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IB

INDEPENDENT BANK CORP (INDB)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered solid core performance (NIM up 9 bps to 3.42%) and strong deposit growth ($370M, +2.4%), but GAAP EPS fell to $1.04 due to elevated credit costs tied to resolving large office-related NPLs; operating EPS was $1.06 .
  • EPS missed S&P Global consensus ($1.06 actual vs $1.165 consensus), while reported total revenue of $178.0M exceeded consensus of $175.0M as deposit costs fell to 1.56% and fee lines held steady; note consensus values are from S&P Global* .
  • Management reaffirmed full-year stand-alone NIM expansion of 3–4 bps per quarter but flagged an ~11 bps immediate drag from the $300M 7.25% subordinated debt issued in late March; loan growth guide was trimmed to low-single-digit, deposits reaffirmed low-to-mid single-digit .
  • Credit cleanup advanced: $40.9M net charge-offs (mostly office loans previously reserved), NPLs fell to $89.5M (0.62% of loans), allowance moved to 0.99%; multiple problem office credits are on track for resolution in Q2 .
  • Catalysts: execution on Q2 loan resolutions, sustained NIM tailwinds (lower deposit costs, long-end repricing), Enterprise Bancorp closing (target Q3, possible earlier), and capital deployment (buybacks discussed) .

What Went Well and What Went Wrong

What Went Well

  • Net interest margin expanded to 3.42% (core 3.37%), driven by lower deposit costs and asset repricing; period-end deposits rose $370M with core deposits at 82.7% of total and non-interest DDA at 28.1% .
  • Wealth business strong: AUA increased to ~$7.1B (+0.9% q/q); related investment & advisory revenues up 4.1% q/q despite market volatility .
  • Management reaffirmed stand-alone quarterly NIM expansion (3–4 bps) and emphasized durable deposit franchise (1.56% deposit cost) and robust capital, including Tier 2 capital from the $300M sub-debt issuance .
    “We prudently grew deposits... In the first quarter, the cost of deposits was 1.56%, highlighting the immense value of our deposit franchise.” — CEO Jeffrey Tengel .

What Went Wrong

  • Elevated provision ($15.0M) and $40.9M net charge-offs concentrated in office credits reduced EPS vs prior quarter; GAAP EPS $1.04 (operating $1.06) vs Q4 2024 $1.18 .
  • Immediate NIM headwind (~11 bps) from March sub-debt raise tempers near-term margin trajectory despite underlying expansion drivers .
  • One additional large syndicated Boston office loan migrated to non-accrual; while occupancy ~80%, free rent/tenant improvements still pressure NOI and complicate bank group alignment .

Financial Results

EPS, Revenue, and Margins (prior periods and current)

MetricQ3 2024Q4 2024Q1 2025
Diluted EPS (GAAP) ($)1.01 1.18 1.04
Operating EPS (Non-GAAP) ($)—1.21 1.06
Net Interest Income ($MM)141.7 144.7 145.5
Noninterest Income ($MM)33.5 32.2 32.5
Total Revenue (GAAP) ($MM)175.3 176.9 178.0
NIM (reported, %)3.29% 3.33% 3.42%
Core NIM (Non-GAAP, %)3.29% 3.31% 3.37%

Balance Sheet and Credit KPIs

MetricQ3 2024Q4 2024Q1 2025
Loans ($B)14.4 14.508 14.492
Deposits (period-end, $B)—15.306 15.676
Deposit Cost (%)1.65% 1.65% 1.56%
Provision for Credit Losses ($MM)19.5 7.5 15.0
Net Charge-offs ($MM)6.7 1.2 40.9
NPLs ($MM)104.2 101.5 89.5
NPLs / Loans (%)0.73% 0.70% 0.62%
ACL / Loans (%)1.14% 1.17% 0.99%
Tangible Book Value per Share ($)46.57 46.96 47.81

Loan Segment Breakdown (Period-End)

