Q2 2025 Independent Bank Corp Earnings Call
Operator: The second quarter 2025 earnings conference call.
Operator: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Good day and welcome to the indiedb. Second quarter 2025 earnings conference call.
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Operator: Before proceeding, please note that during this call, we will make forward-looking statements. Actual results may differ materially from those statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statement.
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before proceeding, please note, that during this call, we will make 4 statements
Actual results May differ materially from those statements due to number of factors. Including those describes in our earnings, release and other SEC filings.
Operator: In addition, some of our discussions 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 SEC filings. These SEC filings can be accessed via the investor relations section of our website.
We are going to take no obligation to publicly update any such statements.
in addition some of our discussions 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 SEC filings.
Operator: Please also note, today's event is being recorded.
The these SEC filings can be accessed, via the investor relations section of our website.
Jeffrey Tengel: I would now like to turn the conference over to Jeff Tengel, CEO. Please go ahead, sir. Thank you. Good morning, and thanks for joining us today. I am accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero.
please also note, today's event is being recorded
Speaker Change: I would now like to turn the conference over to Jeff. Tingle CEO. Please go ahead, sir.
Jeff Tingle: Thank you. Good morning, and thanks for joining us today.
Jeffrey Tengel: We had an eventful second quarter. We closed on the enterprise transaction July 1st. We sold two of our large NPAs. We signed a lease on a new headquarters building, posted solid results, and continue to make progress on a number of our strategic initiatives. In addition, we just announced $150 million stock buyback. Results for the second quarter reflect better-than-expected NIM performance, solid C&I loan growth, strong deposit growth, lower credit costs, which were partly offset by higher expenses and a continued runoff in the CRE portfolio. Our PPNR return on average assets was 1.53% on an operating basis, and our tangible book value improved 2.1% from the first quarter and 8% from the year-ago quarter.
I am a company this morning by CFO and head of consumer lending, mark rosero.
Jeff Tingle: We had an eventful second quarter. We closed on the Enterprise transaction on July 1st. We sold 2 of our large npas. We signed a lease on a new headquarters, building posted solid results, and continue to make progress on a number of our strategic initiatives.
Jeff Tingle: In addition, we just announced a 150 million dollar stock buyback.
Results for the second quarter reflect better than expected Nim performance. Solid cni loan growth, strong deposit growth. Lower credit costs, which were partly offset by higher expenses and a continued runoff in the creep portfolio.
Jeffrey Tengel: As we signaled last quarter, we were successful in exiting our largest non-performing loan as well as another of our prior quarter's top five problem loans. This brought non-performing assets down 35% from the first quarter. Unfortunately, we had one other office-related non-performing loan we thought would be resolved in the second quarter, but the deal fell through and is now being re-marketed for sale.
Jeff Tingle: Our ppnr return on average assets was 1.53% on an operating basis. And our tangible Book value improved 2.1% from the first quarter and 8% from the year ago quarter
Jeff Tingle: As we signaled last quarter we were successful in exiting our largest non-performing loan as well as another of our prior quarters. Top 5 problem loans. This brought non-performing assets down 35% from the first quarter.
Jeffrey Tengel: While we are pleased with the progress we have made in resolving several of our problem office loans, we still have work to do. We continue to work constructively with our sponsors to find mutually agreeable solutions.
Jeff Tingle: Unfortunately we had 1 other office related, non-performing loan, we thought would be resolved in the second quarter but the deal fell through and is now being remarketed for sale.
While we are pleased with the progress, we have made in resolving several of our problem office loans. We still have work to do. We continue to work constructively with our sponsors to find mutually agreeable Solutions,
Jeffrey Tengel: From a business perspective, while the degree of economic uncertainty has improved, the combined impact of tariffs and other potential federal government actions remain unclear. Though it remains too early to tell what the true impact of the tariffs will be, our customers are moving cautiously through the plans they had established. The lack of certainty is causing them to pause any significant expansion or growth initiatives now as they assess the economic landscape.
Jeff Tingle: From a business perspective. While the degree of economic uncertainty has improved, the combined impact of tariffs and other potential. Federal government actions remain unclear.
Jeffrey Tengel: I would note there are many provisions in the recently passed legislation that are beneficial to the business community and could favorably impact future loan demand.
Though, it remains too early to tell what the true impact of the tariffs will be. Our customers are moving cautiously through the plans. They had established, the lack of certainty is causing them to pause any significant expansion or growth initiatives. Now, as they assess the economic landscape,
I would note there are many Provisions in the recently passed legislation that are beneficial to the business community and could favorably impact future, loan demands,
Jeffrey Tengel: We made solid progress on several of our key strategic priorities in the second quarter. We continue to reduce our commercial real estate concentration. C&I loans were up 3.4% in the second quarter. Conversely, CRE and construction loan balances were down 1.7% due to normal amortization and the intentional reduction of transactional CRE business. We've talked in the past about getting our Cree concentration below 300%. At 630, our CRE concentration was 274% due to the sub-debt raise and contraction of CRE balances. However, the closing of enterprise will move our concentration back up to between 310 and 315 percent.
Jeff Tingle: We made Solid progress on several of our key strategic priorities in the second quarter.
Jeff Tingle: We continue to reduce our commercial real estate concentration.
Jeff Tingle: Cni loans were up, 3.4% in the second quarter, conversely Korean construction. Loan balances, were down 1.7% due to normal amortization and the intentional reduction of transactional creed business.
Jeff Tingle: We've talked in the past about getting our C concentration below 300%.
At 6:30, our Creeks concentration was 274%.
Due to the subnet raised and contraction of creb balances.
Jeffrey Tengel: Our current expectations are to get this ratio to 290% by year-end 2027 through amortization and payout. We will also actively pursue loan sales where we can, which may accelerate a reduction in this ratio.
Jeff Tingle: However, the closing of Enterprise will move our concentration back up to between 310 and 315%.
Jeff Tingle: Our current expectations, are to get this ratio to 290%.
By year, end 2027 through amortization and payoffs.
Jeff Tingle: We will also actively pursue loan sales where we can, which may accelerate a reduction in this ratio.
Jeffrey Tengel: We've also spoken in the past about our desire to grow C&I, in part to reduce our dependence on CRE and to drive more deposit and fee income growth. I want to spend a few minutes providing a bit more detail on how we're going to accomplish that. It starts with clearly defining the segments we are going to participate in and feel we can deliver the historical Rockland Trust client experience. The first segment is what we call Community Bank. This segment is comprised of generalist relationship managers who market to both C&I and Cree customers and prospectors. It is the ballast of the commercial bank and a segment we excel in.
Jeff Tingle: Our desire to grow. Cni in part to reduce our dependence on cree and to drive more deposit. And fee income growth
Jeff Tingle: I want to spend a few minutes providing a bit more detail on how we are going to accomplish that.
Jeff Tingle: It starts with clearly defining, the segments. We're going to participate in and feel, we can deliver the historical Rockland Trust client experience.
Jeff Tingle: The first segment is what we call Community banking.
Jeff Tingle: This segment is comprised of generalist relationship managers who Market to both cni and Creeks customers and Prospects.
Jeffrey Tengel: The average loan size is a little over a million dollars. It is the legacy Rockland Trust you are accustomed to. C&I customers are typically between $5 and $50 million in revenue, and credit needs are generally less than $10 million. In 2025, Greenwich named Rockland Trust the best bank in the Northeast for overall customer satisfaction and likelihood to recommend in this segment. The Enterprise franchise fits squarely in this space. Growth in this segment will come from taking market share and doing more with our existing customers.
Jeff Tingle: It is the balance of the Commercial Bank and a segment we excel in.
Jeff Tingle: The average loan size is a little over a million dollars.
Which is the Legacy Rockland Trust. You are accustomed to
Jeff Tingle: cni customers are typically between 5 and 50 million dollars in revenue and credit needs are generally less than 10 million dollars.
