Welcome to the Earnings Call for Independent Bank Corp. Before proceeding, let me mention that this call may contain forward-looking statements with respect to the financial condition, results of operations and business of Independent Bank Corp. Actual results may be different. Factors that may cause actual results to differ include those identified in our annual report on Form 10-K and our earnings press release. Independent Bank Corp. cautions you against unduly relying upon any forward-looking statements and disclaims any intent to update publicly any forward-looking statements, whether in response to new information, future events or otherwise. Please note that during this call, we will also discuss certain non-GAAP financial measures as we review Independent Bank Corp.’s performance. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings press release, which contains reconciliations of these non-GAAP measures to the most directly comparable GAAP measures and additional information regarding our non-GAAP measures. Also, please note that this event is being recorded. I would now like to turn the conference over to Chris Oddleifson, President and CEO. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us in this very exciting day and the latest chapter in the growth trajectory of the Rockland Trust franchise. Joining me in the call this morning are Mark Ruggiero, our Chief Financial Officer; Rob Cozzone, our Chief Operating Officer; and Gerry Nadeau, the President of Rockland Trust and our Chief Commercial Banking Officer. We are delighted to announce the acquisition of Meridian Bancorp and its flagship, East Boston Savings Bank, a strong, well-run community bank with $6.5 billion in assets. Mark and I will be covering the presentation slide deck that accompanied last night’s announcement. But first, Mark will briefly cover our first quarter results, which continue to our track record of solid performances. Following both segments, we will open it up to Q&A. Mark?

Thank you, Chris. First quarter GAAP net income of $41.7 million and diluted earnings per share of $1.26, represent a 20% increase from prior quarter results, driven primarily by higher PPP fee recognition and negative provision, with a reminder that the prior quarter contained $5.2 million of one-time pre-tax costs. The first quarter results produced a 1.26% return on assets and a 9.87% return on average common equity, with both metrics continuing to be impacted by the significant excess liquidity position. In addition, tangible book value per share rose another $0.37 to $35.96 as of March 31, 2021. The major drivers of the first quarter results as compared to the linked-quarter are as follows, total loan balances decreased 1.6%, as high attrition volume continued to outpace strong new originations during the quarter. We remain very optimistic about new deal flow and opportunities, as total closed commitments across all loan products, excluding PPP was approximately $690 million for the quarter and the approved commercial loan pipeline as of March 31, 2021, stands at $30.8 million. Total deposits increased an incredible 5.4% or 22% annualized, fueled primarily by consumer and government stimulus and PPP funding, as well as continued success in attracting new core customers amidst current market disruption. In fact, core deposits grew nearly $700 million, with demand deposits leading the charge with almost 40% annualized growth, while time deposits continue to decline. As for the PPP program, there are approximately $500 million of outstandings and $7.9 million of deferred fees remaining to be recognized related to the original 2020 round. As for the new 2021 round, we currently have over $400 million in the application pipeline and have closed and funded over $360 million through today, inclusive of that $400 million. We anticipate this level of activity to generate approximately…

Thanks. Okay. So, now let’s turn our attention to the slide deck covering our acquisition of Meridian Bancorp and its East Boston Savings Bank subsidiary. So let’s start on page -- slide three. This summarizes really a compelling and cogent strategic and economic benefits. We are bringing together our two profitable and well-performing banks with strong customer franchise. And it is consistent with our strategic view that acquisitions and expansion should focus on contiguous or overlapping geographies with attractive markets. In this case, it materially augments our presence in the highly coveted Boston MSA where we are making good strides in our own recent past. The combination of the two banks improves our market deposit share position, and equally maybe more importantly this time is East Boston Savings has a very strong commercial banking orientation, which fits quite nicely with our own proven strength in this area. In fact, our combined commercial loan portfolio over $11 billion rank as number one in the Boston MSA amongst all banks headquartered in Massachusetts. The economics of this deal are quite attractive, driven by inherent cost savings, lowering funding costs and redeploying -- redeployment of excess liquidity. We expect this acquisition to result in healthy earnings accretion, top tier return on assets, and importantly, solid positive to tangible book value per share, which is an important benchmark for us. Mark will be covering this a little bit more in detail. And as soon to be $20 billion bank and another important aspect will of course be the added scale. This transaction provides us with a greater ability to keep pace with critical investments in technology especially in the digital space, as well as this will be helpful in supporting the enterprise risk management infrastructure expected of a bank greater than $10 billion of…

