Independent Bank Corp. (INDB) Q2 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the Independent Bank Corp Second Quarter 2026 Earnings Call. Joining me on today's call is Jeff Tengel, CEO, and Mark Ruggiero, CFO. After today's prepared remarks, we will host a 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. 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 note that this event is being recorded. I would now like to turn the conference over to Jeff Tengel, CEO. Please go ahead.

Thank you. Good morning, thanks for joining us today. I'm accompanied this morning by CFO and head of consumer lending, Mark Ruggiero. Before we discuss our quarterly results, I wanted to share an update on my health. We released an 8-K in February disclosing that I had been diagnosed with non-Hodgkin's lymphoma. I'm happy to report that I've finished my treatments and learned last Friday that I am cancer-free and in remission. On that good note, I'd like to turn to our quarterly results. While activity was slow early in the second quarter, momentum accelerated as the quarter progressed, resulting in solid deposit growth, strong C&I loan growth, continued improvement in the adjusted NIM, aggressive buyback activity, and excellent results in our wealth management business. These positives were offset by a smaller average balance sheet and lower loan accretion income.

Our deposit franchise continued to differentiate itself, producing over $300 million of non-time deposits, representing 7% annualized growth while maintaining a stable cost of deposits of 136. These results were achieved in an environment of heightened competition and expectations that the Fed will keep rates higher for longer. On the lending front, we experienced robust growth in the C&I and home equity portfolios, offset by heavy loan payoffs within the CRE book. With respect to C&I, excluding the impact of the $37 million decrease in our dealer floor plan business, which we have now largely exited, our C&I loans rose by $116 million, a healthy 10% on an annualized basis. This growth was broad-based across all of our market segments.

Investment CRE and construction loans conversely declined to $176 million during the quarter, primarily reflecting elevated payoffs due to a variety of factors, including asset sales, refinancing done away from us, and construction loans maturing and going to the permanent market. We like the CRE asset class and will continue to support our clients in this space the way we always have. This is evidenced by the $203 million in new relationship-based CRE loans we funded in the quarter, up 11% from the first quarter, and the $300 million of new CRE commitments we added. Our CRE concentration now stands at 278. On June 30th, our approved commercial loan pipeline totaled $510 million, up from $313 million on March 31st. This strong loan pipeline, together with continued strong origination activity and an expected normalization of payoff activity, positions us well to return to positive commercial loan growth.

The second quarter also saw continued improvement in the adjusted NIM, which rose by four basis points, right in line with our guidance. This reflects pricing discipline across both our loan and deposit portfolios. Mark will elaborate on our NIM during his comments. As Mark will also further expand on, we maintained a proactive posture in returning excess capital to shareholders. With expected further improvement in our profitability and moderate balance sheet growth, capital management will remain a key priority for the balance of the year. Our wealth management business continues to be a key fee income driver for us. Second quarter results benefited from strength in our traditional asset management business, as well as inroads we have made in the Enterprise footprint.

I would also highlight momentum in our business advisory services segment, where we assist business owners to prepare for and manage the sale of their companies, which has shown early signs of being a real positive catalyst for potential AUM inflows. With respect to asset quality, while we continue to see movement in and out of our non-performing loans and criticized and classified loan buckets, the levels are consistent with our historical credit performance. Our net charge-offs were just two basis points for the second quarter and have averaged just nine basis points over the last five quarters. Our loan loss provision represented 14 basis points of average loans in the second quarter and has averaged 13 basis points over the last five quarters, excluding the day one impact of the Enterprise acquisition. Excluding M&A charges and non-recurring core system conversion costs, expenses were flat versus the first quarter.

Mark will provide a detailed breakdown of the moving parts within our expenses. We remain vigilant regarding our expense levels. As we have stated in the past, given 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. There is 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 IBS platform positions us to improve client service, enhance operating efficiencies, accelerate the introduction of new products, and support 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.

We've stood up a governance framework around our AI activities to ensure we stay within the guardrails of our moderate risk profile and that 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. Our strategy remains straightforward. Organic growth through new and existing relationships, maintain disciplined underwriting, generate positive operating leverage, and deploy our strong capital position to create long-term shareholder value.

I want to thank all Rockland Trust employees for their tremendous efforts on a daily basis. Every measure of our success is a direct result of their commitment. On that note, I'll turn it over to Mark.

