Independent Bank Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 19, 2024

There are 7 speakers on the call.

Operator

Good day, and welcome to the INDB Independent Bank First Quarter 2024 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, 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.

Operator

In addition, some of our discussions today may include references to certain non GAAP financial measures. Information about these non GAAP measures, including reconciliation to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the Investor Relations section of our website. Please also note that this event is being recorded. I would now like to turn the conference over to Jeff Tengel, CEO.

Operator

Please go ahead.

Speaker 1

Thanks, Nick. Good morning and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. Our Q1 performance continues to demonstrate the resilience of our franchise in a difficult environment and is a testament to our long term proven operating model as a customer focused community bank. Mark will take you through the details in a few minutes after I share some thoughts.

Speaker 1

While the current higher for longer interest rate sentiment clearly creates a challenging environment not only for Rockland Trust, but for the entire industry, We continue to definitely navigate this uncertain environment. We are laser focused on a number of key strategic priorities, all centered around protecting short term earnings while positioning the bank for earnings growth when the overall environment improves. One of those priorities is actively managing our commercial real estate office portfolio, while working to create a more diversified loan portfolio. We know we have a CRE concentration, but it's important to keep in mind that we've been here before. Throughout the last decade, we have made a number of acquisitions that in some cases created temporary Cree concentrations.

Speaker 1

Each time we actively manage this segment while growing other parts of our business to bring us back in balance, we fully expect to do the same now. This historical context is important to note. We have the muscle memory and experienced staff to execute the same game plan. At the same time, we continue to emphasize deposit gathering and deposit pricing discipline. Our uptick in deposits at quarter end is a result of this renewed emphasis.

Speaker 1

We believe our customer service is best in class and resonates with our commercial and retail customer base. It is this personal touch coupled with investments in technology that creates a winning customer experience. That is why Rockland Trust recently ranked number 2 in New England in J. D. Power's 2024 U.

Speaker 1

S. Retail Banking Satisfaction Study. One of the several factors measured in the survey, our highest scores were in the categories of trust and people, a direct reflection of the meaningful relationships our colleagues build with those we serve. Our employees continue to be the driving force behind our success. We said last quarter that we didn't expect this year to be easy and it hasn't been, but we will continue to focus on those actions we have control over and look to capitalize on our historical strengths.

Speaker 1

There's no magic to our value proposition. We do community banking really well and believe our current market position presents a high level of opportunity. We remain focused on long term value creation. Another way we will create long term value is through disciplined organic growth. We will do that by deepening relationships across all of our business lines.

Speaker 1

We have a differentiated business model where all of our lines of business work seamlessly across the enterprise. It may sound simple, but it's been years in the making. Our retail branch colleagues work hand in hand with our commercial and mortgage bankers. Our wealth management business, IMG receives a majority of its new business leads from our commercial and retail colleagues. We are developing and enhancing measures and metrics to further drive this collaboration.

Speaker 1

Gaining buy in and successfully executing this model has earned us a competitive advantage. It is this operating model we are bringing to our new markets, Worcester and the North Shore, where we are starting to gain traction. We are also continuing to build out our commercial banking platform with an emphasis on C and I. We've made a number of strategic hires and expect more to come. We are very active in acquiring talent and view talent acquisition and retention as a top priority.

Speaker 1

Our business model, culture and stability resonates with prospective employees no different than it does with prospective customers. Our commercial loan pipelines at quarter end were higher than a year ago and higher than the last quarter. I mentioned earlier that we are laser focused on our commercial real estate office exposure. We are confident that our decades of demonstrated credit and portfolio management skills will help mitigate any inherent risks. Because each office loan has unique characteristics like lease role, maturity, geography, ownership, tenant makeup, it's difficult to paint the entire portfolio with 1 brush.

Speaker 1

That's why we have action plans tailored to each individual loan and relationship and review and discuss every large loan monthly. It is because of these unique characteristics that we believe the credit story will take time to fully play out. Although with each quarter that passes, we believe you'll see the signs of our credit acumen and underwriting discipline mitigating this risk. As we focus on these priorities, we continue to actively assess M and A opportunities. While M and A activity remains somewhat muted, we will be disciplined and poised to take advantage of opportunities that fit our historical acquisition strategy and pricing parameters when conditions improve.

