Independent Bank (IBCP) - 2025 Q2 - Quarterly Report

PART I - Financial Information Forward-Looking Statements This section outlines statements expressing current expectations or forecasts, based on assumptions that may prove incorrect, and lists factors that could cause actual results to differ materially - Forward-looking statements are based on assumptions and estimates, and actual results could differ materially due to various risks. The company does not undertake to update these statements unless required by law[10][11] - Key risk factors include economic, market, operational, liquidity, credit, and interest rate risks, economic conditions in Michigan, assumptions underlying allowance for credit losses, increased competition, ability to achieve loan and deposit growth, interest rate volatility, management team retention, and new legislation[12] Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Statements of Financial Condition Total assets increased by $80.4 million to $5.419 billion at June 30, 2025, driven by net loans and cash, while liabilities and shareholders' equity also increased Condensed Consolidated Statements of Financial Condition (Selected Items) | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Assets | | | | | | Cash and Cash Equivalents | $146,159 | $119,882 | $26,277 | 21.92% | | Securities available for sale | $509,511 | $559,182 | $(49,671) | -8.88% | | Securities held to maturity | $329,302 | $339,436 | $(10,134) | -2.98% | | Total Loans | $4,164,367 | $4,038,825 | $125,542 | 3.11% | | Allowance for credit losses | $(61,157) | $(59,379) | $(1,778) | 2.99% | | Net Loans | $4,103,210 | $3,979,446 | $123,764 | 3.11% | | Total Assets | $5,418,519 | $5,338,104 | $80,415 | 1.51% | | Liabilities | | | | | | Total Deposits | $4,659,359 | $4,654,088 | $5,271 | 0.11% | | Other borrowings | $102,008 | $45,009 | $56,999 | 126.64% | | Total Liabilities | $4,949,269 | $4,883,418 | $65,851 | 1.35% | | Shareholders' Equity | | | | | | Total Shareholders' Equity | $469,250 | $454,686 | $14,564 | 3.20% | Condensed Consolidated Statements of Operations Net income decreased for both three-month ($16.877 million, down 8.9%) and six-month ($32.467 million, down 5.9%) periods ended June 30, 2025, primarily due to higher provision for credit losses and lower non-interest income Condensed Consolidated Statements of Operations (Selected Items) | Item | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Total Interest Income | $66,878 | $66,338 | $540 | 0.81% | | Total Interest Expense | $22,263 | $24,992 | $(2,729) | -10.92% | | Net Interest Income | $44,615 | $41,346 | $3,269 | 7.91% | | Provision for credit losses | $1,500 | $19 | $1,481 | 7794.74% | | Total Non-interest Income | $11,325 | $15,172 | $(3,847) | -25.36% | | Total Non-interest Expense | $33,762 | $33,333 | $429 | 1.29% | | Income Before Income Tax | $20,678 | $23,166 | $(2,488) | -10.74% | | Net Income | $16,877 | $18,528 | $(1,651) | -8.91% | | Basic Net Income Per Common Share | $0.81 | $0.89 | $(0.08) | -8.99% | | Diluted Net Income Per Common Share | $0.81 | $0.88 | $(0.07) | -7.95% | Condensed Consolidated Statements of Operations (Selected Items) - Six Months | Item | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Total Interest Income | $133,022 | $131,464 | $1,558 | 1.19% | | Total Interest Expense | $44,722 | $49,921 | $(5,199) | -10.41% | | Net Interest Income | $88,300 | $81,543 | $6,757 | 8.29% | | Provision for credit losses | $2,221 | $763 | $1,458 | 191.09% | | Total Non-interest Income | $21,749 | $27,733 | $(5,984) | -21.58% | | Total Non-interest Expense | $68,024 | $65,526 | $2,498 | 3.81% | | Income Before Income Tax | $39,804 | $42,987 | $(3,183) | -7.40% | | Net Income | $32,467 | $34,519 | $(2,052) | -5.94% | | Basic Net Income Per Common Share | $1.56 | $1.65 | $(0.09) | -5.45% | | Diluted Net Income Per Common Share | $1.54 | $1.64 | $(0.10) | -6.10% | Condensed Consolidated Statements of Comprehensive Income Comprehensive income significantly decreased for both three-month ($14.073 million, down 27.2%) and six-month ($32.524 million, down 9.2%) periods, driven by unrealized losses on available-for-sale securities Condensed Consolidated Statements of Comprehensive Income (Selected Items) | Item | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Net income | $16,877 | $18,528 | $(1,651) | -8.91% | | Unrealized gains (losses) on securities available for sale, net of tax | $(3,387) | $891 | $(4,278) | -480.13% | | Unrealized gains (losses) on derivative instruments, net of tax | $583 | $(90) | $673 | -747.78% | | Other comprehensive income (loss) | $(2,804) | $801 | $(3,605) | -450.06% | | Comprehensive income | $14,073 | $19,329 | $(5,256) | -27.19% | Condensed Consolidated Statements of Comprehensive Income (Selected Items) - Six Months | Item | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Net income | $32,467 | $34,519 | $(2,052) | -5.94% | | Unrealized gains (losses) on securities available for sale, net of tax | $(1,229) | $2,955 | $(4,184) | -141.60% | | Unrealized gains (losses) on derivative instruments, net of tax | $1,286 | $(1,641) | $2,927 | -178.37% | | Other comprehensive income (loss) | $57 | $1,314 | $(1,257) | -95.66% | | Comprehensive income | $32,524 | $35,833 | $(3,309) | -9.23% | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $50.668 million, while investing activities shifted to a $67.304 million outflow and financing activities to a $42.913 million inflow Condensed Consolidated Statements of Cash Flows (Selected Items) | Item | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Net Income | $32,467 | $34,519 | $(2,052) | -5.94% | | Net Cash From Operating Activities | $50,668 | $29,580 | $21,088 | 71.36% | | Net Cash From (Used in) Investing Activities | $(67,304) | $34,545 | $(101,849) | -294.84% | | Net Cash From (Used in) Financing Activities | $42,913 | $(19,558) | $62,471 | -319.42% | | Net Increase in Cash and Cash Equivalents | $26,277 | $44,567 | $(18,290) | -41.04% | | Cash and Cash Equivalents at End of Period | $146,159 | $214,348 | $(68,189) | -31.81% | Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity increased to $469.250 million at June 30, 2025, driven by $32.467 million net income, partially offset by dividends and stock repurchases Condensed Consolidated Statements of