Independent Bank Corp. (NASDAQ:INDB) Q1 2025 Earnings Call Transcript

Independent Bank Corp. (NASDAQ:INDB) Q1 2025 Earnings Call Transcript April 17, 2025

Independent Bank Corp. misses on earnings expectations. Reported EPS is $1.06 EPS, expectations were $1.18.

Operator: Good day, and welcome to the Independent Bank Corp First Quarter 2025 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Before proceeding, please note that during this call, we will be making forward-looking statements. Actual results may differ materially from these 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 statements. 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 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. I would now like to turn the conference over to you Jeff Tengel, Chief Executive Officer. Please go ahead.

Jeffrey Tengel: 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. On a core operating basis, results for the first quarter were reflective of solid pre-provision net revenue growth offset by higher credit costs. PPNR growth was driven by net interest margin improvement, solid fee revenue results and well controlled expenses. Operating leverage was positive on both a linked-quarter and year-over-year basis. Our PPNR ROAA was 1.52% on an operating basis, and our tangible book value improved 1.8% from the fourth quarter and 7.8% from the year ago quarter. 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.

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. We had one other large NPL we thought would be resolved in the first quarter, which has slipped into the second quarter. Finally, as we signaled during our year-end earnings call, we have one large problem loan that moved to non-performing status in the first quarter. 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. From a business perspective, clearly the combined impact of tariffs and other potential federal government actions has increased economic uncertainty.

While it is too early to tell what the impact of the tariffs will be or what the tariffs are for that matter, most of the clients I’ve spoken to are taking a wait-and-see approach. The lack of certainty is causing them to pause any significant expansion or growth initiatives at the moment as they assess the economic landscape. Despite the noise, we made solid progress on several of our key strategic priorities in the first quarter. We continue to reduce our commercial real estate concentration. C&I and small business loans were up 2.1% and 2.6%, respectively in the first quarter. Conversely, CRE and construction loan balances were down 1.2% due to normal amortization, the intentional reduction of transactional CRE business, and charge-offs.

As we have said in the past, we will continue to reduce transactional CRE business and free up capacity to support our legacy commercial real estate relationships. Mark will provide more detail later on about our successful $300 million sub-debt raise, but that’s going to lead to an expected pro forma CRE concentration slightly north of 300%, inclusive of the impact of the Enterprise acquisition. Continuing the shift towards C&I, over the past year, we’ve added seven C&I bankers, increasing the total to 31, reflecting the desirability of our platform and the award winning culture of Rockland Trust. In addition, two recent hires include a highly respected and very experienced individual as our Regional Manager for middle market C&I and Specialty Banking and an experienced international banker to lead our efforts in FX and trade finance.

We expect both to make an immediate contribution. We continue to prepare for the closing of our pending acquisition of Enterprise. We expect the transaction will close in the third quarter of the year. The more time we spend with the Enterprise team, the more convinced we become about the strategic and financial merits of the deal. Importantly, a vast majority of customer-facing Enterprise employees have accepted offers to remain with Rockland Trust post-close, including 32 of Enterprise Bank’s 33 commercial bankers who will remain post-close. Preparation for our core FIS processing platform upgrade scheduled for May of ’26 is ongoing. The move to a new platform within the FIS ecosystem will improve our technology infrastructure, enhance efficiency, and support the future growth of the bank.

We prudently grew deposits in the first quarter, which has been a historical strength of ours. Non-time deposits were up 2.8% year-over-year and 3.2% from the fourth quarter. 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. Finally, our Wealth Management business continues to be a key value driver. We grew our AUA by nearly 1% in the first quarter to $7 billion. Organic growth or net positive flows totaled $41 million in the quarter. IMG had positive returns in the first quarter despite the fact that the S&P 500 was down over 4%. Total Investment Management revenues increased 4% from the fourth quarter and nearly 13% from the first 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. Enterprise Bancorp will add approximately $1.5 billion in AUA to our platform and offer additional cross-sell opportunities with our broader product offerings. 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.

