KBRA Affirms Ratings for Independent Bank Corporation

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Grand Rapids, Michigan-based Independent Bank Corporation (NASDAQ: IBCP) ("the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for Independent Bank, the lead subsidiary. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

IBCP’s ratings are supported by a well-diversified earnings profile, stable core-funding franchise, and conservative risk appetite that has limited concentration risk and resulted in minimal loss content. Core ROA - ~1.20% in FY24 - benefited from non-mortgage-related fee streams, such as interchange and service charges, particularly in the backdrop of a more muted mortgage banking environment. Also complementing the bottom line was limited charge-off activity (0.02% related ratio) and associated provisioning expenses, unsurprising given the company's history of pristine asset quality; the NPA ratio (0.17% at YE24) has tracked amongst the lowest in the peer group in recent years. Reserves are correspondingly strong; the ACL was 1.47% of total loans at 1Q25, supplying a healthy second-line buffer. While the NIM, admittedly 3.49% in 1Q25, has typically benefitted from the favorable funding base, repricing opportunities (44% of total loans are floating rate) and investment portfolio runoff into higher-yielding commercial loans offer additional support and should provide some margin tailwinds prospectively. Accordingly, the company is able to maintain competitive spread earnings despite a less commercially-oriented loan portfolio than many peers. With that being said, the loan portfolio is skewed towards residential mortgage (36% of total loans) alongside 15% consumer exposure, mainly niche marine/RV loans. In anticipation of broad challenges within the equipment finance segment, management had proactively tightened underwriting within the niche vehicle lending segments, which they do not believe poses any outsized risk with regard to tariffs. Mitigating concentration concerns are investor CRE exposures that are comparatively limited (<150% of RBC) with industry segmentations characterized as rather refined, including modest office (~2.5% of total loans) and multifamily exposures (~2.0%). A granular, low-beta deposit base anchors the balance sheet; noninterest-bearing deposits consistently account for >20% of total deposits, and the franchise is driven largely by retail and long-tenured commercial relationships, with a diversified public-funds component that has historically proven sticky. As a result, wholesale reliance is minimal with brokered deposits and FHLB advances together representing just 3% of total funding at YE24. Capital, which has historically tracked below rated peer averages, displayed improvement via solid organic generation and a measured stance toward share repurchases more recently. As such, the CET1 ratio increased 80 bps YoY (to 11.5% at 1Q25), which we view as adequate for the risk profile.

Rating Sensitivities

Maintenance of above-average and diversified earnings alongside strong asset quality metrics would be viewed favorably. Managing core capital to peer-like levels could facilitate positive rating momentum over the medium term. Material degradation in credit quality, persistent earnings pressures, or aggressive capital management, particularly substantial regression in the CET1 ratio, have potential to prevent positive momentum in the ratings.

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