INDEPENDENT BANK CORP Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Core Operating Results: Solid pre-provision net revenue growth offset by higher credit costs. PPNR growth driven by net interest margin improvement, fee revenue, and controlled expenses. Tangible book value improved 1.8% Q/Q and 7.8% Y/Y.
• Credit Costs: Elevated credit costs due to resolution of problem loans. Largest NPL on track for resolution in Q2, another large NPL slipped to Q2, and one large problem loan moved to non-performing in Q1.
• Business Strategies: Reducing commercial real estate concentration; C&I and small business loans up; added 7 C&I bankers. Preparing for Enterprise acquisition closing in Q3. Core FIS processing platform upgrade scheduled for May 2026. Prudently grew deposits; Wealth Management business as key value driver.
• Deposit Franchise: Cost of deposits 1.56%, highlighting value of deposit franchise.

Segment Performance

• Net Interest Margin: FTE reported net interest margin improved 9 basis points to 3.42% in Q1 2025, with FTE core margin up 6 basis points to 3.37%.
• Deposits: Period end balances increased by $370 million or 2.4% in Q1. Non-time deposits were up 2.8% year-over-year and 3.2% from Q4. Non-maturity consumer, business, and municipal deposits increased, while CD portfolio contracted slightly.
• Loans: Total loans stayed relatively flat. C&I balances increased 2% annually, while CRE and construction loans decreased 1.2%. Commercial criticized and classified loans decreased to 3.8% of total commercial loans.
• Wealth Management: AUA grew by nearly 1% to $7 billion in Q1, with organic growth/net positive flows totaling $41 million. Investment Management revenues increased 4% from Q4 and nearly 13% from Q1 2024.

Guidance

• Loan and Deposit Growth: Anticipate low single-digit percentage increase in loans and low to mid-single digit growth in deposits for full year 2025.
• Asset Quality: Anticipate resolution of larger non-performing assets, provision for loan loss driven by loss emergence not already identified.
• Non-Interest Income and Expense: Reaffirm mid-single digit percentage increases for full year 2025 versus 2024, excluding Enterprise acquisition expenses.
• Net Interest Margin: Reaffirm 3 basis points to 4 basis points of margin expansion each quarter, but March subordinated debt raise reduces standalone margin by about 11 basis points. Tax rate expected to be in 22% to 23% range.

Risks

• Economic Uncertainty: Impact of tariffs and federal government actions increasing economic uncertainty, causing clients to pause expansion/growth initiatives.
• Credit Risks: Potential for broader economic conditions to increase uncertainty, affecting loan resolutions and provision for loan loss.
• Regulatory Risks: Uncertainty around regulatory approvals and compliance, especially with the Enterprise acquisition.

Question and Answer

Q: Top five NPLs, how many from East Boston?

A: Two out of five are from East Boston, one is from Blue Hills.

Q: Recap of $38.5 million loan that came onto non-accruals?

A: Loan matured in Q4, reached 90-day past-due in Q1, migrated to non-performing. Bank group working on modification, charged down to appraisal value of $8.1 million.

Q: Confidence in loan resolutions despite economic climate?

A: Largest loan near resolution, other loans in advanced stages; criticized and classified loans down, NPAs and delinquencies down.

Q: Loan pipeline and growth expectations?

A: Robust loan pipeline, but low-single digit loan growth forecast due to CRE runoff and mixed C&I line utilization.

Q: Loan pricing and Enterprise deal margin impact?

A: Competitive loan pricing, sub-debt impacts standalone margin but Enterprise deal fundamentals intact, purchase accounting and sub-debt affect margin projections.

Q: Core systems upgrade expense?

A: Range of $3 million to $5 million, with some expense not absorbed by credits, no significant expense in Q1.

Q: Margin and cash deployment with sub-debt raise?

A: 11 basis point hit to core margin in Q1, cash deployment priorities include supporting loan growth, paying down Enterprise sub-debt, and delevering balance sheet.