管理層發言
Good day, and thank you for standing by. Welcome to the Independent Bank Corporation Second Quarter 2026 Earnings Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a Q&A session. To ask a question during the session, you will need to press *1 then 1 on your telephone. You will then hear an automated message indicating when your hand is raised. To withdraw your question, please press *1 then 1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, President and Chief Executive Officer, Brad Kessel. Please go ahead.
Good morning, and welcome to today's call. Thank you for joining Independent Bank Corporation's conference call and webcast to discuss the company's results for the second quarter of 2026. I am Brad Kessel, President and Chief Executive Officer. Joining me is Gavin A. Mohr, Executive Vice President and our Chief Financial Officer, and Joel Rahn, Executive Vice President and Head of Commercial Banking. Before we begin today's call, I would like to direct you to important information on page 2 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 Q&A session and then closing remarks. Earlier this morning, Independent Bank Corporation reported second quarter 2026 net income of $18.8 million, or $0.90 per diluted share, versus net income of $16.9 million, or $0.81 per diluted share in the prior year period.
Highlights for the second quarter of 2026 include: net interest margin of 3.71%, a 6 basis point increase from the linked quarter; an increase in net interest income of $1.0 million, or 2.2% over the first quarter of 2026; an increase in tangible common equity per share of common stock of $0.86, or 14.8% annualized from 03/31/2026; a return on average assets and a return on average equity of 1.37% and 14.52%, respectively, for the quarter ended June 30, 2026; net growth in total deposits less brokered time of $38.2 million, or 3.2% annualized; net loan growth of $106 million, or 9.8% annualized; an increase in tangible common equity to 8.9% at 06/30/2026; and the payment of our $0.28 per share quarterly dividend on common stock on 05/14/2026. Our second quarter performance demonstrates the strength of Independent Bank's community-banking model and the continued benefits of disciplined balance sheet management, relationship-based lending, and a stable locally focused deposit franchise.
We saw broad-based momentum across the business, with core customer activity supporting loan growth, core deposit growth, improving earning asset yields, and continued capital generation. Just as important, we achieved these results while maintaining strong asset quality, prudent liquidity, and capital levels that position us well in the current operating environment. The quarter also reinforced the value of our strategy: serving attractive Michigan markets through local decision making, deep customer relationships, and consistent credit discipline. We believe that approach continues to differentiate Independent Bank and supports durable performance through changing interest rate and economic cycles. We were pleased to complete our acquisition of HCB Financial Corp. on 07/01/2026. Integration work is underway, with a targeted system conversion of November 9. We continue to believe the combination strengthens our presence in complementary markets and enhances our ability to serve customers, employees, communities, and our shareholders over the long term.
A few other highlights during the second quarter included Independent Bank being named Michigan's best in state bank by Forbes for 2026. Independent Bank is the only bank in Michigan that has been recognized by Forbes four years in a row. This also marks our sixth time overall that Independent has received this recognition. During the quarter, we announced the creation of two new regional president roles within our commercial banking structure, reinforcing our commitment to strong local leadership, relationship-based growth, and continued service to customers and communities across Michigan. This new leadership structure reflects our intentional alignment of markets, teams, and strategic priorities as the organization continues to grow. In their new roles, Kyle Johns and Daniel Plummer will lead market-level relationship development, strengthen community engagement, foster collaboration across business lines, and help ensure consistent execution of our strategic goals.
I am also proud to share that Independent Bank remains a top lender and resource for small business owners and entrepreneurs with our experienced lending team available to help eligible businesses access financing through the U.S. Small Business Administration loan programs. As a member of the SBA's Preferred Lenders Program, Independent Bank has delegated authority to process and approve eligible SBA loan requests in-house, helping streamline the financing process for borrowers. Independent Bank was recently honored by the SBA Michigan District Office as a top 10 lender for its outstanding contributions and support of Michigan small businesses during fiscal year 2025. Moving to page 5 of our presentation: deposits totaled $4.9 billion at 06/30/2026, an increase of $100 million from the start of the year. This growth occurred in noninterest-bearing, savings, interest-bearing checking, and reciprocal deposits, offset by a small decline in time deposits and an $18 million reduction in brokered deposits.
On a linked quarter basis, business deposits increased by $66 million, retail deposits increased by $15 million, offset by a $45 million decrease in municipal deposits, primarily due to seasonality and usage. The composition was 47% retail, 40% commercial, and 13% municipal. On page 6, we included a historical view of our cost of funds as compared to the Fed funds spot rate and Fed effective rate. For the quarter, our total cost of funds decreased by 1 basis point to 1.53%. 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. Joel?
