Independent Bank Corporation

Good day and thank you for standing by. Welcome to the Independent Bank Corporation first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brad Kessel, President and CEO. Sir, 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 results for the first quarter of 2026. I am Brad Kessel, President and Chief Executive Officer, and joining me this morning is Gavin Moore, Executive Vice President and our Chief Financial Officer, as well as Joel Rahn, Executive Vice President and Head of Commercial Banking for Independent. 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 our 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 first quarter 2026 net income of $16.9 million, or 81 cents per diluted share, versus net income of $15.6 million, or 74 cents per diluted share in the prior year period. Highlights for our first quarter include a net interest margin of 3.65%, which is a three basis point increase on a linked quarter basis, an increase in net interest income of $500,000 or 1.1% over the fourth quarter of 2025, an increase in tangible common equity per share of common stock 33 cents or 5.9% annualized from December 31, 2025. A return on average assets and return on average equity of 1.24% and 13.43% respectively. Net growth in total deposits plus brokered time deposits of $80.4 million or 6.9% annualized from December 31, 2025. Net growth in loans of $31.8 million or 3% annualized from December 31, 2025. An increase in tangible common equity ratio to 8.7%. And finally, the payment of a $0.28 per shared quarterly dividend on our common stock on February 13th of 2026. Our first quarter results reflect the strength of our core fundamentals, including growth in net interest income, expansion in net interest margin, continued growth in both loans and core deposits. Our balance sheet growth remained disciplined with $80.4 million in core deposit growth and just under $32 million in total loan growth, including $53.8 million or 9.9% annualized in commercial loans. reflecting continued execution of our strategic plan. Credit quality remains sound. While geopolitical uncertainty has increased, we have not seen a direct impact on our customers yet, and we continue to monitor conditions closely. Profitability remains strong, again, with a return on average assets of 1.24% and return on average equity of 13.43%. We remain encouraged by our momentum and are optimistic about our opportunities and confident in the benefits of our recently announced merger with HCB Financial Corp, which will provide enhanced shareholder value. Moving to page five of our presentation, deposits total $4.9 billion at March 31, 2026, an increase of $80.4 million from year end. This growth occurred in non-interest-bearing, saving and interest-bearing checking, and reciprocal, offset by a small decline in time deposits. On a linked quarter basis, business deposits increased by 94 million. Retail deposits increased by 28 million. These were offset by a $42 million decrease in municipal deposits, primarily due to seasonality. The deposit basis comprised of 47% retail, 38% commercial, and 15% municipal. On page six, we've included in our presentation a historical view of cost of funds as compared to the Fed fund spot rate and Fed effective rate. For the first quarter, our total cost of funds decreased by 13 basis points to 1.54%. At this time, I'd like to turn the presentation over to Joel and Ron to share a few comments on the success we're having in growing our loan portfolios, as well as a brief update on our credit metrics. Yeah.

Well, thank you, Brad, and good morning, everyone. On page 7, we share an update on loan activity for the quarter. We started the year with loan growth of $32 million, or 3% on an annualized basis. Commercial loan generation was solid with approximately 54 million of quarterly growth or 9.9% annualized. During the quarter, our residential mortgage and consumer installment loan portfolios declined by four and a half and 17 and a half million respectively. Our strategic investment in commercial banking talent continues to supplement our loan growth. During the first quarter, we added two experienced commercial bankers in West Michigan bringing our total to 50 bankers comprising eight commercial loan teams across our statewide footprint. Compared to a year ago, we've added a net of five experienced commercial bankers to our team. Looking ahead, based on a strong pipeline, we believe we will continue low double-digit growth of our commercial loan portfolio in 2026. We continue to see market share opportunities from regional banks in both talent and customer acquisition, and are seeing steady organic growth from existing customers. Looking at the commercial loan production activity for the quarter, the mix of C&I lending versus investment real estate was 57% and 43% respectively. And for our commercial portfolio, our mix is 68% C&I and 32% investment real estate. Page eight provides detail on our commercial loan portfolio concentrations. There's not been any shift significant shift in our portfolio over the past year with the portfolio remaining very well diversified. Our largest segment of the CNI category is manufacturing at 191 million or 8.4% of the total portfolio. In the investment real estate segment of the portfolio, the largest concentration is industrial at 212 million or 8.8%. We outline key credit quality metrics and trends on page nine. we continue to demonstrate strong credit quality. Total non-performing loans were 27.5 million or 64 basis points of total loans at quarter end, up slightly from 54 basis points at 1231. It's worth noting that 20 million of this total is one commercial development exposure that we discussed in previous quarters. We continue to work through the challenges of this particular project and are appropriately reserved for any loss exposure. Past due loans totaled 8.2 million or 19 basis points, basically unchanged from 12-31-25. It's worth noting that 4 million of total delinquency was one commercial loan that was in process of renewal and was completed after quarter end. It's not reflected on this slide, but also worth noting that we realized net charge-offs of 266,000 or two basis points of average loans for the quarter. This compares to 68,000 or one basis point in Q1 of 2025. At this time, I'd like to turn the presentation over to Gavin for his comments, including the outlook for the remainder of 2026.