Independent Bank Corporation (IBCP) Q3 2026 Earnings Call: NIM Expands, Commercial Loans Grow

Independent Bank Corporation’s (IBCP) Q3 2026 earnings call focused on accelerating commercial lending, net interest margin expansion and the integration of High Point Community Bank. Credit quality remained broadly stable, although several commercial relationships drove higher nonperforming loans and provision expense.

Key Takeaways

• Q3 2026 net income was $17.9 million, or $0.80 per diluted share, compared with $17.5 million, or $0.84 per diluted share, a year earlier. Excluding $2.7 million of after-tax merger expenses, adjusted net income was $20.6 million, or $0.92 per diluted share.
• Organic loans increased $116.6 million, or 10.5% annualized, excluding High Point. Commercial loans grew by approximately $124 million, equivalent to nearly 21% annualized growth.
• Net interest income increased $7.4 million, or 15.4%, from Q2 and 21.8% year over year. The tax-equivalent net interest margin rose 11 basis points sequentially to 3.82%; excluding purchase accounting accretion, it was 3.76%, up 5 basis points.
• Deposits totaled $5.5 billion. Excluding High Point, deposits grew $115.8 million, or 9.4% annualized, while the total cost of deposits increased only 2 basis points to 1.55%.
• Nonperforming loans rose to $39.2 million, or 0.80% of total loans, from 0.74% at the end of Q2. Management said three commercial credits accounted for most of the balance and that broader watch-list levels remained stable.
• High Point’s system conversion is scheduled for November 9. Management expects approximately $3 million of additional merger and conversion expenses in Q4, with most cost savings reflected in the 2027 expense run rate.

Key Financial Data

Business and Operating Performance

Commercial lending was the principal source of organic growth. Production through September 30 was evenly split between commercial and industrial loans and investment real estate. The commercial portfolio was 66% C&I and 34% investment real estate after including High Point’s $280 million commercial loan portfolio.

Independent Bank added three experienced commercial bankers during the quarter and 11 year to date, bringing the total to 55 bankers across eight teams. Management said market disruption continues to create opportunities to gain share, although the pipeline declined from June 30 following strong late-quarter production.

The deposit franchise remained weighted toward nonmaturity funding. Nonmaturity deposits reached $4.77 billion, representing 86.4% of total deposits. Liquidity acquired with High Point allowed the company to reduce other borrowings to $4 million from $127 million at the end of Q2. Brokered deposits were $0.5 million.

Asset repricing remains a margin driver. 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 was being originated at yields above 6.5%.

Mortgage originations and sales totaled $136 million and $102.3 million, respectively. Net gains on mortgage loans were $1 million, while mortgage servicing generated a $4.1 million gain. Management noted that higher rates late in the quarter reduced applications and created unfavorable fair-value adjustments.

Management Guidance

Management continues to expect gradual net interest margin expansion, assuming no macro-level shock. The previously discussed range of approximately 2 to 4 basis points of quarterly expansion remains in place, with the current rate environment potentially supporting the upper end.

For Q4, management expects asset repricing and the September Federal Reserve rate increase to support the margin, partly offset by competitive deposit pricing. The company is targeting a 35% to 40% cost-of-funds beta through the rate cycle.

Commercial loan growth is expected to remain at a low-double-digit rate into 2027. Management does not currently expect targeted exits or material attrition from the acquired High Point loan portfolio.

Approximately $3 million of remaining merger and conversion costs are expected primarily in Q4 2026. Cost savings have been slower than originally modeled because both banks remained fully staffed through the integration period. Management expects savings to be largely reflected in the 2027 expense run rate.

The provision for credit losses is expected to track loan growth and credit migration. Year-to-date provision expense was approximately 0.23% of average loans on an annualized basis. Management also said mortgage production would likely decline if interest rates remain elevated.

Risks and Watch Items

Nonperforming loans increased to $39.2 million, with approximately $30 million related to commercial loans. About two-thirds of commercial nonperforming loans remained tied to a previously discussed development exposure.

The large waterfront condominium credit remained in bankruptcy proceedings. Its balance was approximately $30 million, including about $8 million supported by USDA guarantees, leaving net exposure of roughly $21 million. Management said the borrower has until December 31 to file a reorganization plan and that the bank is appropriately reserved for potential losses.

A separate commercial credit moved to nonaccrual during the quarter and was substantially reserved because it involved bankruptcy and was primarily cash-flow based. Management said the increase did not indicate a systemic portfolio problem, noting that overall watch-list percentages remained flat.

Competitive deposit pricing could offset part of the benefit from higher asset yields. Mortgage activity also remains sensitive to elevated rates, while purchase accounting accretion may vary based on loan prepayments.

Analyst Q&A Highlights

• Credit quality: Management attributed most nonperforming balances to three commercial credits rather than broad-based deterioration. Net charge-offs were $847,000, or 3 basis points of average loans annualized, during the first nine months of 2026.
• Margin trajectory: Management maintained its expectation for gradual quarterly expansion. Purchase accounting accretion contributed 6 basis points to Q3 margin, while higher earning-asset yields contributed 5 basis points.
• High Point integration: The conversion remains scheduled for November 9. Management acknowledged that 2026 cost savings are running behind the original timing but retained the broader target of approximately 40% cost savings from the transaction.
• Organic expansion: Independent Bank plans to continue recruiting commercial bankers, particularly from larger institutions. Management described organic growth as the company’s primary growth vehicle even as it remains open to future M&A opportunities.
• Capital allocation: Management’s priorities are supporting organic growth, maintaining a consistent and rising dividend, considering share repurchases based on valuation and preserving capacity for potential acquisitions.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

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.

Question-and-Answer Session

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.