Independent Bank NASDAQ: IBCP reported higher second-quarter 2026 earnings as net interest income rose, loan growth accelerated and the company continued to build capital while preparing to integrate its recently completed acquisition of HCB Financial Corp.
The Michigan-based bank posted net income of $18.8 million, or $0.90 per diluted share, for the quarter, compared with $16.9 million, or $0.81 per diluted share, in the same period a year earlier, President and Chief Executive Officer Brad Kessel said on the company’s earnings call.
Kessel said the quarter reflected “the strength of Independent Bank’s community banking model” and cited disciplined balance sheet management, relationship-based lending and a stable local deposit base as contributors to the results.
Net Interest Income and Margin Improve
Chief Financial Officer Gavin Mohr said net interest income increased $3.3 million from the year-ago period. The bank’s tax-equivalent net interest margin was 3.71% in the second quarter, up from 3.58% in the second quarter of 2025 and up 6 basis points from the first quarter of 2026.
On a linked-quarter basis, Mohr said the margin benefited from three factors: a change in earning asset mix, which added 3 basis points; higher earning asset yields, which added 2 basis points; and lower funding costs, which added 1 basis point. Average earning assets were $5.33 billion, compared with $5.11 billion a year earlier and $5.23 billion in the first quarter.
Mohr said the company has now recorded its 12th consecutive quarter of increasing net interest income. During the question-and-answer session, he said additional margin expansion of roughly 2 to 4 basis points per quarter would not be unreasonable, though he called the second quarter’s 6-basis-point increase “outsized.”
Commercial Lending Drives Loan Growth
Total loans increased $105.8 million in the second quarter, or 9.8% annualized. Joel Rahn, executive vice president and head of commercial banking, said commercial loans accounted for most of the increase, rising $92.6 million, or 16% annualized. Residential mortgage loans increased $12.9 million, while consumer installment loans were essentially flat.
Year to date, total loans grew $138 million, led by commercial loan growth of $146 million, or 13% annualized. Rahn said the bank continues to benefit from investments in commercial banking talent, noting that it has added eight experienced commercial bankers so far this year and now has 53 bankers across eight commercial lending teams statewide.
Rahn said the bank expects “low double-digit growth” in its commercial loan portfolio for 2026, supported by a strong pipeline and market-share opportunities from regional banks in both talent and customer acquisition. He said first-half commercial production was split 58% commercial and industrial lending and 42% investment real estate. The overall commercial portfolio mix was 67% C&I and 33% investment real estate.
In response to an analyst question, Rahn said the commercial pipeline remained strong entering the third quarter, though he noted the third quarter is typically somewhat softer because of seasonal factors, while the fourth quarter is usually strong.
Deposits Rise as Capital Builds
Deposits totaled $4.9 billion at June 30, up $100 million from the start of the year. Kessel said growth came from non-interest-bearing deposits, savings and interest-bearing checking accounts, and reciprocal deposits. That growth was partly offset by a small decline in time deposits and an $18 million reduction in brokered deposits.
On a linked-quarter basis, business deposits rose $66 million and retail deposits increased $15 million. Municipal deposits declined $45 million, which Kessel attributed primarily to seasonality and the use of American Rescue Plan Act funds. The deposit base was composed of 47% retail, 40% commercial and 13% municipal deposits.
The bank’s total cost of funds declined 1 basis point to 1.53% for the quarter. Tangible common equity increased to 8.9% at June 30. Kessel also noted a $0.28 per share quarterly common stock dividend paid on May 14.
Credit Quality Remains Stable, With One Large Exposure
Rahn said overall credit quality remained strong. Total nonperforming loans were $32.8 million, or 74 basis points of total loans, at quarter-end, up from 64 basis points at March 31. He said about two-thirds of that total related to one commercial development exposure that management has discussed in prior quarters.
“We continue to work through the challenges of this particular project and are appropriately reserved for any loss exposure,” Rahn said.
Past-due loans totaled $5.6 million, or 13 basis points, down from $8.2 million, or 19 basis points, at the end of the first quarter. Rahn said net charge-offs were $633,000, or 3 basis points of average loans, for the first two quarters of 2026, compared with $442,000, or 2 basis points, in the first half of 2025.
During the Q&A session, Rahn said there were no broad industry concerns in the commercial portfolio. He said one other commercial loan of significance moved to nonaccrual during the quarter, attributing it to a management issue rather than an industry trend.
Expenses, HCB Integration and Outlook
Non-interest income totaled $15.3 million in the second quarter, compared with $11.3 million a year earlier and $12.0 million in the first quarter. Mohr said mortgage loan servicing generated a $2.5 million gain, and the quarter also included a $1.6 million gain on equity securities related to the exchange of Visa B-2 shares for Visa Class C shares.
Non-interest expense was $37.8 million, compared with $33.8 million a year earlier and $38.3 million in the first quarter. Mohr said compensation and employee benefits increased primarily because of salary increases effective Jan. 1 and higher health insurance costs. He also cited $4.4 million in merger-related expenses and a $0.4 million litigation accrual.
Independent completed its acquisition of HCB Financial Corp. on July 1. Kessel said integration work is underway, with a targeted system conversion date of Nov. 9. In response to an analyst question, Mohr said cost savings from the deal are expected to come mostly after conversion, with the company focused on achieving its targeted savings by early 2027 at the latest.
Kessel said the company’s priorities for the second half of 2026 include continued investment in its team and technology, as well as successful integration of the HCB franchise.
About Independent Bank (NASDAQ:IBCP)
Independent Bank Corporation NASDAQ: IBCP is a bank holding company headquartered in Grand Rapids, Michigan. Through its primary subsidiary, Independent Bank, the company offers a full range of commercial and personal banking services designed to meet the needs of individuals, small businesses and corporate clients. The company's offerings span traditional branch-based banking as well as digital and mobile platforms.
Independent Bank provides deposit products such as checking and savings accounts, money market accounts and certificates of deposit.
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