Thanks, Chris. As we slide over to page six, as Chris indicated, management is very excited about this combination and its underlying potential. As you can see on the pricing summary, the deal reflects a total transaction value of $1.15 billion. This is an all-stock transaction with a fixed exchange rate of 0.275 and the pricing equates to 150 times tangible book value and 10.3 times estimated 2022 EPS with fully phased-in cost saves. We use our stock judiciously when considering acquisitions and demand they meet the high bar that we and our shareholders require and we are confident that this deal checks all boxes. We anticipate a closing date in Q4 of this year subject to the customary approvals. And as Dick noted, I am sorry, as Chris noted, Dick will have continued involvement in business and community engagement over the next few years, along with an infusion of key talent coming over from East Boston Savings. And our commitment to community involvement and charitable giving will be equally emphasized in this market. Moving to slide seven, you can see the deal reflects very attractive pricing and economic benefits. In conjunction with the most widely followed pricing and accretion measures, we compare very favorably to similarly sized transactions over the past two years. This adds to our confidence that this is a well-priced and well-structured transaction, and consistent with our approach to many prior acquisitions. As Chris said, we are very attentive to the impact on tangible book value when considering potential acquisitions and are pleased by the material accretive impact expected in this transaction. Slide eight provides even further information regarding the strong profitability and return performance measures arising out of this acquisition. As the previously slide noted, you can see the deal reflects a tangible book value…

Thanks. Thanks, Mark. So along these lines the last slide 13 is a composite of all the in-market acquisitions we made over the past 10 years plus. The common denominator across these acquisitions is strategic fit, reasonable pricing and financially accretive. In all cases, we have achieved and often exceeded the original expectations. As shown here, our success is borne out at a notable level of shareholder returns and earnings growth rates we have achieved over these various periods. We are especially pleased with how well our tangible book value per share has steadily risen despite these multiple acquisitions. We pride ourselves in our demonstrated track record of seamless and timely integrations and fully expect the same experience in assimilating East Boston Savings. And we are encouraged by our relative stock valuation and we believe it reflects the success of our past acquisitions and excellent long-term operating performance. We have always characterized ourselves as an opportunistic and a very disciplined acquirer. By augmenting our long-term organic growth, performance with periodic selective acquisitions, we strongly believe that we are building considerable franchise value. So that concludes our comments and we are happy to take questions now.

Thank you. [Operator Instructions] Our first question comes from Mark Fitzgibbon with Piper Sandler. Please go ahead.

Hey, guys. Good morning and congratulations.

Great. Thanks.

Thank you, Mark.

First, I had a couple of questions related to the deal. There’s been several acquisitions recently in rapid succession in New England, and I guess, I have got kind of three questions around that. First, do you think it will continue in your estimation? Second, could you do another deal while if the EBSB deal is in process? And third, do you think these deals are a function of the merger map lining up well finally or is it genuine fear on the part of the sellers that they need to build scale to compete?

Yeah. All great questions. First of all, I want to make the profound sort of prognostication that, yes, mergers and acquisitions will continue as they have since 1985 from 18,500 banks to what do we have about 5,000 now. You look at the Boston marketplace, I mean, it used to be way more opportunity, because they are way more stock-based banks. There are still some and I have no idea if anybody sort of thinking about this, but it’s like, although, it’s all random, I mean, it’s pretty predictable that these things happen over some time. So, I’d say, I set a prognosticated and probably definitely well. Let’s see, I can’t read my writing here. What was the second part of the question?

