인디펜던트 뱅크(IBCP) 2026년 3분기 실적 발표 콜: NIM 확대, 기업대출 증가

인디펜던트 방크 코퍼레이션(IBCP)의 2026년 3분기 실적 발표 콘퍼런스 콜에서는 기업 대출 가속화, 순이자마진(NIM) 확대, 하이포인트 커뮤니티 은행(High Point Community Bank) 통합에 초점이 맞춰졌다. 일부 기업 대출 거래로 인해 부실채권과 대손충당금 전입액이 증가했으나, 신용 자산 건전성은 전반적으로 안정적인 수준을 유지했다.

핵심 요약

• 2026년 3분기 순이익은 1,790만 달러(희석주당순이익 0.80달러)로, 전년 동기의 1,750만 달러(희석주당순이익 0.84달러)와 비교된다. 세후 인수합병(M&A) 비용 270만 달러를 제외한 조정 순이익은 2,060만 달러(희석주당순이익 0.92달러)를 기록했다.
• 하이포인트를 제외한 자체 대출 잔액(Organic loans)은 연환산 10.5%에 해당하는 1억 1,660만 달러 증가했다. 기업 대출은 연환산 거의 21% 성장률에 해당하는 약 1억 2,400만 달러 증가했다.
• 순이자이익은 전분기 대비 740만 달러(15.4%), 전년 동기 대비 21.8% 증가했다. 세금 등가 순이자마진(NIM)은 전분기 대비 11bp 상승한 3.82%를 기록했으며, 매수회계 이자상각을 제외한 NIM은 3.76%로 5bp 상승했다.
• 총예금은 55억 달러를 기록했다. 하이포인트를 제외한 예금은 연환산 9.4%인 1억 1,580만 달러 증가한 반면, 전체 예금 조달비용은 2bp 상승한 1.55%에 그쳤다.
• 부실채권은 총대출의 0.80%인 3,920만 달러로, 2분기 말의 0.74%에서 상승했다. 경영진은 3건의 기업 여신이 부실채권 잔액의 대부분을 차지했으며, 전반적인 요주의 여신 수준은 안정적으로 유지됐다고 밝혔다.
• 하이포인트의 전산 시스템 전환은 11월 9일로 예정되어 있다. 경영진은 4분기에 약 300만 달러의 추가 인수합병 및 시스템 전환 비용이 발생할 것으로 예상하며, 비용 절감 효과의 대부분은 2027년 비용 집행률(run rate)에 반영될 것으로 보고 있다.

주요 재무 데이터

사업 및 영업 실적

기업 대출은 자체 성장의 주요 동력이었다. 9월 30일까지의 대출 신규 취급액은 상업 및 공업 대출(C&I)과 투자용 부동산 대출이 균등하게 분할되었다. 하이포인트의 2억 8,000만 달러 규모 기업 대출 포트폴리오를 포함한 후 전체 기업 대출 포트폴리오는 C&I 66%, 투자용 부동산 34%로 구성되었다.

인디펜던트 방크는 해당 분기 동안 3명, 연초 이후 총 11명의 경력직 기업금융 담당자를 영입하여 8개 팀에 걸쳐 총 55명의 인력을 확보했다. 경영진은 분기 말 강력한 실적 달성 이후 파이프라인이 6월 30일 대비 감소했으나, 시장 재편이 시장 점유율을 확대할 수 있는 기회를 지속적으로 제공하고 있다고 밝혔다.

예금 기반은 비만기성 조달 중심으로 유지되었다. 비만기 예금은 47억 7,000만 달러에 달해 총예금의 86.4%를 차지했다. 하이포인트 인수를 통해 확보한 유동성 덕분에 기타 차입금을 2분기 말 1억 2,700만 달러에서 400만 달러로 줄일 수 있었다. 중개 예금은 50만 달러였다.

자산 금리 재조정(repricing)은 마진 확대의 핵심 요인으로 작용하고 있다. 향후 6개 분기 동안 만기가 도래하거나 금리가 재조정될 예정인 고정금리 대출 및 유가증권 규모는 약 7억 3,700만 달러이며, 가중평균수익률은 4.74%이다. 신규 취급되는 기업 대출 및 주택담보대출의 수익률은 6.5%를 상회하고 있다.