Thanks, Jeff. To summarize the quarter results, 2026 second quarter net income was $81.8 million, and diluted EPS was $1.70, resulting in a 1.34% return on assets, a 9.24% return on average common equity, and a 14.05% return on average tangible common equity. The second quarter results were a great reflection of the bank's ability to drive strong core profitability and return capital to shareholders, despite the highly competitive environment keeping loan growth relatively flat. Touching first on the capital management aspect, during the quarter, we completed the previous year's buyback authorization, and in May, announced a new $200 million share repurchase plan. During the second quarter, we repurchased $75 million in capital, bringing our capital ratios down slightly, with the CET1 ratio at June 30th now at 12.8% and the tangible capital ratio at 9.7%.

Going forward, we will continue to leverage the buyback plan as our primary means of returning excess capital to our shareholders. In terms of the core profitability improvement, the main drivers continue to be core net interest margin expansion coupled with prudent share repurchases. Regarding the margin, though reported loan yields were down eight basis points in the second quarter, core loan yields increased three basis points when adjusted for the exclusion of volatile purchase accounting accretion and other non-core items. Although commercial real estate loan growth has been a challenge, we are originating a significant volume of new loans to offset the paydowns in amortization in this portfolio, and that continues to fuel the cash flow and repricing benefit dynamic in our loan yields.

Similar characteristics in the securities portfolio drove an increase of five basis points for the quarter, with increased amortization and maturities expected in the second half of the year. Lastly, as Jeff noted, we are extremely pleased with our ability to hold the line on cost of deposits, keeping that flat at 1.36%. With these all primary drivers, the core net interest margin increased four basis points for the quarter. I mentioned the challenges in the commercial real estate and construction books, on a positive note, as Jeff mentioned, the second quarter approved commercial pipeline grew nicely to $510 million, a 63% increase from the prior quarter, and reflects a healthy mix of both commercial real estate and C&I.

On the C&I side, the ability to enhance our combined offerings to both the smaller and mid-market C&I space was highlighted this quarter, as C&I balances increased 10% on an annualized basis when excluding balance runoff from the exited dealer floor plan business. In addition, consumer home equity balances increased $35 million or 11% on an annualized basis, while residential mortgage activity reflected a nice balance between increased portfolio balances and mortgage banking gain on sale results. On the deposit side, there's no secret in our industry when it comes to how competitive the environment is. We believe the second quarter results are a testament to the amazing deposit franchise that continues to differentiate Rockland Trust. Not only did we grow period end balances at a 5.9% annualized rate, we did so while maintaining a flat cost of deposits.

Average balances, however, were down for much of the quarter, which created a temporary drag on our cash position and overall average earning assets. We are encouraged by the rebound of balances late in the quarter and our consistent quarterly trends of attracting new core deposit relationships to the bank. As a result of the strong core deposit growth, we paid down $100 million of maturing FHLB borrowings while increasing our working capital line of credit by only $25 million. I'll now switch gears to asset quality, I'll highlight the following notable items for the second quarter. Total Non-Performing Assets increased modestly to $103.8 million or 56 basis points of total assets. The changes reflect some normal ins and outs on the commercial loan side and a net $4.7 million increase in residential loans.

Regarding the latter, though we are seeing some increased volatility in delinquencies in non-performers, in almost all workout cases to date, there is sufficient equity in the homes and net charge-offs remain extremely low in this portfolio. Along those lines, net charge-offs for the quarter were only $911,000 or two basis points annualized, with total year-to-date charge-offs now at only six basis points on an annualized basis. The second quarter provision of $6.3 million, an increase in the allowance for loan loss to 1.06% of loans was primarily driven by modest specific reserves on a couple of commercial loans. Lastly, total criticized and classified loans decreased versus the prior quarter, as we remain hypervigilant on effective early identification and development of workout strategies on problem loans. Moving to non-interest items, fee income of $42.4 million was up over 5% from the prior quarter.

The wealth management business continues to lead the way with AUA at $9.5 billion as of June 30th, driving higher wealth management fees combined with elevated tax preparation fees of $537,000 during the quarter. In addition to wealth, we saw solid fee income growth from our deposit and treasury management services, as well as increased swap volume. On the expense side, the quarter-over-quarter results reflect a few moving pieces that I'll highlight. Specific to quarter-over-quarter trends, the second quarter has zero merger-related expenses versus $3 million recognized in the first quarter. We incurred approximately $2.1 million of expenses related to the ongoing preparation of our core conversion project, versus $1.1 million of similar expenses in the first quarter. The majority of these are consulting related, included in the other non-interest category in our earnings release.

