Independent Bank (INDB) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Independent Bank Corp. as of and for the periods ended March 31, 2025, and 2024, including detailed notes on presentation and policies Consolidated Balance Sheets As of March 31, 2025, total assets were $19.89 billion, an increase from $19.37 billion at December 31, 2024, driven primarily by a $370.0 million increase in total deposits to $15.68 billion, while net loans remained stable at $14.35 billion and total stockholders' equity increased to $3.03 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Assets | | | | Total Assets | $19,888,209 | $19,373,565 | | Net Loans | $14,347,877 | $14,338,394 | | Total Securities | $2,719,792 | $2,711,349 | | Goodwill | $985,072 | $985,072 | | Liabilities & Equity | | | | Total Deposits | $15,676,017 | $15,305,978 | | Total Borrowings | $859,874 | $701,374 | | Total Liabilities | $16,854,817 | $16,380,445 | | Total Stockholders' Equity | $3,033,392 | $2,993,120 | Consolidated Statements of Income For the three months ended March 31, 2025, net income was $44.4 million, or $1.04 per diluted share, a decrease from $47.8 million, or $1.12 per diluted share, in the prior-year period, primarily due to a higher provision for credit losses and increased noninterest expenses Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income | $145,505 | $137,439 | | Provision for Credit Losses | $15,000 | $5,000 | | Noninterest Income | $32,539 | $29,943 | | Noninterest Expenses | $105,878 | $99,887 | | Net Income | $44,424 | $47,770 | | Diluted Earnings Per Share | $1.04 | $1.12 | | Cash Dividends Declared per Share | $0.59 | $0.57 | Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2025 significantly increased to $64.2 million from $43.3 million in Q1 2024, driven by a positive $19.8 million swing in other comprehensive income, primarily from a $16.4 million net change in the fair value of available-for-sale securities Comprehensive Income Summary (in thousands) | Component | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income | $44,424 | $47,770 | | Other Comprehensive Income (Loss) | $19,805 | $(4,511) | | Total Comprehensive Income | $64,229 | $43,259 | Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $2.99 billion at year-end 2024 to $3.03 billion at March 31, 2025, primarily due to net income and other comprehensive income, partially offset by common dividends - Total stockholders' equity grew to $3.03 billion at March 31, 2025, up from $2.99 billion at December 31, 2024[22] - Key changes in Q1 2025 included $44.4 million in net income, $19.8 million in other comprehensive income, and $25.1 million in common dividends declared ($0.59 per share)[22] Consolidated Statements of Cash Flows For Q1 2025, net cash provided by financing activities was $503.5 million, primarily from a $296.5 million subordinated debenture issuance and increased deposits, resulting in a net increase in cash and cash equivalents of $497.0 million Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $13,342 | $51,145 | | Net Cash from Investing Activities | $(19,913) | $15,915 | | Net Cash from Financing Activities | $503,525 | $(70,074) | | Net Increase (Decrease) in Cash | $496,954 | $(3,014) | Notes to Consolidated Financial Statements This section provides detailed disclosures supporting the consolidated financial statements, covering the basis of presentation, recent accounting standards, and in-depth information on various financial statement line items Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations for Q1 2025, highlighting a decrease in net income due to a higher loan loss provision, expansion of net interest margin, strong deposit growth, and the pending acquisition of Enterprise Bancorp - The company announced the signing of a definitive merger agreement to acquire Enterprise Bancorp, Inc., with the transaction expected to close in Q3 2025[177] - Q1 2025 net income was $44.4 million ($1.04/share), down from $47.8 million ($1.12/share) in Q1 2024, mainly due to a $15.0 million loan loss provision[178] - Positive performance drivers in Q1 2025 included net interest margin expansion to 3.42%, strong fee income, robust deposit growth of $370.0 million, and a $300 million subordinated debt issuance[178] Non-GAAP Measures Management uses non-GAAP measures such as operating net income, tangible book value per share, and operating efficiency ratio to evaluate core banking performance by excluding items like merger expenses, with Q1 2025 operating net income at $45.3 million ($1.06/share) and tangible book value per share at $47.81 Reconciliation of Net Income to Operating Net Income (Non-GAAP) for Q1 2025 (in thousands, except per share) | Description | Net Income | Diluted EPS | | :--- | :--- | :--- | | Net income available to common shareholders (GAAP) | $44,424 | $1.04 | | Add: Merger and acquisition expenses | $1,155 | $0.03 | | Less: Net tax benefit of noncore items | $(325) | $(0.01) | | Operating net income (Non-GAAP) | $45,254 | $1.06 | Tangible Book Value Per Share (Non-GAAP) | Metric | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | Book value per share (GAAP) | $71.19 | $67.94 | | Tangible book value per share (Non-GAAP) | $47.81 | $44.34 | Financial Position As of March 31, 2025, the company's financial position remained strong with total assets growing to $19.9 billion, a stable securities portfolio at $2.7 billion, a consistent total loan portfolio at $14.5 billion, and increased deposits of $370.0 million to $15.7 billion, alongside a rise in borrowings to $859.9 million due to a $300 million subordinated debt issuance - Total securities remained stable at $2.7 billion, representing 13.7% of total assets at March 31, 2025[210] - The total loan portfolio was $14.5 billion, with commercial and industrial loans growing by $62.8 million (8.4% annualized) and small business loans growing by $7.4 million (10.6% annualized)[218] - Total deposits increased by $370.0 million (2.4%) to $15.7 billion, with noninterest-bearing deposits comprising 28.1% of the total[261] - Borrowings increased by $158.5 million to $859.9 