Independent Bank Q3 Earnings Call Highlights

Key Points

• Adjusted earnings improved: Independent Bank reported third-quarter adjusted net income of $20.6 million, or $0.92 per share, excluding $2.7 million in merger-related expenses. Net interest income rose 21.8% year over year, while the net interest margin expanded to 3.82%.
• Highpoint acquisition expanded the balance sheet: The July acquisition added substantially to loans and deposits, helping reduce other borrowings to $4 million. Excluding Highpoint, loans grew at a 10.5% annualized rate and deposits at approximately 9%.
• Credit costs increased but management sees limited broad stress: Nonperforming loans rose to 0.80% of total loans, largely due to a troubled waterfront condominium exposure, prompting a $4.8 million provision. The bank expects about $3 million more in merger and conversion costs, with the Nov. 9 system conversion on schedule and projected cost savings becoming more visible in 2027.

Independent Bank NASDAQ: IBCP reported third-quarter 2026 net income of $17.9 million, or $0.80 per diluted share, compared with $17.5 million, or $0.84 per diluted share, in the year-earlier period. Excluding $2.7 million of after-tax merger-related expenses, adjusted net income was $20.6 million, or $0.92 per diluted share.

The quarter included the company’s first full reporting period following its July 1 acquisition of HCB Financial Corp., the parent of Highpoint Community Bank. President and CEO Brad Kessel said the company remains on schedule to convert Highpoint’s systems on Nov. 9.

“Our third quarter performance demonstrates the strength of Independent Bank’s community banking model and the continued benefits of disciplined balance sheet management, relationship-based lending, and a stable, locally focused deposit franchise,” Kessel said.

Loan and Deposit Growth

Total loans increased by $483.1 million during the quarter, including Highpoint’s portfolio. Excluding acquired loans, net loan growth was $116.6 million, or 10.5% on an annualized basis from June 30. Commercial loans rose $123 million excluding Highpoint, representing nearly 21% annualized growth, according to Executive Vice President and Chief Lending Officer Joel Rahn.

The company added three experienced commercial bankers during the quarter and has added 11 year-to-date, bringing its commercial banking staff to 55 bankers across eight teams statewide. Rahn said the company’s commercial pipeline declined from its June level after strong late-quarter production but remains sufficient to support low-double-digit commercial loan growth.

Commercial loan production through Sept. 30 was evenly split between commercial and industrial lending and investment real estate. The commercial portfolio was 66% C&I and 34% investment real estate, including Highpoint’s $280 million commercial loan portfolio.

Total deposits reached $5.5 billion at quarter-end, rising $659.3 million from the prior quarter. Highpoint accounted for $543.5 million of that increase, while deposits excluding Highpoint rose $115.8 million, or approximately 9% annualized. Non-maturity deposits totaled $4.77 billion, or 86.4% of deposits.

The additional liquidity from Highpoint enabled the bank to reduce other borrowings to $4 million at Sept. 30 from $127 million at the end of the second quarter. Brokered deposits were $0.5 million. The deposit base was composed of 46% retail, 39% commercial and 15% municipal deposits.

Margin Expansion and Earnings Outlook

Tax-equivalent net interest income increased $7.4 million from the second quarter and $9.9 million, or 21.8%, from the prior-year quarter. It was the company’s 13th consecutive quarter of net interest income growth.

The tax-equivalent net interest margin was 3.82%, up 11 basis points sequentially and 28 basis points from a year earlier. Excluding purchase accounting accretion, margin was 3.76%, up 5 basis points from the linked quarter.

Chief Financial Officer Gavin Mohr said purchase accounting discount accretion contributed 6 basis points to the quarterly margin improvement, while higher earning-asset yields added 5 basis points and changes in earning-asset mix added 2 basis points. These benefits were partly offset by a 1-basis-point impact from a commercial loan interest charge-off and 1 basis point from higher funding costs.

Mohr said approximately $737 million of fixed-rate loans and securities are scheduled to mature or reprice over the next six quarters at a weighted average yield of 4.74%. New commercial and mortgage loan production is being originated at yields above 6.5%, which he said provides a tailwind for asset yields. He expects the net interest margin to continue expanding, absent a macroeconomic shock, and said the company is targeting a 35% to 40% cost-of-funds beta through the rate cycle.

Credit Quality and Capital

Nonperforming loans totaled $39.2 million, or 80 basis points of total loans, compared with 74 basis points at June 30. Rahn said roughly $30 million of the nonperforming balance was commercial, with about two-thirds tied to a previously disclosed waterfront condominium development in Western Michigan.

The development exposure totals roughly $30 million, including approximately $8 million supported by U.S. Department of Agriculture guarantees, leaving about $21 million of net exposure, Rahn said. The borrower has until Dec. 31 to file a reorganization plan in bankruptcy court. Rahn said the bank believes it is fully reserved for potential losses on the relationship.

Rahn added that three commercial credits are primarily driving the rise in nonperforming loans. One newly added credit was substantially reserved because of its bankruptcy status, though the company believes the borrower may still emerge from Chapter 11. He said watch-list percentages were relatively flat and the company did not see broad-based stress across the portfolio.

Net charge-offs were $847,000 through the first nine months of 2026, equivalent to 3 basis points of average loans on an annualized basis, compared with $1.2 million, or 4 basis points, through the first nine months of 2025.

The company recorded a $4.8 million provision for credit losses in the third quarter, or about 0.4% of loans annualized, above its previous outlook range due mainly to a specific reserve related to the commercial relationship. Year-to-date provision expense was approximately 0.23% of average loans annualized.

At Sept. 30, Independent Bank reported a Tier 1 leverage ratio of 9.9%, a common equity Tier 1 ratio of 11.1%, a total risk-based capital ratio of 13.1%, and a tangible common equity ratio of 8.2%.

Highpoint Integration and Expenses

Noninterest expense totaled $44.8 million, including $3.5 million of merger-related costs and expenses associated with Highpoint. Excluding Highpoint and merger-related costs, expenses were $37.3 million, slightly above the company’s outlook range of $36 million to $37 million. The efficiency ratio was 61.3%.

Mohr said the company expects roughly $3 million of remaining merger- and conversion-related costs, primarily in the fourth quarter. Although the bank’s original pro forma model assumed approximately 40% cost savings from the transaction, management said savings have arrived more slowly because the two banks were maintained with full customer-support staffing through conversion. Kessel said management remains on target for the 40% savings estimate, with the savings expected to be more evident in the 2027 expense run rate.

The company paid a quarterly common-stock dividend of $0.28 per share in August and repurchased 119,425 shares for $4.2 million during the first nine months, a transaction related to the liquidation of Highpoint’s employee stock ownership plan.

About Independent Bank (NASDAQ:IBCP)

Independent Bank Corp. is the bank holding company for Independent Bank, a community banking institution headquartered in Ionia, Michigan. The bank serves individuals, families, farmers, small businesses and commercial customers through a network of branches and digital banking services across Michigan's Lower Peninsula.

Independent Bank offers a range of financial products, including checking and savings accounts, certificates of deposit, consumer loans, residential mortgages, home equity financing, agricultural loans and commercial lending.

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