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IB

INDEPENDENT BANK CORP /MI/ (IBCP)·Q1 2025 Earnings Summary

Executive Summary

  • EPS of $0.74 beat consensus by $0.04; operating revenue (S&P Global definition) also beat Street, aided by lower funding costs and stable margin expansion to 3.49% . EPS consensus: $0.70*; revenue consensus: $46.25m* vs actual: $53.39m*.
  • Net interest income rose 8.7% YoY and 1.9% QoQ to $43.7m; NIM expanded 4 bps QoQ to 3.49% on funding cost leverage and asset mix, while deposit cost fell 12 bps to 1.80% .
  • Non-interest income of $10.4m missed the company’s $11–12m first-half outlook, driven by a $0.6m servicing loss and fair-value marks on MSRs following a January sale of ~$931m servicing rights to reduce future volatility .
  • Credit quality remained exceptional: NPLs at 0.17% of loans, NPAs at 0.14% of assets, net charge-offs of 0.01% annualized; ACL held at 1.47% of loans .
  • Capital actions emerged as near-term catalysts: 249,482 shares repurchased post-quarter for $7.2m; dividend raised to $0.26 (paid May 15) .

What Went Well and What Went Wrong

What Went Well

  • “We were able to generate net interest income growth on both a linked quarter basis and on a year over year quarterly basis and produce four basis points in margin expansion.” – CEO Brad Kessel . NII +1.9% QoQ, NIM 3.49% .
  • Funding cost leverage: total cost of funds decreased 12 bps QoQ to 1.80%, supporting margin resilience despite competitive pricing .
  • Strong asset quality and reserves: NPAs/Assets 0.14%, NPLs/Loans 0.17%, net charge-offs 0.01% annualized; ACL 1.47% of loans .

What Went Wrong

  • Non-interest income below internal outlook ($10.4m vs $11–12m target) due to a $0.6m mortgage servicing net loss (fair value change −$1.5m, paydowns −$0.9m, sale loss −$0.1m) .
  • Loan growth ran below mid-single-digit annual plan (Q1 +$33.9m, 3.4% annualized), with softness in mortgage (−$3.9m) and installment (−$17.0m) portfolios .
  • Business deposit balances declined $44m QoQ, reflecting mixed client behavior amid macro uncertainty, partially offset by retail +$34.2m and municipal +$18.9m .

Financial Results

Core P&L and Ratios (quarterly trend)

MetricQ3 2024Q4 2024Q1 2025
Net Interest Income ($m)$41.9 $42.9 $43.7
Non-interest Income ($m)$9.5 $19.1 $10.4
Diluted EPS ($)$0.65 $0.87 $0.74
NIM (FTE, %)3.37% 3.45% 3.49%
ROAA (%)1.04% 1.39% 1.18%
ROAE (%)12.54% 16.31% 13.71%
Efficiency Ratio (%)62.82% 59.09% 62.20%

Consensus vs Actual (S&P Global definitions)

MetricConsensusActualDeltaNotes
EPS ($)0.70*0.74 +0.04Beat
Revenue ($m)46.25*53.39*+7.14Beat

Values with asterisks retrieved from S&P Global.

Asset Quality & KPIs

KPIQ3 2024Q4 2024Q1 2025
NPLs / Loans (%)0.13% 0.15% 0.17%
NPAs / Assets (%)0.11% 0.13% 0.14%
ACL / Loans (%)1.46% 1.47% 1.47%
Net Charge-offs / Avg Loans (annualized, %)0.00% 0.01% (FY context) 0.01%
Loan Growth (QoQ, annualized)—9.7% 3.4%
Cost of Funds (%)—1.92% 1.80%

Segment and Balance Mix

Mix MetricQ1 2025
Loan portfolio mix: Commercial 49%, Mortgage 37%, Installment 14%
New vs portfolio yields: Commercial 6.97% vs 6.55%; Mortgage 7.02% vs 4.85%; Installment 7.52% vs 5.03%
Deposits mix: Non-interest bearing 21%, Savings/Interest-bearing 44%, Reciprocal 20%, Time 14%, Brokered 2%
Deposits end-period ($B): $4.63

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Actual/UpdateChange
Loan GrowthFY 2025Mid-single digit (~5–6%) Q1 +$33.9m; 3.4% annualized (below range) Maintained; below in Q1
Net Interest IncomeFY 2025+8–9% YoY; NIM +20–25 bps vs FY24 Q1 NII +8.7% YoY; NIM 3.49% (+4 bps QoQ) On track
Provision ExpenseFY 2025~0.15–0.20% of avg loans Q1 expense $0.7m (below range) Lower
Non-interest IncomeQ1/Q2 2025$11–12m per quarter Q1 $10.4m (below range) Lower
Non-interest ExpenseFY 2025$34.5–$35.5m per quarter Q1 $34.3m (slightly below) Slightly lower
Effective Tax RateFY 2025~19% Q1 18.5% In line
Share RepurchaseFY 2025Authorized ~5% (1.1m shares); not modeled Post-Q1: 249,482 shares; $7.2m Executed post-Q1
DividendOngoing$0.26 declared (Jan increase noted) $0.26 declared Apr 22; payable May 15 Maintained/raised YOY

