Independent Bank Corp. (NASDAQ:INDB) Q4 2023 Earnings Call Transcript

Independent Bank Corp. (NASDAQ:INDB) Q4 2023 Earnings Call Transcript January 19, 2024

Independent Bank Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and welcome to the INDB Fourth Quarter 2023 Earning Conference 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 Jeff Tengel, CEO. Please go ahead.

Jeff Tengel: Thanks, Betsy, and good morning and thank you for joining us today. I’m accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. Our fourth quarter and full-year performance was a solid one, all things considered. Mark will take you through the details in a few minutes. First, though, I’d just like to share some thoughts briefly. I’ve been at Rockland Trust now almost a year, and it’s been clear from my very first week here that our North Star is the connections we build with our customers, community members, and one another. What drives our colleagues is a shared vision to be the bank where each relationship matters. The resiliency and purpose that is inherent in our culture, combined with our strong balance sheet and a commitment to creating long term value, is the winning combination and secret sauce that has carried Rockland Trust through various credit and economic cycles over the last century and will carry us forward.

Thankfully, last year’s banking March Madness is in our rearview mirror, and with what appears to be a pause and possible rate cut by the Fed, the current backdrop appears to be stabilizing. While we don’t expect this year to be easy by any means, we will continue to focus on those actions we have control over and look to capitalize on our historical strengths. There’s no silver bullets to our value proposition. We do community banking really well and believe our current market position presents a high level of opportunity. We remain focused on long term value creation. Our goal is to achieve top quartile financial performance while delivering a differentiated customer experience where each relationship matters. Evidence that this approach resonates with our commercial customers is our industry leading net promoter score as measured by Greenwich Associates.

In order to provide this differentiated experience, we need employees who feel a sense of purpose at work and supported in their efforts. That is why we are proud of being named a top place to work in Massachusetts by the Boston Globe for the 15th year in a row. 2024 will be about generating organic growth and expanding relationships, credit, risk management and expense control. At nearly $20 billion in assets, we believe we have the scale to invest in product capability to compete with larger institutions while delivering product and service locally. It is this high touch, high service level that differentiates us from many of our competitors. And while we may be in the early innings of managing through our commercial real estate office exposure, we will draw upon our decades of demonstrated credit and portfolio management skills to mitigate any inherent risks.

It’s difficult to paint the entire office portfolio with one brush because they all have unique characteristics. That is why we have action plans, if needed, tailored to each individual loan and relationship. With that in mind, we do see near-term growth opportunities to exploit our proven operating model in a variety of ways, including leveraging the Rockland Trust business model in our newer markets like the North Shore and Worcester. We recently hired a seasoned executive to manage our North Shore market, to leverage the market and branch presence we acquired from the East Boston Savings acquisition. We’ve continued to invest in technology and data analytics to deliver actionable insights for our bankers. As I’ve mentioned on previous calls, we are in the middle of upgrading our core FIS operating system to a newer version.

We are installing a new online account opening platform MANTL and we continue to leverage tools like Salesforce and nCino. Those are just a few examples of some of the projects that will enable us to deliver on our relationship promise. Ongoing focus on organic loan and deposit growth is another lever. We have a number of 2024 initiatives here to facilitate growth to include things like a bank at work program, a new inside sales team for commercial deposits and treasury management, recalibrating incentive programs to more heavily weight deposit gathering, and a focus on deposit-rich industry segments. We also expect to more fully leverage some of our industry verticals to drive growth in C&I. And finally, opportunistically attracting high performing talent who can drive revenue.

We’ve had some success in 2023 and expect our unique value proposition will resonate with talent in the market and enable us to continue that trend in 2024. While M&A activity remains somewhat muted, we will continue to be disciplined and poised to take advantage of opportunities that fit our historical acquisition strategy and pricing parameters when conditions improve. It’s been a proven value driver in the past and we expect it to be one in the future. This pause in M& A activity has also allowed us to successfully deploy some of our excess capital via a stock buyback at what we believe were very attractive prices. The current environment has also allowed us to focus on upgrading and adding to our tech platform. I mentioned a number of examples a few minutes ago.