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 addition, Rockland Trust was recently ranked number two in New England in the 2025 J.D. Power Retail Banking Satisfaction Study for the second straight year, underscoring our exceptional customer service. We were also named Best Bank in the Northeast by Greenwich for overall satisfaction and likelihood to recommend. We remain confident about our abilities to navigate a 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, attractive markets, strong brand recognition, operating scale, a 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. On 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 in today’s investor portal. Starting on Slide 3 of the deck. 2025 first quarter GAAP net income was $44.4 million and diluted earnings per share was $1.04, resulting in a 0.93% return on assets, a 5.94% return on average common equity, and an 8.85% return on average tangible common equity. Excluding $1.2 million of merger and acquisition expenses and their related tax benefit, the adjusted operating net income for the quarter was $45.3 million or $1.06 diluted EPS, representing a 0.94% return on assets, a 6.05% return on average common equity and a 9.01% return on average tangible common equity.

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. In addition, as Jeff mentioned, tangible book value per share increased by $0.85 during the quarter, reflecting solid earnings retention and a $0.47 benefit from other comprehensive income. Turning to Slide 4, 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 challenges growth in the first quarter. Despite that, average deposits increased modestly, while period end balances increased by $370 million or 2.4% for the quarter with non-maturity consumer [Technical Difficulty]

Operator: Pardon me, ladies and gentlemen, it appears we have lost connection to our speaker line. Please stand by while we reconnect. Thank you for your patience. [Technical Difficulty] Pardon me, this is the operator. We have reconnected the speakers, and we’ll continue. Please proceed.

Mark Ruggiero: Thank you. We apologize for that. We’re not sure what happened there on the disconnection, but I believe we may have lost connection on Slide 4. So I apologize if I’ll recover ground here that didn’t maybe come through, but we’ll start there. So on Slide 4, 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 challenges growth in the first quarter. Despite that, average deposits increased modestly, while period end balances increased by $370 million or 2.4% for the quarter, with non-maturity consumer, business, and municipal all increasing in the quarter, while the CD portfolio contracted slightly.

The overall mix of deposits remains very stable with non-interest-bearing DDA comprising 28.1% of total deposits at quarter end. 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. Moving to Slide 5. Total loans stayed relatively flat for the quarter as expected. 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 CRE and construction decreased by 1.2%. On the consumer side, total consumer real estate balances reflected modest growth with mortgage activity split between saleable and portfolio volume, while home equity demand remained strong.

Turning now to Slide 6. We point out that total commercial criticized and classified loans decreased to 3.8% of total commercial loans, with paydowns and charge-offs driving the overall reduction. I’ll now walk through some key first quarter updates regarding the largest non-performing loans noted on this slide. 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. The charge-off amount was slightly less than the previously established specific reserve. Second is another large loan that we discussed had reached maturity last quarter.

This is a $30 million syndicated office loan in Downtown Boston, which migrated to non-performing status during the first quarter. 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. The next loan on this slide is an office loan that is also in the process of a note sale with an identified buyer. Based on the negotiated offer and 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. The next loan is a C&I relationship that remains in a collateral liquidation process.

During the first quarter, $6.9 million of paydowns were received, reducing the carry-in amount to $4.8 million. 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 lastly, the final loan on the slide is 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. As noted on Slide 7, reflecting the impact of the large moving pieces I just described, provision for loan loss for the quarter was $15 million, as a significant portion of the Q1 charge-offs related to loans with previously established reserves. And as such, the allowance as a percentage of loans decreased to 99 basis points at quarter end.

In addition to the allowance levels, the company increased its Tier 2 capital [Technical Difficulty] despite the market volatility experienced in the last month. 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 it be to support accelerated organic growth in the newer markets, additional M&A opportunities further down the road, or share repurchase activity. Slides 8 through 10 provide additional detail on our loan portfolio composition, with the notable developments for the quarter that I just discussed. [Technical Difficulty]

Operator: Pardon me, this is the conference operator. It appears we have lost connection to our speaker line. Please stand by while we reconnect. Thank you for your [Technical Difficulty] Pardon me, this is the operator. We have reconnected the speaker line and we’ll continue. Please proceed.

Mark Ruggiero: Again, apologies for that. Not sure what the issue is here, and I’m quite candidly not sure where the cut out went. So I’m going to pick back up. Hopefully, you all heard the updates on the individual credits, but we can certainly cover that in Q&A if that got cut out. But why don’t we start? Just adding some color, during the quarter, we did increase Tier 2 capital with a $300 million subordinated debt raise, which closed in late March. 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. 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.