After excluding these two items, our remaining core expenses were relatively flat versus the prior quarter, as reductions in incentive expense, payroll taxes, and snow removal were offset by annual merit increases, annual director equity compensation grants, and some other miscellaneous increases. Lastly, as expected, the tax rate stayed relatively consistent at 23.4%. With that, I'll now finish up by revisiting our 2026 full-year guidance. First, we reaffirm our two primary profitability targets for the fourth quarter of 2026. The first is return on average assets of 1.4%, and the second is return on average tangible capital of 15%. Regarding loan growth, given the paydown activity experienced in the second quarter, we update our CRE and construction full-year estimates to now be flat to low single-digit percentage decrease.

For C&I growth, with minimal headwinds from the exited floor plan business, we would expect to land on the high end of the mid-single digit percentage range of the guidance. For total consumer, we now assume a full-year increase in the low single-digit percentage range. Our full-year deposit growth guidance remains unchanged. Similarly, with the core margin increase as expected for the quarter, we reaffirm our 2026 fourth quarter margin will be in the range of 3.9%-3.95%, though likely on the low end of that range. I would also point out this range includes a 10-basis point impact assumption from purchase accounting accretion. Our fee income and tax guidance also remains unchanged.

Lastly, on the expense side, we anticipate core expenses, which exclude the systems conversion expenses, to be in the $553 million-$557 million range, plus the one-time systems conversion expenses to land in the $5 million-$6 million total range for the year. That concludes my comments. With that, we'll now open it up for questions.

Thank you. 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 from Piper Sandler. Your line is open. Please go ahead.

Hey, good morning, guys.

Hi, Justin.

First of all, Jeff, on the health update, congratulations. That's really excellent news and thrilled to hear it. I think we all are.

Thank you.

Wanted to start out on loan growth and maybe just dig into that commercial real estate bucket where the guide was tweaked a bit lower. I was wondering if you could give a sense of what else may have gone into that beyond, I know you mentioned the payoff activity. Just maybe some details just on the evolution of the market uncertainty and competition from where we were 90 days ago when we talked through this.

Yeah. Especially in commercial real estate, it feels like the market has continued to get more aggressive as the year has unfolded. Part of that is evidenced by, we talked about the elevated pay-downs in the second quarter. We had two loans in the second quarter that accounted for $120 million of those pay-downs. Both of those loans are refinanced away from us, and one of them was refinanced really on terms and conditions that we were very uncomfortable with. So that's some of the headwinds that we have when we're trying to grow the commercial loan book.

Having said that, as Mark pointed out, and I did as well in my comments, we still originated a healthy amount of commercial real estate in the quarter and feel like we can continue to do that in the back half of the year, and really would expect pay-downs to revert back to their more historical levels, which is why we think in the second half of the year, we could see flat to modestly up commercial real estate balances. It won't offset the first half of the year headwinds, we think that is a good signal for us in terms of growing the balance sheet.

Okay. I guess kind of within commercial real estate, I know it's still early days here, what have you been hearing from borrowers in the wake of the decision we got just on Massachusetts rent control? I guess any read on how that could impact the commercial real estate market and just the overall level of activity in the state?

I think it's a little too early to say that we've seen a big increase in the demand for multifamily construction. We have seen some asset sales that I think maybe wouldn't have occurred had that news not come out. We do expect that there will be more activity as we move through the second half of the year in the multifamily construction space. Of course, it also impacts the permanent market as well to the extent that there are sponsors looking to sell their multifamily business. The cap rates have likely come in a bit because of the rent control ruling. Too early to tell, but I do think as we move through the balance of the year that we'll see an increase in activity.

Okay. Got it. That's helpful. Maybe just one last one on credit. As you guys pointed out, overall looked like some stabilization, if not some improvement in a lot of areas. I know there's some moving parts, I guess just in the non-performing bucket, with the gross inflows picking up a bit over the last quarter, curious if you could talk through some of what you saw there and then just some color on the payoffs that kind of helped keep a lid on that net increase for the period.

Yeah. The story on the Non-Performing Assets side on the commercial is fairly benign. I'd say the biggest movers was the actual resolution and pay-down of one office non-performer that we were talking about last quarter. That was about an $11 million loan that had been charged down to. That came off the NPA list, we had one new one go on at about $14 million. Outside of that, there was very little movement within the commercial bucket. I did mention in my prepared comments, what you're seeing really as the primary driver of the increase is a bit of an uptick on the resi side. It's interesting as you go through each case. You're seeing a dynamic where the consumer will often suggest that the mortgage payment is one that they're willing to delay while still spending in other areas.

