Independent Bank Q3 2025 Earnings Call Transcript

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Provided by Quartr
October 17, 2025

Key Takeaways

  • Positive Sentiment: Successful Enterprise acquisition and systems conversion — management retained almost 100% of client-facing bankers, kept all Enterprise branches and employees, reported negligible customer loss, and has begun adopting best practices from Enterprise.
  • Positive Sentiment: Strong underlying financial performance — reported NIM improved to 3.62%, adjusted operating EPS was $1.55, operating return on tangible common equity rose to 13.2%, and C&I loans grew ~13% (annualized).
  • Negative Sentiment: Merger and accounting impacts depressed GAAP results — the quarter included $23.9M of merger expenses, a $34.5M day-two CECL provision on non‑PCD acquired loans, and roughly 7% tangible book dilution (less than originally modeled), while the company repurchased $23.4M of stock.
  • Neutral Sentiment: Asset quality mixed but contained — net charge-offs were low ($1.8M, ~4 bps), the allowance rose by $45.7M (including acquired loan provisions), and NPAs were 0.35% (with about $25M acquired NPAs), while office stress is concentrated in a few loans.
  • Positive Sentiment: Outlook and cost savings — management guides to 4–6 bps of adjusted margin expansion in Q4, low single‑digit loan/deposit growth, expects to realize targeted 30% cost saves on Enterprise expenses by Q1 2026, and is planning a May 2026 core system conversion to support scalability.
AI Generated. May Contain Errors.
Earnings Conference Call
Independent Bank Q3 2025
00:00 / 00:00

There are 8 speakers on the call.

Speaker 1

Good day and welcome to the INDB Independent Bank Corp. Third Quarter 2025 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone cell. To withdraw your question, please press star then two. 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.

Speaker 1

Information about these non-GAAP measures, including reconciliations to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings may be accessed via the Investor Relations section of our website. Finally, please note this event is being recorded. I would now like to turn the conference over to Jeffrey Tengel, CEO. Please go ahead.

Speaker 4

Good morning and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. We had a busy third quarter. We closed on the Enterprise transaction on July 1 and completed the systems conversion this past weekend. We posted solid financial results and continue to make progress on several of our strategic initiatives. Results for the third quarter reflect continued NIM improvement, strong C&I loan growth, solid growth in low-cost deposits, lower credit costs, and the beginning of the realization of cost savings from the Enterprise acquisition. Our PP&R return on average assets was 1.7% on an operating basis, and our operating return on average tangible common equity improved 283 basis points to 13.2%. I wanted to focus most of my comments on the Enterprise integration and conversion.

Speaker 4

Before we get into some of the specifics, I would like to highlight one important difference in this transaction. The typical pattern in most of the acquisitions I've been involved in is for the acquired CEO to get a big payday and ride off into the sunset. In the case of Enterprise, their former chairman and founder, George Duncan, remains actively involved. He is an advisor to our board, chairs the newly created Lowell Advisory Board, and continues to be an advocate for Rockland Trust and the community. There are several other senior executives from Enterprise who also continue to be a resource and advocate for us. The involvement and insights provided by George and his colleagues have been invaluable as we bring these two banks together. Simply put, they care. Regarding the integration, things went extremely well.

Speaker 4

We've had great collaboration between the teams post-close and the lead-up to the systems integration and conversion that took place this past weekend. While it's still early, we think the conversion went exceptionally well. Many colleagues across various business lines commented on how this transaction felt different than others they were involved in. The level of teamwork and appreciation for what each side brought to the table was a common theme across many I spoke with. For Rockland Trust colleagues, we have been open to acknowledge ways in which the Enterprise Bank did things differently and perhaps better, and we have already adopted some practices and approaches from Enterprise. On the commercial banking side, we've retained almost 100% of client-facing personnel and have experienced negligible customer loss. Obviously, keeping the lenders has helped retain the customers.

Speaker 4

The Enterprise lenders are fully embracing Rockland Trust's diverse lending product set, as well as their treasury management and fee income offerings. As evidence of this engagement, Enterprise Bankers' originations for the third quarter this year were 27% higher than the prior year period. This is a testament to my comment last quarter, where I highlighted our similar credit culture. As such, there has not been the typical transition period where the acquired bankers must figure out where the new bank's credit appetite is. A key initiative going forward will be to continue to cross-sell deeper into this Enterprise customer base. On the retail banking side, it's important to emphasize that no Enterprise branches were closed and all Enterprise branch employees were retained. There are many strategic and tactical methodologies that we have found to be beneficial and will be working to incorporate those at Rockland.