Speaker 1

It's been a proven value driver in the past and we expect it to be 1 in the future. Additionally, given our level of capital, we routinely discuss and evaluate the economics of another stock buyback. Finally, I would be remiss if I didn't give a shout out to our fantastic colleagues. Their dedication and commitment to our customers, colleagues and communities continue to amaze me. You can't win in banking without the best people and our J.

Speaker 1

D. Power recognition, our Greenwich awards or the myriad of other awards and recognition illustrate that our people are simply the best. To summarize, we have everything in place to deliver the results the market has been accustomed to over the years, including a talented and deep management team, ample capital, highly attractive markets, good expense management, disciplined credit underwriting, strong brand recognition, operating scale, a deep consumer and commercial customer base and an energized and engaged workforce. In short, I believe we are well positioned to not only navigate through the current challenging environment, but to take market share and continue to be an acquirer of choice in the Northeast. And on that note, I'll turn it over to Mark.

Speaker 2

Thanks, 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 3 of the deck, 2024 Q1 GAAP net income was 47,800,000 dollars and diluted EPS was $1.12 resulting in a 1% return on assets, a 6.6 3% return on average common equity and a 10.15% return on average tangible common equity. Though expected margin compression weighed to some degree on overall results this quarter, we remain confident that the positive momentum in our core fundamentals position the bank well for net revenue growth in the near term. The central component of that positive momentum is reflected on Slide 4.

Speaker 2

Though average deposits declined in Q1 versus the prior quarter, which reflects our typical seasonality, we are encouraged by our consistent growth in new households over the last year and the rebound in balances in March with period end balances up $178,000,000 or 4.8 percent annualized when compared to the prior quarter. Municipal customer inflows drove most of the increase, while total consumer balances increased as well, driven by steady core household growth and continued time deposit demand. The deposit environment remains competitive, but the results of growing deposit balances for the first time since the Q4 of 2021 as a reflection of the deposit prioritization that Jeff alluded to in his comments. And we are doing so while not sacrificing our pricing discipline that has served us so well through this challenging environment. Though the continued demand for rate drove an increase in the cost of deposits to 1.48% for the quarter, our overall deposit profile positions us well for keeping deposit costs well contained in any rate scenario moving forward.

Speaker 2

Moving to Slide 5, total loans increased $53,000,000 or 1.5 percent annualized to $14,300,000,000 as of quarter end. The modest balance increase was driven primarily by net growth in combined commercial real estate and construction as well as small business, while all other portfolios remained relatively flat quarter over quarter. New commercial real estate activity was diversified across a number of property types with no new activity in non owner occupied office commercial real estate. Also worth noting on the heels of our efforts in 2023 to neutralize our interest rate sensitivity, we have successfully shifted the majority of our residential production to the salable market. Pipelines across all loan portfolios remain solid and we are definitely in the market for core relationship lending that meets our credit underwriting criteria.

Speaker 2

Using that as a segue to provide an update on asset quality, Slide 6 provides details over a number of key asset quality metrics. To highlight a few, total non performing loans remained relatively consistent at $56,900,000 and represent 0.4% of total loans. Total non performing assets of $57,100,000 which includes minimal other real estate owned represents 0.3% of total assets. Notable activity for the quarter includes an $11,600,000 office loan that moved to non accrual, offset by the restoration of an $8,200,000 relationship to accrual status, which contained both commercial real estate and C and I balances. With de minimis net charge offs related to commercial real estate and only $274,000 of net charge offs in total for the quarter, the provision of $5,000,000 increased the allowance for loan loss ratio by 3 basis points in the quarter.

Speaker 2

Moving to Slide 7, we have had a number of conversations with the investor community regarding our commercial real estate portfolio And we recognize that providing additional insight into how much of that portfolio was owner occupied has been helpful. And so we updated the pie chart here to note total owner occupied balances as a separate component. And in terms of a more detailed update over the non owner occupied office portfolio, we can move now to Slide 8. We had $41,000,000 of loans in this segment mature in the Q1 with all loans either renewed or in the process of being renewed with no negative risk migration. The potential loss exposure is appropriately captured in our Q1 provision levels.