Believe it or not, we have a lot of what we would call chronic non-performers, where they make periodic payments throughout, but it's not at a consistent pace where you can establish putting them back on accruing status. In all cases, there's plenty of equity in the homes. We don't see really any emerging loss dynamics in that segment. You're just seeing a little bit of payment issues where delays are ticking up a bit in terms of delinquencies and NPAs.

Okay.

One other comment I'd make on our-

Go ahead.

Sorry, Justin. One other comment I'd make on our non-performing bucket is the largest non-performer, which we've talked about multiple quarters, continues to improve. We think there's a chance that it could return to performing status by year-end. We're encouraged by the progress there.

In fact, it already started to make interest payments in July. There was an 18-month no payment period that effectively started January of last year. That 18 months has come due, they are starting to make the interest payments.

One other comment on the rent control.

Okay

that you asked about, Justin. Just to be clear, the organization that was putting that forward, they can come back in two years. I'm not sure what the legalese is around that, they'll have the ability in two years to reintroduce that as a ballot measure.

Okay. That's helpful. I guess just on that one large non-performer that you called out, what is the balance of that right now? I'm not sure if you have it handy.

The largest one that's been on non-performing?

Yeah, correct.

Yeah, that's a $22 million large syndicated loan. We had taken a fairly sizable charge-off on that down to that balance. It's staying on the books now at about $22 million.

Okay, perfect. I will leave it there. Thank you so much, guys.

Thanks, Justin.

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

Hey, good morning. I'd also like to say, Jeff, congrats on your health. It's great news.

Thank you, Dave.

You bet. Mark, some questions for you. I think the quarter really isn't about the NIM, but it's about the balance sheet. Because of the volatility in deposits, I'm looking at cash balances around $730 million EOP last quarter, $530 average. Now we're up to $1 billion EOP in cash with kind of flat securities. When we think about the guidance in the back half of the year, I guess my key question is, what do you think cash and securities, that mix shift, what will that end up, do you think, by the end of the year? How quickly can you kind of remix that?

Yeah. No, it's a great question. We're already remixing that into securities right now. Ideally, we'd like to see that obviously get redeployed into loan growth. We absolutely will be more aggressive in putting more of that cash balance into the securities bucket. Ideally, I would say targeting earning cash in the $400 million-$500 million range over the second half. We'll monitor the pipeline and see how much of that we get comfortable with to get redeployed into loan growth. I would expect you'll see us certainly put more of that back into higher-yielding securities.

You also have, what, about a $half a billion or so rolling off in the second half, like sub 2%, right? That's another-

That's right.

benefit. Yeah.

Yeah.

Sorry, go ahead.

No, you're fine. It's interesting. In the second quarter, you only saw about $70 million of runoff in the securities portfolio. $45 million of it happened literally on the last day of the quarter. We had a treasury security mature at 87 basis points. The five basis point lift you're seeing in the securities book for the second quarter, I'm very, very comfortable suggesting that's a low point in terms of a quarterly increase to the $200 million in the third quarter, $200 million in the fourth quarter, give or take, at 2% coupon. That should create more like a 15 basis point lift each quarter, all other things being equal. I would think we can go even more north of that if we're putting more purchases into the book as well.

Got it. What yields are you looking at now with the improved yield trends?

We're still looking mostly at deep discounted MBS that give us sort of down rate protection, as the rate environment and expectations are starting to shift more, we're more comfortable taking on a little bit more duration. Call it high fours, 5% on new purchases.

Perfect. Thank you. Appreciate it.

You're welcome.

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

Good morning, guys.

Hey, Steve.

Jeff, just to echo what's already been said, congratulations on your health here. Great news there.

Yep. Thank you.

Definitely glad to hear it. In terms of just going back to the loan pipeline here, just kind of curious, has the mix shifted to more C&I in the pipeline on that $510 million number, or is it kind of similar to what you guys disclose in there in terms of what was originated for 2Q? Just one other thing to throw in there, just curious on where you're seeing loan pricing these days.

