Q1 2025 Independent Bank Corp Earnings Call
In addition, some of our discussion today may include references to certain non-GAAP financial measures information about these non-GAAP measures, including reconciliation to GAAP measures may be found in our earnings release and other S. E. SEC filings. These SEC filings can be accessed via the Investor Relations section of our website.
Finally, please also note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to you, Jeff Tango Chief Executive Officer. Please go ahead.
Speaker Change: Thank you and good evening and thanks for joining us today I'm accompanied this evening by CFO and head of consumer lending Mark Ruggiero.
Speaker Change: On a core operating basis results for the first quarter were reflective of solid pre provision net revenue growth offset by higher credit costs.
Speaker Change: P P and our growth was driven by net interest margin improvement solid fee revenue results and well controlled expenses.
Speaker Change: Operating leverage was positive on both a linked quarter and a year over year basis or a P. P. N. R. R. O a a was 1.52% on an operating basis.
Speaker Change: And our tangible book value improved one 8% from the fourth quarter and seven 8% from the year ago quarter.
Speaker Change: Notwithstanding the operating results I, just mentioned credit costs for the first quarter were elevated as we continue to move through the resolution of several previously identified problem loans with.
Speaker Change: We signaled last quarter that we expected our largest NPL to be resolved in the second quarter. It is still on track to do so.
Speaker Change: We had one other large N P. L. We thought it would be resolved in the first quarter, which has slipped into the second quarter.
Speaker Change: Finally, as we signaled during our year end earnings call. We have one large problem loan that moved to nonperforming status in the first quarter.
Speaker Change: Mark will go into more detail during his comments, but we have not seen any material increase in our problem loans and feel that we have identified the significant stress loans and have a detailed action plan for each one of them.
Speaker Change: From a business perspective, clearly the combined impacts of tariffs and other potential federal government actions has increased economic uncertainty.
Speaker Change: While it is too early to tell what the impact of the tariffs will be or what the terrorists or for that matter. Most of the clients I've spoken to are taking a wait and see approach.
Speaker Change: The lack of certainty is causing them to pause any significant expansion or growth initiatives at the moment as they assess the economic landscape.
Speaker Change: Despite the noise, we made solid progress on several of our key strategic priorities in the first quarter.
Speaker Change: We continue to reduce our commercial real estate concentration.
Speaker Change: C&I and small business loans were up two 1% and 2.6% respectively in the first quarter.
Speaker Change: Conversely, CRE and construction loan balances were down 1.2% due to normal amortization, the intentional reduction of transactional Cree business and charge offs.
Speaker Change: As we have said in the past, we will continue to reduce transactional Cree business and free up capacity to support our legacy commercial real estate relationships.
Speaker Change: Mark will provide more detail later on about our successful $300 million sub debt raise but that's going to lead to unexpected pro forma free concentration slightly north of 300% inclusive of the impacts of the enterprise acquisition.
Speaker Change: Continuing to shift towards C&I over the past year, we've added seven C&I bankers, increasing the total to 31.
Speaker Change: Reflecting the desirability of our platform and the award winning culture of Rockland Trust.
Speaker Change: In addition to recent hires include a highly respected and very experienced individuals as a regional manager for middle market, C&I and specialty banking and inexperienced international banker to lead our efforts in FX in trade finance.
Speaker Change: We expect both to make an immediate contribution.
Speaker Change: We continue to prepare for the closing of our pending acquisition of enterprise.
Speaker Change: We expect the transaction will close in the third quarter of the year.
Speaker Change: The more time, we spend with the enterprise team the more convinced we become about the strategic and financial merits of the deal.
Speaker Change: Importantly, a vast majority of customer facing enterprise employees have accepted offers to remain with Rockland Trust post close.
Speaker Change: Including 32 of enterprise banks, 33, commercial bankers, who will remain post close.
Speaker Change: Preparation for our core F. I S processing platform upgrade scheduled for May of 'twenty six is ongoing.
Speaker Change: The move to a new platform within the F. I S ecosystem or improve our technology infrastructure and enhance efficiency and support the future growth of the bank.
Speaker Change: We prudently grew deposits in the first quarter, which has been a historical strength of ours.
Speaker Change: Non time deposits were up two 8% year over year and three 2% from the fourth quarter.
Speaker Change: In the first quarter the cost of deposits was 1.56% highlighting the immense value of our deposit franchise Mark will provide additional color on our deposits in a few minutes.
Speaker Change: Finally, our wealth management business continues to be a key value driver. We grew our <unk> by nearly 1% in the first quarter to $7 billion organic growth or net positive flows totaled 41 million in the quarter.
Speaker Change: <unk> had positive returns in the first quarter. Despite the fact that the S&P 500 was down over 4%.
Speaker Change: Total investment management revenues increased 4% from the fourth quarter and nearly 13% from the first quarter of 'twenty four.
Speaker Change: This business works seamlessly with our retail and commercial colleagues to deliver a holistic experience that resonates with our clients.
Speaker Change: The breadth of these services provides one stop shopping for our clients that includes not only investment management.
Speaker Change: But financial planning estate planning tax prep insurance and business Advisory services.
Speaker Change: This full suite of products is a differentiating factor for our wealth business.
Speaker Change: Enterprise Bank Corp will add approximately $1.5 billion in a way to our platform and offer additional cross sell opportunities with our broader product offerings.