Earnings Call Themes & Trends

TopicQ3 2024 MentionsQ4 2024 MentionsQ1 2025 MentionsTrend
Margin & funding costsBuilding leverage; NIM 3.37% Cost of funds −18 bps; NIM 3.45% Cost of funds −12 bps; NIM 3.49% Improving, moderating pace
Loan growth & pipelineEven production; some payoff noise Strong commercial growth (+$112m) Solid commercial (+$54.8m), softer mortgage/installment Growth skewed to commercial
Mortgage banking/MSRGains +$1.7m; high MSR FV in Q4 Intent to sell ~27% MSR MSR sale (~$931m) reduces volatility; servicing loss (FV −$1.5m) Volatility reduction; near-term drag
Deposits & remixCore up YTD; remix slowing Remix slowing; competitive pricing Core +$9.1m; business −$44m; retail +$34m Mix stabilizing
Credit qualityNPAs near lows NPLs ~0.15% NPAs 0.14%, NPLs 0.17%, NCO 0.01% Strong/stable
Macro/tariffs (auto)——Monitoring auto exposure (~6.5% of loans); early steel supply dynamics; no tangible impact yet Watchful stance
Capital actions—2025 buyback authorization; dividend up 8% Buybacks executed post-Q1; dividend declared Active capital return

Management Commentary

  • “These fundamentals continue to drive positive growth in tangible book value per share (13.2%) compared to the prior year quarter.” – CEO Brad Kessel .
  • “Our total cost of funds decreased by 12 basis points to 1.80%.” – CEO Brad Kessel .
  • “Commercial loan generation was strong… mix of C&I vs investment real estate 59%/41%.” – EVP Joel Rahn .
  • “We sold approximately $931.6 million of mortgage servicing rights… to lower potential earnings volatility.” – CFO Gavin Mohr .
  • “We’re really indifferent to Fed flat or cuts… modeling shows only a couple hundred thousand dollars of NII difference.” – CFO Gavin Mohr .

Q&A Highlights

  • Guidance cadence: Management reiterated plan discipline, noting provision could run below initial range and deposit cost leverage may persist if rates decline .
  • Mortgage gain-on-sale: Target margin ~250 bps; production remains supply-constrained, watch summer seasonality .
  • Auto/tariffs: ~6.5% portfolio exposure; no tangible borrower stress yet; monitoring steel supply tightness (OEMs buying up inventory) .
  • Buybacks: Opportunistic within a “three-year earn-back” TBV parameter; executed via 10b5-1 during blackout amid tariff-related market dislocation .
  • Deposit pricing: Downward leverage has leveled; maturing CDs currently reprice ~5 bps better vs new specials; mix is key .

Estimates Context

  • EPS: $0.74 vs $0.70 consensus; beat was driven by lower funding costs and stable margin expansion; YoY NII +8.7% aided results . EPS consensus values from S&P Global*.
  • Revenue (S&P definition): $53.39m* vs $46.25m* consensus; upside reflects higher NII and healthy fee lines ex servicing; servicing loss tempered non-interest income . Revenue consensus and actual values from S&P Global*.
  • Estimates breadth: EPS (# est.) = 5; Revenue (# est.) = 4 for Q1 2025*. Values retrieved from S&P Global.

Key Takeaways for Investors

  • Margin resilience is intact: funding costs fell 12 bps QoQ and NIM rose to 3.49%; continued leverage possible but pace likely moderates amid competition .
  • Commercial-led growth: pipeline remains solid though softer than a year ago; new production yields exceed portfolio yields, supporting NII trajectory .
  • MSR sale reduces earnings volatility; near-term servicing loss is the trade-off, but structurally lowers fair-value swing risk going forward .
  • Credit is a differentiator: NPAs at 0.14%, NCOs at 0.01% and ACL 1.47% provide downside protection in a cautious macro backdrop .
  • Capital returns active: $7.2m buybacks post-quarter and $0.26 dividend support TSR; watch cadence vs growth needs and TBV earn-back discipline .
  • Watch auto/tariff developments: ~6.5% exposure monitored; early steel supply dynamics noted, but no borrower stress yet—headline risk could impact sentiment .
  • Near-term trade: Positive skew from beat and margin expansion; medium-term thesis rests on steady NII growth, disciplined expense control, and stable credit, with MSR volatility dampened .