Thanks, Brad. Good morning, everyone. Page 7 summarizes our loan activity for this quarter. We experienced strong second quarter loan growth of $105 million, or 9.8% annualized. Commercial loan generation was very strong, with $92.6 million of quarterly growth, or 16% annualized. During the quarter, our residential mortgage and consumer installment loan portfolios increased $12.9 million and $0.2 million, respectively. Year to date, we have grown loans by $138 million driven by strong commercial loan growth of $146 million, representing 13% annualized growth. Our strategic investment in commercial banking talent continues to supplement our loan growth. Year to date, we have added eight experienced commercial bankers, bringing our total to 53 bankers comprising eight commercial loan teams across our statewide footprint. Compared to a year ago, we have added a net of six experienced commercial bankers to our team.
Looking ahead, based on a strong pipeline, we believe we will continue to see low double-digit growth of our commercial loan portfolio for 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 commercial loan production for the first half of the year, the mix of C&I lending versus investment real estate was 58% and 42%, respectively. And for our commercial portfolio, the mix is 67% C&I and 33% investment real estate. Page 8 provides detail on our commercial loan portfolio concentrations, and there has not been any significant shift in our portfolio over the past year, with the portfolio remaining well diversified. Our largest segment of the C&I category continues to be manufacturing at $194 million or 8.2% of the total portfolio. In the investment real estate segment of the portfolio, the largest concentration is industrial at $219 million or 9.3%.
We outlined key credit quality metrics on page 9. Overall, we continue to demonstrate, as Brad said, strong credit quality. Total nonperforming loans were $32.8 million, or 74 basis points of total loans at quarter end, up slightly from 64 basis points at March 31, 2026. It is worth noting that approximately two-thirds of the total commercial development exposure that we have discussed in prior quarters is included here. We continue to work through the challenges of this particular project, and are appropriately reserved for any loss exposure. Past due loans totaled $5.6 million, or 13 basis points, down from $8.2 million, or 19 basis points, at March 31, 2026. It is not reflected on this slide, but also worth noting that we realized net charge-offs of $633 thousand, or 3 basis points of average loans for the first half of the year. This compares to $442 thousand, or 2 basis points in the first half of 2025. At this time, I would like to turn the presentation over to Gavin for his comments, including the outlook for the remainder of 2026.
Thanks, Joel, and good morning, everyone. I am starting on page 10 of our presentation. Page 10 highlights our strong regulatory capital position. I would highlight the increase in our tangible common equity ratio to 8.9%. Turning to page 11, net interest income increased $3.3 million from the year-ago period. Our tax-equivalent net interest margin was 3.71% during the second quarter of 2026 compared to 3.58% in the second quarter of 2025, and up 6 basis points from the first quarter of 2026. Average interest-earning assets were $5.33 billion in the second quarter of 2026 compared to $5.11 billion in the year-ago quarter and $5.23 billion in the first quarter of this year. Page 12 contains a more detailed analysis of the linked-quarter increase in net interest income and the net interest margin. On a linked-quarter basis, our second quarter 2026 net interest margin was positively impacted by three factors: change in earning asset mix contributed 3 basis points, an increase in earning asset yield contributed 2 basis points, and a decrease in funding cost contributed 1 basis point.
On page 13, we provide details on the institution's interest rate risk position. The comparative simulation analysis for the second quarter 2026 and the first quarter of 2026 calculates the change in net interest income over the next 12 months under five rate scenarios. All scenarios assume a static balance sheet. The base rate scenario applies the spot yield curve from the valuation date. The shock scenario is considered immediate, permanent, parallel rate changes. The base case modeled in II is slightly higher during the quarter due to $60 million of earning asset growth and 5 basis points of modeled margin expansion. Earning asset expansion was centered in commercial loans, which were up $97 million. Runoff and lower-yielding investments and overnight liquidity helped fund earning asset growth. Asset and liability yields were slightly higher during the quarter, with asset yields up 8 basis points and liability costs 3 basis points higher.
NII sensitivity to lower rates declined modestly while the benefit to higher rates remained largely unchanged. Reduced exposure to lower rates is due to $50 million of notional floor purchases and termination of $50 million of pay-fixed swaps. Overall, the position is closely matched for smaller rate changes of plus or minus 100 basis points. The bank has modest exposure to larger rate declines, and benefits from larger rate increases. Currently, 37.9% of assets reprice in one month and 49.4% reprice in the next 12 months. Moving on to page 14: noninterest income totaled $15.3 million in the second quarter of 2026, compared to $11.3 million in the year-ago quarter and $12.0 million in the first quarter of 2026. Second quarter 2026 net gains on mortgage loans sold were $1.7 million compared to $1.6 million in the prior year quarter. The increase is primarily due to higher volume of mortgage loans sold that were partially offset by lower profit margins.