It has also allowed us to examine our internal processes in order to become more efficient and effective. Some examples of this strategic review, where we expect to create cost savings and efficiencies over time, are a more strategic look at our facilities management and our procurement functions. We will continue to be diligent and prudent managers of expenses while investing in talent and technology. To summarize, we have everything in place to deliver the results the market has been accustomed to over the years, including a talented and deep management team, ample capital, highly attractive markets, good expense management, disciplined credit underwriting, strong brand recognition, operating scale, a deep consumer and commercial customer base, and an energized and engaged workforce.

In short, I believe we are well positioned to not only navigate through the current challenging environment, but to take market share and continue to be an acquirer of choice in the northeast. And on that note, I’ll turn it over to Mark.

Mark Ruggiero: Thanks 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 three of that deck. 2023 fourth quarter GAAP net income was $54.8 million and diluted EPS was a $1.26, with all major contributors, especially in line — essentially in line with expectations. Factoring into the EPS results, we bought back approximately 1.28 million shares during the fourth quarter at a total cost of $69 million, reflecting an average repurchase price of $53.73 per share. In summary, these results produced a strong 1.13% return on assets, a 7.51% return on average common equity, and an 11.50% return on average tangible common equity.

In addition, despite the buyback activity during the quarter, tangible book value per share grew an exceptional $1.53, or 3.6%, in the fourth quarter. I will now highlight a few key points in the additional slides provided. As noted on Slide four, total deposits declined $193 million or 1.3% to $14.87 billion for the quarter, while average deposits dropped 0.6%. Business customer cash flows drove most of the decrease as consumer and municipal balances remained fairly consistent quarter over quarter. The main deposit story has not changed much as we continue to see the impact from some product remixing, persistent competitive rate pressure and CD maturity repricing. The underlying dynamic in the current rate environment for the banking industry continues to be customer pursuit of higher yields.

Despite those headwinds, the long term stability of our deposit franchise remains intact, with total non-interest-bearing deposits comprising a healthy 30.7% at year end, in the fourth quarter cost of deposits of 1.31%, though up 24 basis points from the prior quarter, still reflects a strong cumulative deposit beta when compared to our peers. As a quick reflection back on full year 2023 results, we reaffirmed the message we shared on a number of occasions throughout this volatile period. We grew total households by 2.7% during the year, building on our already strong and established deposit base. The vast majority of balance outflows reflect usage of excess funds from still existing relationships, with no notable change or acceleration in closed accounts during the year.

We feel our loyal customer and deposit bases provide a real source of strength over both the near and long term. Jumping to Slide seven. Total loans increased $54 million, or 0.4%, to $14.3 billion for the quarter. The balance increase was driven primarily by adjustable rate residential loans, while C&I paydowns and a reduced appetite for commercial real estate drove a modest decline in total commercial balances during the quarter. The increase noted in commercial real estate is primarily driven by conversion of existing construction projects into permanent status. And while Slide eight provides an overall snapshot of the makeup of the various loan portfolios, we will take a deeper dive into overall asset quality along with an update on non-owner occupied commercial office exposure.

Moving to Slides nine and ten, which provide various updates and risk viewpoints on a number of factors, I’ll highlight a few now. First, total non-performing assets increased to $54.4 million, but still represent only 0.38% and 0.28% of total loans and assets, respectively. In terms of key drivers of non-performing assets, the remaining $9 million of outstandings from the previous office property foreclosure was paid in full, while the new to non-performing amounts are primarily driven by the migration of two commercial loans. Net charge-offs during the quarter were well contained and declined to $3.8 million or 11 basis points of loans on an annualized basis, and the provision for loan loss of $5.5 million brought the allowance to an even 1% of loans.

Within the closely monitored non-owner occupied office portfolio, there’s a couple of highlights worth noting. Total outstanding balances decreased modestly, while total criticized and classified balances remain very manageable at only 11 loans. In addition, we continue to closely monitor our top 20 office exposures, which make up approximately $516 million in balances or 49% of the office portfolio at year end. Within these top 20, we note zero non-performers, $55 million in a criticized status and only $19 million as classified. Turning to Slide 11, as anticipated, the continued pressure on cost of deposits outpaced asset yield repricing benefit, resulting in a 3.38% margin for the quarter, which reflects a 9 basis point drop from the prior quarter or 12 basis points when excluding non-core items.