Jeff Tingle: In 2025, Greenwich named Rockland Trust, the best bank in the Northeast for overall customer satisfaction and likelihood to recommend in this segment.
The Enterprise franchise fits squarely into this space.
Jeff Tingle: Growth in this segment will come from taking market, share, and doing more with our existing customers.
Jeffrey Tengel: The next segment is Middle Market and Specialty Business. This segment is comprised of two groups. The first group is focused on Massachusetts C&I companies with revenues between $50-500 million and a team that has several industry verticals to include asset-based lending, dealer finance, franchise finance, and security alarms. As mentioned in the past, we recently hired a seasoned executive to lead these two groups who brings a demonstrated track record of success. He in turn has hired several people to round out the team and I'm very encouraged by the early activity we have moving through the pipeline. These two groups, by their nature, will have higher credit holds, typically between $10 and $35 million, and will enable us to grow our C&I business in a meaningful way.
Jeff Tingle: The next segment is Middle Market and Specialty business.
Jeff Tingle: This segment comprised of 2 groups. The first group is focused on Massachusetts cni companies with revenues between 50 and 500 million.
Jeff Tingle: And a team that has several industry verticals to include asset. Based lending dealer Finance, franchise finance and security alarm.
Jeff Tingle: I've mentioned in the past. We recently hired a seasoned executive to lead these 2 groups who brings a demonstrated track record of success.
Jeff Tingle: The in turn has hired several people to round out the team.
And I'm very encouraged by the early activity, we have moving through the pipeline,
Jeffrey Tengel: And the third segment is our investment Cree portfolio. This segment focuses on investment CRE professionals where the loan size is typically greater than $10 million. As we've said in the past, our goal here is to exit transactional CRE as quickly and as economically as possible while still serving our legacy client base. I know this is a drag on loan growth as we look to reduce our CRE concentration and we are actively looking at ways to accelerate that transition so we can return to a more active origination posture. Our goal is to be able to grow loans in the mid-single-digit range, but until we can reduce our CRE concentration, it's likely to be closer to the low single digits.
Jeff Tingle: These 2 groups by their nature will have higher credit holds typically between 10 and 35 million and will enable us to grow our cni business in a meaningful way.
Jeff Tingle: And the third segment is our investment Creed portfolio.
Jeff Tingle: This segment focuses on investment creep professionals, where the loan size is typically greater than 10 million dollars.
Jeff Tingle: As we've said in the past, our goal here is to exit transactional Cree as quickly and as economically as possible while still serving our Legacy client base.
Jeff Tingle: I know this is a drag on Long growth as we look to reduce our C concentration and we are actively looking at ways to accelerate that transition. So we can return to a more, uh, active originations posture.
Jeffrey Tengel: That's why this remains a top priority.
Jeff Tingle: Our goal is to be able to grow loans in the mid single digit range but until we can reduce our C concentration. It's likely to be closer to the low single digits. That's why this remains a top priority.
Jeffrey Tengel: We closed our acquisition of Enterprise Bank on July 1st. Things are going extremely well. We've had great collaboration between the teams in the lead up to the close. As I've said previously, it feels like two puzzle pieces coming together and nothing we have seen today would suggest otherwise. We continue to work closely with our enterprise counterparts as we plan a systems conversion that will occur in mid-October. Of note, their business model is very similar to ours. Unlike previous acquisitions we have done, there are no branch closures, there's no commercial businesses we are exiting due to a mismatch in strategy and credit philosophy.
Jeff Tingle: We closed our acquisition of Enterprise Bank on July 1st.
Things are going extremely well. We've had great collaboration between the teams and the lead up to the close. As I've said previously it feels like 2. Puzzle pieces coming together and nothing. We have seen today would suggest otherwise we continue to work closely with our Enterprise counterparts. As we plan the systems conversion that will occur in mid October.
Jeffrey Tengel: I feel confident this will enhance shareholder value as we assimilate the company, realize synergies from a broader product set, and leverage a bigger balance sheet in the legacy enterprise market.
Jeffrey Tengel: Concurrent with the conversion of Enterprise into Rockland Trust's core platform, we are preparing for our core conversion of the entire bank from Horizon to IBS, scheduled for May of 2016. to move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiency and scalability, and support the future growth of the bank.
Jeff Tingle: Of note, their business model is very similar to ours unlike previous Acquisitions. We have done there. Are no Branch closures, there's no commercial businesses. We are exiting due to a mismatch and strategy and credit philosophy. I feel confident this will enhance shareholder value as we assimilate. The company realize synergies from a broader product set and leverage a bigger balance sheet in the Legacy, Enterprise markets.
Jeff Tingle: Concurrent with the conversion of Enterprise into Rockland, Trust core platform. We are preparing for our core conversion of the entire Bank from Horizon to IBS scheduled. For May of 26,
Jeff Tingle: The move to a new platform, within the FIS ecosystem will improve our technology infrastructure, enhance efficiency, and scalability and support the future growth of the bank.
Mark Ruggiero: We prudently grew deposits in the second quarter, which has been an historical strength of ours. Non-time deposits were up 3.6% year-over-year and 1.6% from the first quarter. In the second quarter, the cost of deposits was 1.54%, highlighting the immense value of our deposit franchise. Mark will provide additional color on our deposits in a few minutes.
Jeff Tingle: We prudently grew deposits in the second quarter, which has been an historical strength of ours.
Non-time deposits were up 3.6% year-over-year and 1.6% from the first quarter.
In the second quarter of the cost of deposits was 1.54%. Highlighting the immense value of our deposit franchise?
Jeff Tingle: Mark will provide additional color on our deposits in a few minutes.
Jeffrey Tengel: Finally, our Wealth Management business continues to be a key value driver. We grew our AUA by 4% in the second quarter to $7.4 billion, driven mostly by market appreciation. Total investment management revenues increased 1.4% from the first quarter and nearly 4% from the second quarter of 24. This business works seamlessly with our retail and commercial colleagues to deliver a holistic experience that resonates with our clients. The breadth of these services provides one-stop shopping for our clients that includes not only investment management, but financial planning, estate planning, tax prep, insurance, and business advisory services. This full suite of products is a differentiating factor for our wealth business.
Jeff Tingle: Finally, our wealth management business continues to be a key value driver.
Jeff Tingle: We grew our AUA by 4% in the second quarter to 7.4 billion dollars driven mostly by market appreciation. Total Investment Management revenues increased 1.4% from the first quarter and nearly 4% from the second quarter of 24.
Jeff Tingle: Experience that resonates with our clients.
Jeff Tingle: The breadth of these Services provides 1-stop shopping for our clients. That includes not only investment management, but financial planning, estate planning, tax, prep, insurance, and business advisory services.
Jeffrey Tengel: We've had very positive initial conversations with numerous Enterprise Wealth customers and believe, like the rest of the Enterprise Bank, its customer base is very similar to ours, which will make the transition go smoothly. Enterprise adds approximately $1.6 billion in AUA to our platform and will offer additional cross-sell opportunities with our broader product offering.
Jeff Tingle: This full Suite of products is a differentiating factor for our wealth business.
Jeff Tingle: We've had very positive initial conversations with numerous Enterprise wealth customers and believe like the rest of the Enterprise Bank. Its customer base is very similar to ours, which will make the transition go smoothly.
Jeff Tingle: Enterprise adds approximately 1.6 billion in AUA to our platform and will offer additional cross sell opportunities with our broader product offerings.
Jeffrey Tengel: While we are pleased with second quarter results, I want to make very clear that we recognize our profitability metrics need to continue to improve. We are fortunate to have an enviable deposit franchise, a strong liquidity position, and a robust capital base. Once we reduce our CRE office portfolio, we believe prudent expense and capital management, together with continued NIM improvement and the realization of the benefits of the enterprise acquisition, when coupled with the ongoing organic growth we are seeing in many of our businesses, will begin to unlock the inherent earnings power of Rockland Trust. We have a skilled and experienced management team.
Jeff Tingle: While we are pleased with second quarter results, I want to make very clear that we recognize our profitability metrics, need to continue to improve.