주택담보대출 신규 취급액과 매각액은 각각 1억 3,600만 달러와 1억 230만 달러를 기록했다. 주택담보대출 관련 순이익은 100만 달러였으며, 주택담보대출 관리는 410만 달러의 이익을 창출했다. 경영진은 분기 말 금리 상승으로 대출 신청이 감소하고 비우호적인 공정가치 조정이 발생했다고 덧붙였다.

경영진 가이던스

경영진은 거시경제적 충격이 없다는 전제하에 순이자마진(NIM)이 점진적으로 확대될 것이라는 전망을 유지했다. 기존에 제시했던 분기당 약 2~4bp 수준의 확장 범위가 유지되고 있으며, 현재의 금리 환경은 상단에 도달하는 데 유리하게 작용할 가능성이 있다.

4분기의 경우, 경영진은 자산 금리 재조정과 9월 연방준비제도(Fed)의 금리 인상이 마진을 뒷받침할 것으로 예상하나, 예금 금리 경쟁으로 인해 일부 상쇄될 것으로 보고 있다. 회사는 전체 금리 주기 동안 35%~40%의 조달비용 베타를 목표로 하고 있다.

기업 대출 성장은 2027년까지 10%대 초반의 성장률을 유지할 것으로 예상된다. 경영진은 현재 인수한 하이포인트 대출 포트폴리오에서 의도적인 정리나 중대한 이탈이 발생할 것으로 보고 있지 않다.

잔여 인수합병 및 시스템 전환 비용 약 300만 달러는 주로 2026년 4분기에 발생할 예정이다. 통합 기간 동안 양쪽 은행 모두 인력을 풀로 유지함에 따라 비용 절감 속도가 당초 추정 모델보다 더디게 진행되었다. 경영진은 절감 효과가 2027년 비용 집행률에 대부분 반영될 것으로 예상하고 있다.

대손충당금 전입액은 대출 성장 및 신용도 변동 추이에 연동될 것으로 예상된다. 연초 이후 대손충당금 전입액은 연환산 기준 평균 대출의 약 0.23% 수준이었다. 경영진은 금리가 높은 수준을 유지할 경우 주택담보대출 실적이 감소할 가능성이 높다고 덧붙였다.

리스크 및 점검 항목

부실채권은 3,920만 달러로 증가했으며, 이 중 약 3,000만 달러가 기업 대출과 관련되어 있다. 기업 대출 부실채권의 약 3분의 2는 이전에도 언급된 개발 프로젝트 익스포저에 묶여 있다.

대형 수변 콘도미니엄 관련 여신은 여전히 파산 절차가 진행 중이다. 대출 잔액은 약 3,000만 달러이며, 미국 농무부(USDA) 보증이 지원되는 약 800만 달러를 제외한 순익스포저는 약 2,100만 달러이다. 경영진은 차주가 12월 31일까지 회생계획안을 제출해야 하며, 은행은 잠재적 손실에 대해 적절한 충당금을 쌓아둔 상태라고 밝혔다.

해당 분기 중 별도의 기업 여신 1건이 이자미수계상으로 전환되었으며, 파산 절차가 진행 중이고 주로 현금흐름에 기반한 여신이었기 때문에 상당 부분 충당금이 설정되었다. 경영진은 전체 요주의 여신 비율이 변동 없이 유지되었다는 점을 들어, 이러한 증가가 포트폴리오의 구조적인 문제를 나타내는 것은 아니라고 밝혔다.

예금 금리 경쟁은 높은 자산 수익률로 인한 이익의 일부를 상쇄할 수 있다. 주택담보대출 영업 활동 역시 고금리에 민감하게 반응하고 있으며, 매수회계 이자상각액은 대출 중도상환에 따라 달라질 수 있다.

