INDEPENDENT BANK Q2 FY26 earnings call INDB

CEO Jeff Tengel announced he is cancer-free and in remission, sharing positive personal news. He reiterated the company's straightforward strategy: organic growth through new and existing relationships, disciplined underwriting, generating positive operating leverage, and deploying a strong capital position to create long-term shareholder value. The company continues to prioritize investments in people and technology to support future growth without significant additions to its expense base.

The bank's deposit franchise demonstrated strength, achieving over $300 million in non-time deposit growth, an annualized rate of 7%, while maintaining a stable cost of deposits at 1.36%. This performance occurred despite a highly competitive environment and expectations of higher-for-longer interest rates. Period-end balances grew at a 5.9% annualized rate, and the bank paid down $100 million of maturing FHLB borrowings, reflecting effective deposit management.

The loan portfolio saw robust C&I growth, excluding the exited Dealer Floor Plan business, which rose by $116 million (10% annualized). However, Investment CRE & Construction loans declined by $176 million due to elevated payoffs, including asset sales and refinancings away from the bank. Despite this, the approved commercial loan pipeline increased significantly to $510 million by June 30, up 63% from the prior quarter, positioning the bank for a return to positive commercial loan growth.

The adjusted Net Interest Margin (NIM) improved by 4 basis points quarter-over-quarter, aligning with guidance. This expansion was driven by pricing discipline across both loan and deposit portfolios. Core loan yields increased by 3 basis points when adjusted for volatile purchase accounting accretion, and the securities portfolio saw a 5 basis point increase, with further amortization and maturities expected in the second half of the year.

Wealth Management continues to be a key fee income driver, with Assets Under Administration (AUA) reaching $9.5 billion as of June 30, contributing to higher Wealth Management fees. The Business Advisory Services segment, which assists business owners with company sales, is showing early signs of being a positive catalyst for AUM inflows. Overall fee income was $42.4 million, up over 5% from the prior quarter, also benefiting from Deposit and Treasury Management Services and increased swap volume.

Asset quality remained consistent with historical performance, despite some movement in nonperforming loans and criticized and classified buckets. Net charge-offs were low at 2 basis points for the second quarter and averaged 9 basis points over the last five quarters. The provision for credit losses was $6.3 million, and the allowance for loan loss increased to 1.06% of loans, primarily due to modest specific reserves on a couple of commercial loans. Total criticized and classified loans decreased quarter-over-quarter.

The company is preparing for a core operating platform transition from Horizon to IBS, both part of the FIS ecosystem, scheduled for October. This conversion aims to improve client service, enhance operating efficiencies, accelerate new product introductions, and support future growth. An Office of Digital Innovation was established in Q1, with a governance framework for AI activities to ensure meaningful payback and moderate risk, starting with easier use cases to build confidence for larger applications.