Yeah. The mix is, I would say, has shifted to C&I slightly in the pipeline. Part of that is we had a number of approved loans that honestly we thought were going to close in the second quarter, and they didn't. They slipped into the third quarter. That's one of the reasons why I think the C&I pipeline is a little bit higher as a percentage of the overall than maybe it was in the first quarter. I think we expect to see good originations in both asset classes, C&I and CRE, as we move through the second half of the year.

I'll add on. The good news is, as more of that pipeline has shifted to C&I, it's primarily more floating rates. We've seen new originations on the commercial space move up into the mid 6% range. In the pipeline, I have the data, it's about 50/50 CRE C&I today. I can't recall off the top of my head last quarter if it was materially different than that. To Jeff's point, it probably continues to tick a bit more up C&I versus CRE from a mix standpoint.

Okay, great. Appreciate that color there. In terms of capital deployment, you guys bought back 2% of shares outstanding here. Capital ratio has barely moved. Just kind of curious as to how you guys are thinking about the payout ratio here going forward on a combined basis. Do we think about it as 100% of quarterly earnings or maybe a bit more than that, just given where your capital ratios are at the moment?

Yeah. I'd say 100% is the minimum, Steve. I think ability to do more. I've talked about this in the past. A lot of that I would like to fund via earnings in a bank holding company structure. Dividend funding up from the bank to the holding company allows us to execute buybacks in a much more economic, efficient way. I'm not against borrowing to execute more buyback than that. That's the calculus we'll go through each quarter to see how aggressive we want to get in terms of returning over 100% of profits. It's an appropriate question to ask. Obviously, the growth has been challenged. We are definitely committed to executing the buyback in an aggressive manner.

Okay. Appreciate that. On expenses here, just curious. Obviously, you got the conversion coming up in October. It seems like your underlying core expense run rate would be fairly stable, call it $138, $139-ish. As we look at going forward, I know you guys have been looking to hire people and add more talent. How do you think about your investments and maybe your expense growth rate a little further out here?

Yeah. I think as Jeff said in his comments, the mentality here is a hold the line type mentality, meaning we can't take our foot off the pedal in terms of thinking about AI and technology investments. That's part of what you're seeing, even in the last couple of quarters, is increased IT spend and talent in those areas to help develop some of the technologies that we know we'll need to deploy throughout the bank internally. It's looking for opportunities to find areas to reduce or get smarter on and other spend across the bank. I think it's still supporting the infrastructure that we think we need to be a bank that continues to grow in this space. We need to find the offsets to make sure the expenses are held in check.

Okay, great. Appreciate all the color there. I'll step back in the queue. Thanks, guys.

Okay, thank you.

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

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

Hi, Laurie.

Jeff? Yes. Congratulations, I'm so happy to hear that news.

Thank you.

Just wanted to maybe start over with margin and deposits, just want to make sure I'm thinking about this right. As I look linked quarter, you guys actually had a jump in your money market. The line held flat on an average basis, but I'm talking about the rate, right? The rate went from 206 to 210. Directionally a little different than what we're seeing. Is it just so competitive you're paying up, or was that a special, or how do we think about that?

Yes. We have a money market special that we introduced into the market, I'd say halfway through the second quarter. That is a 4% short-term money market rate. It's not surprising, Laurie. We're seeing some of the new money come in on that special. It's been pretty equally balanced between DDA low-cost deposits and higher rate promo money. I'll be fully candid, we would expect the cost of deposits to tick up a bit in the second half. I'm still comfortable with the fourth quarter guidance range that we gave with the margin in the 390, 395 range. Our spot cost of deposits in June was at 1.38%. I think you'll see a little bit of pressure on the cost of deposits in the second half.

Okay. That's helpful. What was your spot margin?

Spot margin for June stayed at 376, which is what the full quarter was, despite that cost of deposit increase I just mentioned. We're still seeing the asset side reprice to offset that.

Great. Okay. 376, and that's obviously excluding the accretion.

Exactly. That's a core number. Correct.

Core. Okay. Great. Just going back over to office. You've got the two office non-performers, obviously the $22 million, which you've talked about for some time, I just want to make sure I heard that potentially goes current in the fourth quarter?

By year-end, potentially.

By year-end. Okay. The $18 million office that remains, that's the life sciences loan?

In classified?

I think in non-performance.

Oh, in our non-performing?

Sorry, in non-performing.

No, the $18 million, that's a loan that had moved into non-performing. Last quarter, we had taken a reserve on it. We're in the process of brokering that for sale based on some updated BOVs. That's one of the two properties we actually put a bit more reserve on. We're hoping to get that resolved in the second half of the year. That's a $17.4 million balance, but that has a full reserve on it based on our updated BOVs.