Shareholders' Equity (Selected Items) - Six Months | Item | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | | Balances at January 1 | $454,686 | $404,449 | | Net income | $32,467 | $34,519 | | Cash dividends declared | $(10,836) | $(10,016) | | Repurchase of common stock | $(7,357) | — | | Share based compensation | $1,397 | $1,170 | | Share based compensation withholding obligation | $(1,164) | $(977) | | Other comprehensive income | $57 | $1,314 | | Balances at June 30 | $469,250 | $430,459 | Notes to Interim Condensed Consolidated Financial Statements 1. Preparation of Financial Statements Interim financial statements are unaudited, prepared under SEC rules and GAAP, and include all necessary adjustments for fair presentation, with critical policies including allowance for credit losses and mortgage loan servicing rights valuation - Interim financial statements are unaudited, prepared under SEC rules and GAAP, and include all necessary adjustments for fair presentation[24][25] - Critical accounting policies involve the determination of the allowance for credit losses (ACL) and the valuation of capitalized mortgage loan servicing rights[25] 2. New Accounting Standards ASU 2023-09 (Income Tax Disclosures) adopted January 1, 2025, had no material impact, and ASU 2024-03 (Expense Disaggregation Disclosures) is not expected to have a material impact - ASU 2023-09 (Income Tax Disclosures) adopted January 1, 2025, had no material impact[26] - ASU 2024-03 (Expense Disaggregation Disclosures), effective after December 15, 2026, is not expected to have a material impact[27] 3. Securities AFS securities decreased to $509.511 million at June 30, 2025, due to unrealized losses, while HTM securities also declined, with no ACL for AFS and minimal for non-U.S. agency HTM Securities Available for Sale (AFS) - Fair Value | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | U.S. agency | $8,647 | $8,159 | $488 | 5.98% | | U.S. agency residential mortgage-backed | $71,796 | $71,137 | $659 | 0.93% | | U.S. agency commercial mortgage-backed | $11,166 | $11,641 | $(475) | -4.08% | | Private label mortgage-backed | $44,929 | $70,035 | $(25,106) | -35.85% | | Other asset backed | $33,917 | $38,516 | $(4,599) | -11.94% | | Obligations of states and political subdivisions | $276,746 | $288,791 | $(12,045) | -4.17% | | Corporate | $61,333 | $69,921 | $(8,588) | -12.28% | | Trust preferred | $977 | $982 | $(5) | -0.51% | | Total AFS | $509,511 | $559,182 | $(49,671) | -8.88% | Securities Held to Maturity (HTM) - Carrying Value | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | U.S. agency | $23,283 | $24,150 | $(867) | -3.59% | | U.S. agency residential mortgage-backed | $96,758 | $100,700 | $(3,942) | -3.91% | | U.S. agency commercial mortgage-backed | $3,957 | $4,013 | $(56) | -1.40% | | Private label mortgage backed | $7,324 | $7,350 | $(26) | -0.35% | | Obligations of states and political subdivisions | $152,433 | $156,305 | $(3,872) | -2.48% | | Corporate | $44,591 | $45,964 | $(1,373) | -2.99% | | Trust preferred | $956 | $954 | $2 | 0.21% | | Total HTM | $329,302 | $339,436 | $(10,134) | -2.98% | - Gross unrealized losses on AFS securities totaled $65.940 million at June 30, 2025, with the majority (over 99%) in positions of twelve months or more, primarily due to widening credit spreads and/or increased interest rates since acquisition[28][30][32] - No allowance for credit losses (ACL) was needed for AFS securities at June 30, 2025, or December 31, 2024. An ACL of $133 thousand was recorded for non-U.S. agency HTM securities at June 30, 2025, based on historical credit loss rates[36][37] Allowance for Credit Losses (ACL) on Securities HTM | Category | Balance at June 30, 2025 (in thousands) | Balance at December 31, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | | Private Label Mortgage Backed | $1 | $1 | | Obligations of States and Political Subdivisions | $17 | $17 | | Corporate | $111 | $111 | | Trust Preferred | $4 | $3 | | Total ACL | $133 | $132 | Proceeds from Sale of Securities AFS and Net Gains/Losses | Period | Proceeds (in thousands) | Gains (in thousands) | Losses (in thousands) | Net Losses (in thousands) | | :--------------------------------- | :---------------------- | :------------------- | :-------------------- | :------------------------ | | 6 Months Ended June 30, 2025 | $26,356 | $37 | $356 | $(319) | | 6 Months Ended June 30, 2024 | $37,273 | $14 | $283 | $(269) | 4. Loans The ACL on loans increased by $1.778 million to $61.157 million at June 30, 2025, driven by specific and subjective allocations, while non-performing loans rose to $8.204 million - The ACL process uses specific analysis for individual loans, pooled analysis for loans with similar risk characteristics, and additional allocations based on subjective factors[46][47][48] Allowance for Credit Losses (ACL) by Portfolio Segment | Segment | Balance at June 30, 2025 (in thousands) | Balance at December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :-------------------- | :--------- | | Commercial | $25,890 | $22,872 | $3,018 | 13.19% | | Mortgage | $20,752 | $22,317 | $(1,565) | -7.01% | | Installment | $3,015 | $3,040 | $(25) | -0.82% | | Subjective Allocation | $11,500 | $11,150 | $350 | 3.14% | | Total ACL | $61,157 | $59,379 | $1,778 | 2.99% | Non-performing Loans | Category | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Commercial | $0 | $49 | $(49) | -100.00% | | Mortgage | $7,371 | $5,210 | $2,161 | 41.48% | | Installment | $833 | $733 | $100 | 13.64% | | Total Non-performing Loans | $8,204 | $6,002 | $2,212 | 36.85% | - During the six months ended June 30, 2025, two mortgage loans totaling $0.11 million were modified due to financial difficulty, with none of the modified loans subsequently defaulting[61][64] - Commercial loans are graded on a scale of 1 to 12, with specific categories for "non-watch," "watch," "substandard accruing," "substandard - non-accrual," "doubtful," and "loss"[67][68][69] - The company sold $15.4 million of portfolio residential mortgage loans (servicing retained) in the first six months of 2025, recognizing a gain of $0.30 million, primarily for asset/liability management purposes[81] 5. Shareholders' Equity and Earnings Per Common Share A share repurchase plan authorized up to 1,100,000 shares through December 31, 