Speaker Change: Underscoring every major every measure of success is a talented team of engaged passionate and highly talented colleagues focused on making a difference for the customers and communities we serve.
Speaker Change: That is why we are proud to be named a top place to work in Massachusetts by the Boston Globe for the 16th consecutive year in.
Speaker Change: In addition, Rockland Trust was recently ranked number two in new England, and the 20th twenty-five J D power retail banking satisfaction study for the second straight year underscoring our exceptional customer service.
Speaker Change: We were also named best Bank in the northeast by Greenwich for overall satisfaction and likelihood to recommend.
Speaker Change: We remain confident about our abilities to navigate.
Speaker Change: Volatile interest rate and economic environment in times of uncertainty. We are fortunate to have an envious deposit franchise, a strong liquidity position and a robust capital base. We will continue to focus on those actions, we have control over and look to capitalize on our historical strengths, which include a skilled and experienced management team.
Speaker Change: <unk> attractive markets strong brand recognition operating scale.
Speaker Change: Broad consumer commercial and wealth customer base, and an energized and engaged workforce in short I believe we're well positioned to realize the benefits of the enterprise acquisition and continue to take market share in the northeast.
Mark Ruggiero: That note I'll turn it over to Mark.
Mark Ruggiero: Thank you, Jeff I will now take us through the earnings presentation deck that was included in our 8-K filing and is available on our website and today's investor portal Star.
Speaker Change: Starting on slide three of the deck 2025 first quarter GAAP net income was $44 4 million and diluted earnings per share was $1.04.
Speaker Change: Resulting in a zero point, 93% return on assets, a 594% return on average common equity and an 885% return on average tangible common equity.
Speaker Change: Excluding $1 2 million of merger and acquisition expenses and their related tax benefit.
Speaker Change: The adjusted operating net income for the quarter was $45 3 million or a $1 six diluted EPS, representing a zero point, 94% return on assets of 6.05% return on average common equity and a 9.01% return on average tangible common equity.
Speaker Change: The results are driven largely by strong core fundamentals, which were in line with expectations with elevated provision for loan loss impacted by a few credits that I'll cover in detail shortly.
Speaker Change: And in addition, as Jeff mentioned tangible book value per share increased by 85 cents during the quarter, reflecting solid earnings retention and a 47 cent benefit from other comprehensive income.
Speaker Change: Turning to slide four highlighting a key component of our core fundamentals deposit activity was very positive for the first quarter, which as a reminder has historically been subject to some level of seasonality, which typically challenge is growth in the first quarter. Despite that average deposits increased modestly.
Speaker Change: While period end balances increased by $370 million or two 4% for the quarter with non maturity consumer.
Speaker Change: Pardon me, ladies and gentlemen, who appears we have lost connection to our speaker line. Please standby, while we reconnect. Thank you for your patience.
Speaker Change: [music].
Speaker Change: Pardon me. This is the operator, we have reconnected the speakers and we'll continue please proceed.
Speaker Change: Thank you hi, we apologize for that were not sure.
Speaker Change: What happened there on the disconnection, but I believe we may have lost connection on slide four so I apologize if all recover ground here that didn't maybe come through but we'll start there.
So on slide four highlighting.
Speaker Change: Highlighting a key component of our core fundamentals deposit activity was very positive for the first quarter, which as a reminder has historically been subject to some level of seasonality, which typically challenge is growth in the first quarter.
Speaker Change: Despite that average deposits increased modestly while period end balances increased by $370 million or two 4% for the quarter with non maturity consumer business and municipal all increasing in the quarter, while the CD portfolio contracted slightly.
Speaker Change: The overall mix of deposits remains very stable with noninterest bearing DDA, comprising 28, 1% of total deposits at quarter end.
Speaker Change: We continue to view our environment to grow core deposits favorably as we have the depth and breadth of products to compete with the national players combined with a high touch community Bank customer service experience.
Speaker Change: Moving to slide five total loans stayed relatively flat for the quarter as expected.
Speaker Change: As Jeff alluded to earlier recent hires and strategic emphasis on full service C&I relationships led to a 2% or 8% annualized increase in C&I balances, while total Cree and construction decreased by one 2%.
Speaker Change: On the consumer side total consumer real estate balances reflected modest growth with mortgage activity split between scalable and portfolio volume well home equity demand remains strong.
Speaker Change: Turning now to slide six we point out that total commercial criticized and classified loans decreased to three 8% of total commercial loans with paydowns and charge offs driving the overall reduction.
Speaker Change: I'll now walk through some key first quarter updates regarding the largest nonperforming loans noted on this slide.
Speaker Change: The $54 million office loan remains on track for resolution through a property sale, which is expected to close in late second quarter as such during the first quarter, we charged off $24 9 million, which represents the difference between the expected net proceeds versus the carrying value.
Speaker Change: The charge off amount was slightly less than the previously established specific reserves.
Speaker Change: Second is another large loan that we discussed had reached maturity last quarter.
Speaker Change: This is a $30 million syndicated office loan in downtown Boston, which migrated to nonperforming status during the first quarter.
Speaker Change: The Bank group is in the process of working through a potential loan modification with the borrower. However, we felt it was appropriate at this time to charge off the balance down to its appraised value, resulting in an $8 $1 million charge off during the quarter.
