Earnings call transcript: Independent Bank Q1 2025 misses EPS forecast

Independent Bank Corp (INDB) reported its Q1 2025 earnings, revealing a slight miss on earnings per share (EPS) compared to forecasts. The company posted an adjusted EPS of $1.06, falling short of the expected $1.17. Despite this, revenue reached $178 million, surpassing the forecast of $173.32 million. Following the announcement, Independent Bank’s stock experienced a 1.93% decline in aftermarket trading, closing at $54.77. According to InvestingPro analysis, the company has maintained dividend payments for 32 consecutive years and currently appears undervalued based on its Fair Value assessment.

Key Takeaways

• Independent Bank’s Q1 2025 EPS of $1.06 missed the forecast by 9.4%.
• Revenue exceeded expectations, reaching $178 million.
• Stock fell by 1.93% in aftermarket trading.
• The company is preparing for a significant acquisition expected to close in Q3.
• Strategic focus on Commercial & Industrial (C&I) lending continues.

Company Performance

Independent Bank demonstrated resilience in Q1 2025 with a GAAP net income of $44.4 million. The bank continues its strategic shift towards Commercial & Industrial lending, adding seven new bankers in the past year. Despite missing EPS expectations, the company reported a robust loan pipeline and a significant increase in deposits by $370 million, or 2.4%, during the quarter.

Financial Highlights

• Revenue: $178 million, exceeding the forecast of $173.32 million.
• Adjusted EPS: $1.06, below the forecast of $1.17.
• GAAP net income: $44.4 million.
• Return on Assets: 0.93%.
• Return on Average Common Equity: 5.94%.

Earnings vs. Forecast

Independent Bank’s Q1 2025 adjusted EPS of $1.06 missed the forecast by approximately 9.4%, while revenue surpassed expectations by $4.68 million. This mixed performance contrasts with previous quarters where the bank generally met or exceeded EPS forecasts.

Market Reaction

Following the earnings release, Independent Bank’s stock dropped 1.93% in aftermarket trading, closing at $54.77. The stock’s movement reflects investor concerns over the EPS miss, despite the positive revenue figures. The current stock price is within its 52-week range, which has seen a high of $77.23 and a low of $45.11. InvestingPro analysis shows the stock has experienced a -12.64% price return over the past six months, though it maintains a relatively defensive beta of 0.86, suggesting lower volatility compared to the broader market.

Outlook & Guidance

The bank projects low single-digit loan growth and low to mid-single-digit deposit growth for 2025. Additionally, it anticipates a quarterly net interest margin expansion of 3-4 basis points. The upcoming acquisition of Enterprise Bancorp, expected to close in Q3, is set to add $1.5 billion in assets under administration. With a P/E ratio of 13.58 and a price-to-book ratio of 0.79, InvestingPro subscribers can access detailed valuation metrics, growth forecasts, and exclusive insights to better evaluate the potential impact of these strategic initiatives. The Pro Research Report offers comprehensive analysis of INDB’s growth strategy and market position among its peers.

Executive Commentary

CEO Jeff Tangle expressed confidence in the bank’s position, stating, "In times of uncertainty, we are fortunate to have an envious deposit franchise, a strong liquidity position, and a robust capital base." CFO Mark Ruggiero highlighted the bank’s credit quality, noting, "We’re not seeing any material changes in criticized and classified loans."

Risks and Challenges

• Economic uncertainty due to tariffs impacting client decision-making.
• Competitive loan pricing environment.
• Potential margin impact from recently raised subordinated debt.
• Volatile interest rate environment.
• Integration risks associated with the upcoming acquisition.

Q&A

During the earnings call, analysts inquired about the resolution of non-performing loans and the potential for share buybacks. Executives confirmed confidence in credit quality and discussed the margin impact of subordinated debt, emphasizing the bank’s strategic focus on maintaining a strong financial position amidst economic uncertainties.

Full transcript - Independent Bank (INDB) Q1 2025:

Conference Operator: Good day. And welcome to the Independent Bank Corp first quarter twenty twenty five earnings call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today’s presentation, there will be an opportunity to ask questions.

To ask a question, you may press then 1 on a touch tone phone. To withdraw your question, please press then 2. Before proceeding, please note that during this call, we will be making forward looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements.

In addition, some of our discussion today may include references to certain non GAAP financial measures. Information about these non GAAP measures, including reconciliation to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the investor relations section of our website. Finally, please also note that this event is being recorded. I would now like to turn the conference over to Jeff Tangle, chief executive officer.

Please go ahead.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Thank you and good evening and thanks for joining us today. I’m accompanied this evening by CFO and Head of Consumer Lending, Mark Ruggiero. On a core operating basis, results for the first quarter were reflective of solid pre provision net revenue growth offset by higher credit costs. PPNR growth was driven by net interest margin improvement, solid fee revenue results and well controlled expenses. Operating leverage was positive on both the linked quarter and year over year basis.

Our PPNR ROAA was 1.52% on an operating basis and our tangible book value improved 1.8% from the fourth quarter and 7.8% from the year ago quarter. Notwithstanding the operating results I just mentioned, credit costs for the first quarter were elevated as we continue to move through the resolution of several previously identified problem loans. We signaled last quarter that we expected our largest NPL to be resolved in the second quarter. It is still on track to do so. We had one other large NPL we thought would be resolved in the first quarter, which has slipped into the second quarter.