2025, with 252,276 shares repurchased for $7.36 million in H1 2025, while basic and diluted EPS decreased - A share repurchase plan authorized up to 1,100,000 shares through December 31, 2025[83] Common Stock Repurchases | Period | Shares Repurchased | Aggregate Purchase Price (in thousands) | | :--------------------------------- | :------------------- | :------------------------------------ | | 3 Months Ended June 30, 2025 | 251,183 | $7,320 | | 6 Months Ended June 30, 2025 | 252,276 | $7,360 | | 6 Months Ended June 30, 2024 | 0 | $0 | Net Income Per Common Share | Metric | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change | % Change | | :--------------------------------- | :----------------------------- | :----------------------------- | :------- | :--------- | | Basic Net Income Per Common Share | $1.56 | $1.65 | $(0.09) | -5.45% | | Diluted Net Income Per Common Share | $1.54 | $1.64 | $(0.10) | -6.10% | 6. Derivative Financial Instruments The company uses derivative financial instruments for fair value and cash flow hedging, and non-designated hedging. Total notional amounts were $422.311 million for fair value hedges, $450.000 million for cash flow hedges, and $1.279 billion for non-designated derivatives at June 30, 2025. Asset derivatives decreased to $34.191 million, while liability derivatives increased to $20.754 million Derivative Financial Instruments - Notional Amount and Fair Value | Designation | Notional Amount (June 30, 2025, in thousands) | Fair Value (June 30, 2025, in thousands) | Notional Amount (Dec 31, 2024, in thousands) | Fair Value (Dec 31, 2024, in thousands) | | :--------------------------------- | :------------------------------------------ | :--------------------------------------- | :------------------------------------------ | :--------------------------------------- | | Fair value hedge | $422,311 | $7,318 | $442,512 | $14,320 | | Cash flow hedge | $450,000 | $5,880 | $400,000 | $3,954 | | No hedge designation | $1,279,862 | $239 | $1,108,683 | $162 | - Fair value hedges are used to protect the fair value of fixed-rate commercial, mortgage, and installment loans, and AFS securities from interest rate fluctuations[89][90][91] - Cash flow hedges manage variability in future cash flows of commercial loans and short-term funding liabilities, with an estimated $1.5 million to be reclassified from AOCL to earnings over the next twelve months[93][94][95] - Non-designated derivatives include rate-lock mortgage loan commitments and mandatory commitments to sell mortgage loans, exposing the company to interest rate risk recognized in net gains on mortgage loans[97] Fair Values of Derivative Instruments (Balance Sheet Impact) | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Asset Derivatives | $34,191 | $37,059 | $(2,868) | -7.74% | | Liability Derivatives | $20,754 | $18,623 | $2,131 | 11.44% | 7. Goodwill and Other Intangibles Goodwill remained unchanged at $28.300 million, while amortized intangible assets, primarily core deposits, decreased slightly due to amortization, with an estimated remaining amortization of $1.244 million through 2028 Intangible Assets, Net of Amortization | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Amortized intangible assets - core deposits | $1,244 | $1,488 | | Unamortized intangible assets - goodwill | $28,300 | $28,300 | Estimated Core Deposits Intangible Amortization | Period | Amount (in thousands) | | :--------------------------------- | :-------------------- | | Six months ending December 31, 2025 | $243 | | 2026 | $460 | | 2027 | $434 | | 2028 | $107 | | Total | $1,244 | 8. Share Based Compensation Total compensation expense for long-term incentive plans increased to $1.3 million for H1 2025. Non-vested restricted stock and PSUs totaled 263,514 shares with a weighted average grant date fair value of $27.43, and $4.1 million in unrecognized compensation cost remains - The long-term incentive plan permits grants of up to 0.3 million additional common shares, and the non-employee director stock purchase plan permits up to 0.1 million additional shares[107] Share Based Compensation Expense | Period | Long-term Incentive Plan (in thousands) | Non-employee Director Payments (in thousands) | | :--------------------------------- | :-------------------------------------- | :-------------------------------------------- | | 3 Months Ended June 30, 2025 | $600 | $70 | | 3 Months Ended June 30, 2024 | $500 | $60 | | 6 Months Ended June 30, 2025 | $1,300 | $130 | | 6 Months Ended June 30, 2024 | $1,000 | $130 | - At June 30, 2025, total expected compensation cost for non-vested restricted stock and PSUs not yet recognized was $4.1 million, with a weighted-average recognition period of 2.2 years[111] Non-Vested Stock and Related Transactions | Item | Number of Shares | Weighted Average Grant Date Fair Value | | :--------------------------------- | :----------------- | :------------------------------------- | | Outstanding at January 1, 2025 | 266,986 | $24.64 | | Granted | 69,383 | $37.17 | | Vested | (69,426) | $27.33 | | Forfeited | (3,429) | $27.47 | | Outstanding at June 30, 2025 | 263,514 | $27.43 | 9. Income Tax Income tax expense decreased to $7.3 million for H1 2025, reflecting changes in pretax income, and the company maintains that realization of substantially all deferred tax assets is more likely than not Income Tax Expense | Period | Income Tax Expense (in thousands) | | :--------------------------------- | :------------------------------ | | 3 Months Ended June 30, 2025 | $3,801 | | 3 Months Ended June 30, 2024 | $4,638 | | 6 Months Ended June 30, 2025 | $7,337 | | 6 Months Ended June 30, 2024 | $8,468 | - The difference between actual and statutory income tax expense is primarily due to tax-exempt interest income, tax-exempt income from life insurance cash surrender value, and differences in stock award/option values[112] - The company concluded that the realization of substantially all deferred tax assets is more likely than not at June 30, 2025. Gross unrecognized tax benefits were approximately $0.2 million, with no significant change expected in 2025[113][114] 10. Regulatory Matters The Bank maintained "well capitalized" status at June 30, 2025, exceeding all minimum capital ratios, and had positive undivided profits of $236.3 million allowing for