Independent Bank Q1 2026 Earnings Report

Independent Bank EPS Results

• Actual EPS: $1.68
• Consensus EPS: $1.70
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: $1.06

Independent Bank Revenue Results

• Actual Revenue: $252.72 million
• Expected Revenue: $251.45 million
• Beat/Miss: Beat by +$1.27 million
• YoY Revenue Growth: N/A

Independent Bank Announcement Details

• Quarter: Q1 2026
• Date: 4/16/2026
• Time: After Market Closes
• Conference Call Date: Friday, April 17, 2026
• Conference Call Time: 10:00AM ET

Independent Bank (NASDAQ:INDB) Group, Inc. (NASDAQ:INDB) is a bank holding company headquartered in McKinney, Texas, that provides a range of financial services through its wholly owned subsidiary, Independent Bank. Tracing its roots to the late 19th century, the company has grown from a single community bank into a regional financial institution serving individuals, small businesses and commercial clients. Independent Bank Group became a bank holding company in 1983 and expanded its footprint through organic growth and strategic acquisitions.

The company’s primary business activities encompass retail and commercial banking, including deposit products, consumer and business lending and credit services. In addition, Independent Bank offers treasury management and payment solutions for corporate clients, as well as trust, wealth management and insurance services. Its diversified product suite is designed to meet the financial needs of a broad client base, from everyday banking customers to specialized corporate and institutional clients.

Independent Bank operates a network of branches and lending offices across the Dallas–Fort Worth metropolitan area, focusing on key markets in North Texas. The bank emphasizes a community-oriented approach, combining local decision-making with the resources of a larger institution. A board of directors and senior management team with deep regional expertise oversees the bank’s operations, guiding its commitment to personalized service and long-term client relationships.

Independent Bank Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Q1 results and outlook: GAAP net income was $79.9 million (EPS $1.63) and adjusted EPS was $1.68, reported NIM rose to 3.90% (core NIM up ~8 bps), and management reaffirmed 2026 targets of 1.40% ROA and 15% return on tangible common equity with Q4 NIM guidance of 3.90%–3.95%.
• Positive Sentiment: Capital returns remained active: The company returned $94 million to shareholders in Q1 (802k shares repurchased for $63M) and raised the quarterly dividend 8.5%, while CET1 stayed healthy at 12.87% and management expects a new repurchase authorization in Q2.
• Negative Sentiment: Credit and growth headwinds — loan and deposit growth were muted, the bank is exiting the dealer floorplan book, C&I growth (ex-exit) was strong but CRE concentration is elevated at ~283% with continued office portfolio stress (NPAs rose to $98.7M, 0.52% of loans) and a $5.5M provision for the quarter.
• Neutral Sentiment: Operations and tech initiatives: Management is preparing an October core conversion to IBS and launched an Office of Digital Innovation with AI governance to pursue targeted efficiency gains while maintaining expense discipline (core expenses down q/q ex-M&A), though timing and magnitude of benefits remain uncertain.

Presentation

[Operator]

Ladies and gentlemen, thank you for joining us, and welcome to the Independent Bank Corp first quarter earnings call. Before proceeding, please note that during this call, we will be making forward-looking statements. Actual results may differ materially from these statements due to a number of factors, including those described in our earnings release and other SEC filings. We undertake no obligation to publicly update any such statements. In addition, some of our discussion today may include references to certain non-GAAP financial measures. Information about these non-GAAP measures, including reconciliation to GAAP measures, may be found in our earnings release and other SEC filings. These SEC filings can be accessed via the investor relations section of our website. Finally, please also note that this event is being recorded. I would now like to turn the conference over to Jeff Tengel, CEO. Please go ahead.

[Jeff Tengel, CEO at Independent Bank Corp]

Thank you. Good morning, and thanks for joining us today. I'm accompanied this morning by CFO and Head of Consumer Lending, Mark Ruggiero. When we last spoke in January, I highlighted several major areas of focus for Rockland Trust in 2026: organic growth, expense management, and capital optimization. Our first quarter results reflect progress in all of these areas. While reported loan and deposit growth were somewhat muted, I will talk later about why we remain encouraged with our ability to continue to grow organically. We held the line on expenses and continue to proactively manage our capital. The first quarter also saw continued NIM improvement, increasing 13 basis points from the fourth quarter. This reflects pricing discipline across both our loan and deposit portfolios. Excluding loan accretion income, our adjusted NIM rose by 8 basis points. Mark will elaborate on our NIM during his comments.

[Jeff Tengel, CEO at Independent Bank Corp]

Excluding M&A charges, expenses were down 1.5% from the fourth quarter, as we realized the impact of cost savings from the Enterprise transaction, which was offset by seasonally higher employee and occupancy costs. Additionally, the quarter reduction benefited from the absence of certain outsized expenses occurred in the fourth quarter. With the investments we have made in people and technology over the past few years, we believe we have the scale to continue to grow without significant additions to our expense base. We returned $94 million of capital to shareholders in the first quarter, including the repurchase of 802,000 shares for $63 million. I would like to point out that despite our aggressive capital actions, tangible book value rose to $47.86. We also recently announced an 8.5% increase in our quarterly dividend.

[Jeff Tengel, CEO at Independent Bank Corp]

With expected further improvement in our profitability and moderate balance sheet growth, we expect capital management to remain a key priority for the balance of the year. There's a significant amount of work underway as we prepare to transition our core operating platform from Horizon to IBS, both part of the FIS ecosystem. The conversion is scheduled to take place in October of this year. The new operating system will provide additional product capability and enhanced efficiencies that reflect the size and scale of our organization. This is an important milestone for Rockland Trust and will position us for future growth. Related, I'd like to take a moment to talk about AI. This is obviously a topic on investors' minds. In the first quarter, we established an Office of Digital Innovation.

[Jeff Tengel, CEO at Independent Bank Corp]

We have established a governance framework around our AI activities to ensure we stay within the guardrails of our moderate risk profile and any actions are consistent with our award-winning culture. This governance framework includes a steering committee that will serve as a clearinghouse for AI use cases. This will allow us to make AI investments in those areas that have a meaningful payback and avoid the proverbial boiling the ocean. I expect us to start with some relatively easy use cases as we build muscle memory. Over time, this should enable us to gain confidence in our ability to execute and take on bigger, more impactful applications. I mentioned earlier that loan and deposit growth was somewhat muted in the quarter.

