Independent Bank Corp. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Closed the Enterprise acquisition, with Rockland Trust and Enterprise team members collaborating to minimize disruptions. Retained almost 100% of client-facing personnel in commercial banking and all Enterprise branch employees in retail.
• Credit metrics were stable, with net charge-offs averaging 11 basis points over the last 3 quarters of 2025. Challenges in the office portfolio were identifiable and manageable.
• Rebalanced commercial lending: C&I loans increased 9% organically in 2025, while commercial real estate balances were down 3.6% organically from year-end 2024. Total commercial loans closed in the fourth quarter were $789 million.
• Achieved solid organic growth in non-time deposits (4.2% in 2025) and legacy Rockland Trust branches generated record new business relationships.
• Returned $164 million of capital to shareholders in 2025, including the repurchase of 913,000 shares for $61 million.

Segment Performance

• Commercial Banking: C&I loans increased 9% organically in 2025, now representing 25% of total loans. In the fourth quarter, total commercial loans closed were $789 million, with 52% of fundings being C&I. The middle market C&I group accounted for 27% of total closed commitments.
• Retail Banking: No Enterprise branches were closed, and all Enterprise branch employees were retained. Excluding ICS and municipal deposits, Enterprise branches exceeded the 95% deposit retention target, with approximately 60% of branches having stable to increasing deposit balances. Opened 271 business relationships and 837 new consumer relationships in acquired branches.
• Wealth Management: Assets under administration (AUA) remained stable at $9.2 billion in the fourth quarter, while revenues grew at a 4% annual rate.
• Non-Deposit Growth: Organic growth of non-time deposits was 4.2% in 2025. DDAs represented 28% of overall deposits, and the cost of total deposits was 1.46% in the fourth quarter.

Guidance

• 2026 targets: Return on average assets (ROA) of 1.4% and return on average tangible capital (ROTCE) of 15%.
• Loan growth: Mid-single-digit percentage growth for C&I loans, low single-digit percentage growth for combined CRE and construction, and flat to low single-digit percentage growth for total consumer.
• Deposit growth: Low- to mid-single-digit percentage growth for total core deposits, with time deposits relatively flat to slightly lower.
• Net interest margin: Expected to grow to a range of 3.85% to 3.90% in Q4 2026, assuming 2 Federal Reserve rate cuts.
• Noninterest income: Low single-digit percentage growth off of the 2025 second half combined annualized results.
• Noninterest expense: Estimated range of $550 million to $555 million for full year operating expenses, plus $4 million to $5 million for onetime costs associated with the core system upgrade.
• Tax rate: Projected full year tax rate in the 23.50% to 24% range.

Risks

• Geopolitical noise and potential tariffs causing customer anxiety, which could impact credit profiles.
• Execution risks associated with mergers and acquisitions, particularly large mergers of equals (MOEs), which are difficult to manage and carry more risk.
• Uncertainties in the credit cycle, though management believes they are near the peak of the cycle.

Q: On the credit side, walk through the dynamics with the office loans, including the change in criticized classified and NPLs?

A: The most notable mover in NPAs was a $18.1 million classified loan in the first quarter 2026 maturity bucket. It was originally scheduled to mature last quarter but put on a short-term extension. A $2 million loss was reserved in the fourth quarter, with negotiations expected to resolve it early in 2026. There was also a $27 million loan that matured and was upgraded from a risk rating standpoint.

Q: What is the outlook for deposits beta with potential Fed cuts?

A: The deposit franchise has a structure with small balance core deposits (5%-10% beta) and higher rate sensitive deposits (70%-80% beta), resulting in a 20% beta on the non-time deposit base. The CD book is kept relatively short to leverage these beta dynamics.

Q: What is the outlook on M&A?

A: Not focused on bank M&A at the moment. However, may consider a Registered Investment Advisor (RIA) acquisition if it is a good fit, as it involves less execution risk compared to bank M&A.

Q: What are loan pricing dynamics for C&I and CRE loans?

A: The market is competitive, with some C&I deals seeing spreads under 200 basis points, but Rockland Trust is getting fair share at 200+ basis points. Total loan yields were in the mid 6s in the fourth quarter.

Q: Talk about expenses, including the core system upgrade and onetime costs?

A: In the fourth quarter, $750,000 of consulting expense was related to the 2026 core system upgrade. Onetime costs for the upgrade are estimated at $4 million to $5 million, spread evenly over the year, with more in the first quarter and leading up to the October conversion date.

Q: What is the plan for AI spend?

A: A methodical approach with a governance model is being used. There are 3 dedicated individuals working on AI initiatives, with investment in AI based on demonstrated benefits to ensure it positively impacts the expense run rate.