Speaker 2

And in terms of the minimal levels of office loans set to mature over the next few quarters, we are encouraged by the strong credit performance and risk rating assessments among that group. I echo Jeff's earlier comments that we still expect to see some bumps in the road here, but we will continue our process of monitoring working through the overall exposures in a very methodical manner. In terms of an update on our multifamily portfolio, which includes additional detail on Slide 9, we continue to see pristine asset quality metrics with our one notable previous quarter non performing asset of $2,700,000 paying off during the Q1. Switching gears a bit, reflecting on pricing and net margin impact, the longer end of the curve remains stubbornly inverted and continues to pressure new pricing dynamics in this competitive environment. As noted on Slide 10, with some level of increased loan yields more than offset by increased deposit costs, the net interest margin compressed 15 basis points to 3.23 percent on a reported basis, in line with prior guidance.

Speaker 2

Appreciating that there is significant investor interest on understanding where and when the margin will bottom out, I would say we anchor that expectation in 2 major drivers. The first being the stabilization and or growth of total deposit levels and its offsetting impact on the need for higher cost wholesale funding. And secondly, the pace at which our rate sensitive deposits move or reprice into higher rates. We believe both of those dynamics are nearing inflection points and will be reflected in the updated margin guidance I'll touch upon shortly. Moving to Slide 11 and non interest items.

Speaker 2

Non interest income reflects consistent levels with the prior quarter across all core line items, with the decrease compared to the prior quarter driven mainly by lower swap fees and reduced benefit from volatile tax credit investments in equity securities valuations. I'll provide a bit more color on our wealth business results here in a second. Before that, just touching upon total expenses, which decreased $860,000 or 0.9 percent when compared to the prior quarter, despite our typical payroll occupancy related increases in the Q1. And this reflects a reduction in FDIC assessment expenses combined with the company's focus on appropriate expense containment to counter the revenue challenges in this current environment. We continue to believe this is an area that we can manage effectively while not sacrificing investment in key strategic initiatives.

Speaker 2

And circling back to the fee income, as a quick update on our wealth management activity, we included some additional breakdown of the wealth business income on Slide 12 to provide more clarity over the quarterly results. As reflected, assets under administration grew nicely by 4% to a record $6,800,000,000 atquarterend with the associated fee revenue up over 3%. Other wealth related income is comprised primarily of retail, insurance and other advisory services with those components down slightly quarter over quarter. We continue to see solid activity of new money in this space with recent hires contributing to an already strong sales force with a track record of consistent performance. This is a key business for us and we believe a real source of competitive advantage versus many other comparable banks.

Speaker 2

And lastly, the tax rate of 23.6% was slightly higher than the guided 23% due primarily to the discrete impact from equity award vesting in the current quarter. In closing out my comments, I'll turn to Slide 14 to provide an update on our forward looking guidance, which we want to reiterate continues to reflect a level of uncertainty over near term credit and funding cost conditions. In terms of loan and deposit growth, we reiterate our full year 2024 guidance of low single digit percentage increases with expectations for relatively flat to modest growth in the near term. Regarding the net interest margin, there are still a number of moving One of the key One of the key conditions for that potential was resumed core funding growth. And as we noted earlier, the March results were encouraging on that front.

Speaker 2

Another obvious key component lies in the assumptions over the yield curve and its impact on pricing dynamics. With less certainty over the path of break cuts from the Federal Reserve in 2024, a prolonged inverted yield curve will continue to pressure deposit costs in the near term, but on a positive note to a lesser degree than prior quarters. Alternatively, we anticipate the inversion will also continue to somewhat limit the benefit of asset repricing. And lastly, we will continue to see securities payoffs and loan hedge maturities provide benefit to the margin over time. Given all these moving pieces, we anticipate the margin for the 2nd quarter to remain in the 3.20% to 3.25% range, with expectations for modest improvement in the second half of the year.

Speaker 2

As it relates to asset quality, we have no changes to our guidance regarding asset quality and provision for loan loss, with office commercial real estate being the primary dynamic and we'll continue to diligently work through maturities in that space. Regarding non interest income, we expect low single digit percentage increases in Q2 versus Q1 levels and we reaffirm a low single digit percentage increase for full year 2024 versus 2023. And similarly for non interest expense, we anticipate low single digit percentage increases in Q2 versus Q1 as well as full year 2024 versus 2023. And lastly, the tax rate for the remainder of the year is expected to be around 23%. That concludes my comments and we will now open it up for questions.