Speaker 4

These include incentive plans, position responsibilities within a branch, and de novo branch openings. Excluding brokered funds, deposit retention at Enterprise has been better than expected. We are also eager to bring our broader consumer lending product set to this market, with early activity indicating the team is well-positioned to introduce both mortgage and home equity offerings to further support these strong communities. Within our investment management group, we've been able to retain all employees we had targeted. The caliber of talent, the strength of the client base, and the depth of relationships between colleagues and clients are outstanding. At both Rockland Trust and Enterprise, a client-centric focus and the cultural integration has been excellent. In summary, success is driven by having talented and engaged employees. It was great to note that over 90% of Enterprise employees who had a job offer extended accepted that offer.

Speaker 4

We can't be more excited about the merits of this transaction. Shifting gears a bit to the general business conditions in the current environment, we can now add the government shutdown to the existing list of tariffs, government funding, and inflation and unemployment that weigh on clients' minds. Overall, the word I think our clients would use to characterize all this is uncertainty. Yet our client base remains resilient. The recent AIM poll, which is the Associated Industries of Massachusetts, showed that their Massachusetts business confidence was in the high 40s, right where it's been for the last five months. A score of 50 is considered negative. Of note, the poll was taken prior to the government shutdown. Turning to results at INDB, I would like to touch on just a few financial highlights before I turn it over to Mark.

Speaker 4

First, C&I loans grew organically at a 13% annualized rate. This represents continued strong performance in our legacy markets like Plymouth County, coupled with some of our newer initiatives maturing. Second, commercial real estate loan balances declined organically at a 6.7% annualized rate due to normal amortization and the intentional reduction of transactional CRE business. We've talked in the past about getting our CRE concentration below 300%. As expected, the Enterprise acquisition resulted in our CRE concentration increasing. However, the quarter-end number landed at 295%, indicating we have quickly met our challenge to get our concentration below 300%. Despite this, there remains additional transactional CRE we wish to exit as quickly and as economically as possible while still serving our legacy client base. In all, we see a clear path for the bank to return to a rate of loan growth more commensurate with our solid deposit growth.

Speaker 4

Third, we think generating organic demand deposit growth of 5% annualized in the third quarter, which has been a historical strength of ours. DDAs represent a healthy 28% of overall deposits, about where we were pre-pandemic. In the third quarter, the cost of deposits was 1.58%, highlighting the immense value of our deposit franchise. Lastly, our wealth management business continues to be a key value driver. We grew our AUA to $9.2 billion in the third quarter, inclusive of the $1.4 billion acquired from Enterprise. Now that we have the Enterprise conversion behind us, we will continue to prepare for our core conversion of the entire bank, scheduled for May of 2026. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiencies and scalability, and support the future growth of the bank.

Speaker 4

We think third quarter results are an important stepping stone to improved growth and profitability for Rockland Trust. We expect to build off these solid results in the quarters ahead. We believe prudent expense and capital management, continued NIM improvement, the realization of the benefits of the Enterprise Bank acquisition, and improved organic growth will unlock the inherent earnings power of Rockland Trust. On that note, I'll turn it over to Mark.

Speaker 3

Thanks, Jeff. As Jeff just hit on a lot of the key drivers for the quarter, I will go into a bit more detail in a few areas, focusing primarily on the Enterprise acquisition, some of the big moving pieces during the quarter, and expected trends going forward. To summarize the quarter results, 2025 third quarter GAAP net income was $34.3 million, and diluted EPS was $0.69, resulting in a 0.55% return on assets, a 3.82% return on average common equity, and a 5.84% return on average tangible common equity, excluding $23.9 million of merger and acquisition expenses and $34.5 million of day-two CECL provision for non-PCD acquired loans and their related tax impacts.

Speaker 3

The adjusted operating net income for the quarter was $77.4 million, or $1.55 diluted EPS, representing a 1.23% return on assets, an 8.63% return on average common equity, and a 13.2% return on average tangible common equity. I'll start with some of the key metrics that are heavily impacted by the Enterprise acquisition. First, in terms of a capital update, as a reminder, we originally estimated the Enterprise deal to result in 9.8% tangible book dilution, including estimated M&A to be incurred in the fourth quarter. We pegged actual tangible book dilution right around 7%, as the loan interest and credit marks came in lower than originally modeled. As such, we anticipate slightly lower earnings accretion than originally modeled as well. In addition, we repurchased $23.4 million of capital at an average price per share of $64.07 during the quarter.