애널리스트 Q&A 하이라이트

• 신용 자산 건전성: 경영진은 부실채권 잔액의 대부분이 광범위한 건전성 악화가 아닌 3건의 기업 여신에 기인한다고 설명했다. 2026년 첫 9개월 동안 순대손상각비는 84만 7,000달러로, 연환산 기준 평균 대출의 3bp 수준이었다.
• 순이자마진 추세: 경영진은 분기별 점진적 확대 전망을 유지했다. 매수회계 이자상각은 3분기 마진에 6bp 기여했으며, 이자수익자산 수익률 상승은 5bp 기여했다.
• 하이포인트 통합: 시스템 전환은 예정대로 11월 9일에 진행된다. 경영진은 2026년 비용 절감이 당초 일정보다 지연되고 있음을 인정했지만, 이번 거래를 통해 약 40%의 비용을 절감하겠다는 광범위한 목표는 유지했다.
• 자체 확장: 인디펜던트 방크는 특히 대형 금융기관 출신의 기업금융 담당자 채용을 지속할 계획이다. 경영진은 향후 M&A 기회에 열려 있는 자세를 유지하면서도, 자체 성장이 회사의 핵심 성장 동력이라고 설명했다.
• 자본 배분: 경영진의 우선순위는 자체 성장 지원, 지속적이고 인상되는 배당 유지, 밸류에이션에 기반한 자사주 매입 검토, 잠재적 인수합병을 위한 여력 확보이다.

실적 발표 콘퍼런스 콜 전문

전체 실적 발표 컨퍼런스 콜 녹취록

경영진 발표

Operator

Good day, and thank you for standing by. Welcome to the Independent Bank Corporation Third Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker today, Brad Kessel, President and CEO.

William Kessel

Good morning, and welcome to today's call. Thank you for joining us for Independent Bank Corporation's conference call and webcast to discuss the company's results for the third quarter of 2026. The I am Brad Kessel, President and Chief Executive Officer, and joining me is Gavin Moore, Executive Vice President and Chief Financial Officer; and Joel Rahn, Executive Vice President, Head of Commercial Banking.

Before we begin today's call, I'd like to direct you to the important information on Page 2 of our presentation, specifically, the cautionary note regarding forward-looking statements. If anyone does not already have a copy of the press release issued by us today, you can access it at the company's website, independentbank.com.

The agenda for today's call will include prepared remarks, followed by a question-and-answer session and then closing remarks. Earlier this morning, the Independent Bank Corporation reported third quarter 2026 net income of $17.9 million or $0.80 per diluted share versus net income of $17.5 million or $0.84 per diluted share in the prior year period. Excluding $2.7 million of after-tax merger-related expenses, adjusted net income was $20.6 million or $0.92 per diluted share.

Highlights for the third quarter of 2026 include net loan growth of $116.6 million or 10.5% annualized from June 30, 2026 that excludes the loans of High Point Community Bank. Net growth in total deposits of $115.8 million or 9.4% annualized from the second quarter also excluding High Point deposits. A tax Global had net interest margin of 3.82%, an 11 basis point increase from the linked quarter or 3.76% and up 5 basis points, excluding purchase accounting accretion.

Another highlight was an increase in net interest income of $7.4 million or 15.4% over the second quarter. This is our 13th consecutive quarter of net interest income growth. Our pretax pre-provision net revenue was $26.3 million, up 13.5% from the prior year quarter. A return on average assets and return on average equity of 1.14% and 12.7%, respectively or 1.32% and 14.08%, excluding merger-related expenses. A tangible common equity ratio of 8.2% as of September 30, 2026 and also a highlight of the payment of our $0.28 per share quarterly dividend in common stock on August 14 of 2026.

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 post deposit franchise. We saw strong organic momentum with commercial loan growth of nearly 21% annualized solid deposit growth from our business and municipal customers and improved earning asset yields.

Net charge-offs remained very low and our liquidity and capital levels position us well in the current operating environment. The quarter also reinforced the value of our strategy, serving attractive Michigan markets through local decision-making, deep customer relationships and consistent credit discipline. We believe that approach continues to differentiate Independent Bank and supports durable performance through changing rate and economic cycles. We were pleased to complete our acquisition of HCB Financial Corp., the parent company of High Point Community Bank on July 1, 2026. And this quarter reflects our first results as a combined company.

Integration work is well underway, and we remain on track for the High Point system conversion on November 9. We continue to believe the combination strengthens our presence in complementary markets and enhances our ability to serve customers, employees, communities and the shareholders and our shareholders over the long term. A few other highlights during the third quarter, we celebrated the grand opening number new Grand Rapids headquarters, and we transitioned the broker-dealer partner of our wealth management business to Raymond James.