Jeff Tingle: We are fortunate to have an enviable deposit, franchise a strong liquidity position and a robust Capital base.
Once we reduce our Cree office portfolio, We Believe prudent expense and Capital Management together with continued, Nim Improvement. And the re realization of the benefits of the Enterprise acquisition. When coupled with the ongoing organic growth, we are seeing in many of our businesses, we will begin to unlock the inherent earnings power of Rockland Trust.
Jeffrey Tengel: We operate in attractive markets. We have a strong brand recognition, a broad consumer, commercial, and wealth customer base, and an energized and engaged workforce.
Jeffrey Tengel: In short, we have all the ingredients to return INDB to its historical premium valuation.
Mark Ruggiero: On that note, I'll turn it over to Mark. Thanks, Jeff. I will now take us through the earnings presentation deck that was included in our 8K filing and is available on our website in today's investor portal. Starting on slide three of the deck, 2025 second quarter gap net income was 51.1 million and diluted EPS was $1.20, resulting in a 1.04% return on assets, a 6.68% return on average common equity, and a 9.89% return on average tangible common equity. Excluding $2.2 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income for the quarter was $53.5 million, or $1.25 diluted EPS, representing a 1.09% return on assets, a 6.99% return on average common equity, and a 10.35% return on average tangible common equity.
We have a skilled and experienced management team, we operate an attractive markets, we have a strong brand recognition, a broad consumer commercial, and wealth, customer base and an energized and engaged Workforce in short, we have all the ingredients to return IND beads to its historical premium valuation.
Jeff Tingle: On that note, I'll turn it over to Mark. Thanks, Jeff. I will now take us through the earnings presentation deck, that was included in our 8K, filing, and is available on our website in today's investor portal.
Mark: Starting on, slide 3 of the deck 2025 second quarter, gaap. Net income was 51.1 million in diluted EPS was $1.20 resulting in a 1.04% return on assets. A 6.68% return on average common equity and a 9.89% return on average tangible common equity
Excluding 2.2 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income, for the quarter was 53.5 million or a $1.25 diluted eps.
Mark Ruggiero: The improved operating results reflect asset repricing benefit driving an improved net interest margin and contained loan loss provision. In addition, tangible book value per share increased by $0.99 during the quarter, reflecting solid earnings retention and a $0.28 benefit from other comprehensive income. Staying on capital, as Jeff highlighted, we recently approved a $150 million share buyback plan. This plan is in place to be opportunistic in buying back stock and will be governed by three major tenants. First, the stock price will obviously be a key component in how aggressive we may or may not be in the market.
Mark: Representing a 1.09% return on assets, a 6.99% return on average common equity, and a 10.35% return on average tangible common equity.
Mark: The improved operating results. Reflect asset, repricing benefit driving an improved net, interest margin and contained loan loss provision.
In addition, tangible book, value per share, increase by 99 Cents during the quarter reflecting solid earnings retention in a 28 Cent benefit from other comprehensive income.
Mark: Staying on Capital as Jeff highlighted. We recently approved a 150 million share buyback plan.
Mark: This plan is in place to be opportunistic in buying back stock and will be governed by 3. Major tenants,
Mark Ruggiero: Second, we will balance the timing and the pace of buyback activity while simultaneously working to reduce our CRE concentration to the target level that Jeff just highlighted. And lastly, the pace will also be impacted by ensuring we have adequate cash at the holding company to service our debt requirements.
Mark: First, the stock price will obviously be a key component in how aggressive we may or may not be in the market.
Mark: Second, we will be, we will balance the timing and the pace of buyback activity, while simultaneously working to reduce our Cree concentration, to the Target level, that Jeff just highlighted.
Mark Ruggiero: I'll now cover the key highlights of the second quarter results, and then I'll address some updates regarding the July 1st closing of Enterprise Bank. Turning to slide 4, core deposit growth remains strong with period end balances up $218 million or 1.39% for the quarter, while average balances increased $116 million or 0.75%. The mix of deposits has stabilized with non-interest bearing DDA comprising 28.5% of total deposits at quarter end, while time deposits as a percentage of deposits decreased modestly to 17.1%. with steady emphasis on core relationships within both the consumer and business segments. net core households have increased for the 10th consecutive quarter, which has really served as the primary driver of our differentiated funding.
Mark: And lastly, the pace will also be impacted by ensuring. We have adequate cash at the holding company to service our debt requirements.
Speaker Change: I'll Now cover the key highlights of the second quarter results and then I'll address some updates regarding the July first closing event, Enterprise Bank,
Speaker Change: Turning to slide 4 core deposit, growth remains strong with period, and balances up, 218 million or 1.39% for the quarter while average balance is increased to 116 million or 0.75%.
Speaker Change: The mix of deposits has stabilized with non-interest-bearing, DDA comprising 28.5% of total deposits at quarter end while time deposits as a percentage of deposits decreased modestly to 17.1%.
Mark Ruggiero: Moving to slide 5, total loans increased modestly in the quarter, and as Jeff just highlighted, our relationship banking strategic focus drove an increase in C&I balances of 3.4% or 13% annualized. attrition in our transactional credit balances offset by balanced new origination. steady volume in both our small business and consumer real estate portfolio.
Speaker Change: With steady emphasis on core relationships within both the consumer and business segments. Net core households have increased for the 10th consecutive quarter, which has really served as the primary driver of our differentiated funding base.
Speaker Change: Or 13% annualized.
Mark Ruggiero: As an update on asset quality, we'll move to slide six, which reflects a few developments worth highlighting. First, total non-performing loans decreased significantly from $89.5 million last quarter to $56.2 million at the end of the second quarter, or 39 basis points of total loans. In terms of an update on the biggest movers for the quarter, the acquired $54 million relationship that was charged down to $28 million last quarter was fully resolved in late June. The other positive development was the final resolution of a $7 million previously disclosed non-performing office. regarding the previously disclosed non-performing syndicated office loan that is located in downtown Boston.
Speaker Change: Attrition in our transactional, CB balances offset by balance, new originations and steady volume in both our small business and consumer real estate portfolios.
As an update on asset, quality will move to slide 6 which reflects a few developments worth highlighting.
Speaker Change: First Total non-performing loans, decreased significantly from 89.5 Million last quarter to 56.2 million. At the end of the second quarter or 39 basis points of total loans.
In terms of an update on the biggest movers for the quarter, the acquired 54 million relationship, that was charged down to 28 million. Last quarter was fully resolved in late June. The other positive development was the final resolution of a 7 million previously disclosed non-performing office loan.
Mark Ruggiero: The bank group executed a modification during the second quarter, restructuring that debt into multiple notes with a full payment deferral period through July of 2026. As a result of the modification, no additional loss was recognized, and we expect this loan to stay on non-performing status for the near term. Although we are certainly encouraged by the meaningful reduction in non-performing loans, we recognize the environment remains uncertain. 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, as evidenced by the over $100 million reduction since last year level.
Speaker Change: Regarding the previously disco, disclosed non-performing, syndicated office loans. That is located in downtown. Boston, the bank group executed a modification during the second quarter. Restructuring, that debt into multiple notes with a full payment deferral, period, through July of 2026,
As a result of the modification, no additional loss was recognized. And we expect this loan to stay on non-performing status for the near-term.
Speaker Change: Although we are certainly encouraged by the meaningful reduction. In non-performing loans, we recognize the environment remains uncertain
Mark Ruggiero: As a result of the moving pieces I just discussed, provision for loan loss in the second quarter was $7.2 million, reflecting modest adjustments related to individual credits and overall loan loss.
We acknowledge total criticizing classifying loans experienced a bit of an uptick this quarter but we are confident we can continue to proactively work through these loans as evidenced by the over 100 million dollar reduction since last year levels.