Finally, as we signaled during our year end earnings call, we have one large problem loan that moved to non performing status in the first quarter. Mark will go into more detail during his comments, but we have not seen any material increase in our problem loans and feel that we have identified the significant stress loans and have a detailed action plan for each one of them. From a business perspective, clearly the combined impact of tariffs and other potential federal government actions has increased economic uncertainty. While it is too early to tell what the impact of the tariffs will be or what the tariffs are for that matter, most of the clients I have spoken to are taking a wait and see approach. The lack of certainty is causing them to pause any significant expansion or growth initiatives at the moment as they assess the economic landscape.

Despite the noise, we made solid progress on several of our key strategic priorities in the first quarter. We continue to reduce our commercial real estate concentration. C and I and small business loans were up 2.12.6% respectively in the first quarter. Conversely, CRE and construction loan balances were down 1.2% due to normal amortization, intentional reduction of transactional CRE business and charge offs. As we have said in the past, we will continue to reduce transactional CRE business and pre up capacity to support our legacy commercial real estate relationships.

Mark will provide more detail later on about our successful $300,000,000 sub debt raise, but that’s going to lead to an expected pro form a CRE concentration slightly north of 300% inclusive of the impact of the enterprise acquisition. Continuing the shift towards C and I, over the past year we’ve added seven C and I bankers increasing the total to 31 reflecting the desirability of our platform and the award winning culture of Rockland Trust. In addition, two recent hires include a highly respected and very experienced individual as our Regional Manager for Middle Market C and I and Specialty Banking and an experienced international banker to lead our efforts in FX and trade finance. We expect both to make an immediate contribution. We continue to prepare for the closing of our pending acquisition of Enterprise.

We expect the transaction will close in the third quarter of the year. The more time we spend with the Enterprise team, the more convinced we become about the strategic and financial merits of the deal. Importantly, a vast majority of customer facing Enterprise employees have accepted offers to remain with Rockland Trust post close, including 32 of enterprise banks, 33 commercial bankers who will remain post close. Preparation for our core FIS processing platform upgrade scheduled for May of twenty six is ongoing. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiency and support the future growth of the bank.

We prudently grew deposits in the first quarter, which has been a historical strength of ours. Non time deposits were up 2.8% year over year and 3.2% from the fourth quarter. In the first quarter, the cost of deposits was 1.56% highlighting the immense value of our deposit franchise. Mark will provide additional color on our deposits in a few minutes. Finally, our wealth management business continues to be a key value driver.

We grew our AUA by nearly 1% in the first quarter to $7,000,000,000 Organic growth or net positive flows totaled $41,000,000 in the quarter. IMG had positive returns in the first quarter despite the fact that the S and P five hundred was down over 4%. Total Investment Management revenues increased 4% from the fourth quarter and nearly 13% from the first quarter

Analyst/Questioner: of twenty twenty four.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: This business works seamlessly with our retail and commercial colleagues to deliver a holistic experience that resonates with our clients. The breadth of these services provides one stop shopping for our clients that includes not only investment management, but financial planning, estate planning, tax prep, insurance and business advisory services. This full suite of products is a differentiating factor for our wealth business. Enterprise Bancorp will add approximately $1,500,000,000 in AUAs to our platform and offer additional cross sell opportunities with our broader product offerings. Underscoring every measure of success is a talented team of engaged, passionate and highly talented colleagues focused on making a difference for the customers and communities we serve.

That is why we are proud to be named a top place to work in Massachusetts by the Boston Globe for the sixteenth consecutive year. In addition, Rockland Trust was recently ranked number two in New England in the 2025 J. D. Power Retail Banking Satisfaction Study for the second straight year underscoring our exceptional customer service. We were also named Best Bank in the Northeast by Greenwich for overall satisfaction and likelihood to recommend.

We remain confident about our abilities to navigate a volatile interest rate and economic environment. In times of uncertainty, we are fortunate to have an envious deposit franchise, a strong liquidity position and a robust capital base. We will continue to focus on those actions we have control over and look to capitalize on our historical strengths, which include a skilled and experienced management team, attractive markets, strong brand recognition, operating scale, a broad consumer, commercial and wealth customer base and an energized and engaged workforce. In short, I believe we’re well positioned to realize the benefits of the Enterprise acquisition and continue to take market share in the Northeast. On that note, I’ll turn it over to Mark.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Thank you, Jeff. I will now take us through the earnings presentation deck that was included in our eight ks filing and is available on our website in today’s investor portal. Starting on Slide three of the deck, twenty twenty five first quarter GAAP net income was $44,400,000 and diluted earnings per share was $1.04 resulting in a 0.93% return on assets, a 5.94% return on average common equity and an 8.85% return on average tangible common equity. Excluding $1,200,000 of merger and acquisition expenses and their related tax benefit, the adjusted operating net income for the quarter was $45,300,000 or $1.06 diluted EPS, representing a 0.94% return on assets, a 6.05% return on average common equity and a 9.01% return on average tangible common equity. The results are driven largely by strong core fundamentals, which were in line with expectations with elevated provision for loan loss impacted by a few credits that I’ll cover in detail shortly.