The second question is could you do another deal while the…

Oh! Yeah. Could we do another deal? So, I think, if somebody were to raise their hands, another bank, we track and say, hey, listen, we are interested in selling and we love your currency. We love to talk to you. I would not tell a Montessori I am busy calling back. I would -- I was going to say, well, let’s get together and talk about this and from a practical point of view, I would love to sort of convince them to hold off a little bit instead of to sequence something. But no, I would definitely not say no. I’d say, let’s talk. And then, I think -- Mark, I think, the -- I think, there’s a common theme here that when -- that the technology, the regulatory, the complexity of banking business grows pretty dramatically as you approach $10 billion. We -- the amount of complexity has somewhat exceeded our expectations when we went over $10 billion. We have had to hire more enterprise risk management folks than we had anticipated and we are well, well on track and getting that squared away. But I think if you approach $10 billion, it is daunting. You see the thousands of fintechs out there. That’s daunting. I think that’s sort of -- I think that continues to influence sellers. I mean that to be for sure to ask the sellers themselves, but that would be my take on it.

I think, you are right, Chris. And I would just add, coming off the year we had in 2020, certainly, there was a lot of uncertainty and I think you saw a lot of that reflected in bank valuations. And I think a lot of banks were obviously waiting to get a clearer picture. I think the investor community was trying to get a clearer picture as to what that all meant. And I think there’s just a general consensus now around a clearer picture and a better understanding of a valuation at this point. And I think that lends itself to both buyers and sellers getting a level of comfort over these types of deals.

Okay. And then, Mark, I think, you had mentioned that you have commercial loan commitment of $308 million. I was curious what the mix of these loans look like and maybe if you had some sense of what the pipeline yield is?

Yeah. You know what a lot of it is pretty consistent with the industries and the asset classes we have been talking about over the last couple of quarters, Mark. Certainly, apartment lending, multifamily, construction continues to sort of lead the charge, especially in our suburbs and some of the markets that we are in here on the salt shore. We continue to see to a lesser degree some mixed-used industrial and other office space that we are getting comfortable. But it continues to be very well diversified across a number of industries. From a pricing perspective, there is some optimism in the market. We did see a little bit of an uptick in spreads and absolute yields, though, relatively speaking to a number of years ago, we are still talking on the commercial side anywhere in that mid-3 to upper-3 range depending on product and individual circumstances. But that’s a recent development here that I think is certainly a positive in terms of our comfort level that we should be able to hold the margin pretty tight on our loan yields.

Thank you.

You are welcome.

Our next question comes from Dave Bishop with Seaport Global Securities. Please go ahead.

Yeah. Good morning, gentlemen, and congratulations as well on the quarter and the deal.

Thank you, Dave.

Quick question just circling back on the slide in terms of the balance sheet restructuring, the reduction in the commercial real estate balances is estimated at $700 million over two years. Chris, I am just curious, just picking your brain, is that more related to concentration concerns from a regulatory perspective, growth constraints or maybe inherent risk perception of that asset class, just from a holistic basis or as it relates specifically to the more lease exposure, just curious, maybe some of the thoughts behind that, the winnowing of that portfolio?

Mark, you can take that.

Sure. I’d say, Dave, it’s really a little bit of everything you referenced. Certainly, I’d say, the biggest component here is, to be clear, this is what we anticipate is really primarily a reflection of the current environment. And I think the reality that both parties have shared a very common vision around being cautious with new originations in this market. So, when you look at both of our first quarter results, we both contracted to a certain degree in our commercial loan footings. And I think that’s an approach that we think is prudent to anticipate even heading into post-close of this merger. So I think it’s just, one, a continued reflection of just a cautious approach towards new lending and if we anticipate the level of attrition that we have experienced, that will continue to put a challenge on outstandings. I think, second -- secondly, it’s -- we are not blind to the commercial real estate concentration post-deal. This gives us more comfort to really be steadfast in that approach and to understand that natural attrition will help right-size some of that concentration. We have operated at these levels after acquisitions in the past. We are comfortable with an over 300% commercial real estate concentration. But we do need to recognize it will be higher than where we have been the last few years and I think this natural outflow that we anticipate in this environment will just serve as a nice sort of lever to right-size that concentration. And then, as I mentioned, we have been pretty transparent about understanding Boston real estate. I think there’s still that uncertainty around what that means to office space as we come out of COVID. As Chris mentioned, we are very optimistic about the Boston economy. We think there is a level of insulation from what you may be seeing in other metropolitan areas like New York. But we don’t want to be too outside of the reality in terms of expectation there. So, I think just a cautious approach over the next 18 months to 24 months to get further clarity on what that means to Boston office. It just lends itself to be a bit more conservative in growth expectations. So that was really a combination of all those things, Dave that sort of pegged us at this $700 million number. But this isn’t an immediate exit strategy that we have identified.

