Independent Bank Corporation

Hello and welcome to today's call. My name is Candice and I will be your moderator. All lines have been placed on mute during the presentation portion of the call with an opportunity for question and answer at the end. If you'd like to ask a question, please press start followed by one on the telephone keypad. I would now like to pass the conference over to our host, Brad Kessel, President and Chief Executive Officer. Please go ahead.

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 third quarter 2022 results i am brad kessel president chief executive officer and joining me is gavin moore executive vice president and our chief financial officer and joel ron executive vice president commercial banking 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. The agenda for today's call will include prepared remarks, followed by a question and answer session, and then closing remarks. Independent Bank Corporation reported third quarter 2022 net income of $17.3 million or $0.81 per diluted share versus net income of $16 million or $0.73 per diluted share in the prior year period. This represents increases in net income and diluted earnings per share of 8.4% and 11% respectively over the third quarter of 2021. For the third quarter of 2022, we generated an annualized return on average assets and return on average equity of 1.40% and 20.48% respectively. Our successful expansion into new markets and the addition of new banking talent has enabled us to continue capitalizing on the significant business investment occurring throughout our state of Michigan. This has led to strong core results in the third quarter of 2022 with $3.8 million growth in net interest income, a 23 basis point expansion of our net interest margin on a linked quarter basis, and net growth in each category of loans, as well as growth in total deposits, including non-interest bearing deposits. In addition, our asset quality metrics continue to be very good. with low levels of past due loans, commercial watch credits, and non-performing assets, as well as net loan recoveries for the quarter. The continued growth of our franchise and increase in profitability is directly related to the growth in our team, our expansion into higher growth markets, and our entire team capitalizing on attractive lending and deposit gathering opportunities with increasing business investment in the state of Michigan. This investment in the state of Michigan includes the electric vehicle industry, clean energy infrastructure, and the trend of onshoring of supply chains, which is driving job growth, business formation, and expansion. For the nine months ended September 30, 2022, the company reported net income of $48.3 million, or $2.20 per diluted share compared to net income of $50.4 million or $2.30 per diluted share in the prior year period. For 2022, this represents an annualized return on average assets and return on average equity of 1.35% and 18.56% respectively as compared to 1.53% and 17.32% for the same period last year. I am very pleased that we were able to continue to grow deposits, which increased 3.4% during the third quarter of 2022, and now total $4.3 billion at September 30th, 2022, an increase of $209.9 million from the start of the year. This increase is spread across non-interest bearing, interest bearing checking, reciprocal, and some broker time deposit account balances. We have been able to generate this deposit growth while keeping our overall cost of funds low at 33 basis points this past quarter. That said, while we have been successful in lagging our cost of funds during the initial Fed rate hikes, we do expect to see an increased deposit data going forward. We have included in our presentation a historical view of our cost of funds as compared to the Fed fund spot rate and the Fed effective rate from the last rate hike cycle through the most recent quarter end. It may or may not be indicative of what we will see prospectively, but does provide a good historical view of our company and its cost of funds during a rising rate environment. At this time, I would like to turn the presentation over to Joel Rahn, to share a few comments on the success we were having in growing our loan portfolios and provide an update on our credit metrics.

Thanks, Brad. On page 8, we provide an update on our well-diversified loan portfolio. In total, our portfolio grew $151 million in the third quarter, led by our commercial portfolio, which increased $179 million. This continues our trend of strong quarterly commercial loan growth, Through the first nine months of the year, our commercial portfolio has increased 204.7 million, representing 22.7% annualized growth rate. While we expect that pace of growth to moderate in the fourth quarter and into next year, our pipeline remains strong and we believe this supports a low double-digit rate of growth as we head into 2023. In terms of our residential activity, despite economic headwinds, Our mortgage portfolio increased by 71 million during the third quarter as origination shifted toward more portfolio lending. Consumer installment lending softened in the quarter with that portfolio increasing 1.3 million as we intentionally limited our new production in order to preserve our liquidity to fund the strong growth we are seeing in commercial loans. Overall, we're very pleased with our solid loan growth and believe we are on track to continue our planned asset rotation from the investment portfolio to higher yielding loans. Turning to page nine, we provide detail on our $1.4 billion commercial loan portfolio. CNI lending continues to be our primary focus, representing 64% of the portfolio. Manufacturing is the largest concentration within the CNI segment, comprising approximately 11% or $156 million. The remaining 36% of the portfolio is comprised of commercial real estate, with the largest concentrations being industrial at 119 million, or 8.4%, and retail at 113 million, or 8.1%. It's worth noting that of the 520 million of new commercial loan volume generated in the first nine months of the year, 334 million, or 64%, is CNI versus $186 million or 36% investment real estate. By design, the portfolio is very granular in nature, and our credit metrics demonstrate that this portfolio has held up very well through the pandemic and resulting supply chain pressures. Page 10 provides data on our non-performing loans, other real estate and non-performing assets, and early stage delinquencies. Total non-performing assets were $4.2 million, or 0.08% of total assets at September 30. Loans 30 to 89 days delinquent totaled 2.3 million at September 30, unchanged from December 31, 2022. Excuse me, 2021. While there is growing concern about the health of the consumer, early stage delinquencies in our installment portfolio remain stable and at low levels, largely due to our focus on prime and super prime borrowers, And as a reminder, almost all of this portfolio is comprised of secured loans. 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.