[Jeff Tengel, CEO at Independent Bank Corp]

Given the Iran war, the marked volatility in interest rates, and the lingering inflationary environment, it should be no surprise there's not a uniform consensus on the current business climate from our bankers and customers. The duration of the war and its impact on oil prices will dictate the ultimate effect on distribution companies, contractors with truck fleets, manufacturers, construction firms, and energy-intensive operators. Clients broadly expect prolonged energy and commodity price volatility to weigh on cost structures. While a notable share of our clients indicate that they have adjusted to the current rate environment, others suggest that the higher rates have delayed expansion plans. Lastly, inflation remains a dominant concern across sectors, particularly with respect to labor, healthcare benefits, materials, and utilities. Suffice to say, the environment is best characterized as somewhat challenging. I would summarize our customers' mindset as cautious.

[Jeff Tengel, CEO at Independent Bank Corp]

Importantly, though, we've not seen any meaningful stress in our loan portfolios as a result of the current environment, and our customers continue to manage through this very well. With that as a backdrop, our total commercial loans declined by $50 million from the fourth quarter. If we peel back the onion a bit, though, underlying results were stronger than reported. For example, excluding the impact of the $39 million decrease in our dealer floorplan business, which we are exiting, our C&I loans rose at a healthy 7% on an annualized basis. In addition, we would note that the office portfolio contributed $56 million of the $94 million drop in commercial real estate balances for the quarter. Our CRE concentration now stands at 283%, and we believe we've achieved most of the targeted reduction in transactional CRE business.

[Jeff Tengel, CEO at Independent Bank Corp]

While we have reduced transactional CRE balances, we funded $179 million of relationship-based CRE loans in the first quarter and added $290 million of CRE commitments. We still like the CRE asset class and will continue to support our clients in this space the way we always have. This dynamic continues the rebalancing of our commercial lending business. C&I loans now represent 25% of total loans versus 22% at year-end 2024. It's important to note that our C&I growth is being driven by core relationship banking. We do not have any exposure to the NDFI or private credit segments that have driven much of the industry's loan growth. In summary, we're optimistic about our market position. We have the product set and talent to drive commercial loan growth going forward. Our approved commercial loan pipeline totaled $313 million, up from $278 million at year-end.

[Jeff Tengel, CEO at Independent Bank Corp]

Importantly, we will not sacrifice credit structure or rate for new business. This is consistent with how the legacy Rockland Trust has always operated. On the funding side, period end deposit balances were essentially flat. The 1.5% decrease in average deposits from the fourth quarter is consistent with prior years, as seasonality tends to adversely impact business operating balances in the first quarter of the year. DDAs represent 28% of overall deposits, and the cost of total deposits was 1.36% in the first quarter, highlighting the immense value of our deposit franchise. Similar to the loan portfolio, and as we've said many times, we will not sacrifice rate to show deposit growth with transactional one-product customers. With respect to asset quality, our net charge-offs were 11 basis points for the first quarter and have averaged just 11 basis points over the last year.

[Jeff Tengel, CEO at Independent Bank Corp]

As we suggested last quarter, we're not out of the woods yet with respect to our office portfolio. This quarter, several office loans exited the bank while a couple of new office loans were added to criticized status. We continue to believe the challenges within our office portfolio are identifiable and manageable. As I've mentioned in the past, there's no quick fix here. We remain diligent in managing this portfolio segment, and while we are confident the worst is behind us, we'll continue to be transparent with the market as we work down this asset class. Our wealth management business continues to be a key fee income driver for us. Despite an incredibly volatile market, our AUA were essentially flat at $9.2 billion as positive net asset flows and strong relative portfolio performance mostly offset market-related declines. Importantly, we were pleased with the diversity of new client inflows.

[Jeff Tengel, CEO at Independent Bank Corp]

Revenues grew at an 11% annual rate, driven by higher asset-based fee revenue and insurance commissions. We believe first quarter results represent another step forward in driving improved profitability at Rockland Trust. We remain focused on accelerating our organic growth, reducing our CRE office portfolio and prudent capital management. These actions, coupled with our industry-leading deposit costs, disciplined expense management, and operational excellence, will return INDB to our historical market premium valuation. I feel particularly confident about Rockland Trust's positioning across our markets, driven by the strength of our products, the dedication of our people, and the effectiveness of the strategies we've put in place. I want to thank all Rockland Trust employees for their tremendous efforts in making the first quarter a success. Every measure of our success is a direct result of their commitment. On that note, I'll turn it over to Mark.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Thanks, Jeff. To summarize the quarter results, 2026 first quarter GAAP net income was $79.9 million and diluted EPS was $1.63, resulting in a 1.31% return on assets, a 9.02% return on average common equity, and a 13.67% return on average tangible common equity. Excluding $3 million of merger and acquisition expenses and the related tax impact, the adjusted operating net income for the quarter was $82.1 million or $1.68 diluted EPS, representing a 1.35% return on assets, a 9.27% return on average common equity, and a 14.05% return on average tangible common equity. As Jeff alluded to in his comments, we maintained our robust CET1 capital ratios at 12.87%. While repurchasing $63.3 million in capital during the quarter and increasing our common dividend 8.5% to $0.64/quarter.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

With only $24 million left on the current repurchase authorization, we anticipate establishing another round here in the second quarter as we continue to prioritize capital return to shareholders amidst an uncertain economic environment. We saw this element of uncertainty play out during the quarter in a couple of areas. The first area I'll note is in regards to pricing competition, particularly on the deposit side. As a bank that has never looked to lead with rate, we have seen some flow of excess customer funds leave for pricing that we are not willing to match. This dynamic, combined with seasonal volatility, led to the fairly flat deposit balances quarter-over-quarter.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

We operate with conviction that finding the right balance of pricing discipline while supporting our relationship customers is crucial, and we believe the Q1 results of flat deposit balances while reducing the cost of deposits 10 basis points is a strong outcome of this philosophy. On the lending side, we saw demand impacted in a few areas as all of the macroeconomic uncertainty that Jeff just talked about is keeping some customers on the sidelines. Our largest commercial portfolio, multifamily, is one particular asset class where we have seen this impact. With the reduced CRE portfolio much more representative of our legacy relationship lending profile and an overall concentration level now in the low $280 million range, we are comfortable suggesting a forward growth strategy commensurate with our historical approach. While this CRE strategy continues to play out, we remain extremely optimistic over our near-term C&I growth prospects.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Reiterating the $39 million decrease associated with our winding down of the dealer floorplan portfolio, other C&I balances increased $78 million during the first quarter, or 7% on an annualized basis. In addition, the rebuild of our approved total commercial pipeline should bode well for second half growth in 2026. On the consumer side, typical seasonality drove reduced overall volumes in the mortgage business, but an increase in salable activity kept mortgage banking results relatively flat while absorbing runoff of lower yielding portfolio balances. Home equity volume has remained consistently strong with the $10 million increase in balances despite continued lower utilization rates versus pre-COVID levels. Switching gears a bit, the combination of the deposit cost reductions that I just discussed, along with loan and securities cash flow repricing dynamics, drove a solid 8 basis points lift in the core margin.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

