits, net interest income within mid-single digit forecast, provision for credit losses $1.5M within range.

Total loans increased $90 million in the third quarter of 2024, representing 9.3% annualized growth. Commercial loans grew $93 million, mortgage loans $10 million, and installment loans declined $12.5 million. The commercial portfolio is 67% C&I lending, with manufacturing comprising 9% ($172 million) and investment real estate 33% (industrial at 8% ($153 million) and office at 4.7% ($86 million)). Core deposits were $4.6 billion as of September 30, 2024, with core deposits increasing $100 million during Q3 2024. Total cost of funds increased 8 basis points to 2.10% for the quarter.

• Loan growth 9.3% annualized, above forecasted mid-single digits.
• Net interest income increased 6.2% y-o-y, within mid-single digit forecast.
• Non-interest income $9.5M Q3 2024 below forecasted range of $11.5M-$13M.
• Provision for credit losses $1.5M within forecasted range.

• Seasonality could impact mortgage business performance.
• Uncertainty around economic conditions (soft landing vs hard landing) may affect reserve levels.
• Intense deposit pricing competition in the marketplace.

Q: Brendan Nosal asked about mortgage gain on sale margins and balance sheet positioning for Fed reductions.

A: Gavin Mohr said margins stable but production may face headwinds from seasonality and limited supply; Brad Kessel added customers anticipated mortgage rate drops differently post Fed move in September.

Q: Peter Winter inquired about loan demand, hiring, and credit quality.

A: Joel Rahn noted solid commercial pipeline for Q4 2024 and early 2025; hiring ongoing with addition of bankers in Michigan; provision for credit losses $1.5M due to loan growth, reserves healthy.

Q: Adam Kroll asked about deposit costs, expenses, and AI.

A: Brad Kessel said deposit costs likely peaked, expense management a focus with resource reallocation; AI initiatives underway with governance in place, no regulator pushback yet.

Q: Matt Renck asked about AI regulator pushback and deposit growth impact on loans.

A: Brad Kessel said no regulator pushback on AI yet; Joel Rahn noted potential lift from refinance activity as some loans locked in fixed rates become eligible for refinance.

Q: John Rodis inquired about securities portfolio maturities and target securities to assets.

A: Gavin Mohr said ~$25M in securities maturing in Q4 2024, ~$120M next year, fairly even across quarters; target securities to assets range 12%-15%.