In addition, as Jeff mentioned, tangible book value per share increased by $0.85 during the quarter, reflecting solid earnings retention and a $0.47 benefit from other comprehensive income. Turning to Slide four, highlighting a key component of our core fundamentals. Deposit activity was very positive for the first quarter, which as a reminder has historically been subject to some level of seasonality, which typically challenges growth in the first quarter. Despite that, average deposits increased modestly while period end balances increased by $370,000,000 or 2.4% for the quarter with non maturity consumer

Conference Operator: Pardon me. This is the operator. We have reconnected the speakers and will continue. Please proceed.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Thank you. I we apologize for for that. We’re not sure what happened there on the disconnection, but I believe we may have lost connection on Slide four. So I apologize if I’ll recover ground here that didn’t maybe come through, but we’ll start there. So on Slide four, highlighting a key component of our core fundamentals, deposit activity was very positive for the first quarter, which as a reminder has historically been subject to some level of seasonality, which typically challenges growth in the first quarter.

Despite that, average deposits increased modestly, while period end balances increased by $370,000,000 or 2.4% for the quarter, with non maturity consumer, business and municipal all increasing in the quarter, while the CD portfolio contracted slightly. The overall mix of deposits remains very stable with non interest bearing DDA comprising 28.1% of total deposits at quarter end. We continue to view our environment to grow core deposits favorably as we have the depth and breadth of products to compete with the national players combined with a high touch community bank customer service experience. Moving to Slide five, total loans stayed relatively flat for the quarter as expected. As Jeff alluded to earlier, recent hires and strategic emphasis on full service C and I relationships led to a 2% or 8% annualized increase in C and I balances, while total CRE and construction decreased by 1.2%.

On the consumer side, total consumer real estate balances reflected modest growth with mortgage activity split between salable and portfolio volume, while home equity demand remained strong. Turning now to Slide six, we point out that total commercial criticized and classified loans decreased to 3.8% of total commercial loans with pay downs and charge offs driving the overall reduction. I’ll now walk through some key first quarter updates regarding the largest non performing loans noted on this slide. The $54,000,000 office loan remains on track for resolution through a property sale, which is expected to close in late second quarter. As such, during the first quarter, we charged off $24,900,000 which represents the difference between the expected net proceeds versus the carrying value.

The charge off amount was slightly less than the previously established specific reserve. Second is another large loan that we discussed had reached maturity last quarter. This is a $30,000,000 syndicated office loan in Downtown Boston, which migrated to non performing status during the first quarter. The bank group is in the process of working through a potential loan modification with the borrower. However, we felt it was appropriate at this time to charge off the balance down to its appraised value, resulting in an $8,100,000 charge off during the quarter.

The next loan on this slide is an office loan that is also in the process of a note sale with an identified buyer. Based on the negotiated offer and expectations for a second quarter close, we charged off $7,000,000 during the quarter, which was equal to the specific reserve that had already been set up in the prior quarters. The next loan is a C and I relationship that remains in a collateral liquidation process. During the first quarter, dollars ’6 point ’9 million of pay downs were received, reducing the carry in amount to $4,800,000 And based on estimated net proceeds on remaining collateral sales, an additional $2,500,000 of a specific reserve was established in the quarter. And lastly, the final loan on the slide is an office loan that is being marketed for sale with an updated appraisal liquidation value supporting an additional $1,600,000 reserve in the first quarter.

As noted on Slide seven, reflecting the impact of the large moving pieces I just described, provision for loan loss for the quarter was $15,000,000 as a significant portion of the Q1 charge offs related to loans with previously established reserves. And as such, the allowance as a percentage of loans decreased to 99 basis points at quarter end. In addition to the allowance levels, the company increased its Tier two capital despite the market volatility experienced in the last month. We continue to believe our strong levels of total capital give us significant flexibility to be opportunistic in any major capital actions going forward, whether it be to support accelerated organic growth in the newer markets, additional M and A opportunities further down the road, or share repurchase activity. Slides eight through 10 provide additional detail on our loan portfolio composition with the notable developments for the quarter that I just discussed.

Conference Operator: Pardon me. This is the conference operator. It appears we have lost connection to our speaker line. Please stand by while we reconnect. Thank you for pardon me.

This is the operator. We have reconnected the speaker line and will continue. Please proceed.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Again, apologies for that. Not sure what what the issue is here and and quite candidly not sure where the cutout went. So I’m going to pick back up. Hopefully you all heard the updates on the individual credits, but we can certainly cover that in Q and A if that got cutout. But why don’t we start just adding some color.

