Image source: The Motley Fool.

Thursday, April 17, 2025

CALL PARTICIPANTS

  • Chief Executive Officer: Jeff Tengel
  • Chief Financial Officer and Head of Consumer Lending: Mark Ruggiero

RISKS

  • Elevated credit costs driven by resolution of previously identified problem loans.
  • Economic uncertainty from federal government actions that may cause clients to pause expansion or growth initiatives.
  • Continued intentional reduction of its transactional commercial real estate business, which could limit overall loan growth.

Need a quote from one of our analysts? Email [email protected]

TAKEAWAYS

  • Q1 2025 Adjusted EPS: Q1 2025 adjusted diluted EPS was $1.06, representing a 0.94% return on assets and 9.01% return on average tangible common equity.
  • Net Interest Margin: Net interest margin improved 9 basis points to 3.42% (FTE reported basis) in Q1 2025, with core margin up 6 basis points to 3.37%.
  • Deposit Growth: Period-end balances increased $370 million or 2.4% in Q1 2025, with non-interest bearing DDA (demand deposit accounts) comprising 28.1% of total deposits.
  • Loan Mix Shift: C&I balances increased 2.1% in Q1 2025 (8% annualized), while CRE and construction decreased 1.2% in Q1 2025.
  • Capital Actions: Completed $300 million subordinated debt raise in late March, increasing Tier 2 capital.
  • Asset Quality: Total commercial criticized and classified loans decreased to 3.8% of total commercial loans in Q1 2025.
  • Wealth Management: Assets under administration grew nearly 1% to $7 billion in Q1 2025, with $41 million in organic growth flows in Q1 2025.

SUMMARY

Independent Bank Corp. reported solid core pre-provision net revenue growth in Q1 2025, though core operating results were offset by higher credit costs related to resolving legacy problem loans. The company is actively shifting its loan mix towards C&I while reducing CRE exposure, maintaining strong deposit growth of 2.4% despite a challenging environment.

Management expects the Enterprise Bancorp acquisition to close in Q3, with 32 of 33 Enterprise commercial bankers accepting offers to remain post-close.

The bank's core FIS processing upgrade, scheduled for May 2026, aims to enhance technology infrastructure and support future growth.

2025 guidance projects low single-digit percentage loan growth and low- to mid-single-digit percentage deposit growth, with mid-single-digit percentage increases in non-interest income and expenses (excluding merger and acquisition costs).

INDUSTRY GLOSSARY

  • PPNR: Pre-Provision Net Revenue, a measure of bank profitability before accounting for potential future credit losses.
  • CRE: Commercial Real Estate, a category of loans for income-producing properties.
  • C&I: Commercial and Industrial loans, typically used for business operations and expansion.
  • CECL: Current Expected Credit Loss, an accounting standard for estimating potential future credit losses.

Full Conference Call Transcript

Operator: Good day, and welcome to the Independent Bank Corp. First Quarter 2025 Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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, Chief Executive Officer. Please go ahead.

Jeff 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. PP and our 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 PPNROAA 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. D and I in 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, 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 and I, over the past year, we've added seven C and 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 and I in 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, 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 this 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, 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 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, nearly 13% from the first quarter of 2024. 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. Offer additional cross-sell opportunities with our broader product offerings, underscoring 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 sixteenth 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, 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, strong liquidity position, and a robust capital base. We'll 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, 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-Ks filing and is available on our website in today's investor portal. Starting on Slide three of the deck, 2025 first quarter GAAP net income was $44.4 million and diluted earnings per share was $1.04, 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 expense 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 four, highlighting a key component of our core fundamentals, deposit activity was very positive for the first quarter. Which as a reminder has historically been subject to some level of seasonality, 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 five, total loans stayed relatively flat for the quarter as expected. As Jeff alluded to earlier, recent hires and strategic emphasis on full led to a 2% or 8% annualized increase in C and 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 six, we point out that total commercial criticized and classified loans decreased to 3.8% of total commercial loans with pay downs 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, 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 and I relationship that remains in a collateral liquidation process. During the first quarter, $6.9 million of pay downs 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 one 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 seven, 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 two 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 it be to support accelerated organic growth in the newer markets, additional M and A opportunities further down the road, or share repurchase activity. Slides eight through ten provide additional detail on our loan portfolio composition with the notable developments for the quarter that I just discussed. Again, apologies for that. Not sure what the issue is here and quite candidly not sure where the cutout 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 and A if if that got cut out. But why don't we start just this adding some color. During the quarter. We we did increase Tier two 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 and A opportunities further down the road, or share repurchase activity. Slides eight through ten 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 eleven. As noted on this slide, the net interest margin on an FTE reported basis improved nine basis points in the first quarter to 3.42% with the FTE core margin of 3.37% up six 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 twelve, 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 tax 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 for us 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 Slide sixteen and seventeen 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 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's certainly a lot of moving pieces and as such I would point to Slide seventeen 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 three to four basis points of margin expansion each quarter. However, that guidance is now impacted by the March subordinated debt raise which we anticipate will reduce the standalone margin by about eleven basis points. But circling back to the three to four basis point expansion there are also a couple of caveats worth noting. First, our neutral position on the short end of the curve incorporates 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. 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: And your first question today will come from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon: Hey, guys. Good afternoon.

