Independent Bank Corp. Maps Steady 2026 Growth Path

Independent Bank Corp. ((INDB)) has held its Q4 earnings call. Read on for the main highlights of the call.

Independent Bank Corp. struck an upbeat tone on its latest earnings call, highlighting steady earnings growth, widening margins, robust commercial loan production, and a stronger capital position that is feeding both dividends and buybacks. Management acknowledged some headwinds—most notably a sharp drop in fee income tied to a one‑time mortgage servicing sale, slightly higher credit costs, and rising operating expenses—but portrayed these as manageable against a backdrop of solid core performance and a constructive outlook for 2026.

Profitability and EPS Growth

Independent Bank delivered modest but clear earnings progress in 2025. Fourth-quarter net income came in at $18.6 million, or $0.89 per diluted share, virtually flat in dollars but up from $0.87 a year earlier. For the full year, net income rose to $68.5 million, or $3.27 per diluted share, compared with $66.8 million and $3.06 in 2024. The improvement in EPS underscores that the bank is translating balance sheet growth and margin expansion into per‑share gains, a key point for equity investors focused on long‑term value creation.

Net Interest Income and Margin Expansion

Interest-related revenues remain a major bright spot. The tax‑equivalent net interest margin widened to 3.62% in the fourth quarter, up from 3.45% a year prior and 8 basis points higher than the prior quarter. Net interest income increased year over year, with management citing gains of roughly $1.0 million in the quarter and $3.5 million on an annual basis in different parts of the call. Looking ahead, the bank is targeting net interest income growth of 7%–8% in 2026 and expects full‑year margin expansion of about 18–23 basis points, signaling that funding mix improvements and disciplined asset pricing should continue to support earnings even in a shifting rate environment.

Strong Loan Growth Driven by Commercial Lending

Loan growth in 2025 was led decisively by commercial lending. Total loans increased $78.0 million in the fourth quarter, a 7.4% annualized pace from September 30, and rose $237.0 million, or 5.9%, for the full year. Commercial balances were the standout, expanding $276.0 million, or 14.2% year over year, supported by quarterly commercial production of $88.0 million, equating to a 16% annualized growth rate. This mix shift toward commercial credits supports revenue growth but also reflects the bank’s confidence in its business client base and underwriting discipline.

Deposit Growth and Lower Funding Costs

On the liability side, Independent Bank posted healthy deposit growth while easing its overall cost of funds. Total deposits reached $4.80 billion at year‑end 2025, up $107.6 million from the prior year. The growth was broad-based, with business deposits rising $20.4 million and retail deposits adding $64.1 million in the fourth quarter alone. Importantly for margin sustainability, the total cost of funds declined 15 basis points in the quarter to 1.67%, helped by an improved deposit mix and declining reliance on higher‑cost wholesale borrowings.

Capital Strength and Shareholder Returns

Capital ratios moved higher, giving the bank more flexibility to reward shareholders. The tangible common equity ratio climbed to 8.65%, back within management’s target range of 8.5%–9.5%. Independent Bank repurchased 407,113 shares for $12.4 million during 2025 and has board authorization to buy back roughly 5% of its shares in 2026. The company also paid a $0.26 per share dividend in November and maintained a 32% payout ratio for the year, indicating a balanced approach between capital retention for growth and ongoing capital returns.

Tangible Book Value and Return Metrics

Book value and profitability metrics underscore the bank’s solid fundamental performance. Tangible book value per share rose 13.3% year over year, reflecting both retained earnings and the benefits of share repurchases. In the fourth quarter, return on average assets reached 1.35% and return on average equity climbed to 14.75%, levels that compare favorably with many regional banking peers and suggest the franchise is generating strong returns on both its asset base and shareholder capital.

Credit Metrics: Stable Overall with Some Pockets of Stress

Management described overall credit quality as strong, with watch‑list credits and nonperforming assets remaining below historical averages. Net charge‑offs for the year totaled $1.6 million, equal to just 4 basis points of average loans, a low absolute level even though it represents an uptick from $900,000, or 2 basis points, in 2024. Looking forward, the bank is planning for a provision for credit losses in the range of 20–25 basis points of average loans in 2026, reflecting a cautious but not alarmist stance on future credit costs.

Disciplined Balance Sheet Management and Liquidity

The bank emphasized a measured approach to balance sheet management, using securities runoff and a better deposit mix to fund growth and support margins. Management expects about $120 million of securities to roll off in 2026, helping to fund loan growth without expanding the balance sheet excessively. The goal is to keep securities at roughly 12%–15% of total assets, a level the bank views as prudent for liquidity while still allowing room for higher‑yielding loans. Continued reductions in wholesale funding are also expected to contribute positively to net interest margin.