Slides 8 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. As noted on this slide, the net interest margin on an FTE reported basis improved 9 basis points in the first quarter to 3.42% with the FTE core margin of 3.37%, up 6 basis points, which excludes outsized benefit from interest recoveries on payoffs and purchase accounting accretion. The first quarter margin improvement reflects two high level drivers of our interest rate risk profile. First, we remain relatively neutral to Federal Reserve actions impacting the short end of the curve. And second, we remain asset-sensitive to the middle and long-end of the curve with cash flow repricing dynamics and hedge maturities expected to improve both securities and loan yields as evidenced in the first quarter.

Moving to Slide 12. Non-interest 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. In addition, total expenses when excluding merger and acquisition costs, stayed relatively flat with the prior quarter. 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. And within other non-interest expenses, we saw reduced consulting expenses and unrealized losses on equity securities versus the prior quarter. 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.

In closing out my comments, I’ll turn to Slides 16 and 17 for an update on our full year 2025 guidance. As Jeff mentioned, with an expectation for a third quarter Enterprise Bancorp closing, we reaffirm the high level results as presented at announcement, but the caveat being the uncertainty for fair value adjustment impact depending on the rate environment at closing. The rest of the guidance I’ll provide now relates to Independent Bank Corp as a standalone entity. 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. Regarding asset quality, we anticipate resolution of the larger non-performing assets already discussed with the provision for loan loss driven by any loss emergence not already identified.

Although we feel we have identified and fully reserved for the highest risk loans in our portfolio, we feel it is appropriate to pull specific provision for loan loss guidance given the increasing uncertainty over broader economic conditions. For non-interest income and non-interest expense, we reaffirm our mid-single digit percentage increases for full year 2025 versus 2024. And as a reminder for non-interest expense guide, this does not include expected merger and acquisition expenses associated with the Enterprise acquisition. Regarding the net interest margin, there is certainly a lot of moving pieces, and as such, I would point to Slide 17 to provide some additional detail over those moving pieces. First, to link back to prior guidance and as noted on the right side of this chart, we reaffirm the Independent Bank Corp standalone guidance of 3 basis points to 4 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. But circling back to the 3 basis point to 4 basis point expansion excluding the sub-debt, there are also a couple of caveats worth noting. First, our 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 in achieving that full benefit. 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.

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. That does conclude our comments. And with that, we’ll now open it up for questions.

Operator: We will now begin the question-and-answer session. [Operator Instructions] And your first question today will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Q&A Session

Mark Fitzgibbon: Hey, guys. Good afternoon.

Jeffrey Tengel: Hey, Mark.

Mark Fitzgibbon: First, a couple of questions on credit. I was curious, the top five NPLs you have, how many of those came from East Boston?

Jeffrey Tengel: The largest one did. As did, double-check here. Two out of the five are East Boston. One is Blue Hills.

Mark Fitzgibbon: Okay. Great. And then I apologize, I kind of missed with the cut-out on Loan B, the new one, the $38.5 million loan that came onto non-accruals this quarter. Could you just give us a quick recap of what the story was with that one and your thoughts on resolution?

Mark Ruggiero: Yes. So that had matured in the fourth quarter and reached its 90-day past-due in the first quarter. So it migrated to non-performing status. That’s a syndicated loan, if you recall, so the Bank Group is still working with the borrower to try and find a resolution on a modification. But at this point, we do have an appraisal in hand and we thought it was appropriate to actually charge down to that appraisal value, which is the $8.1 million loss we took in the quarter. So we’re hopeful for a possible modification, but we are in a position where we thought it was prudent to take the charge-off.

Mark Fitzgibbon: Okay. And then just sort of more of a macro question. It sounds like you’re suggesting that this quarter was really a cleanup. You put up some fairly large charges against these loans, and you’re 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 sort of economic climate?

Jeffrey Tengel: Yeah. Well, in a couple of cases, including the largest loan, we’re pretty far along in — and is that a note sale?

Mark Ruggiero: The resolution.

Jeffrey Tengel: Yeah, the resolution of that. So…

Mark Ruggiero: That one is a property sale. But…

Jeffrey Tengel: A property sale. So 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 getting it resolved. We don’t see anything as we sit here today that would preclude it, like all sides have done their due diligence and are working through the closing process.

Mark Ruggiero: I would just add too, Mark. In my opinion, this is what the CECL model essentially 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 million out of the $40 million is charge-off of those reserves that we had established in prior quarters. So I do think it’s the ramp-up of provision as loss emerges, 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 and a lot of the noise you’re seeing.