Moving to Page 5 of our presentation. Deposits totaled $5.5 billion at September 30, 2026, an increase of $659.3 million from the second quarter, which includes $543.5 million of PiePoint deposits. Excluding High Point, deposits grew $115.8 million or 9% annualized. Nonmaturity deposits totaled $4.77 billion, or 86.4% of total deposits and increased $571.4 million during the quarter, which includes High Point.

With the liquidity High Point brought, we paid down other borrowings, which declined to just $4 million from $127 million at June 30, 2026. Brokered deposits are just $0.5 million at the end of the third quarter. The deposit base is comprised of 46% retail, 39% commercial and 15% initially. On Page 6, we included in our presentation a historical view of our cost of funds as compared to the Fed fund spot rate and effective rate.

For the quarter, our total cost of deposits increased by just 2 basis points to 1.55% primarily reflecting modestly higher time deposit costs, while our cost of savings and interest-bearing checking accounts were unchanged at 1.6%. At this time, I'd like to turn the presentation over to Joel Ron to share a few comments on our loan growth and provide an update on our credit metrics.

Joel Rahn

Thanks, Brad, and good morning, everyone. Page 7 summarizes our loan activity for the quarter. Loans increased $483.1 million in the quarter, including the addition of the High Point loan portfolio. Excluding High Point, commercial loan generation was very strong as with [ $123 ] million of quarterly growth earning to 21% annually. We continued our strategic investment in commercial banking talent to supplement our loan growth, adding 3 experienced bankers in the quarter. Year-to-date, we've added 11 experienced commercial bankers bringing our total to 55 bankers comprising 8 commercial loan teams across our statewide footprint.

Compared to a year ago, we've added a net of 9 experienced commercial bankers to the team. Looking forward, our pipeline remains strong, but given the significant production late in Q3, it's down from where it was at 6/30; However, we feel that we can continue to grow our loan portfolio at a low double-digit rate as market disruption is creating market share opportunity for us.

Looking at commercial loan production through 9/30 and -- the mix of C&I lending versus investment real estate has been split evenly. And for our commercial portfolio, the mix is 66% C&I and 34% investment real estate including the addition of the $280 million High Point commercial loan portfolio. Page 8 provides detail on our commercial loan portfolio concentrations, which remained consistent with prior quarters. Our largest segment of the C&I category continues to be manufacturing at $222 million or 8% of the total portfolio.

In the investment real estate segment of the portfolio, the largest concentration is industrial at $257 million or 9.3%. We outlined key credit quality metrics and trends on Page 9. Overall, we continue to demonstrate strong credit quality. However, we have experienced an increase in our nonperforming loan category. Total nonperforming loans were $39.2 million or 80 basis points of total loans at quarter end up slightly from 74 basis points at 6:30. It's worth noting that $30 million of this total is commercial and 2/3 of the commercial nonperforming loans continues to be on commercial development exposure that we've discussed in previous quarters.

We continue to work through the challenges of this particular project and our appropriately reserve for any loss exposure. Past due loans totaled $6.1 million or 12 basis points, consistent with $630. it's not reflected on this slide, but worth noting that we've realized net charge-offs of $847,000 or 3 basis points of average loans on an annualized basis in the first 3 quarters of the year. This compares to $1.2 million or 4 basis points through Q3 of 2025.

At this time, I'd like to turn the presentation over to Gavin for his comments, including the outlook for the remainder of [indiscernible] .

Gavin Mohr

Thanks, Joel, and good morning, everyone. I'm starting on Page 10 of our presentation. Page 10 highlights our strong rotor capital position. The change in capital ratios on a linked quarter basis is primarily due to the acquisition of ATB Financial Corp. on July 1, 2026. And -- at September 30, 2026, our consolidated Tier 1 leverage ratio was 9.9%. Our common equity Tier 1 ratio is 11.1 and our total risk-based capital ratio is 13.1%. Our tangible common equity ratio was 8.2% or 9.2%, excluding accumulated other comprehensive loss.