While the margin results were in line with our previous quarter guidance, it is worth noting the recent emerging downward rate pressure on longer term fixed rate pricing. If this pressure remains for a prolonged period, some of the previously anticipated benefit from asset repricing would be negated and this dynamic is factored into the forward-looking guidance I’ll provide shortly. Moving to Slide 12, fee income remained strong and was fairly consistent with the prior quarter, which as a reminder, benefited from $2.7 million of non-recurring gains on bank-owned life insurance and loan related fees. In summary, deposit interchange and ATM fees remained strong and assets under administration on the wealth management side grew nicely by nearly 7% to $6.5 billion at year end, which should bode well for revenue moving forward.

Turning to Slide 13, total expenses increased $3 million, or 3% when compared to the prior quarter, and the increase was driven primarily by a onetime FDIC assessment accrual of $1.1 million and onetime charges of $657,000 related to the write-off of acquired facilities. And lastly, the tax rate for the quarter of 22.7% includes $840,000 of outsized benefit, with the largest component being the expiration and release of reserves on uncertain tax positions in conjunction with the October filing of the 2022 tax return. As we move to Slide 14 and focus on forward-looking guidance, we remain confident that we are well positioned to thrive when the environment begins to turn. Having said that, we recognize the level of uncertainty still driving near term impact on credit and funding pressures.

As such, we have provided some level of full year guidance while staying grounded in our operating assumptions to provide outlook over specific components limited to the near term. Big picture. We anticipate 2024 will bring modest loan and deposit growth versus 2023 year-end levels, with net growth likely skewed towards the second half of the year. More specifically, for the first quarter, we expect we will again experience our normal seasonal outflow of deposits, resulting in a low single digit decrease from December balances, but as I just mentioned, growth is projected for the second half of the year. Loan balances are anticipated to stay relatively flat for the first quarter as mortgage production starts to shift toward more saleable activity.

As I alluded to earlier, the shape of the curve matters and not all Fed reserve decreases are created equal. With the potential for a prolonged, even steeper inverted curve, loan and deposit pricing challenges will persist and we now expect the margin percentage to decrease and stabilize in the mid-320s range in the first-half of the year. As it relates to asset quality, we have no significant changes to our guidance regarding asset quality and provision for loan loss, which we believe will continue to be driven primarily by the near term performance of our investment commercial real estate portfolio. Regarding fee income and non-interest expense, we expect both to experience low single digit percentage increases in 2024 versus 2023 fourth quarter annualized levels, and similar to prior years.

Q1 expenses should reflect slightly higher salary and benefits expenses due primarily from increased payroll taxes. And to echo Jeff’s comments, controlling expense levels and seeking operating efficiencies are priority objectives for us. Lastly, the tax rate for 2024 is expected to be around 23% for the full year, down slightly from full year 2023 levels due in part to increased low income housing tax credit investments. That concludes my comments and we will now open it up for questions.

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Q&A Session

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

Mark Fitzgibbon: Hey guys, good morning and happy Friday.

Jeff Tengel: Good morning, Mark.

Mark Fitzgibbon: Mark, just to follow up on your guidance slide there. Deposits have been trending down for a while now. What gives you confidence that we’re going to see low single digit deposit growth in 2024? Is that a function of you guys sort of nudging rates up on deposits, or you feel like we’ve kind of gotten to the bottom and things are starting to normalize?

Mark Ruggiero: Yes, it’s been continuing to tick down as you suggest. It does feel like things will be stabilizing here in the very near term. When we look at the components of our deposit franchise, consumer balances actually stabilized very well in the fourth quarter and were relatively flat. And really, the decline we experienced in the fourth quarter was mostly business customers drawing on what appears to still be some level of excess liquidity. And we do see typically some year-end outflows, a lot of family owned businesses, a lot of small businesses where tax planning, tax distributions, year-end bonuses create some pressure on balances, that spills over into the first quarter as well. So I think there’s a little bit of that we’ll continue to see. But all in all, we’re growing households, we’re not seeing accounts close. So we do think we’re getting to a point here where the decline should bottom out.

Jeff Tengel: Also, if I could add, Mark, we have a number of initiatives, some of which I alluded to in my opening comments, really completely focused on gathering deposits, whether it’s modifying incentive compensation programs to skew towards deposits or inside sales groups, we have a number of initiatives focused on just that. It’s a focus of ours in 2024, to be sure.

Mark Fitzgibbon: Okay. And then I wondered if you could share with us what the spot NIM was in the month of December?

Mark Ruggiero: Yes. So December’s margin was 3.33%.

