Detailed narrative
Deposit Franchise Strength
Independent Bank Corp. continued to demonstrate strength in its deposit franchise, generating over $230 million in non-time deposits, representing 5.4% annualized growth. The bank's cost of deposits remained industry-leading at 1.42%, despite a 6 basis point increase from the prior quarter and a highly competitive rate environment.
Average deposits increased by over $630 million, driven by growth across consumer, business, and municipal segments, although municipal balances saw typical seasonality at quarter-end.
Loan Portfolio Performance
The bank achieved total loan growth of $158 million, or nearly 3.5% annualized, with growth across C&I, commercial real estate, home equity, and residential mortgage. Excluding an $11.5 million runoff from the exited dealer floorplan business, C&I loans grew by $61 million (5% annualized).
Commercial real estate, including construction, grew by $31 million due to increased construction draws and reduced payoffs. The approved commercial loan pipeline increased to $574 million from $510 million QoQ, benefiting from new hires and a strategic pivot by relationship managers.
Net Interest Margin Stability
Despite a competitive loan and deposit environment, the adjusted net interest margin remained stable at 3.76% for the third quarter. This stability was attributed to the favorable repricing of loan and bond cash flows, coupled with disciplined pricing across both loan and deposit portfolios.
The reported NIM increased 4 basis points to 3.89% due to increased purchase accounting benefits. Management anticipates further margin expansion, with a path to a 4% NIM by the end of 2027, driven by back book repricing benefits.
Asset Quality and Credit Trends
Asset quality remained generally stable, with net charge-offs at just 2 basis points for the quarter and an average of 6 basis points over the last five quarters. The loan loss provision was 14 basis points of average loans. Total nonperforming assets increased to $126.2 million (0.5% of total assets), primarily due to one $22.4 million office loan that entered nonaccrual status, for which a $6.5 million specific reserve was established.
Total criticized and classified loans remained stable at 3.9% of total commercial loans.
Expense Management and Operational Initiatives
The bank maintained tight expense management, with core expenses (excluding nonrecurring core systems conversion costs) decreasing QoQ. The planned core systems upgrade was delayed from October to February 2027 to allow for additional preparation and ensure a smooth implementation, incurring an additional $1.5 million to $2 million in one-time📎 expenses.
The company also began beta testing early AI applications for internal use and will consolidate its corporate headquarters into a single location in Rockland, MA, in November to foster collaboration and efficiency.
Capital Management and Shareholder Returns
Capital management remained a key priority, with the bank repurchasing $57.4 million in capital during the quarter. The CET1 ratio stood at 12.7% and the tangible capital ratio at 9.4% as of September 30. Management reaffirmed its long-term goal of prudently returning excess capital to shareholders, with an expectation of 100% of profits being returned via common dividend and buyback.
The bank also managed its borrowing profile, paying off $100 million in FHLB borrowings and restructuring its holding company line of credit.