Okay. Is that one the life sciences? That's the one where you had a large tenant?

No.

Is that a different-

Single tenant. Life science is the single tenant. It's not the labs that has been built up and now has new tenants in it. This is another life science single-tenant facility.

Got you. Okay. Next quarter, I'm just looking at page 10, and I love all of your details here. This certainly was unchanged from last quarter, but the $20 million that's criticized that matures in the third quarter, is there anything that we should be thinking about there? Or how are you looking at that?

The third quarter criticized levels, is primarily two loans. Give me one sec here. Let me just make sure I'm getting you the right data here.

Okay.

Yes. Give me one second here, Laurie Hunsicker. The classified. We have basically, the classified is the loan we just talked about. Within the other criticized, the $26.8 million, it's two loans. One's $17 million, the other is $10. We're working through on both of those for a resolution. We think one of them would likely either refinance out as that becomes reaching maturity. The other, I believe, is likely on track to see sort of a short-term extension. Both of those right now, based on the data we have, we don't see any imminent loss exposure on them. We are looking for either short-term extension or hopefully refinance out on both.

Okay. That's the $27 and the $17.4 we were talking about. Sorry, the one that comes up in the third quarter, the $19.9 million criticized that's maturing in the third quarter?

The third quarter is also two loans. Yeah. Sorry. The third quarter is also two loans. One of them is $14 million, the other is about $5 million. I'd say the $14 million loan, we are also working with the broker to sell that property. Based on data now, we do expect full payment. We hope to get out of that here in the second half. The $5 million loan, that one is a little bit of a different situation. It is anchored by one primary tenant who is indicating they may be leaving the space. If that ends up happening, we would expect that that will have maybe a modest impact on the valuation. Right now, there is no loss reserve on that.

Super helpful. Okay.

Hopefully we get $25 and a half on that loan.

Jeff, you have now held, I think for at least a quarter, maybe two quarters that we are seventh inning on office, which still seems a long seventh inning. Are we close to the eighth? How are you thinking about it?

Yes, it still feels like we're in this long seventh inning. I am encouraged though by the amount of work that we're doing, that I think is going to, over the next couple of quarters, hopefully bring down the office loans that are criticized and classified buckets. We have an awful lot of energy around moving as many of those out as we can. Hopefully we can get into the eighth and ninth inning before too long. We still have a lot of work to do, but we're doing the work. I think we'll have some positive outcomes over the second half of the year.

Okay. Great. Just income statement, just two questions here. Non-interest income, it looks like outside BOLI death benefits and sort of outside loan level derivative income. If we're looking at your projected numbers of increase, do you exclude that BOLI death benefit? Or maybe a better way to ask this, if we're thinking sort of about a core number of $41.5 million, $41.6 million would be a closer number as a quarterly run rate?

Yeah. I think you'll lose a little bit of tax prep fees in the third quarter, obviously, off of the second quarter numbers. I think a lot of the other major components, whether it's deposit-related fees, interchange, ATM, those all should be pretty consistent and continuing to increase modestly. I think I would expect to see us pretty consistent with Q2 results all in.

Okay. When you talk about

The death benefit on the BOLI side is pretty modest, right? I think even with or without that, you should stay in that $42 million-plus range.

Okay. Last question from me. On your expenses, the core systems upgrade was $1 million, and you mentioned another $1 million that was non-recurring in the quarter. I guess just what was that? If we look at the core systems upgrade relative, it looks like you sort of upticked your spend a little bit there. We're going to have maybe a $4 million charge in the third quarter?

No.

Pricing into that, is that right?

No.

Are you still going to take some of that in the fourth quarter because it's an October event? How should we think about that?

Yeah. Just to be clear, we had $1.1 million of core charges in the first quarter. That increased to $2.1 million in the second quarter. We're at $3.2 million all in already year-to-date. The $1 million reference is the increase quarter-over-quarter, but both quarter had meaningful charges in there. In terms of the remaining, call it $2 million-$3 million, I would expect most of it to be in the third quarter, Laurie, because the conversion date is in October. You may see some added consulting expense in the fourth quarter to help with, whether it's call center or other sort of customer-facing work that we would expect post-conversion, but I would imagine the bulk of that will be in the third quarter.

Okay, great. Thanks for taking my question.

Thank you.