Mark Fitzgibbon: Okay. And then I think you mentioned there were two commercial loans for, I think, $26 million that migrated to non-accrual this quarter. What industry were those in? And maybe if you could just give some high level color on what the issues were.

Mark Ruggiero: Sure. Want me to take that, Jeff?

Jeff Tengel: Yes.

Mark Ruggiero: Okay. The largest was actually a C&I relationship. It’s actually a participated deal that is still in operations. It’s an ABL loan with essentially yell and iron equipment, much larger facility. That company declared bankruptcy, but is still in operations. We believe from initial appraisals that there’s some level of solid collateral protection. It’s just a matter of how those equipment sales will unfold and ultimately what sale price we would see get recognized on them. But that is actually a loan that we did do a specific impairment on and is included in our reserve. And then lastly — sorry, the second loan is actually an office loan that had matured in the fourth quarter. We did not renew that and is actually expected to go through to a sale of the note.

And we believe that sale will be at about $0.75 on the dollar. So that is the charge-off you’re seeing as well in the fourth quarter. It’s about a $2.8 million charge-off on an $11 million loan. So that net balance is one of the new to non-performers.

Mark Fitzgibbon: Okay. And I guess sort of a bigger picture question. Do you think bank M&A is sort of possible in this environment? Do we need interest rates to come down and sort of the regulatory environment to become more certain in order for you guys to consider doing an acquisition right now?

Jeff Tengel: Well, it all depends, right? It depends on how big the deal is. I’m speaking just for us. Obviously, a smaller deal, we think the regulatory environment might be a bit more accommodating versus a transaction that’s much larger, that has more integration risk and might be a bit more challenging. The numbers have gotten a little bit better. They’re moving in the right direction when we do our modeling. Not sure we’re quite there yet, but feels like we’re getting closer. So I would say net-net, as I sit here today, the possibility or the probability of the M&A environment feels better than it did three or six months ago. I don’t think it’s where it needs to be, but it’s trending in the right direction.

Mark Fitzgibbon: Thank you.

Operator: The next question comes from Steve Moss with Raymond James. Please go ahead.

Steve Moss: Good morning, guys.

Jeff Tengel: Hi Steve.

Steve Moss: Just going back to the margin for a second here. Just curious, does your first half ’24, you guys mentioned you’re following the forward curve, I think, or the treasury curve, I should say. So, to me, that implies you’re not really dialing in any rate cuts in your margin guidance. Just curious, if the Fed were to cut this year, how you think that would impact the margin here?

Jeff Tengel: Yes, it’s certainly an interesting question, Steve. I mean, we would think longer term, that would certainly be beneficial to us. I think the ability to move on deposits over the long term would suggest it gives us margin stabilization and likely margin improvement going forward. I think the reality is the very short term, first quarter, second quarter, after a Fed cut, I think the challenge will be how quickly we can move on deposits. So we will have, net of our hedges, about 25% of our loans. That would reprice down on the short end of the curve. We have a number of overnight borrowings that would move as well to mitigate that. And we have purposely created most of our time deposits to be short term in nature, so that you should see maturities in repricing on the CD book benefit as well.

But how quickly we can move on some of our exception and rack rate deposit pricing, I think that’ll still be partly driven by competitive pressures in our market. So I think that’s a little bit of where there’s probably some wild card as to whether you can completely negate the asset repricing down and fully offset, or whether that’ll take a little bit of time to materialize.

Steve Moss: Right, okay, that’s fair. And then, Mark, you also mentioned — excuse me — downward pressure on new loans here, given the change of the yield curve. Just curious, where is loan pricing these days? And also just curious, you have lower construction balances here if that’s also kind of driving a component of your loan yields lower going forward?

Mark Ruggiero: Yes, it is. Some of the products that are typically priced off the short end of the curve, like construction, we’ve seen declining and less opportunity there. So that’s somewhat of a little bit of not a new trend, but we’re seeing more of that. And my reference to the yield curve, when you look at anywhere between the three or seven year part of the curve, just from September to where we are today, on average, it’s down about 50 or 60 basis points. So we’d like to think we can still get some fixed rate commercial pricing around 7% in this environment. But that is down from how we were thinking about it just a few months ago. And I think on the consumer side, similarly, home equity continues to be pretty constrained in terms of net growth because of the high rate on lines of credit.