Operator

The first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Speaker 3

Hey, good morning. This is Greg Zingone filling in for Mark at the moment.

Speaker 2

Hey, Greg.

Speaker 3

Hey. So I think you just said you're expecting modest improvement in the NIM in the second half of the year. How many rig cuts are you assuming in that?

Speaker 2

Yes. We're sort of following the market expectations there of minimal cuts, either 1 or 2, and that would be later in the year. So in other words, we don't expect it to have too much of an impact on 2024.

Speaker 3

Okay. And then would you expect the tax rate to be in the 23.5% to 24% range for the remainder of the year?

Speaker 2

No. I do think it will dip back down to around 20 3% for the rest of the year, right around 23%. Okay.

Speaker 3

Then on credit, could you quickly summarize the largest credit that are part of your non performing balance at

Speaker 2

quarter end? Sure. So within total non performers, there's really 3 larger commercial credits within our non performing bucket. The first is a C and I relationship, that's a larger participated deal that we are not the lead in. We actually talked about that credit in a prior quarter, when it went non accrual, we have reserve allocations within our individual evaluated loan methodology.

Speaker 2

We expect somewhere in a $4,000,000 loss range given some of the valuations we have on the underlying collateral there. But that's still a resolution that is to be determined, but we believe we have our loss exposure adequately reserved. The second non performing asset is new to non performing here in the Q1. That's the $11,000,000 loan that I mentioned in my comments. That's another deal where we are not the lead.

Speaker 2

That's a participated deal. That was an office loan that matured in the 4th quarter of 2023. There is the major tenant there that's looking to downsize its occupancy and we're seeing less commitment from the owner to fund tenant improvements. So right now, it looks as though a potential performer is about an 8,000,000 And then lastly, the 3rd largest non performer is about an $8,000,000 office loan. That's the loan we took a $2,500,000 charge off in a prior quarter.

Speaker 2

So that loss has already been accounted for as well. So those are the 3 major components on the commercial side and the non performing.

Speaker 3

Awesome. Thank you. And then moving to the CD maturities, I think on Slide 10, were you expecting those to reprice that when they mature?

Speaker 2

Yes. As I mentioned, with less expectation for Fed cuts, I would imagine most of that will reprice up into the high 4. We still have some promotional money out there at 5%. So assuming the majority of that will move into our highest rate, I would expect on average that to reprice up into the high 4s, call it, 4.80%, 4.85% range.

Speaker 3

And then lastly, could you share with us any data on how that Worcester expansion is going?

Speaker 2

Worcester expansion? Sorry. Yes.

Speaker 1

Wondering. Yes. We don't have we don't break that out typically as a specific initiative, but I can tell you that we feel good about the progress we're making. We're growing loans and deposits in that market and in general feel good about the progress that we've made. And we're going to continue to, as I said earlier in my comments, bring our operating model to that market, continue to look for talented bankers to add to the mix, but again feel good about the progress to date.

Speaker 3

Awesome. Thanks so much.

Speaker 2

Thank you.

Operator

Our next question comes from Steve Moth with Raymond James.

Speaker 4

Maybe just starting with the margin here, just curious where are you at? At what rate are you adding new deposits these days? Just kind of thinking about your funding costs here and maybe where they peak out?

Speaker 2

Yes. It depends, Steve, to be honest. I mean, I think the positive that we saw in late March and I would expect to have some momentum heading into Q2 is to grow core deposits that are not rate sensitive. So we're starting to see some traction in our checking account activity, whether it's non interest bearing or some of our modestly priced savings accounts. So I do think there is a level to which our core lower cost deposits start to grow.

Speaker 2

But at the same time, we will absolutely continue to see demand in some of our commercial products, whether it's our ICS product or CDs that will continue to be high 4s, 5%. So you're really seeing that mix of good core household operating accounts that are low cost and then those that are looking for rate again has continued to be in the 5% range.

Speaker 4

Okay. And then in terms of loan pricing these days, what's the uptick in the pipeline? Just curious where are new loans and renewals coming on the books these days?

Speaker 2

Yes. It's been a challenge through the Q1. As you can imagine, the mid part of the curve continued to stay somewhat depressed. So in the Q1, a lot of our fixed commercial pricing has been probably in the mid to high 6s. Certainly, anything priced off the short end of the curve was up around 8%.

