Independent Bank Corporation

Hello all and welcome to Independent Bank Corporation reports 2024 second quarter results. My name is Ezra and I will be coordinating your call today. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. I will now hand you over to your host, Brad Kessel, President and CEO. Brad, 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 second quarter 2024 results. I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Moore, EVP and Chief Financial Officer, and Joel Rahn, EVP and Head of our Commercial Banking. Before we begin today's call, I would like to direct you to 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 second quarter 2024 net income of $18.5 million or $0.88 per diluted share versus net income of $14.8 million or $0.70 per diluted share in the prior year period. This represents a return on average assets of 1.44% and a return on average equity of 17.98% respectively. I am proud of our team and very pleased with our second quarter of 2024 results, driving organic growth on both sides of the balance sheet. Overall, loans increased 1.2% annualized, despite a higher than normal level of commercial payoffs and paydowns, while core deposits are up 4.8% annualized. We were able to generate net interest margin expansion, increasing to 3.40%, from 3.30% on a linked quarter basis and net interest income growth on both a linked quarter and a year-over-year quarterly basis. We believe that our expenses continue to be well managed and we continue to see improved operational scale from strategic investments we have made in recent years. Our credit metrics continue to be excellent with watch credits and non-performing assets near historic lows. These fundamentals drove good growth in both our earnings per share at 26% and tangible book value per share 16% compared to the prior year quarter. Based on a robust commercial loan pipeline, the past record of our core group of professionals, and the ongoing strategic initiative to add talented bankers to our team, we are optimistic about continuing these growth trends for the second half of the year and into 2025. Total deposits at June 30th, 2024 were 4.61 billion. Overall core deposits increased 53.3 million dollars or 4.8% annualized during the second quarter of 24. On a linked quarter basis, retail deposits declined by 22.2 million Business deposits increased by $143.6 million, and municipal deposits declined by $68.1 million during the quarter. Our existing customer base continues to exhibit a remix out of non-interest-bearing and or lower-yielding deposit products into our higher-yielding product offerings, but the remix pace has slowed. Additionally, our sales team continues to bring in new relationships well below our wholesale cost of funds. We have included in the presentation a historical view of our cost of funds as well as compared to the Fed fund spot rate and Fed effective rate. For the quarter, our total cost of funds increased by one basis point to 2.202%. Through the second quarter of 2024, the cumulative cycle beta for our cost of funds is 38.8%. This time, I'd like to turn the presentation over to Joel Ron to share a few comments on the success we're having in growing our loan portfolios and provide an update on our credit metrics.

Thanks, Brad, and good morning, everyone. On page seven, we share an update of our $3.9 billion loan portfolio and quarterly activity. Total loans increased by $12 million in the second quarter, representing 1.2% annualized growth. Our mortgage portfolio grew $10.9 million. Our installment portfolio increased by $3.9 million. Our commercial loan portfolio, as Brad mentioned earlier, declined $3 million in the quarter due to extraordinary payoff activity related to business sale as well as sale of various real estate investment projects. It's worth noting that Q2 commercial loan origination was stronger than first quarter, but could not offset the approximate $82 million of unscheduled payoffs realized in the quarter. For the first half of the year, our commercial loan portfolio increased $52 million, representing 6.2% annualized growth. As noted in the material, in each portfolio, yield on new production is significantly higher than the respective portfolio yields. The commercial portfolio continues to be our highest yielding portfolio with a yield of 6.91%. Based upon a solid commercial pipeline, we see continued growth opportunity in the second half of the year while maintaining our disciplined credit standards. Page 8 provides additional detail on our commercial loan portfolio. As pointed out in prior quarters, C&I lending continues to be our primary focus, representing 69% of the portfolio. Manufacturing continues to be the largest concentration within the CNI segment, comprising approximately 10% or $173 million. The remaining 31% of the portfolio is comprised of investment real estate, with the largest concentration being industrial at 7.9% or $123 million. It's worth noting that our exposure to the office segment stands at $84 million, or 4.8% of our commercial portfolio at quarter end. Our office exposure consists primarily of suburban, low-rise office space with medical comprising 17% of overall office exposure. The average loan size is $1.3 million, which points to the granularity of this segment of our portfolio. For additional insight into our office exposure, I refer you to page 25 of the appendix to this presentation. Key credit quality metrics and trends are outlined on page 9. Overall credit quality continues to be excellent. Total non-performing loans were 4.5 million, or approximately 10 basis points of total loans at quarter end, consistent with 331. Past due loans totaled 5.3 million, or 14 basis points, down slightly from March 31st. While not reflected on the slide, our commercial watch list remains low at 2.2% of the commercial portfolio. 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.