Speaker Change: The next phone on this slide is an office loan that is also in the process of a note sale within identified buyer base.
Speaker Change: Based on the negotiated offer an expectations for a second quarter close we charged off $7 million during the quarter, which was equal to the specific reserve that had already been set up in the prior quarters.
Speaker Change: The next loan is a C&I relationship that remains in a collateral liquidation process during.
During the first quarter $6 $9 million of pay downs were received reducing the carrying amount to $4 8 million.
Speaker Change: And based on estimated net proceeds on remaining collateral sales an additional $2 5 million of a specific reserve was established in the quarter and.
Speaker Change: And lastly, the final on the slide as an office loan that is being marketed for sale with an updated appraisal liquidation value supporting an additional $1 6 million reserve in the first quarter.
Speaker Change: And as noted on slide seven reflecting the impact of the large moving pieces I. Just described provision for loan loss for the quarter was $15 million is a significant portion of the Q1 charge offs related to loans with previously established reserves.
Speaker Change: And as such the allowance as a percentage of loans decreased to 99 basis points at quarter end.
Speaker Change: In addition to the allowance levels the company increased its tier two capital.
Speaker Change: Despite the market volatility experienced in the last month.
Speaker Change: We continue to believe our strong levels of total capital will give us significant flexibility to be opportunistic in any major capital actions going forward, whether it be to support accelerated organic growth in the newer markets additional M&A opportunities further down the road or share repurchase activity.
Speaker Change: Slides eight through 10 provide additional detail on our loan portfolio composition.
Speaker Change: With a notable developments for the quarter that I just discussed.
Speaker Change: Pardon me. This is the conference operator appears we have lost connection to our Speaker line. Please stand by while.
Speaker Change: <unk> reconnect thank you for you.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Pardon me. This is the operator, we have reconnected the speaker line and we'll continue please proceed.
Speaker Change: Again apologies for that not sure what what the issue is here and.
Quite candidly not sure where the cut out went so I'm going to pick back up.
Speaker Change: Hopefully you all heard the updates on the individual credits, but we can certainly cover that in Q&A, if that got cut out.
Speaker Change: But why don't we start just adding some color there.
Speaker Change: During the quarter, we did increase tier two capital with a $300 million subordinated debt raise which closed in late March.
Speaker Change: With the upcoming enterprise acquisition expected to push our commercial real estate concentration a bit higher we were pleased to be able to execute on this debt raise to shore up additional capital. Despite the market volatility experienced in the last month.
Speaker Change: We continue to believe our strong levels of total capital give us significant flexibility to be opportunistic in any major capital actions going forward, whether that be to support accelerated organic growth in newer markets additional M&A opportunities further down the road or share repurchase activity.
Speaker Change: Slides eight through 10 provide additional detail on the loan portfolio composition, but with the notable developments for the quarter that I just discussed we're going to shift gears and move on to slide 11.
Speaker Change: As noted on this slide the net interest margin on an FTE reported basis improved nine basis points in the first quarter to 342%.
Speaker Change: The FTE core margin of 337% up six basis points, which excludes outsized benefit from interest recoveries on payoffs in purchase accounting accretion.
Speaker Change: The first quarter margin improvement reflects two high level drivers of our interest rate risk profile.
Speaker Change: First we remain relatively neutral to federal reserve actions impacting the short end of the curve.
Speaker Change: And second we remain asset sensitive to the middle and long into the curve with cash flow repricing dynamics and hedged maturities expected to improve both securities and loan yields as evidenced in the first quarter.
Speaker Change: Moving to slide 12, noninterest income increased modestly in the first quarter, despite fewer business days versus the prior quarter with wealth management income results weathering, the volatile market storm nicely as well as increased loan level swap income as compared to the prior quarter.
Speaker Change: In addition, total expenses when excluding merger and acquisition cost stayed relatively flat with the prior quarter.
Speaker Change: Some key changes for the quarter include normal increases in payroll taxes in the first quarter approximately $1 million of snow removal costs within occupancy and equipment.
Speaker Change: And within other noninterest expenses, we saw reduced consulting expenses and unrealized losses on equity securities versus the prior quarter.
Speaker Change: And lastly, the tax rate for the quarter was approximately 22, 3% up from the prior quarter, which as a reminder, benefited from the statutory release of $1 $2 million in uncertain tax positions.
Speaker Change: In closing out my comments I will turn to slide 16, and 17 for an update on our full year 2025 guidance.
Speaker Change: As Jeff mentioned with an expectation for a third quarter enterprise Bancorp closing, we reaffirm the high level results as presented at announcement.
Speaker Change: The caveat being the uncertainty for fair value adjustment impact depending on the rate environment at closing the.
Speaker Change: The rest of the guidance I will provide now relates to independent Bank Corp, as a standalone entity.
Speaker Change: In terms of loan and deposit growth, we anticipate a low single digit percentage increase in loans for the full year, while reaffirming low to mid single digit growth for deposits for the year.
Speaker Change: Regarding asset quality, we anticipate resolution of the larger nonperforming assets already discussed with the provision for loan loss driven by any loss emergence not already identified.
Speaker Change: Although we feel we have identified and fully reserved for the highest risk loans in our portfolio. We feel it is appropriate to pulse specific provision for loan loss guidance, given the increasing uncertainty youll for broader economic conditions.