So we’re not seeing much of an ability to increase there. And customers are just not drawing on some of these lines as well. So utilization rates both on home equity and the C&I business are at low points over the last year or so. So it’s been a combination of things that we’re putting a little bit more pressure on what we still think will be benefit of asset and loans repricing. But I think it’s going to be a bit more mitigated than how we were thinking about it.

Jeff Tengel: One other thing I would…

Mark Ruggiero: Sorry.

Jeff Tengel: Sorry, Mark. I was just going to add one other thing to that, which is, as you think, longer term, as we move forward and we begin to focus a bit more on the C&I segment of our business, those typically are going to be a lot of lines of credit, which will be priced very short term, right, typically off of SOFR, and so I think kind of long term secular trend would be a greater percentage of our loan portfolio would be floating rate versus fixed rate.

Steve Moss: Okay, that’s all very helpful. And then maybe just on the credit front here, delinquencies were up 44 bps this quarter versus 22 last. Just curious what’s driving that, if you have any color there.

Mark Ruggiero: Yes, the biggest drivers are the two new to non-performers as well. So those were performing as of last quarter. Those are now new to delinquency. And there’s essentially one other office loan that is now early stage delinquency that’ll be maturing here in the first quarter in 2024. We’re working with that borrower to see what the resolution may be, but basically limited to three loans, the two that are non-performing and one other office.

Steve Moss: Okay, maybe, just curious, you mentioned that office loan maturing here, you have $125 million of office loans maturing in the upcoming year. Just curious, do you expect that’ll be the primary source of potential credit issues and that drives your loan loss provision as you guys referenced in the deck? Or will maybe potential office NPAs just be idiosyncratic? Just kind of any color you can give there.

Jeff Tengel: I’ll start, Mark, I think you hit the nail on the head. It’s going to be idiosyncratic. As I said in my prepared remarks, it’s difficult to paint that portfolio with one brush. Every loan has unique characteristics, whether it’s location, sponsor, resources that they can bring to the party as we look at extending, or if they look to refinance elsewhere. So each one is different. We feel pretty good as we sit here today about managing through that because we are on top of all of them. But I don’t think we necessarily feel like we’re going to see a bunch of new non-performers out of that $125 million of maturing loans.

Mark Ruggiero: I concur. When you look out over the other portfolios, there’s really been no uptick of any note in terms of delinquencies or early downgrade credit migration. So the rest of the portfolio continues to feel really good. And even the near term on the office side, when you look out over even just as short term as the next two quarters, it’s really just a handful of larger credits that we have really good eyes and ears on and working directly with the borrowers to hopefully find good resolution plans. So it does feel very well contained.

Steve Moss: Appreciate all the color. Thanks, guys.

Mark Ruggiero: Welcome.

Operator: The next question comes from Laurie Hunsicker with SRP. Please go ahead.

Laurie Hunsicker: Yes, hi, thanks. Good morning, Jeff and Mark. Just staying on office — of the office loan that’s in an early stage delinquency, how much is that loan and is it Class A or Class B? Anything that you can share on that?

Mark Ruggiero: Yes, that balance is about $11 million. I believe it’s a Class A, Laurie, that one — to be fully transparent, we may see that move to non-performing in the first quarter, but again, we’re working closely with the borrower on that and I think if there’s any loss exposure there, it feels pretty well contained.

Jeff Tengel: That’s also one. We’re not the agent. We participate in somebody else’s deal in that.

Laurie Hunsicker: Okay. And then of the $125 million that’s maturing in ’24, how much of that matures in the first quarter?

Mark Ruggiero: In the first quarter, it’s probably a little under half. There’s $34 million, $35 million comprised of just two loans and then much smaller after that. So if I had to peg a number, I don’t have all the details in front of me. It’s probably around somewhere in the 30% to 40% range.

Laurie Hunsicker: Okay.

Mark Ruggiero: One of those we’ve already actually are in the process of renewing as we speak, and we think we’ll resolve and have a three year extension on it at really good debt service and LTV level. So one out of those two is already in the works of being renewed and we feel good about.

Laurie Hunsicker: Okay. And then what are the actual loan balances on the two commercial loans that came over? How big was the ABL loan? I mean, I’m thinking it’s $17 million. But do you have a…

Mark Ruggiero: The ABL was $17.5 million and the office loan came in at $11 million, but we wrote off $2.8 million of it. So it’s in NPAs at the.net, call it $8.5 million.

Laurie Hunsicker: Got you. Okay. And then was that Class A or Class B?

