INDEPENDENT BANK CORP /MI/ Q2 FY2025 earnings call

• Net income for Q2 2025 was $16.9 million or $0.81 per diluted share vs $18.5 million or $0.88 per diluted share in prior year. Significant items: loss of $0.2 million on capitalized mortgage loan servicing rights in 2025 vs gain of $0.9 million in 2024; no gain/loss on equity securities in 2025 vs $2.7 million gain in 2024. - Loans increased 9% annualized; core deposits down 1.4% annualized due to seasonality. - Net interest income grew on linked-quarter and year-over-year, margin expanded 9 basis points. - Expenses well managed; operational scale improved. - Credit metrics strong: low watch credits, 16 basis points nonperforming assets to total assets, 2 basis points net charge-offs. - Team effective in business development, onboarding new relationships, recruiting talent, and rolling out new technologies.

Total deposits as of June 30, 2025, were $4.7 billion. Core deposits decreased $15.7 million during Q2 2025. Linked-quarter: retail deposits down $13.8 million, business deposits up $60.5 million, municipal deposits down $64 million. Loans increased by 9% annualized. Net interest income increased $3.3 million from the year ago period. Tax equivalent net interest margin was 3.58% in Q2 2025, up 9 basis points from Q2 2024. Noninterest income totaled $11.3 million in Q2 2025, compared to $15.2 million in Q2 2024. Net gains on mortgage loans totaled $1.6 million in Q2 2025, up from $1.3 million in Q2 2024. Noninterest expense was $33.8 million in Q2 2025, compared to $33.3 million in Q2 2024.

• Margin forecast provided in January is still confident, factoring in 2 basis point cuts. - Deposit costs likely plateauing; no significant room to lower absent rate cuts. - Organic growth is primary driver of overall growth, but open to intelligent acquired growth if makes sense.

• Market uncertainty during the quarter. - Impact of automotive industry exposure on portfolio. - Competitive landscape affecting deposit costs and mortgage fee margins. - Regulatory changes potentially impacting compliance costs and competitive playing field.

Q: Peter Winter asked about margin outlook with 2 rate cuts and room to lower deposit costs.

A: Gavin Mohr said margin forecast is confident with 2 basis point cuts factored in, and deposit costs likely plateauing with no significant room to lower absent rate cuts.

Q: Brendan Nosal inquired about local economies, competitive landscape, and M&A.

A: Joel Rahn discussed West Michigan and Metro Detroit economies holding up, competitive opportunity with sweet spot loans, and organic growth as primary driver with interest in intelligent acquired growth.

Q: Adam Kroll asked about margin with Fed on hold and mortgage fees.

A: Gavin Mohr said margin can grind higher if rates stay, and mortgage fee margin impacted by competitiveness, market premium pullback, and higher origination costs.

Q: Matt Renck asked about buybacks and new technologies.

A: Gavin Mohr said buybacks limited if stock trades in current range, and new technologies include AI chat function, AI use cases for customer service and loan processing.