dividend payments - The Bank is categorized as "well capitalized" by regulatory filings at June 30, 2025, exceeding minimum capital requirements and the capital conservation buffer[116] Regulatory Capital Ratios (Consolidated) | Ratio | June 30, 2025 | December 31, 2024 | Minimum for Adequately Capitalized | Minimum for Well-Capitalized | | :--------------------------------- | :------------ | :---------------- | :--------------------------------- | :--------------------------- | | Total capital to risk-weighted assets | 14.20% | 14.22% | 8.00% | NA | | Tier 1 capital to risk-weighted assets | 12.23% | 12.06% | 6.00% | NA | | Common equity tier 1 capital to risk-weighted assets | 11.36% | 11.17% | 4.50% | NA | | Tier 1 capital to average assets | 10.07% | 9.85% | 4.00% | NA | - The Bank had positive undivided profits of $236.3 million at June 30, 2025, allowing for cash dividends to the parent company within regulatory guidelines[115] 11. Fair Value Disclosures The company measures fair value using a three-level hierarchy, with recurring measurements primarily using Level 2 inputs, and capitalized mortgage loan servicing rights and certain collateral-dependent loans using Level 3 inputs - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (significant unobservable assumptions)[122][123][124] - Securities AFS, loans held for sale, and derivatives are primarily Level 2, while capitalized mortgage loan servicing rights and collateral-dependent loans with specific loss allocations are Level 3[124][125][126] Assets Measured at Fair Value on a Recurring Basis (June 30, 2025) | Asset | Fair Value (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :--------------------------------- | :---------------------- | :--------------------- | :--------------------- | :--------------------- | | Securities available for sale | $509,511 | $0 | $509,511 | $0 | | Loans held for sale | $12,492 | $0 | $12,492 | $0 | | Capitalized mortgage loan servicing rights | $32,053 | $0 | $0 | $32,053 | | Derivatives (Asset) | $34,191 | $0 | $34,191 | $0 | | Derivatives (Liability) | $20,754 | $0 | $20,754 | $0 | Capitalized Mortgage Loan Servicing Rights - Fair Value Changes | Item | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | | Beginning balance | $46,796 | $42,243 | | Total gains (losses) realized and unrealized | $(3,505) | $383 | | Purchases, issuances, settlements, maturities and calls | $1,818 | $1,780 | | Sales | $(12,884) | $0 | | Loss on sale of originated servicing rights | $(172) | $0 | | Ending balance | $32,053 | $44,406 | - The decrease in capitalized mortgage loan servicing rights is primarily due to the sale of $931.6 million of mortgage loan servicing rights (26.3% of total servicing portfolio) on January 31, 2025, representing approximately $13.1 million (27.9%) of the asset[138] 12. Fair Values of Financial Instruments The company estimates fair values for most financial instruments, many lacking active trading markets, with total recorded book balance for assets at $5.419 billion (fair value $5.376 billion) and liabilities at $4.949 billion (fair value $4.907 billion) at June 30, 2025 - Fair value estimates are subjective and based on available data and methodologies, with many financial instruments lacking active trading markets and held to maturity[145] Estimated Recorded Book Balances and Fair Values (Selected Items) | Item | Recorded Book Balance (June 30, 2025, in thousands) | Fair Value (June 30, 2025, in thousands) | | :--------------------------------- | :------------------------------------------ | :--------------------------------------- | | Assets | | | | Cash and due from banks | $74,354 | $74,354 | | Securities available for sale | $509,511 | $509,511 | | Securities held to maturity | $329,302 | $293,658 | | Net loans and loans held for sale | $4,115,702 | $3,946,951 | | Derivative financial instruments | $34,191 | $34,191 | | Total Assets (selected) | $5,063,060 | $4,858,665 | | Liabilities | | | | Deposits with no stated maturity | $3,807,413 | $3,807,413 | | Deposits with stated maturity | $851,946 | $849,694 | | Other borrowings | $102,008 | $101,632 | | Subordinated debt | $39,624 | $40,471 | | Subordinated debentures | $39,830 | $39,585 | | Derivative financial instruments | $20,754 | $20,754 | | Total Liabilities (selected) | $4,861,575 | $4,859,549 | 13. Contingencies The company faces significant economic uncertainty from global and national macroeconomic conditions, but does not expect a significant impact from litigation matters, and recognized a $2.677 million gain on Visa Class C shares in May 2024 - Global and national macroeconomic conditions create significant economic uncertainty and could materially impact business, asset valuations, and financial results[155][156][157] - The company is involved in various litigation matters but does not expect a significant impact on its financial position or results of operations, with estimated maximum additional losses being insignificant[158][159] - In May 2024, the company exchanged Visa Inc. Class B-1 common stock for Class C and B-2 shares, recognizing a $2.677 million gain on Class C shares (subsequently sold). Class B-2 shares are carried at zero due to limited liquidity and conversion uncertainty, though their current "value" is approximately $3.3 million[160][161] - The company believes the likelihood of making payments under the Makewhole Agreement related to the Visa exchange offer is remote[162][163] 14. Accumulated Other Comprehensive Loss ("AOCL") Accumulated Other Comprehensive Loss (AOCL) increased to $(69.887) million at June 30, 2025, reflecting net current period other comprehensive income of $0.057 million for the six months ended June 30, 2025 Changes in Accumulated Other Comprehensive Loss (AOCL) | Item | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | | Balances at beginning of period | $(69,944) | $(72,142) | | Other comprehensive income (loss) before reclassifications | $(933) | $615 | | Amounts reclassified from AOCL | $990 | $699 | | Net current period other comprehensive income (loss) | $57 | $1,314 | | Balances at end of period | $(69,887) | $(70,828) | - Disproportionate tax effects from AFS securities arose due to OCI tax effects in the presence of a valuation allowance against deferred tax assets and a pretax loss from operations[165] Reclassifications