$33.34
$63.93
bear $33.34
base $57.57
bull $63.93
margin of safety $32.00
market price* $35.60
Independent Bank Corporation is a Michigan community bank serving customers mainly in the state's Lower Peninsula, with one mortgage loan production office in Fairlawn, Ohio. At June 30, 2026 it had $5.66 billion of assets, $4.86 billion of deposits and $4.41 billion of loans, and shareholders' equity of $528 million; goodwill and intangibles are only about $29 million, so tangible equity is about $499 million ($24.24 per share on the 20.60 million shares then outstanding). 2025 net income was $68.5 million ($3.27 per diluted share) on net interest income of $180.0 million, up 8.3%. First-half 2026 net income was $35.7 million, up 9.9%, with diluted earnings of $1.72 per share versus $1.54. Non-interest income fell from $56.4 million in 2024 to $45.6 million in 2025, so the 2025 gain came from lending spread, not fees. How we measure earnings. For a bank, deposits and borrowings are the raw material of the business, so we value earnings after interest and deduct no debt. Owner earnings start from operating cash flow, remove swings in mortgage loans held for sale and other assets and liabilities, subtract stock compensation ($2.7 million in 2025) and maintenance capital spending (about $6.4 million), and subtract the credit-loss provision ($6.1 million in 2025), which is a non-cash entry but a real cost that later becomes charge-offs. On that basis owner earnings per share were $1.60 in 2016, $2.00 in 2019, $3.02 in 2022, $3.06 in 2023, $3.29 in 2024 and $3.38 in 2025. One more charge matters for a bank: to keep growing its loans it must keep its capital growing too, so in every year we deduct the earnings that must be retained to grow tangible equity at the same rate as earnings. Only what is left over is treated as cash to owners. Starting point. We anchor on the median of 2023-2025, $3.29 per share, about $68.5 million on the second-quarter 2026 diluted share count of 20.81 million. Earlier years are excluded because 2020-2021 were lifted by the pandemic mortgage boom (mortgage gains of $62.6 million in 2020 versus $6.8 million in 2025) and a 2021 reserve release. Owner earnings per share grew 2.7% in 2025; the base case assumes 2.5% in year one. The Highpoint acquisition. On July 1, 2026 the company completed its purchase of HCB Financial Corp. of Hastings, Michigan and its Highpoint Community Bank: about $597 million of assets, $532 million of deposits, $354 million of loans and 7 branches. Each HCB share received 1.590 Independent shares plus $17.51 in cash, about $70.2 million in total at the announcement price; management put tangible book dilution at about 4%, earned back in about 3.4 years. Shares outstanding rose to 22.20 million by August 4, 2026, and all per-share values below use that count. Management expects about 6% accretion to 2027 earnings once cost savings are fully in place; those savings have not happened yet, so we give no credit for them. In the base and bull cases we value Highpoint at the $52.7 million of stock issued for it (the $17.5 million of cash paid is already out of the door). In the bear case we value it at about $17.2 million, reflecting a full write-off of the premium paid plus loan losses on its book. Base: $57.57 per share (business value about $1.28 billion; no debt deducted). Earnings grow 2.5% in year one, 3% a year in years two to five and 2.5% in years six to ten, below the 4.2% a year the business compounded owner earnings per share from 2020 to 2025. This growth is credited because it is the output of a process the bank has run for years: loans grew from $4.04 billion at end-2024 to $4.28 billion at end-2025 and $4.41 billion by mid-2026, funded by retained earnings, while buybacks ($12.4 million in 2025) trimmed the share count. Every year the capital needed to support that growth (about $12-17 million a year) is deducted. Year six includes a mild credit year: owner earnings fall by $9.3 million, about the size of the 2020 provision jump ($12.5 million versus $0.8 million in 2019). After year ten we hold earnings flat with no growth, because nothing we can name sustains growth that far out, and deduct $7.3 million a year (about $0.35 per share) as the long-run cost of credit cycles beyond what recent provisions show. That figure is our estimate, scaled from the company's own 2009-2010 record. Left out: margin expansion, share gains, the merger cost savings and new markets. Bear: $33.34 per share (business value about $740 million; no debt deducted). This case runs the 2009-2010 Michigan credit cycle