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

Mark Ruggiero: 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. Then I apologize. I kinda missed with the cutout on loan b, the new one, the $30.5 million loan. That that came on to non-accruals this quarter. Could could you just give us a a quick recap of what the story was with that one and your thoughts on resolution?

Mark Ruggiero: Yes. So that So that had matured in the fourth quarter and reached its ninety 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 resolution on a 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 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 know, you're hopeful these things are gonna resolve pretty quickly. I guess I'm curious, what gives you that much confidence given that we're we are probably facing a more challenging sort of economic climate.

Jeff Tengel: Yeah. Well, in a couple of cases, including the largest loan, we're pretty far along in in is that a note sale? A resolution. Yeah. The resolution of that. So That one's a property sale. Property sale? Yep. 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 ten-yard line in terms of of getting it resolved. We don't see anything as we sit here today that would preclude it, you know, like all sides have done their due diligence and are working through the the closing process. I would just add too Mark. I you know in my opinion this is this is what the CECL model essentially is doing is for us, we we try to identify that loss early, and we we put essentially specific reserves up when we think we have that loss ring-fenced. And really all you're seeing now for thirty out of the forty million dollars is charge off of those reserves that we had established in prior quarters. So I do think it's 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, you know, the the vast majority of what you're seeing here in the first quarter is is really the same loans we've been talking about over the last couple of quarters. I think that's the silver lining. A lot of the noise you're seeing. We're really not seeing you know, any material changes and criticizing classified and spec those combined levels are down The NPAs are down and delinquencies are down. So you know, there's certainly a lot of uncertainty out there. With with the tariffs and macroeconomic environment being what it is, but in terms of what we have visibility into, we we still feel pretty good.

Jeff 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, you know, in the context of the bank group to get know, get a resolution to that, but that's unlikely to return to performing status in the near term even if we're able to to craft a a resolution that you know, that that can allow the, you know, the bank group and the company to move forward.

Mark Fitzgibbon: Okay. And then changing gears a little bit. Your guidance I think you provided when you announced the enterprise deal for the NIM for 2026 was sort of three seventy to three seventy-five. 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. Yeah. We do. The fundamentals behind that guidance are are still intact. I believe when we talked about it, there was a few key components to that assumption. The first was that our stand-alone margin would expand with when you pull out the sub debt, you know, or excluding the sub debt and and we reaffirm that's still going to happen. We believe the the enterprise margin is on track to expand as well. And then that combined number if you recall, was getting us to somewhere around three fifty-five to three sixty. And then the purchase accounting the sub debt at that point was going to add about twenty basis points on a net basis. So really, all that's changed now is we accelerated that sub debt So you're gonna see that in our stand-alone numbers. So what know, what would have been a three sixty assumption margin for for our stand-alone in 2026, I would say, is now three fifty. Right? It's got the sub debt in there. And then you're gonna see a a a higher purchase accounting number post-merger give us basically twenty-eight basis points lift over those standalone numbers. Is that you're kind of following It just really just moved the ten basis points of sub debt to our stand-alone 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?

Jeff Tengel: The loan pipeline is is pretty robust, honestly, which is you know, we're pleased about 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 and 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 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.

Jeff Tengel: Hi, Steve.

Steve Moss: Hi, Steve. Maybe just starting with or just follow-up there on on the loan pipeline. I guess if the pipeline is robust, but you guys are taking down your your loan growth expectations a little bit. Does that reflect just you're having you know, deal of extend out or you're just kinda curious what the dynamic is for with a good poke pipeline, but then the the pullback on the guide for loans.

Jeff Tengel: Yeah. So the way I would think about that, Steve, is we're gonna continue to see commercial real estate runoff or reduction in commercial real estate, which is going to mute some of the growth we'll see in C and I. And when you kind of mix all that together, loan growth forecast.

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

Jeff Tengel: Which by the way is another is it just another quick point in the current environment, we've not seen our customer base draw down their lines the way the way you may have heard some other you know, some other banks have have discussed Our 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 kinda curious, feels like credit spreads have generally tightened this quarter. What do you guys seeing for loan pricing these days?