Mortgage loan servicing was a gain of $2.5 million in the second quarter of 2026 compared to a gain of $0.5 million in the prior year quarter. The change was a gain of $1.8 million, or $0.07 per diluted share after tax in the second quarter of 2026 compared to a loss of $2.0 million, or $0.01 per diluted share after tax in the prior year period. As detailed on page 15, our noninterest expense totaled $37.8 million in the second quarter of 2026 compared to $33.8 million in the year-ago quarter and $38.3 million in the first quarter of 2026. Compensation and employee benefits expense increased $1.4 million primarily due to salary increases that were effective on 01/01/2026 and higher health insurance-related cost. Litigation expense of $400 thousand is attributed to an accrual established for losses we consider probable as a result of our outstanding litigation matters in the aggregate. Advertising expense increased $300 thousand in the second quarter of 2026 compared to the prior year quarter, primarily due to new deposit account opening incentives.
We recorded merger-related expenses of $4.4 million in the second quarter of 2026. Turning to page 16 is our update for the 2026 outlook to see how our actual performance during the second quarter compared to the original outlook we provided in January of this year. Our outlook estimated full-year loan growth of 4.5% to 5.5%. Loans increased $106 million in the second quarter of 2026, or 9.8% annualized, which is above our forecasted range. Commercial loans increased $92.6 million and mortgage loans increased $12.9 million while installment loans were flat for the second quarter. Second quarter 2026 net interest income increased by 7.4% over 2025, which is within our forecasted range of 7% to 8%. I would highlight this is the 12th consecutive quarter of increasing net interest income. The net interest margin was 3.71% for the current quarter and 3.58% for the prior year quarter, and up 6 basis points from our linked quarter.
Perspective: the second quarter 2026 provision for credit losses was an expense of $2.7 million, which is at the high end of our forecasted range. Moving on to page 17: noninterest income totaled $15.3 million in the second quarter of 2026, which was above our forecasted range of $11.3 million to $12.3 million. Second quarter 2026 mortgage loan originations, sales, and gains totaled $145 million, $97.1 million, and $1.3 million, respectively. Mortgage loan servicing net generated a gain of $2.5 million in the second quarter of 2026, which is above our forecasted target. Positively impacting the second quarter results was a gain on equity securities of $1.6 million related to the exchange of Visa B2 shares to Visa Class C shares in the quarter. Noninterest expense was $37.8 million in the second quarter, above our forecasted range of $36 million to $37 million. We recorded litigation expense of $400 thousand in the quarter, as well as $400 thousand in merger-related costs.
Our effective income tax rate was 17.2% for the second quarter of 2026. Lastly, there were no shares of common stock repurchased in the second quarter or first six months of 2026. That concludes my prepared remarks, and I would like to now turn the call back over to Brad.
Thanks, Gavin. We have built a strong community bank franchise, which positions us well to effectively manage through a variety of economic environments and to continue delivering strong and consistent results for our shareholders. As we move through the second half of 2026, our focus will be continuing to invest in our team, investing in and leveraging our technology, and the successful integration of the HCB franchise, while always working to be Michigan's most people-focused bank. At this point, we would like to open up the call for questions.
分析師問答
Thank you. Press *1 then 1 on your telephone. If your question has been answered or you wish to remove yourself from the queue, press *1 then 1 again. Our first question comes from Brendan Nosal with Hovde Group. Your line is open.
Hey, good morning, everybody. Hope you are doing well. Morning, Brad. Maybe just starting off here on the expense number. I guess you guys continue to add talent and producers and you are investing. If I look at the core expense base, it was just above the high end of the quarterly guidance range. Just curious how you think about the run rate as we move through the balance of the year without considering HCB — just legacy Independent versus that $36 million to $37 million range?
I think your analysis is accurate, Brendan. When I think about the core and based on our forecast, what was not captured in that was the litigation accrual of $400 thousand. The other thing we had this quarter was an incentive accrual catch-up that added $400 thousand; I would include that as part of core. We also had some elevated advertising expense that is related to a deposit promotion that has been terminated, but there is still some earnout taking place. So on net, I get back to around $37 million or the high end of our range going forward.
I agree with that, Gavin. I would add that loan and collection expense right now is running a little higher, and it relates predominantly to the one credit we discussed earlier. As we move that through the process, we hope to get that down too.
Okay. Fantastic, thanks for the color there. Maybe pivoting to what you are doing with the balance sheet in terms of complexion and margin: you have been on this journey of remixing the asset base into higher-yielding commercial loans for some time now, and that has generated quite a bit of margin expansion irrespective of the rate environment. Without asking specifically about the longer-term margin expectation, is the commercial remixing opportunity exhausted by the end of this year, or do you think there is still more work to do in the future?