Out of AOCL (Six Months Ended June 30, 2025) | AOCL Component | Amount Reclassified From AOCL (in thousands) | Affected Line Item in Interim Condensed Consolidated Statements of Operations | | :--------------------------------- | :------------------------------------------- | :-------------------------------------------------------------------------- | | Unrealized losses on securities available for sale | $(253) | Net losses on securities available for sale, Income tax expense | | Unrealized gains (losses) on derivative instruments | $737 | Interest income, Interest expense, Income tax expense | | Total reclassifications, net of tax | $(990) | | 15. Revenue from Contracts with Customers The majority of the company's revenue (88.6% for H1 2025) is excluded from ASC Topic 606, with material included revenues recognized upon service delivery or over the monthly period - Approximately 88.6% of total revenues for the six months ended June 30, 2025, are excluded from ASC Topic 606, primarily from financial instruments like interest income, net gains on mortgage loans, and mortgage loan servicing[169] - Material revenues included in ASC Topic 606 are service charges on deposit accounts, other deposit related income, interchange income, and investment and insurance commissions, recognized upon service delivery or over the monthly period, with no contract assets or liabilities[170] Revenue from Contracts with Customers (Six Months Ended June 30, 2025) | Category | Amount (in thousands) | | :--------------------------------- | :-------------------- | | Service Charges on Deposit Accounts | $5,795 | | Other Deposit Related Income | $1,345 | | Interchange Income | $6,517 | | Investment and Insurance Commissions | $1,564 | | Total | $15,221 | 16. Leases The company primarily has operating leases for office facilities, with no finance leases, and total operating lease cost for H1 2025 was $0.734 million - The company primarily uses operating leases for office facilities and has elected not to recognize short-term leases (12 months or less) on the balance sheet, with no finance leases existing as of June 30, 2025[182][183] Operating Lease Costs | Cost Component | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | | Operating lease cost | $685 | $695 | | Variable lease cost | $10 | $22 | | Short-term lease cost | $39 | $47 | | Total | $734 | $764 | Operating Lease Balance Sheet Information | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Lease right of use asset | $6,900 | $5,971 | | Lease liabilities | $7,003 | $6,338 | | Weighted average remaining lease term (years) | 7.10 | 7.07 | | Weighted average discount rate | 4.4% | 3.7% | 17. Segment Reporting The company operates as a single reportable segment, banking operations, with performance evaluated using consolidated net income, earnings per share, and return on average assets - The company has one reportable segment: banking operations, involving the delivery of loan and deposit products to customers[188][189] - The Chief Operating Decision Maker evaluates segment performance using consolidated net income, earnings per share, and return on average assets, assessing revenue streams and significant expenses for product pricing and return on assets[189][190] Segment Net Income (Six Months Ended June 30) | Segment | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Independent Bank | $34,173 | $36,498 | | Other | $(1,659) | $(1,947) | | Eliminations | $(47) | $(32) | | Total Net Income | $32,467 | $34,519 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Net income decreased for both three-month and six-month periods due to prior year Visa gain, unfavorable mortgage loan servicing, and increased credit loss provision, while total assets grew from loan growth and other borrowings increased - Net income for the three months ended June 30, 2025, decreased to $16.9 million from $18.5 million in 2024, primarily due to a prior year $2.7 million gain on Visa Inc. common stock, a $1.1 million unfavorable change in mortgage loan servicing rights, and a $1.5 million increase in provision for credit losses, partially offset by a $3.3 million increase in net interest income[203] - Net income for the six months ended June 30, 2025, decreased to $32.5 million from $34.5 million in 2024, primarily due to a $3.9 million unfavorable change in mortgage loan servicing rights, the Visa Inc. common stock gain, increased non-interest expense, and higher provision for credit losses, partially offset by increased net interest income and mortgage loan gains[204] Key Performance Ratios | Ratio | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net income (annualized) to Average assets | 1.27% | 1.44% | 1.22% | 1.34% | | Net income (annualized) to Average shareholders' equity | 14.66% | 17.98% | 14.19% | 16.98% | | Basic Net income per common share | $0.81 | $0.89 | $1.56 | $1.65 | | Diluted Net income per common share | $0.81 | $0.88 | $1.54 | $1.64 | Introduction This section provides additional information for assessing financial condition and results, to be read with interim financial statements and the 2024 Form 10-K - The MD&A provides additional information for assessing financial condition and results, to be read in conjunction with interim financial statements and the 2024 Form 10-K[198] Overview The company provides banking services primarily in Michigan's Lower Peninsula, with success largely dependent on regional economic conditions - The company's primary operations are banking services in Michigan's Lower Peninsula, with success largely tied to regional economic conditions[199] Recent Developments The company faces significant economic uncertainty from global and national macroeconomic conditions, which could lead to material adverse impacts on asset valuations and financial condition, though management is cautiously optimistic - Significant economic uncertainty persists due to global and national macroeconomic conditions, including market volatility, U.S. trade policy changes, recessionary concerns, interest rate uncertainty, and geopolitical conflicts[200] - These pressures could lead to material adverse impacts such as valuation impairments on intangibles, goodwill, securities, loans, mortgage loan servicing rights, or deferred tax assets[200] - Management is cautiously optimistic