With elevated purchase accounting accretion versus the prior quarter, the reported margin rose sharply to 3.90% for the quarter. The balance sheet remains very well positioned to continue to drive consistent improvement in the net interest margin while providing flexibility to lever up or down as needed to stay neutral to any short-term rate changes from the Federal Reserve. Moving to asset quality, we highlight the following notable items for the first quarter. Total non-performing assets increased to $98.7 million or 0.52% of total loans, driven primarily by the downgrade of one office loan, which has an approximately $2.8 million specific reserve established. Net charge-offs for the quarter were $4.8 million or 11 basis points annualized, with $4 million related to a pre-relationship that was partially reserved for last quarter.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

As a quick positive update, this $4 million charge-off loan was associated to a non-performing office loan that actually repaid the full remaining balance subsequent to year-end, in fact, just a few days ago. The first quarter provision for loan loss was $5.5 million. While total criticized and classified loans increased versus the prior quarter, Q1 levels of 4% of total commercial loans remain in the range we have experienced over the last year or so. The downgrades to criticized status during the quarter were primarily isolated to a few credits with no identified loss reserve recognized at this point. Our fee income businesses performed in line with expectations for the quarter, coming in relatively consistent with the prior quarter results despite fewer days in the quarter.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Jeff provided color on the positive momentum within our wealth management group, and we are also pleased with the continued expansion of our treasury management services as many of the newer C&I customers leverage the full suite of cash management products that we offer. On the expense side, I'll first point out that we did have a final round of severance related to the Enterprise acquisition that made up the majority of the $3 million of M&A expenses for the quarter. Total core expenses of $139.9 million are slightly higher than our guidance, due primarily to significant snow removal expenses, which was a little over $2 million for the quarter. We remain focused on analyzing all areas of the bank to ensure expenses are appropriate and justified as we move forward into an environment where we know technology will play a larger role.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Along those lines, our work on the upcoming core conversion is ongoing, with approximately $1.1 million of expenses in the first quarter directly attributable to those conversion efforts. Lastly, as expected, the tax rate increased from the prior quarter to 23.38%.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

With that, I'll now finish up by revisiting our 2026 guidance. First, we reaffirm our two primary profitability targets for the fourth quarter of 2026. The first is return on average assets of 1.40%, and the second is return on average tangible capital of 15%. Regarding loan growth, we update our CRE and construction full year estimates to now be flat to low single-digit percentage increases. All other loan and deposit estimates remain unchanged. From the net interest margin, we increase our estimate to suggest that the 2026 fourth quarter margin will now be in the range of 3.90%-3.95%, while still assuming a 10 basis point impact from purchase accounting accretion. All other guidance remains unchanged from the prior quarter. That concludes my comments, and with that, we will now open it up for questions.

[Operator]

We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Justin Crowley with Piper Sandler. Your line is open. Please go ahead.

[Justin Crowley, Director and Senior Research Analyst at Piper Sandler]

Hey. Good morning, everyone.

[Jeff Tengel, CEO at Independent Bank Corp]

Hi, Justin.

[Justin Crowley, Director and Senior Research Analyst at Piper Sandler]

I was wondering if you could start off on loan growth? You tweaked the guide a bit lower on the CRE side, of course. Was just curious if you could expand even a little more on what informed that decision? Also if you could just give us a sense, you mentioned some caution on the borrower side, but just as far as demand, how you've seen borrowers respond with some of the heightened macro volatility and how long you think that could maybe persist here?

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah. On the CRE side, it's interesting because the commercial real estate market has gotten very, very competitive. It's really competitive. We see it at the low end with a lot of the smaller banks and the mutuals and we see it at the larger end too with some of the larger banks. It's a space where, as I said in my comments, we're not going to stretch for structure or for rate. We think the environment is really very, very competitive. We're continuing to support our existing clients where we can. The other thing that I think is providing a little bit of a cloud over the commercial real estate business, in Eastern Massachusetts anyways, is the prospect of rent control. A lot of the multifamily projects, and these would be mostly construction loans, really aren't happening.

[Jeff Tengel, CEO at Independent Bank Corp]

A lot of the investors are on the sidelines and they're not commencing with any of the maybe historical pace that they would have in the construction space in that multifamily asset class. We've definitely seen a market slowdown there. With respect to the second part of your question, it's kind of hard to pinpoint when that's going to turn. If you could tell me when the war's going to be over and when the price of oil is going to return to where it was prior to the war, I think I might have maybe a little bit better answer, maybe in listening to our clients, have a better sense for how they're thinking about it. I think caution right now is definitely the word I would use to express how generally that middle market and lower middle market client base feels.

[Jeff Tengel, CEO at Independent Bank Corp]

It doesn't mean there's no activity at all. We still have clients that are very healthy and very strong and they'll continue to invest where they think is prudent. It definitely is causing the owner-operators that we typically bank, it's just giving them pause and it probably makes them think a little bit long and hard. The phrase about measure twice and cut once, I think is definitely something that they're probably running through their minds.

[Justin Crowley, Director and Senior Research Analyst at Piper Sandler]

Okay. Got it. That's helpful.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Sorry. I would just add from a guide standpoint, I think all of that uncertainty certainly has increased a bit over the first quarter and I think just a bit of a positive element to it that the $40 million office loan we had a sense could come to fruition here in 2026. Having that play out in the first quarter and creating a little bit more of a drag on net loan growth was. Those were probably the two primary drivers to just being practical around the expectations going forward. I think in terms of opportunity and the pipeline growing as Jeff alluded to, there's still a lot of optimism and positivity there. I think it's just a little bit more uncertainty with the war and the office payoffs to be quite honest driving the guide reset.

[Justin Crowley, Director and Senior Research Analyst at Piper Sandler]

Okay. Understood. Just flipping to the credit side, you saw nonperformers up a bit and then had the criticized inflow. Can you provide a little more detail on the drivers there? I think you mentioned office was a factor, at least on the non-performing side a bit. I'm not sure the extent when you looked at criticized balances. I know it's pretty formulaic at this point, but just how all the inputs, how that gets you to an allowance that was pretty flat for the quarter and just where you feel or how you stand on credit quality?