Speaker 3

Despite the deal impact dilution and repurchase activity, our improved earnings profile and OCI movement resulted in a tangible book value per share decrease for the quarter of only $2.17, or 4.5%, while the tangible book value per share is up modestly over the year-ago metric. Regarding the net interest margin, the reported margin improved meaningfully to 3.62% for the quarter. The 25 basis point increase from the prior quarter can be summarized by highlighting a few key components. First, both the Rockland Trust and Enterprise Bank balance sheet profiles are well-positioned to experience margin growth from loan and securities cash flow repricing, and we saw that drive a good portion of the increase this quarter. In addition, though it has negligible impact on the actual net interest income results, the margin also improved slightly by the payoff of approximately $110 million of acquired debt from Enterprise.

Speaker 3

The margin also expanded approximately five basis points due to purchase accounting accretion on the acquired securities book. Lastly, we saw approximately eight basis points of expansion from purchase loan accretion. Regarding this last item, we recognize that the loan accretion results are less than suggested in our guidance last quarter. I would suggest this is purely a timing issue. The total accretable loan interest and credit mark is approximately $160 million, and we will expect the vast majority of that to come in over the next five to seven years. However, we remind everyone that the actual results can often be lumpy due to prepayments, individual loan payoffs, and repricing events. As long as longer-term rates remain intact, we are confident that our reported margin will reflect a sustainable level as those accretion numbers roll down.

Speaker 3

With the Federal Reserve cut occurring in mid-September, the quarterly results had very little impact from the Fed action. We continue to reiterate our guidance that the bank is positioned to see little impact on the net interest margin from the recent and any future Fed cuts. Shifting gears to loan and deposit activity for the quarter, we are very pleased with the organic results for the quarter. As Jeff just alluded to, you saw our strategic initiative to focus on relationship CRE and C&I lending on display, as total C&I balances increased organically over 13% on an annualized basis for the quarter and are up over 7% through the first nine months of the year. In addition, we are still optimistic over CRE and construction activity moving forward, with the year-to-date declines driven primarily by runoff and workouts of more transactional balances.

Speaker 3

Specific to the Enterprise Bank acquisition, our newly acquired teams are working off of the same playbook, prioritizing C&I and relationship CRE, and they have not missed a beat, remaining very active in the deal flow during the quarter. This focus resulted in a modest decline of approximately $45 million in total loan balances from the Enterprise Bank activity, which was nicely offset by growth in the legacy Rockland Trust book. Moving to the deposit side of the balance sheet, the story is equally positive. First, specific to the Enterprise Bank acquired balances, the third quarter results reflected a decline of approximately $80 million. However, only $30 million of that relates to relationship balances, while $50 million reflected the payoff of a maturing brokered CD.

Speaker 3

Similar to the loan activity, the legacy Rockland deposit organic growth more than offset the Enterprise-related reductions, resulting in approximately 1% combined annualized growth for the quarter. Switching gears to asset quality, the quarterly results capture a few different moving pieces related to the allowance for loan loss and provision levels. High-level net charge-off activity was only $1.8 million for the quarter, or 4 basis points on an annualized basis, and overall asset quality metrics remain strong. To provide a little more color on the reported results, the allowance for loan loss increased $45.7 million for the quarter, which includes $34.5 million of day-two provision on non-PCD acquired loans, $9 million of carryover allowance on acquired PCD loans, and $4 million of core provision less charge-off activity. Total non-performing assets at September 30, 2023 are 0.35% of total assets and include approximately $25 million of acquired NPAs from Enterprise Bank.

Speaker 3

Though new to non-performing activity was up slightly from the prior quarter, no material loss exposures were identified in those recent downgrades. Rounding out the update on non-interest-related items, we are pleased to report that both non-interest income and non-interest expense are right in line with expectations following the Enterprise Bank merger. On the fee income side, as Jeff just mentioned, it's worth re-highlighting that the merger brought over an additional $1.4 billion in assets under administration. With the current quarter activity, total AUA grew to $9.2 billion as of September 30, 2023. On the expense side, I will highlight a few key items. First, we reaffirm our original guidance of achieving 30% cost saves on the acquired Enterprise Bank expense base to be fully realized during the first quarter of 2026. Merger-related expenses totaled $23.9 million for the quarter and were comprised primarily of severance-related costs and professional fees.