Mark Ruggiero: Yeah. It definitely is competitive out there, Steve. You know, we we we you know we're trying to hold the line pretty well on on pricing. So for the first quarter, we saw like, a blended weighted average coupon in the in the six sixty, six seventy range. Certainly, the five and seven year part of the curve has been on a little bit of a roller coaster. So you know, we're we're we're still trying to keep you know, some level of stability over on overall pricing, but I think where we are now, you're probably pricing deals more in the mid-six maybe even a little bit tighter than that. But, you know, given our appetite to to keep loan demand in check, I think we're gonna we're gonna stay as disciplined and as we can on the pricing side. And we've never been a bank that's led with price.

Jeff Tengel: We 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 to that loan. If I recall correctly, that was one where you had some leasing activity on the property. Just kinda curious where the status is of that leasing activity and, you know, is the borrower cooperating with the bank group or is this turning into a more hostile negotiation?

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

Mark Ruggiero: Yeah. I believe it's up to around eighty percent occupancy now, which is what we talked about on prior quarters with the entrance of some new tenants. But they still have free rent periods that are burning off.

Jeff Tengel: And and I know as they think about bringing new tenants in, we have, you know, TI that that needs to get negotiated between the borrower and the bank group.

Mark Ruggiero: I think that's been the biggest the biggest two characteristics of what's what's challenging, sort of the NOI and the cash flow on the deal. 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: Okay. And then in terms of just tying out the enterprise deal here, you know, judging by the accretion number of the deck and everything else and the margin guidance you just gave. Sub debt was that you guys issued was also was included in those original numbers just that I guess, some confusion.

Mark Ruggiero: There was. Yeah. I I think I gave a a twenty basis point lift in in terms of the post-merger impact. That was essentially twenty-eight basis points of purchase accounting negated by or offset by eight basis points from the sub-debt. That eight 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 eleven basis point drag on our margin as a standalone entity but that'll essentially convert, for lack of a better word, to an eight base point drag on the combined entity if if you're following that.

Steve Moss: Got it. Yeah. They do. Great. Well, I appreciate all the color, and I'll step back here.

Jeff Tengel: Thanks, Keith. 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.

Jeff Tengel: Hi, Lori.

Laurie Hunsicker: Sticking with credits, on slide six and by the way, your your slide six disclosure is super helpful. But that $30.5 million SIC, it was running at, you know, eighty percent or so occupancy, I think, with Morgan Stanley I believe. 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 the FDIC come back in there How do we think about that?

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

Laurie Hunsicker: Gotcha. Okay. So that was five that was then done by the lead bank. Is that right?

Jeff Tengel: No. No. No. Ordered by the lead bank.

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

Jeff Tengel: I I think the FDIC is deferring to our judgment because it's a shared national credit. So we're between having you know, results from that exam and and really the the appraisal, I think they're they're referring to our judgment given those two facts. Just to be clear, we do get reports of the SNIC review and that was also further support for taking the charge off in our opinion.

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

Jeff Tengel: Five hundred or five fifty, something like that?

Mark Ruggiero: A little over five hundred.

Jeff Tengel: Five hundred million.

Laurie Hunsicker: 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 sliding to the second quarter. Is it still with the same? In other words, it's a it's it's just split on timing or are you short selling to somebody different?

Mark Ruggiero: No. There there is it just slid. I believe it was meant to be a property sale at one point and then based on, I I think there might have been I forget exactly what the issue was. I think there were a number of investors having they're having trouble getting signatures from all the different investors. That's why it flipped to a short sale.

Jeff Tengel: Yeah. To a note sale.

Mark Ruggiero: But the closing is I mean, it is it is there is an agreed upon closing with a buyer. In that you know, we we actually have a closing date in April, but we're we're expecting that'll slip a bit into mid-quarter.

Laurie Hunsicker: Okay. Okay. That's great. And then loan a, that fifty-four million, you said that was all still on track for the second quarter. I mean, you you still feel as good as last quarter when you guys gave us that second-quarter resolution or

Jeff Tengel: That's right. Has that gotten fuzzier? You still feel good on that? Nope. That's right. It's not gotten fuzzier. Yeah. It's gotten clearer course, you know, don't wanna spike the ball on the five-yard line, but we feel we feel pretty comfortable it's gonna close at this point based on what we know.

Laurie Hunsicker: Okay. Okay. That's great. And then loan e, the $7 million loan, that you that you took a 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: Yeah. If you recall, that was actually a loan we had under agreement, and we took a charge-off on that back in the in the third quarter of 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 to look at a liquidate we have an appraisal with a liquidation value that is now supporting an additional $1.6 million reserve.

Laurie Hunsicker: Gotcha. Okay. And is that a class a or class b? Or what is that?

Mark Ruggiero: So, again, that's that's a deal where we're not the lead bank on that. That's I believe, a I well, and I would say class b.

Jeff Tengel: Yeah.

Mark Ruggiero: It's in the suburbs here. Little bit of a unique property, I think, but probably tilts towards a class b.