During the quarter, did increase Tier two capital with a $300,000,000 subordinated debt raise, which closed in late March. With the upcoming enterprise acquisition expected to push our commercial real estate concentration a bit higher, we were pleased to be able to execute on this debt raise to shore up additional capital despite the market volatility experienced in the last month. We continue to believe our strong levels of total capital give us significant flexibility to be opportunistic in any major capital actions going forward, whether that be to support accelerated organic growth in newer markets, additional M and A opportunities further down the road or share repurchase activity. Slides eight through 10 provide additional detail on the loan portfolio composition, but with the notable developments for the quarter that I just discussed, we’re going to shift gears and move on to Slide 11. As noted on this slide, the net interest margin on an FTE reported basis improved nine basis points in the first quarter to 3.42% with the FTE core margin of 3.37%, up six basis points, which excludes outsized benefit from interest recoveries on payoffs and purchase accounting accretion.

The first quarter margin improvement reflects two high level drivers of our interest rate risk profile. First, we remain relatively neutral to Federal Reserve actions impacting the short end of the curve. And second, we remain asset sensitive to the middle and long end of the curve with cash flow repricing dynamics and hedge maturities expected to improve both securities and loan yields as evidenced in the first quarter. Moving to Slide 12, non interest income increased modestly in the first quarter despite fewer business days versus the prior quarter, with wealth management income results weathering the volatile market storm nicely, as well as increased loan level swap income as compared to the prior quarter. In addition, total expenses when excluding merger and acquisition costs stayed relatively flat with the prior quarter.

Some key changes for the quarter include normal increases in payroll taxes in the first quarter, approximately $1,000,000 of snow removal costs within occupancy and equipment. And within other non interest expenses, we saw reduced consulting expenses and unrealized losses on equity securities versus the prior quarter. And lastly, the tax rate for the quarter was approximately 22.3%, up from the prior quarter, which as a reminder benefited from the statutory release of $1,200,000 in uncertain tax positions. In closing out my comments, I’ll turn to Slide sixteen and seventeen for an update on our full year 2025 guidance. As Jeff mentioned, with an expectation for a third quarter Enterprise Bancorp closing, we reaffirm the high level results as presented at announcement, but the caveat being the uncertainty for fair value adjustment impact depending on the rate environment at closing.

The rest of the guidance I’ll provide now relates to Independent Bank Corp. As a standalone entity. In terms of loan and deposit growth, we anticipate a low single digit percentage increase in loans for the full year, while reaffirming low to mid single digit growth for deposits for the year. Regarding asset asset quality, we anticipate resolution of the larger non performing assets already discussed with the provision for loan loss driven by any loss emergence not already identified. Although we feel we have identified and fully reserved for the highest risk loans in our portfolio, we feel it is appropriate to pull specific provision for loan loss guidance given the increasing uncertainty over broader economic conditions.

For non interest income and non interest expense, we reaffirm our mid single digit percentage increases for full year 2025 versus 2024. And as a reminder for non interest expense guide, this does not include expected merger and acquisition expenses associated with the Enterprise acquisition. Regarding the net interest margin, there’s certainly a lot of moving pieces, and as such, I would point to Slide 17 to provide some additional detail over those moving pieces. First, to link back to prior guidance, and as noted on the right side of this chart, we reaffirm the Independent Bank Corp. Standalone guidance of three to four basis points of margin expansion each quarter.

However, that guidance is now impacted by the March subordinated debt raise, which we anticipate will reduce the standalone margin by about 11 basis points. But circling back to the three to four basis point expansion excluding the sub debt, there are also a couple of caveats worth noting. First, our neutral position on the short end of the curve incorporates some level of margin benefit from reduced time deposit pricing. So any future Fed rate cuts would likely create a quarter or two lag in achieving that full benefit. And second, the margin expansion expected from cash flow repricing assumes the middle and longer end of the curve does not materially contract, which would allow for the loan and securities asset repricing benefit that I just noted earlier.

And then lastly, in closing out the guidance, the tax rate for the full year is expected to be in the 22% to 23% range. That does conclude our comments. And with that, we’ll now open it up for questions.

Conference Operator: We’ll now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause for just a moment to assemble our roster. And your first question today will come from Mark Fitzgibbon with Piper Sandler.

Please go ahead.

Analyst/Questioner: Hey, guys. Good afternoon. Hey, Mark. First, a couple questions on credit. I was curious, the the top five NPLs you have, how many of those came from Boston?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: The largest one did as did double check here. Two out of the five are East Boston. One is Blue Hills.

Analyst/Questioner: Okay. Great. And then I apologize. I kinda missed with the cutout on loan b, the the new one, the 30 and a half million dollar loan that that came on to nonaccruals this quarter. Could could you just give us a a quick recap of what the story was with that one and your thoughts on resolution?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes. So that so that that had matured in the fourth quarter and reached its 90 past due in the first quarter. So it migrated to nonperforming status. The that’s a syndicated loan, if you recall. So the bank group is still working with the borrower to try and find resolution on a modification.

But at this point, we do have an appraisal in hand, and we thought it was appropriate to actually charge down to that appraisal value, which is the $8,100,000 loss we took in the quarter. So we’re hopeful for a possible modification, but we are in a position where we thought it was prudent to take the charge off.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Okay.

Analyst/Questioner: And then just sort of more of a macro question. It sounds like you’re suggesting that this quarter was really a cleanup. You put up some fairly large charges against these loans, and you’re hopeful these things are going to resolve pretty quickly. I guess I’m curious what gives you that much confidence given that we are probably facing a more challenging sort of economic climate?

