Rockland Trust’s Office Loans Surge, But Risks Stay Hidden

Date of Call: Jan 23, 2026

Financials Results

• EPS: GAAP diluted EPS: $1.52; adjusted operating diluted EPS: $1.70

Guidance:

• Target ROA of 1.4% and ROATE of 15% by Q4 2026.
• C&I loan growth: mid-single-digit %; CRE/Construction: low single-digit %; Consumer: flat to low single-digit %.
• Core deposit growth: low- to mid-single-digit %; time deposits: flat to slightly lower.
• NIM expected to reach 3.85%-3.90% in Q4 2026 (assuming 2 Fed cuts and 10 bps purchase loan accretion).
• Noninterest income: low single-digit % growth off H2 2025.
• Operating expenses: $550M-$555M for full year, plus $4M-$5M for core system upgrade.
• Tax rate: 23.50%-24% for full year.

Business Commentary:

Earnings and Performance Growth:

• Independent Bank Corp. reported a fourth-quarter GAAP net income of $75.3 million and an adjusted operating net income of $84.4 million, or $1.70 diluted EPS.
• The growth in performance was driven by ongoing progress in restoring Rockland Trust's historically strong performance, including continued net interest margin expansion, strong commercial banking growth, and stable credit costs.

Loan and Deposit Growth:

• Commercial loans increased 9% organically in 2025, with a focus on C&I lending, while non-time deposits grew by 4.2% in 2025.
• This growth was supported by strong commercial deposit generation, which nearly doubled compared to the previous year, and the retention of customer relationships post-acquisition.

Capital Management:

• The company returned $164 million of capital to shareholders in 2025, including the repurchase of 913,000 shares for $61 million.
• The focus on capital optimization and returning excess capital to shareholders is driven by improved profitability and a commitment to managing capital prudently.

Asset Quality and Credit Trends:

• Net charge-offs averaged 11 basis points over the last three quarters of 2025, with challenges in the office portfolio being identified and managed.
• The stability in credit trends is attributed to effective management and resolution strategies for non-performing assets, including specific reserves for anticipated losses.

Technology and Expense Management:

• The bank is investing in technology, including a core systems conversion scheduled for later in the year and an AI innovation team focused on enhancing back-office efficiency.
• These investments are part of a strategy to manage expenses prudently while leveraging efficiencies, with a focus on maintaining staffing levels and controlling costs.

Sentiment Analysis:

Overall Tone: Positive

• Management expresses confidence: 'I feel particularly confident in Rockland Trust's positioning.' Highlights progress: 'ongoing progress towards restoring Rockland Trust's historically strong performance,' 'solid non deposit growth,' 'stable credit costs,' 'realized cost savings,' and 'return of excess capital to shareholders.' Guidance targets improved profitability.

Q&A:

• Question from Jared David Shaw (Barclays Bank PLC): On credit, can you walk through dynamics with office portfolio where criticized/classified decreased but NPLs increased and maturities increased?
  Response: The NPL increase was due to one $18.1M classified loan moving to a new maturity bucket; a $2M loss reserve was already made. No significant imminent loss exposures; credit trends are stable.

• Question from Jared David Shaw (Barclays Bank PLC): With rate cuts, what is the deposit beta outlook for non-CDs and CDs?
  Response: Expects ~20% beta for non-time deposits and ~80% for CDs, supported by a structured deposit franchise and short CD duration.

• Question from Jared David Shaw (Barclays Bank PLC): What is the M&A outlook and feeling from potential sellers?
  Response: Not focused on bank M&A; priorities are organic growth, expense control, and core system conversion. ARIA acquisitions could be considered if fit and priced right.

• Question from Mark Fitzgibbon (Piper Sandler & Co.): What are the internal capital targets (CET1, TCE)?
  Response: Long-term CET1 target: high 11%-12% (11.75%-12%); TCE: 8.75%-9%. Commitment to return capital via buybacks in 2026, aiming to keep capital flat.

• Question from Mark Fitzgibbon (Piper Sandler & Co.): With modest organic growth and rising capital, what are options if buybacks are not justified?
  Response: Buybacks are not out of the equation; comfortable with stock buybacks at current levels given profitability profile. Target is to keep capital flat via buybacks in 2026.

• Question from Mark Fitzgibbon (Piper Sandler & Co.): Do you agree the credit cycle peak was Q3?
  Response: Sees nothing on horizon causing caution; believes credit cycle is at or near peak, with traditional risks managed.

• Question from Mark Fitzgibbon (Piper Sandler & Co.): Can a well-structured MOE work?
  Response: Biases against MOEs due to management difficulty and risk; prefers standalone acquisitions where one person is in charge.

• Question from Stephen Moss (Raymond James & Associates): What are you seeing for C&I and CRE loan pricing?
  Response: Competitive; some C&I spreads under 200 bps but getting fair share at 200+ bps. Loan yields in mid-6s, stable if rate curve holds.

• Question from Stephen Moss (Raymond James & Associates): How will maturing securities cash flows be deployed?
  Response: Vast majority will be reinvested into securities book, keeping it relatively flat. Cash flows from lower-yielding securities provide a lift when reinvested at ~4%.

• Question from Stephen Moss (Raymond James & Associates): What are plans for hiring commercial loan officers?
  Response: In a good position; new hires in H2 2025 bring Rolodexes and support to drive inherent C&I growth.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Can you clarify the $4M-$5M onetime cost for core system upgrade timing?
  Response: Spent ~$0.7M in Q4 (consulting). ~$1M-$2M in Q1 and ~$1M-$2M in Q2; bulk of work and costs will occur in the 6 months leading to the October conversion.