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah, I'll take the first part of that, Justin, and then Mark take the second part. With respect to the criticized assets, we really had three larger loans that moved to criticize status that make up the bulk of that increase. All three are in different asset classes. Only one of those is in the office asset class, one of them C&I, and the other one I think is in the multifamily space, which is really the first multifamily loan that I think has been criticized in quite some time. In that particular instance, it's just a little bit slower lease up, which we're not overly concerned about. It's just taken a bit longer, and we were just being prudent in moving it to criticize status, but still feel really, really confident that things are going to work out.

[Jeff Tengel, CEO at Independent Bank Corp]

That's the quick overview of the increase in criticized loans. As Mark pointed out, we're still well within the historical levels of criticized loans that we've operated at in the past. I'll let Mark address the second part of your question.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. Well, I think from a provisioning standpoint, it dovetails into a bit of that answer, which is obviously the downgrades on those loans Jeff talked about drive a bit higher allocation in the model as you'd expect. They're not at a point now where we have any reason to suggest the specific reserves or actual loss reserve that needs to be set. As a, call it a risk-rated seven loan versus a risk-rated six loan, there's a higher allocation in the model, but it won't move the needle too much. That drove a little bit of the need for provision. I talked about the $4 million charge-off in the quarter. That was a couple million dollars higher than what we had reserved as of last quarter. That required a couple million dollars in provision.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Then we are tweaking the model a bit to have a bit more of a conservative macroeconomic environment factor playing through. I think on the consumer side, we feel really good about the credit picture right now. I think you'd be naive to suggest there isn't a little bit more pressure on the health of the consumer. $1 million or $2 million of added reserve on mortgage home equity portfolios is appropriate. Those would be the three main drivers behind the $5.5 million provision. Obviously, there wasn't much loan growth, so that helps from a provision standpoint, but it was really the charge-off, the downgrades, and a little bit of build on the consumer side.

[Justin Crowley, Director and Senior Research Analyst at Piper Sandler]

Great. Just one last one. A good chunk of the buyback executed in the quarter. Obviously, a lot of volatility in the market, but with average pricing coming in about where we're at today, just curious if you could speak a little more on the ability and appetite to keep this sort of a pace as you look to reduce excess capital?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. I can tell you it will absolutely be a priority. The goal high level would be to keep capital relatively flat. We can lever up and down a little bit from there, but I think that's the right level that'll allow us and afford us to do a bit of a management over holding company liquidity, CRE concentration, and obviously optimizing capital. We haven't announced a new plan yet. I would be very comfortable suggesting we will likely put one in place here in the second quarter. The level of buybacks should be at a pace where we're going to try and keep capital relatively flat.

[Justin Crowley, Director and Senior Research Analyst at Piper Sandler]

Great. I appreciate it. I'll leave it there. Thanks for the time this morning.

[Jeff Tengel, CEO at Independent Bank Corp]

Thanks, Justin.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Thank you.

[Operator]

Your next question comes from the line of David Konrad with KBW. Your line is open. Please go ahead.

[David Konrad, Managing Director at KBW]

Yeah, thanks. Just really a follow-up on the capital and the buyback. Your CET1 level's about 12.9%. You accelerated the buyback and it really didn't budge, and I think earnings power is going to improve even if loan growth improves a bit. Maybe balance the discussion on why you would desire to keep that flat instead of working that down a bit, and how you weigh the environment with narrowing credit spreads and excess competition with using that for a potential buyback to offset that.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. It's a fair question. I think we're still feeling like there's a growth path that we'd like to leave some level of capital flexibility. I've said this a few times now. Ideally, we'd grow into that excess capital position. We also are being realistic and recognize we're talking a lot about uncertainty in the environment. That's going to keep loan growth somewhat at bay. We absolutely are looking at a minimum to basically keep flat. Doing more than that, David, to be honest, some of the practical limitations there will be funding. In a holding company bank structure, to basically fund that ideally would be through earnings and through bank to holding company dividends. Doing that at a pace that exceeds earnings puts some pressure on the ability to rely on that as a funding base.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

We would have to go to the outside market to borrow if we really wanted to ratchet that up. I'm not saying we wouldn't do it, but we're still weighing that pro and con. We are still being cautious about keeping CRE concentration at a range that we think is appropriate and allows us to grow when the market turns. That $280 million-$290 million range, we're very comfortable with. The more we do on the buyback side, the more that constrains keeping the CRE ratio in that range. We're trying to find that right balance of about, like I say, at a minimum, keeping capital flat. That will not pressure funding and/or CRE concentration. When you start to exceed that, we would just have to weigh sort of the pros and cons.

[David Konrad, Managing Director at KBW]

Got it. Fair enough. Maybe a follow-up. Just regarding the Fed's proposal for Basel III, just wondering if you had any thoughts on risk-weighted assets with potential benefit in your mortgage or CRE portfolio-

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah.

[David Konrad, Managing Director at KBW]

-given their guidance?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. We've done some rough modeling on that, and I think we would be comfortable suggesting our impact would be aligned with probably what you're seeing as sort of the industry expectation. Meaning, with 25% of our book in the consumer space, mortgage home equity, where our LTVs are, I think you'd expect to see somewhere around 15 basis points of risk-weighted asset relief there. On the commercial side, in general, 5 basis points of RWA relief. That probably pencils out to 7% or 8%. Sorry, I said basis points. 5% reduction in RWA, 15% reduction on the mortgage side.

[David Konrad, Managing Director at KBW]

Mm-hmm.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

It's about a 7%-8% reduction in risk-weighted assets, which gives you about $150 million-$160 million of capital relief when this comes to fruition.

[David Konrad, Managing Director at KBW]

Perfect. Thank you.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Certainly allows for an expectation for even more buyback or obviously just more capital flexibility.

[David Konrad, Managing Director at KBW]

Great. Perfect. Thank you.

[Operator]

Your next question comes from the line of Steve Moss with Raymond James. Your line is open. Please go ahead.

[Steve Moss, Managing Director for Banking at Raymond James]

Good morning, guys.

[Jeff Tengel, CEO at Independent Bank Corp]

Hi, Steve.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Morning.

[Steve Moss, Managing Director for Banking at Raymond James]

Hey, Jeff, Mark. Maybe just going back to the loan pipeline here and loan yields, just good to see the step up in activity and the organic growth there. Just kind of curious, where are you guys putting on loans these days?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. On the commercial side, Steve, it's low sixes, probably 6.10%-6.20% range. Runoff is in the 5%-5.25% range on the commercial side, so you're still getting that 100 basis point lift or so on the churn. On the consumer side, there's not a lot of portfolio mortgage going in, but that's probably a little bit lower yield, call it 5.75%-6%. Most of the home equity volume continues to be prime, so that's obviously at a better rate. The biggest driver on the commercial side, call it low sixes replacing low fives dynamic.

