Independent Bank’s Earnings Climb on Loan Growth and Margin Expansion

Date of Call: Jan 23, 2026

Financials Results

• Revenue: Not explicitly stated; net interest income increased $1M (2.2% over Q3 2025).
• EPS: Q4 2025: $0.89 per diluted share, vs $0.87 prior year. Full year 2025: $3.27 per diluted share, vs $3.16 in 2024.
• Gross Margin: Not applicable for a bank; net interest margin was 3.62% in Q4 2025, up 8 bps sequentially.
• Operating Margin: Not explicitly stated; return on average assets was 1.35%, return on average equity was 14.75%.

Guidance:

• Loan growth for 2026: mid-single-digit range, targeting 4.5%-5.5% full-year growth.
• Net interest income growth for 2026: 7%-8% over full year 2025.
• Net interest margin expansion: 5-7 bps in Q1 2026, then 3-5 bps per quarter sequentially. Full-year 2026 provision expense: 20-25 bps of average portfolio loans.
• Non-interest income quarterly range: $11.3M-$12.3M; full-year increase of 3%-4% vs 2025.
• Non-interest expense quarterly range: $36M-$37M; full-year increase of 5%-6% vs 2025.
• Income tax effective rate: ~17% for 2026.
• Share repurchases authorized: ~5% of shares in 2026, but not modeled in guidance.

Business Commentary:

Financial Performance and Earnings Growth:

• Independent Bank Corporation reported fourth quarter 2025 net income of $18.6 million or $0.89 per diluted share, compared to $18.5 million or $0.87 per diluted share in the prior year period.
• For the year ended December 31, 2025, the company reported net income of $68.5 million or $3.27 per diluted share, compared to $66.8 million or $3.16 per diluted share in 2024.
• The growth was driven by continued net interest margin expansion, strong loan growth, and increased non-interest income.

Loan and Deposit Growth:

• The company experienced net growth in loans of $78 million or 7.4% annualized in the fourth quarter, with a year-over-year increase of $237 million or 5.9%.
• Net growth in total deposits less broker deposits was $57.5 million or 4.8% annualized, and deposits totaled $4.8 billion at December 31, 2025, an increase of $107.6 million from December 31, 2024.
• The growth in loans was primarily due to strong commercial loan generation, while deposit growth was driven by increases in savings and interest-bearing checking balances.

Net Interest Margin and Income:

• The net interest margin was 3.62% in the fourth quarter, an eight basis point increase from the linked quarter.
• Net interest income increased by $1 million or 2.2% over the third quarter of 2025.
• The improvement in net interest margin was positively impacted by changes in interest-bearing liability mix and a decrease in funding costs.

Regulatory Capital Position and Share Repurchase:

• The company’s tangible common equity ratio increased to 8.65%, moving back into the targeted range of 8.5%-9.5%.
• In 2025, the company repurchased 407,113 shares of common stock for an aggregate purchase price of $12.4 million.
• The strong regulatory capital position provides flexibility for future share repurchases and dividend growth.

Outlook and Strategic Initiatives:

• For 2026, the company anticipates loan growth in the mid-single-digit range, targeting 4.5%-5.5% full-year growth.
• The forecast includes a net interest margin expansion of 5-7 basis points in the first quarter, with subsequent quarterly increases of 3-5 basis points.
• The outlook is supported by a robust commercial loan pipeline and strategic initiatives to attract and integrate talented bankers.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'another remarkable year,' 'strong and consistent results,' and 'continued strong earnings.' The tone is confident: 'our confidence is bolstered by a robust commercial loan pipeline' and 'positions us well to effectively manage through a variety of economic environments.'

Q&A:

• Question from Brendan Nosal (Hovde Group): On market outlook in Southeast Michigan given M&A dislocation and ambition for banker adds in 2026.
  Response: Expect net add of 4-5 bankers in 2026; Southeast Michigan presents talent and customer acquisition opportunities, but impact will take time.

• Question from Brendan Nosal (Hovde Group): On loan growth outlook (mid-single-digit) given historical high single-digit growth.
  Response: Outsized commercial loan growth is tempered by expected shrinkage in consumer/indirect lending (RV), leading to mid-single-digit overall loan growth forecast.

• Question from Brendan Nosal (Hovde Group): On funding for loan growth from securities runoff.
  Response: Approximately $120 million of forecasted securities runoff in 2026 will fund loan growth.

• Question from Damon DelMonte (KBW): On margin guidance cadence and drivers for 2026.
  Response: Expect 5-7 bps expansion in Q1, then 3-5 bps per quarter; driven by rate cuts, deposit repricing, beneficial yield curve, and repricing of below-market assets.

• Question from Damon DelMonte (KBW): On capital management appetite for buybacks and M&A interest.
  Response: Strong capital position provides flexibility for buybacks when price is right; M&A appetite exists for strategic fit but is not a requirement for success.

