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DATE
Tuesday, Oct. 28, 2025 at 11 a.m. ET
CALL PARTICIPANTS
President and Chief Executive Officer — William Bradford Kessel
Executive Vice President, Commercial Banking — Joel F. Rahn
Executive Vice President, Chief Financial Officer — Gavin A. Mohr
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TAKEAWAYS
Commercial Banking Hires -- Three commercial bankers joined, each with at least 15 years of experience, all in Southeast Michigan.
Funding Costs -- Funding costs rose 6 basis points in Q3 2025. This increase was attributed to changes in deposit mix and deposits shifting into higher rate tiers, primarily due to municipal tax collections.
Deposit Growth -- The bank experienced very strong deposit growth, largely driven by municipal funds during Q3 2025.
Net Interest Margin -- Margin was roughly stable, according to Gavin A. Mohr, after adjusting for the 3-basis-point impact of subordinated debt issuance and 3 basis points from excess liquidity (approximately $50 million above target).
Margin Outlook -- CFO Mohr stated, "I do anticipate expect the margin to be fairly stable," with further "tailwind" anticipated for 2026 from asset repricing.
Securities and Loans Repricing -- $138 million in securities at a 3% yield and $438 million in fixed-rate loans (exit rate 5.59%) will reprice in the next 12 months, providing an estimated 120-basis-point pickup.
Credit -- One investment real estate commercial relationship moved to nonaccrual; management described the overall credit portfolio as "so clean for so many quarters," according to William Bradford Kessel, and stated the company is "more than adequately reserved" on the exposure.
Loan Portfolio Composition -- Total loans were $4.2 billion. Commercial loans comprised 50% of the loan book, mortgage loans represented 36%, and installment loans made up 13% of the portfolio.
Watch List and Borrower Performance -- Management stated the watch list, excluding the highlighted credit, remains "extremely low by historical standards," and rescores show no "significant decline in our borrowers' payment performance," according to William Bradford Kessel.
Expense Management -- ongoing technology-driven efficiencies.
Spot Rate on Interest-Bearing Deposits -- As of September 30, the spot rate on total interest-bearing deposits was 2.17%.
SUMMARY
Independent Bank Corporation (IBCP 0.75%) reported the addition of experienced commercial bankers in Southeast Michigan and highlighted strong municipal deposit growth that contributed to a higher cost of funds. Statements from management emphasized a stable net interest margin, with strategic asset repricing set to enhance yields in the coming year. Credit deterioration was limited to one new nonaccrual relationship, with portfolio diversity and low watch-list percentages providing comfort.
Management underscored a continued focus on relationship-driven client growth despite heightened market competition for funding.
CFO Mohr highlighted the positive impact of remixing and repricing lower-yielding assets on future margin prospects.
The bank reported solid performance across loan categories, with one investment real estate commercial relationship moving to nonaccrual and management expressing no current concerns about systemic credit weakness either in Michigan or specific industries such as automotive.
Expense guidance for the next year remains undetermined, as budgeting is actively in process.
INDUSTRY GLOSSARY
Nonaccrual: Loans on which interest income is no longer recognized due to borrower default or likelihood of nonpayment.
Spot rate: The current interest rate paid on deposits or other financial products at a specific point in time.
Subordinated debt: Debt which ranks below other loans or securities with regard to claims on assets or earnings in the event of liquidation.
Watch list: A set of credits identified by management as having higher risk or potential for deteriorating credit quality, requiring closer monitoring.
Full Conference Call Transcript
William Bradford Kessel: Everybody, hope you are doing well.
Operator: Morning.
William Bradford Kessel: Good morning. Just starting out here on this quarter's commercial banking hires. I think you said that there were three new hires this quarter. Can you just offer some color on what their area of expertise is within commercial specifically what markets they were added in, what sort of institutions did they come from? Yeah. For the new is Joel. I will take that one. They all three of them
Joel F. Rahn: they are experienced. At a minimum level of experience. Was fifteen years, and two of them were over twenty years in commercial banking. All in Southeast Michigan. And which is you know, one of the areas that look at strategically, no surprises. Is continuing our growth. You know, it is the largest MSA that our bank operates in. And
William Bradford Kessel: two,
Joel F. Rahn: came from very large
William Bradford Kessel: regional
Joel F. Rahn: and one came from a small regional
Brendan Jeffrey Nosal: Okay. Fantastic. Maybe just to piggyback off that. Can you just talk about the continued opportunity set from market dislocation, just given another large deal in the state of Michigan, whether it is on the client side or opportunities for additional banker ads.