Mark Ruggiero: Shifting gears now to the net interest margin, let's jump to slide 11 where you can see the reported and core net interest margin was 3.37%, reflecting minimal impact from purchase accounting and other nonrecurring items in the current quarter. The second quarter Core Net Interest Margin was higher than our previous guidance, as we saw a slightly higher asset repricing benefit, while also being able to move on some deposit pricing to extract another two basis points benefit from reduced deposit costs. In addition, the strong deposit growth allowed for the repayment of FHLB borrowings. further improving the margin while continuing to structure the balance sheet for a sustainable strong margin with very little wholesale borrowing.
Speaker Change: As a result of the move moving pieces, I just discussed provision for loan loss. In the second quarter was 7.2 million, reflecting modest. Adjustments related to individual credits in overall loan growth.
Speaker Change: Shifting gears now to the net interest margin, let's jump to slide 11 where you can see the reported and coordinate interest margin was 3.37% reflecting minimal impact from purchase accounting and other non-recurring items in the current quarter.
Speaker Change: The second quarter coordinate interest margin was higher than our previous guidance. As we saw, a slightly higher asset repricing benefit while also being able to move on some deposit, pricing to extract, another 2 basis points benefit from reduced deposit costs.
Speaker Change: in addition, the strong deposit growth allowed for the repayment of fhlb borrowings
Mark Ruggiero: Moving to slide 12, non-interest income increased modestly in the second quarter, reflecting solid wealth management income results, increased deposit-related fees, and outsized benefit from bank-owned life insurance. In addition, total expenses when excluding merger and acquisition costs increased 1.8% when compared to the prior quarter. Some key changes for the quarter include annual salary merit increases and director equity award grants, as well as increased check and fraud losses, timing on advertising expenses, and legal loan costs. And lastly, the reported tax rate for the quarter was approximately $22.3%.
Speaker Change: Further improving the margin while continuing to structure the balance sheet for sustainable. Strong margin with very little wholesale. Borrowings
Speaker Change: Moving to slide 12, non-interest income, increased modestly in the second quarter reflecting solid wealth management income results, increased deposit, related fees and outsized benefit from bank-owned life insurance.
Speaker Change: In addition, total expenses, when excluding merger and acquisition costs increased 1.8%. When compared to the prior quarter,
Speaker Change: some key changes for the quarter include annual salary, Merit increases in director Equity award grants, as well as increased check in fraud, losses timing on Advertising expenses and legal loan costs
Mark Ruggiero: I'll now shift gears and provide some insight into the Enterprise Act. So we are only 18 days out from the closing. We are able to provide some updates regarding a few key deal metrics. First, excluding any fair value adjustment. We acquired approximately $4.1 billion of loan balances and $4.4 billion of deposits. Given the stock price at closing, the book value of the net assets acquired, and the yield curve position at the time of closing, we now anticipate the deal to be approximately 8 to 9 percent dilutive to tangible capital on day one, inclusive of the anticipated one-time merger costs and the non-PCD loan double-count impact.
Speaker Change: And lastly, the reported tax rate for the quarter was approximately 22.3%.
Speaker Change: I'll now shift gears and provide some insight into the Enterprise acquisition.
Speaker Change: So we are only 18 days out from the closing. We are able to provide some updates regarding a few key deal metrics
Speaker Change: First excluding any fair value adjustments, we acquired approximately 4.1 billion of loan, balances and 4.4 billion of deposits.
Speaker Change: Given the stock price at closing, the book value of the net assets Acquired, and the yield curve position at the time of closing.
Mark Ruggiero: Given that longer-term rates have contracted a bit since the time of announcement, this would suggest slightly lower tangible capital dilution than expected, with the tradeoff being modestly lower earnings accretion, with no material impact on tangible book value earnback period versus original expectations. In addition, we recognize that the FASB has issued proposed guidance that would effectively eliminate the non-PCD double credit. However, it is anticipated that the final guidance will not be promulgated until later in the year, and as such, we expect to close and report our third quarter results with existing PCD, non-PCD guidance.
Speaker Change: We now anticipate the deal to be approximately 8 to 9% dilutive to tangible capital on day, 1 inclusive of anticipated, 1 time merger costs and the non-pc loan double count impact.
Given that longer term rates have contracted a bit. Since the time of announcement, this would suggest slightly lower tangible. Capital dilution than expected with the trade-off being modestly, lower earnings accretion, with no material impact on tangible Book, value earned back period versus original expectations.
in addition we recognize that the fasbee has issued proposed guidance that would effectively eliminate the non-pc double count
Mark Ruggiero: And lastly, with the core conversion scheduled for mid-October, we expect to recognize full cost-safe synergies during the first quarter of 2026, which we reaffirm to be approximately 30% of the enterprise expenses.
Speaker Change: And as such we expect to close and Report, our third quarter results with existing PCD non PCD treatment.
Mark Ruggiero: In closing out my comments, I'll turn to slide 16, where we will now focus on next quarter guidance only, given all of the moving pieces of the recent merger close. In terms of organic loan growth, we anticipate a low single-digit percentage increase on a combined basis. For organic deposit growth, past experiences suggest we may see some modest level of deposit attrition from the acquired balance. And as such, we are estimating flat to slightly down combined deposit balance. Regarding asset quality, we still do not see any pervasive broad-based issues across segments. And as such, provision will likely continue to be highly driven by developments of individual commercial credit.
Speaker Change: And lastly with the core conversion scheduled for mid-october, we expect to recognize full cost safe synergies during the first quarter of 2026, which we reaffirm to be approximately 30% of the Enterprise expense base.
Speaker Change: In closing out my comments, I'll turn to slide 16 where we will now focus on next quarter guidance. Only given all of the moving pieces of the recent merger closing.
In terms of organic loan growth, we anticipate a low single digit percentage increase on a combined basis.
For organic deposit growth past experiences, suggest we may see some modest level of deposit attrition from the acquired balances. And as such we are estimating flat to slightly down combined deposit. Balances
Mark Ruggiero: For non-interest income, we estimate a low single-digit percentage increase off of the combined results. And for non-interest expense, as I just alluded to a little while ago, we will expect to see a flat to low single-digit percentage increase on the INDB stand-alone results. which includes some level of costs associated with our 2026 core system migration. Regarding the enterprise expense base, we should realize some modest level of cost saves in the third quarter.
Speaker Change: Regarding asset quality. We still do not see any pervasive broad-based issues across segments and as such provision will likely continue to be highly driven by developments of individual commercial credits.
Speaker Change: For a non-interest income. We estimate a low single-digit percentage increase off of the combined results.
And for non-interest expense, as I just alluded to a little while ago, we will expect to see a flat to low single-digit percentage increase on the indb Standalone results.
Speaker Change: Which includes some level of costs associated with our 2026 core system, migration.
Mark Ruggiero: However, we will refine the assumptions over the timing and extent of full cost saves as we work through the second half of the year. Regarding the net interest margin, we provided a revised chart on slide 17 to show the path of what is expected for continued margin expansion from both the core INDB and enterprise results, along with the anticipated lift from purchase accounts. And this indicates we would peg the third quarter margin to be in the mid 360 range. As a reminder, the purchase accounting estimates are based on the preliminary work that has been completed to date as the fair value marks have not been fully finalized at this point.
Speaker Change: Regarding the Enterprise Express expense space, we should realize some modest level of cost saves in the third quarter.
However, we will refine the assumptions over the timing and extent of full cost saves as we work through the second half of the year.
Regarding the then interest margin. We provided a revised chart on slide, 17 to show the path of what is expected for continued. Margin expansion from both the core indiedb and Enterprise results.
Speaker Change: Along with the anticipated lift from purchase accounting.
Speaker Change: And this indicates we would Peg. The third quarter margin to be in the mid 360 range.
Mark Ruggiero: And lastly, in closing out the guidance, the tax rate for the quarter is expected to be in the 23% range.
Speaker Change: As a reminder, the purchase accounting estimates are based on the preliminary work that has been completed to date. As the fair value Marx have not been fully finalized at this point.
Operator: That concludes my comments, and with that, we'll now open it up for questions. Thank you.