We’re really not seeing any material changes in criticized and classified. In fact, those combined levels are down, the NPAs are down, and delinquencies are down. So there’s certainly a lot of uncertainty out there with the tariffs and macroeconomic environment being what it is, but in terms of what we have visibility into, we still feel pretty good.

Jeffrey Tengel: The other thing I would add, Mark, just to be clear, in terms of having these resolved, the $30 million loan that we just spoke about Loan B, we’re working with — in the context of the bank group to get a resolution to that, but that’s unlikely to return to performing status in the near term, even if we’re able to craft a resolution that can allow the bank group and the company to move forward.

Mark Fitzgibbon: Okay. And then changing gears a little bit on your guidance, I think you provided when you announced the Enterprise deal for the NIM for 2026, was sort of $3.70 to $3.75. I guess I’m 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?

Mark Ruggiero: Yeah, we do. The fundamentals behind that guidance are still intact. I believe when we talked about it, there was a few key components to that assumption. The first was that our standalone margin would expand when you pull out the sub-debt, or excluding the sub-debt and we reaffirm that’s still going to happen. We believe the Enterprise margin is on track to expand as well. 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 you’re going to see that in our standalone numbers. So what would have been a $3.60 assumption margin for our standalone in 2026, I would say, is now $3.50, right?

It’s got the sub-debt in there. And then you’re going to see a higher purchase accounting number post-merger to give us basically 28 basis points lift over those standalone numbers. If that — if you’re kind of following, it just really just moved the 10 basis points of sub-debt to our standalone numbers.

Mark Fitzgibbon: 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?

Jeffrey Tengel: The loan pipeline is pretty robust, honestly, which is we’re pleased about. I don’t have specific numbers in front of me, but I would characterize it as very healthy and it also reflects the shift that we’ve been talking about in that there’s a lot more C&I business in the loan pipeline than there’s been in the past due to the kind of the philosophical shift we’re trying to undertake as an organization, but it’s pretty healthy.

Mark Fitzgibbon: Thank you.

Operator: Your next question today will come from Steve Moss with Raymond James. Please go ahead.

Steve Moss: Good afternoon, guys.

Jeffrey Tengel: Hi, Steve.

Mark Ruggiero: Hey, Steve.

Steve Moss: Maybe just starting with — or just following up there on the loan pipeline. I guess if the pipeline is robust, but you guys are taking down your loan growth expectations a little bit. Does that reflect just you’re having your deals extend out, or you’re just kind of curious what the dynamic is for with a good pipeline, but then the pullback on the guide for loans?

Jeffrey Tengel: Yeah. So the way I would think about that, Steve, is we’re going to continue to see commercial real estate runoff or a reduction in commercial real estate, which is going to mute some of the growth we’ll see in C&I, and when you kind of mix all that together, that’s how we wind-up with the kind of low-single digit loan growth forecast.

Mark Ruggiero: I think part of it too is we’re still seeing — there’s a little bit of a mixed bag on line utilization in the C&I space. So while the pipeline is healthy and we think there’s a good path for good commitments, we’re still not seeing necessarily a big change in line utilization at this point. So I think the natural shift from CRE, which is typically funded at close to C&I is going to continue to challenge outstanding balances for the short-term.

Jeffrey Tengel: Which by the way is another — just as another quick point. In the current environment, we’ve not seen our customer base draw down their lines. The way you may have heard some other banks have discussed, our line utilization has been pretty stable.

Steve Moss: Got it. Okay. That’s really helpful. And then in terms of just loan pricing, just kind of curious, it feels like credit spreads have generally tightened this quarter. What are you guys seeing for loan pricing these days?

Mark Ruggiero: Yeah. It definitely is competitive out there, Steve. We are — 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 in the 6.60%, 6.70% range. Certainly, the five and seven year part of the curve has been on a little bit of a roller-coaster. So we’re still trying to keep some level of stability over on overall pricing. But I think where we are now, you’re probably pricing deals more in the mid-6, (ph) maybe even a little bit tighter than that. But given our appetite to keep loan demand in check, I think we’re going to stay as disciplined as we can on the pricing side.

Jeffrey Tengel: Yeah. We’ve never been a bank that’s led with price. I mean, we typically are looking to get paid for using the balance sheet.