Okay.

There may be specific loans that as we as we get to know the book a little better, maybe there’s a participation or an exit strategy on a one-off here and there. But this is not a pooled loan sale like we did on the Blue Hills acquisition.

Okay. And does Meridian have much exposure in the downtown office market, the commercial real estate market or is it pretty de minimis?

There’s certainly exposure there in Boston proper, Boston, East Boston, South Boston. I believe it’s about -- it’s not as large as you would think. They do have very good diversifications in some of the suburbs and in neighboring cities around there. So if you look at just those three specific zip codes, there’s about 20% of exposure in the book to those downtown Boston properties. But as we really went through the due diligence process and talk with the lending team, the businesses with very good customers, very good sponsors, and borrowers. This is a relationship lending model that fits very nicely with how we think about doing business and we were pleased to see some of the level of diversification to some of the other neighboring cities.

Got it. And then more housekeeping, Mark, for you, the timing of the flop restructuring, the payoff, is that something that where you end to do in premerger, is that going to be simultaneous with the completion of the deal?

It would likely be simultaneous with the deal. So just from a modeling standpoint, the mark is embedded, the $24 million write-up of that borrowing position and then we anticipate paying that off immediately. So the $24 million capital hit is embedded in sort of the onetime fair value mark in the model.

Got it. And Mark, I think, you gave some color in terms of the PPP fees left to amortize. I wasn’t sure, I think that the first round is like $7.9 million fees…

That’s right.

You funded $16 million. Was the $16 million of fees just specific to the second round or is that total round one and two with that?

That’s specific to the second round. That’s an anticipation. There’s still -- the PPP program is still open. We still have, believe it or not, some level of new applications coming in. But depending on where we ultimately end up with final closings, that’s the level of estimated fees just on the new round. So, $16 million plus to $7 million sort of all in, $23 million to be recognized, I’d say, $8 million of that most likely through the rest of 2021 and then the remaining all dependent on timing of forgiveness on this new round, but most likely 2022 for the $16 million.

Got it. And then just one final question post-merger, as you look at your interest rate sensitivity, any sort of early estimates what that does in terms of maybe the one-year interest rate gap or you are nearing to asset sensitivity?

Yeah. We talk a lot about the complementary nature of this balance sheet and I -- East Boston has done a great job of moving down their deposit cost and other funding cost over the last few quarters. But they still remain slightly liability sensitive and when you when you combine that with our asset sensitivity position, it really provides a much more balanced profile moving forward. So this will right-size us a bit more and give us a little more protection on the downside. It does mitigate a little bit of the upside. But not meaningful, I would say that, the slightly liability sensitive and on a combined basis, it gives us a bit more balance to where we have been.

Got it. Appreciate the color, Mark.

No problem.

Our next question comes from Kelly Motta with KBW. Please go ahead.

Good morning. At the risk of sounding redundant congrats once again on the deal.

Thank you, Kelly.

Thanks.

So, one of my questions, you mentioned that East Boston like yourself is a relationship-based lender. How do you identify the relationship managers who you want to stay on and like do you have agreements in place to retain them post-merger and your confidence of achieving that?

I think it was that customers or college lenders. Oh, lenders. Oh, yes. So...

Lenders. Yeah.