Speaker Change: For noninterest income and noninterest expense, we reaffirm our mid single digit percentage increases for full year 2025 versus 2024.
Speaker Change: And as a reminder for noninterest expense guide. This does not include expected merger and acquisition expenses associated with the enterprise acquisition.
Speaker Change: Regarding the net interest margin, there's certainly a lot of moving pieces and as such I would point to slide 17 to provide some additional detail over those moving pieces.
Speaker Change: First to link back to prior guidance and as noted on the right side of this chart.
Speaker Change: We reaffirm the independent Bank Corp, Standalone guidance of three to four basis points of margin expansion. Each quarter. However that guidance is now impacted by the March subordinated debt raise which we anticipate will reduce the standalone margin by about 11 basis points.
Speaker Change: But circling back to the three to four basis point expansion, excluding the sub debt. There are also a couple of caveats worth noting.
Speaker Change: <unk> neutral position on the short end of the curve incorporate some level of margin benefit from reduced time deposit pricing. So any future fed rate cuts would likely create a quarter or two lag and achieving that full benefit.
Speaker Change: And second the margin expansion expected from cash flow repricing assumes the middle and longer end of the curve does not materially contract, which would allow for the loan and securities asset repricing benefit that I just noted earlier.
Speaker Change: And then lastly in closing out the guidance the tax rate for the full year is expected to be in the 22% to 23% range.
Speaker Change: That does conclude our comments and with that we'll now open it up for questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause for just a moment to assemble our roster.
Speaker Change: And your first question today will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.
Mark Fitzgibbon: Guys good afternoon.
Speaker Change: Hey, Mark.
Mark Fitzgibbon: A couple of questions on credit I was curious of the top five Npls you have how many of those came from east Boston.
Speaker Change: Yeah.
Speaker Change: The largest one did.
Speaker Change: As did.
Speaker Change: Sure.
Speaker Change: Double check here.
Speaker Change: Two out of the five are east Boston.
Speaker Change: One is blue Hills.
Speaker Change: Okay.
Speaker Change: Okay great.
Speaker Change:
Speaker Change: And then I apologize I kind of missed with the cut out on loan B, the new one the $35 million loan.
Speaker Change: Game onto non accruals this quarter could you just give us a quick recap of what the story was with that one.
Speaker Change: Thoughts on resolution.
Speaker Change: Yes, so that.
Speaker Change: So that had matured in the fourth quarter and reached its 90 day pass due in the first quarter. So it migrated to nonperforming status.
Speaker Change: That's a syndicated loan if you recall so the bank group is still working with the borrower to try and find Reza.
Speaker Change: A resolution on a modest on a modification.
Speaker Change: But at this point, we do have an appraisal.
Speaker Change: In hand, and we thought it was appropriate to actually charged down to that appraisal value, which is the $8 1 million dollar loss, we took in the quarter. So we're hopeful for a possible modification.
Speaker Change: But we are in a position where we thought it was prudent to take the charge offs.
Speaker Change: Okay, and then just sort of more of a macro question.
Speaker Change: It sounds like Youre, suggesting that this quarter.
Speaker Change: <unk> was really a clean up you put up some fairly large charges against these loans and.
Speaker Change: Youre hopeful these things are going to resolve pretty quickly I guess I'm curious what gives you that much confidence given that we are probably facing a more challenging.
Speaker Change: Sort of economic climate.
Speaker Change: Yes, well in a couple of cases, including the largest loan we're pretty far along in.
Speaker Change:
Speaker Change: And is that a note sale resolution the resolution of that so that went to a property sale, but the property sale.
Speaker Change: I guess, it's the stage, we're at with that one and the one other one that we talked about resolving in the second quarter, where.
We feel like we're on the 10 yard line in terms of of getting it resolved we don't see anything as we sit here today that would preclude it like all sides of done their due diligence and are working through the closing process.
Speaker Change: I would just add to Mark I am.
Speaker Change: In my opinion. This is this is what the seasonal model.
Speaker Change: Essentially it is doing is for us we try to identify that loss early and we put essentially specific reserves up when we think we have that loss ring fenced and really all you're seeing now for 30 out of the $40 million as charge off of those reserves that we had established in prior quarters. So I do think it's.
Speaker Change: It's the ramp up of provision as loss emerges.
Speaker Change: And then the charge off numbers look a bit skewed when we get to the point of charging down but for the most part the vast majority of what you're seeing here in the first quarter is really the same loans, we've been talking about over the last couple of quarters I think that's the silver lining in a lot of the noise you're seeing are.
Speaker Change: We're really not seeing it.
Speaker Change: Any material changes and criticized and classified and stack those combined levels are down the NPA as a down and delinquencies are down so you know.
Speaker Change: Certainly a lot of uncertainty out there what with the tariffs and.
Speaker Change: Macroeconomic environment being what it is but in terms of what we have visibility into we still feel pretty good. The other thing I would add mark just to be clear in terms of having these resolve the $30 million loan that we just spoke about loan b.
Speaker Change: We're working with in the context of the bank group to get.
Speaker Change: Get a resolution to that but that's unlikely to return to performing status.
Speaker Change: In the near term, even if were able to craft a resolution that.
Speaker Change: That can allow that.
Speaker Change: The Bank group in the company to move forward.
Speaker Change: Okay, and then changing gears a little bit.