Mark Ruggiero: The write-off?

Laurie Hunsicker: Correct.

Mark Ruggiero: That’s a — the office — yes, that was a Class B.

Laurie Hunsicker: That was a Class B. Okay. And then I know you had $100 million in office mature in the fourth quarter. Was this $11 million or $8.5 million net loan one of the ones that hit a maturity wall? Was that what drove this in the first quarter or anything you can share on that?

Mark Ruggiero: Yes, it did hit maturity in the fourth quarter and we elected not to renew on that one.

Laurie Hunsicker: Got you. Oh, yes, you did say that in your comments. Thank you. Okay, great. And then just one last question. Just going back to the deposit side here. Just thinking about sort of the mix shift change and maybe just the overall, your loans to deposits sitting at 96% or if we’re backing out CDs, that’s 112%. How should we think about those ceilings? How do you think about as high as you want to get there? How should we be thinking about that? Thanks.

Jeff Tengel: Yes, I’ll start. We’re pretty close to being where we want to be. I mean, we don’t have a bright line on it, but we definitely would have a very, very strong preference at having a loan to deposit ratio less than one, which is why we’re very focused on growing deposits in 2024.

Laurie Hunsicker: Great. Okay. Thanks for taking my questions. Appreciate the detail.

Jeff Tengel: Sure.

Operator: [Operator Instructions] The next question comes from Chris O’Connell with KBW. Please go ahead.

Chris O’Connell: Morning.

Jeff Tengel: Hi Chris.

Chris O’Connell: Yes, I was just hoping to hone in on some of the fee and expense guide, specifically on the fees with the 1Q number being relatively flat to the 4Q number. Other income has been pressed up over the past couple of quarters quite a bit. I know you guys noted a couple of kind of seasonal or one-time-ish factors in Q4. How do you see that settling out into the first quarter?

Mark Ruggiero: Yes, the total fee income. I think the strength of the total fee income will continue to be primarily on the heels of the wealth management group. We mentioned in our comments the AUA being up to $6.5 billion. That should bode very well for strong revenues heading into 2024. And we’re not necessarily banking on significant increases, but we are optimistic that in this environment we’re continuing to see more of the mortgage production shift to saleable. Now, overall volumes are down, but we should see some level shift back to saleable and hopefully give us a little bit of lift on mortgage banking income. Our deposit fees, we feel, are very stable. We think there’s probably some pressure coming on the regulatory front, perhaps on overdraft, but I think we have already made changes and have most of that behind us.

So we might see some modest decreases related to overdraft. But all in all, there’s been good momentum on deposit interchange, ATM fees, etc. And then lastly, I was going to mention in some of the conversations earlier around pricing. We think this opportunity is — this environment gives us opportunity to think hard again about swaps for some of our commercial lending and whether we can shift pricing strategies to take on a bit more swap volume and generate additional fees there. So I think there’s a few levers there that bode well and have run rate for increase in the very near term, and that’s what’s anchored in our guidance.

Chris O’Connell: Great, that’s helpful. And then on the expense side, you guys mentioned the initiatives that you have going on, including the potential for some cost savings on the branch and fulfillment side. Any sense of the timing of how that could play out over the course of the year? And is those potential cost savings, is that embedded in the overall expense guide?

Jeff Tengel: They’re not embedded in the overall expense guide. So those would be just incremental savings that we would experience, and I think the facilities — on the facility side, that probably would be skewed towards the back half of the year or maybe even bleed into next year. So a little bit of both. On the procurement side, I think we’ll see some savings from that in 2024, but we haven’t put a number on that yet.

Chris O’Connell: Got it. Any sense of the potential range, even if pretty wide, as to what the magnitude of those cost savings could be once all said and done?

Jeff Tengel: Yes, I don’t have an estimate, Mark. I don’t know if you do. We’d be speculating at this point.

Mark Ruggiero: Yes, I think it’s fair to say it isn’t at a range where it’s worth highlighting at this point, but we’ll give more guidance on that probably in the next quarter or two as we hopefully get to a little bit more of a clearer path on some of it.

Jeff Tengel: Yes. And honestly, that’s not a game changer for us, to be sure, but it’s really illustrative of a whole host of things that we’re looking at as we examine our expense base and as we think about the environment that we’re in. So I mentioned that in my prepared remarks as an example of some of the things that we’re looking at. There’s a whole host of other examples I could have given you. Each one of them, in and of themselves, aren’t going to move the needle, but when you add them all up, we think it all just kind of funnels back into being good expense managers.

