The sign on a Rockland Trust branch in downtown Boston. Photo by James Sanna | Banker & Tradesman Staff / file
Rockland Trust built its sizable position in the Eastern Massachusetts banking market on 20 years of successful acquisitions. But these days, it’s focused on demonstrating it can grow on its own.
In response to an investment analyst’s question during the Hanover-based bank’s second-quarter earnings call Friday, CEO Jeffrey Tengel said M&A is “really not a priority right now” with the need to integrate Lowell-based Enterprise Bank into its operations after the deal closed at the start of this month.
“Frankly, there aren’t very many Enterprises left. We have a major core conversion next May [to FIS’ IBS software system], and we really need to demonstrate our ability to grow organically while reducing our office exposure,” Tengel said.
So far, integrating Enterprise’s staff and its similar business model has felt “like two puzzle pieces coming together,” Tengel said.
While Rockland has shrunk its volume of criticized and classified commercial loans by $100 million over the last year, a small number of troubled office loans continue to be a problem for the bank. They helped bump its total volume of criticized and classified commercial loans from $417.7 million in the first quarter of this year to $460.2 million this quarter, Tengel and CFO Mark Ruggerio said Friday.
“We acknowledge total criticized and classified loans experienced a bit of an uptick this quarter, but we are confident we can continue to proactively work through these loans,” Ruggerio told analysts.
Over the second quarter, the bank exited all of its “top 5 problem loans” identified earlier this year, Tengel said. Nonperforming loan volume fell from $89.5 million last quarter to $56.2 million at the end of the second quarter.
Still, the cratering of office values in downtown Boston hangs over many local banks’ portfolios. In response to an analyst’s question, Ruggerio described a $22 million, syndicated downtown office loan Rockland was part of along with “seven or eight other banks” where the bank group had to significantly restructure the loan, force the unidentified borrower to put in money for tenant incentives and improvements, and collectively accept that they wouldn’t be getting any cash payments from the borrower “essentially until mid-2026.”
Another troubled office property with an $11.7 million loan was supposed to have sold in the second quarter, but the deal fell through. That loan is now worth only $4.7 million, Ruggerio said, with buyers only interested in the building “at some modestly lower price points.”
Tengel sounded a skeptical note about how much drag area banks were feeling from troubled office loans that still need to be resolved.
“I’d like to think the worst is behind but I don’t feel comfortable calling the ball quite yet,” he said. “I wouldn’t say we’re out of the woods. We may be past the worst of it as an inflection point but we’re still working through the challenges we have.”
To help the bank return to organic growth, Tengel outlined three areas where the bank would try to win new borrowers as it keeps pushing to shrink its overall commercial real estate loan book, which grew again thanks to the Enterprise acquisition.
The first, small commercial real estate and C&I loans to borrowers that has traditionally been what Tengel called the “ballast” of Rockland’s commercial banking operations, will grow if the bank can both take market share from other banks and “do more with existing customers.”
Second, the bank plans to target middle-market companies with revenues between $50 million and $500 million for C&I loans with credit holds between $2 million and $35 million. The bank recently hired an executive for this initiative, Tengel said, who’s recently completed hiring for their own team.
And lastly, while the bank will keep shrinking its commercial real estate loan book through the end of 2027, it plans to target “investment CRE” borrowers looking for loans $10 million and up.
“Our goal is to exit transactional CRE as quickly and economically as possible while still serving our legacy client base,” Tengel said.