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Yeah. Well, in a couple of cases including the largest loan, we’re pretty far along in in in is that the note sale?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Resolution. Yeah. The resolution of that. So That one’s a property sale. Right?

The property sale?

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Mhmm. So I guess it’s the stage we’re at with that one and the one other one that we talked about resolving in the second quarter where we feel like we’re on the 10 yard line in terms of getting it resolved. We don’t see anything as we sit here today that would preclude it, all sides have done their due diligence and are working through the closing process.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: I would just add too, Mark. In my opinion, is what the CECL model essentially is doing is for us, we try to identify that loss early and we put essentially specific reserves up when we think we have that loss ring fenced. And really all you’re seeing now for 30,000,000 out of the 40,000,000 charge off of those reserves that we had established in prior quarters. So I do think it’s the ramp up of provision as loss emerges and then the charge off numbers look a bit skewed when we get to the point of charging down. But for the most part, the vast majority of what you’re seeing here in the first quarter is really the same loans we’ve been talking about over the last couple of quarters.

I think that’s the silver lining in a lot of the noise you’re seeing. We’re really not seeing any material changes in criticized and classified. In fact, those combined levels are down, the NPAs are down and delinquencies are down. So certainly a lot of uncertainty out there with the tariffs and macroeconomic environment being what it is. But in terms of what we have visibility into, we still feel pretty good.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: The other thing I would add Mark just to be clear in terms of having these resolved the $30,000,000 loan that we just spoke about loan B, we’re working with in the context of the bank group to get resolution to that, but that’s unlikely to return to performing status in the near term even if we’re able to craft a resolution that can allow the bank group and the company to move forward.

Analyst/Questioner: Okay. And then changing gears a little bit. Your guidance, I think you provided when you announced the enterprise deal for the NIM for 2026 was sort of $3.70 to $3.75. I guess I’m curious, given the changes to sub debt and just the environment in general, do you still feel like that’s a reasonable bogey for 2026?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes. Yes, we do. The fundamentals behind that guidance are still intact. I believe when we talked about it, there was a few key components to that assumption. The first was that our stand alone margin would expand when you pull out the sub debt or excluding the sub debt, and we reaffirm that’s still going to happen.

We believe the enterprise margin is on track to expand as well. And then that combined number, if you recall, was getting us to somewhere around $355,000,000 to $360,000,000 And then the purchase accounting and the sub debt at that point was going to add about 20 basis points on a net basis. So really all that’s changed now is we accelerated that sub debt. So you’re going to see that in our standalone numbers. So what would have been a 3.6% assumption margin for our stand alone in 2026, I would say is now 3.5%, right?

It’s got the sub debt in there. And then you’re going to see a higher purchase accounting number post merger to give us basically 28 basis points lift over those stand alone numbers. If that if you’re kind of following just really just moved the 10 basis points of sub debt to our standalone numbers.

Analyst/Questioner: Got it. That makes sense. And lastly, can you share with us how big the loan pipeline is and maybe what the mix looks like?

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: The loan pipeline is pretty robust, honestly, which is we’re pleased about. I don’t have specific numbers in front of me, but I would characterize it as very healthy and it also reflects the shift that we’ve been talking about in that you know, there’s there’s a lot more C and I business in the loan pipeline than there’s been in the past due to the kind of the philosophical shift we’re trying to to undertake as an organization, but it’s it’s pretty healthy.

Analyst/Questioner: Thank you.

Conference Operator: Your next question today will come from Steve Moss with Raymond James. Please go ahead.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Good afternoon, guys.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Hi, Steve. Hi, Steve.

Analyst/Questioner: Maybe just starting with or just following up there on on the loan pipeline. I guess if the pipeline is robust, but you guys have taken down your your loan growth expectations a little bit. Does that reflect just you’re having deals extend out? Or you’re just kind of

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: curious what the dynamic is for with a good

Analyst/Questioner: pipeline than the pullback on

Chris O’Connell, Analyst, KBW: the guide for loans?

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Yes. So the way I would think about that Steve is we’re going to continue to see commercial real estate run off or reduction in commercial real estate, which is going to mute some of the growth we’ll see in C and I. And when you kind of mix all that together, that’s how we wind up with the kind of low single digit loan growth forecast. Think part of

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: it too, we’re still seeing there’s a little bit of a mixed bag on line utilization in the C and I space. So while the pipeline is healthy and we think there’s a good path for good commitments, we’re still not seeing necessarily a big change in line utilization at this point. So I think the natural shift from CRE, which is typically funded at close to C and I, is going to continue to challenge outstanding balances for the short term.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Which by the way is another just another quick point. In the current environment, we’ve not seen our customer base draw down their lines the way you may have heard some other banks have discussed, our line utilization has been pretty stable.

Analyst/Questioner: Got it. Okay, that’s really helpful. And then in terms of just loan pricing, just kind

Chris O’Connell, Analyst, KBW: of curious, feels like credit spreads have generally tightened this quarter. What are

Analyst/Questioner: you guys seeing for loan pricing these days?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes. It definitely is competitive out there, Steve. We’re trying to hold the line pretty well on pricing. So for the first quarter, we saw like a blended weighted average coupon in the $60.6.7 dollars range. Certainly, the five seven year part of the curve has been on a little bit of a roller coaster.