Speaker Change: Your guidance I think you provided when you announced the enterprise deal for the NIM for 2026 was sort of 370 to 375, I guess I am curious given the changes the sub debt and just the environment in general do you still feel like that's a reasonable bogey for 2026, yeah, Yeah, we do.
Speaker Change: The fundamentals behind that guidance are still intact.
Speaker Change: I believe when we talked about it there was a few key components to that assumption.
Speaker Change: The first was that our standalone margin would expand.
Speaker Change: When you pull out the sub debt or excluding the sub debt and we reaffirm that still going to happen.
Speaker Change: We believe the enterprise margin is on track to expand as well.
Speaker Change: And then that combined number if you recall was getting us to somewhere around $3 55 to $3 60, and then the purchase accounting and the sub debt at that point was going to add about 20 basis points on a net basis. So really all that's changed now is we accelerated that sub debt, so youre going to see that.
Speaker Change: And our Standalone numbers, so what what would have been at $3 60 assumption margin trough for <unk> Standalone in 2026, I would say is now $3 50, right. It's got the sub debt in there and then youre going to see.
Speaker Change: A higher purchase accounting number post merger to give us basically 28 basis points lift over those standalone numbers.
Speaker Change: If you kind of following.
Speaker Change: Yes.
10 basis points of sub debt to.
Speaker Change: <unk> Standalone numbers.
Speaker Change: Got it that makes sense and lastly can you share with us how big the loan pipeline is and maybe what the mix looks like.
Speaker Change: The loan pipeline is pretty robust honestly pushes.
Speaker Change: We're pleased about.
Speaker Change: I don't have the specific numbers in front of me, but.
Speaker Change: I would characterize it as very healthy and it also reflects the shift that we've been talking about in that.
Speaker Change: There is there's a lot more C&I business and our loan pipeline than theres been in the past due to the kind of a philosophical shift we're trying to to undertake as an organization, but it's pretty healthy.
Speaker Change: Thank you.
Speaker Change: Your next question today will come from Steve Moss with Raymond James. Please go ahead.
Steve Moss: Good afternoon guys.
Speaker Change: Hi, Steve.
Speaker Change: Maybe just starting with I was just following up there on the loan pipeline I guess.
Speaker Change: The pipeline is robust.
Speaker Change: So you guys are taking down your loan growth expectations, a little bit.
Speaker Change: Does that reflect just youre having.
Speaker Change: Do you have extend out.
Speaker Change: Are you just now.
Speaker Change: Im curious what the dynamic is for.
Speaker Change: Good pipeline, but then the <unk>.
Speaker Change: Pull back on the guide for loans.
Speaker Change: Yes, so the way I would think about that Steve is we're going to continue to see commercial real estate run off.
Speaker Change: The reduction in commercial real estate, which is going to mute some of the growth we'll see in C&I.
Speaker Change: And when you mix all that together, that's how we wind up with the kind of low single digit loan growth forecast.
Speaker Change: I think part of it two we're still seeing you know theres a little bit of a mixed bag on line utilization in the C&I space. So while the pipeline is healthy and we think theres a good path for for grid commitments.
Speaker Change: We're still not seeing necessarily.
Speaker Change: A big change in line utilization at this point, so I think.
Speaker Change: The natural shift from Cree, which is typically funded at close to C&I is going to continue to challenge outstanding balances for for the short term.
Speaker Change: Which by the way is another.
Another quick point.
Speaker Change: Current environment, we've not seen our customer base draw down their lines. The way the way you may have heard some other.
Speaker Change: Other banks have discussed our line utilization has been pretty stable.
Speaker Change: Got you. Okay. That's really helpful. And then in terms of just loan pricing just kind of curious feels like credit spreads have generally tightened this quarter. What are you guys seen for loan pricing these days.
Speaker Change: Yeah. It definitely is competitive out there Steve.
Speaker Change: We're trying to hold the line pretty well on pricing. So for the first quarter. We saw I think a blended weighted average coupon and a 666 70 range.
Speaker Change: Certainly the five and seven year part of the curve has been on a little bit of a roller coaster. So.
Speaker Change: We're still trying to keep some level of stability over on overall pricing, but I think where we are now youre probably pricing deals more in the mid six.
Speaker Change: Maybe even a little bit tighter than that but you know given our alpha.
Speaker Change: Appetite to keep loan demand in check I think we're going to we're going to stay as disciplined as we can on the pricing side, we've never been a bank that lead with price.
Speaker Change: We typically are looking to get paid for using the balance sheet.
Speaker Change: Okay, Great. That's helpful. And then in terms of just loan B in particular.
Speaker Change: With regard to that loan if I recall correctly that was one where you had some leasing activity on the property just kind of curious where the status is of that leasing activity and the <unk>.
Speaker Change: Borrowers cooperating with the bank group or turning into more hostile negotiation.
Speaker Change: Yes, maybe mark and I can ham and egg this one but I wouldn't characterize it as hostile.
Speaker Change: Anytime you have.
Speaker Change: A lot of banks and <unk>.
Speaker Change: Situations like this oftentimes, it's difficult to get consensus and so I think some of the delays in getting a.
Speaker Change: An amendment done has been just that.
Speaker Change: You have a lot of banks with a lot of different perspectives.
Speaker Change: Being able to get them all to agree.
