Independent Bank NASDAQ: INDB reported second-quarter 2026 net income of $81.8 million, or $1.70 per diluted share, as executives said stronger deposit momentum, C&I lending growth, margin expansion and share repurchases supported profitability despite pressure from commercial real estate payoffs.
Chief Executive Officer Jeff Tengel said business activity was slow early in the quarter but accelerated as the period progressed. He pointed to “solid deposit growth, strong C&I loan growth, continued improvement in the adjusted NIM, aggressive buyback activity, and excellent results in our wealth management business,” while noting that those gains were partly offset by a smaller average balance sheet and lower loan accretion income.
Tengel also provided a personal update at the start of the call, saying he had completed treatment for non-Hodgkin’s lymphoma and had learned he is “cancer-free and in remission.”
Deposit Growth and Margin Expansion
Independent Bank’s deposit franchise produced more than $300 million of non-time deposit growth in the quarter, which Tengel said represented 7% annualized growth. The company held its cost of deposits stable at 1.36%, despite what management described as heightened competition and expectations that the Federal Reserve will keep rates elevated for longer.
Chief Financial Officer Mark Ruggiero said period-end deposit balances grew at a 5.9% annualized rate, although average balances were down for much of the quarter. That created what he called a temporary drag on cash and average earning assets. He said balances rebounded late in the quarter, supported by new core deposit relationships.
Ruggiero said the core net interest margin increased four basis points in the second quarter. Reported loan yields declined eight basis points, but core loan yields rose three basis points when excluding volatile purchase accounting accretion and other non-core items. Securities yields increased five basis points in the quarter, and Ruggiero said additional maturities and amortization in the second half should support further improvement.
During the question-and-answer session, Ruggiero said the company had introduced a 4% short-term money market special halfway through the second quarter, contributing to some upward pressure in money market rates. He said the spot cost of deposits was 1.38% in June and that management expects some additional pressure in the second half, potentially toward 1.40%, while still maintaining its fourth-quarter margin guidance.
C&I Growth Offsets CRE Paydowns
Loan growth was mixed during the quarter. Tengel said C&I and home equity lending were robust, while commercial real estate and construction loans declined by $176 million due to elevated payoffs. Excluding a $37 million decline tied to the dealer floor plan business that Independent Bank has largely exited, C&I loans rose $116 million, or 10% annualized. Tengel said that growth was broad-based across market segments.
Management emphasized that the company remains active in commercial real estate lending despite the paydowns. Tengel said Independent Bank funded $203 million in new relationship-based CRE loans during the quarter, up 11% from the first quarter, and added $300 million of new CRE commitments. The company’s CRE concentration stood at 278 at June 30.
The approved commercial loan pipeline totaled $510 million at quarter-end, up from $313 million at March 31. Tengel said the stronger pipeline, continued origination activity and expected normalization of payoff activity position the company to return to positive commercial loan growth.
In response to analyst questions, Tengel said two relationships accounted for $120 million of second-quarter CRE paydowns, including refinancings away from Independent Bank. One refinancing, he said, occurred on “terms and conditions that we were very uncomfortable with.” He said management expects paydowns to return closer to historical levels in the second half and sees potential for flat to modestly higher CRE balances over that period.
Ruggiero said the commercial pipeline was roughly split between CRE and C&I, with C&I representing a somewhat larger share than before. He said new commercial loan originations moved into the mid-6% range, with C&I loans in the mid- to high-6% range and CRE loans generally in the low-6% range.
Capital Returns Remain a Priority
Ruggiero said second-quarter results reflected the bank’s ability to drive core profitability and return capital to shareholders in a competitive environment. During the quarter, Independent Bank completed its prior buyback authorization and announced a new $200 million share repurchase plan in May.
The company repurchased $75 million of stock in the second quarter. Its common equity Tier 1 ratio was 12.8% at June 30, and its tangible capital ratio was 9.7%.
Ruggiero said the buyback plan will remain the primary means of returning excess capital to shareholders. In response to an analyst question, he said returning 100% of quarterly earnings is “the minimum,” adding that the company is committed to executing repurchases aggressively while considering growth trends and funding efficiency.
Asset Quality and Office Exposure
Management said asset quality remained consistent with historical performance. Tengel said net charge-offs were two basis points in the second quarter and have averaged nine basis points over the past five quarters. The loan loss provision represented 14 basis points of average loans in the quarter and has averaged 13 basis points over the past five quarters, excluding the day-one impact of the Enterprise acquisition.
Ruggiero said total non-performing assets increased modestly to $103.8 million, or 56 basis points of total assets. He said commercial non-performing asset movement was “fairly benign,” with one office non-performer resolved and another added. Residential non-performers increased by a net $4.7 million, but Ruggiero said there is generally sufficient home equity in workout cases and that charge-offs remain extremely low in that portfolio.
Net charge-offs were $911,000 in the quarter, or two basis points annualized. Year-to-date charge-offs were six basis points annualized. The provision was $6.3 million, and the allowance for loan losses rose to 1.06% of loans, primarily due to modest specific reserves on a couple of commercial loans.
On office-related credit issues, Tengel said the company is still in what he has previously described as a long “seventh inning,” but said he is encouraged by the work underway to reduce criticized and classified office loans over the next several quarters. Ruggiero said a $22 million large syndicated non-performing loan has begun making interest payments and could potentially return to performing status by year-end.
Guidance Reaffirmed for Profitability Targets
Independent Bank reaffirmed its fourth-quarter 2026 profitability targets of a 1.4% return on average assets and a 15% return on average tangible capital. Ruggiero also reaffirmed the company’s fourth-quarter margin outlook of 3.90% to 3.95%, though he said it is likely to be at the low end of that range. The range includes an assumed 10-basis-point impact from purchase accounting accretion.
The company lowered its full-year outlook for CRE and construction loans to flat to a low-single-digit percentage decrease, citing second-quarter paydown activity. It expects C&I growth to land at the high end of its mid-single-digit guidance range, with minimal remaining headwinds from the exited floor plan business. Consumer loans are now expected to increase in the low-single-digit percentage range for the full year.
Fee income totaled $42.4 million in the second quarter, up more than 5% from the prior quarter. Ruggiero said wealth management led the increase, with assets under administration of $9.5 billion at June 30, along with higher tax preparation fees, deposit and treasury management fees, and increased swap volume.
Expenses were flat versus the first quarter after excluding merger-related costs and non-recurring core system conversion expenses, according to management. Ruggiero said Independent Bank expects core expenses excluding systems conversion costs to be in the $553 million to $557 million range for the year, with one-time system conversion expenses totaling $5 million to $6 million. Tengel said the conversion from HORIZON to IBS, both part of the FIS ecosystem, is scheduled for October and is intended to improve client service, efficiency, product rollout and growth capacity.
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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