million, driven by a new $300.0 million subordinated debt issuance[264] Asset Quality Asset quality metrics showed some stress in Q1 2025, with nonperforming assets decreasing to $89.5 million (0.45% of total assets) from $101.5 million at year-end 2024, but net charge-offs significantly increased to $40.9 million, primarily from three commercial loans, leading to a decrease in the allowance for credit losses to $144.1 million, or 0.99% of total loans Nonperforming Assets (in thousands) | Metric | March 31, 2025 | Dec 31, 2024 | March 31, 2024 | | :--- | :--- | :--- | :--- | | Total nonperforming loans | $89,493 | $101,529 | $56,941 | | Total nonperforming assets | $89,493 | $101,529 | $57,051 | | NPA as % of total assets | 0.45% | 0.52% | 0.30% | - Net charge-offs for Q1 2025 were $40.9 million, a sharp increase from $274,000 in Q1 2024, mainly due to three previously classified commercial loans[249] - The allowance for credit losses was $144.1 million, or 0.99% of total loans, at March 31, 2025, down from 1.17% at December 31, 2024, primarily due to the charge-offs[49][292] Results of Operations For Q1 2025, net interest income (FTE) increased 5.8% YoY to $146.6 million, with the net interest margin expanding 19 basis points to 3.42%, while a $15.0 million provision for credit losses was recorded, noninterest income grew 8.7% to $32.5 million, and noninterest expense rose 6.0% to $105.9 million, including $1.2 million in merger costs Key Operating Metrics | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Interest Income (FTE) | $146.6M | $138.6M | | Net Interest Margin | 3.42% | 3.23% | | Provision for Credit Losses | $15.0M | $5.0M | | Noninterest Income | $32.5M | $29.9M | | Noninterest Expense | $105.9M | $99.9M | - The increase in net interest income was primarily due to higher yields on interest-earning assets and decreased funding costs[281] - Noninterest expense was driven higher by salaries and benefits, software costs, and $1.2 million in merger and acquisition expenses related to the pending Enterprise acquisition[298] Capital Resources The company maintained a strong capital position, with all regulatory capital ratios exceeding 'well-capitalized' minimums, as the Total risk-based capital ratio increased to 17.91% at March 31, 2025, bolstered by the subordinated debt issuance, and the Board declared a quarterly cash dividend of $0.59 per share Regulatory Capital Ratios (Company) | Ratio | March 31, 2025 | Dec 31, 2024 | Requirement (Well-Capitalized) | | :--- | :--- | :--- | :--- | | Common Equity Tier 1 | 14.52% | 14.65% | 6.5% (Bank) | | Tier 1 Risk-Based | 14.52% | 14.65% | 8.0% (Bank) | | Total Risk-Based | 17.91% | 16.04% | 10.0% (Bank) | | Tier 1 Leverage | 11.43% | 11.32% | 5.0% (Bank) | - The Board of Directors declared a cash dividend of $0.59 per share for Q1 2025, paid in April 2025[265] Risk Management The company manages risk through a 'three lines of defense' framework overseen by the Board's Risk Committee, identifying key risks including credit, liquidity, market/interest rate, operational, and strategic risks, maintaining a neutral interest rate risk position, and possessing approximately $6.4 billion in total available liquidity capacity as of March 31, 2025 - The company identifies nine major risk categories: strategic, culture, credit, liquidity, market/interest rate, operational, reputation, regulatory/compliance, and technology/cyber risk[304] Liquidity Sources (in thousands) | Source | Outstanding (Mar 31, 2025) | Additional Capacity (Mar 31, 2025) | | :--- | :--- | :--- | | Federal Home Loan Bank | $500,506 | $2,159,925 | | Federal Reserve Bank | $0 | $3,670,070 | | Unpledged Securities | $0 | $528,723 | | Line of Credit | $0 | $50,000 | | Total Assessed Capacity | | ~$6.4B | Net Interest Income Sensitivity (Year 1) | Rate Shock (bps) | % Change (Mar 31, 2025) | | :--- | :--- | | -200 | (4.6)% | | -100 | (1.7)% | | +100 | 1.5% | | +200 | 2.8% | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference the information provided in the 'Risk Management' section of Management's Discussion and Analysis (Item 2), detailing the company's exposure to market risk, particularly interest rate risk, and its management strategies - Information regarding market risk is detailed in the 'Risk Management' section of the MD&A[335] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the first quarter of 2025 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[336] - No material changes in internal control over financial reporting occurred during the first quarter of 2025[337] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in pending lawsuits arising in the ordinary course of business, which management believes will not have a material adverse effect on its financial position or results of operations - The company is involved in ordinary course of business lawsuits which are not expected to have a material adverse effect on its financial condition[338] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes have occurred regarding the Risk Factors disclosed in the 2024 Form 10-K[339] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2025, the company repurchased 19,753 shares of its common stock at an average price of $68.39 per share, which were surrendered by employees to satisfy tax withholding obligations related to equity compensation grants and were not part of a publicly announced repurchase plan Issuer Purchases of Equity Securities for Q1 2025 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Jan 2025 | 0 | $0.00 | | Feb 2025 | 16,989 | $69.09 | | Mar 2025 | 2,764 | $64.07 | | Total | 19,753 | $68.39 | - The repurchased shares were surrendered in connection with vesting equity compensation to satisfy tax withholding obligations[340] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including indentures related to the March 2025 subordinated notes issuance, forms of stock award agreements, and Sarbanes-Oxley Act certifications - Exhibits filed include indentures for the 7.25% Fixed-to-Floating Rate Subordinated Notes due 2035, various stock award agreements, and required CEO/CFO certifications[344]