Tangible book value per share was $23.10 compared to $24.24 at June 30, primarily reflecting $39.1 million of goodwill and other intangibles recorded in the acquisition. Turning to Page 11. Net interest income increased $9.9 million or 21.8% from the year ago period and $7.4 million from the second quarter. Our tax equivalent net interest margin was 3.82% during the third quarter of 2026 compared to 3.54% in the third quarter of 2025 and up 11 basis points from the second quarter of 2026, excluding purchase accounting accretion, our margin was 3.76%, up 5 basis points from the linked quarter.

Average interest-earning assets were $5.82 billion in the third quarter of 2026, compared to $5.16 billion in the year ago quarter and $5.22 billion in the second quarter of 2026. High Point added approximately $557 million of average earning assets. Page 12 contains a more detailed analysis of the linked quarter increase in net interest income and the net interest margin. Our linked quarter -- on a linked-quarter basis, our third quarter net interest margin was positively impacted by 3 factors: purchase accounting discount accretion added 6 basis points, an increase in earning asset yield added 5 basis points and the change in the earning asset mix added 2 basis points.

These were partially offset by an interest charge-off on a commercial loan equated to 1 basis point and higher funding costs that equated to 1 basis point I would note that the accretion this quarter was $932,000 on loans and securities. Page 13 is a new slide that shows the contractual cash flows from our fixed rate loans and securities over the next 6 quarters. Over that period, approximately $737 million of loans and securities are scheduled to mature or reprice at a weighted average yield of 4.74% that includes $197 million of securities at 2.84% and $539 million in loans at 5.44% with new commercial and mortgage loan production coming in at yields above 6.5%, this repricing provides a meaningful tailwind to our asset yields.

On Page 14, we provide details on the institution's interest rate risk position, the comparative simulation analysis for the second -- for the third quarter, 26% in the second quarter of '26 calculates a change in net interest income over the next 12 months under 5 rate scenarios. All scenarios assume a static balance sheet. The base rate scenario applies the spot yield curve from the valuation date, the shock scenarios consider immediate permanent parallel rate changes. Base case modeled net interest income increased to $233.8 million from $204.2 million at June 30, with $23.3 million of the increase attributable to High Point along with improvement in the model margin.

Our position remains modestly asset-sensitive. A 100 basis point increase in rates would increase net interest income by 1.97%, while a 100 basis point decline would reduce it by 0.64%. We continue to manage exposure to lower rates through $50 million notional for purchases and the termination of a $25 million pay fixed swap. Currently, 37% of assets repriced in 1 month and 48.5% reprice in the next 12 months. Moving on to Page 15. Noninterest income totaled $15.8 million in the third quarter of 2026 compared to $11.9 million in the year ago quarter and $15.3 million in the second quarter 2026.

Third quarter 26 net gains on mortgage loans totaled $1 million compared to $1.5 million in the prior year quarter. The decrease is primarily due to unfavorable fair value adjustments, reflecting higher interest rates at quarter end, including a mark on a construction to permanent loans transferred to our portfolio. Mortgage on servicing net was a gain of $4.1 million in third quarter '26 compared to a gain of $0.1 million in the prior year quarter. The change due to price was a gain of $3.4 million or $0.12 per diluted share after tax in the third quarter of '26 compared to a loss of $0.6 million or $0.02 per diluted share after tax in the prior year quarter.

As detailed on Page 16, our noninterest expense totaled $44.8 million in the third quarter of 2026 compared to $34.1 million in the year ago quarter and $37.8 million in the second quarter of 2026. The increase reflects the addition of High Point's operating expenses and $3.5 million of merger-related expenses. Compensation employee benefits increased $3.4 million from the prior year quarter, primarily due to the addition of High Point staff and salary increases effective January 1, 2026 as well as higher performance-based compensation. This was partially offset by lower health insurance costs.

Data processing expense increased $1 million and amortization of intangible assets was $0.9 million compared to $0.1 million in the second quarter, reflecting the core deposit intangible recorded in the High Point acquisition. Our efficiency ratio was 61.3%. Turning to Page 17. This is our update for our 2026 outlook, showing our actual performance during the third quarter compared to the original outlook we provided in January 2026. As a reminder, that outlook did not include High Point. Our outlook estimates full year loan growth of 4.5% to 5.5%, excluding High Point, loans increased $116.6 million in the third quarter or 10.5% annualized, which is above our forecasted range.