Steve Moss: Got it. Okay. Great. That’s helpful. And then in terms of just Loan B in particular, 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 is the borrower cooperating with the bank group or is this turning into a more hostile negotiation?

Jeffrey Tengel: Yeah. Maybe Mark and I can ham and egg this one, but I wouldn’t characterize it as hostile. Anytime you have a lot of banks in a situation like this, oftentimes it’s difficult to get consensus. And so I think some of the delays in getting an amendment done has been just that. It’s — you have a lot of banks with a lot of different perspectives, and being able to get them all to agree at times is a bit difficult. And then I think they have been signing new leases. I don’t know what the current status is of their leases.

Mark Fitzgibbon: I believe it’s up to around 80% occupancy now, which is what we — I believe, talked about on prior quarters with the entrance of some new tenants.

Jeffrey Tengel: But they still have free rent periods that are burning off. And I know as they think about bringing new tenants in, you have TI that needs to get negotiated between the borrower and the bank group.

Mark Ruggiero: I think that’s been the biggest two characteristics of what’s challenging, sort of the NOI and the cash flow on the deal, well. It’s been exactly that. It’s the free rent and the TI build-out on some of the activity that they are seeing for new tenants.

Steve Moss: Got you. Okay. And then in terms of just tying out, the Enterprise deal here, judging by the accretion number on the deck and everything else in the margin guidance you just gave, the sub-debt was — that you guys issued was also — was included in those original numbers, just to tie up, I guess, some confusion.

Mark Ruggiero: It was. Yeah. I think I gave a 20 basis point lift in terms of the post-merger impact. That was essentially 28 basis points of purchase accounting negated by or offset by 8 basis points from the sub-debt. That 8 basis points is on the combined bigger balance sheet. So it’s the same level of sub-debt. It’s just — you’re seeing it create an 11 basis point drag on our margin as a standalone entity. But that will essentially convert, for lack of a better word to a 8 basis point drag on the combined entity if you’re following that.

Steve Moss: Yes, I do. Great. I appreciate all the color and I’ll step back here.

Jeffrey Tengel: Thanks, Steve.

Mark Ruggiero: Thank you.

Operator: Your next question today will come from Laurie Hunsicker with Seaport Research. Please go ahead.

Laurie Hunsicker: Great. Hi. Thanks. Good evening.

Jeffrey Tengel: Hi, Laurie.

Laurie Hunsicker: Sticking with credit on Slide 6 and by the way, your Slide 6 disclosure is super helpful. But that $30.5 million SNC (ph), it was running at 80% or so occupancy, I think with Morgan Stanley as the lead. How did you guys come up with that $8 million charge-off? You said that was the new appraisal? Or is that where Morgan Stanley is carrying it? Or did the FDIC come back in there? How do we think about that?

Mark Ruggiero: Yeah. There is an appraisal in-house that supports that charge-off.

Laurie Hunsicker: Got you. Okay. So that was by — that was then done by the lead bank, is that right or…

Mark Ruggiero: That’s right. Wasn’t done by them. Wrong. No.

Jeffrey Tengel: That’s right. That wasn’t done by them…

Mark Ruggiero: No, ordered by the lead bank, I guess.

Laurie Hunsicker: Ordered by the, right. Sorry, I meant to say ordered. Okay. And then has the FDIC come back in and looked at that again, or?

Jeffrey Tengel: I think the FDIC is deferring to our judgment because it’s a shared national credit. So we’re between having results from that exam and really the appraisal, I think they’re deferring to our judgment given those two facts.

Mark Ruggiero: Just to be clear, we do get reports of the SNC review and that was also further support for taking the charge-off in our opinion.

Laurie Hunsicker: Got you. Okay. And then what — how big is that total loan? I mean, I see — obviously, we know your portion.

Jeffrey Tengel: $500 million or $550 million, something like that?

Mark Ruggiero: Little over $500 million.

Laurie Hunsicker: $500 million. Okay. Great. And then just looking here at Loan C, 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 it is sliding to the second quarter. Is it still with the same? In other words, it’s a — it’s just slid on timing, or are you short selling to somebody different?

Mark Ruggiero: No. There is — it just slid. I believe it was meant to be a property sale at one point. And then based on, I think they might have been — I forget exactly what the issue was.

Jeffrey Tengel: I think there were a number of investors, they’re having — they’re having trouble getting signatures from all the different investors. So that’s why it flipped to a short sale.

Mark Ruggiero: Into a no sale now.