Yeah. Sorry, I didn’t -- I was a little muffled here. So this was actually a very key consideration when we were sort of preannouncement and the senior -- two of the senior leaders here are staying on and leading the charge in this region. And we are very, very eager to retain those teams and in fact, that -- those -- that’s sort of the whole process is starting on Monday, so very important. John Carroll, COO [ph], has done a great job here building the CRE portfolio. Has a long, long history in banking. He is a very insightful, relationship-oriented. He is going to -- he feels like a colleague already. I mean, he is really terrific. So we -- he is definitely with us. We have made arrangements. Frank Romano is another senior commercial lender, obviously, on the C&I, and he is staying with us as well. And then, Ed Merritt who is also a senior banker will be staying with us, too. In addition, Dick Gavegnano, as I mentioned, the main architect and leader behind this growth is staying as a -- on for three years as a consultant. And he -- I mean, sometimes though that is a lot of acquisitions as there is a little bit of a euphemism. I will say that my conversations with Dick, we are very much in the same page and he is going to be actively engaged and helping. He has deep roots here in East Boston and he will be a terrific asset and partner. So, this was a -- Kelly, you hit on a really, really key point to the success and I think we have started off right out of the gate in really good shape.

Great. That’s good to hear. Maybe circling back to just the CRE concentration question, do you have an estimate pro forma of where that stands post-close, as well as where you would ideally like to be comfortable getting down to?

We do, Kelly. So, slide 18 of the deck that was provided.

Oh!

And I apologize I know I have got a couple reach outs to me during this presentation. This deck is included in an 8-K filing that we issued last night and it may not have been accompanied with this earnings call information. But it is publicly available in the 8-K filing. But to just…

Oh! I got it. I just…

No. I just got it out there.

Thank you.

So you got. Slide 18, Kelly, just shows where we will be on a post-close around 260%. But we -- as we talked about that likely runoff in the short-term post-merger and this restructure, we do think we will get down into that $325 million to $330 million range and those are levels that certainly we would be comfortable operating at.

Perfect. Thanks. And maybe just one last one on loan growth for this year, obviously, there’s been a lot of pressure from attrition. Do you expect this to slow at ex-PPP and sort of at least stabilize a bit or do expect continued runoff in the low mark?

Yeah. It’s a very interesting question and one that we have been trying to predict and hope we see some level of reductions in terms of the attrition. But I do think another piece of it you mentioned, Kelly, PPP, I think that’s a very important note to hear that just the level of PPP funding in the market and in our industry really has given an infusion of liquidity to a lot of our borrowers and you can certainly see that reflected in line utilization rates. That was another driver of our reductions in outstandings this quarter as we are just not seeing the level of draws on a lot of the C&I loans and other loans. So, I think, the combination of that excess liquidity and then just a continuation of the low rate environment triggering opportunities for owners and borrowers to look at an exit strategy, sell a piece of property, and unfortunately, payoff the borrowing. So I talked about the pipeline being very strong as we head into the second quarter. So we are very optimistic on deal flow and closing expectations. In fact, now as we come out of, hopefully, as the environment continues to stabilize and we see even just a little bit of relief on the payoff in attrition and maybe the PPP funding doesn’t put as much pressure on line utilization, I think, there’s a path there to start to see loan growth. The timing of that is up in the air a bit, but we are hoping that’s a second half 2021 formula.

Thank you. If I could just one last one. The timing of within 4Q 2021 close within the quarter, what are you modeling?

Yeah. We modeled end of the quarter, Kelly, just to keep things cleaner. As you know, it all dependent regulatory approvals and a number of other matters that are somewhat out of our hands. But we just modeled it as end of quarter close just to keep things cleaner.

Okay. Thank you so much.

You are welcome.

Our next question comes from Laurie Hunsicker with Compass Point. Please go ahead.

Yeah. Hi. Good morning.

Good morning.

And I just want to echo what everyone else has said, Dick and Chris, and your teams, congratulations. Very, very exciting.

Thanks.

I am wondered, Mark, if we could go back, your day two CECL, I didn’t see it clearly in there. I backed into it at $40 million. I didn’t know if you had a better number?

In terms of the impact of the non-PCD going through the provisioning?

Right. The day two…

That -- it would actually be about $68 million. So 60 -- so that the mark, the 2.15% all-in credit mark we referenced equates to about $115 million, 40% PCD, would be about $45 million and the 60% non-PCD is right around that $68 million, $70 million pre-tax. So, after-tax it’s in that $45 million to $50 million range.