Speaker 2

I think the positive there is that you're starting to see the middle 3 to 7 year part of the curve move up a bit. So I would expect we should start to see our fixed rate commercial pricing back in the 7s here in the second quarter and anything tied to prime or sulfur continue to be in that 8% range.

Speaker 1

And I also think as we continue to try and emphasize C and I, a lot of that our lines of credit that tend to be floating. And so we'll get the benefit from that as we continue to emphasize that segment.

Speaker 2

Not as big of an impact, I'll just add to Seabrook, but we are seeing a bit of an uptick lately in home equity utilization well on our line side, which is all prime based. So we're seeing a little bit of a lift there on the home equity side as well. Okay.

Speaker 4

And in terms of just the construction balances you guys had have come down probably call it 20% year over year. Just curious, are we getting closer to a bottom in commercial construction or do you see further runoff in that portfolio?

Speaker 1

I think we're going to probably see further runoff with some ups and downs. I don't know that it's going to be a linear line down, but we're obviously much more disciplined or I should say we still are very disciplined as the market has made it more difficult for the a lot of the construction loans to pencil out because of the interest rate environment and the increase in construction costs. So I don't see that bucket increasing

Speaker 4

Okay. Appreciate that. And then in terms of the office portfolio, two questions on that. What was the class was the office property that went to non performing status this quarter, Class A, B or C? Any color you can give around the rate of occupancy of that loan?

Speaker 2

The one that went non performing, I believe is a Class B, but I don't have that at my fingertips here, CSD. Okay. That's all. What was the second part of your question?

Speaker 3

The occupancy, if

Speaker 4

you have that by any chance.

Speaker 2

Yes. So that's where we have the situation with the major tenant looking to downsize and they take up about half of that building and the rest of the occupancy there has been somewhat challenged. So it's looking to be trending towards somewhere in the 50% to 60% range, which is why there is expectation that this may come to a sale or some sort of resolution here in the near term with some pressure on the

Speaker 4

other office property, the $8,000,000 one that was non performing in the Q4. Just curious, is that I was thinking that was going to be resolved here in the near term, just any update on the resolution there?

Speaker 2

Yes, we were hoping so too. There was a pending note sale on that as we talked about it last quarter. Unfortunately, that deal fell through. But right now, there is an expectation or negotiations that we may again, this is a club deal. We're not the only participant on this one, but that there's potential for a direct workout with the borrower at a discounted sort of payoff price.

Speaker 2

And if that plays out the way it is, we would expect that the loss there would be pretty much in line with the charge off we took based upon where we thought the note sale was going to happen.

Speaker 4

Okay, great. I appreciate all

Speaker 2

the color. I will step back. Thank you.

Operator

Our next question comes from Laurie Hunsicker with Seaport Research. Please go ahead.

Speaker 5

Hey, good morning.

Speaker 3

Good morning.

Speaker 5

Just wanted to stay with Steve's line of questioning on the office and obviously outside of office, things look great. Appreciate your new multifamily slide. But just going back to this the so the first credit that came on last quarter, it was it started and I have in my notes, it started at 11,300,000 dollars you had $2,800,000 of charge offs, so down to $8,500,000 That's still an $8,500,000 loan?

Speaker 2

It is. Yes. So that is still in NPI. I think it's actually paid down to about $8,000,000 or so, Laurie. But that's the one I was just alluding to that had the pending note sale at one point that now may go through with a different resolution.

Speaker 2

But we still believe that's the right value

Speaker 4

based on our understanding of where that could get resolved. Perfect.

Speaker 2

And then I And then do

Speaker 5

you okay. So you don't have any other specific reserve against it, just it's down to $8,000,000

Speaker 2

Correct.

Speaker 4

Okay.

Speaker 2

Yes.

Speaker 5

And then your

Speaker 2

Charge now to $8,000,000 right.

Speaker 5

Down to $8,000,000 Okay, great. And then your the $11,000,000 and I think you flagged this as showing an early stage delinquency last quarter, I'm assuming it's the same one that just went. What did you set aside in provision this quarter? If we look at your provision, what's the remark for that?

Speaker 2

Yes. So we took about a $2,500,000 specific allocation on that loan.