Speaker Change: And lastly, in closing out, the guidance, the tax rate for the quarter is expected to be in the 23% range.
Speaker Change: That concludes my comments and with that, we'll now uh, open it up for questions.
Operator: If you'd like to ask a question, please press star then 1 on your telephone keypad. If your question has already been addressed and you'd like to remove yourself from queue, please press star then 2.
Thank you, if you'd like to ask a question. Please press star 1 on your telephone keypad.
Stephen Moss: Today's first question comes from Steve Moss at Raymond James. Please go ahead. Hey, good morning, guys.
Speaker Change: If your question has already been addressed, you'd like to remove yourself from Q. Please. Press star, then 2
Today's first question comes from Steve Moss at Raymond, James, please go ahead.
Jeffrey Tengel: This is Thomas on for Steve. Thanks for taking my question. So, hey Jeff, so where were new loan originations during the quarter? And maybe can you speak to some of the competitive dynamics you're seeing there and how those dynamics are impacting loan pricing and demand? Really, we've seen good loan originations across, you know, most all of the segments I mentioned. Obviously, we're being more conservative with respect to our CRE portfolio, but whether it's in some of the specialty businesses or just our core, you know, middle market and the commercial segment I just described, I wouldn't say it's been more heavily weighted in any of the different segments.
Speaker Change: Hey, good morning guys. This is Tom is on for Steve. Thanks for taking my question.
Speaker Change: um, so
Speaker Change: Hey hey Jeff. Uh so um where were new loan originations during the quarter? And maybe can you speak to some of the competitive Dynamics? You're you're uh seeing there and how those Dynamics are impacting loan, pricing and demand.
Jeffrey Tengel: It's been pretty broad based. The competitive landscape just continues to, you know, be a challenge. There's an awful lot of banks that are, I think, similarly interested in growing their C&I portfolios, so I think it's particularly keen there. But I would also tell you, even within the commercial real estate space, we're starting to see some of the banks that maybe a year ago were really not interested in commercial real estate at all kind of tiptoe back into the market and begin to get a bit more aggressive in the commercial real estate space. And just I'll add from a yield perspective, Thomas, on the commercial side, we see our second quarter closings in the high sixes, probably in the 6.70, 6.80 range.
Um, really? We've seen good loan originations across, you know, most all the segments, I mentioned, obviously we're being more conservative uh, with respect to our creep portfolio, but whether it's in some of the specialty businesses or just our core, you know, um, Middle Market. And, and the, and the commercial segment I just described. Uh, I wouldn't say it's been um more heavily weighted in, in any of the different segments. It's been pretty broad-based.
Speaker Change: um, the competitive landscape just continues to
Speaker Change: You know, be a challenge. Um, there's an awful lot of banks that are
Speaker Change: I think similarly interested in growing their uh, cni portfolio. So I think it's particularly uh, Keen there. But I would also tell you even in within the commercial real estate space, we're starting to see some of the, uh, banks that maybe a year ago were were really not interested in in commercial real estate at all kind of tiptoe back into the market and and begin to get a bit more aggressive uh in the commercial real estate space.
Stephen Moss: And on the consumer book, a bit lower, probably mid sixes. Okay, thank you.
Speaker Change: And just I'll add from a yield perspective, Thomas the on the commercial side. We see uh second quarter closings in the in the high 6 is, you know probably in the 6770 680 range. Um and on the consumer book a bit lower, probably mid 6s.
Got it.
Jeffrey Tengel: And one more from me. Your small business lending continues to be a bright spot for you guys. Can you just talk about maybe a little bit why you've seen so much success there in recent years and whether you expect that to continue? We do expect it to continue. I'd start there. It's really an extension of what we see in the, you know, kind of in our core business. We have really long time Rockland Trust bankers who've been doing this for a while. So they're very well known in the market and are very active. And we have a centralized underwriting unit that enables us to turn loan requests around very, very quickly.
success there in recent years and whether you expect that to continue
Stephen Moss: And the combination of those two things I think is really powerful. And because we've been at it for an awfully long time and we have a streamlined process, I think that enables us to be a lot more nimble than many of our competitors. Okay, that's great.
Speaker Change: Uh, we do expect it to continue. I'd start there. Um, it's really an extension of of what we see in the, you know, kind of in our Core Business. We have um really long time Moroccan. Trust Bankers who've been doing this for a while, so they're very well known in the market and, um, and are very active. And we have a, a, a centralized underwriting unit that enables us to, uh, turn loan requests around very, very quickly. And the combination of those 2 things, I think is really powerful and, um, and because we've, we've, we've been at it for an awfully long time. And, and we have, um, a streamlined process. I think that enables us to, to be a lot more Nimble than, than many of our competitors.
Stephen Moss: Appreciate all the color there, and congrats on the quarter. I'll step back. Thank you.
Speaker Change: Okay, that's great. Appreciate all the call there and uh, congrats on the quarter. I'll set back. Thank you. Thanks. Thanks.
Mark Fitzgibbon: And our next question today comes from Mark Fitzgibbon with Piper Sandler. Please go ahead. Hey, guys. Good morning. Happy Friday. Hi, Mark. First question, Mark, just to follow up. So you're suggesting the third quarter margin is going to be something in the mid 360s. And even with some deposit runoff, you think, assuming the Fed cuts in the back half of the year, we'll see the margin gradually rising. Would that be fair? That is fair. Yeah, I think we're really positioned pretty well on the short end of the curve if there's a Fed cut, where I think we would neutralize the impact on our asset, you know, downward pressure, and we'd be able to move on deposits to essentially negate that.
Thank you, and our next question. Today comes from Mark that's given with Piper Sandler. Please go ahead.
Mark: Hey guys, good morning, happy Friday. Hi Mark. Hey Mark.
Um, first question mark just to follow up. So you're suggesting the third quarter margin is going to be something in the mid 360% uh assuming the FED Cuts in the back half of the year, we'll see the margin gradually Rising. Would that be fair?
Mark Fitzgibbon: And as long as the longer end of the curve stays elevated, you know, that's been the big driver of the margin expansion. And then yesterday, two other large New England banks came out and essentially said on their calls that the worst is behind for credit. It didn't sound like you all were saying that in your comments about credit. Would you agree with that statement that those other two banks made, that the worst is behind here on credit?
That is fair. Yeah, I I I think we're really positioned pretty well on the short end of the curve if there's a Fed cut where I think we would neutralize the impact on our asset, um, you know, downward pressure, and we'd be able to move on deposits to essentially negate that. And as long as the, the longer end of the curve stays elevated, you know, that's been the Big Driver of, of the margin expansion. You've been seeing
Jeffrey Tengel: Honestly, Mark, it's hard to tell because things are so property-specific, and so I'd like to think the worst is behind, but I'm not ready to call the ball on that. As I said in my comments, we feel really good about the progress we've made, and we're continuing to make progress. We're working constructively with all of our borrowers, including the ones that are a bit stressed, but I'm not sure that I would say that... that were out of the woods. So I guess as I think about it, we may be past the worst in terms of an inflection point, but we're still working through some of the challenges we have.
Okay, and then yesterday 2 other large New England Banks came out and and essentially said on their calls that the worst is behind for credit. It didn't didn't sound like you all were saying that in your comments about credit. Would you agree with that statement that those other 2 Banks made that the worst is behind here on credit?
Mark: honestly, Mark it's hard to tell because things are so um, property specific and um
So, I'd like to think the worst is behind, but but I'm not ready to to, to call the ball on that. Um, as I said in my comments, um, we feel really good about the progress we've made and we're continuing to make progress.
Mark: We're working constructively with, you know, with all of our our borrowers, including the ones that are um, a bit stressed.
um, but I'm not sure that that I would say that that um
Mark Fitzgibbon: Okay.