Noninterest Income Hit by MSR Sale

Fee income was the main weak spot in the quarter. Noninterest income dropped to $12.0 million in the fourth quarter from $19.1 million a year earlier, largely due to the previously announced sale of approximately $931 million of mortgage servicing rights early in 2025. Mortgage servicing revenue plunged to $0.9 million from $7.8 million in the prior year’s quarter, and net gains on mortgage loans declined to $1.4 million from $1.7 million. While this drag is partly one‑time in nature, management also expects lower mortgage origination volumes and reduced gain‑on‑sale revenue in 2026.

Nonperforming Loans Concentrated in One Commercial Exposure

Nonperforming loans rose modestly but remain manageable in context. Total nonperforming loans increased to $23.1 million, or 54 basis points of total loans, up from 48 basis points at September 30. Crucially, $16.5 million of that total stems from a single commercial development relationship that the bank is actively working to resolve and for which it has already built reserves. Management framed this as a contained issue rather than a sign of broader portfolio deterioration.

Rising Net Charge-offs but Still Low

Net charge‑offs increased year over year but remained at very low levels by industry standards. The bank recorded $1.6 million of net charge‑offs in 2025, up from $900,000 in 2024, translating to 4 basis points versus 2 basis points of average loans. While this marks a modest deterioration in loss experience, management’s forward‑looking provisioning guidance suggests it is proactively building reserves as the credit cycle normalizes from unusually benign conditions.

Consumer and Installment Loan Contraction

Not all parts of the loan book are growing. The installment loan portfolio shrank by $17.0 million during the quarter, and management expects both mortgages to remain roughly flat and installment loans to decline in 2026. This deliberate pullback in certain consumer credit categories is a key reason overall loan growth is expected to moderate, even as commercial lending continues to expand at a faster clip. The shift reflects a risk‑aware stance and a preference for higher‑return, relationship‑based lending.

Noninterest Expense and Emerging Cost Pressures

Operating costs are moving higher and are poised to be a headwind to earnings leverage. Noninterest expense totaled $36.1 million in the fourth quarter. For 2026, management is guiding to quarterly noninterest expense of $36.0 million–$37.0 million, implying a 5%–6% increase for the year. The main drivers are compensation, data processing, loan and collections activity, and occupancy costs. While these investments support growth and risk management, they will require continued revenue expansion and margin gains to preserve profitability ratios.

More Moderate Loan Growth Ahead

After a year of stronger expansion, Independent Bank is signaling a step‑down in overall loan growth. Management is now targeting mid single‑digit loan growth of 4.5%–5.5% for 2026, below the bank’s historical high‑single‑digit profile. The softer outlook is driven mainly by planned reductions in certain consumer categories and expectations for flat mortgage volumes, partially offset by continued low double‑digit growth in commercial loans. This more measured stance balances growth ambitions with credit discipline and capital preservation.

Forward-Looking Guidance and 2026 Outlook

For 2026, management laid out a detailed—and cautiously optimistic—roadmap. The bank expects total loans to grow 4.5%–5.5%, with commercial balances rising at a low double‑digit pace. Net interest income is projected to increase 7%–8% year over year, supported by a net interest margin that is expected to widen 5–7 basis points in the first quarter and a further 3–5 basis points each subsequent quarter, totaling roughly 18–23 basis points of full‑year margin expansion under an assumed scenario of two modest rate cuts and slightly higher long‑term yields. About $120 million of securities runoff is slated to help fund loan growth. Management is planning for a provision for credit losses equal to 20–25 basis points of average loans, quarterly noninterest income between $11.3 million and $12.3 million (up about 3%–4% for the year despite softer mortgage activity), and quarterly noninterest expense of $36.0 million–$37.0 million, or a 5%–6% annual increase. The effective tax rate is expected to hover near 17%, and while the board has authorized share repurchases of roughly 5% of shares, no buybacks are currently baked into the formal outlook.

In summary, Independent Bank Corp.’s earnings call painted a picture of a bank leveraging margin expansion, disciplined commercial growth, and a stronger capital base to drive incremental EPS gains and attractive returns on equity, even as it absorbs a reset in mortgage‑related fee income and higher operating and credit costs. With manageable credit issues and a conservative growth plan, the 2026 guidance suggests a steady, if unspectacular, trajectory that should appeal to investors seeking a well‑capitalized regional bank with a focus on sustainable, shareholder‑friendly performance.