Speaker Change: At times this is a bit difficult.
Speaker Change: And then I think they have been signing new leases I know what the current status of their leases I believe it's up to around 80% occupancy now which is what we I believe talked about on prior quarters with with the entrance of some new tenants, but they still have free rent periods that are burning off.
Speaker Change: And I know as they think about bringing new tenants in you have.
Speaker Change: That needs to get negotiated between the borrower and the bank group.
Speaker Change: That's been the biggest the biggest two characteristics of what's what's challenging sort of the NOI and the cash flow on the deal well.
Speaker Change: It's been exactly that it's the it's the free rent in the Ti build out on.
Speaker Change: Some of the activity that they are seeing for new tenants.
Speaker Change: Got you.
Speaker Change: Okay, and then in terms of just tying out the enterprise deal here.
Speaker Change: Judging by the accretion number in the deck and everything else in the margin guidance. You just gave the sub debt was.
Speaker Change: That you guys issued we've also was included in those original numbers just kind of I guess some confusion.
Speaker Change: Yeah, I think I gave us a 20 basis point lift.
Speaker Change: And in terms of the post merger.
Speaker Change: Impact that was essentially 28 basis points of purchase accounting.
Speaker Change: Negated by our offset by eight basis points from the sub debt.
Speaker Change: That eight basis points on the combined bigger balance sheet. So it's the same level of sub debt. It's just you are seeing it create an 11 basis point drag on our margin as a standalone entity, but that will essentially.
Speaker Change: Convert for lack of a better word to eight basis point drag on the combined entity, if if you're following that guy yes. They do.
Speaker Change: Great well I appreciate all the color and I'll step back here.
Speaker Change: Thanks, Steve Thank you.
Speaker Change: Your next question today will come from Laurie Hunsicker with Seaport Seaport Research. Please go ahead.
Laurie Hunsicker: Great Hi, Thanks, good evening.
Speaker Change: Clicking with credit on slide six and by the way.
Laurie Hunsicker: Super helpful.
Speaker Change: But that $35 million.
Laurie Hunsicker: Yes.
It was running at 80% or so occupancy I think with Morgan Stanley.
Laurie Hunsicker: How did you guys come up with that $8 million for Bob you said that was the new appraisal or is that where Morgan Stanley is killing it.
Laurie Hunsicker: So the FDIC came back in there how do we think about that.
Laurie Hunsicker: Yes, there is an appraisal.
Laurie Hunsicker: In house that supports that charge offs.
Laurie Hunsicker: Gotcha Okay.
Laurie Hunsicker: It was by that has been.
Laurie Hunsicker: John by the lead bank is that right.
Speaker Change: No no no I ordered by the lead bank, so ordered by that right alright.
Speaker Change: And then has the FDIC come back in and looked at that again.
Speaker Change: I think the FDIC is deferring to our judgment because.
Speaker Change: Because it's a shared national credit so we're between having.
Speaker Change: The results from that exam, and then really the the appraisal I think they are there.
Speaker Change: Turing to our judgment given those two facts just just to be clear, we do get we do get reports of the SNCC review and that was also further support for taking a charge off in our opinion.
Speaker Change: Gotcha, Okay, and then what.
Speaker Change: Is that total down.
Speaker Change: I mean.
Speaker Change: Obviously, we know your question about 500 or 550 something like that.
Speaker Change: Little over 500 million.
Speaker Change: Okay.
Speaker Change: Okay, Great and then.
Speaker Change: Just looking here at.
Speaker Change: Loan.
Speaker Change: The one that you took the $7 million charge and obviously you've been really clear about what's happening there that was supposed to be a short sale in the first quarter, you said now guiding to the second quarter.
Speaker Change: Is it still.
Speaker Change: With the same in other words it there.
Speaker Change: It's just flat on timing or are you selling to somebody different.
Speaker Change: No there is.
Speaker Change: It just slid I believe there was meant to be a property sale at one point and then based on I think there might have been.
Speaker Change: I forget exactly what the issue was I think there are a number of shifts they are having they are having trouble getting signatures from all the different answers. So that's why it flipped to a short sale.
Speaker Change: But the closing I mean it is it is there is an agreed upon closing with a buyer.
Speaker Change: And that.
Speaker Change: We actually have a closing date in April but where.
Speaker Change: We're expecting that will slip a bit into mid quarter.
Speaker Change: Okay. Okay, that's great and then loan a that 54 million.
Speaker Change: You said that without fail on track for the second quarter. I mean, you still feel as bad as last quarter. When you guys gave us that second quarter resolution.
Speaker Change: Right.
Speaker Change: That gotten zinger, you still feel good on that.
It's not gotten fuzzier, yeah, it's gotten clear of course don't want to spike the ball on the five yard line.
Speaker Change: We feel we feel pretty comfortable its going to close at this point based on what we know.
Speaker Change: Okay. Okay, that's great and then loan E. The 7 million dollar loan.
Speaker Change: Are you that you took a specific reserve this quarter the $1 6 million specific reserve that was that was due to a new appraisal is that because that loan is also.
Speaker Change: I'm going to close or how do we think about that.
Speaker Change: Yeah. If you recall that was actually alone we had under agreement and we took a charge off on that back in the third quarter of I'm sorry, the fourth quarter of 2023, and then that deal had fallen through in early 2024.