$45 million…

All right.

…I was looking for.

Yeah. Yeah. $48 million. Yes. $48 million.

$45 million. Got it.

Yeah. After-tax. Yeah.

Go it. Okay. Perfect. Okay. And then second question for you, as we look to next year 2022 when you are merged with EBSB, how should we be thinking about tax rate?

It should be pretty consistent. We have -- they have some tax exempt lending similar to what we do, but when you look at their tax rate and the combination of the pro forma pre-tax numbers. I would anticipate we stay right around that 24%, 25% range, all things being equal, assuming we don’t get a corporate tax reform, which is obviously a much different answer.

Got it. Okay. And then can you help us think about the margin outlook for next year if we were to strip out the accretion income, factor in the balance sheet initiatives that you are doing with respect to EBSB and taking out anything in terms of PPP noise? How should we be thinking about that?

You hit on a lot of moving pieces there. So -- and I know it’s --joking aside, it’s really sort of how we are thinking about trying to really model out this pro forma margin. And I think you sort of cued it up, Laurie, very similar to how I am thinking about it. And that’s, if you really start with our respective first quarter results, there was certainly a level of PPP benefit in our numbers. And if you layer in the fair value marks, I think, that’s a very good story and that it’s very clean in terms of the interest in liquidity mark being offset with the credit mark. So this is essentially wash happening in the accretion related to those numbers and then you do get a little bit of noise on the non-PCD accretion coming in. But there’s essentially a wash going on there and very little impact on the pro forma number. When you lay -- when you layer on all of the PPP balances coming off the books that would certainly bring down the margin from what we have reported in the first quarter. And I would peg that pro forma combined entity before any restructure right around 3%. That’s excluding all the benefit of PPP. That’s been converted to cash and that’s sort of an outlook at that point with all those assumptions. When you think about the balance sheet restructure that we have modeled, we are essentially running off $2 billion of assets, primarily commercial real estate loans 4% and cash at 10 basis points. And we have modeled an assumption of the FHLB borrowings payoff and then a mix of the deposit base within at weighted average cost of call it 30 basis points. So that $2 billion comes off at a net yield of only 50 basis points. So while it does create a level of decreased absolute net interest income, it does improve the quality of earnings and would suggest the margin goes back up to about 3.2%, 3.25% post-restructuring.

Great. Very helpful. Thank you. Thank you for that detail. And…

You are welcome.

…just jumping over to your hotel book and I appreciate all the details you give. But can you just talk a little bit directionally? We saw the jump up in deferrals? You went linked quarter from $114 million to $163 million in your $402 million book. Can you just talk a little bit about that and kind of an outlook in terms of how you are seeing things?

Sure. I will take a quick stab, and certainly, Gerry is on the line as well and if there’s another element here, feel free to add on, Gerry. But like, the increase is really just a reflection of -- we talked when we reported last quarter, there was about $70 million at that point that we thought potentially could be coming back on. We were literally in the process of sort of renegotiating a revised modification at that point. So we were certainly not surprised and understood why our numbers, our reported numbers reflect an increase. But that was really just the timing of a population there that we knew is somewhat in flux. So this is continues to really just reflect a lot of our hotel customers and accommodation customers, understanding in most cases, a lot of the seasonality around their business and working with them to give them the relief to get through 2021, acknowledging the winter and the spring. There’s essentially very little cash flow I think. When we talk to a lot of our borrowers, there’s a lot of optimism heading into the spring, summer and the fall, and I think there’s a lot of consumer pent-up demand that a lot of our operators are optimistic about. So we do expect them to have good 2021 years and then that typically as we experience last quarter gives them the cash flow to help service a portion of the debt going into the fall. So our strategy here has really been to find a nice balanced sort of relief package that they continue to make the interest payments and that was a critical component of all of our modifications going forward. So, all borrowers are making interest payments. This gives them some added relief to get through their seasonality and something that we think we would be revisiting with a lot of those customers in early 2022.