Segment ($MM)Q4 2024Q1 2025
Commercial & Industrial3,048 3,110
Commercial Real Estate6,757 6,652
Commercial Construction782 796
Small Business282 289
Total Commercial10,868 10,847
Residential Real Estate2,461 2,466
Home Equity – First490 484
Home Equity – Subordinate650 660
Other Consumer39 35
Total Loans14,508 14,492

Additional KPIs

KPIQ3 2024Q4 2024Q1 2025
Core Deposits (% of deposits)——82.7%
Non-interest DDA (% of deposits)—28.7% 28.1%
Wealth AUA ($B)~7.2 7.035 7.099
Tax Rate (%)22.4% 20.5% 22.29%
PPNR ROAA (Operating, %)——1.52%

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2024)Current Guidance (Q1 2025)Change
Loan GrowthFY 2025Low-to-mid single-digit Low single-digit Lowered
Deposit GrowthFY 2025Low-to-mid single-digit Low-to-mid single-digit reaffirmed Maintained
NIM Expansion (stand-alone)FY 2025~12–15 bps for the year (~3–4 bps/quarter) Reaffirm +3–4 bps/qtr; sub-debt reduces stand-alone margin ~11 bps near-term Maintained core path; added ~11 bps drag
Provision GuidanceFY 2025Expected to decline, driven by growth/limited migration Pulled specific provision guidance given macro uncertainty Withdrawn
Noninterest IncomeFY 2025Mid-single-digit increase Mid-single-digit increase reaffirmed Maintained
Noninterest Expense (ex-M&A)FY 2025Mid-single-digit increase; ~$3M core conversion opex in 2025 Mid-single-digit increase reaffirmed; conversion expenses may occur in 2025 Maintained
Tax RateFY 2025~23% 22–23% Slightly narrowed
Enterprise Close Timing2025Announced Dec 2024; timing TBD Target Q3 2025; possibility of earlier close Clarified/tighter
Combined Margin (post-merger, 2026)20263.70–3.75% view View reaffirmed; sub-debt timing shifts stand-alone to ~3.50% with ~28 bps PAA/sub-debt net lift post-close Maintained structure
DividendCurrent—Quarterly dividend increased 4% to $0.59 Raised

Earnings Call Themes & Trends

TopicQ3 2024 (Prev)Q4 2024 (Prev)Q1 2025 (Current)Trend
Office CRE resolutionEstablished $22.4M specific reserve on $54.6M loan; identified additional stressed credits Detailed maturities/credit migration; delinquency uptick tied to $30M syndicated loan $24.9M charge-off on $54M “Loan A”; $8.1M charge-off on $30M syndicate; $7M on “Loan C”; NPLs down; more resolutions expected Q2 Active cleanup; improving NPLs
Margin outlookNIM up 4 bps; caution on Fed cuts lag in deposit repricing NIM up 4 bps; guided +3–4 bps/qtr 2025 NIM up 9 bps; sub-debt headwind ~11 bps; +3–4 bps/qtr expansion reaffirmed Positive core; near-term drag
DepositsGrowth, stabilization, household adds Cost 1.65%; stable mix +$370M period-end; cost 1.56%; core deposits 82.7% Strengthening
C&I focusPipeline building; line utilization subdued Double-digit annualized growth C&I up 2%; continued hiring; FX/trade finance build-out Shift toward C&I
TechnologyNo core changeAnnounced FIS core conversion May 2026 FIS platform upgrade preparations ongoing Execution phase
M&A (Enterprise)Announced Dec 2024Integration planning; deal rationale Target Q3 close; majority of customer-facing staff retained; potential earlier close Progressing
Capital actionsBuybacks evaluated Sub-debt contemplated $300M sub-debt completed; buybacks seen as attractive given valuation Optionality increased