Speaker Change: It's currently being marketed again.
Speaker Change: There is not an agreement in place, but we now believe it is appropriate to look at to liquidate we have an appraisal with the liquidation value that is now supporting an additional $1 6 million dollar reserve.
Speaker Change: Got you, Okay and is that a class a or class D. R.
Speaker Change: Is that so again, that's a deal where we're not the lead bank on that.
Speaker Change: That's I believe.
Speaker Change: And I would say class b.
Speaker Change: In the suburbs here.
Speaker Change: Little bit of a unique property I think but probably tilts towards the class b.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: And then switching to margin.
Speaker Change: Do you have a spot margin and then do you have a spot margin subs.
Speaker Change: Jeff.
Speaker Change: Yeah.
Speaker Change: Spot margin for March.
Speaker Change: I'd have to look at what the core was I know it was influenced by a little bit of.
Speaker Change: Purchase accounting accretion, but I believe it was right around three 339% or $3 40.
Speaker Change: And the sub debt at very little impact in that spot market because it was only there for seven days. So I think that's fair.
Speaker Change: Yeah, a good a good case for that.
Speaker Change: Okay got it Okay and then.
Speaker Change: He BTC any chance for an early close we are seeing.
Speaker Change: Yeah, a lot quicker.
Speaker Change: There was one instance.
Speaker Change: In the mid Atlantic quite a big deal and that approval came in before the state approval I mean any anything there.
Speaker Change: Yes so.
Speaker Change: I think theres always the possibility for an early close at this point.
Not really.
Speaker Change: Obviously submitted the application back at the end of January and we've had.
Speaker Change: I would say kind of normal.
Speaker Change: Back and forth with the FDIC and a little bit with the fed.
Speaker Change: Just them submitting some questions I would characterize the questions again pretty normal pretty benign. So we haven't seen anything based on the questions. We've gotten from the regulators that would give us pause.
Speaker Change: And so now we're just kind of in a wait and see mode. We're not in the middle of responding to anything at the moment. So so I do think theres, if theres a possibility that could close earlier than than maybe what we thought a couple months ago.
Speaker Change: Okay, Okay and was that why you did the sub debt a little earlier than.
Speaker Change: And we thought I think we were thinking about what happens in the summer.
Speaker Change: Okay.
Speaker Change: With the market chaos, we're going now I mean, how did you think about that.
Speaker Change: To be honest, a little bit of both I mean, I think some of the early tea leaves suggested there was a path here, where we could close.
Speaker Change: Earlier than maybe we originally anticipated.
Speaker Change: That sort of shifted the mindset here to let's let's get in the market. When we think we can get the right execution. So we worked with our partners pretty.
Speaker Change: Pretty aggressively and as.
As we all know there was a.
Speaker Change: There's been a lot of Oh destabilization in the capital and debt markets, but we found a window. There that we thought was advantageous. So we were able to get that done. So it was a little bit of both of.
Speaker Change: Anticipating maybe an earlier closing, but also we always said we would we would want to get the deal done when we felt we could and the pricing was right.
Speaker Change: Yes, no great great job getting that done now.
Laurie Hunsicker: So Jeff May have to ask you a direct question, where you will accompany a 15 dollar brookline bed the letter of intent.
Laurie Hunsicker: I don't think we can comment on that but we have our hands full with endocrine, yes, I'll just say, we're very very busy with enterprise how about if we say that.
Laurie Hunsicker: Okay, Okay, well, let me ask it maybe just sort of a general and in slightly different way in the past independent has done more than one bank at a time and an acquisition.
Laurie Hunsicker: How do you guys think about that I mean, we've got a very very strong balance sheet now.
Laurie Hunsicker: Yet your currency is that with everybody.
Laurie Hunsicker: <unk> came along and he BTC wasn't close would you potentially.
Laurie Hunsicker: Would you potentially look to be involved.
Laurie Hunsicker: I mean honestly I would never say never.
Laurie Hunsicker: Questions like that but it would have to be.
Laurie Hunsicker: Really compelling.
Laurie Hunsicker: For us to consider that obviously wasn't here during all of the previous acquisitions, but I am not aware of us doing.
Laurie Hunsicker: Multiple deals at the same time.
Laurie Hunsicker: Could we do that I suppose.
Laurie Hunsicker: We have an awful lot going on including not only the enterprise.
Laurie Hunsicker: Acquisition and integration, but we're doing our core conversion in may of 'twenty six.
Laurie Hunsicker: So I would say those are our two biggest priorities. It if there was something that we would.
Laurie Hunsicker: Sound just like.
Laurie Hunsicker: Overwhelmingly compelling and it didn't we didn't think it would jeopardize either one of those two things then maybe but.
Laurie Hunsicker: Honestly I don't really see any I don't see anything out there that I would characterize as overly compelling.
Laurie Hunsicker: Okay, and then actually last question I had on the on the core systems upgrade.
Laurie Hunsicker: And I have my notes, but it doesn't look like it was in the numbers.
Laurie Hunsicker: But you might take a million and a half dollar expense cards.
Laurie Hunsicker: In the first quarter in the second quarter relating to that core.
Laurie Hunsicker: Systems upgrade or possibly you might note. The wrong can you just help us think about what that expense in there or when we'll see that expense and.
Laurie Hunsicker: Thought it was $3 million is that still the right number.
