Independent Bank's Q1 2025: Unpacking Contradictions in Mortgage Banking Gains and Loan Growth Prospects

Mortgage banking gain on sale outlook, loan growth outlook, mortgage banking gain on sale fees, provision for credit losses and loan growth expectations, and potential pent-up demand for loans are the key contradictions discussed in Independent Bank's latest 2025Q1 earnings call.



Strong Financial Performance:
- Independent Bank Corporation reported first quarter 2025 net income of $15.6 million, or $0.74 per diluted share, versus $16 million or $0.76 per diluted share in the prior year period.
- Overall loans increased 3.4% annualized, while core deposits are up 0.8% annualized. The bank generated net interest income growth and produced 4 basis points in margin expansion.
- The growth was driven by managed expenses, strategic investments, and improved operational scale.

Loan and Deposit Trends:
- Total loans grew $34 million, representing a 3.4% annualized rate, led by commercial loans with $54.8 million of Q1 growth, or an 11% annualized rate.
- Commercial loan generation was strong, while residential mortgages and installment loans declined slightly due to cautious business expansion by owners.
- Retail deposits increased by $34.2 million, while business deposits declined by $44 million, reflecting a remix into higher-yielding products.

Credit Quality and Reserves:
- The bank maintained a low level of watch credits, 14 basis points of nonperforming assets to total assets, and 1 basis point of net charge-offs for the quarter to average loans annualized.
- The allowance for credit losses was 1.47% of total loans, reflecting recent market uncertainty, but overall credit metrics remained excellent.
- Reserves were at a strong level, with $60 million against $7.5 million of nonperforming assets, providing a buffer against potential future risks.

Capital Management and Share Repurchase:
- The bank repurchased 1,093 shares of common stock for an aggregate purchase price of $0.03 million in the first quarter, with a significant repurchase of 249,482 additional shares after quarter-end.
- Share repurchases were consistent with historical trends, considering the bank's strong capital position and balancing payouts on dividends with organic growth.