Independent Bank Q3 Net Interest Income Rises as Merger Costs Weigh on EPS

Independent Bank Corporation (NASDAQ: IBCP) reported stronger net interest income and loan growth for the third quarter of 2026, supported by the Highpoint Community Bank acquisition and commercial lending. Acquisition-related costs and a higher credit-loss provision, however, weighed on profitability, with diluted earnings per share declining from a year earlier.

Net income was $17.9 million, or $0.80 per diluted share, compared with $17.5 million, or $0.84 per share, in the third quarter of 2025. The bank recorded $3.5 million of merger-related expenses during the latest quarter. Excluding after-tax merger costs, adjusted net income was $20.6 million.

Return on average assets was 1.14%, or 1.32% excluding merger-related expenses, while return on average equity was 12.17%, or an adjusted 14.08%. Pre-tax, pre-provision income increased 13.5% from a year earlier to $26.3 million despite including the merger expenses.

Margin expansion lifts interest income

Net interest income rose $9.9 million, or 21.8%, year over year to $55.3 million, marking the 13th consecutive quarter of growth. The increase reflected higher average earning assets and a wider net interest margin.

The fully taxable-equivalent net interest margin reached 3.82%, up from 3.54% a year earlier and 3.71% in the second quarter. Excluding purchase-accounting accretion associated with Highpoint, the margin was 3.76%, a five-basis-point sequential increase.

Average earning assets increased by about $599.2 million from the second quarter to $5.82 billion. The average yield on earning assets rose 13 basis points to 5.33%, while the cost of funds remained at 2.00%. Commercial loans accounted for much of the earning-asset growth, with their average balance increasing by $375.6 million sequentially.

At September 30, portfolio loans totaled $4.90 billion. Excluding Highpoint loans, the portfolio grew by $116.6 million during the quarter, equivalent to a 10.5% annualized rate. Commercial loans increased by $124.1 million, or 20.9% annualized, while mortgage loans rose $1.1 million and installment loans declined $8.6 million.

The company said new loan production remained concentrated on commercial clients that also bring deposits to the bank. Commercial lending represented 56% of the portfolio, with residential mortgages accounting for 33% and installment loans for 11%.

Deposits and acquisition reshape the balance sheet

Total deposits reached $5.52 billion, up from $4.86 billion at the end of the second quarter. Excluding Highpoint deposits and brokered deposits, net deposit growth was $115.8 million, or 9.4% annualized.

Non-maturity accounts totaled $4.77 billion and represented 86.4% of deposits. The reported cost of deposits was 1.55%, compared with 1.53% in the previous quarter. Brokered deposits were effectively zero at quarter-end.

The Highpoint acquisition contributed to a decline in regulatory and tangible capital ratios during the quarter. The tangible common equity ratio fell to 8.23% from 8.86% at June 30, while the common equity Tier 1 ratio was 11.10%. The company said it remained well capitalized under all regulatory measures.

Independent Bank reported approximately $2.43 billion of available liquidity, equal to 44% of deposits and 162% of estimated uninsured deposits. Its loan-to-deposit ratio was 88.7%, while uninsured deposits represented about 27.2% of total deposits excluding brokered time deposits.

Credit provision exceeds forecast range

The provision for credit losses was $4.8 million, or 0.39% of average portfolio loans on an annualized basis, above the range in the company’s 2026 forecast framework. Net charge-offs remained limited at $0.2 million, or 0.02% of average loans.

Nonperforming assets represented 0.64% of total assets, up from 0.59% in the second quarter and 0.38% a year earlier. Nonperforming loans rose to $39.2 million, or 0.8% of loans, while loans 30 to 89 days past due totaled $6.1 million, or 0.1% of loans. The allowance for credit losses equaled 1.51% of portfolio loans.

Noninterest income increased to $15.8 million from $11.9 million a year earlier. Mortgage servicing income included a $3.4 million positive fair-value adjustment, compared with a $0.6 million negative adjustment in the prior-year quarter. Net gains on mortgage loan sales declined to $1.0 million from $1.5 million as lower profit margins more than offset higher sold-loan volume. Mortgage originations totaled $136.0 million, down from $145.6 million a year earlier.

Noninterest expense rose to $44.8 million from $34.1 million. In addition to merger costs, the increase included higher compensation, data-processing expenses and intangible-asset amortization. The efficiency ratio was 61.3%.

2026 framework and integration risks

The company’s January 2026 outlook called for overall loan growth of 4.5% to 5.5%, led by an 11% to 12% increase in commercial loans. Third-quarter organic loan growth and net interest income were above the ranges in that framework, while the credit provision and expenses exceeded their respective forecast ranges. The original outlook also projected full-year net interest income growth of 7% to 8% and a net interest margin increase of 18 to 23 basis points from 2025.

Management’s operating priorities include commercial relationship growth, core deposit gathering, branch and process optimization, digital products, and selective bank or branch acquisitions. The company also expects to continue integrating Highpoint and pursuing efficiencies across its delivery channels.

The presentation identified uncertainty around interest rates, funding costs, economic conditions and credit quality. It also highlighted acquisition-integration risks, including customer and employee retention, systems conversion, unexpected costs, business disruption and the possibility that anticipated benefits from Highpoint may not be realized on schedule or at all.