Independent Bank Corporation

Hello all and welcome to Independent Bank Corporation's third quarter 2023 earnings call. My name is Lydia and I'll be your operator today. If you'd like to ask a question during the Q&A session, you can do so by pressing star followed by the number one on your telephone keypad. I'll now hand you over to your host, Brad Kessel, to begin. 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 2023 results. I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Moore, Executive Vice President and Chief Financial Officer, and Joel Rahn, Executive Vice President 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 question and answer session, and then closing remarks. Independent Bank Corporation reported third quarter 2023 net income of $17.5 million or 83 cents per diluted share versus net income of $17.3 million or 81 cents per diluted share in the prior year period. The increase in the 2023 third quarter results as compared to 2022 is primarily due to a decrease in the provision for credit losses a decrease in non-interest expense, partially offset by a decrease in non-interest income and net interest income, and an increase in income tax expense. For the third quarter of 2023, we generated an annualized return on average assets and return on average equity of 1.34% and 18.68% respectively, as compared to 1.40% and 20.48% in the third quarter of 2022. The item most impacting the comparable third quarter 2023 results included the positive changes in fair value due to price of our mortgage servicing rates. 1.6 million or six cents per diluted share after tax for the three month period ended September 30th, 23, as compared to 3.2 million or 12 cents per diluted share after tax for the three months ended September 30, 2022. Our team continued its positive momentum in the third quarter, achieving strong financial results with solid balance sheet growth, a stable net interest margin, disciplined expense management, and healthy asset quality. Capitalizing on the current operating environment, we gained new banking relationships with clients who appreciate our value proposition as a leading commercial bank with robust treasury management solutions, industry expertise, and client centric service. This success led to double digit annualized growth in loans and deposits. Despite expecting lower loan growth in the fourth quarter due to seasonality, we have a solid pipeline of high quality relationship opportunities. With the loan-to-deposit ratio at 82%, 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 23% of our deposits uninsured. In addition, we have a high level of available liquidity with $2.1 billion in secured borrowing access and borrowing capacity on unpledged securities. Overall, our deposit base continues to perform well. Total deposits at September 30th were $4.6 billion, up $112.6 million, or 10.5% annualized during the third quarter, and $206.5 million, or 6.3% annualized year to date. During this nine-month 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 128.1 million. Savings and interest bearing checking are down 43.4 million. Reciprocal deposits are up 197.3 million. And time deposits are up 156.4 million, while brokered time deposits are up 24.3 million. This past quarter, while continuing to see some remixing of the deposit base, The pace significantly slowed with non-interest-bearing deposits declining by $13.9 million or 4.8% annualized during the third quarter. 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 for the quarter. Our total cost of funds increased by 23 basis points to 1.80%. Through the third quarter, the cumulative cycle beta for our cost of funds is now at 32.6%. At this time, I would 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.

Thanks, Brad. I'll start on page seven, where we provide an update on our well-diversified loan portfolio. Total loans increased $110 million in the third quarter. Strongest segment in the quarter was commercial lending, growing by $88 million. We also realized growth in our mortgage business, with that portfolio growing by $34 million. Our installment portfolio experienced a $12 million decline in the quarter as we've strategically pulled back in that area. 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 14.5% through the third quarter. Looking forward, based upon a strong pipeline and solid liquidity position, we see continued growth opportunity while maintaining our discipline credit standards. Page eight provides detail on our commercial loan portfolio. As I've indicated in prior quarters, CNI lending continues to be our primary focus, representing 64% of the portfolio. Manufacturing continues to be the largest segment within the CNI segment, comprising approximately 9% or $149 million. The remaining 36% of the portfolio is comprised of commercial real estate, with the largest concentrations being industrial at $157 million or 10.2%. and retail at 136 million or 8.9%. It's worth noting that our exposure to the office segment stands at 93 million or 6.1% of our commercial portfolio at quarter end. Our office exposure consists primarily of suburban low rise office space and medical comprises 25% of our overall office exposure. This particular segment of our portfolio continues to perform very well. For additional insight into our office exposure, I refer you to the appendix of this presentation. Page nine provides an overview of key credit quality metrics at 930. Overall credit quality continues to be excellent. Total non-performing loans were 4.7 million or 1.2% of total loans at quarter end. Loans 30 to 89 days delinquent totaled 4.9 million or 0.13% at 930, which is consistent with last quarter 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.