Laurie Hunsicker: I think we've talked about a range of three to five and probably why are.
Laurie Hunsicker: You're indicating three.
Laurie Hunsicker: So part of that is our relationship with our core provider that the expense is actually a lot higher than that but some of that gets absorbed with credits we have with the provider. So right now we've been able to we haven't really incurred.
Laurie Hunsicker: Any expense associated with that conversion at this point, but I still think there is we still believe there'll be some expense that will not be absorbed by the credits here in 2025.
Laurie Hunsicker: And I would still would suggest it's in that probably $3 million to $4 million range, but if we have some of that in the upcoming quarters will will highlight that with each quarter's results.
Laurie Hunsicker: But none of it none of that was in the first quarter.
Laurie Hunsicker: Okay. So was it was very modest.
Laurie Hunsicker: Okay and then just one last question so with the system conversion upgrade humming.
In May of 2025, you said, then we'll expect everybody staying with.
Laurie Hunsicker: May of 'twenty six would be the conversion may have plenty.
Laurie Hunsicker: Okay.
Laurie Hunsicker: Okay, great. Thanks, I'll leave it there.
Laurie Hunsicker: Okay.
Laurie Hunsicker: Your next question today will come from Chris O'connell with <unk>. Please go ahead.
Chris O'connell: Hey, good evening.
Speaker Change: Hey, Chris I, just wanted to start off.
Speaker Change: On the margin and make sure I had everything right.
Speaker Change: So the 11 basis points off of the core in Q1.
Speaker Change: 337 is the immediate head into <unk> and then.
Speaker Change: <unk> also inclusive of the.
Speaker Change: The three to four basis point increase per quarter, so kind of net out.
Speaker Change: Down seven or eight.
Speaker Change: Got it yep.
Speaker Change: Those would be sort of the two major drivers that I that I would suggest will happening in the second quarter.
Speaker Change: And just.
Speaker Change: Pass.
Speaker Change: Whats the plan I guess or the assumptions around that.
Speaker Change: Appointment.
Speaker Change: Of the elevated cash balances coming out of this.
Speaker Change: Quarter with the sub debt raise and then.
Speaker Change: I guess that 4%.
Speaker Change: Estimated proceeds deal.
Speaker Change: Yes, so certainly.
Speaker Change: Could you sort of assume that that's somewhat of a conservative.
Speaker Change: All of that cash stays in that fed funds and we picked up 4% number for purposes of modeling that out.
Speaker Change: I'd say priority would be to support loan growth.
Speaker Change: To the extent, we're able to to increase versus our guidance.
Speaker Change: I think our securities portfolio.
Speaker Change: Is in a pretty good spot, but you know we may put a little bit to work in the securities, but I Wouldnt suggest will elevate there too much I also think we want to keep some of that to just you know some of it will need to be used for the cash component of the acquisition, which is not a very large amount, but that's $20 to $25 million and then <unk>.
Speaker Change: $50 million of that will be used to pay down the enterprise sub debt.
Speaker Change: That will be absorbing when we combine.
Speaker Change: Then there is some wholesale borrowings.
Speaker Change: At enterprise that we could certainly use our excess liquidity.
Speaker Change: Just sort of delever the balance sheet, a bit take some of the excess cash and pay down their wholesale borrowings.
Speaker Change: So long way of saying I don't think we're going to rush to necessarily.
Speaker Change: Force, putting that cash to work in the next quarter or two.
Speaker Change: There'll be certainly a more opportunities on a combined basis to kind of.
Speaker Change: Like I said, either support loan growth or pay down wholesale borrowings.
Speaker Change: Great. So I mean safe to say.
Speaker Change: Do you think there is.
Speaker Change: Erring on the conservative side of that 4% yield and you can probably add.
Speaker Change: Central for upside there.
Speaker Change: Yes, I think that's fair.
Speaker Change: Great.
Speaker Change: And then just again about your guys capital levels.
Speaker Change: Even with the deal.
Speaker Change: We will remain kind of robust afterwards.
Speaker Change: Oh closed tomorrow.
Speaker Change: What would you say given the overall environment and what you guys are seeing on the loan growth demand.
Speaker Change: Balanced with the buyback and M&A conversations.
Speaker Change: Yes.
Speaker Change: How would you guys.
Speaker Change: What would your priorities be I guess.
Speaker Change: Is the buyback the most attractive you guys had.
Speaker Change: And there are M&A conversations.
Speaker Change: That had been going along.
Speaker Change: Yeah, I mean, I think from a practical standpoint, I think we absolutely should be thinking about buyback I mean, I would say, our prioritization would be to support organic growth.
Speaker Change: But I think the practical side of it is in this environment and as you see in our guidance. We're not we're not predicting two to significantly increase the balance sheet footings in the near term. So when you look at our valuation.
Speaker Change: I think there is.
Speaker Change: An opportunity here, where a buyback makes sense.
Speaker Change: Okay.
Speaker Change: Great. Thanks, Jeff Thanks, Barbara.
Speaker Change: Okay.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Jeff Tangle for any closing remarks.
Jeff Tangle: Thanks, everybody appreciate your interest in <unk> apologize for some of the technical difficulties and hope you have a nice holiday weekend.
Jeff Tangle: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Jeff Tangle: Yeah.
Jeff Tangle: [music].