Laurie Hunsicker: Yes.

Mark Ruggiero: But the closing, I mean it is — there isn’t agreed upon closing with a buyer and that, we actually have a closing date in April, but we’re expecting that will slip a bit into mid-quarter.

Laurie Hunsicker: Okay. That’s great. And then Loan A, that $54 million, you said that was all still on track for the second quarter. I mean, you still feel as good as last quarter when you guys gave us that second-quarter resolution or…

Mark Ruggiero: That’s right.

Laurie Hunsicker: Has that gotten fuzzier? You still feel good on that?

Jeffrey Tengel: No. It has not gotten fuzzier. Yeah, it’s gotten clearer. Of course, don’t want to spike the ball in the five-yard line, but we feel pretty comfortable it’s going to close at this point based on what we know.

Laurie Hunsicker: Okay. That’s great. And then Loan E, the $7 million loan that you took a specific reserve this quarter, the $1.6 million specific reserve. That was due to a new appraisal. Is that because that loan is also going to close, or how do we think about that?

Mark Ruggiero: If you recall, that was actually a loan 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. It’s currently being marketed again. There is not an agreement in place, but we now believe it’s appropriate to look at a liquidate. We have an appraisal with the liquidation value that is now supporting an additional $1.6 million reserve.

Laurie Hunsicker: Got you. Okay. And is that a Class A or Class B or what is that?

Mark Ruggiero: So again, that’s a deal where we’re not the lead bank on that. That’s, I believe — well.

Jeffrey Tengel: And I would say Class B.

Mark Ruggiero: Yeah. It’s in the suburbs here. Little bit of a unique property, I think, but probably tilts towards the Class B.

Laurie Hunsicker: Got you. Okay. And then switching to margin, do you — Mark, do you have a spot margin and then do you have a spot margin? Sub-debt adjusted.

Mark Ruggiero: Spot margin for March ’23, I’d have to look at what the core was. I know it was influenced by a little bit of purchase accounting accretion, but I believe it was right around 3.39 or 3.40. And the sub-debt had very little impact in that spot margin because it was only there for seven days. So I think that’s as a good case for that.

Laurie Hunsicker: Okay. Got it. Okay. And then EBTC, any chance for an early close we are seeing? Deals closed a lot quicker. There was one instance just done in the Mid-Atlantic, pretty big deal and the Fed approval came in before the state approval. I mean anything there?

Jeffrey Tengel: Yeah. So I think there’s always the possibility for an early close. At this point, we’ve not really — we’ve obviously submitted the application back at the end of January, and we’ve had I would say, kind of normal back-and-forth with the FDIC and a little bit with the Fed. Just them submitting some questions, I would characterize the questions as 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. 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 I do think if there’s a possibility it could close earlier than maybe what we thought a couple of months ago.

Laurie Hunsicker: Okay. And was that why you did the sub-debt a little earlier than we thought? I think we were thinking that would happen sort of in the summer, or you just side with the market chaos we’re going now? I mean, how did you think about that?

Mark Ruggiero: 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 earlier than maybe we originally anticipated. And so that sort of shifted the mindset here to let’s get in the market when we think we can get the right execution. So we worked with our partners pretty aggressively and as we all know, there was a — there’s been a lot of destabilization in the capital and debt markets, but we found a window there that we thought was advantageous. So we’re able to get that done. So it was a little bit of both of anticipating maybe an earlier closing, but also we always said we would want to get the deal done when we felt we could and the pricing was right.

Laurie Hunsicker: Yeah. No, great. Great job getting that done now. Okay. So Jeff, I have to ask you a direct question. Were you all company A on the $15 Brookline bid, the letter of intent?

Jeffrey Tengel: Am I allowed to tell it on that?

Mark Ruggiero: I don’t think we can comment on that. But we have our hands full with Enterprise.

Jeffrey Tengel: Yeah. I’ll just say we’re very, very busy with Enterprise. How about if we say that?

Laurie Hunsicker: Okay. Well, let me ask it maybe just sort of a general and slightly different way. In the past, Independent has done more than one bank at a time in an acquisition. How do you guys think about that? I mean, you’ve got a very, very strong balance sheet now, albeit your currency has slipped, but so has everybody’s. I mean, if the right deal came along and EBTC wasn’t closed, would you potentially look to be involved?