Speaker 3

The amortization of intangible assets for the quarter was $7.3 million, with $6.1 million related to the newly acquired intangibles from the Enterprise Bank deal. As Jeff mentioned in his comments, we are working through implementation efforts for a core system upgrade in May of 2026. We had little impact from this in the third quarter expenses, though we do anticipate approximately $5 million of one-time costs to be incurred over the next couple of quarters. Lastly, the reported tax rate for the quarter stayed relatively consistent at 22.8%. I'll now just close out my comments with fourth quarter guidance only, as I will plan to give full-year 2026 guidance with our fourth quarter results. In terms of both loan and deposit growth, we anticipate a low single-digit % increase off the September balances.

Speaker 3

Regarding asset quality, as I've been stating, we still do not see any pervasive issues across segments. As such, provision will continue to be highly driven by developments of individual commercial credits. Regarding the net interest margin, we reaffirm and anticipate four to six basis points of expansion on an adjusted basis, which excludes loan accretion impact, which, as I noted before, can be volatile on a quarter-to-quarter basis. For non-interest income, we estimate flat to a low single-digit % increase off the third quarter results. For non-interest expense, we anticipate total core expenses, excluding merger-related costs and one-time conversion upgrade costs, to decrease by approximately $2 million. This decrease represents a portion of the remaining Enterprise cost saves expected to be realized, as some temporary salary costs will extend into the first quarter.

Speaker 3

As I just alluded to earlier, with the Enterprise core conversion behind us, we are ramping up efforts and preparation work for our upcoming core system upgrade, which we estimate will result in approximately $3 million to $5 million of one-time costs during the fourth quarter. Lastly, the core tax rate for the fourth quarter is expected to be in the 23% range, further impacted by any one-time adjustments associated with finalizing the 2024 tax returns. That concludes my comments. With that, we'll now open it up for questions.

Speaker 1

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speaker phone, 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 two. At this time, we will pause momentarily to assemble our roster. The first question comes from Steve Moss with Raymond James. Please go ahead.

Speaker 1

Good morning, guys.

Speaker 1

Morning, Steve.

Speaker 4

Hi, Steve.

Speaker 4

Nice quarter here and definitely a lot of moving pieces. Maybe just one thing to start here. I noticed in the deck you guys had said there was good C&I growth. Just wondering if you could quantify that number here. It's just kind of hard with the merger noise. Also, just talk about the loan pipeline.

Speaker 4

The commercial and industrial (C&I) growth has been, as I said in my comments, really a function of we're really good at what we do. We've been doing it a long time, but it's really been in kind of the lower middle market. We've continued to make progress there. As I mentioned, in some of our legacy markets like Plymouth County, we've changed the incentives of the bankers there too and sent more C&I than commercial real estate (CRE). With the balanced scorecard, C&I usually checks more of those boxes, like with deposits and treasury management and such. We think that's part of it. We had, as I mentioned, the last couple of quarters, hired somebody to lead our effort in the middle market and in some of our specialty businesses. He's had an immediate impact.

Speaker 4

The loans that his groups and that he is responsible for are all C&I, and they tend to be a little bit bigger than some of the things we've done historically. That's really what's driving the C&I growth that we've been seeing over the last quarter or two. With regard to the pipelines, I'd say they're pretty healthy. We haven't seen a dramatic increase or decrease. I think they've been somewhat stable with where they've been in the past. Obviously, with the caveat that as you clear out portions of your pipeline with closing, you got to rebuild it a bit. We've been experiencing some of that quarter to quarter. Overall, I think they've been pretty healthy.

Speaker 4

Okay. Appreciate that color. Just curious, where is loan pricing for you guys these days?

Speaker 4

Yeah. I mean, still on a spread basis, Steve, you know we stay disciplined. We're still looking to get above 200 basis points on a spread, especially on the commercial and industrial side. Given where rates are today, as you can expect, that tends to lead you to around 6%, low 6s. You know we're always looking at staying disciplined to get the appropriate spread over whatever term we're funding.

Speaker 4

Okay.

