Participants

Jeffrey Tengel; President, Chief Executive Officer, Director; Independent Bank Corp (Massachusetts)

Mark Ruggiero; Chief Financial Officer and Executive Vice President - Consumer Lending of Rockland Trust; Independent Bank Corp (Massachusetts)

Mark Fitzgibbon; Analyst; Piper Sandler

Steve Moss; Analyst; Raymond James Financial Inc

Laurie Hunsicker; Analyst; Seaport Research Partners

Chris O'Connell; Analyst; KBW

Presentation

Operator

Good day, and welcome to the Independent Bank Corp first-quarter 2025 earnings call. (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, 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 the 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 a 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%, and -- 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 its 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 Banks 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%.
And -- 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 and -- 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 consumers (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. Pardon me this is operator. We have reconnected with speaker and will 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 in municipal all increasing in the quarter, while the CD portfolio contracted slightly.
The overall mix of deposits remains very stable with noninterest-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 salable 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 nonperforming 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 nonperforming 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 our 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 carrying 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 this 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 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 reconnect. Thank you for your patience. Pardon me this is the operator. We have reconnected the speaker line and will continue. Please proceed.

Mark Ruggiero

Again, apologies for that. I'm not sure what the issue is here, and 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. And -- 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%, and -- 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. Noninterest income increased modestly in the first quarter despite fewer business days versus the prior quarter, with wealth management income results, weathering the volatile market storm nicely, as well as increased loan level swap income as compared to the prior quarter.
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 noninterest 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% and 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 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 with 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 Bancorp as a stand-alone 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 nonperforming 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 noninterest income and noninterest expense, we reaffirm our mid-single-digit percentage increases for full year 2025 versus 2024 and -- and as a reminder, for noninterest 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 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 reaffirmed the Independent Bank Corp's stand-alone guidance of 3 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 stand-alone margin by about 11 basis points. But circling back to the 3 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 incorporates some level of margin benefit from reduced time deposit pricing. So any future Fed rate cuts would likely create one 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.

Question and Answer Session

Operator

(Operator Instructions) Mark Fitzgibbon, Piper Sandler.

Mark Fitzgibbon

Hey, guys. Good afternoon. First, a couple of questions on credit. I was curious, 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. Okay. Great. And then I apologize, I kind of missed with the cutout on Loan B, the new one, the $30.5 million loan that came on to nonaccruals this quarter. Could you just give us a quick recap of what the story was with that one and your Boston 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 nonperforming 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 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 and is that the note sale?

Mark Ruggiero

Resolution.

Jeffrey Tengel

Yes, the resolution of that. So --

Mark Ruggiero

That one's a property sale.

Jeffrey Tengel

The property sales? 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 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. And 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. 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. 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 stand-alone 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 stand-alone numbers.
So what would have been a 3.60% assumption margin for our stand-alone 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 stand-alone numbers. Is that -- if you're kind of following just really the 10 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?

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

Steve Moss, Raymond James.

Steve Moss

Good afternoon, guys.

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 a deal of 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 the two, 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 just 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 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 feel 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 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 [66, 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-6s, 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

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 turn 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 is difficult to get consensus. And so I think some of the delays in getting an amendment done has been just that.
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 Ruggiero

Yeah. 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

Yeah, I think that's been the biggest the biggest two characteristics of what's challenging sort of the NOI and the cash flow on the deal has 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 it. Okay. And then in terms of just tying out the enterprise deal here, judging by the accretion number in 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

That was, yes. 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 stand-alone entity, but that will essentially convert for lack of a better word, to an 8 basis point drag on the combined entity, if you're following that.

Steve Moss

Yeah, yeah they do. Great. Well, appreciate all the color. And I'll step back here.

Operator

Laurie Hunsicker, Seaport Research.

Laurie Hunsicker

Great, hi. Thanks. Good evening. Sticking with credit on slide 6, and by the way, your slide 6 disclosure is super helpful. But that $30.5 million SNC 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 curing 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 done by the lead bank. Is that right?

Jeffrey Tengel

Wasn't done by that bank.

Mark Ruggiero

No, no, no. Ordered by the lead bank.

Laurie Hunsicker

Ordered by the -- right. Sorry, I meant to say order 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 referring 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, obviously, we know your portion.

Jeffrey Tengel

$500 million or $550 million or something like that?

Mark Ruggiero

A 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 sliding to the second quarter. Is it still with the same? In other words, at the -- it's just slid on timing? Or are you short selling to somebody different?

Mark Ruggiero

No. There is -- it just slid, I believe there was meant to be a property sale at 1 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 -- they're having trouble getting signatures from all the different investors. So that's why it flipped to a short sale.

Mark Ruggiero

But the closing, I mean, there is an 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. 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's not gotten fuzzier. Yes, it's gotten clearer. Of course, I don't want to spike the ball on the 5-yard line, but we feel pretty comfortable it's going to 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 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

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 -- 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 and 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 --

Jeffrey Tengel

I would say, Class B.

Mark Ruggiero

In the suburbs here, a little bit of a unique property, I think, but probably tilts towards the Class B.

Laurie Hunsicker

Okay. 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, 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 7 days. So I think that's a good case for that.

Laurie Hunsicker

Okay. 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, a 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 a 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 is, 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. 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 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 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 -- 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 were able to get that 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

Yes. No. Great job getting that down now. Okay. So Jeff, we have to ask you a direct question. Were you all company A on the $15 Brookline bid, the letter of intent?

Jeffrey Tengel

Mark you want to comment on that?

Mark Ruggiero

I don't think we can comment on that. But we have our hands full with the depressed.

Jeffrey Tengel

Yeah, I'd just say we're very, very busy with Enterprise. How about if we say that.

Laurie Hunsicker

Okay. Okay. Well, let me ask it maybe just sort of a general and 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 is everybody -- 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 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 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 a $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 was 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 you note 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's -- we still believe there will 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 this quarter's results. But none of that was in the first quarter. 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

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

Chris O'Connell, KBW.

Chris O'Connell

Hey, good evening. 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 $337 million is the immediate head into 2Q? And then is 2Q also inclusive of the 3 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 as a -- 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 field?

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. 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, you think there's erring on the conservative side with that 4% yield and probably have potential for upside there?

Mark Ruggiero

Yes, 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 the buyback and M&A conversations. How would you guys -- or what would your guys' priorities be? I guess, is the buyback the most attractive? Have you guys had the 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.

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. I apologize for some of the technical difficulties, and I hope you have a nice holiday weekend.

Operator

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