Laurie Hunsicker: Gotcha. Gotcha. 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? Spot margin for March.

Mark Ruggiero: I'd have to look at what the the core was. I know it's 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 market. Because it was only there for seven days. So I think that's a you know, a good a good case for that.

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

Jeff 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 you know, I would say kind of normal back and forth with the FDIC and a little bit with the Fed just, you know, them submitting some questions, I would characterize the questions as, again, pretty normal, pretty benign. So we haven't seen anything based on the 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 the middle of responding to anything at the moment. So so I do think there's if there's a possibility it could close earlier than than maybe what we thought a couple of months ago.

Laurie Hunsicker: Okay. 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.

Jeff Tengel: Yeah.

Laurie Hunsicker: Decide with the market chaos we're going now? I mean, how did you think about that?

Mark Ruggiero: To be honest, a 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 you know, earlier than maybe we originally anticipated. And you know, that sort of shifted the mindset here to let's let's get in the market when we think we can get the right execution. So we worked with our partners pretty aggressively and, you know, as we all know, there's been a lot of you know, destabilization in in the capital and debt markets, but we found a window there that we thought was advantageous. So we're able to get that that done. So it was a little bit of both of, you know, anticipating maybe an earlier closing, but also, you know, we always said we would we would wanna 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 fifteen-dollar Brookline bid, the letter of intent?

Jeff Tengel: Am I allowed to join on that?

Mark Ruggiero: I don't think we can comment on that, but we have our hands full with enterprise. Yes, I'll just say we're very, very busy with enterprise. How about if we say that?

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

Jeff Tengel: I mean, I would honestly, I would never say never. To questions like that, but I it would have to be really compelling for us to consider that. I'm I, obviously, wasn't here during all of the previous acquisitions, but I'm not aware of us doing know, multiple deals at the same time. You know, could we do that? You know, I suppose. But we have, 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 twenty-six. So I would say those are our two biggest priorities that 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, then 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. Okay. And then actually last question I had on the on the courses systems upgrade. And I have it in my notes, but it doesn't look like it was in the numbers. That you might take a million and a half dollar 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 was that expense in there, or when will we see that expense? And I thought it was three million. Is that still the right number?

Mark Ruggiero: Thank you. I think we talked about a range of three to five and and probably why you know, so are indicating three. So part of that is our relationship with the core provider, the 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 we haven't really incurred any expense associated with that conversion at this point. But I still think there's we we still believe there'll be some expense that will not be absorbed by the credits here in 2025. And I I would still 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 we'll highlight that this quarter's results. But none of it none of that was in the first quarter.

Laurie Hunsicker: Okay. It was very modest. Got it. Okay. And then what just one last question. So with the system's conversion upgrade coming, I think, May of 2025, You said then we'll expect to see

Mark Ruggiero: May of twenty-sixth would be the conversion.

Laurie Hunsicker: May of twenty-sixth. Gotcha. Okay. Gotcha. Okay. Great. Thanks. I'll leave it there.

Jeff Tengel: Oh, alright.

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

Chris O'Connell: Hey, good evening. Nick, Craig, I just wanted to start off on the margin and make sure I had everything right. So the eleven basis points, you know, off of the core in 1Q, of 3.37. Is the immediate head into 2Q? And then is the is 2Q also inclusive of the know, the three to four basis point increase per quarter? So kind of you know, net out, you know, down seven or eight.

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

Chris O'Connell: And just know, can I ask what you know, what's the plan, I guess, or the assumptions around you know, the deployment of the elevated cash balances coming out of this quarter with the sub debt raise and then I guess, you know, that four percent you know, estimated proceeds yield?

Mark Ruggiero: Yes. So certainly, if you could sort of assume that that's somewhat of a conservative while that cash stays in that fed funds and we picked a four percent number for purposes of modeling that out. Sir, you know, I'd say priority would be to support loan growth. To the extent, you know, we're able to to increase versus our guidance. I think our securities portfolio is in a pretty good spot, but know, 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 wanna keep some of that to just you know, some of it will need to be used for the cash component of the acquisition, which is not a very large amount, but that's $20 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 to 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, you know, it's you think there's, you know, you're airing on the conservative side with that four percent yield and and probably have, you know, Jennifer upside there.

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

Chris O'Connell: Great. And then just thinking about, you know, your guys' capital levels and you know, even with the deal, you know, we'll remain kind of robust afterwards. Know, if the deal closed tomorrow, you know, what would you say, given, you know, the overall environment and and what you guys are seeing on the loan growth demand you know, balanced you know, with buyback and, you know, m and a conversations. You know, you know, how would you guys or or what would your guys' priorities be? I guess, you know, you know, is the buyback the most attractive? Have you guys had other m and a conversations, you know, 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 you see in our guidance, we're not 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 our buyback makes sense.

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

Mark Ruggiero: Yep.

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: 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.