Speaker 4

Steve, one other comment maybe on our C&I exposure, since I know it's a topic that we'll probably get asked about later, is none of the growth that we're talking about in C&I is coming in the NDFI space. We don't have any, you know, especially businesses that are geared to that space or, you know, have much in the way. We have a couple of one-off relationships with leasing companies where we provide a line to them, but it's incredibly modest, and we don't have any of our initiatives pointed at that space. All of the C&I growth that we're talking about is all Eastern Massachusetts, and it's all kind of middle market companies.

Speaker 4

Right. Just kind of curious here in terms of on the office side of things, you know, a stable quarter, I guess, is kind of how I would characterize it for office. Just kind of curious, you know, how are you guys thinking about, you know, resolution here? Are you guys feeling better in terms of office credit? You know, there's obviously a few, a decent number of classified loans coming to maturity next year in particular. Just kind of curious if you have any updated thoughts as to what you're seeing and, you know, resolution on the criticized and classified.

Speaker 4

Yeah. I'll start, and then Mark, you can comment. I would say in general, I feel better today than I did six months ago. Part of that is we've resolved several of the larger problems we've had. Part of that is, when I sit through a lot of the meetings where we're talking about these credits, the general feeling I walk away with is we still have work to do. We're not out of the woods yet. It feels like there's a good number of the work we're doing with these loans where we expect a positive resolution or a positive outcome, in part because the sponsors are working with us. We're reaching middle grounds on this. We're providing them time to get the asset they own maybe in better shape, and they're providing us with money or a master lease or what have you.

Speaker 4

There's a bunch of different ways to get to that point. I would say net-net, I feel positive. That's not something I could put numbers to, but it's just a general feeling.

Speaker 4

Yeah. I don't have too much more to add, Jeff. Outside of, you know, when you look at, as you were indicating, Steve, some of the practical implications of what's coming due over the next couple of quarters, it's really concentrated in just a handful of loans. To be honest, a couple of these are trending in the right direction where there's potential for upgrades of risk ratings and good resolution. If there is a little bit of an uncertainty, you're certainly not seeing the loss exposures that we experienced earlier in the quarter. I think from that perspective, it feels like true losses and provision expectations feel much more contained.

Speaker 4

Okay. That's great. Maybe just one last one for me, and I'll hop back in the queue. You guys sound a bit more constructive on commercial real estate balances and definitely talking about a better commercial and industrial loan pipeline. I know, Jeff, you've been talking about more organic growth for a little while now. Historically, you guys have done low single-digit type loan growth. Could we maybe see something a little better next year, given what kind of sounds like things are shaking out?

Speaker 4

Yeah. I think we could if the trends continue here and we get our Enterprise Bankers continuing on the same path that they just demonstrated in the first quarter that we've owned them. I feel like if I were to bracket it kind of low to mid-single digits. I think previously we would have said low single digits. I don't think we're ready to put a stake in the ground and say this is what we think the number is going to be, but I think we feel pretty good about it.

Speaker 4

Great. I appreciate all the color here, and I'll step back in the queue. Nice quarter.

Speaker 4

Thanks, Steve.

Speaker 4

Thanks.

Speaker 1

The next question comes from Mark Thomas Fitzgibbon with Piper Sandler. Please go ahead.

Speaker 1

Hey, guys. Happy Friday.

Speaker 4

Hey, Mark.

Speaker 4

Hey, Mark.

Speaker 4

Mark, first question I had for you is your guidance on the margin of 4 to 6 basis points of expansion in the fourth quarter. Does that assume one or two Fed rate cuts?

Speaker 4

Somewhat moot to Fed cuts, I guess I would say, Mark, because, you know, as I mentioned in the call, I really feel good about our ability to neutralize any Fed cuts pretty quickly. I would suggest that's similar guidance regardless of the Fed action.

Speaker 4

Okay. Now that you've marked the securities portfolio of Enterprise, you know, any plans to kind of restructure that or shrink it?

Speaker 4

Probably not at this point. I mean, not that it's about a reporting answer here, but I think we view that as now being market securities. Whether we sell those off and replace with new securities, I think you're in the same position. It's asset classes we're comfortable with. We're comfortable with the total book of the securities portfolio, and the all-in now yield on that book is certainly a lot better. I don't feel strongly there's any reason to restructure that at this point.

Speaker 4

Okay. I wonder if you could give us any color on the $16.8 million of new non-accruals. Any, you know, particular, is it concentrated in a couple of loans? What type of loans? Anything you could share with us?