Commercial loans increased $124.1 million, and mortgage loans increased $1.1 million, while installment loans decreased [indiscernible] million. Third quarter 2026 net interest income increased by 21.8% over 2025 or 8.7%, excluding Hyon, which is above our forecasted range of 7% to 8% and I would highlight that this is our 13th consecutive quarter of increasing net interest income. The net interest margin was 3.82% for the current quarter and 3.54% from the prior year quarter and up 11 basis points from the linked quarter.

The third quarter 2026 provision for credit losses was an expense of $4.8 million or approximately 0.4% of loans annualized, which was above our forecasted range of 0.2% to 0.25%. That's primarily due to a specific reserve on the 1 commercial relationship Joel discussed. The initial allowance on the acquired High Point loans was established through the purchase accounting rather than through the provision. Moving on to Page 18. Noninterest income totaled $15.8 million in third quarter 2026 or $15.2 million, excluding High Point, which is above our forecasted range of $11.3 million to $12.3 million.

Third quarter 2026 mortgage loan originations, sales and gains totaled $136 million, $102.3 million and $1 million, respectively. Mortgage loan servicing net generated a gain of $4.1 million in 2026 -- third quarter of 2026, which is above our forecasted target. Noninterest expense was $44.8 million in the third quarter, including $3.5 million in merger-related costs. Excluding High Point, our merger-related costs, noninterest expense was $37.3 million, slightly above our forecasted range of $36 million to $37 million.

Our effective income tax rate was 17% for the third quarter of 2026. Additionally, we repurchased 119425 shares of common stock for $4.2 million during the first 9 months of 2026. This was related to the liquidation of a high point Community Bank's ESOP program. Looking to the fourth quarter, we expect our net interest margin to continue to benefit from asset repricing in the September Fed rate increase that partially offset by competitive deposit pricing. Following November 9 conversion, we expect to begin to realize the cost savings from the High Point combination with savings largely reflected in our 2027 expense run rate.

We expect remaining merger and conversion-related expenses or approximately $3 million, primarily realized in the fourth quarter of 2026. We continue to expect our provision for credit losses to track loan growth and credit migration. Year-to-date provision is about 0.23% of average loans annualized, which is within our forecasted range. That concludes my prepared remarks. I would now like to turn the call back over to Brad.

William Kessel

Thanks, Gavin. We've built a strong community bank franchise, which positions us well to effectively manage through a variety of economic environments and continue delivering strong and consistent results for our shareholders. As we move through the remainder of 2026, our focus will be continuing to invest in our team, investing in and leveraging our technology and completing the successful integration in November 9 conversion of Five Point Community Bank while always working to be Michigan's most people focused bank.

At this point, we'd now like to turn the line over to the operator to open up the call for questions.

Operator

[Operator Instructions] And our first question comes from Brandon Nasal at Homeday Group.

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Brendan Nosal

All -- maybe starting off here on asset quality. Can you just update us on that large nonperforming waterfront condo nonaccrual in Western Michigan. Just kind of remind us what the balance is where you are in the elution process and where reserves specific reserves stand on the credit?

Joel Rahn

Yes. The frustratingly, the balances are still the same as they were prior quarter. It is still wrapped up in the bankruptcy court and the borrower has until 12/31 to file their plan of reorganization. And that total credit is right around $30 million but then you net out about approximately -- these are round numbers. We have about $8 million that is backed with government guarantees USDA. So it's net exposure on that is about $21 million. And I don't think that we specifically disclosed the amount that we have reserved, but we feel like we're fully reserved for any potential loss exposure there. .

Brendan Nosal

Okay. Maybe just kind of keeping on theme of credit. I look at problem assets, I think you're up for like 10 quarters in a row. And then granted like the increases have been small. You closed the deal this quarter and then there's kind of that large chunky 1 that's in that balance as well. But just kind of given the trend over the past 2.5 years, is there a point at which you kind of look at that and say the work to book a little bit or kind of change how you think about kind of the commercial underwriting process? Or is this just kind of normal churn in your view?