Joel F. Rahn: Sure. That recipe has worked really well for us Brendan. Being an attractive culture for bankers that find themselves part of a larger organization primarily that want to get back to more of a community banking organization. That has worked well for us. We continue to look for those opportunities, and you know, it looks like the market is going to provide more of those as the industry continues to consolidate. So we think there is ongoing opportunity for us to garner talent and strategically commercial banking relationships. As well.
Brendan Jeffrey Nosal: Okay. Perfect. I am going to sneak one more in here. Just looking at funding costs for the quarter, a couple of basis points of uptick, which I have certainly seen from a handful of others, if not many others, this quarter. Maybe just talk about how competitive the environment for core funding is in your markets and how you think you and the market at large in your state will respond to additional Fed cuts.
William Bradford Kessel: I will let our growth for the quarter Brandon, this is Gavin. Thanks for the question.
Gavin A. Mohr: Our growth for the quarter came in municipal and commercial. So I will let Joel maybe talk high level how his treasury management team is viewing that. And then I can maybe fill in if I have something to add.
William Bradford Kessel: Oh, wait. It is
Joel F. Rahn: no surprise. It is quite competitive. And you know, we just continue to focus our we cannot control the overall market. We have got to be competitive to win those relationships. But our team is just focused on comprehensive relationships to really grow both sides of our balance sheet. So the commercial team, including our treasury management group, is very focused, and we continue to make good inroads in the market. So but, yeah, it is competitive, and we are not seeing that landscape changing.
Gavin A. Mohr: I would add Brendan, for the six basis point increase, for that, had to do with change in mix And two of then two of it was just where deposits were landing in the tiers. So we saw very, very healthy deposit growth. A lot of those were municipal funds tax collection for the quarter. And they were slotting in those deposits at the higher rate tiers within the product offering.
Brendan Jeffrey Nosal: Okay. That is quite helpful color. Alright. For taking the questions. Thank you.
Operator: Our next question comes from Nathan Race with Piper Sandler. Your line is now open. Please go ahead.
Gavin A. Mohr: Thanks for taking my questions.
Operator: Good morning.
William Bradford Kessel: Yeah. So
Gavin A. Mohr: maybe a question for Gavin to start. Just starting on the margin, you know, if we strip out the impact
Brendan Jeffrey Nosal: from
Gavin A. Mohr: the sub debt, the margin was roughly stable and I think last quarter, you mentioned one or two cuts in the back half. Would not have a significant impact on the margin. So I guess, do you still feel the margin can remain roughly stable even with an additional comp in December? And just how you are thinking about the margin in 2026 Yeah. I do. So couple comments on the quarter. We had we disclosed the three basis points relative to the cost associated with the sub debt issuance. The other piece, we were a little heavier in liquidity than we maybe would target.
So if I said we had excess liquidity of $50 million, that had another three basis points of impact on the margin for the quarter. So going in here to year end with the forecasted cuts, I do anticipate expect the margin to be fairly stable. Or in this where around where we are at today. For the 2026, I just on a longer term horizon, we still have benefits of the remixing coming from just lower yielding assets and then the repricing effect of lower yielding assets. So there is some there is still tailwind there that we are really optimistic about.
And could you remind us how much you have in terms of securities or lower yielding fixed rate loans repricing over maybe the next twelve months? Yep. So the security portfolio is about $138 million at 3%. And then if I look at fixed rate loans, I will just give you I really have it broken out in the strata by yield, but fixed rate loans and will be then total, they will be $438 million repricing in the next year. With an exit rate of five fifty nine. So we are calculating that is about a 120 basis points of pickup. Got it. Yeah. That is super helpful.
Nathan Race: Maybe just switching to credit. You know, I was wondering if you could expand on the one investment real estate commercial relationship you called out that migrated to non-accrual during the quarter, maybe just what industry, how large is the exposure, and if there was a specific reserve allocated during the quarter and just any color there?
Gavin A. Mohr: Nathan, this is
William Bradford Kessel: Brad. I will jump in on that. So first off, I would say that we have had the portfolio has been so clean for so many quarters year after year. That
Operator: this
William Bradford Kessel: this one you know, stands out.
Brendan Jeffrey Nosal: And
Gavin A. Mohr: so
Joel F. Rahn: you know, it
William Bradford Kessel: we are probably going to be somewhat I would say, not sharing a lot on the details other than we feel like we are more than adequately reserved on the credit, and we are working with the borrower to get from point a to point b. And we are optimistic we can get through this. So
Gavin A. Mohr: I
William Bradford Kessel: I think we will limit our comments to that. Understood.
