Independent Bank Corporation

Hello, everyone, and welcome to the Independent Bank Corporation Reports 2023 First Quarter Results. My name is Emily, and I'll be coordinating your call today. After the prepared remarks, there will be the opportunity for any questions, which you can ask by pressing Start, followed by the number 1 on your telephone keypads. I'll now turn the call over to our host, Brad Kessel, President and CEO. 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 first quarter 2023 results. I have Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Moore, Executive Vice President and our Chief Financial Officer, and Joel Rahn, Executive Vice President in charge of Commercial Banking for Independent. 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 brief question and answer session, And then closing remarks. Independent Bank Corporation reported first quarter 2023 net income of $13 million or 61 cents per diluted share versus net income of $18 million or 84 cents per diluted share in the prior year period. The decrease in the 2023 first quarter results as compared to the first quarter of 2020 is primarily due to a decrease in non-interest income and increase in the provision for credit losses that were partially offset by an increase in the net interest income and decreases in non-interest expense and income tax expense. For the first quarter of 2023, we generated an annualized return on average assets and return on average equity. of 1.06% and 14.77% respectively, as compared to a 1.54% and 19.38% in the first quarter of 2022. Significant items impacting the comparable first quarter 2023 results included the changes in fair value due to price of our mortgage servicing rights, the provision for credit losses on loans, and a provision for credit losses on securities held to maturity. I am pleased to report our deposit base remains stable throughout the recent troubles experienced in the banking industry. And we have been able to remain focused on serving the needs of our customers and bringing in new relationships to the bank. Importantly, we generated core deposit growth of $93.1 million 9.1% annualized for the first quarter of 2023. As a result, we are able to report another quarter of strong financial results. We grew total loans by $44.5 million, or 5.2% annualized, while maintaining a low level of past dues. Additionally, our team continued to be focused on efficiency and expense management. Independent Bank's operating strategy remains unchanged as we continue to add talented bankers to an already talented commercial banking team to assist in our goal of achieving greater loan and deposit market share across our footprint. We have a very granular deposit base with approximately 22.6% of our deposits uninsured, and a high level of available liquidity with $2.4 billion in secure borrowing access and borrowing capacity on unplugged securities. With the loan-to-deposit ratio at 77.2%, we believe we have the capacity to continue to support ongoing growth of our loan portfolios. During the first quarter of 2023, our deposits grew to $4.5 billion. Of the $4.5 billion, we consider $3.85 billion, or 84.8%, to be core. In addition to generating $93.1 million in core deposit balance growth, we are also pleased to report net deposit account growth of more than 1,600 accounts for the quarter. We are including some additional information on the deposit base this quarter showing the metrics behind the granularity of our funding. 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 for the quarter. Our total cost of funds increased by 46 basis points to 1.25%. Through the first quarter of 2023, the cumulative cycle beta for our cost of funds is now at 24.1%. 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.

Well, thank you, Brad, and good morning, everyone. On page 9, we provide an update on our well-diversified loan portfolio. Total loans increased $44 million in the first quarter, led by residential mortgage activity, leading to a $39 million increase in that portfolio. Our commercial loan portfolio grew $4.4 million, and consumer installment lending was flat during the quarter. It's worth noting that our commercial loan growth reflected approximately $30 million of unplanned loan payoffs from sold businesses or refinanced projects. Nine million of these payoffs were watch list credits. So while commercial loan growth was soft in the first quarter, we believe this strategic expansion of our commercial banking team, as well as marketplace disruption, will provide credit worthy growth opportunity in 2023. Overall, we're pleased with our loan growth and believe that we are positioned to continue to gain market share in each market that we serve. On page 10, we provide detail on our commercial loan portfolio. CNI lending continues to be our primary focus, representing 65% of the portfolio. Manufacturing continues to be the largest concentration within the CNI segment, comprising approximately 11%, or $155 million. The remaining 35% of the portfolio is comprised of commercial real estate, with the largest concentrations being retail at 134 million, or 9.5%, and industrial at 126 million, or 8.6%. It's worth noting that our exposure to the office segment stands at $78 million, or 5.3% of our commercial portfolio at quarter end, a slight decrease from 5.7% of our portfolio a year ago. We provide more insight into our office exposure on page 11. The vast majority of our office exposure can be characterized as low rise suburban office space with 28% being medical office space. This portfolio is also very granular with the average loan size being $1.2 million. We did experience a charge off on one office credit in the quarter. which was a credit that had a long and spotty history with the bank. That loss was $960,000 and was fully reserved during 2022. Aside from that credit, our credit quality for this segment of our portfolio continues to hold up very well with no office related credits on our watch list at quarter end. Page 12 provides an overview of key credit quality metrics at 3.31. overall credit quality continues to be excellent total non-performing loans were 3.9 million or 0.11 percent of total loans at quarter end and loans 30 to 89 days delinquent totaled 1.9 million or 0.05 percent at 331 down slightly from year end 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