Independent Bank NASDAQ: INDB executives emphasized progress on profitability, expense discipline, and capital returns during the company’s first-quarter earnings call, while also describing a cautious customer environment shaped by geopolitical and economic uncertainty.
Quarterly results and margin improvement
CFO and Head of Consumer Lending Mark Ruggiero said first-quarter 2026 GAAP net income was $79.9 million, with diluted EPS of $1.63. That translated to a 1.31% return on assets and a 9.02% return on average common equity. Excluding $3 million of merger-and-acquisition expenses and related tax impacts, adjusted operating net income was $82.1 million, or $1.68 per diluted share, with a 1.35% return on assets and a 14.05% return on average tangible common equity.
CEO Jeff Tengel highlighted continued net interest margin improvement, with reported NIM rising 13 basis points from the fourth quarter to 3.90%. Excluding loan accretion income, he said adjusted NIM increased 8 basis points. Ruggiero attributed the core margin improvement to deposit cost reductions and repricing dynamics in loans and securities.
Ruggiero said the company lifted its 2026 fourth-quarter margin outlook to 3.90% to 3.95%, while still assuming a 10 basis point contribution from purchase accounting accretion. In the Q&A, he clarified that he expects the core margin to move from roughly 3.72% in the first quarter to about 3.82%, with the purchase accounting benefit bringing the reported margin into the guided range.
Loan growth: C&I strength, CRE competition, and office reductions
Tengel said reported loan growth was “somewhat muted,” reflecting a challenging backdrop that he described as “somewhat challenging” and marked by cautious clients. He pointed to factors including the “Iran war,” interest-rate volatility, and inflation pressures on labor, healthcare benefits, materials, and utilities.
Commercial loans declined modestly on a reported basis, but management emphasized stronger “underlying results.” Tengel said total commercial loans declined $50 million from the fourth quarter, but excluding a $39 million decrease in the dealer floorplan portfolio the bank is exiting, C&I loans rose 7% on an annualized basis. He added that the office portfolio drove $56 million of the $94 million quarterly decline in commercial real estate balances.
Management discussed continued rebalancing toward relationship-based commercial lending. Tengel said C&I loans now represent 25% of total loans versus 22% at year-end 2024, and stressed that C&I growth is coming from core relationship banking, noting the bank does not have exposure to the NDFI or private credit segments.
On CRE, executives said competitive pressures are high. Responding to an analyst question about the bank’s slight downward tweak to CRE guidance, Tengel said the commercial real estate market has become “very, very competitive,” and reiterated the bank “won’t stretch for structure or for rate.” He also cited uncertainty around potential rent control in Eastern Massachusetts, which he said has contributed to a slowdown in multifamily construction activity. Ruggiero added that an office payoff that occurred in the first quarter created “a little bit more of a drag on net loan growth,” contributing to the guidance adjustment.
The company’s approved commercial loan pipeline totaled $313 million, up from $278 million at year-end, according to Tengel. He said the bank will not sacrifice credit structure or pricing to win new business.
Deposits and funding: discipline amid pricing competition
Deposit balances ended the quarter “essentially flat,” Tengel said, while average deposits declined 1.5% from the fourth quarter, which he attributed largely to normal first-quarter seasonality in business operating balances. He said demand deposit accounts represent 28% of deposits and the cost of total deposits was 1.36% in the first quarter.
Ruggiero described intense pricing competition on deposits, including offers in the “4% handle” and in some cases higher, coming from both mutual institutions and larger banks. He said the company has seen some excess customer funds leave for rates it is not willing to match, but he characterized flat deposits alongside a 10-basis-point reduction in deposit costs as a solid outcome. He also said the March spot cost of deposits was roughly in line with the quarter’s 1.36% level.
Management reiterated a focus on relationship-based funding. Tengel said the bank will not “sacrifice rate to show deposit growth with transactional one-product customers,” and executives discussed efforts to take advantage of competitive disruption in the market using more targeted marketing and banker outreach.
Credit quality: office remains the key watch area
Executives said they have not seen broad stress in the loan portfolio, but acknowledged ongoing work in the office segment. Net charge-offs were 11 basis points in the first quarter, and Tengel noted net charge-offs have averaged 11 basis points over the last year.
Ruggiero said non-performing assets increased to $98.7 million, or 0.52% of total loans, “driven primarily by the downgrade of one office loan,” which carried an approximately $2.8 million specific reserve. Net charge-offs totaled $4.8 million, including $4 million tied to a credit that had been partially reserved in the fourth quarter; he added that the related non-performing office loan repaid its remaining balance after year-end, following a sale process.
In response to questions on criticized loan inflows, Tengel said three larger loans moved to criticized status during the quarter—one office, one C&I, and one multifamily—adding that the multifamily item related to a slower lease-up and was moved as a prudential step. Ruggiero said the first-quarter loan loss provision was $5.5 million, driven by charge-offs, model impacts from downgrades, a more conservative macroeconomic factor, and a modest reserve build on consumer portfolios.
Capital return, expenses, and operational priorities
Management highlighted significant shareholder returns alongside steady capital ratios. Tengel said the company returned $94 million of capital in the quarter, including repurchasing 802,000 shares for $63 million, and noted tangible book value increased to $47.86 despite the capital actions. He also cited an 8.5% increase in the quarterly dividend.
Ruggiero said the company’s CET1 ratio was 12.87% and that only $24 million remained under the current repurchase authorization, with expectations to establish another round in the second quarter. In the Q&A, Ruggiero said the goal is to keep capital “relatively flat,” balancing buybacks with funding considerations, holding-company liquidity, and CRE concentration.
On expenses, Tengel said expenses (excluding M&A charges) declined 1.5% from the fourth quarter, aided by cost savings from the Enterprise transaction, partly offset by seasonally higher employee and occupancy costs. Ruggiero said core expenses were $139.9 million and ran slightly above guidance primarily due to more than $2 million of snow removal expenses. He also said approximately $1.1 million of first-quarter expenses were tied directly to the bank’s planned core system conversion.
Tengel said the bank is preparing to convert its core operating platform from Horizon to IBS, both part of the FIS ecosystem, with the conversion scheduled for October. He described the initiative as an important milestone expected to add product capability and efficiency. He also said the bank established an Office of Digital Innovation and a governance framework for AI, focusing initially on “relatively easy use cases” with a moderate risk approach.
Ruggiero reaffirmed two profitability targets for the fourth quarter of 2026: return on average assets of 1.40% and return on average tangible capital of 15%. He said CRE and construction full-year loan growth expectations were updated to “flat to low single-digit percentage increases,” while other loan and deposit estimates were unchanged.
About Independent Bank NASDAQ: INDB
Independent Bank Group, Inc NASDAQ: INDB is a bank holding company headquartered in McKinney, Texas, that provides a range of financial services through its wholly owned subsidiary, Independent Bank. Tracing its roots to the late 19th century, the company has grown from a single community bank into a regional financial institution serving individuals, small businesses and commercial clients. Independent Bank Group became a bank holding company in 1983 and expanded its footprint through organic growth and strategic acquisitions.
The company's primary business activities encompass retail and commercial banking, including deposit products, consumer and business lending and credit services.
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