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 its conservatively managed community banking model, which has consistently delivered solid through-the-cycle performance. Core profitability remained strong in 1Q26, with ROA of approximately 1.3%, supported by a favorable funding base, a healthy margin relative to peers, meaningful fee income, and minimal credit costs. Noninterest income represented about 20% of total revenue in 2025, providing useful earnings diversification.

Asset quality remains a key rating strength. While the NPA ratio increased modestly to 0.66% in 1Q26, the uptick was largely driven by a single relationship rather than broader portfolio deterioration. Net charge-offs remained very low at 0.03%, and reserve coverage is solid, with the ACL at 1.48% of total loans, providing a meaningful buffer against potential future losses.

The balance sheet reflects a modest overall risk profile. Residential mortgage loans accounted for 35% of total loans at 1Q26, while consumer exposure represented 12%, primarily in niche marine and RV lending. Commercial real estate concentration remains well controlled relative to peers, with ICRE exposure below 180% of risk-based capital, which is consistent with the company’s long-standing conservative approach and helps limit downside risk.

From a spread income perspective, IBCP continues to benefit from favorable repricing dynamics, with approximately 44% of the loan portfolio in floating-rate loans. In addition, ongoing runoff in residential and consumer portfolios provides an opportunity to redeploy into higher-yielding commercial loans. These factors should support margin performance and enable the company to generate competitive spread income despite a less commercially oriented loan mix than many similarly rated peers.

Funding remains a key ratings anchor. The deposit base is granular and low cost, supported by a durable mix of retail, commercial, and public fund relationships. Noninterest-bearing deposits have consistently exceeded 20% of total deposits, supporting funding flexibility and margin resilience, while reliance on wholesale funding remains minimal. This funding profile compares favorably with peers and enhances the company’s ability to navigate both competitive and stressed funding environments.

Capital is somewhat less of a differentiator relative to peers, though the trend is improving. While risk-based capital ratios have historically trailed peer averages, internal capital generation and a measured approach to share repurchases have supported continued strengthening. As of 1Q26, the CET1 ratio increased 20 basis points year over year to 11.7%, which we view as appropriate given the company’s low-loss, lower-volatility risk profile.

Rating Sensitivities

Over the longer term, positive rating momentum could be supported by the maintenance of above average, well diversified earnings, continued strong asset quality through the cycle, and core capital managed closer to peer levels. Conversely, ratings could come under pressure from material credit deterioration, sustained earnings pressures, or more aggressive capital management, particularly if CET1 ratio declines meaningfully.

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