Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Independent Bank Corp (INDB, Financial) reported a GAAP net income of $51.3 million for Q2 2024, with a diluted earnings per share of $1.21.
- The company saw a significant increase in deposits, with period-end balances up $366 million or 9.8% on an annualized basis.
- Assets under administration reached a record $6.9 billion in the second quarter.
- The company's wealth management business continues to be a key value driver, contributing to strong non-interest income.
- Independent Bank Corp (INDB) maintained a stable net interest margin of 3.25%, reflecting a 2-basis-point increase from the prior quarter.
Negative Points
- The higher-for-longer interest rate environment poses a challenging backdrop for the company and the broader banking industry.
- The company has a significant concentration in commercial real estate (CRE), which it aims to reduce, particularly in the office portfolio.
- There are concerns about the maturity and renewal of criticized office loans, with some loans facing potential cash flow issues.
- The company has not announced a new buyback plan, despite having strong capital levels, which may be seen as a missed opportunity by some investors.
- The loan-to-deposit ratio is at 93%, which, while not at 100%, still indicates a need for continued focus on deposit growth.
Q & A Highlights
Q: Any impact this morning from the whole CrowdStrike Saga?
A: Yes, but not significant. It primarily impacted our desktops, but our wire system, online banking, and call center operations were normal. We are working to get all desktops back online.
Q: What percentage of your CDs are repricing between now and the end of the year or over the next 12 months?
A: Over the next 12 months, the vast majority will reprice. About $1.3 billion will mature in the third quarter and another $900 million in the fourth quarter. We have kept the CD book relatively short to take advantage of potential rate cuts.
Q: Can you share details on office loans set to mature in the back half of this year, particularly the $44 million of criticized office loans?
A: We are having conversations with borrowers. The $14 million criticized loan maturing in the third quarter is expected to renew without issues. The $30 million criticized loan maturing in the fourth quarter has a one-year extension built into the loan documents, and we are negotiating with the agent bank and borrower.
Q: Update on the western expansion, particularly Worcester, and any plans for expansion into new markets?
A: We are pleased with Worcester, having strong leadership and good deposit growth. We are considering filling in the branch network in Worcester and exploring opportunities in East Boston, north of the city, and the Merrimack Valley area.
Q: How do you think about New Hampshire and Maine for expansion, and what is the sweet spot for whole bank deals in terms of size?
A: We prefer contiguous markets to our current operations. We are open to deals that are less than 50% of our balance sheet size. Deals less than $1 billion are generally too small unless highly unusual, while $2 billion deals are more likely to be considered.
Q: How do you think about acquisitions on the asset management side?
A: We are interested in acquisitions but face competition from private equity, which often pays higher prices. We also seek RIAs that align with our operating philosophy.
Q: Thoughts on buybacks given your strong capital position?
A: We have not announced a new buyback plan after completing the previous one. We are comfortable with our current capital levels and believe it provides flexibility for future endeavors.
Q: Where do you ideally want your loan-to-deposit ratio to be?
A: We aim to operate in the low 90%s. We made progress in the second quarter, bringing the ratio down to 93%.
Q: Can you provide details on the occupancy rates of certain office loans maturing in the next few quarters?
A: The $14 million criticized loan maturing in the third quarter has good occupancy and is expected to renew without issues. The $30 million criticized loan maturing in the fourth quarter has about 85% occupancy. The $55 million classified loan maturing in the first quarter of 2025 has 45%-50% occupancy, and we are proactively working on resolutions.
Q: How does the CRE concentration ratio factor into your strategic planning and M&A discussions?
A: We aim to keep the ratio below 300% and have enough room to support strategic commercial real estate relationships. The CRE concentration at a target would not be a limiting factor for acquisitions, but we would consider it in our overall assessment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