Management Commentary

  • “On a core operating basis, results for the first quarter were reflective of solid pre-provision net revenue growth, offset by higher credit costs... Operating leverage was positive... PPNR ROAA was 1.52%...” — CEO Jeffrey Tengel .
  • “2025 first quarter GAAP net income was $44.4 million... diluted EPS was $1.04... excluding $1.2 million of M&A expenses, adjusted operating net income was $45.3 million or $1.06 diluted EPS...” — CFO Mark Ruggiero .
  • “Net interest margin... improved 9 bps... core margin up 6 bps... We reaffirmed the stand-alone guidance of 3 to 4 bps of margin expansion each quarter; subordinated debt raise... will reduce the stand-alone margin by about 11 bps.” — CFO Mark Ruggiero .
  • “We remain confident... We are fortunate to have an envious deposit franchise, a strong liquidity position and a robust capital base.” — CEO Jeffrey Tengel .

Q&A Highlights

  • Office loan resolutions: management expects second-quarter closings; “we feel like we're on the 10-yard line” for the largest property sale; Loan B unlikely to return to performing near-term even with modification .
  • Syndicated Boston office (Loan B): migrated to nonperforming; 80% occupancy but free-rent and TI weigh on cash flows; $8.1M charge-off to appraised value; bank group coordination remains a challenge .
  • Margin mechanics: sub-debt causes ~11 bps hit in Q2; underlying +3–4 bps/qtr expansion persists; March spot core margin ~3.39–3.40% with minimal sub-debt impact (only 7 days) .
  • Loan pipeline: robust but CRE runoff and stable line utilization mute outstanding balance growth; pricing mid-6% range amid competitive spreads .
  • Enterprise closing: normal regulatory Q&A; possibility of earlier close; $50M plan to retire Enterprise sub-debt and potential paydown of wholesale borrowings post-combination .

Estimates Context

  • EPS vs Consensus: GAAP/operating EPS $1.06 (operating) vs Primary EPS Consensus Mean $1.165 → EPS miss; Primary EPS estimates count: 4*.
  • Revenue vs Consensus: Company-reported total revenue $178.0M vs Revenue Consensus Mean $175.0M → revenue beat*.
  • Target price consensus: $82.75 (4 estimates)*.
MetricQ1 2025 ActualQ1 2025 Consensus
EPS ($)1.06 (Operating) 1.165*
Total Revenue ($MM)178.0 175.0*
Target Price ($)82.75*82.75*

Values with asterisk were retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term EPS pressure from concentrated office charge-offs should abate as multiple problem credits are expected to resolve in Q2; NPLs already declined sequentially and criticized/classified levels fell 14% q/q .
  • Core margin trajectory remains positive (3–4 bps/qtr) despite the sub-debt headwind; deposit costs fell to 1.56% and long-end repricing supports continued NIM expansion through 2025 .
  • Strategic pivot toward C&I is gaining traction (C&I +2% q/q), helping reduce CRE concentration and diversify earnings as Enterprise integration approaches .
  • Capital flexibility enhanced: $300M sub-debt bolsters Tier 2; buybacks considered attractive given valuation and modest balance sheet growth outlook .
  • Dividend increased 4% (to $0.59), TBV/share rose 1.8% q/q—evidence of tangible capital accretion even amid credit clean-up .
  • Watch catalysts: execution on Q2 office resolutions, regulatory approvals and timing for Enterprise close (potentially earlier than Q3), and progression of margin expansion vs. sub-debt impact .

Appendix: Notable Q1 2025 Items

  • Sub-debt issuance: $300M fixed-to-floating notes (7.25% fixed through April 1, 2030; callable in 2030), proceeds increased cash and capital; immediate NIM drag modeled at ~11 bps .
  • Asset quality details (Top 5 NPLs roll-forward): Loan A $24.9M charge-off; Loan B $8.1M charge-off; Loan C $7.0M charge-off; other specific reserves/paydowns as detailed; ACL/Loans moved to 0.99% .
  • Wealth: AUA ~$7.1B, investment/advisory revenue +4.1% q/q .
  • Operational: FIS core conversion scheduled for May 2026; related opex expected in 2025 (management will highlight as incurred) .