[Steve Moss, Managing Director for Banking at Raymond James]

Okay. In terms of the securities cash flows here that you have coming off, just curious, Mark, you mentioned deposit pricing, obviously saw some things run off. Are you thinking of using some of those cash flows to continue to manage higher cost deposits lower, or are you thinking about parking those in securities here, or just what's the dynamic you're thinking going forward here?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah, I think from a balance sheet positioning and liquidity management perspective, we'd be looking to keep the securities portfolio pretty flat where it is. I probably wouldn't want it to get too much lower than where we are. Maybe down to 11%-12%, we certainly would be comfortable. I think I'd expect to see the majority of the cash flow go back into the securities portfolio. We're seeing good yields there. We're very conservative in terms of managing that portfolio. We're buying deeply discounted, fairly mature mortgage-backed securities. We're not stretching for yield in that portfolio. But we're getting, on average, 4.25% rate. That's replacing in the first quarter, actually, the $100 million that came off was at a 1.50% rate. I would expect more of what's going to run off in the second half of the year to be closer to 2%.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

That dynamic giving you 200 basis points-225 basis points of lift on the securities book is another big driver of the margin expansion you saw. Long way of saying, I would expect us to keep that portfolio relatively flat.

[Steve Moss, Managing Director for Banking at Raymond James]

Okay. Appreciate that color. In terms of just the multifamily business in Massachusetts, you guys have about a $2.9 billion book. Just kind of curious, with the rent legislation here, are you guys going to tighten underwriting standards? Are there any thoughts of adjusting the way you operate on that front, and could that be a little more of a headwind beyond just this year if it passes?

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah, the most obvious headwind would just be the muted new business coming from construction loans in the multifamily space. As I mentioned in my comments, I think a number of investors, and I've spoken to several of them. They'll tell me, "Look, we have choices. We don't have to invest in Massachusetts. We can invest in Connecticut or New York or wherever." I think until that issue gets, there's some clarity around it, I think there's going to continue to be muted demand on the construction side. Within the existing portfolio, our multifamily portfolio is, I would suggest, pretty seasoned. It's been underwritten consistent with historical Rockland Trust conservatism. We don't underwrite to trended rents or any of those sorts of things. We feel really good about the existing portfolio of multifamily loans that we have.

[Jeff Tengel, CEO at Independent Bank Corp]

We haven't seen any signs of stress as we kind of move through these quarters. I think the biggest challenge is going to be with new business as opposed to feeling like our existing portfolio is going to experience stress.

[Steve Moss, Managing Director for Banking at Raymond James]

Okay. Fair. In terms of just going back to the office credit here, I just want to clarify with regard to the payoff and the charge-off, did I understand correctly that you charged off the $4 million and then the remaining balance, which I'm assuming is the $13.7 million in the deck, was paid off just a few days ago? Or is there-

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Exactly.

[Steve Moss, Managing Director for Banking at Raymond James]

-a recovery? I'm just kind of okay.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

No. We charged it off to the P&S that we knew was going to be the sale price, and then that sale went through this week.

[Steve Moss, Managing Director for Banking at Raymond James]

Okay. That's what I expect. I just wasn't quite sure I heard it right.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

No, you're good.

[Steve Moss, Managing Director for Banking at Raymond James]

Great. One more thing just on the non-interest-bearing dynamics for the quarter, just kind of curious. They went down quite a bit, but EOP was flattish. Was there anything seasonal that maybe we should've been thinking about?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

On the deposit side particularly?

[Steve Moss, Managing Director for Banking at Raymond James]

Yes, on non-interest-bearing.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. There's definitely seasonality, particularly in our business segment, where when you look at the data in the reporting for the quarter, we're encouraged by a couple of things. The first is we still brought in new relationships and deposit dollars associated with new relationships that outpaced closed relationships. Where we saw some of that average deposit pressure is in existing balances being utilized. I would attribute that to a couple of things. One is typical seasonality, tax payments, distributions, whatever it may be. We always see the low point of our deposits in the first quarter of a calendar year. Second is, I think there is some level of just inflationary pressure that's probably increasing, to some modest degree, a level of spend. I think that's putting a little bit of pressure on outstanding deposit balances.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Third, to be very candid, there is some money that we knew we let go due to just not a willingness to match some of the rates that we're seeing in our market. You may see a customer with X amount of dollars in their account. They're carving out a small piece and looking for top rate. Sometimes that answer is we price up and match. Sometimes, depending on the overall relationship, we've been willing to not match. All three factors are in play in the first quarter, but I'd say the biggest majority is your typical usage that we would look to see rebound in the second quarter.

[Steve Moss, Managing Director for Banking at Raymond James]

Okay. Great. I appreciate all the color here, and I'll step back in the queue. Thank you very much.

[Jeff Tengel, CEO at Independent Bank Corp]

Thank you.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Thank you.

[Operator]

Your next question comes from the line of Laurie Hunsicker with Seaport Research. Your line is open. Please go ahead.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Yeah. Hi, Jeff, Mark, and Derek. Good morning.

[Jeff Tengel, CEO at Independent Bank Corp]

Hi, Laurie.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

I wanted to stay where Steve was on office. Just to go back to office for a minute because I think I'm just a little bit confused. When I'm looking at your office non-performers of $53.8 million, that $18 million that repaid is already out of those numbers, correct?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

It's the $13.7 million is out of those numbers.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay. Got it.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

It was originally $18 million, charged down to $13.7 million, and that paid off in April, correct.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay, perfect. Okay, right. You initially had a $2 million reserve on that in the fourth quarter. You took another $2 million before you charged it off. This new one that came on, you took a $2.8 million specific reserve. If I look at your loan loss provision for the quarter, it basically was all office. Am I thinking about that the right way?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

The new non-performer, the $17.7 million, that has a $2.8 million reserve. We had already reserved $2 million of that last quarter. The appraisal suggests a bit more beefed up that would be needed. It was only another, call it $800,000 of provision needed to establish that reserve. I'd say.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay. Got it.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

All in, probably three out of the five is office-related. The rest is just general reserve build.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Perfect. Okay. The $17.7 million that's new, is that a Class A or B, and do you have any occupancy? Can you give us any kind of color around that?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

The $17.7 million new?

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Yes.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yes. Do you know if that's A or B, Jeff? I don't. The issue with that is it's a single tenant, life science tenant that has represented to us they will be exiting the facility.

[Jeff Tengel, CEO at Independent Bank Corp]

It's probably Class B, would be my venture guess.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

We don't expect sponsor support when that happens. We would likely be looking at a future foreclosure, and the reserve that was established is based on an appraisal, kind of on an as-is basis.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Got you. Okay, just remind me, your life sciences book, how big is that?