So we’re still trying to keep some level of stability on overall pricing. But I think where we are now, you’re probably pricing deals more in the mid-six maybe even a little bit tighter than that. But given our appetite to keep loan demand in check, think we’re going to stay as disciplined as we can on the pricing side.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: And we’ve never been a bank that’s led with price. We typically are looking to get paid for using the balance sheet.

Analyst/Questioner: Got it. Okay, great. That’s helpful. And then in terms of just loan B in particular with regard to to that loan, if I recall correctly, that was one where you had some leasing activity on the property. Just kinda curious where the status is of that leasing activity.

And, you know, is the borrower cooperating with the bank group or is this turning into a more hostile negotiation?

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Yeah. Maybe Mark and I can ham and egg this one, but I wouldn’t characterize it as hostile. Anytime you have a lot of banks in a situation like this, oftentimes it’s difficult to get consensus. And so I think some of the delays in getting an amendment done has been just that. We have a lot of banks with a lot of different perspectives and being able to get them all to agree at times is a bit difficult.

And then I think they haven’t signed any new leases. Don’t know what the current status is of their leases. Yes, believe it’s up

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: to around 80% occupancy now, which is what we I believe talked about on prior quarters with the entrance of some new tenants.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: But they still have free rent periods that are burning And I know as they think about bringing new tenants in, we have TI that needs to get negotiated between the borrower and the bank group.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes, think that’s been the biggest two characteristics of what’s challenging sort of the NOI and the cash flow on the deal. It’s been exactly that. It’s the free rent and the TI build out on some of the activity that they are seeing for new tenants.

Analyst/Questioner: Got it. Okay. And then in terms of just tying out, the enterprise deal here, you know, judging by the accretion number of the deck and everything else and the margin guidance you just gave, the sub debt was, that you guys issued was also was included in those original numbers just to tie up, I guess,

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: was, yes. I think I gave a 20 basis point lift in terms of the post merger impact. That was essentially 28 basis points of purchase accounting negated by or offset by eight basis points from the sub debt. That eight basis points is on the combined bigger balance sheet. So it’s the same level of sub debt, it’s just you’re seeing it create an 11 basis point drag on our margin as a stand alone entity, but that will essentially convert, for lack of a better word, to an eight basis point drag on the combined entity, if you’re following that.

Analyst/Questioner: Got it. Yes, I do. Great. Well, I appreciate all the color, and I’ll step back here.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Thanks, Keith. Thank you.

Conference Operator: Your next question today will come from Laurie Hunsicker with Seaport Seaport Research. Please go ahead.

Laurie Hunsicker, Analyst, Seaport Research: Great. Hi. Thanks. Good evening. Hello.

Sticking sticking with credit on slide six and by the way, your your slide six disclosure is super helpful. With that 30 and a half million dollar SNC that was running at, you know, 80% or so occupancy, I think, with Morgan Stanley as a lead, how did you guys come up with that $8,000,000 charge off? You said that was the new appraisal, or is that where Morgan Stanley is carrying it? Or did the FDIC come back in there? How do we think about that?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yeah. There there is an appraisal in house that supports that charge off.

Laurie Hunsicker, Analyst, Seaport Research: Gotcha. Okay. So that was by that was then done by the lead bank. Is that right? Or

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: That’s right. Wasn’t done by them. Wrong. No. No.

Ordered by the lead bank.

Laurie Hunsicker, Analyst, Seaport Research: Ordered by the right. Sorry. Not to say ordered. Okay. And then has the FDIC come back in and looked at that again?

Or

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: I I think the FDIC is deferring to our judgment because because it’s a shared national credit. So we’re between, you

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: know, having, you know, results from that exam and and really the the appraisal, I think they’re they’re referring to to our judgment given those two facts. Just just to be clear, we do get we do get reports of the SNC review, and that was also further support for taking the charge off in our opinion.

Laurie Hunsicker, Analyst, Seaport Research: Gotcha. Okay. And then what how big is that total loan? I mean, I I see we obviously, we know your portion.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: 500 or $5.50, something like that.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Little over 500.

Laurie Hunsicker, Analyst, Seaport Research: Hundred 5 hundred million. Okay. Great. And then just looking here at loan c, the one that you took, the $7,000,000 charge, and obviously, you’ve been really clear about what’s happening there. That was supposed to be a short sale in the first quarter.

You said now sliding to the second quarter. Is it still with the same? In other words, it’s a it’s it’s just split on timing, or are you short selling to somebody different?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: No. There is it it just split. I believe there was meant to be a property sale at one point, and then based on I I think there might have been, I forget exactly what the issue was.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: I think there were a number of investors. They’re having they’re having trouble getting signatures from all the different investors. So that’s why it flipped to a short sale.

Laurie Hunsicker, Analyst, Seaport Research: Yeah.

Analyst/Questioner: For

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: a no sale. A sale. Yeah. But the but the closing is I mean, it is it is there is an agreed upon closing with a buyer, and that you know, we we actually have a closing date in April, but we’re we’re expecting that’ll slip a bit into mid quarter.