Speaker 4

Sure. Yeah. It's actually really only three loans greater than $1 million in that number, the largest being about a $4.5 million construction loan that came over with the Enterprise Bank acquisition. It's a fairly benign story there in terms of what we expect from, you know, probably hopefully no loss. This was a construction loan that was under an agreement and had just been delayed and kind of pushed out. That P&S has since expired, but the interest is still there. We're hopeful and feel pretty optimistic that there is a sale that will get paid out in full on that. That's a $4.7 million loan. That was the biggest of them. After that, you drop to $1.6 million and $1.1 million, one of those being a residential loan. That appraisal is as well in support of the outstanding balance. Then it's just a handful of smaller stuff.

Speaker 4

I know the number ticked up a bit from the prior quarter, but we really don't see any loss exposure in that bucket at this point.

Speaker 4

Okay. I noticed you bought a little bit of stock back this quarter at an average price like $64 and change. How do you think about the tangible book value dilution from buying it up here at, call it, you know, 140 or 145% of tangible book value?

Speaker 4

Yeah. I mean, it's always a valuation consideration. Certainly, we're always a bank that's sensitive to tangible book dilution, but at the same time, it really comes down to do we feel the bank's appropriately valued and what's the right level to be buying at. I think it's something we're going to continue to reassess, at what ranges we'll tear up activity. I'd like to suggest we will continue to stay active, but we'll just revisit that over the next month or two and see what the right levels are to keep buying at.

Speaker 4

Okay. Lastly, for you, Jeff, I was curious, given how friendly the regulatory environment seems to be for M&A these days, what are your thoughts about doing another transaction? Would you look at all sort of further afield from what you have traditionally?

Speaker 4

Yeah. I guess I would point back to the last couple of quarters, and our posture hasn't really changed, which is not really interested or focused on M&A at the moment. We're very focused on organic growth and getting our company positioned to continue to be a good earner and the integration and conversion of Enterprise. Just because the conversion is behind us, that doesn't mean our work is done. We still have a lot of work to do making sure that continues to be a good story, the conversion I'm speaking of. We still have a lot of integration activities going on in order to synergize the Enterprise franchise with the rest of our franchise. The message hasn't really changed in my mind.

Speaker 4

Thank you.

Speaker 4

Thanks, Mark.

Speaker 1

The next question comes from Laura Katherine Havener Hunsicker with Seaport Research. Please go ahead.

Speaker 1

Yeah, hey, good morning. Jeff, I just wanted to start by asking a question that I think you largely answered, but I just want to hear it because it's so great. NDFI exposure is basically nothing.

Speaker 4

To the extent you want to call a couple of local leasing companies where we have some exposure, but beyond that, it's really negligible. It hasn't ever been really a focus of ours, isn't today. We don't have any businesses geared towards that sector of the economy.

Speaker 4

Right. Okay. Circling back to office, the $42.9 million of criticized that you've got maturing in the fourth quarter, how much of that came from Enterprise Bank? It's marked, or how should we think about that piece? It's up from where you were last quarter, but obviously last quarter didn't include Enterprise Bank. Is there any color you can give us around that $42.9 million criticized office maturing in the fourth quarter?

Speaker 4

Yes. You've seen this now play out on a few loans, I think, over the last couple of quarters, Hillary. Those were primarily the same two loans that we talked about as maturing last quarter. We entered into a couple of short-term extensions as we were working through more permanent resolutions. Happy to report on one of those loans, which is a $27 million relationship that was just recently approved for a new two-year renewal, with some injected equity as well. The projected debt service coverage looks very strong. That property has morphed into a much better position and was just recently extended. The other remaining balance, so there's really only two notes that make up that $42 million. The other one is likely to be sold. We're entertaining that right now.

Speaker 4

The offer we see on the table falls just a little bit short, but nothing of a material nature. We're hopeful for a resolution there as well. That one's just potentially a pending sale.

Speaker 4

Gotcha. That's $16 million?

Speaker 4

That's about $16 million, correct. There's another couple million dollars related to that relationship that is not in that number, that is exposure to the same borrower, but the office exposure is only $16 million.

Speaker 4

Gotcha. Okay. It looks like your office non-performers are down to $22 million. That's great. That's just that class A office nick.

Speaker 4

Correct.