Joel Rahn

And that's a very fair question. It's -- we all got very used to and like when we had no nonaccrual assets. So I do think that we're -- as we've migrated up, we look hard at our own portfolio constantly. And I feel very confident to say there's no systemic issue here. We have 4 credits that the biggest 1 that we just discussed, excuse me, 3 credits that are really driving that. And 1 that we added this quarter is included in that -- and so I won't disclose particular details about that one, but the 1 that we added this quarter, we basically fully reserve from a very conservative standpoint basically reserve the entire loan amount because it involved bankruptcy. And it was primarily a cash flow-related loan. .

We still think there's reason to be optimistic that the borrower will come out of that hard but yet to be determined, and we have to err on the side of caution with our reserves. So that's what we did this quarter. So we're just watching very closely. Economically, though, we don't see a lot of signs of stress in the portfolio. Our overall watch list percentages are very flat, which is a good sign. So it's not that we continue to migrate a lot of things into the watch category. It's just been a migration of those few credits within the watch category to nonaccrual.

Operator

Our next question comes from Adam Kroll from Piper Sandler. .

Unknown Analyst

I'm on for Nate Race Yes. So maybe a question for Gavin to start. Really appreciate the slide in the deck with the loan security repricing data and obviously some tailwinds still to come there. But would just be curious how you're thinking about the margin trajectory from here, particularly as you continue to remix the loan portfolio in the commercial and maybe just unpack how you're thinking about deposit betas through the hiking cycle.

Gavin Mohr

Yes,. So starting with kind of the margin I am not have any change to what we've communicated in prior quarters in terms of the margin and the continual grind higher, all else assuming there's no macro level shock in the system. So we've provided that slide for -- to give you guys more clarity into what's driving that momentum. So I anticipate the coming quarters to the trend to continue in terms of margin expansion. In terms of beta, we think about beta, if we can manage in that 35 to 40 percent range through the cycle. Adam, we'd be really happy, and that's where we're really targeting. .

Adam Kroll

And Gavin, that's on a total deposit beta or interest-bearing?

Gavin Mohr

Yes, cost of funds, yes. .

Adam Kroll

Okay. Got it. And then I believe the conversions targeted for early November. So maybe, Gavin, just curious if you could update us on operating expense expectations for the fourth quarter and maybe just the cadence of cost saves there and as you head into '27?

Gavin Mohr

Yes. So the fourth quarter will close on November ninth that weekend will convert the organization. But much of the expense will run through December, 1 of the things here, Adam, that we -- the cost saves have not come as fast as I had originally modeled because we've chosen to run the banks fully staffed in terms of support through this period between July 1 and November 9 for just because we believe that's the right thing to do for customers and for the execution of the overall integration.

So the fourth quarter, I think you'll see, as I mentioned, we're estimating about $3 million of additional merger-related costs coming in the fourth quarter. And then we'll provide there following the fourth quarter 2027 forecast, and that will -- that run rate will include the fully loaded HCB normalized expense. So I don't have a number for you today. We're in the process of second round of the '27 budget, but it gives you kind of timing.

William Kessel

Yes, we had in the original pro forma of about 40% cost saves like we're we are targeting for that...

Gavin Mohr

Yes, it's just we had communicated we would get 50% in '26 for half a year. We're not quite there. We're not there. So -- but yes . .

Adam Kroll

Got it. I appreciate all the color there. And then last 1 for me. A question for Brad. I know you're probably still focused on the integration, but I would appreciate to hear your thoughts on potential for additional M&A and any additional opportunities you're seeing across your footprint?

William Kessel

Yes. Like you said, we're focused on what's right in front of us. I'm very optimistic about how well this has gone up to this point and how well it will go through conversion weekend. And part of my outcomes there is for the bank to have a good reputation in being a good partner as we go forward. And so I do believe there will be other opportunities. Having said that, as we've said, quarter after quarter, year after year, the primary growth vehicle for Independent Bank will be organic growth.

And that's worked out really, really well for us. Each 1 of these individual talent additions, I would call it sort of a mini merger, if you will, and that's worked out really well for us. So that will be the path for us.

Operator

Our next question comes from Damon DelMonte from KBW.

Damon Del Monte

Everybody is doing well, First question is on loan growth. Just curious, do you guys have any expectations of like attrition or targeted exits on some of the acquired credits, which could kind of dampen the growth outlook in the next couple of quarters?