Speaker 5

Okay, great. And then just looking here at your criticized your linked quarter criticized in office, maybe just help us think about that, that went from $55,000,000 up to $115,000,000 linked quarter. Certainly no surprise we're seeing weakness, but just can you help us think about those and what we should be watching or worried about here, how you're thinking about that? Any color would be helpful. Thanks.

Speaker 2

Sure. So and I think I just want to make sure I heard you right. You have in your material, it went from $85,000,000 to $115,000,000 total?

Speaker 5

I had it going from $55,000,000 last quarter criticized. It's $55,000,000 up to $115,000,000 this quarter.

Speaker 4

Okay.

Speaker 5

At $55,300,000 last quarter and now at $114,900,000 dollars Maybe that's the wrong number. But I mean maybe

Speaker 2

if No, no, you're right. Some of it actually, actually some of it, I think, is improvement going from that you that you see reflected in our material as a Q4 maturity. So that's a syndicated deal. It's a much larger relationship. It's really our only true downtown Boston Financial District exposure.

Speaker 2

The occupancy on that property is pretty good at 85%. It got downgraded because the debt service coverage had dropped a little bit over 1%. So the FDIC as part of their SNC review actually downgraded that to the 7%. So we have some insight based on our conversations with the lead bank suggesting there's still adequate value from an LTV perspective. We'll see how this plays out as we come up to Q4 maturity, but we believe there's plenty of protection there and it's probably a relationship to be honest we'd look to exit if we can.

Speaker 1

They have a couple other tenants I think that are, they're getting ready to sign up that will I think push the occupancy up into the 90s.

Speaker 5

Okay.

Speaker 1

So we don't feel like there's any lost content at all in that. Okay.

Speaker 5

Okay. Very helpful. Okay. And then just switching back to margin, what was your March spot margin?

Speaker 2

March margin was 3.21. I think what's interesting on that too, Laurie, we talked a lot about the pickup in period end deposits. So even from most of March, the average deposits were in the 14.8 range, which means we had higher allocation of wholesale borrowings. So again, just later in that month having some core deposit growth already provides a bit of a boost to that level heading into April. So I just want to put that caveat on the 3.21 is really reflective of the lower deposit balances as well.

Speaker 5

Got it. Got it. And just remind us, when in the quarter, Mark, did you guys actually redeem the $50,000,000 in sub debt? What was the timing on that?

Speaker 2

That was late February, early March.

Speaker 4

Okay.

Speaker 2

But that was at $475,000,000 prior to redemption. If we held on to that, that would have repriced to a floating rate. So you really just shifted a 4.75% fixed debt to borrowings at 5%. So it won't have too much impact.

Speaker 5

Okay. Perfect. Perfect. And then just last question for you. You mentioned considering another buyback, obviously, you're down substantially below where you just repurchased.

Speaker 5

Can you help us think a little bit more about that?

Speaker 2

Yes. It's we've had a pretty consistent answer here that I think we'll obviously continue to weigh that as a tool that we think we would be able to have in a toolkit to be opportunistic with. You mentioned our valuation and our levels of capital. I think you'll certainly suggest it's something we would want to be considering to have available. So we haven't made a decision.

Speaker 2

Obviously, we haven't announced anything yet there, but I think it's safe to say it's something we will continue to talk about here in the near term.

Speaker 5

Great. Thanks for taking my questions.

Speaker 2

Thank

Operator

Our next question comes from Chris O'Connell with KBW. Please go ahead.

Speaker 4

Hey, good morning.

Speaker 6

Just wanted to follow-up on the kind of robust capital levels that you guys have here and the opportunity to kind of deploy that going forward. You have enough capital in the securities yields. It's still a big book and the yield is still just under 2%. I mean, is there any potential for securities restructuring at some point in 2024?

Speaker 2

Yes. It's a strategy we've done some analysis on, Chris. And I think it's one that personally I've struggled a little bit with just the optics of taking the loss now to improve the earnings. I would say I think there's better margin now where that structure probably makes a bit more sense. But we're getting to a point now where I think we even have this material on one of the slides.