about managing the impact of these risks, but a high degree of uncertainty remains regarding future performance[157] RESULTS OF OPERATIONS Summary Net income decreased for both three-month and six-month periods ended June 30, 2025, primarily due to a prior year Visa stock gain, unfavorable mortgage loan servicing, and increased credit loss provision - Net income for Q2 2025 was $16.9 million (down from $18.5 million in Q2 2024), primarily due to a prior year $2.7 million gain on Visa stock, a $1.1 million unfavorable change in mortgage loan servicing rights, and a $1.5 million increase in provision for credit losses, partially offset by a $3.3 million increase in net interest income[203] - Net income for H1 2025 was $32.5 million (down from $34.5 million in H1 2024), primarily due to a $3.9 million unfavorable change in mortgage loan servicing rights, the Visa stock gain, increased non-interest expense, and higher provision for credit losses, partially offset by increased net interest income and mortgage loan gains[204] Net Interest Income Net interest income increased by $3.3 million (7.9%) in Q2 2025 and $6.8 million (8.3%) in H1 2025, driven by increased average interest-earning assets and an improved net interest margin due to lower Cost of Funds - Net interest income increased by $3.3 million (7.9%) to $44.6 million in Q2 2025 and by $6.8 million (8.3%) to $88.3 million in H1 2025 compared to prior year periods[206][207] - The increase was driven by a $142.7 million increase in average interest-earning assets and an 18 basis point increase in net interest margin for Q2 2025, and a $155.2 million increase in average interest-earning assets and a 19 basis point increase in net interest margin for H1 2025[206][207] - Net interest margin increases are attributed to 28 and 27 basis point decreases in Cost of Funds for Q2 and H1 2025, respectively, partially offset by 10 and 8 basis point decreases in Asset Yield, reflecting federal funds rate decreases and shifts in funding mix[209] Net Interest Margin (FTE) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Net interest margin (GAAP) | 3.55% | 3.39% | 3.50% | 3.33% | | Net interest margin (FTE) | 3.58% | 3.40% | 3.54% | 3.35% | - Non-accrual loans averaged $7.7 million in Q2 2025 and $7.2 million in H1 2025, up from $4.0 million and $3.9 million in the same periods of 2024, respectively[210] Provision for Credit Losses The provision for credit losses increased significantly to $1.50 million in Q2 2025 and $2.22 million in H1 2025, primarily due to higher specific reserves on a commercial real estate loan and increased pooled reserves Provision for Credit Losses | Period | Provision for Credit Losses (in thousands) | | :--------------------------------- | :--------------------------------- | | 3 Months Ended June 30, 2025 | $1,500 | | 3 Months Ended June 30, 2024 | $19 | | 6 Months Ended June 30, 2025 | $2,221 | | 6 Months Ended June 30, 2024 | $763 | - The $1.48 million increase in Q2 2025 provision was primarily due to increased specific reserves on a $15.4 million commercial real estate loan and higher pooled reserves on commercial and retail loans, partially offset by reduced specific reserves on two commercial and industrial loans[218] - The $0.33 million increase in H1 2025 provision was mainly due to a net increase in specific reserve allocations on commercial and retail loans and a decrease in gross recoveries of previously charged-off loans, partially offset by decreased pooled allocations in the retail loan portfolio[219] - The provision for credit losses on HTM securities was an expense of $0.001 million in H1 2025, compared to a credit of $(1.127) million in H1 2024, reflecting a partial recovery of a corporate security (Signature Bank) in Q1 2024[220] Non-interest Income Non-interest income decreased to $11.3 million in Q2 2025 and $21.7 million in H1 2025, primarily due to the absence of a prior year Visa stock gain and a significant decrease in mortgage loan servicing, net Non-Interest Income | Item | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Interchange income | $3,390 | $3,401 | $6,517 | $6,552 | | Service charges on deposit accounts | $2,981 | $2,937 | $5,795 | $5,809 | | Net gains on mortgage loans | $1,631 | $1,333 | $3,934 | $2,697 | | Equity securities at fair value | $0 | $2,693 | $0 | $2,693 | | Securities available for sale | $11 | $0 | $(319) | $(269) | | Mortgage loan servicing, net | $490 | $2,091 | $(146) | $4,816 | | Investment and insurance commissions | $810 | $838 | $1,564 | $1,642 | | Bank owned life insurance | $296 | $188 | $593 | $369 | | Other | $1,716 | $1,691 | $3,811 | $3,424 | | Total non-interest income | $11,325 | $15,172 | $21,749 | $27,733 | - Net gains on mortgage loans increased due to higher loan origination and sales volume and an increase in the Loan Sales Margin (1.71% in Q2 2025 vs. 1.46% in Q2 2024; 2.21% in H1 2025 vs. 1.56% in H1 2024)[224][226][227] - The $2.7 million gain on equity securities at fair value in Q2 2024 was due to the exchange of Visa Class B-1 common stock into Class C shares, which were subsequently sold, with no such gain occurring in 2025[228] - Mortgage loan servicing, net, shifted from income of $2.1 million in Q2 2024 to $0.5 million in Q2 2025, and from income of $4.8 million in H1 2024 to an expense of $(0.1) million in H1 2025, primarily due to changes in fair value of capitalized mortgage loan servicing rights and a decline in servicing revenue following the sale of $931.6 million of servicing rights in January 2025[230][231][232] Non-interest Expense Non-interest expense increased by $0.4 million (1.3%) in Q2 2025 and $2.5 million (3.8%) in H1 2025, driven by higher data processing, advertising, and loan and collection expenses, partially offset by lower compensation Non-Interest Expense | Item | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :--------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Compensation and employee benefits | $21,123 | $21,251 | $41,506 | $42,021 | | Data processing | $3,847 | $3,257 | $7,576 | $6,512 | | Occupancy, net | $2,046 | $1,886 | $4,269 | $3,960 | | Interchange expense | $1,177 | $1,127 | $2,296 | $2,224 | | Advertising | $833 | $788 | $1,694 | $1,279 | | Furniture, fixtures and equipment | $793 | $948 | $1,678 | $1,902 | | Loan and collection | $744 | $699 | $1,530 | $1,211 | | FDIC deposit insurance | $637 | $695 | $1,348 | $1,477 | | Communications | $470 | $499 | $1,061 | $1,114 | | Legal and professional | $500 | $544 | $979 | $1,030 | | Other | $1,349 | $1,236 | $3,045 | $2,491 | | Total non-interest expense | $33,762 | $33,333 | $68,024 | $65,526 | - Compensation and employee benefits decreased by $0.5 million in H1 2025, primarily due to lower performance-based compensation and reduced employee medical insurance costs, partially offset by salary increases[239][240] - Data processing expense increased by $1.1 million in H1 2025 due to core data processor annual asset growth, CPI-related cost increases, and new solutions[241] - Other expense increased by $0.6 million in H1 2025, primarily due to costs related to the mortgage loan servicing right sale, higher fraud-related losses, real estate property write-down, and higher Michigan Corporate Income Tax[245] Income Tax Expense Income tax expense decreased to $3.8 million in Q2 2025 and $7.3 million in H1 2025, reflecting changes in pretax income, with the company assessing that realization of substantially all deferred tax assets is more likely than not Income Tax Expense | Period | Income Tax Expense (in thousands) | | :--------------------------------- | :------------------------------ | | 3 Months Ended June 30, 2025 | $3,801 | | 3 Months Ended June 30, 2024 | $4,638 | | 6 Months Ended June 30, 2025 | $7,337 | | 6 Months Ended June 30, 2024 | $8,468 | - The actual income tax expense differs from the statutory rate due to tax-exempt interest income, tax-exempt income from life insurance cash surrender value, and differences in stock award/option values[247] - The company maintains that the realization of substantially all deferred tax assets is more likely than not[248] FINANCIAL CONDITION Summary Total assets increased by $80.4 million to $5.419 billion during H1 2025, driven by loan growth, while securities declined, deposits slightly increased, and other borrowings significantly rose - Total assets increased by $80.4 million during the first six months of 2025[250] - Loans (excluding held for sale) increased to $4.16 billion at June 30, 2025, from $4.04 billion at December 31, 2024, with growth in commercial and mortgage loans offsetting a decrease in installment loans[250] - Securities available for sale and held to maturity combined declined by $59.8 million to $838.8 million at June 30, 2025[250] - Deposits increased by $5.3 million to $4.66 billion at June 30, 2025, primarily due to increases in reciprocal and brokered time deposits, partially offset by decreases in other deposit categories[251] Securities The company maintains diversified AFS and HTM securities portfolios, with unrealized losses on AFS considered temporary and no ACL needed, while an ACL is maintained for HTM securities - The company maintains diversified AFS and HTM securities portfolios, regularly evaluating asset/liability management needs for liquidity and cash flow[252] - Unrealized losses on AFS securities are considered temporary, and the company has the liquidity and capital to hold these securities to maturity or until recovery, with no ACL needed for AFS securities at June 30, 2025[253][256] - An ACL is maintained for HTM securities based on expected credit losses, with a $1.1 million recovery recorded in Q1 2024 for a previously charged-off corporate security (Signature Bank)[257] Securities Available for Sale (AFS) - Fair Value | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Total AFS | $509,511 | $559,182 | $(49,671) | -8.88% | Securities Held to Maturity (HTM) - Carrying Value | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Total HTM | $329,302 | $339,436 | $(10,134) | -2.98% | Portfolio Loans and Asset Quality Total Portfolio Loans increased to $4.164 billion at June 30, 2025, driven by commercial and mortgage loan growth, while non-performing loans increased to $8.204 million (0.20%) and ACL on loans rose to $61.2 million (1.47%) Portfolio Loans by Type | Loan Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Real estate | $3,018,812 | $2,712,981 | $305,831 | 11.27% | | Consumer | $564,281 | $579,345 | $(15,064) | -2.60% | | Commercial | $575,825 | $542,742 | $33,083 | 6.10% | | Agricultural | $3,369 | $3,747 | $(378) | -10.09% | | Total loans | $4,164,367 | $4,038,825 | $125,542 | 3.11% | Non-performing Assets | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Non-accrual loans | $10,453 | $7,792 | $2,661 | 34.15% | | Total non-performing loans | $8,204 | $6,002 | $2,202 | 36.69% | | Other real estate and repossessed assets | $426 | $938 | $(512) | -54.58% | | Total non-performing assets | $8,630 | $6,940 | $1,690 | 24.35% | - Non-performing loans increased to 0.20% of Portfolio Loans at June 30, 2025, from 0.15% at December 31, 2024, primarily due to an increase in non-performing mortgage loans[264] Allocation of Allowance for Credit Losses on Loans | Allocation Type | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | Change (in thousands) | % Change | | :--------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :--------- | | Specific allocations | $4,606 | $2,300 | $2,306 | 100.26% | | Pooled analysis allocations | $45,051 | $45,929 | $(878) | -1.91% | | Additional allocations based on subjective factors | $11,500 | $11,150 | $350 | 3.14% | | Total | $61,157 | $59,379 | $1,778 | 2.99% | Deposits and Borrowings Total deposits increased slightly by $5.3 million to $4.66 billion at June 30, 2025, driven by brokered and reciprocal time deposits, while other borrowings significantly increased to $102.0 million - Total deposits increased by $5.3 million to $4.66 billion at June 30, 2025, from $4.65 billion at December 31, 2024[272] - The increase in deposits was due to increases in reciprocal and brokered time deposits, offset by decreases in non-interest bearing, savings and interest-bearing checking, and time deposits, with reciprocal deposits totaling $911.8 million at June 30, 2025[272] Uninsured Deposits | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Uninsured deposits | $1,021,672 | $1,059,909 | | Uninsured deposits as a percentage of deposits | 22.5% | 23.3% | - Other borrowings, primarily from FRB and FHLB, increased to $102.0 million at June 30, 2025, from $45.0 million at December 31, 