That we're out of the woods. So I guess, as I think about it, we may be past the, the worst in terms of an inflection point. But, you know, we're still working through, uh, some of the challenges we have
Mark Fitzgibbon: And then just with respect to that, I think this quarter you made one large loan modification. Could you share with us what that modification looked like, what the term changes were? Please give us a sense for how those are progressing.
Speaker Change: Okay and then just with respect to that, I think this quarter you made uh 1 large loan modification. Um could you share with us? You know what, that modification looked like, where what the term changes were?
Jeffrey Tengel: Are you referring to the large syndicated downtown Boston loan that I alluded to in my comments, Mark? Yes. This is one we've talked about now, I think, for the last couple of quarters that had reached maturity. And this is a much larger syndicated deal where one of seven or eight banks in the deal. So we had anticipated that this would be coming to a point where the bank group would be working with the borrower, who's a very strong sponsor, to find some form of modification. And where the bank group landed in this case was to essentially restructure this into a Note A, Note B structure, whereby the Note A loan is representative of a valuation and expected debt service coverage to support the appropriate metrics.
Speaker Change: Just give us a sense for, you know, how those are progressing.
Jeffrey Tengel: And then the Note B structure is one that I think is where there's to be seen impact going forward. So because of that modification. Some of the concession there was essentially no cash payments until mid-2026. So even though they're technically performing under the modified terms, we will not suggest is a loan that would come back on accrual status any time soon, so. And really that was done so that they could, and the sponsor is putting money in to this property in terms of lease up and TI, and so that's really what we're waiting for is for as that unfolds, it'll get fully leased up, the debt service coverage and the cash flow will improve, and at some point down the road we would expect to be able to return it to performing status.
Speaker Change: Are you referring to the, uh, the large syndicated downtown? Boston loan? That I alluded to in my comments, Mark. Yes, yes, this is, this is 1. We we've talked about now, I think for the last couple of quarters that had reached maturity and this is a, a much larger syndicated deal where 1 of 7 or 8 Banks and and the deal. So we had anticipated that this would be coming to a point where the bank group would be working with the borrower, who's a very strong sponsor to find, you know, some form of modification. Um and and where the bankrupt landed in this case was to essentially restructure this into a note, a note B structure whereby the note a loan is representative of evaluation and expected debt service coverage to, to support, you know, the appropriate metrics. And then you know the the note B structure is 1 that I think is is where there's
Speaker Change: To be seen um, impact, going forward. So because of that modification.
Speaker Change: You know, some of the concession, there was essentially no no cash payments until mid 2026. So even though they're technically performing under the modified terms, we'll we will not suggest. This is a loan that would come back on a cruel status anytime soon. So and really that that was done so that they could and and and the sponsors putting money in to this, you know, to this property, uh, in terms of lease up and TI. And and so that's really
Speaker Change: Turn it to performing status.
Mark Fitzgibbon: Great, thank you. Thank you.
Speaker Change: Great. Thank you.
Speaker Change: You're welcome.
Laura Hunsicker: And as a reminder, if you'd like to ask a question, please press star then 1. Our next question today comes from Laurie Hunsicker with Seaport Research. Please go ahead. Yeah, hi, good morning. Sticking with Mark's question, so I just want to make sure the large loan modification that's about $22 million or is there a refresh balance? Correct. Yep, still that balance. Got it. Okay. And then, again, just assuming that... Assuming that the modification, et cetera, works, just remind us, what typically is the time frame for returning it to performing status? Is it sort of 12 months out, assuming that it's...
Thank you. And as a reminder, if you'd like to ask a question, please press star then 1.
All right, next question. Today comes from Lori huner, with C Port, research. Please go ahead.
Yeah. Hi, good morning. Um, yeah, just sticking with Mark's question. So I just, I just want to make sure the the large loan modification that's about 22 million or is there a refresh balance, correct? Yep. Still that balance large.
Speaker Change: Got it. Okay. And then again, just assuming that um,
Mark Ruggiero: Our policy is six months of performance, but we would be looking for actual payment performance.
Assuming that the, the modification Etc Works, what just remind us, what typically is the time frame for returning it to performing status is it sort of 12 months out. Assuming our policy is 6 months of 6 months of performance but we would be looking for actual payment performance in this case,
Mark Ruggiero: And then just staying on office and absolutely great work on the office reduction, basically exactly what you said. Obviously A came off and E came off. Maybe just help us think about that loan fee, that $4.7 million. that was originally an $11.7 million in the Class A office that was going to be resolved. It looks like it didn't. How should we be thinking about that? Yeah, unfortunately, as you indicated, it was under an agreement that had fallen through. At the time it was being marketed, we had multiple indications of interest. So it's, it's somewhat back to the drawing board, though we're still optimistic there's a resolution here in the near term.
Speaker Change: Gotcha, gotcha. Okay. And then just staying on office and absolutely great work on the office reduction, uh, basically exactly what you said. Um, obviously a came off and E came off, um, maybe just help us think about that loan, see that? That 4.7 million.
Speaker Change: That was originally an 11.7 million that class DES office. That was going to be resolved. It looks like it didn't, how should we be thinking about that 1?
Mark Ruggiero: But you know, I think based on that process through which it was being marketed, you know, we did see other indication of interest at some modestly lower price points, so we did actually put a little bit more of a specific reserve on that property, not big dollars, but another $700,000 or so. So, you know, we believe we've got now, you know, call it a carrying value of about $4 million that we're hoping to get resolved down the road. Okay. Great.
Speaker Change: Yeah. Unfortunately as as you indicated it was under an agreement that had fallen through. Um at the time it was being marketed we had multiple indications of interest. Um so it's it's somewhat back to the drawing board, though. We're still optimistic. There's a resolution here in the near term.
Speaker Change: um, but, you know, I think based on
Speaker Change: That process through which it was being marketed. You know we did see other indication of interest that some some modestly lower price points. So we did actually put um a little bit more of a specific reserve on that property. Not big dollars but um and other um, 700,000 dollars or so. So you know, we believe we've got now, you know, call it a carrying value of about 4 million dollars, that we're hoping to uh, to get resolved there in the second half.
Mark Ruggiero: And then... Maybe just help us think about the uptick in the office criticized. from $65 million to $111 million, and it looks like $59 million now is maturing in third quarter. Maybe can you help us think about that bucket? You know, if loan loss provisions are going to go up because of that or how you're looking at that. Yeah. No, it's a fair question. About $13 million of that was originally... If you looked at our disclosures last quarter, it was essentially what was in there as Q2 maturity. So we entered into some short-term extensions on those two.
Speaker Change: Okay, great. And then, um,
maybe just help us think about the, the uptick in the office criticized
Speaker Change: From 65 million to 111 million. And it looks like 59 million now is maturing in third quarter.
Maybe. Can you help us? Think about that bucket and
Speaker Change: You know, if loan loss Provisions are are going to go up because of that or or how you're looking at that. Yeah. No, it's a fair question. Um,
Third about 13 million of that was originally.
Speaker Change: Um, if you looked at our disclosures last quarter, it was essentially what was in there is Q2 maturity. So we we entered into some short-term.
Mark Ruggiero: The largest of that, we're currently working with two other banks to... determine the appropriate next steps, but while the occupancy and debt service remains pretty good there, we had a recent appraisal put the LTV up around 90%, so that's about a $10 million one that we're still just working with the borrowers and other partners. to likely find an appropriate extension. The two new downgrades that are maturing here in the third quarter make up the rest of the balance. So it's two loans totaling about $45 million. The largest of that is a $27 million loan. Just to give you a little bit of color on that, we consider it one of the small handful of really strong assets in the Metro West market.
Speaker Change: Extensions on those 2. Um, the largest of that, uh, we are, we're currently working with 2, other Banks to determine the appropriate next steps. Um, but you know, while the occupancy and Debt Service, you know, remains pretty good there. Uh, we had a recent appraisal
Speaker Change: Put the LTV up around 90% so that's um, about a ten million dollar 1 that we're still just working with the bars and other partners.
Speaker Change: To, to likely find an an appropriate extension.
Um, the 2 new downgrades that are maturing here in the third quarter.