Speaker 4

That maybe is going to go back on performing status here in the next one or two quarters. Can you just help us think about that one? Any updated information?

Speaker 4

That one would not be returning. They have essentially a payment-free period for quite some time now heading out into 2026. Aware of the, even though it's technically performing under the modification, we're of the opinion that we would not restore it back to accruing until we see cash flow resuming. That's going to stick around on NPA for a bit, unless there's a path to a full resolution through another channel. If it stays as is, it'll be on payment deferral for quite some time.

Speaker 4

Gotcha. Okay, and that still is $22 million. Is that right?

Speaker 4

It is still $22 million. Yep, that is the one. That's just one loan.

Speaker 4

Okay. Great. I appreciate all the details you give on office. Okay. Maybe jumping over to margin, what was your spot margin?

Speaker 4

Spot margin for September, excluding loan accretion, I think is the appropriate number to give you. That was 357.

Speaker 4

Okay, then.

Speaker 4

That includes bond accretion, back to maybe Mark's question earlier. We view that as the core margin now, or what we refer to as our adjusted margin. That is inclusive of the bond pickup we got with Enterprise. I will continue to isolate the loan accretion as that can be a bit lumpy.

Speaker 4

Perfect. Okay. I do appreciate that loan accretion income is lumpy. Initially, obviously, your guide was 18 basis points. You had less dilution to the tangible book in the deal, which was amazing, but obviously less accretion. I know it can jump around, but thinking about it, like 8 basis points, give or take on margin, is that the right way to be thinking about it?

Speaker 4

To be candid, Lori, I think it'd probably move up a bit from there. I don't want to predict an exact number, but you didn't see a lot of payoffs this quarter, which typically can accelerate some of the marks. I would expect that to move north a bit. I just don't want to pick a number. I think it's important to note, though, the 18 basis points I think that you were referring to was also inclusive of the securities accretion as well. That's 5 basis points of the 18. If you're isolating just the loan mark, that would have originally thought to be 13 basis points or so. You may see a quarter where it actually is in that range, or you may see a quarter like you saw here.

Speaker 4

I think you're going to see, I think you will see volatility between 10, 13 basis points on a given quarter, if that makes sense.

Speaker 4

Okay. That's helpful. Okay, just jumping over to expenses. By my math, you got one-time charges left of $32 million. Is that right, or is there a better number?

Speaker 4

The $61 million we originally modeled, a lot of that actually went through Enterprise. I shouldn't say a lot, but about $22 million of that went through Enterprise's books in the second quarter. They were changing controls that was pushed through on their side prior to close because they were changing control contracts, and the accounting nature suggested it was their expense. So $22 million of it already went through Enterprise. We've incurred about $27 or $29 million year-to-date. Based on the revised estimates, I'm probably looking around an $8 million number, $8 to $10 million in the fourth quarter.

Speaker 4

Oh, that's great.

Speaker 4

Finish it off.

Speaker 4

Okay. That finishes it. Good. If we think, to your point, that core expenses here increased $2 million, excluding merger and system upgrade, I mean, if we sort of fast forward and said we would be looking to a clean quarterly run rate on expenses, how should we be thinking about that number?

Speaker 4

Yeah. It's a good question. I will reserve formal guidance for 2026 till next quarter. If you just look at the third quarter, round it to $137 million of what I would call core expenses, excluding M&A. We're pegging additional cost saves of about $2 million. That gets you to $135 million. Fully baked cost saves will probably get a little better than that. We're going to go through the budget process and strategic planning in the next couple of months. I wouldn't suggest there's meaningful increases by any means coming, but I don't want to pick a new number yet for 2026. I don't think you're going to see it move too far north from that math that I was just suggesting, which is about a $135 million per quarter type number.

Speaker 4

That's great. Super helpful. Thanks for taking my question.

Speaker 4

No problem.

Speaker 4

Thanks, Lori.

Speaker 1

The next question comes from David Joseph Konrad with KBW. Please go ahead.

Speaker 1

Hey, good morning. I was hoping you could help me out a little bit with the securities portfolio if I promise this will be the last time that I'll ask it. I was wondering if you can kind of split out the kind of legacy with the Enterprise book. In other words, you went from $232 million to $284 million. Just wondering what the yields are on the marked Enterprise side and then what kind of improvement from the $232 million on the legacy side and what's the new investment run rate you're getting there. I'm trying to kind of figure out where the cash flows are going and where the yield can improve, if that makes sense.