Chris O’Connell: Got it. And on the deposit side, how much of the CD portfolio, I guess, has yet to reprice? I guess start there.

Mark Ruggiero: Yes, the impact is becoming less and less, which is the good news moving forward. And then in Q1, we expect about $800 million to mature and reprice. But I guess the positive there is that the weighted average coupon on that pool right now is high 3s, about 3.8%. So the repricing dynamic now is not as severe as it once was. And then I believe it’s another $750 million or so in Q2 that is set to mature. That is also at a high 3.8% weighted average coupon. So assuming today’s rain environment stays as is, you’d see that level potentially price up anywhere up to a full percentage point. But we hope that that would be more like a 50 or 75 basis point increase over the next couple of quarters in terms of the impact from CDE pricing.

Chris O’Connell: Great. That’s perfect. Thanks for taking my questions.

Jeff Tengel: Sure. Thank you.

Operator: The next question comes from Steve Moss with Raymond James. Please go ahead.

Steve Moss: Just one follow-up for me on the buyback here. You guys bought $600 million worth of stock, and I know you have $100 million authorized. Just curious about your thoughts on the pace here going forward and how you guys are thinking maybe about issuing a new repurchase plan.

Jeff Tengel: Yes. Mark, do you want to take kind of the pace of play to date?

Mark Ruggiero: Sure. Yes. As you mentioned, you’re spot on. There’s about $30 million left under the existing plan. I think our posture hasn’t changed. It’s there to be opportunistic. We continue to think about executing on that plan through the lens of ensuring appropriate initial capital dilution and feel comfortable about the earn back and executing on that. So that’ll serve as the framework through the first quarter. Meaning really just opportunistic on depending where the stock price is, barring all other things, staying equal. And then I think it’s fair to talk about and be thinking about re-upping on a plan. Given our overall capital levels, we still feel we have really good handle on credit and stabilization of the funding.

So I think as a tool for deployment of capital going forward, we haven’t made any decisions on that, but I think it’s fair to suggest that would be a lever we would continue to look to throughout most of 2024, again being very opportunistic over where it makes sense to execute.

Steve Moss: Okay, appreciate that. And then one more, if I may, Mark, on the margin going back, you guys had some swap expirations in the second half of this past year. Just curious if there are any swap expirations in 2024 or 2025 that we should expect to help the margin.

Mark Ruggiero: Yes. In fact, we have probably on average, about $100 million matures on a quarterly basis throughout 2024. So I know for sure it’s $100 million in Q1, and then it’s somewhere between $50 million and $100 million in the out quarters as well. So that’s a reason why we’ve always talked about stabilization of the margin. There’s a couple of levers like that. It’s the hedge maturities. It’s allowing the securities portfolio to continue to run off without essentially just either paying down borrowings or holding cash at 5%. A lot of what’s running off on the securities book is at weighted average coupons of about one, one and a quarter. So we’re seeing good lift just from hedge maturities and securities runoff. In addition, to the loan repricing dynamic that we’ve been talking about. So at some point, once the deposit pressures subside, I think those three factors will be enough to offset and maintain the margin at the level we’ve got it to.

Steve Moss: Okay, thank you very much. Appreciate all the color.

Mark Ruggiero: No problem.

Operator: The next question comes from Laurie Hunsicker from SRP. Please go ahead.

Laurie Hunsicker: Yes, hi. Thanks. Good morning. Just one follow up, Mark. The non-interest income of $32 million. The other piece that was $7.8 million, looks outsized, looks a little bit outsized. Can you help us think about what’s non-recurring in that?

Mark Ruggiero: Yes. We have a big piece in this quarter is our unrealized gains on equity. We have a very small equity securities portfolio that’s tied to a defined benefit plan that requires mark to market accounting. So you see a little bit of volatility each quarter. If it’s a loss, you’ll typically see that get recognized through other non-interest expense. If it’s a gain, you’ll see it go through other non-interest income. That was about $700,000 this quarter. So I think your Q3 number in quarters prior to that are probably the right level for that line item.

Laurie Hunsicker: Great. Thanks.

Mark Ruggiero: Okay.

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

Jeff Tengel: Thank you for your continued interest in Independent Bancorp, and we will talk to you next quarter. Have a good day.

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