Speaker Change: Uh make up the the rest of the balance. So it's 2 loans, um totaling about 45 million.
Mark Ruggiero: The loan is current. It's had some tenant turnover, so it's pressured occupancy to around 70%, and that's created a little bit of debt service coverage challenges, which prompted the downgrade. I think the good news there is we did get an updated appraisal in June, which is suggesting an as-is LTV of about 69%. We'd be looking for a potential extension to be executed this quarter, but we're still in the process of working that through. The next loan in that bucket is about an $18 million loan, you know, somewhat similarly in the terms of if we like this asset, the loan is current.
Speaker Change: The largest of that is a 27 million loan. Um, just to give you a little bit of color on that, you know, we consider it, you know, 1 of the small handful of really strong Assets in the Metro West Market.
Uh, the loan is current, it's had some Pro, you know, some tenant turnover. So it's pressured occupancy to around 70% and that's created a little bit of debt service coverage challenges, which prompted the downgrade. I think, the good news there is we did get an updated appraisal in June, which is suggesting, you know, and as is LTB of about 69%. So we'd be looking for a potential extension to be executed this quarter, um, but we're we're still in the process of working that through
Mark Ruggiero: In this case, we have a very cooperative equity investor group that's supporting the asset. And the reason for the downgrade on this one was there was really mismanagement of cash flows from the principal. That principal has been replaced with a new management company that was brought in. The properties, you know, 80 to 83 percent lease. see a path to getting that up to 90% with some recent levels of interest. So in this case, we're waiting on a new appraisal, but we also think there's an extension path expected for that one. And I would just point out, Laura, that in both of these cases, the sponsors are working very constructively with us.
The next Loan in that bucket is about an 18 million loan, you know, somewhat. Similarly in in the terms of of we like this asset, the loan is current
Um in this case we have a very Cooperative Equity investor group that's supporting the asset. Um and and and the reason for the downgrade on this 1 was there was really mismanagement of cash flows.
You know, 80 to 83% least.
Speaker Change: We see a path to getting that up to 90% with some some recent levels of Interest. So,
Mark Ruggiero: This is not a situation where they're throwing the keys at us, they're putting more money in, we're having, you know, productive dialogue. In the first situation that Mark referred to, we have a 50% guarantee from the sponsor. So, even though obviously we're not happy that we had some migration into the special mention bucket, we feel that there's a path for both of these loans for us to kind of get them in a bit of a longer term structure that works for us and works for them.
Mark Ruggiero: All right. Great. Thanks for that detail. Okay.
Um, in this case, we we're waiting on a new appraisal but, you know, we we also think there's an extension path expected for that 1 soon. And I, I would just point out where that in both of these cases, the the sponsors are working very constructively with us. This is not a situation where they're throwing the keys at us, they're putting more money in, we're having, you know, productive dialogue, uh, in the, in the first situation that that Mark referred to, we have a 50% guarantee from from the sponsor so we're even though we're not happy that that um, we had some migration into the special mention, um, bucket. Um, we're we feel that that there's a path with for both of these loans. Um, for us to to kind of get them uh, in a a bit of a longer term, uh, structure that works for us and works for them.
Mark Ruggiero: And then maybe just shifting over to Margin. The pay down of the $100 million in borrowings, when was that in the quarter? What was the rate on those? And also, do you have a spot margin for June? Yeah, so the $100 million we paid down was on April 30. That was a termed FHLB borrowing that we had that we had done back last year. So that was at a $475 rate. And that got paid off on April 30. and the spot margin for June was 340. Okay.
Speaker Change: Alright. Alright, thanks for that detail. Okay? Um and then maybe just shifting over to margin. Um, I guess 2 questions on that. Um, the pay down of the 100 million in borrowing. Um, when was that in the quarter, what was the rate on those? And also do you have a spot margin for June?
Speaker Change: Yeah um so the the 100 million we paid down um was on April 30th that was a a termed fhlb borrowing that we had that we had done back uh last year. So that was at a 475 rate why? So and that that got paid off on April 30th
And the spot margin for June was 340.
Laura Hunsicker: And then the, I guess. Just going here to the tangible book dilution of 8% to 9%, obviously a bit better than when you started. For your comments, can you help us think a little bit about as we fast forward? beyond third quarter, just considering the FASB impact on the CECL updates, how we should be thinking tangible book dilution, and I guess, is there, you reset that and maybe just high level the 20 to 25 basis point of purchase accounting. take up to margin that you detail on slide 17, how does that change? and anything that you can help us with with respect to that would be great.
Speaker Change: Right. Okay. Um, and then the I guess, um,
Speaker Change: Just just going here to the, the tangible book dilution.
Speaker Change: Of 8 to 9%. Um, obviously a bit better than than when you started. Um, for your comments. Can you help us think a little bit about as we fast forward?
Speaker Change: Beyond third quarter, just considering the fasb impact on the Cecil updates, how we should be thinking about tangible, book dilution, and I guess is there
Speaker Change: You reset that and maybe just high level the 20 to 25 basis point of purchase accounting.
Speaker Change: Pick up to margin that, you detail on slide 17. How does how does that change?
Mark Ruggiero: Yeah, I'll try to provide a few pieces there and if you need a little more clarity I'll pivot, but I think anchoring maybe the conversation in how our estimates in the original announcement, I think you're highlighting we originally announced an expectation of slightly under 10 percent dilution and we've updated that to be eight to nine percent now and that's really primarily driven by the yield curve contracting a bit in the five to seven year. So what was a call it 150 million dollar interest rate mark My caveat here will be this work is still ongoing, Laurie, so don't take us to the penny on this one, but I would suggest that interest mark is going to come in a bit.
Um, and anything that you can help us with, with respect to that would be, would be great. Yep. I'll, uh, I'll try to
Speaker Change: I'll try to provide a few pieces there and and if you need a little more clarity I'll I'll pivot. But um I I think anchoring maybe the conversation in in how we our estimates in the original announcement. I think your your your highlighting. We we originally announced an expectation of slightly under 10% dilution.
Speaker Change: and we've updated that to be 8 to 9% now and that's really primarily driven by the the yield curve Contracting a bit in the 5 to 7 year
Speaker Change: So what was a call at 150 million interest rate mark?
Mark Ruggiero: And that's primarily that and the securities portfolio. So that we have a bit better visibility into because that's already been marked to market as all the securities are in AFS. So what was an $80 million unrealized loss position has come down to about $53 million on their closing balance. So both the interest rate mark and the securities AFS mark have contracted a bit. That's what's giving you the better or improved dilution down to that 8 to 9 percent range. But that's going to cause, you know, what was my original estimate of 28 basis points. of Purchase Accounting Pickup, I would suggest that's now down to about 25 basis points because it's a lower mark accreting.
Speaker Change: You know, my caveat here will be this. Work is still ongoing Larry? So did you know? Don't don't don't, uh, take us, you know, to the penny on this 1. But, um, you know, I, I would suggest that interest Mark is going to come in and come in a bit. Um, and, and that's
Speaker Change: Primarily that and the Securities portfolio so that we have a bit better visibility into because that's already been marked to Market as all this Securities and are in AFS. So what was an eighty million dollar unrealized loss position has come down to about 53 million on their closing balance sheet.
Speaker Change: Um so both the interest rate, Mark and the Securities AFS Mark have contracted a bit that's what's giving you the better.
Speaker Change: Or improved dilution down to that 8 to 9% range.
Mark Ruggiero: So that's the dilution and earnings accretion trade-off, it's really just rate-driven at this point. I was just going to suggest the second part of your question on the CECL double count. That's an interesting one, you know, we'll obviously, as I mentioned in my comments, we'll have to close the quarter with current guidance and all of those estimates I just gave you are inclusive of assuming we have the CECL double count. If they allow, which is what our understanding is, if this gets issued in the fourth quarter and we have the ability to amend and eliminate that CECL double count, you know, as I sit here today, I would probably lean towards taking that relief as I do think the double count does distort the metrics a bit.