Nathan Race: Got it. And thanks for taking my questions. I will step back.
Operator: Thank you. Thank you very much. Our next question comes from Peter Winter D. A. Davidson. Your line is now open. Please go ahead. Thanks.
William Bradford Kessel: I want to just follow-up on credit. You know, it really has garnered quite a bit of attention this quarter that you know, we have had a few high profile loans that went bad. But question is, are you starting to see any signs of credit weakness? And commercial Borrower Works or as you approve loans during loan committee. I mean, the
Gavin A. Mohr: I think about economic growth, it is
William Bradford Kessel: it is slowing. Job growth has been weakening. Credit in general.
Gavin A. Mohr: Please.
Operator: Yeah.
William Bradford Kessel: Peter, that is a great I am going to let Joel take first shot of that. Yeah. And why do not you just share what you are seeing?
Joel F. Rahn: Yeah. You know, Peter, I appreciate the question. And you know, as Brent said, we have got the and we were here straightforward to say it. It is one primary borrower that is popped up this
Nathan Race: quarter.
Joel F. Rahn: You know, if I look at the rest or as I look at the rest of our customer base, performance it is it you know, the individual business levels still continues to be solid I do not have any sort of you know, systemic industry you know, industry specific issues that we are watching. And you know, our watch list absent the one credit that we have highlighted our watch list overall percentage is still extremely low by historical standards. So we are just we are not seeing it. And which I am pleased about
Nathan Race: But
Joel F. Rahn: yeah, it the economy in Michigan is still I would characterize it as stable. We watch the automotive industry very carefully, especially the early part of this year. That actually has held up quite well. Our team was just updated with an automotive industry analyst comments last week at a team meeting. And you know, there is some turmoil within the supply base in terms of EV versus internal combustion So if someone had all their eggs in the EB basket, they might be, you know, feeling strained We have not seen that in our customer base. Pretty well diversified. And so the Michigan economy, I would characterize as still very stable.
William Bradford Kessel: Yeah. And I think that is really good. Joel. And I would just put in context so the loan book today is $4.2 billion What Joel was referencing was 50%. Of that is commercial And then the other the balance, 36% is mortgage. And then we have 13% installment An exercise that we do several times per year is rescore the credit scores on the entire portfolio of retail, so mortgage and installment. And in the rescores, we are not seeing really a significant decline in our borrowers' payment performance. So we feel good about that. So we like the diversity and
Nathan Race: you know, we are
William Bradford Kessel: you know, continue to be very bullish about Michigan, and our outlook as we go forward.
Operator: Great.
William Bradford Kessel: That is a great color. Thank you. If I could follow-up, you guys have done a really nice job managing expenses. I mean, it is well on track to come in below guidance
Joel F. Rahn: that you outlined in January. Can you maybe talk about expense management
Damon DelMonte: you know, because expenses have been coming in below the low end of the quarterly range each quarter. And then secondly, I realize it is early, but maybe Gavin, any color you could provide terms of expense growth next year?
Gavin A. Mohr: Yes. So I will start with the second question. We are right in the middle of getting the budget We are in the second round of drafts for the budget of next year, so things are still moving around. So I am hesitant to comment there at this point in time. But I will say that as you are aware, a big portion of our compensation expense is based on incentive compensation. And so we have seen this year at this point in time this year, if you are comparing us to last year, the expected payout is coming in lower. Than we were at this point in time. Last year. So that is having an impact on it.
You know, for 2025. The other thing I would just say is we continue to try to manage the technology spend as well as we can. We are continuing to invest in technology. And then with that, we are finding the efficiencies And usually, through not replacing individuals through attrition. So I think we are spending a lot of time in that area and, you know, hope to continue to be able to contain it.
Damon DelMonte: Got it. And then just one last question. Just quick question. Just Kevin, would you by chance, have the spot rate on interest bearing deposits?
William Bradford Kessel: I do.
Gavin A. Mohr: So as of 09/30, the spot rates on total interest bearing was two seventeen. Total Okay. For does that help?
William Bradford Kessel: Yeah.
Damon DelMonte: That is great. Thank you. Thanks for taking the questions.
Operator: Thank you very much. That concludes the Q and A session. I will now hand back over to Brad for any closing remarks.
William Bradford Kessel: Thanks, Ezra. 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 member 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.
Operator: Thank you very much, Brad. And thank you to Gavin and Joel for being speakers on today's line. Thank you, everyone, for joining. You may now disconnect. Your lines.