Independent Bank Corporation

Good morning and welcome to the Independent Bank Corporation Reports 2023 Second Quarter Results Conference Call. My name is Carla and I will be the operator of today's call. If you would like to register a question of the Q&A portion of today's call, please press star 1 on your telephone keypad. When asking your question, please ensure your telephone is unmuted locally. To revoke a question, you can press star followed by 2. I would now like to pass the conference over to our host. Brad Kessel, President and CEO, to begin. Please go ahead when you're ready.

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 2023 results. I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Moore, Executive Vice President and our Chief Financial Officer, as well as Joel Rahn, Executive Vice President, Head of 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. So let's get started. Independent Bank Corporation reported second quarter 2023 net income of $14.8 million or 70 cents per diluted share versus net income of $13 million or 61 cents per diluted share in the prior year period. The increase in 2023 second quarter results as compared to 2022 is primarily related due to increases in net interest income and non-interest income and a decrease in non-interest expenses that were partially offset by an increase in the provision for credit losses and income tax expense. For the second quarter of 2023, we generated an annualized return on average assets and return on average equity of 1.18% and 16.29% respectively, as compared to 1.10 and 15.68% in the second quarter of 2022. Significant items impacting the comparable second quarter of 2023 results included the changes in fair value due to price of our mortgage servicing rights and a provision for credit losses on loans. We delivered another quarter of strong financial results with net income and pre-tax, pre-provision income both increasing from the prior quarter. We continue to see good performance in our deposit base and have successfully brought in many new full banking relationships. Overall, our net interest margin is stable and our credit continues to perform very well. Economic conditions remain generally healthy throughout our markets and we continue to see attractive lending opportunities, which led to our total loans increasing at a 14% annualized rate in the second quarter. Our commercial pipeline is healthy with high quality lending opportunities, and we believe that we can continue to grow our portfolio of clients, capturing additional market share and deliver strong financial performance for our shareholders. With the loan to deposit ratio at 80.9%, we believe we have the capacity to continue to support our ongoing growth of our loan portfolios. We have a very granular deposit portfolio with just 20.5% of our deposits uninsured. In addition, we have a high level of available liquidity with $2.2 billion in secured borrowing access and borrowing capacity on unpledged securities. Overall, our deposit base continues to perform well. Total deposits at June 30th were $4.49 billion, down slightly from the $4.54 billion at March 31, 2023. Total deposits for the first half of 2023 have increased $108.6 million, or 5% annualized. During this period, we have seen some level of remixing of our funding as customers take advantage of the interest rate spread opportunities. Our non-interest bearing deposits are down $114.2 million. Savings and interest bearing checking are down $44.3 million. Reciprocal deposits are up $118.4 million. Time deposits are up $109.8 million. And brokered time deposits are up $38.9 million. We have included in our presentation a historical view of our cost of funds as compared to the Fed funds spot rate and the Fed effective rate for the quarter. Our total cost of funds increased by 32 basis points to 1.57%. Through the second quarter, the cumulative beta for our cost of funds is 29.4%. At this time, I'd like to turn the presentation over to Joel Ron to share a few comments on the success we have in growing our loan portfolios and provide an update on our credit metrics.

Thank you, Brad. On page eight, we provide an update of our very well diversified loan portfolio. Total loans increased 121 million in the second quarter. Each of our portfolios experienced solid growth in the quarter, with the strongest segment being commercial lending. growing by $66 million. We continue to see the return on our strategic investment in the expansion of our commercial banking team. The experienced talent that we've added over the past 24 months has been a strong contributor to our commercial growth, which on an annualized basis was 9.8% in the first half of the year. Looking forward, based upon a strong pipeline, we expect to see continued growth in the second half of the year. It's worth noting that the majority of our growth was in the CNI segment with an emphasis on full relationships, which Brad just commented on a minute ago, including deposits and treasury management services. Despite the higher rate environment, our mortgage and installment portfolios experienced growth in the quarter as well, with strong underlying credit profiles as noted. Page nine provides detail on our commercial loan portfolio. As just mentioned, 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 10% or $152 million. The remaining 35% of the portfolio is comprised of commercial real estate, with the largest concentrations being industrial at $134 million or 8.7%. and retail at $133 million or 8.6%. It's worth noting that our exposure to the office segment stands at $79 million or 5.2% of our commercial portfolio at quarter end. This particular segment of our portfolio continues to perform very well. For additional insight into our office exposure, I refer you to the appendix attached to this presentation. Page 10 provides an overview of key credit quality metrics at June 30th. Overall, credit quality continues to be excellent. Total non-performing loans were $4 million, or 0.11% of total loans at quarter end. Loans 30 to 89 days delinquent totaled $4.4 million, or 0.12% at 630, up slightly from 331, primarily due to a slightly elevated consumer loan delinquency. 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.