Speaker 1

It does. I may not have all the pieces for you, so I may need to follow up. I would peg the yield on the acquired book in the low 4% range, and I can follow up with an exact number there. I believe the discount mark that you're seeing accrete in essentially brings that piece of the portfolio into the low 4s, which is consistent with what we're replacing runoff of our legacy securities at with new securities. That's the lift you're seeing on the Rockland side. The cash flows we're anticipating on our book, I guess on the combined book going forward, is about $700 million in 2026. Technically, a portion of that is already at market rate because if it's Enterprise-related, it's been marked up to the 4% range.

Speaker 1

A good portion of that will be, on average, probably 1.5%, 2% coupons that are being replaced at 4% yields. That's a piece of that overall margin expansion that we've been talking about pretty consistently now for a few quarters. That four to six basis point range is because a basis point or two of that is because of the securities repricing that we're seeing.

Speaker 1

Yeah. Got it. Okay. Perfect. Following up with the earlier comment, question from Steve, on loan yields, I think that was more directed towards C&I. Maybe the belly of the curve has come in a little bit, maybe more than I thought. On the new CRE, is there a difference in the new money yield you're looking at there?

Speaker 1

Not much, David. I think fixed rate free is probably penciling out somewhere around there. I'm sure we're seeing some competition get below 6%, given, like you mentioned, the contraction at that part of the curve. I'm not suggesting we're not doing deals that might be slightly under 6%, but it's going to be right around probably 6%. We are seeing pretty modest pickup in swap activity. I think that's back on the table for borrowers to be thinking about. That's a product we've always been very comfortable with. You saw a bit of an uptick in the third quarter fee income as it relates to swap fees. Swap pricing, I wouldn't suggest is that far off. I think borrowers are thinking about that a bit more now as well.

Speaker 1

Got it. Okay. Perfect. Thank you. Appreciate it.

Speaker 1

Okay, thank you.

Speaker 1

Again, if you have a question, please press star then one. We do have a follow-up from Steve Moss with Raymond James. Please go ahead.

Speaker 1

In terms of the balance sheet, you guys have a reasonably healthy cash position here. Just kind of curious if there's any thoughts on deploying some of that into securities here and maybe shifting the mix given Fed rate cuts or just any thought process around that.

Speaker 1

Yeah. It's a good question. I mean, I think as the balance sheet has grown, there's certainly a slightly elevated cash position that we believe is appropriate, just from a liquidity management standpoint. I do think there's opportunity to put a little of that back into securities. I think right now we're comfortable with the current level as we work through the acquisition. We get a bit more visibility into what loan growth expectations look like. I'm not feeling antsy to rush to put that cash to work. I really would like to see what the loan demand looks like. Obviously, how deposits play out post-acquisition. Sitting on a little bit of excess cash feels appropriate right now.

Speaker 1

Okay. Appreciate that. On capital here, you guys are almost at a 13% CET1 ratio. Kind of curious, you know, how are you thinking about a longer-term target? You know, given good profitability and where credit is these days, you know, could you be a little bit maybe more aggressive on the buyback? I heard your answer on TBV buying back, but, you know, it seems like you have room here.

Speaker 1

No, it's a fair question. Certainly, I think optimal levels of CET1 for us in this environment, I would certainly be comfortable at 12% CET1, 8.5 to 9% tangible capital. You're hitting the nail on the head. That suggests there's opportunity to continue to engage in buyback activity to work that down. That would require a lot of buyback, I think, to be realistic there. It's something that we understand and appreciate. Ideally, we would love to be able to take advantage of these great new markets that we're in with Enterprise Bank and grow into that capital. Growth will need to be driven by good core funding. I think that's going to be a lot of what our mentality will be. If we can find better growth because we're getting good deposits and good funding, I'd prefer to grow into that capital.

Speaker 1

If growth stays in that low to mid-single-digit range, I think buyback is certainly a tool that we should be exploring more.

Speaker 1

All right. That's everything for me. Thanks.

Speaker 4

Thanks, Steve.

Speaker 4

Thank you.

Speaker 1

This concludes our question and answer session. I would like to turn the conference back over to Jeffrey Tengel for any closing remarks.

Speaker 4

Thanks. We appreciate your interest in INDB, and everybody have a great day. Thank you.

Speaker 1

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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