Jeffrey Tengel: I mean, honestly, I would never say never to questions like that, but it would have to be really compelling for us to consider that. I obviously wasn’t here during all of the previous acquisitions, but I’m not aware of us doing multiple deals at the same time. Could we do that? I suppose. Recall, we have an awful lot going on, including not only the Enterprise acquisition and integration, but we’re doing a core conversion in May of ’26. So I would say those are our two biggest priorities. If there was something that we found just like overwhelmingly compelling and it didn’t — we didn’t think it would jeopardize either one of those two things, and maybe. But 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 core systems upgrade. And I have this in my notes, but it doesn’t look like it was in the numbers that you might take $1.5 million expense charge in the first quarter and the second quarter relating to that core systems upgrade, or possibly my notes are wrong. Can you just help us think about what’s that expense in there, or when will we see that expense and I thought it was $3 million. Is that still the right number?

Mark Ruggiero: I think we talked about a range of $3 million to $5 million, and probably why your notes are indicating $3 million. So part of that is our relationship with the core provider. 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 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. 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, we’ll highlight that with each quarter’s results. But none of that was in the first quarter or it was very modest.

Laurie Hunsicker: Got it. And then just one last question. So with the systems conversion upgrade coming, I think May of 2025, you said then we’ll expect this to…

Mark Ruggiero: May of ’26 would be the conversion.

Laurie Hunsicker: May of ’26. Got you. Okay. Great. Thanks. I’ll leave it there.

Operator: Your next question today will come from Chris O’Connell with KBW. Please go ahead.

Chris O’Connell: Hey, good evening.

Jeffrey Tengel: Good evening, Chris.

Chris O’Connell: I just wanted to start off on the margin and make sure I had everything right. So the 11 basis points off of the core in Q1 of 3.37% is the immediate hit into 2Q? And then is the — is 2Q also inclusive of the 3 basis point to 4 basis point increase per quarter, so kind of net out down 7% or 8%?

Mark Ruggiero: You got it. Yes. Those would be sort of the two major drivers that I would suggest will happen in the second quarter.

Chris O’Connell: And just can I ask what’s the plan, I guess, or the assumptions around the deployment of the elevated cash balances coming out of this quarter with the sub-debt raise? And then, I guess, that 4% estimated proceeds yield?

Mark Ruggiero: Yeah. So certainly, if you could sort of assume that that’s somewhat of a conservative all that cash stays in at Fed funds and we picked a 4% number for purposes of modeling that out. So I’d say priority would be to support loan growth, to the extent we’re able to increase versus our guidance. I think our securities portfolio is in a pretty good spot, but we may put a little bit to work in the securities, but I wouldn’t suggest we’ll elevate there too much. I also think we want to keep some of that to just — 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 million to $25 million. And then $50 million of that will be used to pay down the Enterprise sub-debt that we’ll be absorbing when we combine.

And then there is some wholesale borrowings at Enterprise that we could certainly use our excess liquidity and just sort of delever the balance sheet a bit, take some of the excess cash and pay down their wholesale borrowings. So a long way of saying, I don’t think we’re going to rush to necessarily force putting that cash to work in the next quarter or two. I think there’ll be certainly more opportunities on a combined basis to kind of, like I said, either support loan growth or pay down wholesale borrowings.

Chris O’Connell: Great. So I mean, safe to say we — you think there is a you’re airing on the conservative side with that 4% yield and probably have potential for upside there?

Mark Ruggiero: Yeah. I think that’s fair.

Chris O’Connell: Great. And then just thinking about your guys capital levels and even with the deal, will remain kind of robust afterwards. If the deal closed tomorrow, what would you say given the overall environment and what you guys are seeing on the loan growth demand balanced with buyback and M&A conversations, how would you guys — what would your guys priorities be, I guess is the buyback the most attractive? Have you guys had other M&A conversations that have been going along?

Mark Ruggiero: 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. But I think the practical side of it is in this environment and as you see in our guidance, we’re not predicting to significantly increase the balance sheet footings in the near-term. So when you look at our valuation, I think there is an opportunity here where a buyback makes sense.

Chris O’Connell: Great. Thanks, Jeff. Thanks, Mark.

Mark Ruggiero: Yeah.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jeff Tengel for any closing remarks.

Jeffrey Tengel: Thanks, everybody. Appreciate your interest in INDB. Apologize for some of the technical difficulties and hope you have a nice holiday weekend.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.