Okay. That’s helpful. Great. Thanks. And then, Chris, I guess, last question for you. As we look at this now combined franchise, you are going to have tremendous earning power. Can you share with us how you and the Board are thinking in terms of a dividend outlook? Thanks.

Yeah. I will let Mark how do we want to answer that now?

Yeah. There’s no secret. We will have very healthy capital levels post-acquisition. I think we talked a little about this last quarter when we did our recent dividend increase. The constraint here is on from a dividend really just relative payout ratio as we all experienced in the low-rate environment some level of compressed earnings. So, absolute levels of capital. We are continuing to be very, very strong post-merger and I think there’s a number of capital levers that we could pull depending on the situation, and as we learn more over the next nine months, whether that’s in the form of a share repurchase, whether it’s in the form of dividend strategy or just other opportunities to deploy capital. So, all those are on the table. They are all items we will be actively discussing. But there’s no secret. There will be very healthy capital levels and plenty of opportunities to return that value back to our shareholders.

Okay. Great. And just one more question, can you just share with us again what your target payout ratio is on dividend?

Yeah. We typically like to be in the high 30% to 40% range. We are very comfortable at a higher payout ratio in this environment. We are very confident and comfortable when we stress test our capital under a number of scenarios. There’s ample capital to support any risk event. So we have made conscious decisions and like I said, are comfortable with the payout ratio where we are today. But over the long-term, we would prefer to be more in that high 30% to 40% range.

Perfect. Thank you for taking my questions.

You are welcome.

[Operator Instructions] Our next question is a follow-up from David Bishop with Seaport Global Securities. Please go ahead.

Yeah. Thank you. Hey. A quick question, I think, you mentioned the preamble in terms of the expense saves 45%. Branch consolidation targets, I know, historically, you have all obviously put a lot of emphasis on the branch network, a lot of the business comes from there. Just curious maybe how much that plays a role in terms of the efficiency targets and maybe where else you can garn out some savings in terms of hitting that 45% target?

Yeah. I can answer that, Dave. With every transaction, as you know, you followed us for a long time. We take a careful look at the combined branch network and do a thorough analysis and we will do the same here. We haven’t made any final decisions at this point. But we recognize that the cost savings assumptions include some level of consolidation. So more on that to come.

Got it. And then maybe just from a holistic basis, obviously, the merger takes your pro forma close to $20 billion in assets or so, historically, you guys have been very granular in terms of commercial loan size given your boots on the ground there in the community. Just curious as you get bigger and over that $20 billion range, did that -- I am not going to say force your hand, but does that sort of actually compel you to look maybe up cap so to speak in average loan size and the types of relationships you move to have to move the needle moving forward, just curious how you sort of balance that in terms of the historic culture at Rockland Trust?

Gerry Nadeau, our Chief Commercial Banking Officer and President of the Bank is on the line too. Gerry, do you want to address that?

Sure. Thank you. Yeah. We are going to not deviate from what we have done in the past. We set things, the stratetgy we have had. We are 80% of our loan volume is to relationships below $2 million and 20% above. We -- based on what we have modeled, we think we can continue to generate what has been our historic growth rates, organic growth rates still following that plan. Now we might -- on the individual loan sizes, we might make them a little bit bigger, the ones that are over $2 million, but not a complete wholesale change in strategy now.

Got it. Thanks for the color.

You are welcome.

That ends the Q&A. Before I turn the call back over to the company, let me pause to mention that with respect to the transaction announced today, please note that Independent will file a Form S4 Registration statement with the SEC that includes a proxy statement, prospectus regarding the merger. You are urged to read the proxy statement, prospectus and other documents relating to the merger when they become available, because they will not contain important information about the merger. In addition, Independent and Meridian, and their directors and officers may be deemed to the participating in a solicitation of proxies in favor of the proposed merger. You can find information about the Independent and Meridian directors and executive officers in the company’s proxy statement filed with the SEC. Information on how to request these documents is available in the investor presentation. I would now like to turn the conference back over to Chris Oddleifson, President and CEO [ph] for concluding remarks.

Thanks everyone for the time and see you [ph] next quarter.

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