Your next question comes from the line of Matthew Breese from Stephens Inc. Hold on, please.

Good morning, everybody. Jeff, I'd be remiss if I too didn't congratulate you on the health news.

Thank you.

Feels a little out of tune hopscotch to NIM and loan growth dynamics, very glad to hear the news.

Yeah. Thank you.

Everything else, I suppose, is secondary. Mark, you touched on a little bit deposit competition. I guess I'm curious, you had mentioned the spot rate, I think, is 138. Should we expect that kind of cadence, maybe one or two bips of deposit cost increases through the end of the year? As we think about, because you're also growing DDAs, as we think about kind of the all-in new money rate for deposits.

What is that relative to where you're at?

Yeah. I think that your first question is spot on there, Matt. I would expect We're already talking about two basis points in terms of that spot rate number I gave. I'd like to see us counter that a bit and kind of keep that in check through the third quarter, and probably even a little bit more pressure heading into the fourth quarter. When I look out into the margin guidance and reaffirming the 390-395 range, I'm comfortable suggesting that with an expectation you could see cost of deposits tick up towards 1.40%. I think there's still enough asset repricing benefit with some growth, hopefully, on the commercial side. I think you land in the low end of that range, even with some of that cost of deposit pressure.

The reason we're seeing that pressure, you hit on it in the second part of your question. We're seeing basically almost a 50/50 kind of DDA plus promo money driving those new deposit results. That's going to create sort of an all-in weighted average cost on new deposits, call it around 2%. As the deposit environment, well, our deposit situation has stabilized significantly through June, I think it's prudent for us to revisit the promo strategy and make sure we're finding the right sort of marketing and I guess new sales efforts to keep that new cost of deposit in check. I don't want to promise anything quite yet out of the gate, but we recognize the more that comes in on that promo money, the more pressure that puts on cost of deposit.

With the modest growth and the nice lift we got through June, I think it gives us the opportunity to get a bit more tactical on that front in the second half.

Great. Okay. Just a follow-up, Mark, on the NIM. When you model it out, how much longer might we see the fixed asset repricing benefits flow through to the NIM? When do you think it starts to peter out? I'm particularly focused on 2028, as loan yields kind of spiked in 2023 and just my gut is that we start to see some of those benefits from 2023 roll off in 2028. I'm curious if that kind of aligns with what you're seeing.

It does. I think there's certainly additional repricing benefit both on the securities and the loans through 2027, I would suggest early 2028 is when you start to see most of that really low coupon not impacting as much.

Okay. Jeff, one for you. Kind of marrying two ideas together and considering your background and the continued disruption in Connecticut with Webster being sold, is there an opportunity for you all to kind of expand the geography, start to hire or de novo in Connecticut, considering how many folks you're close to there? I would also throw in hiring and/or M&A, but I think I know what the M&A answer is going to be.

The M&A answer would be the same as it's been in past quarters. I think de novo branching would probably be a ways off. Having said that, we're having active dialogue with some of the people that are in Connecticut that I know. Honestly, we've done this in the past. Our head of commercial banking, James Rizzo, I don't know, Mark, how many years ago this was, but we established effectively an LPO in Providence and experienced a lot of success there. We're having conversations as we speak about thinking about doing the same thing in Connecticut, which again, which we have confidence we can do because we've done it before. It's all about the people. We wouldn't do it if we couldn't get the right people on the ground that we felt confident could build a business.

Would that be like a Hartford play or more northern Connecticut?

Could be Hartford. It could be New Haven, Fairfield County. At this point, we've been open-minded about it as we've been having discussions with various people. Our preference, it would probably be Hartford just because it's closer, but not exclusively.

Last one from me. Wealth management, a good quarter. Nice to see AUM tick up as well. As I measure kind of fees to AUM, that ratio has started to creep up in recent quarters. It's now at 63 basis points versus

59 just a few quarters ago. Anything to that? What's going on behind the scenes to drive a higher level of profitability there, and do you expect it to continue?

Yeah, I'm not sure, Matt, if you're using from an income perspective, if you have just what I would call managed money or if some of our other ancillary businesses might be in that revenue number you're using. We've seen our fee ratio stay relatively flat, to be honest, over the last couple of quarters. I wouldn't suggest we're seeing any dynamic that is driving an increase in fee ratios. I think it just might be other services that we've put into the wealth business that are also giving us some nice lift on the revenue side.

Okay.

I can help maybe break that down.