Laurie Hunsicker, Analyst, Seaport Research: Okay. Okay. That’s great. And then loan a, that 54,000,000, you said that was all still on track for the second quarter. I mean, you you still feel as good as last quarter when you guys gave us that second quarter resolution?

Or

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: That’s right.

Laurie Hunsicker, Analyst, Seaport Research: Has that Yep. Has that gotten fuzzier? You still feel good on that?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Oh, there

Analyst/Questioner: it No.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: It’s not gotten fuzzier. Yeah. It’s gotten clearer. Of course, you know, don’t wanna spike the ball in the five yard line, but we feel we feel pretty comfortable it’s gonna close at this point based on what we know.

Laurie Hunsicker, Analyst, Seaport Research: Okay. Okay. That’s great. And then loan e, the $7,000,000 loan that you that you took a a specific reserve this quarter, the 1,600,000.0 specific reserve, that was that was due to a new appraisal. Is that because that loan is also gonna close?

Or how do we think about that?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yeah. If you recall, that was actually a loan we had under agreement, and we took a charge off on that back in the in the third quarter of I’m sorry, the fourth quarter of twenty twenty three. And then that deal had fallen through in early twenty twenty four. It’s currently being marketed again. There is not an agreement in place, but we now believe it’s appropriate to to look at a liquidate.

We have an appraisal with a liquidation value that is now supporting, an additional $1,600,000 there.

Laurie Hunsicker, Analyst, Seaport Research: Gotcha. Okay. And is that a Class A or Class B? Or what is that?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: So, again, that that’s a a deal where we’re not the lead bank on that. That’s that’s, I believe oh, and I

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: would say class b. Yeah.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: It’s in the suburbs here. Little bit of a unique property, I think, but probably tilts towards a class b.

Laurie Hunsicker, Analyst, Seaport Research: Gotcha. Gotcha. Okay. And then switching to margin, do you Mark, do you have a spot margin? And then do you have a spot margin sub debt adjusted?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Spot margin for March, I’d I’d have to look at what the the core was. I know it was influenced by a little bit of purchase accounting accretion, but I believe it was right around 03/03/1939 or March. Some and and the sub debt had very little impact in that spot market because it was only there for seven days. So I think that’s a, you know, a good a good case for that.

Laurie Hunsicker, Analyst, Seaport Research: Okay. Got it. Okay. And then, EBTC, any chance for an early close? We are seeing deals close a lot quicker.

There was one instance just done in the Mid Atlantic, pretty big deal, and the Fed approval came in before the state approval. I mean, any anything there?

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Yeah. So I think there’s always a possibility for an early close. At this point, we’ve not really we we’ve obviously submitted the application back at the January and we’ve had, I would say kind of normal back and forth with the FDIC and a little bit with the Fed. Just them submitting some questions, I would characterize the questions as again pretty normal, pretty benign. So we haven’t seen anything based on the questions we’ve gotten from the regulators that would give us pause.

And so now we’re just kind of in a wait and see mode. We’re not in the middle of responding to anything at the moment. So I do think there’s a possibility it could close earlier than than maybe what we thought couple months ago.

Laurie Hunsicker, Analyst, Seaport Research: Okay. Okay. And was that why you did the sub debt a little earlier than we thought? I think we were thinking that would happen sort of in the summer.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Or did

Laurie Hunsicker, Analyst, Seaport Research: you just decide with the market chaos we’re going now? I mean, how did you think about that?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: To be honest, a a little bit of both. I mean, I think some of the early tea leaves suggested, you know, there was a path here where we could close, you know, earlier than maybe we had originally anticipated. And that sort of shifted the mindset here to let’s get in the market when we think we can get the right execution. So we worked with our partners pretty aggressively. And as we all know, there’s been a lot of destabilization in the capital and debt markets, but we found a window there that we thought was advantageous.

So we were able to get that done. So it was a little bit of both of anticipating maybe an earlier closing, but also, you know, we always said we would we wanna get the deal done when we felt we could and the pricing was right.

Laurie Hunsicker, Analyst, Seaport Research: Yes. No. Great. Great job getting that done now. Okay.

So, Jeff, I have to ask you a direct question. Were you all company a on the $15 Brookline bid, the letter of intent?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Am I allowed to comment on that? I don’t think we can comment on that, but we we have our hands full

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Yeah. I’ll just say we’re very, very busy with enterprise. How about if we say that?

Laurie Hunsicker, Analyst, Seaport Research: Okay. Okay. Well, let me ask you maybe just sort of a a general and and slightly different way. In the past, Independent has done more than one bank at a time in an acquisition. How do you guys think about that?

I mean, we’ve got a very, very strong balance sheet now, albeit your currency has slipped, but so has everybody. I mean, with if the right deal came along and EBTC wasn’t closed, would you potentially would you potentially look to be involved?

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: I mean, honestly, I would never say never to questions like that, but I it would have to be really compelling for us to consider that. Obviously wasn’t here during all of the previous acquisitions that I’m not aware of us doing multiple deals at the same time. Could we do that? Suppose. Recall, we have an awful lot going on including not only the enterprise acquisition and integration but we’re doing a core conversion in May of twenty six.