2024[275] - Wholesale funding sources (including reciprocal deposits) amounted to approximately $1.14 billion, or 23.8% of total funding, at June 30, 2025, with availability and cost subject to market conditions and confidence in the company's financial health[276] Liquidity and Capital Resources The company maintains strong liquidity with $1.019 billion in unused FHLB credit lines and $484.6 million from FRB, and total capitalization was $539.856 million with common shareholders' equity increasing to $469.3 million - Primary liquidity sources include deposits, secured advances from FHLB and FRB, federal funds purchased, other bank borrowing facilities, and access to capital markets (Brokered CDs)[279] - At June 30, 2025, unused credit lines were approximately $1.019 billion (FHLB) and $484.6 million (FRB), with $486.0 million in unpledged securities providing an estimated $455.9 million in additional borrowing capacity[279] - The company believes it has adequate liquidity at the Bank and sufficient cash at the parent company ($49.1 million at June 30, 2025) to meet operating expenses, interest payments, and common stock dividends[283][284] Capitalization | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Subordinated debt | $39,624 | $39,586 | | Subordinated debentures | $39,830 | $39,796 | | Amount qualifying as regulatory capital | $70,606 | $78,572 | | Total shareholders' equity | $469,250 | $454,686 | | Total capitalization | $539,856 | $533,258 | - The company plans to redeem $40 million in floating subordinated notes on August 31, 2025, which is not expected to affect its "well-capitalized" status or liquidity[286] - Common shareholders' equity increased to $469.3 million at June 30, 2025, from $454.7 million at December 31, 2024, primarily due to earnings retention, with Tangible Common Equity (TCE) at $439.7 million and a TCE to tangible assets ratio of 8.16%[289] Asset/Liability Management The company manages interest-rate risk through simulation analyses, monitoring net interest income and MVPE under various rate shifts, with the current profile indicating exposure to rising rates, though MVPE increased due to higher tangible equity and improved asset values - Interest-rate risk is managed through simulation analyses that monitor potential changes in net interest income and market value of portfolio equity (MVPE) under immediate, permanent, and parallel shifts in interest rates[293][294][295] - At June 30, 2025, the interest rate risk profile indicated exposure to rising rates, with MVPE increasing from December 31, 2024, due to higher tangible equity and improved medium to long duration asset values from declining interest rates[295] - To manage interest rate risk, the company may add longer-term borrowings, utilize derivatives (swaps, caps, floors), and continue to sell fixed-rate jumbo and other portfolio mortgage loans[295] Market Value of Portfolio Equity (MVPE) Sensitivity | Change in Interest Rates | MVPE (June 30, 2025, in thousands) | % Change | MVPE (Dec 31, 2024, in thousands) | % Change | | :--------------------------------- | :--------------------------------- | :------- | :--------------------------------- | :------- | | 200 basis point rise | $631,500 | (8.11)% | $566,000 | (9.76)% | | 100 basis point rise | $659,900 | (3.97)% | $598,600 | (4.56)% | | Base-rate scenario | $687,200 | — | $627,200 | — | | 100 basis point decline | $708,100 | 3.04% | $650,000 | 3.64% | | 200 basis point decline | $711,700 | 3.57% | $661,300 | 5.44% | Litigation Matters The company is involved in various litigation matters, with accrued probable losses deemed not material, and estimated maximum additional losses considered insignificant - The company is involved in various litigation matters, with accrued probable losses deemed not material[303] - It is reasonably possible to incur additional losses, but the estimated maximum amount of such losses is insignificant, though this estimate may change[303] - This disclosure excludes collection-related litigation where the possibility of paying damages to opposing parties is remote[304] Accounting Standards Update This section refers to Note 2 of the interim Condensed Consolidated Financial Statements for details on recently issued accounting pronouncements and their impact - Refer to Note 2 for details on recently issued accounting pronouncements and their impact on the interim condensed consolidated financial statements[305] Fair Valuation of Financial Instruments The company uses fair value measurements for recording adjustments and disclosures, distinguishing between recurring (e.g., AFS securities, derivatives) and nonrecurring (e.g., loans held for investment) adjustments - Fair value measurements are used for recording adjustments and disclosures, distinguishing between recurring (e.g., equity securities, AFS securities, loans held for sale, derivatives, mortgage loan servicing rights) and nonrecurring (e.g., loans held for investment) adjustments[308] - Refer to Note 11 for a complete discussion on the use of fair valuation of financial instruments and related measurement techniques[308] Critical Accounting Policies Critical accounting policies, including ACL and capitalized mortgage loan servicing rights, involve significant estimates and judgments, with no material changes since the 2024 Annual Report on Form 10-K - Critical accounting policies, such as the Allowance for Credit Losses (ACL) and capitalized mortgage loan servicing rights, involve significant estimates and management judgments[310] - No material changes have occurred to the critical accounting policies since the 2024 Annual Report on Form 10-K[310] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the "Asset/liability management" discussion within Item 2 for disclosures regarding quantitative and qualitative information about market risk - Refer to the "Asset/liability management" section in Item 2 for disclosures on quantitative and qualitative market risk[314] Item 4. Controls and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective as of June 30, 2025, as concluded by the CEO and CFO[316] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[317] PART II - Other Information Item 1A. Risk Factors No material changes to the risk factors previously disclosed in Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2