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What You Should Know About Independent Bank Corp’s (NASDAQ:INDB) Liquidity

Gerald Huddleston

Independent Bank Corp’s (NASDAQ:INDB) profitability and risk are largely affected by the underlying economic growth for the region it operates in US given it is a small-cap stock with a market capitalisation of US$1.91B. Since a bank profits from reinvesting its clients’ deposits in the form of loans, negative economic growth may lower deposit levels and demand for loan, adversely impacting its cash flow. Following the Financial Crisis in 2008, a set of reforms termed Basel III was enforced to bolster risk management, regulation, and supervision in the financial services industry. These reforms target banking regulations and intends to enhance financial institutions’ ability to absorb shocks resulting from economic stress which could expose banks like Independent Bank to vulnerabilities. Unpredictable macro events such as political instability could weaken its financial position which is why it is important to understand how well the bank manages its risk levels. High liquidity and low leverage could position Independent Bank favourably at the face of macro headwinds. A way to measure this risk is to look at three leverage and liquidity metrics which I will take you through today. Check out our latest analysis for Independent Bank

NasdaqGS:INDB Historical Debt Mar 26th 18

Why Does INDB’s Leverage Matter?

Banks with low leverage are exposed to lower risks around their ability to repay debt. A bank’s leverage can be thought of as the amount of assets it holds compared to its own shareholders’ funds. Though banks are required to have a certain level of buffer to meet its capital requirements, Independent Bank’s leverage level of 9x is significantly below the appropriate ceiling of 20x. This means the bank exhibits very strong leverage management and is well-positioned to repay its debtors in the case of any adverse events since it has an appropriately high level of equity relative to the debt it has taken on to remain in business. If the bank needs to firm up its capital cushion, it has ample headroom to increase its debt level without deteriorating its financial position.

How Should We Measure INDB’s Liquidity?

Handing Money Transparent

Since loans are relatively illiquid, we should know how much of Independent Bank’s total assets are comprised of these loans. Usually, they should not be higher than 70% of total assets, however its current level of 77.89% means the bank has lent out 8% above the sensible threshold. This indicates that revenue is dependent on this particular asset but also the bank is more likely to be exposed to default compared to its competitors with less loans.

What is INDB’s Liquidity Discrepancy?

A way banks make money is by lending out its deposits as loans. These loans tend to be fixed term which means they cannot be readily realized, however, customer deposits are liabilities which must be repaid on-demand and in short notice. The disparity between the immediacy of deposits compared to the illiquid nature of loans puts pressure on the bank’s financial position if an adverse event requires the bank to repay its depositors. Compared to the appropriate industry loan to deposit level of 90%, Independent Bank’s ratio of over 93.55% is higher which places the bank in a relatively dangerous territory to go into negative discrepancy in liquidity. Essentially, for $1 of deposits with the bank, it lends out more than $ 0.9 which is risky.

Next Steps:

We’ve only touched on operational risks for INDB in this article. But as a stock investment, there are other fundamentals you need to understand. There are three essential factors you should further examine:

  1. Future Outlook: What are well-informed industry analysts predicting for INDB’s future growth? Take a look at our free research report of analyst consensus for INDB’s outlook.
  2. Valuation: What is INDB worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether INDB is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.