I'm looking at the $14.961. Yeah, I'll follow up with you there. Okay, I'll leave it there. Thank you very much for taking my questions.

Yeah, the $14.9, just so you know, that's an all-in number. If you look at the slide we include in the earnings deck, we try and break out what is really tied to the AUA versus what's either tax prep, we have estate planning, we have a business advisory fee services. All that is in that $14.9 number.

Helpful. Thank you.

Okay.

A reminder, if you would like to ask a question, to please press star one to raise your hand. Your next question comes from the line of Jared Shaw from Barclays. Please go ahead.

Thanks. Good morning, and congratulations, Jeff, as well.

Hey, Jared.

That's great news.

Thank you.

Yeah. I think a lot has been addressed. I guess just on the loans side, what's giving you confidence that the pace of prepayments on the CRE side is going to slow down in the second half? Is that just more of a willingness on your part to engage, or you just are looking at sort of the pipeline of what's coming down?

I think it's both of those things, and then I would add one, a third, which was I mentioned in my comments a little bit earlier. We had two rather large loans in, and one of them wasn't one loan, it was two or three different loans, but to one sponsor. The two, I'll call it the two relationships, totaled $120 million of pay downs. Incredibly lumpy, a bit unusual in terms of our normal pay down activity. It would be a combination of those three things, Jared. We don't expect that kind of lumpiness of size in the second half. We think we're going to get good originations as we move through the second half of the year. We're going to continue to defend our existing clients when they're refinancing, and be as aggressive as we think is appropriate without doing something stupid.

I guess a combination of those factors is what gives us confidence.

Yeah, we have very few $50 million exposures in the book at all, so to have two of them pay off is pretty unusual.

Yeah. Okay. I guess if we just sort of look at the expectations for the second half of the year and some of those trends, when we look at 2027, is that the type of thing where we could be mid to high single digit loan growth overall?

I would think mid single digits overall. If we can get some traction in CRE, I feel very confident we'll continue to generate the kind of loan growth that we've had on the C&I side. We're just talking commercial here, not consumer. I think we could get back to the mid single digits.

Okay. What's the new loan yields going on right now on the commercial, on the C&I, and the CRE side for you?

Yeah. On the commercial side, C&I's mid to high sixes. CRE, probably low sixes. All in it was trending around 6.5% for the second quarter. It's up nicely quarter-over-quarter. On the consumer side, home equity is typically prime minus 50, give or take on average. On the mortgage side, we're still only putting into portfolio both five or seven one-arm product. We have not opened up 30-year fixed to the balance sheet. That's pricing we're staying fairly competitive on in kind of the high fives, call it 6% range.

Okay. All right. Thanks. On the DDA side, good trends on growth there. Is that just getting a bigger wallet share from existing customers? Maybe you could break down what's sort of new to bank versus existing customers doing a little bit more.

Yeah. It is both, Jared. We see a lot of seasonality in the second quarter, and this is probably the biggest drop in rebound that I've seen here since I've been at the bank. To give that perspective, we got probably as low as like $19.6 billion during the quarter. Significant rebound. A lot of that is existing relationships, and just kind of we have a lot of activity on the Cape and the islands that's more seasonal. Tax time period always creates some drops and then rebounds. A lot of it was rebounding on existing relationships. On the new money, we're still very much on the consumer side. Community bank driven with a free checking product that doesn't bring in a lot of big single deposit relationships, but it brings in a lot of units, and it adds up in dollars over time.

That continues to be a big driver of new money. On the business side, it's word of mouth, treasury management, some of the C&I activity that we're doing, that's going to lead to better full wallet deposit relationships on the commercial side. Muni is always a bit volatile. We had a big uptick on municipal in June as well, but that's an area that we have a good team on and is sourcing some new wins as well.

Okay. All right. Good. Thanks. Just finally, I know it's a relatively small part of the overall number, but good growth in the interchange and ATM fees. Is that anything to call out there? Is that the impact of Enterprise Bancorp, or is that just sort of seasonality?

I think a little bit of seasonality. I wouldn't say there's anything unique to call out there. Yeah, it's a focus on operating accounts that continues to put that debit card in their hand and drive interchange. It's nice to see that lift play out.

Great. Thanks a lot.

Thank you.

At this time, there are no further questions. I will now pass the call back to Jeff Tengel for closing remarks.

Thank you. We appreciate everybody's interest in Independent Bank Corp. Have a great rest of the day.

This concludes today's call. Thank you all for attending.