[Jeff Tengel, CEO at Independent Bank Corp]

It's not very big, Laurie. I don't have it in front of me, but I'd say it's $100± million. It's not very big, and it's a little bit lumpy. I know we have a couple of larger loans in there. One, in particular, that it was a construction loan. I think we may have spoken about this in the past, but it continues to lease up really well, which is kind of bucking a trend in the general, in that space. It continues to get better. Honestly, that larger loan that I'm referring to is criticized, and we think it's likely to get upgraded sometime over the course of 2026.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. That's a $28 million loan that is in the Q4 maturity bucket. That's $28 million out of the $54 million in that life science. If you recall, it was once an empty building when we first started talking about this. It's been very positive development.

[Jeff Tengel, CEO at Independent Bank Corp]

With good sponsorship, I might add.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

That's great. Actually, that segues to my other question. By the way, love the slide 10 details. Thanks for continuing to include that. Yeah, so you touched on the $54 million that's coming due in the fourth quarter of 2026. Is there anything, kind of looking between the third and the fourth quarter, you've got $20 million coming due, and obviously of the $54 million, you just touched on the $28 million. Is there anything, or I guess maybe how should we be thinking about that? Is there any color you can give us on those loans?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. To be honest, some of them we've probably talked about in the past. They each have their own story. Based on those stories, if there is any loss exposure, we've reserved for it. But, as you know, I think we've probably talked about most of the loans that have a specific reserve on, and a lot of these either do not have reserve because we expect full resolution, or they're pretty modest reserves. We feel genuinely good about that. I think to provide maybe one notable update, I believe it's a fourth. Yeah, one of the fourth quarter maturity items now, it's about a $10 million loan that was originally intended to mature here in the first quarter.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

If you went back to our deck from last quarter, I believe you would have seen a $9.9 million, or would have been part of what was set to mature in Q1. That was extended to Q4. That is a participation deal. The sponsor is looking to refinance or sell. Cash flow is improving. We felt a short-term extension was the right call to get that to a resolution that we still feel would get us paid out in full. That's probably one to note, just if you've I know, Laurie, you've done a nice job of tracking some of these through the life cycle here, so that one is probably one worth noting. In general, like I said, the rest of the short-term maturities, we feel, knock on wood, pretty good about.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay. Just switching over to the dealer floorplan loans. You mentioned you're discontinuing that book. How quickly does that book run off, and can you give us the current balance, and just any color behind your reasoning for discontinuing?

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah. The reason we decided to exit was just we felt like we didn't have scale to compete. The segment that we were in tended to be smaller, I'll say relatively undercapitalized used car dealers. That industry, as you know, has consolidated quite a bit. The larger, more well-capitalized companies didn't really fit our kind of our traditional profile. as we looked at it, we said to ourselves, "We're not very big in this space, and we don't really feel great about the prospects to grow it in a meaningful way." I'm not a big fan of hobbies, and I tell our people all the time, if we like the business and like the space, then let's put resources against it and let's grow it.

[Jeff Tengel, CEO at Independent Bank Corp]

If we don't, then let's exit, because otherwise we're going to make a mistake and it'll come back to bite us. This was a good example of where we just didn't feel good about the go-forward strategy and our ability to be a meaningful player, and so we decided to exit. I think it started with maybe, like $100 million-$150 million, roughly, of outstandings. We're down to, I think-

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

$70 million or $80 million.

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah, $70 million or $80 million. It's actually gone quite well, to be honest with you. Our team has done just a terrific job of facilitating the placement of a lot of these relationships with other banks, so that the client, we're trying to be very client-centric, that the client isn't disadvantaged. They're able to get financing from another local bank that was interested in being in this business. I think we've done a nice job of doing this without a lot of customer disruption or negative implications in the market.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

I just looked up. I think it's only about $50 million, a little over $50 million left. I would imagine, Laurie, that'll play out over the next year, probably nine to twelve months.

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah. We'll probably be substantially done by year-end.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay. That's great. Okay. Expenses, obviously great guidance that you give on slide 15. If I'm just looking at a very high level, you're at $143 million for this quarter, $3 million in merger, $2 million of SNOW, and then $1 million of core conversion systems, that takes you down to $137 million. Obviously this quarter had the FICA. How much was the FICA?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Payroll taxes quarter-over-quarter are up $1.2 million. I wouldn't suggest-

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

What?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

That goes back down. That'll gradually reduce over time. If I had to predict, Laurie, it's probably you get $300,000 or $400,000 of expense relief in Q2 versus Q1. If you follow me.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay. Yeah, I'm just looking and just seems like your core expenses, taking out that core systems, you're running better, lower, right? Am I thinking about that the right way? Or is there some other expense that's coming that's now?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

No, you are. You're seeing the full cost save. There was a little bit here in Q1 that I admit we didn't capture a little bit left of M&A. You actually had that in for half of the quarter in the expense base as well. We're also cognizant of April is when we do our annual merit increases. You will see an uptick in salaries, all other things being equal just from annual merit, call it 3% on average. I think it's holding the line. That's the mentality we're talking about is hold the line in all the major areas. I would hope and expect to see this kind of in that $138 million-ish, $139 million range.

[Jeff Tengel, CEO at Independent Bank Corp]

Just as an anecdote, Laurie, we've talked a lot about the number of bankers that we've added over the last six to 12 months, mostly in the C&I space. We've been able to do that without any net incremental increase in our FTEs in that commercial banking space. It's been people who either have retired or we performance manage out or whatever. When you look at the totals of our salespeople in our commercial space, it's relatively flat, despite the fact that we've added a lot of really talented people over the last 12 months.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Gotcha. Okay. That's great. Mark, just one quick question. You flagged the outsized loan accretion income, and I appreciate that. Do you have a spot margin for March? Maybe even a spot margin.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yes. Yeah. Sorry, go ahead. I didn't mean to jump in. You're looking for our core spot margin?

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Core. Yeah, if you have it, yeah.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

It was 3.72%, so in line with the total quarter. February actually had a little bit of a lift. We saw some more securities accretion with a little bit elevated payoff. I still expect it to increase, obviously, off of that number, but spot was 3.72%.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay. Great. Jeff, last question for you. I know you've been pencils down on M&A. Any sort of refresh now that EBTC is fully digested and your core systems conversion is right around the corner? How are you thinking about that?

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah. Just to be clear, pencils down on bank M&A. We still remain interested in if it was in the wealth space or if there were unique deposit opportunities, whether it was branches or other ways that we could improve the overall franchise. I would say we're still pencils down on bank M&A. The conversion that we have coming up in October is really a big deal. We're pretty focused on getting that done, and getting it done well. As I told a bunch of our people a few days ago, we have one chance to make a good impression through this conversion, so we have to get it right. We've been spending a lot of our time and energy making sure that we do that.