But that's going to cause, you know, what was my original estimate of 28 basis, points of purchase accounting pickup. I would suggest that's now down to about 25 basis points because it's a lower Mark accreting in
Speaker Change: Um, so that's the the dilution and and earnings accretion trade-off. It's really just rate driven at this point.
Um, the second
Speaker Change: No, I was just gonna suggest the second part of your question. On the Cecil double count,
Speaker Change: um, that that's an interesting 1, you know where
Speaker Change: Will obviously, as I mentioned in my comments, we'll have to close the quarter with the current guidance in all of those estimates. I just gave you are inclusive of. Assuming we have the Cecil double count,
Biscuits.
Issued in the fourth quarter and we have the ability to amend and eliminate that Cecil double count. You know, as I sit here today, I would probably lean towards taking that relief. Um as I do think the double count
Mark Ruggiero: So if you ran a pro forma number whereby there's no PCD double count. I pegged that the dilution would actually come down another one and a half percent. from the numbers I gave you, but it would also come at a 2% to 2.5% give up on the earnings. Perfect, perfect, perfect. It's super helpful.
Speaker Change: Does distort, the the metrics a bit?
Speaker Change: So, if you ran a pro-forma number whereby, there's no PCD double count.
Speaker Change: Um, I Peg that the dilution would actually come down and other 1 and a half percent.
Speaker Change: From from the numbers I gave you but it would also come at, you know, a, a 2 to 2 and a half percent. Give up on the earnings accretion.
Mark Ruggiero: And then just... That's one thing here, going back to, again, that 8 to 9% tangible book dilution. That's a bit better. Absolutely get it that it's on the right marks. Makes a lot of sense. The credit marks, was there any changes or is it too soon? I'd say too soon. I mean, we're pretty far along in the process, but I don't think you'll see a material difference, but we don't have an updated number on that. Gotcha. Okay.
Speaker Change: Perfect. Perfect. Perfect.
Speaker Change: super helpful and then just, um,
just 1 thing here, going back to um again that that 8 to 9% tangible book, dilution
Speaker Change: That's a bit better actually get it that it's on the rate Marx makes a lot of sense. The the credit Marx was was there any changes or is it too soon?
Speaker Change: No, you were originally too soon. I mean, we're, we're pretty far along in the process, but, um, I I don't think you'll see a material difference but we don't have an updated number on that 1 yet.
Laura Hunsicker: Sorry, I know I've had a lot of questions here. You all had a lot going on.
Jeffrey Tengel: I guess just one last question here, Jeff, to you. Appetite for M&A, where do you guys stand? Obviously, your currency keeps improving. How do you think about it?
Speaker Change: Gotcha. Gotcha. Okay. Um, sorry. I know I've had a lot of questions here. You all had a lot going on. Um, I guess just just 1 last 1. Last question here, Jeff to you. Um, appetite for for m&a. Where do you guys stand? Obviously, your currency keeps improving. Um, how do you think about it?
Jeffrey Tengel: Thanks for the question, Lori. I would say it's really not a priority right now. We just closed Enterprise. We have the conversion in October. And frankly, there aren't very many Enterprises left. We have a major core conversion next May. And we really need to demonstrate our ability to grow organically while reducing our office exposure. So we're really focused on those things.
Uh, thanks for the question Lori. I would say it's really not a priority right now we just closed Enterprise. We have the conversion in October and frankly there aren't very many Enterprises left.
Speaker Change: Uh, we have a major core conversion. Next May
Laura Hunsicker: So M&A really isn't something we're particularly focused on right now. Thanks for taking my question. You're welcome. Thank you.
Speaker Change: And we really need to demonstrate our ability to grow organically while reducing our office exposure. So we're we're really focused on those things. So m&a really isn't something we're particularly focused on right now.
Speaker Change: Right.
Thanks for taking my questions.
David Conrad: And our next question today comes from David Conrad at KBW. Please go ahead. Hey, good morning. Just a couple of quick follow-up questions on the guidance. As you pointed out, you did a really good job on deposits this quarter and drove costs down primarily in the CD area, but it just feels overall this earnings season that the competitive pressures are increasing on deposits. So just wondering on the NIM outlook, do you have ability to kind of continue to drive deposit costs down, or is it really just the benefit from the strong benefit from the back book on the asset side?
Speaker Change: You're welcome. Thank you.
Speaker Change: Thank you. And our next question. Today comes from David Conrad at KBW. Please go ahead.
Mark Ruggiero: Yeah, it's a great question. I would suggest the guidance now is really anchored in the repricing on the asset side. I think you hit the nail on the head. The benefit we had been seeing over the last couple of quarters on the deposits had been primarily CD repricing. We're at the point now where the average cost of our CDs is... essentially in the mid 3% range. So I don't think you'll see. you know, absent any Fed move, you know, an ability to reprice CDs down to any great extent.
Hey, good morning. Uh just a couple quick follow-up questions on the guidance. Um a as you pointed out you did a really good job on deposits this quarter and drove cost down primarily in the in the Seedy area but it just feels overall. This journey season is that the competitive pressures? Are, are increasing on deposits. So, just wondering on the, on the name Outlook is, you have ability to kind of continue to drive deposit costs down, or is it really just the benefit from the, uh, the strong benefit from the bakbuk on the assets?
Yeah, it's a great question. Uh, I, I would suggest, the guidance Now, is really anchored in, um, the repricing on the asset side. I, I think you, you hit the nail on the head. The, the benefit we had been seeing over the last couple quarters on the deposits had been primarily, CD repricing. Um, we're at the point now where the average
Speaker Change: Cost of our CDs is is essentially in the in the mid 3% range. So I don't think you'll see
Mark Ruggiero: So long way of saying I think our cost of deposits is pretty stable right now. You're absolutely right. There's still very competitive pressures out there and, you know, we're getting our good share of operating accounts. That's always been our focus. So we really pride ourselves on not, you know, betting on attracting the high rate sensitive customer. But at the same time, you know, we certainly have new deposits coming on that are looking for rates. So I think we're finding the right balance there. The cost is in check, but all the margin benefit will come primarily from the asset report.
You know, absent any fed move, you know, an ability to reprice CDs down to, to any great extent. So,
Long way of saying, I think our cost of deposits is is pretty stable right now. Um you're absolutely right. There's still very competitive pressures out there.
Speaker Change: Um, and, you know, we're getting our our good share of operating accounts. That's always been our Focus. So,
Mark Ruggiero: Great, thanks. And last, last quick one. Thanks for the color and the tangible book value, but just wonder if you could help us out with the performance CET1 ratio that you're expecting. Yeah, with all those moving pieces, and I guess the caveat of The Cecil double count staying intact.
We really pride ourselves on, not not you know betting on on attracting the high rate sensitive customer. But at the same time, you know, we certainly have new deposits coming on that are looking for rate. So I think we're finding the right balance there that keeps the costs in check. Um, but all the margin benefit will come primarily from the asset repricing.
Speaker Change: Great, thanks. And last last Quick 1. Um, thanks for the color, and the tangible Book value. But just, uh, 1 of you could help us out with, uh, the proforma ct1 ratio, uh, that you're expecting.
Speaker Change: Yeah, with all those moving pieces. And I I I guess the the caveat of um,
Mark Ruggiero: We were modeling it out in the, I believe, in the mid 12% range, around 12%. Thank you.
Speaker Change: The Cecil double count staying intact. We were modeling it out in the uh I believe in the mid 12% range, around 12 and a half.
Speaker Change: Right. Thank you.
Operator: And this concludes our question and answer session.
Operator: I'd like to turn the conference back over to the company for any closing remarks. Thanks. Appreciate everybody's interest. Have a great day. Thank you, sir.
Speaker Change: Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to the company. If any closing remarks,
Speaker Change: Thanks. Appreciate everybody's interests. Have a great day.
Operator: This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Speaker Change: Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may not have sent your lines and have a wonderful day.