To make sure I understand your question correctly: from a commercial perspective in terms of repricing, the commercial book is approaching market due to the short duration. That being said, the securities portfolio and the mortgage portfolio that we intend to continue to redeploy into the commercial pipeline has room to run. On the mortgage side, we will continue to redeploy into commercial lending. We have been doing internal analysis and we are seeing some favorability in the positive shape of the yield curve. Continuing to grind higher over the next 12 months, perhaps between flat to where we are at today at roughly six basis points a quarter, is not unreasonable. I would not call six basis points per quarter guaranteed; anywhere from two to four basis points per quarter going forward would not be unreasonable in terms of margin expansion.
Fantastic, Gavin. Thank you for answering the question.
One moment for our next question. Our next question comes from Nathan Race with Piper Sandler. Your line is open.
Hi, this is Nick on for Nathan Race. Thanks for taking my questions this morning. Just going to expenses on the HCB deal with the deal closing earlier this month: can you kind of walk through the cost savings cadence from here? Do you expect the savings to build gradually each quarter, or does the bulk of them come after the system conversion in November? And then maybe switching to loan growth, how does the commercial pipeline look heading into the third quarter, and did any of the quarter's growth pull forward from the back half?
That would be the latter, Nick. For various reasons we chose to run the banks as separate subsidiaries through conversion, as Brad highlighted on November 9. Running two individual banks did slow down some of those cost saves, but our team is focused on achieving that number very early in 2027 at the latest.
We expect it to be fully implemented and realized in 2027. I believe that number was 40%.
It was 40%, yes, annualized for a half year.
Nick, the pipeline is holding up well. We had a really strong second quarter of production and despite that, the pipeline is strong. There is always some seasonality to it: historically the third quarter is a little softer for loan production because many people are on vacation during the early part of the quarter and business owners tend to enjoy the summer. We typically see the fourth quarter be quite strong. So if that seasonal pattern holds this year, the third quarter may be modestly softer. In terms of the dollar pipeline today versus a year ago, it is very comparable, and we continue to see really good opportunities in the marketplace.
Great, that is everything for me. Thanks, guys.
One moment for our next question. Our next question comes from Matthew Renck with KBW. Your line is open.
Hey, I hope everybody's doing well this morning. My first question is a follow-up on one of the earlier questions about commercial new origination yields. It looks like they were up two basis points, and you said the portfolio is approaching market. Do you think market yields have peaked at this point? And how do you weigh profitability with market share gain given the commercial opportunity in front of you? Also, one follow-up on credit: I appreciate the color from earlier about two-thirds of it being one commercial loan. Is there any insight into the timeline on resolution there? And then generally, looking across the portfolio, are there any areas you are keeping an eye on or where you are seeing early signs of stress?
I will start with Joel on the market pricing.
In terms of raw yield and market pricing, it will obviously follow the broader market. In terms of spread, we have been holding quite consistent. There is a lot of competition, but that has been the case for some time. Our spreads have been holding ground; I do not see them growing materially, but I also do not see us losing ground on our spread. We are watching the likely increase in Fed funds in the near future and the Treasury market continues to tick up, which helps. That is the best insight I can provide on market pricing.
And to add some data points: we grew the commercial portfolio by $93 million for the quarter. The average new origination rate was 6.41%.
For the quarter.
The portfolio yield is 6.06%. As Gavin said, we are getting real close to market; we are essentially par on the commercial portfolio now because of turnover.
Okay, got it. And then just one follow-up on credit: any insight into the timeline on resolution for that large commercial credit, and are there any other areas of potential stress you are monitoring?
I cannot predict the exact timeline for that large credit; it is a legal process and those processes typically move slower than we would like. We do feel we are gradually making headway. In terms of other areas, there is no industry-wide concern at this point. One other loan of significance moved to nonaccrual during the quarter on the commercial side, and that was primarily a management issue with the borrower. What we are seeing is poor operators eventually catching up with them, but overall there is no broad industry concern from a commercial standpoint at this time.
Thank you.
I am not showing any further questions at this time. I would like to turn the call back over to Brad.
In closing, I would like to thank our board of directors and our senior management for their support and leadership. I also want to thank all our associates; I continue to be so proud of the job being done by each member of our team. Each team member, in his or her own way, continues to do their part toward our common goal of guiding our customers to be independent. Finally, I would like to thank each of you for your interest in Independent Bank Corporation and for joining us on today's call. Have a great day.
Thank you. Ladies and gentlemen, that concludes today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.