Joel Rahn

No. High Point has a really solid loan portfolio and their underwriting and their risk appetite mirrors ours. So no, nothing that we're looking at to say that we're not comfortable with or want to migrate out of. It's very straightforward and blends in very well with our portfolio, Dan.

Damon Del Monte

Great. Joel, can you just remind us kind of your overall outlook for growth, just kind of given the pipelines and some of the investments that you made?

Joel Rahn

Yes, I think we said at the beginning of the year, we want to grow at a low double-digit rate on the commercial side. We're doing that, and I fully expect that we can continue to do that into '27.

Damon Del Monte

Okay. Great. And then I guess 1 for Gavin here. As far as the projected fair value accretion in the coming quarters, I think this quarter -- I think you noted it was like $900,000-ish or so. I think that's a little higher than we had been modeling. So do you have a kind of a schedule of what you expect over the coming quarters?

Gavin Mohr

Yes. So -- great question. That was based -- that was an estimate, Damon, based off of the modeling from the third-party fair value valuation. So it all connects. But -- next quarter, we will see, at the loan level detail what the accretion is. I think it's reasonable. But as you know, that will that can -- that will move up and down just based on prepayment fees. So it's in the ballpark.

Damon Del Monte

Okay. Okay. Great. And then, I guess, lastly on fee income. Obviously, the mortgage market remains pretty challenging right now. Just kind of curious how the pipelines are heading into the end of the year and if you'd expect a similar level to what you saw in the third quarter? Or do you think the combo of seasonality and the challenging market would kind of take that number down?

Gavin Mohr

Yes. So production app-wise, we did see a slowdown late in the quarter just due to the sharp increase, specifically when the conforming went over 7% apps pulled back I want to make -- there's a lot going on this quarter. The fee income area was -- did come -- was a miss. But when I look at the margin, what we're modeling is margin, gain on sale. The margin was strong where we were the where the gains on mortgages got hit was in the fair value marks.

And so we had some loans that were originated salable ended up on our portfolio. That mark was about $300,000 negative and working against the gain on sale. So just to say there are some things going on there. But overall, when we think about going forward, if rates stay elevated, production will come down, yes.

Operator

And our next question comes from Peter Winter from D.A. Davidson.

Peter Winter

You guys have had a lot of success recruiting bankers. I'm just wondering, can you talk about the recruitment pipeline?

Joel Rahn

We continue to recruit, Peter, and still feel there's opportunity out there for us, primarily with talent coming from the larger organizations. And so we continue to be active and we're having ongoing conversations. .

Peter Winter

Got it. And then, Gavin, you talked about that continued expansion on the margin grinding higher. Last quarter, you talked about maybe 2 to 4 basis points per quarter over the next 12 months. I'm just wondering if that outlook changed at all, maybe a little bit more towards the higher end, just given the rate environment is different?

Gavin Mohr

Yes. I think that certainly is a benefit, Peter, I think that forecast is though is still very reasonable and maybe it does move us to the higher end, but I wouldn't change the range today.

Peter Winter

Got it. And then just my last question. You had the decline in capital ratios from the acquisition, but they're still strong. Just curious, Brad, what your thoughts on buying back stock. You had the buyback this quarter, but that was more for the high points ESOP. Just thoughts on buybacks.

William Kessel

I would say is when we think about capital, number 1 is supporting the organic growth number two, having a consistent and upward trend in dividend. Number 3 would be considering for share repurchases. But a lot of that depends on items 1 and 2 and also where we're trading at. And then number four, of course, adding the capability of some other merger opportunity became available.

So those -- that priority list remains the same. And I would say -- when I look at where we are today, the current markets and where we see it going forward, I am very optimistic about the direction for IBC. So yes, I think we're in a good spot.

Operator

This concludes the question-and-answer session. I would now like to turn it back to Brad Kessel for closing remarks.

William Kessel

In closing, I'd like to thank our Board of Directors and our senior management for their support and leadership. I also want to thank all our associates, and I want to continue to welcome our new colleagues from High Point Community Bank. We continue to be so proud of the job being done by each member of our team. Each team member in his or her own way continues to do their part towards our common goal of guiding our customers to be independent. Finally, I'd like to thank each of you for your interest in IBC and for joining us on today's call. Have a great day.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.