Independent Bank Q3 Earnings Call Highlights

Key Points

• Record profitability: Independent Bank reported third-quarter net income of $89.7 million, or $1.90 per diluted share, with EPS up 12% sequentially. Net interest margin rose to 3.89%, while adjusted core margin held steady at 3.76%.
• Balance-sheet growth continued: Loans grew by $158 million and non-time deposits increased by more than $230 million, despite intense competition that lifted deposit costs. The commercial loan pipeline expanded to $574 million, supporting expectations for continued C&I and CRE growth.
• Credit and investment developments: Credit performance remained generally strong, but a $22.4 million nonaccrual office loan drove nonperforming assets to 0.5% of total assets and required a $6.5 million specific reserve. The bank repurchased $57.4 million of stock, plans to return at least 100% of profits to shareholders, and expects $1.5 million–$2 million of additional one-time technology-conversion costs.

Independent Bank NASDAQ: INDB reported third-quarter 2026 net income of $89.7 million, or $1.90 per diluted share, as loan and deposit growth, a stable core net interest margin and disciplined expenses supported record earnings per share.

Chief Executive Officer Jeff Tengel said the bank generated $158 million of total loan growth during the quarter, nearly 3.5% on an annualized basis, while non-time deposits increased by more than $230 million, representing 5.4% annualized growth. The company’s cost of deposits rose 6 basis points from the prior quarter to 1.42% amid intense competition for deposits.

“Our deposit franchise continued to differentiate itself,” Tengel said, adding that the bank maintained its core net interest margin despite the competitive rate environment.

Earnings, Margin and Balance Sheet Trends

Chief Financial Officer Mark Ruggiero said third-quarter diluted EPS increased 12% from the prior quarter. Return on assets was 1.42%, while return on average tangible common equity was 15.4%, both reaching profitability targets the bank had set for the fourth quarter.

Net interest margin was 3.89%, up 4 basis points from the second quarter, aided by increased purchase accounting benefits. Adjusted core margin, which excludes purchase accounting and other non-core items, was unchanged at 3.76%.

Average deposits increased by more than $630 million during the quarter, with growth across consumer, business and municipal segments. However, municipal balances declined on a quarter-end basis due to typical seasonal patterns. Ruggiero said the bank expects point-in-time deposits in the fourth quarter to be flat to low-single-digit annualized growth.

For the fourth quarter, management expects a modest increase in net interest income from third-quarter levels. Assuming no additional Federal Reserve action, Ruggiero said reported margin could be slightly above 3.9%, including an estimated 10-basis-point benefit from loan accretion. A further Federal Reserve rate increase could reduce margin by a couple of basis points, he said.

Looking further ahead, Ruggiero said cash flows from securities and loan repricing could support margin expansion. The bank expects more than $500 million of securities cash flow over the next four to five quarters, with maturing securities yielding about 2.5%, compared with recent new securities purchases that approached 6% yields.

Loan Growth and Pipeline

Commercial and industrial lending grew during the quarter despite the runoff of $11.5 million in dealer floor plan balances from a business that has been fully exited. Excluding that impact, C&I loans increased by $61 million, or 5% on an annualized basis. Management said roughly $40 million of expected third-quarter C&I fundings shifted into the first weeks of October.

Commercial real estate, including construction lending, increased by $31 million, supported by construction draws and fewer payoffs. The bank funded $202 million in new relationship-based commercial real estate loans during the quarter, while loan payoffs and paydowns declined 27% from the second quarter. Its CRE concentration stood at 278 at Sept. 30.

The approved commercial loan pipeline rose to $574 million at quarter-end from $510 million three months earlier. Tengel said the pipeline has benefited from origination activity, new hires and a greater focus on growth from legacy Enterprise Bank relationship managers.

Management expects low-single-digit annualized growth in CRE and construction balances during the fourth quarter and mid-single-digit annualized growth in C&I. Home equity lending increased at approximately a 12% annualized pace in the third quarter and is expected to remain strong, while residential mortgage balances are expected to be flat to modestly higher.

Credit Quality and Office Exposure

Net charge-offs were 2 basis points annualized in the third quarter. The provision for loan losses totaled $6.5 million, driven mainly by a newly established $6.5 million specific reserve for a $22.4 million local single-tenant office loan placed on nonaccrual status.

Ruggiero said the office property’s tenant is expected to leave, and the borrower is exploring a potential multifamily conversion. The bank evaluated the asset both as an empty office building and as a potential conversion project, reserving to the average of those values. Tengel said the sponsor has historically supported its projects and is seeking a partner for the transition.

Total non-performing assets increased to $126.2 million, or 0.5% of total assets, primarily due to the office loan. Criticized and classified loans remained stable at 3.9% of total commercial loans.

Management also noted that it has about $17 million of established specific reserves in the commercial loan portfolio that it expects to charge off over the next several quarters. The company said office nonperformers were concentrated in three primary loans totaling roughly $60 million, with specific reserves exceeding $14 million, excluding $8 million already charged off on one shared national credit loan.

Capital Returns, Expenses and Technology

Independent Bank repurchased $57.4 million of capital during the quarter. Its common equity tier 1 ratio was 12.7% and tangible capital ratio was 9.4% at Sept. 30. Ruggiero reaffirmed the company’s expectation to return at least 100% of profits through common dividends and share repurchases, though management did not commit to a higher level of buybacks.

The company paid off a maturing $100 million Federal Home Loan Bank borrowing and reduced its holding company line of credit by $100 million. It also completed a new $125 million three-year holding company term loan priced at one-month SOFR plus 170 basis points.

Fee income fell about 3% sequentially to $41.2 million, reflecting lower wealth management income following elevated second-quarter tax-preparation fees and softer mortgage banking and loan-level swap activity.

The bank incurred $2.2 million of core conversion expenses in the third quarter, bringing year-to-date costs to $5.5 million. Management moved the planned systems upgrade from October to February 2027 to allow more time for testing and preparation. It expects an additional $1.5 million to $2 million in one-time expenses over the next two quarters, with most expected in the fourth quarter.

Tengel also said the company has begun beta testing internally focused artificial intelligence applications and plans to consolidate nearly 400 employees from five offices into one Rockland, Massachusetts, headquarters beginning in November.

About Independent Bank (NASDAQ:INDB)

Independent Bank Corp. is the bank holding company for Rockland Trust Company, a full-service community bank headquartered in Rockland, Massachusetts. Through Rockland Trust, the company provides banking and financial services to individuals, families, businesses, nonprofits and municipalities.

Its products and services include checking and savings accounts, certificates of deposit, residential and commercial lending, home equity loans, mortgages, cash management, online and mobile banking, and other treasury management solutions.

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