• Question from Laura Havener Hunsicker (Seaport Research Partners): What is the spend on AI next year?
  Response: Dedicated spend for 2026 is for 3 individuals; investments will be ramped only if benefits justify offsets to other expenses.

• Question from Laura Havener Hunsicker (Seaport Research Partners): Are onetime charges from EBTC finished?
  Response: Yes, they are finished.

• Question from Laura Havener Hunsicker (Seaport Research Partners): What is the nonrecurring component of $7.6M other income?
  Response: Mainly ~$0.4M from equity securities gains due to capital gains distributions; no other significant nonrecurring items.

• Question from Laura Havener Hunsicker (Seaport Research Partners): For the $9.9M criticized office loan maturing in Q1, how should we think about resolution?
  Response: Participated deal; sponsor likely to refinance/sell. Property is current, with extension expected in Q1; potential resolution without loss in 2026.

• Question from Laura Havener Hunsicker (Seaport Research Partners): What drove the increase in office nonperforming loans from $22M to $41M?
  Response: Increase was due to one $18.1M classified loan moving to nonperforming; $2M loss already reserved.

• Question from David Konrad (Keefe, Bruyette, & Woods): Is the mid-single-digit C&I growth guide conservative given recent hires and momentum?
  Response: Potential upside exists; guidance includes ~$100M runoff from an exited floor plan business segment, which is a headwind.

• Question from David Konrad (Keefe, Bruyette, & Woods): What type of loans were in the exited segment?
  Response: Floor plan financing for small used car dealerships; legacy business with small loans, not fitting risk profile due to industry consolidation and collateral tracking issues.

Contradiction Point 1

Outlook on Office Portfolio Credit Quality and Specific Loan Resolutions

It directly impacts expectations regarding the credit quality of a significant loan portfolio and the resolution timeline for a key loan, potentially influencing financial metrics and investor perceptions.

Can you explain the credit dynamics in Slide 9 for the office portfolio, including changes in NPLs, criticized/classified metrics, and the increase in 2026 maturities? - Jared David Shaw (Barclays Bank PLC)

2025Q4: The primary driver of the NPL increase was a single $18.1 million classified loan... it is expected to be resolved early in 2026 with minimal impact. - Mark Ruggiero(CFO)

What's the current outlook for office credit and progress on resolving criticized/classified loans? - Stephen Moss (Raymond James & Associates, Inc.)

2025Q3: The ~$27 million loan was recently extended with equity. The ~$16 million loan is pending sale... Losses are not expected to be material. - Mark Ruggiero(CFO)

Contradiction Point 2

Strategy for Securities Portfolio Cash Flows

It involves a change in strategy for reinvesting securities portfolio cash flows, which is a key liquidity and investment decision for the bank.

How will you deploy maturing cash flows from the securities book, and will you be more aggressive in pricing CDs down? - Stephen Moss (Raymond James & Associates, Inc.)

2025Q4: The majority of cash flows from the securities book will be reinvested back into securities, keeping the securities portfolio relatively flat. - Mark Ruggiero(CFO)

What is your strategy for deploying excess cash into securities given potential Fed rate cuts? - Stephen Moss (Raymond James & Associates, Inc.)

2025Q3: The bank is not opposed to reinvesting but wants to wait for more visibility on loan demand and deposit trends post-acquisition before making a move. - Mark Ruggiero(CFO)

Contradiction Point 3

Credit Cycle Peak Assessment

It directly impacts expectations regarding the trajectory of credit issues and the bank's financial stability, potentially influencing investor confidence.

Was Q3 the peak for credit issues, and what's next? - Mark Fitzgibbon (Piper Sandler & Co.)

2025Q4: Both executives believe the bank is at or very near the peak of the credit cycle... there is no specific near-term credit concern. - Jeffrey Tengel(CEO) and Mark Ruggiero(CFO)

Do you agree with the other two banks that the worst is over for credit? - Mark Fitzgibbon (Piper Sandler & Co.)

2025Q2: It's hard to tell... The bank may be past the worst inflection point, but is still working through challenges. - Jeffrey Tengel(CEO)

Contradiction Point 4

Capital Return Targets

It involves a change in the strategy for returning capital to shareholders, which is a significant factor for investors evaluating the bank's capital management.

What are the long-term capital targets, such as CET1 and tangible common equity? - Mark Fitzgibbon (Piper Sandler & Co.)

2025Q4: The bank plans to return capital to shareholders via buybacks in a prudent manner in 2026, aiming to keep capital relatively flat through buybacks while optimizing for future growth. - Mark Ruggiero(CFO)

What were the key factors driving revenue growth in Q3? - N/A

2025Q1: [No specific guidance provided on capital return targets or buybacks in the available content. The 2025Q1 transcript snippet does not contain any actual dialogue or answers regarding capital return strategy. Therefore, a direct contradiction cannot be established with the 2025Q4 content.] - N/A

Contradiction Point 5

M&A and Strategic Partnership Appetite

It reflects a change in the bank's strategic priorities regarding mergers and acquisitions, which could affect its competitive positioning and capital allocation.

Given the current capital position, what is the outlook for mergers and acquisitions (M&A) and the sentiment among potential sellers? - Jared David Shaw (Barclays Bank PLC)

2025Q4: The bank is not currently focused on M&A... Any potential M&A would be limited to non-bank opportunities... - Jeffrey Tengel(CEO)

Given the improving currency, what is your current appetite for M&A? - Laura Havener Hunsicker (Seaport Research Partners)

2025Q2: M&A is not a priority currently. The bank just closed on the Enterprise acquisition... - Jeffrey Tengel(CEO)