• Question from Nathan Race (Piper Sandler): On cash flow from bond portfolio and loans repricing higher.
  Response: $120M forecasted securities runoff for 2026; ~$228M of fixed-rate loans (including mortgage) will reprice at ~550 bps exit rate.

• Question from Nathan Race (Piper Sandler): On normalized charge-off expectations.
  Response: Charge-off history has been low; recent consumer charge-offs driven by customer deaths. Expect somewhat higher levels on a go-forward basis, but provision guide is 20-25 bps.

• Question from John Rodis (Janney Montgomery Scott): On securities portfolio reinvestment and target.
  Response: Target is 12%-14% of assets; no purchases planned in 2026, with reinvestment likely in 2027 after runoff lowers the balance.

• Question from John Rodis (Janney Montgomery Scott): On openness to acquiring a team of lenders in M&A.
  Response: Open to it, but historically built teams one banker at a time; culture and fit are important.

Contradiction Point 1

Loan Growth Outlook and Strategy

Guidance shifts from low-to-mid single digits to a specific mid-single-digit range with a strategic portfolio reshaping.

What are your latest thoughts on Southeast Michigan opportunities amid M&A dislocation, the 2026 banker add ambition following 2025 additions, factors reducing loan growth to mid-single digits and potential upside with rational payoffs, and the 2026 outlook for funding loan growth via securities - Brendan Nosal (Hovde Group)

2025Q4: The shift to mid-single-digit (4.5%-5.5%) overall loan growth reflects a strategic reshaping of the balance sheet. - Gavin Mohr(EVP, CFO)

Will loan growth exceed the historical low single-digit rate next year, given current trends? - Stephen Moss (Raymond James & Associates, Inc., Research Division)

2025Q3: If trends continue, low to mid-single-digit loan growth is possible, up from the previous expectation of low single-digits. - Jeffrey Tengel(CEO)

Contradiction Point 2

Securities Portfolio Management

Strategy changes from no active restructuring to a planned, gradual reinvestment trigger.

What is the current cash flow from the bond portfolio and the impact of loans repricing higher, the appetite to trade excess capital for repositioning the securities book, and the normalized expectations for charge-offs moving forward? - Nathan Race (Piper Sandler)

2025Q4: The strategy is to let the securities book run off naturally. There is no current plan to accelerate sales... - Gavin Mohr(EVP, CFO)

Are there plans to restructure the marked securities portfolio from the Enterprise acquisition? - Mark Fitzgibbon (Piper Sandler & Co., Research Division)

2025Q3: No plans to restructure at this time. The portfolio is now viewed as market securities... - Mark Ruggiero(CFO)

Contradiction Point 3

M&A Strategic Focus

Stance evolves from no current focus to being open but not a requirement.

1) What are the key drivers and timeline for the expected net interest margin (NIM) expansion in 2026? 2) What is the current appetite for share repurchases given capital levels and the existing buyback program? 3) What are your views on M&A opportunities and potential merger prospects? - Damon DelMonte (KBW)

2025Q4: Consolidation in Michigan is expected to continue... Independent Bank would be interested in deals that are strategic/geographic fits... - Brad Kessel(CEO)

With a favorable regulatory climate, would you consider another M&A deal? - Mark Fitzgibbon (Piper Sandler & Co., Research Division)

2025Q3: The posture hasn't changed. The focus is on organic growth... The bank is not currently focused on M&A. - Jeffrey Tengel(CEO)

Contradiction Point 4

Credit Outlook & Charge-off Expectations

The certainty regarding the credit cycle's worst point shifted from uncertainty to a more stable, modeled expectation.

Can you provide updates on bond portfolio cash flow, loans repricing impacts, appetite for trading excess capital to reposition securities, and normalized charge-off expectations? - Nathan Race (Piper Sandler)

2025Q4: A charge-off profile similar to recent years is expected to be a reasonable model going forward. - Brad Kessel(CEO)

Do you agree that the worst is over for credit? - Mark Thomas Fitzgibbon (Piper Sandler & Co.)

2025Q2: It's uncertain if they are completely out of the woods, but may be past the worst inflection point. - Jeffrey J. Tengel(CEO)

Contradiction Point 5

M&A Strategy and Priority

The priority and strategic focus for M&A shifted from non-priority to active interest in strategic deals.

Can you discuss the cadence and drivers for the expected net interest margin expansion in 2026, the appetite for share repurchases given current capital levels and buyback program, and your perspective on the M&A landscape and potential merger interest? - Damon DelMonte (KBW)

2025Q4: Independent Bank would be interested in deals that are strategic/geographic fits, add to EPS, and align with the culture. - Brad Kessel(CEO)

How has the improved currency affected M&A appetite? - Laura Katherine Havener Hunsicker (Seaport Research Partners)

2025Q2: M&A is not a priority currently. The focus is on integrating the recent Enterprise acquisition, executing the core conversion... - Jeffrey J. Tengel(CEO)