again at about two-thirds of its severity. In 2009 the company charged off $79.5 million of loans (3.28% of average loans) and lost $90.2 million; in 2010 it charged off $60.6 million (2.97%) and lost $16.7 million, equity fell to 4.7% of assets, it took $72 million of government preferred capital and its common share count roughly tripled. Applying two-thirds of those loss rates to today's roughly $4.77 billion combined loan book gives about $98 million of pre-tax losses a year. In the bear case owner earnings are $66 million in 2026 (half the year is already reported), then about minus $18 million in each of 2027 and 2028, recover to $34 million and $46 million, and settle at about $56 million a year ($2.70 per share on the old share count), about 18% below today's anchor, with no growth and the same $7.3 million long-run credit charge after year ten. We assume no new shares are issued: today's tangible equity of about $499 million (roughly 9% of assets, against 4.7% at the end of 2010) can absorb two loss years of this size. If the downturn were as severe as 2009-2010, or deposits fled, the bank could need to raise capital at low prices and this case would be too high. The bear value exceeds tangible book (about $23-24 per share) because the bank's deposit franchise, of which about a fifth was non-interest-bearing at end-2025, keeps earning a spread through the downturn; that is the business it ran and survived in 2009-2010. Bull: $63.93 per share (business value about $1.42 billion; no debt deducted). Owner earnings start from the 2025 level of $3.38 per share, supported by the first-half 2026 earnings gain, grow 4.5% a year for five years and 3.5% for five more, with no credit downturn in the first ten years and the same retained-capital deduction, flat earnings after year ten and the $7.3 million credit charge. These rates remain below the 8.7% a year owner earnings per share grew from 2016 to 2025. Highpoint is valued at the stock issued, with no cost savings. Debt. Because this is a bank, borrowings are part of its operating funding and no debt is deducted in any case; other borrowings were $127 million at June 30, 2026, up from $77 million at year-end 2025. Checks. 2025 net loan charge-offs were tiny compared with the $6.1 million provision we deduct, so the anchor already carries a cushion. In 2025, net income plus non-cash items less maintenance capital spending matched the cash-flow-based figure before the provision deduction. If the earnings level is really $3.00 per share rather than $3.29 and never grows, the shares would be worth about $41. Margin of safety price: $32. We are fairly confident of the earnings level: owner earnings per share have stayed between $3.02 and $3.38 for four years, and the first half of 2026 was stronger, though about two-thirds of revenue is interest spread that moves with deposit costs. The worst plausible event is a Michigan recession on the scale of 2009-2010, when this bank's losses forced government capital and heavy dilution. Today's balance sheet is far stronger, but the company is still a single-state lender, and a full repeat of that episode, or losses in the newly acquired Highpoint loans, would push value below our bear case. The things we are most likely to be wrong about are the depth of the next credit cycle, whether deposit costs squeeze the spread, and whether Highpoint integrates smoothly (systems conversion is scheduled for November 9, 2026). At $32 the price is about one and a third times tangible book, is still below the bear case of $33.34, and the bank pays a dividend of $0.28 a quarter during the holding period. If the business follows the base case and the shares reach that value within three years, the base case implies about 24% a year from $32 including dividends; over five years it would imply about 15%, so this price relies on value being recognised within roughly three years, or on the bear case's support if it is not. What changed since our last analysis. The previous figures were built on a different basis and are not comparable. On the business itself, news is mixed: first-half 2026 earnings rose 9.9% and the acquisition closed on schedule, but the deal added about 1.6 million shares, non-interest income has fallen, and the merger savings are still unproven. What would make this wrong: a Michigan downturn deeper than the bear case, losses on acquired loans, deposit costs rising faster than loan yields, a further fall in mortgage banking income, or a failed integration. Most of the value in every case rests on the bank keeping its deposit customers for decades.