[Jeff Tengel, CEO at Independent Bank Corp]

We also feel like we have a lot of really positive momentum and a good path to growth in a number of our core businesses, whether it's the wealth business, which we talked about, the C&I business, which we've been talking about the last couple of quarters. We feel like organic growth very much remains kind of top of mind and one of the things that we're focused on in addition to getting the conversion done well. That coupled with the environment right now is a little bit uncertain, but I would characterize our posture as pencils down.

[Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research]

Okay, great. Thanks for taking my questions. Thanks so much.

[Jeff Tengel, CEO at Independent Bank Corp]

You bet. Thanks, Laurie.

[Operator]

Your next question comes from the line of Matthew Breese with Stephens Inc. Your line is open. Please go ahead.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Good morning, everybody.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Good morning, Matt.

[Jeff Tengel, CEO at Independent Bank Corp]

Hey, Matt.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Mark, maybe to start with you. Could you provide, if you have it, the spot costs of deposits at quarter end? Just maybe expand upon your commentary around competition. I'd be curious in terms of where is it most aggressive product-wise and competitor-wise? Are you seeing that mostly from the bigger banks or the mutuals?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah. Taking the latter. Both, to be honest. Certainly, Massachusetts is a bit of a unique environment. You have still a lot of mutuals at play that are good operators, but they can be a bit aggressive on pricing. We're seeing offers even from larger banks, other similar-sized banks, a lot in the 4% handle on the deposit side. In some cases even 4.25%. I think I saw a 4.50% offer out recently on a pretty large relationship. It's very competitive. It's those types of dynamics that I was alluding to where, of course, we're looking at the overall relationship, and if there's a portion of money that needs to be a 4% handle and the overall cost of deposits is where we'd like it to be, that's the relationship we're going to continue to support.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

It's when you start to get the majority of a deposit looking for, in some cases, higher than 4% rates, that's a tough one to justify in my opinion. You're seeing some of that dynamic, and like I said, it's probably heightened by the level of mutuals. I can appreciate it's in the markets where, especially where we did the Enterprise deal, you have some competitors in that space that are going to look to be aggressive because they view it as an opportunity. The spot rate on the cost of deposits for March, I'm pretty sure was right in line, Matt, with the quarter end, like around 1.36%. We're at a point now where I think you're still seeing the Fed cut in December. We were able to make some reductions.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

You had a little bit of the CD book still giving us some benefit as that was repricing. You're basically at a point now where any CD maturities are going to sort of be neutral to cost of deposits. I think because of the competition, I would imagine new money coming on is going to challenge the 1.36% rate to some degree. I think keeping deposits flat or slightly up in this environment will be a pretty successful profile.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Got it. Maybe just transitioning that into the NIM and the NIM guide. The presentation suggests that you're going to end the year with a NIM in the 3.90%-3.95% range. I'm assuming that's the core NIM. Is that accurate?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

That is reported NIM with a 10 basis point accretion assumption.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

The 10 basis points would be additive or is the all-in going to be?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Sorry, go ahead.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Let's work off of the low 3.70s core NIM this quarter.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Expected anticipated expansion is to 3.90% by end of the year. Tack on another 10 basis points, all-in NIM close to 4% or just over by the end of the year. That's the way to think about it?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

No, I would suggest 3.72% core goes to, call it, 3.82% core. Tack on 10 to get you to the 3.90%-3.95% range.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Got it. Okay. I guess with that in mind, just considering flat deposit costs and then your roll on versus roll off dynamics are still accretive by it sounds like 100 or so basis points. It feels like the longer-term trajectory here is north of 4% on that NIM. Is that a fair assumption?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

I do think if the rate environment stays, if the longer part of the curve stays where it is and we could move the loan yields closer to 6%, then yes, I think a NIM above 4% is a realistic end goal. I think that the guidance now, call it 3 basis points-4 basis points of core expansion per quarter, does take into account the fact that we may see a basis points or two tick up in cost of deposits if we're being realistic. I think that's a little bit of the development that I would suggest over the next three quarters. You're going to get the loan repricing benefit. You're going to get the securities repricing benefit.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Our goal will be to keep deposits flat, but having the pricing pressure that's out there, I'd say that's an area where you may see that eat into it slightly where it's probably more like a, like I said, a 3 basis points-4 basis points core margin expansion.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Got it. Okay. Jeff, maybe one for you. We talked about transactional commercial real estate a few times now. I'm not sure I've ever seen a dollar amount put on it. What is the identified balance of transactional commercial real estate? Where was it? Where does it stand today? I think you said it's not as much of a headwind to growth, but maybe just characterize for us where you want it to be.

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah. That's a good question, Matt. I don't know that we have a specific number that I would point to in terms of what that is. We've actually talked about trying to get a bit more specific and then ring-fence it and be able to talk about our commercial real estate businesses, like a core relationship legacy Rockland Trust-originated business, and then a transactional book. It's obviously less today than it was a year ago, year and a half ago. If I had to venture a guess, I'd say it's probably somewhere between $300 million-$500 million, maybe towards the lower end of that, $300 million. We haven't really put pencil to paper to really identify, okay, how much is it? And then when is it running off?

[Jeff Tengel, CEO at Independent Bank Corp]

As you can imagine, some of the transactional real estate it has a maturity date that's well beyond the next year or two. As long as it's performing, we're just going to have to continue to live with it. That's not necessarily a bad thing because we're getting obviously the income off of it, and as long as the credit profile is okay. It's really the ones where we feel like there's some stress that we've been a lot more proactive at addressing and looking to move off.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Okay.

[Jeff Tengel, CEO at Independent Bank Corp]

I don't know if that answered your question.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

No, that's great. The first one is just I would love your view on which way the pendulum is swinging on the rent control. Just from a kind of a quick Google search, it sounds like it's contested. I'm just not sure to what extent, and I'd be curious what you think there. Is this a likely outcome or not?