Speaker 2

If you look at what's expected to pay off on the securities portfolio in the near term, that book will get down to probably 13.5% of total assets by the end of the year. And that's really a level where we'd be much more comfortable, where a bank that historically has operated around 12% to 13% of assets in the securities book. So accelerating to get to that level, I think isn't completely off the table, but even just allowing for normal payoffs, we get there relatively shortly. And I think that's a much better balance sheet profile for the longer term that we'd like to be in. So, long way of saying we'll continue to assess that opportunity, but it isn't something that I would think we feel compelled to do given the trajectory of where it's already

Speaker 6

heading. Got it. And you guys mentioned still looking at M and A opportunities as always. I mean, has there been any uptick in conversations there at all in your markets?

Speaker 1

Not really. I mean, not appreciably. It continues. I think everybody is continuing to struggle with the same issues around trying to make the math work and uncertainty around the regulatory environment.

Speaker 6

And then just circling back to office here, for the total office portfolio, do you guys have a reserve number that's applied against that entire portfolio?

Speaker 2

Yes, we don't disclose anything publicly there. We still have our formal pool allocation is total commercial real estate and construction. But we do look through to the underlying property types to guide how much from a qualitative perspective we would want to be allocating to that total pool. So I would say, we definitely have increased reserve allocation as a result of the office book. I'd say we do some analysis to support the overall allocation by looking at risk ratings and stressing valuations on those that are criticized and classified.

Speaker 2

And that type of analysis probably suggests that I think though not publicly disclosed, we probably intuitively are around 2.5% to 3% on the office book with the rest of commercial real estate at, call it, 75 basis points. And we think that reserve allocation is actually pretty conservative in terms of allocating loss containment where we see the risk in the criticizing classified bucket.

Speaker 6

Great. That's helpful. And I appreciate the detail on the 2024 maturities. Do you have what portion of the 2025 maturities are currently criticized?

Speaker 2

I do. Of the 2025 maturities, there is one large criticized loan that's a $50,000,000 exposure in 2025. That's the biggest really the only notable criticized loan in 2025. And that one where We've had conversations with the bar that we don't have a near term expectation of that, but it's something we'll provide a bit more of an update as we go over the next couple of quarters.

Speaker 6

Really helpful. And is there anything else, I mean, you mentioned the multifamily improvement from the One Credit this quarter. And any additional detail on the slides all look very solid. I mean, is there any other areas outside of office that you guys are seeing any sort of outsized credit pressure at this time?

Speaker 1

Yes, not really. I mean, if you zoom out a little bit and look at our levels of criticized and classified assets together, it's actually very stable, not just over the last couple of quarters, but it's very consistent with the last few years, which is again why we feel relatively comfortable with where we are in this credit environment because the level of criticizing classified assets is not remarkably different. It's really no different than it has been over the last several years.

Speaker 6

Great. And then last one, do you have the amount of non floating rate loans that are set to reprice or mature in 2024?

Speaker 2

In 20 24, I do not in front of me, but it's not a significantly we have obviously the REIT, you said the non floating rate, so adjustable rate.

Speaker 6

Yes, our fixed.

Speaker 2

Yes. I don't have it in front of me, Chris, but I can get you that.

Speaker 6

All good. That's all I had. Thank you.

Speaker 2

Thank you.

Operator

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

Speaker 1

Thanks, Nick, and thank you for your continued interest in Independent Bancorp. Have a great day.

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Key Takeaways

  • Rockland Trust reported a Q1 net income of $47.8M and EPS of $1.12, with management emphasizing resilience in a higher-for-longer rate environment and a focus on protecting short-term earnings while positioning for future growth.
  • Deposit balances rebounded at quarter-end, up $178M (4.8% annualized) led by municipal inflows and core household growth, as the bank maintains pricing discipline with a cost of deposits at 1.48%.
  • The net interest margin compressed 15 bps to 3.23% in Q1, in line with guidance, with management guiding Q2 NIM to 3.20–3.25% and expecting modest improvement in the second half driven by deposit stabilization and repricing dynamics.
  • Management continues to actively manage its commercial real estate office portfolio, with total nonperforming loans at 0.4% of loans and tailored action plans for each large loan, reflecting confidence in its underwriting discipline and credit management.
  • Rockland Trust highlights a differentiated cross-sell operating model across retail, commercial, mortgage and wealth channels, reports 4% growth in wealth assets under administration to $6.8B, and is expanding into Worcester and the North Shore while prioritizing strategic talent acquisition.
AI Generated. May Contain Errors.
Earnings Conference Call
Independent Bank Q1 2024
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