So I would say those are our two biggest priorities. There was something that we found just like overwhelmingly compelling and it didn’t we didn’t think it would jeopardize either one of those two things, then maybe. But honestly, I don’t really see any I don’t see anything out there that I would characterize as overly compelling.

Laurie Hunsicker, Analyst, Seaport Research: Okay. Okay. And then actually, last question I had on the on the core systems upgrade. And I have it in my notes, but it doesn’t look like it was in the numbers that you might take a million and a half dollar expense charge in the first quarter and the second quarter relating to that core systems upgrade, or possibly my notes are wrong. Can you just help us think about what’s that expense in there, or when will we see that expense?

And I thought it was $3,000,000 Is that still the right number?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: I think we talked about a range of 3,000,000 to 5,000,000 and probably why you’re 3,000,000 So part of that is our relationship with the core provider. Expense is actually a lot higher than that, but some of that gets absorbed with credits we have with the provider. So right now, we’ve been able to we haven’t really incurred any expense associated with that conversion at this point. But I still think there’s we still believe there’ll be some expense that will not be absorbed by the credits here in 2025. And I would still would suggest it’s in that probably 3,000,000 to $4,000,000 range.

But if we have some of that in the upcoming quarters, we’ll highlight that with each quarter’s results. But none of it none of that was in the first quarter. So it’s very modest.

Laurie Hunsicker, Analyst, Seaport Research: Got it. And then what just one last question. So with the system’s conversion upgrade coming, I think, May of twenty twenty five, you said then we’ll expect it ’26.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Sorry. May of twenty six would be the conversion.

Laurie Hunsicker, Analyst, Seaport Research: May of twenty six. Gotcha. Okay. Gotcha. Okay.

Great. Thanks. I’ll leave it

Analyst/Questioner: there. Alright.

Conference Operator: Your next question today will come from Chris O’Connell with KBW. Please go ahead.

Chris O’Connell, Analyst, KBW: Hey. Good evening. Good day, Chris.

Analyst/Questioner: I just wanted

Chris O’Connell, Analyst, KBW: to start off on the margin and make sure I had everything right. So the 11 basis points off of the core in March ’37 is the immediate hit into 2Q. And then is the is 2Q also inclusive of you know, the three to four basis point increase per quarter, so kind of, you know, net out, you know, down seven or eight?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: You got it. Yep. Those would be sort of the two major drivers that I would suggest will happen in the second quarter.

Chris O’Connell, Analyst, KBW: And to ask what’s the plan, I guess, or the assumptions around the deployment of the elevated cash balances coming out of this quarter with the sub debt raise and then, I guess, that 4% estimated proceeds yield?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes. So certainly, if you could sort of assume that that’s somewhat of a conservative, all that cash stays in at Fed funds, and we picked a 4% number for purposes of modeling that out. I’d say priority would be to support loan growth to the extent we’re able to increase versus our guidance. I think our securities portfolio is in a pretty good spot. But we may put a little bit to work in the securities, but I wouldn’t suggest we’ll elevate there too much.

I also think we want to keep some of that to just some of it will need to be used for the cash component of the acquisition, which is not a very large amount, but that’s 20,000,000 to $25,000,000 And then $50,000,000 of that will be used to pay down the Enterprise sub debt that we’ll be absorbing when we combine. And then there is some wholesale borrowings at Enterprise that we could certainly use our excess liquidity and just sort of delever the balance sheet a bit, take some of the excess cash and pay down their wholesale borrowings. So long way of saying, I don’t think we’re going to rush to necessarily force putting that cash to work in the next quarter or two. I think there’ll be certainly more opportunities on a combined basis to kind of, like I said, either support loan growth or pay down wholesale borrowings.

Chris O’Connell, Analyst, KBW: Great. So I mean safe to say, you think there’s airing on the conservative side with that 4% yield and probably have potential for upside there?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes. I think that’s fair.

Chris O’Connell, Analyst, KBW: Great. And then just thinking about your guys’ capital levels and even with the deal will remain kind of robust afterwards. If the deal closed tomorrow, what would you say given the overall environment and what you guys are seeing on the loan growth demand balanced with the buyback and M and A conversations, how would you guys or what would your guys priorities be? Guess, is the buyback the most attractive? Have you guys had other M and A conversations that have been going along?

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes. I mean, I think from a practical standpoint, I think we absolutely should be thinking about buyback. I mean, I would say our prioritization would be to support organic growth. But I think the practical side of it is in this environment and as you see in our guidance, we’re not predicting to significantly increase the balance sheet footings in the near term. So when you look at our valuation, I think there is an opportunity here where a buyback makes sense.

Chris O’Connell, Analyst, KBW: Great. Thanks, Chuck. Thanks, Bob.

Mark Ruggiero, Chief Financial Officer, Independent Bank Corp: Yes. This

Conference Operator: concludes our question and answer session. I would like to turn the conference back over to Jeff Tangle for any closing remarks.

Jeff Tangle, Chief Executive Officer, Independent Bank Corp: Thanks everybody. Appreciate your interest in INDB. Apologize for some of the technical difficulties and, hope you have a nice holiday weekend.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may

Chris O’Connell, Analyst, KBW: now disconnect.

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