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah. I don't know. Maybe we need to go to the betting markets to see what they're saying about this. My own intuition, and this is not based on any inside baseball or anything like that, is I think there's a good chance it doesn't pass because there's so much research out there that would suggest that it's not a good thing for the economy or for the commercial real estate. In general, it can have a muted impact on new affordable housing, new development, and that's clearly not what we would like. We want to continue to see investments in affordable housing and new development. We're hopeful that that argument kind of wins the day. But I'm no expert on this or my crystal ball is not all that precise. Mark, I don't know if you have opinions.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

I was just going to add, I think in terms of significant influence, our governor has publicly stated being against it. I think there's a lot of business community lobbyists, including a chamber that I'm part of, that would likely start to weigh in and lean in on suggesting why this is not a good answer for the economy. The question becomes whether those voices outweigh sort of the voters, the consumers that on paper here, rent control, and think that'll help my pocket. Will the business community sort of messaging of why in the long term this is not good help defend what probably has some consumer momentum to get it passed? I think to Jeff's point, that there'll be enough lobbyists and business offset to hopefully come against that.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

I think the other mitigant too here, though, is even if it does get passed, Massachusetts, if you look at the last decade, historically, rent increases have been below 5%, which is the proposed sort of cap of rent increases if this were to go through, the greater of 5% or CPI. This is a state where rent has been pretty well contained, and it is partly because there's so much demand and need for affordable housing. It's an area that I think has been somewhat contained. I do think if this does get passed, there is a path forward here to suggest that it still works without a meaningful impact on our economy, but there is a lot of opposition against it.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Great. Last one. Jeff, you had mentioned at the onset some work into AI and putting some resources aside for it. Just curious what your initial impressions are. We'd love your thoughts on kind of impacts to the longer-term expense trajectory or maybe even revenue benefits. Just curious. That's all I had. Thank you.

[Jeff Tengel, CEO at Independent Bank Corp]

Yeah. It's probably a little too early to quantify what we think the benefits will be. I would say for us, it's initially going to be around things like just making efficiencies, freeing up people's time to reinvest in other activities if they're doing things that are very standardized and routine and we think can be easily accommodated through a chatbot or something like that. I am a believer in not trying to bite off more than we can chew, meaning I'd like to get some wins under our belt here, which in my mind probably means a bit more modest use cases. Once we get some wins under our belt, I think that will give us some confidence that we can continue to do this well.

[Jeff Tengel, CEO at Independent Bank Corp]

I think as I said in my comments, we can develop some muscle memory around how we roll this out. Then, as we think about use cases, the more confidence we get, I think the bigger use cases we'll take on, which will have a bigger impact on the company. My intuition would also be it's going to probably lean more towards the expense side of things versus the revenue side of things. A lot of that is still TBD.

[Matthew Breese, Managing Director and Research Analyst at Stephens Inc]

Appreciate it. Thank you.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Thanks, Matt.

[Operator]

Your next question comes from the line of Jared Shaw with Barclays. Your line is open. Please go ahead.

[Jared Shaw, Managing Director at Barclays]

Thanks. Good morning, guys.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Good morning.

[Jared Shaw, Managing Director at Barclays]

Hey. Just a couple quick ones to wrap up. Mark, I don't know if you have the securities accretion. You still called out some of the indirect impacts, but do you have the dollar of securities accretion this quarter and maybe actually last quarter?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

I don't. Only because it's basically just like any other discount on a bond is how we're capturing it. I don't have the actual dollar amount, Jared. I'd have to follow up on that just to give you-

[Jared Shaw, Managing Director at Barclays]

Okay.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Sort of the discount amortization, I guess, on the Enterprise Bond is how I would quantify that, right?

[Jared Shaw, Managing Director at Barclays]

Got it. Okay. When you look at, do you still feel that you can get to that 80% CD beta through the cycle? I guess, how are you looking at staying active in the deposit space, given the competition versus sort of the loan to deposit ratio, and how are you thinking about that dynamic?

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

Yeah, I think on the CD base, we're all in. I think cost of CDs is, what? Right around 3.30%. Let me just triple check my math. Yeah. Right about 3.30%. I think in terms of repricing down, as I mentioned in one of my earlier answers, that we've probably seen the vast majority of that. Even though Fed funds sitting around 3.60%, one-month money, brokerage CDs in the one-month space is probably closer to 4% now. I think of it as we've sort of achieved that beta based on where we are today in our CD ladder. I would expect, because of the pricing pressure that's out there and the competitive dynamics, we still have a four-month 3.60% offer out there. That's the primary driver of any new CD money.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

I think it's going to keep, like I said, cost of CDs somewhat at bay at where they are right now, if not maybe a little bit of an uptick. In terms of the overall deposit strategy, I would just sort of reiterate what I was suggesting earlier, which is continuing to stay as competitive as we think is appropriate on what we value as total relationship funding, continuing to do what this bank has done for such a long time and attracting new money.

[Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank]

That's the branches, that's the retail network involved in their communities. It's working with nonprofits. It's the C&I wins that we've been having, typically coming over with more deposits. We still have good CRE relationships that hold money with us. A lot of those pieces are still in place that have been able to drive deposit growth for us in the past. We'll couple that with being really smart about our pricing strategy.

[Jeff Tengel, CEO at Independent Bank Corp]

The only other thing I'd add to that, because I agree with everything Mark just said about our deposit gathering, is we are trying to get a little bit more focused and a little bit more specific around some of the market disruption that's happening here. We think that that's an opportunity for us because I think we're viewed as sort of the stable, not a lot of change going on. That's not true with some of our competitors. We've been very focused on developing marketing programs and have both our commercial and our retail bankers arming them with data to help them try and take advantage of some of the market disruption that we're seeing. We're really focused on deposit. We know that's an important part of the overall company and funding the loan growth that we hope.

[Jeff Tengel, CEO at Independent Bank Corp]

It's a lot of the things Mark talked about. It's being more strategic with some of the market disruption that we're seeing. We have a number of businesses that aren't credit-oriented businesses. They're just deposit verticals that we're doubling back on and seeing if there's ways that we can't accelerate the growth in some of those areas.

[Jared Shaw, Managing Director at Barclays]

Great. Thank you.

[Jeff Tengel, CEO at Independent Bank Corp]

Thanks, Jared.

[Operator]

There are no further questions at this time. I will now turn the call back to CEO Jeff Tengel for closing remarks.

[Jeff Tengel, CEO at Independent Bank Corp]

Thanks, everybody. Appreciate your interest in INDB and Rockland Trust, and have a great day.

[Operator]

This concludes today's call. Thank you for attending. You may now disconnect.

Participants

Executives

• Jeff Tengel, CEO

Analysts

• David Konrad, Managing Director at KBW
• Jared Shaw, Managing Director at Barclays
• Justin Crowley, Director and Senior Research Analyst at Piper Sandler
• Laurie Hunsicker, Senior Analyst for Regional and Community Banks and Thrifts at Seaport Research
• Mark Ruggiero, CFO and Head of Consumer Lending at Independent Bank
• Matthew Breese, Managing Director and Research Analyst at Stephens Inc
• Steve Moss, Managing Director for Banking at Raymond James